<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
COMMISSION FILE NUMBER 29947
INTEGRATED INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 86-0624332
(State of Incorporation) (IRS Employer I.D. No.)
1560 W. FOUNTAINHEAD PARKWAY
TEMPE, ARIZONA 85282
(Address of principle executive offices)
(480) 317-8000
(Registrant's telephone number)
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 ____ NO __X__
The registrant has not been subject to the filing requirements of Sections 13 or
15(d) of the Securities Exchange Act of 1934 for the past 90 days.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, not including shares held in treasury:
AS OF MAY 11, 2000, THERE WERE 20,462,070 SHARES OF COMMON
STOCK, $0.001 PAR VALUE, OUTSTANDING
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INTEGRATED INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
INDEX
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
------------------------------- ----
<S> <C>
ITEM 1 FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
December 31, 1999 and March 31, 2000 3
Condensed Consolidated Statements of Operations for Three
Months Ended March 31, 1999 and 2000 4
Condensed Consolidated Statements of Cash Flows for Three
Months Ended March 31, 1999 and 2000 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 10
PART II. OTHER INFORMATION
-------------------------------
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS 17
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 18
</TABLE>
SIGNATURES
- ----------
SIGNATURE PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1.
INTEGRATED INFORMATION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 863 $ 74,653
Accounts receivable, net 3,982 7,322
Income tax receivable 539 539
Unbilled revenues on contracts 685 495
Prepaid expenses and other current assets 708 1,062
--------- ---------
Total current assets 6,777 84,071
Property and equipment, net 4,323 16,977
Other assets 1,018 1,228
--------- ---------
$ 12,118 $ 102,276
========= =========
LIABILITIES, CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses $ 3,703 $ 6,503
Lines of credit 1,015 --
Current installments of long-term debt 222 237
Current installments of capital lease 779 3,504
obligations Deferred revenues on contracts 396 255
--------- ---------
Total current liabilities 6,115 10,499
Long-term debt, less current installments 663 606
Capital lease obligations, less current installments 1,162 7,098
--------- ---------
Total liabilities 7,940 18,203
Series A Convertible Preferred Stock, $.001 par value,
1,666,666 shares authorized, 1,666,666 shares issued
and outstanding at December 31, 1999 2,882 --
Series B Convertible Preferred Stock, $.001 par value,
751,879 shares authorized, 751,879 shares issued
and outstanding at December 31, 1999 2,000 --
Stockholders' equity (deficiency):
Common stock, $.001 par value, authorized 100,000,000
shares, issued and outstanding 10,913,025 and
20,089,095 shares at December 31, 1999
and March 31, 2000, respectively 11 20
Additional paid-in capital 1,298 88,333
Accumulated deficit (2,013) (4,280)
--------- ---------
Total stockholders' equity (deficiency) (704) 84,073
--------- ---------
$ 12,118 $ 102,276
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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INTEGRATED INFORMATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 2000
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues ......................................................................... $ 3,253 $ 10,454
Cost of revenues ................................................................. 1,648 5,515
-------- --------
Gross profit ........................................................... 1,605 4,939
-------- --------
Operating expenses:
Selling and marketing .......................................................... 359 2,233
General and administrative ..................................................... 908 5,132
-------- --------
Total operating expenses ............................................... 1,267 7,365
-------- --------
Income (loss) from operations .................................................... 338 (2,426)
Interest income (expense), net ................................................... (59) 159
-------- --------
Earnings (loss) before income taxes .............................................. 279 (2,267)
Provision for income taxes ....................................................... 99 --
-------- --------
Net earnings (loss) attributable to common stockholders .................... $ 180 $ (2,267)
======== ========
Earnings (loss) per common share:
Basic:
Earnings (loss) per common share ............................................... $ .02 $ (.14)
======== ========
Weighted average number of common shares outstanding............................ 10,596 15,773
======== ========
Diluted:
Earnings (loss) per common share ............................................... $ .02 $ (.14)
======== ========
Weighted average number of common and common equivalent shares outstanding ..... 10,879 15,773
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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INTEGRATED INFORMATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 2000
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) .......................................... $ 180 $ (2,267)
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
Depreciation and amortization ............................. 110 595
Increase in allowance for doubtful accounts............... 50 150
Deferred tax liability .................................... 95 --
Increase (decrease) in cash resulting from changes in:
Accounts receivable ..................................... (946) (3,490)
Unbilled revenues on contracts .......................... (35) 190
Prepaid expenses and other current assets............... (1) (354)
Other assets ............................................ 8 (210)
Accounts payable and accrued .expenses................... 164 2,800
Deferred revenues on contracts .......................... 46 (141)
-------- --------
Net cash used in operating activities................. (329) (2,727)
-------- --------
Cash flows from investing activities:
Capital expenditures ......................................... (56) (4,397)
-------- --------
Net cash used in investing activities................. (56) (4,397)
-------- --------
Cash flows from financing activities:
Net repayments on lines of credit ............................ -- (1,015)
Long-term debt repayments .................................... (23) (42)
Repayment of capital lease obligations ....................... (80) (191)
Proceeds of initial public offering, net of expenses.......... -- 62,715
Issuance of Series C Convertible Preferred Stock, net of
expenses ..................................................... -- 19,411
Issuance of common stock and exercise of stock options........ 532 35
-------- --------
Net cash provided by financing activities............. 429 80,913
-------- --------
Effect of exchange rate on cash ................................ -- 1
-------- --------
Increase in cash and cash equivalents .......................... 44 73,790
Cash and cash equivalents, at beginning of period.............. 392 863
-------- --------
Cash and cash equivalents, at end of period.................... $ 436 $ 74,653
======== ========
Acquisition of property and equipment and assumption of
capital lease obligations..................................... $ 136 $ 8,852
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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INTEGRATED INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying consolidated unaudited financial statements have been
prepared by Integrated Information Systems, Inc. (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 1999 included in the Company's Form S-1 filed with the Securities and
Exchange Commission (Registration No. 333-94861). The accompanying consolidated
financial statements reflect all adjustments (consisting solely of normal,
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of results for the interim periods presented. The results of
operations for the three month periods ended March 31, 1999 and 2000 are not
necessarily indicative of the results to be expected for any future period or
the full fiscal year.
2. 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 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.
3. Revenue Recognition
Revenues for time-and-material contracts are recognized as the services are
rendered. Revenues pursuant to fixed fee contracts are generally recognized as
services are rendered on the percentage-of-completion methods of accounting
(based on the ratio of labor incurred to total estimated labor hours). Fixed fee
contracts entered into before design is completed are accounted for by deferring
profit until reasonable estimates of total contract costs can be made. Revenues
from maintenance or post-contract support agreements are recognized as earned
over the terms of the agreements. Revenues from recurring services such as
application management and hosting operations are recognized as services are
provided each month. A one-time set up fee is typically charged for these
services which is recognized when set-up is complete.
Provisions for estimated losses on uncompleted contracts are made on a
contract by contract basis and are recognized in the period in which such losses
are determined. Unbilled revenues on contracts are comprised of earnings on
certain contracts in excess of contractual billings on such contracts. Billings
in excess of earnings are classified as deferred revenues on contracts.
4. Series C Preferred Stock Financing
In January 2000, the Company received approximately $19.4 million, net of
issuance costs of $789,000, from the sale of 2,119,625 shares of Series C
Convertible Preferred Stock. The terms and redemption features of the Series C
Preferred Stock operate in substantially the same manner as the Series A and
Series B stock, except that the conversion and liquidation price of the Series C
Preferred Stock is $9.53 per share, the same as the purchase price per share for
the shares of Series C Preferred Stock.
5. Initial Public Offering and Conversion of Preferred Stock
On March 17, 2000, the Company issued 4,600,000 shares of its common stock,
$.001 par value per share, for proceeds of $69 million less underwriting
discounts and other expenses of $6.3 million. The Company intends to use the
proceeds for working capital and other general corporate purposes. At the time
of the initial public offering, the Series A, B, and C Preferred Stock issued by
the Company converted to Common Stock. On April 19, 2000, the underwriters'
exercised their over-allotment option and sold an additional 690,000 shares at
the IPO price. Of these additional 690,000 shares, 345,000 were sold by IIS and
345,000 were sold by James G. Garvey, Jr., the founder, Chairman, CEO and
President of IIS.
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6. Other Events
On March 28, 2000, the Company entered into a sublease for a portion of
goracing.com Inc.'s 65,018 square foot facility in Tempe, Arizona, and assumed
leases of equipment for an application hosting center previously operated as an
in-house facility by goracing.com, Inc. and its parent company Action
Performance Companies, Inc., (collectively "goracing"). The Company will
initially occupy approximately 32,500 square feet of the facility in order to
provide immediate and enhanced hosting capabilities. The Company also entered
into agreements for the purchase of approximately $2 million of computer
equipment and the assumption of $6.1 million in leased equipment from
goracing.com. In connection with the transaction, the Company will provide
goracing with hosting services for goracing's web site and related
applications. Payments for the facilities and capital equipment total
approximately $18 million over up to 10 years.
7. Net Earning (Loss) Per Share
The following table sets forth the computation shares used in computing basic
and diluted net earnings (loss) per share (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 2000
<S> <C> <C>
Net earnings (loss) $ 180 $ (2,267)
=========== ===========
Weighted average number of
common shares outstanding 10,596 15,773
Common equivalent shares
representing shares
issuable upon exercise of
stock options 583 2,010
Subtraction of common
equivalent shares due to
antidilutive nature - (2,010)
----------- -----------
Dilutive adjusted weighted
average shares and assumed
conversions 10,879 15,773
=========== ===========
Basic net income per share $ 0.02 $ (0.14)
=========== ===========
Diluted net income per share $ 0.02 $ (0.14)
=========== ===========
</TABLE>
7
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We began operations in 1989 to assist clients in adopting new technologies.
Initially focused on the microcomputer industry, we shifted our focus to
client/server technologies in 1993, and then to Internet-related technologies
beginning in 1997.
Our revenues have increased rapidly in recent periods. To meet increasing
requirements resulting from our revenue growth, and in anticipation of further
growth, we have significantly expanded our infrastructure. We have hired senior
executives, increased our sales and marketing efforts, established new regional
offices, expanded our physical facilities, including a data center which houses
our application hosting services, and initiated efforts to increase our brand
awareness.
We derive our revenues primarily from the delivery of professional services.
We offer our services to clients under time and materials contracts or under
fixed-price contracts. For time and material projects, we recognize revenues
based on the number of hours worked by consultants at a rate per hour agreed
upon with our clients. We recognize revenues from fixed-price contracts on a
percentage-of-completion method based on project hours worked. The percentage of
our revenues from fixed fee contracts was 43% in 1998, 11% in 1999, and 10% for
the three months ended March 31, 2000. As we have shifted our technology focus
to the Internet, we expect to provide a greater portion of our services on a
time and materials basis as our customers' Internet solutions tend to have less
clearly defined scopes and objectives. We provide and recognize our application
hosting services at a minimum monthly fee, and charge extra fees for services
that exceed agreed upon parameters. In addition, we charge our application
hosting clients a one time set-up fee, which we recognize when set-up is
complete.
Our cost of revenues consist primarily of employee compensation and benefits
for project personnel. Sales and marketing expenses consist primarily of
compensation and benefits, and the costs of marketing programs. General and
administrative expenses consist primarily of compensation and benefits for our
executive management and our finance, administration, information technology,
recruiting, and human resources personnel. General and administrative expenses
also include research and development expense, depreciation, and operating
expenses such as rent, insurance, telephones, office supplies, travel, outside
professional services, training, and facilities costs. We expect all of our
costs to increase as we add additional personnel, expand our sales and marketing
efforts, open new offices, increase our recruiting efforts, enhance our
information systems, and incur additional costs related to the growth of our
business and operations as a public company.
We have historically derived and believe that we will continue to derive a
significant portion of our revenues from a limited number of clients who may
change from year to year. Any cancellation, deferral, or significant reduction
in work performed for our principal clients could harm our business and cause
our operating results to fluctuate significantly from period to period. In
addition, we plan to continue to expand our operations by hiring additional
consultants and other employees and by adding new offices, systems and other
infrastructure. As a result of our continued infrastructure buildup and increase
in operating expenses, we anticipate incurring net losses in 2000 and 2001.
Further, our quarterly revenue, cost of revenues, and operating results have
varied in the past due to fluctuations in the utilization of project personnel
and are likely to vary significantly in the future. Therefore, we believe that
period-to-period comparisons of our operating results may not necessarily be
meaningful and should not be relied upon as indications of future performance.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31,
1999
REVENUES. Revenues increased 221% to $10.5 million for the three months ended
March 31, 2000, compared to $3.3 million in the same period of 1999. The
increase in revenues reflects increases in the average rate per hour charged for
services, increases in the size and number of typical client engagements
reflecting engagements involving more complex Internet applications, and an
increase in revenues from American Express. Our 18% increase in average hourly
rates accounted for approximately $600,000 of the increase. New client
engagements contributed approximately $5.0 million of the increase. Revenues
from American Express were $662,000 in the first three months of 1999, compared
to $2.3 million in the first three months of 2000.
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COST OF REVENUES. Cost of revenues increased 235% to $5.5 million for the three
months ended March 31, 2000, compared to $1.6 million for the same period of
1999. This increase was due primarily to an increase in project personnel from
106 at March 31, 1999, to 322 at March 31, 2000. As a percentage of revenues,
cost of revenues increased from 51% for the three months ended March 31, 1999 to
53% for the three months ended March 31, 2000.
SELLING AND MARKETING. Selling and marketing expenses increased 521% to $2.2
million for the three months ended March 31, 2000, compared to $359,000 for the
three months ended March 31, 1999. Approximately $1.2 million of the increase
was due to an increase in sales and marketing personnel. Additionally, the
increase was due to increased advertising and promotional expenses of
approximately $560,000 for the three months ended March 31, 2000, compared to
the same period in 1999. As a percentage of revenues, selling and marketing
expenses increased to 21% in the first three months of 2000 from 11% for the
same period in 1999. The increase is primarily the result of increased sales and
marketing efforts designed to enhance our national and regional presence in key
new markets.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 466%
to $5.1 million for the three months ended March 31, 2000, compared to $908,000
for the same period in 1999. Of the increase, approximately $850,000 was
attributable to compensation paid to additional administrative personnel. The
balance was related primarily to increases in recruiting and training expenses
as well as additional insurance, depreciation, and rent expense. As a percentage
of revenues, general and administrative expenses increased to 49% for the three
months ended March 31, 2000, from 28% for the three months ended March 31, 1999.
INTEREST INCOME, NET. Interest income, net, for the three months ended March 31,
2000 increased to approximately $159,000 compared to interest expense of
approximately $59,000 for the same period in 1999. The increase for 2000 was due
primarily to interest income earned on the invested portion of proceeds from
both our preferred stock financing in January 2000 and our initial public
offering in March 2000.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations and investments in property
and equipment through cash generated from operations, capital lease financing
arrangements, bank borrowings, and equity financings.
As of March 31, 2000, cash and cash equivalents totaled approximately $74.7
million and we had $73.6 million in working capital. In January 2000, we raised
$19.4 million, after expenses, through a private placement of Series C preferred
stock to institutional and other accredited investors. In March 2000, we raised
$62.7 million (net of underwriting discounts and other offering expenses of $6.3
million) through a public offering of 4,600,000 shares of our common stock. On
April 19, 2000, the underwriters' exercised their over-allotment option and sold
an additional 690,000 shares at the IPO price. Of these additional 690,000
shares, 345,000 were sold by IIS and 345,000 were sold by James G. Garvey, Jr.,
the founder, Chairman, CEO and President of IIS. The Company raised $4.8
million, net of underwriting discounts and other offering expenses.
For the quarters ended March 31, 1999 and 2000, net cash used in operating
activities was $329,000 and $2.7 million, respectively. Cash used in operating
activities in each of these periods was the result of increases in accounts
receivable and unbilled revenues on contracts due to increases in sales for the
period, partially offset by increases in accounts payable and accrued expenses
related to our growth. Cash used in operating activities was also the result of
net losses, adjusted for non-cash items, primarily related to depreciation and
amortization.
For the quarters ended March 31, 1999 and 2000, cash used in investing
activities was $56,000 and $4.4 million, respectively. Cash used in investing
activities in each period consisted primarily of purchases of furniture and
equipment to support growth in our infrastructure. We are continuing the process
of expanding our data center in which we provide application hosting in addition
to our geographic expansion. We anticipate capital expenditures of $25 million
in 2000 to accommodate our planned growth.
Net cash provided by financing activities for the quarters ended March 31,
1999 and 2000 was $429,000 and $80.9 million, respectively. In the first quarter
of 2000, cash provided by financing activities was from the sale of our
preferred stock in a private placement and our common stock in our initial
public offering. In 1999, cash provided by financing activities was from the
sale of our common stock and borrowings under our credit facility.
Non-cash investing and financing activities for the quarters ended March 31,
1999 and 2000 consisted of $136,000 and $8.9 million, respectively.
As of March 31, 2000, we had a $2.0 million line of credit, a $2.1 million
multiple advance term loan, and a master
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lease agreement to finance up to $3.2 million of computer equipment, all with
Imperial Bank. These facilities are secured by substantially all of our assets.
The line of credit and the term loan bear interest at a rate of prime plus 1%
(9.5% at March 31, 2000). The master lease agreement has an implied interest
rate of approximately 10.5%. As of March 31, 2000, there were no borrowings
outstanding under the line of credit, $843,000 under the term loan, and $2.9
million pursuant to the master lease agreement. The line of credit and term loan
require compliance with certain financial and other covenants. The line of
credit was subject to renewal on April 30, 2000, the term loan matures on June
30, 2004, and the master lease agreement expires on various dates through June
2002. We used the proceeds from the private placement of our Series C preferred
stock to pay down the outstanding balance on the line of credit and the term
loan. During the first quarter of 2000, we also entered into an agreement for
the assumption of $6.1 million in leased equipment from goracing.com. We have
available $1 million under a letter of credit agreement with Imperial Bank at a
stated interest rate of prime plus 1%. As of March 31, 2000, we have utilized
$70,000 under this agreement.
We believe that the net proceeds from our public offering, combined with
current cash balances and amounts available under our credit facilities, will be
sufficient to meet our working capital and capital expenditure requirements for
at least the next 12 months. We may need additional financing to fund our cash
requirements beyond 12 months. In this regard, we expect to continue to invest
aggressively in our business in an effort to grow revenues. Such additional
financing, if needed, may not be available on terms acceptable to us, if at all.
YEAR 2000
Many currently installed computer systems and software products were coded to
accept only two-digit year entries in the date code field. Consequently,
subsequent to December 31, 1999, many of these systems became subject to failure
or malfunction. Although we are not aware of any material Year 2000 issues at
this time, Year 2000 issues may occur or be made known to us in the future. Year
2000 issues may possibly affect software solutions developed by us or
third-party software incorporated into our solutions. We generally do not
guarantee that the software licensed from third parties by our clients is Year
2000 compliant, but we sometimes do warrant that the solutions developed by us
are Year 2000 compliant.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation (an interpretation of APB Opinion No. 25). This interpretation
provides guidance regarding the application of APB Opinion 25 to Stock
Compensation involving employees. This interpretation is effective July 1, 2000
and is not expected to have a material effect on our consolidated financial
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
To date, we have not utilized derivative financial instruments or
derivative commodity instruments. We do not expect to employ these or other
strategies to hedge market risk in 2000. We invest our cash in money market
funds, which are subject to minimal credit and market risk. We believe that the
market risks associated with these financial instruments are immaterial.
All of our revenues are realized currently in U.S. dollars and are from
customers primarily in the United States. Therefore, we do not believe that we
currently have any significant direct foreign currency exchange rate risk.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND OUR STOCK PRICE
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Act of 1934. Forward-looking statements give our current expectations
or forecasts of future events. Words such as "expects," "may," "anticipates,"
"intends," "would,""will," "plans," "believes," "estimates," "should," and
similar expressions identify forward-looking statements. Forward looking
statements in this Form 10-Q include express or implied statements concerning
our future revenues, expenditures, capital or other funding requirements, the
adequacy of our current cash and working capital balances to fund our present
and planned operations and financing needs, expansion of and demand for our
service offerings, and the growth of our business and operations, as well as
future economic and other conditions both generally and in our specific
geographic and product and services markets. These statements are based on
estimates, projections, beliefs, and assumptions of us and our management, and
are not guarantees of future performance. From time to time, we also may provide
oral or written forward-looking statements in other materials we release to the
public.
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We caution that the following important factors, among others, in the
future could cause our actual results to differ materially from those expressed
in forward-looking statements made by or on behalf of us in filings with the
Securities and Exchange Commission, press releases, communications with
investors, and oral statements. Any of these factors, among others, could also
cause the trading price of our common stock to decline or fluctuate
significantly. We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make in our
reports filed with the Securities and Exchange Commission.
