<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 1999
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: 0-26811
----------------
CHEMDEX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 77-0465469
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
----------------
3950 Fabian Way
Palo Alto, California 94303
(650) 813-0300
(Address, including zip code, and telephone
number, including area code, of Registrant's principal
executive offices)
----------------
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 [_]
On November 1, 1999, 32,787,840 shares of the registrant's common stock,
$.0002 par value per share, were issued and outstanding.
<PAGE>
CHEMDEX CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1999
INDEX
<TABLE>
<C> <S> <C>
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets as of September 30, 1999 and December
31, 1998....................................................... 3
Condensed Statements of Operations for the Three Months Ended
September 30, 1999 and September 30, 1998; and the Nine Months
Ended September 30, 1999 and September 30, 1998 ............... 4
Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 ................................... 5
Notes to Condensed Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of Operations and
Financial Condition............................................ 12
Item 3. Qualitative and Quantitative Disclosure about Market Risk...... 32
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds...................... 32
Item 5. Other Information.............................................. 32
Item 6. Exhibits and Reports on Form 8-K............................... 33
SIGNATURE............................................................... 35
</TABLE>
2
<PAGE>
CHEMDEX CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited) (1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $125,562,779 $ 5,990,188
Accounts receivable, net of allowances of $664,000
at September 30, 1999, and $2,000 at December 31,
1998 ............................................ 3,629,144 32,259
Other current assets.............................. 3,713,512 286,991
------------ -----------
Total current assets............................ 132,905,435 6,309,438
Property and equipment, net......................... 7,212,190 1,558,245
Intangible and other assets......................... 14,677,676 300,472
------------ -----------
Total assets.................................... $154,795,301 $ 8,168,155
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 4,426,404 $ 543,141
Accrued compensation.............................. 2,475,442 511,578
Other accrued liabilities......................... 7,711,635 759,654
Current obligations under capital lease........... -- 5,425
Current portion of notes payable.................. 379,059 --
------------ -----------
Total current liabilities....................... 14,992,540 1,819,798
Notes payable, less current portion................. 590,234 --
Stockholders' equity:
Convertible preferred stock....................... -- 2,289
Common stock...................................... 6,565 784
Additional paid-in capital........................ 189,384,576 18,378,907
Deferred compensation............................. (6,926,489) (2,992,099)
Notes receivable from stockholders................ (1,047,047) (149,717)
Accumulated deficit............................... (42,205,078) (8,891,807)
------------ -----------
Total stockholders' equity...................... 139,212,527 6,348,357
------------ -----------
Total liabilities and stockholders' equity...... $154,795,301 $ 8,168,155
============ ===========
</TABLE>
- --------
(1) Derived from audited financial statements
See accompanying notes to the Condensed Financial Statements
3
<PAGE>
CHEMDEX CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net revenues............. $ 8,490,175 $ -- $ 11,561,238 $ 3,500
Cost of revenues......... 8,085,761 -- 10,994,266 --
------------ ----------- ------------ -----------
Gross profit......... 404,414 -- 566,972 3,500
Operating expenses:
Research and
development........... 5,642,968 1,025,426 11,397,939 1,804,793
Sales and marketing.... 6,903,236 710,127 15,315,708 1,226,075
General and
administrative........ 2,571,806 489,107 7,198,047 1,101,093
Amortization of
deferred
compensation.......... 546,507 103,841 1,445,305 169,859
------------ ----------- ------------ -----------
Total operating
expenses............ 15,664,517 2,328,501 35,356,999 4,301,820
------------ ----------- ------------ -----------
Operating loss........... (15,260,103) (2,328,501) (34,790,027) (4,298,320)
Interest expense......... (60,361) -- (107,995) (1,247)
Interest income and
other, net.............. 1,320,902 135,834 1,584,751 209,110
------------ ----------- ------------ -----------
Net loss................. $(13,999,562) $(2,192,667) $(33,313,271) $(4,090,457)
============ =========== ============ ===========
Basic and diluted net
loss per share.......... $ (.59) $ (1.21) $ (3.33) $ (2.37)
============ =========== ============ ===========
Weighted average shares
of common stock used in
computing basic and
diluted net loss per
share................... 23,639,711 1,816,701 10,007,174 1,723,549
</TABLE>
See accompanying notes to the Condensed Financial Statements
4
<PAGE>
CHEMDEX CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Operating Activities
Net loss................................... $ (33,313,271) $ (4,090,457)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............ 1,149,337 150,861
Amortization of deferred compensation.... 1,445,305 169,859
Amortization of intangible assets........ 1,812,965 --
Interest expense related to warrants..... 79,785 --
Issuance of common stock for services.... 262,641 --
Loss on sale of equipment................ -- 10,559
Issuance of warrants for rent expense.... 375,000 --
Changes in operating assets and
liabilities:
Accounts receivable...................... (3,596,885) (27,150)
Other current assets..................... (3,528,315) (222,812)
Other assets............................. 84,349 (158,108)
Accounts payable......................... 3,883,263 (112,594)
Accrued compensation..................... 1,963,864 177,385
Other accrued liabilities................ 6,949,989 36,727
---------------- ---------------
Net cash used in operating activities...... (22,431,973) (4,065,730)
---------------- ---------------
Investing Activities
Purchases of property and equipment........ (5,671,421) (1,055,442)
Purchases of short-term investments........ -- (6,593,495)
Proceeds from sale of equipment............ -- 36,991
---------------- ---------------
Net cash used in investing activities...... (5,671,421) (7,611,946)
---------------- ---------------
Financing Activities
Principal payments on capital lease
obligations............................... (5,425) (5,704)
Principal payments on notes payable........ (162,568) --
Net proceeds from issuance of preferred
stock..................................... 30,197,844 12,975,424
Net proceeds from issuance of common
stock..................................... 117,639,451 10,258
Repurchase of common stock................. (3,170) --
Repurchase of fractional shares............ (870) --
Payments of stockholders' notes
receivable................................ 10,723 (12)
---------------- ---------------
Net cash provided by financing activities.. 147,675,985 12,979,966
---------------- ---------------
Net increase in cash and cash equivalents.. 119,572,591 1,302,290
Cash and cash equivalents at beginning of
period.................................... 5,990,188 1,346,478
---------------- ---------------
Cash and cash equivalents at end of
period.................................... $ 125,562,779 $ 2,648,768
================ ===============
Supplemental disclosure of noncash
activities:
Issuance of shares in exchange for
stockholders' notes receivable............ $ 956,964 $ 91,568
Repurchase of common stock issued in
exchange for stockholders' notes
receivable................................ $ (30,765) $ --
Equipment purchased under notes payable.... $ 1,131,861 $ --
Issuance of common stock for intangible
asset..................................... $ 13,910,459 $ --
Issuance of shares for services provided... $ 1,781,250 $ --
Issuance of warrants for services.......... $ 526,427 $ --
Conversion of preferred to common shares... $ 3,349 $ --
Payments on notes receivable............... $ 18,146 $ --
</TABLE>
See accompanying notes to the Condensed Financial Statements
5
<PAGE>
CHEMDEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
Unaudited
Note 1. Description of Business
Chemdex Corporation is a provider of e-commerce solutions to the life
sciences research products market. Chemdex enables life sciences enterprises,
researchers, and suppliers to efficiently buy and sell research products
through the Chemdex Marketplace, a secure, Internet-based purchasing solution.
Chemdex was incorporated in Delaware on September 4, 1997. During the period
from inception through November 1998, Chemdex was a development stage company
and did not have significant sales. During this period, operating activities
related primarily to the design and development of the Chemdex on-line
Marketplace, building corporate infrastructure and the establishment of
relationships with suppliers and customers. In November 1998, the Company
released its on-line marketplace to certain customers and during the first
quarter of 1999, the Company entered into an agreement with VWR under which
Chemdex recognizes revenue related to certain sales from their joint web site.
These sales, combined with increased sales from the Chemdex online marketplace
have led to a significant increase in sales for the three and nine months
ended September 30, 1999. Chemdex has incurred operating losses to date and
had an accumulated deficit of approximately $42.2 million at September 30,
1999. Prior to the Company's initial public offering in July 1999, Chemdex's
activities had been primarily financed through sales of equity securities.
On July 27, 1999, the Company completed an initial public offering in which
it sold 7,500,000 shares of Common Stock at $15.00 per share. On August 17,
1999, the underwriters' exercised their over-allotment option for an
additional 1,125,000 shares. The Company received $117.6 million in net
proceeds, net of underwriting discounts, commissions and other offering costs.
Upon the closing of the offering, all of the Company's preferred stock, par
value $.0002 per share, automatically converted into an aggregate of
16,745,593 shares of Common Stock.
Note 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with general
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Revenue Recognition
Net revenues consist primarily of product sales to customers and charges to
customers for outbound freight. Under most supplier agreements, Chemdex acts
as a principal when purchasing products from suppliers and reselling them to
customers. Products are shipped directly to customers by suppliers based on
customer delivery date specifications. Under principal-based agreements,
Chemdex is responsible for selling products, collecting payment from
customers, ensuring that the shipment reaches the customers and processing
returns. In addition, Chemdex takes title to products upon shipment and bears
the risk of loss for collection, delivery, and product returns from customers.
Chemdex provides an allowance for sales returns, which has been insignificant
to date, at the time of sale. Chemdex recognizes revenues from product sales
when products are shipped to customers.
To date, an insignificant amount of revenue is from agreements with
suppliers for which Chemdex is acting as an agent. Under agency-based supplier
agreements, Chemdex recognizes a percentage share of revenues generated by
suppliers when products are shipped to customers.
Sales to four significant customers accounted for approximately 32%, 16%,
15%, and 11% respectively, of our revenues in the quarter ended September 30,
1999, and we currently expect to continue to derive a significant portion of
our revenues from these customers for the foreseeable future.
6
<PAGE>
CHEMDEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
Note 3. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared
by the Company in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (all of which are normal and recurring in nature), considered
necessary for a fair presentation, have been included in the accompanying
unaudited financial statements. Operating results for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 1999. For further information,
refer to the financial statements and notes thereto, included in the Company's
Registration Statement on Form S-1 (File Number 333-78505), as amended, and
the Company's final prospectus filed July 28, 1999.
Note 4. Net Loss Per Share
Net loss per share is presented in accordance with the requirements of
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (FAS
128) which requires dual presentation of basic earnings per share ("EPS") and
diluted EPS.
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares and potentially
dilutive shares outstanding during the period. If Chemdex had reported net
income, diluted earnings per share would have included the shares used in the
computation of basic net loss per share as well as an additional 1.5 million
common equivalent shares related to the outstanding options and warrants
(determined using the treasury stock method) for the three months ended
September 30, 1999. These options and warrants could potentially dilute basic
earnings per share in the future but have not been included in the computation
of diluted net loss per share as the impact would have been antidilutive for
the periods presented.
Pro forma net loss per share is computed using the weighted average number
of shares of common stock outstanding, including common equivalent shares from
the convertible preferred stock (using the if-converted method), which
automatically converted into common stock upon the completion of the initial
public offering as if converted at the original date of issuance, for both
basic and diluted net loss per share, even though inclusion is antidilutive.
The following table presents the reconciliation between basic and diluted
weighted average shares outstanding and those used for the pro forma net loss
per share calculation:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- --------------------
1999 1998 1999 1998
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Weighted-average shares outstand-
ing, basic and diluted.......... 23,639,711 1,816,701 10,007,174 1,723,549
Weighted-average conversion of
convertible preferred stock on
an if-converted basis........... 4,732,466 11,445,649 11,057,677 6,989,202
---------- ---------- ---------- ---------
Weighted-average shares used in
pro forma calculation........... 28,372,177 13,262,350 21,064,851 8,712,751
========== ========== ========== =========
</TABLE>
7
<PAGE>
CHEMDEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of net loss per share:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Basic and Diluted net
loss per share
Numerator: Net loss...... $(13,999,562) $(2,192,667) $(33,313,271) $(4,090,457)
Denominator:
Weighted-average shares
outstanding basic and
diluted............... 23,639,711 1,816,701 10,007,174 1,723,549
------------ ----------- ------------ -----------
Basic and diluted net
loss per share.......... $ (.59) $ (1.21) $ (3.33) $ (2.37)
============ =========== ============ ===========
Pro forma net loss per
share
Numerator: Net loss...... $(13,999,562) $(2,192,667) $(33,313,271) $(4,090,457)
Denominator:
Weighted-average shares
outstanding basic and
diluted............... 28,372,177 13,262,350 21,064,851 8,712,751
------------ ----------- ------------ -----------
Basic and diluted pro
forma net loss per
share................... $ (.49) $ (.17) $ (1.58) $ (.47)
============ =========== ============ ===========
</TABLE>
Note 5. Agreement with VWR
In March 1999, Chemdex entered into a strategic relationship agreement with
VWR, which was consummated in April 1999, pursuant to which Chemdex and VWR
agreed to market jointly VWR laboratory products using the Chemdex
Marketplace. The term of the agreement is four years.
The agreement gives Chemdex the right to offer approximately 350,000 VWR-
distributed products to Chemdex customers and both parties agreed to jointly
develop an online purchasing solution for VWR's existing customers. In
connection with the strategic relationship agreement, VWR transferred to
Chemdex information concerning VWR customers who purchased products from third
party suppliers outside VWR's primary product offering and Chemdex issued
2,538,405 shares of common stock valued at $13.9 million to VWR. The Company
intends to use this information to expand sales of its purchasing solution to
these customers and facilitate adoption of the Chemdex Marketplace by these
customers and suppliers. The fair value of the common stock of $13.9 million
was allocated to the customer list and is being amortized into sales and
marketing expense over four years, the estimated useful life of the intangible
asset.
Note 6. Agreement with Biotechnology Industry Organization
In May 1999, the Biotechnology Industry Organization (BIO) selected Chemdex
as its preferred supplier of e-commerce purchasing solutions. As a result, the
Company entered into a five-year, exclusive joint marketing agreement with
BIO. As part of the joint marketing agreement, Chemdex will discount the fees
it charges to BIO members for its solution and will contribute cash payments
to a joint marketing fund, to be used in conjunction with both parties'
obligations under the joint marketing agreement. In addition, the Company sold
187,500 shares of its common stock to BIO for a nominal amount in
consideration for BIO's participation in these joint marketing activities. BIO
has the right to use a portion of the cash payments and any proceeds it
receives from the sale of the common stock for the benefit of its members and
the biotechnology industry. The charge for BIO marketing activities will be
expensed to sales and marketing as incurred. The Company recorded the
difference between the nominal amount per share price paid by BIO for the
purchase of our common stock and the fair value as of May 11, 1999, which is
approximately $1.8 million as an intangible asset, which is being amortized
ratably over the five-year term of the joint agreement.
8
<PAGE>
CHEMDEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
Note 7. Intangible and Other Assets
Intangible and other assets were comprised of the following:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Deposits and other.................... $ 613,099 $300,472
VWR related intangible, net of amorti-
zation............................... 12,461,453 --
BIO related intangible, net of amorti-
zation............................... 1,603,124 --
----------- --------
Total intangible and other assets..... $14,677,676 $300,472
=========== ========
</TABLE>
Note 8. Investments
The Company considers all highly liquid investment securities with original
maturities of three months or less to be cash equivalents. Management
determines the appropriate classification of debt and equity securities at the
time of purchase and reevaluates such designation as of each balance sheet
date. To date, all marketable securities have been classified as available-
for-sale and are carried at fair value with material unrealized gains and
losses, if any, included in stockholders' equity. Realized gains and losses on
available-for-sale securities are included in interest income.
Note 9. Deferred Stock-Based Compensation
We have recorded deferred compensation for options granted in fiscal year
1998 and the nine months ended September 30, 1999 for the difference at the
option grant date between the exercise price and the fair value of the common
stock underlying the options in accordance with Financial Accounting Standards
Board (FASB) Interpretation No. 28. As of September 30, 1999 we had recorded
aggregate deferred stock compensation of $8.7 million. The deferred stock
compensation is being amortized over the vesting periods of the stock options.
We recognized a total of $.4 million and $1.4 million in stock compensation
expense during 1998 and the nine months ended September 30, 1999,
respectively. The total charges to be recognized in future periods from
amortization of deferred stock compensation as of September 30, 1999 are
anticipated to be approximately $.6 million, $2.2 million, $2.2 million, $1.8
million and $.1 million for the remaining three months of 1999 and for 2000,
2001, 2002 and 2003, respectively.
Note 10. Segment Reporting
During the year ended December 31, 1998 we adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" which establishes standards for reporting information
regarding operating segments in annual financial statements and requires
selected information for those segments to be presented in interim financial
statements. For all periods presented, we have viewed our operations as
principally one segment. All of the financial information presented represents
information for our principal operating segment.
Note 11. Commitments and Contingencies
On August 14, 1999, we entered into two leases for our future headquarters
in Mountain View, California. The first lease is for 5.4 years, with aggregate
payments under the lease totaling $15.5 million. The second lease commences
February 1, 2000 and is for 5.1 years. The aggregate payments under the second
lease total $4.9 million. We plan to move to our new headquarters during the
fourth quarter. We have signed a sub-lease agreement for our existing offices
for the reminder of our original lease term. During the third quarter, we
entered into a 2.4 year financing arrangement for a portion of our insurance
expenses, payments under this arrangement total $1.0 million to be paid in 29
equal monthly installments. Future minimum lease payments under non-
9
<PAGE>
CHEMDEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
cancelable operating leases entered during the quarter ended September 30,
1999 are $.5 million in 1999, $3.9 million in 2000, $4.2 million in 2001, $3.9
million in 2002, $4.0 million in 2003, $4.1 million in 2004, and $.7 million
thereafter.
Note 12. Related Party Transactions
VWR's President and Chief Executive Officer is a director of the Company. In
addition, VWR owns 2,538,405 shares of our common stock. VWR and Chemdex
jointly market VWR core products and Chemdex core products to VWR's existing
and new customers and jointly solicit several key existing VWR suppliers to
distribute, market and sell their products through the Chemdex Marketplace.
VWR currently performs some of the billing and cash collection functions for
the sale of jointly marketed products until these functions can be
transitioned to Chemdex. With respect to sales of VWR core products, we act as
an intermediary and forward orders received through the Chemdex Marketplace to
VWR for fulfillment and customer service. We receive no fee for orders for VWR
core products from VWR's 40 largest customers and we receive a minimal fee for
all other orders for VWR core products forwarded to VWR. We are responsible
for fulfillment and customer service for all Chemdex core product and orders
for third party products received from VWR customers through the Chemdex
Marketplace. Under the terms of the agreement, VWR provides support for the
purchase of third party products in return for a fee which approximates VWR's
costs incurred.
On September 22, 1999 the Company entered into a definitive agreement to
acquire Promedix, a provider of e-commerce solutions for healthcare purchasing
professionals. CMGI and/or its affiliates beneficially own 2,728,357 shares of
Chemdex common stock, representing approximately 8.3% of the outstanding
Chemdex common stock, and 3,996,800 shares of Promedix preferred stock,
representing approximately 42.3% of the outstanding Promedix capital stock.
Following consummation of the merger, CMGI and/or its affiliates will
beneficially own approximately 18.9% of the outstanding Chemdex common stock.
Jonathan D. Callaghan is a general partner of CMGI@ventures, a CMGI affiliate,
and is a member of both the Chemdex board of directors and the Promedix board
of directors.
Note 13. Recent Accounting Pronouncements
In June 1998, the FASB issued FAS 133, Accounting for Derivative Instruments
and Hedging Activities, which we will be required to adopt for the year ending
December 31, 2001. FAS 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. Because we currently hold no derivative
financial instruments and do not currently engage in hedging activities,
adoption of FAS 133 is not expected to have a material impact on our financial
condition or results of operations.
In March 1998, the American Institute of Certified Public Accounts (AICPA)
issued Statement of Position (SOP) No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP No. 98-1
requires entities to capitalize some of the costs related to internal-use
software once the applicable criteria have been met. We expect that the
adoption of SOP No. 98-1 will not have a material impact on our financial
position or results of operations. The Company will adopt this standard in
fiscal 2000.
Note 14. Proposed acquisition of Promedix, Inc.
On September 22, 1999 the Company entered into a definitive agreement to
acquire Promedix, Inc., a provider of e-commerce solutions for healthcare
purchasing professionals. Promedix is a privately held Company based in Salt
Lake City, Utah. Promedix links buyers and suppliers of specialty medical
products, providing healthcare professionals with a one-stop shop for product
research, purchase and order fulfillment through
10
<PAGE>
CHEMDEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
relationships with distributors and manufacturers. Under the terms of the
merger agreement, the Company will issue approximately 12.1 million shares of
its common stock for all of the outstanding preferred and common stock of
Promedix based on an exchange ratio of the Company's common stock for each
share of Promedix preferred and common stock determined on the closing date of
the transaction. The transaction will be accounted for as a purchase. The
Company's preliminary unaudited estimate of the total purchase consideration
is approximately $315.8 million, based on the fair value at the time of the
announcement of the acquisition, of common stock to be issued. Under a
provision in the agreement, Chemdex or Promedix could be required to pay the
other party a $10 million cancellation fee if the merger is terminated for
specified reasons. Chemdex has agreed to lend Promedix $10 million, with an
interest rate of 9%. At September 30, 1999, no borrowings were outstanding.
The stock issuance by Chemdex has been approved by the Chemdex board of
directors, and the merger has been approved by the board of directors of
Promedix, but is subject to several conditions, including approval by both
companies' stockholders.
11
<PAGE>
Item 2: Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following "Management's Discussion and Analysis of Results of Operations
and Financial Condition" contains forward-looking statements. In some cases,
readers can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "expects," "plans," "anticipates", "believes",
"estimates," "predicts," "potential," or "continue." These statements involve
known and unknown risks, uncertainties and other factors that may cause
Chemdex's actual results, performance, or achievements to be materially
different from those stated herein. Although management of Chemdex believes
that the expectations reflected in the forward-looking statements are
reasonable; the Company cannot guarantee future results, performance, or
achievements. For further information, refer to Management's Discussion and
Analysis and the Risk Factors section of Chemdex's Registration Statement on
Form S-1 (File Number 333-78505), as amended.
Overview
Chemdex is a leading provider of e-commerce solutions to the life sciences
research products market. The Chemdex Marketplace is a secure, Internet-based
purchasing solution that enables enterprises, researchers and suppliers to
efficiently buy and sell life sciences research products.
We were formed in September 1997 and began offering products for sale on the
Chemdex Marketplace in November 1998. During the period from September 1997
through November 1998, we were a development stage enterprise and did not have
significant sales. Our operating activities during this period were related
primarily to the design and development of the Chemdex Marketplace, building
our corporate infrastructure, establishing relationships with suppliers and
customers and raising capital. To date, revenues have been derived from sales
of life sciences research products through the Chemdex Marketplace and through
our strategic relationship with VWR. We have grown our organization by hiring
personnel in key areas, particularly sales, research and development and
marketing.
We have incurred significant losses since inception, including $14.0 million
in the third quarter of 1999, and, as of September 30, 1999, we had an
accumulated deficit of approximately $42.2 million. We believe our success
depends on establishing additional key strategic supplier and customer
relationships, enhancing the features and functionality of the Chemdex
Marketplace and enterprise purchasing solution, and accelerating market
awareness and demand for the Chemdex Marketplace. From inception, we have
increased our level of spending to build our infrastructure and to develop our
Chemdex Marketplace. We intend to continue to invest heavily in sales,
marketing and research and development and administrative activities and to
increase other operating expenses as required to integrate the operations and
technologies of any future acquisitions. We anticipate that these expenses
could significantly precede any revenues generated by this increased spending.
We have limited operating history upon which to base an evaluation of our
business and we cannot assure you that our revenues will increase in future
periods. Our business and prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in early stages
of development, particularly companies in new and rapidly evolving markets
such as internet based business-to-business commerce.
Our gross margin for the three months ended September 30, 1999 was
approximately 4.8%. Distributors in general operate on very low margins. This
is especially true in the life sciences research products market. Our gross
margins on sales of life sciences research products are small relative to the
margins earned by traditional distributors of life sciences research products.
If we are unable to increase our revenues at a greater rate than our related
costs, our margins may be reduced further, or possibly eliminated, which would
have a significant negative impact on our financial results. We are dependent
on the discounts we receive from our suppliers, and thus we are vulnerable to
any potential decrease in these discount rates. Any such decrease would have a
significant negative impact on our financial results. If we do not increase
these discounts, and substantially increase our revenues and scale our
business in a manner that generates significant operating efficiencies,
including further automation of our purchasing solution, we may not be able to
achieve profitability.
Sales to four significant customers accounted for approximately 32%, 16%,
15%, and 11% respectively, of our revenues in the quarter ended September 30,
1999, and we currently expect to continue to derive a significant
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portion of our revenues from these customers for the foreseeable future. Our
agreement with one customer, in connection with its role as our initial test
location for our purchasing solution, provides that Chemdex will not receive
price discounts on products of some suppliers purchased by that customer if
that customer purchases specified minimum quantities of product through the
Chemdex Marketplace. As a result, we receive little or no gross margins on
sales of these supplier products to that customer. The loss of revenues from
any of our significant customers would have a significant negative effect on
our business, revenues, results of operations and financial condition.
A key element of our strategy is to market our solution directly to life
sciences organizations, and to succeed we must satisfy the purchasing
departments, information technology groups and the individual researchers who
are the users of our Internet-based purchasing solution. The time it takes to
sell and implement our solution is long and we devote significant sales,
marketing and management resources to the sales process without any assurance
that the customer will use the Chemdex Marketplace. We are generally required
to provide a significant level of education regarding the use and benefits of
our Internet-based purchasing solution, due in part to the significant
departure from traditional means of commerce and communications entailed by
its adoption and use. Further, potential enterprise customers and a number of
their departments typically engage in extensive internal reviews and analyses
before making purchase decisions. The sale and implementation of our solution
are subject to delays due to our customers' internal budgets and procedures
for approving capital expenditures and deploying new technologies within their
networks. These delays also impair our ability to generate revenue and could
negatively affect our results of operations. Once an enterprise customer
adopts our Internet-based purchasing solution, it takes time for researchers
and other users within the enterprise to become aware of, learn to use and
begin using our Chemdex Marketplace. The long sales cycle and the time it
takes for researchers to begin using our Internet-based purchasing solution,
could negatively affect our revenue growth, and makes it difficult to predict
our results of operations.
During the first quarter of 1999, we entered into an agreement with VWR
Scientific Products Corporation to jointly market VWR laboratory products
using the Chemdex e-commerce platform. The agreement gives us the right to
offer approximately 350,000 VWR-distributed products to our customers through
the Chemdex Marketplace. VWR and Chemdex are jointly developing an Internet
purchasing solution for VWR's existing and future customers that will provide
access to three categories of products:
. products distributed by VWR (VWR core products),
. products distributed by Chemdex (Chemdex core products), and
. products that are not distributed by either VWR or Chemdex but are
purchased from third parties (third party products).
We act as an intermediary under this agreement and forward orders for VWR
core products received through the Chemdex Marketplace to VWR for fulfillment
and customer service. We receive no fee for orders from VWR's 40 largest
customers and we receive a minimal fee for all other orders forwarded to VWR.
We are responsible for fulfillment and customer service for all Chemdex core
product orders and orders for third party products from VWR customers received
through the Chemdex Marketplace on similar terms and conditions as our other
enterprise customers. VWR provides services in connection with purchasing
third party products for a processing fee paid by Chemdex. VWR and Chemdex
jointly market the co-branded version of the Chemdex Marketplace to VWR's
existing and new customers, and jointly solicit several key existing VWR
suppliers to distribute, market and sell their products through the co-branded
purchasing solution.
In connection with the strategic relationship with VWR, Chemdex issued
2,538,405 shares of common stock valued at $13.9 million. The fair value of
the stock is being amortized, on a straight-line basis, into sales and
marketing expense over four years, the estimated useful life of this
intangible asset.
We also entered into a five-year, exclusive joint marketing agreement with
the Biotechnology Industry Organization (BIO), and sold 187,500 shares of our
common stock to BIO for a nominal amount of consideration. We recorded the
difference between the nominal amount per share price paid by BIO and the fair
value as of the
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date of issuance, which is approximately $1.8 million as an intangible asset
which is being amortized over the five-year term of the joint marketing
agreement as a sales and marketing expense. Amortization related to the VWR
and BIO agreements for the three and nine months ended September 30, 1999 was
$1.0 million and $1.6 million respectively.
Results of Operations for the Three and Nine Months Ended September 30, 1999
Net revenues
Net revenues increased from zero in the third quarter of 1998 to $8.5
million in the third quarter of 1999. For the nine months ended September 30,
1999, net revenues increased by $11.6 million from the same period in the
prior year. The significant growth in product sales was due to the launch of
the Chemdex Marketplace in the fourth quarter of 1998, and sales generated as
a result of the VWR agreement. Further, revenues have increased significantly
due to the increase in customer base and increased market acceptance. Net
revenues consist primarily of product sales to customers and charges to
customers for outbound freight. Under most of our supplier agreements we are
acting as a principal in purchasing products from our suppliers and reselling
them to our customers so that we recognize revenues equal to the amount paid
by our customers and cost of revenues equal to the amount we pay to our
suppliers for these products. Under our principal-based agreements, we are
responsible for selling the products, collecting payment from customers,
ensuring that the shipment reaches customers and processing returns. In
addition, we take title to products upon shipment and bear the risk of loss
for collection, delivery and merchandise returns from customers. Some of our
agreements with our suppliers treat us as an agent of the supplier, in which
case we receive a percentage fee on product sales. We recognize revenue from
product sales, net of any discounts, and from fees under our agency-based
supplier agreements, when the products are shipped to customers. Products are
shipped directly to customers by suppliers based on customer delivery date
specifications.
Cost of Revenues and Gross Profit
Cost of revenues increased from zero in the third quarter of 1998 to $8.1
million in the third quarter of 1999. For the nine months ended September 30,
1999, cost of revenues increased by $11.0 million from the same period in the
prior year. Cost of revenues consists primarily of the costs of acquiring
products from our suppliers for sale to our customers. During the three and
nine months ended September 30, 1999, cost of revenues, in absolute dollars,
increased consistent with the significant increases in revenues. Our gross
margin for the quarter ended September 30, 1999 was approximately 4.8%. The
low gross margin on product sales, primarily all of which were recognized
under principal-based agreements, was due to our accepting low margins in
order to increase early sales volume, customer adoption, and awareness of the
Chemdex brand. Further, gross margins will fluctuate period to period based on
the product mix sold during the period. While margins on recently signed
supplier agreements continue to improve, we expect margins to remain low until
we are able to renegotiate higher discounts on earlier supplier agreements,
and increase volumes of revenues through more recently signed suppliers with
higher gross margins.
Operating Expenses
Research and Development. Research and development expenses increased from
$1.0 million in the third quarter of 1998 to $5.6 million in the third quarter
of 1999. For the nine month period ended September 30, 1999, research and
development costs increased by $9.6 million from the same period in the prior
year. Research and development expenses consist of personnel and other
expenses associated with developing, updating, and enhancing software in
support of the Chemdex Marketplace. Our research and development expenses have
increased each quarter since inception primarily due to increased staffing and
associated costs related to the design and development and maintenance of the
Chemdex Marketplace, and content and design expenses. We believe that our
success is dependent in large part on continued enhancement and development of
the Chemdex Marketplace. Accordingly, we expect research and development
expenses to continue to increase in future periods.
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Sales and Marketing. Sales and marketing costs increased from $.7 million in
the third quarter of 1998 to $6.9 million in the third quarter of 1999. For
the nine month period ended September 30, 1999, sales and marketing expenses
increased $14.1 million over the same period in the prior year. Sales and
marketing expenses consist primarily of advertising and promotion in support
of the development of our marketing strategy, payroll and related expenses for
personnel engaged in supplier relations, enterprise sales activities,
enterprise account management, and amortization expenses related to our VWR
and BIO agreements. Sales and marketing expenses have increased since
inception as we have continued to expand our sales and marketing efforts
primarily with relation to our corporate marketing and branding strategy. We
intend to continue to aggressively expand our supplier and customer
relationships and to expand our brand awareness. We expect sales and marketing
expenses to increase in future periods.
General and Administrative. General and administrative costs increased from
$.5 million in the third quarter of 1998 to $2.6 million in the third quarter
of 1999. For the nine months ended September 30, 1999, general and
administrative costs increased by $6.1 million from the same period in the
prior year. General and administrative expenses consist primarily of salaries,
fees for professional services and lease expenses. General and administrative
expenses have increased primarily as a result of the addition of finance and
administrative personnel, costs of leasing additional office space to support
our growth, and expenses related to increased professional service fees. We
expect general and administrative expenses to increase in future periods to
support our expanded operations.
Amortization of Deferred Compensation. We have recorded aggregate deferred
compensation charges of $8.7 million in connection with some of the stock
options we granted through September 30, 1999. For the quarter ended September
30, 1998 and 1999, we expensed $.1 million and $.5 million, respectively,
related to the amortization of deferred compensation. Further, for the nine
months ended September 30, 1998 and 1999, we expensed $.2 million, and $1.4
million respectively, related to the amortization of deferred compensation.
The deferred compensation amounts are being amortized over the vesting period
of the stock options which is generally four years.
Interest Expense
Interest expense increased from zero in the third quarter of 1998 to $60,000
in the third quarter of 1999. For the nine month period ended September 30,
1999, interest expense increased $107,000 from the same period in the prior
year. Interest expense consists primarily of interest related to financed
equipment and other financing arrangements.
Interest and other Income, Net
Interest and other income, net increased from $.1 million in the third
quarter of 1998 to $1.3 million in the third quarter of 1999. Further, for the
nine month period ended September 30, 1999, interest and other income, net
increased $1.4 million from the same period in the prior year. Interest and
other income, net has been derived primarily from earnings on investments in
cash equivalent securities. Interest during the third quarter of 1999
increased significantly due to increased cash and cash equivalents resulting
from our initial public offering on July 27, 1999.
Income Taxes
We incurred operating losses and accordingly did not record a provision for
income taxes for any of the periods presented. At December 31, 1998, we had
net operating loss carryforwards and federal tax credits for federal income
tax purposes of $7.5 million and $100,000, respectively. In addition, we had
state net operating loss and research and development credit carryforwards of
approximately $7.4 million and $100,000, respectively. These net operating
losses and credits will expire in the years 2002 through 2018 if not utilized.
Certain future changes in our share ownership, as defined in the Tax Reform
Act of 1986 and similar state provisions, may restrict the utilization of
carryforwards. A valuation allowance has been recorded for the entire deferred
tax asset as a result of uncertainties regarding the realization of the assets
due to our lack of earnings history.
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Liquidity and Capital Resources for the Nine Months Ended September 30, 1999
In July 1999, we completed the initial public offering of our common stock
and realized net proceeds from the offering of approximately $117.6 million.
As of September 30, 1999, our principal sources of liquidity included
approximately $125.6 million of cash and cash equivalents, $4.1 million in
equipment financing arrangements, and $1.0 million in other financing
arrangements. The equipment arrangements include an agreement for $1.1 million
that provides for 12 equal quarterly payments of the financed amount
commencing May 1, 1999, with interest of approximately 13% per year, and a
$3.0 million equipment lease line agreement with a financial institution for a
term of 48 months, with interest of approximately 13% per year. The other
lease arrangements include an agreement for $1.0 million that provides for 29
equal monthly payments commencing August 27, 1999, with interest of
approximately 7% per year. At September 30, 1999 there was $1.0 million in
borrowings outstanding under the equipment financing arrangements, and $.9
million under other financing arrangements.
Net cash used in operating activities totaled $22.4 million and $4.1 million
in the first nine months of 1999 and 1998, respectively. The net cash used in
operating activities in the first nine months of 1999 was primarily due to our
net losses, which were partially offset by non-cash charges of depreciation
and amortization of deferred compensation, amortization of intangible assets,
and increases in accounts payable, accrued liabilities, and accrued
compensation.
Net cash used in investing activities totaled $5.7 million in the first nine
months of 1999. We have made substantial investments in computer equipment,
computer software, office furniture and leasehold improvements during the
current year. Net cash used in investing activities in the first nine months
of 1998 was $7.6 million and primarily related to purchases of short term
investments, computer equipment, and office furniture.
Net cash provided by financing activities was $147.7 million in the first
nine months of 1999 and $13.0 million for the first nine months of 1998. Net
cash from financing activities during 1998 resulted primarily from the sale of
preferred stock. Net cash provided by financing activities in the first nine
months of 1999, resulted primarily from the sale of preferred and common stock
partially offset by payments made on notes payable.
We currently anticipate that cash and cash equivalents at September 30,
1999, together with our equipment lease line, will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at
least the next 12 months. However, we may need to raise additional funds in
future periods through public or private financing, or other arrangements to
fund our operations and potential acquisitions, if any, over a long-term basis
until we achieve profitability, if ever. Any additional financing, if needed,
might not be available on reasonable terms or at all. Failure to raise capital
when needed could seriously harm our business and results of operations. If
additional funds are raised through the issuance of equity securities, the
percentage of ownership of our stockholders would be reduced. Furthermore,
these equity securities might have rights, preferences or privileges senior to
our common stock.
Year 2000 Compliance
Many currently installed computer systems and software products are unable
to distinguish year 2000 dates. This situation could result in system failures
or miscalculations causing disruptions in the operations of any business. As a
result, many companies' software and computer systems may need to be upgraded
or replaced to comply with year 2000 requirements. Our ability to operate is
dependent upon delivery of accurate, electronic information via the Internet.
To the extent year 2000 issues result in the long-term inoperability of the
Internet or the Chemdex Marketplace, our business, results of operations and
financial condition could be seriously harmed.
We completed an assessment of our information technology systems for year
2000 problems in April 1999. We have not replaced any of our systems based on
the results of our assessment. However, we have made modifications to some
systems based on our assessment of year 2000 problems.
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Representations and Warranties to Our Customers
We generally represent and warrant to our customers that the occurrence of
the date January 1, 2000 and any related leap-year issues will not cause the
Chemdex Marketplace application software to fail to operate properly. Our
warranty generally applies only to our software and excludes failures
resulting from the combination of our software and other software or hardware,
unauthorized changes to the software or network connectivity problems,
including, without limitation, problems connecting to the Internet or problems
relating to Internet service providers. If we breach this warranty, the
recourse that our customers may seek is limited to the prompt correction by us
at our own expense of any failure of our software to the reasonable
satisfaction of the customer.
Our Testing of Our Online Marketplace Application Software
We have internally reviewed the Chemdex Marketplace application software. We
have performed industry-standard procedures to test our internally developed
applications for year 2000 compliance. Based on our testing, we believe that
our internally developed applications and systems are designed to be year 2000
compliant. In addition, we hired a consultant to perform additional testing,
including a year 2000 readiness audit of our internally developed on-line
application software. The consultant's audit report concluded that our on-line
application software is year 2000 compliant.
Assessment of Third-Party Equipment and Software. We utilize third-party
equipment and software that may not be year 2000 compliant. Failure of third-
party equipment or software, or the interface of our applications with this
equipment or software, could result in a material adverse effect on our
business, results of operations and financial condition. We have finished
assessing the year 2000 risks of our third-party desktop systems that are
unrelated to the Chemdex Marketplace. We have contacted the vendors of most of
our third-party software and equipment to assess the year 2000 risks of our
third-party systems that are unrelated to the Chemdex Marketplace. We have
received year 2000 compliance letters from some of these vendors. We are also
in the process of contacting the few remaining vendors with whom we have not
yet spoken in order to assess their year 2000 compliance. Based on these
vendors' representations, we have put a plan in place to upgrade our third-
party systems in order to be year 2000 compliant. The failure of these vendors
to address Year 2000 issues may require us to seek alternative vendors or, if
possible, to develop our own solutions. The time and resources required to
find alternative vendors and to transition our systems could increase our
costs of doing business, require to find alternative vendors and to transition
our systems could increase our costs of doing business, require us to allocate
our own resources away from our core business, and delay development of our
own technology and operations.
Interaction of Our Marketplace with Supplier and Customer Systems. The
success of our efforts may depend on the success of our suppliers, customers
and strategic partners in dealing with their year 2000 issues. Many of these
organizations' systems may not yet be year 2000 compliant and the impact of
failure of these systems on the Chemdex Marketplace is difficult to determine.
The availability of products from our suppliers and the purchasing patterns of
our customers or potential customers may be affected by year 2000 issues.
In addition, until some of the billing and cash collection functions for the
sale of third-party products are transitioned to us, we are dependent upon
VWR's systems, which may not be year 2000 compliant, for receiving payment for
third-party products. If the systems of any of our suppliers or customers, and
particularly, if VWR's billing and cash collection systems, are not year 2000
compliant, our business, revenues, results of operations and financial
condition could be severely harmed.
According to its public filings, VWR is in the process of implementing
enhancements to its computer systems to satisfy its future requirements.
During 1998, VWR purchased an enterprise-wide computer system package that is
replacing many of VWR's systems, including order entry, purchasing, and
financial systems. VWR completed the initial rollout of the new systems during
the fourth quarter of 1998. VWR had an external review conducted by an
independent information technology-consulting firm to identify legacy computer
systems
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that could be affected by the year 2000 issue, when they would be affected,
and how the year 2000 issues may be remedied. The extent of year 2000
remediation performed by VWR was coordinated with the new systems
implementation timetable. VWR is still transitioning to its new system as of
September 30, 1999. VWR's new system, together with other planned system
changes, was intended to address its year 2000 issues.
Our Contingency Planning Effort
We are engaged in an ongoing year 2000 assessment and are gathering
information for the development of contingency plans. We are in the process of
contacting our strategic partners and major customers to gauge their year 2000
compliance and request year 2000 compliance information and letters. The
nature and extent of our contingency plans will depend on the responses
received from our critical suppliers, strategic partners and major customers.
We have identified our worst-case scenario resulting from a year 2000 failure.
We have a contingency plan in place that will be continually updated and
implemented as we get closer to year end.
Costs of Addressing Year 2000 Compliance
To date, our costs to address year 2000 compliance have been approximately
$700,000 and are included in operating expenses funded from working capital.
We anticipate the additional costs to address year 2000 compliance will be
approximately $300,000. We currently have not deferred other information
technology projects due to our year 2000 efforts. Any year 2000 compliance
problem experienced by us, our customers, suppliers or strategic partners
could decrease the demand for or availability of our products.
Factors Affecting our Business Condition
In addition to the other information included in this document, the
following factors should be considered in evaluating our business and future
prospects:
Our limited operating history makes it difficult for you to evaluate our
business and our prospects
We were founded in September 1997 and have a limited operating history. You
should consider the risks and difficulties that we face as an early stage
company in a new and rapidly evolving market. Some of these specific risks and
difficulties include:
. we may be unable to significantly increase and maintain customer
adoption and use of our Internet-based purchasing solution;
. we depend substantially on a purchasing solution that has been present
in the market for a limited time and may not be successful;
. we may be unable to develop and enhance the Chemdex brand;
. we may be unable to maintain existing or establish new relationships
with suppliers of life sciences research products;
. we depend substantially on revenues from product sales and we may be
unable to significantly increase revenues from product sales or generate
revenues from other sources;
. we may be unable to adapt to rapidly changing technologies and
developing markets;
. we may be unable to effectively manage our rapidly expanding operations
and the increasing use of our services;
. we may be unable to attract, retain and motivate qualified personnel,
particularly people who understand specialized life sciences research
products or the life sciences industry in general;
. we may be unable to compete in a highly competitive market dominated by
larger, more established companies with substantial financial resources
and significant customer relationships; and
. we may be unable to comply with applicable laws and regulations to
economically compete in a highly competitive market.
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In 1998, we generated revenues of $29,000 and in the nine months ended
September 30, 1999 we generated revenues of $11.6 million. Due to our limited
operating history, we believe that period-to-period comparisons of our
revenues and results of operation are not meaningful. As a result, you should
not rely on our revenues or results of operations for any prior period as an
indication of future performance or prospects.
We have a history of losses and anticipate continued losses for the
foreseeable future
We have had substantial losses since our inception. We currently expect our
losses to increase in the future and we cannot assure you that we will ever
achieve or sustain profitability. As of September 30, 1999, we had an
accumulated deficit of approximately $42.2 million. The extent of these losses
will be contingent, in part, on the amount of growth in our revenue. The
extent of these losses will also be contingent, in part, on the amount of
growth in our operating expenses, which we plan to increase. If our revenues
fail to grow at anticipated rates or our operating expenses increase without a
commensurate increase in our revenues, or we fail to adjust operating expense
levels accordingly, the imbalance between revenues and operating expenses will
negatively affect our business, revenues, results of operations and financial
condition.
To date we have derived our revenues primarily from product sales. In order
to increase our revenues, we must, among other things:
. attract new enterprise customers and retain existing enterprise
customers;
. encourage researchers employed by our enterprise customers to adopt our
Internet-based purchasing solution and to use it frequently;
. increase our product offering by adding and maintaining supplier
relationships; and
. develop new sources of revenues beyond our existing revenue sources.
If we are unable to accomplish one or more of these objectives, our revenues
may not grow as we anticipate, if at all, and our business, revenues,
financial condition and results of operations will be negatively affected. We
may not be able to build on our current sources of revenues by adding
additional products or services. Even if we do add additional products or
services, there are economic, legal, regulatory and other risks associated
with adding these new revenue sources. For example, we may post advertisements
on our web site to generate advertising revenue. However, our supplier
relationships may be harmed if our suppliers associate advertisements posted
on our web site with a bias in our offering of life sciences research
products.
Our business model is not proven and may not be successful
Our business-to-business e-commerce model is based on the development of the
Chemdex Marketplace for the purchase and sale of life sciences research
products. This business model is new and not proven and depends upon our
ability to, among other things:
. sell our purchasing solution to pharmaceutical and biotechnology
companies and academic and research institutions;
. achieve high rates of adoption by researchers within enterprise
customers;
. maintain our current suppliers and enter into agreements with additional
suppliers;
. generate significant revenues from the use of our Internet-based
purchasing solution; and
. obtain higher transaction volumes and increase productivity.
We cannot be certain that our business model will be successful or that we
can achieve or sustain revenue growth or generate any profits. The success of
this business model will require, among other things, that we develop and
market solutions with broad market acceptance by our customers, suppliers,
users and strategic partners. We cannot be certain that business-to-business
commerce on the Internet generally, or our purchasing solution, services and
brand in particular, will achieve broad market acceptance. For example,
purchasers may
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continue purchasing products through their existing methods and may not adopt
an Internet-based purchasing solution because of their comfort with existing
purchasing habits and direct supplier relationships, the costs and resources
required to switch purchasing methods, the need for products not offered
through the Chemdex Marketplace, security and privacy concerns, or general
reticence about technology or the Internet.
Our gross margins are low and we will have to increase productivity in our
business to be profitable
Our gross margin for the nine months ended September 30, 1999 was
approximately 4.9%. We are dependent on the price discounts we receive from
our suppliers, and thus we are vulnerable to any decrease in these discount
rates. Any decrease would have a significant negative impact on our financial
results. Our gross margins on sales of life sciences research products are
small relative to the margins earned by traditional distributors of life
sciences research products. If we do not increase these discounts,
substantially increase our revenues, and scale our business in a manner that
generates increased productivity, including further automation of our
purchasing solution, we may never achieve profitability. Distributors, in
general, operate with low margins. This is especially true in the life
sciences research products market.
In addition, due to our low gross margins, unexpected costs or expenses we
incur would substantially affect our ability to achieve or maintain operating
profits. For example, we generally bear the risks of the loss of products upon
shipment by our suppliers to our customers, of product returns and refunds to
our customers, and of non-collection of accounts receivable. Although we
maintain insurance for claims for damages to our customers or others caused by
our products we do not have insurance coverage for the costs of products lost
during shipment, product returns or uncollectable accounts receivable.
We are subject to government regulation that exposes us to potential liability
and negative publicity
We currently rely upon our suppliers to meet all packaging, distribution,
labeling, hazard and health information notices to purchasers, record keeping
and licensing requirements applicable to our business during the entire
transaction. Our reliance on suppliers' regulatory due diligence assessment of
purchasers and the compliance by suppliers and purchasers with applicable
governmental regulations may not be sufficient if we are held to need our own
licenses. For example, if we are held to be seller or a distributor of
regulated products because we did take legal title, we may have inadvertently
violated some governmental regulations by not having the appropriate license
or permit and may be subject to potentially severe civil or criminal penalties
and fines for each offense. We are aware that some of our prior sales may have
been made in the absence of us having the requisite local, state, or federal
license or permit. We may be subject to potentially severe civil and criminal
penalties and fines for each of these sales, which could have a material
adverse impact on our business, revenues, results of operations and financial
condition. In addition to these prior sales, we are unable to verify that our
suppliers have in the past complied, or will in the future comply, with the
applicable governmental regulatory requirements, or that their actions are
adequate or sufficient to satisfy all governmental or other legal requirements
that may be applicable to our sales. We could be fined or exposed to civil or
criminal liability, including monetary fines and injunctions, and we could
receive potential negative publicity, if the applicable governmental
regulatory requirements have not been, or are not being, fully met by our
suppliers or by us directly. Negative publicity, fines and liabilities could
also occur if an unqualified person, or even a qualified customer, lacks the
appropriate license or permits to sell, use or ship, or improperly receives a
dangerous or unlicensed product through the Chemdex Marketplace. We do not
maintain any reserve for potential liabilities resulting from government
regulation. It is also possible that a number of laws and regulations may be
adopted or interpreted in the United States and abroad with particular
applicability to the Internet.
We rely on a limited number of enterprise customers, and any loss of an
enterprise customer could have a negative effect on us
We expect that for the foreseeable future we will generate a significant
portion of our revenues from a limited number of enterprise customers.
Further, our enterprise customers are not obligated to use our purchasing
solution exclusively or for any minimum number of transactions or dollar
amounts. We currently do not offer all
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of the life science research products required by our customers, and we expect
that our customers will continue to use multiple sources to meet their needs.
In addition, our contracts with our customers are for limited terms and our
customers may discontinue use of our Chemdex Marketplace at any time upon
short notice and without penalty. If we lose any of our enterprise customers,
or if we are unable to add new enterprise customers, our revenues will not
increase as expected, we will lose access to the researchers employed by these
enterprises, we could lose a number of our product suppliers, and our brand
name and customer and supplier perceptions of our purchasing solution would be
harmed.
We will be very dependent on our strategic relationship with VWR for the
foreseeable future
We have entered into a strategic relationship agreement with VWR Scientific
Products Corporation to jointly market VWR laboratory products using the
Chemdex Marketplace. The agreement gives us the right to offer approximately
350,000 VWR-distributed products to our customers through the Chemdex
Marketplace. VWR and Chemdex have jointly developed an Internet purchasing
solution for VWR's existing and future customers that provides access to three
categories of products:
. products distributed by VWR (VWR core products),
. products distributed by Chemdex (Chemdex core products), and
. products that are not distributed by either VWR or Chemdex but are
purchased from third parties (third party products).
The extent to which our operations are integrated with VWR and the potential
financial impact on us of this strategic relationship makes us very dependent
on VWR for the foreseeable future. We may experience technical or logistical
difficulties in integrating VWR's suppliers, products and services with the
Chemdex Marketplace. If we are unable to do so in a timely manner, our
business, revenues, financial condition and results of operations could be
negatively affected. In addition, our agreement with VWR is nonexclusive
except as to the purchase of third party products by VWR and some other
provisions and has a limited term. We cannot be certain that VWR will not
enter into a similar relationship with one of our competitors, or that VWR
will renew our agreement at the end of its term.
We receive no fee for orders for VWR core products through the Chemdex
Marketplace from VWR's 40 largest customers and we receive a minimal fee for
all other orders for VWR core products forwarded to VWR. Under the terms of
the agreement, VWR provides some support services for purchasing third party
products in exchange for a fee which approximates VWR's costs incurred.
Since we receive minimal gross margins for sales of third party products,
our gross profit margins on these sales are lower than our margins on sales of
Chemdex core products. To the extent sales of VWR core products or third party
products increase relative to, or displace our sales of Chemdex core products,
our revenues and gross margins will likely decline, which would make it more
difficult for us to achieve profitability.
Our strategic relationship with VWR may lead to conflicts that could be
detrimental to us
Our strategic relationship with VWR may lead to conflicts that could be
detrimental to us. For example, we plan to provide the greatest number and
variety of products from the greatest number of suppliers possible; however,
our strategic relationship with VWR may deter other suppliers, particularly
those that compete directly with VWR products, from entering into agreements
with us. In addition, as noted above, our agreement with VWR is nonexclusive,
and it is possible that VWR could enter into similar relationships with one or
more of our competitors, or develop its own purchasing solution that would
compete with ours.
The Chief Executive Officer of VWR is a member of our Board of Directors,
which may lead to conflicts of interest that could be detrimental to us
Paul Nowak, the President and Chief Executive Officer of VWR, is a member of
our board of directors. This may lead to conflicts of interest, as VWR is one
of the laboratory supply industry's largest distributors and
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is a potential competitor of ours. In addition, VWR has entered into and may
in the future enter into relationships with our competitors, other suppliers
or our customers. Although we intend to have Mr. Nowak excuse himself from
Board discussions that involve potential conflicts of interest, we cannot be
sure that this will minimize these conflicts of interests or that Mr. Nowak's
position as a member of our Board of Directors will not operate to our
detriment.
If we cannot build a critical mass of suppliers and customers, we will not be
able to increase our product offering and draw more customers
Our business model depends in large part on our ability to build a critical
mass of products and suppliers. To attract and maintain suppliers, we must
build a critical mass of customers. However, customers must perceive value in
our purchasing solution which, in part, depends upon the breadth of our
product offerings from our suppliers. If we are unable to increase the number
of suppliers and draw more customers to the Chemdex Marketplace, we will not
be able to benefit from any network effect, where the value to each
participant in the Chemdex Marketplace increases with the addition of each new
participant. As a result, the overall value of the Chemdex Marketplace and our
purchasing solution would be harmed, which would negatively affect our
business, revenues, financial condition and results of operations.
The time it takes to sell and implement our solution is long, which could
negatively affect our revenue growth, if any, and make it difficult to predict
our revenues and results of operations
A key element of our strategy is to market our solution directly to life
sciences organizations, and to succeed we must satisfy the enterprise
purchasing departments, the information technology groups and the individual
researchers who are the users of our Internet-based purchasing solution. The
time it takes to sell and implement our solution is long and we devote
significant sales, marketing and management resources to the sales process
without any assurance that the customer will use the Chemdex Marketplace. We
are generally required to provide a significant level of education to our
customers and potential customers regarding the use and benefits of our
Internet-based purchasing solution. Furthermore, potential enterprise
customers and a number of their departments typically engage in extensive
internal reviews and analyses before making purchase decisions. The sale and
implementation of our solution are subject to delays due to our customers'
internal budgeting and procedures for approving capital expenditures and
deploying new technologies within their networks. These delays also could
impair our ability to generate revenue.
Even if enterprise customers adopt our purchasing solution, we may not
increase our revenues if researchers within these enterprises do not use the
Chemdex Marketplace
Our revenues are primarily derived from purchases of life sciences research
products by researchers, research assistants and other users within our
enterprise customers. These persons may or may not use our Chemdex Marketplace
to purchase their research products. Even if we successfully maintain existing
enterprise customers and add new enterprise customers, we may not be able to
increase revenues if researchers within our enterprise customers do not adopt
and use the Chemdex Marketplace. Once an enterprise customer adopts our
Internet-based purchasing solution, it takes time for researchers and other
users within the enterprise to become aware of, learn to use and begin using
our Chemdex Marketplace. The long sales cycle and the time it takes for
researchers to begin using our Internet-based purchasing solution could
negatively affect our revenue growth, if any, and makes it difficult to
predict our results of operations. Also, our efforts to attract researchers to
adopt and to increase their use of our solution may not be successful, which
would limit our ability to generate revenues from these customers.
Reductions in the research and development budgets and government research
funding of our customers will negatively affect our revenues
Our purchasing solution is used by researchers and their assistants and
staff at pharmaceutical and biotechnology companies, and academic and research
institutions. Changes in the research and development
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budgets of these companies and institutions and the timing of spending under
these budgets can have a significant effect on the demand for life sciences
research products. These budgets are based on a wide variety of factors
including the resources available to make these expenditures, the spending
priorities among various types of research, and the policies regarding these
expenditures during recessionary periods. Any decrease in life sciences
research and development expenditures by these companies and institutions
could have a negative effect on our revenues.
A significant portion of our sales are expected to be to research scientists
and entities whose funding is dependent on grants from government agencies
such as the U.S. National Institutes of Health (NIH) and similar domestic and
international agencies. The funding associated with approved NIH grants
generally becomes available at particular times of the year, as determined by
the federal government, and may result in fluctuations in our revenues and
results of operations. Although NIH research funding has increased during the
past several years, grants have, in the past, been frozen for extended periods
or have otherwise become unavailable to various institutions, sometimes
without advance notice. Furthermore, recent government proposals designed to
reduce or eliminate budgetary deficits have included reduced allocations to
the NIH and other government agencies that fund research and development
activities. If government funding, especially NIH grants, were to become
unavailable to researchers for any extended period of time, or if overall
research funding were to decrease, there could be a negative effect on our
business, revenues, results of operations and financial condition.
The success of our business depends on maintaining and expanding our supplier
base
Our future success depends in large part upon our ability to offer and
deliver a broad and deep life sciences research product offering to our
customers. We rely on independent suppliers and manufacturers for products
offered through our Chemdex Marketplace. To increase the breadth of our
product offering, including related products that we do not currently offer
such as laboratory equipment and supplies, we must establish relationships
with additional suppliers. Some potential suppliers may view us as detrimental
to their business, since suppliers compete with one another and with us for
sales and customers. Our agreements with suppliers are typically for one-year
terms and we cannot assure you that these agreements will be renewed beyond
the initial term. In addition, these suppliers are not required to accept
purchase orders from us. If we fail to secure products from our suppliers or
if a significant number of suppliers do not renew their agreements with us,
the breadth and depth of products that we can offer users would be decreased.
In addition, there are significant costs, difficulties and risks associated
with adding new products in related markets, such as the difficulty of signing
up new suppliers, obtaining necessary permits, complying with governmental
regulation, pressures on margins, new competition and integration of these new
products into the Chemdex Marketplace. These events could result in decreased
adoption and use of our purchasing solution and decreased revenues, which
could have a negative effect on our business, results of operations and
financial condition.
Our cost of revenues includes cost of goods payable to suppliers. We cannot
assure you that our suppliers will enter into or renew agreements with us on
the same or similar terms as those currently in effect or that the cost of
goods payable to our suppliers will remain the same. Less favorable terms will
make it difficult for us to achieve profitable operations. Any decreases in
our already low gross margins will have a significant negative effect on our
results of operations and financial condition.
Our supplier agreements are nonexclusive and many of our suppliers sell
their products directly to our customers. In addition, the growing reach and
use of the Internet has further intensified competition in this industry. Some
suppliers provide customers with direct access to products, and if suppliers,
including our current suppliers, provide products to enterprise customers and
their researchers at a cost lower than ours, our revenues, results of
operations and financial condition could be negatively affected.
