<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For the quarter ended DECEMBER 31, 1999 Commission file number 000-25709
</TABLE>
------------------------
ETOYS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-4633006
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
</TABLE>
3100 OCEAN PARK BLVD., SUITE 300
SANTA MONICA, CALIFORNIA 90405
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (310) 664-8100
------------------------
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 / /
120,577,912 shares of $0.0001 par value common stock outstanding as of January
31, 2000
Page 1 of 35
Exhibit Index on Page 35
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ETOYS INC.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements................. 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk......................................... 32
PART II--OTHER INFORMATION
Item 1. Legal Proceedings................................. 33
Item 2. Changes in Securities and Use of Proceeds......... 33
Item 3. Defaults upon Senior Securities................... 33
Item 4. Submission of Matters to a Vote of Security
Holders............................................. 33
Item 5. Other Information................................. 33
Item 6. Exhibits and Reports on Form 8-K.................. 33
Signatures.................................................. 34
Exhibit Index............................................... 35
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ETOYS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- ----------------------
1999 1998 1999 1998
----------- ----------- ----------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales........................................ $106,751 $22,910 $ 128,032 $ 23,900
Cost of sales.................................... 86,467 18,201 103,676 19,008
-------- ------- --------- --------
Gross profit..................................... 20,284 4,709 24,356 4,892
Operating expenses:
Marketing and sales............................ 66,017 10,611 97,602 14,354
Product development............................ 13,596 905 30,619 2,006
General and administrative..................... 4,002 1,590 11,256 2,483
Goodwill amortization.......................... 9,532 80 19,158 239
Deferred compensation amortization............. 3,495 1,510 10,591 1,623
-------- ------- --------- --------
Total operating expenses..................... 96,642 14,696 169,226 20,705
-------- ------- --------- --------
Operating loss................................... (76,358) (9,987) (144,870) (15,813)
Interest income, net............................. 871 166 3,657 439
Provision for taxes.............................. -- (1) (1) (1)
-------- ------- --------- --------
Net loss......................................... $(75,487) $(9,822) $(141,214) $(15,375)
======== ======= ========= ========
Basic net loss per equivalent share.............. $ (0.63) $ (0.29) $ (1.39) $ (0.46)
======== ======= ========= ========
Pro forma basic net loss per equivalent share.... $ (0.63) $ (0.11) $ (1.26) $ (0.19)
======== ======= ========= ========
Shares used in computation of basic net loss per
equivalent share (1)........................... 119,716 33,731 101,944 33,157
======== ======= ========= ========
Shares used to compute pro forma basic net loss
per equivalent share (2)....................... 119,716 88,469 112,455 79,287
======== ======= ========= ========
</TABLE>
- ------------------------
(1) Includes shares associated with the Redeemable Convertible Preferred Stock
effective as of the closing of the Company's initial public offering. See
Note 6 to the Consolidated Financial Statements.
(2) Includes shares associated with the Redeemable Convertible Preferred Stock
as if such conversion occurred on April 1, 1998, or at the date of original
issuance, if later. See Note 6 to the Consolidated Financial Statements.
See accompanying notes.
3
<PAGE>
ETOYS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
------------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 219,929 $ 20,173
Inventories............................................... 62,014 5,067
Prepaids and other current assets......................... 14,506 1,577
--------- --------
Total current assets........................................ 296,449 26,817
Property and equipment...................................... 42,399 2,505
Accumulated depreciation and amortization................. (3,882) (369)
--------- --------
38,517 2,136
Goodwill (net of accumulated amortization of $19,462 and
$319 at December 31, 1999 and March 31, 1999,
respectively)............................................. 170,534 637
Other assets................................................ 8,190 1,076
--------- --------
Total assets................................................ $ 513,690 $ 30,666
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 81,718 $ 4,236
Accrued expenses.......................................... 8,938 530
Current portion of long-term notes payable and capital
lease obligations....................................... 4,266 230
--------- --------
Total current liabilities................................... 94,922 4,996
Long-term notes payable and capital lease obligations....... 7,656 477
Long-term convertible subordinated notes.................... 150,000 --
Redeemable Convertible Preferred Stock, 19,593,089 shares
authorized:
Series A Preferred Stock; $.0001 par value; none and
7,023,645 shares issued and outstanding at December 31,
1999 and March 31, 1999, respectively................... -- 4,355
Series B Preferred Stock; $.0001 par value; none and
11,886,649 shares issued and outstanding at December 31,
1999 and March 31, 1999, respectively................... -- 24,952
Series C Preferred Stock; $.0001 par value; none and
666,666 shares issued and outstanding at December 31,
1999 and March 31, 1999, respectively................... -- 19,984
Commitments and contingencies
Stockholders' equity:
Common stock; $.0001 par value, 600,000,000 shares
authorized; 119,591,045 and 34,535,415 issued and
outstanding at December 31, 1999 and March 31, 1999,
respectively............................................ 12 3
Additional paid-in-capital................................ 476,659 45,837
Receivables from stockholders............................. (1,862) (138)
Deferred compensation..................................... (41,511) (38,974)
Accumulated other comprehensive loss...................... (146) --
Accumulated deficit....................................... (172,040) (30,826)
--------- --------
Total stockholders' equity (deficit)........................ 261,112 (24,098)
--------- --------
Total liabilities and stockholders' equity.................. $ 513,690 $ 30,666
========= ========
</TABLE>
See accompanying notes.
4
<PAGE>
ETOYS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
----------------------
1999 1998
----------- --------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(141,214) $(15,375)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash interest.......................................... -- 38
Depreciation.............................................. 3,305 246
Amortization of intangibles............................... 19,645 239
Deferred compensation amortization related to stock
options................................................. 10,591 1,621
Other, net................................................ 145 --
Changes in operating assets and liabilities:
Inventories............................................. (55,327) (4,747)
Prepaids and other current assets....................... (11,123) (359)
Accounts payable........................................ 74,907 11,968
Accrued expenses........................................ 4,119 1,446
--------- --------
Net cash used in operations................................. (94,952) (4,923)
INVESTING ACTIVITIES
Capital expenditures for property and equipment............. (28,274) (1,913)
Proceeds from the sale of property and equipment............ 2,564 --
Net cash received from acquisition of BabyCenter, net of
acquisition costs......................................... 2,571 --
Other, net.................................................. (2,738) (1,022)
--------- --------
Net cash used in investing activities....................... (25,877) (2,935)
FINANCING ACTIVITIES
Proceeds from bridge loan................................... -- 5,000
Payments on bridge loan..................................... -- (2,238)
Proceeds from the issuance of convertible subordinated
notes..................................................... 150,000 --
Debt financing costs........................................ (4,810) --
Proceeds from issuance of Redeemable Convertible Preferred
Stock..................................................... -- 22,077
Proceeds from issuance of common stock and exercise of stock
options................................................... 177,632 4
Payments on notes payable and capital leases................ (2,229) (15)
Proceeds from receivables from stockholders................. 138 23
--------- --------
Net cash provided by financing activities................... 320,731 24,851
Effect of foreign exchange rate changes on cash............. (146) --
--------- --------
Net increase in cash and cash equivalents................... 199,756 16,993
Cash and cash equivalents at beginning of period............ 20,173 1,552
--------- --------
Cash and cash equivalents at end of period.................. $ 219,929 $ 18,545
========= ========
Supplemental disclosures:
Interest paid............................................. $ 359 $ 8
Notes payable and capital lease obligations incurred...... $ 11,434 $ 75
Acquisition of BabyCenter:
Fair value of assets acquired (including goodwill)...... $ 197,634 $ --
Liabilities assumed..................................... (9,017) --
Stock issued............................................ (189,987) --
Assumption of stockholders' receivables................. 1,862 --
--------- --------
Cash paid............................................... 492 --
Cash acquired........................................... (3,063) --
--------- --------
Net cash received from acquisition of BabyCenter.......... $ 2,571 $ --
========= ========
</TABLE>
See accompanying notes.
5
<PAGE>
ETOYS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated financial statements as of December 31, 1999 have been
prepared by eToys Inc. ("the Company") pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). These statements are
unaudited and, in the opinion of management, include all adjustments (consisting
of normal recurring adjustments and accruals) necessary to present fairly the
results for the periods presented. The balance sheet at March 31, 1999 and the
consolidated statement of operations and consolidated statement of cash flows
for the nine months ended December 31, 1998 have been derived from the audited
financial statements at those dates. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to such
SEC rules and regulations. Operating results for the quarter and nine months
ended December 31, 1999 are not necessarily indicative of the results that may
be expected for the fiscal year ending March 31, 2000. These consolidated
financial statements should be read in conjunction with the audited financial
statements and the accompanying notes included in the Company's Form S-1
Registration Statement declared effective May 19, 1999 (the "S-1").
Certain prior-period balances have been reclassified to conform to the
current-period presentation.
CASH AND CASH EQUIVALENTS
All highly liquid investments with maturities of three months or less at the
date of purchase are considered to be cash equivalents and are carried at cost
plus accrued interest, which approximates fair value. Interest income was $1.8
million and $0.2 million for the quarters ended December 31, 1999 and 1998,
respectively, and $4.7 million and $0.5 million for the nine months ended
December 31, 1999 and 1998, respectively, and is included within interest
income, net, in the accompanying consolidated statements of operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiary is the local
currency. Assets and liabilities of the foreign subsidiary are translated into
U.S. dollars at the period end exchange rates, and revenues and expenses are
translated at average rates prevailing during the periods presented. Translated
adjustments are included in accumulated other comprehensive loss, a separate
component of stockholders' equity. Transaction gains or losses arising from
transactions denominated in a currency other than the functional currency of the
entity involved, which have been insignificant, are included in the consolidated
statements of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets
6
<PAGE>
ETOYS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
COMPREHENSIVE LOSS
As of April 1, 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income, which establishes standards
for the reporting and display of comprehensive loss and its components in the
financial statements. Comprehensive loss is composed of net loss and foreign
currency translation adjustments. Comprehensive loss was $75.6 million and $9.8
million for the quarters ended December 31, 1999 and 1998, respectively, and
$141.4 million and $15.4 million for the nine months ended December 31, 1999 and
1998, respectively.
NOTE 2 -- BABYCENTER ACQUISITION
On July 1, 1999, the Company completed its acquisition of BabyCenter, Inc.
("BabyCenter") pursuant to a reorganization agreement executed in April 1999. As
consideration for the purchase, the Company issued to the stockholders of
BabyCenter approximately 16.0 million shares of the Company's common stock
valued at $190.0 million based upon the stock price as of the date that the
transaction was announced.
The acquisition has been accounted for as a purchase and the acquisition
costs of $190.0 million have been allocated to the assets acquired and the
liabilities assumed based upon estimates of their respective fair values. A
total of $189.0 million, representing the excess of the purchase price over the
fair value of the net tangible assets acquired, has been allocated to intangible
assets and is being amortized over five years.
The Company's consolidated results of operations incorporates BabyCenter's
results of operations commencing upon the July 1, 1999 acquisition date. The
unaudited pro forma combined information below presents the combined results of
operations of the Company as if the acquisition had occurred at the beginning of
the respective periods presented. The unaudited pro forma combined information,
based upon the historical consolidated financial statements of the Company and
BabyCenter, is based on an acquisition cost of $190.0 million and assumes that
an estimated $189.0 million excess of acquisition cost over the book value of
BabyCenter's net tangible assets is allocated to intangible assets with a useful
life of five years.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
----------------------
1999 1998
-------- --------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues.................................................... $ 130.1 $ 27.1
Net loss.................................................... $(157.8) $(45.0)
Net loss per share (1)...................................... $ (1.34) $(0.47)
</TABLE>
- ------------------------
(1) Net loss per share excluding amortization of intangible assets and deferred
compensation would be $(1.00) and $(0.15) for the nine months ended
December 31, 1999 and 1998, respectively. Net loss
7
<PAGE>
ETOYS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2 -- BABYCENTER ACQUISITION (CONTINUED)
per share is calculated using the weighted average number of common shares
outstanding, including the pro forma effects of the automatic conversion of
the Company's Redeemable Convertible Preferred Stock and the issuance of
approximately 16.0 million shares to stockholders of BabyCenter as if such
events had occurred on April 1, 1998.
The unaudited pro forma combined information is not necessarily indicative
of the results of operations of the combined company had the acquisition
occurred at the beginning of the periods presented, nor is it necessarily
indicative of future results.
NOTE 3 -- LONG-TERM CONVERTIBLE SUBORDINATED NOTES
In December 1999, the Company issued $150 million principal amount of
6.25% convertible subordinated notes (the "Convertible Notes") due December 1,
2004. In connection with the issuance of the Convertible Notes, the Company
incurred financing costs of $4.8 million, resulting in net proceeds to the
Company of $145.2 million. The Convertible Notes are unsecured and are
subordinated to existing and future senior debt as defined in the indenture
pursuant to which the Convertible Notes were issued. The principal amount of the
Convertible Notes will be due on December 1, 2004 and will bear interest at an
annual rate of 6.25%, payable twice a year, on June 1 and December 1, beginning
June 1, 2000, until the principal amount of the Convertible Notes is fully
repaid. The Convertible Notes may be converted into the Company's common stock
at the option of the holder at any time prior to December 1, 2004, unless the
Convertible Notes have been previously redeemed or repurchased by the Company.
The conversion rate, subject to adjustment in certain circumstances, is 13.5323
shares of the Company's common stock for each $1,000 principal amount of the
Convertible Notes, which is equivalent to a conversion price of approximately
$73.90 per share. Additionally, on or after December 1, 2002, the Company may
redeem all or a portion of the Convertible Notes, that have not been previously
redeemed or repurchased, at any time at redemption prices set forth in the
indenture pursuant to which the Convertible Notes were issued, plus any accrued
and unpaid interest to the redemption date.
NOTE 4 -- STOCK SPLIT
In March 1999, the Company's Board of Directors declared a stock split of
three shares for every one share of common stock then outstanding. The stock
split was effective May 24, 1999, the date the Company's public offering of
common stock closed. Accordingly, the accompanying financial statements and
footnotes have been restated to reflect the stock split. The par value of the
shares of common stock to be issued in connection with the stock split was
credited to common stock and a like amount charged to additional paid-in
capital.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and claims in
the ordinary course of business, including employment related claims and claims
of alleged infringement of trademarks, copyrights and other intellectual
property rights. The Company currently is not aware of any such legal
proceedings or claims that it believes will have, individually or in the
aggregate, a material adverse effect on its business, prospects, financial
condition and operating results.
8
<PAGE>
ETOYS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6 -- STOCKHOLDERS' EQUITY
On May 24, 1999, the Company completed its initial public offering of
9,568,000 shares of its common stock. Net proceeds to the Company aggregated
$175.8 million. As of the closing date of the offering, all of the convertible
preferred stock outstanding was converted into an aggregate of 58,779,267 shares
of common stock.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding. Shares associated with stock options are not included
because they are antidilutive. The shares of Redeemable Convertible Preferred
Stock automatically converted into common stock effective upon the closing of
the Company's initial public offering and are included in the calculation of
weighted average number of shares as of that date.
PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's Redeemable Convertible Preferred Stock into shares
of the Company's common stock effective upon the closing of the Company's
initial public offering as if such conversion occurred on April 1, 1998, or at
the date of original issuance, if later.
The following table sets forth the computation of basic and pro forma net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------- --------------------
1999 1998 1999 1998
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Numerator:
Net loss--as reported............................. $(75,487) $ (9,822) $(141,214) $(15,375)
Denominator:
Weighted average shares........................... 119,716 33,731 101,944 33,157
-------- -------- --------- --------
Denominator for basic calculation................. 119,716 33,731 101,944 33,157
Weighted average effect of pro forma securities:
Series A Redeemable Convertible Preferred Stock... -- 19,078 3,776 19,001
Series B Redeemable Convertible Preferred Stock... -- 35,660 6,377 27,129
Series C Redeemable Convertible Preferred Stock... -- -- 358 --
-------- -------- --------- --------
Denominator for pro forma calculation............. 119,716 88,469 112,455 79,287
======== ======== ========= ========
Net loss per share:
Basic............................................. $ (0.63) $ (0.29) $ (1.39) $ (0.46)
======== ======== ========= ========
Pro forma......................................... $ (0.63) $ (0.11) $ (1.26) $ (0.19)
======== ======== ========= ========
</TABLE>
9
<PAGE>
ETOYS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7 -- SUBSEQUENT EVENTS
On January 18, 2000, BabyCenter Inc., a wholly-owned subsidiary of the
Company, completed its sale of substantially all of the assets and related
liabilities of its Consumer Health Interactive ("CHI") division. In connection
with the sale, the Company received proceeds in a combination of cash and
registrable securities of approximately $20.0 million. The net book value of
CHI's assets and related liabilities approximated the sale price of $20.0
million as of the date of sale.
In February 2000, the Company filed a shelf registration statement with the
Securities and Exchange Commission covering resales of the $150 million of
Convertible Notes and common stock issuable upon conversion of the Convertible
Notes. This shelf registration statement has not as of yet become effective.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q and the following "Management's Discussion and Analysis of
Financial Condition and Results of Operations" include "forward- looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. This Act provides a "safe harbor" for forward-looking statements to
encourage companies to provide prospective information about themselves so long
as they identify these statements as forward-looking and provide meaningful
cautionary statements identifying important factors that could cause actual
results to differ from the projected results. All statements other than
statements of historical fact made by us in this Form 10-Q are forward-looking.
In particular, the statements herein regarding industry prospects and our future
results of operations or financial position are forward-looking statements.
Forward-looking statements reflect our current expectations and are inherently
uncertain. Our actual results may differ significantly from our expectations,
and we assume no responsibility to update forward-looking statements made
herein. The section entitled "Additional Factors That May Affect Future Results"
describes some, but not all, of the factors that could cause these differences.
The SEC is currently reviewing the financial statement classification of
distribution and fulfillment costs and other items by a number of e-commerce
companies, including eToys Inc. We define distribution and fulfillment costs as
primary recurring costs incurred for the operation of our distribution centers
and customer service centers and have classified such costs in marketing and
sales expenses. These costs are primarily composed of distribution facility
expenses, including equipment and supplies, payroll and travel expenses for
personnel engaged in distribution activities, and third-party fulfillment fees.
These costs represent the facility costs necessary for warehousing inventory as
well as costs incurred to pick and pack a customer order and the related
packaging supplies. The SEC may decide to require that certain distribution
center costs be classified as cost of sales. Should this occur, we will
reclassify any distribution and fulfillment costs as required and our gross
profit will be correspondingly affected. However, such reclassification will not
impact our sales, operating profit or loss, net profit or loss, or cash flows.
Currently, the Emerging Issues Task Force (the "EITF") is deliberating
accounting for website development costs due to the lack of accounting guidance
regarding treatment of such costs incurred. We account for development costs in
accordance with Statement of Position 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). We do not
anticipate that any change in the required accounting treatment of website
development costs will have a material impact on the financial statements.
RESULTS OF OPERATIONS
NET SALES
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
--------- -------- -------- --------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 106,751 $ 22,910 366% $ 128,032 $ 23,900 436%
</TABLE>
Net sales consist of product sales to customers and charges to customers for
outbound shipping and handling and gift-wrapping and are net of product returns,
discounts given and coupons. Growth in net sales for the quarter ended and nine
months ended December 31, 1999 versus the same periods in the prior year reflect
a significant increase in units sold due to the growth of our customer base
during the peak holiday shopping season, repeat purchases from our existing
customers, and growth in our non-toy categories of baby and book stores that
were launched this year. By the end of the quarter
11
<PAGE>
ended December 31, 1999, our cumulative customer accounts reached 1.7 million
from 611,000 at September 30, 1999. Repeat customer purchases represented 34% of
orders placed in the quarter ended December 31, 1999.
GROSS PROFIT
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------- -------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
-------- -------- -------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Gross profit................... $ 20,284 $ 4,709 331% $ 24,356 $ 4,892 398%
</TABLE>
Gross profit is net sales less the cost of sales, which consists of the cost
of products sold to customers, outbound and inbound shipping and handling costs,
and gift wrapping costs. Gross profit increased in absolute dollars for the
quarter ended and nine months ended December 31, 1999 as compared to the same
periods in the prior year, reflecting our increased sales volume. Gross profit
decreased as a percentage of sales by 1.6% and 1.5% for the quarter ended and
nine months ended December 31, 1999, respectively, as compared to the same
periods in the prior year. The decrease in gross profit as a percentage of sales
is primarily attributable to a shift in product mix towards lower-margin video
game and book products, combined with higher shipping and handling costs related
to customer orders during the 1999 peak holiday season, partially offset by
higher margins in our baby business. We believe that providing our customers
with superior customer service is an essential component of our business
strategy. Accordingly, we may incur additional costs in order to meet customer
expectations, which would impact gross profit. Over time, we intend to expand
our operations by adding new product categories and by expanding the breadth and
depth of our product or service offerings. Gross margins attributable to new
business areas may be lower than those associated with our existing business
activities.
MARKETING AND SALES
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------- -------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
-------- -------- -------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Marketing and sales.......... $ 66,017 $ 10,611 522% $ 97,602 $ 14,354 580%
</TABLE>
Marketing and sales expenses consist primarily of advertising and
promotional expenditures, distribution facility expenses, including equipment
and supplies, and payroll and related expenses for personnel engaged in
marketing, customer service and distribution activities. Marketing and sales
expenses increased in absolute dollars and as a percentage of sales for the
quarter ended and nine months ended December 31, 1999 as compared to the same
periods in the prior year primarily due to increases in our advertising and
promotional expenditures during the peak holiday shopping season, increased
variable costs of fulfillment, customer service and credit card fees as a result
of increased sales volume, and additional costs incurred in the expansion of our
distribution facilities. We intend to continue to pursue an aggressive branding
and marketing campaign and, therefore, expect marketing and sales expenses to
increase significantly in absolute dollars in future periods. In addition, we
expect marketing and sales expenses to increase in absolute dollars as we expand
and refine our distribution facilities and operations to accommodate increases
in our sales volume. In February 2000, we agreed to terminate our relationship
with our third-party fulfillment company, Fingerhut Business Services, effective
March 31, 2000, after which we will rely solely on our own distribution centers
located in Virginia and Southern California, which are currently being developed
and enhanced. In cooperation with Fingerhut, we have commenced an orderly
transition of inventory from Fingerhut facilities to our own facilities, which
is expected to be completed in approximately three months. We expect to incur
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expenses associated with this inventory transition, with the continued
development and enhancement of our own distribution operations and from our
efforts to meet customer expectations with respect to timely and accurate order
fulfillment.
PRODUCT DEVELOPMENT
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------- -------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
-------- -------- -------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Product development............ $ 13,596 $ 905 1,402% $ 30,619 $ 2,006 1,426%
</TABLE>
Product development expenses consist primarily of payroll and related
expenses for merchandising, Web site development and information technology
personnel, Internet access and hosting charges and Web content and design
expenses. Product development expenses increased in absolute dollars and as a
percentage of sales for the quarter ended and nine months ended December 31,
1999 as compared to the same periods in the prior year. This increase was
primarily attributable to increased staffing and associated costs related to
enhancing the features, content and functionality of our Web site and
transaction-processing systems, as well as increased investment in systems and
telecommunications infrastructure. We believe that continued investment in
product development is critical to attaining our strategic objectives. In
addition to ongoing investments in our Web site stores and infrastructure, we
intend to increase investments in product, service and international expansion.
As a result, we expect product development expenses to increase in absolute
dollars.
GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------- -------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
-------- -------- -------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
General and administrative..... $ 4,002 $ 1,590 152% $ 11,256 $ 2,483 353%
</TABLE>
General and administrative expenses consist of payroll and related expenses
for executive and administrative personnel, facilities expenses, professional
services expenses, travel and other general corporate expenses. The increase in
general and administrative expenses for the quarter ended and nine months ended
December 31, 1999 as compared to the same periods in the prior year was
primarily due to increased headcount and associated costs, legal and
professional fees, facilities and other related costs. Such expenses decreased
as a percentage of net sales for the quarter ended and nine months ended
December 31, 1999, as compared to the corresponding prior year periods, due to
the significant increase in net sales during such periods. We expect general and
administrative expenses to increase in absolute dollars as we expand our staff
and incur additional costs related to the growth of our business and
international expansion.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the fair value of
the net tangible assets acquired in a business combination. As a result of the
acquisition of BabyCenter, we recorded goodwill of approximately $189.0 million,
which is to be amortized over five years. As such, goodwill amortization for the
quarter ended and nine months ended December 31, 1999 of $9.5 million and $19.2
million, respectively, reflects goodwill amortization from the BabyCenter
purchase from the date of acquisition on July 1, 1999 as well as amortization of
goodwill recorded from a previous acquisition. In January 2000, we completed the
sale of substantially all of the assets and the related liabilities of
BabyCenter's Consumer Health Interactive division. As a result of the sale, we
expect that goodwill
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<PAGE>
amortization will decrease in future periods due to the reduction of goodwill
related to CHI. To the extent the amount of recorded goodwill is increased or we
do not generate additional sufficient cash flow to recover the amount of the
investment recorded, the investment may be considered impaired or be subject to
earlier write-off. In such event, the net loss in any given period could be
greater than anticipated and the market price of our stock could decline.
DEFERRED COMPENSATION
In the nine months ended December 31, 1999, we recorded total deferred stock
compensation of $13.8 million in connection with stock options granted during
the period. Deferred stock compensation is amortized to expense over the vesting
periods of the applicable options, resulting in $3.5 million and $10.6 million
for the quarter ended and nine months ended December 31, 1999, respectively. We
expect to record $3.5 million of amortization over the remaining three months
ended March 31, 2000. These amounts represent the difference between the
exercise price of stock option grants and the deemed fair value of our common
stock at the time of such grants.
Amortization of deferred compensation for each of the next four fiscal years
is expected to be as follows:
<TABLE>
<CAPTION>
AMOUNTS
IN
YEAR ENDED THOUSANDS
- ---------- ---------
<S> <C>
March 31, 2001.............................................. $13,975
March 31, 2002.............................................. 13,969
March 31, 2003.............................................. 9,798
March 31, 2004.............................................. 276
</TABLE>
INTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
NINE MONTHS
QUARTER ENDED ENDED
DECEMBER 31, DECEMBER 31,
------------------- -------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
-------- -------- -------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income......................... $1,760 $168 948% $4,726 $485 874%
Interest expense........................ $ 889 $ 2 44,350% $1,069 $ 46 2,224%
</TABLE>
Interest income consists of earnings on our cash and cash equivalents.
Interest income increased for the quarter ended and nine months ended December
31, 1999 as compared to the corresponding prior year periods due to higher cash
balances resulting from the proceeds of our initial public offering of common
stock and proceeds from the issuance of $150 million of Convertible Notes.
Interest expense consists primarily of interest from the issuance of the
Convertible Notes, the amortization of debt financing costs related to the
Convertible Notes as well as interest on asset acquisitions financed through
notes payable and capital leases. Interest expense for the quarter ended and
nine months ended December 31, 1999 increased as compared to the corresponding
prior year periods due to interest on the Convertible Notes and additional asset
acquisitions financed through notes payable and capital lease obligations.
Interest expense is expected to increase in future periods as subsequent
quarters will include a full three months of interest expense for the
Convertible Notes.
INCOME TAXES
We have not generated any taxable income to date and therefore have not paid
any federal income taxes since inception. Utilization of our net operating loss
carryforwards, which begin to expire in 2012, may be subject to certain
limitations under Section 382 of the Internal Revenue Code of 1986, as
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<PAGE>
amended. We have provided a full valuation allowance on the deferred tax asset,
consisting primarily of net operating loss carryforwards, because of uncertainty
regarding its realizability.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company's principal source of liquidity consisted
of $219.9 million of cash and cash equivalents compared to $20.2 million of cash
and cash equivalents at March 31, 1999.
Net cash used in operating activities was $95.0 million and $4.9 million for
the nine months ended December 31, 1999 and 1998, respectively. Net operating
cash flows were primarily attributable to net losses, reduced by noncash charges
of depreciation and amortization, as well as increases in inventories, prepaid
expenses and other, which were offset by increases in accounts payable and
accrued expenses.
Net cash used in investing activities was $25.9 million for the nine months
ended December 31, 1999 and consisted of purchases of fixed assets and other
assets, partially offset by proceeds from the sale of fixed assets and cash
received from the acquisition of BabyCenter. Cash available for investment
purposes increased substantially in 1999 as a result of the proceeds from the
issuance of common stock in our initial public offering and proceeds from the
issuance of the Convertible Notes. Net cash used in investing activities for the
nine months ended December 31, 1998 was $2.9 million and consisted of purchases
of fixed assets and other assets.
Net cash provided by financing activities of $320.7 million for the nine
months ended December 31, 1999 resulted from net proceeds from issuance of
common stock in our initial public offering and proceeds from the issuance of
the Convertible Notes, offset by debt financing costs incurred as a result of
the issuance of the Convertible Notes and payments on notes payable and capital
leases. Net cash provided by financing activities for the nine months ended
December 31, 1998 was $24.9 million and resulted from net proceeds from the
issuance of redeemable convertible preferred stock and proceeds from bridge loan
financing, offset by payments on the bridge loan.
As of December 31, 1999, our principal commitments consisted of the
Convertible Notes outstanding combined with notes payable and capital lease
obligations incurred to finance fixed asset acquisitions. The Convertible Notes,
issued in December 1999, are unsecured and are subordinated to our existing and
future senior debt as defined in the indenture pursuant to which the Convertible
Notes were issued. The principal amount of the notes will be due on December 1,
2004 and will bear interest at an annual rate of 6.25%, payable twice a year, on
June 1 and December 1, beginning June 1, 2000, until the principal amount of the
Convertible Notes is fully repaid. The Convertible Notes may be converted into
our common stock at the option of the holder at any time prior to December 1,
2004, unless the Convertible Notes have been previously redeemed or repurchased
by us. The conversion rate, subject to adjustment in certain circumstances, is
13.5323 shares of our common stock for each $1,000 principal amount of
Convertible Notes, which is equivalent to a conversion price of approximately
$73.90 per share. Additionally, on or after December 1, 2002, we may redeem all
or a portion of the Convertible Notes, that have not been previously redeemed or
repurchased, at any time at redemption prices set forth in the indenture
pursuant to which the Convertible Notes were issued, plus any accrued and unpaid
interest to the redemption date.
In December 1999, we entered into an eleven year lease agreement to relocate
our corporate offices. The lease begins in October 2000. In connection with the
lease commitment, we delivered a letter of credit to the lessor in the amount of
$7.5 million, which we have cash collateralized. Additionally, pursuant to the
lease agreement, we will deliver a second letter of credit in April 2000 in the
amount of $7.5 million, which we will also cash collateralize. The letters of
credit will be held as security during the initial lease term.
15
<PAGE>
We believe that current cash and cash equivalents and cash that may be
generated from operations will be sufficient to meet our anticipated cash needs
through December 31, 2000. However, any projections of future cash needs and
cash flows are subject to substantial uncertainty. If current cash, cash
equivalents and cash that may be generated from operations are insufficient to
satisfy our liquidity requirements, we will likely seek to sell additional
equity or debt securities or to obtain a line of credit. The sale of additional
equity or equity-related securities could result in additional dilution to our
stockholders. In addition, we will, from time to time, consider the acquisition
of or investment in complementary businesses, products, services and
technologies, which might impact our liquidity requirements or cause us to issue
additional equity or debt securities. There can be no assurance that financing
will be available in amounts or on terms acceptable to us, if at all.
YEAR 2000 IMPLICATIONS
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
recent change to the year 2000. As of the date of this filing, we have not
incurred business disruptions as a result of year 2000 issues. However, while no
such occurrence has developed, year 2000 issues may not become apparent
immediately and may therefore be experienced in the future. We continue to use
software, computer technology and other services that could potentially fail due
to year 2000 issues that have not yet become apparent.
We have reviewed the year 2000 compliance of our internally developed
proprietary software. Our review has included testing to determine how systems
will function beyond the year 2000. Since inception, we have internally
developed substantially all of the systems for the operation of our Web site.
These systems include the software used to provide the Web site's search,
customer interaction, and transaction-processing and distribution functions, as
well as monitoring and back-up capabilities. Based upon our assessment to date,
we believe that our internally developed proprietary software is year 2000
compliant, although there can be no assurance in this regard.
We have assessed the year 2000 readiness of our third-party supplied
software, computer technology and other services, which include software for use
in our accounting, database and security systems. The failure of such software
or systems to be year 2000 compliant could have a material negative impact on
the accounting functions and the operation of the Web site. As part of our
assessment of the year 2000 compliance of these systems, we sought assurances
from these vendors that their software, computer technology and other services
are year 2000 compliant. Based upon the results of our assessment, we believe
that our third-party supplied software, computer technology and other services
are year 2000 compliant, although there can be no assurance in this regard.
Any failure of material systems, vendors' material systems or the Internet
to be year 2000 compliant could have material adverse consequences. Such
consequences could include difficulties in operating the Web site effectively,
taking product orders, making product deliveries or conducting other fundamental
parts of our business.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the factors discussed in the "Overview" and "Liquidity and
Capital Resources" sections of this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in the Company's S-1, the
following additional risk factors may affect the Company's future results.
OUR LIMITED OPERATING HISTORY MAKES FUTURE FORECASTING DIFFICULT.
We were incorporated in November 1996. We began selling products on our Web
site in October 1997. As a result of our limited operating history, it is
difficult to accurately forecast our net sales and we have limited meaningful
historical financial data upon which to base planned operating
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<PAGE>
expenses. We base our current and future expense levels on our operating plans
and estimates of future net sales, and our expenses are to a large extent fixed.
Sales and operating results are difficult to forecast because they generally
depend on the volume and timing of the orders we receive. As a result, we may be
unable to adjust our spending in a timely manner to compensate for any
unexpected revenue shortfall. This inability could cause our net losses in a
given quarter to be greater than expected.
WE ANTICIPATE FUTURE LOSSES AND NEGATIVE CASH FLOW.
We expect operating losses and negative cash flow to continue for the
foreseeable future. We anticipate our losses will increase significantly from
current levels because we expect to incur additional costs and expenses related
to:
- brand development, marketing and other promotional activities;
- the expansion of our inventory management and distribution operations and
the termination of our reliance on third-party vendors for order
fulfillment operations;
- the continued development of our Web site and consumer-driven technology,
transaction processing systems and our computer network;
- the expansion of our product offerings and Web site content;
- development of relationships with strategic business partners; and
- international expansion of our operations.
As of December 31, 1999, we had an accumulated deficit of $172.0 million. We
incurred net losses of $75.5 million and $141.2 million for the quarter ended
and nine months ended December 31, 1999, respectively.
In addition, because of our acquisition of BabyCenter, we expect that our
losses will increase even more significantly because of additional costs and
expenses related to:
- an increase in the number of employees;
- an increase in sales and marketing activities;
- an increase in Web site development activities and associated content;
- additional facilities and infrastructure; and
- assimilation of operations and personnel.
Also, as a result of our acquisition of BabyCenter, we have recorded a
significant amount of goodwill, the amortization of which will significantly
reduce our earnings and profitability for the foreseeable future. The recorded
goodwill of approximately $189.0 million is being amortized over a five-year
period. To the extent we do not generate sufficient cash flow to recover the
amount of the investment recorded, the investment may be considered impaired and
could be subject to earlier write-off. In such event, our net loss in any given
period could be greater than anticipated and the market price of the Convertible
Notes and our common stock could decline.
Our ability to become profitable depends on our ability to generate and
sustain substantially higher net sales while maintaining reasonable expense
levels. If we do achieve profitability, we cannot be certain that we would be
able to sustain or increase profitability on a quarterly or annual basis in the
future.
17
<PAGE>
ANY FAILURE BY US TO SUCCESSFULLY EXPAND OUR DISTRIBUTION OPERATIONS WOULD HAVE
A MATERIAL ADVERSE EFFECT ON US.
Any failure by us to successfully expand our distribution operations to
accommodate increases in demand and customer orders would have a material
adverse effect on our business prospects, financial condition and operating
results. Under such circumstances, the material adverse effects may include,
among other things, an inability to increase net sales in accordance with the
expectations of securities analysts and investors; increases in costs that we
may incur to meet customer expectations; increases in fulfillment expenses if we
are required to rely on more expensive fulfillment systems than anticipated or
incur additional costs for balancing merchandise inventories among multiple
distribution facilities; loss of customer loyalty and repeat business from
customers if they become dissatisfied with our delivery services; and damage to
our reputation and brand image arising from uncertainty with respect to our
distribution operations. These risks are greatest during the fourth calendar
quarter of each year, when our sales increase substantially relative to other
quarters and the demand on our distribution operations increases
proportionately. For example, during the 1999 holiday season, the e-commerce
industry, including eToys, was the subject of widespread negative publicity
relating principally to order fulfillment and related customer service issues.
Such publicity, together with the customer dissatisfaction to which it relates,
may result in loss of consumer confidence in e-commerce generally or in eToys in
particular, which may have a material adverse impact on us. In addition, the
cost of meeting customer expectations during the 1999 holiday season was very
high due to the intensely competitive e-commerce environment, in which many
e-commerce companies engaged in high levels of discounting, couponing and free
shipping or free shipping upgrades in order to attract customers. This
competitive environment is likely to increase in the foreseeable future, and we
may be required to incur additional costs to meet consumer expectations and to
remain competitive with other e-commerce companies. Since our limited operating
history makes it difficult to accurately estimate the number of orders that may
be received during the fourth calendar quarter, we may experience either
inadequate or excess fulfillment capacity during this quarter, either of which
could have a material adverse impact on us. The occurrence of one or more of
these events may cause the market price of the Convertible Notes and our common
stock to decline.
We currently operate our own distribution facilities in the cities of
Commerce and San Francisco, California, and Swindon, England. In addition, by
spring 2000, we expect to begin shipments from our new distribution center
located in Danville, Virginia. Through March 31, 2000, we will also continue to
use the fulfillment services of our third-party distributor, Fingerhut Business
Services, located in Provo, Utah and St. Cloud, Minnesota. After that date, our
relationship with Fingerhut will terminate and we will rely solely on our own
distribution centers. In cooperation with Fingerhut, we have commenced an
orderly transition of inventory from Fingerhut facilities to our own facilities,
which is expected to be completed in approximately three months. We have in the
past and continue to devote substantial resources to the expansion of our
distribution operations among these facilities. This expansion may cause
disruptions in our business as well as unexpected costs. We are not experienced
with coordinating and managing distribution operations in geographically distant
locations or with certain of the automation and technological features of the
distribution operations that are planned for our Virginia facility and that
continue to be developed and refined to meet our needs. This may result in
increased costs as we seek to meet customers' expectations, balance merchandise
inventories among our distribution facilities and take other steps that may be
necessary to meet the demands placed on our distribution operations,
particularly during the fourth calendar quarter of the year. Despite the fact
that we devote substantial resources to the expansion and refinement of our
distribution operations, there can be no assurance that our existing or future
distribution operations will be sufficient to accommodate increases in demand
and customer orders.
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<PAGE>
IF WE EXPERIENCE PROBLEMS IN OUR DISTRIBUTION OPERATIONS, WE COULD LOSE
CUSTOMERS.
We rely upon third-party carriers for product shipments, including shipments
to and from our distribution facilities. We are therefore subject to the risks,
including employee strikes and inclement weather, associated with such carriers'
ability to provide delivery services to meet our shipping needs. In addition,
failure to deliver products to our customers in a timely and accurate manner
would damage our reputation and brand. We also depend upon temporary employees
to adequately staff our distribution facilities, particularly during the holiday
shopping season. If we do not have sufficient sources of temporary employees, we
could lose customers.
OUR OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. IF WE FAIL TO MEET
THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE MARKET PRICE OF
THE CONVERTIBLE NOTES AND OUR COMMON STOCK MAY DECLINE SIGNIFICANTLY.
Our annual and quarterly operating results have fluctuated in the past and
may fluctuate significantly in the future due to a variety of factors, many of
which are outside of our control. Because our operating results are volatile and
difficult to predict, we believe that quarter-to-quarter comparisons of our
operating results are not a good indication of our future performance. It is
likely that in some future quarter our operating results may fall below the
expectations of securities analysts and investors. In this event, the trading
price of the Convertible Notes and our common stock may decline significantly.
Factors that may harm our business or cause our operating results to
fluctuate include the following:
- our inability to obtain new customers at reasonable cost, retain existing
customers, or encourage repeat purchases;
- decreases in the number of visitors to our Web site or our inability to
convert visitors to our Web site into customers;
- the mix of children's products, including toys, video games, books,
software, videos, music and baby-oriented products sold by us;
- seasonality;
- our inability to manage inventory levels or control inventory shrinkage;
- our inability to manage our distribution operations;
- our inability to adequately maintain, upgrade and develop our Web site,
the systems that we use to process customers' orders and payments or our
computer network;
- the ability of our competitors to offer new or enhanced Web sites,
services or products;
- price competition;
- an increase in the level of our product returns;
- fluctuations in the demand for children's and baby products associated
with movies, television and other entertainment events;
- our inability to obtain popular children's products, including toys, video
games, books, software, videos, music and baby-oriented products from our
vendors;
- fluctuations in the amount of consumer spending on children's products,
including toys, video games, books, software, videos, music and
baby-oriented products;
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<PAGE>
- the termination of existing or failure to develop new marketing
relationships with key business partners;
- the extent to which we are not able to participate in cooperative
advertising campaigns with major brand names as we have done in the past;
- increases in the cost of online or offline advertising;
- the amount and timing of operating costs and capital expenditures relating
to expansion of our operations, including international expansion;
- unexpected increases in shipping costs or delivery times, particularly
during the holiday season;
- technical difficulties, system downtime or Internet brownouts;
- breaches of our website security systems, "denial of service" attacks on
our website or other comparable issues arising from computer hacking or
related types of activities;
- government regulations related to use of the Internet for commerce or for
sales and distribution of children's products, including toys, video
games, books, software, videos, music and baby-oriented products; and
- economic conditions specific to the Internet, online commerce and the
children's and baby products industries.
A number of factors will cause our gross margins to fluctuate in future
periods, including the mix of children's products, including toys, video games,
books, software, videos, music and baby-oriented products sold by us, inventory
management, inbound and outbound shipping and handling costs, the level of
product returns and the level of discount pricing and promotional coupon usage.
Any change in one or more of these factors could reduce our gross margins in
future periods. In addition, if the SEC determines to require us to classify
certain distribution center costs as costs of sales, our gross profit will be
correspondingly affected. See the introduction to "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
BECAUSE WE EXPERIENCE SEASONAL FLUCTUATIONS IN OUR NET SALES, OUR QUARTERLY
RESULTS WILL FLUCTUATE AND OUR ANNUAL RESULTS COULD BE BELOW EXPECTATIONS.
We have historically experienced and expect to continue to experience
seasonal fluctuations in our net sales. These seasonal patterns will cause
quarterly fluctuations in our operating results. In particular, a
disproportionate amount of our net sales have been realized during the fourth
calendar quarter and we expect this trend to continue in the future.
In anticipation of increased sales activity during the fourth calendar
quarter, we hire a significant number of temporary employees to bolster our
permanent staff and we significantly increase our inventory levels. For this
reason, if our net sales were below seasonal expectations during this quarter,
our annual operating results could be below the expectations of securities
analysts and investors.
Due to our limited operating history, it is difficult to predict the
seasonal pattern of our sales and the impact of such seasonality on our business
and financial results. In the future, our seasonal sales patterns may become
more pronounced, may strain our personnel and warehousing and order shipment
activities and may cause a shortfall in net sales as compared to expenses in a
given period.
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<PAGE>
WE FACE SIGNIFICANT INVENTORY RISK BECAUSE CONSUMER DEMAND CAN CHANGE FOR
PRODUCTS BETWEEN THE TIME THAT WE ORDER PRODUCTS AND THE TIME THAT WE RECEIVE
THEM.
We carry a significant level of inventory. As a result, the rapidly changing
trends in consumer tastes in the market for children's products, including toys,
video games, books, software, videos, music and baby-oriented products, subject
us to significant inventory risks. It is critical to our success that we
accurately predict these trends and do not overstock unpopular products. The
demand for specific products can change between the time the products are
ordered and the date of receipt. We are particularly exposed to this risk
because we derive a majority of our net sales in the fourth calendar quarter of
each year. Our failure to sufficiently stock popular toys and other products in
advance of such fourth calendar quarter would harm our operating results for the
entire fiscal year.
In the event that one or more products do not achieve widespread consumer
acceptance, we may be required to take significant inventory markdowns, which
could reduce our net sales and gross margins. This risk may be greatest in the
first calendar quarter of each year, after we have significantly increased
inventory levels for the holiday season. We believe that this risk will increase
as we open new departments or enter new product categories due to our lack of
experience in purchasing products for these categories. In addition, to the
extent that demand for our products increases over time, we may be forced to
increase inventory levels. Any such increase would subject us to additional
inventory risks.
BECAUSE WE DO NOT HAVE LONG-TERM OR EXCLUSIVE VENDOR CONTRACTS, WE MAY NOT BE
ABLE TO GET SUFFICIENT QUANTITIES OF POPULAR CHILDREN'S PRODUCTS IN A TIMELY
MANNER. AS A RESULT, WE COULD LOSE CUSTOMERS.
If we are not able to offer our customers sufficient quantities of toys or
other products in a timely manner, we could lose customers and our net sales
could be below expectations. Our success depends on our ability to purchase
products in sufficient quantities at competitive prices, particularly for the
holiday shopping season. As is common in the industry, we do not have long-term
or exclusive arrangements with any vendor or distributor that guarantee the
availability of toys or other children's products for resale. Therefore, we do
not have a predictable or guaranteed supply of toys or other products.
TO MANAGE OUR GROWTH AND EXPANSION, WE NEED TO IMPROVE AND IMPLEMENT FINANCIAL
AND MANAGERIAL CONTROLS AND REPORTING SYSTEMS AND PROCEDURES. IF WE ARE UNABLE
TO DO SO SUCCESSFULLY, OUR RESULTS OF OPERATIONS WILL BE IMPAIRED.
Our rapid growth in personnel and operations has placed, and will continue
to place, a significant strain on our management, information systems and
resources. In addition, with the acquisition of BabyCenter, we added over 160
new employees, including managerial, technical and operations personnel.
Further, we continue to expand our distribution operations, which currently
include distribution facilities in the cities of Commerce and San Francisco,
California and Swindon, England, and will include a distribution facility in
Virginia that will begin operations in the spring 2000. Our distribution
operations also currently include fulfillment services from a third-party
vendor, Fingerhut Business Services, although those services will terminate
effective March 31, 2000, after which we will rely solely on our own
distribution operations. This expansion as well as the transition of inventory
from third-party facilities to our own facilities may cause disruptions in our
business as well as unexpected costs. We are not experienced with coordinating
and managing distribution operations in geographically distant locations or with
certain of the automation and technological features of the distribution
operations that are planned for our Virginia facility. The integration of these
information systems may negatively affect our ability to obtain financial
information and other data on a timely and reliable basis.
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<PAGE>
In order to manage this growth effectively, we need to continue to improve
our financial and managerial controls and reporting systems and procedures. If
we continue to experience a significant increase in the number of our personnel
and expansion of our distribution operations, our existing management team may
not be able to effectively train, supervise and manage all of our personnel or
effectively oversee all of our distribution operations. In addition, our
existing information systems may not be able to handle adequately the increased
volume of information and transactions that would result from increased growth.
Our failure to successfully implement, improve and integrate these systems and
procedures would cause our results of operations to be below expectations.
RISK OF INTERNATIONAL EXPANSION
In October 1999, we launched eToys.co.uk, which serves customers in the
United Kingdom, and in November 1999, we began serving all provinces of Canada
through our eToys.com store. We plan to continue to expand our presence in
foreign markets. We have relatively little experience in purchasing, marketing
and distributing products or services for these markets and may not benefit from
any first-to-market advantages. It will be costly to establish international
facilities and operations, promote our brand internationally, and develop
localized Web sites and stores and other systems. We may not succeed in our
efforts in these countries. If net sales from international activities do not
offset the expense of establishing and maintaining foreign operations, our
business prospects, financial condition and operating results will suffer.
As the international online commerce market continues to grow, competition
in this market will likely intensify. In addition, governments in foreign
jurisdictions may regulate Internet or other online services in such areas as
content, privacy, network security, encryption or distribution. This may affect
our ability to conduct business internationally.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS.
The online commerce market is new, rapidly evolving and intensely
competitive. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could seriously
harm our net sales and results of operations. We expect competition to intensify
in the future because current and new competitors can enter our market with
little difficulty and can launch new Web sites at a relatively low cost. In
addition, the children's products industries, including toy, video game, books,
software, video, music and baby-oriented products, are intensely competitive.
We currently or potentially compete with a variety of other companies,
including:
- other online companies that include toys and children's and baby products
as part of their product offerings, such as Amazon.com,
Barnesandnoble.com, CDnow, Beyond.com, Reel.com, iBaby, BabyCatalog.com,
iVillage and Women.com;
- traditional store-based toy and children's and baby products retailers
such as Toys R Us, FAO Schwarz, Zany Brainy, Noodle Kidoodle, babyGap,
GapKids, Gymboree, KB Toys, The Right Start and Babies R Us;
- major discount retailers such as Wal-Mart, Kmart and Target;
- online efforts of these traditional retailers, including the online stores
operated by Toys R Us, Wal-Mart, FAO Schwarz, babyGap, GapKids, KB Toys
(i.e., KB Kids) and Gymboree;
- physical and online stores of entertainment entities that sell and license
children and baby products, such as The Walt Disney Company and Warner
Bros.;
- catalog retailers of children's and baby products as well as products for
toddlers and expectant mothers;
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- vendors or manufacturers of children's and baby products that currently
sell some of their products directly online, such as Mattel and Hasbro;
- Internet portals and online service providers that feature shopping
services, such as AOL, Yahoo!, Excite and Lycos; and
- various smaller online retailers of children's and baby products, such as
SmarterKids.com, Red Rocket and ToySmart.com.
Many traditional store-based and online competitors have longer operating
histories, larger customer or user bases, greater brand recognition and
significantly greater financial, marketing and other resources than we do. Many
of these competitors can devote substantially more resources to Web site
development than we can. In addition, larger, well-established and well-financed
entities may join with online competitors or suppliers of children's products,
including toys, video games, books, software, video, music and baby-oriented
products as the use of the Internet and other online services increases.
Our competitors may be able to secure products from vendors on more
favorable terms, fulfill customer orders more efficiently and adopt more
aggressive pricing or inventory availability policies than we can. Traditional
store-based retailers also enable customers to see and feel products in a manner
that is not possible over the Internet.
IF WE ENTER NEW BUSINESS CATEGORIES THAT DO NOT ACHIEVE MARKET ACCEPTANCE, OUR
BRAND AND REPUTATION COULD BE DAMAGED AND WE COULD FAIL TO ATTRACT NEW
CUSTOMERS.
Any new department or product category that is launched or acquired by us,
such as BabyCenter, which is not favorably received by consumers could damage
our brand or reputation. This damage could impair our ability to attract new
customers, which could cause our net sales to fall below expectations. The
expansion of our business to include BabyCenter or any other new department or
product category will require significant additional expenses, and strain our
management, financial and operational resources. This type of expansion would
also subject us to increased inventory risk. We may choose to expand our
operations by developing other new departments or product categories, promoting
new or complementary products, expanding the breadth and depth of products and
services offered or expanding our market presence through relationships with
third parties. In addition, we may pursue the acquisition of other new or
complementary businesses, products or technologies.
IF WE DO NOT SUCCESSFULLY EXPAND OUR WEB SITE AND THE SYSTEMS THAT PROCESS
CUSTOMERS' ORDERS, WE COULD LOSE CUSTOMERS AND OUR NET SALES COULD BE REDUCED.
If we fail to rapidly upgrade our Web site in order to accommodate increased
traffic, we may lose customers, which would reduce our net sales. Furthermore,
if we fail to rapidly expand the computer systems that we use to process and
ship customer orders and process payments, we may not be able to successfully
distribute customer orders. As a result, we could lose customers and our net
sales could be reduced. In addition, our failure to rapidly upgrade our Web site
or expand these computer systems without system downtime, particularly during
the fourth calendar quarter, would further reduce our net sales. We may
experience difficulty in improving and maintaining such systems if our employees
or contractors that develop or maintain our computer systems become unavailable
to us. We have experienced periodic systems interruptions, which we believe will
continue to occur, while enhancing and expanding these computer systems.
OUR FACILITIES AND SYSTEMS ARE VULNERABLE TO NATURAL DISASTERS AND OTHER
UNEXPECTED PROBLEMS. THE OCCURRENCE OF A NATURAL DISASTER OR
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OTHER UNEXPECTED PROBLEM COULD DAMAGE OUR REPUTATION AND BRAND AND REDUCE OUR
NET SALES.
We are vulnerable to natural disasters and other unanticipated problems that
are beyond our control. Our office facilities in Southern California, Northern
California and London, England, house substantially all of our product
development and information systems. Our third-party Web site hosting facilities
located in Sunnyvale, California and Herndon, Virginia, house substantially all
of our computer and communications hardware systems. Our distribution facilities
located in California, Virginia, Utah, Minnesota and England house substantially
all of our product inventory (although inventory located in Utah and Minnesota
is currently being transferred to our other facilities, which transition is
expected to be completed by May 2000). A natural disaster, such as an
earthquake, or harsh weather or other comparable problems that are beyond our
control could cause interruptions or delays in our business and loss of data or
render us unable to accept and fulfill customer orders. Any such interruptions
or delays at these facilities would reduce our net sales. In addition, our
systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins, earthquakes and
similar events. We have no formal disaster recovery plan and our business
interruption insurance may not adequately compensate us for losses that may
occur. In addition, the failure by the third-party facilities to provide the
data communications capacity required by us, as a result of human error, natural
disaster or other operational disruptions, could result in interruptions in our
service. The occurrence of any or all of these events could damage our
reputation and brand and impair our business.
OUR NET SALES COULD DECREASE IF OUR ONLINE SECURITY MEASURES FAIL.
Our relationships with our customers may be adversely affected if the
security measures that we use to protect their personal information, such as
credit card numbers, are ineffective. If, as a result, we lose many customers,
our net sales could decrease. We rely on security and authentication technology
that we license from third parties. With this technology, we perform real-time
credit card authorization and verification with our bank. We cannot predict
whether events or developments will result in a compromise or breach of the
technology we use to protect a customer's personal information.
Furthermore, our servers may be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions. For example, during December 1999,
our website was subjected to various "denial of service" attacks. These attacks
consist of computer programs that are launched against a website and simulate
extremely heavy traffic and usage during a concentrated time period in an effort
to slow down or terminate the operation of the website. During February 1999,
numerous other major internet companies also suffered similar denial of service
attacks, indicating that these attacks may become more widespread. We may need
to expend significant additional capital and other resources to protect against
such attacks and other security breaches and to maintain the integrity of our
website infrastructure, database and systems. We cannot assure you that our
efforts will be successful. If we fail to protect against any of these attacks
or security breaches, it could have a material adverse impact on our website and
our business, financial condition and prospects.
OUR NET SALES AND GROSS MARGINS WOULD DECREASE IF WE EXPERIENCE SIGNIFICANT
CREDIT CARD FRAUD.
A failure to adequately control fraudulent credit card transactions would
reduce our net sales and our gross margins because we do not carry insurance
against this risk. We have developed technology to help us to detect the
fraudulent use of credit card information. Nonetheless, to date, we have
suffered losses as a result of orders placed with fraudulent credit card data
even though the associated financial institution approved payment of the orders.
Under current credit card practices, we are liable for fraudulent credit card
transactions because we do not obtain a cardholder's signature.
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WE FACE THE RISK OF INVENTORY SHRINKAGE.
If the security measures we use at our distribution facilities do not reduce
or prevent inventory shrinkage, our gross profit margin may decrease. We have
undertaken a number of measures designed to address inventory shrinkage,
including the installation of enhanced security measures at our distribution
facilities. These measures may not successfully reduce or prevent inventory
shrinkage in future periods. Our failure to successfully improve the security
measures we use at our distribution facilities may cause our gross profit
margins and results of operations to be significantly below expectations in
future periods.
IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, OUR SERVICES COULD BECOME
OBSOLETE AND WE COULD LOSE CUSTOMERS.
If we face material delays in introducing new services, products and
enhancements, our customers may forego the use of our services and use those of
our competitors. To remain competitive, we must continue to enhance and improve
the functionality and features of our online store. The Internet and the online
commerce industry are rapidly changing. If competitors introduce new products
and services embodying new technologies, or if new industry standards and
practices emerge, our existing Web site and proprietary technology and systems
may become obsolete.
To develop our Web site and other proprietary technology entails significant
technical and business risks. We may use new technologies ineffectively or we
may fail to adapt our Web site, our transaction processing systems and our
computer network to meet customer requirements or emerging industry standards.
INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND COULD IMPAIR OUR
BUSINESS.
Other parties may assert infringement or unfair competition claims against
us. In the past, a toy distributor using a name similar to ours sent us notice
of a claim of infringement of proprietary rights, which claim was subsequently
withdrawn. We have also received a claim from the holder of a home shopping
video catalog patent that our Internet marketing program infringes such patent.
We expect to receive other notices from other third parties in the future. We
cannot predict whether third parties will assert claims of infringement against
us, or whether any past or future assertions or prosecutions will harm our
business. If we are forced to defend against any such claims, whether they are
with or without merit or are determined in our favor, then we may face costly
litigation, diversion of technical and management personnel, or product shipment
delays. As a result of such a dispute, we may have to develop non-infringing
technology or enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may be unavailable on terms acceptable to us,
or at all. If there is a successful claim of product infringement against us and
we are unable to develop non-infringing technology or license the infringed or
similar technology on a timely basis, it could impair our business.
IF THE PROTECTION OF OUR TRADEMARKS AND PROPRIETARY RIGHTS IS INADEQUATE, OUR
BRAND AND REPUTATION COULD BE IMPAIRED AND WE COULD LOSE CUSTOMERS.
The steps we take to protect our proprietary rights may be inadequate. We
regard our copyrights, service marks, trademarks, trade dress, trade secrets and
similar intellectual property as critical to our success. We rely on trademark
and copyright law, trade secret protection and confidentiality or license
agreements with our employees, customers, partners and others to protect our
proprietary rights. We currently hold registered trademarks for "eToys" and
"BabyCenter". Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which we will sell our
products and services online. Furthermore, the relationship between regulations
governing domain names and laws protecting trademarks and similar proprietary
rights is unclear. Therefore, we may be
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unable to prevent third parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of our trademarks and other
proprietary rights.
THE LOSS OF THE SERVICES OF ONE OR MORE OF OUR KEY PERSONNEL, OR OUR FAILURE TO
ATTRACT, ASSIMILATE AND RETAIN OTHER HIGHLY QUALIFIED PERSONNEL IN THE FUTURE,
COULD DISRUPT OUR OPERATIONS AND RESULT IN A REDUCTION IN NET SALES.
The loss of the services of one or more of our key personnel could seriously
interrupt our business. We depend on the continued services and performance of
our senior management and other key personnel, particularly Edward C. Lenk, our
President and Chief Executive Officer. None of our officers or key employees is
bound by an employment agreement for any specific term other than the Chief
Executive Officer and President of BabyCenter. Our relationships with these
officers and key employees are at will. We do not have "key person" life
insurance policies covering any of our employees.
WE MAY BE ADVERSELY IMPACTED IF THE SOFTWARE, COMPUTER TECHNOLOGY AND OTHER
SYSTEMS WE USE ARE NOT YEAR 2000 COMPLIANT.
Any failure of our material systems, our vendors' material systems or the
Internet to be year 2000 compliant would have material adverse consequences for
us. As of the date of this filing, we have not incurred business disruptions as
a result of year 2000 issues. However, while no such occurrence has developed,
year 2000 issues may not become apparent immediately and may therefore be
experienced in the future. Such issues could result in difficulties in operating
our Web site effectively, taking product orders, making product deliveries or
conducting other fundamental parts of our business. We also depend on the year
2000 compliance of the computer systems and financial services used by
consumers. A significant disruption in the ability of consumers to reliably
access the Internet or portions of it or to use their credit cards would have an
adverse effect on demand for our services and would have a material adverse
effect on us.
THERE ARE RISKS ASSOCIATED WITH THE BABYCENTER MERGER AND OTHER POTENTIAL
ACQUISITIONS. AS A RESULT, WE MAY NOT ACHIEVE THE EXPECTED BENEFITS OF THE
BABYCENTER MERGER AND OTHER POTENTIAL ACQUISITIONS.
We may not realize the anticipated benefits from the BabyCenter merger. We
may not be able to successfully assimilate the additional personnel, operations,
acquired technology and products into our business. The merger may further
strain our existing financial and managerial controls and reporting systems and
procedures. In addition, key BabyCenter personnel may decide not to work for us.
These difficulties could disrupt our ongoing business, distract management and
employees or increase our expenses. Further, the physical expansion in
facilities that has occurred as a result of this merger may result in
disruptions that seriously impair our business. In particular, we now have
operations in multiple facilities in geographically distant areas. We are not
experienced in managing facilities or operations in geographically distant
areas.
If we are presented with appropriate opportunities, we intend to make other
investments in complementary companies, products or technologies. We may not
realize the anticipated benefits of any other acquisition or investment. If we
buy another company, we will likely face the same risks, uncertainties and
disruptions as discussed above with respect to the BabyCenter merger.
Furthermore, we may have to incur debt or issue equity securities to pay for any
additional future acquisitions or investments, the issuance of which would be
dilutive to us or our existing securityholders and could affect the price of the
Convertible Notes and our common stock.
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IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US EVEN IF DOING SO WOULD BE
BENEFICIAL TO OUR SECURITYHOLDERS.
Provisions of our Amended and Restated Certificate of Incorporation, our
Bylaws and Delaware law could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our securityholders.
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates corporate acquisitions. In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date the
person became an interested stockholder, unless:
- the Board of Directors approved the transaction in which such stockholder
became an interested stockholder prior to the date the interested
stockholder attained such status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or
- on or subsequent to such date the business combination is approved by the
Board of Directors and authorized at an annual or special meeting of
stockholders.
A "business combination" generally includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
Our Amended and Restated Certificate of Incorporation and Bylaws do not
provide for the right of stockholders to act by written consent without a
meeting or for cumulative voting in the election of directors. In addition, our
Amended and Restated Certificate of Incorporation permits the Board of Directors
to issue preferred stock with voting or other rights without any stockholder
action. Commencing at our first annual meeting of stockholders following the
date on which we have at least 800 stockholders, which is expected to be our
annual meeting held in 2000, our Amended and Restated Certificate of
Incorporation provides for the Board of Directors to be divided into three
classes, with staggered three-year terms. As a result, only one class of
directors will be elected at each annual meeting of stockholders. Each of the
two other classes of directors will continue to serve for the remainder of its
respective three-year term. These provisions, which require the vote of
stockholders holding at least a majority of the outstanding common stock to
amend, may have the effect of deterring hostile takeovers or delaying changes in
our management.
RISKS RELATED TO OUR INDUSTRY
IF WE ARE UNABLE TO ACQUIRE THE NECESSARY WEB DOMAIN NAMES, OUR BRAND AND
REPUTATION COULD BE DAMAGED AND WE COULD LOSE CUSTOMERS.
We may be unable to acquire or maintain Web domain names relating to our
brand in the United States and other countries in which we may conduct business.
As a result, we may be unable to prevent third parties from acquiring and using
domain names relating to our brand. Such use could damage our brand and
reputation and take customers away from our Web site. We currently hold various
relevant domain names, including the "eToys.com" domain name. The acquisition
and maintenance of domain names generally is regulated by governmental agencies
and their designees. For example, in the United States, the National Science
Foundation has appointed Network Solutions, Inc. as the current exclusive
registrar for the ".com", ".net" and ".org" generic top-level domains. The
regulation of domain names in the United States and in foreign countries is
subject to change in the near future. Such changes in
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the United States are expected to include a transition from the current system
to a system which is controlled by a non-profit corporation and the creation of
additional top-level domains. Governing bodies may establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names.
WE MAY NEED TO CHANGE THE MANNER IN WHICH WE CONDUCT OUR BUSINESS IF GOVERNMENT
REGULATION INCREASES.
The adoption or modification of laws or regulations relating to the Internet
could adversely affect the manner in which we currently conduct our business. In
addition, the growth and development of the market for online commerce may lead
to more stringent consumer protection laws, both in the United States and
abroad, that may impose additional burdens on us. Laws and regulations directly
applicable to communications or commerce over the Internet are becoming more
prevalent. The United States Congress recently enacted Internet laws regarding
children's privacy, copyrights, taxation and the transmission of sexually
explicit material, and the Federal Trade Commission recently published the new
Children's Online Privacy Protection Rule to become effective April 21, 2000.
The European Union recently enacted its own privacy regulations. The law of the
Internet, however, remains largely unsettled, even in areas where there has been
some legislative action. It may take years to determine whether and how existing
laws such as those governing intellectual property, privacy, libel and taxation
apply to the Internet.
The FTC has promulgated a variety of laws related to consumer protection, a
number of which apply to our business and operations. In January 2000 we
received two request letters from the FTC. The first letter relates to an FTC
study of the marketing of video games and software to children, particularly
those that have a rating of "mature" or higher under the Entertainment Software
Rating Board interactive rating system. The second letter relates to an FTC
inquiry to determine compliance with the FTC's Mail or Telephone Order
Merchandise Rule, which regulates the timeliness of the shipment of orders
placed by customers. We are in the process of replying to the FTC's requests and
inquiries. Any failure by us to comply with the rules and regulations
promulgated by the FTC or other governmental authorities could result in action
being taken against us that could have a material adverse effect on our business
and results of operations.