WE HAVE EXPERIENCED RECENT OPERATING LOSSES AND MAY INCUR OPERATING LOSSES IN
FUTURE PERIODS, WHICH COULD CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.
We had a net loss of approximately $1.4 million for the year ended December
31, 1999 and a net loss of approximately $2.3 million for the three months ended
March 31, 2000. We expect to incur significantly greater losses in 2000 and 2001
as we grow our business. If we do not achieve continued revenue growth, we could
experience operating losses greater than already anticipated or for periods
after 2001. These losses or any fluctuation in our operating results could cause
the market value of our common stock to decline.
WE RELY ON A SMALL NUMBER OF CLIENTS FOR MOST OF OUR REVENUES AND OUR REVENUES
WILL DECLINE SIGNIFICANTLY IF WE CANNOT RETAIN OR REPLACE, OR IF WE EXPERIENCE
COLLECTION PROBLEMS FROM, THESE CLIENTS.
We derive, and expect to continue to derive, a significant portion of our
revenues from a limited number of clients. In 1998, our three largest clients
accounted for approximately 42% of our revenues. One of our current clients,
American Express, which first engaged us in the fourth quarter of 1998 and is
responsible for a total of 20 active projects as of December 31, 1999, accounted
for 35% of our revenues during 1999 and 22% of our revenues for the three months
ended March 31, 2000.
Virtually all of our client contracts may be canceled by the client following
limited notice and without economic penalty; however, the client is responsible
for fees earned through the date of contract termination. The revenues derived
from specific clients is likely to vary from period to period, and a major
client in one year may not use our services in a subsequent year. The loss of a
large client or project in any period could result in a decline in our revenues
and profitability from period to period, and cause significant and sudden
declines or fluctuations in the market value of our common stock. In addition,
because a large portion of our receivables relate to a limited number of clients
and large projects, write-offs attributable to one or a few of these clients or
projects could exceed our allowance for doubtful accounts and significantly harm
our operating results.
IF WE ARE UNABLE TO ATTRACT AND RETAIN PROFESSIONAL STAFF, WE WILL BE UNABLE TO
PROVIDE OUR SERVICES EFFECTIVELY AND CONSEQUENTLY MAY BE UNABLE TO INCREASE OR
MAINTAIN CURRENT REVENUE LEVELS OR ACHIEVE OR MAINTAIN PROFITABILITY, WHICH
WOULD CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.
We derive substantially all of our revenue from the billings of our
professional services personnel on projects. If we fail to attract and retain
professionals, we may not be able to successfully compete for new projects,
timely finish existing projects, or generally carry out our business plan. The
emergence of the Internet and the growth in e-commerce requires integrated
solutions implemented by Internet and network professionals qualified in leading
and emerging technologies. There is significant competition for professionals
with the skills required to provide these solutions, as businesses quickly adopt
and seek to implement their e-commerce strategies. Internet professional service
providers who are unable to attract and retain qualified professionals will have
difficulty competing in today's marketplace. We may lose prospective qualified
employees to clients or competitors. We may not attract a sufficient number of
highly skilled professionals, or retain, train, and motivate the professionals
that we do attract. Failure to do so could impair our ability to adequately
manage and complete our existing projects or obtain new projects. In addition,
declines in the trading price of our common stock could materially and adversely
affect employee morale and retention and other aspects of our business.
OUR RESULTS OF OPERATIONS MAY VARY FROM QUARTER TO QUARTER IN FUTURE PERIODS
AND, AS A RESULT, WE MAY NOT MEET THE EXPECTATIONS OF OUR INVESTORS AND
ANALYSTS, WHICH COULD CAUSE OUR STOCK PRICE TO FLUCTUATE OR DECLINE.
Our revenues and results of operations have fluctuated significantly in the
past and could fluctuate significantly in the future. For example, in 1998 our
pro forma quarterly net earnings ranged from a loss of $574,000 in the first
quarter to earnings of $67,000 in the second quarter. In 1999, our pro forma
quarterly net earnings ranged from a loss of $2.2 million in the fourth quarter
to earnings of $559,000 in the second quarter. We incurred a net loss of $2.3
million in the first quarter of 2000. You should not rely on period-to-period
comparisons of operations as an indication of future
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performance.
Our results may fluctuate due to the factors described herein as well as:
- demand for our services;
- changes in the mix of services offered by us; and
- increases in our operating expenses.
A substantial portion of our operating expense is related to personnel costs,
marketing programs, and overhead, which cannot be adjusted quickly and is
therefore relatively fixed in the short term. Our operating expenses are based,
in significant part, on our expectations of future revenues. If actual revenues
are below our expectations, we may not achieve our anticipated operating
results. Moreover, it is possible that in some future periods our results of
operations may be below the expectations of analysts and investors. In this
event, the market price of our common stock is likely to decline.
IF WE FAIL TO KEEP PACE WITH THE RAPID TECHNOLOGICAL CHANGES THAT CHARACTERIZE
OUR INDUSTRY, OUR COMPETITIVENESS WOULD SUFFER, CAUSING US TO LOSE PROJECTS OR
CLIENTS AND CONSEQUENTLY REDUCING OUR REVENUES AND THE PRICE OF OUR COMMON
STOCK.
Our market and the enabling technologies used by our clients are
characterized by rapid, frequent, and significant technological changes. If we
fail to respond in a timely or cost-effective way to these technological
developments, we may not be able to meet the demands of our clients, which would
affect our ability to generate revenues and achieve profitability. We have
derived, and expect to continue to derive, a substantial portion of our revenues
from creating e-business or e-commerce systems and solutions that are based upon
today's leading and developing technologies and which are capable of adapting to
future technologies. Our historical results of operations may not reflect our
new service offerings and may not give you an accurate indication of our ability
to adapt to these future technologies.
OUR FAILURE TO MEET CLIENT EXPECTATIONS OR DELIVER ERROR-FREE SERVICES COULD
DAMAGE OUR REPUTATION AND HARM OUR ABILITY TO COMPETE FOR NEW BUSINESS OR RETAIN
OUR EXISTING CLIENTS, WHICH MAY LIMIT OUR ABILITY TO GENERATE REVENUES AND
ACHIEVE OR MAINTAIN PROFITABILITY.
Many of our engagements involve the delivery of information technology
services that are critical to our clients' businesses. Any defects or errors in
these services or failure to meet clients' specifications or expectations could
result in:
- delayed or lost revenues due to adverse client reaction;
- requirements to provide additional services to a client at no or a
limited charge;
- refunds of fees for failure to meet obligations;
- negative publicity about us and our services; and
- claims for substantial damages against us.
In addition, we sometimes implement critical functions for high profile
clients or for projects that have high visibility and widespread usage in the
marketplace. If these functions experience difficulties, whether or not as a
result of errors in our services, our name could be associated with these
difficulties and our reputation could be damaged, which would harm our business.
WE MAY LOSE MONEY ON FIXED-PRICE CONTRACTS BECAUSE WE MAY FAIL TO ACCURATELY
ESTIMATE AT THE BEGINNING OF PROJECTS THE TIME AND RESOURCES REQUIRED TO FULFILL
OUR OBLIGATIONS UNDER OUR CONTRACTS; THE ADDITIONAL EXPENDITURES THAT WE MUST
MAKE TO FULFILL THESE CONTRACT OBLIGATIONS MAY CAUSE OUR PROFITABILITY TO
DECLINE OR PREVENT US FROM ACHIEVING PROFITABILITY AND COULD REDUCE THE PRICE OF
OUR COMMON STOCK.
Although we provide consulting services primarily on a time and materials
compensation basis, approximately 11% of our consulting revenue was derived from
fixed-price, fixed-time engagements in 1999, approximately 43% of our revenues
were derived from fixed-price, fixed-time engagements in 1998, and 10% in the
three months ended March 31, 2000. Our failure to accurately estimate the
resources required for a fixed-price, fixed-time engagement or our
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failure to complete our contractual obligations in a manner consistent with our
projections or contractual commitments could harm our overall profitability and
our business. From time to time, we have been required to commit unanticipated
additional resources to complete some fixed-price, fixed-time engagements,
resulting in losses on these engagements. We believe that we may experience
similar situations in the future. In addition, we may negotiate a fixed price
for some projects before the design specifications are finalized, resulting in a
fixed price that is too low and causing a decline in our operating results.
OUR LACK OF LONG-TERM CONTRACTS WITH CLIENTS AND OUR CLIENTS' ABILITY TO
TERMINATE CONTRACTS WITH LITTLE OR NO NOTICE REDUCES THE PREDICTABILITY OF OUR
REVENUES AND INCREASES THE POTENTIAL VOLATILITY OF OUR STOCK PRICE.
Our clients generally retain us on an engagement-by-engagement basis, rather
than under long-term contracts. In addition, our current clients can generally
reduce the scope of or cancel their use of our services without penalty and with
little or no notice. As a result, our revenues are difficult to predict. Because
we incur costs based on our expectations of future revenues, our failure to
predict our revenues accurately may cause our expenses to exceed our revenues,
which could cause us to incur increased operating losses. Although we try to
design and build complete e-business systems for our clients, we are sometimes
retained to design and build discrete segments of the overall e-business system
on an engagement-by-engagement basis. Since the projects of our large clients
can involve multiple engagements or stages, there is a risk that a client may
choose not to retain us for additional stages of a project or that the client
will cancel or delay additional planned projects. These cancellations or delays
could result from factors related to our work product or the progress of the
project, as well as general business or financial considerations of the client.
If a client defers, modifies, or cancels an engagement or chooses not to retain
us for additional phases of a project, we must be able to rapidly re-deploy our
employees to other engagements in order to minimize underutilization of
employees and the resulting harm to our operating results. Our operating
expenses are relatively fixed and cannot be reduced on short notice to
compensate for unanticipated variations in the number or size of engagements in
progress. If we are unable to efficiently re-deploy our consultants, our
operating results would be harmed.
WE MAY NOT BE SUCCESSFUL IN RETAINING OUR CURRENT TECHNOLOGY ALLIANCES OR
ENTERING INTO NEW ALLIANCES, WHICH COULD HAMPER OUR ABILITY TO DELIVER SOLUTIONS
NEEDED BY OUR CLIENTS AND LIMIT OUR ABILITY TO INCREASE OR SUSTAIN OUR REVENUES
AND ACHIEVE OR MAINTAIN PROFITABILITY.
We have vendor alliances with over 75 companies. We have written agreements
with about one-third of these companies. All of our other relationships rely on
oral arrangements. Although these relationships generally entail only the supply
of technologies or solutions used in our clients' solutions, we also rely on
these relationships for client referral and marketing opportunities, access to
advanced technology and training as well as other benefits. These relationships
are non-exclusive and the vendors are free to enter into similar or more
favorable relationships with our competitors. Whether written or oral, many of
the agreements underlying our technology alliance relationships are general in
nature, do not legally bind the parties to transact business with each other or
to provide specific client referrals, cross-marketing opportunities, or other
intended benefits to each other, have indefinite terms, and may be ended at the
will of either party. We may not be able to maintain our existing strategic
relationships and may fail to enter into new relationships. If we are unable to
maintain these relationships, the benefits that we derive from these
relationships, including the receipt of important sales leads, cross-marketing
opportunities, access to emerging technology training and certifications, and
other benefits, may be lost. Consequently, we may not be able to offer desired
solutions to clients, which would result in a loss of revenues and our inability
to effectively compete for clients seeking emerging or leading technologies
offered by these vendors.
IF WE ARE UNABLE TO SUCCESSFULLY OPEN NEW REGIONAL OFFICES, WE MAY INCUR
INCREASED OPERATING EXPENSES WITHOUT CORRESPONDING INCREASED REVENUES, WHICH MAY
LIMIT OUR ABILITY TO ACHIEVE OR MAINTAIN PROFITABILITY AND CAUSE THE PRICE OF
OUR COMMON STOCK TO DECLINE.
A key component of our business strategy is to open regional offices in new
geographic locations. We may be unable to select appropriate locations for our
regional offices, to open them efficiently, or to manage them profitably. If we
do not implement this strategy successfully, we may incur increased operating
expenses without increased revenues, which would hurt our stock price.
IF OUR EFFORTS TO DEVELOP BRAND AWARENESS ARE NOT SUCCESSFUL, WE MAY NOT BE ABLE
TO INCREASE OUR REVENUES SUFFICIENTLY TO OFFSET THE MARKETING COSTS THAT WE WILL
INCUR IN THESE EFFORTS.
Because the Internet professional service provider industry is expanding
rapidly, an element of our business strategy is to develop and maintain
widespread awareness of our brand name in our target markets. To promote our
name, we have increased and plan to continue to increase our marketing expenses.
If our marketing efforts are not successful, we may not experience increases in
revenues to offset the increase in our marketing expenses, causing our
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operating margins to decline. In addition, if we are unable to further develop
our brand awareness, we may not attain the growth in revenues that we seek.
BECAUSE WE OPERATE IN A HIGHLY COMPETITIVE AND RAPIDLY EVOLVING INDUSTRY,
EXISTING AND NEW COMPETITORS COULD CAUSE US TO LOSE BUSINESS OPPORTUNITIES OR
PROFESSIONAL PERSONNEL AND LIMIT OUR ABILITY TO INCREASE OR SUSTAIN REVENUE
LEVELS.
The business areas in which we compete are intensely competitive and subject
to rapid change. Due to the rapid growth in our industry, we expect competition
to continue and to intensify. Existing or future competitors could hire
professionals or win new client engagements that we are competing for. If this
occurs, our ability to generate increased revenues may be limited and we may not
achieve profitability. Our competitors fall into several categories and include
a range of entities providing both general management and information technology
consulting services and Internet services or solutions focused on discreet
e-business segments. Many of our competitors have longer operating histories,
larger client bases, and greater brand or name recognition, as well as greater
financial, technical, marketing, and public relations resources. Our competitors
may be able to respond more quickly to technological developments and changes in
clients' needs. Further, as a result of the low barriers to entry, we expect to
continue to face additional competition from new entrants into our markets. We
do not own any technologies that preclude or inhibit competitors from entering
the general business areas in which we compete. Existing or future competitors
may independently develop and patent or copyright technologies that are superior
or substantially similar to our technologies, which may place us at a
competitive disadvantage.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND, AS A RESULT,
WE COULD LOSE COMPETITIVE ADVANTAGES WHICH DIFFERENTIATE OUR SOLUTIONS AND OUR
ABILITY TO ATTRACT AND RETAIN CLIENTS.
Our success is dependent, in part, upon our intellectual property rights. We
rely upon a combination of trade secret, confidentiality and nondisclosure
agreements, and other contractual arrangements, as well as copyright and
trademark laws to protect our proprietary rights. We have no patents or pending
patent applications. We enter into confidentiality agreements with our
employees, generally require that our consultants and clients enter into these
agreements, and attempt to limit access to and distribution of our proprietary
information. Nevertheless, we may be unable to deter misappropriation of our
proprietary information or to detect unauthorized use and take appropriate steps
to enforce our intellectual property rights or proprietary information.
We attempt to retain significant ownership or rights to use our internally
developed software applications and to build applications which we can market
and adapt through further customization for other client projects. Under some of
our client contracts, all of our project developments are the property of the
client and we have no or limited rights to reuse or provide these developments
in other client projects. To the extent that we are unable to negotiate
contracts which permit us to reuse code and methodologies, or to the extent that
we have conflicts with our clients regarding our ability to do so, we may be
unable to provide services to some of our clients within price and timeframes
acceptable to these clients.
Although we believe that our services, trade or service names, and products
do not infringe upon the intellectual property rights of others, claims could be
asserted against us in the future. If asserted, we may be unable to successfully
defend these claims, which could cause us to cease providing some services or
products and limit any competitive advantage we derive from our trademarks or
names.
If any of these events occur, our ability to differentiate ourselves and
compete effectively could be limited and we may lose revenue opportunities.
WE OCCASIONALLY AGREE NOT TO PERFORM SERVICES FOR OUR CLIENTS' COMPETITORS,
WHICH MAY LIMIT OUR ABILITY TO GENERATE FUTURE REVENUES AND INHIBIT OUR BUSINESS
STRATEGY.
In order to secure particularly large engagements or engagements with
industry leading clients, we have agreed on limited occasions not to perform
services, or not to utilize some of our intellectual property rights developed
for clients, for competitors of those clients for limited periods of time
ranging from one to three years. In our agreement with American Express, our
largest client, we have agreed not to perform services for competitors of
American Express for one year after each project completion date and not to
assign consultants who have worked on American Express projects to other
clients' competitive projects for six months after completing work for American
Express. These non-compete provisions reduce the number of our prospective
clients and our potential sources of revenue. These agreements also may limit
our ability to execute a part of our business strategy of leveraging our
business expertise in discreet industry segments by attracting multiple clients
competing in those industries. In addition, these agreements increase the
significance of our client selection process because some of our clients compete
in markets where only a
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limited number of companies gain meaningful market share. If we agree not to
perform services or to utilize intellectual property rights for a particular
client's competitors or competitive projects, we are unlikely to receive
significant future revenues in that particular market.
OUR LONG SALES CYCLES MAKE OUR REVENUES DIFFICULT TO PREDICT, WHICH COULD CAUSE
OUR REVENUES OR PROFITABILITY TO BE BELOW ANALYST OR INVESTOR EXPECTATIONS,
CAUSING OUR STOCK PRICE TO FLUCTUATE AND DECLINE SIGNIFICANTLY.
The timing of our revenues is difficult to predict because of the length and
variance of the time required to complete a sale. Our sales cycle typically
ranges in length from three months to six months and is sometimes longer. Prior
to retaining us for a project, our clients often undertake an extensive review
of their systems, needs, and budgets and may require approval at various levels
within their organization. The unpredictability of our sales cycle could cause
our revenues or profitability to be below the expectations of analysts or
investors and our stock price to fluctuate significantly.
IF BUSINESSES DO NOT ADOPT AND ACCEPT APPLICATION HOSTING SERVICES, WE MAY BE
UNABLE TO RECOVER OUR INVESTMENT IN PROVIDING THESE SERVICES, REDUCING OUR
PROFITABILITY AND THE PRICE OF OUR COMMON STOCK.
Our ability to increase revenues and profitability depends in part on the
adoption and acceptance of third-party application hosting services by our
clients. We have only recently begun to offer third-party application hosting
services. We intend to expend significant resources to increase our data center
capacity to accommodate our hosting services as evidenced by our recent
agreements entered into with goracing.com discussed above. If we do not generate
sufficient revenues from these services, our operating results and stock price
could be negatively affected.
SOME OF OUR CLIENTS ARE EMERGING COMPANIES THAT HAVE LITTLE OR NO OPERATING
HISTORY AND MAY LACK THE RESOURCES TO PAY OUR FEES, WHICH COULD CAUSE US TO
INCUR LOSSES ON THESE ACCOUNTS.
We derive a significant portion of our revenues from small emerging
companies, particularly start-up e-venture companies that have limited operating
histories and resources to pay our fees. In addition, we provide services to
select start-up companies in exchange for equity in those clients. These
companies often have little or no earnings or cash flow and their business is
generally at greater risk of failing than more established, traditional
businesses. As a result, these clients may be unable to pay for our services in
a timely manner, or at all. This would reduce our cash flow, making it difficult
to carry on our business without additional funds, and could lead to the
inefficient allocation of our professional and other resources. In addition, if
the investments we make in these companies decline in value, we may be required
to recognize losses on our investments.
THE LOSS OF MR. JAMES G. GARVEY, JR., OUR FOUNDER, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, MAY HARM OUR ABILITY TO OBTAIN AND RETAIN CLIENT ENGAGEMENTS, MAINTAIN
A COHESIVE CULTURE, OR COMPETE EFFECTIVELY.
Our success will depend in large part upon the continued services of James G.
Garvey, Jr., our President, Chief Executive Officer, and founder. We have an
employment contract with Mr. Garvey. Mr. Garvey is precluded under his agreement
from competing against us for one year should he leave us. The loss of services
of Mr. Garvey could harm us and cause a loss of investor confidence in our
business, which could cause the trading price of our stock to decline. In
addition, if Mr. Garvey resigns to join a competitor or to form a competing
company, the loss of Mr. Garvey and any resulting loss of existing or potential
clients to any competitor could harm our business. If we lose Mr. Garvey, we may
be unable to prevent the unauthorized disclosure or use by other companies of
our technical knowledge, practices, or procedures. In addition, due to the
substantial number of shares of our common stock owned by Mr. Garvey, the loss
of Mr. Garvey's services could cause investor or analyst concern that Mr. Garvey
may sell a large portion of his shares, which could cause a rapid and
substantial decline in the trading price of our common stock.