If we cannot timely and accurately add supplier product data to our purchasing
solution database we may lose sales and customers, which would adversely
affect our revenues
Currently, we are responsible for loading supplier product information into
our database and categorizing the information for search purposes. This
process entails a number of risks, including dependence on our
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suppliers to provide us in a timely manner with accurate, complete and current
information about their products, and to promptly update this information when
it changes. We will not derive revenue from these products until these data
are loaded in our system. The time period in which we estimate loading these
supplier product data is a forward-looking statement that is subject to risks
and uncertainties and actual results may differ materially from those
described in these forward-looking statements. Timely loading of these
products in our database depends upon a number of factors, including the file
formats of the data provided to us by suppliers and our ability to further
automate and expand our operations to accurately load these data in our
product database, any of which could delay the actual loading of these
products beyond the dates estimated by us.
In addition, we are generally obligated under our supplier agreements to
load updated product data onto our database for access through the Chemdex
Marketplace within a specified period of time following their delivery from
the supplier. Our current supplier data backlog could make it difficult for us
to meet these data update obligations to our suppliers. While we intend to
further automate the loading and updating of supplier data on our system, we
cannot assure you that we will be able to do so in a timely manner, in part
because achieving the highest level of this automation is dependent upon our
suppliers' automating their delivery of product data to us. If our suppliers
do not provide us in a timely manner with accurate, complete and current
information about the products we offer, our database may be less useful to
our customers and users and may expose us to liability. Although we screen our
suppliers' information before we make it available to our customers and users,
we cannot guarantee that the product information available in our Chemdex
Marketplace will always be accurate, complete and current, or comply with
governmental regulations. This could expose us to liability or result in
decreased adoption and use of our Internet-based purchasing solution, which
could reduce our revenues and therefore have a negative effect on our results
of operations and financial condition.
If our suppliers do not provide timely and professional delivery of products
to our customers our business will be harmed
We also rely on our suppliers and manufacturers to deliver life sciences
research products to our customers in a professional, safe and timely manner.
If our suppliers do not deliver the products to our customers in a
professional, safe and timely manner, then our service will not meet customer
expectations and our reputation and brand will be damaged. In addition,
deliveries that are nonconforming, late or are not accompanied by information
required by applicable law or regulations, could expose us to liability or
result in decreased adoption and use of our Internet-based purchasing
solution, which could have a negative effect on our business, results of
operations and financial condition. Further we, and not our suppliers,
typically bear the responsibility for product refunds and returns and the risk
of non-collectibility of accounts receivable from our customers.
To attract customers and suppliers to our Chemdex Marketplace, we must not
favor one supplier over another
The life sciences research products market consists of a complex set of
relationships among manufacturers, suppliers, distributors and customers.
Adoption of our solution by suppliers and customers is dependent on their
perception that we provide a neutral, unbiased marketplace to purchase and
sell life sciences research products. To the extent that we are perceived by
our customers or suppliers as favoring one supplier over another, customers
and suppliers may lose confidence in the Chemdex Marketplace as a fair and
neutral marketplace and choose alternative solutions. Our relationship with
VWR, including the fact that VWR is a stockholder and is represented on our
Board of Directors, may compromise the perception that we provide a neutral
and unbiased marketplace for life sciences research products. Any bias,
whether perceived or actual, could have a negative impact on our ability to
maintain or increase our supplier base, which in turn may limit our ability to
maintain or increase our customer base. This would reduce revenues and
therefore have a negative impact on our business, results of operations and
financial condition.
We face intense competition that could limit our ability to expand our base of
customers and users
The market for business-to-business e-commerce and Internet ordering and
purchasing is new and rapidly evolving, and competition is intense and is
expected to increase significantly in the future. We face competition
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from four main areas: other companies with e-commerce offerings, traditional
suppliers and distributors of life sciences research products, life sciences
companies that have developed their own purchasing solutions and enterprise
software companies that offer, or may develop, alternative purchasing
solutions. We may not be able to compete successfully against our current or
future competitors and competition could have a material adverse effect on our
business, results of operations and financial condition. Our competitors and
potential competitors may develop superior Internet purchasing solutions that
achieve greater market acceptance than our solution. In addition,
substantially all of our prospective customers have established long-standing
relationships with some of our competitors or potential competitors, including
most of our suppliers. Accordingly, we cannot be certain that we will be able
to expand our customer list and user base, or retain our current customers or
suppliers.
Our solution and services are new and face rapid technological changes and if
we do not respond appropriately, we may lose customers
The market for our solution is characterized by rapid technological
advances, evolving standards in the Internet and software markets, changes in
customer requirements and frequent new product and service introductions and
enhancements. As a result, our future success depends upon our ability to
enhance our current Internet-based purchasing solution and services, to
develop and introduce new solutions and services that will achieve market
acceptance, and where necessary to integrate our Internet-based purchasing
solution with our customers' enterprise resource planning systems. If we do
not adequately respond to the need to develop and introduce new solutions or
services, or to integrate with our customers' enterprise resource planning
systems, then our business, revenues, results of operations and financial
condition will be negatively affected. For example, we may lose market share
and ultimately revenue as our customers switch to our competitors' offerings
if:
. we are unable to develop technology that is a success in the
marketplace;
. our technology does not integrate with our customers' systems; and
. our technology is surpassed by the superior technology of a competitor.
Further, we may incur significant expense to integrate our purchasing
solution with our customers' enterprise resource planning systems and business
rules, and to maintain this integration as our customers' enterprise resource
planning systems evolve. Failure to provide this integration may delay or
altogether dissuade the market or a particular customer from adopting our
Internet-based purchasing solution, which could negatively affect our revenues
and therefore have a material adverse effect on our business, results of
operations and financial condition.
If we do not successfully develop and timely introduce new versions of our
purchasing solution in the next several months our business will be harmed
New releases are planned to include significant enhancements to the user
interfaces, database management and search technology, and security controls.
The planned timing of introduction of new releases of our purchasing solution
is a forward-looking statement that is subject to risks and uncertainties, and
actual timing may differ materially from that set forth in these forward-
looking statements as a result of a number of factors. Enhancing and
introducing new technology into our purchasing solution involves numerous
technical challenges and substantial personnel resources, and often takes many
months to complete. We cannot be certain that we will be successful at
enhancing or integrating this technology into our Internet-based purchasing
solution on a timely basis, or in accordance with our milestones or our
product release objectives. In addition, we cannot be certain that, once
integrated, this technology or our Internet-based purchasing solution will
function as expected. If we are unable to enhance and integrate this new
technology into our purchasing solution on a timely basis, we may lose
customers or experience difficulty obtaining new customers, which could
adversely affect our business, revenues,
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financial condition and results of operations. Major enhancements and new
solutions and services often require long development and testing periods. In
addition, our Internet-based purchasing solution is complex and, despite
vigorous testing and quality control procedures, may contain undetected errors
or "bugs" when first introduced or updated. Any inability to timely deliver a
quality solution and services could have a negative effect on our business,
revenues, financial condition and results of operations.
We may not be able to determine or design the features and functionality that
our enterprise customers and researchers require or prefer
Our success depends upon our ability to accurately determine the features
and functionality that our enterprise and research customers require or prefer
in an e-commerce solution, and our ability to successfully design and
implement purchasing solutions that include these features and functionality.
If we are unable to determine or design in the features and functionality that
enterprise and research customers require or prefer in an e-commerce solution,
our business will be negatively affected. We have designed the Chemdex
Marketplace based upon internal development efforts and feedback from a
relatively limited number of enterprise and research customers. We cannot be
certain, however, that the features and functionality that we currently offer
in the Chemdex Marketplace, or those that we may offer in future releases of
our solution, will satisfy the requirements or preferences of our current or
potential enterprise and research customers.
We will need to manage our expanding business effectively in order to meet
customer and investor expectations
We have rapidly and significantly expanded our operations and expect to
continue to do so. This growth has placed, and is expected to continue to
place, a significant demand on our sales, marketing, managerial, operational,
financial and other resources. If we cannot manage our growth effectively, it
is likely that our revenues and results of operations will not meet customer
and investor expectations. As of September 30, 1999, we had grown to
approximately 175 employees. We expect to hire a significant number of new
employees to support our business.
Our current information systems, procedures and controls may not continue to
support our operations and may hinder our ability to exploit the market for
selling products to the life sciences industry. We are in the process of
implementing a new enterprise resource planning system that will replace our
existing accounting and management information systems and allow for future
scalability and enhancements. In addition, we anticipate requiring additional
space to accommodate our growth in the next six months. We could experience
interruptions to our business when we transition to the new enterprise
resource planning system and when we relocate to new facilities. Even after we
implement our new system and relocate to new facilities, our personnel,
systems, procedures, controls and facilities may be inadequate to support our
future operations.
We depend on our key personnel to manage our business effectively in a rapidly
changing market
Our performance is substantially dependent on the performance of our
executive officers and other key employees. We do not have any employment
agreements with our executive officers and key employees, although some of
them have severance arrangements. Our failure to successfully manage our
personnel requirements would have a negative effect on our business, revenues,
financial condition and results of operations. We have experienced difficulty
from time to time in hiring the personnel necessary to support the growth of
our business, and we may experience similar difficulty in hiring and retaining
personnel in the future. Competition for senior management, experienced sales
and marketing personnel, software developers, qualified engineers and other
employees is intense, and we cannot be certain that we will be successful in
attracting and retaining our personnel. The loss of the services of any of our
executive officers or other key employees could have a negative effect on our
business. In particular, the loss of services of David Perry, our President
and Chief Executive Officer, and Pierre Samec, our Chief Information Officer,
would have a detrimental effect on our business. Mr. Perry is one of the co-
founders and is primarily responsible for our vision and future direction, and
Mr. Samec is responsible for all of our technology systems and software.
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The unpredictability of our quarterly results may negatively affect the
trading price of our common stock
Our revenues and results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our
control. As a result, you should not rely on period-to-period comparisons of
revenues and results of operations as an indication of our future performance.
Some of the factors that may affect our revenues and results of operations
include:
. demand for and market acceptance of our Internet-based purchasing
solution and services;
. introduction of new and enhanced purchasing solutions and services by us
or our competitors;
. budgeting cycles of customers and users;
. loss of one or more of our key suppliers, customers or strategic
relationships;
. changes in our pricing policy or those of our competitors or suppliers;
. amount and timing of capital expenditures and other costs relating to
the expansion of our operations;
. timing and number of new hires;
. ability to comply with applicable laws and regulations or obtain
necessary permits and licenses to sell or ship products to customers;
. technical difficulties with our web site or Internet-based purchasing
solution;
. level of activity and funding in the life sciences industry; and
. general economic conditions.
We may from time to time make pricing, service or marketing decisions or
enter into strategic business combinations that could have a negative effect
on our business, revenues, financial condition or results of operations for
any number of quarterly periods. For example, we intend to significantly
expand our development and engineering expenses to improve our Internet-based
purchasing solution. In addition, in order to accelerate the promotion of the
Chemdex brand, we intend to increase our marketing budget significantly. These
increases in expenses may negatively affect our results of operations for a
number of quarterly periods and we cannot assure that these measures will
increase our revenues.
Due to our relatively short operating history we have limited meaningful
historical financial data upon which to base our planned operating expenses.
Accordingly, our expense levels are based in part on our expectations as to
future revenues from new customers and are relatively fixed in the short term.
We cannot be certain that we will be able to accurately predict our revenues,
particularly in light of our limited operating history, the intense
competition in the life sciences industry, and the resulting uncertainty as to
the success of our business model. If we fail to accurately predict revenues
in relation to fixed expense levels and we are unable to adjust our operating
expenses in a timely manner in response to lower-than-expected revenues, our
results of operations and financial condition could be negatively affected.
We expect the price of our common stock to be volatile
An active public market for our common stock may not develop or be
sustained.
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The market price of the common stock may fluctuate significantly in response
to a number of factors, some which are beyond our control, including:
. quarterly variations in our operating results;
. changes in estimates of our financial performance by securities
analysts;
. changes in market valuation of Internet commerce companies generally;
. announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
. loss of a major customer, supplier or strategic partner, or failure to
complete a sale of our purchasing solution to a significant customer;
. additions or departures of any of our key personnel;
. future sales of our common stock; and
. stock market price and volume fluctuations, which are particularly
common among highly volatile securities of Internet companies.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert
management's attention and resources, which could have a negative effect on
our business, results of operations and financial condition.
Our business will suffer if the life sciences industry does not accept
Internet solutions
Business-to-business e-commerce is a new and emerging business practice that
remains largely untested in the marketplace. Growth in the demand for our
Internet-based purchasing solution and services depends on the adoption of e-
commerce and Internet solutions by life sciences industry participants, which
requires the acceptance of a new way of conducting business and purchasing
supplies. Our business could suffer dramatically if e-commerce and Internet
solutions are not accepted or not perceived to be effective.
The Internet may not prove to be a viable commercial marketplace for the
life sciences industry for a number of reasons, including:
. inadequate development of the necessary infrastructure for Internet-
based communications within life sciences organizations;
. security and confidentiality concerns of customers and suppliers;
. lack of development of complementary products, such as high-speed modems
and high-speed communication lines;
. implementation of competing purchasing solutions;
. lack of human contact that current, traditional suppliers provide; and
. governmental regulation.
The accelerated growth and increasing volume of Internet traffic may cause
performance problems that may slow adoption of our Internet-based purchasing
solution and the Chemdex Marketplace
The growth of Internet traffic to very high volumes of use over a relatively
short period of time has caused frequent periods of decreased Internet
performance, delays and, in some cases, system outages. This decreased
performance is caused by limitations inherent in the technology infrastructure
supporting the Internet and the internal networks of Internet users. If
Internet usage continues to grow rapidly, the infrastructure of the Internet
and its users may be unable to support the demands of growing e-commerce
usage, and the Internet's
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performance and reliability may decline. If our existing or potential
enterprise and research customers experience frequent outages or delays on the
Internet, the adoption or use of our Internet-based, e-commerce purchasing
solution may grow more slowly than we expect or even decline. Our ability to
increase the speed and reliability of our Internet-based purchasing solution
is limited by and depends upon the reliability of both the Internet and the
internal networks of our existing and potential customers. As a result, if
improvements in the infrastructure supporting both the Internet and the
internal networks of our enterprise customers and their researchers are not
made in a timely fashion, we may have difficulty obtaining new customers, or
maintaining our existing customers, either of which could reduce our potential
revenues and have a negative impact on our business, results of operations and
financial condition.
Security and disruption problems with the Internet or transacting business
over the Internet may inhibit the growth of our Internet-based purchasing
solution
The secure transmission of confidential information over the Internet is
essential to maintaining customer and supplier confidence in our Chemdex
Marketplace. Customers generally are concerned with security and privacy on
the Internet and any publicized security problems could inhibit the growth of
the Internet, and therefore our purchasing solution, as a means of conducting
transactions. Substantial security breaches on our system could significantly
harm our business. A party that is able to circumvent our security systems
could misappropriate proprietary information or cause interruptions in our
operations. We incur substantial expense to protect against and remedy
security breaches and their consequences. Despite the implementation of
security measures, our networks may be vulnerable to unauthorized and illegal
access, computer viruses and other disruptive problems. Eliminating computer
viruses and alleviating other security problems may require interruptions,
delays or cessation of service to users accessing our solution.
Internet service providers and on-line service providers have in the past
experienced, and may in the future experience, interruptions in service as a
result of the accidental or intentional actions of Internet users, current and
former employees or others. We may be required to expend significant capital
or other resources to protect against the threat of security breaches or to
alleviate problems caused by these breaches. Although we intend to continue to
implement industry-standard security measures, we cannot be certain that
measures implemented by us will not be circumvented in the future.
If we experience a security breach that results in the misappropriation of
proprietary information maintained in our systems or if we experience
interruptions in our service, our reputation and brand may be damaged and we
may be exposed to a risk of loss or litigation and possible liability. Damage
to our reputation and brand could cause us to lose suppliers and customers and
negatively affect our business, results of operations and financial condition.
Our insurance policies may not be adequate to reimburse us for losses caused
by security breaches or service disruption.
System failure may cause interruption of our services
The performance of our server and networking hardware and software
infrastructure is critical to our business and reputation and our ability to
process transactions, provide high quality customer service, and attract and
retain customers, suppliers, users and strategic partners. Currently our
infrastructure and systems are located at one site at Exodus Communications in
Sunnyvale, California. We anticipate adding a mirror site at a different,
distant location. Until then, we depend on our single-site infrastructure and
any disruption to this infrastructure resulting from a natural disaster or
other event could result in an interruption in our service, fewer transactions
and, if sustained or repeated, could impair our reputation and the
attractiveness of our services.
Our systems and operations are vulnerable to damage or interruption from
human error, natural disasters, power loss, telecommunications failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and
similar events. We do not have a formal disaster recovery plan or alternative
provider of hosting services. In addition, we do not carry sufficient business
interruption insurance to compensate us for losses that could occur. Any
failure on our part to expand our system or Internet infrastructure to keep up
with the demands of our
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customers and users, or any system failure that causes an interruption in
service or a decrease in responsiveness of our Internet-based purchasing
solution or web site, could result in fewer transactions and, if sustained or
repeated, could impair our reputation and the attractiveness of our brand
name, which would adversely affect our business, revenues, financial condition
and results of operations.
We face year 2000 risks associated with our own systems and those of our
customers, suppliers and the Internet
Significant uncertainty exists concerning the potential costs and effects
associated with any year 2000 compliance problems. Any year 2000 compliance
problems faced by us, our customers, suppliers and strategic partners could
have a negative effect on our business, revenues, and results of operations
and financial condition. In addition, our ability to operate is dependent upon
delivery of accurate, electronic information via the Internet. To the extent
year 2000 issues result in the long-term inoperability of the Internet, the
Chemdex Marketplace or the systems of VWR, our business, revenues, financial
condition and results of operations could be seriously harmed.
Although we believe that our internally developed applications and systems
are designed to be year 2000 compliant, we use third party equipment and
software that may not be year 2000 compliant. In addition, until some of the
billing and cash collection functions for spot buying services are
transitioned to Chemdex, we are dependent upon VWR's systems for receiving
payment for products purchased using the spot buying services. Failure of our
applications and services, VWR's billing and collection system, or third party
equipment and software that we use, to be year 2000 compliant could result in
the Chemdex Marketplace not being used for purchasing life sciences research
products, the termination of our customer agreements or in liability for
damages, any of which could have a material adverse effect on our business,
results of operations and financial condition. Many of our customers' systems
with which the Chemdex Marketplace integrates may not yet be year 2000
compliant. In addition, our suppliers' systems may not be year 2000 compliant.
Any negative effects on our customers' or suppliers' systems as a result of
the year 2000 problem, or unknown, non-compliance of our own systems, could
have a negative effect on our business, results of operations and financial
condition and we do not have a formal contingency plan to address year 2000
issues. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Compliance."
We may require additional capital for our operations that could have a
negative effect on your investment
We currently anticipate that cash and cash equivalents at September 30,
1999, together with our existing borrowing arrangements and available funds
will be sufficient to meet our anticipated needs for working capital and
capital expenditures for at least the next 12 months. This is a forward-
looking statement that is subject to risks and uncertainties and actual
results may differ materially from those described in this forward-looking
statement. We may need to raise additional funds in the future in order to
fund rapid expansion, to pursue customer sales and implementation, to develop
new or enhanced solutions and services, to respond to competitive pressures or
to acquire complementary businesses, technologies or services.
If we raise additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced,
stockholders may experience additional dilution and these securities may have
powers, preferences and rights that are senior to those of the rights of our
common stock. We cannot be certain that additional financing will be available
on terms favorable to us, if at all. If adequate funds are not available or
not available on acceptable terms, we may be unable to fund our expansion,
promote our brand identity, take advantage of unanticipated acquisition
opportunities, develop or enhance services or respond to competitive
pressures. Any inability to do so could have a negative effect on our
business, revenues, financial condition and results of operations.
Our planned international expansion may make it more difficult to manage our
business
We expect to enter the international market. To do so, we plan to establish
international operations, hire additional personnel and establish
relationships with additional suppliers and partners. This expansion will
30
<PAGE>
require significant management attention and financial resources and could
have a negative effect on our business, revenues, financial condition and
results of operations. We cannot assure you that we will be able to create or
sustain international demand for our Internet-based purchasing solution and
services. In addition, our international business may be subject to a variety
of risks, including applicable government regulation, difficulties in
collecting international accounts receivable, longer payment cycles, increased
costs associated with maintaining international marketing efforts, the
introduction of non-tariff barriers and higher duty rates and difficulties in
enforcement of contractual obligations and intellectual property rights. We
cannot assure you that these factors will not have a negative effect on any
future international sales and, consequently, on our business, results of
operations and financial condition.
We may be exposed to product liability claims
We face potential liability for claims based on the type and adequacy of the
information and data that we obtain from suppliers and make available, and the
nature of the products that we sell and distribute utilizing the Internet,
including claims for breach of warranty, product liability, misrepresentation,
violation of governmental regulations and other commercial claims. In
particular, we bear the risk of liability for product loss, spill, or release,
and resulting damages to persons and property during delivery by the supplier
to the customer and return by the customer to the supplier. We do not pass
through the manufacturers' warranties on the products we distribute. However,
we bear the risk of loss of revenue from the product sale if a purchaser does
not pay for a defective product. Although we maintain general liability
insurance, our insurance may not cover some claims, penalties, or spills, is
subject to policy limits and exclusions, and may not be adequate to fully
indemnify us or our employees for any civil, governmental or criminal
liability that may be imposed. Furthermore, this insurance may not be
available at commercially reasonable rates in the future. Any liability not
covered by our insurance or in excess of our insurance coverage could have a
negative effect on our business, results of operations and financial
condition. Our liability is potentially greater with respect to sales to
researchers and others that are not affiliated with an enterprise customer.
We also seek to obtain indemnification from our suppliers against some of
these claims. However, the scope of the indemnification is limited, a few of
our suppliers have not agreed to indemnify us and some suppliers may be unable
or unwilling to indemnify us in the future. In addition, we are not in a
position to monitor our suppliers' activities. Therefore, we are exposed to
liability and risk for these claims.
We depend on our intellectual property rights and are subject to the risk of
infringement
Our intellectual property is important to our business, and we seek to
protect our intellectual property through copyrights, trademarks, trade
secrets, confidentiality provisions in our customer, supplier and strategic
relationship agreements, nondisclosure agreements with third parties, and
invention assignment agreements with our employees and contractors. We cannot
assure that measures we take to protect our intellectual property will be
successful or that third parties will not develop alternative purchasing
solutions that do not infringe upon our intellectual property. In addition, we
could be subject to intellectual property infringement claims by others. Our
failure to protect against misappropriation of our intellectual property, or
claims that we are infringing the intellectual property of third parties could
have a negative effect on our business, revenues, financial condition and
results of operations.
Regulation or taxation of the Internet or transacting business over the
Internet may inhibit the growth of our Internet-based purchasing solution
Due to the increasing popularity and use of the Internet and of e-commerce,
it is possible that a number of taxes, laws and regulations may be adopted in
the U.S. and abroad with particular applicability to the Internet and e-
commerce transactions. It is possible that governments will adopt taxes and
enact legislation that may be applicable to us in areas such as content,
product distribution, network security, encryption and the use of key escrow,
data and privacy protection, electronic authentication or "digital"
signatures, illegal and harmful content, access charges and re-transmission
activities. Moreover, the applicability to the Internet of existing laws
31
<PAGE>
governing issues such as property ownership, content, taxation, defamation and
personal privacy is uncertain. Taxes, laws or regulations may limit the growth
of the Internet, dampen e-commerce and reduce the number of transactions,
increase our cost of doing business or increase our legal exposure. Any of
these factors could have a negative effect on our business, revenues, and
results of operations and financial condition.
Item 3. Qualitative and Quantitative Disclosure about Market Risk
Our sales from inception to date have been made to U.S. Customers and, as a
result, we have not had any exposure to factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets.
However, in future periods, we expect to sell in foreign markets. As our sales
are made in U.S. dollars, a strengthening of the U.S. dollar could make our
products less competitive in foreign markets. At September 30, 1999, our cash
and cash equivalents consisted primarily of money market funds and commercial
paper held by large institutions in the U.S.
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds
On July 27, 1999, Chemdex issued 8,625,000 shares of Common Stock, including
the underwriters' overallotment, with net proceeds to the Company of $117.6
million. Morgan Stanley Dean Witter, BancBoston Roberston Stephens, and Volpe
Brown Whelan & Company were the managing underwriters in the offering. The
shares of common stock sold in the offering were registered under the
Securities Act of 1933, as amended, on a Registration Statement on Form S-1
(No. 333-78505).
On July 27, 1999, all outstanding preferred shares were automatically
converted to common shares in a 1:1 ratio. The Company plans to use the
proceeds from the offering to fund continuing operations.
We paid a total of $9.1 million in underwriting discounts and commissions
associated with our initial public offering. We incurred approximately $2.7
million in additional offering related costs. After deducting the underwriting
discounts and commissions and other offering expenses, net proceeds to the
Company were approximately $117.6 million.
Item 5. Other Information
On September 22, 1999 the Company entered into a definitive agreement to
acquire Promedix, Inc., a provider of e-commerce solutions for healthcare
purchasing professionals. Promedix is a privately held Company based in Salt
Lake City, Utah. Promedix links buyers and suppliers of specialty medical
products, providing healthcare professionals with a one-stop shop for product
research, purchase and order fulfillment through relationships with
distributors and manufacturers. Under the terms of the merger agreement, the
Company will issue approximately 12.1 million shares of its common stock for
all of the outstanding preferred and common stock of Promedix based on an
exchange ratio of the Company's common stock for each share of Promedix
preferred and common stock determined on the closing date of the transaction.
The transaction will be accounted for as a purchase. The Company's preliminary
unaudited estimate of the total purchase consideration is approximately $315.8
million, based on the fair value at the time of the announcement of the
acquisition, of common stock to be issued. Under a provision in the agreement,
Chemdex or Promedix could be required to pay the other party a $10 million
cancellation fee if the merger is terminated for specified reasons. As part of
the agreement, Chemdex agreed to lend Promedix $10.0 million at an interest
rate of 9%. At September 30, 1999, no borrowings were outstanding. The stock
issuance has been approved by the Chemdex board of directors and the merger
has been approved by the board of directors of Promedix, but is subject to
several conditions, including approval by both companies' stockholders. The
Company continues to consider agreements to acquire additional companies in
new verticals in order to expand its market presence.
32
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
The following is a list of exhibits filed as part of this Report on Form 10-
Q. Where indicated by footnote, exhibits that were previously filed are
incorporated by reference.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.2 Amended and Restated Certificate of Incorporation of Chemdex (1)
3.4 Amended and Restated Bylaws of Chemdex (1)
4.1 Specimen Stock Certificate (1)
4.2 Third Amended and Restated Investors' Rights Agreement dated March 24,
1999 (1)
4.3 Amendment dated May 12, 1999 to Third Amended and Restated Investors'
Rights Agreement (1)
4.4 Common Stock Purchase Warrant dated July 27, 1999 to purchase 25,000
shares of Chemdex common stock issued to Alza Corporation (3)
10.1 Form of Indemnification Agreement between Chemdex and each of its
officers and directors (1)
10.2 Form of Change of Control Agreement between Chemdex, each of its
officers and certain employees (1)
10.3 Change of Control Agreement between Chemdex and Robert A. Swanson (1)
10.4 Change of Control Agreement between Chemdex and Charles R. Burke (1)
10.5 1998 Stock Plan, as amended, and form of option agreement (1)
10.6 1999 Employee Stock Purchase Plan and form of subscription agreement
(1)
10.7 1999 Directors' Stock Plan (1)
10.8 Standard Office Lease dated June 11, 1998 between Chemdex and Fabian
Partners II, a California General Partnership, as amended (1)
10.9 Master Lease Agreement dated January 20, 1999, as amended, between
Chemdex and Comdisco, Inc. (1)
10.10 Starter Kit Loan and Security Agreement dated February 18, 1998
between Chemdex and Imperial Bank (1)
10.11 Warrant Agreement to Purchase Shares of Series B Preferred Stock of
Chemdex dated January 20, 1999 between Chemdex and Comdisco, Inc. (1)
10.12 Common Stock Purchase Warrant to Purchase Shares of Common Stock of
Chemdex dated March 24, 1999 between Chemdex and Galen Partners III,
L.P. (1)
10.13 Common Stock Purchase Warrant to Purchase Shares of Common Stock of
Chemdex dated March 24, 1999 between Chemdex and Galen Partners
International III, L.P. (1)
10.14 Common Stock Purchase Warrant to Purchase Shares of Common Stock of
Chemdex dated March 24, 1999 between Chemdex and Galen Employee Fund
III, L.P. (1)
10.15 Electronic Commerce Agreement dated January 5, 1998 between Chemdex
and Genentech, Inc. (1) (2)
10.16 Standstill Agreement dated April 23, 1999 between Chemdex and VWR
Scientific Products Corporation (1) (2)
10.17 Strategic Relationship Agreement dated April 30, 1999 between Chemdex
and VWR Scientific Products Corporation (1) (2)
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.18 Joint Marketing Agreement dated May 11, 1999 between Chemdex and
Biotechnology Industry Organization. (1) (2)
10.19 Payment Plan Agreement dated February 22, 1999 and related agreements
between Chemdex and Oracle Credit Corporation. (1)
10.20 Warrant Purchase Agreement dated July 27, 1999 between Chemdex and
Alza Corporation. (3)
10.21 Office lease dated August 13, 1999 between Chemdex and Alza
Corporation for space located at 1000 Joaquin Road, Mountain View,
California. *
10.22 Office lease dated August 13, 1999 between Chemdex and Alza
Corporation for space located at 1500 and 1550 Plymouth Street,
Mountain View, California. *
10.23 Voting Agreement dated September 21, 1999 between Chemdex and certain
stockholders of Promedix.com, Inc.(4)
10.24 Employment Agreement dated September 21, 1999 between Chemdex and
William Klintworth. (4)
10.25 Change of Control Agreement dated September 21, 1999 between Chemdex
and William Klintworth.(4)
10.26 Affiliates Agreement dated September 21, 1999 between Chemdex and
certain stockholders of Promedix.com, Inc.(4)
10.27 Secured Promissory Note and Agreement dated September 21, 1999 from
Promedix.com, Inc. to Chemdex and related Security agreement.(4)
10.28 Noncompetition Agreement dated September 21, 1999 between Chemdex and
William Klintworth. (4)
27.1 Financial Data Schedule *
</TABLE>
- --------
* Filed herewith.
(1) Filed as an exhibit to the Registrant's Registration Statement of Form S-1
(Registration No. 333- 78505) filed with the Commission on May 14, 1999,
as amended, and incorporated herein by reference.
(2) Portions of this Exhibit have been omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 406 under the Act.
(3) Filed as an exhibit to the Company's 10-Q for the period ended June 30,
1999, and incorporated herein by reference.
(4) Filed as an exhibit to the Company's S-4 filed on November 10, 1999, and
incorporated herein by reference.
b) Reports on Form 8-K
None.
34
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on November 12, 1999.
Chemdex Corporation
/s/ James G. Stewart
By __________________________________
James G. Stewart
Chief Financial Officer
(Principal Financial Officer)
35
<PAGE>
EXHIBIT 10.21
OFFICE LEASE
by and between
ALZA CORPORATION
and
CHEMDEX CORPORATION
for space at
1010 JOAQUIN ROAD
MOUNTAIN VIEW, CALIFORNIA
August 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
BASIC LEASE PROVISIONS.......................................................... 1
1. DEFINITIONS................................................................ 3
2. TERM AND POSSESSION........................................................ 5
3. MONTHLY BASE RENT; NET LEASE............................................... 8
4. LETTER OF CREDIT........................................................... 9
5. TENANT'S PAYMENT OF PROPERTY TAXES AND INSURANCE PREMIUMS.................. 11
6. MAINTENANCE, REPAIR AND REPLACEMENT........................................ 13
7. IMPROVEMENTS AND ALTERATIONS; LIENS........................................ 16
8. USE OF PREMISES............................................................ 18
9. HAZARDOUS MATERIALS........................................................ 19
10. UTILITIES AND SERVICES..................................................... 23
11. RULES AND REGULATIONS...................................................... 26
12. TAXES ON TENANT'S PROPERTY................................................. 27
13. FIRE OR CASUALTY........................................................... 27
14. EMINENT DOMAIN............................................................. 29
15. ASSIGNMENT AND SUBLETTING.................................................. 30
16. ACCESS AND RESERVED RIGHTS................................................. 34
17. SUBORDINATION AND ATTORNMENT............................................... 36
18. TRANSFER OF PREMISES; QUIET ENJOYMENT...................................... 37
19. NONLIABILITY AND INDEMNIFICATION OF LANDLORD; INSURANCE.................... 37
20. WAIVER OF SUBROGATION...................................................... 41
21. ATTORNEYS' FEES............................................................ 41
22. WAIVER..................................................................... 41
23. NOTICES.................................................................... 42
24. BANKRUPTCY................................................................. 42
25. DEFAULT AND REMEDIES....................................................... 42
26. HOLD OVER.................................................................. 46
27. CONDITION OF PREMISES...................................................... 46
28. QUIET POSSESSION........................................................... 47
29. DAMAGE TO TENANT'S PROPERTY................................................ 47
30. CONFLICT OF LAWS........................................................... 47
31. SUCCESSORS AND ASSIGNS..................................................... 47
32. BROKERS.................................................................... 47
33. NEGOTIATED AGREEMENT....................................................... 48
34. INTEREST ON TENANTS OBLIGATIONS; LATE CHARGE............................... 48
35. TIME....................................................................... 49
36. DEFINED TERMS AND MARGINAL HEADINGS........................................ 49
37. PRIOR AGREEMENTS........................................................... 49
38. AUTHORITY OF PARTIES....................................................... 49
39. NO LIGHT, AIR OR VIEW EASEMENT............................................. 50
40. EXAMINATION OF LEASE....................................................... 50
41. FORCE MAJEURE.............................................................. 50
42. RECORDING.................................................................. 50
43. INCORPORATION BY REFERENCE................................................. 51
</TABLE>
<PAGE>
<TABLE>
<S> <C>
44. DEFINITION OF ADDITIONAL RENT.............................................. 51
45. SURRENDER OF PREMISES...................................................... 51
46. NO ACCORD AND SATISFACTION................................................. 52
47. MERGER..................................................................... 52
48. FINANCIAL STATEMENTS....................................................... 52
</TABLE>
EXHIBITS AND SCHEDULES
- ----------------------
A. Legal Description
B. Schedule of Monthly Base Rent
C. Letter of Credit
D. Work Letter for Tenant Improvements
E. Nondisturbance Agreement
1. List of Remaining Furniture
2. List of Groundwater Monitoring Report
3. Site Plan Showing Entrances and Corridors
<PAGE>
LEASE
THIS LEASE ("Lease") is made this 13th day of August, 1999 by and
between ALZA CORPORATION, a Delaware Corporation ("Landlord"), and CHEMDEX
CORPORATION, a Delaware corporation ("Tenant").
Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord, subject to all of the terms and conditions hereinafter set forth,
those certain premises described in Item 6 of the Basic Lease Provisions and
located on the Second Floor of 1010 Joaquin Road, Mountain View, California.
BASIC LEASE PROVISIONS
----------------------
1. Date: August 13, 1999
----
2. Tenant: CHEMDEX CORPORATION, a Delaware corporation
------
3. Address: Before Commencement Date:
------- 3950 Fabian Way
Palo Alto, California 94303
Attention: Steve Draper, Director of Corporate Operations
After Commencement Date:
1550 Plymouth Street
Mountain View, California 94043
Attention: Steve Draper, Director of Corporate Operations
4. Landlord: ALZA CORPORATION, a Delaware corporation
--------
5. Address: 950 Page Mill Road
------- Palo Alto, California 94304
Attention: Senior Vice President and General Counsel
6. Premises: The second floor of the two-story freestanding
-------- building located at 1010 Joaquin Road, Mountain View,
California, containing approximately 26,445 rentable square
feet (RSF), together with the parking areas, driveways,
landscaping, common areas and other appurtenances
constructed or located on or serving the 1010 Joaquin Road
building (the "Premises"). The real property on which the
Premises is located is more particularly described in
Exhibit A attached hereto and incorporated herein by this
----------
reference.
7. Term: Approximately five (5) years and one (1) month (See Article
----
2)
-1-
<PAGE>
8. Monthly Base Rent: The following Monthly Base Rent for the Premises shall
----------------- be payable on a triple net basis pursuant to Section
3.1 below: From the Commencement Date until October 14,
2000, Seventy-Five Thousand Three Hundred Sixty-Eight
Dollars ($75,368) per month. The Monthly Base Rent for
the remaining Lease years during the Term and each
Extended Term (if any) of this Lease shall be as set
forth on Exhibit B attached hereto and incorporated
---------
herein by this reference. Monthly Base Rent for the
Premises (but no other rent or charges due under this
Lease) shall be forgiven for the first month of the
Term.
9. Prepaid Rent: $75,368 due upon execution of the Lease by Landlord
------------ and Tenant (See Section 3.1)
10. Letter of Credit: Letter of Credit in the amount of Six Hundred
---------------- Twenty-Five Thousand Dollars ($625,000) due upon
execution of the Lease (See Article 4)
11. Permitted Use: As provided in Article 8
-------------
12. Renewal Options: Subject to Landlord's Recapture Right (defined in
--------------- Section 2.3 below), two (2) successive one (1) year
renewal options (See Section 2.3)
13. Expansion Options: None
-----------------
14. Landlord's Broker: Catalyst-CRESA Real Estate Group
-----------------
15. Tenant's Broker: Cornish & Carey Commercial Real Estate
---------------
The foregoing Basic Lease Provisions set forth the essential terms of
this Lease and should be read in conjunction with the rest of the Lease and in
particular, with reference to how those terms are defined in the Lease.
ARTICLE 1
DEFINITIONS
-----------
Unless otherwise specified, the following terms used in this Lease and
designated by initial capitals shall have the following meanings:
1.1 "Environmental Laws" shall mean all local, state, or federal laws,
------------------
statutes, ordinances, rules, regulations, judgments, injunctions, stipulations,
decrees, orders, policies, permits, approvals, treaties, or protocols now or
hereafter enacted, issued or promulgated by any governmental authority which
relate to any Hazardous Material or the use, manufacture, handling, treatment,
transportation, production, disposal, discharge, distribution, release,
recycling, emission, sale, or storage of, or the exposure of any person to, a
Hazardous Material.
-2-
<PAGE>
1.2 "Financial Statements" shall mean the financial information contained
--------------------
in Tenant's Initial Registration Statement on Form S-1 accessed by Landlord on
or about May 24, 1999 at www.freeedgar.com.
1.3 "Force Majeure" shall mean any of the events described in Article 41,
-------------
below.
1.4 "Hazardous Material" shall mean any material or substance that is now
------------------
or hereafter prohibited or regulated by any statute, law, role, regulation or
ordinance or that is now or hereafter designated by any governmental authority
to be radioactive, toxic, hazardous or otherwise a danger to health,
reproduction or the environment including but not limited to (i) oil and
petroleum products, (ii) radioactive materials, (iii) asbestos and asbestos-
containing materials, (iv) polycholorinated biphenyls, and (v) viruses, microbes
and other biological materials and (v) substances defined as "hazardous
substances", "hazardous materials", or "toxic substances" in the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, 42
U.S.C. (S)(S)9601 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
-- ---
(S)(S) 1801 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C.
-- ---
(S)(S) 6901, et seq.; the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601,
-- ---
et seq.; the Clean Water Act, 33 U.S.C. (S)(S) 1251, et seq.; the California
- -- --- -- ---
Hazardous Waste Control Act, Health and Safety Code (S)(S) 25330, et seq.; the
-- ---
California Safe Drinking Water and Toxic Enforcement Act, Health and Safety Code
(S)(S) 25249.5, et seq.; California Health and Safety Code (S)(S) 25280, et seq.
-- --- -- ---
(Underground Storage of Hazardous Substances); the California Hazardous Waste
Management Act, Health and Safety Code, (S)(S) 25170, et seq. (Hazardous
-- ---
Materials Release Response Plans and Inventory); the California Porter-Cologne
Water Quality Control Act, Water Code (S)(S) 13000, et seq.; all as amended.
-- ---
1.5 "Hazardous Material Condition" shall mean the occurrence or discovery,
----------------------------
after the Commencement Date, of a condition involving the presence of, or a
contamination by, a Hazardous Material in or under the Premises requiring
remediation under Environmental Laws or rendering any part of the Premises
unsafe for human occupancy.
1.6 "Joaquin Percentage Share" shall mean Forty-Nine and 39/100ths Percent
------------------------
(49.39%) which percentage is obtained by dividing the RSF of the Premises by the
total RSF of the 1010 Joaquin Road building (which equals 53,538 RSF).
1.7 "Landlord Affiliate" shall mean any corporation, general or limited
------------------
partnership, joint venture, limited liability company or other person or entity
which controls, is controlled by or under common control with ALZA Corporation
or resulting from a merger or consolidation with ALZA Corporation or which
acquires substantially all of the assets of ALZA Corporation.
1.8 "Landlord Parties" shall mean Landlord, its employees, agents,
----------------
consultants, licensees, invitees, contractors, subcontractors, and any other
person for whom Landlord is legally responsible, provided that under no
circumstances shall any of Tenant Parties be deemed a Landlord Party for
purposes of this Lease.
1.9 "Lease" shall mean this Lease document including the Basic Lease
-----
Provisions and any and all Exhibits and Addenda attached hereto now or in the
future
1.10 "Letter of Credit" shall mean the Letter of Credit described in
----------------
Article 4 below.
-3-
<PAGE>
1.11 "Permitted Use" shall mean the sole use for which Tenant may utilize
-------------
the Premises as specified in Item 11 of the Basic Lease Provisions and Article 8
below.
1.12 "Plymouth Lease" shall mean the office lease of even date herewith
--------------
executed by Landlord and Tenant for the Plymouth Premises.
1.13 "Plymouth Premises" shall mean the 1500 Plymouth Street building
-----------------
containing approximately 40,000 RSF and the 1550 Plymouth Street building also
containing approximately 40,000 RSF together with the parking areas, driveways,
landscaping, common areas and other appurtenances constructed or located thereon
or serving the 1500 Plymouth Street building and/or the 1550 Plymouth Street
building.
1.14 "Premises" shall have the meaning set forth in Item 6 of the Basic
--------
Lease Provisions.
1.15 "Rent" and "rent" shall mean Monthly Base Rent, Additional Rent and
----
all other charges payable hereunder and under any Exhibit or Addenda to this
Lease, and any other monetary obligations of Tenant to Landlord under the
provisions of this Lease.
1.16 "Technology Party" shall mean any corporation, general or limited
----------------
partnership, joint venture, limited liability company or other person or entity
which is pursuing the application of Landlord's technology as a material part of
its business pursuant to a written agreement with Landlord.
1.17 "Tenant Affiliate" shall mean any corporation, general or limited
----------------
partnership, joint venture, limited liability company or other person or entity
(collectively, "person") which satisfies each of the following three criteria:
(i) such person controls, is controlled by or is under common control with
Tenant or results from a merger or consolidation with Tenant; (ii) Tenant
beneficially owns more than fifty percent (50%) of such person; and (iii) such
person has a net worth, determined in accordance with generally accepted
accounting principles ("GAAP"), in excess of Twenty Million Dollars
($20,000,000).
1.18 "Tenant Subsidiary." shall mean any corporation, general or limited
-----------------
partnership, joint venture, limited liability company or other person or entity
(collectively, "person") which satisfies each of the following two criteria: (i)
such person controls, is controlled by or is under common control with Tenant or
results from a merger or consolidation with Tenant; and (ii) Tenant beneficially
owns more than fifty percent (50%) of such person.
1.19 "Tenant Parties" shall mean Tenant, its employees, agents,
--------------
consultants, licensees, invitees, contractors, subcontractors, and any other
person for whom Tenant is legally responsible, provided that under no
circumstances shall any of Landlord Parties be deemed a Tenant Party for
purposed of this Lease.
1.20 "Term" shall mean the period of the Lease between the Commencement
----
Date and the Expiration Date (as such Commencement Date and Expiration Date are
defined in Section 2.1 below) or earlier termination of the Lease, but not to
exceed the period set forth in Item 7 of the Basic Lease Provisions unless
extended as provided in Section 2.3 below.
-4-
<PAGE>
1.21 Other defined terms used in this Lease shall have the meanings set
forth in the Lease, including the following:
1.21.1 "Additional Rent" is defined in Article 44;
---------------
1.21.2 "Commencement Date" is defined in Section 2.1;
-----------------
1.21.3 "Expiration Date" is defined in Section 2.1; and
---------------
1.21.4 "Monthly Base Rent" is defined in Article 3.
-----------------
ARTICLE 2
TERM AND POSSESSION
-------------------
2.1 Commencement. The Term of this Lease shall be for approximately five
------------
(5) years and one (1) month as described in Item 7 of the Basic Lease Provisions
and shall commence on that date when Landlord delivers possession of the
Premises to Tenant in vacant, broom-clean condition, which Landlord anticipates
to occur on or about February 1, 2000 (the "Commencement Date"), and shall
expire on February 28, 2005 (the "Expiration Date"). Landlord shall exercise
commercially reasonable efforts (subject to Force Majeure delays) to deliver the
Premises to Tenant on or about February 1, 2000. Landlord shall exercise
commercially reasonable efforts to give Tenant at least thirty (30) days prior
written notice of each anticipated Commencement Date (but without any liability
on Landlord's part if Landlord shall fail to do so). Landlord and Tenant shall
execute a letter agreement confirming each exact Commencement Date within five
(5) business days following the Commencement Date. If the Commencement Date and
delivery of possession of the Premises to Tenant does not occur on or before
April 3, 2000, then Tenant's sole and exclusive remedy with respect to such
delay in the Commencement Date shall be to terminate this Lease and the Plymouth
Lease by written notice given to Landlord on or before April 17, 2000, and in
the event of such termination both Landlord and Tenant shall be released and
relieved of their respective obligations and liabilities under this Lease and
under the Plymouth Lease, Landlord shall return Tenant's prepaid rent and the
Letter of Credit paid or delivered by Tenant under this Lease and under the
Plymouth Lease to Tenant and neither party shall have any right to recover any
losses, costs, expenses or damages (including, without limitation, loss of
profits, foreseeable or unforeseeable consequential damages or special damages)
from the other party.
2.2 Tenant's Acceptance of Possession. Tenant acknowledges and agrees that
---------------------------------
(i) Tenant has made all investigations which Tenant deems necessary concerning
(A) the condition of the Premises including the soil, air and groundwater
thereof, (B) Landlord's prior use of the Premises, (C) Landlord's prior and
continuing use of the ground floor of the 1010 Joaquin building for research and
development, laboratory and pharmaceutical purposes, (D) the adequacy of parking
for Tenant's intended office use of the Premises, (E) the compliance of the
Premises with all applicable statutes, laws, ordinances and regulations and (F)
Tenant's ability to operate its business in the Premises, (ii) Tenant shall
accept the Premises in "AS IS" and "WITH ALL FAULTS" condition on the
Commencement Date subject to all applicable zoning, municipal, county, state and
federal statutes, laws, ordinances and regulations governing and
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regulating the use of the Premises and all easements, encumbrances, covenants,
conditions and restrictions of record, (iii) except as otherwise provided in
this Lease, Landlord has no obligation to alter or improve the Premises of any
nature whatsoever and (iv) Tenant acknowledges and agrees that neither Landlord
nor any of its agents or representatives has made any oral or written
representations or warranties of any nature whatsoever (a) with respect to the
Premises including the soil, air and groundwater thereof, (b) compliance or the
Premises with building codes and applicable laws, (c) the ability of Tenant to
operate its business in the Premises or (d) as to any of the matters set forth
in subclauses (i)(A) through (i)(F) above.
2.3 Option To Extend Term. Landlord shall notify Tenant in writing at
---------------------
least twelve (12) months prior to the Expiration Date of the initial Term of the
Lease and/or twelve (12) months prior to the expiration of the first Extended
Term (defined below), as applicable, as to whether Landlord will exercise its
right to repossess the Premises from and after the Expiration Date or the
expiration of the first Extended Term, as applicable (the "Recapture Right"). If
Landlord, in Landlord's sole and absolute discretion, exercises this Recapture
Right, then (i) the Lease shall terminate on the Expiration Date or the
expiration of the first Extended Term, as applicable, (ii) Tenant shall have no
right to extend this Lease for the Extended Term(s) (defined below), (iii) from
and after the Expiration Date or the expiration of the first Extended Term, as
applicable, Tenant shall have no further rights or interests in the Premises of
any nature whatsoever, and (iv) provided Landlord, a Landlord Affiliate and/or a
Technology Party initially occupies more than fifty percent (50%) of the
Premises for their own use, Landlord shall be free to use the balance of the
Premises for any purposes whatsoever, including, without limitation, assigning
or subleasing the balance of the Premises to any person or entity for any
purpose whatsoever. If Landlord does not timely exercise its Recapture Right as
to the Premises upon the Expiration Date or the expiration of the first Extended
Term, as applicable, then Tenant shall have the option to extend the term of
this Lease as to the entire Premises (but not less than the entire Premises) for
two (2) extended term(s) of one (1) year each commencing upon the Expiration
Date of the initial Term of the Lease and the expiration of the first one-year
Extended Term (each, an "Extended Term"). Tenant may exercise the foregoing
option to extend if and only if (i) Tenant notifies Landlord in writing of its
irrevocable election to extend the Term of the Lease for the Extended Term no
later than eleven (11) months prior to the Expiration Date of the initial Term
of the Lease or eleven (11) months prior to the expiration date of the first
one-year Extended Term, as applicable, (ii) Tenant extends the term with respect
to the entire Premises (and not solely a portion of the Premises) and (iii)
Tenant is not in material default of the Lease (following the expiration of any
applicable cure periods without cure) either at the time of giving notice of its
irrevocable election to extend or on the commencement date of each Extended
Term. If each of the conditions set forth in the immediately preceding sentence
are not satisfied in full, then Tenant's option(s) to extend the term of the
Lease shall lapse and be null and void and the terms and provisions of the
second sentence of this Section 2.3 shall apply as though Landlord had exercised
its Recapture Right as to the Premises. All of the terms and provisions of this
Lease shall apply during the Extended Term except that (a) there shall be no
further right to extend the term of the Lease beyond the second Extended Term,
(b) except as expressly provided in this Lease, Landlord shall have no
obligation to make improvements to the Premises of any nature whatsoever, (c)
Tenant shall not be entitled to any abatement of Monthly Base Rent during either
Extended Term and (d) Monthly Base Rent during each the Extended Term shall be
determined and annually increased in accordance with the provisions of Exhibit B
---------
attached hereto. The foregoing right to extend the term of the Lease is personal
to Tenant and
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may not be assigned, sold, leased or otherwise transferred, voluntarily or
involuntarily, by or to any other person or entity except to a Tenant Affiliate
in accordance with Article 15 below.
2.4 Access to Premises. During the Term and any Extended Term(s), Tenant
------------------
shall at all times have access to the Premises through the 1010 Joaquin building
entrances and corridors shown on the site plan attached hereto as Schedule 3.
----------
ARTICLE 3
MONTHLY BASE RENT; NET LEASE
----------------------------
3.1 Monthly Base Rent. Tenant shall pay to Landlord as Monthly Base Rent
-----------------
for the Premises the sum(s) described in Item 8 of the Basic Lease Provisions
and as set forth on Exhibit B to this Lease during the entire Term and any
----------
Extended Term(s). The Monthly Base Rent shall be payable in advance on the first
day of each calendar month, without deduction, setoff, abatement, prior notice
or demand, commencing on the Commencement Date and continuing for each calendar
month thereafter during the Term of the Lease and the Extended Term(s), if
applicable. In the event the Term of this Lease commences or ends on a day other
than the first or last day of a calendar month, then the Monthly Base Rent for
such partial month shall be prorated in the proportion that the number of days
this Lease is in effect during such partial month bears to the number of days in
that calendar month, and such Monthly Base Rent shall be paid at the
commencement of such partial month. Monthly Base Rent shall be payable in lawful
money of the United States at the address of Landlord set forth in Item 5 of the
Basic Lease Provisions or at such other address as may be designated by Landlord
in writing pursuant to Article 23 below. Notwithstanding any other term of this
Lease to the contrary, a prepayment of Monthly Base Rent in the amount set forth
in Item 9 of the Basic Lease Provisions shall be made by Tenant upon execution
of this Lease and shall be applied to the Monthly Base Rent for the second (2nd)
full calendar month of the Term. Landlord hereby acknowledges receipt of such
prepaid rent from Tenant.
3.2 Forgiveness of Monthly Base Rent. As an inducement to Tenant to enter
--------------------------------
into this Lease, Tenant shall be entitled to unconditional forgiveness of
Monthly Base Rent in the amount of $75,368 for the Premises for the first (1st)
month of the Term ("Forgiven Rent"). There shall be no abatement of Monthly Base
Rent during either Extended Term of this Lease. Tenant's obligation to pay in
full all Additional Rent and all other charges payable under this Lease shall
not be affected by the foregoing Forgiven Rent.
3.3 Additional Rent. In addition to the Monthly Base Rent reserved in
---------------
Section 3.1 above, Tenant shall reimburse to Landlord or pay to the parties
entitled thereto, as applicable, the Joaquin Percentage Share of all
impositions, Insurance Premiums (as defined in Section 5.3 below), Property
Taxes (as defined in Section 5.2 below), operating charges, maintenance charges,
construction costs, and any other charges, costs and expenses which arise or may
be contemplated under any provisions of this Lease during the Term hereof and
each Extended Term on the terms set forth in this Lease. All of such charges,
costs and expenses shall constitute Additional Rent, and upon the failure of
Tenant to timely reimburse or pay any of such costs, charges or expenses,
Landlord shall have the same rights and remedies as otherwise provided in this
Lease for the failure of Tenant to pay rent. It is the intention of the parties
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hereto that this Lease shall not be terminable for any reason by Tenant except
for Landlord's uncured material breach of this Lease as provided in Section 25.3
below and except as otherwise expressly provided herein and that Tenant shall in
no event be entitled to any abatement of or reduction in Rent payable under this
Lease except as herein expressly provided. Any present or furore law to the
contrary shall not alter this agreement of the parties.
ARTICLE 4
LETTER OF CREDIT
----------------
4.1 Letter of Credit as Security. Concurrent with the execution of this
----------------------------
Lease, Tenant shall deliver to Landlord the Letter of Credit (as defined in
Section 4.2 below) in the amount of Six Hundred Twenty-Five Thousand Dollars
($625,000), which Letter of Credit shall secure the full and faithful
performance of each and every provision and condition of this Lease to be
performed by Tenant. The amount of the Letter of Credit shall be reduced to Two
Hundred Fifty Thousand Dollars ($250,000) on February 1, 2002 if Tenant's net
worth on such date (determined in accordance with generally accepted accounting
principals ("GAAP")) exceeds Twenty Million Dollars ($20,000,000) and (ii) the
amount of the Letter of Credit shall be further reduced to One Hundred Twenty-
Five Thousand Dollars ($125,000) on February 1, 2003 if Tenant's net worth on
such date (determined in accordance with GAAP) continues to exceed Twenty
Million Dollars ($20,000,000). There shall be no further reduction in the stated
amount of the Letter of Credit from and after February 1, 2003. The face amount
of the Letter of Credit (as reduced above from time to time upon satisfaction of
the foregoing conditions) is hereafter referred to as the "Face Amount".
Anything contained in this Article 4 to the contrary notwithstanding, the Face
Amount of the Letter of Credit shall not be reduced if Tenant has previously
committed an uncured default under this Lease. If an Event of Default occurs
under this Lease (including but not limited to an Event of Default with respect
to the obligation to pay Rent or to clean and restore the Premises upon
termination of the Lease), Landlord may, but shall not be required to, draw upon
the Letter of Credit for the payment of any Rent, interest, late charges or any
other sum in default, or for the payment of any other amount which Landlord may
spend or become obligated to spend by reason of the Event of Default or to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of the Event of Default, including, without limitation, costs and
reasonable attorneys' fees incurred by Landlord to collect on the Letter of
Credit and/or to recover possession of the Premises following an Event of
Default by Tenant hereunder. Tenant shall cause the Letter of Credit to remain
in effect during the entire Term of this Lease and for an additional period of
sixty (60) days following the expiration or earlier termination of this Lease.
If Tenant fails to maintain, renew or replace the Letter of Credit in its then
Face Amount at least thirty (30) days before its stated expiration date (or if
Tenant fails to maintain, renew or replace the letter of credit under Article 4
of the Plymouth Lease in its then face amount at least thirty (30) days before
its stated expiration date), then Landlord may, without prejudice to any other
right or remedy, draw upon the entire amount of the Letter of Credit. Any amount
drawn by Landlord on the Letter of Credit pursuant to this Section 4.1 but not
applied by Landlord to satisfy Tenant's obligations hereunder shall be held by
Landlord as a security deposit. Landlord may commingle any proceeds from the
Letter of Credit with Landlord's general funds and Tenant shall not be entitled
to any interest thereon. If Landlord draws on any portion of the Letter of
Credit, Tenant shall, within three (3) business days after demand by Landlord,
either (a) deposit immediately available funds with Landlord in
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the amount that when added to the remaining amount of the undrawn portion of the
Letter of Credit equals its then Face Amount or (b) deliver to Landlord written
documentation acceptable to Landlord executed by the Issuing Bank (as defined in
Section 4.2 below) confirming that the Issuing Bank has reinstated the Letter of
Credit to its then full Face Amount; and Tenant's failure to do either (a) or
(b) above shall constitute an Event of Default hereunder. If the funds received
by Landlord pursuant to a draw on the Letter of Credit exceed the amount applied
by Landlord to cure the Event of Default, concurrently with and conditioned upon
Tenant's reinstatement of the Letter of Credit to its full Face Amount, Landlord
shall return any such excess funds to Tenant. If Tenant shall fully perform each
and every provision of this Lease required by Tenant to be performed, the Letter
of Credit (and any funds held by Landlord as a security deposit after drawing on
the Letter of Credit) shall be returned to Tenant (or, at Landlord's option, to
the last assignee of Tenant's interest hereunder) within sixty (60) days
following the later of the expiration of the Term or surrender of possession of
the Premises to Landlord. Notwithstanding the foregoing, the Letter of Credit
(and any funds held by Landlord as a security deposit after drawing on the
Letter of Credit) shall be immediately returned to Tenant upon the termination
of this Lease solely by reason of Landlord's material default hereunder. Tenant
shall not assign or encumber the Letter of Credit. Any attempt to do so shall be
void and Landlord shall not be bound by any such purported assignment or
encumbrance. In the event of bankruptcy or other insolvency proceedings filed by
or against Tenant, all sums drawn under the Letter of Credit shall be deemed to
be applied first to the payment of Rent and other charges due Landlord for all
periods prior to the effective date of such proceedings. If Landlord transfers
or assigns its interest in the Premises, Landlord may transfer or assign the
Letter of Credit to such transferee.