In order to comply with new or existing laws regulating online commerce, we
may need to modify the manner in which we do business, which may result in
additional expenses. For instance, we may need to spend time and money revising
the process by which we fulfill customers' orders to ensure that each shipment
complies with applicable laws. We may need to hire additional personnel to
monitor our compliance with applicable laws. We may also need to modify our
software to further protect our customers' personal information.
WE MAY BE SUBJECT TO LIABILITY FOR THE INTERNET CONTENT THAT WE PUBLISH.
As a publisher of online content, we face potential liability for
defamation, negligence, copyright, patent or trademark infringement, or other
claims based on the nature and content of materials that we publish or
distribute. In particular, our BabyCenter Web site offers a variety of content
for new and expectant parents, including content relating to pregnancy,
fertility and infertility, nutrition, child rearing and related subjects. If we
face liability, then our reputation and our business may suffer. In the past,
plaintiffs have brought these types of claims and sometimes successfully
litigated them against online services. Although we carry general liability
insurance to cover claims of these types, there can be no assurance that such
insurance will be adequate to indemnify us for all liability that may be imposed
on us.
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OUR NET SALES COULD DECREASE IF WE BECOME SUBJECT TO SALES AND OTHER TAXES.
If one or more states or any foreign country successfully asserts that we
should collect sales or other taxes on the sale of our products, our net sales
and results of operations could be harmed. We do not currently collect sales or
other similar taxes for physical shipments of goods into states other than
California. However, one or more local, state or foreign jurisdictions may seek
to impose sales tax collection obligations on us. In addition, any new operation
in states outside California could subject our shipments in such states to state
sales taxes under current or future laws. If we become obligated to collect
sales taxes, we will need to update our system that processes customers' orders
to calculate the appropriate sales tax for each customer order and to remit the
collected sales taxes to the appropriate authorities. These upgrades will
increase our operating expenses. In addition, our customers may be discouraged
from purchasing products from us because they have to pay sales tax, causing our
net sales to decrease. As a result, we may need to lower prices to retain these
customers.
RISKS RELATED TO SECURITIES MARKETS
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS.
We cannot be certain that additional financing will be available to us on
favorable terms when required, or at all. If we raise additional funds through
the issuance of equity, equity-related or debt securities, such securities may
have rights, preferences or privileges senior to those of the rights of our
common stock or the Convertible Notes and our stockholders will experience
additional dilution. We require substantial working capital to fund our
business. Since our inception, we have experienced negative cash flow from
operations and expect to experience significant negative cash flow from
operations for the foreseeable future. Although we believe that the net proceeds
of this offering, together with current cash, cash equivalents and cash that may
be generated from operations, will be sufficient to meet our anticipated cash
needs through December 31, 2000, there can be no assurance to that effect.
THE MARKET PRICES OF THE CONVERTIBLE NOTES AND OUR COMMON STOCK MAY BE VOLATILE,
WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR INDIVIDUAL SECURITYHOLDERS.
The market prices for the Convertible Notes and our common stock are likely
to be highly volatile and subject to wide fluctuations in response to factors
including the following, some of which are beyond our control:
- actual or anticipated variations in our quarterly operating results;
- announcements of technological innovations, increased cost of operations
or new products or services by us or our competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet and/or online commerce industries;
- changes in the economic performance and/or market valuations of other
Internet, online commerce or retail companies;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- release of lock-up or other transfer restrictions on our outstanding
shares of common stock or sales of additional shares of common stock; and
- potential litigation.
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Since our initial public offering of common stock in May 1999 through the
date of this filing, the closing market price of our common stock on the Nasdaq
National Market has ranged from a high of $86 per share to a low of $13.75 per
share, indicating the extreme volatility in the market price of our common
stock.
In the past, following periods of volatility in the market price of their
securities, many companies have been the subject of securities class action
litigation. If we were sued in a securities class action, it could result in
substantial costs and a diversion of management's attention and resources and
would cause the prices of the Convertible Notes and our common stock to fall.
RISKS RELATED TO OUR SECURITIES
AS A RESULT OF THE CONVERTIBLE NOTES OFFERING, WE HAVE A SIGNIFICANT AMOUNT OF
DEBT AND MAY HAVE INSUFFICIENT CASH FLOW TO SATISFY OUR DEBT SERVICE
OBLIGATIONS. IN ADDITION, THE AMOUNT OF OUR DEBT COULD IMPEDE OUR OPERATIONS AND
FLEXIBILITY.
As a result of the Convertible Notes offering, we have a significant amount
of debt and debt service obligations. If we are unable to generate sufficient
cash flow or otherwise obtain funds necessary to make required payments on the
Convertible Notes, including from cash and cash equivalents on hand, we will be
in default under the terms of the indenture under which the Convertible Notes
were issued which could, in turn, cause defaults under our other existing and
future debt obligations.
Even if we are able to meet our debt service obligations, the amount of debt
we have could adversely affect us in a number of ways, including by:
- limiting our ability to obtain any necessary financing in the future for
working capital, capital expenditures, debt service requirements or other
purposes;
- limiting our flexibility in planning for, or reacting to, changes in our
business;
- placing us at a competitive disadvantage relative to our competitors who
have lower levels of debt;
- making us more vulnerable to a downturn in our business or the economy
generally;
- requiring us to use a substantial portion of our cash flow from operations
to pay principal and interest on our debt, instead of contributing those
funds to other purposes such as working capital and capital expenditures;
and
- requiring us to maintain specific financial ratios and comply with other
restrictive covenants in our existing and future agreements governing our
debt obligations.
To be able to meet our debt service requirements we must successfully
implement our business strategy. We cannot assure you that we will successfully
implement our business strategy or that we will be able to generate sufficient
cash flow from operating activities to meet our debt service obligations and
working capital requirements. Our ability to meet our obligations will be
dependent upon our future performance, which will be subject to prevailing
economic conditions and to financial, business and other factors.
If the implementation of our business strategy is delayed or unsuccessful,
or if we do not generate sufficient cash flow to meet our debt service and
working capital requirements, we may need to seek additional financing. If we
are unable to obtain such financing on terms that are acceptable to us, we could
be forced to dispose of assets to make up for any shortfall in the payments due
on our debt under circumstances that might not be favorable to realizing the
highest price for those assets. A substantial portion of our assets consist of
intangible assets, the value of which will depend upon a
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variety of factors, including without limitation, the success of our business.
As a result, we cannot assure you that our assets could be sold quickly enough,
or for amounts sufficient, to meet our obligations, including our obligations
under the Convertible Notes.
WE MAY BE UNABLE TO REPURCHASE THE CONVERTIBLE NOTES UPON THE OCCURRENCE OF A
CHANGE OF CONTROL.
Upon the occurrence of a change of control of eToys, we are required to
offer to repurchase all outstanding Convertible Notes. Although the indenture
allows us, subject to satisfaction of certain conditions, to repurchase the
Convertible Notes using shares of our common stock, if a change of control were
to occur, our ability to repurchase the Convertible Notes with cash will depend
on the availability of sufficient funds and compliance with the terms of any
debt ranking senior to the Convertible Notes. Our failure to repurchase tendered
Convertible Notes upon a change of control would constitute an event of default
under the indenture, which could result in the acceleration of the maturity of
the Convertible Notes and all of our other outstanding debt. These repurchase
requirements may also delay or make it harder for others to obtain control of
us.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE AND THE PRICE
OF THE CONVERTIBLE NOTES TO FALL.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, the market prices of the
Convertible Notes and our common stock could fall. Such sales also might make it
more difficult for us to sell equity or equity-related securities in the future
at a time and price that we deem appropriate. As of December 31, 1999, we had
outstanding 119,591,045 shares of common stock and 20,823,316 options to acquire
common stock, of which 4,036,342 options were vested and exercisable. Of the
shares that are currently outstanding, 14,852,200 are freely tradeable in the
public market, 102,738,847 are tradeable in the public market subject to the
restrictions, if any, applicable under Rule 144 and Rule 145 of the Securities
Act, and 1,999,998 are tradeable in the public market beginning on May 19, 2000
subject to the restrictions, if any, applicable under Rule 144 of the Securities
Act. All shares acquired upon exercise of options will be freely tradeable in
the public market.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted securities for at least one year would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of (a) one percent of the number of shares of common stock then
outstanding or (b) the average weekly trading volume of the common stock during
the four calendar weeks preceding the sale. Sales under Rule 144 are also
subject to requirements with respect to manner of sale, notice, and the
availability of current public information about us. Under Rule 144(k), a person
who is not deemed to have been our affiliate at any time during the three months
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years, is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144. Although the holders of a substantial amount of our common stock
are subject to selling restrictions contained in Rule 144, these restrictions do
not significantly restrain trading in our common stock because the volume of
trading in our common stock on a daily basis has resulted in a high volume
limitation for Rule 144 purposes. Sales by our stockholders of a substantial
amount of our common stock could adversely affect the market price of the
Convertible Notes and our common stock.
31
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risk related to changes in interest rates and
foreign currency exchange rates. We do not use derivative financial instruments.
INTEREST RATE RISK. We maintain a portfolio of highly liquid cash
equivalents maturing in three months or less as of the date of purchase. Given
the short-term nature of these investments, we believe we are not subject to
significant interest rate risk with respect to these investments. Additionally,
we are subject to interest rate risk related to our long-term debt, principally
the Convertible Notes, notes payable and capital lease obligations. The
Convertible Notes, notes payable and capital lease obligations bear interest at
fixed rates, and their carrying amount approximates fair value based on
borrowing rates currently available to us. As such, we believe that market risk
arising from our long-term debt is not material.
FOREIGN CURRENCY RISK. We currently have a wholly-owned subsidiary with
operations in the United Kingdom. All sales and expenses incurred by the foreign
subsidiary are denominated in the British pound, which is considered the
functional currency. As such, we are exposed to foreign currency risk which
arises in part from funding denominated in British pounds provided to the
foreign subsidiary and from the translation of the foreign subsidiary's
financial results into U.S. dollars during consolidation. As exchange rates
vary, our results from operations and profitability may be adversely impacted.
As of December 31, 1999, the effect of the foreign currency exchange rate
fluctuations has not been material.
32
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 5 Commitments and Contingencies in Part I, Item 1, Financial
Statements.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 2, 1999, the Company issued a warrant to acquire up to
2,500 shares of the Company's common stock with an exercise price of $50.375 per
share to Kinka Usher. The issuance of such warrant was exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") pursuant to Section 4(2) thereof.
On December 6, 1999 the Company issued and sold $150 million principal
amount of 6.25% Convertible Subordinated Notes due December 1, 2004 (the
"Convertible Notes"). The issuance of the Convertible Notes was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Lease dated December 14, 1999 between the Company and Kilroy Realty,
L.P.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current report on Form 8-K dated December 8, 1999 pertaining to the
Company's private placement of $150 million principal amount of
6.25% Convertible Subordinated Notes due December 1, 2004 on December 6, 1999.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, eToys
Inc. has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
<TABLE>
<S> <C> <C>
ETOYS INC.
By: /s/ STEVEN J. SCHOCH
-----------------------------------------
Steven J. Schoch
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
Dated: February 11, 2000
34
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
Lease dated December 14, 1999 between the Company and Kilroy
10.1 Realty, L.P.
27.1 Financial Data Schedule
</TABLE>
35
<PAGE>
WESTSIDE MEDIA CENTER
OFFICE LEASE
KILROY REALTY, L.P.
A DELAWARE LIMITED PARTNERSHIP
AS LANDLORD,
AND
ETOYS INC.,
A DELAWARE CORPORATION,
AS TENANT.
<PAGE>
SUMMARY OF BASIC LEASE INFORMATION
This Summary of Basic Lease Information (the "SUMMARY") is hereby
incorporated into and made a part of the attached Office Lease (this Summary
and the Office Lease to be known collectively as the "LEASE") which pertains
to the multi-office building project described in Section 6.1 below (the
"PROJECT"). Each reference in the Office Lease to any term of this Summary
shall have the meaning as set forth in this Summary for such term. In the
event of a conflict between the terms of this Summary and the Office Lease,
the terms of the Office Lease shall prevail. Any initially capitalized terms
used herein and not otherwise defined herein shall have the meaning as set
forth in the Office Lease.
<TABLE>
<CAPTION>
TERMS OF LEASE
(References are to
the Office Lease) DESCRIPTION
----------------- -----------
<S> <C> <C>
1. Dated as of: December 14, 1999.
2. Landlord: KILROY REALTY, L.P., a Delaware limited partnership
3. Address of Landlord
(SECTION 29.14): Kilroy Realty, L.P.
2250 East Imperial Highway, Suite 1200
El Segundo, California 90245
Attention: Mr. Jeffrey Hawken
with a copy to:
Allen, Matkins, Leck, Gamble & Mallory LLP
1999 Avenue of the Stars
Suite 1800
Los Angeles, California 90067
Attention: Anton N. Natsis, Esq.
4. Tenant: eTOYS INC.,
a Delaware corporation.
5. Address of Tenant
(SECTION 29.14): eToys Inc.
3100 Ocean Park Boulevard, Suite 300
Santa Monica, California 90405
Attention: Mr. Jordon Posell
(Prior to Lease Commencement Date)
and
-ii-
<PAGE>
eToys Inc.
12200 West Olympic Boulevard
Los Angeles, California 90064
Attention: Mr. Jordon Posell
(After Lease Commencement Date)
and
eToys Inc.
12200 West Olympic Boulevard
Los Angeles, California 90064
Attention: General Counsel
(After Lease Commencement Date)
with a copy to:
Stein, Neubauer, Greenwald & Pauly
1299 Ocean Avenue, Suite 400
Santa Monica, California 90401-1007
Attention: Richard L. Miller, Esq.
6. Premises (ARTICLE 1).
6.1 Project: As defined in Section 1.1 of the Lease.
6.2 Building: 12200 West Olympic Boulevard, Los Angeles, California.
6.3 Premises: Approximately 151,000 rentable square feet of space in the
Building, which total Building space is generally depicted
on Exhibit A.
7. Term (ARTICLE 2).
7.1 Lease Term: Eleven (11) years.
7.2 Lease Commencement The Lease Commencement Date shall occur as set forth in Article 2
Date: of the Lease. The Lease Commencement Date is anticipated to be
September 25, 2000.
7.3 Lease Expiration Date: The last day of the month in which the eleventh (11th) annual
anniversary of the Lease Commencement Date occurs, subject to
extension as provided in Section 2.2 hereof.
-iii-
<PAGE>
8. Base Rent (ARTICLE 3):
ANNUAL BASE MONTHLY INSTALLMENT MONTHLY BASE RENT
RENT OF BASE RENT PER RENTABLE
MONTHS OF TERM SQUARE FOOT
1-12 $3,768,234.00 $314,020.00 $2.08
13-24 $4,003,794.00 $333,650.00 $2.21
25-36 $4,248,777.00 $354,065.00 $2.34
37-48 $4,503,558.00 $375,297.00 $2.49
49-60 $4,768,531.00 $397,378.00 $2.63
61-72 $5,044,103.00 $420,342.00 $2.78
73-84 $4,217,231.00 $351,436.00 $2.33
85-96 $4,515,288.00 $376,274.00 $2.49
97-108 $4,825,269.00 $402,106.00 $2.66
109-120 $5,147,649.00 $428,971.00 $2.84
121-132 $5,482,925.00 $456,910.00 $3.03
9. Additional Rent (ARTICLE 4).
9.1 Tenant's Share of
Direct Expenses: 100%.
10. Security (ARTICLE 21):
10.1 Security Letter of $8,467,729.00
Credit (initial amount):
10.2 Promissory Note Letter $6,532,271.00
of Credit
(initial amount):
11. Parking Pass Ratio
(Article 28): Up to four and one-half (4.5)
unreserved parking passes for every
1,000 usable square feet of the
Premises, subject to the terms of
Article 28 of the Lease.
12. Brokers (SECTION 29.20):
CRESA Partners
11726 San Vincente Blvd., Suite 500
Los Angeles, California 90049
CB Richard Ellis
1840 Century Park East, Suite 700
Los Angeles, California 90067
-iv-
<PAGE>
13. Permitted Use (ARTICLE 5): General office use and any other
legally permitted non-retail use
consistent with a first-class office
building project and uses incidental
thereto, including customer service
phone center, a so-called toy
library (used to display Tenant's
products to Tenant's staff and
investors), lunchroom and internet
uses consistent with the character
of the Building as long as Tenant's
primary use of the Premises is for
general office purposes.
14. Initial Promissory Note Amount
and Promissory Note Payments
(SECTION 21.2):
14.1 Initial Promissory Note $6,532,271.00
Amount:
14.2 Initial Promissory Note $43,548.50 per month for each of
Payment: the first seventy-two (72) months of
the Lease Term (interest only) and
$136,337.41 per month for each of
the last sixty (60) months of the
Lease Term (interest and principal)
</TABLE>
-v-
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C> <C>
ARTICLE 1 PREMISES, BUILDING, PROJECT, AND COMMON AREAS; VERIFICATION OF SQUARE FOOTAGE; AND
EXPANSION SPACE......................................................................................1
ARTICLE 2 LEASE TERM..........................................................................................15
ARTICLE 3 BASE RENT...........................................................................................21
ARTICLE 4 ADDITIONAL RENT.....................................................................................22
ARTICLE 5 USE OF PREMISES.....................................................................................34
ARTICLE 6 SERVICES AND UTILITIES..............................................................................35
ARTICLE 7 REPAIRS.............................................................................................39
ARTICLE 8 ADDITIONS AND ALTERATIONS...........................................................................42
ARTICLE 9 COVENANT AGAINST LIENS..............................................................................44
ARTICLE 10 INSURANCE...........................................................................................45
ARTICLE 11 DAMAGE AND DESTRUCTION..............................................................................48
ARTICLE 12 NONWAIVER...........................................................................................51
ARTICLE 13 CONDEMNATION........................................................................................52
ARTICLE 14 ASSIGNMENT AND SUBLETTING...........................................................................53
ARTICLE 15 SURRENDER OF PREMISES; REMOVAL OF TRADE FIXTURES....................................................58
ARTICLE 16 HOLDING OVER........................................................................................59
ARTICLE 17 ESTOPPEL CERTIFICATES...............................................................................59
ARTICLE 18 SUBORDINATION.......................................................................................60
ARTICLE 19 DEFAULTS; REMEDIES..................................................................................61
ARTICLE 20 ATTORNEYS' FEES.....................................................................................66
ARTICLE 21 LETTERS OF CREDIT...................................................................................66
ARTICLE 22 INTENTIONALLY OMITTED...............................................................................72
ARTICLE 23 SIGNS...............................................................................................72
-vi-
<PAGE>
PAGE
----
ARTICLE 24 COMPLIANCE WITH LAW.................................................................................74
ARTICLE 25 LATE CHARGES........................................................................................75
ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT................................................75
ARTICLE 27 ENTRY BY LANDLORD...................................................................................75
ARTICLE 28 TENANT PARKING......................................................................................77
ARTICLE 29 MISCELLANEOUS PROVISIONS............................................................................79
EXHIBITS
- --------
A OUTLINE OF PREMISES
B RULES AND REGULATIONS
C NOTICE OF LEASE TERM DATES
D TENANT WORK LETTER
E FORM OF TENANT'S ESTOPPEL CERTIFICATE
F FORM OF SPECIAL POWER OF ATTORNEY
G FORM OF TELECOMMUNICATION AGREEMENT
H SECURITY LETTER OF CREDIT
I PROMISSORY NOTE
I-1 PROMISSORY NOTE LETTER OF CREDIT
J FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
K FORM OF PLEDGE AND SECURITY AGREEMENT
L FORM OF MEMORANDUM OF LEASE
M FORM OF RECOGNITION OF AMENDMENT TO COVENANTS, CONDITIONS
AND RESTRICTIONS
</TABLE>
-vii-
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
AAA............................................................................................................87
Abatement Event................................................................................................64
Abatement Event Termination Date...............................................................................65
Abatement Event Termination Notice.............................................................................65
Additional Promissory Note......................................................................................7
Additional Promissory Note L-C..................................................................................7
Additional Promissory Note L-C Initial Stated Amount............................................................7
Additional Rent................................................................................................22
Additional Security L-C.........................................................................................4
Additional Security L-C Initial Stated Amount...................................................................4
Additional Security L-C Security Deposit........................................................................5
Advocate Arbitrators...........................................................................................17
Affiliate......................................................................................................56
Alterations....................................................................................................42
Applicable Reassessment........................................................................................33
Approved Construction Drawings..........................................................................EXHIBIT D
Arbitration Award..............................................................................................88
Arbitration Notice.............................................................................................87
Arbitrator.....................................................................................................87
Architect...............................................................................................EXHIBIT D
Assignee................................................................................................EXHIBIT M
Assignment..............................................................................................EXHIBIT M
Assignment and Assumption Agreement............................................................................83
Assignor................................................................................................EXHIBIT M
Award..........................................................................................................17
Bank...........................................................................................................65
base building...........................................................................................EXHIBIT D
Base Building..................................................................................................43
Base Building Plans.....................................................................................EXHIBIT D
Base Rent......................................................................................................22
BOMA............................................................................................................3
Borrower................................................................................................EXHIBIT L
Brokerage Agreement............................................................................................83
Brokers........................................................................................................82
BS/BS Exception................................................................................................40
Building........................................................................................................1
Building Structure.............................................................................................40
Building Systems...............................................................................................40
Building Top Signage...........................................................................................73
Business Affiliate.............................................................................................57
Business Hours.................................................................................................35
CGCC...........................................................................................................56
Claims.........................................................................................................45
Code................................................................................................54. EXHIBIT D
(viii)
<PAGE>
PAGE(S)
-------
Collateral......................................................................................................2
Collateral Account..............................................................................................4
Commencement Date Delay.................................................................................EXHIBIT D
Common Areas....................................................................................................2
Comparable Buildings............................................................................................2
Comparable Transactions........................................................................................18
Competitor.....................................................................................................74
Connections.............................................................................................EXHIBIT J
Consent.................................................................................................EXHIBIT D
Construction Drawings...................................................................................EXHIBIT D
Construction Period)....................................................................................EXHIBIT D
Contract................................................................................................EXHIBIT D
Contractor..............................................................................................EXHIBIT D
Cosmetic Alterations...........................................................................................42
Cresa Partners' Fee Disbursement...............................................................................70
Debt....................................................................................................EXHIBIT L
Default........................................................................................................61
Default Rate............................................................................................EXHIBIT L
Delay Notice............................................................................................EXHIBIT D
Delivery Conditions.....................................................................................EXHIBIT D
Delivery Date(s)........................................................................................EXHIBIT D
Deposited Funds.................................................................................................1
Design Problem.................................................................................................42
Designation Notice......................................................................................EXHIBIT J
Direct Expenses................................................................................................22
Downtime Start Date............................................................................................55
Drawing Change Notice...................................................................................EXHIBIT D
Effective Date.................................................................................................19
Eligibility Period.............................................................................................64
Enclosure Delivery Condition....................................................................................3
Engineers...............................................................................................EXHIBIT D
Environmental Laws.............................................................................................84
Estimate.......................................................................................................29
Estimate Statement.............................................................................................29
Estimated Expenses.............................................................................................29
Event of Default........................................................................................EXHIBIT L
Excepted Matters...............................................................................................89
Exercise Notice................................................................................................16
Expansion Effective Date.......................................................................................10
Expansion Exercise Notice.......................................................................................4
Expansion Lease................................................................................................10
Expansion Outside Delivery Date................................................................................10
Expansion Rent..................................................................................................8
Expansion Space Amendment.......................................................................................9
Expansion Space Commencement Date...............................................................................9
(ix)
<PAGE>
PAGE(S)
-------
Expansion Space Lease...........................................................................................9
Expansion Termination Notice...................................................................................10
Expense Year...................................................................................................22
Exterior Signage...............................................................................................73
Fair Market Rental Rate........................................................................................18
Final Retention.........................................................................................EXHIBIT D
Final Space Plan........................................................................................EXHIBIT D
Financial Condition.............................................................................................4
Financial Information...........................................................................................4
First Cresa Partners' Fee Disbursement.........................................................................70
First Delivery Date.....................................................................................EXHIBIT D
First Enclosure Delivery Date...........................................................................EXHIBIT D
Force Majeure..................................................................................................81
Ground Lease...................................................................................................60
Hazardous Material(s)..........................................................................................84
HVAC...........................................................................................................35
HVAC Maximum...................................................................................................35
HVAC Notice....................................................................................................35
Increased Amounts..............................................................................................47
Indemnification Claim...................................................................................EXHIBIT D
Initial Delivery Condition......................................................................................2
Initial Delivery Date(s).....................................................................EXHIBIT D. EXHIBIT D
Interest Rate..................................................................................................24
JAMS...........................................................................................................87
Landlord........................................................................................................1
Landlord Caused Delay...................................................................................EXHIBIT D
Landlord Contribution..........................................................................................51
Landlord Parties...............................................................................................45
Landlord Repair Notice.........................................................................................49
Landlord's Additional Loan......................................................................................6
Landlord's Expansion Extension Notice..........................................................................11
Landlord's Expansion Response Notice...........................................................................11
Landlord's Loan................................................................................................68
Landlord's Response Notice.....................................................................................19
Landlord's TI Proceeds.........................................................................................48
Late Charge.............................................................................................EXHIBIT L
L-C DELIVERY CONDITION.....................................................................................13, 71
Lease...........................................................................................................1
Lease Commencement Date........................................................................................15
Lease Expiration Date..........................................................................................15
Lease Term.....................................................................................................15
Lease Year.....................................................................................................15
LIQUIDATED DAMAGES.........................................................................................14, 71
Maturity Date...........................................................................................EXHIBIT L
Memorandum......................................................................................................1
(x)
<PAGE>
PAGE(S)
-------
Memorandum of Lease............................................................................................80
Monument.......................................................................................................73
Monument Signage...............................................................................................73
Neutral Arbitrator.............................................................................................17
Non-Contribution Items..................................................................................EXHIBIT D
Non-Disturbance Agreement......................................................................................60
Note Letter of Credit...................................................................................EXHIBIT L
Notice..........................................................................................................5
Notice of Exercise......................................................................................EXHIBIT J
Notice of Lease Term Dates.....................................................................................15
Notices........................................................................................................82
number of days..........................................................................................EXHIBIT D
Objectionable Name.............................................................................................73
Obligations.....................................................................................................2
Operating Expenses.............................................................................................22
Option Rent....................................................................................................16
Option Rent Notice.............................................................................................16
Option Term....................................................................................................15
Option Term TI Allowance.......................................................................................19
Option to Extend................................................................................................2
Original Tenant.................................................................................................3
Other Items.....................................................................................................4
Outside Agreement Date.........................................................................................17
Overlap Period.................................................................................................65
Parking Rate Credit............................................................................................77
Permits.................................................................................................EXHIBIT D
Phase I Building................................................................................................1
Phase II Building...............................................................................................1
Pledged Account................................................................................................68
Pledgee.........................................................................................................1
Pledgor.........................................................................................................1
Power of Attorney..............................................................................................70
Premises........................................................................................................1
Premises Outside Delivery Date.................................................................................19
Prevailing Party...............................................................................................88
Prevailing Rate................................................................................................77
Project.........................................................................................................1
Promissory Note................................................................................................68
Promissory Note L-C............................................................................................69
Promissory Note L-C Initial Stated Amount......................................................................69
Proposition 13.................................................................................................27
Proposition 13 Protection Amount...............................................................................33
Proposition 13 Purchase Price..................................................................................33
Reassessment...................................................................................................32
Recognition Agreement..........................................................................................57
(xi)
<PAGE>
PAGE(S)
-------
Renovations....................................................................................................85
Rent...........................................................................................................22
Requesting Party...............................................................................................59
Review Period..................................................................................................53
Roof Location..................................................................................................89
Second Cresa Partners' Fee Disbursement........................................................................70
Second Delivery Date....................................................................................EXHIBIT D
Second Enclosure Delivery Date..........................................................................EXHIBIT D
Secured Areas..................................................................................................76
Security L-C...................................................................................................66
Security L-C Initial Stated Amount.............................................................................66
Security L-C Security Deposit..................................................................................68
Specifications..........................................................................................EXHIBIT D
Statement......................................................................................................29
Subject Space..................................................................................................53
Sublease.......................................................................................................57
Sublease Space.................................................................................................57
Subleasing Costs...............................................................................................55
Submittal Date..........................................................................................EXHIBIT D
Substantial Completion..................................................................................EXHIBIT D
Subtenant......................................................................................................57
Summary.........................................................................................................1
Supplemental Statement.........................................................................................29
Tax Expenses...................................................................................................27
Tax Increase...................................................................................................32
Tax Notice.....................................................................................................32
Telecommunication Devices...............................................................................EXHIBIT J
Telecommunication Equipment....................................................................................89
Tenant..........................................................................................................1
Tenant Change...........................................................................................EXHIBIT D
Tenant Designated HVAC Hours...................................................................................35
Tenant HVAC System.............................................................................................39
Tenant Improvements.....................................................................................EXHIBIT D
Tenant Parties.................................................................................................45
Tenant Work Letter..............................................................................................1
Tenant's Agents.........................................................................................EXHIBIT D
Tenant's Contractors....................................................................................EXHIBIT D
Tenant's Contribution...................................................................................EXHIBIT D
Tenant's Contribution Disbursement.............................................................................70
Tenant's Contribution Items.............................................................................EXHIBIT D
Tenant's Expansion Request Notice..............................................................................10
Tenant's Maximum Parking Allocation............................................................................77
Tenant's Request Notice........................................................................................19
Tenant's Share.................................................................................................28
Termination Extension Notice...............................................................................11, 20
(xii)
<PAGE>
PAGE(S)
-------
Termination Notice.............................................................................................19
TI Areas........................................................................................................2
Total HVAC Hours...............................................................................................38
Transaction Costs..............................................................................................56
Transfer Notice................................................................................................53
Transfer Premium...............................................................................................55
Transferee.....................................................................................................53
Transfers......................................................................................................53
Transmission Device.....................................................................................EXHIBIT J
Transmission Devices....................................................................................EXHIBIT J
Transmission Devices Area...............................................................................EXHIBIT J
under protest..................................................................................................87
Underlying Documents...........................................................................................34
Unusable Area..................................................................................................64
Voluntary Compliance...........................................................................................39
</TABLE>
(xiii)
<PAGE>
OFFICE LEASE
This Office Lease, which includes the preceding Summary of Basic
Lease Information (the "SUMMARY") attached hereto as pages (ii) through (v)
and incorporated herein by this reference (the Office Lease and Summary to be
known sometimes collectively hereafter as the "LEASE"), dated as of the date
set forth in Section 1 of the Summary, is made by and between "LANDLORD" and
"TENANT" as those terms are defined in Sections 2 and 4 of the Summary,
respectively.
ARTICLE 1
PREMISES, BUILDING, PROJECT, AND COMMON AREAS;
VERIFICATION OF SQUARE FOOTAGE; AND EXPANSION SPACE
1.1 PREMISES, BUILDING, PROJECT AND COMMON AREAS.
1.1.1 THE PREMISES. Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord the premises set forth in Section 6.3 of
the Summary (the "PREMISES"). The outline of the Premises is set forth in
Exhibit A attached hereto. Subject to Landlord's reasonable regulations,
restrictions and guidelines, Tenant's rights to the Premises include Tenant's
right to use and access the janitorial closets, risers, electrical and
telephone rooms for Tenant's effective and efficient use of the Premises
permitted hereunder and the ceilings, walls and floors above and below the
Premises to install and service wire, conduit and cable that service Tenant's
equipment in the Premises in accordance with, and subject to, the other terms
and provisions of this Lease and Landlord's rights hereunder with respect to
such areas. Except as specifically set forth in this Lease and in the Tenant
Work Letter attached hereto as Exhibit D (the "TENANT WORK LETTER"), Landlord
shall not be obligated to provide or pay for any improvement work or services
related to the improvement of the Premises. Tenant also acknowledges that
neither Landlord nor any agent of Landlord has made any representation or
warranty regarding the condition of the Premises or the Project or with
respect to the suitability of any of the foregoing for the conduct of
Tenant's business, except as specifically set forth in this Lease and the
Tenant Work Letter.
1.1.2 THE BUILDING AND THE PROJECT. The Premises will
constitute the entire rentable square footage in the building set forth in
Section 6.2 of the Summary (the "BUILDING") to be constructed by Landlord,
which Building is sometimes referred to herein as the "PHASE I BUILDING". The
Building will be part of an office project known as "WESTSIDE MEDIA CENTER."
The term "PROJECT," as used in this Lease, shall mean (i) the Building and
the Common Areas, (ii) the land (which will be improved with landscaping,
subterranean parking facilities and other improvements) upon which the
Building and the Common Areas will be located, (iii) the other office
building commonly known as the TCI Studios Building and located adjacent to
the Building at 12312 West Olympic Boulevard and the other office building to
be constructed by Landlord and to be located adjacent to the Building at
12100 West Olympic Boulevard (which building is sometimes referred to herein
as the "PHASE II BUILDING") and the land upon which such adjacent office
buildings are or will be located, and (iv) at Landlord's discretion, any
-1-
<PAGE>
additional real property, areas, land, buildings or other improvements added
to the areas encompassed by the Project site plan or added outside the
Project site plan, subject to the restrictions in Section 1.1.3 applicable to
Common Areas which shall also apply to such added space and so long as the
addition of such space to the Project does not materially increase Tenant's
obligations or costs hereunder.
1.1.3 COMMON AREAS. Tenant shall have the non-exclusive
right to use in common with other tenants in the Project, and subject to the
Rules and Regulations referred to in Article 5 of this Lease, those portions
of the Project which are provided, from time to time, for use in common by
Landlord, Tenant and any other tenants of the Project (such areas, together
with such other portions of the Project designated by Landlord, in its good
faith discretion, including certain areas designated for the exclusive use of
certain tenants, or to be shared by Landlord and certain tenants (except for
areas that may be used for retail space, kiosks and storage areas), are
collectively referred to herein as the "COMMON AREAS"). Notwithstanding the
foregoing, Landlord acknowledges and agrees that, subject to the terms and
conditions of any applicable Underlying Documents (as defined in Section 5
hereof) and Landlord's reasonable rules and regulations, Tenant shall have
the right from time to time throughout the Lease Term, in compliance with all
Applicable Laws and at no additional cost (except as otherwise provided
below), to use that portion of the Common Area designated by Landlord from
time to time throughout the Term of this Lease to hold special events (which
are not more frequent than once per month and do not last longer than four
(4) hours each) subject to the following conditions: (i) Tenant shall be
responsible, at its sole cost and expense, for the removal of trash and
debris created as a result of any such use; (ii) any such use will not
interfere unreasonably with any other tenant's use of the Project and, in
this regard, Tenant's use of such portion of the Common Areas shall be
subject to scheduling such use with any other tenant's use of the Common
Areas; (iii) Tenant shall provide Landlord with at least ten (10) days'
advance written notice of any such use of the Common Areas; and (iv) Tenant's
indemnification and insurance obligations in Article 10 of this Lease shall
be fully applicable to Tenant's use of the Common Areas. Except as otherwise
provided in this Lease, the manner in which the Common Areas are maintained
and operated shall be at the sole discretion of Landlord and the use thereof
shall be subject to the Rules and Regulations, which Rules and Regulations
shall not be unreasonably or discriminatorily modified or enforced in a
manner which will materially interfere with the conduct of Tenant's Permitted
Use from the Premises or Tenant's use of the Project parking facility. So
long as Landlord provides Tenant with prior written notice (provided that
such notice shall not be required in the event of an emergency), Landlord, in
Landlord's prudent business judgment, reserves the right to close
temporarily, make alterations or additions to, or change the location of
elements of the Project and the Common Areas; provided, however, that
Landlord shall use commercially reasonable efforts to not materially
interfere with the conduct of Tenant's Permitted Use from the Premises or
Tenant's use of the Project parking facility in exercising such reserved
rights hereunder. Notwithstanding anything above to the contrary, Landlord
shall maintain and operate the Project in a manner consistent with that of
other first-class, mid-rise office buildings in Santa Monica, California,
which are comparable in terms of size (from 100,000 to 350,000 square feet),
quality of construction, appearance, , and quality of common area
improvements (the "COMPARABLE BUILDINGS"). Except when and where Tenant's
right of access is specifically excluded as the result of (i) an emergency,
(ii) a requirement by Applicable Laws, or (iii) a specific provision set
forth in this Lease, Tenant shall have the right of access to the Premises,
the Building, and the Project parking facility twenty-four (24) hours
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per day, seven (7) days per week during the "LEASE TERM," as that term is
defined in Section 2.1 of this Lease.
1.2 VERIFICATION OF SQUARE FOOTAGE. For purposes of this Lease,
"rentable square feet" and "usable square feet" of the initial Premises, the
Project, and the "Expansion Space," as that term is defined in Section 1.3 of
this Lease, shall be calculated pursuant to Standard Method of Measuring
Floor Area in Office Building, ANSI Z65.1 - 1996 ("BOMA"). Within thirty (30)
days after the Lease Commencement Date for the initial Premises or the
Expansion Space Commencement Date for the Expansion Space, as the case may
be, Landlord's space planner/architect shall measure the rentable and usable
square feet of the initial Premises and/or the Expansion Space, as the case
may be, and such measurement shall be made in accordance with the provisions
of this Section 1.2. Upon such measurement, all amounts, percentages and
figures appearing or referred to in this Lease based upon an incorrect amount
(including, without limitation, the amount of the Rent, the Parking Pass
Ratio, the stated amount of the Security L-C, the stated amount of the
Promissory Note L-C, the stated amount of the Additional Security L-C (if
any), the stated amount of the Additional Promissory Note L-C (if any), and
Tenant's Contribution (from Landlord's Loan and Landlord's Additional Loan,
if any)) shall be modified in accordance with such determination. Tenant
shall have the right, exercisable within thirty (30) days after its written
receipt of such determination by Landlord's space planner/architect, to
remeasure the initial Premises or such Expansion Space within such thirty
(30) day period. Landlord shall have ten (10) business days after its receipt
of the results of such remeasurement to either (i) accept Tenant's
remeasurement determination in writing, in which event all amounts,
percentages and figures appearing or referred to in this Lease based upon an
incorrect amount (including, without limitation, the amount of the Rent, the
Parking Pass Ratio, the stated amount of the Security L-C, the stated amount
of the Promissory Note L-C, the stated amount of the Additional Security L-C
(if any), the stated amount of the Additional Promissory Note L-C (if any),
and Tenant's Contribution (from Landlord's Loan and Landlord's Additional
Loan, if any)) shall be modified in accordance with such determination, or
(ii) reject Tenant's determination in which event such dispute will be
resolved by arbitration pursuant to Section 29.29 hereof. Upon the resolution
of such dispute by arbitration pursuant to Section 29.29 hereof, (i) all
amounts, percentages and figures appearing or referred to in this Lease based
upon an incorrect amount (including, without limitation, the amount of the
Rent, the Parking Pass Ratio, the stated amount of the Security L-C, the
stated amount of the Promissory Note L-C, the stated amount of the Additional
Security L-C (if any), the stated amount of the Additional Promissory Note
L-C (if any), and Tenant's Contribution (from Landlord's Loan and Landlord's
Additional Loan, if any)) shall be modified in accordance with such
determination, and (ii) any payments due to Landlord from Tenant based upon
the amount of square feet contained in the Premises shall be proportionally,
retroactively (to the point of the applicable verification initiating such
process) and prospectively reduced or increased, as appropriate, to reflect
the actual number of square feet as property remeasured under the BOMA
standard. In any event, upon reaching a final determination, it will be
confirmed in writing by Landlord and Tenant.
1.3 EXPANSION SPACE. Subject to the terms hereof, Landlord hereby
grants to the Tenant named in this Lease (the "ORIGINAL TENANT") and any
Affiliate (as defined in Section 14.6) which is the transferee of the
Original Tenant's entire interest in this Lease, the right to lease all of
the rentable square feet of space located in the Phase II Building (to be
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constructed (subject to the terms and conditions hereof) by Landlord and to
be located adjacent to the Building and addressed at 12100 West Olympic
Boulevard)).
1.3.1 METHOD OF EXERCISE. The expansion option contained in
this Section 1.3 shall be exercised only by the Original Tenant (and any
Affiliate of the Original Tenant which is the transferee of the Original
Tenant's entire interest in this Lease) and only in the following manner.
Tenant shall deliver Notice (the "EXPANSION EXERCISE NOTICE") to Landlord on
or before June 30, 2000 stating that Tenant is exercising its option and,
concurrently with such notice, provide Landlord with (i) the additional
letters of credit described in Section 1.3.2 below and (ii) Tenant's Form
10-Q for the fourth (4th) quarter of the calendar year 1999 (i.e., the months
of October, November and December), together with Tenant's financial
statements for the calendar year 1999 evidencing the Financial Condition
criteria described below (collectively, the "FINANCIAL INFORMATION"). Unless
Tenant's Form 10-Q for the last quarter of the calendar year 1999 indicates
that Tenant's "Net Sales" (as defined in the Form 10-Q) are greater than
Eighty-Four Million Five Hundred Thousand Dollars ($84,500,000.00) and the
equity market capitalization of the Tenant (defined as the Tenant's closing
price of its common stock multiplied by the number of shares of common stock
outstanding) as calculated on the date of the Expansion Exercise Notice is
greater than Three Billion Dollars ($3,000,000,000.00) (collectively, the
"FINANCIAL CONDITION"), then Tenant's expansion option contained herein
shall, unless Landlord otherwise expressly notifies Tenant in writing within
ten (10) days after Landlord's receipt of Tenant's Expansion Exercise Notice
(and Tenant's Financial Information), forever be null and void and Landlord
shall return to Tenant any promissory notes and letters of credit provided by
Tenant to Landlord pursuant to Section 1.3.2 hereof with respect to the
Expansion Space. In the event that, concurrently with Tenant's exercise of
Tenant's expansion right set forth herein Tenant has satisfied the Financial
Condition, then the terms and conditions of Tenant's lease of the Expansion
Space shall be as provided in this Section 1.3 below.
1.3.2 ADDITIONAL LETTERS OF CREDIT AND ADDITIONAL
PROMISSORY NOTE.
1.3.2.1 DELIVERY OF THE ADDITIONAL SECURITY L-C.
Tenant shall deliver to Landlord, concurrently with Tenant's delivery
of the Expansion Exercise Notice to Landlord, an unconditional,
irrevocable letter of credit with a term of at least three hundred
sixty-four (364) days (the "ADDITIONAL SECURITY L-C") in the initial
amount ("ADDITIONAL SECURITY L-C INITIAL STATED AMOUNT") of Seven
Million Five Hundred Thousand Dollars ($7,500,000.00). The Additional
Security L-C shall be issued by Imperial Bank or such other bank
subject to Landlord's reasonable approval, and which Additional
Security L-C shall be in substantially the same form as the Security
L-C provided by Tenant to Landlord pursuant to Section 21.1 hereof or
otherwise in a form and content subject to Landlord's reasonable
approval; provided, however, unless and until Tenant delivers the
Additional Security L-C and the Additional Promissory Note L-C in
accordance with this Section 1.3.2, the Additional Security L-C shall
not include any schedule of increases and/or decreases. In any event,
Landlord and Tenant acknowledge and agree that the sum of the
Additional Security L-C and the Additional Promissory Note L-C (as
defined below), as and to the extent delivered by Tenant to Landlord,
will equal Fifteen Million Dollars ($15,000,000.00) and that the
increases and decreases in the amounts of the same during the Lease
Term will be calculated in a manner consistent with the calculation of
the increases and decreases of the Security L-C and the
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Promissory Note L-C, or if Tenant does not deliver the Additional
Promissory Note L-C, and Landlord elects to keep the Expansion Lease
in effect, the Additional Security L-C shall remain in an amount
equal to $7,500,000.00 throughout the Lease Term. Tenant shall pay
all expenses, points and/or fees incurred by Tenant in obtaining the
Additional Security L-C. Notwithstanding anything above to the
contrary, and subject to the terms hereof, the Additional Security
L-C Initial Stated Amount shall be increased and decreased in the
amounts and on the dates to be set forth in the Additional Security
L-C (and substantially in accordance with the Security L-C (provided
by Tenant to Landlord pursuant to Section 21.1 hereof)); provided,
however, that notwithstanding anything above to the contrary, if
Tenant is in Default under this Lease, the then Additional Security
L-C Stated Amount shall not thereafter be reduced, unless and until
such Default shall have been fully cured pursuant to the terms of
this Lease, at which time the Additional Security L-C Stated Amount
may be reduced as described in the Additional Security L-C.
Notwithstanding the foregoing, Landlord acknowledges and agrees that
Tenant shall have the right, from time to time throughout the Term
of this Lease, to post a substitute letter of credit for the
Additional Security L-C required hereunder, the form and substance
of which substitute letter of credit shall be subject to Landlord's
reasonable approval and the terms of this Section 1.3.2.1. Upon
Tenant's written request from time to time, Landlord shall provide
Tenant with a letter confirming the then Additional Security L-C
Stated Amount (including the amount of any actual increases and
reductions with respect thereto).
1.3.2.2 APPLICATION OF THE ADDITIONAL SECURITY L-C.
The Additional Security L-C shall be held by Landlord as additional
security for the faithful performance by Tenant of all the terms,
covenants, and conditions of this Lease to be kept and performed by
Tenant during the initial Lease Term. The Additional Security L-C shall
not be mortgaged, assigned or encumbered in any manner whatsoever by
Tenant without the prior written consent of Landlord. If Tenant
Defaults with respect to any provisions of this Lease, including, but
not limited to, the provisions relating to the payment of Rent, or if
Tenant fails to renew the Additional Security L-C at least thirty (30)
days before its expiration, Landlord may, but shall not be required to,
draw upon all or any portion of the Additional Security L-C for payment
of any Rent or any other sum in default, or for the payment of any
amount that Landlord may reasonably spend or may become obligated to
spend by reason of Tenant's Default, or to compensate Landlord for any
other loss or damage that Landlord may suffer by reason of Tenant's
Default. The use, application or retention of the Additional Security
L-C, or any portion thereof, by Landlord shall not (a) prevent Landlord
from exercising any other right or remedy provided by this Lease or by
law, it being intended that Landlord shall not first be required to
proceed against the Additional Security L-C, nor (b) operate as a
limitation on any recovery to which Landlord may otherwise be entitled.
Any amount of the Additional Security L-C which is drawn upon by
Landlord, but is not used or applied by Landlord shall be held by
Landlord and deemed a additional security deposit (the "ADDITIONAL
SECURITY L-C SECURITY DEPOSIT"); provided, however, that Landlord shall
also have the right to transfer any amount that is so drawn upon by
Landlord to a Pledged Account pursuant to a Pledge and Security
Agreement (described in Section 21.1 hereof) and substantially in the
form of Exhibit K (with reasonable modifications to reflect the terms
hereof)), attached hereto and incorporated herein by this reference and
any amounts held in the Pledged Account
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shall be deemed to be a Additional Security L-C Security Deposit for
purposes of this Lease. If any portion of the Additional Security
L-C is drawn upon, Tenant shall, within ten (10) days after written
demand therefor, either (i) deposit cash with Landlord (which cash
shall be applied by Landlord to the Additional Security L-C Security
Deposit) in an amount sufficient to cause the sum of the Additional
Security L-C Security Deposit and the amount of the remaining
Additional Security L-C to be equivalent to the amount of the
Additional Security L-C then required under this Lease or (ii)
reinstate the Additional Security L-C to the amount then required
under this Lease, and any remaining Additional Security L-C Security
Deposit shall be returned to Tenant within ten (10) days thereafter.
If any portion of the Additional Security L-C Security Deposit is
used or applied, Tenant shall, within five (5) days after written
demand therefor, deposit cash with Landlord (which cash shall be
applied by Landlord to the Additional Security L-C Security Deposit)
in an amount sufficient to restore the Additional Security L-C
Security Deposit to the amount then required under this Lease, and
Tenant's failure to do so shall be a Default under this Lease.
Tenant acknowledges that Landlord has the right to transfer or
mortgage its interest in the Project and the Building and in this
Lease and Tenant agrees that in the event of any such transfer or
mortgage, Landlord shall have the right to transfer or assign the
Additional Security L-C Security Deposit and/or the Additional
Security L-C to the transferee or mortgagee, and in the event of
such transfer, Tenant shall look solely to such transferee or
mortgagee for the return of the Additional Security L-C Security
Deposit and/or the Additional Security L-C. The Additional Security
L-C Security Deposit and/or the Additional Security L-C, or any
balance thereof, shall either be drawn upon and applied by Landlord
in accordance with the terms hereof or shall be returned to Tenant
within thirty (30) days following the expiration or earlier
termination of the Lease. Tenant acknowledges and agrees that the
Additional Security L-C constitutes a separate and independent
contract between Landlord and the issuing bank, that Tenant is not a
third party beneficiary of such contract, and that Landlord's claim
under the Additional Security L-C for the full amount due and owing
thereunder shall not be, in any way, restricted, limited, altered or
impaired by virtue of any provision of the Bankruptcy Code,
including, but not limited to, Section 502(b)(6) of the Bankruptcy
Code.
1.3.2.3 ADDITIONAL PROMISSORY NOTE. Concurrent with
delivery of the Expansion Exercise Notice to Landlord, Landlord shall,
subject to the terms hereof, loan to Tenant an amount up to Thirty
Dollars ($30.00) per usable square foot of the Expansion Space and the
commission owed to the Cresa Partners pursuant to the Brokerage
Agreement for the Expansion Space ("LANDLORD'S ADDITIONAL LOAN") which
loan shall be solely used by Tenant, and shall only be disbursed by
Landlord, for the purpose of (i) paying the brokers pursuant to the
Written Agreement described in Section 29.20 hereof pertaining to the
Expansion Space (which written Agreement will be attached to EXHIBIT J
on or before December 23, 1999 and shall be in commercially reasonable
form and shall provide for the calculation and payment of the
commission due to Tenant's Broker for the Expansion Space in a manner
consistent with the commission due to Tenant's Broker for the initial
Premises (i.e., a four percent (4%) commission over the first (1st)
five (5) years of the Expansion Space Lease, and a two percent (2%)
commission over the second (2nd) five (5) years of the Expansion Space
Lease), and (ii) funding "TENANT'S CONTRIBUTION," as that term is
defined in Section 2.1 of the Tenant
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Work Letter pertaining to the Expansion Space. The Landlord's
Additional Loan shall be evidenced by a promissory note
substantially in the form of Exhibit I attached hereto and
incorporated herein by this reference (the "ADDITIONAL PROMISSORY
NOTE"), which Additional Promissory Note shall be secured by the
Additional Promissory Note L-C (as further described below). Upon
Tenant's written request, Landlord shall provide Tenant with a
letter confirming the remaining principal balance under the
Additional Promissory Note.
1.3.2.4 DELIVERY OF ADDITIONAL PROMISSORY NOTE.
Tenant shall execute and deliver the Additional Promissory Note to
Landlord within thirty (30) days of Tenant's delivery of the Expansion
Exercise Notice to Landlord, and, provided Landlord has provided an
accurate form of such Additional Promissory Note to Tenant within ten
(10) days after its receipt of the Expansion Exercise Notice, if Tenant
does not timely deliver such Additional Promissory Note to Landlord,
Landlord shall no longer be responsible to make Landlord's Additional
Loan to Tenant; provided however, Tenant shall become obligated to pay,
as additional rent under the Expansion Space Lease, the amounts which
would otherwise be due under such Additional Promissory Note.
1.3.2.5 DELIVERY OF THE ADDITIONAL PROMISSORY NOTE
L-C. Tenant shall deliver to Landlord, on or before that date which is
one hundred twenty (120) days after Tenant's delivery of the Expansion
Exercise Notice to Landlord, an unconditional, irrevocable letter of
credit with a term of at least three hundred sixty-four (364) days (the
"ADDITIONAL PROMISSORY NOTE L-C") in an initial amount (the "ADDITIONAL
PROMISSORY NOTE L-C INITIAL STATED AMOUNT") equal to Fifteen Million
Dollars ($15,000,000.00) minus the amount of the Additional Security
L-C (the exact amount of each of the Additional Security L-C and the
Additional Promissory Note L-C shall be determined by Landlord in a
manner consistent with that used in determining the amount of the
Security L-C and the Promissory Note L-C). The Additional Promissory
Note L-C shall be issued by Imperial Bank or such other bank subject to
Landlord's reasonable approval, which Additional Promissory Note L-C
shall be in substantially the same form as the Promissory Note L-C
provided by Tenant to Landlord pursuant to Section 21.2 hereof or
otherwise in a form and content subject to Landlord's reasonable
approval. Tenant shall pay all expenses, points and/or fees incurred by
Tenant in obtaining the Additional Promissory Note L-C. Notwithstanding
anything above to the contrary, and subject to the terms hereof, the
Additional Promissory Note L-C Stated Amount shall, throughout the
Lease Term, based on a full advance under the Additional Promissory
Note, be increased and decreased in accordance with the schedule to be
set forth in the Additional Promissory Note L-C (and substantially in
accordance with the Promissory Note L-C); provided however that,
notwithstanding anything above to the contrary, if Tenant is in Default
under this Lease, the then Stated Amount shall not thereafter be
reduced, unless and until such Default shall have been fully cured
pursuant to the terms of this Lease, at which time the Stated Amount
may be reduced as hereinabove described. Upon Tenant's written request
from time-to-time, Landlord shall provide Tenant with a letter
confirming the then Additional Promissory Note L-C Stated Amount
(including the amount of any actual increases and reductions with
respect thereto).
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1.3.2.6 APPLICATION OF THE ADDITIONAL PROMISSORY NOTE
L-C. The Additional Promissory Note L-C shall be held by Landlord as
security for the faithful performance by Tenant of all the terms,
covenants, and conditions of the Additional Promissory Note to be kept
and performed by Tenant. The Additional Promissory Note L-C shall not
be mortgaged, assigned or encumbered in any manner whatsoever by Tenant
without the prior written consent of Landlord. If Tenant Defaults with
respect to any provisions of the Additional Promissory Note or this
Lease or if Tenant fails to renew the Additional Promissory Note L-C at
least thirty (30) days before expiration, Landlord may, but shall not
be required to, draw upon all or any portion of the Additional
Promissory Note L-C and extinguish all or any portion of the amount of
the Additional Promissory Note; provided, however, that Landlord shall
also have the right to transfer any amount that is so drawn upon by
Landlord to a Pledged Account pursuant to the Pledge and Security
Agreement (substantially in the form of Exhibit K, with reasonable
modifications to reflect the terms hereof). The use, application or
retention of the Additional Promissory Note L-C, or any portion
thereof, by Landlord shall not (a) prevent Landlord from exercising any
other right or remedy provided by this Lease or by law, it being
intended that Landlord shall not first be required to proceed against
the Additional Promissory Note L-C, nor (b) operate as a limitation on
any recovery to which Landlord may otherwise be entitled. Tenant
acknowledges that Landlord has the right to transfer or mortgage its
interest in the Project and the Building and in this Lease and Tenant
agrees that in the event of any such transfer or mortgage, Landlord
shall have the right to transfer or assign the Additional Promissory
Note L-C to the transferee or mortgagee, and in the event of such
transfer, Tenant shall look solely to such transferee or mortgagee for
the return of the Additional Promissory Note L-C. Tenant acknowledges
and agrees that the Additional Promissory Note L-C constitutes separate
and independent contract between Landlord and the issuing bank, that
Tenant is not a third party beneficiary of such contract, and that
Landlord's claim under the Additional Promissory Note L-C for the full
amount due and owing thereunder shall not be, in any way, restricted,
limited, altered or impaired by virtue of any provision of the
Bankruptcy Code, including, but not limited to, Section 502(b)(6) of
the Bankruptcy Code. So long as Tenant's obligations under the
Additional Promissory Note have been satisfied in full by Tenant,
Landlord shall, upon the date of such satisfaction, return the
Additional Promissory Note and the Additional Promissory Note L-C to
Tenant.
1.3.3 EXPANSION RENT. The "Rent," as such term is defined
in Section 4.1 of this Lease, payable by Tenant for the Expansion Space
leased by Tenant (the "EXPANSION RENT") per rentable square foot shall be the
sum of Tenant's Share of Direct Expenses for the Expansion Space, and the
Base Rent, which Base Rent shall be in an amount equal to (i) $3.50 per
rentable square foot of the Expansion Space, which amount shall be increased
by four percent (4%) on the first day of each Lease Year for the Lease Term
commencing on the first day of the third Lease Year, and then shall be
reduced by (ii) $0.882 per rentable square foot of the Expansion Space and
the appropriate Additional Promissory Note payment per rentable square foot
of the Expansion Space to produce the Base Rent per rentable square foot of
the Expansion Space for each Lease Year of the Lease Term. For example, if
the Expansion Space Commencement Date occurs during the second Lease Year of
the Lease Term, the Base Rent for the Expansion Space shall be $3.50 per
rentable square foot of the Expansion Space, which amount shall be increased
by 4% commencing on the first day of the third Lease Year, and then reduced
by $0.882 and
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reduced by the appropriate Additional Promissory Note payment per rsf of the
Expansion Space to produce the appropriate Base Rent per rsf of the Expansion
Space for such Lease Year of the Lease Term.
1.3.4 CONSTRUCTION AND DELIVERY OF EXPANSION SPACE. The
time to design and construct the tenant improvements in such Expansion Space
without the payment of rent shall be determined in accordance with Section
1.3.8 of this Lease, and the construction of improvements in the Expansion
Space shall comply with the terms, covenants and conditions of Exhibit D. The
delivery of the Expansion Space to Tenant shall be subject to the terms and
conditions of Section 2.3 hereof. Upon Landlord's receipt of Tenant's
Expansion Exercise Notice (and upon Tenant's satisfaction of the Financial
Condition), Landlord shall commence to use commercially reasonable efforts to
(i) obtain all necessary governmental approvals and entitlements pertaining
to Landlord's construction of the Phase II Building, (ii) effect a relocation
of any existing tenants occupying that portion of the Project comprising the
Phase II Building such that Landlord is able to commence construction of the
Phase II Building and (iii) once items (i) and (ii) are satisfied, to
complete the Phase II Building. Landlord acknowledges and agrees that within
five (5) business days after Tenant's written request, Landlord shall provide
Tenant with updates pertaining to Landlord's progress in the design and
construction of the Phase II Building.
1.3.5 AMENDMENT TO LEASE.
1.3.5.1 IN GENERAL. If Tenant timely exercises
Tenant's right to lease the Expansion Space as set forth herein,
Landlord and Tenant shall, within thirty (30) days thereafter, execute
an amendment (the "EXPANSION SPACE AMENDMENT") adding such Expansion
Space to this Lease upon the same terms, covenants and conditions as
the initial Premises, except as otherwise set forth in this Section 1.3
and in this Lease. Notwithstanding the foregoing, Landlord may, at its
sole option, require that a separate lease be executed by Landlord and
Tenant in connection with Tenant's lease of the Expansion Space, in
which event such lease (the "EXPANSION SPACE LEASE") shall be on the
same terms, covenants and conditions as the initial Premises, except as
provided in this Section 1.3 and in this Lease. Landlord and Tenant
shall use commercially reasonable efforts to cause the Expansion Space
Lease, if applicable, to be executed by Landlord and Tenant within
thirty (30) days following Tenant's exercise of its right to lease the
Expansion Space.
1.3.5.2 TERM. Subject to Section 1.3.8 below, Tenant
shall commence payment of Rent for the Expansion Space and the term of
the Expansion Space shall commence on the earlier to occur of (i) the
date Tenant opens for business in the Expansion Space or (ii) the date
which is later to occur of (1) the date of the expiration of the
"CONSTRUCTION PERIOD," as that term is defined in Section 1.2 of the
Tenant Work Letter or (2) the date Landlord has substantially completed
the base building for the Expansion Space (as described in Section 1.2
of the Tenant Work Letter), subject to punchlist items only, and has
obtained a temporary or permanent Certificate of Occupancy for the
Expansion Space (the "EXPANSION SPACE COMMENCEMENT DATE"). The Lease
Term of the Expansion Space shall expire on the "Lease Expiration
Date," as such term is defined in Section 7.3 of the Summary.
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1.3.6 NO DEFAULTS. The rights contained in this Section 1.3
shall be personal to the Original Tenant and may only be exercised by the
Original Tenant and any Affiliate which is the transferee of Original
Tenant's entire interest in this Lease (and not any assignee, sublease or
other transferee of the Original Tenant's interest in this Lease). The right
to lease Expansion Space as provided in this Section 1.3 may not be exercised
if, as of the date of the attempted exercise of the expansion option by
Tenant, or as of the scheduled date of delivery of such Expansion Space to
Tenant, Tenant is in "Default," as that term is defined in Article 19 of this
Lease.
1.3.7 COMMON OWNERSHIP. Landlord and Tenant acknowledge
that it is Landlord's current intention to cause the ownership of the Phase I
Building and the Phase II Building to be held by the same entity. If,
however, at any time during the Lease Term or any Option Term, Landlord
determines to separate ownership of the two (2) buildings or to separately
finance the two (2) buildings (where the lender requires separate
documentation), Tenant agrees, at Landlord's sole cost, to promptly after
request from Landlord, execute commercially reasonable documents (which shall
not materially increase Tenant's obligations or costs pertaining to the space
leased to Tenant hereunder) in order to separate Tenant's lease of the
initial Premises from the Expansion Space (to the extent the Expansion Space
was previously added to the Premises by the Expansion Space Amendment). Any
such documentation shall be on the exact same terms as specified in this
Lease but as applicable to the relevant portion of the Premises.
1.3.8 FAILURE OF LANDLORD TO DELIVER Expansion SPACE BY THE
EXPANSION OUTSIDE DELIVERY DATE.
1.3.8.1 EXPANSION OUTSIDE DELIVERY DATE. If Landlord
does not cause the Expansion Space to comply with the Initial Delivery
Condition (as defined in Section 1.2 of the Tenant Work Letter) by that
date which is twenty-four (24) months after the later of (A) June 30,
2000, and (B) Landlord's receipt of Tenant's Expansion Exercise Notice
(the "EXPANSION OUTSIDE DELIVERY DATE") (as such Expansion Outside
Delivery Date may be extended by the number of days of "Force Majeure
delays" (as defined in Section 29.13 of this Lease) (provided, however,
that in no event shall the Expansion Outside Delivery Date be extended
on account of any such Force Majeure delays by more than ninety (90)
days) and by the number of days of any "Expansion Tenant Delays" (as
defined in Section 1.3.8.4 below) pursuant to Section 1.3.8.4 below),
then Tenant shall have the right to deliver a notice to Landlord (a
"EXPANSION TERMINATION NOTICE") electing to terminate this Lease as to
the Expansion Space only (such portion of the Lease to be known as the
"EXPANSION LEASE") effective upon the date occurring five (5) business
days following receipt by Landlord of the Termination Notice (the
"EXPANSION EFFECTIVE DATE"). The Expansion Termination Notice must be
delivered by Tenant to Landlord, if at all, not earlier than the
Expansion Outside Delivery Date (as the same may be extended pursuant
to the terms of Section 1.3.8.3 below) nor later than fifteen (15)
business days after the Expansion Outside Delivery Date; provided,
however, the Tenant shall have the right to send a Notice at any time
prior to the Expansion Outside Delivery Date, requesting Landlord
whether the Initial Delivery Condition will, in Landlord's general
contractor's reasonable good faith estimation, occur by the Expansion
Outside Delivery Date ("TENANT'S EXPANSION REQUEST NOTICE") and
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Landlord shall respond to Tenant's Expansion Request Notice within ten
(10) business days after Landlord's receipt thereof ("LANDLORD'S
EXPANSION RESPONSE NOTICE"). If Landlord's Expansion Response Notice
indicates that the Initial Delivery Condition will not, in such
contractor's reasonable good faith estimation, occur by the Expansion
Outside Delivery Date (or such later date to extent the Expansion
Outside Delivery Date is extended by Force Majeure delays and Tenant
Delays) taking into account Landlord's good faith estimate of the
actions that Landlord can take to accelerate the date of completion of
construction of Landlord's work described in Exhibit D, then Tenant
shall have the right to deliver the Expansion Termination Notice
electing to terminate the Expansion Lease (effective upon the date
occurring five (5) business days following receipt by Landlord of the
Expansion Termination Notice), which Expansion Termination Notice must
be delivered by Tenant to Landlord, if at all, not later than fifteen
(15) business days after Tenant's receipt of Landlord's Expansion
Response Notice; provided further, however, that in no event will
Landlord be liable to Tenant if Landlord's Expansion Response Notice
indicates that the Initial Delivery Condition will occur by the
Expansion Outside Delivery Date and the same does not occur to the
extent that Landlord's Expansion Response Notice (and the information
contained therein) was determined in good faith by Landlord's general
contractor. The effectiveness of any such Expansion Termination Notice
delivered by Tenant to Landlord shall be governed by the terms of this
Section 1.3.8. Within thirty (30) days after the Effective Date,
Landlord shall, so long as Tenant is not in Default under this Lease,
reimburse to Tenant the costs incurred by Tenant on account of the
actual, documented and reasonable fees of its attorneys, the Architect,
the Engineers and project consultant upon presentation to Landlord of
paid invoices reflecting such costs incurred and paid by Tenant, not to
exceed, collectively, Three Hundred Fifty Thousand Dollars
($350,000.00).