WE MAY NEED ADDITIONAL CAPITAL WHICH, IF NOT AVAILABLE TO US, MAY ALTER OUR
BUSINESS PLAN OR LIMIT OUR ABILITY TO ACHIEVE GROWTH IN REVENUES AND WHICH, IF
AVAILABLE AND RAISED, WOULD DILUTE YOUR OWNERSHIP INTEREST IN US.
We may need to raise additional funds through public or private equity or
debt financings in order to:
- support additional capital expenditures;
- take advantage of acquisition or expansion opportunities;
- develop new services; or
- address additional working capital needs.
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Our inability to obtain financing on terms acceptable to us, or at all, may
limit our ability to increase revenues or to achieve profitability. In addition,
if we are able to raise additional capital through the sale of equity
securities, your investment in us would be diluted, which could cause our stock
price to decline.
WE MAY NOT BE ABLE TO MAINTAIN ADEQUATE PERSONNEL, SYSTEMS, OR OTHER RESOURCES
TO EFFECTIVELY MANAGE OUR PLANNED GROWTH, WHICH COULD IMPAIR OUR ABILITY TO
DELIVER PROJECT WORK AND CAUSE OUR EMPLOYEE AND CLIENT RELATIONS TO SUFFER.
Our recent growth at times has strained our managerial and operational
resources by diverting management attention from client project implementation
to personnel recruitment, training, and infrastructure development. We cannot
assure you that we will be able to manage our planned growth effectively. To
manage future growth, we must continue to improve our operating and financial
systems, procedures, and controls, and to expand, train, retain, and manage our
employee base. If our systems, procedures, and controls are inadequate to
support our operations, we would not be able to attract new clients or employees
and our planned expansion could be impaired.
OUR REVENUES MAY DECLINE AND WE MAY NOT ACHIEVE PROFITABILITY IF GROWTH IN THE
USE OF THE INTERNET DECLINES.
Our business is dependent upon continued growth in the use of the Internet by
our clients, prospective clients and their customers, suppliers, and other
business constituents. If use of the Internet does not increase and commerce
over the Internet does not become more accepted and widespread, demand for our
services may decrease and, as a result, our revenues would decline and we may be
unable to achieve profitability. The market for e-business solutions is
relatively new and is undergoing significant and rapid development. The
acceptance and growth of e-business solutions will be limited if the Internet
does not prove to be a viable commercial market. Factors that may affect
Internet usage or e-commerce adoption include:
- actual or perceived lack of security of information;
- lack of access and ease of use;
- congestion of Internet traffic;
- increases in access costs to the Internet;
- excessive or new governmental regulation;
- uncertainty regarding intellectual property ownership;
- reluctance to adopt new business methods; and
- costs associated with the obsolescence of existing infrastructure.
THE VOLUME OF TRADING AND PRICE OF OUR COMMON STOCK COULD FLUCTUATE
SIGNIFICANTLY, ADVERSELY AFFECTING OUR STOCK PRICE.
Many publications and market commentators indicate that the stock of
technology companies focused on the Internet trade at overly inflated prices. If
investor interest in these stocks declines generally, the price of our common
stock could drop suddenly and significantly.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK IN THE PUBLIC
MARKET COULD ADVERSELY AFFECT THEIR MARKET PRICE, NEGATIVELY IMPACTING YOUR
INVESTMENT.
There will be a substantial number of shares available for sale in the public
market upon the expiration of lock-up agreements with many of our stockholders
in September 2000, and as the availability of exemptions from registration
afforded by Rules 144 of the Securities Act of 1933 become available. The sales
of a substantial number of shares of our common stock in the public market could
depress the market price of our common stock and could impair our ability to
raise capital through the sale of additional equity securities. Some holders of
shares of our common stock who held our preferred stock outstanding immediately
prior to our initial public offering and one of our warrant holders have
registration rights relating to a total of 4,638,170 shares of our common stock,
enabling them to require us to register their shares for sale under the
Securities Act beginning in September 2000.
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THE HOLDINGS OF OUR CONTROLLING STOCKHOLDER MAY LIMIT YOUR ABILITY TO INFLUENCE
THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER MATTERS SUBJECT TO A STOCKHOLDER
VOTE, INCLUDING A SALE OF OUR COMPANY ON TERMS THAT MAY BE ATTRACTIVE TO YOU.
James G. Garvey, Jr., a director, executive officer, and our founder,
currently owns approximately 48% of our outstanding common stock. Mr. Garvey's
stock ownership and management positions enable him to exert considerable
influence over us, including in the election of directors and the approval of
other actions submitted to our stockholders. In addition, without the consent of
Mr. Garvey, we may be prevented from entering into transactions that could be
viewed as beneficial to other stockholders, including a sale of Integrated
Information Systems. This could prevent you from selling your stock to a
potential acquiror at prices that exceed the market price of our stock.
OUR CHARTER DOCUMENTS COULD MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE
US, WHICH COULD LIMIT YOUR ABILITY TO SELL YOUR STOCK TO AN ACQUIROR AT A
PREMIUM PRICE OR COULD CAUSE OUR STOCK PRICE TO DECLINE.
Our certificate of incorporation and by-laws may make it difficult for a
third party to acquire control of us, even if a change in control would be
beneficial to stockholders. Our certificate of incorporation authorizes our
board of directors to issue up to 5,000,000 shares of "blank check" preferred
stock. Without stockholder approval, the board of directors has the authority to
attach special rights, including voting and dividend rights, to this preferred
stock. With these rights, preferred stockholders could make it more difficult
for a third party to acquire our company.
Our by-laws do not permit any person other than at least three members of our
board of directors, our President, the Chairman of the Board, or holders of at
least a majority of our stock to call special meetings of the stockholders. In
addition, a stockholder's proposal for an annual meeting must be received within
a specified period in order to be placed on the agenda. Because stockholders do
not have the power to call meetings and are subject to timing requirements in
submitting stockholder proposals for consideration at meetings, any third-party
takeover or other matter that stockholders wish to vote on that is not supported
by the board of directors could be subject to significant delays and
difficulties.
If a third party finds it more difficult to acquire us because of these
provisions, you may not be able to sell your stock at a premium price that may
have been offered by the acquiror, and the trading price of our stock may be
lower than it otherwise would be if these provisions were not in effect.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In January 2000 we issued an aggregate of 2,119,625 shares of Series C
Convertible Preferred Stock at $9.53 per share in consideration of $19,411,000,
net of issuance costs of $789,000.
On March 16, 2000, the Securities and Exchange Commission declared IIS'
Registration Statement on Form S-1 (File No. 333-94861) effective. On March 22,
2000, IIS closed its offering for 4,600,000 shares of Common Stock at a public
offering price of $15.00 per share. On April 19, 2000, IIS closed an offering of
an additional 690,000 shares pursuant to exercise of the underwriters'
over-allotment option. Of these additional 690,000 shares, 345,000 were sold by
IIS and 345,000 were sold by James G. Garvey, Jr., the founder, Chairman, CEO
and President of IIS. The managing underwriters of the offering were FleetBoston
Robertson Stephens Inc., U.S. Bancorp Piper Jaffray Inc., Robert W. Baird Co.
Incorporated and Legg Mason Wood Walker, Incorporated. Net proceeds to IIS were
$67,527,563 after deducting underwriting discounts and commissions of $5,192,250
and offering expenses of $1,455,187. IIS did not receive any of the proceeds
from the sale of Mr. Garvey's shares. IIS paid the expenses incurred by Mr.
Garvey in connection with the sale of his shares, other than underwriting
discounts and commission of $362,250 attributable to Mr. Garvey's shares, which
were paid by Mr. Garvey. No other expenses incurred in the offering were direct
or indirect payments to directors or officers of IIS or their associates, or to
persons owning 10% or more of IIS' Common Stock or other affiliates of IIS.
We intend to utilize the offering proceeds for general corporate and working
purposes, including funding capital improvements to existing facilities,
acquisition of additional office space, continued development of the data center
for our applications hosting operations and to increase our marketing efforts.
To date none of the proceeds have been applied and all of the net proceeds are
being maintained in a portfolio of investment grade corporate securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
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On January 6, 2000, IIS, a Delaware corporation, approved by unanimous
written consent of its sole stockholder (which, at the time of such action, was
IIS, the predecessor Arizona corporation), prior to the effective date of
IIS-Arizona's reincorporation merger with and into IIS-Delaware, and in
connection with IIS' reincorporation into Delaware from Arizona, the following
actions:
- - approval of an amended and restated certificate of incorporation;
- - adoption of bylaws;
- - approval of the merger of the predecessor Arizona corporation into a
Delaware corporation pursuant to an agreement and plan of merger;
- - the election of the following individuals to the board of directors:
James G. Garvey, Jr.
David Wirthlin
Alan Hald
Daniel Foreman
Stephen Lindstrom
Daniel Roche
Keith Walz
On January 12, 2000, the holders of 12,418,545 shares, constituting 93%
of the Company's then outstanding capital stock, approved by written consent (i)
an amended and restated certificate of incorporation to, among other things,
create and facilitate the issuance and sale of shares of Series C preferred
stock; (ii) the adoption of IIS' 2000 Employee Stock Purchase Plan; and (iii)
the adoption and approval of an amendment to IIS' 1997 Long-Term Incentive Plan
to increase the number of authorized shares available for issuance thereunder to
4,500,000.
On March 15, 2000, the holders of 12,628,409 shares, constituting 82%
of the Company's then outstanding capital stock, approved by written consent (i)
an amended and restated 2000 Employee Stock Purchase Plan and (ii) amended and
restated Bylaws of the Company to be in effect immediately upon closing of the
Company's initial public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a.) Exhibits
10.24 Lease between the Company and Water Garden Company L.L.C.
dated March 10, 2000.
10.25 Lease between the Company and Deerfield Holdings, L.P. dated
March 12, 2000.
27. Financial Data Schedule.
(b.) Reports on Form 8-K: The Company filed a Current Report on Form 8-K on
March 31, 2000 relating to the signing of definitive agreements for the
sublease of certain facilities and equipment.
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTEGRATED INFORMATION SYSTEMS, INC.
Registrant
By: DAVID A. WIRTHLIN
-----------------
David A. Wirthlin
Chief Financial Officer
Principal Accounting Officer
Date: May 15, 2000
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
10.24 Lease between the Company and Water Garden Company L.L.C.
dated March 10, 2000.
10.25 Lease between the Company and Deerfield Holdings, L.P. dated
March 12, 2000.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10.24
OFFICE LEASE
THE WATER GARDEN
WATER GARDEN COMPANY L.L.C.,
a Delaware Limited Liability Company,
as Landlord,
and
INTEGRATED INFORMATION SYSTEMS, INC.,
a Delaware corporation
as Tenant.
<PAGE> 2
THE WATER GARDEN
SUMMARY OF BASIC LEASE INFORMATION
The undersigned hereby agree to the following terms of this Summary of
Basic Lease Information (the "Summary"). This Summary is hereby incorporated
into and made a part of the attached Office Lease (the "Office Lease") which
pertains to the "Project," as that term is defined in the Office Lease, commonly
known as "The Water Garden" located in Santa Monica, California. This Summary
and the Office Lease are collectively referred to herein as the "Lease". Each
reference in the Office Lease to any term of this Summary shall have the meaning
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 capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in the Office Lease.
<TABLE>
<CAPTION>
TERMS OF LEASE
(References are to
the Office Lease) DESCRIPTION
<S> <C> <C>
1. Date: March 10, 2000.
2. Landlord: WATER GARDEN COMPANY L.L.C., a Delaware Limited
Liability Company
3. Tenant: INTEGRATED INFORMATION SYSTEMS, INC.,
a Delaware corporation
4. Premises (Article 1).
4.1 Building Address: 1620 26th Street
Suite 2040 North
Santa Monica, California 90404.
4.2 Premises: Approximately 4,852 rentable (4,119 usable) square feet
of space located on the 2nd floor of the Building, as
further set forth in Exhibit A to the Office Lease.
5. Lease Term (Article 2).
5.1 Length of Term: Five (5) years.
5.2 Lease Commencement Date: The Lease Commencement Date shall occur as set forth in
Article 2 of the Office Lease. The Lease Commencement
Date is anticipated to be May 1, 2000.
5.3 Lease Expiration Date: The last day of the month in which the 60th anniversary
of the Lease Commencement Date occurs.
6. Base Rent (Article 3):
</TABLE>
<TABLE>
<CAPTION>
Monthly Installment of Annual Rental Rate per Rentable
Lease Year Annual Base Rent Base Rent Square Foot
---------- ---------------- --------- -----------
<S> <C> <C> <C>
1 $189,228.00 $15,769.00 $39.00
2 $196,797.12 $16,399.76 $40.56
3 $204,657.36 $17,054.78 $42.18
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C> <C>
4 $212,857.24 $17,738.10 $43.87
5 $221,348.24 $18,445.69 $45.62
</TABLE>
<TABLE>
<CAPTION>
7. Additional Rent (Article 4).
<S> <C> <C>
7.1 Base Year: The calendar year of 2000.
7.2 Tenant's Share: Approximately 1.46%.
8. Security Deposit (Section 21.1): N/A.
Letter of Credit (Section 21.2): $230,000.00.
9. Parking Pass Ratio (Article 28): Three (3) parking passes for every 1,000 rentable
square feet of the Premises.
10. Broker(s) (Section 29.18): Trammell Crow Company
2425 Olympic Boulevard
Suite 520 East
Santa Monica, California 90404
and
Lee & Associates
12011 San Vicente Boulevard, Suite 700
Los Angeles, California 90049
11. Address of Tenant (Section 29.13): 1560 West Fountainhead Parkway
Second Floor
Tempe, AZ 85282
Attention: Corporate Counsel
(Prior to and after the Lease Commencement Date)
</TABLE>
The foregoing terms of this Summary are hereby agreed to by Landlord and Tenant.
"Landlord":
WATER GARDEN COMPANY L.L.C.,
a Delaware Limited Liability Company
By:/s/ David Chen
-------------------------------------
David Chen
Vice President
"Tenant":
INTEGRATED INFORMATION SYSTEMS, INC.,
a Delaware corporation
By: /s/ [Illegible ]
----------------------------------
Its: VP & Corp. Counsel
---------------------------------
By:
-----------------------------------
Its: ----------------------------------
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
SUMMARY OF BASIC LEASE INFORMATION..............................................................................i
ARTICLE 1 PREMISES, BUILDING, PROJECT, AND COMMON AREAS.........................................................1
ARTICLE 2 LEASE TERM............................................................................................2
ARTICLE 3 BASE RENT.............................................................................................3
ARTICLE 4 ADDITIONAL RENT.......................................................................................3
ARTICLE 5 USE OF PREMISES.......................................................................................9
ARTICLE 6 SERVICES AND UTILITIES................................................................................9
ARTICLE 7 REPAIRS .............................................................................................11
ARTICLE 8 ADDITIONS AND ALTERATIONS............................................................................11
ARTICLE 9 COVENANT AGAINST LIENS...............................................................................12
ARTICLE 10 INSURANCE...........................................................................................12
ARTICLE 11 DAMAGE AND DESTRUCTION..............................................................................14
ARTICLE 12 NONWAIVER...........................................................................................15
ARTICLE 13 CONDEMNATION........................................................................................16
ARTICLE 14 ASSIGNMENT AND SUBLETTING...........................................................................16
ARTICLE 15 SURRENDER OF PREMISES; REMOVAL OF TRADE FIXTURES...................................................19
ARTICLE 16 HOLDING OVER........................................................................................19
ARTICLE 17 ESTOPPEL CERTIFICATES...............................................................................19
ARTICLE 18 SUBORDINATION.......................................................................................20
ARTICLE 19 DEFAULTS; REMEDIES..................................................................................20
ARTICLE 20 ATTORNEYS' FEES.....................................................................................21
ARTICLE 21 LETTER OF CREDIT....................................................................................21
ARTICLE 22 SUBSTITUTION OF OTHER PREMISES......................................................................23
ARTICLE 23 SIGNS ............................................................................................. 23
ARTICLE 24 COMPLIANCE WITH LAW.................................................................................23
ARTICLE 25 LATE CHARGES........................................................................................23
ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT................................................24
ARTICLE 27 ENTRY BY LANDLORD...................................................................................24
ARTICLE 28 TENANT PARKING......................................................................................24
ARTICLE 29 MISCELLANEOUS PROVISIONS............................................................................25
</TABLE>
(i)
<PAGE> 5
EXHIBITS
A........OUTLINE OF PREMISES
B........FORM OF NOTICE OF LEASE TERM DATES
C........RULES AND REGULATIONS
D........FORM OF TENANT'S ESTOPPEL CERTIFICATE
E........TENANT WORK LETTER
F........FORM OF LETTER OF CREDIT
(ii)
<PAGE> 6
THE WATER GARDEN
OFFICE LEASE
This Office Lease, which includes the preceding Summary of Basic Lease
Information (the "Summary") attached hereto and incorporated herein by this
reference (the Office Lease and Summary are sometimes collectively referred to
herein as the "Lease"), dated as of the date set forth in Section 1 of the
Summary is made by and between WATER GARDEN COMPANY L.L.C., a Delaware Limited
Liability Company ("Landlord"), and INTEGRATED INFORMATION SYSTEMS, INC., a
Delaware corporation ("Tenant").
ARTICLE 1
PREMISES, BUILDING, PROJECT, AND COMMON AREAS
1.1 Premises, Building, Project and Common Areas. Upon and subject to
the terms hereinafter set forth in this Lease, Landlord hereby leases to Tenant
and Tenant hereby leases from Landlord the premises set forth in Section 4.2 of
the Summary (the "Premises"), which Premises are located in the "Building," as
that term is defined in Section 1.1.2, below. The outline of the Premises is set
forth in Exhibit A attached hereto.
1.1.1 The Premises. Upon and subject to the terms hereinafter set forth
in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the premises set forth in Section 4.2 of the Summary (the "Premises"),
which Premises are located in the "Building," as that term is defined in Section
1.1.2, below. The outlines of the Premises is set forth in Exhibit A attached
hereto.
1.1.2 The Building and The Project. The Premises are a part of the
building set forth in Section 4.1 of the Summary (the "Building") located in
Santa Monica, California. The Building is part of an office project known as
"The Water Garden" which contains another office building (the "Adjacent
Building"). The term "Project," as used in this Lease, shall mean (i) the
Building, the Adjacent Building, and the "Common Areas", as that term is defined
in Section 1.1.3 below, (ii) the land (which is improved with landscaping,
subterranean parking facilities and other improvements) upon which the Building,
the Adjacent Building, and the Common Areas are located, and (iii) at Landlord's
discretion, any additional real property, areas, buildings or other improvements
added thereto pursuant to the terms of Section 1.1.4 of this Lease.
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, whether or not those areas are open
to the general public (such areas, together with such other portions of the
Project designated by Landlord, in its discretion, including certain areas
designated for the exclusive use of certain tenants, or to be shared by Landlord
and certain tenants, such as balconies abutting tenants' premises, are
collectively referred to herein as the "Common Areas"). The Common Areas shall
consist of the "Project Common Areas" and the "Building Common Areas". The term
"Project Common Areas", as used in this Lease, shall mean the portion of the
Project designated as such by Landlord. "Building Common Areas", as used in this
Lease, shall mean the portions of the Common Areas located within the Building
designated as such by Landlord. The manner in which the Common Areas are
maintained and operated shall be at the sole discretion of Landlord, provided
that Landlord shall maintain and operate the same in a manner consistent with
that of other first-class, mid-rise office buildings (including the office
buildings to be constructed adjacent to the Project as "Phase II" of The Water
Garden, hereafter referred to as "Phase II") in the Santa Monica, California
area, which are comparable in terms of size, quality of construction,
appearance, and services and amenities (the "Comparable Buildings").
1.1.4 Landlord's Use and Operation of the Building, Project, and Common
Areas. Landlord reserves the right from time to time without notice to Tenant
(i) to close temporarily any of the Common Areas; (ii) to make changes to the
Common Areas, including, without limitation, changes in the location, size,
shape and number of street entrances, driveways, ramps, entrances, exits,
passages, stairways and other ingress and egress, direction of traffic,
landscaped areas, loading and unloading areas, and walkways; (iii) to expand the
-1-
<PAGE> 7
Building or the Adjacent Building; (iv) to add additional buildings and
improvements to the Common Areas; (v) to designate land outside the Project to
be part of the Project, and in connection with the improvement of such land to
add additional buildings and common areas to the Project; provided that,
notwithstanding anything to the contrary contained in this Lease, the Project
shall not be expanded to include more than the land located in Santa Monica,
California, which has Olympic Boulevard as its Southern boundary, Cloverfield
Boulevard as its Western boundary, Colorado Avenue as its Northern boundary, and
26th street as its Eastern boundary; (vi) to use the Common Areas while engaged
in making additional improvements, repairs or alterations to the Project or to
any adjacent land, or any portion thereof; and (vii) to do and perform such
other acts and make such other changes in, to or with respect to the Project,
Common Areas and Building or the expansion thereof as Landlord may, in the
exercise of sound business judgment, deem to be appropriate.