4.2 Form of Letter of Credit. Concurrent with the execution of this Lease,
------------------------
Tenant shall deliver to Landlord an irrevocable, unconditional standby letter of
credit in the original face amount of Six Hundred Twenty-Five Thousand Dollars
($625,000) in the form attached hereto as Exhibit C (the "Letter of Credit") to
---------
secure the full and faithful performance of each and every term and provision of
this Lease to be performed by Tenant as set forth in Section 4.1 above. The
Letter of Credit shall be issued by a bank or financial institution ("Issuing
Bank") which is acceptable to Landlord and which accepts deposits, maintains
accounts, is FDIC insured and has a local Mountain View or San Francisco office
which will negotiate the Letter of Credit. The Letter of Credit shall permit
full or partial draws by Landlord or Landlord's assignee. Tenant shall pay all
expenses, points or fees incurred by Tenant in obtaining, maintaining and
renewing the Letter of Credit. As provided in Section 4.1 above, Tenant shall
cause the Letter of Credit to remain in full force and effect during the entire
term of this Lease and for a period of sixty (60) days following the expiration
or earlier termination of this Lease (except in the case of termination of this
Lease solely by reason of Landlord's material default hereunder). Provided this
Lease has not expired or terminated, Tenant shall replace or renew the Letter of
Credit from time to time at least thirty (30) days before its stated expiration
date. Failure to so replace or renew the Letter of Credit shall constitute a
default hereunder and Landlord shall thereafter be entitled to draw the full
amount of the Letter of Credit and hold it as a cash security deposit. The terms
of the Letter of Credit shall expressly provide that the Letter of Credit is
assignable by Landlord, as beneficiary thereunder, to any transferee or assignee
of Landlord's interest in the Premises who expressly assumes in writing
Landlord's obligations under this Lease.
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ARTICLE 5
TENANT'S PAYMENT OF PROPERTY TAXES
AND INSURANCE PREMIUMS
----------------------
5.1 Payment of Property Taxes and Insurance Premiums. In addition to
------------------------------------------------
payment of Monthly Base Rent pursuant to Section 3.1 above, Tenant shall
reimburse on the terms set forth in this Article 5 to Landlord, as part of
Additional Rent hereunder, the Joaquin Percentage Share of Property Taxes (as
defined in Section 5.2 below) and Insurance Premiums (as defined in Section 5.3
below). Tenant shall reimburse Landlord for the Joaquin Percentage Share of
Property Taxes paid by Landlord for the Premises within ten (10) business days
following Tenant's receipt from Landlord of written demand for reimbursement of
such Property Taxes accompanied by a copy of the then applicable tax bill and a
copy of Landlord's check made payable to the taxing authority. Tenant shall
likewise reimburse Landlord for the Joaquin Percentage Share of Insurance
Premiums paid by Landlord for the Premises within ten (10) business days
following Tenant's receipt from Landlord of written demand for reimbursement of
such Insurance Premiums accompanied by a copy of the applicable insurance
premium invoice and a copy of Landlord's check made payable to the insurance
carrier. If any Property Taxes or Insurance Premiums so paid by Landlord cover
any period of time prior to or after the expiration of the Term hereof, Tenant's
share of Property Taxes or Insurance Premiums shall be equitably prorated to
reflect only the period of time during which the Lease was in effect.
5.2 Property Taxes Defined. The term "Property Taxes" as used herein shall
----------------------
mean and include (i) any and all real estate and personal property taxes and
other taxes, rates, charges, general and special assessments, transit charges,
housing fund assessments, liens, assessment bonds, district formation costs,
bonds, levies, fees and impositions whether general, special or supplemental,
unforeseen or foreseen, ordinary or extraordinary which are assessed, imposed,
charged, confirmed or levied with respect to the Premises, and/or any
improvements, fixtures and equipment and other property of Landlord, real or
personal, located thereon, but only to the extent each of the foregoing relates
to the period between the Commencement Date (as applicable) and the date this
Lease expires or sooner terminates and any costs, fees or expenses incurred in
contesting the amount or validity of any of the foregoing; (ii) any tax,
surcharge, levy, fee or assessment which may be imposed in addition to or in
lieu of real estate or personal property taxes against the Premises, but only to
the extent each of the foregoing relates to the period between the Commencement
Date (as applicable) and the date this Lease expires or sooner terminates; and
(iii) any service, use or other fee collected by governmental agencies in
addition to or in lieu of real estate or personal property taxes against the
Premises for services provided by such agencies, but only to the extent each of
the foregoing relates to the period between the Commencement Date (as
applicable) and the date this Lease expires or sooner terminates. The term
Property Taxes as used herein shall also include any new, replacement or
supplemental property taxes and any rental, excise, sales, mortgage, transaction
privilege, or other tax or levy, however denominated, imposed upon or measured
by the rental reserved hereunder or on Landlord's business of owning, operating
or leasing the Premises, but only to the extent each of the foregoing relates to
the period between the Commencement Date (as applicable) and the date this Lease
expires or sooner terminates. However, notwithstanding anything to the contrary
above or elsewhere in this Lease, the term "Property Taxes" shall not mean or
include (a) any income, franchise, capital stock, estate or inheritance taxes of
or
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applicable to Landlord; (b) any transfer taxes; or (c) any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of any
alteration or improvement made to any portion of the 1010 Joaquin building
(other than the Premises) during the Term or any Extended Term or by reason of
any specific use made by Landlord (or any tenant of Landlord) during the Term or
any Extended Term of any portion of the 1010 Joaquin building (other than the
Premises). Subject to subclause (c) of the preceding sentence, Property Taxes
shall also include all increases in Property Taxes during the Term or Extended
Term including, without limitation, (a) annual increases, (b) increases due to a
reassessment of the Premises arising from a change in ownership or transfer of
all or part of Landlord's interest in the Lease, or the Premises or any
refinancing of the Premises or (c) any new construction, alterations or
renovations to the Premises or any of its common areas. If any Property Taxes
shall be payable in installments over a period of time extending beyond the Term
of the Lease (or the Extended Term, if applicable), Tenant shall only be
required to pay such installments thereof as shall become due and payable
during, or relate to periods of time covered by, the Term of the Lease (or any
Extended Term, if applicable). Landlord shall provide Tenant with a copy of its
annual Property Tax statements.
5.3 Insurance Premiums. The term "Insurance Premiums" shall mean and
------------------
include all premiums paid or incurred by Landlord in obtaining and maintaining
the insurance coverages required to be maintained by Landlord under Section 19.4
below and other commercially reasonable insurance coverages which Landlord
acting as a prudent landowner and landlord may obtain and maintain, but only to
the extent such premiums paid for insurance coverage relate to the period
between the Commencement Date (as applicable) and the expiration or sooner
termination of this Lease.
ARTICLE 6
MAINTENANCE, REPAIR AND REPLACEMENT
-----------------------------------
6.1 Tenant's Obligations for the Premises. Except for the obligations of
-------------------------------------
Landlord under Section 6.3, Section 9.2, Article 13 and Article 14 below, and
except for damage caused by Landlord or the Landlord Parties (which shall be the
sole and exclusive responsibility and cost of Landlord), Tenant, at Tenant's
sole cost and expense, shall keep in good and neat order, condition and repair
the interior nonstructural portions of the Premises, whether or not capital in
nature (and whether or not the interior nonstructural portions of the Premises
requiting repair or replacement, or the means of repairing or replacing the
same, are reasonably accessible to Tenant, and whether or not the need for
repairs, replacements and/or capital improvements occurs as a result of Tenant's
use, any prior use, the elements or age of such nonstructural portion of the
Premises, or alterations, additions, repairs or replacements required by
governmental authority, whether or not related to Tenant's specific use of the
Premises) including, without limitation, repair and replacement (including any
and all replacements and capital improvements) of all interior surfaces of
exterior walls and all surfaces of interior beating walls, all interior non-
beating walls, ceilings, lighting, cabling, data and telephone systems and
wiring, floors, windows, floor coverings and window coverings, doors and plate
glass of the Premises; provided, however, that the cost of any capital
improvements or replacements having a useful life (as determined in accordance
with GAAP) longer than the Lease Term (including the Extended Term(s), if any),
shall be amortized over such useful life and Tenant shall only be obligated to
pay, each month during the remainder of the Term (and Extended Term(s), if any)
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on the date on which Base Monthly Rent is due, an amount equal to the product
obtained by multiplying the cost of such capital improvement or replacement by a
fraction, the numerator of which is one, and the denominator of which is the
number of months of the useful life of such capital improvement or replacement
(as such useful life is determined in accordance with GAAP), with Tenant
reserving the right to prepay its obligation at any time. Within ten (10)
business days after written demand from Tenant, Landlord shall reimburse Tenant
in full for the cost of any capital improvements or replacements made to the
Premises by Tenant pursuant to this Section 6.1.
6.2 Landlord's Rights. If an Event of Default involving Tenant's failure
-----------------
to perform Tenant's obligations under Section 6.1 above or under any other
Section of this Lease should occur, Landlord may at its option (but shall not be
required to) enter upon the Premises upon ten (10) business days prior written
notice to Tenant (except in an emergency, in which case no notice shall be
required) to cure such Event of Default on Tenant's behalf, and all reasonable
costs thereof together with interest thereon as set forth in Section 34.1 below
shall constitute Additional Rent hereunder and shall be due and payable within
five (5) business days after written demand by Landlord. Notwithstanding the
foregoing, in the case of an emergency resulting from Tenant's failure to
perform its obligations under Section 6.1 above or under any other Section of
this Lease, Landlord may act immediately pursuant to this Section 6.2.
6.3 Landlord's Obligations for the Premises. Except for damage caused by
---------------------------------------
Tenant or the Tenant Parties (which shall be the sole and exclusive
responsibility and cost of Tenant), Landlord shall keep in good and neat order,
condition and repair all exterior and structural portions of, and all building
systems and common area within or serving, the Premises, whether or not capital
in nature including, without limitation, repair and replacement (including any
and all replacements and capital improvements) of all plumbing, electrical,
heating, ventilating and air conditioning systems, all elevators, stairways and
stairwells, all sprinkler and life safety systems, bearing walls (interior and
exterior), foundations, roofs and roof membranes, and all landscaping,
landscaping and irrigation systems, driveways, parking lots, loading docks,
fences and signs located on or adjacent to the Premises and all sidewalks and
pathways located on or adjacent thereto (with the cost of all of the foregoing
being referred to herein as the "Joaquin Maintenance Costs"). Landlord shall
periodically (but not more often than monthly) invoice to Tenant, and Tenant
shall reimburse to Landlord within ten (10) business days following Tenant's
receipt of Landlord's invoice, Tenant's Joaquin Percentage Share of the Joaquin
Maintenance Costs; provided, however, that the cost of any capital improvements
or improvements made by Landlord to the Premises having a useful life (as
determined in accordance with GAAP) longer than the Lease Term (including the
Extended Term(s), if any) shall be amortized over such useful life and Landlord
shall include within the Joaquin Maintenance Costs each month during the
remainder of the Term (and Extended Term(s), if any) an amount not to exceed to
the product obtained by multiplying the cost of such capital improvement or
replacement by a fraction, the numerator of which is one, and the denominator of
which is the number of months of the useful life of such capital improvement or
replacement (as such useful life is determined in accordance with GAAP), with
Tenant reserving the right to prepay its obligation at any time. Notwithstanding
the foregoing, except for damage caused by Tenant or the Tenant Parties (which
shall be the sole and exclusive responsibility and cost of Tenant), (a) the cost
of keeping the roof and roof membrane at the Premises, the skylights (if any) at
the Premises, the foundation for the Premises, and the structural walls
(including, without limitation, interior and exterior bearing
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walls) at the Premises, in good and neat order, condition and repair (including
replacements and capital improvements), shall be borne exclusively by Landlord
and shall not be included in the Joaquin Maintenance Costs, and (b) the cost of
investigating, monitoring, remediating, removing or otherwise responding to any
Hazardous Materials on, under or about the Premises shall not be included in the
Joaquin Maintenance Costs (provided, however, that nothing herein shall be
deemed to limit Landlord's rights under Sections 9.3 through 9.5 below).
6.4 Waivers. Except as expressly provided in Articles 13 and 14 below,
-------
there shall be no abatement of Rent and no liability of Landlord by reason of
any injury to or interference with Tenant's business arising from Tenant's
making repairs pursuant to Section 6.1 above or Landlord making repairs pursuant
to Section 6.2 above (where Tenant has failed to make such repairs) and Section
6.3 above. Tenant expressly waives the benefit of any statute, law or regulation
now or hereafter in effect, including, without limitation, California Civil Code
Sections 1941 and 1942, which would otherwise afford Tenant the right to make
repairs at Landlord's expense or terminate the Lease.
ARTICLE 7
IMPROVEMENTS AND ALTERATIONS; LIENS
-----------------------------------
7.1 Original Tenant Improvements. On the Commencement Date Landlord shall
----------------------------
deliver possession of the Premises to Tenant in "AS IS" and "WITH ALL FAULTS"
condition. Tenant, at Tenant's sole cost and expense, shall construct and
install all of the Tenant Improvements (as defined in the Work Letter for Tenant
Improvements attached to this Lease as Exhibit D and incorporated herein by this
---------
reference (the "Work Letter")) within the Premises in a first-class, diligent
and workmanlike manner and fully and timely comply with each and every term,
covenant and condition set forth in the Work Letter. Tenant shall exercise its
best efforts to install within the Premises Tenant Improvements which will have
a remaining useful life to Landlord at the expiration or earlier termination of
the Lease.
7.2 Furniture and Telephone/Network Equipment. During the Term and any
-----------------------------------------
Extended Term(s) of the Lease, Landlord shall permit Tenant to use all of
Landlord's existing cubicles, office furniture and lobby/conference room
furniture (but excluding all ergonomic furniture and all exam room furniture in
Landlord's health clinic) listed on Schedule 1 attached to this Lease in its
----------
"AS-IS" and "WITH ALL FAULTS" condition (collectively, the "Remaining
Furniture") (but expressly excluding from the Remaining Furniture Landlord's
office equipment, fixtures and trade fixtures, which Landlord shall remove from
the Premises prior to the Commencement Date). Tenant shall be permitted to use
the Remaining Furniture at no additional rental. Prior to the Commencement Date,
Landlord and Tenant shall jointly make a detailed inspection and written
inventory of the Remaining Furniture to ensure that Schedule 1 both (i) properly
----------
describes all of the Remaining Furniture and (ii) properly describes the
physical condition of the Remaining Furniture as of the Commencement Date.
Tenant, at Tenant's sole cost and expense, shall maintain the Remaining
Furniture in as good condition and repair as when received and at the expiration
or earlier termination of the Term of the Lease, Tenant shall return the
Remaining Furniture to Landlord in as good a condition as received, ordinary
wear and tear and damage by fire, other casualty or acts of God excepted. The
Remaining Furniture shall at all times during the Term and any Extended Term(s)
be and remain the sole and exclusive
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property of Landlord; provided, however, that Tenant, at Tenant's sole cost and
expense, shall be obligated to insure the Remaining Furniture under its "All-
Risk" property insurance policy described in Section 19.3 below. Any and all
insurance proceeds relating to the Remaining Furniture shall be the sole and
exclusive property of Landlord. Landlord and Tenant hereby agree that the value
of the Remaining Furniture for insurance purposes only is Eight Hundred Fifty
Six Thousand One Hundred Ninety DOLLARS ($856,190.00). Tenant agrees that the
-------------
Remaining Furniture shall remain within the Premises and that in no event shall
the Remaining Furniture be removed from the Premises. In addition, on the
Commencement Date Landlord shall leave in place within the Premises Landlord's
telephone lines and cable/network lines; provided, however, that Tenant
acknowledges and agrees that (a) on or before the Commencement Date Landlord
shall disconnect all such telephone lines and cable/network lines from
Landlord's central telephone/data network switch room located in the Premises
(the "Switch Room"), (b) Landlord shall have sole and exclusive use of and
unrestricted access through the Premises to the Switch Room in the Premises at
all times during the Term and any Extended Term(s) and (c) Tenant, at Tenant's
sole cost and expense, and as part of Tenant's installation of its Tenant
Improvements under the Work Letter, shall install its own dedicated central
telephone/data network switch room and connect its telephone and data network
cabling lines to its central telephone/data network switch room.
7.3 Alterations by Tenant. Other than the initial Tenant Improvements,
---------------------
Tenant shall make no alterations, additions or improvements to the Premises
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Landlord may impose, as a condition of such
consent, such reasonable requirements as Landlord may deem desirable including,
without limitation, the requirement that Tenant remove such alterations,
additions or improvements upon the expiration or earlier termination of the
Lease. Landlord shall advise Tenant in writing at the time Tenant makes its
initial Tenant Improvements under the Work Letter (as to the initial Tenant
Improvements) and at the time Tenant request's Landlord's consent to any
subsequent alterations whether Landlord will require Tenant to remove such
alterations from the Premises upon the expiration or earlier termination of this
Lease. Notwithstanding the requirements in this Section 7.3, nonstructural
alterations, additions or improvements which do not affect building systems or
the exterior of the Premises and that cost less than Fifty Thousand Dollars
($50,000) in the aggregate in any calendar year shall not require Landlord's
prior written consent, but Landlord shall be entitled to at least ten (10) days
prior written notice thereof before Tenant commences such alterations, additions
or improvements. Tenant shall submit all plans and specifications relating to
any proposed alterations, additions or improvements which exceed Fifty Thousand
Dollars ($50,000) in the aggregate in any calendar year to Landlord for
Landlord's prior written approval. No materials used in Tenant's alterations
shall be subject to any security interest or lien and no part of the Premises
shall be subject to any mechanics' or materialmen's lien by reason of Tenant's
alterations. No such alterations shall affect the exterior appearance of the
Premises and it shall be deemed reasonable for Landlord to refuse to consent to
any such alterations. All work approved by Landlord shall be performed by Tenant
or Tenant's contractors in a first-class, diligent and workmanlike manner and so
as not to unreasonably interfere with any owners, tenants or occupants of
adjoining premises or buildings. Tenant shall utilize for such purposes only
licensed contractors and materials reasonably approved in writing by Landlord
(and Landlord hereby approves Vance Brown). Any construction by Tenant shall be
in conformance with the plans and specifications reasonably approved by Landlord
and with any and all
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applicable rules and regulations of any federal, state, county or municipal
agency or other governmental body having jurisdiction over the Premises
(including, without limitation, the Americans With Disabilities Act and its
state and local counterparts) and with any applicable codes and ordinances
regardless of whether such roles, regulations, codes or ordinances relate to
structural, permanent or non-structural alterations. All alterations of Tenant
shall be done at Tenant's sole cost and expense. Tenant agrees to give Landlord
written notice of the commencement date of any such approved alterations,
improvements, additions or repairs to be made within the Premises at least ten
(10) days prior to the commencement of any such work in order to give Landlord
time to post notices of nonresponsibility. Tenant further agrees to reimburse
Landlord all of Landlord's reasonable costs incurred for review of any plans and
specifications submitted by Tenant for its alterations (other than the initial
Tenant Improvements) and in reviewing the progress of such alterations, but not
to exceed Two-Thousand five Hundred Dollars ($2,500) for each set of
alterations.
7.4 Liens. Tenant shall keep the Premises free from any liens arising out
-----
of any work performed, materials furnished or obligations incurred by or for
Tenant. If Tenant fails to keep the Premises free from any such liens and does
not, within twenty (20) days following the imposition of any such lien, cause
the same to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other remedies provided herein and by
law, the right, but not the obligation, to cause such lien to be released by
such means as Landlord shall deem proper, including payment of or defense
against the claim giving rise to such lien. All sums paid by Landlord and all
expenses incurred by it in connection therewith (including attorneys' fees and
costs) shall automatically create an obligation of Tenant to pay an equivalent
amount as Additional Rent, which shall be payable by Tenant on Landlord's demand
with interest as set forth in Section 34.1 below. Such interest charged shall
not constitute Landlord's exclusive remedy nor compromise or limit any other
rights granted Landlord by this Lease or by law or equity. Nothing herein shall
imply any consent by Landlord to subject Landlord's estate to liability under
any mechanic's lien law. Tenant may contest the validity and/or amount of any
lien imposed on the Premises, provided that Tenant has caused such lien to be
released of record by the payment or posting of the proper bond.
ARTICLE 8
USE OF PREMISES
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8.1 Tenant's Use. Tenant shall use and occupy the Premises solely for
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development, marketing and sale of its Chemdex electronic commerce solutions,
general office purposes, purposes related or incidental thereto, and for no
other use or purpose whatsoever without the prior written consent of Landlord,
which consent may be withheld or conditioned in Landlord's sole discretion.
Tenant covenants and agrees that its electronic commerce solutions business does
not and shall not require Tenant to use or bring onto the Premises, other than
Permitted Materials, any Hazardous Materials, pharmaceuticals, drugs, chemicals
or other materials which are the subject of its electronics commerce solutions
business or otherwise and that Tenant shall not use or bring onto the Premises,
other than Permitted Materials, any Hazardous Materials, pharmaceuticals, drugs,
chemicals or other similar materials (even in di minimus amounts) for any reason
or purpose whatsoever. Tenant shall not use or occupy the Premises in violation
of any law, regulation, code, ordinance or governmental approval or condition
for the Premises, and
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shall, upon written notice from Landlord, discontinue any use of the Premises
which is not permitted by this Lease. Tenant shall, at Tenant's sole cost and
expense, comply with any directive of any governmental authority which shall, by
reason of the specific nature of Tenant's use or occupancy of the Premises,
impose any duty, condition, order, exaction or other demand upon Tenant or
Landlord with respect to the Premises including, without limitation, any
Environmental Laws, or with respect to the use or occupation thereof. Tenant
shall secure any and all permits and licenses required to conduct its business
in the Premises. Tenant shall not do (or permit any Tenant Party to do) anything
which will invalidate or increase the cost of any insurance policy covering the
Premises and/or property located therein.
8.2 Nuisance or Waste. Tenant shall not maintain, commit (or permit any
-----------------
Tenant Party to commit) any nuisance or waste in, on or about the Premises, or
obstruct or interfere in any way with the rights of other tenants or occupants
of the Premises, or injure or annoy them by permitting or making any disturbing
or excessive noise, or by permitting objectionable odors to emanate from the
Premises, or use or allow the Premises to be used by any Tenant Party for any
unlawful purpose. Tenant shall not without Landlord's prior written consent,
place a load upon any floor that exceeds the load per square foot that such
floor is designed to carry or that is then allowed by law.
8.3 Tenant Sign. Tenant, at Tenant's sole cost and expense, and provided
-----------
Tenant complies with all applicable laws, statutes, ordinances, codes, rules,
regulations, orders and other lawful requirements of governmental agencies,
shall have the right to install no more than one (1) monument sign at the
Premises. The location(s), type, size, color, content, materials and
illumination of any of Tenant's monument signs shall be subject to Landlord's
prior written approval, which approval shall not be unreasonably withheld or
delayed. Upon the expiration or earlier termination of this Lease, Tenant shall
remove all signs and repair and restore any damage to the Premises caused by
such removal.
8.4 Parking. At all times during the Term and any Extended Terms, Tenant
-------
shall be permitted to use, on a non-exclusive basis, the unreserved parking
presently serving the 1010 Joaquin building. Tenant acknowledges and agrees that
all parking for the 1010 Joaquin building is on a shared basis with the three
(3) other immediately contiguous buildings. Tenant acknowledges and agrees that
because of this shared parking arrangement, Tenant's employees, licensees,
invitees, customers and guests may be unable to park in close proximity to the
Premises. Tenant shall satisfy itself in all respects as to the location and
sufficiency of the above-described parking for its intended purposes and use of
the Premises prior to the Commencement Date; provided, however, that Landlord
represents that there are approximately four (4) parking spaces per 1,000
rentable square feet of the Premises.
ARTICLE 9
HAZARDOUS MATERIALS
-------------------
9.1 Environmental Disclosures; As-Is. Landlord hereby discloses to Tenant
--------------------------------
and Tenant hereby acknowledges that Landlord has advised Tenant that (i)
Landlord has previously engaged and continues to engage in pharmaceutical
research in the ground floor of the 1010 Joaquin building and in connection
therewith operates laboratories and uses Hazardous Materials
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in the ground floor of the 1010 Joaquin building and (ii) that groundwater in
and around the Premises may be contaminated with Hazardous Materials which were
released by parties other than Landlord, including, without limitation,
significant quantities of halogenated volatile organic compounds released into
the groundwater by Teledyne Semiconductor and Spectra-Physics Laser, both of
whom operated facilities located directly upgradient of the Premises. Landlord
has provided Tenant with the groundwater monitoring reports described on
Schedule 2 attached hereto, which Tenant acknowledges receipt of and, except for
- ----------
disclosures to the attorneys, auditors, officers, directors, shareholders,
accountants, investment bankers, lenders, and consultants of Tenant or
disclosures required by law, agrees to keep confidential and not to disclose the
contents thereof (to the extent not a matter of public record) during or
subsequent to the term of this Lease without the prior written consent of
Landlord which Landlord may grant or withhold in its sole discretion. Tenant may
obtain more information about the groundwater in and around the Premises from
publicly available files at the Regional Water Quality Control Board and other
agencies. By entering into this Lease, Tenant acknowledges and agrees (a) that
Tenant has had an opportunity to hire any consultants and make any inquiries
about the environmental condition of the Premises, the 1010 Joaquin building and
the soil and groundwater conditions in and around the Premises that Tenant deems
desirable, (b) that Tenant's representatives and advisors are knowledgeable in
real estate and environmental matters, (c) that Tenant accepts the Premises in
"AS-IS" and "WITH ALL FAULTS" condition and (d) that Tenant is not relying on
any warranty or representation, express or implied, by or on behalf of Landlord
with respect to the Premises including the soil, air and groundwater thereof.
Landlord makes no representations and warranties concerning (x) the
environmental condition of the Premises or the environment in and around the
Premises including the soil, air and groundwater thereof, (y) the presence or
absence of Hazardous Materials in the Premises and the soil, air and groundwater
thereof, or (z) the safety of the Premises for Tenant's employees or the
likelihood that by demolition of portions of the Premises and improving the
Premises pursuant to the Work Letter and occupying and using the Premises,
Tenant's employees will be exposed to Hazardous Materials.
9.2 Landlord's Indemnity. Except with respect to (i) any soil or
--------------------
groundwater contamination in and around the Premises existing as of the
Commencement Date and any subsurface mitigation of Hazardous Materials from
other property from and after the Commencement Date and (ii) those matters which
are covered by Tenant's express indemnification and defense obligations set
forth in Section 9.5 below, Landlord shall indemnify, defend and hold Tenant and
its officers, directors, employees, affiliates, subsidiaries, shareholders,
lenders, successors and assigns harmless from and against all claims, damages,
liabilities, losses, fines, penalties, consequential damages, costs and
expenses, demands, causes of action, judgments and attorneys' and consultants'
fees, whether foreseeable or unforeseeable, directly or indirectly, to the
extent arising out of (a) Landlord's or any other Landlord Party's prior,
current or future use, handling, generation, storage, disposal, exposure of
others to, or emission or release of, any Hazardous Materials in connection with
Landlord's use or occupancy of, or pharmaceutical research in, the ground floor
of the 1010 Joaquin building or (b) Landlord's failure to remove any Hazardous
Materials (other than Hazardous Materials contained within building materials
located within the 1010 Joaquin building) to the levels required by applicable
Environmental Laws and government agencies having jurisdiction therefor from
within the 1010 Joaquin building on or before the Commencement Date, which
indemnity shall include, without limitation, the cost of any required or
necessary repair, cleanup
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or detoxification of the Premises and the preparation of any closure or other
required plans. Neither the acknowledgements or agreements of Tenant in Section
9.1 nor the strict compliance by Landlord with all laws pertaining to Hazardous
Materials shall excuse Landlord from Landlord's obligations of indemnification
pursuant to this Section 9.2. Landlord's obligations pursuant to the foregoing
indemnity shall survive the expiration or earlier termination of this Lease. If
any action or proceeding is brought against Landlord based on the foregoing
Landlord, upon notice from Tenant, shall immediately defend Tenant at Landlord's
expense with counsel reasonably acceptable to Tenant. Landlord shall, at its
sole cost and expense, comply with all laws including all Environmental Laws
applicable to its operations in the ground floor of the 1010 Joaquin building.
9.3 Compliance with Environmental Laws. Tenant shall, at Tenant's sole
----------------------------------
cost and expense, comply with all Environmental Laws applicable to its
operations within the Premises and will at its sole expense obtain, procure and
comply with all permits, licenses and other governmental approvals required for
Tenant's use of the Premises. Tenant shall not permit any Tenant Party to use,
manufacture, handle, treat, transport, produce, dispose of, discharge,
distribute, release, sell, or store any Hazardous Materials (other than
Permitted Materials) in, on or around the Premises during the Term of this
Lease. Notwithstanding the foregoing, Tenant and other Tenant Parties may use,
in compliance with all applicable laws, including Environmental Laws, reasonable
amounts of typical office and janitorial supplies and products typically used in
offices and which are sold over the counter to the public at retail and, during
the construction of the Tenant Improvements or any alterations approved by
Landlord, ordinary and necessary building materials and containerized petroleum
products stored and used in compliance with all laws (collectively, "Permitted
Materials").
9.4 Investigation and Remediation of Hazardous Materials. Tenant shall
----------------------------------------------------
promptly give Landlord copies of any notices, inquiries, claims or documents
received by Tenant from governmental agencies or third parties concerning the
presence of Hazardous Materials in, under and around the Premises, including the
air, soil and groundwater thereof. If, during the Term of this Lease, Tenant, or
Tenant Parties spill, release, discharge, dispose of or introduce Hazardous
Materials to the Premises or if any Hazardous Materials used by Tenant are found
in the soil, atmosphere, surface water or groundwater on, under or about the
Premises due to Tenant's, or Tenant Parties' acts or negligence, Tenant, at
Landlord's option, shall promptly take all actions at its sole cost and expense,
including without limitation, investigation, testing, removal actions,
reporting, cleanup, remediation, and monitoring necessary to return the Premises
and any other affected properties to the condition required by applicable
Environmental Laws, all in accordance with Environmental Laws and the
requirements of all governmental agencies, provided that Landlord's written
approval of such actions shall first be obtained (a "Tenant Cleanup").
Landlord shall not unreasonably withhold or delay such approval. Tenant shall
promptly provide Landlord with the results of any test, investigation or inquiry
conducted by or on behalf of Tenant in connection with the presence or suspected
presence of Hazardous Material contamination on, under or about the Premises,
provided Landlord agrees to keep the same confidential on the same terms as
Tenant pursuant to Section 9.1. With respect to any Tenant Cleanup, Landlord
may, at its election and after consultation with Tenant concerning remediation
costs, control the investigation and clean-up of the contamination and
discussions and negotiations with all governmental authorities, which shall
nevertheless be at Tenant's sole cost and expense.
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9.5 Tenant Indemnity. Except with respect to (A) any soil or groundwater
----------------
contamination in and around the Premises existing as of the Commencement Date
and any subsurface migration of Hazardous Materials from other property that
contaminates the soil and groundwater in and around the Premises from and after
the Commencement Date and (B) those matters which are covered by Landlord's
express indemnification and defense obligations set forth in Section 9.2 above,
Tenant shall indemnify, defend and hold Landlord and its officers, directors,
employees, affiliates, subsidiaries, shareholders, lenders, successors and
assigns harmless from and against all claims, damages, liabilities, losses,
fines, penalties, consequential damages (including diminution of value of the
Premises and lost rent), costs and expenses, demands, causes of action,
judgments and attorneys' and consultant's fees, whether foreseeable or
unforeseeable, directly or indirectly arising out of (i) the release or
discharge during the Term or any Extended Term hereof of any Hazardous Materials
contained in the building materials located in the 1010 Joaquin building
provided such release or discharge is the result of Tenant's construction of its
initial Tenant Improvements within the Premises and any subsequent alterations,
additions or improvements made by or for Tenant (which claims include, but are
not limited to, employee exposure and toxic tort claims) and (ii) Tenant's and
Tenant Parties' use, handling, generation, storage, disposal, exposure of others
to, emission or release of Hazardous Materials on or about the Premises during
the Term or any Extended Term or a breach of Tenant's obligations under this
Article 9. The foregoing indemnity obligations shall include, without
limitation, the cost of any required or necessary repair, cleanup or
detoxification of the Premises or other properties and the preparation of any
closure or other required plans, whether such action is required or necessary
prior to or following the termination of this Lease. Neither the written consent
by Landlord to the use, generation, storage or disposal of Hazardous Materials
nor the strict compliance by Tenant with all laws pertaining to Hazardous
Materials shall excuse Tenant from Tenant's obligations of indemnification
pursuant to this Section 9.5. Tenant's obligations pursuant to the foregoing
indemnity shall survive the expiration or earlier termination of this Lease. If
any action or proceeding is brought against Landlord based on the foregoing,
Tenant, upon notice from Landlord, shall immediately defend Landlord at Tenant's
expense with counsel reasonably acceptable to Landlord. Except for Landlord's
covenants, agreements and obligations expressly set forth in this Lease, Tenant
hereby waives, releases and relinquishes any and all rights, claims and causes
of action which Tenant may have or may be entitled to assert against Landlord,
whether known or unknown (a) with respect to the environmental condition of the
Premises and the soil, air and groundwater thereof, including, without
limitation, any and all rights, claims and causes of action arising under or
with respect to the California Health and Safety Code, Title 42 of the United
States Code Section 9601 et, seq., the federal and state Occupational Health &
-------
Safety Acts, and common law tort theories and/or (b) arising out of the use,
generation, handling, exposure of others to, disposal or release of Hazardous
Materials by Tenant and Tenant Parties on, in, or about the Premises or a breach
of Tenant's obligations under this Section 9.5. With respect to the foregoing
waivers only, Tenant expressly waives the benefits of Civil Code Section 1542
and any similar statute or common law that would render a waiver of unknown
claims unenforceable.
9.6 Rent Abatement for Hazardous Material Condition. Until such time as
-----------------------------------------------
any Hazardous Material Condition (not created by Tenant or any Tenant Party),
should it occur, has been remediated in accordance with Environmental Laws such
that the Premises can be safely used and occupied by Tenant for the conduct of
its normal operations at the Premises, the Rent hereunder shall be abated in
proportion to the part of the Premises which is unusable by Tenant
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for the conduct of its normal operations at the Premises by reason of such
Hazardous Material Condition.
9.7 Non-Responsibility of Tenant. Notwithstanding anything to the contrary
----------------------------
in Sections 9.1 through 9.6 above or elsewhere in this Lease, except to the
extent set forth in Tenant's indemnity in Section 9.5 above, no provision of
this Lease shall obligate Tenant to investigate, monitor, remove, remediate, or
otherwise respond to, or to indemnify, defend or hold harmless Landlord or any
other person as a result of or in connection with, any Hazardous Materials that
(A) were present in any state or form in, on, under or about the Premises on the
Commencement Date or at any time prior thereto, or (B) which may migrate onto or
under the Premises at any time after the Commencement Date, or (C) which are
otherwise not used, handled, stored, generated, produced, manufactured, disposed
of or introduced in, upon or about the Premises by Tenant or a Tenant Party.
9.8 Survival. The provisions of this Article 9 shall survive the
--------
expiration or earlier termination of the Lease for any reason.
ARTICLE 10
UTILITIES AND SERVICES
----------------------
10.1 Utilities and Services for the Premises. Subject to the provisions of
---------------------------------------
Section 10.3 below and subject to Tenant reimbursing Landlord for utility and
service costs as set forth in Section 10.2 below, Landlord shall cause to be
provided to the Premises the following utilities and services:
10.1.1 Elevators. Elevator service from the ground floor of the 1010
---------
Joaquin building to the Premises. Subject to Section 10.3 below and reasonable
periodic repair and maintenance work, the elevator shall be available to Tenant
twenty-four (24) hours per day seven (7) days per week.
10.1.2 HVAC Service. Subject to Section 10.3 below, throughout the
------------
Term and any Extended Term(s), on Mondays through Fridays (excluding federal
holidays) from 8:00 a.m. to 6:00 p.m. (and at other times for an additional
charge to be fixed by Landlord), Landlord shall provide heating, ventilating and
air conditioning ("HVAC") services to the Premises sufficient in Landlord's
reasonable judgment for the comfortable occupancy of the Premises for general
office purposes, subject to any governmental requirements or standards relating
to energy conservation or rationing. Upon Tenant's request and for an additional
charge to be fixed by Landlord, Landlord shall make available at Tenant's sole
cost and expense above-standard and/or after-hours HVAC services; provided,
however, that if at any time during the Term or any Extended Term Landlord, in
Landlord's sole discretion, is providing 24-hour HVAC service to its own
operation on the ground floor of the 1010 Joaquin building, Landlord shall
provide after-hours HVAC service (but not above standard HVAC service) to Tenant
at no additional cost to Tenant. Any minimum time for use of above-standard
and/or after hours HVAC services, any minimum area of the Premises required to
be serviced in order to provide above-standard and/or after hours HVAC services
to the Premises, and the cost thereof shall be determined by Landlord and
confirmed in writing to Tenant as the same may change from time to time. The
expense for such
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above-standard and/or after-hours HVAC services shall be based on Landlord's
actual cost therefor (plus a reasonable administrative fee), shall be billed to
Tenant monthly as Additional Rent and shall be payable by Tenant within ten (10)
business days of receipt of Landlord's invoice therefor.
10.1.3 Electrical Service. Subject to Section 10.3 below, throughout
------------------
the Term and any Extended Term(s), Landlord shall make available to the Premises
twenty-four (24) hours per day seven (7) days a week electrical current
equivalent to that currently being provided to the Premises (based on 3,000 amp
panels with 480 volt service) for general office use of the Premises, subject to
any governmental requirements or standards relating to energy conservation or
rationing. Tenant's use of electric current shall not exceed the capacity of the
electrical panels, wiring, conduit and meters of the 1010 Joaquin building and
shall not, in any way, increase the amount of such services required to be
furnished to the Premises over that which is supplied to similar office users in
Mountain View. Tenant further agrees not to connect any apparatus or device with
electrical panels, wires, conduit, pipes or other means by which such services
are supplied for the purpose of using additional or unusual amounts of such
electrical services without the prior written consent of Landlord. Tenant shall
not install or use or permit the installation or use of any computer, electronic
data processing equipment or other electronic equipment not incidental to normal
general office use which interferes in any way with the equipment of Landlord or
any other Tenant or of the 1010 Joaquin building or interferes with the use of
the 1010 Joaquin building by Landlord or any other tenants. No rooftop or other
reception outlets or television or radio antennas for broadcasts or reception
shall be installed or used by Tenant without Landlord's prior written consent,
which consent shall not be unreasonably withheld but may conditioned upon the
use thereof being limited to Tenant's primary business purpose, Tenant complying
with all applicable laws, statutes, rules, regulations and codes relating
thereto, obtaining all required permits therefor and complying with Landlord's
requirements concerning protection of the 1010 Joaquin building's roof,
structural components and all building systems, and repair and restoration
following Tenant's removal of such outlets and antennas.
10.1.4 Water and Sewer. Subject to Section 10.3 below, water shall be
---------------
furnished to the Premises throughout the Term and any Extended Term(s) by
Landlord twenty-four (24) hours per day seven (7) days a week; provided,
however, that water shall be furnished for drinking, cleaning and lavatory
purposes only and subject to Landlord's right to institute conservation and
rationing measures required by law. Subject to Section 10.3 below, sewer
services shall be furnished throughout the Term and any Extended Term(s) to the
Premises by Landlord twenty-four (24) hours per day seven (7) days a week, and
these services shall be consistent with those supplied by the City of Mountain
View and sufficient for the comfortable occupancy of the Premises.
10.1.5 Janitorial Services. Subject to Section 10.3 below, throughout
-------------------
the Term and any Extended Term(s) Landlord shall provide janitorial services to
the Premises each evening, Monday through Friday (excluding federal and state
holidays) comparable to (but not conditioned upon the provision of) the
janitorial services currently being provided in the ground floor of the 1010
Joaquin building, provided the Premises are used exclusively for general office
purposes and are kept reasonably neat and in order by Tenant. Janitorial
services shall exclude any kitchen within the Premises but shall include the
break room. Any excess refuse disposal
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charges shall be billed to Tenant monthly as Additional Rent and shall be
payable by Tenant within ten (10) business days of receipt of Landlord's invoice
therefor.
10.1.6 No Security Services. Landlord shall not provide any security
--------------------
services for the Premises, such security services, if desired by Tenant, being
the sole and exclusive responsibility and cost of Tenant. Tenant hereby waives
any and all claims by reason of Landlord not providing such security services.
10.2 Computation and Payment of Utilities. Tenant shall pay to Landlord,
------------------------------------
as Additional Rent, without prior notice or demand, on the first (1st) day of
each month throughout the Term of this Lease and any Extended Term(s), the
monthly amount which is attributable to Tenant's use of the foregoing utilities
and services at the Premises, the cost of which shall be reasonably estimated
and determined by Landlord (based upon factors such as the size of the Premises,
the character of Tenant's business therein (which is general office) and the
intensity of use of such utilities by Tenant and also taking into account
Landlord's more intensive laboratory use of the ground floor of the Joaquin
building) such that Tenant shall pay the portion of such charges reasonably
consistent with Tenant's use of such utilities and services furnished to the
Premises (collectively, the "Utility Expenses"). If Tenant reasonably objects to
Landlord's estimate of Tenant's utility costs, Tenant, at Tenant's sole cost and
expense, may install submeters at the Premises to measure Tenant's utility
usage. Promptly following Landlord's delivery of the Premises to Tenant and
thereafter promptly following the beginning of each calendar year, Landlord
shall give Tenant written notice of Landlord's estimate of monthly Utility
Expenses for the next twelve (12) months and the actual Utility Expenses from
the prior twelve (12) months as set forth below. Such estimate may be
periodically adjusted upward or downward by Landlord based on Landlord's actual
utility costs (plus a reasonable administrative fee).
Promptly following the end of each calendar year or partial calendar year,
Landlord will furnish Tenant a statement (hereinafter referred to as the
"Utility Expense Statement") covering the calendar year or partial calendar year
just expired. The Utility Expense Statement will be certified to be correct by
an officer of Landlord and will contain a detailed breakdown of the Utility
Expenses during the period covered, and the computation of the amount of Utility
Expenses attributed to Tenant. If the Utility Expense Statement or the audit
described below shows that Utility Expenses for the period covered exceed the
total of Tenant's estimated monthly payments made for such period, Tenant will
pay Landlord the deficiency within thirty (30) days after receipt of the Utility
Expense Statement. If Tenant's payments for such period exceed the Utility
Expenses as shown by the Utility Expense Statement or the audit described below,
Landlord will return the overpayment to Tenant within thirty (30) days or, if
requested by Tenant, credit such overpayment against the next payment(s) of Rent
due hereunder.
If Tenant questions a component of the Utility Expenses for a previous year as
shown on the Utility Expense Statement, Landlord will provide Tenant with a copy
of the actual invoices or other documentation reasonably acceptable to Tenant
substantiating the component within thirty (30) days of Tenant's request
therefor. If the information requested by Tenant is not received within the
thirty (30) day period, Tenant will not be required to make further payments of
the disputed Utility Expenses component for such previous year until such
invoices or documentation are received. Tenant will pay the amount of the
disputed item to Landlord within
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thirty (30) days after Tenant's receipt of such invoices or documentation
verifying the appropriateness of the charge. Tenant will not be liable for any
Utility Expenses that have not been stated in a Utility Expense Statement
delivered to Tenant within three hundred sixty-five (365) days after the end of
the calendar year or partial calendar year in which the Utility Expenses were
incurred.
Landlord will maintain accurate records of Utility Expenses at Landlord's office
at the address for notices set forth herein at least twenty-four (24) months
after delivery of the Utility Expense Statement to Tenant. Tenant may at its
cost and expense inspect or audit the records during normal business hours upon
reasonable prior notice on up to two (2) occasions per annum at any time during
said twenty-four (24) month period. If Landlord's accountant protests the
conclusions of the audit, Landlord may contest Tenant's determination by giving
Tenant written notice within thirty (30) days following Landlord's receipt of
the audit report. If Landlord's accountant and Tenant's accountant cannot
mutually agree as to the amount of Utility Expenses within thirty (30) days
after Tenant's receipt of Landlord's notice of protest, Landlord's accountant
and Tenant's accountant will jointly choose a third independent certified public
accountant, whose determination will be binding upon the parties hereto. If the
accountants fail to agree upon the third accountant, either party may apply to
the Superior Court of the County for appointment of such third accountant who
must be an experienced person who (together with his firm) has not previously
performed services for either party. The cost of the third accountant will be
borne equally by the parties.
10.3 Interruptions. Notwithstanding the provisions of this Article 10,
-------------
Landlord shall not be liable for, and Tenant shall not be entitled to, except as
provided below, any abatement or reduction of Rent or other damages, remedies or
relief of any nature whatsoever by reason of the unavailability of any of the
foregoing utilities or services for the Premises regardless of whether such
failure is caused by accident, breakage, repairs, strikes, lockouts or other
labor disturbance or disputes of any character, governmental regulation or
moratorium or other governmental action; provided, however, that if the
interruption in utilities or services is caused by the negligence or willful
misconduct of Landlord or any Landlord Party and such interruption unreasonably
interferes with the conduct of Tenant's business in the Premises, then Tenant
shall be entitled to equitable rent abatement to the extent the Premises are
unusable by Tenant in the conduct of its normal business therein commencing on
the second (2nd) business day of such interruption and continuing until such
interruption is sufficiently remedied to permit Tenant to recommence its
business operations in the Premises. Any such failure, stoppage or interruption
of any such utilities or services shall not be construed either as an eviction
of Tenant, or relieve Tenant from the obligation to perform any term, covenant
or agreement of this Lease. Landlord and Tenant shall act jointly and in good
faith and exercise their best efforts to have utility service repaired or
restored immediately or as promptly as possible under the circumstances.
ARTICLE 11
RULES AND REGULATIONS
---------------------
Tenant agrees to abide by and to cause all Tenant Parties to abide by
all reasonable and nondiscriminatory Rules and Regulations for the Premises
imposed by Landlord.
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Such Rules and Regulations are imposed for the cleanliness, good appearance,
proper maintenance, good order and reasonable use of the Premises.
ARTICLE 12
TAXES ON TENANT'S PROPERTY
--------------------------
12.1 Tenant's Property. Tenant shall be solely liable for and shall pay
-----------------
prior to delinquency, any and all taxes, levies and assessments imposed upon any
personal property, improvements, equipment, furnishings or trade fixtures placed
by Tenant in or about the Premises (including, without limitation, the Remaining
Furniture), as well as all taxes, levies and assessments imposed on Tenant's
initial Tenant Improvements and on any subsequent alterations, additions or
improvements installed by or on behalf of Tenant within or to the Premises.
Wherever possible, Tenant shall cause all of its personal property,
improvements, equipment, furnishings and trade fixtures and all of its
alterations, improvements and additions to the Premises including, without
limitation, Tenant's initial Tenant Improvements, to be assessed and billed
separately from the real property tax bill for the Premises. If any such taxes,
levies and assessments are levied against Landlord or Landlord's property or if
the assessed value of the Premises is increased by the inclusion therein of a
value placed upon such personal property, improvements, equipment, furnishings
or trade fixtures of Tenant or upon Tenant's alterations, improvements or
additions to the Premises, including Tenant's initial Tenant Improvements,
Tenant shall upon demand pay as Additional Rent all such taxes, levies and
assessments so levied against Landlord.
12.2 License Fees and Business Taxes. Tenant shall pay, prior to
-------------------------------
delinquency, all license fees and taxes which may be imposed upon the business
of Tenant conducted on the Premises. Landlord shall not be responsible for the
payment of any such license fees or taxes.
ARTICLE 13
FIRE OR CASUALTY; ABATEMENT
---------------------------
13.1 Restoration. If, at any time prior to the last twelve (12) months of
-----------
the Term, the Premises or any part thereof is damaged or destroyed by fire or
other casualty required to be covered by the "All Risk" Insurance described in
Section 19.4.1 below, the damage and destruction thereto shall be repaired and
the Premises restored by and at the expense of Landlord, but only up to the
amount of available insurance proceeds under the "All Risk" Insurance described
in Section 19.4.1 below (unless no proceeds are available because Landlord
failed to maintain such "All-Risk" Insurance in accordance with this Lease)
provided such repairs can, in Landlord's reasonable opinion, be made within two
hundred seventy (270) days after the occurrence of such damage or destruction
without the payment of overtime or other premiums, and the Lease shall continue
in full force and effect. If such damage or destruction occurs during the last
twelve (12) months of the Term, or is caused by a casualty not required to be
covered by such "All Risk" Insurance, or if, in Landlord's reasonable opinion,
such repairs and restoration cannot be so made within two hundred seventy (270)
days after the occurrence of such damage or destruction, the Lease may be
terminated by Landlord as provided in Section 13.3 below. Additionally, if such
damage or destruction occurs during the last twelve (12) months of the
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Term or if, in Landlord's reasonable opinion, such repairs cannot be made within
two hundred seventy (270) days after the occurrence of such damage or
destruction, then the Lease may be terminated by Tenant as provided in Section
13.3 below.
13.2 Rent Abatement. Until Landlord's required repairs and restoration
--------------
pursuant to Section 13.1 above are completed, the Rent hereunder shall be abated
in proportion to the part of the Premises which is unusable by Tenant for the
conduct of its normal business or operations at the Premises. If the damage or
destruction is due to the negligence or willful misconduct of Tenant or Tenant's
employees, agents, contractors, subcontractors, invitees or licensees, there
shall be no abatement of Rent regardless of the period during which the Premises
is unusable. If this Lease is not terminated by Landlord or Tenant as provided
in Section 13.3 below, Tenant shall be responsible for making all repairs to
and/or replacement or restoration of its initial Tenant Improvements and its
additions, improvements, alterations and trade fixtures made by or for Tenant to
the Premises and all of its furniture, fixtures, equipment and personal
property, including, without limitation, the Remaining Furniture.
13.3 Special Elections. If repairs for damage and destruction covered by
-----------------
Section 13.1 cannot, in Landlord's opinion, be made within two hundred seventy
(270) days after the occurrence of the damage or destruction, or if the damage
or destruction is occasioned by an act for which Landlord is not required under
this Lease to be insured, Landlord may, in its sole and absolute discretion,
elect to make such repairs within a reasonable time and in such event, unless
Tenant shall elect to terminate this Lease as provided below, this Lease shall
continue in effect and the Rent shall be abated in the manner provided in
Section 13.2 above. In all events Landlord's election to make such repairs must
be evidenced by written notice delivered to Tenant within sixty (60) days after
the occurrence of the damage or destruction. If Landlord elects not to make such
repairs and so notifies Tenant, then either party may, by ten (10) days' written
notice to the other, cancel this Lease as of the date of the occurrence of such
damage or destruction. In addition, and notwithstanding any desire or election
by Landlord to make repairs or rebuild, Tenant, in its sole discretion, may
elect to terminate this Lease by written notice to Landlord if (i) such damage
or destruction occurs during the last twelve (12) months of the Term, or (ii) if
in Landlord's reasonable opinion, such repairs cannot be completed within two
hundred seventy (270) days after the occurrence of such damage or destruction or
(iii) if Landlord fails to notify Tenant within sixty (60) days following the
date of such damage or destruction of Landlord's intent to repair and restore
the Premises.
13.4 No Claims. In no event shall Tenant be entitled to any claims,
---------
relief, remedies, compensation or damages for loss of use of the whole or any
portion of the Premises and/or for any inconvenience or annoyance occasioned by
any such damage, destruction, repair, reconstruction or restoration, Tenant's
sole remedy being the right to Rent abatement as provided for in Section 13.2
above. Tenant hereby waives any statutory rights of setoff and/or termination
that it may have (including but not limited to those contained in California
Civil Code Sections 1932, 1933(4) and 1942) which may arise by reason of any
partial or total destruction of the Premises.
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ARTICLE 14
EMINENT DOMAIN
--------------
14.1 Total Condemnation. If the whole of the Premises is acquired or
------------------
condemned by eminent domain, inversely condemned or sold in lieu of condemnation
for any public or quasi-public use or purpose ("Condemned"), the Term of the
Lease shall terminate as of the date of title vesting in such proceeding and
Rent shall be adjusted as of the date of such termination.
14.2 Partial Condemnation. If any part (but not all) of the Premises is
--------------------
Condemned and such partial Condemnation renders the balance of the Premises not
reasonably usable for the normal business or operations of Tenant at the
Premises, as reasonably determined by Landlord and Tenant, then this Lease shall
terminate as of the date of title vesting in such proceeding (or such earlier
date as the Premises are rendered not reasonably usable for the normal business
of Tenant at the Premises) and Rent shall be adjusted to such date. If such
Condemnation is not sufficiently extensive to render the balance of the Premises
not reasonably usable for the normal business of Tenant as reasonably determined
by Landlord and Tenant, then Landlord shall, to the extent of available
Condemnation proceeds from the portion of the Premises Condemned, restore the
Premises to a condition comparable to its condition immediately prior to such
Condemnation less the portion thereof lost in such Condemnation, and this Lease
shall continue in full force and effect and, as of the date of such title
vesting, the Rent shall be equitably reduced as reasonably determined by
Landlord. If any parking areas within the Premises are Condemned to such an
extent that the Premises are not reasonably useable for the normal business of
Tenant as reasonably determined by Landlord and Tenant, then Tenant may elect to
terminate this Lease upon written notice to Landlord. Additionally, (i) if in
the reasonable opinion of Landlord the remaining portion of the Premises not
Condemned cannot reasonably or practicably be repaired or converted so as to
permit substantially the same use for which the Premises was used immediately
prior to the Condemnation, Landlord shall have the right to terminate this Lease
by giving the Tenant at least sixty (60) days' written notice of such
termination, and (ii) if the Condemnation has a material adverse effect upon the
means of access to the Premises or twenty-five percent (25%) or more of the
Premises will be taken through Condemnation, then Tenant shall have the right to
terminate this Lease by giving Landlord at least sixty (60) days' notice
thereof.
14.3 Landlord's Award. Subject to Section 14.4 below, if the Premises are
----------------
wholly or partially Condemned, Landlord shall be entitled to the entire award
paid for such Condemnation, and Tenant waives any right or claim to any part
thereof from Landlord or the condemning authority. No award for any partial or
entire taking shall be apportioned, and subject to Section 14.4 below, Tenant
hereby assigns to Landlord any award which may be made in such taking or
Condemnation.
14.4 Tenant's Award. Tenant shall have the right to claim and recover from
--------------
the Condemning authority, but not from Landlord, solely such compensation as may
be awarded or recoverable by Tenant in Tenant's own right for (a) the taking of
the unamortized or undepreciated value of any leasehold improvements owned by
Tenant that Tenant has the right to remove at termination of this Lease and that
Tenant elects not to remove, (b) reasonable removal and relocation costs for any
leasehold improvements that Tenant has the right to the remove and
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elects to remove (if the Condemning authority approves of the removal), (c) loss
of goodwill, (d) relocation costs under Government Code Section 7262 (the claim
for which Tenant may pursue by separate action independent of this Lease), and
(e) any other amount in addition to the foregoing that does not in any manner or
to any extent reduce the amount of the award payable to Landlord. Tenant shall
have the right to negotiate directly with the Condemning authority for the
foregoing compensation.
14.5 Temporary Condemnation. If the whole or any part of the Premises
----------------------
shall be Condemned for any temporary public or quasi-public use or purpose, this
Lease shall remain in effect and Tenant shall be entitled to receive for itself
such portion or portions of any award made for such use with respect to the
period of the Condemnation which is within the Term. If a temporary Condemnation
remains in force at the expiration or earlier termination of the Term, Tenant
shall pay to Landlord a sum equal to the reasonable cost of performing any
obligations required of Tenant by this Lease with respect to the surrender of
the Premises, including without limitation, repairs and maintenance, and upon
such payment Tenant shall be excused from any such obligations. If a temporary
Condemnation is for an established period which extends beyond the Term, the
Lease shall terminate as of the date of occupancy by the Condemning authority,
and the awards shall be as provided in Sections 14.3 and 14.4.
14.6 Notice and Execution. Landlord shall, within five (5) business days
--------------------
of service of process in connection with any Condemnation or potential
Condemnation, give Tenant notice in writing thereof. Tenant shall promptly
execute and deliver to Landlord all instruments that may be reasonably required
to effectuate the provisions of this Article 14. Landlord may, without any
obligation or liability to Tenant, stipulate with any condemning authority for a
judgment of Condemnation without the necessity of a formal suit or judgment of
Condemnation, but only so long as Tenant's right to receive compensation or
damages in a separate proceeding for its trade fixtures, personal property and
relocation expenses is not negated or diminished thereby by this Section. Tenant
hereby waives any statutory rights of termination that it may have arising by
reason of the condemnation, including those contained in Section 1265.130 of the
California Code of Civil Procedure.
ARTICLE 15
ASSIGNMENT AND SUBLETTING
-------------------------
15.1 General Prohibition. Tenant shall not, either voluntarily,
-------------------
involuntarily or by operation of law, directly or indirectly, sell, hypothecate,
assign, encumber, mortgage, dispose of or otherwise transfer this Lease (or any
portion thereof), or any of Tenant's beneficial interest therein, or sublet the
Premises or any part thereof, or permit the same to be occupied by anyone other
than Tenant without the prior written consent of Landlord and any attempt to do
so without such prior written consent shall be null and void and shall
constitute an Event of Default hereunder. Subject to the provisions of this
Section 15.1 and Sections 15.2 and 15.3 below, Landlord agrees not to
unreasonably withhold its consent to any proposed assignment or sublease of this
Lease, provided that the proposed assignee or subtenant (i) is reasonably
satisfactory to Landlord as to its creditworthiness, character and business
reputation, (ii) will occupy the Premises solely for the uses permitted under
this Lease and (iii) in the case of an assignment, assumes and agrees to be
bound and directly responsible for all of Tenant's
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obligations hereunder. Landlord's consent to any such assignment or sublease
shall in no event be construed as releasing Tenant from any or all of its
duties, liabilities or obligations under this Lease, including, without
limitation, the obligation to pay Rent and all other sums due under this Lease,
nor as relieving Tenant from the requirement of obtaining Landlord's prior
written consent to any further assignment or subletting. Notwithstanding any
contrary provisions of this Article 15 or any contrary provisions of Article 15
of the Plymouth Lease, (a) during the Term and any Extended Term(s), Tenant may
sublease up to, but not more than, an aggregate of Twenty Thousand (20,000)
rentable square feet of space within the Premises and/or the Plymouth Premises
(which 20,000 rental square feet may, at Tenant's option, include only up to,
but not more than, Twelve Thousand (12,000) rentable square feet in the
aggregate in the Premises), upon prior written notice to Landlord but without
Landlord's consent, to one (1) or more Tenant Subsidiaries (as defined in
Section 1.17 above) and (b) Tenant may assign this Lease or sublease all or a
portion of the Premises, upon prior written notice to Landlord but without
Landlord's consent, to a Tenant Affiliate (as defined in Section 1.16 above)
(with the foregoing transactions being referred to in this Article 15 as
"Internal Transaction.") Any assignment or sublease to a Tenant Affiliate or a
Tenant Subsidiary in any Internal Transaction shall not release or relieve
Tenant of any of its duties, liabilities or obligations under this Lease
including, without limitation, the obligation to pay Rent and all other charges
under this Lease and (x) with respect to an assignment, such Tenant Affiliate
shall assume, in full, all of the obligations of Tenant under this Lease
pursuant to assumption documentation reasonably acceptable to Landlord and (y)
with respect to a sublease, such Tenant Affiliate or Tenant Subsidiary and the
proposed sublease shall comply with all of the provisions of Section 15.7 set
forth below.