1.3.8.2 EXTENSION OF EXPANSION OUTSIDE DELIVERY DATE
AFTER DELIVERY OF THE EXPANSION TERMINATION NOTICE. If Tenant delivers
a Termination Notice to Landlord, then Landlord shall have the right to
suspend the occurrence of the Expansion Effective Date for a period
ending thirty (30) days after the Expansion Effective Date by
delivering to Tenant, prior to the Expansion Effective Date, a
certificate of Landlord's contractor that it is such contractor's best
good faith judgment that the Initial Delivery Condition will occur
within thirty (30) days after the Expansion Effective Date (the
"TERMINATION EXTENSION NOTICE"). If the Initial Delivery Condition
occurs prior to the expiration of such thirty-day period, then the
Expansion Termination Notice shall of no force or effect, but if the
Initial Delivery Condition does not occur within such thirty-day
period, then the Expansion Lease shall terminate upon the expiration of
such thirty-day period.
1.3.8.3 EXTENSION OF EXPANSION OUTSIDE DELIVERY DATE
PRIOR TO THE DELIVERY OF EXPANSION TERMINATION NOTICE. Additionally, if
an Expansion Termination Notice has not been delivered by Tenant to
Landlord and, prior to the Expansion Outside Delivery Date, Landlord
determines that the Initial Delivery Condition will not occur by the
Expansion Outside Delivery Date, Landlord shall have the right to
deliver a written Notice ("LANDLORD'S EXPANSION EXTENSION NOTICE") to
Tenant stating Landlord's opinion as to the date by which the Initial
Delivery Condition shall occur, and Tenant shall be required, within
ten (10) business days after receipt of such Notice, to deliver a
Notice to Landlord pursuant to which Tenant shall elect to either
terminate the Expansion
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Lease, in which case the Expansion Lease shall immediately terminate
and be of no further force and effect, or to agree to extend the
Expansion Outside Delivery Date to that date set forth in such
notice delivered by Landlord. Failure by Tenant to deliver such
Notice or to so elect shall be deemed Tenant's agreement to extend
the Expansion Outside Delivery Date set forth in Landlord's Notice
to Tenant, but only to the extent that Landlord's Expansion
Extension Notice includes the language set forth in the immediately
following sentence: Tenant's failure to terminate the Expansion
Lease within ten (10) business days after Tenant's receipt of this
Notice shall be automatically deemed Tenant's consent to extend the
Expansion Outside Delivery Date to the date selected by Landlord in
Landlord's Expansion Extension Notice. If Tenant agrees to extend
the Expansion Outside Delivery Date, Landlord shall have a
continuing right to deliver a Notice to Tenant which requests Tenant
to so elect to either terminate the Expansion Lease or to further
extend the Expansion Outside Delivery Date as set forth in this
Section 1.3.8.3, above, until the occurrence of the Initial Delivery
Date or until the Expansion Lease is terminated. Upon the delivery
of an Expansion Termination Notice by Tenant pursuant to Section
1.3.8.1 in connection with the Expansion Outside Delivery Date
extended pursuant to this Section 1.3.8.3, Landlord shall also have
the same right to deliver the Termination Extension Notice as to the
new Expansion Outside Delivery Date, as set forth in Section
1.3.8.2, above.
1.3.8.4 OTHER TERMS. The Expansion Effective Date and
the Expansion Outside Delivery Date shall be extended to the extent of
any delays beyond the reasonable control of Landlord, including any
Force Majeure delay (but in no event shall the Expansion Effective Date
and the Expansion Outside Delivery Date be extended on account of any
such Force Majeure events by more than ninety (90) days), and any
"EXPANSION TENANT DELAYS." For purposes hereof, the term "EXPANSION
TENANT DELAYS" shall mean any actual delays preventing the Initial
Delivery Condition to occur by the Expansion Outside Delivery Date to
the extent resulting from (i) material and unreasonable interference by
Tenant or Tenant's Agents with the substantial completion of the base
building for the Expansion Space (as described in Section 1.1 with
Tenant Work Letter) or any portion thereof, which interference relates
to access by Landlord to the Expansion Space or Expansion Space
facilities or service and utilities during normal construction hours or
the use thereof during normal construction hours or (ii) a material
breach by Tenant of a provision of the Tenant Work Letter.
Notwithstanding anything above to the contrary, if Landlord contends
that a Force Majeure event or an Expansion Tenant Delay has occurred,
Landlord shall notify Tenant in writing of the event which constitutes
such a Force Majeure event or an Expansion Tenant Delay. If such
actions, inaction or circumstance described in the notice which
constitute an Expansion Tenant Delay ("LANDLORD EXPANSION DELAY
NOTICE") are not cured by Tenant within one (1) business day of
Tenant's receipt of the Landlord Expansion Delay Notice and if such
action, inaction or circumstance otherwise qualifies as an Expansion
Tenant Delay, then an Expansion Tenant Delay shall be deemed to have
occurred
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commencing as of the date of Tenant's receipt of the Landlord
Expansion Delay Notice and ending as of the date such Expansion
Tenant Delay ends. If the circumstance set forth in Landlord's
Expansion Delay Notice describes a Force Majeure event and such
circumstance qualifies as a Force Majeure event, then a Force
Majeure event shall be deemed to have occurred commencing as of the
date of Tenant's receipt of the Landlord's Expansion Delay Notice
and ending as of the date such Force Majeure event ends. From time
to time, Landlord and Tenant shall confirm in writing the amount of
Force Majeure events and Expansion Tenant Delays to enable each
party to determine the actual Expansion Outside Delivery Date and
the date by which Tenant must deliver an Expansion Termination
Notice. Upon any termination as set forth in this Section 1.3.8,
except as provided in the last sentence of Section 1.3.8.1 above,
Landlord and Tenant shall be relieved from any and all liability to
each other resulting under the Expansion Lease except that Landlord
shall return to Tenant any promissory notes and letters of credit
pertaining to the Expansion Space. Tenant's rights to terminate the
Expansion Lease, as set forth in this Section 1.3.8, shall be
Tenant's sole and exclusive remedy at law or in equity for the
failure of the Expansion Space to comply with the Initial Delivery
Condition by the Expansion Outside Delivery Date.
1.3.9 ADDITIONAL CONDITIONS/LIQUIDATED DAMAGES.
NOTWITHSTANDING ANYTHING ABOVE TO THE CONTRARY, TENANT ACKNOWLEDGES AND AGREES
THAT, IN THE EVENT THE ADDITIONAL PROMISSORY NOTE L-C IS NOT DELIVERED BY THAT
DATE WHICH IS ONE HUNDRED TWENTY (120) DAYS AFTER TENANT'S DELIVERY OF THE
EXPANSION EXERCISE NOTICE TO LANDLORD (THE "ADDITIONAL L-C DELIVERY CONDITION")
THEN LANDLORD SHALL HAVE THE OPTION, IN LANDLORD'S SOLE AND ABSOLUTE DISCRETION,
TO BE EXERCISED, IF AT ALL, ON OR BEFORE THAT DATE WHICH IS ONE HUNDRED
THIRTY-FIVE (135) DAYS AFTER TENANT'S DELIVERY OF THE EXPANSION EXERCISE NOTICE
TO LANDLORD, TO (A) TERMINATE THE EXPANSION LEASE, IN WHICH EVENT, (I) TENANT
ACKNOWLEDGES THAT LANDLORD SHALL NOT, IN ANY EVENT, BE OBLIGATED TO DISBURSE,
FROM LANDLORD'S ADDITIONAL LOAN, THE SECOND HALF OF THE COMMISSION OWING TO
TENANT'S BROKER PERTAINING TO THE EXPANSION SPACE, AND TENANT SHALL BE FULLY
RESPONSIBLE FOR THE PAYMENT OF SUCH PORTION OF SUCH COMMISSIONS THAT MAY BE OWED
TO TENANT'S BROKER, (II) TENANT SHALL IMMEDIATELY REIMBURSE TO LANDLORD ANY
AMOUNTS PREVIOUSLY DISBURSED BY LANDLORD FROM LANDLORD'S ADDITIONAL LOAN FOR
TENANT'S CONTRIBUTION DISBURSEMENT TOWARD THE TENANT IMPROVEMENTS PERTAINING TO
THE EXPANSION SPACE, AND (III) TENANT SHALL IMMEDIATELY PAY TO LANDLORD AN
AMOUNT EQUAL TO SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000.00) (AND
LANDLORD MAY DRAW ON THE SECURITY L-C AND/OR THE ADDITIONAL SECURITY L-C TO
SATISFY ALL OR A PORTION OF SUCH AMOUNT) OR (B) KEEP THE EXPANSION LEASE AND ALL
COLLATERAL DOCUMENTS (INCLUDING THE PROMISSORY NOTE) IN FULL FORCE AND EFFECT IN
WHICH EVENT (I) TENANT ACKNOWLEDGES AND AGREES THAT LANDLORD SHALL HAVE NO
OBLIGATION TO DISBURSE LANDLORD'S ADDITIONAL LOAN PERTAINING TO TENANT'S
CONTRIBUTION DISBURSEMENT AND LANDLORD SHALL HAVE NO OBLIGATION TO CONTRIBUTE
ANY AMOUNT TOWARD THE COST OF THE TENANT IMPROVEMENTS PERTAINING TO THE
EXPANSION SPACE (THE TOTAL COST OF WHICH SHALL BE TENANT'S RESPONSIBILITY, AT
TENANT'S
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COST AND EXPENSE), (II) TENANT SHALL IMMEDIATELY PAY $7,500,000.00 TO
LANDLORD (AND LANDLORD MAY DRAW UPON THE SECURITY L-C AND/OR THE ADDITIONAL
SECURITY L-C TO SATISFY ALL OR A PORTION OF SUCH AMOUNT BUT TENANT SHALL NOT
THEN BE REQUIRED TO REPLENISH ANY LETTER OF CREDIT AMOUNTS DRAWN UPON BY
LANDLORD), (III) TENANT SHALL IMMEDIATELY REIMBURSE TO LANDLORD ANY AMOUNTS
PREVIOUSLY DISBURSED BY LANDLORD FROM LANDLORD'S ADDITIONAL LOAN FOR TENANT'S
CONTRIBUTION DISBURSEMENT TOWARD THE TENANT IMPROVEMENTS PERTAINING TO THE
EXPANSION SPACE, AND (IV) LANDLORD SHALL NOT, IN ANY EVENT, BE OBLIGATED TO
DISBURSE FROM LANDLORD'S ADDITIONAL LOAN, THE SECOND HALF OF THE COMMISSION
OWING TO TENANT'S BROKER PERTAINING TO THE EXPANSION SPACE AND TENANT SHALL
BE FULLY RESPONSIBLE FOR THE PAYMENT OF SUCH PORTION OF SUCH COMMISSIONS THAT
MAY BE OWED TO TENANT'S BROKER (IN EACH INSTANCE THE OBLIGATIONS AND RIGHTS
OF LANDLORD AND TENANT UNDER ITEMS (A) AND (B) ABOVE SHALL BE KNOWN
COLLECTIVELY AS THE "LIQUIDATED DAMAGES"); PROVIDED, HOWEVER THAT TENANT
SHALL HAVE NO OBLIGATION TO DELIVER THE ADDITIONAL PROMISSORY NOTE L-C TO
LANDLORD UPON SATISFACTION OF TENANT'S OBLIGATIONS IN THIS SECTION 1.3.9(B).
LANDLORD'S FAILURE TO NOTIFY TENANT OF LANDLORD'S ELECTION ON OR BEFORE THAT
DATE WHICH IS ONE HUNDRED THIRTY-FIVE (135) DAYS AFTER TENANT'S DELIVERY OF
THE EXPANSION EXERCISE NOTICE TO LANDLORD SHALL BE DEEMED TO CONSTITUTE
LANDLORD'S ELECTION TO PROCEED UNDER THE OPTION SET FORTH IN SUBSECTION (A)
ABOVE. LANDLORD AND TENANT HAVE DISCUSSED THE POSSIBLE CONSEQUENCES TO
LANDLORD IF THE ADDITIONAL L-C DELIVERY CONDITION IS NOT SATISFIED BY TENANT
IN STRICT ACCORDANCE WITH THE TERMS HEREOF. ACCORDINGLY, BY THEIR INITIALS
BELOW, LANDLORD AND TENANT ACKNOWLEDGE AND AGREE THAT LANDLORD'S DAMAGES IN
THE EVENT OF SUCH DEFAULT BY TENANT WOULD BE EXTREMELY DIFFICULT OR
IMPOSSIBLE TO DETERMINE AND THAT THE AMOUNT OF "LIQUIDATED DAMAGES" SET FORTH
HEREIN IS LANDLORD'S AND TENANT'S BEST ESTIMATE OF THE DAMAGES LANDLORD WOULD
SUFFER IN THE EVENT OF TENANT'S DEFAULT WITH RESPECT TO THE ADDITIONAL L-C
DELIVERY CONDITION, AND THAT SUCH ESTIMATE IS REASONABLE UNDER THE
CIRCUMSTANCES EXISTING ON THE EFFECTIVE DATE OF THIS LEASE.
------------------- -----------------
Landlord's Initials Tenant's Initials
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ARTICLE 2
LEASE TERM
2.1 INITIAL LEASE TERM. The terms and provisions of this Lease with
respect to all of the rentable square footage of the Building shall be
effective as of the date of this Lease. The term of this Lease (the "LEASE
TERM") shall be as set forth in Section 7.1 of the Summary and shall commence
on the earlier to occur of (i) the date Tenant opens for business in the
Premises or (ii) the date which is later to occur of (1) the date of the
expiration of the "CONSTRUCTION PERIOD," as that term is defined in Section
1.2 of the Tenant Work Letter or (2) the date Landlord has substantially
completed the Base Building, subject to punchlist items only, and has
obtained a temporary or permanent Certificate of Occupancy for the Building
(the "LEASE COMMENCEMENT DATE") and shall terminate on the date (the "LEASE
EXPIRATION DATE") set forth in Section 7.3 of the Summary, unless this Lease
is sooner terminated or extended as hereinafter provided. For purposes of
this Lease, the term "LEASE YEAR" shall mean each consecutive twelve (12)
month period during the Lease Term; provided, however, that the first Lease
Year shall commence on the Lease Commencement Date and end on the last day of
the eleventh month thereafter and the second and each succeeding Lease Year
shall commence on the first day of the next calendar month; and further
provided that the last Lease Year shall end on the Lease Expiration Date.
Within six (6) months following the Lease Commencement Date, Landlord shall
deliver to Tenant a Notice (the "NOTICE OF LEASE TERM DATES") in the form as
set forth in Exhibit C, attached hereto, which Notice Tenant shall execute
and return to Landlord within ten (10) business days of receipt thereof
(provided that if said Notice is not factually correct, then Tenant shall
make such changes as are necessary to make the Notice factually correct and
shall thereafter execute and return such Notice to Landlord within such ten
(10) business day period), and thereafter the dates set forth on such Notice
shall be conclusive and binding upon Tenant and Landlord, unless Landlord
within fifteen (15) business days following receipt of Tenant's changes sends
a Notice to Tenant rejecting Tenant's changes, whereupon this procedure shall
be repeated until the parties either (a) mutually agree upon the contents of
Exhibit C, or (b) the contents are determined by arbitration pursuant to
Section 29.29, below. Failure of Tenant to timely execute and deliver the
Notice of Lease Term Dates shall constitute an acknowledgment by Tenant that
the statements included in such Notice are true and correct, without
exception. In the event Landlord shall fail to send Tenant Notice of the
occurrence of the Lease Commencement Date within six (6) months following the
Lease Commencement Date, Tenant may send to Landlord Notice of the occurrence
of the Lease Commencement Date substantially in the form of the attached
hereto as Exhibit C, which Notice Landlord shall acknowledge by executing a
copy of the Notice and returning it to Tenant (provided that if said Notice
is not factually correct, the Landlord shall make such changes to the Notice
as are necessary to make such Notice factually correct, which revised Notice
shall thereafter be subject to the procedure for finalization set forth in
this Section 2.1).
2.2 OPTION TERM.
2.2.1 OPTION RIGHT. Subject to the terms hereof, Landlord
hereby grants Tenant two (2) options to extend the Lease Term with respect to
the entire Premises (including both the Phase I Building and to the extent
leased by Tenant hereunder, the Phase II Building) for a period of five (5)
years each (each, an "OPTION TERM"), which options shall be exercisable only
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by Notice delivered by Tenant to Landlord as provided below, provided that,
as of the date of delivery of such Notice, Tenant is not in Default under
this Lease. Upon the proper exercise of the applicable option to extend, and
provided that, as of the end of the initial Lease Term, or prior Option Term,
as applicable, Tenant is not in Default under this Lease, the Lease Term, as
it applies to the Premises, shall be extended for a period of five (5) years.
The rights contained in this Section 2.2 may only be exercised by the
Original Tenant or any Affiliate (as defined in Section 14.6) or any
Transferee of the Original Tenant's (or such Affiliate's) entire interest
under this Lease permitted under the terms of this Lease, provided Original
Tenant or such Affiliate or such approved Transferee occupies at least sixty
percent (60%) of the Premises.
2.2.2 OPTION RENT. The rent payable by Tenant during an
Option Term (the "OPTION RENT") shall be equal to the Fair Market Rental Rate
for the Premises; however in no event shall the average annual Fair Market
Rental Rate (adjusted to reflect a net vs. gross basis and calculated on an
effective rate basis taking into consideration and spreading free rent and
any other monetary concessions over the Option Term in equal installments) be
less than a minimum Base Rent (the "Minimum Base Rent") which is an amount
equal to (i) the then current Base Rent per rentable square foot of the
Premises, as of the last day of the initial Lease Term or first Option Term ,
as the case may be, plus the then current payment of interest and principal
due under the Promissory Note (calculated per rentable square foot of the
Premises), as of the last day of the initial Lease Term or first Option Term,
as the case may be, plus $0.882, which resultant amount shall be increased by
four percent (4%) on the first day of each Lease Year for the applicable
Option Term, and then shall be reduced by (ii) $0.882per rentable square foot
of the Premises. For example, during the first Option Term, the Fair Market
Rent calculated on an average annual net, effective rate basis shall not be
less than $3.03 (the Base Rent per rsf of the Premises on the last day of the
initial Lease Term) plus $0.899 (the Promissory Note Payment per rsf for the
Premises on the last day of the initial Lease Term) plus $0.882, which
results in a $4.811 figure, which $4.811 figure shall be increased by 4%
commencing on the first day of the first Lease Year of the first Option Term,
and then reduced by $0.882 to produce the appropriate Minimum Base Rent per
rentable square foot of the Premises for the Fair Market Rent for the first
Option Term. Accordingly, if it is determined that the Option Rent is the
Minimum Base Rent, then the rent payable during the Option Term shall be the
Minimum Base Rent which shall include the four percent (4%) increase which
shall occur on the first day of each Lease Year of Option Term
2.2.3 EXERCISE OF OPTION. Each option contained in this
Section 2.2 shall be exercised by Tenant, if at all, only in the manner set
forth in this Section 2.2.3. In order to exercise the option, Tenant shall
deliver Notice (the "EXERCISE NOTICE") to Landlord not less than eighteen
(18) months prior the expiration of the then Lease Term, stating that Tenant
is exercising its option. Provided that Tenant timely delivers the Exercise
Notice, Landlord shall deliver Notice (the "OPTION RENT NOTICE") to Tenant of
the Option Rent not later than thirty (30) days after Landlord's receipt of
Tenant's Exercise Notice. Within thirty (30) days following Tenant's receipt
of Landlord's Option Rent Notice, Tenant shall either accept or reject the
Option Rent contained in the Option Rent Notice (provided that Tenant may not
reject the Option Rent if it is the Minimum Base Rent), by delivering Notice
thereof to Landlord; provided, however, in the event Tenant does not
affirmatively accept or reject the Option Rent specified in the Option Rent
Notice before the expiration of such thirty (30) day period, the Fair Market
Rental Rate shall be determined as set forth in Section 2.2.4, below. Tenant
shall not be entitled to exercise
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the second (2nd) extension option unless Tenant has properly and timely
exercised the first (1st) extension option. Nothing herein shall be deemed to
entitle Tenant to extend the Lease Term beyond the second (2nd) Option Term.
2.2.4 DETERMINATION OF OPTION RENT. In the event Tenant
timely and appropriately objects to or does not accept the Option Rent,
Landlord and Tenant shall attempt to agree upon the Fair Market Rental Rate
for the Premises, using reasonable good-faith efforts. If Landlord and Tenant
fail to reach agreement within thirty (30) days following Tenant's objection
or deemed objection to the Option Rent (the "OUTSIDE AGREEMENT DATE"), then
the applicable Fair Market Rental Rate submitted by each of the parties
within ten (10) days following the Outside Agreement Date, shall be submitted
to the arbitrators pursuant to the provisions of this Section 2.2.4 such
submittal shall be submitted to arbitration in accordance with Sections
2.2.4.1 through 2.2.4.7 of this Lease, but subject to the conditions, when
appropriate, of Section 2.2.2 and 2.2.3.
2.2.4.1 Landlord and Tenant shall each appoint one
arbitrator who shall by profession be a real estate broker, appraiser
or attorney who shall have been active over the five (5) year period
ending on the date of such appointment in the leasing (or appraisal, as
the case may be) of first class office properties in the Los Angeles
County (including Santa Monica and West Los Angeles), California area.
The determination of the arbitrators shall be limited solely to the
issue area of whether Landlord's or Tenant's submitted Fair Market
Rental Rate, is the closest to the actual Fair Market Rental Rate as
determined by the arbitrators, taking into account the requirements of
Section 2.2.5 of this Lease. Each such arbitrator shall be appointed
within fifteen (15) days after the applicable Outside Agreement Date.
Landlord and Tenant may consult with their selected arbitrators prior
to appointment and may select an arbitrator who is favorable to their
respective positions. The arbitrators so selected by Landlord and
Tenant shall be deemed "ADVOCATE ARBITRATORS."
2.2.4.2 The two Advocate Arbitrators so appointed
shall be specifically required pursuant to an engagement letter within
ten (10) days of the date of the appointment of the last appointed
Advocate Arbitrator agree upon and appoint a third arbitrator ("NEUTRAL
ARBITRATOR") who shall be qualified under the same criteria set forth
hereinabove for qualification of the two Advocate Arbitrators except
that neither the Landlord or Tenant or either parties Advocate
Arbitrator may, directly or indirectly, consult with the Neutral
Arbitrator prior or subsequent to his or her appearance. The Neutral
Arbitrator shall be retained via an engagement letter jointly prepared
by Landlord's counsel and Tenant's counsel.
2.2.4.3 The three arbitrators shall within thirty
(30) days of the appointment of the Neutral Arbitrator reach a decision
as to Fair Market Rental Rate and determine whether the Landlord's or
Tenant's determination of Fair Market Rental Rate as submitted pursuant
to Section 2.2.3 or 2.2.4 of this Lease is closest to Fair Market
Rental Rate as determined by the arbitrators and simultaneously publish
a ruling ("AWARD") indicating whether Landlord's or Tenant's submitted
Fair Market Rental Rate is closest to the Fair Market Rental Rate as
determined by the arbitrators. Following notification of the Award, the
Landlord's or Tenant's submitted Fair Market Rental Rate
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determination, whichever is selected by the arbitrators as being
closest to Fair Market Rental Rate shall become the then applicable
Fair Market Rental Rate.
2.2.4.4 The Award issued by the majority of the three
arbitrators shall be binding upon Landlord and Tenant.
2.2.4.5 If either Landlord or Tenant fail to appoint
an Advocate Arbitrator within fifteen (15) days after the applicable
Outside Agreement Date, either party may petition the presiding judge
of the Superior Court of Los Angeles County to appoint such Advocate
Arbitrator subject to the criteria in Section 2.2.4.1 of this Lease, or
if he or she refuses to act, either party may petition any judge having
jurisdiction over the parties to appoint such Advocate Arbitrator.
2.2.4.6 If the two Advocate Arbitrators fail to agree
upon and appoint the Neutral Arbitrator, then either party may petition
the presiding judge of the Superior Court of Los Angeles County to
appoint the Neutral Arbitrator, subject to criteria in Section 2.2.4.1
of this Lease, or if he or she refuses to act, either party may
petition any judge having jurisdiction over the parties to appoint such
arbitrator.
2.2.4.7 The cost of arbitration shall be paid by
Landlord and Tenant equally.
2.2.5 FAIR MARKET RENTAL RATE. The "FAIR MARKET RENTAL
RATE" shall be equal to the rent (including additional rent), including all
escalations, at which tenants, pursuant to leases or related agreements (i)
which are executed prior to the commencement of the Option Term, but no more
than twelve (12) months prior to the commencement of the Option Term and (ii)
which have a term which is reasonably anticipated to commence within the six
(6) month period immediately preceding the commencement of the Option Term,
are leasing non-sublease, non-equity, non-renewal (but only to the extent
Tenant is not represented by a real estate broker with respect to the
option), non-encumbered space comparable in size (provided, however, that if
there does not exist at least two (2) such leases that are for space greater
than 100,000 rentable square feet in size, then leases that are for space at
least 75,000 rentable square feet in size shall be considered), location and
quality to the Premises, for a similar lease term, in an arms length
transaction, which comparable space is located in the Project and in the
Comparable Buildings ("COMPARABLE TRANSACTIONS") taking into consideration
the following concessions; provided, however, that in the event that the
Premises includes the Expansion Space then (i) the "twelve (12)" and "six
(6)" month periods provided above shall be deemed to be "eighteen (18)" and
"twelve (12)" months, respectively, and (ii) the numbers "100,000" and
"75,000" shall be deemed to be "200,000" and "150,000," respectively: (a)
rental abatement concessions, if any, being granted such tenants in
connection with such comparable space, (b) tenant improvements or allowances
provided or to be provided for such comparable space, (c) the amount of
available parking for Tenant, and (d) all other monetary and non-monetary
concessions, if any, being granted such tenants in connection with such
Comparable Transactions; provided, however, that notwithstanding anything to
the contrary herein, no consideration shall be given to (1) the fact that
Landlord is or is not required to pay a real estate brokerage commission in
connection with the applicable term or the fact that the Comparable
Transactions do or do not involve the payment of real estate brokerage
commissions, and (2) any period of rental abatement, if any,
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granted to tenants in Comparable Transactions in connection with the design,
permitting and construction of tenant improvements in such comparable spaces.
In analyzing such comparable spaces, the arbitrators shall give due
consideration to the method by which the square footage of such space has
been calculated. The Fair Market Rental Rate shall additionally include a
determination as to whether, and if so to what extent, Tenant must provide
Landlord with financial security, such as a letter of credit or guaranty, for
Tenant's Rent obligations during the term. Such determination shall be made
by reviewing the extent of financial security then generally being imposed in
Comparable Transactions from tenants of comparable financial condition and
credit history to the then existing financial condition and credit history of
Tenant (with appropriate adjustments to account for differences in the
then-existing financial condition of Tenant and such other tenants). If in
determining the Fair Market Rental Rate, Tenant is deemed to be entitled to a
tenant improvement or comparable allowance for the improvement of the
Premises (the total dollar value of such allowance, the "OPTION TERM TI
ALLOWANCE"), Landlord may, at Landlord's sole option, elect any or a portion
of the following: (A) to grant some or all of the excess Option Term TI
Allowance to Tenant as a lump sum payment to Tenant, and/or (B) in lieu of
making a lump sum payment (or portion thereof) to Tenant, to reduce the
rental rate component of the Fair Market Rental Rate to be an effective
rental rate which takes into consideration that Tenant will not receive a
payment of such excess Option Term TI Allowance, or portion thereof (in which
case the excess Option Term TI Allowance, or portion thereof, evidenced in
the effective rental rate shall not be paid to Tenant). Notwithstanding
anything above to the contrary, Landlord and Tenant acknowledge and agree
that Landlord shall have the right, in Landlord's good faith discretion, to
adjust the economic components of the rent in the Comparable Transactions to
reflect triple net economic components so that an "apples-to-apples"
comparison analysis can be made.
2.3 FAILURE OF LANDLORD TO DELIVER PREMISES BY THE PREMISES OUTSIDE
DELIVERY DATE.
2.3.1 OUTSIDE DELIVERY DATE. Notwithstanding anything in
Section 2.1 to the contrary, if Landlord does not cause the Initial Delivery
Dates (as defined in Section 1.2 of the Tenant Work Letter) to occur by March
1, 2001 (the "PREMISES OUTSIDE DELIVERY DATE") (as such Premises Outside
Delivery Date may be extended by the number of days of Force Majeure delays
(provided, however, that in no event shall the Premises Outside Delivery Date
be extended on account of any such Force Majeure delays by more than ninety
(90) days) and by the number of days of any Tenant Delays (as defined in
Section 2.3.4 below) pursuant to Section 2.3.4 below), then Tenant shall have
the right to deliver a notice to Landlord (a "TERMINATION NOTICE") electing
to terminate this Lease effective upon the date occurring five (5) business
days following receipt by Landlord of the Termination Notice (the "EFFECTIVE
DATE"). The Termination Notice must be delivered by Tenant to Landlord, if at
all, not earlier than the Premises Outside Delivery Date (as the same may be
extended pursuant to the terms of Section 2.3.3 below) nor later than fifteen
(15) business days after the Premises Outside Delivery Date; provided,
however, the Tenant shall have the right to send a Notice at any time prior
to the Premises Outside Delivery Date, requesting Landlord whether the
Initial Delivery Dates will, in Landlord's general contractor's reasonable
good faith estimation, occur by the Premises Outside Delivery Date ("TENANT'S
REQUEST NOTICE") and Landlord shall respond to Tenant's Request Notice within
ten (10) business days after Landlord's receipt thereof ("LANDLORD'S RESPONSE
NOTICE"). If Landlord's Response Notice indicates that the Initial Delivery
Dates will not, in such contractor's reasonable good faith estimation, occur
by the Premises Outside Delivery Date (or
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such later date to extent the Premises Outside Delivery Date is extended by
Force Majeure delays and Tenant Delays) taking into account Landlord's good
faith estimate of the actions that Landlord can take to accelerate the date
of completion of construction of Landlord's work described in Exhibit D, then
Tenant shall have the right to deliver the Termination Notice electing to
terminate this Lease (effective upon the date occurring five (5) business
days following receipt by Landlord of the Termination Notice), which
Termination Notice must be delivered by Tenant to Landlord, if at all, not
later than fifteen (15) business days after Tenant's receipt of Landlord's
Response Notice; provided further, however, that in no event will Landlord be
liable to Tenant if Landlord's Response Notice indicates that the Initial
Delivery Date will occur by the then Premises Outside Delivery Date and the
same does not occur to the extent that Landlord's Response Notice (and the
information contained therein) was determined in good faith by Landlord's
general contractor. The effectiveness of any such Termination Notice
delivered by Tenant to Landlord shall be governed by the terms of this
Section 2.3. Within thirty (30) days after the Effective Date, Landlord
shall, so long as Tenant is not in Default under this Lease, reimburse to
Tenant the costs incurred by Tenant on account of the actual, documented and
reasonable fees of its attorneys, the Architect, the Engineers and project
consultant upon presentation to Landlord of paid invoices reflecting such
costs incurred and paid by Tenant, not to exceed, collectively, Five Hundred
Thousand Dollars ($500,000.00).
2.3.2 EXTENSION OF PREMISES OUTSIDE DELIVERY DATE AFTER
DELIVERY OF THE TERMINATION NOTICE. If Tenant delivers a Termination Notice
to Landlord, then Landlord shall have the right to suspend the occurrence of
the Effective Date for a period ending thirty (30) days after the Effective
Date by delivering to Tenant, prior to the Effective Date, a certificate of
Landlord's contractor that it is such contractor's best good faith judgment
that the applicable Initial Delivery Date will occur within thirty (30) days
after the Effective Date (the "TERMINATION EXTENSION NOTICE"). If the Initial
Delivery Dates occur prior to the expiration of such thirty-day period, then
the Termination Notice shall of no force or effect, but if the Initial
Delivery Dates do not occur within such thirty-day period, then this Lease
shall terminate upon the expiration of such thirty-day period.
2.3.3 EXTENSION OF PREMISES OUTSIDE DELIVERY DATE PRIOR TO
THE DELIVERY OF TERMINATION NOTICE. Additionally, if a Termination Notice has
not been delivered by Tenant to Landlord and, prior to the Premises Outside
Delivery Date, Landlord determines that the Initial Delivery Date will not
occur by the Premises Outside Delivery Date, Landlord shall have the right to
deliver a written Notice to Tenant stating Landlord's opinion as to the date
by which the Initial Delivery Date shall occur, and Tenant shall be required,
within ten (10) business days after receipt of such Notice, to deliver a
Notice to Landlord pursuant to which Tenant shall elect to either terminate
this Lease, in which case this Lease shall immediately terminate and be of no
further force and effect, or to agree to extend the Premises Outside Delivery
Date to that date set forth in such notice delivered by Landlord. Failure by
Tenant to deliver such Notice or to so elect shall be deemed Tenant's
agreement to extend the Premises Outside Delivery Date set forth in
Landlord's Notice to Tenant, but only to the extent that Landlord's Notice
includes the language set forth in the immediately following sentence:
Tenant's failure to terminate the Lease within ten (10) business days after
Tenant's receipt of this Notice shall be automatically deemed Tenant's
consent to extend the Premises Outside Delivery Date to the date selected by
Landlord in Landlord's Notice. If Tenant agrees to extend the Premises
Outside Delivery Date, Landlord shall have a continuing right to deliver a
Notice to Tenant which requests Tenant to so elect to
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either terminate this Lease or to further extend the Premises Outside
Delivery Date as set forth in this Section 2.3.3, above, until the occurrence
of the Initial Delivery Dates or until this Lease is terminated. Upon the
delivery of a Termination Notice by Tenant pursuant to Section 2.3.1 in
connection with the Premises Outside Delivery Date extended pursuant to this
Section 2.3.3, Landlord shall also have the same right to deliver the
Termination Extension Notice as to the new Premises Outside Delivery Date, as
set forth in Section 2.3.2, above.
2.3.4 OTHER TERMS. The Effective Date and the Premises
Outside Delivery Date shall be extended to the extent of any delays beyond
the reasonable control of Landlord, including any such delay due to a "FORCE
MAJEURE" event, as that term is defined in Section 29.13 hereof (but in no
event shall the Effective Date and the Premises Outside Delivery Date be
extended on account of any such Force Majeure events by more than ninety (90)
days), and any "TENANT DELAYS." For purposes hereof, the term "TENANT DELAYS"
shall mean any actual delays preventing the Initial Delivery Dates to occur
by the Premises Outside Delivery Date to the extent resulting from (i)
material and unreasonable interference by Tenant or Tenant's Agents with the
substantial completion of the Base Building for the Premises or any portion
thereof, which interference relates to access by Landlord to the Building or
Building facilities or service and utilities during normal construction hours
or the use thereof during normal construction hours or (ii) a material breach
by Tenant of a provision of the Tenant Work Letter. Notwithstanding anything
above to the contrary, if Landlord contends that a Force Majeure event or a
Tenant Delay has occurred, Landlord shall notify Tenant in writing of the
event which constitutes such a Force Majeure event or a Tenant Delay. If such
actions, inaction or circumstance described in the notice which constitute a
Tenant Delay ("LANDLORD DELAY NOTICE") are not cured by Tenant within one (1)
business day of Tenant's receipt of the Landlord Delay Notice and if such
action, inaction or circumstance otherwise qualifies as a Tenant Delay, then
a Tenant Delay shall be deemed to have occurred commencing as of the date of
Tenant's receipt of the Landlord Delay Notice and ending as of the date such
Tenant Delay ends. If the circumstance set forth in Landlord's Delay Notice
describes a Force Majeure event and such circumstance qualifies as a Force
Majeure event, then a Force Majeure event shall be deemed to have occurred
commencing as of the date of Tenant's receipt of the Landlord's Delay Notice
and ending as of the date such Force Majeure event ends. From time to time,
Landlord and Tenant shall confirm in writing the amount of Force Majeure
events and Tenant Delays to enable each party to determine the actual
Premises Outside Delivery Date and the date by which Tenant must deliver a
Termination Notice. Upon any termination as set forth in this Section 2.3,
except as provided in the last sentence of Section 2.3.1 above, Landlord and
Tenant shall be relieved from any and all liability to each other resulting
hereunder except that Landlord shall return to Tenant any prepaid rent,
promissory notes and letters of credit. Tenant's rights to terminate this
Lease, as set forth in this Section 2.3, shall be Tenant's sole and exclusive
remedy at law or in equity for the failure of the Initial Delivery Dates to
occur as set forth above.
ARTICLE 3
BASE RENT
Tenant shall pay, without notice or demand, to Landlord at the
management office of the Project, or at such other place as Landlord may from
time to time designate in writing, in the form of a check (which is drawn
upon a bank which is located in the State of California), base
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rent ("BASE RENT") as set forth in Section 8 of the Summary, payable in equal
monthly installments as set forth in Section 8 of the Summary in advance on
or before the first day of each and every calendar month during the Lease
Term, without any setoff or deduction whatsoever (except as specifically set
forth in this Lease). If any Rent, payment date (including the Lease
Commencement Date) falls on a day of a calendar month other than the first
day of such calendar month or if any Rent payment is for a period which is
shorter than one calendar month such as during the last month of the Lease
Term, the Rent for any fractional calendar month shall accrue on a daily
basis for the period from the date such payment is due to the end of such
calendar month or to the end of the Lease Term at a rate per day which is
equal to 1/365 of the Rent. All other payments or adjustments required to be
made under the terms of this Lease that require proration on a time basis
shall be prorated on the same basis.
ARTICLE 4
ADDITIONAL RENT
4.1 ADDITIONAL RENT. In addition to paying the Base Rent specified
in Article 3 of this Lease, Tenant shall pay as additional rent "TENANT'S
SHARE" of the annual "DIRECT EXPENSES," as those terms are defined in
Sections 4.2.5 and 4.2.1 of this Lease, respectively. Such additional rent,
together with any and all other amounts payable by Tenant to Landlord, as
additional rent or otherwise, pursuant to the terms of this Lease, shall be
hereinafter collectively referred to as the "ADDITIONAL RENT." The Base Rent
and Additional Rent are herein collectively referred to as the "RENT." All
amounts due under this Article 4 as Additional Rent shall be payable in the
same manner, time and place as the Base Rent. Without limitation on other
obligations of Tenant and Landlord which shall survive the expiration of the
Lease Term, the obligations of Tenant to pay the Additional Rent provided for
in this Article 4 shall survive the expiration of the Lease Term and
Landlord's obligation to refund to Tenant any overpayments of such Additional
Rent shall survive the expiration of the Lease Term; provided, however, that
any such payments made by Tenant of any Additional Rent or any refund to
Tenant by Landlord of any overpayments of such Additional Rent shall not
constitute a waiver by either Tenant or Landlord, as the case may be, of any
amount that Tenant or Landlord (as the case may be) contend, now or in the
future (subject to the limitations set forth in the Lease or under Applicable
Law) are in dispute.
4.2 DEFINITIONS. As used in this Article 4, the following terms
shall have the meanings hereinafter set forth:
4.2.1 "DIRECT EXPENSES" shall mean "Operating Expenses" and
"Tax Expenses."
4.2.2 "EXPENSE YEAR" shall mean each calendar year in which
any portion of the Lease Term falls, through and including the calendar year
in which the Lease Term expires.
4.2.3 "OPERATING EXPENSES" shall, subject to Section 4.4.2,
mean all expenses, costs and amounts of every kind and nature which Landlord
shall pay or incur during any Expense Year because of or in connection with
the ownership, management, maintenance, repair, replacement, restoration or
operation of the Project or any portion thereof, all as determined in
accordance with sound real estate management practices consistently applied,
including, without limitation, any amounts paid or incurred for (i) the cost
of supplying all utilities, the cost of
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operating, maintaining, repairing, replacing, renovating, complying with
mandatory conservation measures in connection with, and managing the utility
systems, mechanical systems, plumbing, sanitary and storm drainage systems,
landscaping, communication systems, and escalator and elevator systems, and
the cost of supplies, tools, equipment, maintenance, and service contracts
incurred in connection therewith; (ii) the cost of licenses, certificates,
permits and inspections, the cost of contesting the validity or applicability
of any governmental enactments which are reasonably anticipated to reduce
Operating Expenses, the costs incurred in connection with the implementation
and operation of any governmentally mandated transportation management
program or similar program or a municipal or public shuttle service or
parking program, and any traffic or transportation-related fee imposed by any
governmental authority, and the cost of reasonably contesting any fees or
other charges imposed by any governmental authority in connection with any
transportation management or similar program; (iii) the cost of all insurance
carried in connection with the Project, or any portion thereof not, however,
materially in excess of the types or amounts of insurance carried by
landlords of Comparable Buildings for unusual or expensive coverages or
endorsements such as earthquake and flood (provided, however, that Landlord's
insurance shall be deemed to have satisfied such Comparable Buildings
standard to the extent that other buildings comparable to the Building and
owned by Landlord in Southern California, which buildings are subject to
similar debt coverage terms and conditions, if any, are covered by
substantially the same insurance coverage terms (i.e., coverage rate and
deductible percentage(s)) as carried by Landlord hereunder); (iv) the cost of
landscaping, relamping, and all supplies, tools, equipment and materials used
in the operation, repair and maintenance of the Project, or any portion
thereof; (v) the cost of parking area, operation, repair, restoration, and
maintenance, including, but not limited to, resurfacing, repainting,
restriping, and cleaning; (vi) fees, charges and other costs reasonably
incurred, including a management fee equal to three and one-half percent
(3.5%) of Landlord's gross rental revenue (including, without limitation,
Base Rent, Additional Rent, parking fees, the promissory note payments,
grossed up to take into account the free rent provided to Tenant hereunder)
(or amounts in lieu thereof), consulting fees (including but not limited to
any consulting fees incurred in connection with the procurement of
insurance), legal fees and accounting fees, of all persons, contractors and
consultants engaged by Landlord or otherwise reasonably incurred by Landlord
in connection with the management, operation, administration, maintenance and
repair of the Project; (vii) payments under any equipment rental agreements
or management agreements (including the cost of any management fee and the
fair rental value of any office space provided thereunder); (viii) wages,
salaries and other compensation and benefits of all persons to the extent
that such persons are engaged in the operation, maintenance, management, or
security of the Project (provided that such persons hold a title generally
considered to be no higher in rank than Project manager), or any portion
thereof, including, but not limited to, employer's Social Security taxes,
unemployment taxes or insurance, and any other taxes which may be levied on
such wages, salaries, compensation and benefits; provided, that if any
employees of the Project provide services for other projects, then a prorated
portion of such employees' wages, benefits and taxes shall be included in
Operating Expenses based on the portion of their working time devoted to the
Project; (ix) payments, fees or charges under any present and future
easement, license, operating agreement, declaration development agreement,
covenants, conditions and restrictions, restrictive covenant, Underlying
Documents (as defined in Article 5 hereof) or other instruments (including
any amendments and modifications to any such instruments) pertaining to the
sharing of costs by the Project (or any portion thereof) or otherwise, and
any costs and expenses of any governmentally mandated
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assessments, impositions or charges affecting the Project including, but not
limited to, any sewer connection and/or reconnection fees or assessments; (x)
the cost of operation, repair, maintenance and replacement of all systems and
equipment and components thereof; (xi) the cost of janitorial services, alarm
and security service, window cleaning, trash removal, repair of wall and
floor coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms
and other common or public areas or facilities, maintenance and replacement
of curbs and walkways, repair to roofs and re-roofing; (xii) amortization
over its reasonable useful life (including interest on the unamortized cost
at a rate equal to the Interest Rate) of the cost of acquiring or the rental
expense of personal property used in the maintenance, operation and repair of
the Project, or any portion thereof; (xiii) the cost of Landlord's office and
office operation for the Project and all supplies and materials used in
connection therewith; (xiv) the cost of any capital repairs, replacements or
other improvements made to the Project or other costs incurred in connection
with the Project (A) which are intended to reduce Operating Expenses in
connection with the operation or maintenance of the Project, or any portion
thereof to the extent of cost savings reasonably anticipated by Landlord
(based on sound documentation) at the time of such expenditure to be incurred
in connection therewith, or (B) that are required under any Applicable Laws
except for capital repairs, replacements or other improvements to remedy a
condition existing on the Lease Commencement Date; provided, however, that
any such permitted capital expenditure shall be amortized (with interest at a
rate equal to the floating commercial loan rate announced from time to time
by Bank of America, a national banking association, or its successor, as its
prime rate, plus 2% per annum (the "INTEREST RATE")) over its reasonable
useful life; and (xv) costs, fees, charges or assessments imposed by any
federal, state or local government for fire and police protection, trash
removal, community services, or other services, or street and other traffic
improvements, which do not constitute "TAX EXPENSES", as that term is defined
in Section 4.2.4, below. Notwithstanding the foregoing, for purposes of this
Lease, Operating Expenses shall not, however, include (A) except as otherwise
set forth above in this Section 4.2.3, principal payments, bad-debt expenses,
depreciation, interest and amortization on mortgages, or ground lease
payments, if any; (B) real estate brokers' leasing commissions; (C) the cost
of providing any service directly to and paid directly by any tenant; (D) any
costs expressly excluded from Operating Expenses elsewhere in this Lease; (E)
costs of any items to the extent Landlord receives reimbursement from
insurance proceeds (such proceeds to be excluded from Operating Expenses in
the year in which received, except that any deductible amount under any
insurance policy shall be included within Operating Expenses) or from a third
party; (F) costs of capital improvements, repairs, alterations and equipment,
except those set forth in this Section 4.2.3; (G) marketing costs, including
leasing commissions, advertising and promotional expenses, space planning
costs and attorneys' fees in connection with the negotiation and preparation
of letters, deal memos, letters of intent, leases, and subleases and/or
assignments incurred in connection with present or prospective tenants or
other occupants of the Project, including attorneys' fees and other costs and
expenditures incurred in connection with disputes with present or prospective
tenants or other occupants of the Project; (H) costs, including permit,
license and inspection costs and any allowances or other tenant improvement
concessions, incurred or provided with respect to the design, construction
and/or installation of other tenants' or occupants' improvements made for
tenants or other occupants in the Project or incurred in renovating or
otherwise improving, decorating, painting or redecorating vacant space for
tenants or other occupants in the Project (excluding, however, such costs
relating to any Common Areas or Project parking facilities); (I) rentals and
other related expenses incurred in leasing a heating,
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ventilation and air conditioning system, elevators, or other items (except
equipment not affixed to the Project which is used in providing janitorial or
similar services to the Project and, further excepting from this exclusion
such equipment rented or leased to remedy or ameliorate an emergency
condition in the Project) which if purchased, rather than rented, would
constitute a capital improvement not included in Operating Expenses pursuant
to this Lease; (J) depreciation, amortization and interest payments, except
as specifically included in Operating Expenses pursuant to the terms of this
Lease and, except on materials, tools, supplies and vendor-type equipment
purchased by Landlord to enable Landlord to supply services Landlord might
otherwise contract for with a third party, where such depreciation,
amortization and interest payments would otherwise have been included in the
charge for such third party's services, all as determined in accordance with
sound real estate management principles, and when depreciation or
amortization is permitted or required, the item shall be amortized over its
reasonably anticipated useful life; (K) costs incurred by Landlord for
alterations (including structural additions), repairs, equipment and tools
which are of a capital nature and/or which are considered capital
improvements or replacements under sound real estate management principles,
except as specifically included in Operating Expenses pursuant to the terms
of this Lease; (L) expenses in connection with services or other benefits
which are not offered to Tenant or for which Tenant is charged for directly
but which are provided to another tenant or occupant of the Project, without
charge; (M) overhead and profit increment paid to Landlord or to the parent
organization or to subsidiaries or affiliates of Landlord for goods and/or
services in the Project to the extent the same exceeds the costs of such by
unaffiliated third parties on a competitive basis; (N) advertising and
promotional expenditures, and costs of signs in or on the Project identifying
the owner of the Project or other tenants' signs; (O) to the extent
applicable, electric power costs or other utility costs for which any tenant
directly contracts with the local public service company (but Landlord shall
have the right to "gross up" as if the floor was vacant); (P) tax penalties
incurred as a result of Landlord's negligence, inability or unwillingness to
make payments or file returns when due; (Q) legal fees and costs concerning
the negotiation and preparation of this Lease or any litigation between
Landlord and Tenant; (R) any reserves retained by Landlord; (S) costs arising
from Landlord's charitable or political contributions; (T) costs associated
with the operation of the business of the partnership or entity which
constitutes the Landlord, as the same are distinguished from the costs of
operation of the Project, including partnership accounting and legal matters,
costs of defending any lawsuits with any mortgagee (except as the actions of
the Tenant may be in issue), costs of selling, syndicating, financing,
mortgaging or hypothecating any of the Landlord's interest in the Project,
and costs incurred in connection with any disputes between Landlord and its
employees, between Landlord and Project management, or between Landlord and
other tenants or occupants; (U) the wages and benefits of any employee who
does not devote substantially all of his or her employed time to the Project
unless such wages and benefits are prorated to reflect time spent on
operating and managing the Project vis-a-vis time spent on matters unrelated
to operating and managing the Project; provided, that in no event shall
Operating Expenses for purposes of this Lease include wages and/or benefits
attributable to personnel above the level of Project manager, Project
engineer and/or chief operating engineer; (V) except as set forth in items
(xii) and (xiv), above, late charges, penalties, liquidated damages, and
interest; (W) amount paid as ground rental or as rental for the Project by
the Landlord; (X) any compensation paid to clerks, attendants or other
persons in commercial concessions operated by or on behalf of the Landlord;
(Y) all items and services for which Tenant or any other tenant in the
Project is obligated to reimburse Landlord,
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provided that Landlord shall use commercially reasonable efforts to collect
such reimbursable amounts, or which Landlord provides selectively to one or
more tenants (other than Tenant) without reimbursement; (Z) costs, other than
those incurred in ordinary maintenance and repair, for sculpture, paintings,
fountains or other objects of art; (AA) fees and reimbursements payable to
Landlord (including its parent organization, subsidiaries and/or affiliates)
or by Landlord for management of the Project which exceed 3.5% of gross
rental revenue (as described in Section 4.2.3(vi) above); (BB) rent for any
office space occupied by Project management personnel to the extent the size
or rental rate of such office space exceeds the size or fair market rental
value of office space occupied by management personnel of the Comparable
Buildings in the vicinity of the Building, with adjustment where appropriate
for the size of the applicable project; (CC) all assessments and premiums
which are not specifically charged to Tenant because of what Tenant has done,
which can be paid by Landlord in installments, shall be paid by Landlord in
the maximum number of installments permitted by law (except to the extent
inconsistent with the general practice of the Comparable Buildings) and shall
be included as Operating Expenses in the year in which the assessment or
premium installment is actually paid; (DD) costs arising from the gross
negligence or willful misconduct of Landlord or "Landlord Parties," as that
term is defined in Section 10.1 of this Lease; (EE) costs incurred to comply
with Applicable Law with respect to "Hazardous Material," as that term is
defined in Section 29.25 of this Lease, which was in existence in the
Building or on the Project prior to the Lease Commencement Date; and costs
incurred with respect to Hazardous Material, which Hazardous Material is
brought into the Building or onto the Project after the date hereof by
Landlord or any other tenant of the Project or by anyone other than Tenant or
Tenant Parties and is of such a nature, at that time, that a federal, state
or municipal governmental or quasi-governmental authority, if it had then had
knowledge of the presence of such Hazardous Material, in the state, and under
the conditions, that it then exists in the Building or on the Project, would
have then required the removal, remediation or other action with respect to
such Hazardous Material; (FF) any entertainment, dining or travel expenses
for any purpose; (GG) any finders fees, brokerage commissions, job placement
costs or job advertising cost, other than with respect to a receptionist or
secretary in the Project office, once per year; (HH) any above Building
standard cleanup, including construction and special events cleanup (other
than special events where Tenant is invited); (II) the cost of any training
or incentive programs, other than for tenant life safety information
services; (JJ) in-house legal and/or accounting (as opposed to office
building bookkeeping) fees; (KK) in the event any facilities, services or
utilities used in connection with the Project are provided from another
building owned or operated by Landlord or vice versa, the costs incurred by
Landlord in connection therewith shall be allocated to Operating Expenses by
Landlord on a reasonably equitable basis; (LL) legal fees and costs,
settlements, judgments or awards paid or incurred because of disputes between
Landlord and Tenant, Landlord and other tenants or prospective occupants or
prospective tenants/occupants or providers of goods and services to the
Project; (MM) the costs of any flowers, gifts, balloons, etc. provided to any
prospective tenants, Tenant, other tenants, and occupants of the Building,
except to the extent such costs are customarily included in operating
expenses by landlords of Comparable Buildings; (NN) costs incurred in
connection with the original construction and development of the Project
(including COSTS incurred in connection with the Underlying Documents) or in
connection with any major change in the Project, such as adding or deleting
floors; (OO) costs for which the Landlord is reimbursed, or would have been
reimbursed if Landlord
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had carried the insurance Landlord is required to carry pursuant to this
Lease or would have been reimbursed if Landlord had used commercially
reasonable efforts to collect such amounts, by any tenant or occupant of the
Project or by insurance from its carrier or any tenant's carrier; (PP) tax
penalties; (QQ) [INTENTIONALLY OMITTED]; (RR) costs of correcting defects in
the initial design and construction of the Project; (SS) costs reimbursed to
Landlord under any warranty carried by Landlord for the Building and/or the
Project, which warranties Landlord shall use commercially reasonable efforts
to enforce; (TT) costs of magazine and newspaper subscriptions to the extent
not customary in Comparable Buildings; (UU) costs of third party non-tenant
parties; (VV) costs of specialty clubs and services not provided or offered
to Tenant without charge; (WW) costs associated with material portions of the
Common Areas dedicated for the exclusive use of other tenants of the Project,
except to the extent Tenant is given its pro-rata share (rentable square feet
in the Premises in relation to the rentable square feet in the Project) of
comparable Common Areas; and (XX) costs due to violations of the Underlying
Documents. Any refunds or discounts actually received by Landlord for any
category of Operating Expenses shall reduce Operating Expenses in the
applicable Expense Year (pertaining to such Category of Operating Expenses)
Landlord shall not make any profit by charging items to Operating Expenses
that are otherwise also charged separately to others. Landlord shall not
collect Operating Expenses from Tenant and all other tenants/occupants in the
Project in an amount in excess of what Landlord incurred for the items
included in Operating Expenses.
4.2.4 "TAX EXPENSES" shall mean all federal, state, county,
or local governmental or municipal taxes, fees, charges or other impositions
of every kind and nature, whether general, special, ordinary or extraordinary
(including, without limitation, real estate taxes, general and special
assessments, transit taxes or charges, business or license taxes or fees,
annual or periodic license or use fees, open space charges, housing fund
assessments, leasehold taxes or taxes based upon the receipt of rent,
including gross receipts or sales taxes applicable to the receipt of rent,
unless required to be paid by Tenant, personal property taxes imposed upon
the fixtures, machinery, equipment, apparatus, systems and equipment,
appurtenances, furniture and other personal property used in connection with
the Project), which Landlord shall pay or incur during any Expense Year
(without regard to any different fiscal year used by such governmental or
municipal authority) because of or in connection with the ownership, leasing
and operation of the Project.
4.2.4.1 Tax Expenses shall include, without
limitation:
(a) Except as provided in Section 4.8 below, any
assessment, reassessment, tax, fee, levy or charge in addition to, or
in substitution, partially or totally, of any assessment, tax, fee,
levy or charge previously included within the definition of real
property tax, it being acknowledged by Tenant and Landlord that
Proposition 13 was adopted by the voters of the State of California in
the June 1978 election ("PROPOSITION 13") and that assessments, taxes,
fees, levies and charges may be imposed by governmental agencies for
such services as fire protection, street, sidewalk and road
maintenance, conservation, refuse removal and for other governmental
services formerly provided without charge to property owners or
occupants, and, in further recognition of the decrease in the level and
quality of governmental services and amenities as a result of
Proposition 13, Tax Expenses shall, except as otherwise expressly
provided below, also include any governmental or private assessments or
other charges, costs or impositions or the Project's contribution
towards a governmental or private cost-sharing agreement for
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the purpose of augmenting or improving the quality of services and
amenities normally provided by governmental agencies. It is the
intention of Tenant and Landlord that all such new and increased
assessments, taxes, fees, levies, and charges and all similar
assessments, taxes, fees, levies and charges be included within the
definition of Tax Expenses for purposes of this Lease;
(b) Any assessment, tax, fee, levy, or charge
allocable to or measured by the area of the Premises or the rent
payable hereunder, including, without limitation, any business or gross
income tax or excise tax with respect to the receipt of such rent, or
upon or with respect to the possession, leasing, operating, management,
maintenance, alteration, repair, use or occupancy by Tenant of the
Premises, or any portion thereof;
(c) Any assessment, tax, fee, levy or charge, upon
this transaction or any document to which Tenant is a party, creating
or transferring an interest or an estate in the Premises; and
(d) Any tax on the Rent, right to Rent or any other
income from the Project, or any portion thereof, or as against the
business of leasing the Project, or any portion thereof;.
4.2.4.2 Any expenses incurred by Landlord in
attempting to protest, reduce or minimize Tax Expenses if Landlord has
a reasonable expectation of achieving a reduction in excess of the
expenses incurred shall be included in Operating Expenses in the
Expense Year such expenses are paid. Tax refunds shall be deducted from
Tax Expenses in the applicable Expense Year. All special assessments
which may be paid in installments shall be paid by Landlord in the
maximum number of installments permitted by law and not included in Tax
Expenses except in the year in which the assessment is actually paid;
provided, however, that if the prevailing practice in comparable
buildings located in the vicinity of the Project is to pay such
assessments on an early basis, and Landlord pays the same on such
basis, such assessments shall be included in Tax Expenses in the year
paid by Landlord.
4.2.4.3 Notwithstanding anything to the contrary
contained in this Section 4.2.4 (except as set forth in Section 4.2.4.1
or levied in whole or part in lieu of Tax Expenses), there shall be
excluded from Tax Expenses (i) all excess profits taxes, franchise
taxes, gift taxes, capital stock taxes, inheritance and succession
taxes, estate taxes, federal and state income taxes, and other taxes to
the extent applicable to Landlord's general or net income (as opposed
to rents, receipts or income attributable to operations at the
Project), (ii) any items included as Operating Expenses, (iii) any
items paid by Tenant under Section 4.5 of this Lease, (iv) any tax
penalties, (v) any amounts payable directly by Tenant or other tenants,
and (vi) costs and assessments relating to the initial construction and
development of the Project (including entitlements).
4.2.5 "TENANT'S SHARE" shall mean the percentage set forth
in Section 9.1 of the Summary. Tenant's Share was calculated by multiplying
the number of rentable square feet of the Premises by 100 and dividing the
product by the total rentable square feet in the Building. In the event
either the Building is expanded or reduced, Tenant's Share shall be
appropriately
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adjusted, and, as to the Expense Year in which such change occurs, Tenant's
Share for such year shall be determined on the basis of the number of days
during such Expense Year that each such Tenant's Share was in effect.
4.3 CALCULATION AND PAYMENT OF ADDITIONAL RENT.
4.3.1 STATEMENT OF ACTUAL DIRECT EXPENSES AND PAYMENT BY
TENANT. As soon as reasonably possible following the end of each Expense
Year, Landlord shall give to Tenant a statement (the "STATEMENT"), which
Statement shall state, on a line-item by line-item basis, the Direct Expenses
incurred or accrued for such preceding Expense Year. Upon receipt of the
Statement for each Expense Year ending during the Lease Term, Tenant shall
pay, within thirty (30) days after receipt of such Statement, Tenant's Share
of Direct Expenses for such Expense Year, less the amounts, if any, paid
during such Expense Year as "ESTIMATED EXPENSES," as that term is defined in
Section 4.3.2, below. In the event the Statement indicates that the amounts
paid by Tenant for such Expense Year as Estimated Expenses is in excess of
Tenant's Share of Direct Expenses for such Expense Year, Landlord shall pay
to Tenant such overpayment within thirty (30) days after Landlord's
calculation of the Statement. The failure of Landlord to timely furnish the
Statement for any Expense Year shall not prejudice Landlord (provided that in
the event that such failure continues for a period of six (6) months
following receipt of Notice from Tenant, Tenant may elect to seek specific
performance) or Tenant from enforcing its rights under this Article 4. Even
though the Lease Term has expired and Tenant has vacated the Premises, when
the final determination is made of Tenant's Share of the Direct Expenses for
the Expense Year in which this Lease terminates, taking into consideration
that the Lease Expiration Date may have occurred prior to the final day of
the applicable Expense Year, Tenant shall pay to Landlord or Landlord shall
pay to Tenant (in the event of an overpayment by Tenant of Tenant's Share of
Direct Expenses) an amount as calculated pursuant to the provisions of
Section 4.3.1 of this Lease within thirty (30) days of Tenant's receipt of an
invoice therefor from Landlord or Landlord's calculation, as applicable. The
provisions of this Section 4.3.1 shall survive the expiration or earlier
termination of the Lease Term. Notwithstanding the immediately preceding
sentence, Tenant shall not be responsible for Tenant's Share of any Direct
Expenses attributable to any Expense Year which are first billed to Tenant
more than two (2) calendar years after the earlier of the expiration of the
applicable Expense Year or the Lease Expiration Date, provided that in any
event Tenant shall be responsible for Tenant's Share of Direct Expenses
levied by any governmental authority or by any public utility companies at
any time following the Lease Expiration Date which are attributable to any
Expense Year (provided that Landlord delivers Tenant a bill (a "SUPPLEMENTAL
STATEMENT") for such amounts within two (2) years following Landlord's
receipt of the bill therefor).
4.3.2 STATEMENT OF ESTIMATED DIRECT EXPENSES. In addition,
Landlord shall use commercially reasonable efforts to give Tenant a yearly
expense estimate statement (the "ESTIMATE STATEMENT") which shall, on a
line-item by line-item basis, set forth Landlord's reasonable and good faith
estimate (the "ESTIMATE") of what the total amount of Direct Expenses for the
then-current Expense Year shall be ("ESTIMATED EXPENSES"), which Estimate
Statement may be revised and reissued by Landlord from time to time. The
failure of Landlord to timely furnish the Estimate Statement for any Expense
Year shall not preclude Landlord from enforcing its rights to collect
Estimated Expenses under this Article 4 (provided that in the event that such
failure continues for a period of six (6) months following receipt of Notice
from Tenant, Tenant
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may elect to seek specific performance), nor shall Landlord be prohibited
from revising any Estimate Statement or Estimated Expenses theretofore
delivered to the extent necessary; provided however, any such subsequent
revision shall set forth on a reasonably specific basis any particular
expense increase; provided further, however, that notwithstanding the
anything to the contrary contained in this Section 4.3.2, Tenant shall not be
responsible for Tenant's Share of any Estimated Expenses attributable to any
Expense Year which are first billed to Tenant more than two (2) calendar
years after the earlier of the expiration of the applicable Expense Year or
the Lease Expiration Date, provided that in any event Tenant shall be
responsible for Tenant's Share of Estimated Expenses levied by any
governmental authority or by any public utility companies at any time
following the Lease Expiration Date which are attributable to any Expense
Year (provided that Landlord delivers Tenant a Supplemental Statement for
such amounts within two (2) years following Landlord's receipt of the bill
therefor).. Tenant shall pay, within thirty (30) days after receipt of such
Estimate Statement, a fraction of the Estimated Expenses (or the increase in
the Estimated Expenses if pursuant to a revised Estimate Statement) for the
then-current Expense Year (reduced by any amounts paid pursuant to the last
sentence of this Section 4.3.2). Such fraction shall have as its numerator
the number of months which have elapsed in such current Expense Year to the
month of such payment, both months inclusive, and shall have twelve (12) as
its denominator. Until a new Estimate Statement is furnished, Tenant shall
pay monthly, with the monthly Base Rent installments, an amount equal to
one-twelfth (1/12) of the total Estimated Expenses set forth in the previous
Estimate Statement delivered by Landlord to Tenant.
4.4 ALLOCATION OF DIRECT EXPENSES.
4.4.1 [INTENTIONALLY OMITTED].
4.4.2 METHOD OF ALLOCATION. The parties acknowledge that
the Building is a part of a multi-building project and that the costs and
expenses incurred in connection with the Project (i.e. the Direct Expenses
(which consist of Operating Expenses and Tax Expenses)) should be shared
between the tenants or other occupants of the Building and the tenants or
occupants of the other buildings in the Project. Accordingly, such Direct
Expenses (which consists of Operating Expenses and Tax Expenses) are
reasonably determined annually for the Project as a whole, and a portion of
the Direct Expenses, which portion shall be determined by Landlord on an
equitable basis, shall be allocated (based on square footage of the Building
as compared to the total square footage in the Project) to the tenants of the
Building (as opposed to the tenants or other occupants of any other buildings
in the Project) and such portion shall be the Direct Expenses for purposes of
this Lease. The Direct Expenses allocated to the tenants of the Building
shall only include Direct Expenses attributable solely to the Building and an
equitable portion (based on square footage) of the Direct Expenses
attributable to the Project as a whole; provided, however, that if the
Building is located on a separate tax parcel, Tax Expenses for the Building
shall include Tax Expenses for the separate tax parcel on which the Building
is located and the improvements thereon, and an equitable portion (based on
square footage) of the Tax Expenses attributable to the Common Areas and/or
the Project as a whole.
4.5 TAXES AND OTHER CHARGES FOR WHICH TENANT IS DIRECTLY RESPONSIBLE.
Tenant shall reimburse Landlord, as Additional Rent, upon demand for any and all
taxes required to be paid by Landlord (except to the extent included in Tax
Expenses by Landlord), excluding state, local
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and federal personal or corporate income taxes measured by the net income of
Landlord from all sources and estate and inheritance taxes, whether or not
now customary or within the contemplation of the parties hereto, when:
4.5.1 Said taxes are measured by or reasonably attributable
to the cost or value of Tenant's equipment, furniture, trade fixtures and
other personal property located in the Premises, or by the cost or value of
any leasehold improvements made in or to the Premises by or for Tenant;
4.5.2 Said taxes are assessed upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair,
use or occupancy by Tenant of the Premises, or any portion of the Project
(including, but not limited to, the Project parking facility); or
4.5.3 Said taxes are assessed upon this transaction or any
document to which Tenant is a party creating or transferring an interest or
an estate in the Premises.