1.2 Verification of Rentable Square Feet of Premises, Building, and
Project. For purposes of this Lease, "rentable square feet" shall be calculated
pursuant to Standard Method for Measuring Floor Area in Office Buildings, ANSI
Z65.1 - 1996 ("BOMA"), provided that the rentable square footage of the Building
and the other buildings in the Project shall include all of (and the rentable
square footage of the Premises therefore shall include a portion of) (i) the
Building Common Areas and (ii) the occupied space of the portion of the Project
dedicated to the service of the Project. The rentable square feet of the
Premises, Building, and the Project are subject to verification from time to
time by Landlord's planner/designer and such verification shall be made in
accordance with the provisions of this Article 1. In the event that Landlord's
planner/designer determines that the amounts thereof are different from those
set forth in this Lease, all amounts, percentages and figures appearing or
referred to in this Lease based upon such incorrect amount (including, without
limitation, the amount of the "Rent" and any "Security Deposit," as those terms
are defined in Article 4 and Article 21 of this Lease, respectively) shall be
modified in accordance with such determination. If such determination is made,
it will be confirmed in writing by Landlord to Tenant.
1.3 Base, Shell and Core Work in the Premises. Except as specifically
set forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit
E (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 Landlord has made no representation or warranty
regarding the condition of the Premises or the Project except as specifically
set forth in this Lease and the Tenant Work Letter.
ARTICLE 2
LEASE TERM
The terms and provisions of this Lease 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 5.1 of the Summary, shall commence on the earlier to occur of
(i) the date Tenant opens for business in the Premises, and (ii) the date of
"Substantial Completion", as that term is defined in this Article 2, of the
Premises by Landlord (the "Lease Commencement Date"), and shall terminate on the
date set forth in Section 5.3 of the Summary (the "Lease Expiration Date")
unless this Lease is sooner terminated 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. For purposes of this Lease,
"Substantial Completion" of the Premises shall occur upon the completion of
construction, as reasonably determined by Landlord, of the "Tenant
Improvements," as that term is defined in Section 1 of the Tenant Work Letter,
in the Premises pursuant to the plans and drawings which are prepared pursuant
to the terms of the Tenant Work Letter, with the exception of any punch list
items and any tenant fixtures, work-stations, built-in furniture, or equipment
to be installed by Tenant in the Premises pursuant to the terms of the Tenant
Work Letter or to be installed under the supervision of "Contractor" as that
term is defined in Section 4.1 of the Tenant Work Letter. At any time during the
Lease Term, Landlord may deliver to Tenant a notice (the "Notice of Lease Term
Dates") in substantially the form as set forth in Exhibit B attached hereto,
which notice Tenant shall execute and return to Landlord within five (5) days of
receipt thereof, and thereafter the dates set forth on such notice shall be
conclusive and binding upon Tenant. Failure of Tenant to
-2-
<PAGE> 8
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.
ARTICLE 3
BASE RENT
Tenant shall pay, without notice or demand, to Landlord or Landlord's
agent at the management office of the Project, or at such other place as
Landlord may from time to time designate in writing, in currency or a check for
currency which, at the time of payment, is legal tender for private or public
debts in the United States of America, base rent ("Base Rent") as set forth in
Section 6 of the Summary, payable in equal monthly installments as set forth in
Section 6 of the Summary in advance on or before the first day of each and every
month during the Lease Term, without any setoff or deduction whatsoever. The
Base Rent for the first full month of the Lease Term shall be paid at the time
of Tenant's execution of this Lease by certified or cashier's check. If any Rent
payment date (including the Lease Commencement Date) falls on a day of the month
other than the first day of such month or if any payment of Rent is for a period
which is shorter than one month, the Rent for any fractional 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 General Terms. As set forth in this Article 4, in addition to
paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay
"Tenant's Share" of the annual "Project Expenses," as those terms are defined in
Sections 4.2.6 and 4.2.4 of this Lease, respectively, allocated to the tenants
of the Building pursuant to the terms of Section 4.3.1 below, to the extent such
Project Expenses allocated to the tenants of the Building which are in excess of
such Project Expenses applicable to the "Base Year," as that term is defined in
Section 4.2.1 of this Lease. Such payments by Tenant, together with any and all
other amounts payable by Tenant to Landlord pursuant to the terms of this Lease,
are hereinafter collectively referred to as the "Additional Rent", and the Base
Rent and the Additional Rent are sometimes herein collectively referred to as
"Rent." All amounts due under this Article 4 as Additional Rent shall be payable
for the same periods and in the same manner as the Base Rent. Without limitation
on other obligations of Tenant which 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.
4.2 Definitions. As used in this Article 4, the following terms shall
have the meanings hereinafter set forth:
4.2.1 "Base Year" shall mean the period set forth in Section 7.1 of the
Summary.
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 mean all expenses, costs and amounts
of every kind and nature incurred in connection with the ownership, management,
maintenance, repair, replacement, restoration or operation of the Project,
including, without limitation, any amounts paid or incurred for (i) the cost of
supplying all utilities, the cost of operating, maintaining, repairing,
renovating, complying with conservation measures in connection with, and
managing the utility systems, mechanical systems, sanitary and storm drainage
systems, and elevator systems, and the cost of supplies and equipment,
maintenance, and service contracts in connection therewith; (ii) the cost of
licenses, certificates, permits and inspections and the cost of contesting the
validity or applicability of any governmental enactments which may affect
Operating Expenses, and the costs incurred in connection with the implementation
and operation of a transportation system management program or a municipal or
public shuttle service or parking program; (iii) the cost of all insurance
carried in connection with the Project, or any portion thereof; (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)
-3-
<PAGE> 9
the cost of parking area repair, restoration, and maintenance, including, but
not limited to, resurfacing, repainting, restriping, and cleaning; (vi) fees,
charges and other costs, including consulting fees, legal fees and accounting
fees, of all contractors and consultants; (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 engaged in
the operation, maintenance, management, or security of the Project, or any
portion thereof, including employer's Social Security taxes, unemployment taxes
or insurance, and any other taxes which may be levied on such wages, salaries,
compensation and benefits; (ix) payments under any easement, license, operating
agreement, declaration, restrictive covenant, or instrument pertaining to the
sharing of costs by the Project, or any portion thereof; (x) the cost of
operation, repair, maintenance and replacement of all systems and equipment
which serve the Project in whole or part; (xi) the cost of janitorial services,
alarm and security service, window cleaning, trash removal, replacement 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) the cost of any
capital improvements made to the Project which are intended as a labor-saving
device or to effect other economies in the operation or maintenance of the
Project, or any portion thereof, or made to all or any portion of the Project,
or any portion thereof, after the Lease Commencement Date that are required
under any governmental law or regulation that was not applicable to the Project
at the time that permits for the construction of the Building were obtained;
provided, however, that each such permitted capital expenditure shall be
amortized (including interest on the unamortized cost) over its useful life as
reasonably determined; and (xiii) the cost of operations, maintenance, repairs,
and other expenditures (whether capital or non-capital in nature) with respect
to the "Child Care Facilities," as that term is defined in Section 29.9 below,
and their lease at the Project. Notwithstanding the foregoing, for purposes of
this Lease, Operating Expenses shall not, however, include:
(a) costs, including marketing costs, legal fees, space planners' fees,
advertising and promotional expenses, and brokerage fees incurred in connection
with the original construction or development, or original or future leasing of
the Project, and costs, including permit, license and inspection costs, incurred
with respect to the installation of tenant improvements made for new tenants
initially occupying space in the Project after the Lease Commencement Date or
incurred in renovating or otherwise improving, decorating, painting or
redecorating vacant space for tenants or other occupants of the Project
(excluding, however, such costs relating to any common areas of the Project or
parking facilities);
(b) except as set forth in this Section 4.2.3, depreciation, interest
and principal payments on mortgages and other debt costs, if any, penalties and
interest, costs of capital repairs and alterations, and costs of capital
improvements and equipment;
(c) costs for which the Landlord is reimbursed by any tenant or
occupant of the Project or by insurance by its carrier or any tenant's carrier
or by anyone else, and electric power costs for which any tenant directly
contracts with the local public service company;
(d) any bad debt loss, rent loss, or reserves for bad debts or rent
loss;
(e) 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 (which shall
specifically include, but not be limited to, accounting costs associated with
the operation of the Project). Costs associated with the operation of the
business of the partnership or entity which constitutes the Landlord include
costs of 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, and
Landlord's general corporate overhead and general and administrative expenses;
-4-
<PAGE> 10
(f) 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;
(g) amount paid as ground rental for the Project by the Landlord;
(h) except for a Project management fee to the extent allowed pursuant
to item (m), below, overhead and profit increment paid to the Landlord or to
subsidiaries or affiliates of the Landlord for services in the Project to the
extent the same exceeds the costs of such services rendered by qualified,
first-class unaffiliated third parties on a competitive basis;
(i) any compensation paid to clerks, attendants or other persons in
commercial concessions operated by the Landlord, provided that any compensation
paid to any concierge at the Project shall be includable as an Operating
Expense;
(j) rentals and other related expenses incurred in leasing air
conditioning systems, elevators or other equipment which if purchased the cost
of which would be excluded from Operating Expenses as a capital cost, except
equipment not affixed to the Project which is used in providing janitorial or
similar services and, further excepting from this exclusion such equipment
rented or leased to remedy or ameliorate an emergency condition in the Project;
(k) all items and services for which Tenant or any other tenant in the
Project reimburses Landlord or which Landlord provides selectively to one or
more tenants (other than Tenant) without reimbursement;
(l) costs, other than those incurred in ordinary maintenance and
repair, for sculpture, paintings or other objects of art;
(m) fees payable by Landlord for management of the Project in excess of
three and one-half percent (3.5%) (the "Management Fee Cap") of Landlord's gross
rental revenues, adjusted and grossed up to reflect a one hundred percent (100%)
occupancy of the Building with all tenants paying rent, including base rent,
pass-throughs, and parking fees (but excluding the cost of after hours services
or utilities) from the Project for any calendar year or portion thereof;
(n) any costs expressly excluded from Operating Expenses elsewhere in
this Lease;
(o) 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;
(p) costs arising from the gross negligence or wilful misconduct of
Landlord or its agents, employees, vendors, contractors, or providers of
materials or services;
(q) costs incurred to comply with laws relating to the removal of
hazardous material (as defined under applicable law) which was in existence in
the Building or on the Project prior to the Lease Commencement Date, and was of
such a nature that a federal, State or municipal 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 existed in the Building or on the Project,
would have then required the removal of such hazardous material or other
remedial or containment action with respect thereto; and costs incurred to
remove, remedy, contain, or treat 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 and is of such a nature, at that
time, that a federal, State or municipal 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
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<PAGE> 11
Building or on the Project, would have then required the removal of
such hazardous material or other remedial or containment action with
respect thereto; and
(r) costs arising from Landlord's charitable or political
contributions.
If the Project is not fully occupied during all or a portion of any
Expense Year, Landlord shall make an appropriate adjustment to the variable
components of Operating Expenses for such year employing sound accounting and
management principles, to determine the amount of Operating Expenses that would
have been paid had the Project been fully occupied; and the amount so determined
shall be deemed to have been the amount of Operating Expenses for such year. In
no event shall the components of Project Expenses for any Expense Year related
to electrical costs be less than the components of Project Expenses related to
electrical costs in the Base Year.
4.2.4 "Project Expenses" shall mean the sum of "Operating Expenses" and
"Tax Expenses".
4.2.5 "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, 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 all or any portion of the Project),
which shall be paid 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, or any
portion thereof.
4.2.5.1 Tax Expenses shall include, without limitation:
(i) Any assessment, 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, 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 also
include any governmental or private assessments or the Project's
contribution towards a governmental or private cost-sharing agreement
for 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 the purposes of this Lease;
(ii) 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 gross income 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;
(iii) 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
(iv) Any possessory taxes charged or levied in lieu of real estate
taxes.
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4.2.5.2 Any expenses incurred in attempting to protest, reduce or
minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such
expenses are paid.
4.2.5.3 Tax refunds shall be credited against Tax Expenses and
refunded to Tenant regardless of when received, based on the Expense Year to
which the refund is applicable, provided that in no event shall the amount to be
refunded to Tenant for any such Expense Year exceed the total amount paid by
Tenant as Additional Rent under this Article 4 for such Expense Year.
4.2.5.4 The amount of Tax Expenses for the Base Year attributable
to the valuation of the Project, inclusive of tenant improvements, shall be
known as "Base Taxes." If, in any comparison year subsequent to the Base Year,
the amount of Tax Expenses decreases, then for purposes of all subsequent
comparison years, including the comparison year in which such decrease in Tax
Expenses occurs, the Base Taxes shall be decreased by an amount equal to the
decrease in Tax Expenses.
4.2.6 "Tenant's Share" shall mean the percentage set forth in
Section 7.2 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.
4.3 Allocation and Calculation of Project Expenses.
4.3.1 Allocation of Project Expenses to Tenants of the Building.
Project Expenses (i.e., Operating Expenses and Tax Expenses) are determined
annually for the Project as a whole. Since the Building is only one of the
buildings which constitute the Project, Project Expenses shall be allocated by
Landlord, in its reasonable discretion, to both the tenants of the Building and
the tenants of the other buildings in the Project. The portion of Project
Expenses allocated to the tenants of the Building shall consist of (i) all
Project Expenses attributable solely to the Building and (ii) an equitable
portion of Project Expenses attributable to the Project as a whole and not
attributable solely to the Building, the Adjacent Building or to any other
building of the Project. Additionally, in allocating Project Expenses to the
tenants of the Building, Landlord shall have the right, from time to time, to
equitably allocate some or all of the Project Expenses allocable to tenants of
the Building among different tenants of the Building (the "Cost Pools"). Such
Cost Pools may include, but shall not be limited to, the office space tenants of
the Building and the retail space tenants of the Building.
4.3.2 Calculation of Project Expenses. Notwithstanding anything to
the contrary set forth in this Article 4, when calculating the Project Expenses
for the Base Year, such Project Expenses shall not include any increase in Tax
Expenses attributable to special assessments, charges, costs, or fees, or due to
modifications or changes in governmental laws or regulations, including but not
limited to the institution of a split tax roll, and Operating Expenses shall
exclude market-wide labor-rate increases due to extraordinary circumstances,
including, but not limited to, boycotts and strikes, and utility rate increases
due to extraordinary circumstances including, but not limited to, conservation
surcharges, boycotts, embargoes or other shortages and amortized costs relating
to capital improvements.
4.4 Calculation and Payment of Additional Rent.
4.4.1 Calculation of Excess. For every Expense Year ending or
commencing within the Lease Term, Tenant shall pay to Landlord, in the manner
set forth in Section 4.4.2, below, and as Additional Rent, an amount equal to
Tenant's Share of Project Expenses for such Expense Year in excess of Tenant's
Share of Project Expenses for the Base Year (the "Excess").
4.4.2 Statement of Actual Project Expenses and Payment by Tenant.
Landlord shall endeavor to give to Tenant on or before the first day of April
following the end of each Expense Year, a statement (the "Statement") which
shall state the Project Expenses incurred or accrued for such preceding Expense
Year and the amount thereof allocated to the tenants of the Building, and which
shall indicate the amount, if any, of Tenant's Share of Project Expenses in
excess of Tenant's Share of Project Expenses for the Base Year. Upon receipt of
the Statement for each Expense Year ending during the Lease Term, Tenant shall
pay, with its next installment of Base Rent due, the full amount of Tenant's
Share of Project Expenses for such Expense Year in excess of Tenant's Share of
Project Expenses for the Base Year, less the amounts, if any, paid
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during such Expense Year as "Estimated Additional Rent," as that term is defined
in Section 4.4.3, below. If the amount of Tenant's Share of Project Expenses for
such Expense Year in excess of Tenant's Share of Project Expenses for the Base
Year is less than the amount paid by Tenant as Estimated Additional Rent during
the applicable period of the Expense Year (but not including any period of the
Expense Year which occurs after the Lease has terminated), Landlord shall pay
the difference to Tenant together with the applicable Statement, even if the
Lease has terminated or expired. The failure of Landlord to timely furnish the
Statement for any Expense Year shall not prejudice Landlord 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 Project Expenses allocated to the tenants of the
Building for the Expense Year in which this Lease terminates, if Tenant's Share
of Project Expenses for such Expense Year is in excess of Tenant's Share of
Project Expenses for the Base Year, then Tenant shall immediately pay to
Landlord an amount as calculated pursuant to the provisions of Section 4.4.1 of
this Lease. The provisions of this Section 4.4.2 shall survive the expiration or
earlier termination of the Lease Term.
4.4.3 Statement of Estimated Project Expenses. In addition,
Landlord shall endeavor to give Tenant a yearly expense estimate statement (the
"Estimate Statement") which shall set forth Landlord's reasonable estimate (the
"Estimate") of what the total amount of Project Expenses for the then-current
Expense Year shall be, the amount thereof to be allocated to the tenants of the
Building, and the estimated amount of Tenant's Share of Project Expenses in
excess of Tenant's Share of the Project Expenses for the Base Year (the
"Estimated Additional Rent"). The failure of Landlord to timely furnish the
Estimate Statement for any Expense Year shall not preclude Landlord from
enforcing its rights to collect any Estimated Additional Rent under this Article
4. If, pursuant to the Estimate Statement, Estimated Additional Rent is
calculated for the then-current Expense Year, Tenant shall pay, with its next
installment of Base Rent due, a fraction of the Estimated Additional Rent for
the then-current Expense Year (reduced by any amounts paid pursuant to the last
sentence of this Section 4.4.3). Such fraction shall have as its numerator the
number of months which have elapsed in such current Expense Year, including the
month of such payment, and twelve (12) as its denominator. Until a new Estimate
Statement is furnished (which Landlord shall have the right to deliver to Tenant
at any time), Tenant shall pay monthly, with the monthly Base Rent installments,
an amount equal to one-twelfth (1/12) of the total Estimated Additional Rent set
forth in the previous Estimate Statement delivered by Landlord to Tenant.
4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible.
Tenant shall reimburse Landlord upon demand for any and all taxes required to be
paid by Landlord, excluding state, local 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, 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, to the extent the cost
or value of such leasehold improvements exceeds the cost or value of a building
standard build-out as determined by Landlord regardless of whether title to such
improvements shall be vested in Tenant or Landlord;
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
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 ninety (90) days after receipt
of a Statement by Tenant, if Tenant disputes the amount of Additional Rent set
forth in the Statement, an independent certified public accountant (which
accountant is a member of a nationally recognized accounting firm and is not
working on a contingency fee basis), designated and paid for by Tenant, may,
after reasonable notice to Landlord and at reasonable times, inspect Landlord's
records with respect to the Statement at Landlord's offices, 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 and Statement, as
the case may be. In connection with such
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inspection, Tenant and Tenant's agents must agree in advance to follow
Landlord's reasonable rules and procedures regarding inspections of Landlord's
records, and shall execute a commercially reasonable confidentiality agreement
regarding such inspection. Tenant's failure to dispute the amount of Additional
Rent set forth in any Statement within ninety (90) days of Tenant's receipt of
such Statement 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. If after such inspection, Tenant still disputes such
Additional Rent, a determination as to the proper amount shall be made, at
Tenant's expense, by an independent certified public accountant (the
"Accountant") selected by Landlord and subject to Tenant's reasonable approval;
provided that if such determination by the Accountant proves that Operating
Expenses were overstated by more than five percent (5%), then the cost of the
Accountant and the cost of such determination shall be paid for by Landlord.
Tenant hereby acknowledges that Tenant's sole right to inspect Landlord's books
and records and to contest the amount of Operating 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 Operating Expenses payable by Tenant.
ARTICLE 5
USE OF PREMISES
Tenant shall use the Premises solely for general office purposes
consistent with the character of the Project as a first-class office building
project, 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. 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 provisions of the Rules and Regulations set forth in Exhibit C,
attached hereto, 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. Tenant shall comply with all recorded covenants,
conditions, and restrictions now or hereafter affecting the Project. 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 Material," as
that term is defined in Section 29.23 of this Lease.
ARTICLE 6
SERVICES AND UTILITIES
6.1 Standard Tenant Services. Landlord shall provide the following
services on all days (unless otherwise stated below) during the Lease Term.
6.1.1 Subject to all governmental rules, regulations and guidelines
applicable thereto, Landlord shall provide heating and air conditioning when
necessary for normal comfort for normal office use in the Premises, from Monday
through Friday, during the period from 8 A.M. to 6 P.M. and on Saturday during
the period from 9 A.M. to 1 P.M., except for the date of observation of New
Year's Day, Independence Day, Labor Day, Memorial Day, Thanksgiving Day,
Christmas Day and, at Landlord's discretion, other locally or nationally
recognized holidays (collectively, the "Holidays").