15.2 Lease Termination. If at any time during the Term or any Extended
-----------------
Term(s) of the Lease, Tenant determines that it wishes to assign or sublease all
or any portion of the Premises to any person or entity prior to marketing such
space to a proposed assignee or subtenant, Tenant shall first deliver a written
notice of the foregoing to Landlord. Landlord shall have the right, in
Landlord's sole and absolute discretion, to be exercised within fifteen (15)
business days following Landlord's receipt of Tenant's written notice, to either
(i) subject to the provisions of this Article 15, permit Tenant to proceed with
its plans to assign this Lease or sublet the portion of the Premises which was
the subject of Tenant's written notice or (ii) (A) in the case of a proposed
assignment or sublease of more than fifty percent (50%) of the total rentable
square footage of the Premises, terminate this Lease as to the entire Premises
and release Tenant from its remaining obligations hereunder (other than Tenant's
obligations hereunder which expressly survive the termination of the Lease), or
(B) in the case of the proposed assignment or sublease of less than fifty
percent (50%) of the Premises, terminate the Lease with respect to the portion
of the Premises that Tenant wishes to sublease and amend the Lease to reflect
the reduction in the rentable square footage of the remaining Premises; provided
that the foregoing termination rights shall not apply to an Internal Transaction
(as defined in Section 15.1 above) (but shall apply to the subleasing of any
space in the Premises and the Plymouth Premises in excess of 20,000 rentable
square feet in the aggregate to Tenant Subsidiaries); and provided further, that
Tenant shall have the right, subject to Landlord's right (a) to reasonably
consent to the proposed subtenant pursuant to Sections 15.1 above and 15.3
below, (b) to receive reimbursement of Landlord's costs pursuant to Section 15.6
below and (c) to approve the form of sublease agreement pursuant to Section 15.7
below, to enter into a sublease (and/or a succeeding replacement sublease of the
same space) of up to, but not more than, an aggregate of Ten
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Thousand (10,000) rentable square feet of space within the Premises and/or the
Plymouth Premises for a term not to exceed twenty-four (24) months without
giving Landlord the right to terminate the Lease as to such subleased portion of
the Premises. If Landlord elects not to recapture the Premises or portion
thereof which was the subject of Tenant's written notice or fails to respond in
writing to Tenant within such fifteen (15) business day period, then for a
period of six (6) months thereafter, subject to the provisions of this Article
15, Tenant may proceed with its plans to attempt to assign or sublease the
portion of the Premises which was the subject of Tenant's written notice.
15.3 Assignment Information. Provided Tenant has first complied with the
----------------------
provisions of Section 15.2 above, if Tenant desires at any time to assign this
Lease or to sublet the Premises or any portion thereof (other than to a Tenant
Affiliate), Tenant shall first notify Landlord of its desire to do so and shall
submit in writing to Landlord (i) the name of the proposed subtenant or assignee
(including a Tenant Subsidiary); (ii) the nature of the proposed subtenant's or
assignee's business to be carried on in the Premises (including a Tenant
Subsidiary); (iii) the terms and conditions of the proposed sublease or
assignment (including complete and accurate copies of all proposed assignment or
sublease documentation) including a sublease to a Tenant Subsidiary; (iv) such
financial and business information as Landlord may reasonably request concerning
the proposed subtenant or assignee (other than a Tenant Subsidiary) including
information concerning the proposed subtenant's or assignee's use, handling,
storage and disposal of Hazardous Materials; and (v) such other information as
Landlord may reasonably request. If Tenant claims that any assignment or
subleasing constitutes an Internal Transaction, Tenant shall provide to Landlord
all information required to substantiate such assignment or subleasing as a bona
fide Internal Transaction. Landlord shall grant or withhold its consent to any
proposed assignment or subletting within ten (10) business days from the date of
receiving full and complete copies of all of the information, materials and
documents set forth in this Section 15.3.
15.4 Rent Increase. The Monthly Base Rent for the portion of the Premises
-------------
assigned or sublet (the "Applicable Portion") shall be increased to the Monthly
Base Rent for such Applicable Portion prior to such assignment or subletting
plus one hundred percent (100%) of the amount by which any rental payment or
other consideration of any nature whatsoever received by Tenant from the
assignee or subtenant including any Tenant Affiliate or Tenant Subsidiary
(whether received before or after the effective date of such approved assignment
or subleasing) for such Applicable Portion exceeds the Monthly Base Rent paid by
the Tenant to Landlord for such Applicable Portion; provided, however, Tenant
may offset against the increase in Monthly Base Rent hereunder solely (a)
Tenant's actual and reasonable third party brokerage fees and marketing costs
incurred in such assignment or sublease transaction, (b) Tenant's actual and
reasonable attorneys' fees incurred in such assignment or sublease transaction,
and (c) and the costs of reasonable alterations to the Applicable Portion
actually installed or paid for by Tenant in connection with the occupancy of the
Applicable Portion by such assignee or subtenant (amortized over the useful life
of such alternations with interest thereon at Eight Percent (8%) per annum). For
purposes of this Section 15.4, the term "rental payment" shall mean all
consideration paid or given, directly or indirectly, to Tenant for the use of
the Premises or any portion thereof and the term "consideration" shall mean and
include money, services, property or any other thing of value such as warrants,
stock or securities, payment of costs, cancellation of indebtedness, discounts,
rebates and the like and including, without limitation, key money and
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bonus money given to Tenant for the use of the Premises or any portion thereof,
whether paid to Tenant before or after the effective date of the assignment or
sublease. Notwithstanding the foregoing, under no circumstances shall Landlord
be entitled to (a) any security deposits or other sums given to Tenant as
security for the assignee's or subtenant's obligations or (b) any portion of any
bona fide consideration paid for any assets of Tenant (other than Tenant's
leasehold interest hereunder and separate and apart from any consideration paid
for the assignment and subleasing) in connection with the sale or other transfer
of such assets by Tenant. "Sublet" and "sublease" shall include a sublease as to
which Tenant is sublessor and any sub-sublease or other subsubtenancy,
irrespective of the number of tenancies and tenancy levels between the ultimate
occupant and Landlord, as to which Tenant receives any consideration, as defined
herein, and Tenant shall require on any sublease which it executes that Tenant
receive the profit from all subsubtenancies, irrespective of the number of
levels thereof. Any rental payment or other consideration which is to be passed
through to Landlord by Tenant shall be paid to Landlord within five (5) days
following receipt by Tenant and shall be paid in cash, irrespective of the form
in which received by Tenant from a subtenant or assignee. Tenant acknowledges
and agrees that the purpose of this Section 15.4 is to ensure that Landlord
receives one hundred percent (100%) of any profit (after subtracting Tenant's
costs and fees described in clauses (a) through (c) hereinabove) from any
assignment or sublease of the Premises (including, without limitation, from
Internal Transactions) that Tenant receives over Monthly Base Rent payable by
Tenant hereunder.
15.5 Stock Transfers. If Tenant is a corporation the stock of which is not
---------------
traded on the NYSE, AMEX or NASDAQ exchanges, or if Tenant is a partnership,
limited liability company or unincorporated association, the sale, transfer,
assignment, pledge or hypothecation, other than in connection with any IPO, of
any stock, interest, membership rights or similar interest in such corporation,
partnership, limited liability company or association (as the case may be) in
the aggregate in excess of twenty-five percent (25%) of any class or type of
stock of Tenant or interest in Tenant shall be deemed an assignment within the
meaning of this Article 15 and the corporation, partnership, limited liability
company or association as it exists after such sale, transfer, assignment,
pledge or hypothecation shall be deemed to be a successor and assign of the
Tenant.
15.6 Costs. In the event that Tenant shall submit a written notice to
-----
Landlord under Section 15.2 above or assign or sublet the Premises or request
the consent of Landlord to any assignment or subletting, Tenant shall pay
Landlord's reasonable costs and expenses incurred in connection with each such
transaction (including any Internal Transaction), including reasonable
attorneys, architects, engineers or other consultants fees, within ten (10)
business days following written demand therefor from Landlord accompanied by
invoices reasonably substantiating such costs, whether Landlord terminates this
Lease (or any portion thereof), consents to such assignment or subletting or
withholds its consent thereto.
15.7 Subletting Terms. The following terms and conditions shall apply to
----------------
any subletting by Tenant of all or any part of the Premises (including, without
limitation, any subleasing to any Tenant Affiliate or Tenant Subsidiary) and
shall be deemed included in all subleases whether or not expressly incorporated
therein:
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15.7.1 Tenant assigns and transfers to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the Premises
heretofore or hereafter made by Tenant, and Landlord may collect such rent and
income and apply the same toward Tenant's obligations under this Lease;
provided, however, that until a default (following the expiration of any
applicable grace or cure periods without cure) shall occur in the performance of
Tenant's obligations hereunder, Tenant may receive and collect the rents
accruing under such sublease. Landlord shall not, by reason of this or any other
assignment of such sublease to Landlord or by reason of the collection of rents
from a subtenant, be deemed liable to the subtenant for any failure of Tenant to
perform and comply with any of Tenant's obligations to such subtenant. Tenant
hereby irrevocably authorizes and directs any such subtenant, upon receipt of a
written notice from Landlord stating that a default (following the expiration of
any applicable cure grace period without cure) exists in the performance of
Tenant's obligations under this Lease, to pay to Landlord the rents and all
other sums due and to become due under the sublease until such default has been
cured by Tenant. Tenant agrees that such subtenant shall have the right to rely
upon any such statement and request from Landlord, and that such subtenant shall
pay such rents or other sums to Landlord without any obligation or right to
inquire as to whether such default exists and notwithstanding any notice, demand
or claim from Tenant to the contrary. Tenant shall have no right or claim
against said subtenant or Landlord for any such rents or sums so paid by
subtenant to Landlord.
15.7.2 No such sublease of the Premises entered into by Tenant shall
be effective unless and until it has been approved in writing by Landlord. An
approved sublease shall not be changed, supplemented or modified, in any manner,
without Landlord's reasonable prior written consent. Any subtenant shall, by
virtue of entering into a sublease under this Lease, be deemed, for the benefit
of Landlord, to have assumed and agreed to perform and comply with each and
every obligation herein to be performed by Tenant with respect to the subleased
space other than such obligations as are contrary to or inconsistent with
provisions contained in a sublease to which Landlord has expressly consented in
writing.
15.7.3 In the event Tenant shall default (following the expiration of
any applicable cure period without cure) in the performance of any of its
obligations under this Lease, Landlord, at its option and without any obligation
to do so, may require any subtenant to attorn to Landlord, in which event
Landlord shall undertake the obligations of Tenant under such sublease from the
time of the exercise of said option to the termination of such sublease;
provided, however, Landlord shall not be liable for any prepaid rents or
security deposit paid by such subtenant to Tenant or for any prior default of
Tenant under such sublease.
ARTICLE 16
ACCESS AND RESERVED RIGHTS
--------------------------
16.1 Access Rights. Landlord and its agents, representatives and
-------------
contractors shall at all reasonable times have the right, but not the
obligation, to enter the Premises to (i) inspect the same; (ii) to show the
Premises to prospective purchasers or tenants (as to prospective tenants, only
during the last twelve (12) months of the Term or Extended Term); (iii) to post
notices of nonresponsibility; and (iv) to alter, improve, maintain or repair the
Premises or any other portion thereof, to test and/or monitor groundwater or
investigate the environmental conditions of the
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Premises on an ongoing basis as determined by Landlord in its sole discretion
and to install, maintain, repair, replace and relocate pipes, ducts, conduits,
wires, meters and other equipment within the demising walls, floors, bearing
columns, roofs and ceilings of the Premises, and in the course of such work to
close entrances, doors, corridors, elevators or other Building facilities or
temporarily abate their operation, all without being deemed an eviction or
constructive eviction of Tenant and without abatement of Rent (other than as
expressly provided below), and Landlord may for such purposes erect scaffolding
and other necessary structures where reasonably required by the character of the
work to be performed, provided that Landlord, in connection with each and all of
the foregoing, shall use all reasonable efforts to ensure that the business of
Tenant shall be interfered with as little as is reasonably practicable. If the
negligence or willful misconduct of Landlord or any Landlord Party in carrying
out any action pursuant to this Section 16.1 unreasonably interferes with the
conduct of Tenant's business in the Premises, then Tenant shall be entitled to
equitable rent abatement to the extent the Premises are unusable by Tenant in
the conduct of its normal business therein commencing on the second (2nd)
business day of such interference and continuing until such interference is
sufficiently remedied to permit Tenant to recommence its normal business
operations in the Premises. Additionally, and as provided in Section 7.2 above,
Landlord shall have sole and exclusive use of and unrestricted access through
the Premises at all times without prior notice to Tenant to the Switch Room (as
defined in Section 7.2 above) during the Term and any Extended Term(s). Tenant
hereby waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business or loss of quiet enjoyment of the Premises
caused by Landlord's entry on the Premises in accordance with this Section 16.2
(but not for injury or damage to persons or Tenant's property in the Premises
caused by Landlord's negligence or willful misconduct). For each of the
aforesaid purposes, Landlord shall at all times have and retain a key, pass code
for security devices or other device and be provided with any required
information with which to unlock all of the doors in, upon and about the
Premises and gain access to the Premises, excluding Tenant's vaults, safes,
files, security cabinets, and other areas designated as secure by Tenant, the
location and/or installation of which have been previously approved by Landlord.
Landlord shall have the right to use any and all means which Landlord may deem
proper to open said doors in an emergency in order to obtain entry to the
Premises, and any entry to the Premises obtained by Landlord by any of said
means shall not under any circumstances be construed or deemed to be a forcible
or unlawful entry into, or a detainer of, the Premises, or any eviction of
Tenant from the Premises or any portion thereof. No provision of this Lease
shall be construed as obligating Landlord to perform any repairs, alterations or
decoration except as otherwise expressly provided in this Lease. Notwithstanding
anything to the contrary in this Section 16.1 or elsewhere in this Lease,
Landlord and Landlord's agents, representatives and contractors, except in the
case of emergency and except for access to the Switch Room (where no notice is
required), shall provide Tenant with at least one business day notice prior to
each entry of the Premises (except, however, in the case where Landlord's
proposed entry is for the purpose of performing non-emergency work in the
Premises, Landlord shall provide Tenant with at least two (2) business days
prior written notice). If the purpose of such access is to perform any work in
the Premises, said notice from Landlord shall include a description of the
proposed work, the location of the proposed work the approximate duration of the
proposed work, and the names of the persons to perform the proposed work. Any
such entry by Landlord or Landlord's agents, representatives and contractors,
shall comply with all reasonable security measures of Tenant (including, without
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limitation, written sign-in, badging, and accompaniment by a representative of
Tenant) and shall not impair Tenant's operations more than reasonably necessary.
16.2 Reserved Rights. Landlord further reserves the right from time to
---------------
time to change the boundary lines of the lot on which the Premises stands, to
record parcel maps and subdivision maps, and to make other reasonable changes
and to grant other reasonable rights to the exterior portions of the Premises,
including, without limitation, the granting of easements, servitudes, rights of
way and rights of ingress and egress and similar rights to users of adjacent
parcels, utility companies, governmental agencies or other tenants, provided the
same do not interfere with the use, occupancy or quiet enjoyment of the Premises
by Tenant or diminish any of Tenant's rights or increase its obligations under
this Lease. Without limiting the scope of or the generality of foregoing
restrictions on Landlord's rights under this Section 16.2, under no
circumstances may Landlord grant rights which would reduce the parking available
to Tenant hereunder unless Landlord is required to do so under the Parking
Agreement affecting parking for the 1010 Joaquin building.
ARTICLE 17
SUBORDINATION AND ATTORNMENT
----------------------------
17.1 Subordination. This Lease is junior, subject and subordinate to all
-------------
existing mortgages, deeds of trust, security assignments, covenants, conditions
and requirements and other security instruments of any kind now encumbering the
Premises or any portion thereof including any renewals, amendments,
modifications, replacements or extensions of the same. Landlord reserves the
right to place new liens and other new encumbrances on the Premises or any part
thereof or interest therein superior in lien and effect to this Lease subject to
Tenant's receipt of commercially reasonable non-disturbance protection in a form
similar to that attached to this Lease as Exhibit E with such changes as may be
---------
reasonably requested by Landlord's lender or the other party to the agreement
(the "Nondisturbance Agreement"). Provided Tenant concurrently or earlier
receives an executed Nondisturbance Agreement from the lienholder or
encumbrance, Tenant agrees to execute, acknowledge and deliver within ten (10)
business days following written demand from Landlord such further instruments
evidencing the subordination of this Lease to any new liens or encumbrances as
may be reasonably requested by Landlord. Notwithstanding such subordination,
Tenant's right to peaceful and quiet possession of the Premises shall not be
disturbed by the foreclosure or termination of future liens or encumbrances so
long as Tenant shall pay the Rent and observe and perform all of the provisions
of this Lease to be observed and performed by Tenant, unless this Lease is
terminated pursuant to specific provisions relating to termination contained
herein. In the event of the foreclosure or termination of any such lien or
encumbrance, or the transfer of title to the Premises, Tenant shall attorn to
the then owner who owns or acquires title to the Premises and shall recognize
such owner as Landlord under this Lease. Tenant agrees to execute and deliver
within ten (10) business days following written demand from such owner any
instruments reasonably required to evidence this attornment.
17.2 Estoppel Certificates. Tenant shall at any time and from time to time
---------------------
upon not less than ten (10) business days' prior written notice by Landlord,
execute, acknowledge and deliver to Landlord a statement in writing certifying
that this Lease is unmodified and in full
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force and effect (or if there have been modifications, that the same are in full
force and effect as modified and stating the modifications), the dates to which
the Monthly Base Rent and other charges have been paid in advance, if any, and
the amount of the undrawn portion of the Letter of Credit, and stating whether
or not to the actual knowledge of Tenant, Landlord or Tenant is in default in
the performance of any covenant, agreement or condition contained in this Lease
and, if so, specifying each such default of which Tenant may have actual
knowledge, and stating such other matters of which Tenant may have actual
knowledge concerning the status of this Lease as Landlord may reasonably
request. Tenant acknowledges that any such statement delivered pursuant to this
Section may be relied upon by any prospective purchaser of the Premises or any
mortgagee, ground lessor or other like encumbrance thereof or any assignee of
any such encumbrance upon the Premises. Tenant's failure to deliver such
statement within such time shall constitute a default by Tenant under this Lease
and additionally shall be binding and conclusive upon Tenant (i) that this Lease
is in full force and effect, without modification except as may be represented
by Landlord, (ii) that there are no uncured defaults in Landlord's performance
or rights of offset against Tenant's obligations hereunder, and (iii) that not
more than one month's rent has been paid in advance.
ARTICLE 18
TRANSFER OF PREMISES; QUIET ENJOYMENT
-------------------------------------
Any sale, transfer, conveyance or other disposition by Landlord of
Landlord's fee interest in the Premises shall operate to release Landlord from
any and all liabilities, obligations and duties under this Lease accruing from
and after the date fee title to the Premises is conveyed of record to the
transferee. Subject to the provisions of Article 17 hereof, Tenant's right to
peaceful and quiet possession of the Premises shall not be disturbed so long as
Tenant shall pay all Rent and observe and perform all of the provisions of this
Lease to be observed and performed by Tenant, unless this Lease is terminated
pursuant to specific provisions contained herein allowing for such termination.
ARTICLE 19
NONLIABILITY AND INDEMNIFICATION OF LANDLORD; INSURANCE
-------------------------------------------------------
19.1 Indemnification. Except for Losses (defined below) caused by the
---------------
willful misconduct of, violation of law by, breach of this Lease or any
provision hereof by, or the negligence of Landlord or its agents, employees,
contractors, licensees or invitees, Tenant agrees to indemnify, defend and hold
harmless Landlord and its directors, officers, employees, agents, partners,
trustees, parents, subsidiaries, shareholders, affiliates, lenders, successors
and assigns from and against any and all claims, damages, liabilities, losses,
fines, penalties, actions or causes of action, judgments, costs and expenses,
including attorneys' fees, investigation costs and costs of court (if any)
(collectively, "Losses"), whether foreseeable or unforeseeable, directly or
indirectly arising out of or relating to, in whole or in part, Tenant's or
Tenant Parties use of the Premises or the conduct of Tenant's business at the
Premises or from any activity, work, or thing done, permitted or suffered by
Tenant or Tenant Parties in or about the Premises, and shall further indemnify,
defend and hold harmless such parties from and against any and all such claims
arising from any breach or default in the performance of any obligation on
Tenant's part
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to be performed under the terms of this Lease, or arising from the negligence of
Tenant or the Tenant Parties during the Term or any Extended Term, and from and
against all costs, attorneys' fees, expenses, damages, judgments, actions and
liabilities incurred in or concerning any such claim or any action or proceeding
brought thereon. If any action or proceeding is brought against Landlord by
reason of any such claim, Tenant, upon notice from Landlord, shall immediately
defend Landlord at Tenant's sole expense by counsel reasonably satisfactory to
Landlord. The indemnity obligations of Tenant shall not be limited by available
insurance proceeds. Tenant's indemnification and defense obligations set forth
in this Section 19.1 shall survive the expiration or earlier termination of the
Lease.
19.2 Waiver of Claims. Tenant, as a material part of the consideration to
----------------
Landlord, hereby assumes all risk of damage to property or injury to persons,
including Tenant Parties in, upon or about the Premises from any cause
whatsoever, excepting Landlord's or its agents', employees', contractors',
licensees' or invitees' willful misconduct, violation of law, breach of this
Lease or any provision hereof, or negligence, and Tenant hereby waives all known
claims in respect thereof against Landlord. Tenant's obligations set forth in
this Section 19.2 shall survive the expiration or earlier termination of the
Lease.
19.3 Insurance Obligation. Tenant hereby agrees to obtain, maintain and
--------------------
keep in full force and effect at all times during the Term and any Extended Term
of this Lease, at Tenant's sole cost and expense, for the protection of Tenant
and Landlord, and, if required by Landlord, Landlord's lenders, policies of
insurance issued by a responsible carrier or carriers qualified to do business
in the State of California and maintaining a rating of at least "A VIT" or
better in Best's Insurance Guide and in a form reasonably acceptable to Landlord
which afford the following:
19.3.1 Worker's Compensation Insurance in compliance with California
law and Employer's Liability Insurance with limits of not less than One Million
Dollars ($1,000,000) per occurrence and aggregate. Tenant on behalf of itself
and all persons and parties claiming under or through Tenant, including, without
limitation, Tenant's insurance carriers, waive all rights of subrogation which
Tenant may have against Landlord under applicable worker's compensation
statutes.
19.3.2 Commercial General Liability Insurance protecting Landlord
and Tenant against claims for death, bodily injury, personal injury and property
damage based upon, relating to or arising out of Tenant's and Tenant Parties'
leasing, use, occupancy, repair and maintenance of the Premises and all areas
appurtenant thereto or from the conduct of Tenant's business or profession or
anything done, permitted or suffered by Tenant in or about the Premises and all
areas appurtenant thereto. Such Commercial General Liability Insurance shall be
written on an occurrence basis and shall provide for a combined single limit of
not less than Two Million Dollars ($2,000,000) per occurrence per location and
shall include, without limitation, Blanket Contractual Liability, Broad Form
Property Damage, Fire Legal Liability, Personal Injury, Completed
Operations/Products Liability (if applicable), Owned and Non-Owned Automobile
Coverage, (included or in a separate policy, with limits of not less than Two
Million Dollars ($2,000,000) per occurrence and aggregate), Protective and/or
Contingent Liability Insurance, Additional Insured-Managers or Landlords of
Premises Endorsement and an Amendment of the Pollution Exclusion for damage
caused by heat, smoke or fumes or from a hostile fire. The
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policy shall not contain any intra-insured exclusions as between insured persons
and organizations. The policy shall specifically include coverage for liability
assumed under this Lease as an "insured contract" and shall insure all of
Tenant's indemnity obligations under this Lease including, without limitation,
Tenant's indemnity obligations under Section 19.1 above. The limits of insurance
carried by Tenant as set forth above shall not, however, limit the liability of
Tenant under this Lease or relieve Tenant of any liability under this Lease.
19.3.3 "All Risk" Insurance, including Fire and Extended Coverage,
Vandalism and Malicious Mischief and Sprinkler Leakage insurance in an amount
equal to the full replacement cost of all of Tenant's initial Tenant
Improvements constructed by or for Tenant pursuant to the Work Letter, all
improvements, additions, alterations and trade fixtures installed within the
Premises by Tenant and all of Tenant's fixtures, furnishings, equipment and
personal property, including, without limitation, all Remaining Furniture, with
a commercially reasonable deductible. The proceeds of the foregoing insurance
shall be used by Tenant solely for the replacement of Tenant's initial Tenant
Improvements and its additions, alterations and trade fixtures installed within
the Premises, and Tenant's fixtures, furnishings, equipment and personal
property, including, without limitation, all Remaining Furniture.
19.4 Landlord's Insurance Obligations. Subject to Tenant's compliance with
--------------------------------
Tenant's payment obligations under Article 5 of the Lease with respect to
Landlord's Insurance Premiums, Landlord hereby agrees to obtain, maintain and
keep in full force and effect at all times during the term and any Extended
Term, for the protection of Landlord and, if required by Landlord, Landlord's
lenders, policies of insurance issued by a responsible carrier or carriers
qualified to do business in the State of California and maintaining a rating of
at least "A VII' or better in Best's Insurance Guide which afford the following
coverages:
19.4.1 "All Risk" Insurance with commercially reasonable deductibles
including, without limitation, Fire and Extended Coverage, a Change in Condition
Endorsement with limits adequate to rebuild the Premises in compliance with then
applicable laws, codes and ordinances, Vandalism and Malicious Mischief,
Sprinkler Leakage insurance, and in Landlord's sole discretion, Flood Insurance
and/or Earthquake Insurance, in the name of and for the benefit of Landlord, and
with all proceeds payable to Landlord (and/or any of Landlord's lenders as
Landlord may direct) in an amount equal to the full replacement cost of the
Premises (as the same may be increased from time to time) including, without
limitation, loss or damage to the Premises, but excluding coverage for Tenant's
initial Tenant Improvements constructed by or for Tenant pursuant to the Work
Letter and excluding coverage for any improvements, alterations, additions,
trade fixtures, equipment, furnishings, fixtures and personal property
(including the Remaining Furniture) installed within the Premises by or for
Tenant. Tenant shall be liable for the payment of any deductible amount in the
event of any loss covered by the insurance required under this Section 19.4.1.
19.4.2 Commercial General Liability Insurance protecting Landlord
against claims for death, bodily injury, personal injury and property damage
based upon, relating to or arising out of Landlord's leasing of the Premises and
all areas appurtenant thereto or anything done, permitted or suffered by
Landlord in or about the Premises and all areas appurtenant thereto. Such
Comprehensive General Liability Insurance shall be written on an occurrence
basis and shall provide for a combined single limit of not less than Five
Million Dollars
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($5,000,000) per occurrence per location and shall include, without limitation,
Blanket Contractual Liability, Broad Form Property Damage, Fire Legal Liability,
Personal Injury, Completed Operations/Products Liability, if applicable, Owned
and Non-Owned Automobile Coverage (included or in a separate policy, with limits
of not less than Two Million Dollars ($2,000,000) per occurrence and aggregate),
Protective and/or Contingent Liability Insurance, Additional Insured-Managers or
Landlords of Premises Endorsement and an Amendment of the Pollution Exclusion
for damage caused by heat, smoke or fumes or from a hostile fire. Tenant shall
be named as an additional insured on Landlord's Commercial General Liability
Insurance Policy.
19.4.3 Business or Rental Interruption Insurance in the name of and
for the benefit of Landlord and with all proceeds payable to Landlord (and/or
any of Landlord's lenders as Landlord may direct), insuring the loss of the Rent
and other charges payable by Tenant to Landlord under this Lease (including all
Monthly Base Rent, Property Taxes, Insurance Premiums, and any scheduled rental
increases for a period not to exceed twelve (12) months). Said insurance shall
contain an agreed valuation provision in lieu of any coinsurance clause, and the
amount of coverage shall be adjusted annually to reflect the projected Rent,
Property Taxes, Insurance Premiums and other expenses, if any, otherwise payable
by Tenant. Tenant shall be liable for any deductible amount in the event of any
loss covered by the insurance required under this Section 19.4.3.
Any insurance required to be carded by Landlord under Sections 19.4.1, 19.4.2 or
19.4.3 above may be carried by Landlord under a blanket insurance policy
coveting the Premises and any of Landlord' s other locations.
19.5 Policy Terms. All liability insurance required of Tenant under this
------------
Article (except Worker's Compensation) shall be primary coverage and shall not
be contributing with any other liability insurance maintained by Landlord.
19.6 Insurance Certificates. Tenant shall deliver to Landlord at least ten
----------------------
(10) business days prior to the time any insurance coverage is first required to
be carded by Tenant, and thereafter at least thirty (30) days prior to
expiration of such policy, certificates of insurance evidencing the required
coverages with limits not less than those specified in Section 19.3 above. The
certificate evidencing the insurance required pursuant to Section 19.3.2 above
shall name Landlord and each of Landlord's lenders (if any), as additional
insureds, and the certificate evidencing the insurance required pursuant to
Section 19.4.2 above shall name Tenant as additional insured. The certificates
to be delivered by Tenant shall expressly provide that not less than thirty (30)
days' prior written notice shall be given to Landlord in the event of
cancellation or non-renewal of the coverages evidenced by such certificates.
Upon written request of Landlord, Tenant shall deliver full and accurate copies
of all insurance policies required of it by this Lease.
19.7 Disclaimer. Landlord makes no representation that the limits or form
----------
of insurance coverage specified to be carded by Tenant under the terms of this
Lease are adequate to protect Tenant against Tenant's undertaking under this
Article 19.
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ARTICLE 20
WAIVER OF SUBROGATION
---------------------
Notwithstanding anything to the contrary in this Lease, Tenant and
Landlord each hereby, on behalf of itself and all persons and parties claiming
under or through it, including without limitation its insurance carrier(s),
waive any right of recovery or claim against the other for any damage to or
destruction of any property located in or about the Premises which results from
or arises out of any casualty or event insured or required to be insured
hereunder by any casualty and/or property insurance policy carried by such
waiving party, regardless of the cause or origin of such casualty or event,
including without limitation, the negligence of Tenant or Landlord. Any policy
or policies of fire, extended coverage or similar casualty insurance or of
liability insurance that either party obtains in connection with the Premises or
Tenant's personal property therein shall include a clause or endorsement denying
the insurer and waiving any rights of subrogation against the other party to the
extent rights have been waived by the insured prior to the occurrence of injury
or loss.
ARTICLE 21
ATTORNEYS' FEES
---------------
In the event of any legal action or proceeding brought by either party
against the other arising out of this Lease, the prevailing party (by way of
settlement or final judgment) shall be entitled to recover reasonable attorneys'
fees and costs incurred in such action and such amount shall be included in any
judgment rendered in such proceeding. The provisions contained in this Article
21 shall survive the expiration or earlier termination of this Lease.
ARTICLE 22
WAIVER
------
No waiver by either party hereto of any provision of this Lease or of
any breach by the other party hereunder shall be deemed to be a waiver of any
other provision hereof, or of any subsequent breach by the other party of the
same or any other provision. Landlord's consent to or approval of any act by
Tenant requiring Landlord's consent or approval shall not be deemed consent to
or approval of any subsequent act of Tenant. No act or thing done by Landlord or
Landlord's agents during the Term of this Lease shall be deemed an acceptance or
a surrender of the Premises, unless done in writing signed by Landlord. The
delivery of the keys to any employee or agent of Landlord shall not operate as a
termination of the Lease or a surrender of the Premises. The acceptance of any
Rent by Landlord following a breach of this Lease by Tenant shall not constitute
a waiver by Landlord of such breach or any other breach unless such waiver is
expressly stated in a writing signed by Landlord.
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ARTICLE 23
NOTICES
-------
Any notice, consent, approval, request for consent or approval of or
communication to Landlord or Tenant required or permitted to be given under this
Lease shall be effectively given only if in writing and (i) mailed by United
States Registered or Certified Mail, postage prepaid, return receipt requested,
or (ii) sent by a nationally recognized courier service (e.g., Federal Express)
for next day business delivery, or (iii) personally delivered or served against
receipted copy, or (iv) transmitted via facsimile, in each case addressed to the
recipients at their addresses (or fax numbers in the case of facsimile
transmissions) set forth in Items 3 and 5 of the Basic Lease Provisions. Either
party shall have the right to change the address to which notices shall
thereafter be sent by giving notice to the other party as aforesaid. Notices
given in the aforesaid manner shall be deemed delivered on the date of scheduled
delivery, if sent by courier service, or three (3) days after sending, if sent
by mail, or upon personal delivery or service, if personally delivered or
served, or upon the date of successful facsimile transmission, if sent via
facsimile.
ARTICLE 24
BANKRUPTCY
----------
In no event shall this Lease be assigned or assignable by operation of
law and in no event shall this Lease be an asset of Tenant in any receivership,
bankruptcy, insolvency, or reorganization proceeding.
ARTICLE 25
DEFAULT AND REMEDIES
--------------------
25.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute a material default and breach of this Lease by Tenant (each, an
"Event of Default"):
25.1.1 Nonpayment of Rent. Any failure by Tenant to pay Rent or
------------------
Additional Rent or to make any other payment required to be made by Tenant
hereunder on the due date, where such failure continues for three (3) business
days after written notice from Landlord to Tenant demanding such payment;
25.1.2 Abandonment. Abandonment of the Premises by Tenant;
-----------
25.1.3 Breach of Other Covenants. Any failure by Tenant to observe
-------------------------
and perform any obligation, covenant or provision of this Lease to be observed
or performed by Tenant other than those matters specified in Sections 25.1.1 and
25.1.2 above and 25.1.8, 25.1.9, 25.1.10 or 25.1.11 below, where such failure
continues for thirty (30) days after written notice by Landlord to Tenant. If
the nature of such default is such that it cannot reasonably be cured within
such thirty (30) day period Tenant shall not be deemed to be in default if
Tenant shall within such period commence such cure and thereafter diligently
prosecute the same to completion;
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25.1.4 False Statement. Any warranty or representation made by Tenant
---------------
in this Lease proves to be false or misleading in any material respect when
made, including any Financial Statements;
25.1.5 Insolvency. Tenant or any Guarantor becomes insolvent, as
----------
defined in the Federal Bankruptcy Code, admits in writing its insolvency or its
present or prospective inability to pay its debts as they become due, permits or
suffers a judgment, attachment, execution or judicial seizure to exist against
it which materially adversely affects Tenant's ability to conduct its business
in the ordinary course (unless enforcement thereof is stayed pending appeal)
that is not discharged or dismissed within thirty (30) days, makes an assignment
for the benefit of creditors, or any class thereof, for purposes of effecting a
moratorium upon or extension or composition of its debts, proposed any such
moratorium, extension or composition, or commences or proposes to commence any
bankruptcy, reorganization or insolvency proceeding, or other proceeding under
any federal, state or other law for the relief of debtors;
25.1.6 Involuntary Bankruptcy. Tenant fails to obtain the dismissal,
----------------------
within sixty (60) days after the commencement thereof, of any bankruptcy,
reorganization or insolvency proceeding, or other proceeding under any law for
the relief of debtors, instituted against Tenant by one or more third parties or
any partner of Tenant, or, in any such proceeding, defaults or files an answer
admitting the material allegations upon which the proceeding was based or
alleges its willingness to have an order for relief entered or its desire to
seek liquidation, reorganization or adjustment of any of its debts;
25.1.7 Receivership. Any receiver, trustee or custodian is appointed
------------
to take possession of all or any substantial portion of the assets of Tenant, or
of Tenant's interest in this Lease;
25.1.8 Liens. Tenant fails to cause the release, within twenty (20)
-----
days after filing, of any lien arising out of any work performed, materials
furnished, or obligations incurred by or for Tenant, which has been filed
against the Premises;
25.1.9 Assignment. Tenant attempts a transfer, conveyance, mortgage,
----------
encumbrance, pledge, disposition, assignment, sublease or other act in
contravention of Article 15 hereof and fails to cure the same within two (2)
business days of receipt of written notice from Landlord;
25.1.10 Insurance. Tenant fails to maintain in full force and effect
---------
the insurance coverages required to be maintained by Tenant under this Lease
following written notice thereof from Landlord to Tenant and Tenant's failure to
cure the same within five (5) business days of receipt of such notice; or
25.1.11 Default Under Plymouth Lease. The occurrence of an "Event of
----------------------------
Default" (as defined in the Plymouth Lease) under the Plymouth Lease shall
constitute an immediate and noncurable Event of Default under this Lease.
25.2 Remedies of Landlord. In the event of any such Event of Default by
--------------------
Tenant, Landlord may at any time thereafter, at Landlord's option and without
limiting the exercise of
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any other right or remedy which Landlord may have in law or equity by reason of
such default or breach, with or without notice or demand, do any of the
following:
25.2.1 Regain Possession. Re-enter the Premises and take possession
-----------------
of the same and of all equipment, fixtures and personal property of Tenant
therein, expel or remove Tenant and all other parties occupying the Premises,
using such force as may be reasonably necessary to do so, without being liable
to any prosecution for such re-entry or for the use of such force, and without
terminating this Lease, and at any time (and from time to time) relet the
Premises or any part thereof for the account of Tenant for such term and upon
such conditions and at such rental as Landlord may deem proper in its sole
discretion. In such event Landlord may receive and collect the rent from such
reletting and apply it first against any and all expenses and costs incurred by
Landlord hereunder as a result of Landlord having to retake and relet the
Premises (including, without limitation, such expenses as Landlord may have
incurred in recovering possession of the Premises, placing the same in good
order and condition, altering, repairing or redecorating the same for reletting
and all other reasonable expenses, commissions and charges, including attorneys'
fees, which Landlord may have paid or incurred in connection with such
repossession and reletting) and then the balance, if any, shall be applied
against any Rent then due from Tenant to Landlord. Landlord may execute any
lease made pursuant hereto in Landlord's name and the tenant thereunder shall be
under no obligation to see to the application by Landlord of any rent collected
by Landlord, nor shall Tenant have any right to collect any rent thereunder.
Whether or not the Premises are relet, Tenant shall pay Landlord all amounts
required to be paid by Tenant up to the date of Landlord's re-entry and
thereafter Tenant shall pay Landlord, until the end of the Term, the amount of
all rent and other charges required to be paid by Tenant hereunder, less the
proceeds of such reletting during the Term, if any, after payment of Landlord's
expenses as provided above. Such payments by Tenant shall be due at such times
as are provided in this Lease, and Landlord need not wait until the termination
of this Lease to recover them by legal action or otherwise. Landlord shall not
by any re-entry or other act be deemed to have terminated this Lease or the
liability of Tenant for the total Rent due hereunder unless Landlord shall give
Tenant written notice of Landlord's election to terminate this Lease.
25.2.2 Termination. Give written notice to Tenant of Landlord's
-----------
election to terminate this Lease at any time after an Event of Default, re-enter
the Premises and take possession of the same and of all equipment, fixtures and
personal property therein, and expel or remove Tenant and all other parties
occupying the Premises, using such force as may be reasonably necessary to do
so, without being liable to any prosecution for such re-entry or for the use of
such force. In such event Landlord shall thereupon be entitled to recover from
Tenant as damages, all of the following:
i. The worth at the time of award of any unpaid Rent which had
been earned at the time of such termination; plus
ii. The worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rent loss that Tenant proves could have been
reasonably avoided; plus
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<PAGE>
iii. The worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of the award exceeds the
amount of such Rent loss that Tenant proves could have been reasonably avoided;
plus
iv. Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to any costs or expenses incurred
by Landlord in retaking possession of the Premises, including reasonable
attorneys' fees; maintaining or preserving the Premises after such Event of
Default; preparing the Premises for reletting to a new tenant, including repairs
or alterations to the Premises for such reletting; leasing commissions; or any
other costs necessary or appropriate to relet the Premises; plus
v. At Landlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by the laws of
the State of California.
vi. As used in subsections (i) and (ii) above, the "worth at the
time of award" is computed by allowing interest at the rate set forth in Article
34 below. As used in subsection (iii) above, the "worth at the time of award" is
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).
25.2.3 Tenant's Property. Landlord may at its option permit all of
-----------------
Tenant's fixtures, furniture, equipment, improvements, additions, alterations,
and other personal property to remain on the Premises and in that event, and
continuing during the length of said Event of Default, Landlord shall have the
right to take exclusive possession of the same and to use the same, free of
charge, until all Events of Default are cured or, at its option, at any time
during the Term, to require Tenant to forthwith remove the same. In the
alternative, in the event of any entry or taking possession of the Premises as
aforesaid, Landlord shall have the right, but not the obligation, to remove
therefrom all or any part of the personal property located therein and may place
the same in a public warehouse at the expense and risk of the owner or owners
thereof and dispose of the same in accordance with the provisions of California
Civil Code Section 1980 et seq. or any successor statutes thereto.
25.2.4 Cure of Default. In addition to the foregoing remedies,
---------------
Landlord shall, so long as this Lease is not terminated, have the right to
remedy any Event of Default, to maintain or improve the Premises without
terminating this Lease, to incur reasonable expenses on behalf of Tenant in
seeking a subtenant, or to cause a receiver to be appointed to administer the
Premises and any new or existing subleases, and Tenant shall pay to Landlord as
Additional Rent hereunder all of Landlord's reasonable costs in so doing, with
interest at the maximum lawful rate.
25.2.5 Cumulative Remedies. No remedy or election hereunder shall be
-------------------
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
25.3 Default by Landlord. Landlord shall not be deemed to be in default or
-------------------
breach in the performance of any obligation required to be performed by Landlord
under this Lease unless
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and until it has failed to perform such obligation within thirty (30) days after
written notice by Tenant to Landlord specifying that Landlord has failed to
perform such obligation; provided, however that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then Landlord shall not be deemed to be in default or breach if it
shall commence such performance within such thirty (30) day period and
thereafter diligently prosecute the same to completion. Tenant shall have no
right to terminate this Lease, except where Landlord fails to cure a material
breach within the time periods set forth in the immediately preceding sentence.
No default or breach on the part of Landlord that would entitle Tenant under the
terms of this Lease or by law to terminate this Lease shall result in a
termination of this Lease unless (i) Tenant has given written notice of such
default or breach by registered or certified mail to any beneficiary of a deed
of trust or mortgagee of a mortgage covering the Premises whose address shall
have been furnished to Tenant and (ii) Tenant offers such beneficiary or
mortgagee the same opportunity to cure the default or breach as is available to
Landlord under the express terms of this Lease. It is expressly understood and
agreed that any money judgment against Landlord resulting from any default or
other claim arising under this Lease or related thereto shall be satisfied only
out of Landlord's equity interest in the Premises, and no other real, personal
or mixed property of Landlord, wherever situated, shall be subject to levy on
any such judgment obtained against Landlord and if such equity interest in the
Premises is insufficient for the payment of such judgment, Tenant will not
institute any further action, suit, claim or demand, in law or in equity,
against Landlord for the amount of such deficiency. Tenant hereby waives, to the
extent waivable under law, any right to satisfy said money judgment against
Landlord except from Landlord's equity interest in the Premises.
ARTICLE 26
HOLD OVER
---------
If Tenant holds over after the expiration or earlier termination of
the Term or any Extended Term of this Lease without the express prior written
consent of Landlord, Tenant shall become a tenant of sufferance only at a rental
rate equal to one hundred fifty percent (150%) of the Monthly Base Rent in
effect just prior to expiration or termination, and otherwise upon the terms,
covenants and conditions herein specified, so far as applicable. Acceptance by
Landlord of any Rent after such expiration or earlier termination shall not
constitute a consent to a holdover hereunder or result in a renewal of the Lease
or any lease. The foregoing provisions of this Article 26 are in addition to and
do not affect Landlord's right of reentry or any other rights of Landlord
hereunder or as otherwise provided by law or equity.
ARTICLE 27
CONDITION OF PREMISES
---------------------
Tenant acknowledges that, except as expressly set forth in this Lease,
neither Landlord nor any agent of Landlord has made any representation or
warranty with respect to the Premises, Landlord' s prior use of the Premises,
the presence of any Hazardous Materials in the Premises, the adequacy or
inadequacy of parking for Tenant's intended office use of the Premises, the
compliance of the Premises with any applicable statutes, laws, ordinances or
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regulations (including, without limitation, any Environmental Laws), or with
respect to the suitability of any part of the Premises for the conduct of
Tenant's business.
ARTICLE 28
QUIET POSSESSION
----------------
Upon Tenant's paying the Rent reserved hereunder and observing and
performing all of the covenants, conditions and provisions on Tenant's part to
be observed and performed hereunder, Tenant shall have peaceful and quiet
possession of the Premises for the entire Term and any Extended Term(s) hereof,
subject to all of the terms and conditions of this Lease.
ARTICLE 29
DAMAGE TO TENANT'S PROPERTY
---------------------------
Landlord and its agents shall not be liable for any damage to Tenant's
property entrusted to employees of Landlord or its agents, nor for loss or
damage to any property by theft or otherwise. Landlord or its agents shall not
be liable for interference with the light or other incorporeal hereditaments.
ARTICLE 30
CONFLICT OF LAWS
----------------
This Lease shall be governed by and construed pursuant to the laws of
the State of California.
ARTICLE 31
SUCCESSORS AND ASSIGNS
----------------------
Except as otherwise provided in this Lease, all of the covenants,
conditions and provisions of this Lease shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns. Any options or rights given to the
Tenant in this Lease to extend or renew this Lease shall be personal to the
original Tenant named herein and to any Tenant Affiliate to whom this Lease may
be assigned and may not be transferred to any other successor or assign
(including, without limitation, any Tenant Subsidiary) without the prior written
consent of Landlord.
ARTICLE 32
BROKERS
-------
Tenant warrants that it has had no dealings with any real estate
broker, leasing agent or finder in connection with this Lease, excepting only
the brokers named in Items 14 and 15 of the Basic Lease Provisions and that it
knows of no other real estate broker, leasing agent or finder other than the
brokers named in Items 14 and 15 of the Basic Lease Provisions who is
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<PAGE>
entitled to a commission in connection with this Lease. Tenant agrees to pay and
to indemnify and hold Landlord harmless from, any cost, expense or liability for
any compensation, commission or charges claimed by any other realtors, brokers,
agents or finders claiming by, through or on behalf of Tenant with respect to
this Lease and/or the negotiation thereof. Landlord warrants that it has had no
dealings with any real estate broker, leasing agent or finder in connection with
this Lease, excepting only the brokers named in Items 14 and 15 of the Basic
Lease Provisions and that it knows of no other real estate broker, leasing agent
or finder other than the brokers named in Items 14 and 15 of the Basic Lease
Provisions who is entitled to a commission in connection with this Lease.
Landlord agrees to pay and to indemnify and hold Tenant harmless from, any cost,
expense or liability for any compensation, commission or charges claimed by any
other realtors, brokers, agents or finders claiming by, through or on behalf of
Landlord with respect to this Lease and/or the negotiation thereof. Landlord
covenants and agrees to pay in accordance with its agreement with the broker
named in Item 14, all real estate commissions due in connection with this Lease
to such broker.
ARTICLE 33
NEGOTIATED AGREEMENT
--------------------
Tenant and Landlord have been represented by independent counsel in
entering into this Lease. Each of the parties affirms to the other that it has
consulted and discussed the provisions of this Lease with its counsel and fully
understands the legal effect of each provision. The drafting and negotiation of
this Lease has been participated in by each of the parties. For all purposes,
this Lease shall be deemed to have been drafted jointly by each of the parties
and shall not be construed against any party due to authorship.
ARTICLE 34
INTEREST ON TENANTS OBLIGATIONS; LATE CHARGE
--------------------------------------------
34.1 Interest. Any amount due from Tenant to Landlord which is not paid
--------
within three (3) business days of its due date shall bear interest at the lesser
of (i) twelve percent (12%) per annum or (ii) the maximum rate permitted by law
from the date such payment is due (after the expiration of any applicable cure
period hereunder, if any) until paid, but the payment of such interest shall not
excuse or cure any default or breach by Tenant.
34.2 Late Charges. Tenant recognizes that late payment of any Rent or any
------------
portion thereof will result in administrative expense to Landlord, the extent of
which additional expense is extremely difficult and economically impractical to
ascertain. Tenant therefore agrees that if Rent or any portion thereof, remains
unpaid ten (10) business days after said amount is due and written notice from
Landlord demanding payment, the amount of such unpaid Rent shall be increased by
a late charge to be paid Landlord by Tenant equal to five percent (5%) of the
amount of the delinquent Rent or other payment. The amount of the late charge to
be paid Landlord by Tenant on any unpaid Rent or other unpaid amount shall be
due immediately after the date on which the late charge was initially imposed.
Tenant agrees that such late charge is a reasonable estimate of the loss and
expense to be suffered by Landlord as a result of such late payments by Tenant
and may be charged by Landlord to defray such loss and expense. The
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<PAGE>
provisions of this Section in no way relieve Tenant of the obligation to pay
Rent or other amounts on or before the date on which they are due, nor do the
terms of this Section in any way affect Landlord or its obligations under this
Lease or obligate Landlord to accept less than the full Rent amount due at any
time.
ARTICLE 35
TIME
----
Time is of the essence of this Lease and the performance of any and
all of its provisions.
ARTICLE 36
DEFINED TERMS AND MARGINAL HEADINGS
-----------------------------------
The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. If more than one person is named as Tenant the
obligations of such persons are joint and several. The captions or marginal
headings to the Articles and Sections of this Lease are not a part of this Lease
and shall have no effect upon the construction or interpretation of any part
hereof.
ARTICLE 37
PRIOR AGREEMENTS
----------------
This Lease and its Exhibits contain all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreement, understanding, representation, correspondence
(including, without limitation, that certain letter of intent between the
parties dated June 14, 1999 and that certain Office Lease dated July 30, 1999
covering both the Premises and the Plymouth Premises, which Office Lease the
parties acknowledge and agree shall be null and void and of no further force or
effect upon the execution and delivery of this Lease and the Plymouth Lease by
the parties hereto), or communication pertaining to any such matter or the
Premises shall be effective for any purpose. No provision of this Lease may be
amended, supplemented or modified except by an agreement in writing signed by
the parties hereto or their respective successors in interest. If any provision
of this Lease shall be held invalid, void or unenforceable to any extent, the
remainder of this Lease shall not be affected thereby and each provision of this
Lease shall be valid and enforceable to the fullest extent permitted by law.
ARTICLE 38
AUTHORITY OF PARTIES
--------------------
Tenant does hereby covenant, represent and warrant that (i) Tenant is
a duly authorized and existing corporation; (ii) Tenant is qualified to do
business in the State of California and is in good standing in the jurisdiction
of its formation; (iii) Tenant has full right and authority to enter into this
Lease; (iv) each person signing on behalf of the corporation was
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<PAGE>
authorized to do so; and (v) the Lease is valid and legally binding on Tenant.
Landlord does hereby covenant, represent and warrant that (i) Landlord is duly
authorized and existing corporation; (ii) Landlord is qualified to do business
in the State of California and is in good standing in the jurisdiction of its
formation; (iii) Landlord has full right and authority to enter into this Lease;
(iv) each person signing on behalf of the corporation was authorized to do so;
and (v) the Lease is valid and legally binding on Landlord.
ARTICLE 39
NO LIGHT, AIR OR VIEW EASEMENT
------------------------------
Any diminution or shutting off of light, air or view by any structure
which may be erected on lands adjacent to or in the vicinity of the Premises
shall in no way affect this Lease, impose any liability on Landlord, or permit
Tenant to reduce, setoff or abate rent or seek any other remedies or relief.
ARTICLE 40
EXAMINATION OF LEASE
--------------------
Submission of this instrument for examination or signature by Tenant
does not constitute a reservation of or option for lease, and it is not
effective as a lease or otherwise legally binding until execution by and
delivery to both Landlord and Tenant.
ARTICLE 41
FORCE MAJEURE
-------------
Any covenants, conditions, provisions or agreements on the part of one
party to perform any act or thing for the benefit of the other shall not be
deemed breached if such party is unable to furnish or perform the same by virtue
of a strike, lock out, fire, earthquake, explosion, riot, material or supply
shortages, Acts of God, laws, rules, orders, ordinances, directions, regulations
or requirements of any federal, state, county or municipal authority, labor
dispute or any other cause whatsoever beyond such party's reasonable control;
provided, however, that nothing in this Article 41 shall be deemed to relieve
either party from paying the other any sums owed to the other party under this
Lease (including, in the case of Tenant, any Rent) when such sums are due.
Unless expressly provided in this Lease, Tenant's Rent shall not be abated by
reason of such inability on the part of Landlord.
ARTICLE 42
RECORDING
---------
Tenant shall not record this Lease nor any form of memorandum hereof
without the prior written consent of Landlord, which consent may be withheld or
conditioned in Landlord's sole and absolute discretion. Any recording of this
Lease or any memorandum hereof without the prior written consent of Landlord
shall constitute a default by Tenant under
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<PAGE>
this Lease. Landlord, in its sole and absolute discretion, may record this Lease
or a memorandum hereof.
ARTICLE 43
INCORPORATION BY REFERENCE
--------------------------
The Basic Lease Provisions, Addenda (if any) and Exhibits attached
hereto all constitute parts of this Lease and any reference thereto incorporates
such matters in this Lease as if the same were fully set forth herein.
ARTICLE 44
DEFINITION OF ADDITIONAL RENT
-----------------------------
The Monthly Base Rent, Property Taxes, insurance premiums, maintenance
and repair costs incurred by Landlord under Article 6 above, and all other
amounts required to be paid by Tenant hereunder ("Additional Rent") including,
without limitation, interest, late charges, advance rent and reimbursements, are
sometimes collectively referred to in this Lease as, and shall constitute "Rent"
or "rent". Demand for payment of Rent shall not constitute a forbearance and
shall not compromise Landlord's right to deem Tenant's failure to pay such Rent
in a timely manner as a default or limit any other rights given to Landlord
under this Lease or by law or equity.
ARTICLE 45
SURRENDER OF PREMISES
---------------------
On the Expiration Date or the earlier termination of the Lease, Tenant
shall surrender the Premises and every part and system thereof to Landlord broom
clean and in as good condition as delivered to Tenant, reasonable wear and tear,
condemnation and casualty excepted, and free of all debris and Hazardous
Materials placed on the Premises by Tenant or Tenant Parties and in full
compliance with all requirements of Section 9.6 above. Unless Landlord has
required removal pursuant to Section 7.3 above, Tenant's initial Tenant
Improvements made by or for Tenant render the Work Letter and all other
improvements, alterations and additions made by or for Tenant to the Premises in
accordance with Section 7.3 of the Lease, shall become part of the Premises on
the Expiration Date or earlier termination of this Lease and be surrendered,
together with the Premises, to Landlord in good, serviceable and operating
condition, reasonable wear and tear, condemnation and casualty excepted. Tenant
shall remove all of its trade fixtures, equipment and personal property and
signs, provided such removal will not adversely affect the structural integrity
of the Premises. Any property not so removed within ten (10) days after the
Expiration Date or earlier termination of the Lease shall be deemed abandoned by
Tenant and shall become Landlord's property which Landlord may use, remove, or
dispose of in accordance with California Civil Code Section 1980 et seq. or any
successor statutes thereto. Tenant shall reimburse Landlord for any cost
incurred by Landlord in such removal, storage or disposition, or in repairing or
restoring the Premises. Tenant shall further defend and indemnify Landlord
against all claims, losses, costs, expenses, actions,
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<PAGE>
judgments, damages and liabilities resulting from Tenant's failure and delay in
surrendering the Premises as above provided including, without limitation, any
claim made by any succeeding tenant of the Premises resulting from or related to
such failure to surrender, which indemnification and defense obligations shall
survive the expiration or earlier termination of this Lease.
ARTICLE 46
NO ACCORD AND SATISFACTION
--------------------------
No payment by Tenant or receipt by Landlord of a lesser amount than
due shall be deemed to be other than on account of the full amount due and
Landlord may accept such check or payment without prejudice to Landlord's rights
to recover the balance.
ARTICLE 47
MERGER
------
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, or a termination by Landlord, shall not work as a merger,
and shall, at the option of Landlord, terminate all or any existing subtenancies
or may, at the option of Landlord, operate as an assignment to Landlord of any
or all of such subtenancies.
ARTICLE 48
FINANCIAL STATEMENTS
--------------------
The Financial Statements of Tenant were submitted as an inducement and
consideration to Landlord to enter into this Lease. Tenant represents and
warrants to Tenant that the Financial Statements were true and correct as of the
date thereof. Tenant further represents
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and warrants to Landlord that to Tenant's actual knowledge there have been no
material adverse changes in the financial condition of Tenant since the date of
the Financial Statements.
IN WITNESS WHEREOF, the parties hereto have executed this Lease,
consisting of the foregoing Basic Lease Provisions and Articles 1 through 48,
together with Exhibits A through E, all of which are incorporated herein in
----------------------
their entirety by this reference, as of the date set forth above.
LANDLORD: TENANT:
ALZA CORPORATION, a Delaware CHEMDEX CORPORATION, a Delaware
corporation corporation
By: /s/Harold Fethe By: /s/James G. Stewart
----------------------------------- ---------------------------------
Harold Fethe James G. Stewart
Its: Sr. Vice Pres., Human Resources Its: Chief Financial Officer
---------------------------------- --------------------------------
By: /s/Peter Staple By: /s/David P. Perry
----------------------------------- ---------------------------------
Peter Staple David P. Perry
Its: Sr. Vice President & Gen. Counsel Its: President & CEO
--------------------------------- --------------------------------
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EXHIBIT A
---------
DESCRIPTION OF REAL PROPERTY
----------------------------
All that certain real property situated in the City of Mountain View,
County of Santa Clara, State of California, described as follows:
Beginning at a point on the general Southerly line of that certain 17.494
more or less acre (gross) parcel of land designated as Parcel "A" on that
certain Parcel Map filed for record in Book 557 of Maps at pages 1 and 2,
Santa Clara County Records, distant thereon North 85(degrees) 44' 13" West
20.05 feet from the Southeasterly corner thereof, said point of beginning
being the intersection thereof with the Westerly line of Joaquin Road as
shown on said Parcel Map; thence leaving said point of beginning along said
general Southerly line of Parcel "A" along the following courses and
distances:
North 85(degrees) 44' 13" West 335.07 feet; South 0(degrees) 17' 27" West
61.46 feet and North 85(degrees) 44' 13" West 335.08 feet to a point on the
Easterly line of Huff Avenue as shown on said map; thence along said
Easterly line North 0(degrees) 17' 32" East 64.74 feet; thence leaving said
Easterly line South 89(degrees) 42' 28" East 263.75 feet; thence North
0(degrees) 17' 32" East 306.02 feet South 89(degrees) 42' 28" East 404.78
feet to a point on said Westerly line of Joaquin Road; thence along said
Westerly line South 0(degrees) 17' 23" West 355.70 feet to the point of
beginning.
APN: 116-10-093
ARB: 116-10-12 thru 17, 19, 20, 21
22, 22.1, 23, 24, 25, 26, 27
29, 68, 69, 71, 72
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EXHIBIT B
---------
<TABLE>
<CAPTION>
Lease Period Monthly Base Rent
<S> <C>
Original Lease Term
- -------------------
Commencement Date to 10/14/00 $ 75,368 (subject to free rent per (S) 3.2)
10/15/00 to 10/14/01 $ 77,629
10/15/01 to 10/14/02 $ 79,958
10/15/02 to 10/14/03 $ 82,357
10/15/03 to 10/14/04 $ 84,827
10/15/04 to 02/28/05 $ 87,372
Extended Terms
- --------------
03/01/05 to 10/14/05 $ 87,372
10/15/05 to 10/14/06 $ 89,993
10/15/06 to 02/28/07 $ 92,693
</TABLE>
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EXHIBIT C
---------
FORM OF LETTER OF CREDIT
WELLS FARGO BANK, N.A.