4.6 LANDLORD'S BOOKS AND RECORDS. Within two (2) years after
Tenant's receipt of a Statement, Estimate Statement or Supplemental
Statement, if Tenant disputes the amount of Additional Rent set forth in the
Statement, an employee of Tenant or an independent certified public
accountant (which accountant is not working on a contingency fee basis),
designated by Tenant, may, after reasonable notice to Landlord and during
reasonable times and at Tenant's sole cost and expense (except as otherwise
provided below), inspect and copy Landlord's accounting records with respect
to the Expense Year covered by such Statement, Estimate Statement or
Supplemental Statement at Landlord's offices in Los Angeles County,
California, provided that Tenant is not then in Default under this Lease and
Tenant has paid all amounts required to be paid under the applicable Estimate
Statement, Statement or Supplemental Statement, as the case may be. In
connection with such inspection, Tenant and Tenant's agents must agree in
advance to follow Landlord's reasonable rules and procedures regarding
inspections of Landlord's records. As a condition precedent to any such
inspection, Tenant shall deliver to Landlord a copy of Tenant's written
agreement with Tenant's accountant performing the inspection which states,
among other things, that (i) Landlord is an intended third-party beneficiary
of the agreement and (ii) the accountant performing the inspection shall
maintain all information contained in Landlord's records in strict
confidence. Tenant also agrees to maintain all information contained in
Landlord's records in strict confidence. Landlord shall provide Tenant with
reasonable accommodations for such review and reasonable use of available
office equipment, but may charge Tenant for telephone calls at Landlord's
actual cost. The results of any such inspection shall be provided to Landlord
within sixty (60) days after such inspection is performed. Tenant's failure
to dispute the amount of Additional Rent set forth in any Statement within
two (2) years of Tenant's receipt of such Statement, Estimate Statement or
Supplemental Statement, as the case may be, shall be deemed to be Tenant's
approval of such Statement and Tenant, thereafter, waives the right or
ability to dispute the amounts set forth in such Statement, Estimate
Statement or Supplemental Statement, as the case may be. In connection with
the review, Landlord shall furnish Tenant with such reasonable supporting
documentation relating to the subject Statement as Tenant may reasonably
request. If, after such inspection of Landlord's records, Tenant disputes the
amount of Direct Expenses for the Expense Year to which such Statement,
Estimate Statement or Supplemental Statement relates, Landlord and Tenant
shall
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meet and attempt in good faith to resolve the dispute. If the parties are
unable to resolve the dispute, then Tenant shall have the right to submit the
dispute to arbitration pursuant to Section 29.29, below, and the proper
amount of the disputed items shall be determined by the "ARBITRATOR," as that
term is defined in Section 29.29, below. The decision of the Arbitrator,
including any "ARBITRATION AWARD," as that term is defined in Section
29.29.3.2, below, shall be delivered simultaneously to Landlord and Tenant,
and shall be final and binding upon Landlord and Tenant. If the Arbitrator
determines that the amount of Direct Expenses billed to Tenant was incorrect,
the appropriate party shall pay to the other party the deficiency or
overpayment, as applicable, within thirty (30) days following delivery of the
decision of the Arbitrator. All costs and expenses of Tenant's accountant and
the arbitration shall be paid by Tenant unless the final determination in
such arbitration is that Landlord overstated Direct Expenses for the
applicable Expense Year by more than six percent (6%) of the originally
reported Direct Expenses, in which case Landlord shall pay all actual,
documented and reasonable costs and expenses of the accountant and the
arbitration. Landlord shall be required to maintain records of all Direct
Expenses set forth in each Statement delivered to Tenant for the entirety of
the two (2)-year period following Landlord's delivery of any Statement,
Estimate Statement or Supplemental Statement. The payment by Tenant of any
amounts pursuant to this Article 4 shall not preclude Tenant from
questioning, during the Review Period (in accordance with the terms hereof),
the correctness of any Statement, Estimate Statement or Supplemental
Statement delivered by Landlord to Tenant. Tenant hereby acknowledges that
Tenant's sole right to inspect Landlord's books and records and to contest
the amount of Direct Expenses payable by Tenant shall be as set forth in this
Section 4.6, and Tenant hereby waives any and all other rights pursuant to
applicable law to inspect such books and records and/or to contest the amount
of Direct Expenses payable by Tenant; provided however, in no event shall the
foregoing constitute a waiver by Tenant of any rights to pursue any fraud or
similar claims against Landlord pertaining to Direct Expenses to the extent
allowable under Applicable Laws.
4.7 TENANT'S RIGHT TO CONTEST TAX EXPENSES. After reasonable written
request (the "TAX NOTICE") delivered to Landlord by Tenant in good faith,
Landlord shall at Landlord's option, either (i) diligently pursue reasonable
claims for reductions in the Tax Expenses of the Building, and the part of
the Project which contains the same, in which event Landlord shall provide
Tenant with detailed information as to how Landlord will pursue such claims,
or (ii) allow Tenant to pursue such claims with Landlord's concurrence, in
the name of Landlord. If Landlord agrees to pursue such claims or concurs in
the decision to pursue such claims but elects to have them pursued by Tenant,
the reasonable cost of such proceedings shall be paid by Landlord and
included in Tax Expenses in the Expense Year such expenses are paid.
4.8 TENANT'S PAYMENT OF CERTAIN TAX EXPENSES. Notwithstanding
anything to the contrary contained in this Lease, in the event that, at any
time during the Lease Term, any sale, refinancing, or change in ownership of
the Building or Project is consummated, and as a result thereof, and to the
extent that in connection therewith, the Building or Project is reassessed
(the "REASSESSMENT") for real estate tax purposes by the appropriate
governmental authority pursuant to the terms of Proposition 13, then the
terms, covenants and conditions of this Section 4.8 shall apply to such
Reassessment of the Building or Project.
4.8.1 THE TAX INCREASE. For purposes of this Article 4, the
term "TAX INCREASE" shall mean that portion of the Tax Expenses, as
calculated immediately following the
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Reassessment, which is attributable solely to the Reassessment. Accordingly,
the term Tax Increase shall not include any portion of the Tax Expenses, as
calculated immediately following the Reassessment, which (i) is attributable
to the initial assessment of the value of the Project, the base, shell and
core of the Building or the tenant improvements located in the Building; (ii)
is attributable to assessments which were pending immediately prior to the
Reassessment which assessments were conducted during, and included in, such
Reassessment, or which assessments were otherwise rendered unnecessary
following the Reassessment; or (iii) is attributable to the annual
inflationary increase of real estate taxes, but not in excess of two percent
(2.0%) per annum.
4.8.2 PROTECTION. During the first five (5) Lease Years,
Tenant shall not be obligated to pay any portion of any Tax Increase
attributable to such five (5) Lease Years.
4.8.3 LANDLORD'S RIGHT TO PURCHASE THE PROPOSITION 13
PROTECTION AMOUNT ATTRIBUTABLE TO A PARTICULAR REASSESSMENT. The amount of
Tax Expenses which Tenant is not obligated to pay or will not be obligated to
pay during the first five (5) Lease Years of the Lease Term in connection
with a particular Reassessment pursuant to the terms, covenants and
conditions of this Section 4.8, shall be sometimes referred to hereafter as a
"PROPOSITION 13 PROTECTION AMOUNT." If the occurrence of a Reassessment is
reasonably foreseeable by Landlord and the Proposition 13 Protection Amount
attributable to such Reassessment can be reasonably quantified or estimated
for each Lease Year commencing with the Lease Year in which the Reassessment
will occur, the terms, covenants and conditions of this Section 4.8.3 shall
apply to each such Reassessment. Upon Notice to Tenant, Landlord shall have
the right to purchase the Proposition 13 Protection Amount relating to the
applicable Reassessment (the "APPLICABLE REASSESSMENT"), at any time during
the Lease Term, by paying to Tenant an amount equal to the "Proposition 13
Purchase Price," as that term is defined in this Section 4.8.3 of this Lease,
provided that the right of any successor of Landlord to exercise its right of
repurchase hereunder shall not apply to any Reassessment which results from
the event pursuant to which such successor of Landlord became the Landlord
under this Lease. As used herein, "PROPOSITION 13 PURCHASE PRICE" shall mean
the present value of the Proposition 13 Protection Amount remaining during
the Lease Term, as of the date of payment of the Proposition 13 Purchase
Price by Landlord. Such present value shall be calculated (i) by using the
portion of the Proposition 13 Protection Amount attributable to each
remaining Lease Year (as though the portion of such Proposition 13 Protection
Amount benefited Tenant at the end of each Lease Year), as the amounts to be
discounted, and (ii) by using discount rates for each amount to be discounted
equal to (A) the average rates of yield for United States Treasury
Obligations with maturity dates as close as reasonably possible to the end of
each Lease Year during which the portions of the Proposition 13 Protection
Amount would have benefited Tenant, which rates shall be those in effect as
of Landlord's exercise of its right to purchase, as set forth in this Section
4.8.3, plus (B) one percent (1%) per annum. Upon such payment of the
Proposition 13 Purchase Price, the provisions of Section 4.8.2 of this Lease
shall not apply to any Tax Increase attributable to the Applicable
Reassessment. Since Landlord is estimating the Proposition 13 Purchase Price
because a Reassessment has not yet occurred, then when such Reassessment
occurs, if Landlord has underestimated the Proposition 13 Purchase Price,
then upon Notice by Landlord to Tenant, Tenant's Rent next due shall be
credited with the amount of such underestimation, and if Landlord
overestimates the Proposition 13 Purchase Price, then upon Notice by Landlord
to Tenant, Rent next due shall be increased by the amount of the
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overestimation. Any dispute between the parties with respect to Landlord's
estimation of the Proposition 13 Purchase Price shall be resolved by
arbitration pursuant to, and in accordance with, Section 29.29 hereof.
ARTICLE 5
USE OF PREMISES
Tenant shall use the Premises solely for the "PERMITTED USE," as
that term is defined in Section 13 of the Summary, and Tenant shall not use
or permit the Premises to be used for any other purpose or purposes
whatsoever without the prior written consent of Landlord, which may be
withheld in Landlord's sole discretion. The uses prohibited under this Lease
shall include, without limitation, use of the Premises or a portion thereof
for (i) schools or other training facilities which are not ancillary to
corporate, executive or professional office use; (ii) retail (except as
otherwise expressly provided in Section 13 of the Summary, including without
limitation, toy library and on-line retail) or restaurant uses (other than
exclusively for Tenant's employees); (iii) communications firms such as radio
and/or television stations. Tenant further covenants and agrees that Tenant
shall not use, or suffer or permit any person or persons to use, the Premises
or any part thereof for any use or purpose contrary to the Rules and
Regulations, or in violation of the laws of the United States of America, the
State of California, or the ordinances, regulations or requirements of the
local municipal or county governing body or other lawful authorities having
jurisdiction over the Project; provided, however, the cost of such compliance
shall be governed by Articles 4 and 24 of this Lease. Tenant shall faithfully
observe and comply with the Rules and Regulations set forth in Exhibit B
attached hereto. Landlord shall not be responsible to Tenant for the
nonperformance of any of such Rules and Regulations by or otherwise with
respect to the acts or omissions of any other tenants or occupants of the
Project; provided, however, that Landlord shall use commercially reasonable
efforts (but not including the institution of legal proceedings) to enforce
the forgoing prohibition against the other occupants and tenants of the
Project. Tenant shall comply with, and this Lease shall be subject to, all
recorded covenants, conditions, and restrictions, declarations, development
agreements, easements, operating agreements or other instruments (including
any amendments and modifications to any such instruments) now or hereafter
affecting the Project, if any (collectively, the "UNDERLYING DOCUMENTS").
Landlord may create any Underlying Documents and/or modify the Underlying
Documents only with Tenant's prior written consent, which shall not be
unreasonably withheld, conditioned or delayed and which shall be granted or
denied by Tenant within thirty (30) days following Landlord's delivery of
such request to Tenant; provided, however that such creations or
modifications shall not materially, adversely affect Tenant's rights under
this Lease (including Tenant's Permitted Use and Tenant access to the
Premises and the Project parking facilities) or adversely affect, or
monetarily increase, in a material manner, Tenant's obligations thereunder.
To the extent the Underlying Documents are so created or amended pursuant to
the terms of either of the foregoing two (2) sentences, Tenant, upon request
by Landlord, will execute an agreement in the form of Exhibit M, attached
hereto and incorporated herein by this reference, evidencing Tenant's
subordination to any such amendment within thirty (30) business days
following request by Landlord. Tenant shall not use or allow another person
or entity to use any part of the Premises for the storage, use, treatment,
manufacture or sale of hazardous materials or substances as defined pursuant
to any applicable federal, state or local governmental or quasi-governmental
law, code, ordinance, rule, or
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regulation. Landlord acknowledges, however, that Tenant will maintain
products in the Premises which are incidental to the operation of its
offices, such as photocopy supplies, secretarial supplies and limited
janitorial supplies, which products contain chemicals which are categorized
as hazardous materials. Landlord agrees that the use of such products in the
Premises in compliance with all applicable laws and in the manner in which
such products are designed to be used shall not be a violation by Tenant of
this Article 5.
ARTICLE 6
SERVICES AND UTILITIES
6.1 STANDARD TENANT SERVICES. Landlord shall provide the following
services on all days during the Lease Term, unless otherwise stated below:
6.1.1 Subject to limitations imposed by all governmental
rules, regulations and guidelines applicable thereto, Landlord shall provide
as part of normal Operating Expenses heating and air conditioning ("HVAC")
when necessary for normal comfort for normal office use in the Premises for
up to 3,060 hours in each Lease Year (the "HVAC MAXIMUM"), which HVAC Maximum
includes start-up time of approximately one (1) hour for the Building HVAC
system. Tenant shall designate to Landlord the number and timing of hours
Tenant desires HVAC for each weekday and each weekend day (the "TENANT
DESIGNATED HVAC HOURS"), and Landlord shall provide HVAC necessary for normal
comfort for normal office use during the Tenant Designated HVAC Hours,
provided that (i) in no event shall Landlord be required to provide HVAC for
fewer than four (4) hours on any day in which Landlord provides HVAC to the
Premises, and (ii) all of the HVAC hours provided to the Premises on any
particular day shall be consecutive. Subject to the foregoing, Tenant may
change the HVAC Hours upon not less than five (5) business days' Notice (the
"HVAC NOTICE") to Landlord. In the event Tenant shall fail to initially
provide the Tenant Designated HVAC Hours, such hours shall, until such time
as Tenant delivers an HVAC Notice, be deemed to be the "BUILDING HOURS," as
that term is defined below. Landlord shall construct the Base Building (as
defined in Section 8.2) in which the Premises is located so that the HVAC
consumed by Tenant is separately metered or measured, at Tenant's expense.
Following written request by Tenant from time to time but not more frequently
than once each month, Landlord shall provide Tenant with a statement
reasonably indicating the HVAC utilized by Tenant for its Premises as
reflected by the meter. The "Business Hours" of the Building shall be Monday
through Friday, during the period from 8:00 a.m. to 6:00 p.m., and on
Saturdays during the period from 9:00 a.m. to 1:00 p.m. (collectively, the
"BUILDING HOURS"), except for Sundays and New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Christmas Day and any other
nationally and locally recognized holidays as designated by Landlord
(collectively, the "HOLIDAYS").
6.1.2 Tenant shall bear the cost of replacement of lamps,
starters and ballasts for non-Building standard lighting fixtures within the
Premises. All charges for electricity used within the Premises shall be
separately metered and billed directly to Tenant by Landlord (with no additional
overhead charge) or the electricity supplier selected by Landlord; provided,
however, that Landlord shall use commercially reasonable efforts to select an
electrical utility supplier that is providing electricity at substantially
competitive rates. At Landlord's option, Tenant will contract directly with the
electricity supplier for service to the Premises, and at its
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sole cost and expense, shall pay all service establishment fees (except for
the initial service establishment fees for the Building which shall be paid
at Landlord's sole cost and expense), other service fees which may be imposed
by the supplier in conjunction with its service to Tenant, and all charges
for electric current used by Tenant during the Term of this Lease within the
Premises and if Tenant contracts for electricity directly with the utility
supplier, Tenant shall make all such payments directly to such electricity
supplier as and when bills are rendered. Should Tenant fail to pay such
amounts within five (5) days after written notice from the electricity
supplier and/or Landlord, as the case may be that such amounts are past due,
Landlord shall have the right to pay same on Tenant's behalf and Tenant shall
reimburse Landlord for all costs and expenses incurred by Landlord in
conjunction with such payment within thirty (30) days after demand therefor.
All such costs and expenses incurred by Landlord on Tenant's behalf shall be
deemed Additional Rent payable by Tenant and collectible by Landlord as such.
Notwithstanding any contrary provision herein, Tenant acknowledges that in
addition to the foregoing charges, Tenant's Share of electricity charges for
the Common Areas of the Project shall be included as part of Tenant's Share
of Operating Expenses; provided, however, that all other electricity charges
to the extent paid directly by Tenant shall be excluded from Operating
Expenses. Throughout the Term, Landlord, at Tenant's expense, shall keep the
electricity meter and appurtenant equipment in good working order and
condition, and shall repair and if necessary, replace same at Tenant's sole
cost and expense. At no time shall use of electricity in the Premises exceed
the capacity of existing feeders and risers to or wiring in the Premises. Any
risers or wiring to meet Tenant's excess electrical requirements shall, upon
Tenant's written request, be installed by Landlord, at Tenant's sole cost,
if, in Landlord's reasonable judgment, the same shall not (i) cause permanent
damage or injury to the Project, the Building or the Premises, (ii) cause or
create a dangerous or hazardous condition, (iii) entail excessive or
unreasonable alterations, repairs or expenses, or (iv) interfere with or
disturb other tenants or occupants of the Building.
6.1.3 Landlord shall, in compliance with all Applicable
Laws, provide facilities for the provision of city water from the regular
Building outlets for drinking, lavatory and toilet purposes.
6.1.4 Landlord shall provide janitorial services Monday
through Friday except the date of observation of the Holidays, in and about
the Premises and window washing services, all in a manner consistent with the
Comparable Buildings. Notwithstanding the foregoing, Tenant shall, upon
providing Landlord with at least ninety (90) days prior written notice, have
the right to provide janitorial services which are in addition to the
services provided by Landlord to the extent that Tenant's janitors do not
unreasonably interfere with the janitorial services provided by Landlord for
the Project and subject to Landlord's reasonable rules and regulations.
Landlord also acknowledges and agrees that Tenant shall have the right to
request that Landlord replace certain individual janitors providing
janitorial services to the Premises with other janitors employed by Landlord,
which request Landlord shall use commercially reasonable efforts to
accommodate.
6.1.5 Landlord shall provide nonexclusive automatic
elevator service at all times.
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6.1.6 Landlord shall provide access control, security and
supervision materially consistent with Comparable Buildings. In addition,
following reasonable prior notice to Landlord, Landlord shall have available,
after Building Hours, an access control person (who may be a "rover") to
escort employees and invitees of Tenant from the Building to the Project
parking facility, and such escort service shall be based on the availability
of such person (provided that Landlord shall use commercially reasonable
efforts to make such person available). Although Landlord agrees to provide
such security personnel, neither Landlord nor the "LANDLORD PARTIES," as that
term is defined in Section 10.1 of this Lease, shall, except as provided in
Section 10.1, be liable for, and Landlord and the Landlord Parties are hereby
released from any responsibility for any damage either to person or property
sustained by Tenant incurred in connection with or arising from, any acts or
omissions of such security personnel. Landlord shall allow Tenant to install,
at its own expense, its own security system in the Premises, including,
subject to Landlord's reasonable security procedures, employing security
personnel reasonably approved by Landlord; provided, however that Tenant
shall coordinate the installation and operation of such security system with
Landlord to assure that Tenant's security system is compatible with
Landlord's security system; provided, further, that no Design Problem exists;
provided, however, that Landlord and Tenant acknowledge and agree that
nothing contained in this Section 6.1.6 shall be construed to limit the
rights of Landlord under Article 27 of this Lease. In connection with
Tenant's installation of Tenant's security system, Tenant shall provide to
Landlord, commencing with the installation of Tenant's security system in the
Premises, the telephone number(s) of an authorized representative of Tenant
to whom Landlord shall give reasonable prior notice (as reasonably determined
by Landlord under the circumstances, but in no event less than forty-eight
(48) hours prior written notice, unless in an emergency in which Landlord
believes that life, property, safety, or security is in jeopardy) in the
event Landlord must enter the Premises pursuant to Article 27 hereof, but in
no event shall Landlord, following Landlord's provision of such reasonable
notice to Tenant's authorized representative, be obligated to delay
Landlord's entry into the Premises or to monitor or otherwise operate
Tenant's security system while inside the Premises.
Notwithstanding anything in this Section 6.1 to the contrary,
Landlord acknowledges and agrees that Landlord will not add any new
categories of services (beyond those set forth above) to the Building
(exclusive of the Common Areas and other portions of the Project) without
Tenant's prior written consent, which consent may be withheld in Tenant's
sole discretion unless such withholding of consent would cause a Design
Problem. Notwithstanding anything to the contrary contained in this Lease,
including without limitation, Articles 4 and 6, Tenant may, at any time and
from time to time, upon thirty (30) days prior written notice to Landlord,
elect to perform or provide all or some of the following services for the
Building in lieu of Landlord providing the same: day porter, janitorial,
handyman, non-Building System engineer, locksmith and the purchase and
provision of materials and supplies for all or any of the same; provided,
however, that all such other personnel shall abide by Landlord's reasonable
rules, regulations and procedures; provided further, however, that to the
extent Tenant elects to provide any such items in lieu of having the Landlord
supply the same, then (i) such services shall be provided by Tenant in a
first-class manner (in a manner comparable to the provision of such services
by the landlords of Comparable Buildings), and (ii) the cost and expense of
such items shall not be included in Operating Expenses except to the extent
Landlord incurs costs with respect to such items for the Common Areas.
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6.2 OVERSTANDARD TENANT USE. Tenant shall not, without Landlord's
prior written consent (which consent shall not be unreasonably withheld), use
heat-generating machines, machines other than normal office machines, or
equipment or lighting other than task lighting and building standard lights
in the Premises, to the extent same may materially adversely affect the
temperature otherwise maintained by the air conditioning system or materially
increase the water (unless Tenant agrees to pay for such excess water)
normally furnished for the Premises by Landlord pursuant to the terms of
Section 6.1 of this Lease. If such consent is given, Landlord shall install
supplementary air conditioning units or other facilities in the Premises,
including supplementary or additional metering devices, and in connection
therewith Tenant may, to the extent available, tap into and use Landlord's
water, and the Actual Cost of the water and the cost of installation,
operation and maintenance, and other similar charges, shall be paid by Tenant
to Landlord within thirty (30) days of Landlord's bill therefor. If Tenant
desires to use heat, ventilation or air conditioning during hours other than
those for which Landlord is obligated to supply such utilities pursuant to
the terms of Section 6.1 of this Lease, subject to Landlord's commercially
reasonable rules and regulations, Landlord shall supply such utilities to
Tenant at such hourly cost to Tenant as Landlord shall from time to time
establish as set forth below. Following the expiration of each month during
the Lease Term (or at such other period(s) of time designated by Landlord),
Landlord shall have the right to calculate the total number of HVAC Hours
utilized by Tenant in such prior month or period of time (the "TOTAL HVAC
HOURS") and in the event that the Total HVAC Hours exceeds the HVAC Maximum,
Tenant shall pay to Landlord, within thirty (30) days following receipt of a
bill therefore, Landlord's "Actual Cost," as defined below, for the HVAC
utilized during such excess hours (but not including utility charges to the
extent separately metered to the Premises and paid by Tenant). Landlord
shall, in any event, also have the right to require Tenant to pay Landlord's
reasonable estimated excess HVAC usage (in the event Landlord anticipates
that the Total HVAC Hours may exceed the HVAC Maximum) and Tenant shall pay
such estimated payments to Landlord concurrently with Tenant's payment of
Additional Rent in Section 4.3.2, which reasonable estimate Landlord shall,
upon Tenant's request, provide Tenant with supporting documentation therefor.
Following the end of each Lease Year, a reconciliation shall be performed by
Landlord based on the actual HVAC Hours. If Tenant uses water or electricity
in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease,
Tenant shall pay to Landlord, within thirty (30) days' receipt of a billing
therefor, the Actual Cost of such excess consumption, the which "Actual Cost"
shall be the actual cost of the installation, operation (but not including
utility charges to the extent separately metered to the Premises and paid by
Tenant), and maintenance of equipment which is installed in order to supply
such excess consumption, and the cost, as reasonably determined by Landlord,
of the increased wear and tear on existing equipment caused by such excess
consumption and depreciation without, however, any charge for profit,
overhead or administration; and Landlord may install devices to separately
meter any increased use and in such event Tenant shall pay the increased cost
directly to Landlord within thirty (30) days following receipt of a bill
therefor. Amounts payable by Tenant to Landlord for such use of additional
utilities shall be deemed Additional Rent hereunder.
6.3 INTERRUPTION OF USE. Tenant agrees that Landlord shall not be
liable for damages, by abatement of Rent (except as provided in Section 19.5.2
of this Lease) or otherwise, for failure to furnish or delay in furnishing any
service (including telephone and telecommunication services), or for any
diminution in the quality or quantity thereof, when such failure or delay or
diminution is occasioned, in whole or in part, by repairs, replacements, or
improvements, by any
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strike, lockout or other labor trouble, by inability to secure electricity,
gas, water, or other fuel at the Project after reasonable effort to do so, by
any accident or casualty whatsoever, by act or default of Tenant or other
parties; and such failures or delays or diminution shall never be deemed to
constitute an eviction or disturbance of Tenant's use and possession of the
Premises or relieve Tenant from paying Rent (except as provided in Section
19.5.2 of this Lease) or performing any of its obligations under this Lease,
provided, however, that Landlord shall use commercially reasonable and
diligent efforts to restore such service to the extent the restoration of the
same is not the obligation of Tenant, the utility company or other third
party. Furthermore, Landlord shall not be liable under any circumstances for
a loss of, or injury to, property or for injury to, or interference with,
Tenant's business, including, without limitation, loss of profits, however
occurring, through or in connection with or incidental to a failure to
furnish any of the services or utilities as set forth in this Article 6.
Landlord may comply with voluntary controls or guidelines promulgated by any
governmental entity relating to the use or conservation of energy, water,
gas, light or electricity or the reduction of automobile or other emissions
("VOLUNTARY COMPLIANCE") without creating any liability of Landlord to Tenant
under this Lease, provided that (i) the Premises are not thereby rendered
untenantable and (ii) such controls or guidelines do not materially interfere
with the conduct of Tenant's Permitted Use from the Premises and (iii)
Landlord's compliance with such controls or guidelines is generally
consistent with the practice of landlords of Comparable Buildings.
6.4 TENANT HVAC SYSTEM. Tenant, at its sole expense, may install
supplemental HVAC systems in the Premises (the "TENANT HVAC SYSTEM") and
Tenant may connect into the Building's water system, if and to the extent
that (i) Tenant's use of water pursuant to this Section 6.4 will not
materially adversely affect the water system or the use thereof by other
tenants of the Building, and (ii) such connection is otherwise approved by
Landlord, which approval shall not be unreasonably withheld, conditioned or
delayed unless a Design Problem exists. If Tenant connects into the
Building's water system pursuant to the terms of the foregoing sentence, (x)
Tenant shall install, at Tenant's expense, a meter to measure Tenant's use of
water, and (y) Tenant shall reimburse Landlord for Tenant's use of water at
Landlord's Actual Cost therefor. In connection with the foregoing (a)
Landlord shall, at Tenant's sole cost and expense, separately meter the
electricity utilized by the Tenant HVAC System, and (b) Tenant shall be
responsible for the cost of all electricity utilized by the Tenant HVAC
System. At Landlord's sole option, which option shall be exercised (if at
all) at the time Landlord grants its consent to Tenant's installation of the
Tenant HVAC System, Tenant shall remove the Tenant HVAC System, and repair
any damages to the Building caused by such removal, or leave same in the
Premises, in which event the same shall become a part of the realty and
belong to Landlord and shall be surrendered with the Premises upon the
expiration or earlier termination of this Lease.
ARTICLE 7
REPAIRS
7.1 IN GENERAL. Landlord shall maintain in such condition and
operating order (and shall keep in such repair and condition), in a manner
substantially consistent with the maintenance and operational standards
employed by landlords of Comparable Buildings, the structural portions of the
Building, including the foundation, floor/ceiling slabs, roof, curtain wall,
exterior glass and mullions, columns, beams, shafts (including elevator
shafts), stairs,
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parking areas, stairwells, escalators, elevator cabs, plazas, pavement,
sidewalks, curbs, entrances, landscaping, art work, sculptures, men's and
women's washrooms, Building mechanical, electrical and telephone closets, and
all common and public areas (collectively, "BUILDING STRUCTURE") and the Base
Building mechanical, electrical, life safety, plumbing, sprinkler systems and
HVAC systems and other Building systems and equipment which were not
constructed by Tenant Parties (collectively, the "BUILDING SYSTEMS") and
otherwise operate the Project in a manner and condition materially comparable
with the standards of operation as are generally customary for Comparable
Buildings. Notwithstanding anything in this Lease to the contrary, Tenant
shall be required to repair the Building Structure and/or the Building
Systems to the extent required because of (i) Tenant's use of the Premises
for other than normal and customary business office operations, or (ii) the
negligence or willful misconduct of Tenant or the Tenant Parties, unless and
to the extent such damage is covered by insurance carried or required to be
carried by Landlord pursuant to Article 10 and to which the waiver of
subrogation is applicable (such obligation to the extent applicable to Tenant
as qualified and conditioned will hereinafter be defined as the "BS/BS
EXCEPTION"). Except as provided as part of Landlord's obligations set forth
above or elsewhere in this Lease, Tenant shall, at Tenant's own expense,
pursuant to the terms of this Lease, including without limitation Article 8
hereof, keep the Premises, including all improvements (including all Tenant
Improvements and all Alterations) and fixtures, in good order, repair and
first-class condition at all times during the Lease Term (but such obligation
shall not extend to the Building Structure and the Building Systems except
pursuant to the BS/BS exception). In addition, except as provided as part of
Landlord's repair obligations set forth above or elsewhere in this Lease,
Tenant shall, at Tenant's own expense but under the supervision and subject
to the prior approval of Landlord, and within any reasonable period of time
specified by Landlord, pursuant to the terms of this Lease, including without
limitation Article 8 hereof, promptly and adequately repair all damage to the
Premises and replace or repair all damaged or broken fixtures and
appurtenances (but such obligation shall not extend to the Building Structure
and the Building Systems except pursuant to the BS/BS exception); provided
however, that, at Landlord's option, but only if Tenant fails to make such
repairs and replacements within thirty (30) days after Notice thereof from
Landlord (or such sooner period of time in the case of an emergency or to
otherwise to protect life and property), Landlord may, but need not, make
such repairs and replacements and Tenant shall pay Landlord the cost thereof,
sufficient to reimburse Landlord for all Actual Costs arising from Landlord's
involvement with such repairs and replacements to the extent not duplicative
of Operating Expenses and to the extent the work is not performed by people
whose salaries are paid out of Operating Expenses forthwith upon being billed
for same. Landlord may, but shall not be required to, enter the Premises (but
except during emergencies, Landlord may not enter Secured Areas, as defined
in Article 27 of this Lease) at all reasonable times to make such repairs,
alterations, improvements and additions to the Premises or to the Project or
to any equipment located in the Project as Landlord shall desire or deem
necessary or as Landlord may be required to do by Applicable Laws; provided,
however, except for emergencies, any such entry into the Premises by Landlord
shall be performed in a manner so as not to materially or adversely interfere
with Tenant's use of, or ingress or egress to, the Premises and otherwise in
accordance with Article 27. Tenant shall, at Tenant's own expense, pursuant
to the provisions of this Lease, including without limitation Article 8
hereof, keep the Premises, including all improvements, fixtures and Tenant
Improvements, Alterations, fixtures, and the floor or the floors of the
Building on which the Premises are located, in good order, repair and
condition at all times
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during the Lease Term (but such obligation shall not extend to the Building
Structure and the Building Systems except pursuant to the BS/BS Exception).
Except as otherwise expressly provided herein, Tenant hereby waives any and
all rights under the benefits of Section 1 of Section 1932 and Sections 1941
and 1942 of the California Civil Code or under any similar law, statute, or
ordinance now or hereafter in effect.
7.2 TENANT'S RIGHT TO MAKE REPAIRS. Notwithstanding any of the terms
and conditions set forth in this Lease to the contrary, if Tenant provides
Notice to Landlord of an event or circumstance which requires the action of
Landlord with respect to repair and/or maintenance of the portions of the
Building located on the floors of the Building which contain the Premises,
including the Building Structure and/or Building Systems on such floors,
which event or circumstance with respect to the Building Structure or
Building Systems materially or adversely affects the conduct of Tenant's
business from the Premises, and Landlord fails to commence corrective action
within a reasonable period of time and to thereafter diligently proceed with
such efforts to completion, given the circumstances, after the receipt of
such Notice, but in any event not later than thirty (30) days after receipt
of such Notice in which to commence such corrective action (except in cases
of emergency where Tenant's conduct of Tenant's Permitted Use is adversely
and materially affected, in which case one (1) business day after receipt of
such Notice or such later period of time as is reasonably necessary to
commence such corrective action), then Tenant may proceed to take the
required action upon delivery of an additional five (5) business days' Notice
to Landlord specifying that Tenant is taking such required action, and if
such action was required under the provisions of this Lease to be taken by
Landlord and was not commenced by Landlord within such five (5) business day
period and thereafter diligently pursued to completion, then Tenant shall be
entitled to prompt reimbursement by Landlord of Tenant's reasonable costs and
expenses in taking such action plus interest thereon at the Interest Rate. In
the event Tenant takes such action for work that affects the Building
Structure and/or the Building Systems, Tenant shall use only those
contractors used by Landlord in the Building for work unless such contractors
are unwilling or unable to perform such work at competitive market rates, or
timely perform such work, in any such event Tenant may utilize the services
of any other qualified contractor which normally and regularly performs
similar work in Comparable Buildings. Promptly following completion of any
work taken by Tenant pursuant to the provisions of this Section 7.2, Tenant
shall deliver a detailed invoice of the work completed, the materials used
and the costs relating thereto. If Landlord does not deliver a detailed
written objection to Tenant within thirty (30) days after receipt of an
invoice from Tenant, then Tenant shall be entitled to deduct from Rent
payable by Tenant under this Lease, the amount set forth in such invoice. If,
however, Landlord delivers to Tenant, within thirty (30) days after receipt
of Tenant's invoice, a written objection to the payment of such invoice,
setting forth with reasonable particularity Landlord's reasons for its claim
that such action did not have to be taken by Landlord pursuant to the
provisions of this Lease or that the charges are excessive (in which case
Landlord shall pay the amount it contends would not have been excessive),
then Tenant shall not then be entitled to such deduction from Rent and the
matter shall proceed to resolution by the selection of an arbitrator to
resolve the dispute, which arbitrator shall be selected and qualified
pursuant to the procedures set forth in Section 29.29 of this Lease. If
Tenant prevails in the arbitration, the amount of the Arbitration Award
(which shall include interest at the Interest Rate from the time of each
expenditure by Tenant until the date Tenant receives such amount by payment
or offset and attorneys' fees and related costs) may be deducted by Tenant
from the
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Rent next due and owing under this Lease if Landlord fails to pay such
Arbitration Award within thirty (30) days after it is so awarded.
ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1 LANDLORD'S CONSENT TO ALTERATIONS. Tenant shall have the right,
without Landlord's consent but upon five (5) business days prior Notice to
Landlord, to make strictly cosmetic, non-structural additions and alterations
which do not create a Design Problem ("COSMETIC ALTERATIONS") to the Premises
that do not (i) affect the exterior appearance of the Building or (ii) affect
the Building Systems or the Building Structure. Tenant shall also have the
right to install phone, computer and telecommunications lines and cabling
that do not affect the Base Building Systems and are located entirely within
the Premises. Except in connection with Cosmetic Alterations, Tenant may make
improvements, alterations, additions or changes to the Premises the Building
Structure or the Building Systems (collectively, the "ALTERATIONS") only upon
first procuring the prior written consent of Landlord to such Alterations,
which consent shall be requested by Tenant not less than ten (10) business
days prior to the commencement thereof, and which consent or approval shall
not be withheld, conditioned or delayed by Landlord, unless a Design Problem
exists. A "DESIGN PROBLEM" is defined as, and will be deemed to exist if such
Alteration will (i) affect the exterior appearance of the Building; (ii)
adversely or materially affect the Building Structure; (iii) adversely or
materially affect the Building Systems; (iv) unreasonably and materially
interfere with any other Project occupant's normal and customary office
operation or (v) fail to comply with Applicable Laws. The construction of the
Tenant Improvements to the Premises shall be governed by the terms of the
Tenant Work Letter and not the terms of this Article 8. Subject to the terms
of Article 23 of this Lease, any Exterior Signage installed by Tenant shall
comply with the provisions of this Article 8; provided, however, that item
(ii) in the definition of Design Problem set forth above shall be deemed
replaced by the test set forth in Section 23.5 of this Lease as to
"Objectionable Name."
8.2 MANNER OF CONSTRUCTION. Landlord may impose, as a condition of
its consent to any and all Alterations or repairs of the Premises or about
the Premises, reasonable requirements consistent with the requirements of
landlords of Comparable Buildings (provided that the same shall in any event
be consistent with the terms and conditions of this Lease); provided,
however, that in no event will Landlord require that the Original Tenant
executing this Lease provide a completion and/or performance bond in
connection with any such Alterations; provided further, however, that
Landlord may require any such bonds for any Alterations requested by any of
Original Tenant's Transferees. If any Alterations will involve the use of or
disturb any Hazardous Material existing in the Premises, Tenant shall comply
with Landlord's reasonable rules and regulations concerning such Hazardous
Material; provided, however, if such Hazardous Material existed in the
Premises prior to the Lease Commencement Date, and same was not put therein
by Tenant, Landlord shall pay any incremental extra costs incurred by Tenant
in connection with the Alteration resulting from the presence of the
Hazardous Materials. Tenant shall construct such Alterations and perform such
repairs (i) using contractors reasonably approved by Landlord; (ii) in
conformance with any and Applicable Laws and pursuant to a valid building
permit, issued by the City of Los Angeles, (iii) and in conformance with
Landlord's
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reasonable non-discriminatory written construction rules and regulations. In
the event Tenant performs any Alterations in the Premises which require or
give rise to governmentally required changes to the Base Building pursuant to
the terms of Article 24 of the Lease, Landlord shall make such changes, at
Tenant's expense, the cost of which shall not exceed Landlord's actual cost
of the same. The "BASE BUILDING" shall include the Building Structure and the
Building Systems (inclusive of public restrooms). All work with respect to
any Alterations must be done in a good and workmanlike manner and diligently
prosecuted to completion to the end that the Premises shall at all times be a
complete unit except during the period of work. In performing the work of any
such Alterations, Tenant shall have the work performed in such manner so as
not to obstruct access to the Project or any portion thereof, by any other
tenant of the Project, and so as not to obstruct the business of Landlord or
other tenants in the Project. Tenant shall not use (and upon Notice from
Landlord shall cease using) contractors, services, workmen, labor, materials
or equipment that, in Landlord's reasonable judgment, would disturb labor
harmony with the workforce or trades engaged in performing other work, labor
or services in or about the Building or the Project Common Areas. In addition
to Tenant's obligations under Article 9 of this Lease, upon completion of any
Alterations, at Landlord's request, Tenant agrees to prepare and Landlord
shall execute if factually correct, and Tenant shall cause a Notice of
Completion to be recorded in the office of the Recorder of the County of Los
Angeles in accordance with Section 3093 of the Civil Code of the State of
California or any successor statute, and Tenant shall deliver to the Project
management office and Landlord shall sign a reproducible copy of the "as
built" drawings of the Alterations as well as all permits, approvals and
other documents issued by any governmental agency in connection with the
Alterations. In the event Tenant fails to so record the Notice of Completion
as required pursuant to this Section 8.2, then such failure shall not, in and
of itself, constitute a default hereunder but Tenant shall indemnify, defend,
protect and hold harmless Landlord and the Landlord Parties from any and all
loss, cost, damage, expense and liability (including, without limitation,
court costs and reasonable attorneys' fees) in connection with such failure
by Tenant to so record the Notice of Completion as required hereunder.
8.3 PAYMENT FOR IMPROVEMENTS. Tenant shall reimburse Landlord for
Landlord's reasonable out-of-pocket costs and expenses reasonably incurred in
connection with Landlord's review of any Alterations to the extent such
Alterations could materially adversely affect the Building Structure or the
Building Systems.
8.4 CONSTRUCTION INSURANCE. In the event that Tenant makes any
Alterations Tenant shall provide Landlord with evidence that Tenant or
Tenant's contractor carries "Builder's All Risk" insurance in an amount
reasonably approved by Landlord covering the construction of such
Alterations, and such other insurance as Landlord may reasonably require, it
being understood and agreed that all of such Alterations shall be insured by
Tenant pursuant to Article 10 of this Lease immediately upon completion
thereof. In addition, Landlord may, in its reasonable discretion, require a
Transferee as such term is defined and permitted pursuant to the provisions
of Article 14 of this Lease (other than a Transfer to an Affiliate), but not
Tenant, to obtain a lien and completion bond or some alternate form of
security satisfactory to Landlord in an amount reasonably sufficient to
ensure the lien-free completion of such Alterations and naming Landlord as a
co-obligee.
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8.5 LANDLORD'S PROPERTY. All Alterations and improvements which may
be installed or placed in or about the Premises, and all signs installed in,
on or about the Premises, from time to time, shall be at the sole cost of
Tenant and shall, unless Landlord requires their removal as provided below,
become the property of Landlord at the expiration of this Lease, except that
Tenant may remove any trade fixtures and personal property which are not
permanently affixed to the Premises, provided Tenant repairs any damage to
the Premises and Building caused by such removal and returns that portion of
the Premises to a Base Building condition as reasonably determined by
Landlord; provided, however, that in the event Tenant disputes Landlord's
determination then such dispute shall be resolved by arbitration pursuant to
Section 29.29 hereof. Landlord may require the removal of any Alterations and
other improvements (including the Tenant Improvements) to the extent the same
relate to a non-general office use of space and/or, when compared to general
office improvements, are more expensive to remove, provided further, however,
that any stairwells installed by Tenant in the Premises are, in any event,
required to be removed by Tenant in accordance with the other terms and
provisions of this Section 8.5. Furthermore, if Landlord, as a condition to
Landlord's consent to any Alteration, requires at the time of Landlord
providing such consent to Tenant that Tenant remove any Alteration upon the
expiration or early termination of the Lease Term, then Tenant, at Tenant's
expense, shall remove such Alterations and repair any damage to the Premises
and Building caused by such removal. If Tenant fails to complete such removal
and/or to repair any damage caused by the removal of any Alterations and
Tenant Improvements (including, but not limited to, Tenant's Exterior
Signage), and return the affected portion of the Premises, the Building
and/or the Project to a Base Building condition (with respect to the Tenant
Improvements) or the condition existing prior to the making of such
Alteration (with respect to Alterations) as reasonably determined by Landlord
then Landlord may do so and may charge the Actual Cost thereof to Tenant;
provided, however, that in the event Tenant disputes Landlord's determination
then such dispute shall be resolved by arbitration pursuant to Section 29.29
hereof.
ARTICLE 9
COVENANT AGAINST LIENS
Tenant has no authority or power to cause or permit any lien or
encumbrance of any kind whatsoever, whether created by act of Tenant,
operation of law or otherwise, to attach to or be placed upon the Project,
Building or Premises, and any and all liens and encumbrances created by
Tenant shall attach to Tenant's interest only. Landlord shall have the right
at all times to post and keep posted on the Premises any notice which it
deems necessary for protection from such liens. Tenant covenants and agrees
not to suffer or permit any lien of mechanics or materialmen or others to be
placed against the Project, the Building or the Premises with respect to work
or services claimed to have been performed for or materials claimed to have
been furnished to Tenant or the Premises, and, in case of any such lien
attaching or notice of any lien, Tenant reserves the right to contest such
lien, provided that Tenant shall, at its sole cost and expense, provide a
bond in accordance with the California Civil Code, Section 3143. If Tenant
does not timely exercise its right to contest such lien, Tenant covenants and
agrees to cause it to be immediately released and removed of record.
Notwithstanding anything to the contrary set forth in this Lease, in the
event that such lien is not released and removed on or before the date
occurring fifteen(15) days after Notice of such lien is delivered by Landlord
to Tenant, Landlord, at its sole option, may immediately take all action
necessary to release and remove such lien,
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without any duty to investigate the validity thereof, and all sums, costs and
expenses, including reasonable attorneys' fees and costs, incurred by
Landlord in connection with such lien shall be deemed Additional Rent under
this Lease and shall be due and payable by Tenant within thirty (30) days
following request of Landlord's bill therefor.
ARTICLE 10
INSURANCE
10.1 INDEMNIFICATION AND WAIVER. Because Tenant is required to
insure all of its Tenant Improvements and its furniture, fixtures and
equipment and because of the requirements to provide waivers of subrogation,
Tenant hereby assumes all risk of damage to property in its Premises, subject
to the provisions of the waiver of subrogation set forth below. Tenant hereby
assumes all risk of injury to persons in, upon or about the Premises from any
cause whatsoever unless caused by the negligence or willful misconduct of the
Landlord Parties. To the extent not prohibited by law, Landlord, its
partners, trustees, ancillary trustees and their respective officers,
directors, shareholders, beneficiaries, agents, servants, employees, and
independent contractors (collectively, the "LANDLORD PARTIES") shall not be
liable for any damage either to person or property or resulting from the loss
of use thereof, which damage is sustained by Tenant or by other persons
claiming through Tenant, except for damage to property which Landlord insures
or is required to insure pursuant to the terms and conditions of this Lease
and except for injury to persons to the extent caused by the negligence or
willful misconduct of the Landlord Parties. Tenant shall indemnify, defend,
protect, and hold harmless Landlord Parties from any and all loss, cost,
damage, expense and liability (including without limitation court costs and
reasonable attorneys' fees) (collectively, "CLAIMS") incurred in connection
with or arising from any cause in, on or about the Premises or any acts,
omissions or negligence of Tenant or of any person claiming by, through or
under Tenant, its partners, and their respective officers, agents, servants,
employees, and independent contractors (collectively, the "TENANT PARTIES"),
in, on or about the Project, either prior to or during the Lease Term,
provided that the terms of the foregoing indemnity shall not apply to any
Claims (i) by any person, company or entity resulting from the negligence or
willful misconduct of the Landlord or the Landlord Parties in connection with
the Landlord Parties' activities in the Building or the Project (except for
damage to the Tenant Improvements and Tenant's personal property, fixtures,
furniture and equipment in the Premises, to the extent Tenant is required to
obtain the requisite insurance coverage pursuant to this Lease for any such
Tenant Improvements or personal property, fixtures, furniture or equipment)
or the Project, or (ii) resulting from damage to the Building Structure or
Building Systems, and Landlord hereby so indemnifies, defends, protects and
holds Tenant and Tenant Parties harmless from any such Claims and from any
Claim resulting from injuries to persons caused by the negligence of willful
misconduct of Landlord and/or Landlord Parties outside of the Premises;
provided further that because Landlord is required to maintain insurance on
the Building and the Project and Tenant compensates Landlord for such
insurance as part of Tenant's Share of Direct Expenses and because of the
existence of waivers of subrogation set forth in Section 10.4 of this Lease,
Landlord hereby indemnifies, defends, protects and holds Tenant harmless from
any Claim to any property to the extent such Claim is covered by such
insurance (or would have been covered if Landlord had carried the insurance
required hereunder), even if resulting from the negligent acts, omissions, or
willful misconduct of the Tenant Parties. Similarly, since Tenant must carry
insurance pursuant to this Article 10 to cover its personal property within
the
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Premises and the Tenant Improvements, Tenant hereby indemnifies and holds
Landlord harmless from any Claim to any property within the Premises, to the
extent such Claim is covered by such insurance (or would have been covered if
Tenant had carried the insurance required hereunder), even if resulting from
the negligent acts, omissions or willful misconduct of the Landlord Parties.
Pursuant to this Article 10, Tenant's agreement to indemnify, defend, protect
and hold Landlord harmless, and Landlord's agreement to indemnify, defend,
protect and hold Tenant harmless are not intended to and shall not relieve
any insurance carrier of its obligations under policies required to be
carried by Landlord or Tenant, respectively, pursuant to this Lease to the
extent such policies cover the results of such acts, omissions or willful
misconduct. Should Landlord or Tenant be named as a defendant in any suit
brought against the other in connection with or arising out of an event
covered by the foregoing indemnity, the named party shall be entitled to
recover from the other party such named party's costs and expenses incurred
in such suit, including without limitation, its actual professional fees such
as appraisers', accountants' and attorneys' fees. Further, Tenant's agreement
to indemnify Landlord and Landlord's agreement to indemnify Tenant pursuant
to this Section 10.1 is not intended and shall not relieve any insurance
carrier of its obligations under policies required to be carried by Tenant
and Landlord pursuant to the provision of this Lease, to the extent such
policies cover the matters subject to Tenant's and Landlord's indemnification
obligations; nor shall they supersede any inconsistent agreement of the
parties set forth in any other provision of this Lease. The provisions of
this Section 10.1 shall survive the expiration or sooner termination of this
Lease with respect to any claims or liability occurring prior to such
expiration or termination. Notwithstanding anything to the contrary contained
in this Lease, nothing in this Lease shall impose any obligations on Tenant
or Landlord to be responsible or liable for, and each hereby releases the
other from all liability for, consequential damages other than those
consequential damages incurred by Landlord in connection with a holdover of
the Premises by Tenant after the expiration or earlier termination of this
Lease or incurred by Landlord in connection with any repair, physical
construction or improvement work performed by or on behalf of Tenant in the
Project.
10.2 LANDLORD'S FIRE AND CASUALTY INSURANCE. Landlord shall insure
the Building (including the Building Structure and Building Systems) and the
Project during the Lease Term against loss or damage due to fire and other
casualties covered within the classification of fire and extended coverage,
vandalism coverage and malicious mischief, sprinkler leakage, water damage
and special extended coverage. Such coverage shall be in such amounts, from
such companies, and on such other terms and conditions, as Landlord may from
time to time reasonably determine, provided that to the extent consistent
with the practices of landlords of the Comparable Buildings, such coverage
shall (i) be for full replacement of the Building and the Project in
compliance with all then existing Applicable Laws; (ii) provide for rent
continuation insurance equal to eighteen (18) months' rent; and (iii) be with
companies and have policies meeting the criteria set forth in Section 10.3.4
(iii) in this Lease. Additionally, at the sole option of Landlord, such
insurance coverage may include the risks of earthquakes and/or flood damage
and additional hazards, a rental loss endorsement and one or more loss payee
endorsements in favor of the holders of any mortgages or deeds of trust
encumbering the interest of Landlord in the Building or the ground or
underlying lessors of the Building, or any portion thereof. Notwithstanding
the foregoing provisions of this Section 10.2, the coverage and amounts of
insurance required to be carried by Landlord in connection with the Building
shall only be required to be comparable to the coverage and amounts of
insurance which are carried by reasonably prudent landlords of Comparable
Buildings. Upon inquiry by Tenant, from time to
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time, Landlord shall inform Tenant of all such insurance carried by Landlord.
Tenant shall, at Tenant's expense, except with respect to the Building
Structure and Building Systems, which is governed by Section 7.1, above,
comply with all customary insurance company requirements pertaining to the
use of the Premises. If Tenant's conduct or use of the Premises other than
for the Permitted Use causes any increase in the premium for any insurance
policies carried by Landlord, then Tenant shall reimburse Landlord for any
such increase. Tenant, at Tenant's expense, shall comply with all rules,
orders, regulations or requirements of the American Insurance Association
(formerly the National Board of Fire Underwriters) and with any similar body.
10.3 TENANT'S INSURANCE. Tenant shall maintain the following
coverages in the following amounts.
10.3.1 Commercial General Liability Insurance covering the
insured against claims of bodily injury, personal injury and property damage
arising out of Tenant's operations, assumed liabilities or use of the
Premises, including a Commercial General Liability endorsement covering the
insuring provisions of this Lease and the performance by Tenant of the
indemnity agreements set forth in Section 10.1 of this Lease, for limits of
liability not less than: (i) Bodily Injury and Property Damage Liability -
$5,000,000 each occurrence and $5,000,000 annual aggregate, and (ii) Personal
Injury Liability -$5,000,000 each occurrence and $5,000,000 annual aggregate;
provided, however, that the Five Million Dollar ($5,000,000.00) amounts set
forth above shall be deemed to be Ten Million Dollars ($10,000,000.00) if
Tenant is also leasing the Expansion Space (the "INCREASED AMOUNTS");
provided further, however, that such Increased Amounts shall not apply to
Transferees of Tenant who occupy less than fifty percent (50%) of the total
rentable square footage of the Premises.
10.3.2 Physical Damage Insurance covering (i) all office
furniture, trade fixtures, office equipment, merchandise and all other items
of Tenant's property on the Premises installed by, for, or at the expense of
Tenant, (ii) the "TENANT IMPROVEMENTS," as that term is defined in the Tenant
Work Letter, and (iii) all other improvements, alterations and additions to
the Premises (excluding the Base Building, Building Structure and Building
Systems). Such insurance shall be written on an "all risks" of physical loss
or damage basis, for the guaranteed replacement cost value new without
deduction for depreciation of the covered items and in amounts that meet any
co-insurance clauses of the policies of insurance and shall include a
vandalism and malicious mischief endorsement, sprinkler leakage coverage and
earthquake sprinkler leakage coverage.
10.3.3 Workers Compensation Insurance in form and with
limits in accordance with the laws of the State of California, including
Occupational Disease Insurance, and Voluntary Compensation Insurance, and
Employer's Liability Insurance with commercially reasonable limits.
10.3.4 Form of Policies. The minimum limits of policies of
insurance required of Tenant under this Lease shall in no event limit the
liability of Tenant under this Lease. Such insurance shall (i) name Landlord,
Landlord's Building manager(s) and/or the managers(s) of the Project and any
other party it so specifies, as an additional insured; (ii) specifically
cover the liability assumed by Tenant under this Lease, including, but not
limited to, Tenant's obligations
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under Section 10.1 of this Lease; (iii) be issued by an insurance company
having a rating of not less than A-XII in Best's Insurance Guide or which is
otherwise acceptable to Landlord and licensed to do business in the State of
California; (iv) be primary insurance as to all claims thereunder and provide
that any insurance carried by Landlord is excess and is non-contributing with
any insurance requirement of Tenant; (v) provide that said insurance shall
not be canceled or coverage changed unless thirty (30) days' prior written
notice shall have been given to Landlord and any mortgagee of Landlord; and
(vi) contain a cross-liability endorsement or severability of interest clause
acceptable to Landlord. Tenant shall deliver said policy or policies or
certificates thereof to Landlord on or before the Lease Commencement Date and
at least thirty (30) days before the expiration dates thereof.
10.4 SUBROGATION. Landlord and Tenant agree to have their respective
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant, as the
case may be, so long as the insurance carried by Landlord and Tenant,
respectively, is not invalidated thereby. As long as such waivers of
subrogation are contained in their respective insurance policies, Landlord
and Tenant hereby waive any right that either may have against the other on
account of any loss or damage to their respective property to the extent such
loss or damage is insurable under policies of insurance for fire and all risk
coverage, theft, or other similar insurance. If either party fails to carry
the amounts and types of insurance required to be carried by it pursuant to
this Article 10, in addition to any remedies the other party may have under
this Lease, such failure shall be deemed to be a covenant and agreement by
such party to self-insure with respect to the type and amount of insurance
which such party so failed to carry, with full waiver of subrogation with
respect thereto.
10.5 ADDITIONAL INSURANCE OBLIGATIONS. Tenant shall carry and
maintain during the entire Lease Term, at Tenant's sole cost and expense,
increased amounts of the insurance required to be carried by Tenant pursuant
to this Article 10, and such other reasonable types of insurance coverage and
in such reasonable amounts covering the Premises and Tenant's operations
therein, as may be reasonably requested by Landlord, but in no event shall
such increased amounts of insurance or such other reasonable types of
insurance be in excess of that required by landlords of Comparable Buildings
for tenants comparable in size to Tenant. Notwithstanding anything to the
contrary contained in this Lease, in the event of any termination of this
Lease pursuant to Article 11 or Article 13 below, Tenant shall assign and
deliver to Landlord (or to any party designated by Landlord) all insurance
proceeds payable to Tenant under Tenant's insurance required under Section
10.3.2(ii) of this Lease for the unamortized value of the Tenant Improvements
("LANDLORD'S TI PROCEEDS"). Any such amortization shall be calculated on a
straight-line basis throughout the initial Lease Term.
ARTICLE 11
DAMAGE AND DESTRUCTION
11.1 REPAIR OF DAMAGE TO PREMISES BY LANDLORD. To the extent
Landlord does not have actual knowledge of same, Tenant shall promptly notify
Landlord of any damage to the Premises resulting from fire or any other
casualty or any condition existing in the Premises as a result of a fire or
other casualty that would give rise to the terms of this Article 11. If the
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Premises the Building Structure, the Building Systems or any Common Areas of
the Project serving or providing access to the Premises shall be damaged by
fire or other casualty or be subject to a condition existing as a result of a
fire or other casualty, Landlord shall promptly and diligently, subject to
reasonable delays for insurance adjustment or other matters beyond Landlord's
reasonable control, and subject to all other terms of this Article 11,
restore the Base Building (including the Building Structure and the Building
Systems) and such Common Areas to substantially the same condition as existed
prior to the casualty, except for modifications required by zoning and
building codes and other Applicable Laws or by the holder of a mortgage on
the Building or Project or any other modifications to the Common Areas
reasonably deemed desirable by Landlord, provided access to the Premises,
Project parking facility and any common restrooms serving the Premises shall
not be materially impaired. Upon the occurrence of any damage to the
Premises, upon notice (the "LANDLORD REPAIR NOTICE") to Tenant from Landlord,
if the Lease is not terminated, Tenant shall put into a third party escrow
account reasonably acceptable to Landlord (which escrow shall be jointly paid
for by Landlord and Tenant) for distribution to Landlord (or to any party
designated by Landlord) on a progress payment basis upon receipt of the
appropriate conditional and/or unconditional lien releases, all insurance
proceeds payable to Tenant under Tenant's insurance required under Sections
10.3.2 (ii) and (iii) of this Lease and Landlord shall repair any injury or
damage to the Tenant Improvements and subsequent Alterations installed in the
Premises and shall return such Tenant Improvements and Alterations to their
original condition; provided that (a) if the cost of such repair by Landlord
exceeds the amount of insurance proceeds received by Landlord from Tenant's
insurance carrier, the incremental cost differential of such repairs shall be
paid by Tenant to Landlord on a progress payment basis (after exhaustion of
insurance proceeds), and (b) Tenant's insurance proceeds shall be disbursed
for all costs and expenses incurred by Landlord in connection with the repair
of any such damage pursuant to a disbursement procedure mutually approved by
Landlord and Tenant. As long as the Tenant Improvements in the Premises are
rebuilt, Tenant shall be entitled to retain any portion of the proceeds of
the insurance described in Sections 10.3.2 (ii) and (iii) in excess of the
cost of such restoration or if this Lease terminates, Tenant will receive all
of such insurance proceeds to the extent the such proceeds exceed Landlord's
TI Proceeds. In the event that Landlord does not deliver the Landlord Repair
Notice within sixty (60) days following the date the casualty becomes known
to Landlord, if this Lease does not terminate pursuant to Section 11.2 of
this Lease or for any other reason, Tenant shall, at its sole cost and
expense, repair any injury or damage to the Tenant Improvements installed in
the Premises and shall return such Tenant Improvements to their original
condition. Whether or not Landlord delivers a Landlord Repair Notice, Tenant
shall, prior to the commencement of construction, submit to Landlord, for
Landlord's review and approval, all plans, specifications and working
drawings relating thereto, and Tenant may select, subject to Landlord's
reasonable approval, the contractors to perform such improvement work. Such
submittal of plans and construction of improvements shall be performed in
substantial compliance with the terms of the Tenant Work Letter as though
such construction of improvements were the initial construction of the Tenant
Improvements. Landlord shall not be liable for any inconvenience or annoyance
to Tenant or its visitors, or injury to Tenant's business resulting in any
way from such damage or the repair thereof; provided however, that if such
fire or other casualty shall have damaged the Premises or Common Areas
necessary for Tenant to reasonably conduct Tenant's Permitted Use from the
Premises, Landlord shall allow Tenant a proportionate abatement of Rent,
during the time and to the extent the Premises are unfit for occupancy for
Tenant's Permitted Use, and not occupied by
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Tenant as a result thereof, including abatement during a commercially
reasonable period of build-out time; provided, further, if the Premises is
damaged such that the remaining portion thereof is not sufficient to allow
Tenant to conduct its business operations from such remaining portion and
Tenant does not conduct its business operations therefrom, Landlord shall
allow Tenant a total abatement of Rent during the time and to the extent the
Premises are unfit for occupancy for Tenant's Permitted Use, and not occupied
by Tenant as a result of the subject damage. In the event that Landlord shall
not deliver the Landlord Repair Notice, Tenant's right to rent abatement
pursuant to the preceding sentence shall terminate as of the date Tenant
should have completed repairs to the Premises assuming Tenant used reasonable
due diligence in connection therewith.
11.2 LANDLORD'S OPTION TO REPAIR. Notwithstanding the terms of
Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore
the Premises, the Building and/or the Project, and instead terminate this
Lease by notifying Tenant in writing of such termination within forty-five
(45) days after Landlord's discovery of the damage, such Notice to include a
termination date giving Tenant one hundred eighty (180) days to vacate the
Premises which period will be extended by any "FORCE MAJEURE," as that term
is defined in Section 29.13, below, on a day for day basis, but Landlord may
so elect only if (a) the Building or Project shall be damaged by fire or
other casualty or cause or be subject to a condition existing as a result of
such a fire or other casualty or cause, whether or not the Premises are
affected, and (b) one or more of the following conditions in (i), (ii), (iii)
or (iv) immediately below is present: (i) in the opinion of Landlord's
licensed contractor, the repairs to be made by Landlord cannot reasonably be
completed within two hundred seventy (270) days of the date of discovery of
the damage (when such repairs are made without the payment of overtime or
other premiums); (ii) the holder of any mortgage on the Building and/or the
Project, or ground lessor with respect to the Project and/or the Building
shall require that the insurance proceeds or any portion thereof in excess of
the "LANDLORD DAMAGE CONTRIBUTION" as that term is defined below, be used to
retire the mortgage debt, or shall terminate the ground lease, as the case
may be, and (x) Tenant does not agree to fund the amount in excess of
Landlord's Damage Contribution required to complete the appropriate repairs,
(y) Landlord elects not to commence rebuilding or reconstructing within one
(1) year from the date of such damage and destruction, and (z) Landlord
elects to terminate the lease of all other tenants of the Project similarly
affected by the damage and destruction; or (iii) the damage or condition
arising as a result of such damage is not fully covered, except for Landlord
Damage Contribution, by Landlord's insurance policies (or by the insurance
Landlord is required to carry under this Lease) and Landlord elects not to
commence rebuilding or reconstructing within one (1) year from the date of
such damage and destruction and elects to terminate the leases of all other
tenants of the Project similarly affected by the damage and destruction; or
(iv) the damage occurs during the last twelve (12) months of the Lease Term;
provided, however, that if Landlord does not elect to terminate this Lease
pursuant to Landlord's termination right as provided above, and the repairs
cannot, in the reasonable judgment of a licensed contractor mutually and
reasonably agreed upon by Landlord and Tenant, be completed within two
hundred seventy (270) days after being commenced, Tenant may elect, no
earlier than forty-five (45) days after Landlord's discovery of the damage
and not later than ninety (90) days after the date of such damage, to
terminate this Lease by written notice to Landlord effective as of the date
specified in the notice, which date shall not be less than thirty (30) days
nor more than one hundred eighty (180) days after the date such notice is
given by Tenant. At any time, from time to time, after the date occurring
forty-five (45) days after the date of the damage, Tenant
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may request that Landlord provide Tenant with a certificate from the licensed
contractor set forth above setting forth such contractor's opinion of the
date of completion of the repairs and Landlord shall respond to such request
within five (5) business days. For purposes of this Section 11.2, the
"LANDLORD DAMAGE CONTRIBUTION" shall initially mean One Million Seven Hundred
Fifty Thousand Dollars ($1,750,000.00); provided, however, that such amount
shall be reduced by an amount equal to Thirty-Nine Thousand Seven Hundred
Seventy-Three Dollars ($39,773.00) on the first day of each month following
the last day of the eighty-eighth (88th) month anniversary of the Lease
Commencement Date; provided further, however, that in the event the Expansion
Space is added to the Premises then the amounts set forth above shall be
deemed to be "Three Million Five Hundred Thousand Dollars ($3,500,000.00)"
and "Seventy-Nine Thousand Five Hundred Forty-Six Dollars ($79,546.00)",
respectively.