6.1.2 Landlord shall provide adequate electrical wiring and
facilities and power for normal general office use as determined by Landlord.
Tenant shall bear the cost, as a component of Operating Expenses, of replacement
of lamps, starters and ballasts for lighting fixtures within the Premises.
6.1.3 Landlord shall provide 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 in a manner consistent with other first-class office
buildings in the Santa Monica, California area.
6.2 Overstandard Tenant Use. Tenant shall not, without Landlord's prior
written consent, use heat-generating machines, machines other than normal
fractional horsepower office machines, or equipment or lighting other than
Building standard lights in the Premises, which
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may affect the temperature otherwise maintained by the air conditioning system
or increase the 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 have the right to install supplementary air conditioning units or other
facilities in the Premises, including supplementary or additional metering
devices, and the cost thereof, including the cost of installation, operation and
maintenance, increased wear and tear on existing equipment and other similar
charges, shall be paid by Tenant to Landlord upon billing by Landlord. If Tenant
uses water, electricity, heat or air conditioning in excess of that supplied by
Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord,
upon billing, the cost of such excess consumption, the cost of the installation,
operation, and maintenance of equipment which is installed in order to supply
such excess consumption, and the cost of the increased wear and tear on existing
equipment caused by such excess consumption; and Landlord may install devices to
separately meter any increased use and in such event Tenant shall pay the
increased cost directly to Landlord, on demand, including the cost of such
additional metering devices. 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, Tenant
shall give Landlord such prior notice, as Landlord shall from time to time
establish as appropriate, of Tenant's desired use and Landlord shall supply such
utilities to Tenant at such hourly cost to Tenant as Landlord shall from time to
time establish. Amounts payable by Tenant to Landlord for such use of additional
utilities shall be deemed Additional Rent hereunder and shall be billed on a
monthly basis.
6.3 Interruption of Use. Tenant agrees that Landlord shall not be
liable for damages, by abatement of Rent 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 strike, lockout or other labor trouble, by
inability to secure electricity, gas, water, or other fuel at the Building or
Project after reasonable effort to do so, by any accident or casualty
whatsoever, by act or default of Tenant or other parties, or by any other cause
beyond Landlord's reasonable control; 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 or performing
any of its obligations under this Lease. 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, including, but not limited to, a failure to provide
telecommunications, including telephone risers. 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 without creating any liability of
Landlord to Tenant under this Lease, provided that the Premises are not thereby
rendered untenantable.
6.4 Rent Abatement. If Landlord fails to perform the obligations
required of Landlord under the terms of this Lease and such failure causes all
or a portion of the Premises to be untenantable and unusable by Tenant and such
failure relates to the nonfunctioning of the heat, ventilation, and air
conditioning system in the Premises, the electricity in the Premises, the
nonfunctioning of the elevator service to the Premises, or a failure to provide
access to the Premises, Tenant shall give Landlord notice (the "Initial
Notice"), specifying such failure to perform by Landlord (the "Landlord
Default"). If Landlord has not cured such Landlord Default within five (5)
business days after the receipt of the Initial Notice (the "Eligibility
Period"), Tenant may deliver an additional notice to Landlord (the "Additional
Notice"), specifying such Landlord Default and Tenant's intention to abate the
payment of Rent under this Lease. If Landlord does not cure such Landlord
Default within five (5) business days of receipt of the Additional Notice,
Tenant may, upon written notice to Landlord, immediately abate Rent payable
under this Lease for that portion of the Premises rendered untenantable and not
used by Tenant, for the period beginning on the date five (5) business days
after the Initial Notice to the earlier of the date Landlord cures such Landlord
Default or the date Tenant recommences the use of such portion of the Premises.
Such right to abate Rent shall be Tenant's sole and exclusive remedy at law or
in equity for a Landlord Default. Except as provided in this Section 6.4,
nothing contained herein shall be interpreted to mean that Tenant is excused
from paying Rent due hereunder.
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ARTICLE 7
REPAIRS
Tenant shall, at Tenant's own expense, keep the Premises, including all
improvements, fixtures and furnishings therein, in good order, repair and
condition at all times during the Lease Term. In addition, 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, promptly and adequately repair all damage to the Premises and replace
or repair all damaged, broken, or worn fixtures and appurtenances; provided
however, that, at Landlord's option, or if Tenant fails to make such repairs,
Landlord may, but need not, make such repairs and replacements, and Tenant shall
pay Landlord the cost thereof, including a percentage of the cost thereof (to be
uniformly established for the Building and/or the Project) sufficient to
reimburse Landlord for all overhead, general conditions, fees and other costs or
expenses arising from Landlord's involvement with such repairs and replacements
forthwith upon being billed for same. Notwithstanding the foregoing, Landlord
shall be responsible for repairs to the exterior walls, foundation and roof of
the Building, the structural portions of the floors of the Building, and the
systems and equipment of the Building, except to the extent that such repairs
are required due to the negligence of Tenant; provided, however, that if such
repairs are due to the negligence of Tenant, Landlord shall nevertheless make
such repairs at Tenant's expense, or, if covered by Landlord's insurance, Tenant
shall only be obligated to pay any deductible in connection therewith. Landlord
may, but shall not be required to, enter the Premises at all reasonable times to
make such repairs, alterations, improvements or 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 governmental or
quasi-governmental authority or court order or decree. Tenant hereby waives and
releases its right to make repairs at Landlord's expense under Sections 1941 and
1942 of the California Civil Code or under any similar law, statute, or
ordinance now or hereafter in effect.
ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1 Landlord's Consent to Alterations. Tenant may not make any
improvements, alterations, additions or changes to the Premises (collectively,
the "Alterations") without first procuring the prior written consent of Landlord
to such Alterations, which consent shall be requested by Tenant not less than
thirty (30) days prior to the commencement thereof, and which consent shall not
be unreasonably withheld by Landlord; provided however, that Tenant may make
strictly cosmetic changes to the finish work in the Premises, not requiring any
structural or other substantial modifications to the Premises, upon thirty (30)
days prior notice to Landlord. The construction of the initial improvements to
the Premises shall be governed by the terms of the Tenant Work Letter and not
the terms of this Article 8.
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, such requirements as Landlord in its sole discretion may deem
desirable, including, but not limited to, the requirement that upon Landlord's
request, Tenant shall, at Tenant's expense, remove such Alterations upon the
expiration or any early termination of the Lease Term, and/or the requirement
that Tenant utilize for such purposes only contractors, materials, mechanics and
materialmen selected by Landlord. Tenant shall construct such Alterations and
perform such repairs in conformance with any and all applicable federal, state,
county or municipal laws, rules and regulations and pursuant to a valid building
permit, issued by the City of Santa Monica, all in conformance with Landlord's
construction rules and regulations. 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, or interfere with the labor force working in the Project. In
addition to Tenant's obligations under Article 9 of this Lease, upon completion
of any Alterations, Tenant agrees to 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 a
reproducible copy of the "as built" drawings of the Alterations.
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8.3 Payment for Improvements. In the event Tenant orders any
Alterations or repair work directly from Landlord, or from the contractor
selected by Landlord, the charges for such work shall be deemed Additional Rent
under this Lease, payable within five (5) days of billing therefor, either
periodically during construction or upon the substantial completion of such
work, at Landlord's option. Upon completion of such work, Tenant shall deliver
to Landlord evidence of payment, contractors' affidavits and full and final
waivers of all liens for labor, services or materials. Tenant shall pay to
Landlord a percentage of the cost of such work sufficient to compensate Landlord
for all overhead, general conditions, fees and other costs and expenses arising
from Landlord's involvement with such work.
8.4 Construction Insurance. In the event that Tenant makes any
Alterations Tenant agrees to carry "Builder's All Risk" insurance in an amount
approved by Landlord covering the construction of such Alterations, and such
other insurance as Landlord may 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
discretion, require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of such Alterations and naming Landlord as a
co-obligee.
8.5 Landlord's Property. All Alterations, improvements, fixtures and/or
equipment 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 be and become the property of Landlord, except
that Tenant may remove any Alterations, improvements, fixtures and/or equipment
which Tenant can substantiate to Landlord have not been paid for with any Tenant
improvement allowance funds provided to Tenant by Landlord, provided Tenant
repairs any damage to the Premises and Building caused by such removal.
Furthermore, if Landlord, as a condition to Landlord's consent to any
Alteration, requires that Tenant remove any Alteration upon the expiration or
early termination of the Lease Term, Landlord may, by written notice to Tenant
prior to the end of the Lease Term, or given following any earlier termination
of this Lease, require Tenant, at Tenant's expense, to remove such Alterations
and to 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, Landlord may do so and may charge the cost thereof
to Tenant.
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 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, or any portion thereof, 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 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 five (5) 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, 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 immediately
be due and payable by Tenant.
ARTICLE 10
INSURANCE
10.1 Indemnification and Waiver. To the extent not prohibited by law,
Landlord, its members and their respective partners, subpartners, officers,
agents, servants, employees, and independent contractors (collectively,
"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. Tenant shall indemnify, defend, protect, and hold harmless Landlord
Parties from
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any and all loss, cost, damage, expense and liability (including without
limitation court costs and reasonable attorneys' fees) incurred in connection
with or arising from any cause in, on or about the Premises, either prior to,
during, or after the expiration of the Lease Term, provided that the terms of
the foregoing indemnity shall not apply to the gross negligence or wilful
misconduct of Landlord. 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 (but Tenant shall not be responsible for any direct or consequential
damages resulting from Landlord's or contractor's acts in connection with the
completion by Landlord of the tenant improvements in the Premises pursuant to
the Tenant Work Letter).
10.2 Tenant's Compliance with Landlord's Fire and Casualty Insurance.
Tenant shall, at Tenant's expense, comply with all insurance company
requirements pertaining to the use of the Premises. If Tenant's conduct or use
of the Premises causes any increase in the premium for such insurance policies
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
Broad Form 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:
<TABLE>
<CAPTION>
<S> <C>
Bodily Injury and
Property Damage Liability $2,000,000 each occurrence
$2,000,000 annual aggregate
Personal Injury Liability $2,000,000 each occurrence
$2,000,000 annual aggregate
0% Insured's participation
</TABLE>
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 and any other improvements which exist in the Premises
as of the Lease Commencement Date (excluding the "Base Building," as that term
is defined hereinbelow), and (iii) all other improvements, alterations and
additions to the Premises. The term "Base Building," for purposes of this Lease,
shall mean the structural portions of the Building, and the public restrooms and
the systems and equipment located in the internal core of the Building on the
floor or floors on which the Premises are located. Such insurance shall be
written on an "all risks" of physical loss or damage basis, for the full
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 limits not less than Five Hundred Thousand Dollars
($500,000.00) per occurrence; per employee for disease; and in the aggregate for
disease.
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10.4 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, Trammell Crow
Company, and any other party Landlord specifies, as an additional insured; (ii)
specifically cover the liability assumed by Tenant under this Lease, including,
but not limited to, Tenant's obligations under Section 10.1 of this Lease; (iii)
be issued by an insurance company having a rating of not less than A-X 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.
10.5 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.
10.6 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 in excess of the amounts
and types of insurance then being required by landlords of other Comparable
Buildings.
ARTICLE 11
DAMAGE AND DESTRUCTION
11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly
notify Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Base Building or any Common Areas serving or providing access
to the Premises shall be damaged by 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 and such Common Areas. Such
restoration shall be to substantially the same condition of the Base Building
and the Common Areas prior to the casualty, except for modifications required by
zoning and building codes and other laws or by the holder of a mortgage on the
Building or Project or any other modifications to the Base Building or the
Common Areas deemed desirable by Landlord, provided that access to the Premises
and any common restrooms serving the Premises shall not be materially impaired.
Tenant shall, at Tenant's sole cost and expense, repair any injury or damage to
the Premises which is not part of the Base Building, in accordance with Article
8, above, and shall return the Premises to their original condition. 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 of the Base Building or the Common Areas; provided, however, that
if such fire or other casualty shall have damaged the Base Building or Common
Areas necessary to Tenant's occupancy, and if such damage is not the result of
the negligence or wilful misconduct of Tenant or Tenant's employees,
contractors, licensees, or invitees, Landlord shall allow Tenant a proportionate
abatement of Rent to the extent Landlord is reimbursed from the proceeds of
rental interruption insurance purchased by Landlord as part of Operating
Expenses, during the time and to the extent the Premises are unfit for occupancy
for the purposes permitted under this Lease as the sole result of the damage to
the Base Building or the Common Areas, and not occupied by Tenant as a result
thereof.
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, Building and/or Project; and instead terminate this Lease by notifying
Tenant in writing of such termination within sixty (60) days after the date of
damage, such notice to include a termination date giving Tenant
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<PAGE> 20
ninety (90) days to vacate the Premises, but Landlord may so elect only if the
Building or Project shall be damaged by fire or other casualty or cause, whether
or not the Premises are affected, and one or more of the following conditions is
present: (i) repairs to be made by Landlord cannot reasonably be completed
within one hundred twenty (120) days after the date of damage (when such repairs
are made without the payment of overtime or other premiums); (ii) the holder of
any mortgage on the Building or Project or ground lessor with respect to the
Building or Project shall require that the insurance proceeds or any portion
thereof be used to retire the mortgage debt, or shall terminate the ground
lease, as the case may be; (iii) the damage which is required to be repaired by
Landlord is not fully covered, except for deductible amounts, by Landlord's
insurance policies; or (iv) any owner of any other portion of the Project, other
than Landlord, does not intend to repair the damage to such portion of the
Project; 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 opinion of Landlord, be completed within one
hundred eighty (180) days after being commenced, Tenant may elect, no earlier
than sixty (60) days after the date 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 sixty (60) days after the date such
notice is given by Tenant. Furthermore, if neither Landlord nor Tenant has
terminated this Lease, and the repairs are not actually completed within such
180-day period, Tenant shall have the right to terminate this Lease during the
first five (5) business days of each calendar month following the end of such
period until such time as the repairs are complete, by notice to Landlord (the
"Damage Termination Notice"), effective as of a date set forth in the Damage
Termination Notice (the "Damage Termination Date"), which Damage Termination
Date shall not be less than ten (10) business days following the end of each
such month. Notwithstanding the foregoing, if Tenant delivers a Damage
Termination Notice to Landlord, then Landlord shall have the right to suspend
the occurrence of the Damage Termination Date for a period ending thirty (30)
days after the Damage Termination Date set forth in the Damage Termination
Notice by delivering to Tenant, within five (5) business days of Landlord's
receipt of the Damage Termination Notice, a certificate of Landlord's contractor
responsible for the repair of the damage certifying that it is such contractor's
good faith judgment that the repairs shall be substantially completed within
thirty (30) days after the Damage Termination Date. If repairs shall be
substantially completed prior to the expiration of such thirty-day period, then
the Damage Termination Notice shall be of no force or effect, but if the repairs
shall not be substantially completed within such thirty-day period, then this
Lease shall terminate upon the expiration of such thirty-day period. At any
time, from time to time, after the date occurring sixty (60) days after the date
of the damage, Tenant may request that Landlord inform Tenant of Landlord's
reasonable opinion of the date of completion of the repairs and Landlord shall
respond to such request within five (5) business days.
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, the
Building, or the Project is destroyed or damaged to any substantial extent
during the last eighteen (18) months of the Lease Term, then notwithstanding
anything contained in this Article 11, Landlord shall have the option to
terminate this Lease by giving written notice to Tenant of the exercise of such
option within thirty (30) days after such damage or destruction, in which event
this Lease shall cease and terminate as of 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
No waiver of any provision of this Lease shall be implied by any
failure of Landlord to enforce any remedy on account of the violation of such
provision, even if such violation shall
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<PAGE> 21
continue or be repeated subsequently, and any waiver by Landlord of any
provision of this Lease may only be in writing. Additionally, no express waiver
shall affect any provision other than the one specified in such waiver and then
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 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.
ARTICLE 13
CONDEMNATION
If the whole or any part 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, or if Landlord shall grant a deed or
other instrument in lieu of such taking by eminent domain or condemnation,
Landlord 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, 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 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, so long as such claims do not diminish the
award available to Landlord, its ground lessor with respect to the Building or
Project or its mortgagee, and such claim is payable separately to Tenant. 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.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 Transfers. Tenant shall not, without the prior written consent of
Landlord, 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 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 desires 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 forty-five (45) days nor more than one
hundred eighty (180) 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 material terms of the proposed Transfer and
the consideration therefor (including calculation of the "Transfer Premium", as
that term is defined in Section 14.3 below, in connection with such Transfer),
the name and address of the proposed Transferee, and a copy of all existing
executed and/or proposed documentation pertaining to the proposed Transfer,
including all existing operative documents to be executed to evidence such
Transfer or the agreements incidental or related to such Transfer, and (iv)
current financial statements of the proposed Transferee certified by an officer,
partner or owner thereof, and any other information reasonably required by
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, and such other information as Landlord may reasonably
require. Any Transfer made without Landlord's prior written consent shall, at
Landlord's option, be null, void and of no effect, and shall, at Landlord's
option, constitute a default by Tenant under this Lease. Whether or not Landlord
consents to any proposed Transfer,
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Tenant shall pay Landlord's review and processing fees, as well as any
reasonable legal fees incurred by Landlord, within thirty (30) days after
written request by Landlord.
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. Without limitation as to other
reasonable grounds for withholding consent, the parties hereby agree that it
shall be reasonable under this Lease and under any applicable law for Landlord
to withhold consent to any proposed Transfer where 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 Building
or the Project, or would be a significantly less prestigious occupant of the
Building than Tenant;
14.2.2 The Transferee is either a governmental agency or
instrumentality thereof;
14.2.3 The Transferee is not a party of reasonable financial
worth and/or financial stability in light of the responsibilities involved under
the Lease on the date consent is requested;
14.2.4 The proposed Transfer would cause a violation of
another lease for space in the Project, or would give an occupant of the Project
a right to cancel its lease;
14.2.5 The terms of the proposed Transfer will allow the
Transferee to exercise a right of renewal, right of expansion, right of first
offer, or other similar right held by Tenant (or will allow the Transferee to
occupy space leased by Tenant pursuant to any such right); or
14.2.6 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, (i) occupies space in the Project at the
time of the request for consent, (ii) is negotiating with Landlord to lease
space in the Project at such time, or (iii) has negotiated with Landlord during
the twelve (12)-month period immediately preceding the Transfer Notice.
If Landlord consents to any Transfer pursuant to the terms of this Section 14.2
(and does not exercise any recapture rights Landlord may have under Section 14.4
of this Lease), 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
material 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
(including Landlord's right of recapture, if any, under Section 14.4 of this
Lease). Notwithstanding anything to the contrary in this Lease, if Tenant or any
proposed Transferee claims that Landlord has unreasonably withheld or delayed
its consent under Section 14.2 or otherwise has breached or acted unreasonably
under this Article 14, their sole remedies shall be declaratory judgment and an
injunction for the relief sought without any monetary damages, and Tenant hereby
waives all other remedies on its own behalf and, to the extent permitted under
all applicable laws, on behalf of the proposed Transferee.
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, received by Tenant from such Transferee. "Transfer
Premium" shall mean all rent, additional rent or other consideration payable by
such Transferee in excess of the Rent and Additional Rent payable by Tenant
under this Lease on a per rentable square foot basis if less than all of the
Premises is transferred. "Transfer Premium" shall also include, but not be
limited to, key money and bonus money paid by Transferee to Tenant in connection
with such Transfer, 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.