TRADE SERVICES DIVISION, NORTHERN CALIFORNIA
525 MARKET STREET, 25TH FLOOR
SAN FRANCISCO, CALIFORNIA 94105
IRREVOCABLE LETTER OF CREDIT
ALZA Corporation Letter of Credit No. NZS_____
950 Page Mill Road Date:____ __, 1999
Palo Alto, CA 94304
Attention: Senior Vice President & General Counsel
Ladies and Gentlemen:
At the request and for the account of Chemdex Corporation, 3950 Fabian Way,
Palo Alto, CA 94303, we hereby establish our Irrevocable Letter of Credit in
your favor in the amount of Six Hundred Twenty-Five Thousand United States
Dollars (US$625,000) available with us at our above office by payment of your
draft(s) drawn on us at sight in the form of Exhibit 1 hereto with the
instructions in brackets therein complied with accompanied by your signed and
dated statement in the form of Exhibit 2 hereto with the instructions in
brackets therein complied with.
Each drawing must also be accompanied by the original of this Letter of
Credit for our endorsement on this Letter of Credit of our payment of such
drawing.
Partial and multiple drawings are permitted under this Letter of Credit,
however each drawing must be in an amount of not less than US$20,000.00.
If any instructions accompanying a drawing under this Letter of Credit
request the payment is to be made by transfer to an account with us or at
another bank, we and/or such other bank may rely on an account number specified
in such instructions even if the number identifies a person or entity different
from the intended payee.
This Letter of Credit expires at our above office on July 31, 2000, but
shall be automatically extended, without written amendment, to July 31 in each
succeeding calendar year up to, but not beyond, April 30, 2005 unless we have
sent written notice to you at your address above by registered mail or express
courier that we elect not to renew this Letter of Credit beyond the date
specified in such notice (the "Non-Renewal Expiration Date"), which Non-Renewal
Expiration Date will be July 31, 2000 or any subsequent July 31 occurring before
April 30, 2005 and be at least 60 calendar days after the date we send you such
notice.
This Letter of Credit is transferable one or more times, but in each
instance to a single transferee and only in the full amount available to be
drawn under this Letter of Credit at the
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<PAGE>
time of such transfer. Any such transfer may be effected only through ourselves
and only upon presentation to us at our above-specified office of a duly
executed instrument of transfer in the form attached hereto as Exhibit 3 with
the instructions in brackets therein complied with together with the original of
this Letter of Credit. Any transfer of this Letter of Credit may not change the
place of expiration of this Letter of Credit from our above-specified office.
Each transfer shall be evidenced by our endorsement on the reverse of the
original of this Letter of Credit, and we shall deliver the original of this
Letter of Credit so endorsed to the transferee. All commissions and charges in
connection with this transfer are for the account of Chemdex Corporation.
This Letter of Credit is subject to the Uniform Customs and Practice for
Documentary Credits (1993 revision), International Chamber of Commerce
Publication No. 500, and engages us in accordance therewith.
Very truly yours,
WELLS FARGO BANK, N.A.
BY:________________________
(AUTHORIZED SIGNATURE)
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<PAGE>
Exhibit 1
Wells Fargo Bank, N.A
Letter of Credit No._________
Wells Fargo Bank, N.A.
Trade Services Division, Northern California
525 Market Street
San Francisco, CA 94105
Attention: Manager, Standby Letter of Credit Dept.
DRAFT
Date of Draft: [insert date]
To the order of [insert Beneficiary Name], pay [insert amount of
drawing in words]
UNITED STATES DOLLARS (U.S. $ [insert amount of drawing in numbers]) at sight
For value received under Letter of Credit No._______
"Drawn under Wells Fargo Bank, N.A. Letter of Credit No._______
dated August ,1999."
[insert Beneficiary Name]
By: [insert signature]
Its: [insert title]
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<PAGE>
Exhibit 2
Wells Fargo Bank, N.A
Letter of Credit No.________
Wells Fargo Bank, N.A.
Trade Services Division, Northern California
525 Market Street
San Francisco, CA 94105
Attention: Manager, Standby Letter of Credit Dept.
Re: Letter of Credit No.________
Ladies and Gentlemen:
1. The undersigned Beneficiary, [insert Beneficiary Name], is Landlord
under that certain Office Lease dated August___, 1999 ("Lease") with Chemdex
Corporation, a Delaware corporation, as Tenant.
2. The undersigned Beneficiary is entitled to payment under the Lease in
the amount of U.S.$[insert amount of draft which accompanies this statement]
(the "Draw Amount") in accordance with the applicable provisions of the Lease
(as the same may have been amended to date), which is the same amount as the
Draft accompanying this Certificate and is less than or equal to the amount
currently available under the Letter of Credit.
3. The individual executing this Certificate on behalf of Beneficiary is a
duly authorized officer of Beneficiary.
Date: [insert date] [insert Beneficiary Name]
By: [insert signature]
Its: [insert title]
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<PAGE>
Exhibit 3
Wells Fargo Bank, N.A
Letter of Credit No._______
Date: [insert date]
Wells Fargo Bank, N.A.
Trade Services Division, Northern California
525 Market Street, 25th Floor
San Francisco, California 94105
Attention: Manager, Standby Letter of Credit Department
Subject: Your Letter of Credit No.
Ladies and Gentlemen:
For value received, we hereby irrevocably assign and transfer all our
rights under the above-captioned Letter of Credit, as heretofore and hereafter
amended, extended or increased, to:
___________________________
[insert Name of Transferee]
___________________________
___________________________
[insert Address of Transferee]
By this transfer, all of our rights in the Letter of Credit are transferred
to the transferee, and the transferee shall have sole rights as beneficiary
under the Letter of Credit, including sole rights relating to any amendments,
whether increases or extensions or other amendments, and whether now existing or
hereafter made. You are hereby irrevocably instructed to advise future
amendment(s) of the Letter of Credit to the transferee without our consent or
notice to us.
You are hereby advised that [ insert Name of Transferee] succeeded to all
of beneficiary's right, title and interest under that certain Office Lease dated
August___, 1999 (as the same may have been amended to date), with Chemdex
Corporation, a Delaware corporation, as Tenant.
Enclosed are the original Letter of Credit and the original of all
amendments to this date. Please notify the transferee of this Transfer and of
the terms and conditions of the Letter of
-5-
<PAGE>
Credit as transferred. All fees and charges in connection with this Transfer are
for the account of Chemdex Corporation
Very truly yours,
[Insert Name of Beneficiary]
By: [insert signature]
Its: [insert title]
Signature of Transferor Guaranteed
[Insert Name of Bank]
By: [insert signature]
Name: [insert typed or printed name]
Title: [insert title]
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<PAGE>
EXHIBIT D
---------
WORK LETTER FOR TENANT IMPROVEMENTS
1. Delivery of Possession. Landlord shall deliver possession of the
----------------------
Premises to Tenant in "AS-IS" and "WITH ALL FAULTS" condition on the
Commencement Date (as defined in Section 2.1 of the Lease) to permit Tenant and
the Contractor Group (defined below) to commence and diligently pursue to
completion the Tenant Improvements (defined below) within the Premises. Tenant
acknowledges that Landlord has no obligation whatsoever to alter, repair,
restore, upgrade or improve the Premises under this Work Letter for Tenant
Improvements ("Work Letter"). As used herein, "Contractor Group" shall mean the
General Contractor (defined below) and each of its subcontractors, sub-
subcontractors, laborers, materialmen and suppliers providing labor or materials
to the Tenant Improvements. Capitalized terms used in this Work Letter and not
defined herein shall have the meanings given them in the Lease.
2. Tenant Improvements. Tenant, at its sole cost and expense, shall
-------------------
construct and install within the Premises its desired tenant improvements and
other improvements in accordance with the Approved Working Drawings (defined
below), which tenant improvements may include, without limitation, (i)
demolition of certain limited existing interior walls and other improvements
within the Premises, (ii) construction, installation and/or reconfiguration of
certain ceilings, interior walls and partitions, interior finishing of exterior
walls (including, without limitation, the plastering, furring, drywalling,
taping and/or other finishing of such walls), interior doors, floor coverings
and the preparation of all floors for same, cabinetry and millwork, restrooms,
light fixtures, wall coverings and other improvements, finishings and painting
within the Premises, (iii) modifications to floors for above-normal floor
loading requirements of Tenant, (iv) modifications reasonably required by Tenant
to the heating, ventilating and air conditioning ("HVAC") systems, ducts and
means of distribution for the same within the Premises, (v) improvements,
additions, alterations and fixtures within the buildings on the Premises
necessary for all Tenant Improvements and all portions of all buildings affected
by the Tenant Improvements to comply with all applicable codes, statutes, rules,
regulations, ordinances and orders of any federal, state, county or municipal
agency having jurisdiction over the Premises including all local, state and
federal requirements for disability access including, without limitation, the
Americans With Disabilities Act, 42 U.S.C. Section 1201 et seq. and California
Government Code Section 4450 et seq. (collectively, "ADA"), (vi) all telephone,
telecommunication, computer and data systems, switch room, cabling, lines,
conduit, receptacles, switches and related equipment and improvements running
from point of entry in the Premises, and (vii) all other necessary, desirable or
required improvements, alterations, fixtures and finishes which are to be
installed within or incorporated into the Premises by Tenant (collectively, the
"Tenant Improvements"). Tenant shall commence to construct and install the
Tenant Improvements at Tenant's sole cost and expense promptly from and after
Commencement Date and diligently pursue to completion, subject to Force Majeure
delays, the construction of all Tenant Improvements.
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<PAGE>
3. Working Drawings.
-----------------
3.1 Selection of Architect and Engineer; Working Drawings. Tenant
-----------------------------------------------------
shall retain a reputable architect (the "Architect") to the extent required by
Landlord and as approved by Landlord, which approval shall not be unreasonably
withheld or delayed, to prepare the "Working Drawings", as that term is defined
in this Section 3.1. No Working Drawings shall be required for carpeting,
painting and other di minimus improvements within the Premises. If necessary to
construct or install the Tenant Improvements, Tenant shall also retain an
engineering design build contractor (the "Engineer") approved by Landlord, which
approval shall not be unreasonably withheld or delayed, to prepare all plans and
engineering working drawings relating to any HVAC work or reconfiguration to be
performed by or for Tenant in the Premises. If Landlord fails to disapprove
Tenant's proposed Architect or Engineer in writing to Tenant, as the case may
be, within five (5) business days after receipt of written notice from Tenant
identifying the same, then Landlord shall be deemed to have approved Tenant's
proposed Architect or Engineer, as the case may be. The plans and drawings to be
prepared by Architect and the Engineer (if any) hereunder are collectively
referred to herein as the "Working Drawings." All Working Drawings shall be
subject to Landlord's approval, which approval shall not be unreasonably
withheld or delayed. Landlord shall advise Tenant within ten (10) business days
after Landlord's receipt of the proposed Working Drawings if the Working
Drawings are unsatisfactory, with a reasonable description of any matters found
to be not acceptable to Landlord. If Landlord fails to return Tenant's proposed
Working Drawings to Tenant marked "Approved", "Approved as Noted" or
"Disapproved" within said ten (10) business-day period, then Landlord shall be
deemed to have approved Tenant's proposed Working Drawings. Tenant's Working
Drawings, as finally revised and marked or deemed approved by Landlord, shall be
initialed by Landlord and Tenant and shall be referred to as the "Approved
Working Drawings". If Approved Working Drawings are not agreed upon within five
(5) business days after delivery to Tenant of "Disapproved" Working Drawings or
"Approved as Noted" Working Drawings, then Landlord or Tenant may submit the
disputed items to an arbitration panel consisting of Landlord's architect, an
architect appointed by Tenant (who may be the Architect who prepared Tenant's
Working Drawings), and a third architect appointed by said architects. Tenant
shall appoint its architect within five (5) business days after written notice
from Landlord. The majority decision of such panel shall be made within five (5)
business days after appointment of said third architect and such decision shall
be binding upon Landlord and Tenant and judgment upon the decision of the
arbitrators may be entered in any court having jurisdiction. Landlord and Tenant
shall each pay the fees of their own architect and one-half (1/2) of the fees of
the third architect.
3.2 Space Plan. Tenant shall cause a space plan ("Space Plan") for
----------
the Tenant Improvements to be prepared (including a layout and designation of
all offices, stairways, stairwells, elevators, utility rooms, storage areas,
conference and meeting rooms and other partitioning within the Premises). The
Space Plan shall be subject to Landlord's approval, which approval shall not be
unreasonably withheld or delayed. Landlord shall advise Tenant within ten (10)
business days after Landlord's receipt of the proposed Space Plan if the Space
Plan is unsatisfactory, with a reasonable description of any matters found to be
not acceptable to Landlord. If Landlord fails to return Tenant's proposed Space
Plan to Tenant marked "Approved", "Approved as Noted" or "Disapproved" within
said ten (10) business-day period,
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<PAGE>
then Landlord shall be deemed to have approved Tenant's proposed Space Plan.
Tenant's Space Plan, as finally revised and marked or deemed approved by
Landlord, shall be initialed by Landlord and Tenant and shall be referred to as
the "Approved Space Plan". If the Approved Space Plan is not agreed upon within
five (5) business days after delivery to Tenant of a "Disapproved" Space Plan or
an "Approved as Noted" Space Plan, then Landlord or Tenant may submit the
disputed items to an arbitration panel as provided in Section 3.1 above. Any
material revisions or amendments to the Approved Space Plan shall require
Landlord's prior written approval not to be unreasonably withheld or delayed.
3.3 INTENTIONALLY DELETED
3.4 Approved Working Drawings. Tenant shall, at Tenant's sole cost
-------------------------
and expense, submit the Approved Working Drawings to the City of Mountain View
to the extent necessary to obtain any and all demolition, building and other
governmental permits as may be required by law to commence construction of the
Tenant Improvements. Tenant hereby agrees that neither Landlord nor Landlord's
consultants shall be responsible for obtaining any permits or certificates of
occupancy or other occupancy permits or approvals for the Premises and that the
obtaining of the same if required by law shall be Tenant's sole responsibility
at Tenant's sole cost. No material modifications to the Approved Working
Drawings may be made without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. If Landlord fails to
disapprove any proposed, modifications to the Approved Working Drawings within
five (5) business days after receipt of written notice from Tenant or its
Architect identifying the same, then Landlord shall be deemed to have approved
such proposed modifications. Construction of the Tenant Improvements by Tenant
and the Contractor Group shall not commence unless and until Tenant has obtained
all legally required demolition, building and other governmental permits
necessary for commencing construction of the Tenant Improvements and delivered
copies of all such permits to Landlord.
3.5 Approvals Not Binding on Landlord. Landlord's and Landlord's
---------------------------------
consultants' review of the Working Drawings and Space Plan as set forth in this
Section 3 shall be for Landlord's sole purpose and shall not imply any
representation or warranty as to the adequacy or sufficiency of the same by
Landlord or Landlord's construction manager, space planners, architects,
engineers and consultants, or obligate Landlord to review the same for quality,
design, code compliance or other like matters. Accordingly, notwithstanding that
any Working Drawings or Space Plan are reviewed by Landlord or its consultants,
and notwithstanding any advice or assistance which may be rendered to Tenant by
Landlord or Landlord's consultants, Landlord and Landlord's construction
manager, space planner, architect, engineers and consultants shall have no
liability whatsoever for such review or advice and shall not be responsible for
any omissions or errors contained in the Working Drawings, Space Plan, Approved
Working Drawings, or Approved Space Plans of any nature whatsoever.
4. Construction of Tenant Improvements. Tenant, at Tenant's sole cost and
-----------------------------------
expense, shall perform or cause to be constructed within the Premises all of the
Tenant Improvements in accordance with the Approved Working Drawings and only
after receipt of all demolition, building and other governmental permits as may
be required by law to commence construction of the Tenant Improvements. No
materials used in the Tenant Improvements shall be subject to any
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<PAGE>
security interest or lien. All materials (as well as methods and processes) used
in the performance of the Tenant Improvements shall be of new and first-class
quality. Tenant shall ensure that its General Contractor and members of the
Contractor Group are familiar with all those portions of the Premises upon or
within which the Tenant Improvement Work will be performed. The Tenant
Improvements as constructed shall not materially alter or affect the exterior
appearance or the structure of the Premises or any of the mechanical,
electrical, plumbing, HVAC or other building systems serving the Premises,
unless such alterations or modifications are provided for in the Approved
Working Drawings or otherwise expressly agreed to in writing by Landlord. All
Tenant Improvements shall be performed diligently (subject to Force Majeure
delays), in a good and workmanlike manner and in accordance with any and all
applicable codes, statutes, rules, regulations, ordinances and orders of any
federal, state, county or municipal agency or other governmental body having
jurisdiction over the Premises, including, without limitation, the ADA, the
Uniform Building Code, California Health and Safety Code (S)(S) 19955 et seq.,
OSHA, 29 U.S.C. (S)(S) 651 et seq. and CAL-OSHA. During the Term or any Extended
Term, Landlord shall not be responsible for repairing or otherwise correcting
any defects in the Tenant Improvements (including any failure of the Tenant
Improvements to comply with applicable laws) that may occur during or after
completion of construction whether such defects affect the Premises or any part
thereof. Except as may be permitted under the Approved Working Drawings, Tenant
shall not demolish, remove or alter any structural portion of the Premises
without Landlord's prior written consent, which Landlord agrees not unreasonably
withhold or delay. All Tenant Improvements shall be constructed in a manner that
will minimize, to the extent reasonably practicable under the circumstances
interference with and inconvenience to Landlord's use or occupancy of the first
floor of the 1010 Joaquin building, or with the use or occupancy of the 1010
Joaquin building by any other tenant of the 1010 Joaquin building, if any, and
reasonable complaints from Landlord (in its capacity as an occupant of the first
floor of the 1010 Joaquin building) or from any other tenants of the 1010
Joaquin building, if any, shall be promptly remedied by Tenant.
5. Tenant's General Contractor and Construction Contract. Tenant shall
-----------------------------------------------------
have the right to solicit bids from duly licensed reputable contractors for
construction and installation of the Tenant Improvements. Landlord shall have
the right to approve, within five (5) business days of full and complete
submittal to Landlord, each of Tenant's general contractors for the Tenant
Improvements and the form of construction contract to be entered into between
Tenant and such general contractor with respect to the construction and
installation of the Tenant Improvements, and those subcontractors and forms of
subcontracts for subcontracts where the subcontractor is providing work,
materials and/or supplies in excess of $100,000 (collectively, $100,000
Subcontractors" and "$100,000 Subcontracts", as applicable), which approvals
shall not be unreasonably withheld or delayed. Any disapproval of any of the
foregoing by Landlord shall contain a reasonable description of any matters
found to be not acceptable to Landlord. If Landlord fails to approve or
disapprove Tenant's proposed general contractor within said five (5)-business-
day period (and Landlord hereby preapproves Vance Brown Contractors) or to
return Tenant's proposed construction contract to Tenant marked "Approved,"
"Approved as Noted," or "Disapproved" within said five (5)-business-day period,
then Landlord shall be deemed to have approved the same. The construction
contract for the Tenant Improvements (the "Construction Contract") between
Tenant and the general contractor approved (or deemed approved) by Landlord (the
"General Contractor") shall provide, and Tenant shall exercise
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<PAGE>
commercially reasonable efforts to cause each of the $100,000 Subcontracts with
the $100,000 Subcontractors to provide, that: (i) the General Contractor and
each $100,000 Subcontractor shall leave all common areas (if any) at the
Premises affected by their work in a neat, orderly and safe condition at the end
of each day during construction of the Tenant Improvements; (ii) the General
Contractor and each $100,000 Subcontractor shall procure and maintain the
insurance described in Section 7 below; (iii) to the fullest extent permitted by
law, the General Contractor and each $100,000 Subcontractor shall indemnify,
defend (with counsel reasonably acceptable to Landlord) and hold Landlord and
its officers, directors, employees and contractors harmless from and against any
injury or death to any person or damage to any property in or about the Premises
resulting from the activities of the indemnifying party, except to the extent
that such injury, death or damage results directly from negligence or willful
misconduct of Landlord or its contractors, employees or agents; (iv) the General
Contractor and each $100,000 Subcontractor shall guarantee to Tenant for the
benefit of Tenant and Landlord that the portion of the Tenant Improvements for
which it is responsible has been completed in accordance with the Approved
Working Drawings and shall be free from any defects in workmanship and materials
for a period of not less than one (1) year from the date of completion thereof
and that the General Contractor and applicable $100,000 Subcontractor shall be
responsible for the replacement or repair, without additional charge, of all
workmanship or materials provided by the General Contractor pursuant to the
Construction Contract or $100,000 Subcontract that may become defective within
said one (1)-year period.
6. Indemnification. Tenant hereby confirms and agrees that Tenant's
---------------
indemnification and defense obligations set forth in Articles 9 and 19 of the
Lease are incorporated in full into this Work Letter as though fully set forth
herein and shall apply to all of Tenant's and the Contractor Group's
construction activities at the Premises and all work related activities
performed at the Premises by or through Tenant and the Contractor Group
hereunder during the Term. Without diminishing Tenant's rights against the
General Contractor or any other member of the Contractor Group, Tenant hereby
assumes all risk of injury or death to persons or damage to property at the
Premises and all costs relating to non-compliance with applicable laws at the
Premises caused by Tenant's construction activities at the Premises, except to
the extent such injury, death or damage is caused by Landlord's or any Landlord
Party's negligence or willful misconduct. The indemnification obligations set
forth in this Section 6 shall not be limited by available insurance proceeds and
shall survive the termination or expiration of the Lease and this Work Letter.
7. Insurance. Tenant shall cause Tenant's General Contractor and each
---------
member of the Contractor Group to maintain worker's compensation insurance with
statutory benefits and limits. Tenant shall cause Tenant's General Contractor,
and shall exercise commercially reasonable efforts to cause each $100,000
Subcontractor, to maintain comprehensive liability and property damage insurance
in an amount of not less than Two Million Dollars ($2,000,000) per occurrence
($1,000,000 for $100,000 Subcontractors) with companies and on forms reasonably
satisfactory to Landlord in its reasonable discretion. Tenant, the General
Contractor and each $100,000 Subcontractor shall, prior to commencing any work
hereunder and at all times during the entire period of construction of the
Tenant Improvements, keep current and valid certificates of the insurance
required of it hereunder on file with Landlord. Except for worker's compensation
insurance, all policies of insurance shall name Landlord and its respective
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<PAGE>
directors, officers, employees and agents as additional insureds, provide that
the insurance coverage is primary and noncontributing with any insurance carried
by Landlord, waive subrogation against Landlord with respect to property damage,
cover Tenant's indemnification obligations set forth in Section 6 above and
contain a provision giving Landlord at least thirty (30) days prior written
notice of any cancellation or material change in any insurance coverage.
8. Builder's Risk Insurance. Tenant, at Tenant's sole cost and expense,
------------------------
shall procure and maintain (or cause Tenant's contractor to procure and
maintain) during the construction of the Tenant Improvements Builder's Risk
Insurance covering One Hundred Percent (100%) of the replacement cost of all of
the Tenant Improvements, including all materials and equipment destined to
become part of the Tenant Improvements. Such insurance shall include the perils
of fire, extended coverage, vandalism and malicious mischief, and so-called "All
Risk" perils as defined and limited in the policies, but may, at Tenant's
option, exclude the perils of earthquake and flood. If during the course of
their construction any of the Tenant Improvements are damaged by a casualty
event required to be insured against by Tenant under this Section, Tenant shall
promptly repair such casualty damage (or cause the same to be repaired).
9. Landlord's Inspection Rights. During the course of construction of the
----------------------------
Tenant Improvements Landlord reserves the right to inspect the progress of the
Tenant Improvements on the terms set forth in Section 16.1 of the Lease;
provided, however, that such inspection(s) shall in no way make Landlord
responsible for any of the work of construction of the Tenant Improvements and,
as more particularly set forth in Section 3.5 above, shall not constitute a
representation or warranty by Landlord as to the design, adequacy or sufficiency
of the Tenant Improvements.
10. Notice of Nonresponsibility. Tenant shall give Landlord not more than
---------------------------
twenty (20) and not less than ten (10) business days prior written notice of the
date on which the first construction of the Tenant Improvements is scheduled to
commence to permit Landlord to post on the Premises and record with the Santa
Clara County Recorder appropriate notices of nonresponsibility.
11. Payments by Tenant; Liens. All costs and expenses relating to the
-------------------------
Tenant Improvements shall be paid promptly by Tenant as they come due and
evidence of such payment shall be furnished to Landlord upon request. Tenant
shall cause any mechanic's or materialman's lien or other claim filed against
the Premises and relating to the Tenant Improvements to be released and removed
in accordance with the applicable provisions of the Lease notwithstanding any
other dispute Tenant may then have with Landlord. Should Tenant fail to remove
any such lien within the required period of time, Landlord may (at its sole
election) pay or bond over such claim and the amount paid or premium for the
bond, together with any attorneys' fees and costs incurred by Landlord in
connection therewith, shall be immediately due from Tenant to Landlord. Promptly
following completion of any portion of the Tenant Improvements by the General
Contractor and each $100,000 Subcontractor, Tenant shall deliver to Landlord
waivers of mechanic's liens executed by each such person with respect to the
completed portion of such Tenant Improvements. Promptly following completion of
the entire Tenant Improvements, Tenant shall obtain and deliver to Landlord an
unconditional waiver and
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<PAGE>
release upon payment (in the form prescribed by California Civil Code Section
3262) from the General Contractor and each $100,000 Subcontractor.
12. Notice of Completion; Copy of "As Built" Plans. Within ten (10) days
----------------------------------------------
after final completion of construction of the Tenant Improvements, Tenant shall
cause a Notice of Completion to be recorded in the office of the Recorder of the
County of Santa Clara in accordance with Section 3093 of the California Civil
Code or any successor statute, and shall furnish a copy thereof to Landlord upon
such recordation. At the conclusion of construction, (i) Tenant shall cause the
Architect and Contractor (A) to update the Approved Working Drawings as
necessary to reflect all changes made to the Approved Working Drawings during
the course of construction, and (B) to deliver to Landlord two (2) sets of
sepias of "record-set" drawings within ninety (90) days following issuance of a
certificate of occupancy for the Premises, and (ii) Tenant shall deliver to
Landlord a copy of all warranties, guaranties, and operating manuals in Tenant's
possession relating to the Tenant Improvements.
13. Compliance with Rules and Regulations. All of Tenant's and the
-------------------------------------
Contractor Group's activities at the Premises shall comply with any and all
easements, covenants, conditions and restrictions affecting the Premises and any
rules and regulations attached to the Lease.
14. Lease Provisions Apply. Nothing in this Work Letter, including
----------------------
Tenant's entry into the Premises for construction of the Tenant Improvements
under this Work Letter, shall relieve either Landlord or Tenant from observing
all of the terms, covenants and conditions of the Lease required to be performed
by such party including, without limitation, all indemnification and insurance
provisions of the Lease which shall apply in full to Tenant's construction of
its Tenant Improvements, and all of the provisions of the Lease are hereby
incorporated into and made a part of this Work Letter.
15. Landlord's Cooperation. Upon Tenant's request, Landlord shall
----------------------
reasonably cooperate with Tenant, at Tenant's sole cost and expense and at no
cost to Landlord, without any liability whatsoever on Landlord's part and
without Landlord having to commit any of its staff or resources, in connection
with Tenant's construction and installation of its Tenant Improvements within
the Premises and Tenant's applications for permits, certificates and approvals
associated therewith.
16. No Third Party Beneficiaries. This Work Letter is made and entered
----------------------------
into for the sole benefit of Landlord, Tenant, any other party that may be
expressly stated in this Work Letter
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<PAGE>
to benefit for this Work Letter or any provision hereof, and their respective
successors and assigns. No other persons or entities shall have any rights or
benefits under or arising out of this Work Letter.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter
as of the date and year first above written.
LANDLORD: TENANT:
ALZA CORPORATION, a Delaware CHEMDEX CORPORATION, a Delaware
corporation corporation
By: /s/Harold Fethe By: /s/James G. Stewart
--------------------------------- ---------------------------------
Harold Fethe James G. Stewart
Its: Sr. Vice Pres., Human Resources Its: Chief Financial Officer
-------------------------------- --------------------------------
By: /s/Peter Staple By: /s/David P. Perry
--------------------------------- ---------------------------------
Peter Staple David P. Perry
Its: Sr. Vice Pres. & General Counsel Its: President & CEO
------------------------------- --------------------------------
-8-
<PAGE>
EXHIBIT E
---------
TERMS TO BE INCORPORATED IN LEASE SUBORDINATION,
ATTORNMENT AND NONDISTURBANCE AGREEMENT
THIS AGREEMENT is made this _____ day of ______________, by and between
CHEMDEX CORPORATION, a Delaware Corporation ("Tenant") and _________________
_______________ ("Lender"):
RECITALS
A. Lender is the holder of that certain promissory note ("Note") issued by
ALZA CORPORATION ("Landlord") dated ________________ in the principal sum of ___
_______________ DOLLARS ($______) and of the deed of trust recorded on ______
____________ ("Mortgage"), which Mortgage encumbers the real property (the
"Mortgaged Property") commonly known as the entire Second Floor of 1010 Joaquin
Road, Mountain View, California, which Mortgaged Property is more particularly
described in the Mortgage.
B. Landlord and Tenant entered into that certain Office Lease ("Lease")
dated August 13, 1999, by which Tenant leased from Landlord the Mortgaged
Property, all as more fully described in the Lease.
C. Tenant desires to be able to obtain the advantages of the Lease and
occupancy thereunder in the event of foreclosure of the Mortgage and Lender
wishes to have Tenant confirm the priority of the Mortgage over the Lease as the
Lease relates to the Mortgaged Property.
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth hereinbelow, the parties hereto agree as follows:
1. Tenant hereby covenants and agrees that all its rights, title and
interest whatsoever under the Lease as the Lease relates to the Mortgaged
Property is and shall at all times be and remain unconditionally subject and
subordinate to lien and charge of the Mortgage and to all the terms, conditions
and provisions thereof, to all advances made or to be made thereunder or under
the Note, and to any increases, renewals, extensions, modifications,
substitutions, consolidations or replacements thereof or of the Note and the
Mortgage.
2. So long as Tenant is not in default (beyond any period given Tenant in
the Lease to cure such defaults) in the payment of rent or additional charges or
in the performance of any of the other terms, covenants or conditions of the
Lease on Tenant's part to be performed, Tenant shall not be disturbed by Lender
in its possession of the Mortgaged Property during the term of the Lease, or any
extension or renewal thereof, or in the enjoyment of its rights under the Lease.
3. If the interest of the Landlord under the Lease as the Lease relates to
the Mortgaged Property shall be acquired by Lender or any purchaser
("Purchaser") by reason of exercise of the power of sale or the foreclosure of
the Mortgage or other proceedings brought to enforce the rights of the holder
thereof, by deed in lieu of foreclosure or by any other method, and Lender or
-1-
<PAGE>
Purchaser succeeds to the interest of Landlord under the Lease, Tenant shall
attorn to Lender or Purchaser as its landlord, said attornment to be effective
and self-operative without the execution of any other instruments on the part of
either party hereto immediately upon Lender's or Purchaser's succeeding to the
interest of the Landlord under the Lease, and the Lease shall continue in
accordance with its terms between Tenant as tenant and Lender or Purchaser as
landlord, provided however that:
(a) Lender shall not be personally liable under the Lease and Lender's
liability under the Lease shall be limited to the equity interest of Lender in
the Mortgaged Property as provided in Section 25.3 of the Lease;
(b) Lender shall not be liable for any act or omission of any prior
landlord (including Landlord);
(c) Lender shall not be subject to any offsets or defenses which
Tenant might have against any prior landlord (including Landlord);
(d) Lender shall not be liable for any damages or other relief
attributable to any prior latent defects in the Mortgaged Property; and
(e) Lender shall not be bound by any prepayment of rent, additional
rent or deposit, rental security, letter of credit or any other sums deposited
with any prior landlord (including Landlord) under the Lease unless actually
received by Lender.
4. Tenant certifies to Lender that except as provided below, (i) the Lease
is presently in full force and effect with no defaults thereunder by Landlord or
by Tenant and unmodified; (ii) the term thereof has commenced and the full
rental is now accruing thereunder, (iii) Tenant has accepted possession of the
Premises and that any improvements required by the terms of the Lease to be made
by Landlord have been completed to the satisfaction of Tenant; (iv) no rent
under the Lease has been paid more than thirty (30) days in advance of its due
date; (v) the address for notices to be sent to Tenant is as set forth in the
Lease; and (vi) Tenant has no charge, lien, claim or offset under the Lease or
otherwise, against rents or other charges due or to become due thereunder.
5. Tenant agrees with Lender that from and after the date hereof, Tenant
will not terminate or seek to terminate the Lease by reason of my act or
omission of Landlord thereunder until Tenant shall have given written notice, by
registered or certified mail, return receipt requested, of said act or omission
to Lender, which notice shall be addressed to Lender and until the grace period
as set forth in the Lease shall have elapsed following the giving of such
notice, during which period Lender shall have the right, but shall not be
obligated, to remedy such act or omission.
6. Nothing in this Agreement shall be deemed to be or construed to be an
agreement by Lender to perform any covenant of Landlord under the Lease unless
and until it obtains title to the Mortgaged Property by power of sale or
judicial foreclosure or deed in lieu thereof or obtains possession of the
Property pursuant to the terms of the Mortgage.
-2-
<PAGE>
7. This Agreement shall inure to the benefit of and shall be binding upon
Tenant and Lender, and their respective heirs, personal representatives,
successors and assigns. This Agreement may not be altered, modified or amended
except in writing signed by all of the parties hereto. In the event any one or
more of the provisions contained in this Agreement shall for any reason be held
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. This Agreement shall be
governed by and construed according to the laws of the State of California.
IN WITNESS WHEREOF, Lender and Tenant have executed this Agreement as of
the date and year first above written.
LENDER: TENANT:
CHEMDEX CORPORATION, a
Delaware Corporation
By:___________________________ By:____________________________
Its:__________________________ Its:___________________________
-3-
<PAGE>
SCHEDULE 2
List of Groundwater Monitoring Reports
1. Letter dated May 15, 1998 from the San Francisco Bay Regional Water
Quality Control Board to ALZA Corporation concerning 1500/1550 Plymouth Street,
Mountain View.
2. Letter and Summary of Environmental Condition dated June 17, 1999 from
Aquifer Services, Inc. to ALZA Corporation concerning 1500/1550 Plymouth Street
and 1010 Joaquin Road, Mountain View.
3. Groundwater Monitoring Report for the Quarterly Reporting Period
January 1 through March 31, 1999 prepared for Spectra-Phipers Lasers, Inc. and
Teledyne Semiconductor dated April 30, 1999.
-1-
<PAGE>
SCHEDULE 3
----------
Routes of Building Access for CHEMDEX at 1010 Joaquin Rd. (BLDG. M4)
[Floor Plan]
<PAGE>
Building M4 - Second Floor
[Floor Plan]
<PAGE>
Estimated Furniture Value in Bldg. M4-2
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Description Brand Quantity New Cost Ea Cost Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bookcase: Short 42" - 48" Various Laminate 12 $ 260.00 $ 3,120.00
- ---------------------------------------------------------------------------------------------------------------
Bookcase: Short 42" - 48" Various Metal 1 $ 180.00 $ 180.00
- ---------------------------------------------------------------------------------------------------------------
Bookcase: Short 42" - 48" Various Wood 5 $ 550.00 $ 2,750.00
- ---------------------------------------------------------------------------------------------------------------
Bookcase: Tall 55" - 72" Various Metal 1 $ 225.00 $ 225.00
- ---------------------------------------------------------------------------------------------------------------
Bookcase: Tall 55" - 72" Various Wood 10 $ 950.00 $ 9,500.00
- ---------------------------------------------------------------------------------------------------------------
Cabinet, Metal Utility Various 6 $ 450.00 $ 2,700.00
- ---------------------------------------------------------------------------------------------------------------
Cabinet, Wood Various 1 $1,200.00 $ 1,200.00
- ---------------------------------------------------------------------------------------------------------------
Chair, Conf Room Various 41 $ 500.00 $ 20,500.00
- ---------------------------------------------------------------------------------------------------------------
Chair, Exec Various 12 $ 800.00 $ 9,600.00
- ---------------------------------------------------------------------------------------------------------------
Chair, Side Various 46 $ 300.00 $ 13,800.00
- ---------------------------------------------------------------------------------------------------------------
Chair, Side: Wood Steelcase 10 $ 240.00 $ 2,400.00
- ---------------------------------------------------------------------------------------------------------------
Chair, Lobby Various 4 $ 600.00 $ 2,400.00
- ---------------------------------------------------------------------------------------------------------------
Chair, Lunch Room Various 10 $ 180.00 $ 1,800.00
- ---------------------------------------------------------------------------------------------------------------
Chair, Task Steelcase Criterion 42 $ 500.00 $ 21,000.00
- ---------------------------------------------------------------------------------------------------------------
Chair, Task Various 157 $ 500.00 $ 78,500.00
- ---------------------------------------------------------------------------------------------------------------
Credenza, Laminate Various 3 $ 550.00 $ 1,650.00
- ---------------------------------------------------------------------------------------------------------------
Credenza, Wood Various 15 $ 850.00 $ 12,750.00
- ---------------------------------------------------------------------------------------------------------------
Cubicle, approx 8'x10' Steelcase 9000 47 $6,000.00 $282,000.00
- ---------------------------------------------------------------------------------------------------------------
Desk, 3-Part Laminate Sequus 3 $1,200.00 $ 3,600.00
- ---------------------------------------------------------------------------------------------------------------
Desk, Laminate Various 8 $ 550.00 $ 4,400.00
- ---------------------------------------------------------------------------------------------------------------
Desk, Large Wood 36"x72" Various 16 $ 650.00 $ 10,400.00
- ---------------------------------------------------------------------------------------------------------------
Desk, Metal w/Wood Dbl Ped Various 22 $ 800.00 $ 17,600.00
- ---------------------------------------------------------------------------------------------------------------
Desk, w/Return Steelcase 9000 19 $1,630.00 $ 30,970.00
- ---------------------------------------------------------------------------------------------------------------
Desk, w/Return Various Wood/Metal 6 $ 500.00 $ 3,000.00
- ---------------------------------------------------------------------------------------------------------------
Desk, Wood, Exec 36"x72" Steelcase 8 $2,500.00 $ 20,000.00
- ---------------------------------------------------------------------------------------------------------------
Desk, Wood, Small 30"x60" Various 12 $ 700.00 $ 8,400.00
- ---------------------------------------------------------------------------------------------------------------
File Cabinet, 2-Drawer Various 34 $ 365.00 $ 12,410.00
- ---------------------------------------------------------------------------------------------------------------
File Cabinet, 3-Drawer Various 12 $ 500.00 $ 6,000.00
- ---------------------------------------------------------------------------------------------------------------
File Cabinet, 4-Drawer Various 57 $ 800.00 $ 45,600.00
- ---------------------------------------------------------------------------------------------------------------
File Cabinet, 5-Drawer Various 54 $2,500.00 $135,000.00
- ---------------------------------------------------------------------------------------------------------------
File Cabinet, Vertical Various 14 $ 250.00 $ 3,500.00
- ---------------------------------------------------------------------------------------------------------------
File Cabinet, Misc Various 13 $ 300.00 $ 3,900.00
- ---------------------------------------------------------------------------------------------------------------
File Cabinet, 4-Dr Fire-Proof Fire-King 2 $4,000.00 $ 8,000.00
- ---------------------------------------------------------------------------------------------------------------
File, Flat Wood 2 $2,500.00 $ 5,000.00
- ---------------------------------------------------------------------------------------------------------------
Keyboard Trays WorkRite (85%) 109 $ 200.00 $ 21,800.00
- ---------------------------------------------------------------------------------------------------------------
Safe, Large Various 1 $4,000.00 $ 4,000.00
- ---------------------------------------------------------------------------------------------------------------
Table, Computer Various 6 $ 350.00 $ 2,100.00
- ---------------------------------------------------------------------------------------------------------------
Table, Conference Room Various 3 $5,000.00 $ 15,000.00
- ---------------------------------------------------------------------------------------------------------------
Table, Large Round Various 8 $ 750.00 $ 6,000.00
- ---------------------------------------------------------------------------------------------------------------
Table, Lunch Laminate/Metal 2 $ 450.00 $ 900.00
- ---------------------------------------------------------------------------------------------------------------
Table, Misc Various 17 $ 300.00 $ 5,100.00
- ---------------------------------------------------------------------------------------------------------------
Table, Printer/Computer Various 3 $ 250.00 $ 750.00
- ---------------------------------------------------------------------------------------------------------------
Table, Small Round Various 13 $ 265.00 $ 3,445.00
- ---------------------------------------------------------------------------------------------------------------
Table, Task 30x60 Various 5 $ 350.00 $ 1,750.00
- ---------------------------------------------------------------------------------------------------------------
Table, Training Various 6 $ 650.00 $ 3,900.00
- ---------------------------------------------------------------------------------------------------------------
$856,190.00
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
August 13, 1999 Estimated Furniture Value 1
Bldg. M4-2
<PAGE>
[LOGO OF WELLS FARGO]
WELLS FARGO BANK, N.A.
TRADE SERVICES DIVISION, NORTHERN CALIFORNIA
525 MARKET STREET, 25TH FLOOR
SAN FRANCISCO, CALIFORNIA 94105
IRREVOCABLE LETTER OF CREDIT
ALZA Corporation Letter of Credit No. NZS330632
950 Page Mill Road Date: August 13, 1999
Palo Alto, CA 94304
Attention: Senior Vice President & General Counsel
Ladies and Gentlemen:
At the request and for the account of Chemdex Corporation, 3950 Fabian
Way, Palo Alto, CA 94303, we hereby establish our Irrevocable Letter of Credit
in your favor in the amount of Six Hundred Twenty Five Thousand United States
Dollars (US$625,000.00) available with us at our above office by payment of your
draft(s) drawn on us at sight in the form of Exhibit 1 hereto with the
instructions in brackets therein complied with accompanied by your signed and
dated statement in the form of Exhibit 2 hereto with the instructions in
brackets therein complied with.
Each drawing must also be accompanied by the original of this Letter
of Credit for our endorsement on this Letter of Credit of our payment of such
drawing.
Partial and multiple drawings are permitted under this Letter of
Credit, however each drawing must be an amount of not less than US$20,000.00.
If any instructions accompanying a drawing under this Letter of Credit
request the payment is to be made by transfer to an account with us or at
another bank, we and/or such other bank may rely on an account number specified
in such instructions even if the number identifies a person or entity different
from the intended payee.
This Letter of Credit expires at our above office on July 31, 2000,
but shall be automatically extended, without written amendment, to July 31 in
each succeeding calendar year up to, but not beyond, April 30, 2005 unless we
have sent written notice to you at your address above by registered mail or
express courier that we elect not to renew this Letter of Credit beyond the date
specified in such notice (the "Non-Renewal Expiration Date"), which Non-Renewal
Expiration Date will be July 31, 2000 or any subsequent July 31 occurring before
April 30, 2005 and be at least 60 calendar days after the date we send you such
notice.
This Letter of Credit is transferable one or more times, but in each
instance to a single transferee and only in the full amount available to be
drawn under this Letter of Credit at the time of such transfer. Any such
transfer may be effected only through ourselves and only upon presentation to us
at our above-specified office of a duly executed instrument of transfer in the
form attached hereto as Exhibit 3 with the instructions in brackets therein
complied with together with the original of this Letter of Credit. Any transfer
of this Letter of Credit may not change the place of expiration of this Letter
of Credit from our above-specified office. Each transfer shall be evidenced by
our endorsement on the reverse of the original of this Letter of Credit, and we
shall deliver the original of this Letter of Credit so endorsed to the
transferee. All commissions and charges in connection with this transfer are for
the account of Chemdex Corporation.
<PAGE>
Exhibit 3
Wells Fargo Bank, N.A
Letter of Credit No NZS330632
================================================================================
Date: [insert date]
Wells Fargo Bank, N.A.
Trade Services Division, Northern California
525 Market Street, 25th Floor
San Francisco, California 94105
Attention: Manager, Standby Letter of Credit Department
Subject: Your Letter of Credit No. NZS330632
Ladies and Gentlemen:
For value received, we hereby irrevocably assign and transfer all our
rights under the above-captioned Letter of Credit, as heretofore and hereafter
amended, extended or increased, to:
___________________________
[insert Name of Transferee]
___________________________
___________________________
[insert Address of Transferee]
By this transfer, all of our rights in the Letter of Credit are transferred
to the transferee, and the transferee shall have sole rights as beneficiary
under the Letter of Credit, including sole rights relating to any amendments,
whether increases or extensions or other amendments, and whether now existing or
hereafter made. You are hereby irrevocably instructed to advise future
amendment(s) of the Letter of Credit to the transferee without our consent or
notice to us.
You are hereby advised that [insert Name of Transferee] succeeded to all of
beneficiary's right, title and interest under that certain Office Lease dated
August 13, 1999 (as the same may have been amended to date), with Chemdex
Corporation, a Delaware corporation, as Tenant.
Enclosed are the original Letter of Credit and the original of all
amendments to this date. Please notify the transferee of this Transfer and of
the terms and conditions of the Letter of Credit as transferred. All fees and
charges in connection with this Transfer are for the account of Chemdex
Corporation
Very truly yours,
[Insert Name of Beneficiary]
By: [insert signature]
Its: [insert title]
Signature of Transferor Guaranteed
[Insert Name of Bank]
By: [insert signature]
Name: [insert typed or printed name]
Title: [insert title
================================================================================
<PAGE>
EXHIBIT 10.22
OFFICE LEASE
by and between
ALZA CORPORATION
and
CHEMDEX CORPORATION
for space at
1500 and 1550 PLYMOUTH STREET
MOUNTAIN VIEW, CALIFORNIA
August 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
BASIC LEASE PROVISIONS ...................................................................................... 1
1. DEFINITIONS ............................................................................................. 2
2. TERM AND POSSESSION ..................................................................................... 5
3. MONTHLY BASE RENT; NET LEASE ............................................................................ 8
4. LETTER OF CREDIT ........................................................................................ 9
5. TENANT'S PAYMENT OF PROPERTY TAXES AND INSURANCE PREMIUMS ............................................... 10
6. MAINTENANCE, REPAIR AND REPLACEMENT ..................................................................... 12
7. IMPROVEMENTS AND ALTERATIONS; LIENS ..................................................................... 13
8. USE OF PREMISES ......................................................................................... 16
9. HAZARDOUS MATERIALS ..................................................................................... 17
10. UTILITIES AND SERVICES .................................................................................. 20
11. RULES AND REGULATIONS ................................................................................... 21
12. TAXES ON TENANT'S PROPERTY .............................................................................. 21
13. FIRE OR CASUALTY ........................................................................................ 22
14. EMINENT DOMAIN .......................................................................................... 23
15. ASSIGNMENT AND SUBLETTING ............................................................................... 25
16. ACCESS AND RESERVED RIGHTS .............................................................................. 29
17. SUBORDINATION AND ATTORNMENT ............................................................................ 30
18. TRANSFER OF PREMISES; QUIET ENJOYMENT ................................................................... 31
19. NONLIABILITY AND INDEMNIFICATION OF LANDLORD; INSURANCE ................................................. 32
20. WAIVER OF SUBROGATION ................................................................................... 35
21. ATTORNEYS' FEES ......................................................................................... 35
22. WAIVER .................................................................................................. 36
23. NOTICES ................................................................................................. 36
24. BANKRUPTCY .............................................................................................. 36
25. DEFAULT AND REMEDIES .................................................................................... 37
26. HOLD OVER ............................................................................................... 41
27. CONDITION OF PREMISES ................................................................................... 41
28. QUIET POSSESSION ........................................................................................ 41
29. DAMAGE TO TENANT'S PROPERTY ............................................................................. 41
30. CONFLICT OF LAWS ........................................................................................ 42
31. SUCCESSORS AND ASSIGNS .................................................................................. 42
32. BROKERS ................................................................................................. 42
33. NEGOTIATED AGREEMENT .................................................................................... 43
34. INTEREST ON TENANTS OBLIGATIONS; LATE CHARGE ............................................................ 43
35. TIME .................................................................................................... 43
36. DEFINED TERMS AND MARGINAL HEADINGS ..................................................................... 44
37. PRIOR AGREEMENTS ........................................................................................ 44
38. AUTHORITY OF PARTIES .................................................................................... 44
39. NO LIGHT, AIR OR VIEW EASEMENT .......................................................................... 45
40. EXAMINATION OF LEASE .................................................................................... 45
41. FORCE MAJEURE ........................................................................................... 45
42. RECORDING ............................................................................................... 45
43. INCORPORATION BY REFERENCE .............................................................................. 46
</TABLE>
<PAGE>
<TABLE>
<S> <C>
44. DEFINITION OF ADDITIONAL RENT ................................................................................46
45. SURRENDER OF PREMISES ........................................................................................46
46. NO ACCORD AND SATISFACTION ...................................................................................47
47. MERGER .......................................................................................................47
48. FINANCIAL STATEMENTS .........................................................................................47
</TABLE>
EXHIBITS AND SCHEDULES
- ----------------------
A. Legal Description
B. Schedule of Monthly Base Rent
C. Letter of Credit
D. Work Letter for Tenant Improvements
E. Nondisturbance Agreement
1. List of Remaining Furniture
2. List of Groundwater Monitoring Report
<PAGE>
LEASE
THIS LEASE ("Lease") is made this 13/th/ day of August, 1999 by and
between ALZA CORPORATION, a Delaware Corporation ("Landlord"), and CHEMDEX
CORPORATION, a Delaware corporation ("Tenant").
Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord, subject to all of the terms and conditions hereinafter set forth,
those certain premises described in Item 6 of the Basic Lease Provisions and
located at 1500 and 1550 Plymouth Street, Mountain View, California.
BASIC LEASE PROVISIONS
----------------------
1. Date: August 13, 1999
----
2. Tenant: CHEMDEX CORPORATION, a Delaware corporation
------
3. Address: Before Commencement Date:
-------
3950 Fabian Way
Palo Alto, California 94303
Attention: Steve Draper, Director of Corporate Operations
After Commencement Date:
1550 Plymouth Street
Mountain View, California 94043
Attention: Steve Draper, Director of Corporate Operations
4. Landlord: ALZA CORPORATION, a Delaware corporation
--------
5. Address: 950 Page Mill Road
-------
Palo Alto, California 94304
Attention: Senior Vice President and General Counsel
6. Premises: The two-story freestanding building located at 1500 Plymouth
Street, Mountain View, California containing approximately
40,000 rentable square feet ("RSF") and the two-story
freestanding building located at 1550 Plymouth Street,
Mountain View, California also containing approximately
40,000 RSF, together with the parking areas, driveways,
landscaping, common areas and other appurtenances
constructed or located on or serving the 1500 and 1550
Plymouth Street buildings (the "Premises"). The real
property on which the Premises is located is more
particularly described in Exhibit A attached hereto and
---------
incorporated herein by this reference
<PAGE>
7. Term: Approximately five (5) years and four (4) months (See
----
Article 2)
8. Monthly Base Rent: The following Monthly Base Rent for the
-----------------
Premises shall be payable on a triple net basis
pursuant to Section 3.1 below: From the Commencement
Date until October 14, 2000, Two Hundred Twenty-Eight
Thousand Dollars ($228,000) per month. The Monthly
Base Rent for the remaining Lease years during the
Term and each Extended Term (if any) of this Lease
shall be as set forth on Exhibit B attached hereto and
---------
incorporated herein by this reference. Monthly Base
Rent for the Premises (but no other rent or charges
due under this Lease) shall be forgiven for the first
month of the Term.
9. Prepaid Rent: $228,000 due upon execution of the Lease by Landlord
------------
and Tenant (See Section 3.1)
10. Letter of Credit: Letter of Credit in the amount of One Million Eight
----------------
Hundred Seventy-Five Thousand Dollars ($1,875,000) due
upon execution of the Lease (See Article 4)
11. Permitted Use: As provided in Article 8
-------------
12. Renewal Options: Subject to Landlord's Recapture Right (defined in
---------------
Section 2.3 below), two (2) successive one (1) year
renewal options (See Section 2.3)
13. Expansion Options: None
------------------
14. Landlord's Broker: Catalyst-CRESA Real Estate Group
-----------------
15. Tenant's Broker: Cornish & Carey Commercial Real Estate
---------------
The foregoing Basic Lease Provisions set forth the essential terms of
this Lease and should be read in conjunction with the rest of the Lease and in
particular, with reference to how those terms are defined in the Lease.
ARTICLE 1
DEFINITIONS
-----------
Unless otherwise specified, the following terms used in this Lease and
designated by initial capitals shall have the following meanings:
1.1 "Environmental Laws" shall mean all local, state, or federal laws,
------------------
statutes, ordinances, rules, regulations, judgments, injunctions, stipulations,
decrees, orders, policies, permits, approvals, treaties, or protocols now or
hereafter enacted, issued or promulgated by any governmental authority which
relate to any Hazardous Material or the use, manufacture, handling, treatment,
transportation, production, disposal, discharge, distribution, release,
recycling, emission, sale, or storage of, or the exposure of any person to, a
Hazardous Material.
<PAGE>
1.2 "Financial Statements" shall mean the financial information contained
--------------------
in Tenant's Initial Registration Statement on Form S-1 accessed by Landlord on
or about May 24, 1999 at www.freeedgar.com.
1.3 "Force Majeure" shall mean any of the events described in Article 41,
-------------
below.
1.4 "Hazardous Material" shall mean any material or substance that is now
------------------
or hereafter prohibited or regulated by any statute, law, rule, regulation or
ordinance or that is now or hereafter designated by any governmental authority
to be radioactive, toxic, hazardous or otherwise a danger to health,
reproduction or the environment including but not limited to (i) oil and
petroleum products, (ii) radioactive materials, (iii) asbestos and asbestos-
containing materials, (iv) polycholorinated biphenyls, and (v) viruses, microbes
and other biological materials and (v) substances defined as "hazardous
substances", "hazardous materials", or "toxic substances" in the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, 42
U.S.C. (S)(S)9601 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
-- ---
(S)(S) 1801 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C.
-- ---
(S)(S) 6901, et seq.; the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601,
-- ---
et seq.; the Clean Water Act, 33 U.S.C. (S)(S) 1251, et seq.; the California
- -- --- -- ---
Hazardous Waste Control Act, Health and Safety Code (S)(S) 25330, et seq.; the
-- ---
California Safe Drinking Water and Toxic Enforcement Act, Health and Safety Code
(S)(S) 25249.5, et seq.; California Health and Safety Code (S)(S) 25280, et seq.
-- --- -- ---
(Underground Storage of Hazardous Substances); the California Hazardous Waste
Management Act, Health and Safety Code, (S)(S) 25170, et seq. (Hazardous
-- ---
Materials Release Response Plans and Inventory); the California Porter-Cologne
Water Quality Control Act, Water Code (S)(S) 13000, et seq.; all as amended.
-- ---
1.5 "Hazardous Material Condition" shall mean the occurrence or discovery,
----------------------------
after the Commencement Date, of a condition involving the presence of, or a
contamination by, a Hazardous Material in or under the Premises requiring
remediation under Environmental Laws or rendering any part of the Premises
unsafe for human occupancy.
1.6 "Joaquin Lease" shall mean the office lease of even date herewith
-------------
executed by Landlord and Tenant for the Joaquin Premises.
1.7 "Joaquin Premises" shall mean the second floor of the two-story
----------------
freestanding building located at 1010 Joaquin Road, Mountain View, California,
containing approximately 26,445 RSF together with the shared parking areas,
driveways, landscaping, common areas and other appurtenances constructed or
located thereon.
1.8 "Landlord Affiliate" shall mean any corporation, general or limited
------------------
partnership, joint venture, limited liability company or other person or entity
which controls, is controlled by or under common control with ALZA Corporation
or resulting from a merger or consolidation with ALZA Corporation or which
acquires substantially all of the assets of ALZA Corporation.
1.9 "Landlord Parties" shall mean Landlord, its employees, agents,
----------------
consultants, licensees, invitees, contractors, subcontractors, and any other
person for whom Landlord is legally responsible, provided that under no
circumstances shall any of Tenant Parties be deemed a Landlord Party for
purposes of this Lease.
<PAGE>
1.10 "Lease" shall mean this Lease document including the Basic Lease
-----
Provisions and any and all Exhibits and Adgenda attached hereto now or in the
future.
1.11 "Letter of Credit" shall mean the Letter of Credit described in
----------------
Article 4 below.
1.12 "Permitted Use" shall mean the sole use for which Tenant may utilize
-------------
the Premises as specified in Item 11 of the Basic Lease Provisions and Article 8
below.
1.13 "Premises" shall have the meaning set forth in Item 6 of the Basic
--------
Lease Provisions.
1.14 "Rent" and "rent" shall mean Monthly Base Rent, Additional Rent and
----
all other charges payable hereunder and under any Exhibit or Adgenda to this
Lease, and any other monetary obligations of Tenant to Landlord under the
provisions of this Lease.
1.15 "Technology Party" shall mean any corporation, general or limited
----------------
partnership, joint venture, limited liability company or other person or entity
which is pursuing the application of Landlord's technology as a material part of
its business pursuant to a written agreement with Landlord.
1.16 "Tenant Affiliate" shall mean any corporation, general or limited
----------------
partnership, joint venture, limited liability company or other person or entity
(collectively, "person") which satisfies each of the following three criteria:
(i) such person controls, is controlled by or is under common control with
Tenant or results from a merger or consolidation with Tenant; (ii) Tenant
beneficially owns more than fifty percent (50%) of such person; and (iii) such
person has a net worth, determined in accordance with generally accepted
accounting principles ("GAAP"), in excess of Twenty Million Dollars
($20,000,000).
1.17 "Tenant Subsidiary" shall mean any corporation, general or limited
-----------------
partnership, joint venture, limited liability company or other person or entity
(collectively, "person") which satisfies each of the following two criteria: (i)
such person controls, is controlled by or is under common control with Tenant or
results from a merger or consolidation with Tenant; and (ii) Tenant beneficially
owns more than fifty percent (50%) of such person.
1.18 "Tenant Parties" shall mean Tenant, its employees, agents,
--------------
consultants, licensees, invitees, contractors, subcontractors, and any other
person for whom Tenant is legally responsible, provided that under no
circumstances shall any of Landlord Parties be deemed a Tenant Party for
purposed of this Lease.
1.19 "Term" shall mean the period of the Lease between the Commencement
----
Date and the Expiration Date (as such Commencement Date and Expiration Date are
defined in Section 2.1 below) or earlier termination of the Lease, but not to
exceed the period set forth in Item 7 of the Basic Lease Provisions unless
extended as provided in Section 2.3 below.
1.20 Other defined terms used in this Lease shall have the meanings set
forth in the Lease, including the following:
1.20.1 "Additional Rent" is defined in Article 44;
---------------
<PAGE>
1.20.2 "Commencement Date" is defined in Section 2.1;
-----------------
1.20.3 "Expiration Date" is defined in Section 2.1; and
---------------
1.20.4 "Monthly Base Rent" is defined in Article 3.