11.3 WAIVER OF STATUTORY PROVISIONS. The provisions of this Lease,
including this Article 11, constitute an express agreement between Landlord
and Tenant with respect to any and all damage to, or destruction of, all or
any part of the Premises, the Building, or the Project, and any statute or
regulation of the State of California, including, without limitation,
Sections 1932(2) and 1933(4) of the California Civil Code, with respect to
any rights or obligations concerning damage or destruction in the absence of
an express agreement between the parties, and any other statute or
regulation, now or hereafter in effect, shall have no application to this
Lease or any damage or destruction to all or any part of the Premises, the
Building, or the Project.
11.4 DAMAGE NEAR END OF TERM. In the event that the Premises or the
Building is destroyed or damaged to any substantial extent during the last
twelve (12) months of the Lease Term and, in the reasonable judgment of
Landlord, the damage or destruction to the Premises or Building cannot be
repaired by the date which is six (6) months prior to the Lease Expiration
Date, then notwithstanding anything contained in this Article 11, either
Landlord or Tenant shall have the option to terminate this Lease by giving
Notice to the other party of the exercise of such option within thirty (30)
days after such damage or destruction, in which event this Lease shall cease
and terminate sixty (60) days after the date of such Notice, Tenant shall pay
the Base Rent and Additional Rent, properly apportioned up to such date of
damage, and both parties hereto shall thereafter be freed and discharged of
all further obligations hereunder, except as provided for in provisions of
this Lease which by their terms survive the expiration or earlier termination
of the Lease Term.
ARTICLE 12
NONWAIVER
Except as provided for herein as a "deemed waiver," no provision of
this Lease shall be deemed waived by either party hereto unless expressly
waived in a writing signed by such waiving party, and no express waiver shall
affect any provision other than the one specified in such waiver and that one
only for the time and in the manner specifically stated. No receipt of monies
by Landlord from Tenant after the termination of this Lease shall in any way
alter the length of the Lease Term or of Tenant's right of possession
hereunder or after the giving of any notice shall reinstate, continue or
extend the Lease Term or affect any notice given Tenant prior to the receipt
of such monies, it being agreed that after the service of notice or the
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commencement of a suit or after final judgment for possession of the
Premises, Landlord may receive and collect any Rent due, and the payment of
said Rent shall not waive or affect said notice, suit or judgment. Tenant's
payment of any Rent hereunder shall not constitute a waiver by Tenant of any
breach or default by Landlord under this Lease nor shall Landlord's payment
of monies due Tenant hereunder constitute a waiver by Landlord of any breach
or Default by Tenant under this Lease. No payment by Tenant or receipt or
acceptance by Landlord of a lesser amount than the correct Rent due shall be
deemed to be other than a payment on account, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment be
deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance, treat
such partial payment as a default or pursue any other remedy provided in this
Lease or at law.
ARTICLE 13
CONDEMNATION
If twenty-five percent (25%) or more of the Premises, Building, or
Project shall be taken by power of eminent domain or condemned by any
competent authority for any public or quasi-public use or purpose and if as a
result thereof Tenant cannot conduct its business operations in substantially
the same manner such business operations were conducted prior to such taking
while still retaining substantially the same material rights and benefits it
bargained to receive under this Lease, or if Landlord shall grant a deed or
other instrument in lieu of such taking by eminent domain or condemnation as
a result thereof, Landlord and Tenant shall each have the option to terminate
this Lease upon ninety (90) days' Notice to the other party, provided such
Notice is given no later than one hundred eighty (180) days after the date of
such taking, condemnation, reconfiguration, vacation, deed or other
instrument. If more than twenty-five percent (25%) of the rentable square
feet of the Premises is taken, or if access to the Premises is substantially
impaired, Tenant shall have the option to terminate this Lease upon ninety
(90) days' Notice, provided such Notice is given no later than one hundred
eighty (180) days after the date of such taking. Landlord shall be entitled
to receive the entire award or payment in connection therewith, except that
Tenant shall have the right to file any separate claim available to Tenant
for any taking of Tenant's personal property and fixtures belonging to Tenant
and removable by Tenant upon expiration of the Lease Term pursuant to the
terms of this Lease, and for moving expenses, and such claim is payable
separately to Tenant or is otherwise separately identifiable. Notwithstanding
anything in this Article 13 to the contrary, Landlord and Tenant shall each
be entitled to receive fifty percent (50%) of the "bonus value" of the
leasehold estate in connection therewith, which bonus value shall be equal to
the difference between the Rent payable under this Lease and the sum
established by the condemning authority as the award for compensation. All
Rent shall be apportioned as of the date of such termination, or the date of
such taking, whichever shall first occur. If any part of the Premises shall
be taken, and this Lease shall not be so terminated, the Rent shall be
proportionately abated. Tenant hereby waives any and all rights it might
otherwise have pursuant to Section 1265.130 of the California Code of Civil
Procedure.
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ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 TRANSFERS. Tenant shall not, without the prior written consent
(except as provided in Section 14.6, below) of Landlord, which consent shall
not be unreasonably withheld, conditioned or delayed, assign, mortgage,
pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise
transfer, this Lease or any interest hereunder, permit any assignment or
other such foregoing transfer of this Lease or any interest hereunder by
operation of law, sublet the Premises or any part thereof, or permit the use
of the Premises by any persons other than Tenant and its employees (all of
the foregoing are hereinafter sometimes referred to collectively as
"TRANSFERS" and any person to whom any Transfer is made or sought to be made
is hereinafter sometimes referred to as a "TRANSFEREE"). If Tenant shall
desire Landlord's consent to any Transfer, Tenant shall notify Landlord in
writing, which Notice (the "TRANSFER NOTICE") shall include (i) the proposed
effective date of the Transfer, which shall not be less than fifteen (15)
days after the date of delivery of the Transfer Notice, (ii) a description of
the portion of the Premises to be transferred (the "SUBJECT SPACE"), (iii)
all of the terms of the proposed Transfer and the consideration therefor, the
name and address of the proposed Transferee, and a copy of all existing
and/or proposed documentation pertaining to the proposed Transfer (but not
any documentation relating solely to the sale (if any) of Tenant's business
to such Transferee), including all existing operative documents to be
executed to evidence such Transfer or the agreements incidental or related to
such Transfer but only to the extent that any such documentation and/or
documents actually exist and, upon request from Landlord, Tenant's good faith
estimated calculation of the "Transfer Premium," if any, as that term is
defined in Section 14.3, below, in connection with such Transfer, (iv)
financial information of the proposed Transferee certified by an officer,
partner or owner thereof, and any other information required by Landlord,
which will enable Landlord to determine the financial responsibility,
character, and reputation of the proposed Transferee, nature of such
Transferee's business and proposed use of the Subject Space, (v) an executed
estoppel certificate from Tenant in the form attached hereto as Exhibit E,
and (vi) such other information as Landlord may reasonably require. Any
Transfer requiring Landlord's consent hereunder which is made without
Landlord's prior written consent shall, at Landlord's option, be null, void
and of no effect. Landlord shall approve or disapprove of the proposed
Transfer in accordance with Section 14.2, below, within fifteen (15) days
(the "REVIEW PERIOD") after Landlord's receipt of the applicable Transfer
Notice. In the event that Landlord fails to notify Tenant in writing of such
approval or disapproval within such Review Period, Landlord shall be deemed
to have approved such Transfer. Whether or not Landlord shall grant consent,
Tenant shall pay Landlord's reasonable and actual out-of-pocket costs and
expenses, including attorneys' fees and costs, incurred by Landlord in
connection with its review of a proposed Transfer, within thirty (30) days
after written request by Landlord, provided that such cost and expenses shall
not exceed Two Thousand Five Hundred Dollars ($2,500.00) for a Transfer,
except that such Two Thousand Five Hundred Dollar ($2,500.00) limitation
shall be increased to Five Thousand Dollars ($5,000.00) in connection with an
assignment of this Lease and in connection with a sublease of all or
substantially all of the Premises.
14.2 LANDLORD'S CONSENT. Landlord shall not unreasonably withhold
its consent to any proposed Transfer of the Subject Space to the Transferee
on the terms specified in the Transfer Notice. The parties hereby agree that
it shall only be deemed to be reasonable under this Lease
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and under any Applicable Law for Landlord to withhold consent to any proposed
Transfer where only one or more of the following apply:
14.2.1 The Transferee is of a character or reputation or
engaged in a business which is not consistent with the quality of the Project
as reflected by the then-existing tenants of the Project with respect to
comparable space and the Permitted Use;
14.2.2 The Transferee is either a governmental agency or
instrumentality thereof (i) which is that of a foreign country, (ii) which is
of a character or reputation, is engaged in a business, or is of, or is
associated with, a political orientation or faction, which is inconsistent
with the quality of the Project, or which would otherwise reasonably offend a
landlord of a comparable building located in the vicinity of the Project,
(iii) which is capable of exercising the power of eminent domain or
condemnation, or (iv) which would significantly increase the human traffic in
the Premises, the Building, and/or the Project, unless Landlord, with respect
to the Project, has leased space to, or approved subleases with, comparable
(in terms of use, security issues, express or implied power of eminent
domain, reputation, character and size of space in the Project) governmental
agencies or instrumentalities thereof;
14.2.3 The Transferee's intended use of the Premises is
inconsistent with the Permitted Use;
14.2.4 The Transferee is not a party of reasonable
financial worth and/or financial stability in light of the responsibilities
involved under the Transfer on the date consent is requested;
14.2.5 The proposed Transfer would cause Landlord to be in
violation of an exclusive right granted by Landlord in good faith in another
lease or agreement to which Landlord is a party, or would give an occupant of
the Project a right to cancel its lease as a result of the proposed use to be
made of the space by the sublessee or assignee, provided that upon request
from Tenant, Landlord shall provide Notice of all applicable exclusive rights;
14.2.6 Landlord has available in the Project space that is
reasonably comparable to the Subject Space in layout and use and either the
proposed Transferee, or any person or entity which directly or indirectly,
controls, is controlled by, or is under common control with, the proposed
Transferee, (x) occupies space in the Project at the time of the request for
consent, or (y) has negotiated with Landlord during the sixty (60) day period
immediately preceding the Transfer Notice. For purposes hereof, the term
"negotiating" shall mean either the exchange of letters of intent or lease
proposals, or the preparation and/or negotiation of lease documents; or
14.2.7 The proposed Transfer could jeopardize Kilroy Realty
Corporation's ability to qualify as a REIT under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended (the "CODE") or prevent any
amount received hereunder from qualifying as "rent from real property" under
Section 856(d) of the Code.
Notwithstanding anything to the contrary in this Lease, if Tenant or
any proposed Transferee claims that Landlord has unreasonably withheld,
conditioned or delayed its consent under Section 14.2 or otherwise has
breached or acted unreasonably under this Article 14, Tenant hereby waives
any right at law or equity to terminate this Lease, on its own behalf and, to
the
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extent permitted under all Applicable Laws, on behalf of the proposed
Transferee but Tenant retains the right to sue Landlord for any damages
suffered by Tenant and/or for specific performance if Landlord unreasonably
withholds, conditions or delays its consent to a proposed Transfer (other
than damages or injury to, or interference with, Tenant's business including,
without limitation, loss of profits, however occurring but not excluding loss
of profits Tenant would have been able to claim pursuant to Section 14.3 of
this Lease). If Landlord consents to any Transfer pursuant to the terms of
this Section 14.2, Tenant may within six (6) months after Landlord's consent,
but not later than the expiration of said six-month period, enter into such
Transfer of the Premises or portion thereof, upon substantially the same
terms and conditions as are set forth in the Transfer Notice furnished by
Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if
there are any changes in the terms and conditions from those specified in the
Transfer Notice (i) such that Landlord would initially have been entitled to
refuse its consent to such Transfer under this Section 14.2, or (ii) which
would cause the proposed Transfer to be more favorable to the Transferee than
the terms set forth in Tenant's original Transfer Notice, Tenant shall again
submit the Transfer to Landlord for its approval and other action under this
Article 14.
14.3 TRANSFER PREMIUM. If Landlord consents to a Transfer, as a
condition thereto which the parties hereby agree is reasonable, Tenant shall
pay to Landlord fifty percent (50%) of any "TRANSFER PREMIUM," as that term
is defined in this Section 14.3, actually received by Tenant from such
Transferee. "Transfer Premium" shall mean all rent, additional rent or other
consideration payable (in lieu of or in addition to rent) by such Transferee
in connection with the Transfer (as opposed to the sale of the business) in
excess of the Rent and Additional Rent payable by Tenant under this Lease
during the term of the Transfer (including, in such calculation, payments
made by Tenant under the Promissory Note), on a per rentable square foot
basis if less than all of the Premises is transferred, after deducting the
reasonable expenses incurred by Tenant in connection with such Transfer for
(i) any improvement allowance or other economic concessions (space planning
allowance, moving expenses, etc.) paid by Tenant to Transferee in connection
with such Transfer, including any unamortized value of tenant improvements in
excess of Thirty Dollars ($30.00) and up to Sixty Dollars ($60.00) per
rentable square foot in the Transferred Space paid for by Tenant (and not
paid or otherwise reimbursed from Landlord's Loan and/or Landlord's
Additional Loan); (ii) any brokerage commission incurred by Tenant in
connection with the Transfer, (iii) reasonable attorneys' fees incurred by
Tenant (including attorneys' fees paid to Landlord) in connection with the
Transfer, (iv) any costs to buy-out or takeover the previous lease of a
Transferee; (v) out-of-pocket costs of advertising the space that is the
subject of the Transfer and (vi) the aggregate amount of Base Rent and
Additional Rent paid by Tenant during the period prior to the commencement of
the term of the transfer during which Tenant does not occupy the subject
space, commencing on and after the Downtime State Date (as defined below)
(collectively, "SUBLEASING COSTS"). The "DOWNTIME START DATE" shall mean the
later of (A) the date which Tenant vacates and does not reoccupy the subject
space and delivers Notice of the same to Landlord, and (B) the date Tenant
enters into a listing agreement for the subject space with a reputable
broker, and provides Landlord with Notice thereof; provided, however, in no
event will Subleasing Costs for space not yet occupied by Tenant (and not
occupied by Tenant merely as a subterfuge of this provision) include any Base
Rent and Additional Rent paid by Tenant to Landlord for a period of time in
excess of six (6) months. "Transfer Premium" shall also include, but not be
limited to, key money and bonus money or other cash consideration for rent or
in lieu of rent paid by Transferee
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to Tenant in connection with such Transfer (as opposed to the sale of the
business), and any payment in excess of fair market value for services
rendered by Tenant to Transferee or for assets, fixtures, inventory,
equipment, or furniture transferred by Tenant to Transferee in connection
with such Transfer; provided, however, under no circumstances shall Landlord
be paid any Transfer Premium until Tenant has recovered all Subleasing Costs
for such Transferred Space, it being understood that if in any year the gross
revenues, less the deductions set forth and included in Subleasing Costs, are
less than any and all costs actually paid in assigning or subletting the
affected space (collectively, "TRANSACTION COSTS"), the amount of the excess
Transaction Costs shall be carried over to the next year and then deducted
from net revenues with the procedure repeated until a Transfer Premium is
achieved.
14.4 [INTENTIONALLY OMITTED.]
14.5 EFFECT OF TRANSFER. If Landlord consents to a Transfer, (i) the
terms and conditions of this Lease shall in no way be deemed to have been
waived or modified, (ii) such consent shall not be deemed consent to any
further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver
to Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, (iv) Tenant shall furnish upon Landlord's request a complete
statement, certified by an independent certified public accountant, or
Tenant's chief financial officer, setting forth in detail the computation of
any Transfer Premium Tenant has derived and shall derive from such Transfer,
and (v) no Transfer relating to this Lease or agreement entered into with
respect thereto, whether with or without Landlord's consent, shall relieve
Tenant or any guarantor of the Lease from liability under this Lease.
Landlord or its authorized representatives shall have the right at all
reasonable times to audit the books, records and papers of Tenant relating to
any Transfer, and shall have the right to make copies thereof. If the
Transfer Premium respecting any Transfer shall be found understated by more
than three percent (3%), Tenant shall, within thirty (30) days after demand,
pay the deficiency and Landlord's costs of such audit (otherwise Landlord
shall be obligated to pay such audit costs).
14.6 NON-TRANSFERS. Notwithstanding anything to the contrary
contained in this Article 14, an assignment or subletting of all or a portion
of the Premises to (a) an affiliate of Tenant (an entity which is controlled
by, controls or is under common control, as such term is defined in
California General Corporations Code ("CGCC") Sections 160 and 5045, with,
Tenant); (b) an entity which merges with or acquires or is acquired by,
Tenant or a parent of Tenant, as defined in CGCC Sections 175 and 5064, or a
subsidiary, as defined in CGCC Sections 189 and 5073, of Tenant's parent or
Affiliate, or (c) a transferee of substantially all of the assets of Tenant
(a, b and c to be collectively be referred to herein as an "AFFILIATE") along
with any other entity which will qualify as an "affiliate" under CGCC
Sections 150 and 5031, shall not be deemed a Transfer under this Article 14
(and shall not entitle Landlord to any Transfer Premium), provided that at
least five (5) business days prior to such assignment or sublease (i) Tenant
notifies Landlord of any such assignment or sublease and promptly supplies
Landlord with any documents or information reasonably requested by Landlord
regarding such assignment or sublease or such Affiliate; and (ii) such
assignment or sublease is not a subterfuge by Tenant to avoid its obligations
under this Lease. In addition, Landlord acknowledges and agrees that
notwithstanding anything to the contrary contained in the Lease, Tenant shall
have the right, without Landlord's consent and without the payment of the
Transfer Premium, but
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upon prior written notice to Landlord, to sublease, license or let or
otherwise permit occupancy of, up to an aggregate of 28,500 square feet of
the Premises (or 57,000 square feet of the Premises to the extent the
Expansion Space is added to the Premises) to individuals, clients, agents or
independent contractors (each a "BUSINESS AFFILIATE") which sublease, license
or occupancy agreement, as the case may be, to a Business Affiliate shall be
on and subject to all of the following conditions: (i) Tenant shall either
have a business relationship (relating to the primary business of Tenant
conducted in the Premises) with each such Business Affiliate or Tenant shall
have at least a ten percent (10%) voting or equity interest in such Business
Affiliate; (ii) all such Business Affiliates shall be of a character and
reputation consistent with the quality of the Building; and (iii) such
Business Affiliates shall use the Premises in conformity with the all
applicable provisions of this Lease. No such sublease, license or occupancy
agreement, as the case may be, shall relieve Tenant from any liability under
this Lease.
14.7 SPECIAL TRANSFER RESTRICTION. Notwithstanding anything in this
Article 14 to the contrary, in no event will Tenant have the right to effect
a Transfer for a term (including any extension options) of greater than two
and one-half (2.5) years until the earlier of (i) the date the Phase II
Building is ninety percent (90%) leased; or (ii) eighteen (18) months after
the Lease Commencement Date; provided, however, that the foregoing Transfer
restriction shall not apply (i) to any Non-Transfers described in Section
14.6 above or (ii) in the event the Subject Space described in such Transfer
Notice is larger in size, on a contiguous space basis, than any space
available in the Phase II Building (on a contiguous space basis).
14.8 LANDLORD'S RECOGNITION OF TRANSFERS UPON LEASE TERMINATION. At
Tenant's request, Landlord shall, concurrently with the granting of
Landlord's consent to the Sublease, as that term is defined below, execute a
commercially reasonable recognition agreement (the "RECOGNITION AGREEMENT")
in favor of a Transferee who is a subtenant of Tenant for all of the Premises
(including the initial Premises AND the Expansion Space to the extent
applicable) (the "SUBTENANT"), which provides that in the event this Lease is
terminated, Landlord shall recognize the sublease between such Subtenant and
Tenant (the "SUBLEASE") and not disturb such Subtenant's possession of the
Premises or applicable portion thereof (the "SUBLEASE SPACE"), due to such
termination; provided that (i) at the time of Tenant's request for Landlord's
execution of the Recognition Agreement, such Transfer contains the same
economic Rent set forth in this Lease, or the Sublease provides that upon a
Default by Tenant under this Lease which results in the termination of this
Lease, the Subtenant receiving the Recognition Agreement shall be subject to
the same terms and conditions set forth in this Lease; provided, however, the
economic terms of such Transfer may be more favorable to Landlord than those
set forth in this Lease, and provided that the provisions of Sections 1.3,
2.2 and 23.6 of this Lease shall in no event be applicable to such Subtenant;
(ii) the Sublease Space consists of not less than the entire rentable area of
the Premises; (iii) Landlord shall not be liable for any act or omission of
Tenant; (iv) Landlord shall not be subject to any offsets or defenses which
the Subtenant might have as to Tenant or to any claims for damages against
Tenant, nor shall Landlord be obligated to fund to, or for the benefit of,
Subtenant, any undisbursed tenant improvement or refurbishment allowance or
other allowances or monetary concessions unless same has been granted to
Tenant and transferred to Subtenant; (v) Landlord shall not be required or
obligated to credit the Subtenant with any rent or additional rent paid by
the Subtenant to Tenant; (vi) Landlord shall not be bound by any provisions
of the Sublease which are inconsistent with the terms and conditions of this
Lease; (vii) such recognition shall be effective upon, and Landlord shall be
responsible for
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performance of only those covenants and obligations of Tenant pursuant to the
Sublease accruing after, the termination of this Lease; (viii) as a condition
to Landlord's obligation to enter into the Recognition Agreement, Landlord
shall have the right to reasonably approve the creditworthiness and financial
strength of the Subtenant, which reasonable approval shall be based upon the
creditworthiness and financial strength then generally required by Landlord
and landlords of the Comparable Buildings of a new tenant who is leasing
space of a rentable area comparable to the rentable area of the Sublease
Space for a term equal to the remaining Lease Term, who is granted
concessions comparable to the concessions, if any, granted to the Subtenant,
and who is assuming the monetary obligations under the Sublease; and (ix) the
Subtenant shall make full and complete attornment to Landlord, as lessor,
pursuant to a written agreement executed by Landlord and the Subtenant, so as
to establish direct privity of contract between Landlord and the Subtenant
with the same force and effect as though the Sublease was originally made
directly between Landlord and the Subtenant. Upon Landlord's written request
given any time after the termination of this Lease, the Subtenant shall
execute a lease for the space subject to the applicable Sublease upon the
same terms and conditions as set forth in the Recognition Agreement. In the
event Landlord enters into a Recognition Agreement with a Subtenant pursuant
to the provisions of this Section 14.8, Tenant hereby acknowledges and agrees
that, for purposes of calculating the damages due Landlord following Tenant's
breach and Landlord's termination of this Lease, with respect to any such
Sublease Space, Landlord shall be deemed to have adequately mitigated its
damages in accordance with Applicable Laws for the portion of the Premises
covered by the Recognition Agreement.
ARTICLE 15
SURRENDER OF PREMISES; REMOVAL OF TRADE FIXTURES
15.1 SURRENDER OF PREMISES. No act or thing done by any Landlord
Parties or Tenant during the Lease Term shall be deemed to constitute an
acceptance by Landlord of a surrender of the Premises unless such intent is
specifically acknowledged in a writing signed by Landlord and Tenant. The
delivery of keys to the Premises to any Landlord Parties shall not constitute
a surrender of the Premises or effect a termination of this Lease, whether or
not the keys are thereafter retained by Landlord, and notwithstanding such
delivery Tenant shall be entitled to the return of such keys at any
reasonable time upon request until this Lease shall have been terminated. The
voluntary or other surrender of this Lease by Tenant, whether accepted by
Landlord or not, or a mutual termination hereof, shall not work a merger, and
at the option of Landlord shall operate as an assignment to Landlord of all
subleases or subtenancies affecting the Premises.
15.2 REMOVAL OF TENANT PROPERTY BY TENANT. All articles of personal
property and all business and trade fixtures, machinery and equipment,
furniture and movable partitions owned by Tenant or installed by Tenant at
its expense in the Premises, shall remain the property of Tenant, and may be
removed by Tenant at any time during the Lease Term. Upon the expiration of
the Lease Term, or upon any earlier termination of this Lease, Tenant shall,
subject to the provisions of this Article 15, quit and surrender possession
of the Premises to Landlord in as good order and condition as when Tenant
took possession and as thereafter improved by Landlord and/or Tenant,
reasonable wear and tear, damage by casualty and repairs which are
specifically made the responsibility of Landlord hereunder excepted. Upon
such expiration or
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termination, Tenant shall, without expense to Landlord, remove or cause to be
removed from the Premises all debris and rubbish, and such items of
furniture, equipment, free-standing cabinet work, and other articles of
personal property owned by Tenant or installed or placed by Tenant at its
expense in the Premises, and such similar articles of any other persons
claiming under Tenant, as Landlord may, in its sole discretion, require to be
removed, and Tenant shall repair at its own expense all damage to the
Premises and Building resulting from such removal. Landlord and Tenant
acknowledge and agree that nothing in this Section 15.2 shall prohibit Tenant
from removing any furniture, free-standing equipment, free-standing cabinet
work and other articles of personal property owned by Tenant or installed or
placed by Tenant at its expense in the Premises, at any time throughout the
Term of this Lease.
ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term or
earlier termination thereof such tenancy shall be from month-to-month only,
and shall not, except as set forth below, constitute a renewal hereof or an
extension for any further term, and in such case Base Rent shall be payable
at a monthly rate equal to the product of (i) the Base Rent and the
promissory note payments due under the Promissory Note applicable during the
last rental period of the Lease Term under this Lease, and (ii) one hundred
twenty-five percent (125%). Such month-to-month tenancy shall be subject to
every other term, covenant and agreement contained herein. Nothing contained
in this Article 16 shall be construed as consent by Landlord to any holding
over by Tenant, and Landlord expressly reserves the right to require Tenant
to surrender possession of the Premises to Landlord as provided in this Lease
upon the expiration or other termination of this Lease. The provisions of
this Article 16 shall not be deemed to limit or constitute a waiver of any
other rights or remedies of Landlord provided herein or at law. Tenant
acknowledges that if Tenant holds over without Landlord's consent, such
holding over may compromise or otherwise affect Landlord's ability to enter
into new leases with prospective tenants regarding the Premises. Therefore,
if Tenant fails to surrender the Premises upon the termination or expiration
of this Lease, in addition to any other liabilities to Landlord accruing
therefrom, Tenant shall, except as otherwise expressly provided in this
Lease, protect, defend, indemnify and hold Landlord harmless from all loss,
costs (including reasonable attorneys' fees) and liability resulting from
such failure, including, without limiting the generality of the foregoing,
any claims made by any succeeding tenant founded upon such failure to
surrender, and any losses suffered by Landlord, including lost profits to
Landlord, resulting from such failure to surrender.
ARTICLE 17
ESTOPPEL CERTIFICATES
Within fifteen (15) business days following a request in writing by
Landlord or Tenant, Tenant or Landlord, as the case may be, shall execute and
deliver to the requesting party (the "REQUESTING PARTY") an estoppel
certificate, which shall be substantially in the reasonable form of Exhibit
E, attached hereto, (or such other commercially reasonable form as may be
required by any prospective mortgagee or purchaser of the Building, the
Project, or any portion thereof or by any assignee or sublessee), indicating
therein any exceptions thereto that may exist at that
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time, and shall also contain any other information reasonably requested by
the Requesting Party or Landlord's mortgagee or prospective mortgagee or
purchasers or Tenant's Transferee, as the case may be. Appropriate
modifications shall be made to Exhibit E when Tenant is the Requesting Party.
Landlord or Tenant shall execute and deliver whatever other instruments may
be reasonably required for such purposes. At any time during the Lease Term,
Landlord may require Tenant to provide Landlord with a publicly available
current financial statement and publicly available financial statements of
the two (2) years prior to the current financial statement year. Such
statements shall be prepared in accordance with generally accepted accounting
principles and, if such is the normal practice of Tenant, shall be audited by
an independent certified public accountant. Any such statements shall be
provide only to the extent they exist, in the form that they exist and
conditioned upon Landlord executing a commercially reasonable confidentiality
agreement. The failure of Tenant or Landlord, as the case may be, to timely
execute and deliver such estoppel certificate or other instruments upon five
(5) business additional days Notice from the Requesting Party advising the
other party of the consequences of a non-response, shall constitute an
acceptance of the Premises and an acknowledgment by the other party that
statements included in the estoppel certificate are true and correct, without
exception.
ARTICLE 18
SUBORDINATION
Subject to Tenant's receipt of an appropriate non-disturbance
agreement(s) as set forth below, this Lease is subject and subordinate to all
present and future ground or underlying leases of the Project and/or the
Building, and to the lien of any mortgages or trust deeds, now or hereafter
in force against the Project and/or the Building, if any, and to all
renewals, extensions, modifications, consolidations and replacements thereof,
and to all advances made or hereafter to be made upon the security of such
mortgages or trust deeds, unless the holders of such mortgages or trust
deeds, or the lessors under such ground lease or underlying leases, require
in writing that this Lease be superior thereto. Landlord covenants that the
Building will be constructed upon real property which Landlord holds in fee
title, and that the Expansion Space shall be built on a portion of such real
property as well as on real property upon which Landlord is a ground lessee
under a ground lease (the "GROUND LEASE"). If Tenant leases the Expansion
Space, Landlord shall use commercially reasonable efforts to obtain a
Non-Disturbance Agreement for Tenant from the ground lessor under the Ground
Lease. Landlord currently pays approximately $2,800.00 monthly ground rent
under the Ground Lease. Landlord shall give the ground lessor under the
Ground Lease notice of the Expansion Lease, if any, and Tenant's address
within thirty (30) days of receipt of the Expansion Exercise Notice, which
notice shall instruct such ground lessor to provide Tenant with notice of any
default under the Ground Lease and, subject to the remaining terms hereof,
the opportunity to cure the same on behalf of the Landlord. Provided Tenant
gives Landlord no less than five (5) business days notice of its intent to
cure such a default under the Ground Lease, if Tenant thereafter cures a
monetary or non-monetary default under the Ground Lease, then after (10)
business days notice by Tenant to Landlord that Tenant so cured such default,
Tenant may offset such cure costs and expenses against Tenant's next payment
of Base Rent. Landlord acknowledges and agrees that Landlord's delivery to
Tenant of a commercially reasonable non-disturbance agreement
("NON-DISTURBANCE AGREEMENT") in favor of Tenant from any ground lessors,
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mortgage holders or lien holders of Landlord who later come into existence at
any time prior to the expiration of the Lease Term shall be in consideration
of, and a condition precedent to, Tenant's agreement to be bound by the
provisions of this Article 18. Such commercially reasonable Non-Disturbance
Agreement(s) shall include the obligation of any such successor ground
lessor, mortgage holder or lien holder ("LIEN HOLDER") to recognize Tenant's
rights specifically set forth in this Lease, Landlord's obligations to comply
with the provisions of this Lease (including Tenant's Contribution
Disbursement and the Cresa Partners' Fee Disbursement (for both the initial
Premises and the Expansion Space)), or to otherwise receive certain credits
against Rent as set forth herein and recognize and agree that Lien Holder
shall be bound by and responsible for all obligations of Landlord with
respect to the Expansion Option and the Security L-C, the Security L-C
Security Deposit, the Promissory Note, the Promissory Note L-C, Additional
Security L-C (if any), the Additional Promissory Note L-C (if any), the
Additional Security L-C Security Deposit (if any), any and all proceeds
therefrom or related thereto, and any amounts deposited in any accounts
pledged by Tenant (collectively the "SECURITY"), irrespective of when those
obligations arose, that is, whether those obligations arise before or after
Lien Holder acquires title to the Property. Accordingly, without limiting the
foregoing, if Landlord exercises rights with respect to the "Security" and
takes or otherwise acquires cash or any proceeds related thereto, Lien Holder
shall be obligated to pay or return monies to Tenant to the extent required
by the Lease, whether or not Lien Holder actually acquired the cash or other
proceeds so acquired by Landlord pursuant to the exercise of its rights with
respect to the Security. Tenant covenants and agrees in the event any
proceedings are brought for the foreclosure of any such mortgage, to attorn
to the purchaser upon any such foreclosure sale. Tenant shall, within fifteen
(15) business days of request by Landlord, execute such further instruments
or assurances as Landlord may reasonably deem necessary to evidence or
confirm the subordination or superiority of this Lease to any such mortgages,
trust deeds, ground leases or underlying leases in accordance with the
provisions of this Article 18.
ARTICLE 19
DEFAULTS; REMEDIES
19.1 DEFAULTS. The occurrence of any of the following shall
constitute a default of this Lease by Tenant a ("DEFAULT"):
19.1.1 Any failure by Tenant to pay any Rent or any other
charge required to be paid under this Lease, or any part thereof, within five
(5) business days of Notice that the same is due, which Notice shall be in
lieu of any Notice required under California Code of Civil Procedure Section
1161 or any similar or successor law; or
19.1.2 Any failure by Tenant to observe or perform any
other provision, covenant or condition of this Lease to be observed or
performed by Tenant where such failure continues for thirty (30) days after
written Notice thereof from Landlord to Tenant; provided however, that any
such Notice shall be in lieu of, and not in addition to, any notice required
under California Code of Civil Procedure Section 1161 or any similar or
successor law; and provided further that if the nature of such default is
such that the same cannot reasonably be cured within a thirty (30) day
period, Tenant shall not be deemed to be in default if it diligently
commences such cure
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within such period and thereafter diligently proceeds to rectify and cure
said default, as soon as possible; or
19.1.3 To the extent permitted by law, a general assignment
by Tenant or any guarantor of the Lease for the benefit of creditors, or the
taking of any corporate action in furtherance of bankruptcy or dissolution
whether or not there exists any proceeding under an insolvency or bankruptcy
law, or the filing by or against Tenant or any guarantor of any proceeding
under an insolvency or bankruptcy law, or the appointment of a trustee or
receiver to take possession of all or substantially all of the assets of
Tenant or any guarantor, or any execution or other judicially authorized
seizure of all or substantially all of Tenant's assets located upon the
Premises or of Tenant's interest in this Lease; or
19.1.4 An Event of Default by Tenant under the Promissory
Note or the Additional Promissory Note (as defined therein); or
19.1.5 (i) The insolvency of any bank issuing a letter of
credit under this Lease, (ii) the failure of Imperial Bank to have a least a
"C" rating or any other bank issuing a letter of credit to have a least a "B"
rating under the Thomson Financial Bank Watch or an equivalent rating service
reasonably selected by Landlord, where Tenant, within fifteen (15) business
days of Landlord's Notice, has not replaced such bank with a bank which
qualifies under this Section 19.1.5 and is otherwise, reasonably acceptable
to Landlord; or
19.1.6 The failure by Tenant to renew the Security L-C, the
Promissory Note L-C, the Additional Security L-C (if any) and/or the
Additional Promissory Note L-C (if any) when required by Tenant hereunder.
19.2 REMEDIES UPON DEFAULT. Upon the occurrence of a Default by
Tenant, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity, the option to pursue any one or more of the
following remedies, each and all of which shall be cumulative and, subject to
the terms hereof, nonexclusive, without any Notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the
Premises and expel or remove Tenant and any other person who may be occupying
the Premises or any part thereof, without being liable for prosecution or any
claim or damages therefor; and Landlord may recover from Tenant the following:
(a) The worth at the time of award of any unpaid rent
which has been earned at the time of such termination; plus
(b) The worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by
which the unpaid rent for the balance of the Lease Term after the time
of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided; plus
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(d) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease as allowed under all Applicable Laws;
and
(e) 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 Applicable Law.
The term "rent" as used in this Section 19.2 shall be deemed to be
and to mean all sums of every nature required to be paid by Tenant pursuant
to the terms of this Lease, whether to Landlord or to others. As used in
Paragraphs 19.2.1(a) and (b), above, the "worth at the time of award" shall
be computed by allowing interest at the rate set forth in Article 25 of this
Lease, but in no case greater than the maximum amount of such interest
permitted by law. As used in Paragraph 19.2.1(c) above, the "worth at the
time of award" shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus
one percent (1%).
19.2.2 In the event the Lease has not been terminated,
Landlord shall have the remedy described in California Civil Code Section
1951.4 (lessor may continue lease in effect after lessee's breach and
abandonment and recover Rent as it becomes due, if lessee has the right to
sublet or assign, subject only to reasonable limitations). Accordingly, if
Landlord does not elect to terminate this Lease on account of any Default by
Tenant, Landlord may, from time to time, without terminating this Lease,
enforce all of its rights and remedies under this Lease, including the right
to recover all rent as it becomes due.
19.2.3 Landlord shall have the right, in accordance with
this Lease, to the immediate payment of all sums then due and owing under any
letters of credit provided by Tenant to Landlord under this Lease.
19.3 SUBLEASES OF TENANT. Subject to the terms of Section 14.7
above, if Landlord elects to terminate this Lease, Landlord shall have the
right to terminate any and all subleases, licenses, concessions or other
consensual arrangements for possession entered into by Tenant and affecting
the Premises or may, in Landlord's sole discretion, succeed to Tenant's
interest in such subleases, licenses, concessions or arrangements. In the
event of Landlord's election to succeed to Tenant's interest in any such
subleases, licenses, concessions or arrangements, Tenant shall, as of the
date of Notice by Landlord of such election, have no further right to or
interest in the rent or other consideration receivable thereunder.
19.4 NO WAIVER OF REDEMPTION BY TENANT. Nothing herein shall be
deemed to constitute a waiver of Tenant's right to redeem, by order or
judgment of any court or by any legal process or writ, Tenant's right of
occupancy of the Premises after any termination of this Lease.
19.5 LANDLORD DEFAULT.
19.5.1 GENERAL. Notwithstanding anything to the contrary
set forth in this Lease, Landlord shall be in default in the performance of
any obligation required to be performed by Landlord pursuant to this Lease if
(i) in the event a failure by Landlord is with respect to the payment of
money, Landlord fails to pay such unpaid amounts within five (5) business
days of Notice from Tenant that the same was not paid when due; (ii) the
failure of Landlord to perform
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according to the provisions of Article 17 of this Lease for more than ten
(10) business days after Notice from Tenant or (iii) in the event a failure
by Landlord is other than (i) and (ii) above, Landlord fails to perform such
obligation within a reasonable time period with the expenditure of diligent
efforts, but in no event more than thirty (30) days after the receipt of
Notice from Tenant specifying in detail Landlord's failure to perform;
provided, however, 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 in default under this Lease if Landlord commences such performance
within such thirty (30) day period and thereafter diligently pursue the same
to completion. Upon any such default by Landlord under this Lease, Tenant
may, except as otherwise specifically provided in this Lease to the contrary,
exercise any of its rights provided at law or in equity.
19.5.2 ABATEMENT OF RENT. In the event that Tenant is
prevented from using, and does not use, the Premises or any portion thereof,
as a result of (i) any repair, maintenance or alteration performed by
Landlord (including repairs, maintenance and alterations required or
permitted by Landlord hereunder), or which Landlord failed to perform, after
the Lease Commencement Date and required by this Lease, which substantially
interferes with Tenant's use of or ingress to or egress from the Building,
Project, or Premises or the Project parking facility; (ii) any failure to
provide services, utilities or ingress to and egress from the Building,
Project, or Premises or the Project parking facility; (iii) damage and
destruction of or eminent domain proceedings in connection with the Premises,
Building, the Project or the Project parking facility servicing the Project,
or (iv) the presence of Hazardous Materials (not brought on the Premises by
Tenant Parties) in violation of Applicable Laws which poses a material health
risk to the environment or the Premises (any such set of circumstances as set
forth in items (i) through (iv), above, to be known as an "ABATEMENT EVENT"),
then Tenant shall give Landlord Notice of such Abatement Event, and if such
Abatement Event continues for five (5) consecutive business days after
Landlord's receipt of any such Notice, or occurs for ten (10) non-consecutive
business days in a twelve (12) month period (provided Landlord is sent a
Notice pursuant to Section 29.14 of this Lease of each of such Abatement
Event) (in either of such events, the "ELIGIBILITY PERIOD"), then the Base
Rent and Tenant's Share of Direct Expenses and Tenant's parking charges shall
be abated or reduced, as the case may be, after expiration of the Eligibility
Period for such time that Tenant continues to be so prevented from using, and
does not use, the Premises, or a portion thereof, in the proportion that the
rentable area of the portion of the Premises that Tenant is prevented from
using, and does not use ("UNUSABLE AREA"), bears to the total rentable area
of the Premises and Landlord shall pay to Tenant, to the extent covered
(except for any deductible amount) by insurance retained by Landlord, any
incremental reasonable, out of pocket expense that the Tenant incurs in
relocating the functions previously performed in the Unusable Area to a
different location. For this purpose, an incremental expense shall be any
expense that the Tenant incurs in relocating from the Unusable Area to a
temporary location and then relocating back to the Unusable Area (after such
area has been made fit for Tenant's Permitted Use) that Tenant would not have
had to incur but for such relocation; provided, however, in the event that
Tenant is prevented from using, and does not use, the Unusable Area for a
period of time in excess of the Eligibility Period and the remaining portion
of the Premises is not sufficient to allow Tenant to effectively conduct its
business therein, and if Tenant does not conduct its business from such
remaining portion, then for such time after expiration of the Eligibility
Period during which Tenant is so prevented from effectively conducting its
business therein, the Base Rent and Tenant's Share of Direct Expenses and
Tenant's parking charges for the entire Premises shall be abated for such
time as Tenant continues to be so prevented from using, and does not use, the
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Premises. If, however, Tenant reoccupies any portion of the Premises during
such period, the Rent allocable to such reoccupied portion, based on the
proportion that the rentable area of such reoccupied portion of the Premises
bears to the total rentable area of the Premises, shall be payable by Tenant
from the date Tenant reoccupies such portion of the Premises. If Tenant's
right to abatement occurs during a free rent period which arises after the
Lease Commencement Date, Tenant's free rent period shall be extended for the
number of days that the abatement period overlapped the free rent period
("OVERLAP PERIOD"). Landlord shall have the right to extend the Lease
Expiration Date for a period of time equal to the Overlap Period if Landlord
sends a Notice to Tenant of such election within ten (10) days following the
end of the extended free rent period. Such right to abate Base Rent, Tenant's
Share of Direct Expenses and Tenant's parking charges shall be Tenant's sole
and exclusive remedy at law or in equity for an Abatement Event; provided,
however, that (a) nothing in this Section 19.5.2, shall impair Tenant's
rights under Section 19.5.1, above, and (b) if Landlord has not cured such
Abatement Event within one hundred eighty (180) days after receipt of Notice
from Tenant (or, in the event that the Premises or the Building are rendered
inaccessible to Tenant by a casualty or act of Landlord, one hundred eighty
(180) days following the date of Landlord's actual knowledge of the
occurrence of the Abatement Event), Tenant shall have the right to terminate
this Lease during the first ten (10) business days of each calendar month
following the end of such 180-day period until such time as Landlord has
cured the Abatement Event, which right may be exercised only by delivery of
thirty (30) days' Notice to Landlord (the "ABATEMENT EVENT TERMINATION
NOTICE") during such ten (10) business-day period, and shall be effective as
of a date set forth in the Abatement Event Termination Notice (the "ABATEMENT
EVENT TERMINATION DATE"), which Abatement Event Termination Date shall not be
less than thirty (30) days, and not more than one (1) year, following the
delivery of the Abatement Event Termination Notice. Notwithstanding anything
contained in this Section 19.5.2 to the contrary, Tenant's Abatement Event
Termination Notice shall be null and void (but only in connection with the
first Notice sent by Tenant with respect to each separate Abatement Event) if
Landlord cures such Abatement Event within such thirty (30) day period
following receipt of the Abatement Event Termination Notice. If Tenant's
right to abatement occurs because of an eminent domain taking, condemnation
and/or because of damage or destruction to the Premises, the Project's
parking facility, and/or the Project, Tenant's abatement period shall
continue until Tenant has been given sufficient time, and sufficient ingress
to, and egress from the Premises, to rebuild such portion it is required to
rebuild, to install its property, furniture, fixtures, and equipment to the
extent the same shall have been removed as a result of such damage or
destruction or temporary taking and to move in over a weekend. To the extent
Tenant is entitled to abatement because of an event covered by Articles 11 or
13 of this Lease, then the Eligibility Period shall not be applicable.
Notwithstanding the foregoing, Tenant shall not have the right to terminate
this Lease pursuant to the terms of this Section 19.5.2, if, as of the date
of delivery by Tenant of the Abatement Event Termination Notice, (A) the
first trust deed holder of the Building (the "BANK") has recorded a notice of
default on the Building or filed a notice evidencing a legal action by the
Bank against Landlord on the Building, and (B) the Bank diligently proceeds
to gain possession of the Premises and, to the extent Bank does gain
possession of the Premises, the Bank diligently proceeds to cure such
Abatement Event. Except as provided in this Section 19.5.2, nothing contained
herein shall be interpreted to mean that Tenant is excused from paying Rent
due hereunder.
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19.5.3 LANDLORD BANKRUPTCY PROCEEDING. In the event that the
obligations of Landlord under this Lease are not performed during the pendency
of a bankruptcy or insolvency proceeding involving Landlord as the debtor, or
following the rejection of this Lease in accordance with Section 365 of the
Bankruptcy Code, then notwithstanding any provision of this Lease to the
contrary, Tenant shall have the right to set off against the Rent next due and
owing under this Lease (a) any and all damages caused by such non-performance of
Landlord's obligations under this Lease by Landlord, debtor-in-possession, or
the bankruptcy trustee, and (b) any and all damages caused by the
non-performance of Landlord's obligations under this Lease following any
rejection of this Lease in accordance with Section 365 of the Bankruptcy Code.
19.6 FORM OF PAYMENT AFTER DEFAULT. Following the occurrence of a
default by Tenant, Landlord shall have the right to require that any or all
subsequent amounts paid by Tenant to Landlord hereunder, whether in the cure of
the default in question or otherwise, be paid in the form of money order,
cashier's or certified check drawn on an institution acceptable to Landlord, or
by other means approved by Landlord, notwithstanding any prior practice of
accepting payments in any different form.
19.7 EFFORTS TO RELET. For the purposes of this Article 19, Tenant's
right to possession shall not be deemed to have been terminated by efforts of
Landlord to relet the Premises, by its acts of maintenance or preservation with
respect to the Premises, or by appointment of a receiver to protect Landlord's
interests hereunder. The foregoing enumeration is not exhaustive, but merely
illustrative of acts which may be performed by Landlord without terminating
Tenant's right to possession.
ARTICLE 20
ATTORNEYS' FEES
If either party commences litigation against the other for the specific
performance of this Lease, for damages for the breach hereof or otherwise for
enforcement of any remedy hereunder, the parties hereto agree to and hereby do
waive any right to a trial by jury and, in the event of any such commencement of
litigation, the prevailing party shall be entitled to recover from the other
party such costs and reasonable attorneys' fees as may have been incurred.
ARTICLE 21
LETTERS OF CREDIT
21.1 SECURITY LETTER OF CREDIT.
21.1.1 DELIVERY OF THE SECURITY L-C. Tenant shall deliver to
Landlord, concurrently with Tenant's execution and delivery of this Lease to
Landlord, an unconditional, irrevocable letter of credit with a term of at least
three hundred sixty-four (364) days (the "SECURITY L-C") in the initial amount
("SECURITY L-C INITIAL STATED AMOUNT") of Eight Million Four Hundred Sixty-Seven
Thousand Seven Hundred Twenty-Nine Dollars ($8,467,729.00), which Security L-C
shall be issued by Imperial Bank or such other bank subject to Landlord's
reasonable approval, and which Security L-C shall be in a form and content as
set forth in Exhibit H, attached hereto or otherwise shall be subject to
Landlord's
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reasonable approval. Notwithstanding anything above to the contrary, Landlord
and Tenant acknowledge and agree that until April 1, 2000, Tenant shall only
be required to provide the Security L-C in the stated amount of Seven Million
Five Hundred Thousand Dollars ($7,500,000.00) which shall be in the form of
Exhibit H, but the amount shall be $7,500,000.00 and the paragraph commencing
with the language "THIS IRREVOCABLE STANDBY LETTER OF CREDIT . . ." and
continuing through and including the chart of dates and L/C amount, shall be
deleted; provided, however, that on or before April 1, 2000, Tenant shall
either post a substitute Security L-C (the form and substance of which
substitute letter of credit shall be in the form of the Security L-C) or
amend the Security L-C to provide for the Security L-C Initial Stated Amount
set forth above, or if Tenant does not deliver the Promissory Note L-C, and
Landlord elects to keep this Lease in effect, the Security L-C shall remain
in an amount equal to $7,500,000.00 throughout the Lease Term. Tenant shall
pay all expenses, points and/or fees incurred by Tenant in obtaining the
Security L-C. Notwithstanding anything above to the contrary, and subject to
the terms hereof, the Security L-C Initial Stated Amount shall be increased
and decreased in the amounts and on the dates set forth in the Security L-C.
Notwithstanding anything above to the contrary, if Tenant is in
Default under this Lease, the then Security L-C Stated Amount shall not
thereafter be reduced, unless and until such Default shall have been fully
cured pursuant to the terms of this Lease, at which time the Security L-C
Stated Amount may be reduced as described in the Security L-C.
Notwithstanding the foregoing, Landlord acknowledges and agrees that Tenant
shall have the right, from time to time throughout the Term of this Lease, to
post a substitute letter of credit for the Security L-C required hereunder,
the form and substance of which substitute letter of credit shall be subject
to Landlord's reasonable approval and the terms of this Article 21. Upon
Tenant's written request from time to time, Landlord shall provide Tenant
with a letter confirming the then Security L-C Stated Amount (including the
amount of any actual increases and reductions with respect thereto).
21.1.2 APPLICATION OF THE SECURITY L-C. The Security L-C
shall be held by Landlord as security for the faithful performance by Tenant
of all the terms, covenants, and conditions of this Lease to be kept and
performed by Tenant during the initial Lease Term. The Security L-C shall not
be mortgaged, assigned or encumbered in any manner whatsoever by Tenant
without the prior written consent of Landlord. If Tenant Defaults with
respect to any provisions of this Lease, including, but not limited to, the
provisions relating to the payment of Rent, or if Tenant fails to renew the
Security L-C at least thirty (30) days before its expiration, Landlord may,
but shall not be required to, draw upon all or any portion of the Security
L-C for payment of any Rent or any other sum in default, or for the payment
of any amount that Landlord may reasonably spend or may become obligated to
spend by reason of Tenant's Default, or to compensate Landlord for any other
loss or damage that Landlord may suffer by reason of Tenant's Default. The
use, application or retention of the Security L-C, or any portion thereof, by
Landlord shall not (a) prevent Landlord from exercising any other right or
remedy provided by this Lease or by law, it being intended that Landlord
shall not first be required to proceed against the Security L-C, nor (b)
operate as a limitation on any recovery to which Landlord may otherwise be
entitled. Any amount of the Security L-C which is drawn upon by Landlord, but
is not used or applied by Landlord shall be held by Landlord and deemed a
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security deposit (the "SECURITY L-C SECURITY DEPOSIT"); provided, however,
that Landlord shall also have the right to transfer any amount that is so
drawn upon by Landlord to an interest bearing account ("PLEDGED ACCOUNT")
pursuant to a Pledge and Security Agreement substantially in the form of
Exhibit K (with reasonable modifications to reflect the terms hereof),
attached hereto and incorporated herein by this reference and any amounts
held in the Pledged Account shall be deemed to be a Security L-C Security
Deposit for purposes of this Lease. If any portion of the Security L-C is
drawn upon, Tenant shall, within ten (10) days after written demand therefor,
either (i) deposit cash with Landlord (which cash shall be applied by
Landlord to the Security L-C Security Deposit) in an amount sufficient to
cause the sum of the Security L-C Security Deposit and the amount of the
remaining Security L-C to be equivalent to the amount of the Security L-C
then required under this Lease or (ii) reinstate the Security L-C to the
amount then required under this Lease, and any remaining Security L-C
Security Deposit shall be returned to Tenant within ten (10) days thereafter.
If any portion of the Security L-C Security Deposit is used or applied,
Tenant shall, within five (5) days after written demand therefor, deposit
cash with Landlord (which cash shall be applied by Landlord to the Security
L-C Security Deposit) in an amount sufficient to restore the Security L-C
Security Deposit to the amount then required under this Lease, and Tenant's
failure to do so shall be a Default under this Lease. Tenant acknowledges
that Landlord has the right to transfer or mortgage its interest in the
Project and the Building and in this Lease and Tenant agrees that in the
event of any such transfer or mortgage, Landlord shall have the right to
transfer or assign the Security L-C Security Deposit and/or the Security L-C
to the transferee or mortgagee, and in the event of such transfer, Tenant
shall look solely to such transferee or mortgagee for the return of the
Security L-C Security Deposit and/or the Security L-C. The Security L-C
Security Deposit and/or the Security L-C, or any balance thereof, shall
either be drawn upon and applied by Landlord in accordance with the terms
hereof or shall be returned to Tenant within thirty (30) days following the
expiration or earlier termination of the Lease. Tenant acknowledges and
agrees that the Security L-C constitutes a separate and independent contract
between Landlord and the issuing bank, that Tenant is not a third party
beneficiary of such contract, and that Landlord's claim under the Security
L-C for the full amount due and owing thereunder shall not be, in any way,
restricted, limited, altered or impaired by virtue of any provision of the
Bankruptcy Code, including, but not limited to, Section 502(b)(6) of the
Bankruptcy Code.
21.2 PROMISSORY NOTE. Within thirty (30) days after the full
execution and delivery of this Lease by Landlord and Tenant, Landlord shall,
subject to the terms hereof, loan to Tenant an amount up to Six Million Five
Hundred Thirty-Two Thousand Two Hundred Seventy-One Dollars ($6,532,271.00)
("LANDLORD'S LOAN") which loan shall be solely used by Tenant, and shall only
be disbursed by Landlord, for the purpose of (i) paying the brokers pursuant
to the Written Agreement described in Section 29.20 hereof and (ii) funding
"TENANT'S CONTRIBUTION," as that term is defined in Section 2.1 of the Tenant
Work Letter. The Landlord's Loan shall be evidenced by a promissory note in
the form of Exhibit I attached hereto and incorporated herein by this
reference (the "PROMISSORY NOTE"), which Promissory Note shall be secured by
the Promissory Note L-C (as further described below) in the form of Exhibit
I-1 attached hereto and incorporated herein by this reference. Upon Tenant's
written request, Landlord shall provide Tenant with a letter confirming the
remaining principal balance under the Promissory Note.
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21.2.1 DELIVERY OF PROMISSORY NOTE. Tenant shall execute
and deliver the Promissory Note to Landlord concurrently with Tenant's
execution and delivery of this Lease to Landlord.
21.2.2 DELIVERY OF THE PROMISSORY NOTE L-C. Tenant shall
deliver to Landlord, on or before April 1, 2000, an unconditional,
irrevocable letter of credit with a term of at least three hundred sixty-four
(364) days (the "PROMISSORY NOTE L-C") in an initial amount (the "PROMISSORY
NOTE L-C INITIAL STATED AMOUNT") equal to Six Million Five Hundred Thirty-Two
Thousand Two Hundred Seventy-One Dollars ($6,532,271.00). The Promissory Note
L-C shall be issued by Imperial Bank such other bank subject to Landlord's
reasonable approval, which Promissory Note L-C shall be in a form and content
as set forth in Exhibit I-1, attached hereto or otherwise shall be subject to
Landlord's reasonable approval. Tenant shall pay all expenses, points and/or
fees incurred by Tenant in obtaining the Promissory Note L-C. Notwithstanding
anything above to the contrary, and subject to the terms hereof, the
Promissory Note L-C Stated Amount shall, throughout the Lease Term, based on
a full advance under the Promissory Note, be increased and decreased in
accordance with the schedule set forth in the Promissory Note L-C; provided
however that, notwithstanding anything above to the contrary, if Tenant is in
Default under this Lease, the then Stated Amount shall not thereafter be
reduced, unless and until such Default shall have been fully cured pursuant
to the terms of this Lease, at which time the Stated Amount may be reduced as
hereinabove described. Upon Tenant's written request from time-to-time,
Landlord shall provide Tenant with a letter confirming the then Promissory
Note L-C Stated Amount (including the amount of any actual increases and
reductions with respect thereto).
21.2.3 APPLICATION OF THE PROMISSORY NOTE L-C. The
Promissory Note L-C shall be held by Landlord as security for the faithful
performance by Tenant of all the terms, covenants, and conditions of the
Promissory Note to be kept and performed by Tenant. The Promissory Note L-C
shall not be mortgaged, assigned or encumbered in any manner whatsoever by
Tenant without the prior written consent of Landlord. If Tenant Defaults with
respect to any provisions of the Promissory Note or this Lease or if Tenant
fails to renew the Promissory Note L-C at least thirty (30) days before
expiration, Landlord may, but shall not be required to, draw upon all or any
portion of the Promissory Note L-C and extinguish all or any portion of the
amount of the Promissory Note; provided, however, that Landlord shall also
have the right to transfer any amount that is so drawn upon by Landlord to a
Pledged Account pursuant to the Pledge and Security Agreement (substantially
in the form of Exhibit K, with reasonable modifications to reflect the terms
hereof). The use, application or retention of the Promissory Note L-C, or any
portion thereof, by Landlord shall not (a) prevent Landlord from exercising
any other right or remedy provided by this Lease or by law, it being intended
that Landlord shall not first be required to proceed against the Promissory
Note L-C, nor (b) operate as a limitation on any recovery to which Landlord
may otherwise be entitled. Tenant acknowledges that Landlord has the right to
transfer or mortgage its interest in the Project and the Building and in this
Lease and Tenant agrees that in the event of any such transfer or mortgage,
Landlord shall have the right to transfer or assign the Promissory Note L-C
to the transferee or mortgagee, and in the event of such transfer, Tenant
shall look solely to such transferee or mortgagee for the return of the
Promissory Note L-C. Tenant acknowledges and agrees that the Promissory Note
L-C constitutes separate and independent contract between Landlord and the
issuing bank, that Tenant is not a third party beneficiary of such contract,
and that Landlord's claim under the
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Promissory Note L-C for the full amount due and owing thereunder shall not
be, in any way, restricted, limited, altered or impaired by virtue of any
provision of the Bankruptcy Code, including, but not limited to, Section
502(b)(6) of the Bankruptcy Code. So long as Tenant's obligations under the
Promissory Note have been satisfied in full by Tenant, Landlord shall, upon
the date of such satisfaction, return the Promissory Note and the Promissory
Note L-C to Tenant.
21.2.4 DISBURSEMENT OF LANDLORD'S LOAN.
21.2.4.1 An amount equal to Two Million One Hundred
Thirty-Nine Thousand Seven Hundred Ninety-One Dollars ($2,139,791.00)
shall, subject to the terms hereof, be disbursed by Landlord for the
payment to Cresa Partners pursuant to the Brokerage Agreement (as
described in Section 29.20 hereof) (the actual amount being referred to
herein as the "CRESA PARTNERS' FEE DISBURSEMENT") as follows:
(a) Within thirty (30) days after the full
unconditional, execution and delivery of this Lease by Landlord and
Tenant, Landlord shall disburse an amount equal to One Million
Sixty-Nine Thousand Eight Hundred Ninety-Five and 50/100 Dollars
($1,069,895.50) as an additional disbursement of the Cresa Partners'
Fee Disbursement (the "FIRST CRESA PARTNERS' FEE DISBURSEMENT"); and
(b) Within thirty (30) days following the Lease
Commencement Date, Landlord shall, subject to subsection (d) below,
disburse as the final disbursement of the Cresa Partners' Fee
Disbursement, an amount equal to One Million Sixty-Nine Thousand Eight
Hundred Ninety-Five and 50/100 Dollars ($1,069,895.50) (the "SECOND
CRESA PARTNERS' FEE DISBURSEMENT").
21.2.4.2 Tenant's Contribution toward the Tenant
Improvements (in the amount of Four Million Three Hundred Ninety-Two
Thousand Four Hundred Eighty Dollars ($4,392,480.00)) ("TENANT'S
CONTRIBUTION DISBURSEMENT") shall be disbursed by Landlord to Tenant
pursuant to the procedures set forth in Section 2 of Exhibit D.
21.2.4.3 Landlord acknowledges and agrees that in the
event the Cresa Partners' Fee Disbursement and/or Tenant's Contribution
Disbursement is not disbursed by Landlord within sixty (60) days after
the date any such disbursement is required to be made by Landlord
pursuant to the terms of this Lease, then Tenant shall have the right,
if such failure is not cured by Landlord within fifteen (15) business
days after receipt of written notice of such failure from Tenant, to
deduct from the Base Rent next coming due under the Lease such amounts.
21.3 SPECIAL POWER OF ATTORNEY. Concurrently with Tenant's execution
and delivery of this Lease to Landlord, Tenant shall execute a special power of
attorney in favor of Landlord in the form of Exhibit F attached hereto (the
"POWER OF ATTORNEY") for Landlord's use and benefit for the purposes of
establishing the Pledged Account(s) described in Sections 21.1.2 and 21.2.3
above.
21.4 ADDITIONAL CONDITIONS/LIQUIDATED DAMAGES. NOTWITHSTANDING ANYTHING
ABOVE TO THE CONTRARY, TENANT ACKNOWLEDGES AND
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AGREES THAT, IN THE EVENT THE PROMISSORY NOTE L-C IS NOT DELIVERED BY APRIL
1, 2000 (THE "L-C DELIVERY CONDITION") THEN LANDLORD SHALL HAVE THE OPTION,
IN LANDLORD'S SOLE AND ABSOLUTE DISCRETION, TO BE EXERCISED, IF AT ALL, ON OR
BEFORE APRIL 14, 2000, TO (A) TERMINATE THIS LEASE, IN WHICH EVENT, (I)
TENANT ACKNOWLEDGES THAT LANDLORD SHALL NOT, IN ANY EVENT, BE OBLIGATED TO
DISBURSE, FROM LANDLORD'S LOAN, THE SECOND CRESA PARTNERS' FEE DISBURSEMENT
TO TENANT'S BROKER, AND TENANT SHALL BE FULLY RESPONSIBLE FOR THE PAYMENT OF
SUCH PORTION OF SUCH COMMISSIONS THAT MAY BE OWED TO TENANT'S BROKER, (II)
TENANT SHALL IMMEDIATELY REIMBURSE TO LANDLORD ANY AMOUNTS PREVIOUSLY
DISBURSED BY LANDLORD FROM LANDLORD'S LOAN FOR TENANT'S CONTRIBUTION
DISBURSEMENT TOWARD THE TENANT IMPROVEMENTS, AND (III) TENANT SHALL
IMMEDIATELY PAY TO LANDLORD AN AMOUNT EQUAL TO SEVEN MILLION FIVE HUNDRED
THOUSAND DOLLARS ($7,500,000.00) (AND LANDLORD MAY DRAW ON THE SECURITY L-C
TO SATISFY ALL OR A PORTION OF SUCH AMOUNT, BUT, THEREAFTER, TENANT SHALL NOT
BE REQUIRED TO REPLENISH THE AMOUNTS SO DRAWN BY LANDLORD) OR (B) KEEP THIS
LEASE AND ALL COLLATERAL DOCUMENTS (INCLUDING THE PROMISSORY NOTE) IN FULL
FORCE AND EFFECT IN WHICH EVENT (I) TENANT ACKNOWLEDGES AND AGREES THAT
LANDLORD SHALL HAVE NO OBLIGATION TO DISBURSE LANDLORD'S LOAN PERTAINING TO
TENANT'S CONTRIBUTION DISBURSEMENT AND LANDLORD SHALL HAVE NO OBLIGATION TO
CONTRIBUTE ANY AMOUNT TOWARD THE COST OF THE TENANT IMPROVEMENTS (THE TOTAL
COST OF WHICH SHALL BE TENANT'S RESPONSIBILITY, AT TENANT'S COST AND
EXPENSE), (II) TENANT SHALL IMMEDIATELY PAY TO LANDLORD $7,500,000.00 (AND
LANDLORD MAY DRAW UPON THE SECURITY L-C TO SATISFY ALL OR A PORTION OF SUCH
AMOUNT BUT, THEREAFTER, TENANT SHALL NOT BE REQUIRED TO REPLENISH THE AMOUNTS
SO DRAWN BY LANDLORD), (III) TENANT SHALL IMMEDIATELY REIMBURSE TO LANDLORD
ANY AMOUNTS PREVIOUSLY DISBURSED BY LANDLORD FROM LANDLORD'S LOAN FOR
TENANT'S CONTRIBUTION DISBURSEMENT TOWARD THE TENANT IMPROVEMENTS, (IV)
LANDLORD SHALL NOT, IN ANY EVENT, BE OBLIGATED TO DISBURSE, FROM LANDLORD'S
LOAN, THE SECOND CRESA PARTNERS' FEE DISBURSEMENT TO TENANT'S BROKER AND
TENANT SHALL BE FULLY RESPONSIBLE FOR THE PAYMENT OF SUCH PORTION OF SUCH
COMMISSIONS THAT MAY BE OWED TO TENANT'S BROKER, AND (V) TENANT'S OPTION TO
EXPAND SET FORTH IN SECTION 1.3 OF THIS LEASE SHALL BE NULL AND VOID AND OF
NO FURTHER FORCE AND EFFECT (IN EACH INSTANCE THE OBLIGATIONS AND RIGHTS OF
LANDLORD AND TENANT UNDER ITEMS (A) AND (B) ABOVE SHALL BE KNOWN COLLECTIVELY
AS THE "LIQUIDATED DAMAGES"; PROVIDED, HOWEVER THAT TENANT SHALL HAVE NO
OBLIGATION TO DELIVER THE PROMISSORY NOTE L-C TO LANDLORD UPON SATISFACTION
OF TENANT'S OBLIGATIONS IN THIS SECTION 21.4(B). LANDLORD'S FAILURE TO NOTIFY
TENANT OF LANDLORD'S ELECTION ON OR BEFORE APRIL 14, 2000, SHALL BE DEEMED TO
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CONSTITUTE LANDLORD'S ELECTION TO PROCEED UNDER THE OPTION SET FORTH IN
SUBSECTION (A) ABOVE. LANDLORD AND TENANT HAVE DISCUSSED THE POSSIBLE
CONSEQUENCES TO LANDLORD IF THE L-C DELIVERY CONDITION IS NOT SATISFIED BY
TENANT IN STRICT ACCORDANCE WITH THE TERMS HEREOF. ACCORDINGLY, BY THEIR
INITIALS BELOW, LANDLORD AND TENANT ACKNOWLEDGE AND AGREE THAT LANDLORD'S
DAMAGES IN THE EVENT OF SUCH DEFAULT BY TENANT WOULD BE EXTREMELY DIFFICULT
OR IMPOSSIBLE TO DETERMINE AND THAT THE AMOUNT OF "LIQUIDATED DAMAGES" SET
FORTH HEREIN IS LANDLORD'S AND TENANT'S BEST ESTIMATE OF THE DAMAGES LANDLORD
WOULD SUFFER IN THE EVENT OF TENANT'S DEFAULT WITH RESPECT TO THE L-C
DELIVERY CONDITION, AND THAT SUCH ESTIMATE IS REASONABLE UNDER THE
CIRCUMSTANCES EXISTING ON THE EFFECTIVE DATE OF THIS LEASE.