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14.4 Landlord's Option as to Subject Space. Notwithstanding
anything to the contrary contained in this Article 14, in the event Tenant
contemplates a Transfer of all or a portion of the Premises (or in the event of
any other Transfer or Transfers entered into by Tenant as a subterfuge in order
to avoid the terms of this Section 14.4), Tenant shall give Landlord notice (the
"Intention to Transfer Notice") of such contemplated Transfer (whether or not
the contemplated Transferee or the terms of such contemplated Transfer have been
determined). The Intention to Transfer Notice shall specify the portion of and
amount of rentable square feet of the Premises which Tenant intends to Transfer
(the "Contemplated Transfer Space"), the contemplated date of commencement of
the Contemplated Transfer (the "Contemplated Effective Date"), and the
contemplated length of the term of such contemplated Transfer, and shall specify
that such Intention to Transfer Notice is delivered to Landlord pursuant to this
Section 14.4 in order to allow Landlord to elect to recapture the Contemplated
Transfer Space. Thereafter, Landlord shall have the option, by giving written
notice to Tenant (the "Recapture Election Notice") within thirty (30) days after
receipt of any Intention to Transfer Notice, to recapture the Contemplated
Transfer Space. In the event the term of such contemplated Transfer is for less
than the entirety of the remaining term of this Lease, the Recapture Election
Notice shall specify the portion of the remaining term of this Lease in excess
of the term set forth in the Intention to Transfer Notice for which Landlord so
elects to recapture the Contemplated Transfer Space. In the event such option is
exercised by Landlord, this Lease shall be canceled and terminated with respect
to such Contemplated Transfer Space as of the Contemplated Effective Date until
the date specified in the Recapture Election Notice. In the event of a recapture
by Landlord, if this Lease shall be canceled with respect to less than the
entire Premises, the Rent reserved herein shall be prorated on the basis of the
number of rentable square feet retained by Tenant in proportion to the number of
rentable square feet contained in the Premises, and this Lease as so amended
shall continue thereafter in full force and effect, and upon request of either
party, the parties shall execute written confirmation of the same. If Landlord
declines, or fails to timely elect to recapture such Contemplated Transfer Space
under this Section 14.4, then, subject to the other terms of this Article 14,
for a period of nine (9) months (the "Nine Month Period") commencing on the last
day of such thirty (30) day period, Landlord shall not have any right to
recapture the Contemplated Transfer Space with respect to any Transfer made
during the Nine Month Period, provided that any such Transfer is substantially
on the terms set forth in the Intention to Transfer Notice, and provided further
that any such Transfer shall be subject to the remaining terms of this Article
14. If such a Transfer is not so consummated within the Nine Month Period (or if
a Transfer is so consummated, then upon the expiration of the term of any
Transfer of such Contemplated Transfer Space consummated within such Nine Month
Period), Tenant shall again be required to submit a new Intention to Transfer
Notice to Landlord with respect any contemplated Transfer, as provided above in
this Section 14.4.
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.
14.6 Additional Transfers. For purposes of this Lease, the term
"Transfer" shall also include (i) if Tenant is a partnership, the withdrawal or
change, voluntary, involuntary or by operation of law, of twenty-five percent
(25%) or more of the partners, or transfer of twenty-five percent or more of
partnership interests, within a twelve (12)-month period, or the dissolution of
the partnership without immediate reconstitution thereof, and (ii) if Tenant is
a closely held corporation (i.e., whose stock is not publicly held and not
traded through an exchange or over the counter), (A) the dissolution, merger,
consolidation or other reorganization of Tenant or, (B) the sale or other
transfer of more than an aggregate of twenty-five percent (25%) of the voting
shares of Tenant (other than to immediate family members by reason of gift or
death) within a twelve (12)-month period, or (C) the sale, mortgage,
hypothecation or pledge of more than an aggregate of twenty-five percent (25%)
of the value of the unencumbered assets of Tenant within a twelve (12)-month
period.
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ARTICLE 15
SURRENDER OF PREMISES;
REMOVAL OF TRADE FIXTURES
15.1 Surrender of Premises. No act or thing done by Landlord or any
agent or employee of Landlord 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. The
delivery of keys to the Premises to Landlord or any agent or employee of
Landlord 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 properly 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. 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 and repairs which are specifically made the responsibility of Landlord
hereunder excepted. Upon such expiration or 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.
ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term hereof,
with or without the express or implied consent of Landlord, such tenancy shall
be from month-to-month only, and shall not 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 twice the Base Rent applicable during the last rental
period of the Lease Term under this Lease. Such month-to-month tenancy shall be
subject to every other applicable 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. 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 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
(including such tenant's lost profits) and any lost profits to Landlord
resulting therefrom.
ARTICLE 17
ESTOPPEL CERTIFICATES
Within ten (10) days following a request in writing by Landlord, Tenant
shall execute and deliver to Landlord an estoppel certificate, which, as
submitted by Landlord, shall be substantially in the form of Exhibit D, attached
hereto (or such other form as may be required by any prospective mortgagee or
purchaser of the Project, or any portion thereof), indicating therein any
exceptions thereto that may exist at that time, and shall also contain any other
information reasonably requested by Landlord or Landlord's mortgagee or
prospective mortgagee. Tenant shall execute and deliver whatever other
instruments may be reasonably required for such purposes. Failure of Tenant to
timely execute and deliver such estoppel certificate or other instruments shall
constitute an acceptance of the Premises and an acknowledgment by Tenant that
statements included in the estoppel certificate are true and correct, without
exception.
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ARTICLE 18
SUBORDINATION
This Lease shall be subject and subordinate to all present and future
ground or underlying leases of the Building or Project and to the lien of any
first mortgage or trust deed, now or hereafter in force against the Building or
Project, 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. Tenant covenants
and agrees in the event any proceedings are brought for the foreclosure of any
such mortgage or deed in lieu thereof, to attorn, without any deductions or
set-offs whatsoever, to the purchaser or any successors thereto upon any such
foreclosure sale or deed in lieu thereof if so requested to do so by such
purchaser, and to recognize such purchaser as the lessor under this Lease.
Tenant shall, within five (5) 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. Tenant waives the provisions of
any current or future statute, rule or law which may give or purport to give
Tenant any right or election to terminate or otherwise adversely affect this
Lease and the obligations hereunder in the event of any foreclosure proceeding
or sale.
ARTICLE 19
DEFAULTS; REMEDIES
19.1 Defaults. The occurrence of any of the following shall
constitute a default of this Lease by Tenant:
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, when due; 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 fifteen (15) days after written notice
thereof from Landlord to Tenant; or
19.1.3 Abandonment or vacation of the Premises by Tenant; or
19.1.4 To the extent permitted by law, a general assignment by
Tenant or any guarantor of the Lease for the benefit of creditors, or the filing
by or against Tenant or any guarantor of any proceeding under an insolvency or
bankruptcy law, unless in the case of a proceeding filed against Tenant or any
guarantor the same is dismissed within sixty (60) days, or the appointment of a
trustee or receiver to take possession of all or substantially all of the assets
of Tenant or any guarantor, unless possession is restored to Tenant or such
guarantor within thirty (30) days, 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, unless such seizure is
discharged within thirty (30) days; or
19.1.5 The hypothecation or assignment of this Lease or
subletting of the Premises, or attempts at such actions, in violation of Article
14 hereof; or
19.1.6 The failure by Tenant to occupy the Premises within
thirty (30) days after the Substantial Completion of the Premises.
19.2 Remedies Upon Default. Upon the occurrence of any event of
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
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:
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(i) The worth at the time of award of any unpaid rent which
has been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided; plus
(iii) The worth at the time of award of the amount by which
the unpaid rent for the balance of the Lease Term after the time of
award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, specifically including but not
limited to, brokerage commissions and advertising expenses incurred,
expenses of remodeling the Premises or any portion thereof for a new
tenant, whether for the same or a different use, and any special
concessions made to obtain a new tenant; and
(v) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by
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(i)
and (ii), 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(iii) 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 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.
19.3 Sublessees of Tenant. Whether or not Landlord elects to terminate this
Lease on account of any default by Tenant as set forth in this Article 19,
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.
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
SECURITY DEPOSIT; LETTER OF CREDIT
21.1 Security Deposit. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord by certified or cashier's check a
security deposit (the "Security Deposit") in the amount set forth in Section 8
of the Summary. The Security Deposit shall be held by Landlord as security for
the faithful performance by Tenant of all the terms, covenants,
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and conditions of this Lease to be kept and performed by Tenant during the Lease
Term. If Tenant defaults with respect to any provisions of this Lease,
including, but not limited to, the provisions relating to the payment of Rent,
Landlord may, but shall not be required to, use, apply or retain all or any part
of the Security Deposit for the payment of any Rent or any other sum in default,
or for the payment of any amount that Landlord may spend or 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. If any
portion of the Security Deposit is so used or applied, Tenant shall, within five
(5) days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount, and Tenant's
failure to do so shall be a default under this Lease. If Tenant shall fully and
faithfully perform every provision of this Lease to be performed by it, the
Security Deposit, or any balance thereof, shall be returned to Tenant, or, at
Landlord's option, to the last assignee of Tenant's interest hereunder, within
sixty (60) days following the expiration of the Lease Term. Tenant shall not be
entitled to any interest on the Security Deposit.
21.2 Letter of Credit.
21.2.1 Delivery of the Letter of Credit. Tenant shall deliver
to Landlord, on or before May 1, 2000, an unconditional, clean, irrevocable
letter of credit (the "L-C") in the amount of Two Hundred Thirty Thousand and
No/100 Dollars ($230,000.00) (the "L-C Amount"), which L-C shall be issued by a
money-center bank (a bank which accepts deposits, maintains accounts, has a
local Los Angeles office which will negotiate a letter of credit and whose
deposits are insured by the FDIC) reasonably acceptable to Landlord, and which
L-C shall be in a form and content as set forth in Exhibit F, attached to this
Lease. Tenant shall pay all expenses, points and/or fees charged by such bank in
connection with the issuance, transfer, or drawing of the L-C.
21.2.2 Application of the L-C. The 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 Lease Term. The 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 L-C at least thirty (30) days before its expiration, Landlord
may, but shall not be required to, immediately draw upon all or any portion of
the 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.
Additionally, if at any time Tenant fails to renew the L-C at least thirty (30)
days before its expiration, such failure shall be a material default under this
Lease, and Landlord may, but shall not be required to, draw upon all or any
portion of the L-C and hold any amounts so drawn as a part of the "L-C Security
Deposit," defined below. The use, application or retention of the 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 L-C, nor (b) operate
as a limitation on any recovery to which Landlord may otherwise be entitled. Any
amount of the L-C which is drawn upon by Landlord, but is not used or applied by
Landlord shall be held by Landlord and deemed a security deposit (the "L-C
Security Deposit"). If any portion of the L-C is drawn upon, Tenant shall,
within five (5) days after written demand therefor, either (i) deposit cash with
Landlord (which cash shall be applied by Landlord to the L-C Security Deposit)
in an amount sufficient to cause the sum of the L-C Security Deposit and the
amount of the remaining L-C to be equivalent to the amount of the L-C then
required under this Lease or (ii) reinstate the L-C to the amount then required
under this Lease, and if any portion of the 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 L-C
Security Deposit) in an amount sufficient to restore the 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 L-C Security Deposit
and/or the 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 L-C Security Deposit and/or the L-C.
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ARTICLE 22
SUBSTITUTION OF OTHER PREMISES
Landlord shall have the privilege of moving Tenant to other space in
the Building comparable to the Premises, and all terms hereof shall apply to the
new space with equal force; provided that Tenant's then existing monetary
obligations under this Lease shall not be increased as a result of such
relocation of the Premises. In such event, Landlord shall give Tenant at least
sixty (60) days prior notice, shall provide Tenant, at Landlord's sole cost and
expense, with tenant improvements at least equal in quality to those in the
Premises and shall move Tenant's effects to the new space at Landlord's sole
cost and expense at such time and in such manner as to inconvenience Tenant as
little as practicable. In addition, Landlord shall reimburse Tenant for the
reasonable costs and expenses incurred by Tenant in connection with such
relocation (including, but not limited to, the costs of reasonable supplies of
replacement stationery and telephone installations), within thirty (30) days of
Landlord's receipt of an invoice therefor. Simultaneously with such relocation
of the Premises, the parties shall immediately execute an amendment to this
Lease stating the relocation of the Premises.
ARTICLE 23
SIGNS
Tenant's identifying signage shall be provided by Landlord, at Tenant's
cost, and such signage shall be comparable to that used by Landlord for other
similar floors in the Building and shall comply with Landlord's Building
standard signage program. Any signs, notices, logos, pictures, names or
advertisements which are installed and that have not been separately approved by
Landlord may be removed without notice by Landlord at the sole expense of
Tenant. Tenant may not install any signs on the exterior or roof of the Project
or the Common Areas. 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, shall be
subject to the prior approval of Landlord, in its sole discretion. Tenant's
identifying entry on the building directory located in the lobby of the Building
shall be provided by Landlord, at Tenant's cost.
ARTICLE 24
COMPLIANCE WITH LAW
Tenant shall not do anything or suffer anything to be done in or about
the Premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall
promptly comply with all such governmental measures, other than the making of
structural changes or changes to the Building's life safety system. 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, at its sole cost
and expense, to comply promptly with such standards or regulations. The judgment
of any court of competent jurisdiction or the admission of Tenant in any
judicial action, regardless of whether Landlord is a party thereto, that Tenant
has violated any of said governmental measures, shall be conclusive of that fact
as between Landlord and Tenant.
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) days after said
amount is due, then Tenant shall pay to Landlord a late charge equal to five
percent (5%) of the overdue amount plus any 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) days after the date they are due shall bear interest from the
date when due until paid at a rate per annum equal to the lesser of (i) eighteen
percent (18%) per annum or (ii) the highest rate permitted by applicable law.
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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. If Tenant shall fail to
perform any of its obligations under this Lease, within a reasonable time after
such performance is required by the terms of this Lease, Landlord may, but shall
not be obligated to, after reasonable prior notice to Tenant (except in the case
of an emergency), make any such payment or perform any such act on Tenant's part
without waiving its rights 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 fifteen (15)
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; (ii) sums equal to all losses, costs, liabilities,
damages and expenses referred to in Article 10 of this Lease; and (iii) sums
equal to all expenditures made and obligations incurred by Landlord in
collecting or attempting to collect the Rent or in enforcing or attempting to
enforce any rights of Landlord under this Lease or pursuant to law, including,
without limitation, all legal fees and other amounts so expended. Tenant's
obligations under this Section 26.2 shall survive the expiration or sooner
termination of the Lease Term.
ARTICLE 27
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times and upon reasonable
notice to Tenant (except in the case of an emergency) to enter the Premises to
(i) inspect them; (ii) show the Premises to prospective purchasers, mortgagees
or tenants, or to the ground or underlying lessors; (iii) post notices of
nonresponsibility; or (iv) alter, improve or repair the Premises or the Building
if necessary to comply with current building codes or other applicable laws, or
for structural alterations, repairs or improvements to the Building.
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;
(B) take possession due to any breach of this Lease in the manner provided
herein; and (C) perform any covenants of Tenant which Tenant fails to perform.
Landlord may make any such entries without the abatement of Rent and may take
such reasonable steps as required to accomplish the stated purposes. 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. 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. 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.
ARTICLE 28
TENANT PARKING
Tenant hereby rents from Landlord, commencing on the Lease Commencement
Date, the amount of parking passes set forth in Section 9 of the Summary, on a
monthly basis throughout the Lease Term, which parking passes shall pertain to
the Project parking facility. Tenant shall pay to Landlord for automobile
parking passes on a monthly basis the prevailing rate charged from time to time
for parking passes in the Project. At any time during the Lease Term, Landlord
shall have the right to convert any of the parking passes rented by Tenant to
passes to be used in tandem parking spaces and/or valet assisted parking areas.
Tenant's continued right to use the parking passes is conditioned upon Tenant
abiding by all rules and regulations which are prescribed from time to time for
the orderly operation and use of the Project parking facility 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
size, configuration, design, layout and all other aspects of the Project parking
facility at any time and Tenant acknowledges and agrees that Landlord may,
without incurring any liability to Tenant and
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without any abatement of Rent under this Lease, from time to time, close-off or
restrict access to the Project parking facility for purposes of permitting or
facilitating any such construction, alteration or improvements. Landlord may
delegate its responsibilities hereunder to a parking operator in which case such
parking operator shall have all the rights of control attributed hereby to the
Landlord. The parking passes rented by Tenant pursuant to this Article 28 are
provided to Tenant solely for use by Tenant's own personnel and such passes may
not be transferred, assigned, subleased or otherwise alienated by Tenant without
Landlord's prior approval.
ARTICLE 29
MISCELLANEOUS PROVISIONS
29.1 Binding Effect. Subject to all other provisions of this Lease,
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 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 in any other way materially and
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 reasonably required therefor and to deliver the
same to Landlord within ten (10) days following a request therefor. 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 and deliver such short form of Lease to
Landlord within ten (10) days following the request therefor.
29.3 Transfer of Landlord's Interest. Tenant acknowledges that
Landlord has the right to transfer all or any portion of its interest in the
Project or Building and in this Lease, and Tenant agrees that in the event of
any such transfer, Landlord shall automatically be released from all liability
under this Lease 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 the holder of any mortgage or deed of trust as additional security, but
agrees that an assignment shall not release Landlord from its obligations
hereunder and Tenant shall continue to look to Landlord for the performance of
its obligations hereunder.
29.4 Prohibition Against Recording. Except as provided in Section
29.3 of this Lease, neither this Lease, nor any memorandum, affidavit or other
writing with respect thereto, shall be recorded by Tenant or by anyone acting
through, under or on behalf of Tenant, and the recording thereof in violation of
this provision shall make this Lease null and void at Landlord's election.
29.5 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.
29.6 Time of Essence. Time is of the essence of this Lease and each
of its provisions.
29.7 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.
29.8 No Warranty. In executing and delivering this Lease, Tenant
has not relied on any representations, including, but not limited to, any
representation as to the amount of any item comprising Additional Rent or the
amount of the Additional Rent in the aggregate or that Landlord is furnishing
the same services to other tenants, at all, on the same level or on the same
basis, or any warranty or any statement of Landlord which is not set forth
herein or in one or more of the exhibits attached hereto.
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29.9 Child Care Facilities. Tenant acknowledges that any child care
facilities located in the Project (the "Child Care Facilities") which are
available to Tenant and Tenant's employees are provided by a third party (the
"Child Care Provider") which is leasing space in the Project, and not by
Landlord. If Tenant or its employees choose to use the Child Care Facilities,
Tenant acknowledges that Tenant and Tenant's employees are not relying upon any
investigation which Landlord may have conducted concerning the Child Care
Provider or any warranties or representation with respect thereto, it being the
sole responsibility of Tenant and the individual user of the Child Care
Facilities to conduct any and all investigations of the Child Care Facilities
prior to making use thereof. Accordingly, Landlord shall have no responsibility
with respect to the quality or care provided by the Child Care Facilities, or
for any acts or omissions of the Child Care Provider. Furthermore, Tenant, for
Tenant and for Tenant's employees, hereby agrees that Landlord, its members and
their respective partners, subpartners, officers, agents, servants, employees,
and independent contractors shall not be liable for, and are hereby released
from any responsibility for any loss, cost, damage, expense or liability, either
to person or property, arising from the use of the Child Care Facilities by
Tenant or Tenant's employees. Tenant hereby covenants that Tenant shall inform
all of Tenant's employees of the provisions of this Section 29.9 prior to such
employees' use of the Child Care Facilities.
29.10 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 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 and shall be
considered to be the only agreements between the parties hereto and their
representatives and agents. 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.
29.11 Right to Lease. Landlord reserves the absolute right to effect
such other tenancies in the Project as Landlord in the exercise of its sole
business judgment shall determine to best promote the interests of the Building
or Project. 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 Building or Project.
29.12 Force Majeure. Any prevention, delay or stoppage due to
strikes, lockouts, labor disputes, acts of God, inability to obtain 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, except with respect to the
obligations imposed with regard to Rent and other charges to be paid by Tenant
pursuant to this Lease (collectively, the "Force Majeure"), 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 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.
29.13 Notices. All notices, demands, statements, designations,
approvals or other communications (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 11 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 following addresses, or to such other firm or to such other place as
Landlord may from time to time designate in a Notice to Tenant:
J.P. Morgan Investment Management, Inc.
522 Fifth Avenue
12th Floor
New York, New York 10036
Attention: Mr. David Chen, Vice-President
and
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Trammell Crow Company
2425 Olympic Boulevard
Suite 520-East
Santa Monica, California 90404
Attention: Building Manager
With a copy to:
Allen, Matkins, Leck, Gamble & Mallory
1999 Avenue of the Stars, Suite 1800
Los Angeles, California 90067
Attn: Anton N. Natsis, Esq.
Any Notice will be deemed given on the date it is mailed as provided in this
Section 29.13 or upon the date personal delivery is made. If Tenant is notified
of the identity and address of the holder of any deed of trust or ground or
underlying lessor, Tenant shall give to such mortgagee or ground or underlying
lessor written 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.
29.14 Joint and Several. If there is more than one Tenant, the
obligations imposed upon Tenant under this Lease shall be joint and several.
29.15 Authority. If Tenant is a corporation or partnership, each
individual executing this Lease 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 Lease and that each person signing on behalf of Tenant is
authorized to do so.
29.16 Governing Law. This Lease shall be construed and enforced in
accordance with the laws of the State of California.
29.17 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.
29.18 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 10 of the Summary (the "Brokers"), whose commissions
shall be the responsibility of Landlord pursuant to a separate written
agreement, and that they know of no other real estate broker or agent who is
entitled to a commission in connection with 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 any dealings with any real estate broker or agent, other
than the Brokers, occurring by, through, or under the indemnifying party.
29.19 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 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 or Project or any portion thereof, whose address has theretofore
been given to Tenant, and an opportunity is granted to Landlord and such holder
to correct such violations as provided above.