-----------------
ARTICLE 2
TERM AND POSSESSION
-------------------
2.1 Commencement. The Term of this Lease shall be for approximately five
------------
(5) years and four (4) months as described in Item 7 of the Basic Lease
Provisions and shall commence on that date when Landlord delivers possession of
the Premises to Tenant in vacant, broom-clean condition, which Landlord
anticipates to occur on or about October 15, 1999 (the "Commencement Date"), and
shall expire on February 28, 2005 (the "Expiration Date"). Landlord shall
exercise commercially reasonable efforts (subject to Force Majeure delays) to
deliver the Premises to Tenant on or about October 15, 1999. Landlord shall
exercise commercially reasonable efforts to give Tenant at least thirty (30)
days prior written notice of each anticipated Commencement Date (but without any
liability on Landlord's part if Landlord shall fail to do so). Landlord and
Tenant shall execute a letter agreement confirming each exact Commencement Date
within five (5) business days following the Commencement Date. If the
Commencement Date and delivery of possession of the Premises to Tenant does not
occur on or before December 15, 1999, then Tenant's sole and exclusive remedy
with respect to such delay in the Commencement Date shall be to terminate this
Lease and the Joaquin Lease by written notice given to Landlord on or before
December 31, 1999, and in the event of such termination both Landlord and Tenant
shall be released and relieved of their respective obligations and liabilities
under this Lease and under the Joaquin Lease, Landlord shall return Tenant's
prepaid rent and the Letter of Credit paid or delivered by Tenant under this
Lease and under the Joaquin Lease to Tenant and neither party shall have any
right to recover any losses, costs, expenses or damages (including, without
limitation, loss of profits, foreseeable or unforeseeable consequential damages
or special damages) from the other party.
2.2 Tenant's Acceptance of Possession. Tenant acknowledges and agrees that
---------------------------------
(i) Tenant has made all investigations which Tenant deems necessary concerning
(A) the condition of the Premises including the soil, air and groundwater
thereof, (B) Landlord's prior use of the Premises, (C) the adequacy of parking
for Tenant's intended office use of the Premises, (D) the compliance of the
Premises with all applicable statutes, laws, ordinances and regulations and (E)
Tenant's ability to operate its business in the Premises, (ii) Tenant shall
accept the Premises in "AS IS" and "WITH ALL FAULTS" condition on the
Commencement Date subject to all applicable zoning, municipal, county, state and
federal statutes, laws, ordinances and regulations governing and regulating the
use of the Premises and all easements, encumbrances, covenants, conditions and
restrictions of record, (iii) except as otherwise provided in this Lease,
Landlord has no obligation to alter or improve the Premises of any nature
whatsoever and (iv) Tenant acknowledges and agrees that neither Landlord nor any
of its agents or representatives has made any oral or written representations or
warranties of any nature whatsoever (a) with respect to the Premises including
the soil, air and groundwater thereof, (b) compliance or the Premises with
<PAGE>
building codes and applicable laws, (c) the ability of Tenant to operate its
business in the Premises or (d) as to any of the matters set forth in subclauses
(i)(A) through (i)(E) above.
2.3 Option To Extend Term. Landlord shall notify Tenant in writing at
---------------------
least twelve (12) months prior to the Expiration Date of the initial Term of the
Lease and/or twelve (12) months prior to the expiration of the first Extended
Term (defined below), as applicable, as to whether Landlord will exercise its
right to repossess one or both of the buildings comprising the Premises (with
any such repossessed Premises being referred to herein as the "Repossessed
Premises") from and after the Expiration Date or the expiration of the first
Extended Term, as applicable (the "Recapture Right"). If Landlord, in Landlord's
sole and absolute discretion, exercises this Recapture Right, then (i) the Lease
shall terminate on the Expiration Date or the expiration of the first Extended
Term, as applicable, as to the Repossessed Premises, (ii) Tenant shall have no
right to extend this Lease for the Extended Term(s) (defined below) as to such
Repossessed Premises, (iii) from and after the Expiration Date or the expiration
of the first Extended Term, as applicable, Tenant shall have no further rights
or interests in the Repossessed Premises of any nature whatsoever, and (iv)
provided Landlord, a Landlord Affiliate and/or a Technology Party initially
occupies more than fifty percent (50%) of the Repossessed Premises for their own
use, Landlord shall be free to use the balance of the Repossessed Premises for
any purposes whatsoever, including, without limitation, assigning or subleasing
the balance of the Repossessed Premises to any person or entity for any purpose
whatsoever. If Landlord does not timely exercise its Recapture Right as to all
or any portion of the Premises upon the Expiration Date or the expiration of the
first Extended Term, as applicable, then Tenant shall have the option to extend
the term of this Lease solely as to that portion of the Premises (but not less
than an entire building) which is not Repossessed Premises for two (2) extended
term(s) of one (1) year each commencing upon the Expiration Date of the initial
Term of the Lease and the expiration of the first one-year Extended Term (each,
an "Extended Term"). Tenant may exercise the foregoing option to extend if and
only if (i) Tenant notifies Landlord in writing of its irrevocable election to
extend the Term of the Lease for the Extended Term no later than eleven (11)
months prior to the Expiration Date of the initial Term of the Lease or eleven
(11) months prior to the expiration date of the first one-year Extended Term, as
applicable, (ii) Tenant extends the term with respect to an entire building (and
not solely a portion of a building) and (iii) Tenant is not in material default
of the Lease (following the expiration of any applicable cure periods without
cure) either at the time of giving notice of its irrevocable election to extend
or on the commencement date of each Extended Term. If each of the conditions set
forth in the immediately preceding sentence are not satisfied in full, then
Tenant's option(s) to extend the term of the Lease shall lapse and be null and
void and the terms and provisions of the second sentence of this Section 2.3
shall apply as though Landlord had exercised its Recapture Right as to all of
the Premises. All of the terms and provisions of this Lease shall apply during
the Extended Term(s) except that (a) if Tenant extends the Lease as to less than
the entire Premises, Rent and the Face Amount of the Letter of Credit shall be
equitably reduced to reflect the reduction in square footage of the portion of
the Premises to be leased by Tenant during the Extended Term(s), (b) there shall
be no further right to extend the term of the Lease beyond the second Extended
Term, (c) except as expressly provided in this Lease, Landlord shall have no
obligation to make improvements to the Premises of any nature whatsoever, (d)
Tenant shall not be entitled to any abatement of Monthly Base Rent during either
Extended Term and (e) Monthly Base Rent during each the Extended Term shall be
determined and annually increased in accordance with the provisions of Exhibit B
---------
attached hereto. The foregoing right to extend the
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<PAGE>
term of the Lease is personal to Tenant and may not be assigned, sold, leased or
otherwise transferred, voluntarily or involuntarily, by or to any other person
or entity except to a Tenant Affiliate in accordance with Article 15 below.
2.4 HVAC Inspection. Prior to the Commencement Date, Landlord, at
---------------
Landlord's sole cost, shall cause a duly licensed heating, ventilating and air
conditioning ("HVAC") service and repair specialist to inspect the entire HVAC
system within the Premises, repair any deficiencies within such HVAC system and
certify in writing that the HVAC system is in good working order and repair.
2.5 Limited Early Access. Tenant, MCIWorldcom-Brooks Fiber, and its
--------------------
subcontractors (collectively, "Early Access Parties") may enter upon the
Premises prior to the Commencement Date, at such times and places requested by
Tenant and approved by Landlord (such approval not to be unreasonably withheld
or delayed), for the sole purpose of allowing Tenant and/or any other Early
Access Party (a) to connect Tenant's telecommunications lines (including data,
voice and video cabling and wiring) to the exterior of the 1500 Plymouth
building and the 1550 Plymouth building, and (b) to install and test Tenant's
telecommunications equipment and systems (including data, voice and video
equipment and systems) within said buildings. In connection with each such entry
upon the Premises by an Early Access Party, each Early Access Party shall use
all reasonable efforts to ensure that the business of Landlord shall be
interfered with and inconvenienced as little as is reasonably practicable under
the circumstances and shall otherwise fully comply with Section 7.3 of the Lease
in all respects, which Section shall apply to each entry upon the Premises by an
Early Access Party pursuant hereto; provided, however, that an Early Access
Party shall only be required to give Landlord not less than ten (10) calendar
days prior notice for entries that contemplate work that is physically intrusive
(such as trenching and boring or drilling into the parking lot, ground, or walls
of the 1500 and 1550 Plymouth buildings) and not less than five (5) calendar
days prior notice for entries that contemplate work that is not physically
intrusive. Notwithstanding the foregoing, (i) Landlord may assign a security
guard to accompany each Early Access Party while on the Premises pursuant to
this Section 2.5 and (ii) any drilling by an Early Access Party into the hard
walls of the 1500 and 1550 Plymouth buildings shall, unless otherwise agreed to
by Landlord, take place after 5:00 p.m. California time on work days or at any
reasonable time on weekend days. Further, the provisions of Article 20 and
Sections 19.1, 19.2, 19.3.1, 19.3.2, 19.5, 19.6 and 19.7 of the Lease shall
apply and be in full force and effect during each entry upon the Premises by any
Early Access Party pursuant to this Section 2.5. Prior to and as a condition to
each such entry by an Early Access Party, Tenant shall furnish Landlord with
proof of the insurance required of Tenant under Sections 19.3.1, 19.3.2 and 19.6
of this Lease. Tenant agrees to defend, indemnify and save harmless Landlord its
officers, directors, employees, affiliates, subsidiaries, shareholders, lenders,
successors and assigns from all liabilities, costs, damages, fees, liens and
expenses suffered or incurred by them as a result of any activity, work or thing
done on or about the Premises by Tenant and/or any other Early Access Party
pursuant to this Section 2.5. Notwithstanding Tenant's rights under this Section
2.5, Tenant's obligation to pay Monthly Base Rent and Additional Rent shall not
commence until the Commencement Date.
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<PAGE>
ARTICLE 3
MONTHLY BASE RENT; NET LEASE
----------------------------
3.1 Monthly Base Rent. Tenant shall pay to Landlord as Monthly Base Rent
-----------------
for the Premises the sum(s) described in Item 8 of the Basic Lease Provisions
and as set forth on Exhibit B to this Lease during the entire Term and any
---------
Extended Term(s). The Monthly Base Rent shall be payable in advance on the first
day of each calendar month, without deduction, setoff, abatement, prior notice
or demand, commencing on the Commencement Date and continuing for each calendar
month thereafter during the Term of the Lease and the Extended Term(s), if
applicable. In the event the Term of this Lease commences or ends on a day other
than the first or last day of a calendar month, then the Monthly Base Rent for
such partial month shall be prorated in the proportion that the number of days
this Lease is in effect during such partial month bears to the number of days in
that calendar month, and such Monthly Base Rent shall be paid at the
commencement of such partial month. Monthly Base Rent shall be payable in lawful
money of the United States at the address of Landlord set forth in Item 5 of the
Basic Lease Provisions or at such other address as may be designated by Landlord
in writing pursuant to Article 23 below. Notwithstanding any other term of this
Lease to the contrary, a prepayment of Monthly Base Rent in the amount set forth
in Item 9 of the Basic Lease Provisions shall be made by Tenant upon execution
of this Lease and shall be applied to the Monthly Base Rent for the second (2nd)
full calendar month of the Term. Landlord hereby acknowledges receipt of such
prepaid rent from Tenant.
3.2 Forgiveness of Monthly Base Rent. As an inducement to Tenant to enter
--------------------------------
into this Lease, Tenant shall be entitled to unconditional forgiveness of
Monthly Base Rent in the amount of $228,000 for the first (lst) month of the
Term ("Forgiven Rent"). There shall be no abatement of Monthly Base Rent during
either Extended Term of this Lease. Tenant's obligation to pay in full all
Additional Rent and all other charges payable under this Lease shall not be
affected by the foregoing Forgiven Rent.
3.3 Additional Rent. In addition to the Monthly Base Rent reserved in
---------------
Section 3.1 above, Tenant shall reimburse to Landlord or pay to the parties
entitled thereto, as applicable, all impositions, Insurance Premiums (as defined
in Section 5.3 below), Property Taxes (as defined in Section 5.2 below),
operating charges, maintenance charges, construction costs, and any other
charges, costs and expenses which arise or may be contemplated under any
provisions of this Lease during the Term hereof and each Extended Term on the
terms set forth in this Lease. All of such charges, costs and expenses shall
constitute Additional Rent, and upon the failure of Tenant to timely reimburse
or pay any of such costs, charges or expenses, Landlord shall have the same
rights and remedies as otherwise provided in this Lease for the failure of
Tenant to pay rent. It is the intention of the parties hereto that this Lease
shall not be terminable for any reason by Tenant except for Landlord's uncured
material breach of this Lease as provided in Section 25.3 below and except as
otherwise expressly provided herein and that Tenant shall in no event be
entitled to any abatement of or reduction in Rent payable under this Lease
except as herein expressly provided. Any present or future law to the contrary
shall not alter this agreement of the parties.
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<PAGE>
ARTICLE 4
LETTER OF CREDIT
----------------
4.1 Letter of Credit as Security. Concurrent with the execution of this
----------------------------
Lease, Tenant shall deliver to Landlord the Letter of Credit (as defined in
Section 4.2 below) in the amount of One Million Eight Hundred Seventy-Five
Thousand Dollars ($1,875,000), which Letter of Credit shall secure the full and
faithful performance of each and every provision and condition of this Lease to
be performed by Tenant. The amount of the Letter of Credit shall be reduced to
Seven Hundred Fifty Thousand Dollars ($750,000) on February 1, 2002 if Tenant's
net worth on such date (determined in accordance with generally accepted
accounting principals ("GAAP")) exceeds Twenty Million Dollars ($20,000,000) and
(ii) the amount of the Letter of Credit shall be further reduced to Three
Hundred Seventy-Five Thousand Dollars ($375,000) on February 1, 2003 if Tenant's
net worth on such date (determined in accordance with GAAP) continues to exceed
Twenty Million Dollars ($20,000,000). There shall be no further reduction in the
stated amount of the Letter of Credit from and after February 1, 2003. The face
amount of the Letter of Credit (as reduced above from time to time upon
satisfaction of the foregoing conditions) is hereafter referred to as the "Face
Amount". Anything contained in this Article 4 to the contrary notwithstanding,
the Face Amount of the Letter of Credit shall not be reduced if Tenant has
previously committed an uncured default under this Lease. If an Event of Default
occurs under this Lease (including but not limited to an Event of Default with
respect to the obligation to pay Rent or to clean and restore the Premises upon
termination of the Lease), Landlord may, but shall not be required to, draw upon
the Letter of Credit for the payment of any Rent, interest, late charges or any
other sum in default, or for the payment of any other amount which Landlord may
spend or become obligated to spend by reason of the Event of Default or to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of the Event of Default, including, without limitation, costs and
reasonable attorneys' fees incurred by Landlord to collect on the Letter of
Credit and/or to recover possession of the Premises following an Event of
Default by Tenant hereunder. Tenant shall cause the Letter of Credit to remain
in effect during the entire Term of this Lease and for an additional period of
sixty (60) days following the expiration or earlier termination of this Lease.
If Tenant fails to maintain, renew or replace the Letter of Credit in its then
Face Amount at least thirty (30) days before its stated expiration date (or if
Tenant fails to maintain, renew or replace the letter of credit under Article 4
of the Joaquin Lease in its then face amount at least thirty (30) days before
its stated expiration date), then Landlord may, without prejudice to any other
right or remedy, draw upon the entire amount of the Letter of Credit. Any amount
drawn by Landlord on the Letter of Credit pursuant to this Section 4.1 but not
applied by Landlord to satisfy Tenant's obligations hereunder shall be held by
Landlord as a security deposit. Landlord may commingle any proceeds from the
Letter of Credit with Landlord's general funds and Tenant shall not be entitled
to any interest thereon. If Landlord draws on any portion of the Letter of
Credit, Tenant shall, within three (3) business days after demand by Landlord,
either (a) deposit immediately available funds with Landlord in the amount that
when added to the remaining amount of the undrawn portion of the Letter of
Credit equals its then Face Amount or (b) deliver to Landlord written
documentation acceptable to Landlord executed by the Issuing Bank (as defined in
Section 4.2 below) confirming that the Issuing Bank has reinstated the Letter of
Credit to its then full Face Amount; and Tenant's failure to do either (a) or
(b) above shall constitute an Event of Default hereunder. If the funds received
by Landlord pursuant to a draw on the Letter of Credit exceed the amount applied
by Landlord to
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<PAGE>
cure the Event of Default, concurrently with and conditioned upon Tenant's
reinstatement of the Letter of Credit to its full Face Amount, Landlord shall
return any such excess funds to Tenant. If Tenant shall fully perform each and
every provision of this Lease required by Tenant to be performed, the Letter of
Credit (and any funds held by Landlord as a security deposit after drawing on
the Letter of Credit) shall be returned to Tenant (or, at Landlord's option, to
the last assignee of Tenant's interest hereunder) within sixty (60) days
following the later of the expiration of the Term or surrender of possession of
the Premises to Landlord. Notwithstanding the foregoing, the Letter of Credit
(and any funds held by Landlord as a security deposit after drawing on the
Letter of Credit) shall be immediately returned to Tenant upon the termination
of this Lease solely by reason of Landlord's material default hereunder. Tenant
shall not assign or encumber the Letter of Credit. Any attempt to do so shall be
void and Landlord shall not be bound by any such purported assignment or
encumbrance. In the event of bankruptcy or other insolvency proceedings filed by
or against Tenant, all sums drawn under the Letter of Credit shall be deemed to
be applied first to the payment of Rent and other charges due Landlord for all
periods prior to the effective date of such proceedings. If Landlord transfers
or assigns its interest in the Premises, Landlord may transfer or assign the
Letter of Credit to such transferee.
4.2 Form of Letter of Credit. Concurrent with the execution of this Lease,
------------------------
Tenant shall deliver to Landlord an irrevocable, unconditional standby letter of
credit in the original face amount of One Million Eight Hundred Seventy-Five
Thousand Dollars ($1,875,000) in the form attached hereto as Exhibit C (the
---------
"Letter of Credit") to secure the full and faithful performance of each and
every term and provision of this Lease to be performed by Tenant as set forth in
Section 4.1 above. The Letter of Credit shall be issued by a bank or financial
institution ("Issuing Bank") which is acceptable to Landlord and which accepts
deposits, maintains accounts, is FDIC insured and has a local Mountain View or
San Francisco office which will negotiate the Letter of Credit. The Letter of
Credit shall permit full or partial draws by Landlord or Landlord's assignee.
Tenant shall pay all expenses, points or fees incurred by Tenant in obtaining,
maintaining and renewing the Letter of Credit. As provided in Section 4.1 above,
Tenant shall cause the Letter of Credit to remain in full force and effect
during the entire term of this Lease and for a period of sixty (60) days
following the expiration or earlier termination of this Lease (except in the
case of termination of this Lease solely by reason of Landlord's material
default hereunder). Provided this Lease has not expired or terminated, Tenant
shall replace or renew the Letter of Credit from time to time at least thirty
(30) days before its stated expiration date. Failure to so replace or renew the
Letter of Credit shall constitute a default hereunder and Landlord shall
thereafter be entitled to draw the full amount of the Letter of Credit and hold
it as a cash security deposit. The terms of the Letter of Credit shall expressly
provide that the Letter of Credit is assignable by Landlord, as beneficiary
thereunder, to any transferee or assignee of Landlord's interest in the Premises
who expressly assumes in writing Landlord's obligations under this Lease.
ARTICLE 5
TENANT'S PAYMENT OF PROPERTY TAXES
AND INSURANCE PREMIUMS
----------------------
5.1 Payment of Property Taxes and Insurance Premiums. In addition to
------------------------------------------------
payment of Monthly Base Rent pursuant to Section 3.1 above, Tenant shall
reimburse on the terms set forth
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<PAGE>
in this Article 5 to Landlord, as part of Additional Rent hereunder, Property
Taxes (as defined in Section 5.2 below) and Insurance Premiums (as defined in
Section 5.3 below). Tenant shall reimburse Landlord for all Property Taxes paid
by Landlord for the Premises within ten (10) business days following Tenant's
receipt from Landlord of written demand for reimbursement of such Property Taxes
accompanied by a copy of the then applicable tax bill and a copy of Landlord's
check made payable to the taxing authority. Tenant shall likewise reimburse
Landlord for all Insurance Premiums paid by Landlord for the Premises within ten
(10) business days following Tenant's receipt from Landlord of written demand
for reimbursement of such Insurance Premiums accompanied by a copy of the
applicable insurance premium invoice and a copy of Landlord's check made payable
to the insurance carrier. If any Property Taxes or Insurance Premiums so paid by
Landlord cover any period of time prior to or after the expiration of the Term
hereof, Tenant's share of Property Taxes or Insurance Premiums shall be
equitably prorated to reflect only the period of time during which the Lease was
in effect.
5.2 Property Taxes Defined. The term "Property Taxes" as used herein shall
----------------------
mean and include (i) any and all real estate and personal property taxes and
other taxes, rates, charges, general and special assessments, transit charges,
housing fund assessments, liens, assessment bonds, district formation costs,
bonds, levies, fees and impositions whether general, special or supplemental,
unforeseen or foreseen, ordinary or extraordinary which are assessed, imposed,
charged, confirmed or levied with respect to the Premises, and/or any
improvements, fixtures and equipment and other property of Landlord, real or
personal, located thereon, but only to the extent each of the foregoing relates
to the period between the Commencement Date (as applicable) and the date this
Lease expires or sooner terminates and any costs, fees or expenses incurred in
contesting the amount or validity of any of the foregoing; (ii) any tax,
surcharge, levy, fee or assessment which may be imposed in addition to or in
lieu of real estate or personal property taxes against the Premises, but only to
the extent each of the foregoing relates to the period between the Commencement
Date (as applicable) and the date this Lease expires or sooner terminates; and
(iii) any service, use or other fee collected by governmental agencies in
addition to or in lieu of real estate or personal property taxes against the
Premises for services provided by such agencies, but only to the extent each of
the foregoing relates to the period between the Commencement Date (as
applicable) and the date this Lease expires or sooner terminates. The term
Property Taxes as used herein shall also include any new, replacement or
supplemental property taxes and any rental, excise, sales, mortgage, transaction
privilege, or other tax or levy, however denominated, imposed upon or measured
by the rental reserved hereunder or on Landlord's business of owning, operating
or leasing the Premises, but only to the extent each of the foregoing relates to
the period between the Commencement Date (as applicable) and the date this Lease
expires or sooner terminates. However, notwithstanding anything to the contrary
above or elsewhere in this Lease, the term "Property Taxes" shall not mean or
include (a) any income, franchise, capital stock, estate or inheritance taxes of
or applicable to Landlord or (b) any transfer taxes. Property Taxes shall also
include all increases in Property Taxes during the Term or Extended Term
including, without limitation, (a) annual increases, (b) increases due to a
reassessment of the Premises arising from a change in ownership or transfer of
all or part of Landlord's interest in the Lease, or the Premises or any
refinancing of the Premises or (c) any new construction, alterations or
renovations to the Premises. If any Property Taxes shall be payable in
installments over a period of time extending beyond the Term of the Lease (or
the Extended Term, if applicable), Tenant shall only be required to pay such
installments thereof as shall become due and payable during, or relate to
periods of time covered
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<PAGE>
by, the Term of the Lease (or any Extended Term, if applicable). Landlord shall
provide Tenant with a copy of its annual Property Tax statements.
5.3 Insurance Premiums. The term "Insurance Premiums" shall mean and
------------------
include all premiums paid or incurred by Landlord in obtaining and maintaining
the insurance coverages required to be maintained by Landlord under Section 19.4
below and other commercially reasonable insurance coverages which Landlord
acting as a prudent landowner and landlord may obtain and maintain, but only to
the extent such premiums paid for insurance coverage relate to the period
between the Commencement Date (as applicable) and the expiration or sooner
termination of this Lease.
ARTICLE 6
MAINTENANCE, REPAIR AND REPLACEMENT
-----------------------------------
6.1 Tenant's Obligations for the Premises. Except for the obligations of
-------------------------------------
Landlord under Article 13 (relating to the destruction of the Premises), Article
14 (relating to condemnation of the Premises) and Sections 6.3 and 9.2 hereof,
and except for damage caused by Landlord or the Landlord Parties (which shall be
the sole and exclusive responsibility and cost of Landlord), Tenant, at Tenant's
sole cost and expense, shall keep in good and neat order, condition and repair
the Premises and every part thereof, structural and non-structural, whether or
not capital in nature (and whether or not the portion of the Premises requiring
repair or replacement, or the means of repairing or replacing the same are
reasonably accessible to Tenant, and whether or not the need for repairs,
replacements and/or capital improvements occurs as a result of Tenant's use, any
prior use, the elements or age of such portion of the Premises, or alterations,
additions, repairs or replacements required by governmental authority, whether
or not related to Tenant's specific use of the Premises) including, without
limitation, repair and replacement (including any and all replacements and
capital improvements) of all plumbing, electrical, heating, ventilating and air
conditioning systems, all elevators, stairways and stairwells, all sprinkler and
life safety systems, wiring and equipment within the Premises, all fixtures,
interior and exterior non-bearing walls, ceilings, floors, windows, doors, plate
glass, and all landscaping, landscaping and irrigation systems, driveways,
parking lots, loading docks, fences and signs located on the Premises and all
sidewalks and pathways located on the Premises; provided, however, that the cost
of any capital improvements or replacements having a useful life (as determined
in accordance with GAAP) longer than the Lease Term (including the Extended
Term(s), if any), shall be amortized over such useful life and Tenant shall only
be obligated to pay, each month during the remainder of the Term (and Extended
Term(s), if any), on the date on which Base Monthly Rent is due, an amount equal
to the product obtained by multiplying the cost of such capital improvement or
replacement by a fraction, the numerator of which is one, and the denominator of
which is the number of months of the useful life of such capital improvement or
replacement (as such useful life is determined in accordance with GAAP), with
Tenant reserving the right to prepay its obligation at any time. Within ten (10)
business days after written demand from Tenant, Landlord shall reimburse Tenant
in full for the cost of any capital improvements or replacements made to the
Premises by Tenant pursuant to this Section 6.1. Tenant, at Tenant's sole
expense, shall procure and maintain during the Term a maintenance contract with
a contractor specializing in and experienced in maintenance and service of the
heating, ventilating and air conditioning systems for the Premises, which
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<PAGE>
maintenance contract and contractor shall be reasonably acceptable to Landlord.
Prior to the Commencement Date, Landlord shall exercise reasonable efforts to
have its landscaping and janitorial vendors enter into service agreements with
Tenant to provide services to Tenant which are comparable to the services which
they previously provided to Landlord at the Premises at rates comparable to
those which they charge Landlord.
6.2 Landlord's Rights. If an Event of Default involving Tenant's failure
-----------------
to perform Tenant's obligations under Section 6.1 above or under any other
Section of this Lease should occur, Landlord may at its option (but shall not be
required to) enter upon the Premises upon ten (10) business days prior written
notice to Tenant (except in an emergency, in which case no notice shall be
required) to cure such Event of Default on Tenant's behalf, and all reasonable
costs thereof together with interest thereon as set forth in Section 34.1 below
shall constitute Additional Rent hereunder and shall be due and payable within
five (5) business days after written demand by Landlord. Notwithstanding the
foregoing, in the case of an emergency resulting from Tenant's failure to
perform its obligations under Section 6.1 above or under any other Section of
this Lease, Landlord may act immediately pursuant to this Section 6.2
6.3 Landlord's Obligations for the Premises. Except for the obligations of
---------------------------------------
Landlord under this Section 6.3, Section 9.2, Article 13 and Article 14 below,
and except for damage caused by Tenant or the Tenant Parties (which shall be the
sole and exclusive responsibility and cost of Tenant), Tenant acknowledges and
agrees that Landlord shall have no obligation, in any manner whatsoever, to
repair or maintain the Premises, whether structural or nonstructural. Landlord
shall, at its sole cost and expense keep in good and neat order, condition and
repair, the roof and roof membrane at the Premises, the skylights at the
Premises, the foundation for the Premises, and the structural walls (including,
without limitation, interior and exterior bearing walls) at the Premises,
whether or not capital in nature, including, without limitation, repair and
replacement (including any and all replacements and capital improvements) of the
foregoing items.
6.4 Waivers. Except as expressly provided in Articles 13 and 14 below,
-------
there shall be no abatement of Rent and no liability of Landlord by reason of
any injury to or interference with Tenant's business arising from Tenant's
making repairs pursuant to Sections 6.1 above or Landlord making repairs
pursuant to Section 6.2 above (where Tenant has failed to make such repairs) and
Section 6.3 above. Tenant expressly waives the benefit of any statute, law or
regulation now or hereafter in effect, including, without limitation, California
Civil Code Sections 1941 and 1942, which would otherwise afford Tenant the right
to make repairs at Landlord's expense or terminate the Lease.
ARTICLE 7
IMPROVEMENTS AND ALTERATIONS; LIENS
-----------------------------------
7.1 Original Tenant Improvements. On the Commencement Date Landlord shall
----------------------------
deliver possession of the Premises to Tenant in "AS IS" and "WITH ALL FAULTS"
condition. Tenant, at Tenant's sole cost and expense, shall construct and
install all of the Tenant Improvements (as defined in the Work Letter for Tenant
Improvements attached to this Lease as Exhibit D and incorporated herein by this
----------
reference (the "Work Letter")) within the Premises in a
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first-class, diligent and workmanlike manner and fully and timely comply with
each and every term, covenant and condition set forth in the Work Letter. Tenant
shall exercise its best efforts to install within the Premises Tenant
Improvements which will have a remaining useful life to Landlord at the
expiration or earlier termination of the Lease.
7.2 Furniture and Telephone/Network Equipment. During the Term and any
-----------------------------------------
Extended Term(s) of the Lease, Landlord shall permit Tenant to use all of
Landlord's existing cubicles, office furniture and lobby/conference room
furniture (but excluding all ergonomic furniture and all exam room furniture in
Landlord's health clinic) listed on Schedule 1 attached to this Lease in its
----------
"AS-IS" and "WITH ALL FAULTS" condition (collectively, the "Remaining
Furniture") (but expressly excluding from the Remaining Furniture Landlord's
office equipment, fixtures and trade fixtures, which Landlord shall remove from
the Premises prior to the Commencement Date). Tenant shall be permitted to use
the Remaining Furniture at no additional rental. Prior to the Commencement Date,
Landlord and Tenant shall jointly make a detailed inspection and written
inventory of the Remaining Furniture to ensure that Schedule 1 both (i) properly
----------
describes all of the Remaining Furniture and (ii) properly describes the
physical condition of the Remaining Furniture as of the Commencement Date.
Tenant, at Tenant's sole cost and expense, shall maintain the Remaining
Furniture in as good condition and repair as when received and at the expiration
or earlier termination of the Term of the Lease, Tenant shall return the
Remaining Furniture to Landlord in as good a condition as received, ordinary
wear and tear and damage by fire, other casualty or acts of God excepted. The
Remaining Furniture shall at all times during the Term and any Extended Term(s)
be and remain the sole and exclusive property of Landlord; provided, however,
that Tenant, at Tenant's sole cost and expense, shall be obligated to insure the
Remaining Furniture under its "All-Risk" property insurance policy described in
Section 19.3 below. Any and all insurance proceeds relating to the Remaining
Furniture shall be the sole and exclusive property of Landlord. Landlord and
Tenant hereby agree that the value of the Remaining Furniture for insurance
purposes only is Two Million One Hundred Fifty Six Thousand Nine Hundred Five
DOLLARS ($2,156,905,00). Tenant agrees that the Remaining Furniture shall remain
--------------
within the Premises and that in no event shall the Remaining Furniture be
removed from the Premises. In addition, on the Commencement Date Landlord shall
leave in place within the Premises Landlord's telephone lines and cable/network
lines; provided, however, that Tenant acknowledges and agrees that (a) on or
before the Commencement Date Landlord shall disconnect all such telephone lines
and cable/network lines from Landlord's central telephone/data network switch
room located in the Joaquin Premises and (b) Tenant, at Tenant's sole cost and
expense, and as part of Tenant's installation of its Tenant Improvements under
the Work Letter, shall install its own dedicated central telephone/data network
switch room and connect its telephone and data network cabling lines to its
central telephone/data network switch room.
7.3 Alterations by Tenant. Other than the initial Tenant Improvements,
---------------------
Tenant shall make no alterations, additions or improvements to the Premises
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Landlord may impose, as a condition of such
consent, such reasonable requirements as Landlord may deem desirable including,
without limitation, the requirement that Tenant remove such alterations,
additions or improvements upon the expiration or earlier termination of the
Lease. Landlord shall advise Tenant in writing at the time Tenant makes its
initial Tenant Improvements under the Work Letter (as to the initial Tenant
Improvements) and at the time Tenant requests
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Landlord's consent to any subsequent alterations whether Landlord will require
Tenant to remove such alterations from the Premises upon the expiration or
earlier termination of this Lease. Notwithstanding the requirements in this
Section 7.3, nonstructural alterations, additions or improvements which do not
affect building systems or the exterior of the Premises and that cost less than
Fifty Thousand Dollars ($50,000) in the aggregate in any calendar year shall not
require Landlord's prior written consent, but Landlord shall be entitled to at
least ten (10) days prior written notice thereof before Tenant commences such
alterations, additions or improvements. Tenant shall submit all plans and
specifications relating to any proposed alterations, additions or improvements
which exceed Fifty Thousand Dollars ($50,000) in the aggregate in any calendar
year to Landlord for Landlord's prior written approval. No materials used in
Tenant's alterations shall be subject to any security interest or lien and no
part of the Premises shall be subject to any mechanics' or materialmen's lien by
reason of Tenant's alterations. No such alterations shall affect the exterior
appearance of the Premises and it shall be deemed reasonable for Landlord to
refuse to consent to any such alterations. All work approved by Landlord shall
be performed by Tenant or Tenant's contractors in a first-class, diligent and
workmanlike manner and so as not to unreasonably interfere with any owners,
tenants or occupants of adjoining premises or buildings. Tenant shall utilize
for such purposes only licensed contractors and materials reasonably approved in
writing by Landlord (and Landlord hereby approves Vance Brown). Any construction
by Tenant shall be in conformance with the plans and specifications reasonably
approved by Landlord and with any and all applicable rules and regulations of
any federal, state, county or municipal agency or other governmental body having
jurisdiction over the Premises (including, without limitation, the Americans
With Disabilities Act and its state and local counterparts) and with any
applicable codes and ordinances regardless of whether such rules, regulations,
codes or ordinances relate to structural, permanent or non-structural
alterations. All alterations of Tenant shall be done at Tenant's sole cost and
expense. Tenant agrees to give Landlord written notice of the commencement date
of any such approved alterations, improvements, additions or repairs to be made
within the Premises at least ten (10) days prior to the commencement of any such
work in order to give Landlord time to post notices of nonresponsibility. Tenant
further agrees to reimburse Landlord all of Landlord's reasonable costs incurred
for review of any plans and specifications submitted by Tenant for its
alterations (other than the initial Tenant Improvements) and in reviewing the
progress of such alterations, but not to exceed Two-Thousand five Hundred
Dollars ($2,500) for each set of alterations.
7.4 Liens. Tenant shall keep the Premises free from any liens arising out
-----
of any work performed, materials furnished or obligations incurred by or for
Tenant. If Tenant fails to keep the Premises free from any such liens and does
not, within twenty (20) days following the imposition of any such lien, cause
the same to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other remedies provided herein and by
law, the right, but not the obligation, to cause such lien to be released by
such means as Landlord shall deem proper, including payment of or defense
against the claim giving rise to such lien. All sums paid by Landlord and all
expenses incurred by it in connection therewith (including attorneys' fees and
costs) shall automatically create an obligation of Tenant to pay an equivalent
amount as Additional Rent, which shall be payable by Tenant on Landlord's demand
with interest as set forth in Section 34.1 below. Such interest charged shall
not constitute Landlord's exclusive remedy nor compromise or limit any other
rights granted Landlord by this Lease or by law or equity. Nothing herein shall
imply any consent by Landlord to subject Landlord's estate
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to liability under any mechanic's lien law. Tenant may contest the validity
and/or amount of any lien imposed on the Premises, provided that Tenant has
caused such lien to be released of record by the payment or posting of the
proper bond.
ARTICLE 8
USE OF PREMISES
---------------
8.1 Tenant's Use. Tenant shall use and occupy the Premises solely for
------------
development, marketing and sale of its Chemdex electronic commerce solutions,
general office purposes, purposes related or incidental thereto, and for no
other use or purpose whatsoever without the prior written consent of Landlord,
which consent may be withheld or conditioned in Landlord's sole discretion.
Tenant covenants and agrees that its electronic commerce solutions business does
not and shall not require Tenant to use or bring onto the Premises, other than
Permitted Materials, any Hazardous Materials, pharmaceuticals, drugs, chemicals
or other materials which are the subject of its electronics commerce solutions
business or otherwise and that Tenant shall not use or bring onto the Premises,
other than Permitted Materials, any Hazardous Materials, pharmaceuticals, drugs,
chemicals or other similar materials (even in di minimus amounts) for any reason
or purpose whatsoever. Tenant shall not use or occupy the Premises in violation
of any law, regulation, code, ordinance or governmental approval or condition
for the Premises, and shall, upon written notice from Landlord, discontinue any
use of the Premises which is not permitted by this Lease. Tenant shall, at
Tenant's sole cost and expense, comply with any directive of any governmental
authority which shall, by reason of the specific nature of Tenant's use or
occupancy of the Premises, impose any duty, condition, order, exaction or other
demand upon Tenant or Landlord with respect to the Premises including, without
limitation, any Environmental Laws, or with respect to the use or occupation
thereof. Tenant shall secure any and all permits and licenses required to
conduct its business in the Premises. Tenant shall not do (or permit any Tenant
Party to do) anything which will invalidate or increase the cost of any
insurance policy covering the Premises and/or property located therein.
8.2 Nuisance or Waste. Tenant shall not maintain, commit (or permit any
-----------------
Tenant Party to commit) any nuisance or waste in, on or about the Premises, or
obstruct or interfere in any way with the rights of other tenants or occupants
of the Premises, or injure or annoy them by permitting or making any disturbing
or excessive noise, or by permitting objectionable odors to emanate from the
Premises, or use or allow the Premises to be used by any Tenant Party for any
unlawful purpose. Tenant shall not without Landlord's prior written consent,
place a load upon any floor that exceeds the load per square foot that such
floor is designed to carry or that is then allowed by law.
8.3 Tenant Sign. Tenant, at Tenant's sole cost and expense, and provided
-----------
Tenant complies with all applicable laws, statutes, ordinances, codes, rules,
regulations, orders and other lawful requirements of governmental agencies,
shall have the right to install no more than two (2) monument signs at the
Premises. The location(s), type, size, color, content, materials and
illumination of any of Tenant's monument signs shall be subject to Landlord's
prior written approval, which approval shall not be unreasonably withheld or
delayed. Upon the expiration or earlier termination of this Lease, Tenant shall
remove all signs and repair and restore any damage to the Premises caused by
such removal.
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8.4 Parking. At all times during the Term and any Extended Terms, Tenant
-------
shall be permitted to use, on an exclusive basis, all of the parking presently
serving the Premises. Tenant shall satisfy itself in all respects as to the
location and sufficiency of the above-described parking for its intended
purposes and use of the Premises prior to the Commencement Date; provided,
however, that Landlord represents that there are approximately four (4) parking
spaces per 1,000 rentable square feet of the Premises.
ARTICLE 9
HAZARDOUS MATERIALS
-------------------
9.1 Environmental Disclosures; As-Is. Landlord hereby discloses to Tenant
--------------------------------
and Tenant hereby acknowledges that Landlord has advised Tenant that groundwater
in and around the Premises may be contaminated with Hazardous Materials which
were released by parties other than Landlord, including, without limitation,
significant quantities of halogenated volatile organic compounds released into
the groundwater by Teledyne Semiconductor and Spectra-Physics Laser, both of
whom operated facilities located directly upgradient of the Premises. Landlord
has provided Tenant with the groundwater monitoring reports described on
Schedule 2 attached hereto, which Tenant acknowledges receipt of and, except for
- -----------
disclosures to the attorneys, auditors, officers, directors, shareholders,
accountants, investment bankers, lenders, and consultants of Tenant or
disclosures required by law, agrees to keep confidential and not to disclose the
contents thereof (to the extent not a matter of public record) during or
subsequent to the term of this Lease without the prior written consent of
Landlord which Landlord may grant or withhold in its sole discretion. Tenant may
obtain more information about the groundwater in and around the Premises from
publicly available files at the Regional Water Quality Control Board and other
agencies. By entering into this Lease, Tenant acknowledges and agrees (a) that
Tenant has had an opportunity to hire any consultants and make any inquiries
about the environmental condition of the Premises and the soil and groundwater
conditions in and around the Premises that Tenant deems desirable, (b) that
Tenant's representatives and advisors are knowledgeable in real estate and
environmental matters, (c) that Tenant accepts the Premises in "AS-IS" and "WITH
ALL FAULTS" condition and (d) that Tenant is not relying on any warranty or
representation, express or implied, by or on behalf of Landlord with respect to
the Premises including the soil, air and groundwater thereof. Landlord makes no
representations and warranties concerning (x) the environmental condition of the
Premises or the environment in and around the Premises including the soil, air
and groundwater thereof, (y) the presence or absence of Hazardous Materials in
the Premises and the soil, air and groundwater thereof, or (z) the safety of the
Premises for Tenant's employees or the likelihood that by demolition of portions
of the Premises and improving the Premises pursuant to the Work Letter and
occupying and using the Premises, Tenant's employees will be exposed to
Hazardous Materials.
9.2 Landlord's Indemnity. Except with respect to (i) any soil or
--------------------
groundwater contamination in and around the Premises existing as of the
Commencement Date and any subsurface mitigation of Hazardous Materials from
other property from and after the Commencement Date and (ii) those matters which
are covered by Tenant's express indemnification and defense obligations set
forth in Section 9.5 below, Landlord shall indemnify, defend and hold Tenant and
its officers, directors, employees, affiliates, subsidiaries, shareholders,
lenders, successors and assigns harmless from and against all claims, damages,
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liabilities, losses, fines, penalties, consequential damages, costs and
expenses, demands, causes of action, judgments and attorneys' and consultants'
fees, whether foreseeable or unforeseeable, directly or indirectly, to the
extent arising out of Landlord's failure to remove any Hazardous Materials
(other than Hazardous Materials contained within building materials located in
the 1500 and 1550 Plymouth buildings) to the levels required by applicable
Environmental Laws and government agencies having jurisdiction therefor from
within any of the buildings comprising the Premises on or before the
Commencement Date, which indemnity shall include, without limitation, the cost
of any required or necessary repair, cleanup or detoxification of the Premises
and the preparation of any closure or other required plans. Neither the
acknowledgements or agreements of Tenant in Section 9.1 nor the strict
compliance by Landlord with all laws pertaining to Hazardous Materials shall
excuse Landlord from Landlord's obligations of indemnification pursuant to this
Section 9.2. Landlord's obligations pursuant to the foregoing indemnity shall
survive the expiration or earlier termination of this Lease. If any action or
proceeding is brought against Landlord based on the foregoing Landlord, upon
notice from Tenant, shall immediately defend Tenant at Landlord's expense with
counsel reasonably acceptable to Tenant.
9.3 Compliance with Environmental Laws. Tenant shall, at Tenant's sole
----------------------------------
cost and expense, comply with all Environmental Laws applicable to its
operations within the Premises and will at its sole expense obtain, procure and
comply with all permits, licenses and other governmental approvals required for
Tenant's use of the Premises. Tenant shall not permit any Tenant Party to use,
manufacture, handle, treat, transport, produce, dispose of, discharge,
distribute, release, sell, or store any Hazardous Materials (other than
Permitted Materials) in, on or around the Premises during the Term of this
Lease. Notwithstanding the foregoing, Tenant and other Tenant Parties may use,
in compliance with all applicable laws, including Environmental Laws, reasonable
amounts of typical office and janitorial supplies and products typically used in
offices and which are sold over the counter to the public at retail and, during
the construction of the Tenant Improvements or any alterations approved by
Landlord, ordinary and necessary building materials and containerized petroleum
products stored and used in compliance with all laws (collectively, "Permitted
Materials").
9.4 Investigation and Remediation of Hazardous Materials. Tenant shall
----------------------------------------------------
promptly give Landlord copies of any notices, inquiries, claims or documents
received by Tenant from governmental agencies or third parties concerning the
presence of Hazardous Materials in, under and around the Premises, including the
air, soil and groundwater thereof. If, during the Term of this Lease, Tenant, or
Tenant Parties spill, release, discharge, dispose of or introduce Hazardous
Materials to the Premises or if any Hazardous Materials used by Tenant are found
in the soil, atmosphere, surface water or groundwater on, under or about the
Premises due to Tenant's, or Tenant Parties' acts or negligence, Tenant, at
Landlord's option, shall promptly take all actions at its sole cost and expense,
including without limitation, investigation, testing, removal actions,
reporting, cleanup, remediation, and monitoring necessary to return the Premises
and any other affected properties to the condition required by applicable
Environmental Laws, all in accordance with Environmental Laws and the
requirements of all governmental agencies, provided that Landlord's written
approval of such actions shall first be obtained (a "Tenant Cleanup"). Landlord
shall not unreasonably withhold or delay such approval. Tenant shall promptly
provide Landlord with the results of any test, investigation or inquiry
conducted by or on behalf of Tenant in connection with the presence or suspected
presence of Hazardous Material
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contamination on, under or about the Premises, provided Landlord agrees to keep
the same confidential on the same terms as Tenant pursuant to Section 9.1. With
respect to any Tenant Cleanup, Landlord may, at its election and after
consultation with Tenant concerning remediation costs, control the investigation
and clean-up of the contamination and discussions and negotiations with all
governmental authorities, which shall nevertheless be at Tenant's sole cost and
expense.
9.5 Tenant Indemnity. Except with respect to (A) any soil or groundwater
----------------
contamination in and around the Premises existing as of the Commencement Date
and any subsurface migration of Hazardous Materials from other property that
contaminates the soil and groundwater in and around the Premises from and after
the Commencement Date and (B) those matters which are covered by Landlord's
express indemnification and defense obligations set forth in Section 9.2 above,
Tenant shall indemnify, defend and hold Landlord and its officers, directors,
employees, affiliates, subsidiaries, shareholders, lenders, successors and
assigns harmless from and against all claims, damages, liabilities, losses,
fines, penalties, consequential damages (including diminution of value of the
Premises and lost rent), costs and expenses, demands, causes of action,
judgments and attorneys' and consultant's fees, whether foreseeable or
unforeseeable, directly or indirectly arising out of (i) the release or
discharge during the Term or any Extended Term hereof of any Hazardous Materials
contained in the building materials located in the 1500 or 1550 Plymouth
buildings provided such release or discharge is the result of Tenant's
construction of its initial Tenant Improvements within the Premises and any
subsequent alterations, additions or improvements made by or for Tenant (which
claims include, but are not limited to, employee exposure and toxic tort claims)
and (ii) Tenant's and Tenant Parties' use, handling, generation, storage,
disposal, exposure of others to, emission or release of Hazardous Materials on
or about the Premises during the Term or any Extended Term or a breach of
Tenant's obligations under this Article 9. The foregoing indemnity obligations
shall include, without limitation, the cost of any required or necessary repair,
cleanup or detoxification of the Premises or other properties and the
preparation of any closure or other required plans, whether such action is
required or necessary prior to or following the termination of this Lease.
Neither the written consent by Landlord to the use, generation, storage or
disposal of Hazardous Materials nor the strict compliance by Tenant with all
laws pertaining to Hazardous Materials shall excuse Tenant from Tenant's
obligations of indemnification pursuant to this Section 9.5. Tenant's
obligations pursuant to the foregoing indemnity shall survive the expiration or
earlier termination of this Lease. If any action or proceeding is brought
against Landlord based on the foregoing, Tenant, upon notice from Landlord,
shall immediately defend Landlord at Tenant's expense with counsel reasonably
acceptable to Landlord. Except for Landlord's covenants, agreements and
obligations expressly set forth in this Lease, Tenant hereby waives, releases
and relinquishes any and all rights, claims and causes of action which Tenant
may have or may be entitled to assert against Landlord, whether known or unknown
(a) with respect to the environmental condition of the Premises and the soil,
air and groundwater thereof, including, without limitation, any and all rights,
claims and causes of action arising under or with respect to the California
Health and Safety Code, Title 42 of the United States Code Section 9601 et.
--
seq., the federal and state Occupational Health & Safety Acts, and common law
- ------
tort theories and/or (b) arising out of the use, generation, handling, exposure
of others to, disposal or release of Hazardous Materials by Tenant and Tenant
Parties on, in, or about the Premises or a breach of Tenant's obligations under
this Section 9.5. With respect to the foregoing waivers only, Tenant
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expressly waives the benefits of Civil Code Section 1542 and any similar statute
or common law that would render a waiver of unknown claims unenforceable.
9.6 Rent Abatement for Hazardous Material Condition. Until such time as
-----------------------------------------------
any Hazardous Material Condition (not created by Tenant or any Tenant Party),
should it occur, has been remediated in accordance with Environmental Laws such
that the Premises can be safely used and occupied by Tenant for the conduct of
its normal operations at the Premises, the Rent hereunder shall be abated in
proportion to the part of the Premises which is unusable by Tenant for the
conduct of its normal operations at the Premises by reason of such Hazardous
Material Condition.
9.7 Non-Responsibility of Tenant. Notwithstanding anything to the contrary
----------------------------
in Sections 9.1 through 9.6 above or elsewhere in this Lease, except to the
extent set forth in Tenant's indemnity in Section 9.5 above, no provision of
this Lease shall obligate Tenant to investigate, monitor, remove, remediate, or
otherwise respond to, or to indemnify, defend or hold harmless Landlord or any
other person as a result of or in connection with, any Hazardous Materials that
(A) were present in any state or form in, on, under or about the Premises on the
Commencement Date or at any time prior thereto, or (B) which may migrate onto or
under the Premises at any time after the Commencement Date, or (C) which are
otherwise not used, handled, stored, generated, produced, manufactured, disposed
of or introduced in, upon or about the Premises by Tenant or a Tenant Party.
9.8 Survival. The provisions of this Article 9 shall survive the
--------
expiration or earlier termination of the Lease for any reason.
ARTICLE 10
UTILITIES AND SERVICES
----------------------
10.1 Utilities and Services for the Premises. Tenant, at Tenant's sole
---------------------------------------
cost and expense, shall cause to be provided to the Premises and shall pay
directly for all water, sewer, gas, electric power, heating, ventilating and air
conditioning ("HVAC") and other utilities and services supplied to the Premises
together with any taxes thereon. Tenant shall provide and pay for its own
janitorial services for the Premises and for any security services or systems
desired by Tenant. The janitorial services which Tenant provides to the Premises
shall be comparable to those provided by Landlord in the 1010 Joaquin building.
10.2 No Security Services. Landlord shall not provide any security
--------------------
services for the Premises, such security services, if desired by Tenant, being
the sole and exclusive responsibility and cost of Tenant. Tenant hereby waives
any and all claims by reason of Landlord not providing such security services.
10.3 Interruptions. Notwithstanding the provisions of this Article 10,
-------------
Landlord shall not be liable for, and Tenant shall not be entitled to, except as
provided below, any abatement or reduction of Rent or other damages, remedies or
relief of any nature whatsoever by reason of the unavailability of any of the
foregoing utilities or services for the Premises regardless of whether such
failure is caused by accident, breakage, repairs, strikes, lockouts or other
labor disturbance
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or disputes of any character, governmental regulation or moratorium or other
governmental action; provided, however, that if the interruption in utilities or
services is caused by the negligence or willful misconduct of Landlord or any
Landlord Party and such interruption unreasonably interferes with the conduct of
Tenant's business in the Premises, then Tenant shall be entitled to equitable
rent abatement to the extent the Premises are unusable by Tenant in the conduct
of its normal business therein commencing on the second (2/nd/) business day of
such interruption and continuing until such interruption is sufficiently
remedied to permit Tenant to recommence its business operations in the Premises.
Any such failure, stoppage or interruption of any such utilities or services
shall not be construed either as an eviction of Tenant, or relieve Tenant from
the obligation to perform any term, covenant or agreement of this Lease.
Landlord and Tenant shall act jointly and in good faith and exercise their best
efforts to have utility service repaired or restored immediately or as promptly
as possible under the circumstances.
ARTICLE 11
RULES AND REGULATIONS
---------------------
Tenant agrees to abide by and to cause all Tenant Parties to abide by
all reasonable and nondiscriminatory Rules and Regulations for the Premises
imposed by Landlord. Such Rules and Regulations are imposed for the cleanliness,
good appearance, proper maintenance, good order and reasonable use of the
Premises.
ARTICLE 12
TAXES ON TENANT'S PROPERTY
--------------------------
12.1 Tenant's Property. Tenant shall be solely liable for and shall pay
-----------------
prior to delinquency, any and all taxes, levies and assessments imposed upon any
personal property, improvements, equipment, furnishings or trade fixtures placed
by Tenant in or about the Premises (including, without limitation, the Remaining
Furniture), as well as all taxes, levies and assessments imposed on Tenant's
initial Tenant Improvements and on any subsequent alterations, additions or
improvements installed by or on behalf of Tenant within or to the Premises.
Wherever possible, Tenant shall cause all of its personal property,
improvements, equipment, furnishings and trade fixtures and all of its
alterations, improvements and additions to the Premises including, without
limitation, Tenant's initial Tenant Improvements, to be assessed and billed
separately from the real property tax bill for the Premises. If any such taxes,
levies and assessments are levied against Landlord or Landlord's property or if
the assessed value of the Premises is increased by the inclusion therein of a
value placed upon such personal property, improvements, equipment, furnishings
or trade fixtures of Tenant or upon Tenant's alterations, improvements or
additions to the Premises, including Tenant's initial Tenant Improvements,
Tenant shall upon demand pay as Additional Rent all such taxes, levies and
assessments so levied against Landlord.
12.2 License Fees and Business Taxes. Tenant shall pay, prior to
-------------------------------
delinquency, all license fees and taxes which may be imposed upon the business
of Tenant conducted on the Premises. Landlord shall not be responsible for the
payment of any such license fees or taxes.
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ARTICLE 13
FIRE OR CASUALTY; ABATEMENT
---------------------------
13.1 Restoration. If, at any time prior to the last twelve (12) months of
-----------
the Term, the Premises or any part thereof is damaged or destroyed by fire or
other casualty required to be covered by the "All Risk" Insurance described in
Section 19.4.1 below, the damage and destruction thereto shall be repaired and
the Premises restored by and at the expense of Landlord, but only up to the
amount of available insurance proceeds under the "All Risk" Insurance described
in Section 19.4.1 below (unless no proceeds are available because Landlord
failed to maintain such "All-Risk" Insurance in accordance with this Lease)
provided such repairs can, in Landlord's reasonable opinion, be made within two
hundred seventy (270) days after the occurrence of such damage or destruction
without the payment of overtime or other premiums, and the Lease shall continue
in full force and effect. If such damage or destruction occurs during the last
twelve (12) months of the Term, or is caused by a casualty not required to be
covered by such "All Risk" Insurance, or if, in Landlord's reasonable opinion,
such repairs and restoration cannot be so made within two hundred seventy (270)
days after the occurrence of such damage or destruction, the Lease may be
terminated by Landlord as provided in Section 13.3 below. Additionally, if such
damage or destruction occurs during the last twelve (12) months of the Term or
if, in Landlord's reasonable opinion, such repairs cannot be made within two
hundred seventy (270) days after the occurrence of such damage or destruction,
then the Lease may be terminated by Tenant as provided in Section 13.3 below.
13.2 Rent Abatement. Until Landlord's required repairs and restoration
--------------
pursuant to Section 13.1 above are completed, the Rent hereunder shall be abated
in proportion to the part of the Premises which is unusable by Tenant for the
conduct of its normal business or operations at the Premises. If the damage or
destruction is due to the negligence or willful misconduct of Tenant or Tenant's
employees, agents, contractors, subcontractors, invitees or licensees, there
shall be no abatement of Rent regardless of the period during which the Premises
is unusable. If this Lease is not terminated by Landlord or Tenant as provided
in Section 13.3 below, Tenant shall be responsible for making all repairs to
and/or replacement or restoration of its initial Tenant Improvements and its
additions, improvements, alterations and trade fixtures made by or for Tenant to
the Premises and all of its furniture, fixtures, equipment and personal
property, including, without limitation, the Remaining Furniture.
13.3 Special Elections. If repairs for damage and destruction covered by
-----------------
Section 13.1 cannot, in Landlord's opinion, be made within two hundred seventy
(270) days after the occurrence of the damage or destruction, or if the damage
or destruction is occasioned by an act for which Landlord is not required under
this Lease to be insured, Landlord may, in its sole and absolute discretion,
elect to make such repairs within a reasonable time and in such event, unless
Tenant shall elect to terminate this Lease as provided below, this Lease shall
continue in effect and the Rent shall be abated in the manner provided in
Section 13.2 above. In all events Landlord's election to make such repairs must
be evidenced by written notice delivered to Tenant within sixty (60) days after
the occurrence of the damage or destruction. If Landlord elects not to make such
repairs and so notifies Tenant, then either party may, by ten (10) days' written
notice to the other, cancel this Lease as of the date of the occurrence of such
damage or destruction, which cancellation shall be effective only as to the
entirety of the particular portion
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of the Premises that was damaged or destroyed (i.e., either the 1500 Plymouth
building or the 1550 Plymouth building). In addition, and notwithstanding any
desire or election by Landlord to make repairs or rebuild, Tenant, in its sole
discretion, may elect to terminate this Lease (only as to the entirety of the
particular Premises that was damaged or destroyed) by written notice to Landlord
if (i) such damage or destruction occurs during the last twelve (12) months of
the Term, or (ii) if in Landlord's reasonable opinion, such repairs cannot be
completed within two hundred seventy (270) days after the occurrence of such
damage or destruction or (iii) if Landlord fails to notify Tenant within sixty
(60) days following the date of such damage or destruction of Landlord's intent
to repair and restore the Premises.
13.4 No Claims. In no event shall Tenant be entitled to any claims,
---------
relief, remedies, compensation or damages for loss of use of the whole or any
portion of the Premises and/or for any inconvenience or annoyance occasioned by
any such damage, destruction, repair, reconstruction or restoration, Tenant's
sole remedy being the right to Rent abatement as provided for in Section 13.2
above. Tenant hereby waives any statutory rights of setoff and/or termination
that it may have (including but not limited to those contained in California
Civil Code Sections 1932, 1933(4) and 1942) which may arise by reason of any
partial or total destruction of the Premises.
ARTICLE 14
EMINENT DOMAIN
--------------
14.1 Total Condemnation. If the whole of the Premises is acquired or
------------------
condemned by eminent domain, inversely condemned or sold in lieu of condemnation
for any public or quasi-public use or purpose ("Condemned"), the Term of the
Lease shall terminate as of the date of title vesting in such proceeding and
Rent shall be adjusted as of the date of such termination.