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Landlord's Initials Tenant's Initials
ARTICLE 22
INTENTIONALLY OMITTED
ARTICLE 23
SIGNS
23.1 PERMITTED SIGNAGE. Subject to the terms hereof, provided all
signs are in keeping with the quality of the Building and Project, Tenant, at
its sole cost and expense, may install identification signage anywhere in the
Premises.
23.2 [INTENTIONALLY DELETED].
23.3 PROHIBITED SIGNAGE AND OTHER ITEMS. Any signs, notices, logos,
pictures, names or advertisements which are installed and that have not been
individually and reasonably approved by Landlord may be removed without
notice by Landlord at the sole expense of Tenant. Except as provided herein,
Tenant may not install any signs on the exterior or roof of the Project or
the Common Areas of the Project. Any signs, window coverings, or blinds (even
if the same are located behind the Landlord approved window coverings for the
Building), or other items visible from the exterior of the Premises or
Building are subject to the prior written approval of Landlord, in its
reasonable discretion.
23.4 INTENTIONALLY DELETED.
23.5 Tenant's Exterior Signage.
23.5.1 TOP OF THE BUILDING SIGNAGE. Subject to the terms
hereof, Tenant shall be entitled, at its sole cost and expense, to exclusive
identification signage on the top of the exterior
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wall of the Building (and the Phase II Building to the extent Tenant leases
the Phase II Building) facing the 10 Freeway and West Olympic Boulevard, with
the exact location to be subject to Landlord's reasonable approval and
Applicable Laws (the "BUILDING TOP SIGNAGE").
23.5.2 MONUMENT SIGNAGE. Subject to the terms hereof,
Tenant shall be entitled, at its sole cost and expense, to exclusive
identification signage ("MONUMENT SIGNAGE") on a monument to be constructed
by Landlord (at Tenant's sole cost and expense) and located in front of the
Building in a location facing West Olympic Boulevard (the "MONUMENT"), with
the exact location to be subject to Landlord's reasonable approval and
Applicable Laws; provided, however, that Landlord and Tenant acknowledge and
agree that, subject to Landlord's reasonable approval and subject to
Applicable Laws and the Underlying Documents, Tenant shall have the right to
modify Tenant's signage on such Monument.
23.5.3 ADDITIONAL OBLIGATIONS AND CONDITIONS. The Building
Top Signage and the Monument Signage are collectively referred to herein as
the "EXTERIOR SIGNAGE." All aspects of Tenant's Exterior Signage (including
any changes to such Exterior Signage which Tenant may, subject to Landlord's
reasonable approval and subject to the terms hereof, make from time to time
throughout the entire Lease Term), including, but not limited to, quality,
design, style, color, lighting and size, as applicable, shall be (a) subject
to Landlord's prior written approval, in Landlord's reasonable discretion,
and (b) in compliance with all Applicable Laws and regulations; provided,
however, that if Tenant does not receive the necessary governmental permits,
approvals and other approvals required hereunder for all or any portion of
the Exterior Signage, Landlord's and Tenant's rights and obligations under
the remaining provisions of this Lease shall be unaffected; provided further,
however, that Landlord shall, at Tenant's sole cost and expense, use
commercially reasonable efforts to cooperate with Tenant in obtaining any
such required governmental permits and approvals. Notwithstanding the
foregoing, but without limiting the conditions set forth in subsection
23.5.3(c), Landlord hereby pre-approves of the design and colors of Tenant's
logo existing as of the date hereof. Tenant shall be responsible, at its sole
cost and expense, for the maintenance, repair, and replacement of Tenant's
Exterior Signage. Upon the expiration or earlier termination of this Lease,
Tenant shall, at Tenant's sole cost and expense, remove Tenant's Exterior
Signage and repair any damage resulting therefrom. If Tenant fails to remove
its Exterior Signage and to repair any damage to the Building and/or the
Project resulting from such removal when and as required hereunder, then
Landlord may perform such work and all costs and expenses incurred by
Landlord in so performing shall be reimbursed by Tenant to Landlord within
ten (10) days after Tenant's receipt of Landlord's invoice therefor. The
immediately preceding sentence shall survive the expiration or earlier
termination of this Lease. Tenant's rights to Exterior Signage contained in
this Section 23.5 shall be personal to the Original Tenant and any Affiliate
or other Transferee provided any such entity occupies at least seventy-five
percent (75%) of the then entire Premises; provided, further, that the name
on the Exterior Signage reflecting Tenant's or such Affiliate's or such
Transferee's name must not be an "Objectionable Name." The term
"OBJECTIONABLE NAME" shall mean any name which relates to an entity which is
of a character or reputation, or is associated with a political orientation
or faction, which is inconsistent with the quality of the Project, or which
would otherwise reasonably offend a landlord of a Comparable Building.
23.6 COMPETITORS' SIGNAGE. So long as (i) the Original Tenant or an
Affiliate is occupying seventy-five percent (75%) of the Premises, and (ii) the
Original Tenant or an
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Affiliate is not in Default under this Lease (beyond any applicable notice
and cure period), Landlord agrees that Landlord will not directly grant
exterior sign rights in the TCI Studios Building or the Phase II Building to
any direct competitor ("COMPETITOR") (as defined below) of Tenant; provided,
however, that it shall not constitute a violation of this Section 23.6 if
such exterior sign rights are granted to a third party subtenant or assignee
by TCI if Landlord is required to approve the same. For purposes hereof, the
term "Competitor" shall mean the following companies: Amazon.com, Toys R Us,
KB Toys, Walmart, Kmart, Target, Babystyle, iBaby and Toysmart. If the
circumstances described in items (i) and (ii) above do not apply, then the
signage restriction in this Section 23.6 shall thereafter be forever null and
void.
ARTICLE 24
COMPLIANCE WITH LAW
Tenant shall not do anything or suffer anything to be done in or
about the Premises or the Project which will in any way conflict with any
law, statute, ordinance, decrees, codes, common law, judgments, orders,
rulings, awards or other governmental or quasi-governmental rule, regulation
or requirement now in force or which may hereafter be enacted or promulgated
including any "Environmental Laws," as that term is defined in Section
29.25.1 of this Lease ("APPLICABLE LAWS"). Should any standard or regulation
now or hereafter be imposed on Landlord or Tenant by a state, federal or
local governmental body charged with the establishment, regulation and
enforcement of occupational, health or safety standards for employers,
employees, landlords or tenants, then Tenant agrees, subject to Article 7 of
this Lease, at its sole cost and expense, to comply promptly with such
standards or regulations to the extent such standards or regulations relate
to Tenant's particular manner of use of the Premises for other than general
office purposes, the Tenant Improvements located in the Premises, or any
Alterations thereof; provided that Landlord shall comply with any standards
or regulations which relate to the Base Building or the Building Systems,
unless such compliance obligations are triggered by the non-general office
Tenant Improvements or the Alterations in the Premises, in which event such
compliance obligations shall be at Tenant's sole cost and expense; provided
further, and notwithstanding the foregoing, that Tenant shall not be required
to make any repair to, modification of, or addition to the Base Building or
the Building Systems except and to the extent required because of Tenant's
use of the Premises for other than normal and customary business office
operations. Tenant shall be responsible, at its sole cost and expense, to
make all alterations to the Premises as are required to comply with the
governmental rules, regulations, requirements or standards described in this
Article 24. The judgment of any court of competent jurisdiction or the
admission of either party hereto in any judicial action, regardless of
whether the other party is a party thereto, that such party has violated any
of said governmental measures, shall be conclusive of that fact as between
Landlord and Tenant. Landlord shall comply with all Applicable Laws relating
to the Project, Base Building and Building Systems, provided that compliance
with such Applicable Laws is not the responsibility of Tenant under this
Lease, and provided further that Landlord's failure to comply therewith would
prohibit Tenant from obtaining or maintaining a certificate of occupancy for
the Premises, or would unreasonably and materially affect the safety of
Tenant's Parties or create a significant health hazard for Tenant's Parties
or otherwise materially interfere with or materially affect Tenant's
Permitted Use and enjoyment of the Premises. Landlord shall be permitted to
include in Operating Expenses any
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costs or expenses incurred by Landlord under this Article 24 to the extent
consistent with, and amortized to the extent required by, the provisions of
Section 4.2.3 of this Lease.
ARTICLE 25
LATE CHARGES
If any installment of Rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's designee within five (5) business
days after Notice that said amount is past due, then Tenant shall pay to
Landlord a late charge equal to two percent (2%) of the overdue amount, plus
any reasonable attorneys' fees incurred by Landlord by reason of Tenant's
failure to pay Rent and/or other charges when due hereunder. The late charge
shall be deemed Additional Rent and the right to require it shall be in
addition to all of Landlord's other rights and remedies hereunder or at law
and shall not be construed as liquidated damages or as limiting Landlord's
remedies in any manner. In addition to the late charge described above, any
Rent or other amounts owing hereunder which are not paid within five (5)
business days after notice that any such amounts are past due shall
thereafter bear interest until paid at a rate per annum equal to the lesser
of (i) the Interest Rate or (ii) the highest rate permitted by Applicable Law.
ARTICLE 26
LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
26.1 LANDLORD'S CURE. All covenants and agreements to be kept or
performed by Tenant under this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any reduction of Rent, except to the extent
otherwise expressly provided in this Lease. If Tenant shall fail to perform
any of its obligations under this Lease, and such failure shall continue in
excess of the time allowed under Section 19.1.2, above, then upon five (5)
additional days Notice from Landlord, Landlord may, but shall not be
obligated to, after reasonable prior Notice to Tenant, make any such payment
or perform any such act on Tenant's part without waiving its right based upon
any Default of Tenant and without releasing Tenant from any obligations
hereunder.
26.2 TENANT'S REIMBURSEMENT. Except as may be specifically provided
to the contrary in this Lease, Tenant shall pay to Landlord, within thirty
(30) days after delivery by Landlord to Tenant of statements therefor, (i)
sums equal to expenditures reasonably made and obligations incurred by
Landlord in connection with the remedying by Landlord of Tenant's Defaults
pursuant to the provisions of Section 26.1 above.
ARTICLE 27
ENTRY BY LANDLORD
Subject to Tenant's reasonable security arrangements, Landlord
reserves the right at all reasonable times and upon reasonable prior Notice
(which Notice shall (except in cases of emergency in which case no Notice
shall be required) be at least forty-eight (48) hours' prior written notice
with respect to items (iii) and (iv) below and may be forty-eight (48) hours'
prior
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oral notice to Tenant's office manager with respect to items (i) and (ii)
below) to the Tenant to enter the Premises to (i) inspect them during
Business Hours; (ii) show, during Business Hours, the Premises to prospective
purchasers, mortgagees or ground or underlying lessors, or, during the last
eighteen (18) months of the Lease Term, prospective tenants; (iii) post
notices of non-responsibility; or (iv) alter, improve or repair the Premises,
the Building, or the Project if necessary to comply with current building
codes or other Applicable Laws, or for structural alterations, repairs or
improvements to the Building or the Project as required or permitted under
the Lease. Notwithstanding anything to the contrary contained in this Article
27, Landlord may enter the Premises at any time to (A) perform services
required of Landlord; and (B) subject to the terms of Section 26.1 above,
perform any covenants of Tenant which Tenant fails to perform. Landlord may
make any such entries without the abatement of Rent, except as expressly
provided in Section 19.5.2, above, and may take such steps as required to
accomplish the stated purposes; provided, however, that any such entry shall
be accomplished as expeditiously as reasonably possible and in a manner so as
to cause as little interference to Tenant as reasonably possible and shall be
performed after Business Hours if reasonably practical and subject to
reasonable scheduling with Tenant. Landlord acknowledges and agrees that
Tenant may require that Landlord be accompanied by an employee of Tenant
during any such entry into the Premises by Landlord; provided, however, that
in no event shall the unavailability of such escort at the time that Landlord
is permitted to enter the Premises delay Landlord's entry into the Premises
as permitted hereunder. Tenant hereby waives any claims for damages or for
any injuries or inconvenience to or interference with Tenant's business, lost
profits, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned thereby. Even in emergency situations, Landlord shall
use commercially reasonable efforts to minimize any disruption to Tenant's
business operations. For each of the above purposes, Landlord shall at all
times have a key with which to unlock all the doors in the Premises,
excluding Tenant's vaults, safes and special security areas designated in
advance by Tenant. In an emergency, Landlord shall have the right to use any
means that Landlord may deem proper to open the doors in and to the Premises;
provided, however, that Landlord shall, subject to Section 10.1 of this Lease
and to the extent that such damage is not covered by insurance required to be
carried by Tenant under this Lease or caused by any governmental agencies,
repair any damage to the Premises caused by any such emergency entry into the
Premises by Landlord. Notwithstanding anything to the contrary set forth in
this Article 27, Tenant may designate certain areas of the Premises as
"SECURED AREAS" should Tenant require such areas for the purpose of securing
certain valuable property or confidential information, including, without
limitation, the data center and toy library portions of the Premises. In
connection with the foregoing, Landlord shall not enter such Secured Areas
except in the event of an emergency or unless Landlord is accompanied by a
Tenant escort, to the extent an escort is reasonably available. Landlord need
not clean any area designated by Tenant as a Secured Area and shall only
maintain or repair such secured areas to the extent (i) such repair or
maintenance is required in order to maintain and repair the Building
Structure and/or the Building Systems; (ii) as required by Applicable Laws,
or (iii) in response to specific requests by Tenant and in accordance with a
schedule reasonably designated by Tenant, subject to Landlord's reasonable
approval. Any entry into the Premises by Landlord in the manner hereinbefore
described shall not be deemed to be a forcible or unlawful entry into, or a
detainer of, the Premises, or an actual or constructive eviction of Tenant
from any portion of the Premises.
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ARTICLE 28
TENANT PARKING
Tenant shall rent from Landlord parking passes on a monthly basis
throughout the Lease Term in the amount set forth in Section 11 of the
Summary for the Premises ("TENANT'S MAXIMUM PARKING ALLOCATION"), the
location of which unreserved parking passes shall be for parking in the
Project parking facilities and areas; provided that Landlord, in causing the
Project parking facilities and areas to accommodate Tenant's parking passes
in excess of three and one-half (3.5) per one thousand (1,000) usable square
feet of the Premises may implement a tandem and/or valet parking system, the
incremental cost of which tandem and/or valet parking system shall be shared
equally by Landlord and Tenant. Tenant acknowledges and agrees that Tenant
shall be obligated to rent from Landlord all of the parking passes that
Landlord is able to provide to Tenant from time to time throughout the entire
Lease Term (up to Tenant's Maximum the Parking Allocation) . Tenant shall pay
to Landlord for automobile parking passes on a monthly basis the prevailing
rate (the "PREVAILING RATE") charged for parking passes as reasonably
determined by Landlord based on the location of such passes and the type of
such passes, provided that during any Option Term, the rate for parking
passes shall be (A), in the event the Option Rent is determined to be the
Minimum Base Rent, the rate then being charged to Tenant as of the last day
of the initial Lease Term or first Option Term, as the case may be, as such
rate has been increased during the initial Lease Term or first Option Term,
as the case may be, and will continue to be similarly increased during the
first or second Option Term, as the case may be, or (B), in the event the
Option Rent is the Fair Market Rental Rate, the Prevailing Rate. As of the
date hereof, such prevailing rate is One Hundred Thirty-Five Dollars
($135.00) per pass per month; provided, however, that Landlord and Tenant
acknowledge and agree that such prevailing rate in effect as of the Lease
Commencement Date shall increase, on each annual anniversary of the Lease
Commencement Date, to the prevailing rate (not taking into account the
Parking Rate Credit described below) but not less than three percent (3%) and
not more than five percent (5%), over the rate in effect over the prior
twelve (12) month period (not taking into account the Parking Rate Credit),
on a cumulative, compounded basis per annum; provided further, however, that
for the first (1st) twenty-four (24) months of the Lease Term, Landlord shall
provide Tenant with a parking rate credit (for the initial Premises only) so
that the parking rate payable by Tenant during such twenty-four (24) month
period shall not exceed One Hundred Thirty Dollars ($130.00) per pass, per
month during such period (the "PARKING RATE CREDIT"). In addition, Tenant
shall, in any event, be responsible for any taxes imposed by any governmental
authority in connection with the renting of such parking passes by Tenant or
the use of the parking facility by Tenant. Notwithstanding anything above to
the contrary, Landlord and Tenant acknowledge and agree that with respect to
the Expansion Space, Landlord shall provide to Tenant and Tenant shall be
obligated to rent from Landlord, up to three and one-half (3.5) per one
thousand (1,000) usable square feet in the Premises of parking passes for
parking in the Project parking facilities and areas during the first six (6)
months of the term of Tenant's lease for the Expansion Space; provided,
however, that on the first (1st) day of the seventh (7th) month of the
Tenant's lease of the Expansion Space, Landlord shall be obligated to provide
to Tenant and Tenant shall be obligated to rent from Landlord an amount equal
to four (4) parking passes per one thousand (1,000) usable square feet of the
Premises of parking passes for parking in the Project parking facilities and
areas; provided further, however, that commencing on the
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first day of the thirteenth (13th) month of the term of Tenant's lease of the
Expansion Space and continuing thereafter throughout the entire term of
Tenant's lease of the Expansion Space, Landlord shall be obligated to provide
to Tenant and Tenant shall be obligated to rent from Landlord, an amount
equal to four and one-half (4.5) per one thousand (1,000) usable square feet
in the Premises of such parking passes for parking in the Project parking
facilities and areas. Landlord and Tenant acknowledge and agree that all
parking passes provided by Landlord to Tenant with respect to the Expansion
Space shall be subject to all of the other terms and conditions of this
Article 28, including, but not limited to, Tenant's obligation to pay to
Landlord for such parking passes the then prevailing rate as provided above
(not taking into account the Parking Rate Credit as set forth above) (and
subject to annual increases on the anniversary of the Lease Commencement Date
as provided above (i.e., not less than three percent (3%) but not more than
five percent (5%) over the rate in effect on the prior twelve (12) month
period (not taking into account the Parking Rate Credit as set forth above)
on a cumulative, compounded basis per annum except that the Parking Rate
Credit shall not apply and shall have no effect on the determination of the
prevailing rates for such parking passes)). Notwithstanding the foregoing,
Landlord acknowledges and agrees that Tenant shall have a one-time right, to
be exercised (if at all) on or before that date which is six (6) months prior
to the Expansion Commencement Date, to elect to accelerate Landlord's
obligation to provide an increased amount of parking passes to Tenant (but
not in excess of an aggregate amount of four and one-half (4.5) per one
thousand (1,000) usable square feet of the Premises of such parking passes),
which election shall be irrevocable throughout the term of Tenant's lease of
the Expansion Space subject, however, to Tenant's obligation to lease
additional parking passes from Landlord as provided above on the first (1st)
day of the seventh (7th) month of Tenant's lease of the Expansion Space and
the first (1st) day of the thirteenth (13th) month of Tenant's lease of the
Expansion Space (to the extent Tenant's election pertained to less than all
of Tenant's Maximum Parking Allowance). Notwithstanding anything above to the
contrary, Landlord acknowledges and agrees that Tenant shall have the right
to designate that up to thirty-five (35) of Tenant's unreserved parking
passes may be utilized by Tenant on a "shift" basis whereby Landlord shall
provide Tenant with three (3) parking facility entry cards for each of such
parking passes, which entry cards shall allow the holder of such card to park
in the Project parking facilities for a maximum of eight and one-half (8 1/2)
hours. Tenant shall abide by all Applicable Laws and all reasonable,
non-discriminatory rules and regulations which are prescribed from time to
time for the orderly operation and use of the parking facility where the
passes are located and upon Tenant's cooperation in seeing that Tenant's
employees and visitors also comply with such rules and regulations. Landlord
specifically reserves the right to change the location, size, configuration,
design, layout and all other aspects of the Project parking facility (but not
including the discontinuance of any reserved parking spaces) (provided that
Tenant's parking rights are not reduced or materially changed as a result
thereof, do not create a material security risk to Tenant and so long as
Tenant's obligations under this Lease are not materially and unreasonably
increased as a result thereof), at any time and Tenant acknowledges and
agrees that Landlord may, without incurring any liability to Tenant and
without any abatement of Rent (except as provided in Section 19.5.2 of this
Lease), from time to time, close-off or restrict access to the parking
facility in question for purposes of permitting or facilitating any such
construction, alteration or improvements provided that such modifications may
only be made by Landlord to the extent required by Applicable Laws or as
reasonably necessary on a temporary basis in the event of a damage or
destruction. Landlord shall use commercially reasonable
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efforts to cause any such work to be conducted in a manner which will
minimize material interference with Tenant's Permitted Use, which efforts
shall include, to the extent reasonably necessary, providing Tenant with
alternative parking at no additional cost to Tenant. Landlord may totally or
partially delegate its responsibilities hereunder to a parking operator in
which case such parking operator shall have all the rights of control
delegated by Landlord. The parking passes rented by Tenant pursuant to this
Article 28 are provided to Tenant solely for use by Tenant's own personnel
(not including Tenant's invitees and guests) and such passes may not be
transferred, assigned, subleased or otherwise alienated by Tenant except on a
pro rata basis in connection with an assignment of subletting of the Premises
permitted or approved in accordance with the terms and conditions of Article
14.
ARTICLE 29
MISCELLANEOUS PROVISIONS
29.1 BINDING EFFECT. Each of the provisions of this Lease shall
extend to and shall, as the case may require, bind or inure to the benefit
not only of Landlord and of Tenant, but also of their respective successors
or assigns, provided this clause shall not permit any assignment by Tenant
contrary to the provisions of Article 14 of this Lease.
29.2 NO AIR RIGHTS. No rights to any view or to light or air over
any property, whether belonging to Landlord or any other person, are granted
to Tenant by this Lease. If at any time any windows of the Premises are
temporarily darkened or the light or view therefrom is obstructed by reason
of any repairs, improvements, maintenance or cleaning in or about the
Project, the same shall be without liability to Landlord and without any
reduction or diminution of Tenant's obligations under this Lease.
29.3 MODIFICATION OF LEASE. Should any current or prospective
mortgagee or ground lessor for the Building or Project require a modification
or modifications of this Lease, which modification or modifications will not
cause an increased cost or expense to Tenant or (other than in a de minimus
manner) adversely change the rights and obligations of Tenant hereunder, then
and in such event, Tenant agrees that this Lease may be so modified and
agrees to execute whatever documents are required therefor and deliver the
same to Landlord within twenty (20) days following the request therefor.
Landlord shall reimburse to Tenant the actual, documented and reasonable
attorneys' fees incurred by Tenant in reviewing such documents, not to exceed
Seven Hundred Fifty Dollars ($750.00). Should Landlord or any such
prospective mortgagee or ground lessor require execution of a short form of
Lease for recording, containing, among other customary provisions, the names
of the parties, a description of the Premises and the Lease Term, Tenant
agrees to execute such short form of Lease memorandum and to deliver the same
to Landlord within twenty (20) days following the request therefor, the
recordation of which shall be at the sole cost and expense of Landlord.
29.4 TRANSFER OF LANDLORD'S INTEREST. Tenant acknowledges that
Landlord has the right to transfer all or any portion of its interest in the
Project and/or the Building and in this Lease so long as such transfer is not
a subterfuge to avoid Landlord's obligations under this Lease, and Tenant
agrees that in the event of any such transfer and a transfer of the Security
L-C, the Security L-C Security Deposit, the Additional Security L-C (if any),
the Additional Security L-C
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Security Deposit (if any), the Promissory Note L-C and the Additional
Promissory Note L-C (if any) and if the transferee assumes the applicable
obligations, Landlord shall automatically be released from all liability (to
the extent such obligations are assumed by the transferee) under this Lease
not accrued as of the date of the transfer and Tenant agrees to look solely
to such transferee for the performance of Landlord's obligations hereunder
after the date of transfer. Tenant further acknowledges that Landlord may
assign its interest in this Lease to a mortgage lender as additional
security. Such transfer shall not release Landlord from its obligations
hereunder and that Tenant shall continue to look to Landlord for the
performance of its obligations hereunder.
29.5 RECORDATION OF MEMORANDUM OF LEASE. Concurrently with the
mutual execution of this Lease, Landlord and Tenant shall execute and
acknowledge a Memorandum of Lease in the form attached hereto as Exhibit L
(the "MEMORANDUM OF LEASE"). Within five (5) business days following the date
of full execution and delivery of this Lease, Landlord shall cause the
Memorandum of Lease to be recorded (at Tenant's sole cost and expense) and
shall provide Tenant with a conformed copy followed by a copy of the recorded
document thereof.
29.6 CAPTIONS. The captions of Articles and Sections are for
convenience only and shall not be deemed to limit, construe, affect or alter
the meaning of such Articles and Sections. Notwithstanding the foregoing,
whenever in this Lease a reference is made to an Article, such reference
shall include all Sections in such Article and whenever a reference is made
to a Section, all such references shall include all subsections with the same
pre-numeric identification. The term "Lease" shall include all Exhibits which
are attached to this Lease which are by this reference deemed incorporated
into this Lease.
29.7 RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall
be deemed or construed by the parties hereto or by any third party to create
the relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of Rent nor any act of the
parties hereto shall be deemed to create any relationship between Landlord
and Tenant other than the relationship of landlord and tenant.
29.8 TIME OF ESSENCE. Time is of the essence of this Lease and each
of its provisions. Whenever in the Lease a payment is required to be made by
one party to the other, but a specific date for payment is not set forth or a
specific number of days within which payment is to be made is not set forth,
or the words "immediately," "promptly," and/or "on demand," or their
equivalent, are used to specify when such payment is due, then such payment
shall be due thirty (30) days after the date that the party which is entitled
to such payment sends Notice to the other party demanding such payment.
29.9 PARTIAL INVALIDITY. If any term, provision or condition
contained in this Lease shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term, provision or
condition to persons or circumstances other than those with respect to which
it is invalid or unenforceable, shall not be affected thereby, and each and
every other term, provision and condition of this Lease shall be valid and
enforceable to the fullest extent possible permitted by law.
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29.10 LANDLORD EXCULPATION. It is expressly understood and agreed
that notwithstanding anything in this Lease to the contrary, and
notwithstanding any applicable law to the contrary, the liability of Landlord
and the Landlord Parties hereunder (including any successor landlord) and any
recourse by Tenant against Landlord or the Landlord Parties shall be limited
solely and exclusively to an amount which is equal to the interest of
Landlord in the Project (together with any rent, sales, insurance and
condemnation proceeds actually received by Landlord and not subject to any
superior rights of third parties), and neither Landlord, nor any of the
Landlord Parties shall have any personal liability therefor, and Tenant
hereby expressly waives and releases such personal liability. Landlord
acknowledges and agrees that in no event shall Tenant's obligations under
this Lease constitute the personal obligations of Tenant's officers,
directors and employees and Landlord, on behalf of itself and all persons
claiming by, through or under Landlord, expressly waives and releases such
individuals from any and all personal liability for Tenant's obligations
hereunder.
29.11 ENTIRE AGREEMENT. It is understood and acknowledged that there
are no oral agreements between the parties hereto affecting this Lease and
this Lease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements and understandings, if any, between the
parties hereto or displayed by Landlord to Tenant with respect to the subject
matter thereof, and none thereof shall be used to interpret or construe this
Lease. This Lease, the exhibits and schedules attached hereto, and any side
letter or separate agreement executed by Landlord and Tenant in connection
with this Lease and dated of even date herewith contain all of the terms,
covenants, conditions, warranties and agreements of the parties relating in
any manner to the rental, use and occupancy of the Premises, shall be
considered to be the only agreement between the parties hereto and their
representatives and agents, and none of the terms, covenants, conditions or
provisions of this Lease can be modified, deleted or added to except in
writing signed by the parties hereto. Without limiting the generality of the
foregoing, Tenant expressly acknowledges and agrees that any written or oral
communications delivered by Landlord to Tenant pertaining to Direct Expenses
do not constitute a part of this Lease and Tenant further acknowledges and
agrees that in no event will Landlord be liable or bound in any manner by any
such oral or written statements, representations or information pertaining to
Project.
29.12 RIGHT TO LEASE. Landlord reserves the absolute right to effect
such other tenancies in the Project and/or the Building as Landlord in the
exercise of its sole business judgment shall determine to best promote the
interests of the Project and/or the Building. Tenant does not rely on the
fact, nor does Landlord represent, that any specific tenant or type or number
of tenants shall, during the Lease Term, occupy any space in the Project
and/or the Building.
29.13 FORCE MAJEURE. Any prevention, delay or stoppage due to
strikes, lockouts, labor disputes, acts of God, inability to obtain permits,
services, labor, or materials or reasonable substitutes therefor,
governmental actions, civil commotions, fire or other casualty, and other
causes beyond the reasonable control of the party obligated to perform
(collectively, the "FORCE MAJEURE"), except with respect to the obligations
imposed upon Tenant with regard to Rent or other charges to be paid by Tenant
or Landlord pursuant to this Lease, and except as to Tenant's obligations
under Articles 5 and 24 of this Lease notwithstanding anything to the
contrary contained in this Lease, shall excuse the performance of such party
for a period equal to any such prevention, delay or stoppage and, therefore,
if this Lease specifies a time period for
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performance of an obligation of either party, that time period shall be
extended by the period of any delay in such party's performance caused by a
Force Majeure.
29.14 NOTICES. All notices, demands, statements, approvals or
communications (each, a "NOTICE," collectively, "NOTICES") given or required
to be given by either party to the other hereunder shall be in writing, shall
be sent by United States certified or registered mail, postage prepaid,
return receipt requested, or delivered personally (i) to Tenant at the
appropriate address set forth in Section 5 of the Summary, or to such other
place as Tenant may from time to time designate in a Notice to Landlord; or
(ii) to Landlord at the addresses set forth in Section 3 of the Summary, or
to such other firm or to such other place as Landlord may from time to time
designate in a Notice to Tenant. Any Notice will be deemed given on the date
it is mailed as provided in this Section 29.14 or upon the date personal
delivery is made or attempted to be made. If Tenant is notified of the
identity and address of Landlord's mortgagee or ground or underlying lessor,
Tenant shall give to such mortgagee or ground or underlying lessor Notice of
any default by Landlord under the terms of this Lease by registered or
certified mail, and such mortgagee or ground or underlying lessor shall be
given a reasonable opportunity to cure such default prior to Tenant's
exercising any remedy available to Tenant.
29.15 [Intentionally Omitted.]
29.16 JOINT AND SEVERAL. If there is more than one Tenant, the
obligations imposed upon Tenant under this Lease shall be joint and several.
29.17 AUTHORITY. If Tenant or Landlord is a corporation or
partnership, each individual executing this Lease on behalf of Tenant or
Landlord hereby represents and warrants that Tenant or Landlord, as
appropriate, is a duly formed and existing entity qualified to do business in
California and that Tenant or Landlord, as appropriate, has full right and
authority to execute and deliver this Lease.
29.18 GOVERNING LAW; WAIVER OF TRIAL BY JURY. This Lease shall be
construed and enforced in accordance with the laws of the State of
California. IN ANY ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT
HEREBY CONSENT TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE
STATE OF CALIFORNIA, (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY
CALIFORNIA LAW, AND (III) IN THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL
WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF
THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY
MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF
LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY
CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY.
29.19 SUBMISSION OF LEASE. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or an
option for lease, and it is not effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant.
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29.20 BROKERS. Landlord and Tenant hereby warrant to each other that
they have had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease, excepting only the real estate brokers or
agents specified in Section 12 of the Summary (the "BROKERS"), and that they
know of no other real estate broker or agent who is entitled to a commission
in connection with this Lease. Tenant shall pay the brokerage commissions
owing to Cresa Partners in connection with the transaction contemplated by
this Lease as described below and Landlord shall pay the brokerage
commissions owing to CB Richard Ellis in connection with the transaction
contemplated by this Lease. Each party agrees to indemnify and defend the
other party against and hold the other party harmless from any and all
claims, demands, losses, liabilities, lawsuits, judgments, and costs and
expenses (including without limitation reasonable attorneys' fees) with
respect to any leasing commission or equivalent compensation alleged to be
owing on account of the indemnifying party's dealings with any real estate
broker or agent other than the Brokers. In accordance with this Section
29.20, Tenant shall, and Landlord shall not, pay all fees due Cresa Partners
pursuant to a separate written agreement between Landlord and Cresa Partners
("BROKERAGE AGREEMENT"), the obligations of Landlord under which Brokerage
Agreement has been assumed by Tenant pursuant to that certain Assignment and
Assumption of Brokerage Agreement (the "ASSIGNMENT AND ASSUMPTION AGREEMENT")
in the form attached hereto as Exhibit J (attached hereto and incorporated
herein by this reference), which Assignment and Assumption Agreement Tenant
shall execute and deliver to Landlord concurrently with Tenant's execution
and delivery of this Lease to Landlord. The terms of this Section 29.20 shall
survive the expiration or earlier termination of the Lease Term.
29.21 INDEPENDENT COVENANTS. This Lease shall be construed as though
the covenants herein between Landlord and Tenant are independent and not
dependent and Tenant hereby expressly waives the benefit of any statute to
the contrary and agrees that if Landlord fails to perform its obligations set
forth herein, Tenant shall not, except as otherwise expressly provided
herein, be entitled to make any repairs or perform any acts hereunder at
Landlord's expense or to any setoff of the Rent or other amounts owing
hereunder against Landlord; provided, however, that the foregoing shall in no
way impair the right of Tenant to commence a separate action against Landlord
for any violation by Landlord of the provisions hereof so long as Notice is
first given to Landlord and any holder of a mortgage or deed of trust
covering the Building, the Project, or any portion thereof, of whose address
Tenant has theretofore been notified, and an opportunity is granted to
Landlord and such holder to correct such violations as provided above.
29.22 PROJECT OR BUILDING NAME AND SIGNAGE. Landlord shall have the
right at any time to change the name of the Project and/or the Building and
to install, affix and maintain any and all signs on the exterior and on the
interior of the Project and/or the Building as Landlord may, in Landlord's
sole discretion, desire. Tenant shall not use the name of the Project and/or
the Building or use pictures or illustrations of the Project and/or the
Building in advertising or other publicity, without the prior written consent
of Landlord.
29.23 TRANSPORTATION MANAGEMENT. Tenant shall fully comply with all
present or future governmentally mandated programs intended to manage
parking, transportation or traffic in and around the Project and/or the
Building, and in connection therewith, Tenant shall take responsible action
for the transportation planning and management of all employees located at
the Premises by working directly with Landlord, any governmental
transportation management
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organization or any other transportation-related committees or entities. Such
programs may include, without limitation: (i) restrictions on the number of
peak-hour vehicle trips generated by Tenant; (ii) increased vehicle
occupancy; (iii) implementation of an in-house ridesharing program and an
employee transportation coordinator; (iv) working with employees and any
Project, Building or area-wide ridesharing program manager; (v) instituting
employer-sponsored incentives (financial or in-kind) to encourage employees
to rideshare; and (vi) utilizing flexible work shifts for employees.
29.24 NO DISCRIMINATION. Tenant covenants by and for itself, its
heirs, executors, administrators and assigns, and all persons claiming under
or through Tenant, and this Lease is made and accepted upon and subject to
the following conditions: that there shall be no discrimination against or
segregation of any person or group of persons, on account of race, color,
creed, sex, religion, marital status, ancestry or national origin in the
leasing, subleasing, transferring, use, or enjoyment of the Premises, nor
shall Tenant itself, or any person claiming under or through Tenant,
establish or permit such practice or practices of discrimination or
segregation with reference to the selection, location, number, use or
occupancy, of tenants, lessees, sublessees, subtenants or vendees in the
Premises.
29.25 HAZARDOUS SUBSTANCES.
29.25.1 DEFINITIONS. For purposes of this Lease, the
following definitions shall apply: "HAZARDOUS MATERIAL(S)" shall mean any
substance or material that is described as a toxic or hazardous substance,
waste, material, pollutant, contaminant or infectious waste, or any matter
that in certain specified quantities would be injurious to the public health
or welfare, or words of similar import, in any of the Environmental Laws or
any other words which are intended to define, list or classify substances by
reason of deleterious properties such as ignitability, corrosivity,
reactivity, carcinogenicity, toxicity or reproductive toxicity and includes,
without limitation, asbestos, petroleum (including crude oil or any fraction
thereof, natural gas, natural gas liquids, liquefied natural gas, or
synthetic gas usable for fuel, or any mixture thereof), petroleum products,
polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive matter,
medical waste, and chemicals which may cause cancer or reproductive toxicity.
"ENVIRONMENTAL LAWS" shall mean all federal, state, local and
quasi-governmental laws (whether under common law, statute or otherwise),
ordinances, decrees, codes, rulings, awards, rules, regulations and guidance
documents now or hereafter be enacted or promulgated as amended from time to
time, in any way relating to or regulating Hazardous Materials.
29.25.2 COMPLIANCE WITH ENVIRONMENTAL LAWS. Landlord
covenants that during the Lease Term, Landlord shall comply with all
Environmental Laws in accordance with, and as required by, the terms of
Article 24 of this Lease.
29.25.3 INDEMNIFICATIONS. Landlord agrees to indemnify,
defend, protect and hold harmless the Tenant Parties from any and all Claims
arising from any Hazardous Materials to the extent placed in, on, under or
about the Project either by Landlord or the Landlord Parties. Tenant agrees
to indemnify, defend, protect and hold harmless the Landlord Parties from any
and all Claims arising from any Hazardous Materials to the extent placed in,
on, under or about the Premises or the Project by Tenant or Tenant Parties.
29.26 SUCCESSORS. Except as otherwise expressly provided herein, the
obligations of this Lease shall bind and benefit the successors and assigns
of the parties hereto; provided, however,
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that no assignment, sublease or other transfer in violation of the provisions
of Article 14 shall operate to vest any rights in any putative assignee,
subtenant or transferee of Tenant.
29.27 LANDLORD RENOVATIONS. It is specifically understood and agreed
that Landlord has made no representation or warranty to Tenant and has no
obligation to alter, remodel, improve, renovate, repair or decorate the
Premises, Building, Project, or any part thereof and that no representations
respecting the condition of the Premises, the Building, or the Project have
been made by Landlord to Tenant except as specifically set forth herein or in
the Tenant Work Letter. However, Tenant acknowledges that Landlord may during
the Lease Term renovate, improve, alter, or modify (collectively, the
"RENOVATIONS") the Building, Project and/or Premises, including without
limitation the parking structures, Common Areas, systems and equipment, roof,
and structural portions of the same, which Renovations may include, without
limitation, (i) installing sprinklers in the Common Areas and tenant spaces,
(ii) modifying the Common Areas and tenant spaces to comply with applicable
laws and regulations, including regulations relating to the physically
disabled, seismic conditions, and building safety and security, and (iii)
installing new floor covering, lighting, and wall coverings in the Common
Areas, and in connection with any Renovations, Landlord may, among other
things, erect scaffolding or other necessary structures in the Project or the
Building, limit or eliminate access to portions of the Building and/or the
Project, including portions of the Common Areas, or perform work in the
Project or the Building, which work may create noise, dust or leave debris in
the Project or the Building. Tenant hereby agrees that such Renovations and
Landlord's actions in connection with such Renovations shall in no way
constitute a constructive eviction of Tenant nor entitle Tenant, except
pursuant to Section 19.5.2 hereof, to any abatement of Rent; provided however
that in performing such Renovations, Landlord shall use commercially
reasonable efforts to not materially interfere with Tenant's use of the
Premises for the Permitted Use (including Tenant's use of the Project parking
facilities) or materially increase Tenant's monetary obligations under this
Lease or otherwise adversely affect Tenant's rights under this Lease. Except
pursuant to Section 19.5.2 hereof, Landlord shall have no responsibility or
for any reason be liable to Tenant for any direct or indirect injury to or
interference with Tenant's business arising from the Renovations, nor shall
Tenant be entitled to any compensation or damages from Landlord for loss of
the use of the whole or any part of the Premises or of Tenant's personal
property or improvements resulting from the Renovations or Landlord's actions
in connection with such Renovations, or for any inconvenience or annoyance
occasioned by such Renovations or Landlord's actions in connection with such
Renovations.
29.28 DEVELOPMENT OF THE PROJECT.
29.28.1 SUBDIVISION. Tenant acknowledges that the Project
has been subdivided. Landlord reserves the right to further subdivide all or
a portion of the buildings and Common Areas in the Project. Tenant agrees to
execute and deliver, within twenty (20) days after Landlord's written demand,
and in the form reasonably requested by Landlord, any additional documents
needed to conform this Lease to the circumstances resulting from a
subdivision and any all maps in connection therewith. Landlord shall
reimburse to Tenant the actual, documented and reasonable attorneys' fees
incurred by Tenant in reviewing such documents, not to exceed Seven Hundred
Fifty Dollars ($750.00). Notwithstanding anything to the contrary set forth
in this Lease, the separate ownership of any buildings and/or Common
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Areas of the Project by an entity other than Landlord shall not affect the
calculation of Direct Expenses or Tenant's payment of Tenant's Share of
Direct Expenses.
29.28.2 THE OTHER IMPROVEMENTS. Subject to Article 4, if
portions of the Project or property adjacent to the Project (collectively,
the "OTHER IMPROVEMENTS") are owned by an entity other than Landlord,
Landlord, at its option, may enter into an agreement with the owner or owners
of any of the Other Improvements to provide (i) for reciprocal rights of
access, use and/or enjoyment of the Project and the Other Improvements, (ii)
for the common management, operation, maintenance, improvement and/or repair
of all or any portion of the Project and all or any portion of the Other
Improvements, (iii) for the allocation of a portion of the Direct Expenses to
the Other Improvements and the allocation of a portion of the operating
expenses and taxes for the Other Improvements to the Project, (iv) for the
use or improvement of the Other Improvements and/or the Project in connection
with the improvement, construction, and/or excavation of the Other
Improvements and/or the Project, and (v) for any other matter which Landlord
deems reasonably necessary so long as any such other matter does not
materially interfere with Tenant's use of the Premises for the Permitted Use
(including Tenant's use of the Project parking facilities) or materially
increase Tenant's monetary obligations under this Lease or otherwise
adversely affect Tenant's rights under this Lease. Nothing contained herein
shall be deemed or construed to limit or otherwise affect Landlord's right to
sell all or any portion of the Project or any other of Landlord's rights
described in this Lease.
29.28.3 CONSTRUCTION OF PROJECT AND OTHER IMPROVEMENTS.
Tenant acknowledges that portions of the Project and/or the Other
Improvements may be under construction following Tenant's occupancy of the
Premises, and that such construction may result in levels of noise, dust,
obstruction of access, etc. which are in excess of that present in a fully
constructed project. Subject to Section 19.5.2 hereof, Tenant hereby waives
any and all rent offsets or claims of constructive eviction which may arise
in connection with such construction. Landlord agrees to use commercially
reasonable efforts to not materially interfere with Tenant's use of the
Premises for the Permitted Use (including Tenant's use of the Project parking
facilities) in connection with any such construction (including, but not
limited to, Landlord's construction of the Phase II Building). Landlord also
agrees to use commercially reasonable efforts to minimize material vibrator,
noise and dust during Building Hours in connection with the construction of
such Other Improvements.
29.29 ARBITRATION.
29.29.1 GENERAL SUBMITTALS TO ARBITRATION. The submittal of
all matters to arbitration in accordance with the provisions of this Section
29.29 is the sole and exclusive method, means and procedure to resolve any
and all claims, disputes or disagreements arising under this Lease,
including, but not limited to any matter relating to Landlord's failure to
approve an assignment, sublease or other transfer of Tenant's interest in the
Lease under Article 14 of this Lease, any other defaults by Landlord, or any
Tenant Default, except for (i) all claims by either party which (A) seek
anything other than enforcement of rights under this Lease, or (B) are
primarily founded upon matters of fraud, willful misconduct, bad faith or any
other allegations of tortious action, and seek the award of punitive or
exemplary damages, (ii) all claims by either party arising from the
determination of Fair Market Rental Rate, and (iii) claims relating to
Landlord's exercise of any unlawful detainer rights pursuant to California
law or rights or
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remedies used by Landlord to gain possession of the Premises or terminate
Tenant's right of possession to the Premises, which disputes shall be
resolved by suit filed in the Superior Court of Los Angeles County,
California, the decision of which court shall be subject to appeal pursuant
to Applicable Laws. The parties hereby irrevocably waive any and all rights
to the contrary and shall at all times conduct themselves in strict, full,
complete and timely accordance with the provisions of this Section 29.29 and
all attempts to circumvent the terms and conditions of this Section 29.29
shall be absolutely null and void and of no force or effect whatsoever. As to
any matter submitted to arbitration (except with respect to the payment of
money) to determine whether a matter would, with the passage of time,
constitute a default, such passage of time shall not commence to run until
any such affirmative arbitrated determination, as long as it is
simultaneously determined in such arbitration that the challenge of such
matter as a potential Tenant Default or Landlord default was made in good
faith. As to any matter submitted to arbitration with respect to the payment
of money, to determine whether a matter would, with the passage of time,
constitute a default, such passage of time shall not commence to run in the
event that the party which is obligated to make the payment does in fact make
the payment to the other party. Such payment can be made "UNDER PROTEST,"
which shall occur when such payment is accompanied by a good faith Notice
stating the reasons that the party has elected to make a payment under
protest. Such protest will be deemed waived unless the subject matter
identified in the protest is submitted to arbitration as set forth in this
Section 29.29.
29.29.2 JAMS. Any dispute to be arbitrated pursuant to the
provisions of this Section 29.29 shall be determined by binding arbitration
before a retired judge of the Superior Court of the State of California (the
"ARBITRATOR") under the auspices of Judicial Arbitration & Mediation
Services, Inc. ("JAMS"). Such arbitration shall be initiated by the parties,
or either of them, within ten (10) days after either party sends Notice (the
"ARBITRATION NOTICE") of a demand to arbitrate to the other party and to
JAMS. The Arbitration Notice shall contain a description of the subject
matter of the arbitration, the dispute with respect thereto, the amount
involved, if any, and the remedy or determination sought. The parties may
agree on a retired judge from the JAMS panel. If they are unable to promptly
agree, JAMS will provide a list of three available judges who, to the extent
available, have had extensive experience in handling real estate commercial
lease transactions as practitioners and each party may strike one. The
remaining judge (or if there are two, the one selected by JAMS) will serve as
the Arbitrator. In the event that JAMS shall no longer exist or if JAMS fails
or refuses to accept submission of such dispute, then the dispute shall be
resolved by binding arbitration before the American Arbitration Association
("AAA") under the AAA's commercial arbitration rules then in effect.
29.29.3 ARBITRATION PROCEDURE.
29.29.3.1 PRE-DECISION ACTIONS. The Arbitrator shall
schedule a pre-hearing conference to resolve procedural matters,
arrange for the exchange of information, obtain stipulations, and
narrow the issues. The parties will submit proposed discovery schedules
to the Arbitrator at the pre-hearing conference. The scope and duration
of discovery will be within the sole discretion of the Arbitrator. The
Arbitrator shall have the discretion to order a pre-hearing exchange of
information by the parties, including, without limitation, production
of requested documents, exchange of summaries of testimony of proposed
witnesses, and examination by deposition of parties and third-
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party witnesses. This discretion shall be exercised in favor of
discovery reasonable under the circumstances.
29.29.3.2 THE DECISION. The arbitration shall be
conducted in Los Angeles, California. Any party may be represented by
counsel or other authorized representative. In rendering a decision(s),
the Arbitrator shall determine the rights and obligations of the
parties according to the substantive and procedural laws of the State
of California and the provisions of this Lease. The Arbitrator's
decision shall be based on the evidence introduced at the hearing,
including all logical and reasonable inferences therefrom. The
Arbitrator may make any determination, and/or grant any remedy or
relief (an "ARBITRATION AWARD") that is just and equitable. The
decision must be based on, and accompanied by, a written statement of
decision explaining the factual and legal basis for the decision as to
each of the principal controverted issues. The decision shall be
conclusive and binding, and it may thereafter be confirmed as a
judgment by the Superior Court of the State of California, subject only
to challenge on the grounds set forth in the California Code of Civil
Procedure Section 1286.2. The validity and enforceability of the
Arbitrator's decision is to be determined exclusively by the California
courts pursuant to the terms and conditions of this Lease. The
Arbitrator shall award costs, including without limitation attorneys'
fees, and expert and witness costs, to the prevailing party as defined
in California Code of Civil Procedure Section 1032 ("PREVAILING
PARTY"), if any, as determined by the Arbitrator in his discretion. The
Arbitrator's fees and costs shall be paid by the non-prevailing party
as determined by the Arbitrator in his discretion. A party shall be
determined by the Arbitrator to be the prevailing party if its proposal
for the resolution of dispute is the closer to that adopted by the
Arbitrator.
29.30 CALENDAR DAYS. All references made in this Lease to the word
"days," whether for Notices, schedules or other miscellaneous time limits,
shall at all times herein be deemed to mean calendar days, unless
specifically references as "business" or "working" days. Business or working
days shall mean the days Monday-Friday, excluding Holidays.
29.31 COVENANTS AND CONDITIONS. It is agreed that each of the
provisions of this Lease shall be terms, covenants, as well as conditions,
and the failure of Tenant or Landlord to comply with any of the terms,
covenants or conditions of this Lease shall entitle Tenant or Landlord to
exercise the remedies of Tenant on default or Landlord on default as set
forth in this Lease.
29.32 SURVIVAL OF PROVISIONS UPON TERMINATION OF LEASE. Any term,
covenant or condition of this Lease which requires the performance of
obligations or forbearance of an act by either party hereto after the
termination of this Lease shall survive such termination of this Lease. Such
survival shall be to the extent reasonably necessary to fulfill the intent
thereof, or if specified, to the extent of such specification, as same is
reasonably necessary to perform the obligations and/or forbearance of an act
set forth in such term, covenant or condition. Notwithstanding the foregoing
in the event a specific term, covenant or condition is expressly provided for
in such a clear fashion as to indicate that such performance of an obligation
or forbearance of an act is no longer required, then the specific shall
govern over this general provision of this Lease.
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29.33 GOOD FAITH. Except (i) for matters for which there is a
standard of consent or discretion specifically set forth in this Lease; (ii)
matters which could have an adverse effect on the Building Structure or the
Building Systems, or which could affect the exterior appearance of the
Building, or (iii) matters covered by Article 4 (Additional Rent), Article 10
(Insurance), or Article 19 (Defaults; Remedies) of this Lease (collectively,
the "EXCEPTED MATTERS"), any time the consent of Landlord or Tenant is
required under this Lease, such consent shall not be unreasonably withheld or
delayed, and, except with regard to the Excepted Matters, whenever this Lease
grants Landlord or Tenant the right to take action, exercise discretion,
establish Rules and Regulations or make an allocation or other determination,
Landlord and Tenant shall act reasonably and in good faith.
29.34 TELECOMMUNICATION EQUIPMENT. At any time during the Lease
Term, Tenant shall have the non-exclusive right to install, at Tenant's sole
cost and expense, satellite dishes and antennae (collectively, the
"TELECOMMUNICATION EQUIPMENT"), in an area of the roof ("ROOF LOCATION")
reasonably designated by Landlord. Landlord agrees to reserve a reasonable
amount of space on the roof of the Building for use by Tenant. The physical
appearance and location of any such Telecommunication Equipment shall be
subject to Landlord's reasonable approval, and Landlord may require Tenant to
install screening around such equipment, at Tenant's sole cost and expense,
as reasonably designated by Landlord. Tenant shall maintain such
Telecommunication Equipment at Tenant's sole cost and expense. In the event
Tenant elects to exercise its right to install Telecommunication Equipment as
set forth in this Section 29.34, then Tenant shall give Landlord prior Notice
thereof and Landlord and Tenant shall execute a Telecommunication Agreement
in substantially the form as Exhibit G, attached hereto and incorporated
herein by this reference, covering the installation and maintenance of such
Telecommunication Equipment, Tenant's indemnification of Landlord with
respect thereto, Tenant's obligation to remove such Telecommunication
Equipment upon the expiration or earlier termination of this Lease, and other
related matters. Landlord shall ensure that use of any other entities'
telecommunication equipment located on the roof of the Building shall not
unreasonably interfere with the Telecommunication Equipment.
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IN WITNESS WHEREOF, Landlord and Tenant have caused their duly
authorized representatives to execute this Lease as of the day and date first
above written.
"Landlord":
KILROY REALTY, L.P., a Delaware limited
partnership
By: KILROY REALTY CORPORATION, a
Maryland Corporation, General Partner
By:
----------------------------------
Jeffrey Hawken
Its: Executive Vice President,
Chief Operating Officer
By:
----------------------------------
Hugh C. Greenup
Its: Executive Vice President
"Tenant":
eTOYS INC.,
a Delaware corporation
By:
---------------------------------------------
Its:
----------------------------------------
By:
---------------------------------------------
Its:
----------------------------------------
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EXHIBIT A
OUTLINE OF PREMISES
EXHIBIT A
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EXHIBIT B
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules
and Regulations. Landlord shall not be responsible to Tenant for the
nonperformance of any of said Rules and Regulations by or otherwise with
respect to the acts or omissions of any other tenants or occupants of the
Project.
1. Except for Tenant's Secured Areas, Tenant shall not alter any
lock or install any new or additional locks or bolts on any doors or windows
of the Premises without obtaining Landlord's prior written consent. Tenant
shall bear the cost of any lock changes or repairs required by Tenant.
2. Landlord reserves the right to close and keep locked all entrance
and exit doors of the Building during the hours of 7:00 p.m. to 7:00 a.m.
Monday through Friday, and, commencing at 1:00 p.m. on Saturday and
continuing through Sunday; provided, however, that Landlord shall use
commercially reasonable efforts to provide Tenant with reasonable access to
the Building and the Project parking facilities throughout the Term of the
Lease. Tenant, its employees and agents must be sure that the doors to the
Building are securely closed and locked when leaving the Premises if it is
after the Business Hours for the Building. Any tenant, its employees, agents
or any other persons entering or leaving the Building at any time when it is
so locked, or any time when it is considered to be after the Business Hours
for the Building, may be required to sign the Building register. Access to
the Building may be refused unless the person seeking access has proper
identification or has a previously arranged pass for access to the Building.
The Landlord and his agents shall in no case be liable for damages for any
error with regard to the admission to or exclusion from the Building of any
person. In case of invasion, mob, riot, public excitement, or other
commotion, Landlord reserves the right to prevent access to the Building or
the Project during the continuance thereof by any means it deems appropriate
for the safety and protection of life and property.
3. Landlord shall have the right to reasonably prescribe the weight,
size and position of all safes and other extraordinarily heavy property
brought into the Building and also the reasonable times and reasonable manner
of moving the same in and out of the Building, all to the extent reasonably
necessary to avoid damage to the Building and/or the Project. Safes and other
heavy objects shall, if considered necessary by Landlord to the extent
reasonably necessary to avoid damage to the Building and/or the Project,
stand on supports of such thickness as is reasonably necessary to properly
distribute the weight. Landlord will not be responsible for loss of or damage
to any such safe or property in any case. Any damage to any part of the
Building, its contents, occupants or visitors by moving or maintaining any
such safe or other property shall be the sole responsibility and expense of
Tenant except to the extent covered by any insurance required to be
maintained by Landlord under the Lease.
4. Any requests of Tenant shall be directed to the management office
for the Project or at such office location designated by Landlord. Employees
of Landlord shall not perform any work or do anything outside their regular
duties unless under special instructions from Landlord.
EXHIBIT B
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5. Tenant shall not disturb, solicit, or canvass any occupant of the
Project and shall cooperate with Landlord and its agents to prevent such
activities.
6. The toilet rooms, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed,
and no foreign substance of any kind whatsoever shall be thrown therein. The
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the tenant who, or whose employees or agents,
shall have caused it.
7. Tenant shall not overload the floor of the Premises.
8. Except for vending machines intended for the sole use of Tenant's
employees and invitees, no vending machines other than fractional horsepower
office machines shall be installed, maintained or operated upon the Premises
without the written consent of Landlord.
9. Except as otherwise expressly provided in the Lease, Tenant shall
not use or keep in or on the Premises, the Building, or the Project any
kerosene, gasoline or other inflammable or combustible fluid or material.
10. Except as provided in the Lease, Tenant shall not without the
prior written consent of Landlord use any method of heating or air
conditioning other than that supplied by Landlord.
11. Except as provided in the Lease, Tenant shall not use, keep or
permit to be used or kept, any foul or noxious gas or substance in or on the
Premises, or permit or allow the Premises to be occupied or used in a manner
unreasonably offensive or objectionable to Landlord or other occupants of the
Project by reason of noise, odors, or vibrations, or unreasonably interfere
in any way with other tenants or those having business therein.
12. Tenant shall not bring into or keep within the Project, the
Building or the Premises any animals, except for seeing eye dogs accompanied
by their masters or other dogs (but only to the extent any such other dogs
are located in the Premises only) and in compliance with these Rules and
Regulations and Applicable Laws, with Tenant acknowledging and agreeing that
under no circumstances shall any such other dogs be allowed in any other
areas of the Project (including the Common Areas) except for normal ingress
and egress to the Building. Tenant acknowledges and agrees that any such
other dogs shall be kept by Tenant in a first-class manner such that the
presence of such other dogs does not cause any objectionable odors or noises
and if such objectionable odors and/or noises do occur then Tenant, to the
extent Tenant does not cure such condition within ten (10) business days
after notice by Landlord to Tenant, shall not be allowed to keep such dogs in
the Premises. In the event Landlord incurs increased costs (including, but
not limited to, increased janitorial, security and insurance costs) due to
the presence of any such other dogs in the Project then Tenant shall pay to
Landlord such increased costs within thirty (30) days of Landlord's Notice
thereof to Tenant.
13. Except as otherwise expressly provided in the Lease and except for
any employee lunchroom that may be constructed by Tenant in the Premises
pursuant to Article 8 of the Lease, no cooking shall be done or permitted on the
Premises, nor shall the Premises be used for the storage of merchandise, for
lodging or for any improper, objectionable or immoral purposes. Notwithstanding
the foregoing, Underwriters' laboratory-approved equipment and microwave
EXHIBIT B
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ovens may be used in the Premises for heating food and brewing coffee, tea,
hot chocolate and similar beverages for employees and visitors, provided that
such use is in accordance with all applicable federal, state and city laws,
codes, ordinances, rules and regulations.
14. Landlord reserves the right to exclude or expel from the Project
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of these Rules and Regulations.
15. Tenant, its employees and agents shall not loiter in the
entrances or corridors, nor in any way obstruct the sidewalks, lobby, halls,
stairways or elevators, and shall use them only as a means of ingress and
egress for the Premises.
16. Tenant shall store all its trash and garbage within the interior
of the Premises. No material shall be placed in the trash boxes or
receptacles if such material is of such nature that it may not be disposed of
in the ordinary and customary manner of removing and disposing of trash and
garbage in Los Angeles, California without violation of any law or ordinance
governing such disposal. All trash, garbage and refuse disposal shall be made
only through entry-ways and elevators provided for such purposes at such
times as Landlord shall reasonably designate.
17. Tenant shall comply with all safety, fire protection and
evacuation procedures and regulations established by Landlord or any
governmental agency.
18. Tenant shall assume any and all responsibility for protecting
the Premises from theft, robbery and pilferage, which includes keeping doors
locked and other means of entry to the Premises closed.
19. No awnings or other projection shall be attached to the outside
walls of the Building without the prior written consent of Landlord. No
curtains, blinds, shades or screens shall be attached to or hung in, or used
in connection with, any window or door of the Premises without the prior
written consent of Landlord. All electrical ceiling fixtures hung in offices
or spaces along the perimeter of the Building must be fluorescent and/or of a
quality, type, design and bulb color reasonably approved by Landlord. Tenant
shall abide by Landlord's regulations concerning the opening and closing of
window coverings which are attached to the windows in the Premises, if any,
which have a view of any interior portion of the Building or Building Common
Areas.
20. The sashes, sash doors, skylights, windows, and doors that
reflect or admit light and air into the halls, passageways or other public
places in the Building shall not be covered or obstructed by Tenant, nor
shall any bottles, parcels or other articles be placed on the windowsills.
Landlord reserves the right at any time to change or rescind any one or more
of these Rules and Regulations, or to make such other and further reasonable
non-discriminatory Rules and Regulations as in Landlord's reasonable judgment
may from time to time be reasonably necessary for the management, safety,
care and cleanliness of the Premises, Building, the Common Areas and the
Project, and for the preservation of good order therein, as well as for the
convenience of other occupants and tenants therein. Tenant shall be deemed to
have read these Rules and Regulations and to have agreed to abide by them as
a condition of its occupancy of the Premises. Landlord may waive any one or
more of these Rules and Regulations for the benefit of any particular
tenants, but no such waiver by Landlord shall be construed as a waiver of
such
EXHIBIT B
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<PAGE>
non-discriminatory Rules and Regulations in favor of any other tenant, nor
prevent Landlord from thereafter enforcing any such Rules or Regulations
against any or all tenants of the Project. Landlord agrees that the Rules and
Regulations shall not be unreasonably modified or enforced in a manner which
will materially interfere with the conduct of Tenant's Permitted Use from the
Premises or Tenant's use of the Project parking facility.
EXHIBIT B
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EXHIBIT C
NOTICE OF LEASE TERM DATES
Date:____________________
To:
_______________________
_______________________
_______________________
_______________________
Re: Office Lease dated ____________, 19__ between
______________________, a ___________________ ("LANDLORD"),
and ____________________________, a ___________________
("TENANT") concerning Suite ______ on floor(s) __________ of
the office building located at _______________________,
____________________, California.
Gentlemen:
In accordance with the Office Lease (the "Lease"), we wish to advise
you and/or confirm as follows:
1. The Lease Term commenced on _________________________ for a term of
______________________ ending on __________________.
2. Rent commenced to accrue on ______________________, in the amount of
___________________.
3. If the Lease Commencement Date is other than the first day of the
month, the first billing will contain a pro rata adjustment. Each billing
thereafter, with the exception of the final billing, shall be for the full
amount of the monthly installment as provided for in the Lease.
4. Your rent checks should be made payable to ______________
_____________________________________________________________________at
______________________________________________.
Pursuant to the terms of Section 2.1 of your Lease, you are required
to return an executed copy of this notice to Landlord within ten (10)
business days following your receipt hereof, and thereafter the statements
set forth herein shall be conclusive and binding upon you. Your failure
EXHIBIT C
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<PAGE>
to timely execute and return this notice shall constitute your
acknowledgement that the statements included herein are true and correct,
without exception.
"Landlord":
KILROY REALTY, L.P., a Delaware Limited
Partnership
By: KILROY REALTY CORPORATION, a
Maryland Corporation, General Partner
By:__________________________________
Its:_____________________________
Agreed to and Accepted as
of _______________, 19__.
"Tenant":
_______________________________,
a _____________________________
By:____________________________
Its:______________________
EXHIBIT C
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EXHIBIT D
TENANT WORK LETTER
PREAMBLE
This Tenant Work Letter sets forth the terms and conditions relating
to the construction of the Premises. This Tenant Work Letter is essentially
organized chronologically and specifically addresses the issues of the
construction of the Premises, in sequence, as such issues will arise during
the actual construction of the Premises. All references in this Tenant Work
Letter to Articles or Sections of "this Lease" shall mean the relevant
portions of Articles 1 through 30 of the Office Lease to which this Tenant
Work Letter is attached as Exhibit D, and all references in this Tenant Work
Letter to Sections of this "Tenant Work Letter" shall mean the relevant
portions of Sections 1 through 6 of this Tenant Work Letter. Except as
defined to the contrary, all defined terms used in the Tenant Work Letter
shall have the same meaning as the terms defined in the Lease.
ARTICLE 1
DELIVERY OF THE PREMISES AND BASE BUILDING
1.1 BASE BUILDING. In accordance with the terms and conditions of
this Lease, Landlord shall, at Landlord's sole cost and expense, deliver the
Premises and Base Building to Tenant. Subject to Section 1.2 below
(pertaining to the initial condition of the Base Building on the applicable
Delivery Date), the "Base Building" shall consist of those items which are
described in, and the Base Building shall be constructed (and Landlord so
warrants to Tenant) in material conformance with (but in any event in
compliance with Code (as described below)), those certain plans specified on
Schedule 2 attached hereto ("BASE BUILDING PLANS") which Base Building shall,
among other things, contain conduit facilities, stubbed to the Building only,
ready for the installation of cable television and fiber-optic cabling.