29.20 Project or Building Name and Signage. Landlord shall have the
right at any time to change the name of the Project or Building and to install,
affix and maintain any and all signs
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on the exterior and on the interior of the Project or Building as Landlord may,
in Landlord's sole discretion, desire. Tenant shall not use the name of the
Project or Building or use pictures or illustrations of the Project or Building
in advertising or other publicity, without the prior written consent of
Landlord.
29.21 Transportation Management. Tenant shall fully comply with all
present or future programs intended to manage parking, transportation or traffic
in and around the Project or 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 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.
29.22 No Discrimination. Landlord and Tenant each covenants by and
for itself, its respective heirs, executors, administrators and assigns, and all
persons claiming under or through each of them, 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, and neither Landlord nor Tenant shall itself, or any person
claiming under or through either Landlord or 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.
29.23 Hazardous Material. As used herein, the term "Hazardous
Material" means any hazardous or toxic substance, material or waste which is or
becomes regulated by, or is dealt with in, any local governmental authority, the
State of California or the United States Government. Tenant acknowledges that
Landlord may incur costs (A) for complying with laws, codes, regulations or
ordinances relating to Hazardous Material, or (B) otherwise in connection with
Hazardous Material including, without limitation, the following: (i) Hazardous
Material present in soil or ground water; (ii) Hazardous Material that migrates,
flows, percolates, diffuses or in any way moves onto or under the Project; (iii)
Hazardous Material present on or under the Project as a result of any discharge,
dumping or spilling (whether accidental or otherwise) on the Project by other
tenants of the Project or their agents, employees, contractors or invitees, or
by others; and (iv) material which becomes Hazardous Material due to a change in
laws, codes, regulations or ordinances which relate to hazardous or toxic
material, substances or waste. Tenant agrees that the costs incurred by Landlord
with respect to, or in connection with, the Project for complying with laws,
codes, regulations or ordinances relating to Hazardous Material shall be an
Operating Expense, unless the cost of such compliance, as between Landlord and
Tenant, is made the responsibility of Tenant under this Lease. To the extent any
such Operating Expense relating to Hazardous Material is subsequently recovered
or reimbursed through insurance, or recovery from responsible third parties, or
other action, Tenant shall be entitled to a proportionate share of such
Operating Expense to which such recovery or reimbursement relates.
29.24 Development of the Project.
29.24.1 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, upon demand by Landlord and in the form 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. Notwithstanding anything to the contrary set forth in this Lease, the
separate ownership of any buildings and/or Common Areas of the Project by an
entity other than Landlord shall not affect the calculation of Project Expenses
or Tenant's payment of Tenant's Share of Project Expenses.
29.24.2 The Other Improvements. 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
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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 Project 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 necessary. 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.
29.24.3 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. Tenant
hereby waives any and all rent offsets or claims of constructive eviction which
may arise in connection with such construction.
29.25 Tenant's ERISA Representation. Tenant hereby
represents and warrants to Landlord that none of the assets of Tenant are "plan
assets" as that term is defined in 29 C.F.R. Section 2509.75-2 or Section
2510.3-101.
29.26 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
hereunder (including any successor landlord hereunder) and any recourse by
Tenant against Landlord shall be limited solely and exclusively to the interest
of Landlord in and to the Building. Neither Landlord, nor any of the Landlord
Parties shall have any personal liability therefor, and Tenant hereby expressly
waives and releases such personal liability on behalf of itself and all persons
claiming by, through or under Tenant. The limitations of liability contained in
this Section 29.26 shall inure to the benefit of Landlord's and the Landlord
Parties' present and future partners, beneficiaries, officers, directors,
trustees, shareholders, agents and employees, and their respective partners,
heirs, successors and assigns. Under no circumstances shall any present or
future partner of Landlord (if Landlord is a partnership), or trustee or
beneficiary (if Landlord or any partner of Landlord is a trust), have any
liability for the performance of Landlord's obligations under this Lease.
Notwithstanding any contrary provision herein, neither Landlord nor the Landlord
Parties shall be liable under any circumstances for injury or damage to, or
interference with, Tenant's business, including but not limited to, loss of
profits, loss of rents or other revenues, loss of business opportunity, loss of
goodwill or loss of use, in each case, however occurring.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.
"Landlord":
WATER GARDEN COMPANY L.L.C.,
a Delaware Limited Liability Company
By: /S/ David Chen
_______________________________________
David Chen
Vice President
"Tenant":
INTEGRATED INFORMATION SYSTEMS, INC.,
a Delaware corporation
By: /s/ Illegible
_______________________________________
Its: VP & Corp. Counsel
_________________________________
By: _______________________________________
Its: _________________________________
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EXHIBIT A
THE WATER GARDEN
OUTLINE OF PREMISES
[GRAPHIC]
EXHIBIT A
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<PAGE> 36
EXHIBIT B
THE WATER GARDEN
NOTICE OF LEASE TERM DATES
To: ______________________
______________________
______________________
Re: Office Lease dated _________________, 20___ between WATER GARDEN
COMPANY L.L.C., a Delaware Limited Liability Company ("Landlord"), and
___________________________________, a _______________________ ("Tenant")
concerning Suite ______ on floor(s) __________ of the office building located at
_______________________________, Santa Monica, California.
Gentlemen:
In accordance with the referenced Office Lease (the "Lease"), we wish
to advise you and/or confirm as follows:
1. The Substantial Completion of the Premises has occurred, and the
Lease Term shall commence on or has 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 _________________________.
5. The exact number of rentable square feet within the Premises is
_________ square feet.
6. Tenant's Share as adjusted based upon the exact number of rentable
square feet within the Premises is _________%.
Pursuant to the terms of Article 2 of your Lease, you are required to
return an executed copy of this Notice to ________________ within five (5) days
following your receipt hereof, and thereafter the statements set forth herein
shall be conclusive and binding upon you. Your failure to timely execute and
return this Notice shall constitute your acknowledgment that the statements
included herein are true and correct, without exception.
"Landlord":
WATER GARDEN COMPANY L.L.C.,
a Delaware Limited Liability Company
By: _______________________________________
Its: _________________________________
EXHIBIT B
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Agreed to and Accepted as
of _______________, 20___.
"Tenant":
__________________________,
a ________________________
By: ______________________
Its:__________________
By: ______________________
Its:__________________
EXHIBIT B
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EXHIBIT C
THE WATER GARDEN
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. Landlord shall
enforce said Rules and Regulations in a consistent, non-discriminatory manner.
1. 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. Two keys will be furnished by
Landlord for the Premises, and any additional keys required by Tenant must be
obtained from Landlord at a reasonable cost to be established by Landlord.
2. All doors opening to public corridors shall be kept closed at
all times except for normal ingress and egress to the Premises.
3. Landlord reserves the right to close and keep locked all
entrance and exit doors of the Building during such hours as are customary for
comparable buildings in the greater Los Angeles area. 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 normal hours of business 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 normal 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.
4. No furniture, freight or equipment of any kind shall be
brought into the Building without prior notice to Landlord. All moving activity
into or out of the Building shall be scheduled with Landlord and done only at
such time and in such manner as Landlord designates. No service deliveries
(other than messenger services) will be allowed between hours of 4:00 p.m. to
6:00 p.m., Monday through Friday. Landlord shall have the right to prescribe the
weight, size and position of all safes and other heavy property brought into the
Building and also the times and manner of moving the same in and out of the
Building. Safes and other heavy objects shall, if considered necessary by
Landlord, stand on supports of such thickness as is 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.
5. No furniture, packages, supplies, equipment or merchandise
will be received in the Building or carried up or down in the elevators, except
between such hours and in such specific elevator as shall be designated by
Landlord.
6. 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.
7. Tenant shall not disturb, solicit, or canvass any occupant of
the Project and shall cooperate with Landlord and its agents to prevent such
activities.
EXHIBIT C
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<PAGE> 39
8. 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.
9. Tenant shall not overload the floor of the Premises, nor mark,
drive nails or screws, or drill into the partitions, woodwork or plaster or in
any way deface the Premises or any part thereof without Landlord's consent first
had and obtained.
10. 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.
11. 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.
12. Tenant shall not without the prior written consent of Landlord
use any method of heating or air conditioning other than that supplied by
Landlord.
13. 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 offensive or objectionable to
Landlord or other occupants of the Project by reason of noise, odors, or
vibrations, or interfere in any way with other tenants or those having business
therein.
14. Tenant shall not bring into or keep within the Project, the
Building or the Premises any animals, birds, bicycles or other vehicles.
15. 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 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.
16. Landlord will approve where and how telephone and telegraph
wires are to be introduced to the Premises. No boring or cutting for wires shall
be allowed without the consent of Landlord. The location of telephone, call
boxes and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
17. 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.
18. 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.
19. Tenant shall not waste electricity, water or air conditioning
and agrees to cooperate fully with Landlord to ensure the most effective
operation of the Building's heating and air conditioning system, and shall
refrain from attempting to adjust any controls.
20. 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 Santa Monica, 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 designate.
21. Tenant shall comply with all safety, fire protection and
evacuation procedures and regulations established by Landlord or any
governmental agency.
EXHIBIT C
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<PAGE> 40
22. 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.
23. 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 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.
24. 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.
25. Tenant must comply with the State of California "NO-SMOKING"
law set forth in California Labor Code Section 6404.5, and any local
"No-Smoking" ordinance which may be in effect from time to time and which is not
superseded by such State law.
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 Rules and Regulations as in Landlord's judgment may from time to time
be 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 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.
EXHIBIT C
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<PAGE> 41
EXHIBIT D
THE WATER GARDEN
FORM OF TENANT'S ESTOPPEL CERTIFICATE
The undersigned as Tenant under that certain Office Lease (the "Lease")
made and entered into as of ___________, 200__ by and between
______________________________ as Landlord, and the undersigned as Tenant, for
Premises on the __________ floor(s) of the office building located at
______________________, Santa Monica, 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. Tenant shall not modify the documents contained in Exhibit A
without the prior written consent of the holder of the first deed of trust on
the Premises.
8. 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
$_________.
9. 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.
10. The current amount of the Security Deposit held by Landlord is
$__________.
11. 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.
12. 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.
13. 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.
14. 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
EXHIBIT D
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<PAGE> 42
to execute and deliver this Estoppel Certificate and that each person signing on
behalf of Tenant is authorized to do so.
Executed at __________________ on the ____ day of _________, 20__.
"Tenant":
_________________________________________,
a ________________________________________
By: _____________________________________
Its: _______________________________
By: _____________________________________
Its: _______________________________
EXHIBIT D
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<PAGE> 43
EXHIBIT E
THE WATER GARDEN
TENANT WORK LETTER
This Tenant Work Letter shall set forth the terms and conditions
relating to the construction of the tenant improvements in the Premises. This
Tenant Work Letter is essentially organized chronologically and addresses the
issues of the construction of the Premises, in sequence, as such issues will
arise during the actual construction of the Premises. All capitalized terms used
but not defined herein shall have the meanings given such terms in this Lease.
All references in this Tenant Work Letter to Articles or Sections of "this
Lease" shall mean the relevant portion of Articles 1 through 29 of this Lease to
which this Tenant Work Letter is attached as Exhibit E and of which this Tenant
Work Letter forms a part, and all references in this Tenant Work Letter to
Sections of "this Tenant Work Letter" shall mean the relevant portion of
Sections 1 through 6 of this Tenant Work Letter.
SECTION 1
LANDLORD'S INITIAL CONSTRUCTION IN THE PREMISES
1.1 Base, Shell and Core of the Premises as Constructed by
Landlord. Landlord shall construct, at its sole cost and expense, the base,
shell, and core (i) of the Premises and (ii) of the floor of the Building on
which the Premises is located (collectively, the "Base, Shell, and Core") in
accordance with the plans and specifications for the Base, Shell, and Core and
on an unoccupied basis (the "Plans"). The Base, Shell and Core shall include
only the following items.
1.1.1 Core Improvements.
1.1.1.1 Toilet Rooms. The men's and women's toilets
shall be complete with countertops, ceramic tile walls and floors, lavatory
mirrors, lighting, ceilings, toilet partitions, toilet accessories, and high
quality plumbing fixtures.
1.1.1.2 Passenger Elevator Lobby. The Passenger
elevator lobby shall be complete with (i) finished ceiling, finished lighting,
and floor coverings, (ii) fire/smoke doors, which will be finished recessed
double solid-core wood doors installed complete with hardware, (iii) walls,
completed with wall coverings and base, and (iv) elevator doors and frames,
which will be painted metal, and call button and hall lantern face plates, which
will be stainless steel.
1.1.1.3 Janitor's Closet, Telephone Room, and
Electrical Room. The janitor's closet shall be complete with painted walls,
floor coverings and resilient base. The telephone and electrical rooms are
unfinished and will include a telephone backboard and electrical distribution
panelboards, respectively, for each full floor Tenant occupies (to the extent
Tenant partially occupies a floor, only a portion of such distribution
electrical panel board on such floor, based upon the proportionate amount of
area on such floor occupied by Tenant, shall be available to Tenant).
1.1.1.4 Lifesafety. All required alarm and
communication systems within the janitor's closet, telephone and electrical
rooms, service elevator lobby area, the stairwells, the passenger elevator lobby
area, and toilet rooms.
1.1.1.5 HVAC. The main distribution loop duct and
heating hot water supply and return lines (including valves) for the heating,
ventilation and air conditioning system.
1.1.1.6 Sprinkler. The sprinkler system, which
shall include only the main floor shut-off valves, alarms, primary loop piping,
distribution piping, and heads installed with deflectors.
1.1.1.7 Service Elevator Lobby. The service
elevator lobby complete with floor covering, resilient base, painted walls,
ceiling, lighting, and elevator door and frame, which will be painted metal.
EXHIBIT E
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<PAGE> 44
1.1.1.8 Balance of Core. All exposed core doors
shall be completed with painted hollow metal frames, finished solid core wood
doors or finished hollow metal doors, and hardware, and all exterior/exposed
wall surfaces of the core shall be drywall, taped, floated, and sanded ready for
paint. The balance of the core shall also include exit signs and fire
extinguishers as required by applicable building code (the "Code") for
unoccupied space.
1.1.2 Base and Shell Improvements. The structural frame of the
Building shall be complete, including fireproofing and finished slab ready for
floor coverings.
1.1.3 Items Relating to the Public Corridor (only as to that
portion of the Premises, if any, which occupies only a portion of a floor,
rather than an entire floor, of the Building). The following items relating to
the public corridor: the wall coverings (finished corridor side only) on
corridor and core walls, the floor covering, lighting, HVAC system, finished
ceiling, appropriate signage, alarm and communication systems, and the sprinkler
systems.
1.2 Landlord Work. Landlord shall, at Tenant's sole cost and
expense, cause the construction, installation and/or stockpiling (as set forth
below in this Section 1.2) of the following items on the floor of the Building
containing the Premises (collectively, the "Landlord Work"), which Landlord Work
(as well as the Base, Shell and Core work and Building standard mechanical and
electrical engineering, and lifesafety work) shall be installed or constructed
in compliance with the Plans, and shall, unless otherwise indicated, be
installed and constructed in compliance with, and only to the extent required
by, Code and on an unoccupied basis.
1.2.1 Window Coverings. Building window coverings (the "Window
Coverings"), to be charged at the rate of $0.31 per usable square foot of the
Premises.
1.2.2 Intentionally Omitted.
1.2.3 Perimeter Wall/Exterior Wall/Column Covers. The inside
face of perimeter wall (nonglass surfaces) and the perimeter and interior column
covers shall be drywall, taped, floated and sanded ready for paint, to be
charged at the rate of $0.88 per usable square foot of the Premises.
1.2.4 Public Corridor (only as to that portion of the Premises,
if any, which occupies only a portion of a floor, rather than an entire floor,
of the Building). Except as set forth in Section 1.1.3 above, the actual public
corridor wall, the standard tenant entries and exits including doors, frames,
hardware, and sidelight (if any), and standard tenant entry signage and exit
lights, to be charged at the rate of $0.73 per usable square foot of the
Premises.
1.2.5 Demising Walls Between Tenants (only as to that portion of
the Premises, if any, which occupies only a portion of a floor, rather than an
entire floor, of the Building). The demising partitions between tenants shall
include studs, acoustical insulation and dry wall ready for finish on tenant
side only and any necessary penetrations, fire dampers and sound traps, to be
charged at the rate of $17.65 per linear foot of partition.
SECTION 2
TENANT IMPROVEMENTS
2.1 Tenant Improvement Allowance. Tenant shall be entitled to a
one-time tenant improvement allowance (the "Tenant Improvement Allowance") in
the amount of $61,785.00 for the costs relating to the initial design and
construction of Tenant's improvements, including the Landlord Work, which are
permanently affixed to the Premises (the "Tenant Improvements"). In no event
shall Landlord be obligated to make disbursements pursuant to this Tenant Work
Letter in a total amount which exceeds the Tenant Improvement Allowance.
Further, in no event shall Landlord be obligated to perform any work relating to
the Tenant Improvements or make any disbursements pursuant to this Tenant Work
Letter until Tenant has delivered to Landlord the Letter of Credit, as required
under Section 21.2 of the Lease. All Tenant Improvements for which the Tenant
Improvement Allowance has been made available shall be deemed Landlord's
property under the terms of Section 8.5 of this Lease.
2.2 Disbursement of the Tenant Improvement Allowance. Except as
otherwise set forth in this Tenant Work Letter, the Tenant Improvement Allowance
shall be disbursed by
EXHIBIT E
-2-
<PAGE> 45
Landlord (each of which disbursements shall be made pursuant to Landlord's
disbursement process) only for the following items and costs (collectively, the
"Tenant Improvement Allowance Items"):
2.2.1 Payment of the fees of the "Architect" and the
"Engineers," as those terms are defined in Sections 3.1 of this Tenant Work
Letter, which payment shall, notwithstanding anything to the contrary contained
in this Tenant Work Letter, not exceed an aggregate amount equal to $6.50 per
usable square foot of the Premises, and payment of the fees incurred by, and the
cost of documents and materials supplied by, Landlord and Landlord's consultants
in connection with the preparation and review of the "Construction Drawings," as
that term is defined in Section 3.1 of this Tenant Work Letter, not to exceed
$3.50 per rentable square foot of the Premises;
2.2.2 The payment of plan check, permit and license fees
relating to construction of the Tenant Improvements;
2.2.3 The cost of construction of the Tenant Improvements,
including, without limitation, testing and inspection costs, freight elevator
usage, hoisting and trash removal costs, and contractors' fees and general
conditions;
2.2.4 The cost of any changes in the Base, Shell and Core work
or the Landlord Work 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), such cost to include all direct architectural and/or
engineering fees and expenses incurred in connection therewith;
2.2.5 The cost of any changes to the Construction Drawings,
Tenant Improvements or Landlord's Work required by Code;
2.2.6 Sales and use taxes and Title 24 fees;
2.2.7 The cost of the Landlord Work;
2.2.8 "Landlord's Supervision Fee", as that term is defined in
Section 4.3.2 of this Tenant Work Letter; and
2.2.9 All other costs to be expended by Landlord in connection
with the construction of the Tenant Improvements.
2.3 Standard Tenant Improvement Package. Landlord has established
specifications (the "Specifications") for some of the Building standard
components to be used in the construction of the Tenant Improvements in the
Premises and the Landlord Work (collectively, the "Standard Improvement
Package"). The quality of Tenant Improvements shall be equal to or of greater
quality than the quality of the Specifications, provided that Landlord may, at
Landlord's option, require the Tenant Improvements to comply with certain
Specifications. Landlord may make changes to the Specifications for the Standard
Improvement Package from time to time.
SECTION 3
CONSTRUCTION DRAWINGS
3.1 Selection of Architect/Construction Drawings. Tenant shall
retain an architect/space planner (the "Architect") which will be either (i)
Landlord's architect/space planner, or (ii) an architect/space planner approved
by Landlord, which approval shall not be unreasonably withheld by Landlord, to
prepare the "Construction Drawings", as that term is defined in this Section
3.1. Tenant shall retain Landlord's engineering consultants (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, which work is not part of the Base, Shell and Core work or Landlord
Work. 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 with Landlord's drawing format and
specifications. 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
EXHIBIT E
-3-
<PAGE> 46
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 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. Furthermore, Tenant and Architect shall
verify, in the field, the dimensions and conditions as shown on the relevant
portions of the Plans, and Tenant and Architect shall be solely responsible for
the same, and Landlord shall have no responsibility in connection therewith.
3.2 Final Space Plan. On or before the date set forth in Schedule
1, Tenant and the Architect shall prepare the final space plan for Tenant
Improvements in the Premises, shall receive preliminary plan check approval for
the same from the Department of Building and Safety of the City of Santa Monica
(collectively, the "Final Space Plan"), which Final Space Plan shall include a
layout and designation of all offices, rooms and other partitioning, their
intended use, and equipment to be contained therein, and shall deliver the Final
Space Plan and proof of receipt of preliminary plan check approval to Landlord
for Landlord's approval.