14.2 Partial Condemnation. If any part (but not all) of the Premises is
--------------------
Condemned and such partial Condemnation renders the balance of the Premises not
reasonably usable for the normal business or operations of Tenant at the
Premises, as reasonably determined by Landlord and Tenant, then this Lease shall
terminate as of the date of title vesting in such proceeding (or such earlier
date as the Premises are rendered not reasonably usable for the normal business
of Tenant at the Premises) and Rent shall be adjusted to such date. If such
Condemnation is not sufficiently extensive to render the balance of the Premises
not reasonably usable for the normal business of Tenant as reasonably determined
by Landlord and Tenant, then Landlord shall, to the extent of available
Condemnation proceeds from the portion of the Premises Condemned, restore the
Premises to a condition comparable to its condition immediately prior to such
Condemnation less the portion thereof lost in such Condemnation, and this Lease
shall continue in full force and effect and, as of the date of such title
vesting, the Rent shall be equitably reduced as reasonably determined by
Landlord. If any parking areas within the Premises are Condemned to such an
extent that the Premises are not reasonably useable for the normal business of
Tenant as reasonably determined by Landlord and Tenant, then Tenant may elect to
terminate this Lease upon written notice to Landlord. Additionally, (i) if in
the reasonable opinion of Landlord the remaining portion of the Premises not
Condemned cannot reasonably or practicably be repaired or converted so as to
permit substantially the same use for which the Premises was used immediately
prior to the Condemnation, Landlord shall have the right to terminate this Lease
by
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giving the Tenant at least sixty (60) days' written notice of such termination,
and (ii) if the Condemnation has a material adverse effect upon the means of
access to the Premises or twenty-five percent (25%) or more of the Premises will
be taken through Condemnation, then Tenant shall have the right to terminate
this Lease by giving Landlord at least sixty (60) days' notice thereof.
14.3 Landlord's Award. Subject to Section 14.4 below, if the Premises are
----------------
wholly or partially Condemned, Landlord shall be entitled to the entire award
paid for such Condemnation, and Tenant waives any right or claim to any part
thereof from Landlord or the condemning authority. No award for any partial or
entire taking shall be apportioned, and subject to Section 14.4 below, Tenant
hereby assigns to Landlord any award which may be made in such taking or
Condemnation.
14.4 Tenant's Award. Tenant shall have the right to claim and recover from
--------------
the Condemning authority, but not from Landlord, solely such compensation as may
be awarded or recoverable by Tenant in Tenant's own right for (a) the taking of
the unamortized or undepreciated value of any leasehold improvements owned by
Tenant that Tenant has the right to remove at termination of this Lease and that
Tenant elects not to remove, (b) reasonable removal and relocation costs for any
leasehold improvements that Tenant has the right to the remove and elects to
remove (if the Condemning authority approves of the removal), (c) loss of
goodwill, (d) relocation costs under Government Code Section 7262 (the claim for
which Tenant may pursue by separate action independent of this Lease), and (e)
any other amount in addition to the foregoing that does not in any manner or to
any extent reduce the amount of the award payable to Landlord. Tenant shall have
the right to negotiate directly with the Condemning authority for the foregoing
compensation.
14.5 Temporary Condemnation. If the whole or any part of the Premises
----------------------
shall be Condemned for any temporary public or quasi-public use or purpose, this
Lease shall remain in effect and Tenant shall be entitled to receive for itself
such portion or portions of any award made for such use with respect to the
period of the Condemnation which is within the Term. If a temporary Condemnation
remains in force at the expiration or earlier termination of the Term, Tenant
shall pay to Landlord a sum equal to the reasonable cost of performing any
obligations required of Tenant by this Lease with respect to the surrender of
the Premises, including without limitation, repairs and maintenance, and upon
such payment Tenant shall be excused from any such obligations. If a temporary
Condemnation is for an established period which extends beyond the Term, the
Lease shall terminate as of the date of occupancy by the Condemning authority,
and the awards shall be as provided in Sections 14.3 and 14.4.
14.6 Notice and Execution. Landlord shall, within five (5) business days
--------------------
of service of process in connection with any Condemnation or potential
Condemnation, give Tenant notice in writing thereof. Tenant shall promptly
execute and deliver to Landlord all instruments that may be reasonably required
to effectuate the provisions of this Article 14. Landlord may, without any
obligation or liability to Tenant, stipulate with any condemning authority for a
judgment of Condemnation without the necessity of a formal suit or judgment of
Condemnation, but only so long as Tenant's right to receive compensation or
damages in a separate proceeding for its trade fixtures, personal property and
relocation expenses is not negated or diminished thereby by this Section. Tenant
hereby waives any statutory rights of termination that it may have arising by
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reason of the condemnation, including those contained in Section 1265.130 of the
California Code of Civil Procedure.
ARTICLE 15
ASSIGNMENT AND SUBLETTING
-------------------------
15.1 General Prohibition. Tenant shall not, either voluntarily,
-------------------
involuntarily or by operation of law, directly or indirectly, sell, hypothecate,
assign, encumber, mortgage, dispose of or otherwise transfer this Lease (or any
portion thereof), or any of Tenant's beneficial interest therein, or sublet the
Premises or any part thereof, or permit the same to be occupied by anyone other
than Tenant without the prior written consent of Landlord and any attempt to do
so without such prior written consent shall be null and void and shall
constitute an Event of Default hereunder. Subject to the provisions of this
Section 15.1 and Sections 15.2 and 15.3 below, Landlord agrees not to
unreasonably withhold its consent to any proposed assignment or sublease of this
Lease, provided that the proposed assignee or subtenant (i) is reasonably
satisfactory to Landlord as to its creditworthiness, character and business
reputation, (ii) will occupy the Premises solely for the uses permitted under
this Lease and (iii) in the case of an assignment, assumes and agrees to be
bound and directly responsible for all of Tenant's obligations hereunder.
Landlord's consent to any such assignment or sublease shall in no event be
construed as releasing Tenant from any or all of its duties, liabilities or
obligations under this Lease, including, without limitation, the obligation to
pay Rent and all other sums due under this Lease, nor as relieving Tenant from
the requirement of obtaining Landlord's prior written consent to any further
assignment or subletting. Notwithstanding any contrary provisions of this
Article 15 or any contrary provisions of Article 15 of the Joaquin Lease, (a)
during the Term and any Extended Term(s), Tenant may sublease up to, but not
more than, an aggregate of Twenty Thousand (20,000) rentable square feet of
space within the Premises and/or the Joaquin Premises (which 20,000 rental
square feet may, at Tenant's option, include up to, but not more than, Twelve
Thousand (12,000) rentable square feet in the aggregate in the Joaquin
Premises), upon prior written notice to Landlord but without Landlord's consent,
to one (1) or more Tenant Subsidiaries (as defined in Section 1.17 above) and
(b) Tenant may assign this Lease or sublease all or a portion of the Premises,
upon prior written notice to Landlord but without Landlord's consent, to a
Tenant Affiliate (as defined in Section 1.16 above) (with the foregoing
transactions being referred to in this Article 15 as "Internal Transaction.")
Any assignment or sublease to a Tenant Affiliate or a Tenant Subsidiary in any
Internal Transaction shall not release or relieve Tenant of any of its duties,
liabilities or obligations under this Lease including, without limitation, the
obligation to pay Rent and all other charges under this Lease and (x) with
respect to an assignment, such Tenant Affiliate shall assume, in full, all of
the obligations of Tenant under this Lease pursuant to assumption documentation
reasonably acceptable to Landlord and (y) with respect to a sublease, such
Tenant Affiliate or Tenant Subsidiary and the proposed sublease shall comply
with all of the provisions of Section 15.7 set forth below.
15.2 Lease Termination. If at any time during the Term or any Extended
-----------------
Term(s) of the Lease, Tenant determines that it wishes to assign or sublease all
or any portion of the Premises to any person or entity prior to marketing such
space to a proposed assignee or subtenant, Tenant shall first deliver a written
notice of the foregoing to Landlord. Landlord shall have the right, in
Landlord's sole and absolute discretion, to be exercised within fifteen (15)
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business days following Landlord's receipt of Tenant's written notice, to either
(i) subject to the provisions of this Article 15, permit Tenant to proceed with
its plans to assign this Lease or sublet the portion of the Premises which was
the subject of Tenant's written notice or (ii) (A) in the case of a proposed
assignment or sublease of more than sixty percent (60%) of the total rentable
square footage of the Premises, terminate this Lease as to the entire Premises
and release Tenant from its remaining obligations hereunder (other than Tenant's
obligations hereunder which expressly survive the termination of the Lease), (B)
in the case of a proposed assignment or sublease of less than sixty percent
(60%) of the Premises but more than fifty percent (50%) of the total rentable
square footage of either of the two (2) buildings comprising the Premises,
terminate this Lease as to such building ("recaptured building"), release Tenant
from its obligations under this Lease as to such recaptured building (other than
Tenant's obligations under the Lease which expressly survive the termination of
the Lease) and amend the Lease to reflect the reduction in the rentable square
footage of the remaining Premises or (C) in the case of the proposed assignment
or sublease of less than sixty percent (60%) of the Premises and less than fifty
percent (50%) of either of the buildings comprising the Premises, terminate the
Lease with respect to the portion of the Premises that Tenant wishes to sublease
and amend the Lease to reflect the reduction in the rentable square footage of
the remaining Premises; provided that the foregoing termination rights shall not
apply to an Internal Transaction (as defined in Section 15.1 above) (but shall
apply to the subleasing of any space in the Premises and the Joaquin Premises in
excess of 20,000 rentable square feet in the aggregate to Tenant Subsidiaries);
and provided further, that Tenant shall have the right, subject to Landlord's
right (a) to reasonably consent to the proposed subtenant pursuant to Sections
15.1 above and 15.3 below, (b) to receive reimbursement of Landlord's costs
pursuant to Section 15.6 below and (c) to approve the form of sublease agreement
pursuant to Section 15.7 below, to enter into a sublease (and/or a succeeding
replacement sublease of the same space) of up to, but not more than, an
aggregate of Ten Thousand (10,000) rentable square feet of space within the
Premises and/or the Joaquin Premises for a term not to exceed twenty-four (24)
months without giving Landlord the right to terminate the Lease as to such
subleased portion of the Premises. If Landlord elects not to recapture the
Premises or portion thereof which was the subject of Tenant's written notice or
fails to respond in writing to Tenant within such fifteen (15) business day
period, then for a period of six (6) months thereafter, subject to the
provisions of this Article 15, Tenant may proceed with its plans to attempt to
assign or sublease the portion of the Premises which was the subject of Tenant's
written notice.
15.3 Assignment Information. Provided Tenant has first complied with the
----------------------
provisions of Section 15.2 above, if Tenant desires at any time to assign this
Lease or to sublet the Premises or any portion thereof (other than to a Tenant
Affiliate), Tenant shall first notify Landlord of its desire to do so and shall
submit in writing to Landlord (i) the name of the proposed subtenant or assignee
(including a Tenant Subsidiary); (ii) the nature of the proposed subtenant's or
assignee's business to be carried on in the Premises (including a Tenant
Subsidiary); (iii) the terms and conditions of the proposed sublease or
assignment (including complete and accurate copies of all proposed assignment or
sublease documentation) including a sublease to a Tenant Subsidiary; (iv) such
financial and business information as Landlord may reasonably request concerning
the proposed subtenant or assignee (other than a Tenant Subsidiary) including
information concerning the proposed subtenant's or assignee's use, handling,
storage and disposal of Hazardous Materials; and (v) such other information as
Landlord may reasonably request. If Tenant claims that any assignment or
subleasing constitutes an Internal Transaction,
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Tenant shall provide to Landlord all information required to substantiate such
assignment or subleasing as a bona fide Internal Transaction. Landlord shall
grant or withhold its consent to any proposed assignment or subletting within
ten (10) business days from the date of receiving full and complete copies of
all of the information, materials and documents set forth in this Section 15.3.
15.4 Rent Increase. The Monthly Base Rent for the portion of the Premises
-------------
assigned or sublet (the "Applicable Portion") shall be increased to the Monthly
Base Rent for such Applicable Portion prior to such assignment or subletting
plus one hundred percent (100%) of the amount by which any rental payment or
other consideration of any nature whatsoever received by Tenant from the
assignee or subtenant including any Tenant Affiliate or Tenant Subsidiary
(whether received before or after the effective date of such approved assignment
or subleasing) for such Applicable Portion exceeds the Monthly Base Rent paid by
the Tenant to Landlord for such Applicable Portion; provided, however, Tenant
may offset against the increase in Monthly Base Rent hereunder solely (a)
Tenant's actual and reasonable third party brokerage fees and marketing costs
incurred in such assignment or sublease transaction, (b) Tenant's actual and
reasonable attorneys' fees incurred in such assignment or sublease transaction,
and (c) and the costs of reasonable alterations to the Applicable Portion
actually installed or paid for by Tenant in connection with the occupancy of the
Applicable Portion by such assignee or subtenant (amortized over the useful life
of such alternations with interest thereon at Eight Percent (8%) per annum). For
purposes of this Section 15.4, the term "rental payment" shall mean all
consideration paid or given, directly or indirectly, to Tenant for the use of
the Premises or any portion thereof and the term "consideration" shall mean and
include money, services, property or any other thing of value such as warrants,
stock or securities, payment of costs, cancellation of indebtedness, discounts,
rebates and the like and including, without limitation, key money and bonus
money given to Tenant for the use of the Premises or any portion thereof,
whether paid to Tenant before or after the effective date of the assignment or
sublease. Notwithstanding the foregoing, under no circumstances shall Landlord
be entitled to (a) any security deposits or other sums given to Tenant as
security for the assignee's or subtenant's obligations or (b) any portion of any
bona fide consideration paid for any assets of Tenant (other than Tenant's
leasehold interest hereunder and separate and apart from any consideration paid
for the assignment and subleasing) in connection with the sale or other transfer
of such assets by Tenant. "Sublet" and "sublease" shall include a sublease as to
which Tenant is sublessor and any sub-sublease or other subsubtenancy,
irrespective of the number of tenancies and tenancy levels between the ultimate
occupant and Landlord, as to which Tenant receives any consideration, as defined
herein, and Tenant shall require on any sublease which it executes that Tenant
receive the profit from all subsubtenancies, irrespective of the number of
levels thereof. Any rental payment or other consideration which is to be passed
through to Landlord by Tenant shall be paid to Landlord within five (5) days
following receipt by Tenant and shall be paid in cash, irrespective of the form
in which received by Tenant from a subtenant or assignee. Tenant acknowledges
and agrees that the purpose of this Section 15.4 is to ensure that Landlord
receives one hundred percent (100%) of any profit (after subtracting Tenant's
costs and fees described in clauses (a) through (c) hereinabove) from any
assignment or sublease of the Premises (including, without limitation, from
Internal Transactions) that Tenant receives over Monthly Base Rent payable by
Tenant hereunder.
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15.5 Stock Transfers. If Tenant is a corporation the stock of which is not
---------------
traded on the NYSE, AMEX or NASDAQ exchanges, or if Tenant is a partnership,
limited liability company or unincorporated association, the sale, transfer,
assignment, pledge or hypothecation, other than in connection with any IPO, of
any stock, interest, membership rights or similar interest in such corporation,
partnership, limited liability company or association (as the case may be) in
the aggregate in excess of twenty-five percent (25%) of any class or type of
stock of Tenant or interest in Tenant shall be deemed an assignment within the
meaning of this Article 15 and the corporation, partnership, limited liability
company or association as it exists after such sale, transfer, assignment,
pledge or hypothecation shall be deemed to be a successor and assign of the
Tenant.
15.6 Costs. In the event that Tenant shall submit a written notice to
-----
Landlord under Section 15.2 above or assign or sublet the Premises or request
the consent of Landlord to any assignment or subletting, Tenant shall pay
Landlord's reasonable costs and expenses incurred in connection with each such
transaction (including any Internal Transaction), including reasonable
attorneys, architects, engineers or other consultants fees, within ten (10)
business days following written demand therefor from Landlord accompanied by
invoices reasonably substantiating such costs, whether Landlord terminates this
Lease (or any portion thereof), consents to such assignment or subletting or
withholds its consent thereto.
15.7 Subletting Terms. The following terms and conditions shall apply to
----------------
any subletting by Tenant of all or any part of the Premises (including, without
limitation, any subleasing to any Tenant Affiliate or Tenant Subsidiary) and
shall be deemed included in all subleases whether or not expressly incorporated
therein:
15.7.1 Tenant assigns and transfers to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the Premises
heretofore or hereafter made by Tenant, and Landlord may collect such rent and
income and apply the same toward Tenant's obligations under this Lease;
provided, however, that until a default (following the expiration of any
applicable grace or cure periods without cure) shall occur in the performance of
Tenant's obligations hereunder, Tenant may receive and collect the rents
accruing under such sublease. Landlord shall not, by reason of this or any other
assignment of such sublease to Landlord or by reason of the collection of rents
from a subtenant, be deemed liable to the subtenant for any failure of Tenant to
perform and comply with any of Tenant's obligations to such subtenant. Tenant
hereby irrevocably authorizes and directs any such subtenant, upon receipt of a
written notice from Landlord stating that a default (following the expiration of
any applicable cure grace period without cure) exists in the performance of
Tenant's obligations under this Lease, to pay to Landlord the rents and all
other sums due and to become due under the sublease until such default has been
cured by Tenant. Tenant agrees that such subtenant shall have the right to rely
upon any such statement and request from Landlord, and that such subtenant shall
pay such rents or other sums to Landlord without any obligation or right to
inquire as to whether such default exists and notwithstanding any notice, demand
or claim from Tenant to the contrary. Tenant shall have no right or claim
against said subtenant or Landlord for any such rents or sums so paid by
subtenant to Landlord.
15.7.2 No such sublease of the Premises entered into by Tenant shall
be effective unless and until it has been approved in writing by Landlord. An
approved sublease shall not be
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changed, supplemented or modified, in any manner, without Landlord's reasonable
prior written consent. Any subtenant shall, by virtue of entering into a
sublease under this Lease, be deemed, for the benefit of Landlord, to have
assumed and agreed to perform and comply with each and every obligation herein
to be performed by Tenant with respect to the subleased space other than such
obligations as are contrary to or inconsistent with provisions contained in a
sublease to which Landlord has expressly consented in writing.
15.7.3 In the event Tenant shall default (following the expiration of
any applicable cure period without cure) in the performance of any of its
obligations under this Lease, Landlord, at its option and without any obligation
to do so, may require any subtenant to attorn to Landlord, in which event
Landlord shall undertake the obligations of Tenant under such sublease from the
time of the exercise of said option to the termination of such sublease;
provided, however, Landlord shall not be liable for any prepaid rents or
security deposit paid by such subtenant to Tenant or for any prior default of
Tenant under such sublease.
ARTICLE 16
ACCESS AND RESERVED RIGHTS
--------------------------
16.1 Access Rights. Landlord and its agents, representatives and
-------------
contractors shall at all reasonable times have the right, but not the
obligation, to enter the Premises to (i) inspect the same; (ii) to show the
Premises to prospective purchasers or tenants (as to prospective tenants, only
during the last twelve (12) months of the Term or Extended Term); (iii) to post
notices of nonresponsibility; and (iv) to alter, improve, maintain or repair the
Premises or any other portion thereof, to test and/or monitor groundwater or
investigate the environmental conditions of the Premises on an ongoing basis as
determined by Landlord in its sole discretion and to install, maintain, repair,
replace and relocate pipes, ducts, conduits, wires, meters and other equipment
within the demising walls, floors, bearing columns, roofs and ceilings of the
Premises, and in the course of such work to close entrances, doors, corridors,
elevators or other Building facilities or temporarily abate their operation, all
without being deemed an eviction or constructive eviction of Tenant and without
abatement of Rent (other than as expressly provided below), and Landlord may for
such purposes erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed, provided that Landlord,
in connection with each and all of the foregoing, shall use all reasonable
efforts to ensure that the business of Tenant shall be interfered with as little
as is reasonably practicable. If the negligence or willful misconduct of
Landlord or any Landlord Party in carrying out any action pursuant to this
Section 16.1 unreasonably interferes with the conduct of Tenant's business in
the Premises, then Tenant shall be entitled to equitable rent abatement to the
extent the Premises are unusable by Tenant in the conduct of its normal business
therein commencing on the second (2/nd/) business day of such interference and
continuing until such interference is sufficiently remedied to permit Tenant to
recommence its normal business operations in the Premises. Tenant hereby waives
any claim for damages for any injury or inconvenience to or interference with
Tenant's business or loss of quiet enjoyment of the Premises caused by
Landlord's entry on the Premises in accordance with this Section 16.2 (but not
for injury or damage to persons or Tenant's property in the Premises caused by
Landlord's negligence or willful misconduct). For each of the aforesaid
purposes, Landlord shall at all times have and retain a key, pass code for
security devices or other device and be provided with any required information
with which to unlock all of the doors in, upon and
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about the Premises and gain access to the Premises, excluding Tenant's vaults,
safes, files, security cabinets, and other areas designated as secure by Tenant,
the location and/or installation of which have been previously approved by
Landlord. Landlord shall have the right to use any and all means which Landlord
may deem proper to open said doors in an emergency in order to obtain entry to
the Premises, and any entry to the Premises obtained by Landlord by any of said
means shall not under any circumstances be construed or deemed to be a forcible
or unlawful entry into, or a detainer of, the Premises, or any eviction of
Tenant from the Premises or any portion thereof. No provision of this Lease
shall be construed as obligating Landlord to perform any repairs, alterations or
decoration except as otherwise expressly provided in this Lease. Notwithstanding
anything to the contrary in this Section 16.1 or elsewhere in this Lease,
Landlord and Landlord's agents, representatives and contractors, except in the
case of emergency (where no notice is required), shall provide Tenant with at
least one business day notice prior to each entry of the Premises (except,
however, in the case where Landlord's proposed entry is for the purpose of
performing non-emergency work in the Premises, Landlord shall provide Tenant
with at least two (2) business days prior written notice). If the purpose of
such access is to perform any work in the Premises, said notice from Landlord
shall include a description of the proposed work, the location of the proposed
work the approximate duration of the proposed work, and the names of the persons
to perform the proposed work. Any such entry by Landlord or Landlord's agents,
representatives and contractors, shall comply with all reasonable security
measures of Tenant (including, without limitation, written sign-in, badging, and
accompaniment by a representative of Tenant) and shall not impair Tenant's
operations more than reasonably necessary.
16.2 Reserved Rights. Landlord further reserves the right from time to
---------------
time to change the boundary lines of the lot on which the Premises stands, to
record parcel maps and subdivision maps, and to make other reasonable changes
and to grant other reasonable rights to the exterior portions of the Premises,
including, without limitation, the granting of easements, servitudes, rights of
way and rights of ingress and egress and similar rights to users of adjacent
parcels, utility companies, governmental agencies or other tenants, provided the
same do not interfere with the use, occupancy or quiet enjoyment of the Premises
by Tenant or diminish any of Tenant's rights or increase its obligations under
this Lease. Without limiting the scope of or the generality of foregoing
restrictions on Landlord's rights under this Section 16.2, under no
circumstances may Landlord grant rights which would reduce the parking available
to Tenant hereunder.
ARTICLE 17
SUBORDINATION AND ATTORNMENT
----------------------------
17.1 Subordination. This Lease is junior, subject and subordinate to all
-------------
existing mortgages, deeds of trust, security assignments, covenants, conditions
and requirements and other security instruments of any kind now encumbering the
Premises or any portion thereof including any renewals, amendments,
modifications, replacements or extensions of the same. Landlord reserves the
right to place new liens and other new encumbrances on the Premises or any part
thereof or interest therein superior in lien and effect to this Lease subject to
Tenant's receipt of commercially reasonable non-disturbance protection in a form
similar to that attached to this Lease as Exhibit E with such changes as may be
---------
reasonably requested by Landlord's
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lender or the other party to the agreement (the "Nondisturbance Agreement").
Provided Tenant concurrently or earlier receives an executed Nondisturbance
Agreement from the lienholder or encumbrance, Tenant agrees to execute,
acknowledge and deliver within ten (10) business days following written demand
from Landlord such further instruments evidencing the subordination of this
Lease to any new liens or encumbrances as may be reasonably requested by
Landlord. Notwithstanding such subordination, Tenant's right to peaceful and
quiet possession of the Premises shall not be disturbed by the foreclosure or
termination of future liens or encumbrances so long as Tenant shall pay the Rent
and observe and perform all of the provisions of this Lease to be observed and
performed by Tenant, unless this Lease is terminated pursuant to specific
provisions relating to termination contained herein. In the event of the
foreclosure or termination of any such lien or encumbrance, or the transfer of
title to the Premises, Tenant shall attorn to the then owner who owns or
acquires title to the Premises and shall recognize such owner as Landlord under
this Lease. Tenant agrees to execute and deliver within ten (10) business days
following written demand from such owner any instruments reasonably required to
evidence this attornment.
17.2 Estoppel Certificates. Tenant shall at any time and from time to time
---------------------
upon not less than ten (10) business days' prior written notice by Landlord,
execute, acknowledge and deliver to Landlord a statement in writing certifying
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same are in full force and effect as modified and
stating the modifications), the dates to which the Monthly Base Rent and other
charges have been paid in advance, if any, and the amount of the undrawn portion
of the Letter of Credit, and stating whether or not to the actual knowledge of
Tenant, Landlord or Tenant is in default in the performance of any covenant,
agreement or condition contained in this Lease and, if so, specifying each such
default of which Tenant may have actual knowledge, and stating such other
matters of which Tenant may have actual knowledge concerning the status of this
Lease as Landlord may reasonably request. Tenant acknowledges that any such
statement delivered pursuant to this Section may be relied upon by any
prospective purchaser of the Premises or any mortgagee, ground lessor or other
like encumbrance thereof or any assignee of any such encumbrance upon the
Premises. Tenant's failure to deliver such statement within such time shall
constitute a default by Tenant under this Lease and additionally shall be
binding and conclusive upon Tenant (i) that this Lease is in full force and
effect, without modification except as may be represented by Landlord, (ii) that
there are no uncured defaults in Landlord's performance or rights of offset
against Tenant's obligations hereunder, and (iii) that not more than one month's
rent has been paid in advance.
ARTICLE 18
TRANSFER OF PREMISES; QUIET ENJOYMENT
-------------------------------------
Any sale, transfer, conveyance or other disposition by Landlord of
Landlord's fee interest in the Premises shall operate to release Landlord from
any and all liabilities, obligations and duties under this Lease accruing from
and after the date fee title to the Premises is conveyed of record to the
transferee. Subject to the provisions of Article 17 hereof, Tenant's right to
peaceful and quiet possession of the Premises shall not be disturbed so long as
Tenant shall pay all Rent and observe and perform all of the provisions of this
Lease to be observed and
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performed by Tenant, unless this Lease is terminated pursuant to specific
provisions contained herein allowing for such termination.
ARTICLE 19
NONLIABILITY AND INDEMNIFICATION OF LANDLORD; INSURANCE
-------------------------------------------------------
19.1 Indemnification. Except for Losses (defined below) caused by the
---------------
willful misconduct of, violation of law by, breach of this Lease or any
provision hereof by, or the negligence of Landlord or its agents, employees,
contractors, licensees or invitees, Tenant agrees to indemnify, defend and hold
harmless Landlord and its directors, officers, employees, agents, partners,
trustees, parents, subsidiaries, shareholders, affiliates, lenders, successors
and assigns from and against any and all claims, damages, liabilities, losses,
fines, penalties, actions or causes of action, judgments, costs and expenses,
including attorneys' fees, investigation costs and costs of court (if any)
(collectively, "Losses"), whether foreseeable or unforeseeable, directly or
indirectly arising out of or relating to, in whole or in part, Tenant's or
Tenant Parties use of the Premises or the conduct of Tenant's business at the
Premises or from any activity, work, or thing done, permitted or suffered by
Tenant or Tenant Parties in or about the Premises, and shall further indemnify,
defend and hold harmless such parties from and against any and all such claims
arising from any breach or default in the performance of any obligation on
Tenant's part to be performed under the terms of this Lease, or arising from the
negligence of Tenant or the Tenant Parties during the Term or any Extended Term,
and from and against all costs, attorneys' fees, expenses, damages, judgments,
actions and liabilities incurred in or concerning any such claim or any action
or proceeding brought thereon. If any action or proceeding is brought against
Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall
immediately defend Landlord at Tenant's sole expense by counsel reasonably
satisfactory to Landlord. The indemnity obligations of Tenant shall not be
limited by available insurance proceeds. Tenant's indemnification and defense
obligations set forth in this Section 19.1 shall survive the expiration or
earlier termination of the Lease.
19.2 Waiver of Claims. Tenant, as a material part of the consideration to
----------------
Landlord, hereby assumes all risk of damage to property or injury to persons,
including Tenant Parties in, upon or about the Premises from any cause
whatsoever, excepting Landlord's or its agents', employees', contractors',
licensees' or invitees' willful misconduct, violation of law, breach of this
Lease or any provision hereof, or negligence, and Tenant hereby waives all known
claims in respect thereof against Landlord. Tenant's obligations set forth in
this Section 19.2 shall survive the expiration or earlier termination of the
Lease.
19.3 Insurance Obligation. Tenant hereby agrees to obtain, maintain and
--------------------
keep in full force and effect at all times during the Term and any Extended Term
of this Lease, at Tenant's sole cost and expense, for the protection of Tenant
and Landlord, and, if required by Landlord, Landlord's lenders, policies of
insurance issued by a responsible carrier or carriers qualified to do business
in the State of California and maintaining a rating of at least "A VII" or
better in Best's Insurance Guide and in a form reasonably acceptable to Landlord
which afford the following:
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19.3.1 Worker's Compensation Insurance in compliance with California
law and Employer's Liability Insurance with limits of not less than One Million
Dollars ($1,000,000) per occurrence and aggregate. Tenant on behalf of itself
and all persons and parties claiming under or through Tenant, including, without
limitation, Tenant's insurance carriers, waive all rights of subrogation which
Tenant may have against Landlord under applicable worker's compensation
statutes.
19.3.2 Commercial General Liability Insurance protecting Landlord and
Tenant against claims for death, bodily injury, personal injury and property
damage based upon, relating to or arising out of Tenant's and Tenant Parties'
leasing, use, occupancy, repair and maintenance of the Premises and all areas
appurtenant thereto or from the conduct of Tenant's business or profession or
anything done, permitted or suffered by Tenant in or about the Premises and all
areas appurtenant thereto. Such Commercial General Liability Insurance shall be
written on an occurrence basis and shall provide for a combined single limit of
not less than Two Million Dollars ($2,000,000) per occurrence per location and
shall include, without limitation, Blanket Contractual Liability, Broad Form
Property Damage, Fire Legal Liability, Personal Injury, Completed
Operations/Products Liability (if applicable), Owned and Non-Owned Automobile
Coverage, (included or in a separate policy, with limits of not less than Two
Million Dollars ($2,000,000) per occurrence and aggregate), Protective and/or
Contingent Liability Insurance, Additional Insured-Managers or Landlords of
Premises Endorsement and an Amendment of the Pollution Exclusion for damage
caused by heat, smoke or fumes or from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons and
organizations. The policy shall specifically include coverage for liability
assumed under this Lease as an "insured contract" and shall insure all of
Tenant's indemnity obligations under this Lease including, without limitation,
Tenant's indemnity obligations under Section 19.1 above. The limits of insurance
carded by Tenant as set forth above shall not, however, limit the liability of
Tenant under this Lease or relieve Tenant of any liability under this Lease.
19.3.3 "All Risk" Insurance, including Fire and Extended Coverage,
Vandalism and Malicious Mischief and Sprinkler Leakage insurance in an amount
equal to the full replacement cost of all of Tenant's initial Tenant
Improvements constructed by or for Tenant pursuant to the Work Letter, all
improvements, additions, alterations and trade fixtures installed within the
Premises by Tenant and all of Tenant's fixtures, furnishings, equipment and
personal property, including, without limitation, all Remaining Furniture, with
a commercially reasonable deductible. The proceeds of the foregoing insurance
shall be used by Tenant solely for the replacement of Tenant's initial Tenant
Improvements and its additions, alterations and trade fixtures installed within
the Premises, and Tenant's fixtures, furnishings, equipment and personal
property, including, without limitation, all Remaining Furniture.
19.4 Landlord's Insurance Obligations. Subject to Tenant's compliance with
--------------------------------
Tenant's payment obligations under Article 5 of the Lease with respect to
Landlord's Insurance Premiums, Landlord hereby agrees to obtain, maintain and
keep in full force and effect at all times during the term and any Extended
Term, for the protection of Landlord and, if required by Landlord, Landlord's
lenders, policies of insurance issued by a responsible carrier or carriers
qualified to do business in the State of California and maintaining a rating of
at least "A VII" or better in Best's Insurance Guide which afford the following
coverages:
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19.4.1 "All Risk" Insurance with commercially reasonable deductibles
including, without limitation, Fire and Extended Coverage, a Change in Condition
Endorsement with limits adequate to rebuild the Premises in compliance with then
applicable laws, codes and ordinances, Vandalism and Malicious Mischief,
Sprinkler Leakage insurance, and in Landlord's sole discretion, Flood Insurance
and/or Earthquake Insurance, in the name of and for the benefit of Landlord, and
with all proceeds payable to Landlord (and/or any of Landlord's lenders as
Landlord may direct) in an amount equal to the full replacement cost of the
Premises (as the same may be increased from time to time) including, without
limitation, loss or damage to the Premises, but excluding coverage for Tenant's
initial Tenant Improvements constructed by or for Tenant pursuant to the Work
Letter and excluding coverage for any improvements, alterations, additions,
trade fixtures, equipment, furnishings, fixtures and personal property
(including the Remaining Furniture) installed within the Premises by or for
Tenant. Tenant shall be liable for the payment of any deductible amount in the
event of any loss covered by the insurance required under this Section 19.4.1.
19.4.2 Commercial General Liability Insurance protecting Landlord
against claims for death, bodily injury, personal injury and property damage
based upon, relating to or arising out of Landlord's leasing of the Premises and
all areas appurtenant thereto or anything done, permitted or suffered by
Landlord in or about the Premises and all areas appurtenant thereto. Such
Comprehensive General Liability Insurance shall be written on an occurrence
basis and shall provide for a combined single limit of not less than Five
Million Dollars ($5,000,000) per occurrence per location and shall include,
without limitation, Blanket Contractual Liability, Broad Form Property Damage,
Fire Legal Liability, Personal Injury, Completed Operations/Products Liability,
if applicable, Owned and Non-Owned Automobile Coverage (included or in a
separate policy, with limits of not less than Two Million Dollars ($2,000,000)
per occurrence and aggregate), Protective and/or Contingent Liability Insurance,
Additional Insured-Managers or Landlords of Premises Endorsement and an
Amendment of the Pollution Exclusion for damage caused by heat, smoke or fumes
or from a hostile fire. Tenant shall be named as an additional insured on
Landlord's Commercial General Liability Insurance Policy.
19.4.3 Business or Rental Interruption Insurance in the name of and
for the benefit of Landlord and with all proceeds payable to Landlord (and/or
any of Landlord's lenders as Landlord may direct), insuring the loss of the Rent
and other charges payable by Tenant to Landlord under this Lease (including all
Monthly Base Rent, Property Taxes, Insurance Premiums, and any scheduled rental
increases for a period not to exceed twelve (12) months). Said insurance shall
contain an agreed valuation provision in lieu of any coinsurance clause, and the
amount of coverage shall be adjusted annually to reflect the projected Rent,
Property Taxes, Insurance Premiums and other expenses, if any, otherwise payable
by Tenant. Tenant shall be liable for any deductible amount in the event of any
loss covered by the insurance required under this Section 19.4.3.
Any insurance required to be carried by Landlord under Sections 19.4.1, 19.4.2
or 19.4.3 above may be carried by Landlord under a blanket insurance policy
covering the Premises and any of Landlord's other locations.
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19.5 Policy Terms. All liability insurance required of Tenant under this
------------
Article (except Worker's Compensation) shall be primary coverage and shall not
be contributing with any other liability insurance maintained by Landlord.
19.6 Insurance Certificates. Tenant shall deliver to Landlord at least ten
----------------------
(10) business days prior to the time any insurance coverage is first required to
be carried by Tenant, and thereafter at least thirty (30) days prior to
expiration of such policy, certificates of insurance evidencing the required
coverages with limits not less than those specified in Section 19.3 above. The
certificate evidencing the insurance required pursuant to Section 19.3.2 above
shall name Landlord and each of Landlord's lenders (if any), as additional
insureds, and the certificate evidencing the insurance required pursuant to
Section 19.4.2 above shall name Tenant as additional insured. The certificates
to be delivered by Tenant shall expressly provide that not less than thirty (30)
days' prior written notice shall be given to Landlord in the event of
cancellation or non-renewal of the coverages evidenced by such certificates.
Upon written request of Landlord, Tenant shall deliver full and accurate copies
of all insurance policies required of it by this Lease.
19.7 Disclaimer. Landlord makes no representation that the limits or form
----------
of insurance coverage specified to be carried by Tenant under the terms of this
Lease are adequate to protect Tenant against Tenant's undertaking under this
Article 19.
ARTICLE 20
WAIVER OF SUBROGATION
---------------------
Notwithstanding anything to the contrary in this Lease, Tenant and
Landlord each hereby, on behalf of itself and all persons and parties claiming
under or through it, including without limitation its insurance carrier(s),
waive any right of recovery or claim against the other for any damage to or
destruction of any property located in or about the Premises which results from
or arises out of any casualty or event insured or required to be insured
hereunder by any casualty and/or property insurance policy carried by such
waiving party, regardless of the cause or origin of such casualty or event,
including without limitation, the negligence of Tenant or Landlord. Any policy
or policies of fire, extended coverage or similar casualty insurance or of
liability insurance that either party obtains in connection with the Premises or
Tenant's personal property therein shall include a clause or endorsement denying
the insurer and waiving any rights of subrogation against the other party to the
extent rights have been waived by the insured prior to the occurrence of injury
or loss.
ARTICLE 21
ATTORNEYS' FEES
---------------
In the event of any legal action or proceeding brought by either
party against the other arising out of this Lease, the prevailing party (by way
of settlement or final judgment) shall be entitled to recover reasonable
attorneys' fees and costs incurred in such action and such amount shall be
included in any judgment rendered in such proceeding. The provisions contained
in this Article 21 shall survive the expiration or earlier termination of this
Lease.
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ARTICLE 22
WAIVER
------
No waiver by either party hereto of any provision of this Lease or of
any breach by the other party hereunder shall be deemed to be a waiver of any
other provision hereof, or of any subsequent breach by the other party of the
same or any other provision. Landlord's consent to or approval of any act by
Tenant requiring Landlord's consent or approval shall not be deemed consent to
or approval of any subsequent act of Tenant. No act or thing done by Landlord or
Landlord's agents during the Term of this Lease shall be deemed an acceptance or
a surrender of the Premises, unless done in writing signed by Landlord. The
delivery of the keys to any employee or agent of Landlord shall not operate as a
termination of the Lease or a surrender of the Premises. The acceptance of any
Rent by Landlord following a breach of this Lease by Tenant shall not constitute
a waiver by Landlord of such breach or any other breach unless such waiver is
expressly stated in a writing signed by Landlord.
ARTICLE 23
NOTICES
-------
Any notice, consent, approval, request for consent or approval of or
communication to Landlord or Tenant required or permitted to be given under this
Lease shall be effectively given only if in writing and (i) mailed by United
States Registered or Certified Mail, postage prepaid, return receipt requested,
or (ii) sent by a nationally recognized courier service (e.g., Federal Express)
for next day business delivery, or (iii) personally delivered or served against
receipted copy, or (iv) transmitted via facsimile, in each case addressed to the
recipients at their addresses (or fax numbers in the case of facsimile
transmissions) set forth in Items 3 and 5 of the Basic Lease Provisions. Either
party shall have the right to change the address to which notices shall
thereafter be sent by giving notice to the other party as aforesaid. Notices
given in the aforesaid manner shall be deemed delivered on the date of scheduled
delivery, if sent by courier service, or three (3) days after sending, if sent
by mail, or upon personal delivery or service, if personally delivered or
served, or upon the date of successful facsimile transmission, if sent via
facsimile.
ARTICLE 24
BANKRUPTCY
----------
In no event shall this Lease be assigned or assignable by operation of
law and in no event shall this Lease be an asset of Tenant in any receivership,
bankruptcy, insolvency, or reorganization proceeding.
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ARTICLE 25
DEFAULT AND REMEDIES
--------------------
25.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute a material default and breach of this Lease by Tenant (each, an
"Event of Default"):
25.1.1 Nonpayment of Rent. Any failure by Tenant to pay Rent or
------------------
Additional Rent or to make any other payment required to be made by Tenant
hereunder on the due date, where such failure continues for three (3) business
days after written notice from Landlord to Tenant demanding such payment;
25.1.2 Abandonment. Abandonment of the Premises by Tenant;
-----------
25.1.3 Breach of Other Covenants. Any failure by Tenant to observe
-------------------------
and perform any obligation, covenant or provision of this Lease to be observed
or performed by Tenant other than those matters specified in Sections 25.1.1 and
25.1.2 above and 25.1.8, 25.1.9, 25.1.10 or 25.1.11 below, where such failure
continues for thirty (30) days after written notice by Landlord to Tenant. If
the nature of such default is such that it cannot reasonably be cured within
such thirty (30) day period Tenant shall not be deemed to be in default if
Tenant shall within such period commence such cure and thereafter diligently
prosecute the same to completion;
25.1.4 False Statement. Any warranty or representation made by Tenant
---------------
in this Lease proves to be false or misleading in any material respect when
made, including any Financial Statements;
25.1.5 Insolvency. Tenant or any Guarantor becomes insolvent, as
----------
defined in the Federal Bankruptcy Code, admits in writing its insolvency or its
present or prospective inability to pay its debts as they become due, permits or
suffers a judgment, attachment, execution or judicial seizure to exist against
it which materially adversely affects Tenant's ability to conduct its business
in the ordinary course (unless enforcement thereof is stayed pending appeal)
that is not discharged or dismissed within thirty (30) days, makes an assignment
for the benefit of creditors, or any class thereof, for purposes of effecting a
moratorium upon or extension or composition of its debts, proposed any such
moratorium, extension or composition, or commences or proposes to commence any
bankruptcy, reorganization or insolvency proceeding, or other proceeding under
any federal, state or other law for the relief of debtors;
25.1.6 Involuntary Bankruptcy. Tenant fails to obtain the dismissal,
----------------------
within sixty (60) days after the commencement thereof, of any bankruptcy,
reorganization or insolvency proceeding, or other proceeding under any law for
the relief of debtors, instituted against Tenant by one or more third parties or
any partner of Tenant, or, in any such proceeding, defaults or files an answer
admitting the material allegations upon which the proceeding was based or
alleges its willingness to have an order for relief entered or its desire to
seek liquidation, reorganization or adjustment of any of its debts;
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25.1.7 Receivership. Any receiver, trustee or custodian is appointed
------------
to take possession of all or any substantial portion of the assets of Tenant, or
of Tenant's interest in this Lease;
25.1.8 Liens. Tenant fails to cause the release, within twenty (20)
-----
days after filing, of any lien arising out of any work performed, materials
furnished, or obligations incurred by or for Tenant, which has been filed
against the Premises;
25.1.9 Assignment. Tenant attempts a transfer, conveyance, mortgage,
----------
encumbrance, pledge, disposition, assignment, sublease or other act in
contravention of Article 15 hereof and fails to cure the same within two (2)
business days of receipt of written notice from Landlord;
25.1.10 Insurance. Tenant fails to maintain in full force and effect
---------
the insurance coverages required to be maintained by Tenant under this Lease
following written notice thereof from Landlord to Tenant and Tenant's failure to
cure the same within five (5) business days of receipt of such notice; or
25.1.11 Default Under Joaquin Lease. The occurrence of an "Event of
---------------------------
Default" (as defined in the Joaquin Lease) under the Joaquin Lease shall
constitute an immediate and noncurable Event of Default under this Lease.
25.2 Remedies of Landlord. In the event of any such Event of Default by
--------------------
Tenant, Landlord may at any time thereafter, at Landlord's option and without
limiting the exercise of any other right or remedy which Landlord may have in
law or equity by reason of such default or breach, with or without notice or
demand, do any of the following:
25.2.1 Regain Possession. Re-enter the Premises and take possession
-----------------
of the same and of all equipment, fixtures and personal property of Tenant
therein, expel or remove Tenant and all other parties occupying the Premises,
using such force as may be reasonably necessary to do so, without being liable
to any prosecution for such re-entry or for the use of such force, and without
terminating this Lease, and at any time (and from time to time) relet the
Premises or any part thereof for the account of Tenant for such term and upon
such conditions and at such rental as Landlord may deem proper in its sole
discretion. In such event Landlord may receive and collect the rent from such
reletting and apply it first against any and all expenses and costs incurred by
Landlord hereunder as a result of Landlord having to retake and relet the
Premises (including, without limitation, such expenses as Landlord may have
incurred in recovering possession of the Premises, placing the same in good
order and condition, altering, repairing or redecorating the same for reletting
and all other reasonable expenses, commissions and charges, including attorneys'
fees, which Landlord may have paid or incurred in connection with such
repossession and reletting) and then the balance, if any, shall be applied
against any Rent then due from Tenant to Landlord. Landlord may execute any
lease made pursuant hereto in Landlord's name and the tenant thereunder shall be
under no obligation to see to the application by Landlord of any rent collected
by Landlord, nor shall Tenant have any right to collect any rent thereunder.
Whether or not the Premises are relet, Tenant shall pay Landlord all amounts
required to be paid by Tenant up to the date of Landlord's re-entry and
thereafter Tenant shall pay Landlord, until the end of the Term, the amount of
all rent and other charges required to be
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paid by Tenant hereunder, less the proceeds of such reletting during the Term,
if any, after payment of Landlord's expenses as provided above. Such payments by
Tenant shall be due at such times as are provided in this Lease, and Landlord
need not wait until the termination of this Lease to recover them by legal
action or otherwise. Landlord shall not by any re-entry or other act be deemed
to have terminated this Lease or the liability of Tenant for the total Rent due
hereunder unless Landlord shall give Tenant written notice of Landlord's
election to terminate this Lease.
25.2.2 Termination. Give written notice to Tenant of Landlord's
-----------
election to terminate this Lease at any time after an Event of Default, re-enter
the Premises and take possession of the same and of all equipment, fixtures and
personal property therein, and expel or remove Tenant and all other parties
occupying the Premises, using such force as may be reasonably necessary to do
so, without being liable to any prosecution for such re-entry or for the use of
such force. In such event Landlord shall thereupon be entitled to recover from
Tenant as damages, all of the following:
i. The worth at the time of award of any unpaid Rent which
had been earned at the time of such termination; plus
ii. The worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rent loss that Tenant proves could have been
reasonably avoided; plus
iii. The worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of the award exceeds the
amount of such Rent loss that Tenant proves could have been reasonably avoided;
plus
iv. Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to any costs or expenses incurred
by Landlord in retaking possession of the Premises, including reasonable
attorneys' fees; maintaining or preserving the Premises after such Event of
Default; preparing the Premises for reletting to a new tenant, including repairs
or alterations to the Premises for such reletting; leasing commissions; or any
other costs necessary or appropriate to relet the Premises; plus
v. At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by the laws of
the State of California.
vi. As used in subsections (i) and (ii) above, the "worth at
the time of award" is computed by allowing interest at the rate set forth in
Article 34 below. As used in subsection (iii) above, the "worth at the time of
award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%).
25.2.3 Tenant's Property. Landlord may at its option permit all of
-----------------
Tenant's fixtures, furniture, equipment, improvements, additions, alterations,
and other personal property to remain on the Premises and in that event, and
continuing during the length of said Event of
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Default, Landlord shall have the right to take exclusive possession of the same
and to use the same, free of charge, until all Events of Default are cured or,
at its option, at any time during the Term, to require Tenant to forthwith
remove the same. In the alternative, in the event of any entry or taking
possession of the Premises as aforesaid, Landlord shall have the right, but not
the obligation, to remove therefrom all or any part of the personal property
located therein and may place the same in a public warehouse at the expense and
risk of the owner or owners thereof and dispose of the same in accordance with
the provisions of California Civil Code Section 1980 et seq. or any successor
statutes thereto.
25.2.4 Cure of Default. In addition to the foregoing remedies,
---------------
Landlord shall, so long as this Lease is not terminated, have the right to
remedy any Event of Default, to maintain or improve the Premises without
terminating this Lease, to incur reasonable expenses on behalf of Tenant in
seeking a subtenant, or to cause a receiver to be appointed to administer the
Premises and any new or existing subleases, and Tenant shall pay to Landlord as
Additional Rent hereunder all of Landlord's reasonable costs in so doing, with
interest at the maximum lawful rate.
25.2.5 Cumulative Remedies. No remedy or election hereunder shall be
-------------------
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
25.3 Default by Landlord. Landlord shall not be deemed to be in default or
-------------------
breach in the performance of any obligation required to be performed by Landlord
under this Lease unless and until it has failed to perform such obligation
within thirty (30) days after written notice by Tenant to Landlord specifying
that Landlord has failed to perform such obligation; provided, however that if
the nature of Landlord's obligation is such that more than thirty (30) days are
required for its performance, then Landlord shall not be deemed to be in default
or breach if it shall commence such performance within such thirty (30) day
period and thereafter diligently prosecute the same to completion. Tenant shall
have no right to terminate this Lease, except where Landlord fails to cure a
material breach within the time periods set forth in the immediately preceding
sentence. No default or breach on the part of Landlord that would entitle Tenant
under the terms of this Lease or by law to terminate this Lease shall result in
a termination of this Lease unless (i) Tenant has given written notice of such
default or breach by registered or certified mail to any beneficiary of a deed
of trust or mortgagee of a mortgage covering the Premises whose address shall
have been furnished to Tenant and (ii) Tenant offers such beneficiary or
mortgagee the same opportunity to cure the default or breach as is available to
Landlord under the express terms of this Lease. It is expressly understood and
agreed that any money judgment against Landlord resulting from any default or
other claim arising under this Lease or related thereto shall be satisfied only
out of Landlord's equity interest in the Premises, and no other real, personal
or mixed property of Landlord, wherever situated, shall be subject to levy on
any such judgment obtained against Landlord and if such equity interest in the
Premises is insufficient for the payment of such judgment, Tenant will not
institute any further action, suit, claim or demand, in law or in equity,
against Landlord for the amount of such deficiency. Tenant hereby waives, to the
extent waivable under law, any right to satisfy said money judgment against
Landlord except from Landlord's equity interest in the Premises.
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ARTICLE 26
HOLD OVER
---------
If Tenant holds over after the expiration or earlier termination of
the Term or any Extended Term of this Lease without the express prior written
consent of Landlord, Tenant shall become a tenant of sufferance only at a rental
rate equal to one hundred fifty percent (150%) of the Monthly Base Rent in
effect just prior to expiration or termination, and otherwise upon the terms,
covenants and conditions herein specified, so far as applicable. Acceptance by
Landlord of any Rent after such expiration or earlier termination shall not
constitute a consent to a holdover hereunder or result in a renewal of the Lease
or any lease. The foregoing provisions of this Article 26 are in addition to and
do not affect Landlord's right of reentry or any other rights of Landlord
hereunder or as otherwise provided by law or equity.
ARTICLE 27
CONDITION OF PREMISES
---------------------
Tenant acknowledges that, except as expressly set forth in this Lease,
neither Landlord nor any agent of Landlord has made any representation or
warranty with respect to the Premises, Landlord's prior use of the Premises, the
presence of any Hazardous Materials in the Premises, the adequacy or inadequacy
of parking for Tenant's intended office use of the Premises, the compliance of
the Premises with any applicable statutes, laws, ordinances or regulations
(including, without limitation, any Environmental Laws), or with respect to the
suitability of any part of the Premises for the conduct of Tenant's business.
ARTICLE 28
QUIET POSSESSION
----------------
Upon Tenant's paying the Rent reserved hereunder and observing and
performing all of the covenants, conditions and provisions on Tenant's part to
be observed and performed hereunder, Tenant shall have peaceful and quiet
possession of the Premises for the entire Term and any Extended Term(s) hereof,
subject to all of the terms and conditions of this Lease.
ARTICLE 29
DAMAGE TO TENANT'S PROPERTY
---------------------------
Landlord and its agents shall not be liable for any damage to Tenant's
property entrusted to employees of Landlord or its agents, nor for loss or
damage to any property by theft or otherwise. Landlord or its agents shall not
be liable for interference with the light or other incorporeal hereditaments.
-41-
<PAGE>
ARTICLE 30
CONFLICT OF LAWS
----------------
This Lease shall be governed by and construed pursuant to the laws of
the State of California.
ARTICLE 31
SUCCESSORS AND ASSIGNS
----------------------
Except as otherwise provided in this Lease, all of the covenants,
conditions and provisions of this Lease shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns. Any options or rights given to the
Tenant in this Lease to extend or renew this Lease shall be personal to the
original Tenant named herein and to any Tenant Affiliate to whom this Lease may
be assigned and may not be transferred to any other successor or assign
(including, without limitation, any Tenant Subsidiary) without the prior written
consent of Landlord.
ARTICLE 32
BROKERS
-------
Tenant warrants that it has had no dealings with any real estate
broker, leasing agent or finder in connection with this Lease, excepting only
the brokers named in Items 14 and 15 of the Basic Lease Provisions and that it
knows of no other real estate broker, leasing agent or finder other than the
brokers named in Items 14 and 15 of the Basic Lease Provisions who is entitled
to a commission in connection with this Lease. Tenant agrees to pay and to
indemnify and hold Landlord harmless from, any cost, expense or liability for
any compensation, commission or charges claimed by any other realtors, brokers,
agents or finders claiming by, through or on behalf of Tenant with respect to
this Lease and/or the negotiation thereof. Landlord warrants that it has had no
dealings with any real estate broker, leasing agent or finder in connection with
this Lease, excepting only the brokers named in Items 14 and 15 of the Basic
Lease Provisions and that it knows of no other real estate broker, leasing agent
or finder other than the brokers named in Items 14 and 15 of the Basic Lease
Provisions who is entitled to a commission in connection with this Lease.
Landlord agrees to pay and to indemnify and hold Tenant harmless from, any cost,
expense or liability for any compensation, commission or charges claimed by any
other realtors, brokers, agents or finders claiming by, through or on behalf of
Landlord with respect to this Lease and/or the negotiation thereof. Landlord
covenants and agrees to pay in accordance with its agreement with the broker
named in Item 14, all real estate commissions due in connection with this Lease
to such broker.
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<PAGE>
ARTICLE 33
NEGOTIATED AGREEMENT
--------------------
Tenant and Landlord have been represented by independent counsel in
entering into this Lease. Each of the parties affirms to the other that it has
consulted and discussed the provisions of this Lease with its counsel and fully
understands the legal effect of each provision. The drafting and negotiation of
this Lease has been participated in by each of the parties. For all purposes,
this Lease shall be deemed to have been drafted jointly by each of the parties
and shall not be construed against any party due to authorship.
ARTICLE 34
INTEREST ON TENANTS OBLIGATIONS; LATE CHARGE
--------------------------------------------
34.1 Interest. Any amount due from Tenant to Landlord which is not paid
--------
within three (3) business days of its due date shall bear interest at the lesser
of (i) twelve percent (12%) per annum or (ii) the maximum rate permitted by law
from the date such payment is due (after the expiration of any applicable cure
period hereunder, if any) until paid, but the payment of such interest shall not
excuse or cure any default or breach by Tenant.
34.2 Late Charges. Tenant recognizes that late payment of any Rent or any
------------
portion thereof will result in administrative expense to Landlord, the extent of
which additional expense is extremely difficult and economically impractical to
ascertain. Tenant therefore agrees that if Rent or any portion thereof, remains
unpaid ten (10) business days after said amount is due and written notice from
Landlord demanding payment, the amount of such unpaid Rent shall be increased by
a late charge to be paid Landlord by Tenant equal to five percent (5%) of the
amount of the delinquent Rent or other payment. The amount of the late charge to
be paid Landlord by Tenant on any unpaid Rent or other unpaid amount shall be
due immediately after the date on which the late charge was initially imposed.
Tenant agrees that such late charge is a reasonable estimate of the loss and
expense to be suffered by Landlord as a result of such late payments by Tenant
and may be charged by Landlord to defray such loss and expense. The provisions
of this Section in no way relieve Tenant of the obligation to pay Rent or other
amounts on or before the date on which they are due, nor do the terms of this
Section in any way affect Landlord or its obligations under this Lease or
obligate Landlord to accept less than the full Rent amount due at any time.
ARTICLE 35
TIME
----
Time is of the essence of this Lease and the performance of any and
all of its provisions.
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<PAGE>
ARTICLE 36
DEFINED TERMS AND MARGINAL HEADINGS
-----------------------------------
The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. If more than one person is named as Tenant the
obligations of such persons are joint and several. The captions or marginal
headings to the Articles and Sections of this Lease are not a part of this Lease
and shall have no effect upon the construction or interpretation of any part
hereof.
ARTICLE 37
PRIOR AGREEMENTS
----------------
This Lease and its Exhibits contain all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreement, understanding, representation, correspondence
(including, without limitation, that certain letter of intent between the
parties dated June 14, 1999 and that certain Office Lease dated July 30, 1999
covering both the Premises and the Joaquin Premises, which Office Lease the
parties acknowledge and agree shall be null and void and of no further force or
effect upon the execution and delivery of this Lease and the Joaquin Lease by
the parties hereto), or communication pertaining to any such matter or the
Premises shall be effective for any purpose. No provision of this Lease may be
amended, supplemented or modified except by an agreement in writing signed by
the parties hereto or their respective successors in interest. If any provision
of this Lease shall be held invalid, void or unenforceable to any extent, the
remainder of this Lease shall not be affected thereby and each provision of this
Lease shall be valid and enforceable to the fullest extent permitted by law.
ARTICLE 38
AUTHORITY OF PARTIES
--------------------
Tenant does hereby covenant, represent and warrant that (i) Tenant is
a duly authorized and existing corporation; (ii) Tenant is qualified to do
business in the State of California and is in good standing in the jurisdiction
of its formation; (iii) Tenant has full right and authority to enter into this
Lease; (iv) each person signing on behalf of the corporation was authorized to
do so; and (v) the Lease is valid and legally binding on Tenant. Landlord does
hereby covenant, represent and warrant that (i) Landlord is duly authorized and
existing corporation; (ii) Landlord is qualified to do business in the State of
California and is in good standing in the jurisdiction of its formation; (iii)
Landlord has full right and authority to enter into this Lease; (iv) each person
signing on behalf of the corporation was authorized to do so; and (v) the Lease
is valid and legally binding on Landlord.
-44-
<PAGE>
ARTICLE 39
NO LIGHT, AIR OR VIEW EASEMENT
------------------------------
Any diminution or shutting off of light, air or view by any structure
which may be erected on lands adjacent to or in the vicinity of the Premises
shall in no way affect this Lease, impose any liability on Landlord, or permit
Tenant to reduce, setoff or abate rent or seek any other remedies or relief.
ARTICLE 40
EXAMINATION OF LEASE
--------------------
Submission of this instrument for examination or signature by Tenant
does not constitute a reservation of or option for lease, and it is not
effective as a lease or otherwise legally binding until execution by and
delivery to both Landlord and Tenant.
ARTICLE 41
FORCE MAJEURE
-------------
Any covenants, conditions, provisions or agreements on the part of one
party to perform any act or thing for the benefit of the other shall not be
deemed breached if such party is unable to furnish or perform the same by virtue
of a strike, lock out, fire, earthquake, explosion, riot, material or supply
shortages, Acts of God, laws, roles, orders, ordinances, directions, regulations
or requirements of any federal, state, county or municipal authority, labor
dispute or any other cause whatsoever beyond such party's reasonable control;
provided, however, that nothing in this Article 41 shall be deemed to relieve
either party from paying the other any sums owed to the other party under this
Lease (including, in the case of Tenant, any Rent) when such sums are due.