Landlord agrees that the portion of the "base building" which is the Phase II
Building (not including areas outside of the Phase II Building, or the
parking facilities) shall be substantially similar (in terms of the quality
and quantity of design and construction) to the portion of the Base Building
which is the Phase I Building (not including areas outside of the Phase I
Building, or the parking facilities). To the extent the Base Building is not
fully complete on the Lease Commencement Date, Landlord shall use reasonable
efforts to fully complete the Base Building as soon thereafter as possible.
Within five (5) days of substantial completion of the Base Building, Landlord
and Tenant shall conduct a walk-through of the Premises and create a detailed
punchlist of unfinished items of the Base Building (as reflected on the Base
Building Plans). Upon completion of the punchlist, Landlord shall, at
Landlord's sole cost and expense, proceed diligently to remedy such items in
a professional and workmanlike manner, taking reasonable care in order to
minimize any material and adverse interference with the operation of Tenant's
business from the Premises; provided, however, that Tenant shall be
responsible, at Tenant's sole cost and expense, for the remediation of any
items on the punchlist caused by Tenant's acts or omissions. Landlord's
remediation of the items on the punchlist shall be deemed Tenant's acceptance
of the Premises in the condition existing after such remediation, subject to
the other terms and provision of the Lease. The Base Building, Building
Structure and Building Systems, shall, as of the Lease Commencement Date,
EXHIBIT D
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<PAGE>
be in good condition and working order, free of defects (which Landlord shall
repair at Landlord's expense and not as an Operating Expense in the Building
and Project at any time discovered during the initial term of the Lease), and
shall comply with applicable building codes and other governmental laws,
ordinances and regulations which were enacted prior to the Lease Commencement
Date and applicable to new construction for unoccupied space, whether or not
then being enforced and disregarding variances and grandfathered/grandmothered
rights (collectively, the "CODE") at Landlord's sole cost, but only to the
extent that Landlord's failure to comply therewith would prohibit Tenant from
obtaining or maintaining a certificate of occupancy, or its equivalent, for
the Premises.
1.2 DELIVERY DATES AND CONSTRUCTION PERIOD.
1.2.1 INITIAL DELIVERY DATE(S). Landlord shall, subject
to Force Majeure Delays and Tenant Delays, deliver (i) the first (1st) and
second (2nd) floors of the Premises to Tenant in the Initial Delivery
Condition (as defined below) on June 5, 2000 (the "FIRST DELIVERY DATE") and
(ii) the third (3rd) and fourth (4th) floors of the Premises to Tenant in the
Initial Delivery Condition (as defined below) on June 19, 2000 (the "SECOND
DELIVERY DATE"). The First Delivery Date and the Second Delivery Date are
collectively referred to herein as the "INITIAL DELIVERY DATE(S)." Tenant
acknowledges and agrees that when Landlord delivers the Premises in the
Initial Delivery Condition, notwithstanding anything in this Lease to the
contrary, Landlord shall be deemed to have delivered possession of the
Premises to Tenant under this Lease.
1.2.2 ENCLOSURE DELIVERY DATE(S). Landlord shall, subject to
Force Majeure Delays and Tenant Delays, deliver (i) the first (1st) and
second (2nd) floors of the Premises to Tenant in the Enclosure Delivery
Condition (as defined below) on July 17, 2000 (the "FIRST ENCLOSURE DELIVERY
DATE") and (ii) the third (3rd) and fourth (4th) floors of the Premises to
Tenant in the Enclosure Delivery Condition (as defined below) on July 31,
2000 (the "SECOND ENCLOSURE DELIVERY DATE"). The First Enclosure Delivery
Date and the Second Enclosure Delivery Date are collectively referred to
herein as the "ENCLOSURE DELIVERY DATE(S) and the Initial Delivery Date(s)
and the Enclosure Delivery Date(s) are collectively referred to herein as the
"DELIVERY DATES(S)").
1.2.3 CONSTRUCTION PERIOD. The "CONSTRUCTION PERIOD" shall be
an eighteen (18) week period and shall commence on the First Delivery Date.
1.2.4. INITIAL DELIVERY CONDITION. On the applicable Initial
Delivery Date, Landlord shall deliver the Base Building in the following
condition (the "INITIAL DELIVERY CONDITION") (and thereafter Landlord shall
not materially interfere with Tenant's access to the substantial portion of
the areas where Tenant will construct the Tenant Improvements (the "TI
AREAS"):
(1) Completion of all the exterior of Shell/Core Space Walls with
drywall fire taped only, not including perimeter drywall;
(2) Installation of the Shell/Core Base Building Fire Sprinkler
System in the TI Areas;
EXHIBIT D
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(3) Completion of the HVAC installation, including duct loops in the
work area;
(4) Shared manlift operational for on hours and off-hours and
weekend stocking;
(5) Shell/Core Plumbing stub-outs to tenant spaces completed;
(6) Temporary power, at Landlord's cost, for construction work; and
(7) Completion of all floor slabs with removal of debris, broom
cleaned and acceptable to receive a finish floor surface.
1.2.5. ENCLOSURE DELIVERY CONDITION. On the applicable Enclosure
Delivery Date, Landlord shall deliver the Base Building in the following
condition (the "ENCLOSURE DELIVERY CONDITION"):
(1) Continuing progress for the installation of the Shell/Core
Electrical Work and installation of panels for connection to the Premises
outside the TI Areas. Completion before Tenant tie-ins required;
(2) Water for construction work (i.e., for painting/drywall, etc.);
(3) Continuing progress for the installation of the Shell/Core Base
Building Fire Life Safety Monitoring System with termination/connection
points for all floor connections outside the TI Areas. Completion before
Tenant tie-ins required;
(4) Continuing progress for the installation of the
Electrical/Telephone closets on all floors, with Tenant to receive a credit
for all doors and hardware not used by Tenant.; provided, however, that such
credit shall only be available to Tenant if Tenant provides Notice to
Landlord of such anticipated non-use prior to Landlord ordering any such
doors and hardware;
(5) Completion of installation of the roof or appropriate weather
protection at openings;
(6) Continuing progress of sealing of all roof penetrations to
prevent any water intrusion in the Building. Completion or prior to Tenant
finishes and drywall in the work area;
(7) Completion of all glazing to the work area, or appropriate
weather protection at openings;
(8) Installation of conduit for data and fiber entry into the
Building to the closets within the Building in the parking structure for
riser connections. Completion before Tenant tie-ins required;
(9) Completion of digital controls for Building Energy Management
System in time for connections prior to test, balance and commission of HVAC
system; and
EXHIBIT D
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(10) Completion of exterior curtain wall and storefront glazing and
tie to glazing milestone doors or appropriate weather protection at openings.
The Initial Delivery Condition and the Enclosure Delivery Condition are
collectively referred to herein as the "DELIVERY CONDITIONS."
ARTICLE 2
TENANT IMPROVEMENTS
2.1 TENANT'S CONTRIBUTION. Tenant shall be obligated to spend a minimum
of Thirty Dollars ($30.00) per usable square foot of the Premises (and of the
Expansion Space (to the extent Tenant properly and timely exercises Tenant's
expansion option)) ("TENANT'S CONTRIBUTION"), for the costs relating to the
initial design and construction of Tenant's improvements which are
permanently affixed to the Premises (the "TENANT IMPROVEMENTS") as more
particularly described below; provided, however, that up to Three Dollars
($3.00) per usable square foot of the Premises of Tenant's Contribution may
be used by Tenant for cabling, conduit, Tenant's Exterior Signage and for
fixtures, furniture and equipment installed in the Premises (collectively,
the "OTHER ITEMS"). Pursuant to Article 30 of the Lease, Tenant's
Contribution Disbursement shall be funded by Landlord's Loan to Tenant as
described therein, the disbursement of which shall be subject to the terms
hereof.
2.2 DISBURSEMENT OF THE TENANT'S CONTRIBUTION BY LANDLORD.
2.2.1 TENANT IMPROVEMENT ITEMS. Except as otherwise set forth in
this Tenant Work Letter, Tenant's Contribution shall be disbursed by Landlord
only for the following items and costs (collectively, the "TENANT'S
CONTRIBUTION ITEMS") and, except as otherwise specifically and expressly
provided in this Tenant Work Letter, Landlord shall not deduct any other
expenses from the Tenant's Contribution. The Tenant's Contribution Items
shall consist of:
2.2.1.1 Payment of the fees and costs of the "Architect,"
project manager and the "Engineers," as those terms are defined in Section
3.1 of this Tenant Work Letter, costs paid to Tenant's consultants in
connection with the design, construction and move into the Premises and all
related design and construction costs, including the fees and costs of
Tenant's project management consultants, and in connection therewith, Tenant
shall reimburse to Landlord Landlord's actual, reasonable and documented
costs (but not to exceed an amount equal to One Dollar ($1.00) per usable
square foot of the Premises) incurred as a result of any third party review
reasonably and necessarily required by Landlord in order to approve the
"Construction Drawings," as that term is defined in Section 3.1 of this
Tenant Work Letter, by deducting such costs from Tenant's Contribution;
2.2.1.2 The payment of plan check, permit and license fees
relating to construction of the Tenant Improvements;
2.2.1.3 The cost of (i) construction of the Tenant
Improvements, including, without limitation, demolition, testing and
inspection costs, trash removal costs, utility hook-up charges, hoist fees,
parking fees, after-hours utilities usage and contractors' fees and general
conditions and (ii) the Other Items (subject to the limitations in Section
2.1 hereof);
EXHIBIT D
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2.2.1.4 The cost of any changes in the Base Building on the
floors of the Building on which the Premises is located, when such changes
are required by the Construction Drawings (including if such changes are due
to the fact that such work is prepared on an unoccupied basis);
2.2.1.5 Sales and use taxes and Title 24 fees with respect to
the Tenant Improvements;
2.2.1.6 The cost of the design and construction of Tenant's
security system (if any) installed in the Premises pursuant to Section 6.1.6
of this Lease; and
2.2.1.7 The cost of reinforcing the floors of the Building, if
necessary, to accommodate the Tenant Improvements.
2.2.2 DISBURSEMENT OF TENANT'S CONTRIBUTION. Prior to and during the
construction of the Tenant Improvements, as the case may be, Landlord shall
make monthly disbursements of Landlord's Loan for Tenant's Contribution for
Tenant's Contribution Items for the benefit of Tenant and shall authorize the
release of monies for the benefit of Tenant as follows.
2.2.2.1 MONTHLY DISBURSEMENTS. On or before the twenty-fifth
(25th) day of each month (a "SUBMITTAL DATE") during the period from the date
hereof through the construction of the Tenant Improvements, Tenant shall
deliver to Landlord: (i) a request for payment of the "Contractor," as that
term is defined in Section 4.1 of this Tenant Work Letter (or reimbursement
to Tenant if Tenant has already paid the Contractor or other person or entity
entitled to payment), approved by Tenant, in a form to be provided by
Landlord, showing the schedule, by trade, of percentage of completion of the
Tenant Improvements in the Premises, detailing the portion of the work
completed and the work projected to be completed by the end of the month;
(ii) invoices from all of "Tenant's Agents," as that term is defined in
Section 4.1.2 of this Tenant Work Letter, for labor rendered and materials
delivered to the Premises (or stored therein or offsite or those items where
deposits are standard in the industry) for the applicable payment period;
(iii) executed conditional mechanic's lien releases from all of Tenant's
Agents which shall substantially comply with the appropriate provisions of
California Civil Code Section 3262(d), or unconditional releases (with
respect to payments previously made); provided, however, that with respect to
fees and expenses of the Architect, Engineers, or construction or project
managers or other similar consultants, and/or any other pre-construction
items for which the payment scheme set forth in items (i) through (iii),
above of this Tenant Work Letter, is not applicable (collectively, the
"NON-CONTRIBUTION ITEMS"), Tenant shall only be required to deliver to
Landlord on or before the applicable Submittal Date, a reasonably
particularized invoice evidencing the cost for the applicable
Non-Contribution Items (unless Landlord has received a preliminary notice in
connection with such costs in which event conditional lien releases must be
submitted in connection with such costs); and (iv) all other information
reasonably requested in good faith by Landlord. Tenant's request for payment
shall be deemed Tenant's acceptance and approval of the work furnished and/or
the materials supplied as set forth in Tenant's payment request vis-a-vis
Landlord. On or before the date occurring thirty (30) days after the
Submittal Date, and assuming Landlord receives all of the information
described in items (i) through (iv), above, Landlord shall deliver a check to
Tenant made payable
EXHIBIT D
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to Tenant or if Tenant elects, to the Contractor, subcontractor, architect,
engineer or consultant designated by Tenant in payment of the lesser of: (A)
the amounts so requested by Tenant, as set forth in this Section 2.2.2.1,
above, less a ten percent (10%) retention (the aggregate amount of such
retentions to be known as the "FINAL RETENTION"), provided, however, that no
such retention shall be duplicative of the retention Tenant would otherwise
withhold (but will not withhold) pursuant to its agreement with such
Contractor and no such deduction shall be applicable to the fees of the
Architect, Engineers or Tenant's project consultant, or any Non-Contribution
Items or other Tenant's Contribution Items in connection with the payment of
suppliers for materials delivered to the Premises and subcontractors for
completing performance of their work substantially in advance of the
"Substantial Completion ," as such term is defined in Section 5.3 of this
Tenant Work Letter, of the Tenant Improvements and (B) the balance of any
remaining available portion of the Tenant's Contribution (not including the
Final Retention). In the event that Landlord or Tenant identifies any
material non-compliance with the "Approved Working Drawings," as that term is
defined in Section 3.4 below, or substandard work, Landlord or Tenant as
appropriate shall be provided a detailed statement identifying such material
non-compliance or substandard work by the party claiming the same, and if the
work creates a "Design Problem," as that term is defined in Section 8.1 of
the Lease, Tenant shall cause such work to be corrected so that no Design
Problem exists. Landlord's payment of such amounts shall not be deemed
Landlord's approval or acceptance of the work furnished or materials supplied
as set forth in Tenant's payment request. If Tenant receives a check payable
to anyone other than solely to Tenant for a monthly disbursement pursuant to
this Section 2.2.2.1 or the Final Retention, Tenant may return such check to
Landlord and receive a check made payable only to Tenant, if Tenant provides
the releases and evidence required above to receive a check payable solely to
Tenant.
2.2.2.2 FINAL RETENTION. Subject to the provisions of this
Tenant Work Letter, a check for the Final Retention payable to Tenant shall
be delivered by Landlord to Tenant following the completion of construction
of the Premises, provided that (i) Tenant delivers to Landlord properly
executed mechanics lien releases in compliance with both California Civil
Code Section 3262(d)(2) and either Section 3262(d)(3) or Section 3262(d)(4),
(ii) Landlord has reasonably determined that no Design Problem exists , (iii)
Architect delivers to Landlord a certificate, in a form reasonably acceptable
to Landlord, certifying that the construction of the Tenant Improvements in
the Premises has been substantially completed, and (iv) Tenant delivers to
Landlord a commercially reasonable "Closing Package," as that term is defined
below. The "Closing Package" shall consist of (a) an application and
certificate for payment (AIA from G702-1992 or equivalent) signed by the
Architect, (b) a breakdown sheet (AIA from 3703-1992 or equivalent), (c)
original stamped building permit plans, (d) copy of the building permit, (e)
original stamped building permit inspection card with all final sign-offs,
(f) a reproducible copy (in a form as reasonably approved by Landlord) of the
"as built" drawings of the Tenant Improvements, (g) air balance reports, (h)
a one (1) year warranty letter from the "Contractor," as that term is defined
in Section 4.1.1, below, and (i) manufacturers' warranties and operating
instructions.
2.2.2.3 OTHER TERMS. Landlord shall only be obligated to make
disbursements from Landlord's Loan for Tenant's Contribution to the extent
costs are incurred by Tenant for Tenant's Contribution Items. All Tenant's
Contribution Items (except for Tenant's furniture and equipment) for which
Tenant's Contribution has been made available shall, subject
EXHIBIT D
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to the terms and provisions of this Lease, be deemed Landlord's property upon
the expiration or sooner termination of this Lease.
2.3 STANDARD TENANT IMPROVEMENT PACKAGE. Attached hereto as Schedule 1
are the specifications (the "SPECIFICATIONS") for certain of the Building
standard components which Tenant may elect to construct in the Premises. The
quality of the Tenant Improvements must at a minimum comply with the
applicable Specifications; provided that the window coverings in the Premises
shall meet the Specifications.
ARTICLE 3
CONSTRUCTION DRAWINGS
3.1 SELECTION OF ARCHITECT/CONSTRUCTION DRAWINGS. Tenant shall retain a
space planner approved by Landlord, which approval shall not be unreasonably
withheld, conditioned or delayed (the "ARCHITECT"), to prepare the
"Construction Drawings," as that term is defined, below. Landlord hereby
approves Wirt Design Group as the Architect. Tenant shall retain engineering
consultants reasonably approved by Landlord (the "ENGINEERS") to prepare all
plans and engineering working drawings relating to the structural,
mechanical, electrical, plumbing, HVAC, lifesafety, and sprinkler work in the
Premises. The following Engineers, if selected by Tenant, are hereby
pre-approved by Landlord: (i) Robert Englekirk Consulting Engineers
(structural); (ii) Levine/Seegal Associates (mechanical/plumbing); (iii)
Levine/Seegal Associates (electrical); and (iv) Syska & Hennessey Associates,
Inc. (mechanical, plumbing and electrical engineering). The plans and
drawings to be prepared by Architect and the Engineers hereunder shall be
known collectively as the "CONSTRUCTION DRAWINGS." All Construction Drawings
shall comply at a minimum with Landlord's Specifications, the Base Building,
Building Structure and Building Systems and shall be in a drawing format
reasonably acceptable to Landlord. Landlord's review of the Construction
Drawings as set forth in this Section 3 shall be for its sole purpose and
shall not imply Landlord's review of the same, or obligate Landlord to review
the same, for quality, design, code compliance or other like matters.
Accordingly, notwithstanding that any Construction Drawings are reviewed by
Landlord or its space planner, architect, engineers and consultants, and
notwithstanding any advice or assistance which may be rendered to Tenant by
Landlord or Landlord's space planner, architect, engineers, and consultants,
Landlord shall have no liability whatsoever in connection therewith, except
to the extent that Landlord has specifically requested a modification to the
Construction Drawings as a condition to Landlord's approval of the
Construction Drawings, and shall not be responsible for any omissions or
errors contained in the Construction Drawings, and Tenant's waiver and
indemnity set forth in Section 10.1 of this Lease shall specifically apply to
the Construction Drawings. Each time Landlord is granted the right to review,
consent or approve the Construction Drawings (collectively, "CONSENT"), such
Consent shall be granted unless a Design Problem exists; provided, however,
that Landlord shall, in all cases involving a Design Problem, not
unreasonably withhold such consent.
3.2 FINAL SPACE PLAN. Tenant and the Architect shall prepare the final
space plan for the Tenant Improvements (the "FINAL SPACE PLAN"), and shall
deliver the Final Space Plan to Landlord for Landlord's approval; provided,
however, Landlord agrees that Tenant may submit the Final Space Plan and any
other Construction Drawings on a floor-by-floor basis and in the event of any
such partial submittals, Article 3 shall apply to such partial submittals as
if Tenant
EXHIBIT D
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had submitted the Final Space Plan and/or Construction Drawings for the
entire Building. The Final Space Plan shall show all corridors, internal and
external offices and partitions, paths of travel, and exiting. Landlord
shall, within five (5) business days after Landlord's receipt of the Final
Space Plan (i) approve the Final Space Plan, (ii) approve the Final Space
Plan subject to specified conditions (which shall be limited to conditions
required to eliminate a Design Problem and must be stated in a reasonably
clear manner) to be complied with (which shall be limited to conditions
required to eliminate a Design Problem) when the Final Working Drawings are
submitted by Tenant to Landlord, or (iii) disapprove the Final Space Plan for
a Design Problem and return the same to Tenant with requested revisions;
provided, however, that Landlord shall only disapprove the Final Space Plan
if the Tenant Improvements as shown on the Final Space Plan has a Design
Problem. If Landlord disapproves the Final Space Plan, Tenant may resubmit
the Final Space Plan to Landlord at any time, and Landlord shall approve or
disapprove of the resubmitted Final Space Plan, based upon the criteria set
forth in this Section 3.2, within three (3) business days after Landlord
receives such resubmitted Final Space Plan. Such procedures shall be repeated
until the Final Space Plan is approved. Landlord's failure to timely respond
to Tenant within any applicable response period referenced herein shall be
deemed Landlord's approval of the Final Space Plan.
3.3 COMPLETION OF CONSTRUCTION DRAWINGS. After the approval of the Final
Space Plan, Tenant, the Architect and the Engineers shall complete the
Construction Drawings for the Premises in a form which is sufficient to allow
contractors to bid on the work and to obtain applicable permits and shall
submit the Construction Drawings to Landlord for Landlord's approval. The
Construction Drawings may be submitted in one or more stages at one or more
times, provided that Tenant shall ultimately supply Landlord with four (4)
completed copies signed by Tenant of such Construction Drawings. Landlord
shall, within ten (10) business days after Landlord's receipt of all of the
Construction Drawings, either (i) approve the Construction Drawings, (ii)
approve the Construction Drawings subject to specified conditions which must
be stated in a reasonably clear and complete manner to be satisfied by Tenant
prior to obtaining permits as set forth in Section 3.4, below of this Tenant
Work Letter, to the extent the Construction Drawings contain a Design
Problem, or (iii) disapprove and return the Construction Drawings to Tenant
with requested revisions to the extent the Construction Drawings contain a
Design Problem. If Landlord disapproves the Construction Drawings, Tenant may
resubmit the Construction Drawings to Landlord at any time, and Landlord
shall approve or disapprove the resubmitted Construction Drawings, based upon
the criteria set forth in this Section 3.3, within three (3) business days
after Landlord receives such resubmitted Construction Drawings. Such
procedure shall be repeated until the Construction Drawings are approved.
Landlord's failure to timely respond to Tenant within any applicable response
period referenced herein shall be deemed Landlord's approval of the
Construction Drawings.
3.4 APPROVED CONSTRUCTION DRAWINGS. The Construction Drawings shall be
approved by Landlord (the "APPROVED CONSTRUCTION DRAWINGS") prior to the
commencement of construction of the Premises by Tenant in one or more stages
(but at a minimum on a floor-by-floor basis). In the event that Tenant shall
submit the Construction Drawings to Landlord in more than one stage, Landlord
shall be entitled to approve a stage and to subsequently disapprove of such
stage, provided that a Design Problem is found to exist which is evident only
following Landlord's review of subsequent drawings and was not reasonably
ascertainable prior to that time. Tenant shall cause to be obtained all
applicable building permits required in
EXHIBIT D
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connection with the construction of the Tenant Improvements ("PERMITS");
provided, however, that Tenant shall be entitled to pull permits for
construction on a floor-by-floor basis. Tenant hereby agrees that neither
Landlord nor Landlord's consultants shall be responsible for obtaining any
Permits or certificate of occupancy for the Premises and that obtaining the
same shall be Tenant's responsibility; provided, however, that Landlord shall
cooperate with Tenant in performing ministerial acts reasonably necessary to
enable Tenant to obtain any such Permits or certificate of occupancy.
3.5 CHANGE ORDERS. In the event Tenant desires to materially change the
Approved Construction Drawings and such change could cause a Design Problem,
Tenant shall deliver notice (the "DRAWING CHANGE NOTICE") of the same to
Landlord, setting forth in detail the changes (the "TENANT CHANGE") Tenant
desires to make to the Approved Construction Drawings. Landlord shall, within
three (3) business days of receipt of a Drawing Change Notice related to a
Tenant Change affecting the Base Building, and within two (2) business days
of receipt of the Drawing Change Notice related to a Tenant Change which does
not affect the Base Building, either (i) approve the Tenant Change, or (ii)
disapprove the Tenant Change and deliver a notice to Tenant specifying in
reasonably sufficient detail the reasons for Landlord's disapproval;
provided, however, that Landlord may only disapprove of the Tenant Change if
the Tenant Change contains a Design Problem. Any additional costs which arise
in connection with such Tenant Change shall be paid by Tenant; provided,
however, that to the extent Tenant's Contribution has not been disbursed,
such payment shall be made out of Tenant's Contribution.
ARTICLE 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1 TENANT'S SELECTION OF CONTRACTORS.
4.1.1 THE CONTRACTOR. Tenant shall select and retain a licensed
general contractor (the "CONTRACTOR") reasonably approved by Landlord.
Landlord hereby pre-approves Swinterton & Walberg as the Contractor if such
entity is selected by Tenant.
4.1.2 TENANT'S AGENTS. Tenant shall cause the construction of the
Tenant Improvements. All contractors, laborers, materialmen, and suppliers
used by Tenant (such subcontractors, laborers, materialmen or suppliers, as
well as engineers, project manager, broker, architect, Tenant's employees
engaged in the review of the design and construction of the Tenant
Improvements, laborers, materialmen, and suppliers, and the Contractor shall
hereafter be known collectively as "TENANT'S AGENTS") must, to the extent any
such Agents are working on-site at the Premises, be approved in writing by
Landlord, which approval shall not be unreasonably withheld, conditioned or
delayed and shall be granted or denied within three (3) business days of
Tenant's Notice to Landlord requesting Landlord's approval of the same. To
the extent utilized by Tenant, the following subcontractors and consultants
are hereby pre-approved by Landlord: (A) SUBCONTRACTORS: (i) JM Carden
Sprinkler Company (Fire Protection); (ii) Berg Electric (Electrical); (iii)
Deel Mechanical Corporation (Plumbing); (iv) ACCO (HVAC); and (v) Berger
Brothers (Framing and Drywall); (B) CONSULTANTS: (i) Levine/Seegal Associates
(Mechanical & Plumbing Engineering); (ii) Levine/Seegal Associates
(Electrical Engineering); and (iii) Robert Englekirk Consulting Engineers
(Structural Engineering)
EXHIBIT D
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Anthony Mason Consultants, if selected by Tenant, is hereby approved as
Tenant's project manager. The Contractor and the Contractor's subcontractors
(collectively "TENANT'S CONTRACTORS") and their respective workers shall
conduct their activities in and around the Premises, Building and Project in
a harmonious relationship with all other subcontractors, laborers,
materialmen and supplies at the Premises, Building and Project.
4.2 CONSTRUCTION OF TENANT IMPROVEMENTS BY TENANT'S AGENTS.
4.2.1 CONSTRUCTION CONTRACT; COST BUDGET. Prior to Tenant's
execution of the construction contract and general conditions with Contractor
(the "CONTRACT"), Tenant shall submit the Contract to Landlord for its
records.
4.2.2 TENANT'S AGENTS.
4.2.2.1 LANDLORD'S GENERAL CONDITIONS FOR TENANT'S AGENTS AND
TENANT IMPROVEMENT WORK. Tenant's and Tenant's Agent's construction of the
Tenant Improvements shall comply with the following (i) the Tenant
Improvements shall be constructed in material conformance with the Approved
Construction Drawings, subject to Tenant's right to make changes to the same
in accordance with, and subject to, this Tenant Work Letter; (ii) Tenant and
Tenant's Agents shall use commercially reasonable efforts (in accordance with
industry custom and practice) not to interfere with, obstruct, or delay, the
work of Landlord's Base Building contractor and subcontractors with respect
to the Base Building or any other work in the Project and Landlord's Base
Building contractors and subcontractors shall use commercially reasonable
efforts (in accordance with industry custom and practice) not to interfere
with, obstruct or delay the work of Tenant's Agents with respect to the
Tenant Improvements; (iii) Tenant's Contractors shall submit their schedules
of all their work relating to the Tenant Improvements to Landlord and
Landlord shall, within five (5) business days of receipt thereof, inform
Tenant and Tenant's Contractors of any reasonable and non-discriminatory
changes which are reasonably necessary thereto, to avoid interference with
Landlord's work or disruption of existing tenants and Tenant's Contractors
shall adhere to such corrected schedule; and (iv) Tenant shall abide by all
reasonable and non-discriminatory rules made by Landlord's Project contractor
or Landlord's Building manager with respect to any matter, within reason, in
connection with this Tenant Work Letter, including, without limitation, the
construction of the Tenant Improvements; provided that such rules and
regulations are consistent with the practices of landlords of Comparable
Buildings and are applied in a non-discriminatory manner among the
tenants/occupants of the Project.
4.2.2.1 [Intentionally Omitted]
4.2.2.3 INDEMNITY. Tenant's indemnity of Landlord and Landlord's
indemnity of Tenant as set forth, qualified and conditioned in Section 10.1
of this Lease shall also apply with respect to any and all costs, losses,
damages, injuries and liabilities related in any way to any act or omission
of Tenant or Tenant's Agents or any act or omission of Landlord and
Landlord's agents, or anyone directly or indirectly employed by any of them,
or in connection with Tenant's or Landlord's (as the case may be) non-payment
of any amount required to be paid by such party hereunder and/or Tenant's or
Landlord's disapproval of all or any portion of any request for payment
(individually or collectively, "INDEMNIFICATION CLAIM").
EXHIBIT D
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4.2.2.4 REQUIREMENTS OF TENANT'S CONTRACTORS. Each of Tenant's
Contractors shall guarantee or warrant to Tenant and for the benefit of
Landlord that the portion of the Tenant Improvements for which it is
responsible shall be free from any defects in workmanship and materials for a
period of not less than one (1) year from the date of Substantial Completion
of the Tenant Improvements. Each of such Tenant's Contractors performing
actual construction work shall be responsible for the replacement or repair,
without additional charge, of all work done or furnished in accordance with
its contract that shall become defective within one (1) year after the
Substantial Completion of the work performed by such Contractor or
subcontractors. The correction of such work shall include, without additional
charge, all additional expenses and damages incurred in connection with such
removal or replacement of all or any part of the Tenant Improvements, and/or
the Building and/or Common Areas of the Building that may be damaged or
disturbed thereby. All such warranties or guarantees as to materials or
workmanship of or with respect to the Tenant Improvements shall be contained
in the Contract or subcontract and shall be written such that such guarantees
or warranties shall inure to the benefit of both Landlord and Tenant, as
their respective interests may appear, and can be directly enforced by
either; provided that Landlord shall only enforce such guarantee or warranty
if Tenant fails to do so in a reasonable time following notice thereof from
Landlord. Tenant covenants to use commercially reasonable efforts to give to
Landlord any assignment or other assurances which may be reasonably necessary
to effect such right of direct enforcement.
4.2.2.5 INSURANCE REQUIREMENTS.
4.2.2.5.1 GENERAL COVERAGES. All of Tenant's Agents shall
carry worker's compensation insurance covering all of their respective
employees, and shall also carry public liability insurance, including
property damage, all with limits, in form and with companies as are required
to be carried by Tenant as set forth in Article 10 of this Lease (provided
that the limits of liability to be carried by Tenant's Agents and Contractor,
shall be in an amount and with companies which are customary for such
respective Tenant's Agents employed by tenants constructing improvements in
the buildings comparable to any in the vicinity of the Building), and the
policies therefor shall insure Landlord and Tenant, as their interests may
appear, as well as the Contractor and subcontractors.
4.2.2.5.2 SPECIAL COVERAGES. Tenant or Contractor shall
carry "Builder's All Risk" insurance, in an amount not more than the amount
of the Contract, covering the construction of the Tenant Improvements, and
such other insurance as Landlord may reasonably require, it being understood
and agreed that the Tenant Improvements shall be insured by Tenant pursuant
to Article 10 of this Lease immediately upon completion thereof. Such
insurance shall be in amounts and shall include such extended coverage
endorsements as may be reasonably required by Landlord, and are generally
required by landlords of Comparable Buildings.
4.2.2.5.3 GENERAL TERMS. Certificates for all insurance
carried pursuant to this Section 4.2.2.5 shall be delivered to Landlord
before the commencement of construction of the Tenant Improvements (or
applicable portion thereof) and before the Contractor's equipment is moved
onto the Project. All such policies of insurance must contain a provision
that the company writing said policy will give Landlord thirty (30) days
prior notice of any cancellation or lapse of the effective date or any
reduction in the amounts of such insurance.
EXHIBIT D
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In the event that the Tenant Improvements are damaged by any cause during the
course of the construction thereof, Tenant shall immediately repair the same
at Tenant's sole cost and expense. Tenant's Agents shall maintain all of the
foregoing insurance coverage in force until the Substantial Completion of the
Tenant Improvements, except for any "Products" and "Completed Operation
Coverage" insurance required by Landlord, which is to be maintained for the
term of the policy period following Substantial Completion of the Tenant
Improvements. All such insurance relating to property, except Workers'
Compensation, maintained by Tenant's Agents shall preclude subrogation claims
by the insurer against anyone insured thereunder. Such insurance shall
provide that it is primary insurance as respects Landlord and that any other
insurance maintained by Landlord is excess and noncontributing with the
insurance required hereunder. The requirements for the foregoing insurance
shall not derogate from the provisions for indemnification of Landlord by
Tenant under Section 4.2.2.3 of this Tenant Work Letter and Tenant's rights
with respect to the waiver of subrogation.
4.2.3 GOVERNMENTAL COMPLIANCE. The Tenant Improvements shall comply
in all respects with the following: (i) applicable building codes and other
state, federal, city or quasi-governmental laws, codes, ordinances and
regulations, as each may apply according to the rulings of the controlling
public official, agent or other person; (ii) applicable standards of the
American Insurance Association (formerly, the National Board of Fire
Underwriters) and the National Electrical Code; and (iii) building material
manufacturer's specifications, but none of the foregoing requirements shall
restrict or limit Landlord's obligation to deliver the Base Building to
Tenant pursuant to Section 1 of this Tenant Work Letter.
4.2.4 INSPECTION BY LANDLORD. Landlord shall have the right, upon
reasonable notice to Tenant, to inspect the Tenant Improvements at all
reasonable times; provided, however, that Landlord's failure to inspect the
Tenant Improvements shall in no event constitute a waiver of any of
Landlord's rights hereunder nor shall Landlord's inspection of the Tenant
Improvements constitute Landlord's approval of the same. In the event that
Landlord should discover a Design Problem during an inspection, Landlord
shall, as soon as reasonably possible, notify Tenant in writing of such
inspection of such disapproval and shall specify in reasonably sufficient
detail the items disapproved. Any material defects or deviations in, and/or
disapprovals in accordance herewith (because of the existence of a Design
Problem) by Landlord of, the Tenant Improvements shall be rectified by Tenant
at Tenant's expense and at no additional expense to Landlord, provided
however, that in the event Landlord determines that a material defect or
deviation exists or reasonably disapproves of any matter in connection with
any portion of the Tenant Improvements because of a Design Problem, Landlord
may, following notice to Tenant and a reasonable period of time for Tenant to
cure (which period shall in no event be less than ten (10) business days),
take such action as Landlord deems reasonably necessary to correct the Design
Problem, at Tenant's expense, and at no additional expense to Landlord, and
without incurring any liability on Landlord's part, to correct any such
Design Problem, including, without limitation, causing the cessation of
performance of the construction of the Tenant Improvements until such time as
the Design Problem is corrected to Landlord's reasonable satisfaction.
4.2.5 MEETINGS. Commencing upon the execution of this Lease,
Tenant shall hold regular meetings at a reasonable time, with the Architect and
the Contractor regarding the progress of the preparation of Construction
Drawings and the construction of the Tenant Improvements, which meetings shall
be held in West Los Angeles or Santa Monica, and
EXHIBIT D
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Landlord and/or its agents shall receive prior notice of, and shall have the
right to attend, all such meetings, and, upon Landlord's request, certain of
Tenant's Agents shall attend such meetings. In addition, minutes shall be
taken at all such meetings by a qualified person designated by Tenant and a
copy of such minutes shall be promptly delivered to Landlord. Landlord agrees
that one (1) such meeting each month during the period of construction shall
include a review of Contractor's current request for payment for the Tenant
Improvements.
4.3 NOTICE OF COMPLETION; COPY OF UPDATED APPROVED CONSTRUCTION
DRAWINGS. Within ten (10) days after completion of construction of the Tenant
Improvements, Tenant shall prepare a Notice of Completion, which Landlord
shall promptly execute if factually correct, and Tenant shall cause such
Notice of Completion to be recorded in the office of the Recorder of the
County of Los Angeles in accordance with Section 3093 of the Civil Code of
the State of California or any successor statute, and shall furnish a copy
thereof to Landlord upon such recordation. In the event Tenant fails to so
record the Notice of Completion as required pursuant to this Section 4.3,
then such failure shall not, in and of itself, constitute a default hereunder
but Tenant shall indemnify, defend, protect and hold harmless Landlord and
the Landlord Parties from any and all loss, cost, damage, expense and
liability (including, without limitation, court costs and reasonable
attorneys' fees) in connection with such failure by Tenant to so record the
Notice of Completion as required hereunder. If Tenant fails to do so,
Landlord may execute and file the same on behalf of Tenant as Tenant's agent
for such purpose, at Tenant's sole cost and expense. At the conclusion of
construction, (i) Tenant shall cause the Contractor (A) to update the
Approved Construction Drawings as to the mechanical drawing portion thereof,
and to provide field-grade mark-ups of the remaining portion of the Approved
Construction Drawings, in all cases only as necessary to reflect all changes
made to the Approved Construction Drawings during the course of construction,
(B) to certify to the actual knowledge of Contractor that such updated
Approved Construction Drawings are true and correct, which certification
shall survive the expiration or termination of this Lease, and (C) to deliver
to Landlord two (2) sets of sepias or electronic format of such updated
Approved Construction Drawings, together with any permits or similar
documents issued by governmental agencies in connection with the construction
of the Tenant Improvements, 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 and
information relating to the improvements, equipment, and systems in the
Premises in Tenant's possession.
ARTICLE 5
DELAY OF LEASE COMMENCEMENT DATE
5.1 LEASE COMMENCEMENT DATE DELAYS. The Lease Commencement Date shall
occur as provided in Section 2.1 of this Lease and Section 5.2 of the
Summary, provided that the Lease Commencement Date shall be extended (A) by
the number of days of delay of the Substantial Completion of the Tenant
Improvements in the Premises to the extent caused by a "Commencement Date
Delay," as that term is defined below, but only to the extent that such
Commencement Date Delay causes the Substantial Completion of the Tenant
Improvements to occur after the end of the Construction Period and (B) until
Landlord shall substantially complete the Base Building and has received a
temporary or permanent certificate of occupancy for the Building, subject to
Tenant Delays. As used herein, the term "COMMENCEMENT DATE DELAY" shall mean
only a "Force Majeure Delay" or a "Landlord Caused Delay," as those terms are
EXHIBIT D
-13-
<PAGE>
defined below in this Section 5.1 of this Tenant Work Letter. As used herein,
the term "Force Majeure Delay" shall mean only an actual delay resulting from
fire, wind, damage or destruction to the Building, explosion, casualty,
flood, hurricane, tornado, the elements, acts of God or the public enemy,
strikes, sabotage, war, invasion, insurrection, rebellion, civil unrest,
riots, or earthquakes, failure of utilities, inability to secure labor or
materials or reasonable substitutions therefor or inability to secure permits
and governmental inspections beyond the time period that would normally be
required to secure such permits and inspections on an objective basis by any
other person or entity constructing improvements comparable to the Tenant's
Improvements. As used in this Tenant Work Letter, "LANDLORD CAUSED DELAY"
shall mean actual delays to the extent resulting from the (i) failure of
Landlord to timely approve or disapprove any Construction Drawings or Change
Orders; (ii) material and unreasonable interference by Landlord, its agents
or Landlord Parties (except as otherwise allowed under this Tenant Work
Letter) with the Substantial Completion of the Tenant Improvements and which
objectively preclude or delay the construction of general office use tenant
improvements in the Building or any portion thereof, which interference
relates to access by Tenant, or Tenant's Agents to the Building or any
Building facilities (including loading docks and freight elevators) or
service and utilities (including temporary power and parking areas as
provided herein) during normal construction hours, or the use thereof during
normal construction hours (iii) any delay in the funding of Tenant's
Contribution Disbursement by Landlord, (iv) a material breach by Landlord of
a provision of this Tenant Work Letter or as specifically provided in Section
6.8, 6.11 or 6.12 of this Tenant Work Letter, (v) Landlord's failure to
obtain a temporary or permanent certificate of occupancy for the Building by
the Lease Commencement Date and (vi) the failure of Landlord to deliver the
Base Building in substantially the condition required on the applicable
Initial Delivery Date or applicable Enclosure Delivery Date. Landlord agrees
to use commercially reasonable efforts (which Landlord acknowledges may
include expending up to $300,000.00) to deliver possession of the Premises to
Tenant by the Initial Delivery Dates (in the Initial Delivery Condition) and
the Enclosure Delivery Dates (in the Enclosure Delivery Condition) and
Landlord agrees to expend such monies as Landlord reasonably determines to be
necessary to cause the same to occur. Notwithstanding anything above to the
contrary, Landlord acknowledges and agrees that in the event Landlord is
unable to deliver possession of the Premises to Tenant by the Initial
Delivery Dates (in the Initial Delivery Condition) and/or the Enclosure
Delivery Dates (in the Enclosure Delivery Condition) and if Landlord receives
any consideration from Landlord's contractors from any liquidated damages (if
any) owing to Landlord set forth in Landlord's construction contracts from
Landlord's contractors as a result thereof, then Landlord agrees, to the
extent that such delay caused the Commencement Date to occur beyond October
31, 2000, to pay to Tenant fifty percent (50%) of any such liquidated damages
actually received by Landlord on account of such delay. Upon Landlord's
delivery of the Premises to Tenant in the Initial Delivery Condition on the
Initial Delivery Date(s), Landlord agrees to use commercially reasonable
efforts to complete the remainder of the Base Building. Upon Landlord's
delivery of the Expansion Space to Tenant in the Initial Delivery Condition
on the Initial Delivery Date(s), Landlord agrees to use commercially
reasonable efforts to complete the remainder of the base building for the
Expansion Space.
5.2 DETERMINATION OF LEASE COMMENCEMENT DATE DELAY. If Tenant contends
that a Landlord Caused Delay has occurred, Tenant shall notify Landlord in
writing of the event which constitutes such Landlord Caused Delay. If such
actions, inaction or circumstance described in
EXHIBIT D
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<PAGE>
the notice (the "DELAY NOTICE") are not cured by Landlord within one (1)
business day of Landlord's receipt of the Delay Notice and if such action,
inaction or circumstance otherwise qualify as a Landlord Caused Delay, then a
Landlord Caused Delay shall be deemed to have occurred commencing as of the
date of Landlord's receipt of the Delay Notice and ending as of the date such
delay ends.
5.3 DEFINITION OF SUBSTANTIAL COMPLETION OF THE TENANT IMPROVEMENTS. For
purposes of this Section 5, "SUBSTANTIAL COMPLETION" of the Tenant
Improvements shall mean the issuance of a temporary certificate of occupancy
for the Premises and completion of construction of the Tenant Improvements in
the Premises pursuant to the Approved Construction Drawings, including any
furniture, fixtures, work stations, built-in furniture or equipment necessary
to obtain a temporary certificate of occupancy, with the exception of any
punch list items, any furniture, fixtures, work stations, built-in furniture
or equipment not required to obtain a temporary certificate of occupancy
(even if the same requires installation or electrification by Tenant's
Agents) and any tenant improvement finish items and materials which are
selected by Tenant but which are not available within a reasonable time
(given the Lease Commencement Date).
ARTICLE 6
MISCELLANEOUS
6.1 TENANT'S REPRESENTATIVE. Tenant has designated Tony Mason and Lisa
Turco as its sole representatives with respect to the matters set forth in
this Tenant Work Letter, who, until further notice to Landlord, shall have
full authority and responsibility to act on behalf of the Tenant as required
in this Tenant Work Letter.
6.2 LANDLORD'S REPRESENTATIVE. Landlord has designated Michael Branigan
as its sole representative with respect to the matters set forth in this
Tenant Work Letter, who, until further notice to Tenant, shall have full
authority and responsibility to act on behalf of the Landlord as required in
this Tenant Work Letter.
6.3 TIME OF THE ESSENCE IN THIS TENANT WORK LETTER. Unless otherwise
indicated, all references in this Tenant Work Letter to a "NUMBER OF DAYS"
shall mean and refer to calendar days. If any item requiring approval is
timely disapproved by Landlord, the procedure for preparation of the document
and approval thereof shall be repeated until the document is approved by
Landlord.
6.4 TENANT'S LEASE DEFAULT. Notwithstanding any terms and conditions to
the contrary contained in this Lease, if a Default as described in Article 19
of this Lease or a material default by Tenant under this Tenant Work Letter
beyond the applicable notice and cure period set forth in Article 19 of the
Lease has occurred at any time on or before the Substantial Completion of the
Tenant Improvements, then (i) in addition to all other rights and remedies
granted to Landlord pursuant to the Lease, Landlord shall have the right to
withhold disbursement of all or any portion of Tenant's Contribution and/or
Landlord may cause Contractor to cease the construction of the Tenant
Improvements (in which case, Tenant shall be responsible for any delay in the
Substantial Completion of the Tenant Improvements caused by such work
stoppage), and (ii) all other obligations of Landlord under the terms and
conditions of this Tenant Work
EXHIBIT D
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<PAGE>
Letter shall be suspended until such time as such Default is cured pursuant
to the terms and conditions of the Lease (in which case, Tenant shall be
responsible for any delay in the Substantial Completion of the Tenant
Improvements caused by such inaction by Landlord),provided, however, that
notwithstanding any other provisions of this Lease, if a Default by Tenant is
cured, forgiven or waived, Landlord's suspended obligations shall be fully
reinstated and resumed, effective immediately.
6.5 BONDING. Notwithstanding anything to the contrary set forth in this
Lease, Tenant shall not be required to obtain or provide any completion or
performance bond in connection with any Tenant Improvement work performed by
or on behalf of Tenant.
6.6 NO MISCELLANEOUS CHARGES. Neither Tenant nor Tenant's Agents shall
be charged for the use of parking (subject, however, to commercially
reasonable availability), electricity, water, security, toilet facilities,
HVAC (during Building Hours, except Holidays), loading docks and/or the
freight elevator during the construction of the Tenant Improvements and
Tenant's move into the Premises prior to the Lease Commencement Date. Subject
to terms of this Tenant Work Letter, the foregoing items (including
reasonable parking accommodations (with key cards)) shall be made reasonably
available (to the extent reasonably available) to the Contractor and the
subcontractors during the construction period. In addition, the HVAC systems
for the Premises shall be run during Building Hours (except Holidays) when
Tenant is moving into the Premises.
6.7 CLEAN-UP EXPENSES. Landlord shall clean the Premises prior to
delivering the Premises to Tenant for the commencement of the construction of
the Tenant Improvements, including removal of all rubbish and debris. The
costs of any cleaning to be provided by Landlord pursuant to this Section 6.7
shall not be included in Operating Expenses for the Building.
6.8 CODES. In the event that the Base Building does not comply with Code
as required by, and subject to, the terms of Section 1 of this Tenant Work
Letter, and therefore Tenant incurs increased design or construction costs
that it would not have incurred but for such non-compliance with Code, then
such costs shall be reimbursed by Landlord to Tenant within ten (10) business
days after receipt by Landlord from Tenant of a reasonably particularized
invoice documenting and evidencing such increased costs and any delays
encountered by Tenant in the design or construction of the Tenant
Improvements as a result of such non-compliance shall be subject to Section
5.1 above of this Tenant Work Letter in order to determine if such delay is a
Landlord Caused Delay.
6.9 MOVE-IN PRIORITY. Provided that Tenant has provided Landlord with at
least two (2) weeks' prior written notice of Tenant's move into the Building,
Tenant shall have the exclusive right to use the passenger and freight
elevators during the weekend that it moves into the Building, but only to the
extent such exclusive use is necessary for Tenant to complete its move into
the Building over one (1) weekend in an orderly and efficient manner.
6.10 STAGING AREA. During the period prior to the Lease Commencement
Date, Tenant shall have the right, without the obligation to pay Rent, to use
empty space (if any is available in Landlord's sole and absolute discretion)
in the Project designated by Landlord for the purposes of
EXHIBIT D
-16-
<PAGE>
storing and staging its furniture and equipment only. With respect to this
free storage space (if any), Tenant shall be responsible for providing all
insurance and for providing any necessary fencing or other protective
facilities. Tenant shall hold Landlord harmless and shall indemnify Landlord
from and against any and all loss, liability or cost arising out of or in
connection with use of such storage space by Tenant. Tenant hall be obligated
to remove all of the stored materials and its fencing and other facilities
within thirty (30) days after Tenant's receipt of written notice from
Landlord stating that such staging area is needed by Landlord for
construction of another tenant's premises in which event comparable space, to
the extent such space is available, shall be made available to Tenant as a
substitute staging area.
6.11 HAZARDOUS MATERIALS COSTS. Landlord agrees to bear any increased
costs in the design or construction of the Tenant Improvements directly
resulting from any Hazardous Materials in the Project (provided such
Hazardous Materials are not introduced by Tenant) and shall reimburse to
Tenant, any additional, actual, documented and reasonable hard costs incurred
by Tenant as a result of the presence of Hazardous Materials in the Project
(provided such Hazardous Materials are not introduced by Tenant) prior to the
date Tenant constructs the Tenant Improvements and any delays encountered by
Tenant in the design or Substantial Completion of the Tenant Improvements as
a result of the presence of such Hazardous Materials shall be subject to
Section 5.1 above in this Tenant Work Letter in order to determine if any
such delays constitute a Landlord Caused Delay.
6.12 EXPENSES DUE TO ERROR. If Tenant incurs increased design or
construction expenses because the Base Building as built is not materially in
compliance with the Base Building Plans, then Landlord shall bear any
increased costs in the design and construction of the Tenant Improvements
resulting therefrom and any delays encountered by Tenant in the design or
construction of the Tenant Improvement or a result thereof shall be subject
to Section 5.1 above of this Tenant Work Letter in order to determine if any
such delays constitute a Landlord Caused Delay.
6.13 MISCELLANEOUS. Landlord shall provide Tenant with adequate space
next to the Building at a mutually agreeable location (but as close as
reasonably possible to the freight elevators) for the placement of a
commercially reasonable sized construction trailer. Landlord's Contractor
shall coordinate with contractor regarding the timing of installation of any
ground level hardscape work so as not to cut off access to either Tenant's
access to the freight elevator or Tenant's work on the ground floor.
6.14 HVAC CONDENSER ROOFTOP SPACE. In connection with Tenant's
installation of the Tenant HVAC System (described in Section 6.4 of the
Lease), Landlord acknowledges and agrees that Landlord shall use commercially
reasonable efforts to provide Tenant with space on the roof the Building
(including the roof of the Phase II Building (to the extent Tenant leases the
Expansion Space)), for the installation of HVAC condenser units pertaining to
the Tenant HVAC System; provided, however, that: (i) the exact location of
any such space shall be designated by Landlord in Landlord's reasonable
discretion, (ii) all plans and specifications pertaining to the installation
of such HVAC condenser units shall be subject to Landlord's reasonable
approval in accordance with the Lease, (iii) the installation, replacement,
repair, removal, operation and maintenance of any such HVAC condenser use
shall be at Tenant's sole cost and expense and subject to all Applicable
Laws, rules and regulations, (iv) Landlord shall not have any
EXHIBIT D
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<PAGE>
obligations with respect to the HVAC condenser units, (v) Tenant shall be
solely responsible for any damage to the Building and/or the Project as a
result of the existence of HVAC condenser units, (vi) Tenant, at Tenant's
sole cost and expense, shall retain Landlord's designated roofing contractor
and structural engineer (each of which shall be reasonably competitively
priced) with respect to the making of, at Tenant's sole cost and expense, any
necessary penetrations (if any) and associated repairs to the roof and any
necessary structural modifications (if any), in each event in connection with
the installation of such HVAC condenser units, (vii) Landlord shall have the
right to relocate the HVAC condenser units to another location on the roof of
the Building (provided that any such relocation shall be at Landlord's cost
and shall not materially impair the utility or operation of such HVAC
condenser units), and (viii) Tenant, at Tenant's sole cost and expense, shall
screen from view such HVAC condenser units in a manner reasonably
satisfactory to Landlord. Tenant acknowledges and agrees that Tenant's rights
to install such HVAC condenser units shall otherwise be subject to all the
other terms and provisions of the Lease including, but not limited to,
Tenant's indemnification and insurance obligations pertaining to such
Building rooftop space as would be applicable to the Premises.
EXHIBIT D
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<PAGE>
SCHEDULE 1 TO EXHIBIT D
THE SPECIFICATIONS
1. PARTITIONS
1.1 Standard Demising
3-5/8" metal studs, 20 gauge, 24" on center, erected from slab
to underside of structure above. One layer of 5/8" gypsum
board on each side taped and sanded smooth for paint.
Fiberglass batt insulation full height of partition. Where
return air openings are required in plenum, install
approximately sized sound boots. Provide backing equal to
Lowry's box pads at all electrical boxes in partition.
1.2 Standard Corridor
3-5/8" metal studs, 25 gauge, 24" on center, erected deck to
deck with one layer of fire code 5/8" gypsum board each side
(to corridor "lid"), taped and sanded smooth for paint, with
acoustic insulation within the wall cavity from finish floor
to the corridor "lid."
1.3 Standard Interior
3-5/8" or 2-1/2" metal studs, 25 gauge, 24" on
center from slab to 12" above suspended ceiling
(9' - 6'), with alternating 45 DEG. bracing above
ceiling at 4"-0" on center. One layer of 5/8"
gypsum board on each side, taped and sanded smooth
for painting.
2. DOORS, FRAMES AND HARDWARE.
2.1 Standard Entry/Corridor
2.1.1 Door
3' - 5/8" (6' - 0") x 8'0", 20-minute-rated,
solid core door. Door finish to be plastic
laminate-Color to be selected by WDG.
2.1.2 Frame
3' - 5/8" (or 6' - 0") x 8'0". Alumax Eagle
Series, Brushed Aluminum.
2.1.3 Hardware
Schlage "L" Series: L9050P x 93A.
Finish 630 Hardware Finish #630
Satin Chrome.
(2) Hinges: BB700, 4.5 x 4.0, Hager.
Finish: 630
(1) Closer: LCN 4041. Finish: LBRNZ -
To match #630
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<PAGE>
(1) Some Stop: Trimco W1276. Finish
630
(1) Threshold: Pemko 171B. Finish 630
Add for paired entry:
(1) Auto flush bolts: DCI 942NH.
Finish 630
(1) Corrdinator: DCI 672. Finish 630
(1) Closer: LCN 4041. Finish To match
#630
(1) Astragal. Pemko 355BGDV
2.2 Standard Interior
2.2.1 Door
3' - 0" (6' - 0") x 8'0", 20-minute-rated,
solid core door. Door Finish - Plastic
Laminate. Color to be selected by WDG.
2.2.2 Frame
3' - 0" (or 6'-0") x 8'0". Alumax Eagle
Series, 20-minute-rated. Brushed Aluminum.
2.2.3 Hardware
Schlage "L" Series: L9050P x 93A
(8' - 10") ht. Finish 630
(2) Hinges: BB700, 4.5 x 4.0, Hager.
Finish: 630
(1) Closer: LCN 4041. Finish: To
match #630
(1) Some Stop: Trimco W1276. Finish To
match #630
(1) Threshold: Pemko 171B. Finish 611
Add for paired entry:
(1) Auto flush bolts: DCI 942NH.
Finish 630
(1) Corrdinator: DCI 672. Finish 630
(1) Closer: LCN 4041. Finish To match
#630
(1) Astragal. Pemko 355BGDV
3. WINDOW COVERINGS.
Levolor - Horizontal blinds - 1" perforated "Sheer View
Riviera" - Color Anodized Aluminum
4. CEILING.
24" x 24" suspension system (as manufactured by Donn Products,
model "Fineline" with white rails and reveals) with non-rated
3/4" thick x 24" square mineral fiber acoustic ceiling tile
(as manufactured by Celotex, model Cashmere).
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<PAGE>
5. WALL FINISH PAINT.
Paint gypsum board wall with one coat prime plus two coat
finish flat latex paint in colors from a standard chart (to be
selected).
6. FLOOR COVERING.
6.1 Standard Carpet
Dense cut pile carpet stretched over pad (3/8" Nova)
from colors from a standard chart as manufactured by
Bentley or approved equal (to be selected).
6.2 Standard VCT
Vinyl Tile Flooring (12" x 12 - 1/8") with glue down
installation from a standard color chart (as
manufactured by Armstrong, Premium Execelon or
approved equal).
7. ELECTRICAL.
7.1 Fluorescent Light Fixture
7.1.1 Standard 2' x 4' Fluorescent
2' x 4': Recessed parabolic 2' x 4', with 18
cell louvers (3" deep, semi-specular, low
iridescent) 3 lamps, heat removal slots, 277
volt electronic. 3 lamp ballasts shall be
provided in spaces controlled by occupancy
sensors, dual ballasts shall be provided in
spaces with double switch. Fixtures shall be
tandem wired (master/slave). Lamps shall be
T-8, 32 watt, energy saving, 3500 DEG. k,
type SP-35.
Alternate 2' X 2' Fluorescent
2' x 2': Recessed parabolic 2' x 2', with 3"
deep, 9 cell, semi-specular, low iridescent
louver, 2 lamps, heat removal slots, 277
volt electronic ballasts. Lamps shall be
T-8, 32 watt, energy saving, 3500 DEG. k,
type SP-35. Columbia catalog no.
P422-23246-SG-LD-33-6-EB8277
Alternate Light Fixture - indirect lighting
as selected by WDG.
Alternate Lamp - 3000 k or 4100 k for
Fluorescent lighting.
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<PAGE>
7.1.2 Switch
Rocker switch type, specification grade,
color white, 20 ampere, 277 volt, rated for
full capacity on incandescent and
fluorescent loads, with matching cover
plate.
Single pole: Leviton catalog no 5621-W
Double pole: Leviton catalog no. 5622-W
3-Way: Leviton catalog no. 5623-W
4-Way: Leviton catalog no. 5624-W
7.1.3 Occupancy Sensor
Passive infrared wall mount motion detector
and ultrasonic ceiling mounted, solid-state,
with "sensitivity" and "time delay"
controls, manual override, and uniform
coverage, 277 volt. Provide switch packs, as
required, and wall switches for ceiling
mounted sensors. Color: White.
Wall (250 s.f. and under): Watt Stopper
catalog no. WS-277
Ceiling: Watt Stopper catalog no. W-2000A
Ceiling: hallway: Watt Stopper catalog no.
W-2000H
7.1.4 Receptacle
Decora type, duplex, specification grade,
color white, 125 volt, 2 pole, 3 wire
grounding type, NEMA 5-15, with matching
cover plate. Use 20 ampere receptacle when
supplied by a separate circuit.
15 ampere: Leviton catalog no. 16252-W
20 ampere: Leviton catalog no. 16352-W
7.2 Standard Life Safety Speaker/Strobe
7.2.1 Horn/Strobe
7.2.2 Smoke Detector
Ceiling mounted, ionization type, with
addressable base. Provide auxiliary relay
where required. C.S.F.M. no. 7272-0028:171
Notifier catalog no. CPX-751
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<PAGE>
7.3 Standard Exit Sign
7.3.1 Exit Sign
LED edge lit exit sign with green letters on
white background, recessed ceiling mounted,
with white housing, dual circuit, 277 volt,
fused, with directional arrows as noted on
the plans.
Single Face: Prescolite catalog no. LERRT6
277/277
Double Face: Prescolite catalog no. LERR6
277/277
7.3.2 Low Level Exit Sign
Self-luminous exit sign with white letters
on a green background, surface mounted, with
polycarbonate cover, beveled aluminum frame
and tamper resistant screws. Permex catalog
no P160-12-RVC
Alternate - other colors (other than red
letters on white background) as selected by
WDG.
7.4 Modular Wiring System
Modular wiring system, as manufactured by AFC,
Relocar Walker or approved equal shall be used for
all tenant wiring.
Alternate - EMT and wire for standard construction.
8. TELEPHONE
Standard wall telephone outlet including conduit (3/4"
homerun), outlet box and white cover plate (as manufactured by
Leviton, model 40649-W, coverplate 80401-W).
9. HVAC SYSTEMS
9.1 Standard Zone
Single inlet zone VAV box (as manufactured by
Krueger, series LMHS #66 from duct loops on floor,
lined plenum, insulated flex ducts, krueter direct
drive actuators, pressure independent controllers,
room thermostats (DDC Controls), and electric reheat,
installation complete in the following standard sizes
as required:
<TABLE>
<CAPTION>
SIZE MAXIMUM CFM
<S> <C>
5" 230
6" 520
8" 925
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<PAGE>
10" 1100
12" 1700
14" 2400
16" 3700
</TABLE>
9.2 Standard Diffuser, Low Pressure Duct, Etc.
Air distribution from zone boxes to rooms shall
include one 2' x 2' perforated face diffuser (as
manufactured by Krueger, model 6500F23), with
associated low pressure ductwork, insulation,
balancing dampers, low pressure flex connection to
diffuser with balancing and installation complete.
10. FIRE SPRINKLERS
Royal Flush sprinkler head (as manufactured by Central
Sprinkler Company, Model GB4 recessed designer glass bulb
sprinkler with stain chrome sprinkler and escutcheon, 1/2 inch
orifice, and 135 degrees Fahrenheit temperature rating).
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<PAGE>
SCHEDULE 2 TO EXHIBIT D
DESCRIPTION OF BASE BUILDING PLANS
The Base Building, defined by HKS Architects Construction Documents including
the Project Manual dated August 4, 1999 as attached.
-25-
<PAGE>
EXHIBIT E
FORM OF TENANT'S ESTOPPEL CERTIFICATE
The undersigned as Tenant under that certain Office Lease (the "Lease")
made and entered into as of __________, 199__ by and between
_____________________________ as Landlord, and the undersigned as Tenant, for
Premises on the __________ floor(s) of the office building located at
______________________, Los Angeles, California ___________, certifies as
follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease
and all amendments and modifications thereto. The documents contained in Exhibit
A represent the entire agreement between the parties as to the Premises.
2. The undersigned currently occupies the Premises described in the
Lease.
3. The Lease Term commenced on _________, and the Lease Term expires on
____________.
4. Base Rent became payable on _________________.
5. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.
6. Tenant has not transferred, assigned, or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto except as follows:
7. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through ______________. The current monthly installment of Base Rent is
$_________.
8. To Tenant's actual knowledge, all conditions of the Lease to be
performed by Landlord necessary to the enforceability of the Lease have been
satisfied and Landlord is not in default thereunder.
9. The current stated amount of the Security L-C is $______, the
current amount of Security L-C Deposit is $______, the current amount of the
Additional Security L-C (if any), the current stated amount of the Additional
Promissory Note L-C (if any) is $______ and the current amount of the Additional
Security L-C Deposit (if any) is $______.
-1-
<PAGE>
10. No rental has been paid more than thirty (30) days in advance and
no security has been deposited with Landlord except as provided in the Lease.
11. To Tenant's actual knowledge, as of the date hereof, there are no
existing defenses or offsets that the undersigned has against Landlord nor have
any events occurred that with the passage of time or the giving of notice, or
both, would constitute a default on the part of Landlord under the Lease.
12. The undersigned acknowledges that this Estoppel Certificate may be
delivered to Landlord or to a prospective mortgagee, or a prospective purchaser,
and acknowledges that said prospective mortgagee or prospective purchaser will
be relying upon the statements contained herein in making the loan or acquiring
the property of which the Premises are a part and that receipt by it of this
certificate is a condition of making of such loan or acquisition of such
property.
13. If Tenant is a corporation or partnership, each individual
executing this Estoppel Certificate on behalf of Tenant hereby represents and
warrants that Tenant is a duly formed and existing entity qualified to do
business in California and that Tenant has full right and authority to execute
and deliver this Estoppel Certificate.
Executed at __________________ on the ____ day of _________, 19__.
"Tenant":
----------------------------
a
-----------------------------------
By:
--------------------------------
Its:
---------------------------
By:
--------------------------------
Its:
---------------------------
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<PAGE>
EXHIBIT F
FORM OF SPECIAL POWER OF ATTORNEY
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES)
KNOW ALL MEN BY THESE PRESENTS: That the undersigned, eToys Inc., a
Delaware corporation (the "COMPANY"), does hereby make, constitute and
appoint Kilroy Realty, L.P., a Delaware limited partnership ("KILROY") its
true and lawful special attorney-in-fact for it and in its name, place and
stead, and for its use and benefit, for the purpose of establishing on its
behalf one or more accounts (hereafter the "BANK ACCOUNTS") at one or more
banks or other financial institutions and to execute all documents and
instruments required in connection with (i) the establishment and maintenance
of the Pledged Account(s) referenced in Article 21 of that certain Office
Lease dated as of December 14, 1999, by and between the Company and Kilroy
including the execution and filing of any UCC-1 related to such Bank Account,
the execution of the Notice of Security Interest in Deposit Account attached
as Exhibit A to Exhibit K to the Lease, and the execution of the "Pledge and
Security Agreement" attached as Exhibit K to the Lease, and (ii) any other
business of the Company regarding the Bank Accounts, including, but not
limited to, the execution of signature cards.