Unless expressly provided in this Lease, Tenant's Rent shall not be abated by
reason of such inability on the part of Landlord.
ARTICLE 42
RECORDING
---------
Tenant shall not record this Lease nor any form of memorandum hereof
without the prior written consent of Landlord, which consent may be withheld or
conditioned in Landlord's sole and absolute discretion. Any recording of this
Lease or any memorandum hereof without the prior written consent of Landlord
shall constitute a default by Tenant under this Lease. Landlord, in its sole and
absolute discretion, may record this Lease or a memorandum hereof.
-45-
<PAGE>
ARTICLE 43
INCORPORATION BY REFERENCE
--------------------------
The Basic Lease Provisions, Addenda (if any) and Exhibits attached
hereto all constitute parts of this Lease and any reference thereto incorporates
such matters in this Lease as if the same were fully set forth herein.
ARTICLE 44
DEFINITION OF ADDITIONAL RENT
-----------------------------
The Monthly Base Rent, Property Taxes, insurance premiums, maintenance
and repair costs incurred by Landlord under Article 6 above, and all other
amounts required to be paid by Tenant hereunder ("Additional Rent") including,
without limitation, interest, late charges, advance rent and reimbursements, are
sometimes collectively referred to in this Lease as, and shall constitute "Rent"
or "rent". Demand for payment of Rent shall not constitute a forbearance and
shall not compromise Landlord's right to deem Tenant's failure to pay such Rent
in a timely manner as a default or limit any other rights given to Landlord
under this Lease or by law or equity.
ARTICLE 45
SURRENDER OF PREMISES
---------------------
On the Expiration Date or the earlier termination of the Lease, Tenant
shall surrender the Premises and every part and system thereof to Landlord broom
clean and in as good condition as delivered to Tenant, reasonable wear and tear,
condemnation and casualty excepted, and free of all debris and Hazardous
Materials placed on the Premises by Tenant or Tenant Parties and in full
compliance with all requirements of Section 9.6 above. Unless Landlord has
required removal pursuant to Section 7.3 above, Tenant's initial Tenant
Improvements made by or for Tenant render the Work Letter and all other
improvements, alterations and additions made by or for Tenant to the Premises in
accordance with Section 7.3 of the Lease, shall become part of the Premises on
the Expiration Date or earlier termination of this Lease and be surrendered,
together with the Premises, to Landlord in good, serviceable and operating
condition, reasonable wear and tear, condemnation and casualty excepted. Tenant
shall remove all of its trade fixtures, equipment and personal property and
signs, provided such removal will not adversely affect the structural integrity
of the Premises. Any property not so removed within ten (10) days after the
Expiration Date or earlier termination of the Lease shall be deemed abandoned by
Tenant and shall become Landlord's property which Landlord may use, remove, or
dispose of in accordance with California Civil Code Section 1980 et seq. or any
successor statutes thereto. Tenant shall reimburse Landlord for any cost
incurred by Landlord in such removal, storage or disposition, or in repairing or
restoring the Premises. Tenant shall further defend and indemnify Landlord
against all claims, losses, costs, expenses, actions, judgments, damages and
liabilities resulting from Tenant's failure and delay in surrendering the
Premises as above provided including, without limitation, any claim made by any
succeeding tenant of the Premises resulting from or related to such failure to
surrender, which
-46-
<PAGE>
indemnification and defense obligations shall survive the expiration or earlier
termination of this Lease.
ARTICLE 46
NO ACCORD AND SATISFACTION
--------------------------
No payment by Tenant or receipt by Landlord of a lesser amount than
due shall be deemed to be other than on account of the full amount due and
Landlord may accept such check or payment without prejudice to Landlord's rights
to recover the balance.
ARTICLE 47
MERGER
------
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, or a termination by Landlord, shall not work as a merger,
and shall, at the option of Landlord, terminate all or any existing subtenancies
or may, at the option of Landlord, operate as an assignment to Landlord of any
or all of such subtenancies.
ARTICLE 48
FINANCIAL STATEMENTS
--------------------
The Financial Statements of Tenant were submitted as an inducement and
consideration to Landlord to enter into this Lease. Tenant represents and
warrants to Tenant that the Financial Statements were true and correct as of the
date thereof. Tenant further represents
-47-
<PAGE>
and warrants to Landlord that to Tenant's actual knowledge there have been no
material adverse changes in the financial condition of Tenant since the date of
the Financial Statements.
IN WITNESS WHEREOF, the parties hereto have executed this Lease,
consisting of the foregoing Basic Lease Provisions and Articles 1 through 48,
together with Exhibits A through E, all of which are incorporated herein in
--------------------
their entirety by this reference, as of the date set forth above.
LANDLORD: TENANT:
ALZA CORPORATION, a Delaware CHEMDEX CORPORATION, a Delaware
corporation corporation
By: /s/ Harold Fethe By: /s/ James G. Stewart
------------------------------------- ----------------------------
Harold Fethe
Its: Sr. Vice Pres., Human Resources Its: James G. Stewart
------------------------------------ ---------------------------
Chief Financial Officer
By: /s/ Peter Staple By: /s/ David P. Perry
------------------------------------- ----------------------------
Peter Staple
Its: Sr. Vice President & Gen. Counsel Its: David P. Perry
------------------------------------ ---------------------------
President & CEO
-48-
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF REAL PROPERTY
----------------------------
All that certain real property situated in the City of Mountain View,
County of Santa Clara, State of California, described as follows:
PARCEL ONE:
----------
The Southerly 0.471 acres as shown upon that certain Record of Survey filed
for record in the office of the Recorder of the County of Santa Clara,
State of California, on October 3, 1959 in Book 83 of Maps at Page 14.
PARCEL TWO:
----------
Portion of Lot 39, as shown upon that certain Map entitled, "MAP OF LOS
ALAMOS ACRES", which Map was filed for record in the office of the Recorder
of the County of Santa Clara, State of California on March 19, 1929 in Book
"X" of Maps, at Pages 28 and 29, and more particularly described as
follows:
BEGINNING at a point in the centerline of Joaquin Road, distant thereon
268.9 feet Northerly from the point of intersection of said centerline of
Joaquin Road, with the centerline of Plymouth Street, as said Road and
Street are shown on the Map above referred to; running thence Northerly
along the centerline of Joaquin Road, 100 feet to the Northeasterly corner
of Lot 39, as said Lot is shown on the Map above referred to; running
thence Westerly along the Northerly line of said Lot 39, 118.3 feet to the
Northwesterly corner thereof; running thence Southerly along the Westerly
line of said Lot 39, 100 feet; running thence Easterly and parallel with
the said centerline of Plymouth Street, 118.03 feet to the point of
beginning.
PARCEL THREE:
------------
Portion of Lot 39, as shown upon that certain Map entitled, "MAP OF LOS
ALAMOS ACRES", which Map was filed for record in the Office of the Recorder
of the County of Santa Clara, State of California, on March 19, 1929 in
Book X of Maps, at Pages 28 and 29, and more particularly described as
follows:
BEGINNING at the point of intersection of the center line of Joaquin Road,
40 feet wide, with the center line of Plymouth Street, 40 feet wide, as
said road and street are shown upon the Map hereinabove referred to; thence
North along said center line of Joaquin Road, 268.9 feet to the
Southeasterly corner of the Parcel of land conveyed by Carmelo J. Judice,
et ux, to Clifford Davy, et ux, by Deed dated April 13, 1946 and recorded
August 20, 1946 in Book 1363 Official Records, Page 324, Santa Clara County
Records; thence along the Southerly line of said Parcel of land and
parallel with said center line of Plymouth Street, North 86 degrees 01'
West 118.3 feet to the Westerly line of Lot 39, as shown on said Map;
thence South along said Westerly line of Lot 39, 268.9 feet to said center
line of Plymouth Street; thence along said last mentioned line, South 86
degrees 01' East 118.03 feet to the point of beginning.
PARCEL FOUR:
-----------
All of Lot 38, as shown on that certain Map entitled, "MAP OF LOS ALAMOS
ACRES", which Map was filed for record in the office of the Recorder of the
County of Santa Clara, State of California, on March 19, 1929, in Book X of
Maps at Pages 28 and 29.
PARCEL FIVE:
-----------
All of Lot 37, as shown on that certain Map entitled, "MAP OF LOS ALAMOS
ACRES", which Map was filed for record in the office of the Recorder of the
County of Santa Clara, State of California, on March 19, 1929, in Book X of
Maps at Pages 28 and 29.
-1-
<PAGE>
EXHIBIT B
---------
<TABLE>
<CAPTION>
Lease Period Monthly Base Rent
Original Lease Term
- -------------------
<S> <C>
Commencement Date to 10/14/00 $228,000 (subject to free rent per (S) 3.2)
10/15/00 to 10/14/01 $234,840
10/15/01 to 10/14/02 $241,885
10/15/02 to 10/14/03 $249,142
10/15/03 to 10/14/04 $256,616
10/15/04 to 02/28/05 $264,314
Extended Terms
- --------------
03/01/05 to 10/14/05 $264,314
10/15/05 to 10/14/06 $272,244
10/15/06 to 02/28/07 $280,411
</TABLE>
-1-
<PAGE>
EXHIBIT C
---------
FORM OF LETTER OF CREDIT
WELLS FARGO BANK, N.A.
TRADE SERVICES DIVISION, NORTHERN CALIFORNIA
525 MARKET STREET, 25TH FLOOR
SAN FRANCISCO, CALIFORNIA 94105
IRREVOCABLE LETTER OF CREDIT
ALZA Corporation Letter of Credit No. NZS ________
950 Page Mill Road Date: _________ __, 1999
Palo Alto, CA 94304
Attention: Senior Vice President & General Counsel
Ladies and Gentlemen:
At the request and for the account of Chemdex Corporation, 3950 Fabian Way,
Palo Alto, CA 94303, we hereby establish our Irrevocable Letter of Credit in
your favor in the amount of One Million Eight Hundred Seventy-Five Thousand
United States Dollars (US$1,875,000) available with us at our above office by
payment of your draft(s) drawn on us at sight in the form of Exhibit 1 hereto
with the instructions in brackets therein complied with accompanied by your
signed and dated statement in the form of Exhibit 2 hereto with the instructions
in brackets therein complied with.
Each drawing must also be accompanied by the original of this Letter of
Credit for our endorsement on this Letter of Credit of our payment of such
drawing.
Partial and multiple drawings are permitted under this Letter of Credit,
however each drawing must be in an amount of not less than US$20,000.00.
If any instructions accompanying a drawing under this Letter of Credit
request the payment is to be made by transfer to an account with us or at
another bank, we and/or such other bank may rely on an account number specified
in such instructions even if the number identifies a person or entity different
from the intended payee.
This Letter of Credit expires at our above office on July 31, 2000, but
shall be automatically extended, without written amendment, to July 31 in each
succeeding calendar year up to, but not beyond, April 30, 2005 unless we have
sent written notice to you at your address above by registered mail or express
courier that we elect not to renew this Letter of Credit beyond the date
specified in such notice (the "Non-Renewal Expiration Date"), which Non-Renewal
Expiration Date will be July 31, 2000 or any subsequent July 31 occurring before
April 30, 2005 and be at least 60 calendar days after the date we send you such
notice.
-1-
<PAGE>
This Letter of Credit is transferable one or more times, but in each
instance to a single transferee and only in the full amount available to be
drawn under this Letter of Credit at the time of such transfer. Any such
transfer may be effected only through ourselves and only upon presentation to us
at our above-specified office of a duly executed instrument of transfer in the
form attached hereto as Exhibit 3 with the instructions in brackets therein
complied with together with the original of this Letter of Credit. Any transfer
of this Letter of Credit may not change the place of expiration of this Letter
of Credit from our above-specified office. Each transfer shall be evidenced by
our endorsement on the reverse of the original of this Letter of Credit, and we
shall deliver the original of this Letter of Credit so endorsed to the
transferee. All commissions and charges in connection with this transfer are for
the account of Chemdex Corporation.
This Letter of Credit is subject to the Uniform Customs and Practice for
Documentary Credits (1993 revision), International Chamber of Commerce
Publication No. 500, and engages us in accordance therewith.
Very truly yours,
WELLS FARGO BANK, N.A.
BY:
------------------------
(AUTHORIZED SIGNATURE)
-2-
<PAGE>
Exhibit 1
Wells Fargo Bank, N.A
Letter of Credit No. __________
Wells Fargo Bank, N.A.
Trade Services Division, Northern California
525 Market Street
San Francisco, CA 94105
Attention: Manager, Standby Letter of Credit Dept.
DRAFT
Date of Draft: [insert date]
To the order of [insert Beneficiary Name], pay [insert amount of
drawing in words]
UNITED STATES DOLLARS (U.S. $ [insert amount of drawing in numbers]) at
sight
For value received under Letter of Credit No. __________
"Drawn under Wells Fargo Bank, N.A. Letter of Credit No. __________
dated August __,1999."
[insert Beneficiary Name]
By: [insert signature]
Its: [insert title]
-3-
<PAGE>
Exhibit 2
Wells Fargo Bank, N.A
Letter of Credit No. __________
Wells Fargo Bank, N.A.
Trade Services Division, Northern California
525 Market Street
San Francisco, CA 94105
Attention: Manager, Standby Letter of Credit Dept.
Re: Letter of Credit No. __________
Ladies and Gentlemen:
1. The undersigned Beneficiary, [insert Beneficiary Name], is Landlord
under that certain Office Lease dated August __, 1999 ("Lease") with Chemdex
Corporation, a Delaware corporation, as Tenant.
2. The undersigned Beneficiary is entitled to payment under the Lease in
the amount of U.S.$[insert amount of draft which accompanies this statement]
(the "Draw Amount") in accordance with the applicable provisions of the Lease
(as the same may have been amended to date), which is the same amount as the
Draft accompanying this Certificate and is less than or equal to the amount
currently available under the Letter of Credit.
3. The individual executing this Certificate on behalf of Beneficiary is a
duly authorized officer of Beneficiary.
Date: [insert date] [insert Beneficiary Name]
By: [insert signature]
Its: [insert title]
-4-
<PAGE>
Exhibit 3
Wells Fargo Bank, N.A
Letter of Credit No. __________
Date: [insert date]
Wells Fargo Bank, N.A.
Trade Services Division, Northern California
525 Market Street, 25th Floor
San Francisco, California 94105
Attention: Manager, Standby Letter of Credit Department
Subject: Your Letter of Credit No. __________
Ladies and Gentlemen:
For value received, we hereby irrevocably assign and transfer all our
rights under the above-captioned Letter of Credit, as heretofore and hereafter
amended, extended or increased, to:
______________________________
[ insert Name of Transferee]
______________________________
______________________________
[ insert Address of Transferee]
By this transfer, all of our rights in the Letter of Credit are transferred
to the transferee, and the transferee shall have sole rights as beneficiary
under the Letter of Credit, including sole rights relating to any amendments,
whether increases or extensions or other amendments, and whether now existing or
hereafter made. You are hereby irrevocably instructed to advise furore
amendment(s) of the Letter of Credit to the transferee without our consent or
notice to us.
You are hereby advised that [ insert Name of Transferee] succeeded to all
of beneficiary's right, title and interest under that certain Office Lease dated
August __, 1999 (as the same may have been amended to date), with Chemdex
Corporation, a Delaware corporation, as Tenant.
Enclosed are the original Letter of Credit and the original of all
amendments to this date. Please notify the transferee of this Transfer and of
the terms and conditions of the Letter of
-5-
<PAGE>
Credit as transferred. All fees and charges in connection with this Transfer are
for the account of Chemdex Corporation.
Very truly yours,
[Insert Name of Beneficiary]
By: [insert signature]
Its:[insert title]
Signature of Transferor Guaranteed
[Insert Name of Bank]
By: [insert signature]
Name: [insert typed or printed name]
Title: [insert title]
-6-
<PAGE>
EXHIBIT D
---------
WORK LETTER FOR TENANT IMPROVEMENTS
1. Delivery of Possession. Landlord shall deliver possession of the
----------------------
Premises to Tenant in "AS-IS" and "WITH ALL FAULTS" condition on the
Commencement Date (as defined in Section 2.1 of the Lease) to permit Tenant and
the Contractor Group (defined below) to commence and diligently pursue to
completion the Tenant Improvements (defined below) within the Premises. Tenant
acknowledges that Landlord has no obligation whatsoever to alter, repair,
restore, upgrade or improve the Premises under this Work Letter for Tenant
Improvements ("Work Letter"). As used herein, "Contractor Group" shall mean the
General Contractor (defined below) and each of its subcontractors, sub-
subcontractors, laborers, materialmen and suppliers providing labor or materials
to the Tenant Improvements. Capitalized terms used in this Work Letter and not
defined herein shall have the meanings given them in the Lease.
2. Tenant Improvements. Tenant, at its sole cost and expense, shall
-------------------
construct and install within the Premises its desired tenant improvements and
other improvements in accordance with the Approved Working Drawings (defined
below), which tenant improvements may include, without limitation, (i)
demolition of certain limited existing interior walls and other improvements
within the Premises, (ii) construction, installation and/or reconfiguration of
certain ceilings, interior walls and partitions, interior finishing of exterior
walls (including, without limitation, the plastering, furring, drywalling,
taping and/or other finishing of such walls), interior doors, floor coverings
and the preparation of all floors for same, cabinetry and millwork, restrooms,
light fixtures, wall coverings and other improvements, finishings and painting
within the Premises, (iii) modifications to floors for above-normal floor
loading requirements of Tenant, (iv) modifications reasonably required by Tenant
to the heating, ventilating and air conditioning ("HVAC") systems, ducts and
means of distribution for the same within the Premises, (v) improvements,
additions, alterations and fixtures within the buildings on the Premises
necessary for all Tenant Improvements and all portions of all buildings affected
by the Tenant Improvements to comply with all applicable codes, statutes, rules,
regulations, ordinances and orders of any federal, state, county or municipal
agency having jurisdiction over the Premises including all local, state and
federal requirements for disability access including, without limitation, the
Americans With Disabilities Act, 42 U.S.C. Section 1201 et seq. and California
Government Code Section 4450 et seq. (collectively, "ADA"), (vi) all telephone,
telecommunication, computer and data systems, switch room, cabling, lines,
conduit, receptacles, switches and related equipment and improvements running
from point of entry in the Premises, and (vii) all other necessary, desirable or
required improvements, alterations, fixtures and finishes which are to be
installed within or incorporated into the Premises by Tenant (collectively, the
"Tenant Improvements"). Tenant shall commence to construct and install the
Tenant Improvements at Tenant's sole cost and expense promptly from and after
Commencement Date and diligently pursue to completion, subject to Force Majeure
delays, the construction of all Tenant Improvements.
-1-
<PAGE>
3. Working Drawings.
----------------
3.1 Selection of Architect and Engineer; Working Drawings. Tenant
-----------------------------------------------------
shall retain a reputable architect (the "Architect") to the extent required by
Landlord and as approved by Landlord, which approval shall not be unreasonably
withheld or delayed, to prepare the "Working Drawings", as that term is defined
in this Section 3.1. No Working Drawings shall be required for carpeting,
painting and other di minimus improvements within the Premises. If necessary to
construct or install the Tenant Improvements, Tenant shall also retain an
engineering design build contractor (the "Engineer") approved by Landlord, which
approval shall not be unreasonably withheld or delayed, to prepare all plans and
engineering working drawings relating to any HVAC work or reconfiguration to be
performed by or for Tenant in the Premises. If Landlord fails to disapprove
Tenant's proposed Architect or Engineer in writing to Tenant, as the case may
be, within five (5) business days after receipt of written notice from Tenant
identifying the same, then Landlord shall be deemed to have approved Tenant's
proposed Architect or Engineer, as the case may be. The plans and drawings to be
prepared by Architect and the Engineer (if any) hereunder are collectively
referred to herein as the "Working Drawings." All Working Drawings shall be
subject to Landlord's approval, which approval shall not be unreasonably
withheld or delayed. Landlord shall advise Tenant within ten (10) business days
after Landlord's receipt of the proposed Working Drawings if the Working
Drawings are unsatisfactory, with a reasonable description of any matters found
to be not acceptable to Landlord. If Landlord fails to return Tenant's proposed
Working Drawings to Tenant marked "Approved", "Approved as Noted" or
"Disapproved" within said ten (10) business-day period, then Landlord shall be
deemed to have approved Tenant's proposed Working Drawings. Tenant's Working
Drawings, as finally revised and marked or deemed approved by Landlord, shall be
initialed by Landlord and Tenant and shall be referred to as the "Approved
Working Drawings". If Approved Working Drawings are not agreed upon within five
(5) business days after delivery to Tenant of "Disapproved" Working Drawings or
"Approved as Noted" Working Drawings, then Landlord or Tenant may submit the
disputed items to an arbitration panel consisting of Landlord's architect, an
architect appointed by Tenant (who may be the Architect who prepared Tenant's
Working Drawings), and a third architect appointed by said architects. Tenant
shall appoint its architect within five (5) business days after written notice
from Landlord. The majority decision of such panel shall be made within five (5)
business days after appointment of said third architect and such decision shall
be binding upon Landlord and Tenant and judgment upon the decision of the
arbitrators may be entered in any court having jurisdiction. Landlord and Tenant
shall each pay the fees of their own architect and one-half (1/2) of the fees of
the third architect.
3.2 Space Plan. Tenant shall cause a space plan ("Space Plan") for
----------
the Tenant Improvements to be prepared (including a layout and designation of
all offices, stairways, stairwells, elevators, utility rooms, storage areas,
conference and meeting rooms and other partitioning within the Premises). The
Space Plan shall be subject to Landlord's approval, which approval shall not be
unreasonably withheld or delayed. Landlord shall advise Tenant within ten (10)
business days after Landlord's receipt of the proposed Space Plan if the Space
Plan is unsatisfactory, with a reasonable description of any matters found to be
not acceptable to Landlord. If Landlord fails to return Tenant's proposed Space
Plan to Tenant marked "Approved", "Approved as Noted" or "Disapproved" within
said ten (10) business-day period,
-2-
<PAGE>
then Landlord shall be deemed to have approved Tenant's proposed Space Plan.
Tenant's Space Plan, as finally revised and marked or deemed approved by
Landlord, shall be initialed by Landlord and Tenant and shall be referred to as
the "Approved Space Plan". If the Approved Space Plan is not agreed upon within
five (5) business days after delivery to Tenant of a "Disapproved" Space Plan or
an "Approved as Noted" Space Plan, then Landlord or Tenant may submit the
disputed items to an arbitration panel as provided in Section 3.1 above. Any
material revisions or amendments to the Approved Space Plan shall require
Landlord's prior written approval not to be unreasonably withheld or delayed.
3.3 INTENTIONALLY DELETED
3.4 Approved Working Drawings. Tenant shall, at Tenant's sole cost
-------------------------
and expense, submit the Approved Working Drawings to the City of Mountain View
to the extent necessary to obtain any and all demolition, building and other
governmental permits as may be required by law to commence construction of the
Tenant Improvements. Tenant hereby agrees that neither Landlord nor Landlord's
consultants shall be responsible for obtaining any permits or certificates of
occupancy or other occupancy permits or approvals for the Premises and that the
obtaining of the same if required by law shall be Tenant's sole responsibility
at Tenant's sole cost. No material modifications to the Approved Working
Drawings may be made without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. If Landlord fails to
disapprove any proposed, modifications to the Approved Working Drawings within
five (5) business days after receipt of written notice from Tenant or its
Architect identifying the same, then Landlord shall be deemed to have approved
such proposed modifications. Construction of the Tenant Improvements by Tenant
and the Contractor Group shall not commence unless and until Tenant has obtained
all legally required demolition, building and other governmental permits
necessary for commencing construction of the Tenant Improvements and delivered
copies of all such permits to Landlord.
3.5 Approvals Not Binding on Landlord. Landlord's and Landlord's
---------------------------------
consultants' review of the Working Drawings and Space Plan as set forth in this
Section 3 shall be for Landlord's sole purpose and shall not imply any
representation or warranty as to the adequacy or sufficiency of the same by
Landlord or Landlord's construction manager, space planners, architects,
engineers and consultants, or obligate Landlord to review the same for quality,
design, code compliance or other like matters. Accordingly, notwithstanding that
any Working Drawings or Space Plan are reviewed by Landlord or its consultants,
and notwithstanding any advice or assistance which may be rendered to Tenant by
Landlord or Landlord's consultants, Landlord and Landlord's construction
manager, space planner, architect, engineers and consultants shall have no
liability whatsoever for such review or advice and shall not be responsible for
any omissions or errors contained in the Working Drawings, Space Plan, Approved
Working Drawings, or Approved Space Plans of any nature whatsoever.
4. Construction of Tenant Improvements. Tenant, at Tenant's sole cost and
-----------------------------------
expense, shall perform or cause to be constructed within the Premises all of the
Tenant Improvements in accordance with the Approved Working Drawings and only
after receipt of all demolition, building and other governmental permits as may
be required by law to commence construction of the Tenant Improvements. No
materials used in the Tenant Improvements shall be subject to any
-3-
<PAGE>
security interest or lien. All materials (as well as methods and processes) used
in the performance of the Tenant Improvements shall be of new and first-class
quality. Tenant shall ensure that its General Contractor and members of the
Contractor Group are familiar with all those portions of the Premises upon or
within which the Tenant Improvement Work will be performed. The Tenant
Improvements as constructed shall not materially alter or affect the exterior
appearance or the structure of the Premises or any of the mechanical,
electrical, plumbing, HVAC or other building systems serving the Premises,
unless such alterations or modifications are provided for in the Approved
Working Drawings or otherwise expressly agreed to in writing by Landlord. All
Tenant Improvements shall be performed diligently (subject to Force Majeure
delays), in a good and workmanlike manner and in accordance with any and all
applicable codes, statutes, rules, regulations, ordinances and orders of any
federal, state, county or municipal agency or other governmental body having
jurisdiction over the Premises, including, without limitation, the ADA, the
Uniform Building Code, California Health and Safety Code (S)(S) 19955 et seq.,
OSHA, 29 U.S.C. (S)(S) 651 et seq. and CAL-OSHA. During the Term or any Extended
Term, Landlord shall not be responsible for repairing or otherwise correcting
any defects in the Tenant Improvements (including any failure of the Tenant
Improvements to comply with applicable laws) that may occur during or after
completion of construction whether such defects affect the Premises or any part
thereof. Except as may be permitted under the Approved Working Drawings, Tenant
shall not demolish, remove or alter any structural portion of the Premises
without Landlord's prior written consent, which Landlord agrees not unreasonably
withhold or delay.
5. Tenant's General Contractor and Construction Contract. Tenant shall
-----------------------------------------------------
have the right to solicit bids from duly licensed reputable contractors for
construction and installation of the Tenant Improvements. Landlord shall have
the right to approve, within five (5) business days of full and complete
submittal to Landlord, each of Tenant's general contractors for the Tenant
Improvements and the form of construction contract to be entered into between
Tenant and such general contractor with respect to the construction and
installation of the Tenant Improvements, and those subcontractors and forms of
subcontracts for subcontracts where the subcontractor is providing work,
materials and/or supplies in excess of $100,000 (collectively, $100,000
Subcontractors" and "$100,000 Subcontracts", as applicable), which approvals
shall not be unreasonably withheld or delayed. Any disapproval of any of the
foregoing by Landlord shall contain a reasonable description of any matters
found to be not acceptable to Landlord. If Landlord fails to approve or
disapprove Tenant's proposed general contractor within said five (5)-business-
day period (and Landlord hereby preapproves Vance Brown Contractors) or to
return Tenant's proposed construction contract to Tenant marked "Approved,"
"Approved as Noted," or "Disapproved" within said five (5)-business-day period,
then Landlord shall be deemed to have approved the same. The construction
contract for the Tenant Improvements (the "Construction Contract") between
Tenant and the general contractor approved (or deemed approved) by Landlord (the
"General Contractor") shall provide, and Tenant shall exercise commercially
reasonable efforts to cause each of the $100,000 Subcontracts with the $100,000
Subcontractors to provide, that: (i) the General Contractor and each $100,000
Subcontractor shall leave all common areas (if any) at the Premises affected by
their work in a neat, orderly and safe condition at the end of each day during
construction of the Tenant Improvements; (ii) the General Contractor and each
$100,000 Subcontractor shall procure and maintain the insurance described in
Section 7 below; (iii) to the fullest extent permitted by law, the General
Contractor
-4-
<PAGE>
and each $100,000 Subcontractor shall indemnify, defend (with counsel reasonably
acceptable to Landlord) and hold Landlord and its officers, directors, employees
and contractors harmless from and against any injury or death to any person or
damage to any property in or about the Premises resulting from the activities of
the indemnifying party, except to the extent that such injury, death or damage
results directly from negligence or willful misconduct of Landlord or its
contractors, employees or agents; (iv) the General Contractor and each $100,000
Subcontractor shall guarantee to Tenant for the benefit of Tenant and Landlord
that the portion of the Tenant Improvements for which it is responsible has been
completed in accordance with the Approved Working Drawings and shall be free
from any defects in workmanship and materials for a period of not less than one
(1) year from the date of completion thereof and that the General Contractor and
applicable $100,000 Subcontractor shall be responsible for the replacement or
repair, without additional charge, of all workmanship or materials provided by
the General Contractor pursuant to the Construction Contract or $100,000
Subcontract that may become defective within said one (1)-year period.
6. Indemnification. Tenant hereby confirms and agrees that Tenant's
---------------
indemnification and defense obligations set forth in Articles 9 and 19 of the
Lease are incorporated in full into this Work Letter as though fully set forth
herein and shall apply to all of Tenant's and the Contractor Group's
construction activities at the Premises and all work related activities
performed at the Premises by or through Tenant and the Contractor Group
hereunder during the Term. Without diminishing Tenant's rights against the
General Contractor or any other member of the Contractor Group, Tenant hereby
assumes all risk of injury or death to persons or damage to property at the
Premises and all costs relating to non-compliance with applicable laws at the
Premises caused by Tenant's construction activities at the Premises, except to
the extent such injury, death or damage is caused by Landlord's or any Landlord
Party's negligence or willful misconduct. The indemnification obligations set
forth in this Section 6 shall not be limited by available insurance proceeds and
shall survive the termination or expiration of the Lease and this Work Letter.
7. Insurance. Tenant shall cause Tenant's General Contractor and each
---------
member of the Contractor Group to maintain worker's compensation insurance with
statutory benefits and limits. Tenant shall cause Tenant's General Contractor,
and shall exercise commercially reasonable efforts to cause each $100,000
Subcontractor, to maintain comprehensive liability and property damage insurance
in an amount of not less than Two Million Dollars ($2,000,000) per occurrence
($1,000,000 for $100,000 Subcontractors) with companies and on forms reasonably
satisfactory to Landlord in its reasonable discretion. Tenant, the General
Contractor and each $100,000 Subcontractor shall, prior to commencing any work
hereunder and at all times during the entire period of construction of the
Tenant Improvements, keep current and valid certificates of the insurance
required of it hereunder on file with Landlord. Except for worker's compensation
insurance, all policies of insurance shall name Landlord and its respective
directors, officers, employees and agents as additional insureds, provide that
the insurance coverage is primary and noncontributing with any insurance carried
by Landlord, waive subrogation against Landlord with respect to property damage,
cover Tenant's indemnification obligations set forth in Section 6 above and
contain a provision giving Landlord at least thirty (30) days prior written
notice of any cancellation or material change in any insurance coverage.
-5-
<PAGE>
8. Builder's Risk Insurance. Tenant, at Tenant's sole cost and expense,
------------------------
shall procure and maintain (or cause Tenant's contractor to procure and
maintain) during the construction of the Tenant Improvements Builder's Risk
Insurance covering One Hundred Percent (100%) of the replacement cost of all of
the Tenant Improvements, including all materials and equipment destined to
become part of the Tenant Improvements. Such insurance shall include the perils
of fire, extended coverage, vandalism and malicious mischief, and so-called "All
Risk" perils as defined and limited in the policies, but may, at Tenant's
option, exclude the perils of earthquake and flood. If during the course of
their construction any of the Tenant Improvements are damaged by a casualty
event required to be insured against by Tenant under this Section, Tenant shall
promptly repair such casualty damage (or cause the same to be repaired).
9. Landlord's Inspection Rights. During the course of construction of the
----------------------------
Tenant Improvements Landlord reserves the right to inspect the progress of the
Tenant Improvements on the terms set forth in Section 16.1 of the Lease;
provided, however, that such inspection(s) shall in no way make Landlord
responsible for any of the work of construction of the Tenant Improvements and,
as more particularly set forth in Section 3.5 above, shall not constitute a
representation or warranty by Landlord as to the design, adequacy or sufficiency
of the Tenant Improvements.
10. Notice of Nonresponsibility. Tenant shall give Landlord not more than
---------------------------
twenty (20) and not less than ten (10) business days prior written notice of the
date on which the first construction of the Tenant Improvements is scheduled to
commence to permit Landlord to post on the Premises and record with the Santa
Clara County Recorder appropriate notices of nonresponsibility.
11. Payments by Tenant; Liens. All costs and expenses relating to the
-------------------------
Tenant Improvements shall be paid promptly by Tenant as they come due and
evidence of such payment shall be furnished to Landlord upon request. Tenant
shall cause any mechanic's or materialman's lien or other claim filed against
the Premises and relating to the Tenant Improvements to be released and removed
in accordance with the applicable provisions of the Lease notwithstanding any
other dispute Tenant may then have with Landlord. Should Tenant fail to remove
any such lien within the required period of time, Landlord may (at its sole
election) pay or bond over such claim and the amount paid or premium for the
bond, together with any attorneys' fees and costs incurred by Landlord in
connection therewith, shall be immediately due from Tenant to Landlord. Promptly
following completion of any portion of the Tenant Improvements by the General
Contractor and each $100,000 Subcontractor, Tenant shall deliver to Landlord
waivers of mechanic's liens executed by each such person with respect to the
completed portion of such Tenant Improvements. Promptly following completion of
the entire Tenant Improvements, Tenant shall obtain and deliver to Landlord an
unconditional waiver and release upon payment (in the form prescribed by
California Civil Code Section 3262) from the General Contractor and each
$100,000 Subcontractor.
12. Notice of Completion; Copy of "As Built" Plans. Within ten (10) days
----------------------------------------------
after final completion of construction of the Tenant Improvements, Tenant shall
cause a Notice of Completion to be recorded in the office of the Recorder of the
County of Santa Clara in
-6-
<PAGE>
accordance with Section 3093 of the California Civil Code or any successor
statute, and shall furnish a copy thereof to Landlord upon such recordation. At
the conclusion of construction, (i) Tenant shall cause the Architect and
Contractor (A) to update the Approved Working Drawings as necessary to reflect
all changes made to the Approved Working Drawings during the course of
construction, and (B) to deliver to Landlord two (2) sets of sepias of "record-
set" drawings within ninety (90) days following issuance of a certificate of
occupancy for the Premises, and (ii) Tenant shall deliver to Landlord a copy of
all warranties, guaranties, and operating manuals in Tenant's possession
relating to the Tenant Improvements.
13. Compliance with Rules and Regulations. All of Tenant's and the
-------------------------------------
Contractor Group's activities at the Premises shall comply with any and all
easements, covenants, conditions and restrictions affecting the Premises and any
rules and regulations attached to the Lease.
14. Lease Provisions Apply. Nothing in this Work Letter, including
----------------------
Tenant's entry into the Premises for construction of the Tenant Improvements
under this Work Letter, shall relieve either Landlord or Tenant from observing
all of the terms, covenants and conditions of the Lease required to be performed
by such party including, without limitation, all indemnification and insurance
provisions of the Lease which shall apply in full to Tenant's construction of
its Tenant Improvements, and all of the provisions of the Lease are hereby
incorporated into and made a part of this Work Letter.
15. Landlord's Cooperation. Upon Tenant's request, Landlord shall
----------------------
reasonably cooperate with Tenant, at Tenant's sole cost and expense and at no
cost to Landlord, without any liability whatsoever on Landlord's part and
without Landlord having to commit any of its staff or resources, in connection
with Tenant's construction and installation of its Tenant Improvements within
the Premises and Tenant's applications for permits, certificates and approvals
associated therewith.
16. No Third Party Beneficiaries. This Work Letter is made and entered
----------------------------
into for the sole benefit of Landlord, Tenant, any other party that may be
expressly stated in this Work Letter to benefit for this Work Letter or any
provision hereof, and their respective successors and assigns. No other persons
or entities shall have any rights or benefits under or arising out of this Work
Letter.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter as
of the date and year first above written.
LANDLORD: TENANT:
ALZA CORPORATION, a Delaware CHEMDEX corporation, a Delaware
corporation corporation
By: Harold Fethe By: JAMES G. STEWART
------------------------------------ -----------------------------
Its: Sr. Vice Pres., Human Resources Its: CHIEF FINANCIAL OFFICER
------------------------------------ -----------------------------
By: Peter Staple By: DAVID P. PERRY
------------------------------------ -----------------------------
Its: Sr. Vice President & General Counsel Its: President & CEO
------------------------------------ -----------------------------
-7-
<PAGE>
[LETTERHEAD OF WELLS FARGO APPEARS HERE]
IRREVOCABLE LETTER OF CREDIT
ALZA Corporation Letter of Credit No. NZS330633
950 Page Mill Road Date: August 13, 1999
Palo Alto, CA 94304
Attention: Senior Vice President & General Counsel
Ladies and Gentlemen:
At the request and for the account of Chemdex Corporation, 3950 Fabian Way,
Palo Alto, CA 94303, we hereby establish our Irrevocable Letter of Credit in
your favor in the amount of One Million Eight Hundred Seventy Five Thousand
United States Dollars (US$1,875,000.00) available with us at our above office by
payment of your draft(s) drawn on us at sight in the form of Exhibit 1 hereto
with the instructions in brackets therein complied with accompanied by your
signed and dated statement in the form of Exhibit 2 hereto with the instructions
in brackets therein complied with.
Each drawing must also be accompanied by the original of this Letter of
Credit for our endorsement on this Letter of Credit of our payment of such
drawing.
Partial and multiple drawings are permitted under this Letter of Credit,
however each drawing must be in an amount of not less than US$20,000.00.
If any instructions accompanying a drawing under this Letter of Credit
request the payment is to be made by transfer to an account with us or at
another bank, we and/or such other bank may rely on an account number specified
in such instructions even if the number identifies a person or entity different
from the intended payee.
This Letter of Credit expires at our above office on July 31, 2000, but
shall be automatically extended, without written amendment, to July 31 in each
succeeding calendar year up to, but not beyond, April 30, 2005 unless we have
sent written notice to you at your address above by registered mail or express
courier that we elect not to renew this Letter of Credit beyond the date
specified in such notice (the "Non-Renewal Expiration Date"), which Non-Renewal
Expiration Date will be July 31, 2000 or any subsequent July 31 occurring before
April 30, 2005 and be at least 60 calendar days after the date we send you such
notice.
This Letter of Credit is transferable one or more times, but in each
instance to a single transferee and only in the full amount available to be
drawn under this Letter of Credit at the time of such transfer. Any such
transfer may be effected only through ourselves and only upon presentation to us
at our above-specified office of a duly executed instrument of transfer in the
form attached hereto as Exhibit 3 with the instructions in brackets therein
complied with together with the original of this Letter of Credit. Any transfer
of this Letter of Credit may not change the place of expiration of this Letter
of Credit from our above-specified office. Each transfer shall be evidenced by
our endorsement on the reverse of the original of this Letter of Credit, and we
shall deliver the original of this Letter of Credit so endorsed to the
transferee. All commissions and charges in connection with this transfer are for
the account of Chemdex Corporation.
<PAGE>
This is an integral part of Wells Fargo Bank, N.A. Letter of Credit No.
NZS330633
Page Two
This Letter of Credit is subject to the Uniform Customs and Practice for
Documentary Credits (1993 revision), International Chamber of Commerce
Publication No. 500, and engages us in accordance therewith.
Very truly yours,
WELLS FARGO BANK N.A.
BY: /s/ [ILLEGIBLE]^^
-----------------------------
(AUTHORIZED SIGNATURE)
<PAGE>
Exhibit 1
Wells Fargo Bank, N.A
Letter of Credit No. NZS330633
================================================================================
Wells Fargo Bank, N.A.
Trade Services Division, Northern California
525 Market Street
San Francisco, CA 94105
Attention: Manager, Standby Letter of Credit Dept.
DRAFT
Date of Draft: [insert date]
To the order of [insert Beneficiary Name], pay [insert amount of
drawing in words] UNITED STATES DOLLARS (U.S. $ [insert amount of drawing in
numbers]) at sight
For value received under Letter of Credit No. NZS330633
"Drawn under Wells Fargo Bank, N.A. Letter of Credit No. NZS330633
dated August 13, 1999."
[insert Beneficiary Name]
By: [insert signature]
Its: [insert title]
================================================================================
<PAGE>
Exhibit 2
Wells Fargo Bank, N.A
Letter of Credit No. NZS330633
================================================================================
Wells Fargo Bank, N.A.
Trade Services Division, Northern California
525 Market Street
San Francisco, CA 94105
Attention: Manager, Standby Letter of Credit Dept.
Re: Letter of Credit No. NZS330633
Ladies and Gentlemen:
1. The undersigned Beneficiary, [insert Beneficiary Name], is Landlord
under that certain Office Lease dated August 13, 1999 ("Lease") with Chemdex
Corporation, a Delaware corporation, as Tenant.
2. The undersigned Beneficiary is entitled to payment under the Lease in
the amount of U.S.$[insert amount of draft which accompanies this statement]
(the "Draw Amount") in accordance with the applicable provisions of the Lease
(as the same may have been amended to date), which is the same amount as the
Draft accompanying this Certificate and is less than or equal to the amount
currently available under the Letter of Credit.
3. The individual executing this Certificate on behalf of Beneficiary is
a duly authorized officer of Beneficiary.
Date: [insert date] [insert Beneficiary Name]
By: [insert signature]
Its: [insert title]
================================================================================
<PAGE>
Exhibit 3
Wells Fargo Bank, N.A
Letter of Credit No. NZS330633
================================================================================
Date: [insert date]
Wells Fargo Bank, N.A.
Trade Services Division, Northern California
525 Market Street, 25th Floor
San Francisco, California 94105
Attention: Manager, Standby Letter of Credit Department
Subject: Your Letter of Credit No. NZS330633
Ladies and Gentlemen:
For value received, we hereby irrevocably assign and transfer all our
rights under the above-captioned Letter of Credit, as heretofore and hereafter
amended, extended or increased, to:
____________________________
[ insert Name of Transferee]
____________________________
____________________________
[ insert Address of Transferee]
By this transfer, all of our rights in the Letter of Credit are transferred
to the transferee, and the transferee shall have sole rights as beneficiary
under the Letter of Credit, including sole rights relating to any amendments,
whether increases or extensions or other amendments, and whether now existing or
hereafter made. You are hereby irrevocably instructed to advise future
amendment(s) of the Letter of Credit to the transferee without our consent or
notice to us.
You are hereby advised that [ insert Name of Transferee] succeeded to all
of beneficiary's right, title and interest under that certain Office Lease dated
August 13, 1999 (as the same may have been amended to date), with Chemdex
Corporation, a Delaware corporation, as Tenant.
Enclosed are the original Letter of Credit and the original of all
amendments to this date. Please notify the transferee of this Transfer and of
the terms and conditions of the Letter of Credit as transferred. All fees and
charges in connection with this Transfer are for the account of Chemdex
Corporation.
Very truly yours,
[Insert Name of Beneficiary]
By: [insert signature]
Its: [insert title]
Signature of Transferor Guaranteed
[Insert Name of Bank]
By: [insert signature]
Name: [insert typed or printed name]
Title: [insert title]
================================================================================
<PAGE>
to benefit for this Work Letter or any provision hereof, and their respective
successors and assigns. No other persons or entities shall have any rights or
benefits under or arising out of this Work Letter.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter
as of the date and year first above written.
LANDLORD: TENANT:
ALZA CORPORATION, a Delaware CHEMDEX corporation, a Delaware
corporation corporation
By: /s/ Harold Fethe By: /s/ James G. Stewart
------------------------------------ --------------------------------
Harold Fethe JAMES G. STEWART
Its: Sr. Vice Pres., Human Resources Its: CHIEF FINANCIAL OFFICER
------------------------------------ --------------------------------
By: /s/ Peter Staple By: /s/ David P. Perry
------------------------------------ --------------------------------
Peter Staple DAVID P. PERRY
Its: Sr. Vice President & Gen. Counsel Its: President & CEO
------------------------------------ --------------------------------
-8-
<PAGE>
EXHIBIT E
---------
TERMS TO BE INCORPORATED IN LEASE SUBORDINATION,
ATTORNMENT AND NONDISTURBANCE AGREEMENT
THIS AGREEMENT is made this _______ day of ____________________, by and
between CHEMDEX CORPORATION, a Delaware Corporation ("Tenant") and ____________
_________________________ ("Lender"):
RECITALS
A. Lender is the holder of that certain promissory note ("Note") issued by
ALZA CORPORATION ("Landlord") dated ____________________ in the principal sum of
_______________________ DOLLARS ($_____________)and of the deed of trust
recorded on ________________ ("Mortgage"), which Mortgage encumbers the real
property (the "Mortgaged Property") commonly known as 1500 Plymouth Street and
1550 Plymouth Street, Mountain View, California, which Mortgaged Property is
more particularly described in the Mortgage.
B. Landlord and Tenant entered into that certain Office Lease ("Lease")
dated August 13, 1999, by which Tenant leased from Landlord the Mortgaged
Property, all as more fully described in the Lease.
C. Tenant desires to be able to obtain the advantages of the Lease and
occupancy thereunder in the event of foreclosure of the Mortgage and Lender
wishes to have Tenant confirm the priority of the Mortgage over the Lease as the
Lease relates to the Mortgaged Property.
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth hereinbelow, the parties hereto agree as follows:
1. Tenant hereby covenants and agrees that all its rights, title and
interest whatsoever under the Lease as the Lease relates to the Mortgaged
Property is and shall at all times be and remain unconditionally subject and
subordinate to lien and charge of the Mortgage and to all the terms, conditions
and provisions thereof, to all advances made or to be made thereunder or under
the Note, and to any increases, renewals, extensions, modifications,
substitutions, consolidations or replacements thereof or of the Note and the
Mortgage.
2. So long as Tenant is not in default (beyond any period given Tenant in
the Lease to cure such defaults) in the payment of rent or additional charges or
in the performance of any of the other terms, covenants or conditions of the
Lease on Tenant's part to be performed, Tenant shall not be disturbed by Lender
in its possession of the Mortgaged Property during the term of the Lease, or any
extension or renewal thereof, or in the enjoyment of its rights under the Lease.
3. If the interest of the Landlord under the Lease as the Lease relates to
the Mortgaged Property shall be acquired by Lender or any purchaser
("Purchaser") by reason of exercise of the power of sale or the foreclosure of
the Mortgage or other proceedings brought to enforce the rights of the holder
thereof, by deed in lieu of foreclosure or by any other method, and Lender or
-1-
<PAGE>
Purchaser succeeds to the interest of Landlord under the Lease, Tenant shall
attorn to Lender or Purchaser as its landlord, said attornment to be effective
and self-operative without the execution of any other instruments on the part of
either party hereto immediately upon Lender's or Purchaser's succeeding to the
interest of the Landlord under the Lease, and the Lease shall continue in
accordance with its terms between Tenant as tenant and Lender or Purchaser as
landlord, provided however that:
(a) Lender shall not be personally liable under the Lease and Lender's
liability under the Lease shall be limited to the equity interest of Lender in
the Mortgaged Property as provided in Section 25.3 of the Lease;
(b) Lender shall not be liable for any act or omission of any prior
landlord (including Landlord);
(c) Lender shall not be subject to any offsets or defenses which
Tenant might have against any prior landlord (including Landlord);
(d) Lender shall not be liable for any damages or other relief
attributable to any prior latent defects in the Mortgaged Property; and
(e) Lender shall not be bound by any prepayment of rent, additional
rent or deposit, rental security, letter of credit or any other sums deposited
with any prior landlord (including Landlord) under the Lease unless actually
received by Lender.
4. Tenant certifies to Lender that except as provided below, (i) the Lease
is presently in full force and effect with no defaults thereunder by Landlord or
by Tenant and unmodified; (ii) the term thereof has commenced and the full
rental is now accruing thereunder, (iii) Tenant has accepted possession of the
Premises and that any improvements required by the terms of the Lease to be made
by Landlord have been completed to the satisfaction of Tenant; (iv) no rent
under the Lease has been paid more than thirty (30) days in advance of its due
date; (v) the address for notices to be sent to Tenant is as set forth in the
Lease; and (vi) Tenant has no charge, lien, claim or offset under the Lease or
otherwise, against rents or other charges due or to become due thereunder.
5. Tenant agrees with Lender that from and after the date hereof, Tenant
will not terminate or seek to terminate the Lease by reason of my act or
omission of Landlord thereunder until Tenant shall have given written notice, by
registered or certified mail, return receipt requested, of said act or omission
to Lender, which notice shall be addressed to Lender and until the grace period
as set forth in the Lease shall have elapsed following the giving of such
notice, during which period Lender shall have the right, but shall not be
obligated, to remedy such act or omission.
6. Nothing in this Agreement shall be deemed to be or construed to be an
agreement by Lender to perform any covenant of Landlord under the Lease unless
and until it obtains title to the Mortgaged Property by power of sale or
judicial foreclosure or deed in lieu thereof or obtains possession of the
Property pursuant to the terms of the Mortgage.
-2-
<PAGE>
7. This Agreement shall inure to the benefit of and shall be binding upon
Tenant and Lender, and their respective heirs, personal representatives,
successors and assigns. This Agreement may not be altered, modified or amended
except in writing signed by all of the parties hereto. In the event any one or
more of the provisions contained in this Agreement shall for any reason be held
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. This Agreement shall be
governed by and construed according to the laws of the State of California.
IN WITNESS WHEREOF, Lender and Tenant have executed this Agreement as of
the date and year first above written.
LENDER: TENANT:
CHEMDEX CORPORATION, a
Delaware Corporation
By:__________________________ By:______________________________
Its:_________________________ Its:_____________________________
-3-
<PAGE>
SCHEDULE 2
List of Groundwater Monitoring Reports
1. Letter dated May 15, 1998 from the San Francisco Bay Regional Water
Quality Control Board to ALZA Corporation concerning 1500/1550 Plymouth Street,
Mountain View.
2. Letter and Summary of Environmental Condition dated June 17, 1999 from
Aquifer Services, Inc. to ALZA Corporation concerning 1500/1550 Plymouth Street
and 1010 Joaquin Road, Mountain View.
3. Groundwater Monitoring Report for the Quarterly Reporting Period January
1 through March 31, 1999 prepared for Spectra-Phipers Lasers, Inc. and Teledyne
Semiconductor dated April 30, 1999.
-1-
<PAGE>
Building M6A - First Floor
[Floor Plan]
<PAGE>
Building M6A - Second Floor
[Floor Plan]
<PAGE>
Building M6B - First Floor
[Floor Plan]
<PAGE>
Building M6B - Second Floor
[Floor Plan]
<PAGE>
8PAGE>
Estimated Furniture Value
in Bldgs. M6A, M6B
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Description Brand Quantity New Cost Ea Cost Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Bookcase: Short 42" - 48" Various Laminate 21 $ 260.00 $ 5,460.00
- -----------------------------------------------------------------------------------------------------------
Bookcase: Short 42" - 48" Various Metal 18 $ 180.00 $ 3,240.00
- -----------------------------------------------------------------------------------------------------------
Bookcase: Short 42" - 48" Various Wood 31 $ 550.00 $ 17,050.00
- -----------------------------------------------------------------------------------------------------------
Bookcase: Tall 55" - 72" Various Laminate 11 $ 350.00 $ 3,850.00
- -----------------------------------------------------------------------------------------------------------
Bookcase: Tall 55" - 72" Various Metal 18 $ 225.00 $ 4,050.00
- -----------------------------------------------------------------------------------------------------------
Bookcase: Tall 55" - 72" Various Wood 17 $ 950.00 $ 16,150.00
- -----------------------------------------------------------------------------------------------------------
Cabinet, Metal Utility Various 10 $ 450.00 $ 4,500.00
- -----------------------------------------------------------------------------------------------------------
Cabinet, Wood Various 4 $ 1,200.00 $ 4,800.00
- -----------------------------------------------------------------------------------------------------------
Chair, Conf Room Various 66 $ 500.00 $ 33,000.00
- -----------------------------------------------------------------------------------------------------------
Chair, Exec Various 6 $ 800.00 $ 4,800.00
- -----------------------------------------------------------------------------------------------------------
Chair, Side Various 195 $ 300.00 $ 58,500.00
- -----------------------------------------------------------------------------------------------------------
Chair, Side: Wood Steelcase 24 $ 240.00 $ 5,760.00
- -----------------------------------------------------------------------------------------------------------
Chair, Lobby Various 4 $ 600.00 $ 2,400.00
- -----------------------------------------------------------------------------------------------------------
Chair, Lunch Room Various 35 $ 180.00 $ 6,300.00
- -----------------------------------------------------------------------------------------------------------
Chair, Task Steelcase Criterion 113 $ 500.00 $ 56,500.00
- -----------------------------------------------------------------------------------------------------------
Chair, Task H.Miller Aeron 9 $ 800.00 $ 7,200.00
- -----------------------------------------------------------------------------------------------------------
Chair, Task Various 420 $ 500.00 $ 10,000.00
- -----------------------------------------------------------------------------------------------------------
Credenza, Laminate Various 9 $ 550.00 $ 4,950.00
- -----------------------------------------------------------------------------------------------------------
Credenza, Wood Various 35 $ 850.00 $ 29,750.00
- -----------------------------------------------------------------------------------------------------------
Cubicle, approx 8'x10' Steelcase 9000 123 $ 6,000.00 $ 38,000.00
- -----------------------------------------------------------------------------------------------------------
Desk, 3-Part Laminate Sequus 46 $ 1,200.00 $ 55,200.00
- -----------------------------------------------------------------------------------------------------------
Desk, Laminate Various 31 $ 550.00 $ 17,050.00
- -----------------------------------------------------------------------------------------------------------
Desk, Large Wood Various 10 $ 650.00 $ 6,500.00
- -----------------------------------------------------------------------------------------------------------
Desk, Metal w/Wood Dbl Ped Various 52 $ 800.00 $ 41,600.00
- -----------------------------------------------------------------------------------------------------------
Desk, w/Return Steelcase 9000 60 $ 1,630.00 $ 97,800.00
- -----------------------------------------------------------------------------------------------------------
Desk, w/Return Various Wood/Metal 23 $ 500.00 $ 11,500.00
- -----------------------------------------------------------------------------------------------------------
Desk, Wood, Exec Steelcase 29 $ 2,500.00 $ 72,500.00
- -----------------------------------------------------------------------------------------------------------
Desk, Wood, Small Various 44 $ 700.00 $ 30,800.00
- -----------------------------------------------------------------------------------------------------------
File Cabinet, 2-Drawer Various 113 $ 365.00 $ 41,245.00
- -----------------------------------------------------------------------------------------------------------
File Cabinet, 3-Drawer Various 29 $ 500.00 $ 14,500.00
- -----------------------------------------------------------------------------------------------------------
File Cabinet, 4-Drawer Various 145 $ 800.00 $ 16,000.00
- -----------------------------------------------------------------------------------------------------------
File Cabinet, 5-Drawer Various 48 $ 2,500.00 $ 20,000.00
- -----------------------------------------------------------------------------------------------------------
File Cabinet, Vertical Various 5 $ 250.00 $ 1,250.00
- -----------------------------------------------------------------------------------------------------------
File Cabinet High Density Various Metal 17 $ 2,500.00 $ 42,500.00
- -----------------------------------------------------------------------------------------------------------
File Cabinet Misc Various 48 $ 300.00 $ 14,400.00
- -----------------------------------------------------------------------------------------------------------
File Cabinet 4-Dr Fire-Proof Fire-King 2 $ 4,000.00 $ 8,000.00
- -----------------------------------------------------------------------------------------------------------
File, Flat Wood 2 $ 2,500.00 $ 5,000.00
- -----------------------------------------------------------------------------------------------------------
Keyboard Trays WorkRite (85%) 367 $ 200.00 $ 73,400.00
- -----------------------------------------------------------------------------------------------------------
Safe, Small Various 2 $ 1,500.00 $ 3,000.00
- -----------------------------------------------------------------------------------------------------------
Server Room Racking Wrightline 2 $12,000.00 $ 24,000.00
- -----------------------------------------------------------------------------------------------------------
Sofa, Sectional Generic 1 $ 6,000.00 $ 25,000.00
- -----------------------------------------------------------------------------------------------------------
Table, Computer Human Factor 8 $ 850.00 $ 6,800.00
- -----------------------------------------------------------------------------------------------------------
Table, Computer Various 22 $ 350.00 $ 7,700.00
- -----------------------------------------------------------------------------------------------------------
Table, Conference Room Various 5 $ 5,000.00 $ 25,000.00
- -----------------------------------------------------------------------------------------------------------
Table, Large Round Various 29 $ 750.00 $ 21,750.00
- -----------------------------------------------------------------------------------------------------------
Table, Lunch Laminate/Metal 4 $ 450.00 $ 1,800.00
- -----------------------------------------------------------------------------------------------------------
Table, Misc Various 66 $ 300.00 $ 19,800.00
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Estimated Furniture Value
August 13, 1999 in Bldgs. M6A, MGB
<PAGE>
Estimated Furniture Value
in Bldgs. M6A, M6B
<TABLE>
<S> <C> <C> <C> <C>
Table, Printer/Computer Various 11 $250.00 $ 2,750.00
- ---------------------------------------------------------------------------------------------------------
Table, Small Round Various 50 $265.00 $ 13,250.00
- ---------------------------------------------------------------------------------------------------------
Table, Task 30x60 Various 16 $350.00 $ 5,600.00
- ---------------------------------------------------------------------------------------------------------
Table, Training Various 23 $650.00 $ 14,950.00
- ---------------------------------------------------------------------------------------------------------
$2,156,905.00
=============
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Estimated Furniture Value
August 13, 1999 in Bldgs. M6A, M6B 2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 125,562,779
<SECURITIES> 0
<RECEIVABLES> 4,293,144
<ALLOWANCES> 664,000
<INVENTORY> 0
<CURRENT-ASSETS> 132,905,435
<PP&E> 8,646,563
<DEPRECIATION> 1,434,373
<TOTAL-ASSETS> 154,795,301
<CURRENT-LIABILITIES> 14,992,540
<BONDS> 0
0
0
<COMMON> 6,565
<OTHER-SE> 139,205,962
<TOTAL-LIABILITY-AND-EQUITY> 154,795,301
<SALES> 11,561,238
<TOTAL-REVENUES> 11,561,238
<CGS> 10,994,266
<TOTAL-COSTS> 10,994,266
<OTHER-EXPENSES> 35,356,999
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,995
<INCOME-PRETAX> (33,313,271)
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,313,271)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,313,271)
<EPS-BASIC> (3.33)
<EPS-DILUTED> (3.33)
</TABLE>