THE UNDERSIGNED gives and grants to its special attorney-in-fact
full power and authority to do and perform all and every act enumerated
herein and things requisite or proper to be done in the exercise of any of
the rights and powers herein granted, as fully to all intents and purposes as
it might or could do if personally present, hereby ratifying and confirming
all that its special attorney-in-fact shall lawfully do or cause to be done
by virtue of the authority granted herein.
While this instrument is to be construed and interpreted as a
special power of attorney, it is not to be construed or interpreted as
limited or restricting the special powers granted herein to the special
attorney-in-fact.
The rights, powers and authority of the special attorney-in-fact to
exercise any and all of the rights and powers herein granted shall commence
and be in full force and effect immediately and shall terminate on the Lease
Expiration Date, or such later date as such Pledged Account(s) remain in
existence.
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IN WITNESS WHEREOF, I have here unto set my hand this ____ day of
December, 1999.
eTOYS INC.,
a Delaware corporation
By:
-----------------------------------------
Its:
-------------------------------------
By:
-----------------------------------------
Its:
-------------------------------------
STATE OF )
) ss.
COUNTY OF LOS ANGELES)
On ________________________, before me, ________________________, a
Notary Public in and for said state, personally appeared
____________________________, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to the
within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument,
the person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
---------------------------------------------
Notary Public in and for said State
STATE OF )
) ss.
COUNTY OF LOS ANGELES)
On ________________________, before me, ________________________, a
Notary Public in and for said state, personally appeared
____________________________, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to the
within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument,
the person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
---------------------------------------------
Notary Public in and for said State
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EXHIBIT G
FORM OF TELECOMMUNICATION AGREEMENT
This Telecommunication Agreement (this "AGREEMENT") is entered into as
of __________ by and between Kilroy Realty, L.P., a Delaware limited partnership
("LANDLORD"), and eToys Inc., a Delaware corporation ("TENANT").
R E C I T A L S :
This Agreement is made with regard to the following facts:
A. Landlord and Tenant entered into that certain Office Lease dated
__________ (the "LEASE"), under which Tenant leases approximately _________
rentable square feet of office space commonly known as Suite _____ (the
"PREMISES") in that certain office building located at ________________________,
California (the "BUILDING").
B. In connection with the Lease, Tenant desires to use an additional
area located on the roof area of the Building for the purpose of constructing,
installing, operating, repairing, replacing (subject to Section 3 of this
Agreement) and maintaining a [INSERT APPROPRIATE EQUIPMENT] microwave, radio,
satellite and other telecommunications equipment as set forth on Schedule 1,
attached hereto (individually, a "TRANSMISSION DEVICE", and collectively, the
"TRANSMISSION DEVICES"), and an additional area within the Building's riser
system for the telecommunications conduits, devices, fiber optics and
electrical, coaxial, and other connections (collectively, the "CONNECTIONS")
necessary to connect the Transmission Devices to the Premises. The Transmission
Devices and Connections are sometimes referred to in this Agreement collectively
as the "TELECOMMUNICATION DEVICES". Landlord has agreed to permit Tenant to use
those areas and to construct, install, operate, repair, replace, and maintain
the Telecommunication Devices at Tenant's sole cost and expense.
A G R E E M E N T :
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
as follows:
1. LICENSE OF TRANSMISSION DEVICES AREA.
1.1 DESIGNATION NOTICE; TRANSMISSION DEVICES AREA. On thirty
(30) days prior notice from Tenant to Landlord (the "DESIGNATION NOTICE"),
Landlord shall designate areas on the roof of the Building (the "ROOF LOCATION")
that Tenant may use for the purpose of constructing, installing, operating,
repairing, replacing (subject to Section 3 of this Agreement) and maintaining
the Transmission Devices (collectively, the "TRANSMISSION DEVICES AREA").
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For purposes of this Agreement, the Building riser system as used by Tenant
for the Connections shall also be referred to as a part of the Transmission
Devices Area.
1.2 NOTICE OF EXERCISE. Tenant may exercise its right to
use that Transmission Devices Area by written notice delivered to Landlord
(the "NOTICE OF EXERCISE") at any time after the delivery of the Designation
Notice. The terms of this Agreement shall be effective upon the date of this
Agreement and shall continue in effect until the expiration or earlier
termination of this Agreement as set forth in Section 1.3, below, or the
failure of Tenant to timely deliver a Notice of Exercise.
1.3 LICENSE TO USE THE TRANSMISSION DEVICES AREA; EXCLUSIVE
USE. Five (5) business days following the delivery of the Notice of Exercise,
Tenant's license to use the Transmission Devices Area to construct, install,
operate, repair, replace (subject to Section 3 of this Agreement) and
maintain the Telecommunication Devices shall commence and shall continue
until the earlier of (i) the expiration or earlier termination of the Lease,
(ii) any termination of this Agreement required by law, governmental
authority or quasi-governmental authority, or (iii) the effective date set
forth in a written notice from Tenant to Landlord electing to terminate this
Agreement. Subject to the rights of Landlord to maintain, operate and repair
the Building, Tenant shall have the exclusive right to use the Roof Location.
Landlord shall, upon reasonable prior Notice to Tenant, have the right to
use, and to grant to third parties the right to use, the Building riser
system, and portions of the roof of the Building, other than the Roof
Location so long as any such use of the other portions of the roof shall not
unreasonably interfere with Tenant's Telecommunication Devices.
1.4 ACCESS TO TELECOMMUNICATION DEVICES. During the term of
this Agreement, Tenant, its agents, employees and contractors, will have the
right of access to the Transmission Devices, the Transmission Devices Area,
and the Connections, upon at least two (2) business days' prior written
notice to Landlord, or any shorter time period as Landlord may allow. In the
event that the Connections are only accessible through space in the Building
leased to other tenants, Tenant may access such Connections only (i) after
giving Landlord at least three (3) business days' prior written notice, (ii)
if such access is reasonably necessary, and (iii) if accompanied by an agent
of Landlord. In the event of an emergency, Tenant shall notify Landlord of
such emergency and, thereafter, Landlord shall use its commercially
reasonable efforts to respond more quickly than as set forth in this Section
1.4 to the access needs of Tenant.
1.5 OWNERSHIP AND REMOVAL OF TELECOMMUNICATION DEVICES. The
Telecommunication Devices shall at all times remain the property of Tenant.
Tenant shall have the right to remove the Telecommunication Devices, or any
part thereof, at any reasonable time upon at least thirty (30) days' prior
written notice to Landlord; provided that in the event of an emergency,
Landlord shall use its commercially reasonable efforts to allow Tenant to
remove such Telecommunication Devices upon less notice. On or before the
expiration or earlier termination of this Agreement, Tenant will remove, at
its own cost and expense, the Telecommunication Devices and all related
facilities in the Transmission Devices Area (specifically including, but not
limited to, (i) any fencing and barriers securing the Telecommunication
Devices, and (ii) any Connections installed by or on behalf of Tenant in the
Building riser system), and return the Transmission Devices Area
(specifically including, but not limited to, the Building riser system) to
its condition existing prior to Tenant's installation of the
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<PAGE>
Telecommunication Devices. If Tenant fails to complete such removal or fails
to repair any damage caused by such removal within ten (10) days after the
expiration or sooner termination of the Lease, Landlord may complete such
removal and repair such damage and charge the cost thereof to Tenant, which
amounts shall be payable by Tenant within thirty (30) days after Notice
thereof from Landlord to Tenant.
2. COSTS. Tenant shall not be obligated to pay any rent for the Roof
Location and Transmission Devised Area; provide, however, that Tenant shall
pay, as additional Rent, all costs incurred by Landlord or Tenant for
Tenant's use of Building utilities in connection with the Telecommunication
Device (including the cost of any separate metering requested by Landlord to
the extent applicable), including, without limitation, any electricity,
water, gas, or heating, ventilation or air conditioning (if any). In
addition, Tenant shall directly pay for all costs in connection with the
construction, installation, operation, maintenance, repair, replacement, and
insurance of the Telecommunication Devices, Roof Location and the
Transmission Devices Area.
3. INSTALLATION, MAINTENANCE AND OPERATION OF TELECOMMUNICATION
DEVICES.
3.1 APPROVALS AND PERMITS. During the term of this
Agreement and subject to the terms of Section 3.2, below, Tenant may install
and operate the Telecommunication Devices in the Transmission Devices Area,
in the particular locations as indicated on Schedule 2 for the particular
Telecommunication Devices, provided that: (a) Tenant has obtained Landlord's
prior written approval, which approval shall be in Landlord's reasonable
discretion, of the plans and specifications for the Telecommunication Devices
and all working drawings for the installation of the Telecommunication
Devices, (b) Tenant has obtained all required permits and governmental or
quasi-governmental approvals (including satisfying any applicable Federal
Communications Commission and Federal Aviation Administration requirements)
to install and operate the Telecommunication Devices, and (c) Tenant complies
with all applicable governmental and quasi-governmental laws, regulations and
building codes in connection with the Transmission Devices Area and the
Telecommunication Devices. Landlord shall have the right to reasonably
condition its approval of any Telecommunication Devices proposed to be
installed by Tenant on Tenant, among other things, erecting fencing or other
barriers to secure such devices. With regard to Tenant obtaining all required
permits and approvals set forth in Section 3.1(b) above, Landlord shall
reasonably cooperate, at Tenant's sole cost, with Tenant; provided, however,
that Landlord shall not be responsible for any such approvals. Once Landlord
has given its requisite approval, Tenant may not materially alter or modify
the working drawings, or the actual installation of the Telecommunication
Devices without Landlord's prior written consent, which consent shall be
granted or withheld in Landlord's reasonable discretion.
3.2 COMPATIBILITY WITH BUILDING SYSTEMS AND OPERATIONS. All
Telecommunication Devices shall be compatible with the Building systems and
equipment and shall not impair window washing or the use of chiller units,
the cooling tower, the emergency generator, elevators, machine rooms,
helipads, ventilation shafts, if any, or any other parts of the Building. If
the installation, maintenance, repair, operation or removal of the
Telecommunication Devices require any changes or modifications to any
structural systems or components of the Building or any of the Building's
systems or equipment, Landlord shall have the right to either (i) perform
such changes or modifications and Tenant shall pay for the actual
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<PAGE>
costs thereof (without overhead or profit) within thirty (30) days after
Notice thereof from Landlord to Tenant or (ii) require Tenant to perform such
changes or modifications at Tenant's sole cost and expense. If required by
Landlord, in its reasonable discretion, or any governmental agency or
authority, Tenant shall fully enclose the Transmission Devices Area with
suitable fencing or other required enclosures, subject to the terms of
Section 3.1, above. Landlord shall have the right to post notices of
non-responsibility in connection with any work performed by Tenant or its
agents or contractors in connection with this Agreement. The terms and
conditions of Article 9 of the Lease shall specifically be applicable in
connection with any work performed by Tenant or its agents or contractors in
connection with the Telecommunication Devices or this Agreement.
4. USE OF TRANSMISSION DEVICES AREA. Tenant shall have the right to
use the Building electricity, water, gas and heating, ventilation and air
conditioning located on the roof of the Building for the operation of the
Telecommunication Devices. Tenant will not store any materials in the
Transmission Devices Area. Tenant will use the Transmission Devices Area
solely for the Telecommunication Devices and not for any other purpose.
Landlord and its agents may enter and inspect the Transmission Devices Area
at any time. Concurrently with Tenant's installation of any locks for the
Transmission Devices Area, Tenant will deliver to Landlord a key for any such
lock. Tenant will not materially interfere with the mechanical, electrical,
heating, ventilation and air conditioning, or plumbing systems of the
Building or the operation, reception, or transmission of any other satellite,
microwave, or other broadcasting or receiving devices that are, or will be,
located on the roof of, or in, the Building and or the Project.
5. INDEMNIFICATION AND INSURANCE. Tenant agrees and acknowledges
that it shall use the Transmission Devices Area at its sole risk, and, expect
to the extent caused by Landlord's negligence or willful misconduct (unless
the same is otherwise covered by insurance required to be maintained by
Tenant under the Lease), Tenant absolves and fully releases Landlord and the
"Landlord Parties," as that term is defined in Section 10 of the Lease, from
(i) any and all cost, loss, damage, expense, liability, and cause of action,
whether foreseeable or not, arising from any cause, that Tenant may suffer to
its personal property located in the Transmission Devices Area, or (ii) that
Tenant or Tenant's officers, agents, employees, or independent contractors
Landlord or the Landlord Parties may suffer as a direct or indirect
consequence of Tenant's use of the Transmission Devices Area, the
Telecommunication Devices or access areas to the Transmission Devices Area,
or (iii) any other cost, loss, damage, expense, liability, or cause of action
arising from or related to this Agreement. In addition, Tenant agrees to
indemnify, defend, protect, and hold Landlord and the Landlord Parties
harmless from and against any loss, cost, damage, liability, expense, claim,
action or cause of action of any third party (including, but not limited to,
reasonable attorneys' fees and costs), whether foreseeable or not, resulting
as a direct or indirect consequence of Tenant's use of the Transmission
Devices Area, the Telecommunication Devices or access areas to the
Transmission Devices Area, except when such cost, loss, damage, expense, or
liability is due to the negligence or willful misconduct of Landlord (unless
the same is otherwise covered by insurance required to be maintained by
Tenant under the Lease). In addition, Tenant will procure and maintain, at
Tenant's sole expense, insurance in connection with the Transmission Devices
Area, the Telecommunication Devices and the obligations assumed by Tenant
under this Agreement, in the same amounts and with the same types of coverage
as required to be procured by Tenant under the Lease.
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<PAGE>
6. DEFAULTS. If Tenant fails to cure the breach of any of the
covenants set forth in this Agreement within ten (10) days following notice
from Landlord, Landlord shall have the right to terminate this Agreement upon
written notice to Tenant. In addition, at the option of Landlord, breach of
any of the covenants under this Agreement by Tenant will also constitute a
default by Tenant under the Lease, and a default by Tenant under the Lease
will also constitute a default by Tenant under this Agreement (in which event
Landlord may terminate this Agreement upon notice to Tenant).
7. NOTICES. Any notice required or permitted to be given under this
Agreement by Tenant or Landlord will be given under the terms of Section
29.14 of the Lease.
8. INCORPORATION OF LEASE PROVISIONS. All applicable provisions of
the Lease apply to Tenant's payment of rent and other charges pursuant to
this Agreement, and the Transmission Devices Area and Tenant's use thereof in
the same manner as those provisions apply to the Premises and are
incorporated into this Agreement by this reference as though fully set forth
in this Agreement. In the event of any conflicts between the provisions of
this Agreement and the Lease, in connection with the interpretation of this
Agreement only, the provisions of this Agreement shall govern.
9. NO WARRANTY. Landlord has made no warranty or representation that
the Telecommunication Devices are permitted by law and Tenant assumes all
liability and risk in obtaining all permits and approvals necessary for the
installation and use of the Telecommunication Devices. Landlord does not
warrant or guaranty that Tenant will receive unobstructed transmission or
reception to or from the Telecommunication Devices and Tenant assumes the
liability for the transmission and reception to and from the
Telecommunication Devices.
10. ASSIGNMENT. Notwithstanding any contrary provision set forth in
this Agreement above, this Agreement, and Tenant's rights contained herein,
may not be transferred or assigned to any other person or entity, and no
person or entity other than Tenant (and its employees) and Tenant's
Affiliates and other Transferees permitted under the terms of the Lease but
only to the extent any such entity is actually occupying all or a portion of
the Premises, shall be entitled to use the Telecommunication Devices or the
Transmission Devices Area.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"Landlord":
KILROY REALTY, L.P.,
a Delaware limited partnership
By: KILROY REALTY CORPORATION, a
Maryland Corporation, General Partner
By:
------------------------------------
Its:
-------------------------------
"Tenant":
eTOYS INC.,
a Delaware corporation
By:
----------------------------------------
Its:
----------------------------------
By:
----------------------------------------
Its:
----------------------------------
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EXHIBIT H
FORM OF SECURITY LETTER OF CREDIT
APPLICANT: ETOYS
3100 OCEAN PARK BLVD., #300
SANTA MONICA, CA 90405
BENEFICIARY: KILROY REALTY, L.P.
2250 East Imperial Highway, Suite 1200
El Segundo, California 90245
AMOUNT: USD $8,467,729.00
EXPIRY DATE AND PLACE FOR PRESENTATION OF DOCUMENTS: IMPERIAL BANK INTERNATIONAL
DIVISION, 2015 MANHATTAN BEACH BLVD., 2ND FLR., REDONDO BEACH, CA 90278
CREDIT IS AVAILABLE WITH IMPERIAL BANK INTERNATIONAL DIVISION AGAINST PAYMENT OF
DRAFTS DRAWN AT SIGHT ON IMPERIAL BANK INTERNATIONAL DIVISION, 2015 MANHATTAN
BEACH BLVD., 2ND FLR., REDONDO BEACH, CA 90278
DOCUMENTS REQUIRED:
1. THE ORIGINAL OF THIS STANDBY LETTER OF CREDIT AND AMENDMENT(S) IF ANY.
2. BENEFICIARY'S STATEMENT DATED AND PURPORTEDLY SIGNED BY TWO (2) AUTHORIZED
OFFICERS (WHICH SHALL INCLUDE THE EXERCISE OF A POWER OF ATTORNEY FROM THE
BENEFICIARY), CERTIFYING THAT THE AMOUNT DRAWN HEREUNDER IS BEING DRAWN PURSUANT
TO THE TERMS OF THE LEASE AGREEMENT DATED AS OF DECEMBER 10, 1999, BETWEEN
ETOYS, AS TENANT, AND KILROY REALTY, L.P., AS LANDLORD AND THAT ANY APPLICABLE
CURE PERIOD HAS LAPSED WITHOUT REMEDY.
SPECIAL CONDITIONS:
BANK WILL RELY SOLELY ON BENEFICIARY'S STATEMENT PRESENTED AND IS NOT
RESPONSIBLE FOR ASCERTAINING THE AUTHORITY OF SUCH SIGNERS.
ALL INFORMATION REQUIRED UNDER DOCUMENT REQUIREMENT NO. 2 WHETHER INDICATED BY
BLANKS, BRACKETS OR OTHERWISE, MUST BE COMPLETED AT THE TIME OF DRAWING.
ALL SIGNATURES MUST BE MANUALLY EXECUTED ORIGINALS.
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<PAGE>
PARTIAL DRAWINGS MAY BE MADE UNDER THIS LETTER OF CREDIT, PROVIDED, HOWEVER,
THAT EACH SUCH DEMAND THAT IS PAID BY US SHALL REDUCE THE AMOUNT AVAILABLE UNDER
THIS LETTER OF CREDIT.
IT IS A CONDITION OF THIS STANDBY LETTER OF CREDIT THAT IT SHALL BE DEEMED
AUTOMATICALLY EXTENDED WITHOUT AMENDMENT FOR 364 DAYS FROM THE PRESENT
EXPIRATION DATE HEREOF, UNLESS THIRTY (30) DAYS PRIOR TO ANY SUCH DATE, WE SHALL
NOTIFY YOU IN WRITING BY CERTIFIED MAIL OR COURIER SERVICE AT THE ABOVE LISTED
ADDRESS THAT WE ELECT NOT TO CONSIDER THIS IRREVOCABLE LETTER OF CREDIT RENEWED
FOR ANY SUCH ADDITIONAL PERIOD. UPON RECEIPT BY YOU OF SUCH NOTICE, YOU MAY DRAW
HEREUNDER BY MEANS OF YOUR DRAFT(S) ON US AT SIGHT ACCOMPANIED BY YOUR ORIGINAL
SIGNED STATEMENT WORDED AS FOLLOWS: KILROY REALTY, L.P. HAS RECEIVED NOTICE FROM
IMPERIAL BANK THAT THE EXPIRATION DATE OF LETTER OF CREDIT NO. [INSERT L/C NO.]
WILL NOT BE EXTENDED FOR AN ADDITIONAL PERIOD. AS OF THE DATE OF THIS DRAWING,
KILROY REALTY, L.P. HAS NOT RECEIVED A SUBSTITUTE LETTER OF CREDIT OR OTHER
INSTRUMENT ACCEPTABLE TO KILROY REALTY, L.P. AS SUBSTITUTE FOR IMPERIAL BANK
LETTER OF CREDIT NO. [INSERT L/C NO.] THE PROCEEDS OF THIS DRAWING WILL BE
APPLIED TO SATISFY ANY CLAIMS, INTEREST AND CHARGES OUTSTANDING RELATIVE TO THE
OBLIGATIONS DUE FROM ETOYS.
NOT WITHSTANDING THE ABOVE, THE FINAL EXPIRATION DATE SHALL BE
______________________ [TO BE DETERMINED].
THIS IRREVOCABLE STANDBY LETTER OF CREDIT WILL BE AUTOMATICALLY INCREASED AND
REDUCED TO SPECIFIC AMOUNTS OUTLINED AS FOLLOWS, PROVIDING (IN THE CASE OF A
REDUCTION) A DRAWING OR DRAWINGS DID NOT TAKE PLACE IN ACCORDANCE WITH THE TERMS
OF THIS IRREVOCABLE STANDBY LETTER OF CREDIT AND THE BALANCE OUTSTANDING IS
AVAILABLE UNDER THIS IRREVOCABLE STANDBY LETTER OF CREDIT TO CAUSE SUCH
REDUCTION(S) TO OCCUR.
DATE L/C AMOUNT
April 1, 2000 to expiration of Lease Year 1 $8,467,729.00
Expiration of Lease Year 2 $8,467,729.00
Expiration of Lease Year 3 $8,467,729.00
Expiration of Lease Year 4 $8,302,154.00
Expiration of Lease Year 5 $7,352,427.00
Expiration of Lease Year 6 $7,021,213.00
Expiration of Lease Year 7 $6,273,425.00
Expiration of Lease Year 8 $6,653,730.00
Expiration of Lease Year 9 $7,049,248.00
Expiration of Lease Year 10 $7,460,588.00
Expiration of Lease Year 11 $7,888,381.00
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<PAGE>
THIS LETTER OF CREDIT IS TRANSFERABLE IN WHOLE ONLY. YOU MAY TRANSFER THIS
LETTER OF CREDIT TO YOUR TRANSFEREE OR SUCCESSOR UPON SATISFACTORY DELIVERY AND
PRESENTATION TO THE ISSUING BANK OF (1) THE ORIGINAL STANDBY L/C AND AMENDMENTS,
IF ANY, FOR PROPER ENDORSEMENT (2) A REQUEST FOR TRANSFER ON THE ISSUER'S USUAL
TRANSFER FORM (3) VERIFICATION OF SIGNATURE AND AUTHORITY ON SUCH TRANSFER FORM
SIGNING FOR THE BENEFICIARY (4) ANY OTHER REQUIREMENTS RELATIVE TO THE UCP 500
AND U.S. GOVERNMENT REGULATIONS AND (5) A TRANSFER FEE OF TWO THOUSAND FIVE
HUNDRED DOLLARS ($2,500.00).
IN THE EVENT THIS LETTER OF CREDIT IS TRANSFERRED, THE TRANSFEREE SHALL BE THE
BENEFICIARY HEREOF AND DRAFTS AND DOCUMENTS PURSUANT HERETO MUST BE PURPORTEDLY
EXECUTED BY THE TRANSFEREE.
ALL DOCUMENTS ARE TO BE DISPATCHED IN ONE LOT BY COURIER SERVICE TO IMPERIAL
BANK INTERNATIONAL DIVISION, 2015 MANHATTAN BEACH BLVD., 2ND FLR., REDONDO
BEACH, CA 90278
WE HEREBY ENGAGE WITH YOU THAT ALL DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE
TERMS OF THIS CREDIT WILL BE DULY HONORED IF DRAWN AND PRESENTED FOR PAYMENT AT
THIS OFFICE ON OR BEFORE THE EXPIRATION DATE OF THIS CREDIT.
EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED, THIS CREDIT IS SUBJECT TO THE
`'UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS"(1993 REVISION)
INTERNATIONAL CHAMBER OF COMMERCE (PUBLICATION NO. 500).
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<PAGE>
EXHIBIT I
FORM OF PROMISSORY NOTE
SECURED BY LETTER OF CREDIT
$6,532,271.00 December 14, 1999
Los Angeles, California
FOR VALUE RECEIVED, ETOYS INC., a Delaware corporation, as maker,
having its principal place of business at 12200 West Olympic Boulevard, Los
Angeles, California 90004 ("BORROWER"), hereby unconditionally promises to pay
to the order of KILROY REALTY, L.P., a Delaware limited partnership ("LENDER"),
c/o 2250 East Imperial Highway, Suite 1200, El Segundo, California 90245,
Attention: Jeffrey Hawken, or at such other place as the holder hereof may from
time to time designate in writing, the principal sum of Six Million Five Hundred
Thirty Two Thousand Two Hundred Seventy-One Dollars ($6,532,271.00) or so much
thereof as shall have been advanced by Lender to Borrower, in lawful money of
the United States of America with interest thereon (from the date any such
monies were advanced) to be computed at the Interest Rate (defined below) in
accordance with the terms of this Note. This Note evidences the obligation of
Borrower to repay advances made by Lender pursuant to Section 21.2 of the Lease
(as defined below).
ARTICLE 1: PAYMENT TERMS
Borrower agrees to pay sums under this Note in installments as follows:
i. Commencing on the "Lease Commencement Date," as defined in the Lease
and on the first day of each and every succeeding month thereafter up to and
including the first day of the twelfth month of the sixth (6th) year of the
Lease Term, payments of interest only in the amount of Forty-Three Thousand Five
Hundred Forty-Eight and 50/100 Dollars ($43,548.50); and
ii. Commencing on the first day of the seventh (7th) year of the Lease
Term, and on the first day of each and every succeeding month thereafter up to
and including the first day of the twelfth month of the eleventh (11th) year of
the Lease Term (the "MATURITY DATE"), payments of principal and interest in the
total amount of One Hundred Thirty-Six Thousand Three Hundred Thirty-Seventy and
41/100 Dollars ($136,337.41);
ARTICLE 2: INTEREST
The interest rate on this Note is eight percent (8.0%) per annum (the
"INTEREST RATE").
ARTICLE 3: DEFAULT AND ACCELERATION
Time is of the essence hereof and it is expressly agreed that (a) if
Borrower shall fail to make any payment under this Note within five (5) business
days after receiving written notice that the same is due, (b) if a default shall
occur and be continuing, after the expiration of any
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applicable notice and grace periods under the terms of that certain Office
Lease dated on or about the date hereof by and between Borrower, as Tenant,
and Lender, as Landlord, as the same may be amended from time to time (the
"LEASE"), (each, an "EVENT OF DEFAULT") or (c) upon the expiration or sooner
termination of the Lease, at the option of Lender (i) the whole of the
principal sum of this Note, (ii) interest, default interest, late charges,
and other sums, as provided in this Note, (iii) all other monies agreed to be
paid or provided to be paid by Borrower in this Note, and (iv) all sums
advanced and costs and expenses incurred by Lender in connection with the
Debt (defined below), or any part thereof, any renewal, extension, or change
of or substitution for the Debt or any part thereof, whether made or incurred
at the request of Borrower or Lender (all the sums referred to in (i) through
(iv) above shall collectively be referred to as the "DEBT") shall without
notice become immediately due and payable and Lender shall have the right, in
addition to all other remedies available to it at law or in equity, to draw
upon the Note Letter of Credit pursuant to the terms thereof for the full
amount of the Debt.
ARTICLE 4: DEFAULT INTEREST
Borrower agrees that upon the occurrence of an Event of Default,
Lender shall be entitled to receive and Borrower shall pay interest on the
entire unpaid principal sum at a per annum rate equal to the lesser of (a)
two percent (2%) plus the Interest Rate and (b) the maximum interest rate
which Borrower may by law pay (the "DEFAULT RATE"). The Default Rate shall be
computed from the occurrence of the Event of Default until the earlier of the
date upon which the Event of Default is cured or the date upon which the Debt
is paid in full. Interest calculated at the Default Rate shall be added to
the Debt, and shall be deemed secured by the Note Letter of Credit but shall
not itself incur interest. This clause, however, shall not be construed as an
agreement or privilege to extend the date of the payment of the Debt, nor as
a waiver of any other right or remedy accruing to Lender by reason of the
occurrence of any Event of Default.
ARTICLE 5: LATE CHARGE
If any monthly installment payable under this Note is not paid by
Borrower within five (5) days after receiving written notice that the same is
due, Borrower shall pay to Lender, upon demand, an amount equal to two
percent (2%) of such unpaid sum to defray the expenses incurred by Lender in
handling and processing the delinquent payment (the "LATE CHARGE") and to
compensate Lender for the loss of the use of the delinquent payment and the
amount shall be secured by the Note Letter of Credit.
ARTICLE 6: NO PREPAYMENT
Borrower may not pay all or a portion of the
amount owed earlier than it is due.
ARTICLE 7: SECURITY
This Note is secured by that certain Note Letter of Credit in the
principal initial sum of Six Million Five Hundred Thirty-Two Thousand Two
Hundred Seventy-One Dollars ($6,532,271.00) (the "NOTE LETTER OF CREDIT"),
including any extensions, renewals or replacements thereof.
-2-
<PAGE>
ARTICLE 8: LOAN CHARGES
This Note is subject to the express condition that at no time shall
Borrower be obligated or required to pay interest on the principal balance
due hereunder at a rate which could subject Lender to either civil or
criminal liability as a result of being in excess of the maximum interest
rate which Borrower is permitted by applicable law to contract or agree to
pay. If by the terms of this Note, Borrower is at any time required or
obligated to pay interest on the principal balance due hereunder at a rate in
excess of such maximum rate, the Interest Rate or the Default Rate, as the
case may be, shall be deemed to be immediately reduced to such maximum rate
and all previous payments in excess of the maximum rate shall be deemed to
have been payments in reduction of principal and not on account of the
interest due hereunder. All sums paid or agreed to be paid to Lender for the
use, forbearance, or detention of the Debt, shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Note until payment in full so that the rate or amount
of interest on account of the Debt does not exceed the maximum lawful rate of
interest from time to time in effect and applicable to the Debt for so long
as the Debt is outstanding.
ARTICLE 9: WAIVERS
Borrower and all others who may become liable for the payment of all
or any part of the Debt do hereby severally waive presentment and demand for
payment, notice of dishonor, protest and notice of protest and non-payment
and all other notices of any kind, except for notices expressly provided for
in this Note or the Lease. No release of any security for the Debt or
extension of time for payment of this Note or any installment hereof, and no
alteration, amendment or waiver of any provision of this Note or the Lease
made by agreement between Lender or any other person or party shall release,
modify, amend, waive, extend, change, discharge, terminate or affect the
liability of Borrower, and any other person or entity who may become liable
for the payment of all or any part of the Debt, under this Note. No notice to
or demand on Borrower shall be deemed to be a waiver of the obligation of
Borrower or of the right of Lender to take further action without further
notice or demand as may be provided for in this Note or the Lease. If
Borrower is a partnership, corporation or limited liability company, the
agreements contained herein shall remain in full force and effect,
notwithstanding any changes in the individuals or entities comprising the
Borrower, and the term "Borrower", as used herein, shall include any
alternate or successor entity, but any predecessor entity, and its partners
or members, as the case may be, shall not thereby be released from any
liability. (Nothing in the foregoing sentence shall be construed as a consent
to, or a waiver of, any prohibition or restriction on transfers of interests
in Borrower which may be set forth in the Lease.)
ARTICLE 10: WAIVER OF TRIAL BY JURY
BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN
CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN
EVIDENCED BY THIS NOTE, THIS NOTE, THE NOTE LETTER OF CREDIT OR ANY ACTS OR
OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN
CONNECTION THEREWITH.
-3-
<PAGE>
ARTICLE 11: AUTHORITY
Borrower represents that Borrower has full power, authority and
legal right to execute and deliver this Note and that this Note constitutes
the valid and binding obligation of Borrower.
ARTICLE 12: GOVERNING LAW
This Note shall be governed, construed, applied and enforced in
accordance with the laws of the State of California.
ARTICLE 13: NOTICES
All notices required or permitted hereunder shall be given as
provided in the Lease.
ARTICLE 14: MISCELLANEOUS
14.1 If either party commences litigation against the other for
damages for the breach hereof or otherwise for enforcement of any remedy
hereunder, the parties hereto agree to and hereby do waive any right to a
trial by jury and, in the event of any such commencement of litigation, the
prevailing party shall be entitled to recover from the other party such costs
and reasonable attorneys' fees as may have been incurred.
14.2 This Note may not be modified, amended, waived, extended,
changed, discharged or terminated orally or by any act or failure to act on
the part of Borrower or Lender, but only by an agreement in writing signed by
the party against whom enforcement of any modification, amendment, waiver,
extension, change, discharge or termination is sought.
14.3 If Borrower consists of more than one person or party, the
obligations and liabilities of each person or party shall be joint and
several.
14.4 Whenever used, the singular number shall include the plural,
the plural number shall include the singular, and the words "Lender" and
"Borrower" shall include their respective successors, assigns, heirs,
executors and administrators.
14.5 Borrower recognizes that its default in making any payment as
provided herein as agreed to be paid when due, or the occurrence of any other
Event of Default hereunder or under the Lease, will require Lender to incur
additional expense in servicing and administering the Loan, in loss to Lender
of the use of the money due and in frustration to Lender in meeting its other
financial commitments and that the damages caused thereby would be extremely
difficult and impractical to ascertain. Borrower agrees (a) that an amount
equal to the Late Charge plus the accrual of interest at the Default Rate is
a reasonable estimate of the damage to Lender in the event of a late payment,
and (b) that the accrual of interest at the Default Rate following any other
Event of Default is a reasonable estimate of the damage to Lender in the
event of such other Event of Default, regardless of whether there has been an
acceleration of the Loan. Nothing in this Note shall be construed as an
obligation on the part of Lender to accept, at any time, less than the full
amount then due hereunder, or as a waiver or limitation of Lender's right to
compel prompt performance.
EXHIBIT I
-4-
<PAGE>
14.6 Upon notice from Lender to Borrower of the loss, theft,
destruction or mutilation of this Note and, upon receipt of an indemnity
reasonably satisfactory to Borrower from Lender (except that if the Lender
initially named herein is the holder of this Note, an indemnification from
the Lender initially named herein shall be sufficient) or, in the case of
mutilation hereof, upon surrender of the mutilated Note, Borrower will make
and deliver a new note of like tenor in lieu of this Note.
14.7 Lender, at any time and without the consent of Borrower, may
grant participations in or sell, transfer, assign and convey all or any
portion of its right, title and interest in and to the loan evidenced by this
Note, this Note and any collateral given as security for the loan evidenced
by this Note, including, without limitation, the Note Letter of Credit.
IN WITNESS WHEREOF, Borrower has duly executed this Note as of the
day and year first above written.
Borrower
ETOYS INC., a Delaware corporation
By: _______________________________________
Its: __________________________________
By: _______________________________________
Its: __________________________________
EXHIBIT I
-5-
<PAGE>
EXHIBIT I-1
FORM OF PROMISSORY NOTE
LETTER OF CREDIT
APPLICANT: ETOYS
3100 OCEAN PARK BLVD., #300
SANTA MONICA, CA 90405
BENEFICIARY: KILROY REALTY, L.P.
2250 East Imperial Highway, Suite 1200
El Segundo, California 90245
AMOUNT: USD $6,532,271.00
EXPIRY DATE AND PLACE FOR PRESENTATION OF DOCUMENTS: IMPERIAL BANK
INTERNATIONAL DIVISION, 2015 MANHATTAN BEACH BLVD., 2ND FLR., REDONDO BEACH,
CA 90278
CREDIT IS AVAILABLE WITH IMPERIAL BANK INTERNATIONAL DIVISION AGAINST PAYMENT
OF DRAFTS DRAWN AT SIGHT ON IMPERIAL BANK INTERNATIONAL DIVISION, 2015
MANHATTAN BEACH BLVD., 2ND FLR., REDONDO BEACH, CA 90278
DOCUMENTS REQUIRED:
1. THE ORIGINAL OF THIS STANDBY LETTER OF CREDIT AND AMENDMENT(S) IF ANY.
2. BENEFICIARY'S STATEMENT DATED AND PURPORTEDLY SIGNED BY TWO (2) AUTHORIZED
OFFICERS (WHICH SHALL INCLUDE THE EXERCISE OF A POWER OF ATTORNEY FROM THE
BENEFICIARY), CERTIFYING THAT THE AMOUNT DRAWN HEREUNDER IS BEING DRAWN
PURSUANT TO THE TERMS OF THE LEASE AGREEMENT DATED AS OF DECEMBER __, 1999,
BETWEEN ETOYS, AS TENANT, AND KILROY REALTY, L.P. AS LANDLORD AND THAT ANY
APPLICABLE CURE PERIOD HAS LAPSED WITHOUT REMEDY.
SPECIAL CONDITIONS:
BANK WILL RELY SOLELY ON BENEFICIARY'S STATEMENT PRESENTED AND IS NOT
RESPONSIBLE FOR ASCERTAINING THE AUTHORITY OF SUCH SIGNERS.
ALL INFORMATION REQUIRED UNDER DOCUMENT REQUIREMENT NO. 2 WHETHER INDICATED
BY BLANKS, BRACKETS OR OTHERWISE, MUST BE COMPLETED AT THE TIME OF DRAWING.
EXHIBIT I-1
-1-
<PAGE>
ALL SIGNATURES MUST BE MANUALLY EXECUTED ORIGINALS.
PARTIAL DRAWINGS MAY BE MADE UNDER THIS LETTER OF CREDIT, PROVIDED, HOWEVER,
THAT EACH SUCH DEMAND THAT IS PAID BY US SHALL REDUCE THE AMOUNT AVAILABLE
UNDER THIS LETTER OF CREDIT.
IT IS A CONDITION OF THIS STANDBY LETTER OF CREDIT THAT IT SHALL BE DEEMED
AUTOMATICALLY EXTENDED WITHOUT AMENDMENT FOR 364 DAYS FROM THE PRESENT
EXPIRATION DATE HEREOF, UNLESS THIRTY (30) DAYS PRIOR TO ANY SUCH DATE, WE
SHALL NOTIFY YOU IN WRITING BY CERTIFIED MAIL OR COURIER SERVICE AT THE ABOVE
LISTED ADDRESS THAT WE ELECT NOT TO CONSIDER THIS IRREVOCABLE LETTER OF
CREDIT RENEWED FOR ANY SUCH ADDITIONAL PERIOD. UPON RECEIPT BY YOU OF SUCH
NOTICE, YOU MAY DRAW HEREUNDER BY MEANS OF YOUR DRAFT(S) ON US AT SIGHT
ACCOMPANIED BY YOUR ORIGINAL SIGNED STATEMENT WORDED AS FOLLOWS: KILROY
REALTY, L.P. HAS RECEIVED NOTICE FROM IMPERIAL BANK THAT THE EXPIRATION DATE
OF LETTER OF CREDIT NO. [INSERT L/C NO.]WILL NOT BE EXTENDED FOR AN
ADDITIONAL PERIOD. AS OF THE DATE OF THIS DRAWING, KILROY REALTY, L.P. HAS
NOT RECEIVED A SUBSTITUTE LETTER OF CREDIT OR OTHER INSTRUMENT ACCEPTABLE TO
KILROY REALTY, L.P. AS SUBSTITUTE FOR IMPERIAL BANK LETTER OF CREDIT NO.
[INSERT L/C NO.] THE PROCEEDS OF THIS DRAWING WILL BE APPLIED TO SATISFY ANY
CLAIMS, INTEREST AND CHARGES OUTSTANDING RELATIVE TO THE OBLIGATIONS DUE FROM
ETOYS.
NOT WITHSTANDING THE ABOVE, THE FINAL EXPIRATION DATE SHALL BE
____________________ [TO BE DETERMINED].
THIS IRREVOCABLE STANDBY LETTER OF CREDIT WILL BE AUTOMATICALLY INCREASED AND
REDUCED TO SPECIFIC AMOUNTS OUTLINED AS FOLLOWS, (IN THE CASE OF A REDUCTION)
PROVIDING A DRAWING OR DRAWINGS DID NOT TAKE PLACE IN ACCORDANCE WITH THE
TERMS OF THIS IRREVOCABLE STANDBY LETTER OF CREDIT AND THE BALANCE
OUTSTANDING IS AVAILABLE UNDER THIS IRREVOCABLE STANDBY LETTER OF CREDIT TO
CAUSE SUCH REDUCTION(S) TO OCCUR.
<TABLE>
<CAPTION>
DATE L/C AMOUNT
- ---- ----------
<S> <C>
Expiration of Lease Year 1 $6,532,271.00
Expiration of Lease Year 2 $6,532,271.00
Expiration of Lease Year 3 $6,532,271.00
Expiration of Lease Year 4 $6,532,271.00
Expiration of Lease Year 5 $6,532,271.00
Expiration of Lease Year 6 $6,532,271.00
Expiration of Lease Year 7 $5,418,803.00
Expiration of Lease Year 8 $4,216,258.00
Expiration of Lease Year 9 $2,917,509.00
Expiration of Lease Year 10 $1,514,861.00
Expiration of Lease Year 11 $-0-
</TABLE>
EXHIBIT I-1
-2-
<PAGE>
THIS LETTER OF CREDIT IS TRANSFERABLE IN WHOLE ONLY. YOU MAY TRANSFER THIS
LETTER OF CREDIT TO YOUR TRANSFEREE OR SUCCESSOR UPON SATISFACTORY DELIVERY
AND PRESENTATION TO THE ISSUING BANK OF (1) THE ORIGINAL STANDBY L/C AND
AMENDMENTS, IF ANY, FOR PROPER ENDORSEMENT (2) A REQUEST FOR TRANSFER ON THE
ISSUER'S USUAL TRANSFER FORM (3) VERIFICATION OF SIGNATURE AND AUTHORITY ON
SUCH TRANSFER FORM SIGNING FOR THE BENEFICIARY (4) ANY OTHER REQUIREMENTS
RELATIVE TO THE UCP 500 AND U.S. GOVERNMENT REGULATIONS AND (5) A TRANSFER
FEE OF TWO THOUSAND FIVE HUNDRED DOLLARS ($2,500.00).
IN THE EVENT THIS LETTER OF CREDIT IS TRANSFERRED, THE TRANSFEREE SHALL BE
THE BENEFICIARY HEREOF AND DRAFTS AND DOCUMENTS PURSUANT HERETO MUST BE
PURPORTEDLY EXECUTED BY THE TRANSFEREE.
ALL DOCUMENTS ARE TO BE DISPATCHED IN ONE LOT BY COURIER SERVICE TO IMPERIAL
BANK INTERNATIONAL DIVISION, 2015 MANHATTAN BEACH BLVD., 2ND FLR., REDONDO
BEACH, CA 90278
WE HEREBY ENGAGE WITH YOU THAT ALL DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH
THE TERMS OF THIS CREDIT WILL BE DULY HONORED IF DRAWN AND PRESENTED FOR
PAYMENT AT THIS OFFICE ON OR BEFORE THE EXPIRATION DATE OF THIS CREDIT.
EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED, THIS CREDIT IS SUBJECT TO THE
"UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS" (1993 REVISION)
INTERNATIONAL CHAMBER OF COMMERCE (PUBLICATION NO. 500).
EXHIBIT I-1
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<PAGE>
EXHIBIT J
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT ("ASSIGNMENT") is made as
of the 14th day of December, 1999, by and between KILROY REALTY, L.P., a
Delaware limited partnership("ASSIGNOR"), and eTOYS INC., a Delaware
corporation ("ASSIGNEE").
W I T N E S S E T H:
A. Assignor, as Landlord, and Assignee, as Tenant, entered into that
certain Westside Media Center Office Lease dated as of December 14, 1999
("LEASE"), wherein Assignor leased to Assignee, and Assignee leased from
Assignor, space in that certain Building located and addressed at 12200 West
Olympic Boulevard, Los Angeles, California.
B. Under Section 29.20 the Lease, Assignor is obligated to assign to
Assignee all of Assignor's obligations under that certain written agreement
for brokerage commissions pertaining to the Lease to be paid to Cresa
Partners, which agreement is attached hereto as Schedule "1" (the "BROKERAGE
AGREEMENT").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
l. Assignor hereby assigns and delivers to Assignee all of
Assignor's rights, obligations and interest in and to the Brokerage
Agreement, and Assignee hereby accepts such assignment.
2. Assignee hereby assumes and agrees to perform and to be bound by
all of the terms, covenants, conditions and obligations imposed upon Assignor
under the Brokerage Agreement accruing or arising on and after the date of
their full execution thereof.
3. In the event of the bringing of any action or suit by a party
hereto against another party hereto by reason of any breach of any of the
covenants, conditions, agreements or provisions on the part of the other
party arising out of this Assignment, the prevailing party shall be entitled
to recover from the other party all costs and expenses of the action or suit,
including reasonable attorneys' fees.
4. This Assignment may be executed in counterparts, each of which
shall be deemed an original, but all of which, together, shall constitute one
and the same instrument.
5. This Assignment shall be binding upon and inure to the benefit of
the successors, assigns, personal representatives, heirs and legatees of the
respective parties hereto.
6. This Assignment shall be governed by, interpreted under, and
construed in accordance with, the laws of the State of California.
EXHIBIT J
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
as of the day and year first written above.
"ASSIGNOR"
KILROY REALTY, L.P.
a Delaware limited partnership
By: KILROY REALTY CORPORATION, a
Maryland Corporation, General Partner
By:____________________________________
Its:________________________________
"ASSIGNEE" eTOYS INC.,
a Delaware corporation
By: ____________________________________
Its:________________________________
By: ____________________________________
Its:________________________________
ACKNOWLEDGEMENT OF BROKER
By its signature below, Cresa Partners, the broker under the
Brokerage Agreement hereby acknowledges the assignment of the Brokerage
Agreement from Assignor to Assignee and agrees that Assignor, upon such
assignment, is hereby unconditionally released from any and all obligations
and liabilities under such Brokerage Agreement.
CRESA PARTNERS,
By: ____________________________________
Its:________________________________
By: ____________________________________
Its:________________________________
EXHIBIT J
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<PAGE>
EXHIBIT K
FORM OF PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (the "AGREEMENT"), is made and
entered into as of the _____ day of __________ _____, by and between eTOYS
INC., a Delaware corporation (the "PLEDGOR") and KILROY REALTY, L.P., a
Delaware limited partnership (the "PLEDGEE").
R E C I T A L S
A. Concurrently herewith, the Pledgor and the Pledgee have entered
into that certain Westside Media Center Office Lease dated as of December __,
1999 (the "LEASE") [OR PROMISSORY NOTE], concerning the lease by the Pledgee,
as Landlord, to the Pledgor, as Tenant, of all of the rentable square feet of
space (the "Premises") located in that certain building to be located at
12200 West Olympic Boulevard, Los Angeles, California (the "BUILDING"). The
term of the Lease shall commence on the "Lease Commencement Date," as defined
in the Lease.
B. Pursuant to Sections [1.3.2.2, 1.3.2.6, 21.1.2 and 21.2.3] of the
Lease, Pledgor has agreed to provide certain security (the "SECURITY")
securing certain obligations of Pledgor under the Lease [OR PROMISSORY NOTE].
C. This Agreement is made pursuant to Sections
[1.3.2.2, 1.3.2.6, 21.1.2 and 21.2.3] of the Lease to effect the
establishment of a special "Collateral Account" (as defined below in Section
1) for the Security contemplated thereby. Upon the occurrence of certain
events as described in the Lease [OR PROMISSORY NOTE], Pledgee shall deposit
certain funds in such Collateral Account (the "DEPOSITED FUNDS"). The
Deposited Funds shall serve as a source of funds for satisfaction of
Pledgor's monetary obligations under the Lease [OR PROMISSORY NOTE].
D. The parties now desire to enter into this Agreement in accordance
with the terms and conditions set forth below. All capitalized terms not
otherwise defined herein shall have the same meanings as set forth in the
Lease.
A G R E E M E N T
NOW, THEREFORE, in consideration of the covenants contained herein,
and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows.
1. PLEDGED DEPOSIT.
1.1 DEPOSIT. In accordance with the terms of the Lease
[OR PROMISSORY NOTE], Pledgee shall deposit the Deposited Funds in that
certain "Collateral Account"
EXHIBIT K
-1-
<PAGE>
1.2 COLLATERAL ACCOUNT. Pledgor hereby pledges, grants a
security interest in, assigns, transfers and delivers to the Pledgee, as
collateral security for the payment when due and performance in full by
Pledgor of the Obligations (as defined in Section 2 below), the following
(referred to herein collectively as the "COLLATERAL"): (i) that certain
deposit account no. ________________ located at Bank of America or its legal
successor (the "BANK"), ______________ Branch, _______________,
______________________, California (the "COLLATERAL ACCOUNT"), (ii) all
Deposited Funds on deposit in the Collateral Account now and at any time
after the date of this Agreement, (iii) all interest accruing thereon, (iv)
all renewals and replacements thereof (whether or not any such renewal or
replacement is evidenced by a certificate or other evidence of deposit), (v)
any and all certificates of deposit or other instruments that may constitute
a part of or an investment of funds in, or that may replace all of or part
of, the Collateral Account, and (vi) all proceeds of any of the foregoing. At
all times hereunder, except to the extent of any realization by the Pledgee
upon the Collateral pursuant to Section 5 hereof, all amounts in the
Collateral Account shall be invested either in the Banks' money market fund
or in certificates of deposit issued by the Bank having maturities of thirty
(30) days or less, as the Pledgee may designate from time to time. Pledgor
and Pledgee shall execute and deliver to the Bank a Notice of Security
Interest in Deposit Account in the form attached hereto as EXHIBIT A. Pledgee
shall have the right to perform all such other acts with respect to such
Collateral and Collateral Account as allowed under the Uniform Commercial
Code with respect to the perfection of a security interest upon such
Collateral and Collateral Account.
1.3 WITHDRAWAL AUTHORITY. Upon the occurrence of a
"Default," as that term is defined in the Lease [OR PROMISSORY NOTE], Pledgee
may unilaterally withdraw from the Collateral Account sufficient funds to
cure the Default and to pay the Pledgee the amount of damages sustained by
the Pledgee as of such date without the need to obtain the consent of Pledgor
or any other person or entity. Pledgor shall have no authority at any time to
withdraw funds from the Collateral Account.
2. OBLIGATIONS. This Agreement is given to secure payment of Rent
(consisting of both "Base Rent" and "Additional Rent," as those terms are set
forth in Article 3 and Section 4.1 of the Lease, respectively) pursuant to
the terms of the Lease [OR PROMISSORY NOTE] and other obligations of Pledgor
under the Lease and under any ancillary documents executed by Pledgor
pursuant to the terms of the Lease (collectively, the "OBLIGATIONS").
3. AUTHORIZATION AND ENFORCEMENT OF OBLIGATIONS. Each party to this
Agreement represents and warrants to the other that: (i) it has the power and
authority to enter into, and to perform the transactions contemplated by,
this Agreement and has taken all necessary action to authorize the execution,
delivery and performance of this Agreement and the transactions contemplated
herein; (ii) no consent or authorization of, filing with, or act by or in
respect of, any governmental entity having jurisdiction over such party is
required in connection with the pledge hereunder or with the execution,
delivery, performance, validity or enforceability of this Agreement, and
(iii) this Agreement, when duly executed and delivered by such party, shall
constitute the legal, valid and binding obligation of such party, enforceable
against such party in accordance with its terms.
EXHIBIT K
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<PAGE>
4. TITLE. The Pledgor represents and warrants to the Pledgee that
the Pledgor is the lawful owner of all rights and interest in the Collateral
Account, free of all claims and liens other than the security interest
granted in this Agreement to the Pledgee, with full rights to assign,
transfer and pledge the Collateral Account to the Pledgee. The Pledgor will
not voluntarily create, incur or permit to exist any pledge, lien, mortgage,
hypothecation, security interest, charge, option or any other encumbrance
with respect to the Collateral Account, or any interest therein, except for
the security interest provided for by this Agreement.
5. REMEDIES. Upon the occurrence and during the continuance of any
Default, the Pledgee shall have all rights and remedies provided by law, the
Lease and this Agreement, including, without limitation, all of the rights
and remedies of a secured party under the California Commercial Code. The
Pledgor hereby authorizes the Pledgee, upon the occurrence of a Default, to
take whatever actions may be necessary to realize upon the Collateral Account
and to apply the proceeds realized in accordance with the Lease
[OR PROMISSORY NOTE]. The Pledgor expressly authorizes such action by the
Pledgee in advance of any realization upon any other collateral securing any
indebtedness of the Pledgor to the Pledgee, and hereby waives as to the
Pledgee any right of subrogation or marshalling of such other collateral for
the Obligations. Notwithstanding the foregoing, subject to the terms of the
Lease [OR PROMISSORY NOTE] the Pledgee shall not be obligated to take action
to realize upon the Collateral Account prior to exercising any other rights
or remedies it may have as provided by law, the Lease or this Agreement.
6. FURTHER ACTS AND ASSURANCES. Each party hereto, upon request of
the other party, agrees to do such further acts, and to execute, acknowledge,
endorse and deliver such further instruments and agreements (specifically
including, but not limited to UCC-1's), that such other party may at any time
and from time to time reasonably request in connection with the
administration or enforcement of this Agreement, or related to the Collateral
or any part thereof, or in order to further assure and confirm to such other
party its rights, powers and remedies hereunder.
7. NO WAIVER. No forbearance, failure or delay by the Pledgee in the
exercise of any right or remedy hereunder shall operate as a waiver thereof
and no single or partial exercise by the Pledgee of any right or remedy shall
preclude any other or further exercise thereof or the exercise of any other
right or remedy. All rights, powers and privileges of the Pledgee under this
Agreement and the Lease [OR PROMISSORY NOTE] shall be cumulative.
8. NOTICES. All notices, requests, demands or other communications
given pursuant to this Agreement shall be deemed to have been duly given and
made when sent by certified mail, return receipt requested. Any such notice,
request, demand or communication shall be delivered or addressed to a party
at its address set forth in the Lease [OR PROMISSORY NOTE], or such other
address as any party hereby may designate by written notice to the other
party.
9. TERMINATION. This Agreement shall terminate on the date which is
thirty (30) days after the expiration or earlier termination of the Lease and
any remaining Deposited Funds and any interest accrued thereon shall be
refunded to Pledgor.
EXHIBIT K
-3-
<PAGE>
10. AMENDMENTS, CONFLICTS. The provision of this Agreement may not
be waived, altered, amended or repealed in whole or in part except by the
express written agreement of Pledgor and Pledgee. To the extent that any
provision of this Agreement conflicts with any provision of the Lease
[OR PROMISSORY NOTE], the Lease [OR PROMISSORY NOTE] shall control on the
point of conflict.
11. GOVERNING LAW. This Agreement shall governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this
Agreement to be executed as of the date first above written.
"Pledgor":
eTOYS INC.,
a Delaware corporation
By:____________________________________
Its:________________________________
By:____________________________________
Its:________________________________
"Pledgee":
KILROY REALTY, L.P.,
a Delaware limited partnership
By: KILROY REALTY CORPORATION, a
Maryland Corporation, General Partner
By:_________________________________
Its:_____________________________
EXHIBIT A
(Form of Notice of Security Interest in Deposit Account)
NOTICE OF SECURITY INTEREST IN DEPOSIT ACCOUNT
NOTICE IS HEREBY GIVEN that KILROY REALTY, L.P., a Delaware limited
partnership (the "Pledgee"), pursuant to that certain Pledge and Security
Agreement, dated as of ____________, ______, executed by eTOYS, INC., a
Delaware corporation (the "PLEDGOR"), holds a security interest in Account
No. ________ registered in the name of the Pledgor, with ______________ (the
"BANK"), at its _______________ Branch, located at _________________________,
___________________________, California _________, and all replacements,
renewals and proceeds thereof (the "COLLATERAL ACCOUNT").
EXHIBIT K
-4-
<PAGE>
This Notice of Security Interest in Deposit Account (the "NOTICE")
shall remain in full force and effect until amended or revoked by written
instrument executed by the Pledgor and the Pledgee and may not otherwise be
amended or revoked. The Bank is hereby irrevocably authorized and directed to
honor withdrawals of funds from the Collateral Account at any time only upon
the signature of one (1) representative of the Pledgee, unless otherwise
directed pursuant to court order. The identity of the particular
representative of the Pledgee is subject to change and shall be designated
from time to time by the Pledgee, as applicable, to the Bank. Pledgor has no
authority to make withdrawals from the Collateral Account at any time.
This Notice is given pursuant to California Commercial Code Section
9302(g)(ii) in order to perfect a security interest in said deposit account.
DATED: __________, _______
"PLEDGOR" eTOYS INC.,
a Delaware corporation
By:____________________________________
Its:________________________________
By:____________________________________
Its:________________________________
"PLEDGEE"
KILROY REALTY, L.P.,
a Delaware limited partnership
By: KILROY REALTY CORPORATION, a
Maryland Corporation, General Partner
By:_________________________________
Its:_____________________________
The undersigned acknowledges receipt of,
and agrees to be bound by the terms of, the
foregoing Notice.
______________________________________,
a national banking association
By:____________________________________
Name:__________________________________
Title:_________________________________
EXHIBIT K
-5-
<PAGE>
EXHIBIT L
FORM OF MEMORANDUM OF LEASE
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
ALLEN MATKINS LECK GAMBLE
& MALLORY LLP
1999 Avenue Of The Stars, Suite 1800
Los Angeles, California 90067-6050
Attention: Anton N. Natsis, Esq.
================================================================================
(Space Above For Recorder's Use)
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE (the "MEMORANDUM") is made as of the 14th
day of December, 1999 by and between KILROY REALTY, L.P., a Delaware limited
partnership ("LANDLORD") and eTOYS INC., a Delaware corporation ("TENANT").
R E C I T A L S:
A. Landlord and Tenant have entered into that certain unrecorded
lease of even date herewith (the "LEASE"). All capitalized terms not
otherwise defined herein shall have the meaning assigned to them in the Lease.
B. Landlord and Tenant desire to provide notice that Tenant has the
right to lease certain space in that certain office building (the "BUILDING")
located at 12200 West Olympic Boulevard, Los Angeles, California, together
with a right to expand the premises to include a certain other office
building located at 12100 West Olympic Boulevard, all as situated on that
certain parcel of real property located in the County of Los Angeles, State
of California, and all as more particularly described in Exhibit "A" attached
hereto and incorporated herein by this reference, on the terms and conditions
as more fully set forth in the Lease.
NOW, THEREFORE, in consideration of the facts herein above set
forth, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
AGREEMENT
1. DEMISE OF PREMISES. Landlord leases to Tenant, and Tenant leases
from Landlord, subject to the terms and conditions set forth in the Lease,
approximately 151,000
EXHIBIT L
-1-
<PAGE>
rentable square feet of the Building. The Lease Commencement Date shall be as
set forth in the Lease, and the term of the Lease shall terminate, subject to
the options to renew set forth below, eleven (11) years thereafter;
2. OPTIONS TO RENEW AND EXPANSION SPACE.
a. OPTIONS TO RENEW. Landlord has granted to Tenant,
subject to the terms and conditions set forth in the Lease, two (2)
options to extend the term of the Lease (for a period of five (5) years
each) with respect to all space leased by Tenant in the Building
("OPTION TO EXTEND"). Each Option to Extend is to be exercised, if at
all, at least eighteen (18) months prior to the expiration of the then
Lease Term;
b. EXPANSION SPACE. Tenant has the right, subject to
the terms and conditions set forth in the Lease, to lease the total
rentable square footage of that certain other building in the Project
located at 12100 West Olympic Boulevard, Los Angeles, California, which
expansion right must be exercised, if at all, on or before June 30,
2000, in accordance with, and subject to, the terms, covenants and
conditions of the Lease.
3. The terms and conditions of the Lease are incorporated herein by
this reference. This Memorandum is prepared and recorded for the purpose of
putting the public on notice of the Lease, and this Memorandum in no way
modifies the terms and conditions of the Lease. If there is any inconsistency
between the terms and conditions of this Memorandum and the terms and
conditions of the Lease, the terms and conditions of the Lease shall control.
IN WITNESS WHEREOF, the parties execute this Memorandum on the day
and year first above written.
"Landlord":
KILROY REALTY, L.P.,
a Delaware limited partnership
By: KILROY REALTY CORPORATION, a
Maryland Corporation, General Partner
By:_____________________________________
Jeffrey Hawken
Its: Executive Vice President,
Chief Operating Officer
By:_____________________________________
Hugh C. Greenup
Its: Executive Vice President
EXHIBIT L
-2-
<PAGE>
"Tenant":
eTOYS INC.,
a Delaware corporation
By:____________________________________
Its:________________________________
By:____________________________________
Its:________________________________
STATE OF )
) ss.
COUNTY OF LOS ANGELES )
On ________________________, before me, ________________________, a
Notary Public in and for said state, personally appeared ______________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
________________________________________
Notary Public in and for said State
STATE OF )
) ss.
COUNTY OF LOS ANGELES )
On ________________________, before me, ________________________, a
Notary Public in and for said state, personally appeared ______________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
____________________________________
Notary Public in and for said State
EXHIBIT L
-3-
<PAGE>
STATE OF )
) ss.
COUNTY OF LOS ANGELES )
On ________________________, before me, ________________________, a
Notary Public in and for said state, personally appeared ______________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
____________________________________
Notary Public in and for said State
STATE OF )
) ss.
COUNTY OF LOS ANGELES )
On ________________________, before me, ________________________, a
Notary Public in and for said state, personally appeared ______________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
____________________________________
Notary Public in and for said State
EXHIBIT L
-4-
<PAGE>
EXHIBIT A
DESCRIPTION OF REAL PROPERTY
AND EXPANSION SPACE REAL PROPERTY
EXHIBIT A
-1-
<PAGE>
EXHIBIT M
FORM OF RECOGNITION OF AMENDMENT TO COVENANTS,
CONDITIONS, AND RESTRICTIONS
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
ALLEN, MATKINS, LECK, GAMBLE
& MALLORY LLP
1999 Avenue of the Stars, 18th Floor
Los Angeles, California 90067
Attention: Anton N. Natsis, Esq.
RECOGNITION OF AMENDMENT TO COVENANTS,
CONDITIONS, AND RESTRICTIONS
This Recognition of Amendment to Covenants, Conditions, And
Restrictions (this "AGREEMENT") is entered into as of the ____ day of
_________, 1999, by and between KILROY REALTY, L.P., a Delaware limited
partnership ("LANDLORD"), and eTOYS INC., a Delaware corporation ("TENANT"),
with reference to the following facts:
A. Landlord and Tenant entered into that certain Office Lease dated
December 14, 1999 (the "Lease"). Pursuant to the Lease, Landlord leased to
Tenant and Tenant leased from Landlord space (the "PREMISES") located in an
office building on certain real property described in Schedule 1 attached
hereto and incorporated herein by this reference (the "PROPERTY").
B. The Premises are located in an office building located on the
Property.
C. Landlord, as declarant, has previously recorded, or proposes to
record concurrently with the recordation of this Agreement, an amendment (the
"AMENDMENT") to the Covenants, Conditions, and Restrictions recorded on
______, 19___ (the "DECLARATION"), dated ________, 19____, in connection with
the Property.
NOW, THEREFORE, in consideration of (a) the foregoing recitals and
the mutual agreements hereinafter set forth, and (b) for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows.
1. Tenant's Recognition of Declaration. Notwithstanding that the
Lease has been executed prior to the recordation of the Amendment, Tenant
agrees to recognize and be bound by all of the terms and provisions of the
Declaration as amended by the Amendment.
EXHIBIT M
-1-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Agreement
to be executed the __the day of _____, 199_.
"Landlord":
KILROY REALTY, L.P.
a Delaware limited partnership
By: KILROY REALTY CORPORATION, a
Maryland Corporation, General Partner
By:_________________________________
Its:_____________________________
"Tenant":
eTOYS INC.,
a Delaware corporation
By: ________________________________________
Its: ___________________________________
By: ________________________________________
Its: ___________________________________
EXHIBIT M
-2-
<PAGE>
STATE OF )
) ss.
COUNTY OF LOS ANGELES )
On ________________________, before me, ________________________, a
Notary Public in and for said state, personally appeared ______________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________________
Notary Public in and for said State
STATE OF )
) ss.
COUNTY OF LOS ANGELES )
On ________________________, before me, ________________________, a
Notary Public in and for said state, personally appeared ______________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________________
Notary Public in and for said State
EXHIBIT M
-3-
<PAGE>
STATE OF )
) ss.
COUNTY OF LOS ANGELES )
On ________________________, before me, ________________________, a
Notary Public in and for said state, personally appeared ______________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________________
Notary Public in and for said State
STATE OF )
) ss.
COUNTY OF LOS ANGELES )
On ________________________, before me, ________________________, a
Notary Public in and for said state, personally appeared ______________________,
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________________
Notary Public in and for said State
EXHIBIT M
-4-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. (IN
THOUSANDS, EXCEPT PER SHARE DATA)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 219,929
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 62,014
<CURRENT-ASSETS> 296,449
<PP&E> 42,399
<DEPRECIATION> (3,882)
<TOTAL-ASSETS> 513,690
<CURRENT-LIABILITIES> 94,922
<BONDS> 150,000
0
0
<COMMON> 12
<OTHER-SE> 261,100
<TOTAL-LIABILITY-AND-EQUITY> 513,690
<SALES> 128,032
<TOTAL-REVENUES> 128,032
<CGS> 103,676
<TOTAL-COSTS> 103,676
<OTHER-EXPENSES> 169,226
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,069
<INCOME-PRETAX> (141,213)
<INCOME-TAX> (1)
<INCOME-CONTINUING> (141,214)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (141,214)
<EPS-BASIC> (1.39)
<EPS-DILUTED> (1.39)
</TABLE>