3.3 Non-Standard Improvement Package Items. On or before the date
set forth in Schedule 1, (i) Tenant shall submit to Landlord, for Landlord's
approval, all necessary architectural and engineering design, details, and
specifications to allow Landlord to immediately prepare an appropriate "Partial
Cost Proposal," as that term is defined below in Section 4.2 of this Tenant Work
Letter, for all materials necessary to the construction of (A) the structural
portions of any interior stairway or dumbwaiter, and the openings (and required
structural support areas) necessary to accommodate the placement of such
interior stairways or dumbwaiters in the Premises and (B) all other structural
supports and reinforcements necessary to the construction of the Tenant
Improvements (collectively, the "Structural Items"); and (ii) Tenant shall
provide Landlord, for Landlord's approval, with complete specifications, details
and architectural and engineering drawings to allow Landlord to immediately
prepare a Partial Cost Proposal for all materials, components, finishes,
equipment, and improvements which are not part of the Standard Improvement
Package.
3.4 Final Working Drawings. On or before the date set forth in
Schedule 1, Tenant, Architect and the Engineers shall complete the architectural
and engineering drawings for the Premises, and the final architectural working
drawings in a form which is complete to allow subcontractors to bid on the work,
to obtain all applicable permits, and to subsequently construct the work
(collectively, the "Final Working Drawings") and shall submit the same to
Landlord for Landlord's approval.
3.5 Permits.
3.5.1 Structural Permits. Simultaneously with Tenant's submittal
of the items described in Sections 3.3(i)(A) and 3.3(i)(B), above, Tenant shall
use its best, good faith, efforts and all due diligence to cooperate with
Architect, the Engineers, Landlord and "Contractor," as that term is defined in
Section 4.1, below, to do all acts necessary, including cooperation in the
preparation of shop drawings, if necessary, to obtain permits (the "Structural
Permits") for the immediate construction of the Structural Items, and Tenant
acknowledges that in connection therewith Landlord and/or Contractor, as opposed
to Tenant, on behalf of Tenant and as Tenant's agent, may be the appropriate
party to obtain such permits.
3.5.2 Other Permits. After the approval of the Final Working
Drawings by Landlord (the "Approved Working Drawings"), Tenant shall immediately
submit same to the City of Santa Monica for all applicable building permits
(except the Structural Permits to the extent the same have already been received
pursuant to the terms of Section 3.5.1, above) necessary to allow Contractor to
commence and fully complete the construction of the Tenant Improvements (the
"Permits"), and, in connection therewith, Tenant shall coordinate with Landlord
in order to allow Landlord, at its option, to take part in all phases of the
permitting process, and shall supply Landlord, as soon as possible, with all
plan check numbers and dates of submittal.
3.5.3 Other Terms. Notwithstanding anything to the contrary set
forth in this Section 3.5, Tenant hereby agrees that neither Landlord nor
Landlord's consultants shall be responsible for obtaining any building permit or
certificate of occupancy for the Premises and
EXHIBIT E
-4-
<PAGE> 47
that the obtaining of the same shall be Tenant's responsibility (even as to the
Structural Permits); provided, however, that Landlord shall, in any event,
cooperate with Tenant in executing permit applications and performing other
ministerial acts reasonably necessary to enable Tenant to obtain any such permit
or certificate of occupancy. No changes, modifications or alterations in the
Approved Working Drawings may be made without the prior written consent of
Landlord, provided that Landlord may withhold its consent, in its sole
discretion, to any change in the Approved Working Drawings, if such change would
directly or indirectly delay the Substantial Completion of the Premises.
3.6 Time Deadlines. Tenant shall use its best, good faith, efforts
and all due diligence to cooperate with Architect, the Engineers, and Landlord
to complete all phases of the Construction Drawings and the permitting process
and to receive the permits, and with Contractor for approval of the Cost
Proposal, as soon as possible after the execution of the Lease, and, in that
regard, shall meet with Landlord on a weekly basis to discuss Tenant's progress
in connection with the same. The applicable dates for approval of items, plans
and drawings and selection of a contractor as described in this Section 3,
Section 4, below, and in this Tenant Work Letter are set forth and further
elaborated upon in Schedule 1 (the "Time Deadlines"), attached hereto. Tenant
agrees to comply with the Time Deadlines.
SECTION 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1 Contractor. A contractor retained by Landlord, shall construct
the Tenant Improvements. Such contractor ("Contractor") shall be selected by
Tenant from a list of general contractors supplied by Landlord, and Tenant shall
deliver notice of its selection of the Contractor to Landlord on or before the
date set forth in Schedule 1.
4.2 Cost Proposal. After the Approved Working Drawings are signed
by Landlord and Tenant, Landlord shall provide Tenant with a cost proposal in
accordance with the Approved Working Drawings, which cost proposal shall
include, as nearly as possible, the cost of all Tenant Improvement Allowance
Items to be incurred by Tenant in connection with the construction of the Tenant
Improvements (the "Cost Proposal"). Notwithstanding the foregoing, portions of
the cost of the Tenant Improvements may be delivered to Tenant as such portions
of the Tenant Improvements are priced by Contractor (on an individual
item-by-item or trade-by-trade basis), even before the Approved Working Drawings
are completed (the "Partial Cost Proposal") for purposes of facilitating the
early purchase of items and construction of the same. Tenant shall approve and
deliver the Cost Proposal to Landlord within five (5) business days of the
receipt of the same, or, as to a Partial Cost Proposal within two (2) business
days of receipt of the same, and upon receipt of the same by Landlord, Landlord
shall be released by Tenant to purchase the items set forth in the Cost Proposal
or Partial Cost Proposal, as the case may be, and to commence the construction
relating to such items. The date by which Tenant must approve and deliver the
Cost Proposal or the last Partial Cost Proposal to Landlord, as the case may be,
shall be known hereafter as the "Cost Proposal Delivery Date". The total of all
Partial Cost Proposals, if any, shall be known as the Cost Proposal.
4.3 Construction of Tenant Improvements by Landlord's Contractor
under the Supervision of Landlord.
4.3.1 Over-Allowance Amount. On the Cost Proposal Delivery Date,
Tenant shall deliver to Landlord cash in an amount (the "Over-Allowance Amount")
equal to the difference between (i) the amount of the Cost Proposal and (ii) the
amount of the Tenant Improvement Allowance (less any portion thereof already
disbursed by Landlord, or in the process of being disbursed by Landlord, on or
before the Cost Proposal Delivery Date). The Over-Allowance Amount shall be
disbursed by Landlord prior to the disbursement of any then remaining portion of
the Tenant Improvement Allowance, and such disbursement shall be pursuant to the
same procedure as the Tenant Improvement Allowance. In the event that, after the
Cost Proposal Date, any revisions, changes, or substitutions shall be made to
the Construction Drawings or the Tenant Improvements, any additional costs which
arise in connection with such revisions, changes or substitutions or any other
additional costs shall be paid by Tenant to Landlord immediately upon Landlord's
request as an addition to the Over-Allowance Amount.
EXHIBIT E
-5-
<PAGE> 48
4.3.2 Landlord's Retainment of Contractor. After Tenant selects
the Contractor, Landlord shall independently retain Contractor to construct the
Tenant Improvements in accordance with the Approved Working Drawings and the
Cost Proposal and Landlord shall supervise the construction by Contractor, and
Tenant shall pay a construction supervision and management fee (the "Landlord
Supervision Fee") to Landlord in an amount equal to the product of (i) ten
percent (10.0%) and (ii) an amount equal to the Tenant Improvement Allowance
plus the Over-Allowance Amount (as such Over-Allowance Amount may increase
pursuant to the terms of this Tenant Work Letter).
4.3.3 Contractor's Warranties and Guaranties. Landlord hereby
assigns to Tenant all warranties and guaranties by Contractor relating to the
Tenant Improvements, and Tenant hereby waives all claims against Landlord
relating to, or arising out of the construction of, the Tenant Improvements.
Such warranties and guaranties of Contractor shall guarantee that the Tenant
Improvements shall be free from any defects in workmanship and materials for a
period of not less than one (1) year from the date of completion thereof, and
Contractor shall be responsible for the replacement or repair, without
additional charge, of the Tenant Improvements that shall become defective within
one (1) year after Substantial Completion of the Premises. The correction of
such work shall include, without additional charge, all additional expenses and
damages in connection with such removal or replacement of all or any part of the
Tenant Improvements.
4.3.4 Tenant's Covenants. Tenant hereby indemnifies Landlord for
any loss, claims, damages or delays arising from the actions of Architect on the
Premises or in the Project. Within ten (10) days after completion of
construction of the Tenant Improvements, Tenant shall cause Contractor and
Architect to 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 furnish a
copy thereof to Landlord upon recordation, failing which, Landlord may itself
execute and file the same on behalf of Tenant as Tenant's agent for such
purpose. In addition, immediately after the Substantial Completion of the
Premises, Tenant shall have prepared and delivered to the Project management
office a copy of the "as built" plans and specifications (including all working
drawings) for the Tenant Improvements.
SECTION 5
COMPLETION OF THE TENANT IMPROVEMENTS;
LEASE COMMENCEMENT DATE
Except as provided in this Section 5, the Lease Commencement Date shall
occur as set forth in Article 2 of this Lease. If there shall be a delay or
there are delays in the Substantial Completion of the Premises or in the
occurrence of any of the other conditions precedent to the Lease Commencement
Date, as set forth in Article 2 of this Lease, as a direct, indirect, partial,
or total result of:
5.1 Tenant's failure to comply with the Time Deadlines;
5.2 Tenant's failure to timely approve any matter requiring
Tenant's approval;
5.3 A breach by Tenant of the terms of this Tenant Work Letter or
the Lease;
5.4 Changes in any of the Construction Drawings after disapproval
of the same by Landlord or because the same do not comply with Code or other
applicable laws;
5.5 Tenant's request for changes in the Approved Working Drawings;
5.6 Tenant's requirement for materials, components, finishes or
improvements which are not available in a commercially reasonable time given the
anticipated date of Substantial Completion of the Premises, as set forth in the
Lease, or which are different from, or not included in, the Standard Improvement
Package;
5.7 Changes to the Base, Shell and Core work or Landlord Work
required by the Approved Working Drawings; or
5.8 Any other acts or omissions of Tenant, or its agents, or
employees;
EXHIBIT E
-6-
<PAGE> 49
then, notwithstanding anything to the contrary set forth in the Lease or this
Tenant Work Letter and regardless of the actual date of the Substantial
Completion of the Premises, the Lease Commencement Date shall be deemed to be
the date the Lease Commencement Date would have occurred if no Tenant delay or
delays, as set forth above, had occurred.
SECTION 6
MISCELLANEOUS
6.1 Tenant's Entry Into the Premises Prior to Substantial
Completion. Provided that Tenant and its agents do not interfere with
Contractor's work in the Project and the Premises, Contractor shall allow Tenant
access to the Premises prior to the Substantial Completion of the Premises (but
if such access is to be prior to the issuance of the Temporary Certificate of
Occupancy for the Building, then such access shall be only as allowed by the
City of Santa Monica) for the purpose of Tenant installing overstandard
equipment or fixtures (including Tenant's data and telephone equipment) in the
Premises. Prior to Tenant's entry into the Premises as permitted by the terms of
this Section 6.1, Tenant shall submit a schedule to Landlord and Contractor, for
their approval, which schedule shall detail the timing and purpose of Tenant's
entry. Tenant shall hold Landlord harmless from and indemnify, protect and
defend Landlord against any loss or damage to the Project or Premises and
against injury to any persons caused by Tenant's actions pursuant to this
Section 6.1.
6.2 Freight Elevators. Landlord shall, consistent with its
obligations to other tenants of the Building, and subject to the needs of
Landlord with respect to the construction of the Base, Shell and Core of the
Building, make the freight elevator reasonably available to Tenant in connection
with initial decorating, furnishing and moving into the Premises.
6.3 Tenant's Representative. Tenant has designated Rick Krieger as
its sole representative 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.
6.4 Landlord's Representative. Landlord has designated Brenda
Tiefenthaler 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.
6.5 Time of the Essence in This Tenant Work Letter. Unless
otherwise indicated, all references herein to a "number of days" shall mean and
refer to calendar days. In all instances where Tenant is required to approve or
deliver an item, if no written notice of approval is given or the item is not
delivered within the stated time period, at Landlord's sole option, at the end
of such period the item shall automatically be deemed approved or delivered by
Tenant and the next succeeding time period shall commence.
6.6 Tenant's Lease Default. Notwithstanding any provision to the
contrary contained in this Lease, if an event of default as described in Section
19.1 of this Lease, or a default by Tenant under this Tenant Work Letter, has
occurred at any time on or before the Substantial Completion of the Premises,
then (i) in addition to all other rights and remedies granted to Landlord
pursuant to the Lease, Landlord shall have the right to withhold payment of all
or any portion of the Tenant Improvement Allowance and/or Landlord may cause
Contractor to cease the construction of the Premises (in which case, Tenant
shall be responsible for any delay in the Substantial Completion of the Premises
caused by such work stoppage as set forth in Section 5.3 of this Tenant Work
Letter), and (ii) all other obligations of Landlord under the terms of this
Tenant Work Letter shall be forgiven until such time as such default is cured
pursuant to the terms of the Lease.
EXHIBIT E
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<PAGE> 50
SCHEDULE 1 TO EXHIBIT E
TIME DEADLINES
Dates of Actions to be Performed
A. March 21, 2000: Tenant to deliver Final Working Drawings to
Landlord.
B. April 4, 2000: Landlord to deliver complete Cost Proposal to
Tenant.
C. April 13, 2000: Tenant to approve all or a portion of Cost
Proposal and deliver all or a portion of Cost Proposal to Landlord, as
applicable.
D. April 17, 2000: Tenant selection of Contractor; Landlord to
release Contractor to commence work.
SCHEDULE 1 TO
EXHIBIT E
-1-
<PAGE> 51
EXHIBIT F
FORM OF LETTER OF CREDIT
(Letterhead of a money center bank
acceptable to the Landlord)
_________________, 2000
WATER GARDEN COMPANY L.L.C.
2425 Olympic Boulevard
Suite 520-East
Santa Monica, California 90404
Attention: Building Manager
Ladies and Gentlemen:
We hereby establish our Irrevocable Letter of Credit and authorize you
to draw on us at sight for the account of Integrated Information Systems, Inc.,
a Delaware corporation ("Integrated"), the aggregate amount of Two Hundred
Thirty Thousand and No/100 Dollars ($230,000.00).
Funds under this Letter of Credit are available to the beneficiary
hereof as follows:
Any or all of the sums hereunder may be drawn down at any time and from
time to time from and after the date hereof by any two officers with the title
of vice president or above, or Water Garden Company L.L.C., a Delaware limited
liability company ("Beneficiary"), or Trammel Crow Company, when accompanied by
this Letter of Credit and a written statement signed by a representative of
Beneficiary, certifying that such moneys are due and owing to Beneficiary, and a
sight draft executed and endorsed by a representative of Beneficiary.
This Letter of Credit is transferable in its entirety. Should a
transfer be desired, such transfer will be subject to the return to us of this
advice, together with written instructions.
The amount of each draft must be endorsed on the reverse hereof by the
negotiating bank. We hereby agree that this Letter of Credit shall be duly
honored upon presentation and delivery of the certification specified above.
This Letter of Credit shall expire on ______________.
Notwithstanding the above expiration date of this Letter of Credit, the
term of this Letter of Credit shall be automatically renewed for successive,
additional one (1) year periods unless, at least thirty (30) days prior to any
such date of expiration, the undersigned shall give written notice to each of
the parties listed in Section 29.13 of that certain Lease dated March ___, 2000,
between Integrated and Beneficiary, by certified mail, return receipt requested
and at the addresses set forth in such Section 29.13, or at such other address
as may be given to the undersigned by Beneficiary, that this Letter of Credit
will not be renewed.
This Letter of Credit is governed by the Uniform Customs and Practice
for Documentary Credits (1983 Revision), International Chamber of Commerce
Publication 400.
Very truly yours,
(Name of Issuing Bank)
By:__________________________________
EXHIBIT F
-1-
<PAGE> 1
OFFICE LEASE
between
DEERFIELD HOLDINGS, L.P.
a Georgia limited partnership,
Landlord
and
INTEGRATED INFORMATION SYSTEMS, INC.,
a Delaware corporation,
Tenant
__________, 2000
<PAGE> 2
LEASE SUMMARY
DATE: ___________________, 2000
LANDLORD: DEERFIELD HOLDINGS, L.P., a Georgia limited partnership
TENANT: INTEGRATED INFORMATION SYSTEMS, INC., a Delaware corporation
SUITE NUMBER: 100
PREMISES AND
FLOOR(S): 12,306 square feet of Rentable Area located on the First (1st)
Floor
[SECTION 1.1(b)]
<TABLE>
<CAPTION>
AREA OF THE PREMISES: FLOOR USABLE AREA RENTABLE AREA
----- ----------- -------------
<S> <C> <C> <C>
[SECTION 1.2]
1 10,632 12,306
TOTAL 10,632 12,306
----- ====== ====== ======
</TABLE>
RENTABLE AREA OF THE BUILDING: 101,776 rentable square feet
[SECTION 1.3(a)]
TENANT'S PERCENTAGE SHARE: 12.09 %
[SECTION 1.3(b)]
LEASE TERM: Five (5) years
[SECTION 2.1
AND EXHIBIT "E"]
COMMENCEMENT DATE: June 1, 2000
[SECTION 2.1]
EXPIRATION DATE: April 30, 2005
[SECTION 2.1]
BASE RENTAL:
[SECTION 3.1]
<TABLE>
<CAPTION>
Portion Annual Base Annual Base Monthly Base
of Lease Term Rental/RSF Rental Rental
<S> <C> <C> <C>
Year 1 $20.75 $255,349.56 $21,279.13
2 $21.04 $258,918.24 $21,576.52
3 $21.33 $262,487.04 $21,873.92
4 $21.63 $266,178.84 $22,181.57
5 $21.93 $269,870.64 $22,489.22
</TABLE>
OPERATING EXPENSES STOP: $6.50 (per square foot of Rentable Area of the
Building)
<PAGE> 3
<TABLE>
<S> <C>
[SECTION 3.3]
COMMITMENT DEPOSIT: $21,279.13
[SECTION 3.4]
SECURITY DEPOSIT: $ N/A
[SECTION 3.5]
USE: [SECTION 5.1] General office use.
TENANT'S BROKER AND Carter & Associates
ADDRESS FOR 1275 Peachtree Street, N.E.
Suite 100
NOTICES: Atlanta, Georgia 30367
[SECTION 9.1] Facsimile: 404-888-3308
Attention: John Flack
TENANT'S ADDRESS FOR
NOTICES: Integrated Information Systems, Inc.
[SECTION 9.2(a)] 1560 W. Fountainhead Parkway
Suite 200
Tempe, Arizona 85282
Facsimile: (480)317-8010
Attention: Corporate Counsel
WITH A COPY TO: Integrated Information Systems, Inc.
100 Deerfield Point
12725 Morris Road Extension
Suite 100
Alpharetta, Georgia 30004
Attention: Mike Wells
LANDLORD'S ADDRESS FOR Deerfield Holdings, L.P.
NOTICES: 50 Glenlake Parkway
[SECTION 9.2(a)] Suite 570
Atlanta, Georgia 30328
Facsimile: 770-395-0069
Attention: Ed Bishop
WITH A COPY TO: Parker, Hudson, Rainer & Dobbs LLP
1500 Marquis Two Tower
285 Peachtree Center Avenue, NE
Atlanta, Georgia 30303
Attention: Kenneth H. Kraft, Esq.
Facsimile: (404)-522-8409
PARKING SPACES: 4 (four) spaces for each 1,000 square feet of Usable Area of the Premises
[SECTION 9.15]
LANDLORD'S ALLOWANCE: $21.00 per square foot of Rentable Area of Premises, for total Landlord's
Allowance of $258,426.00.
[EXHIBIT "C" AND
SECTION 3.02]
</TABLE>
<PAGE> 4
OFFICE LEASE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
I. PREMISES AND OTHER DEFINITIONS .................................................... - 1 -
1.1 Premises ................................................................. - 1 -
1.2 Area of the Premises ..................................................... - 2 -
1.3 Tenant's Percentage Share ................................................ - 2 -
1.4 "Operating Expenses" ..................................................... - 2 -
1.5 "Prime Rate" ............................................................. - 4 -
1.6 "Property Taxes" ......................................................... - 4 -
II. TERM, ASSIGNMENT AND SUBLETTING ................................................... - 5 -
2.1 Term ..................................................................... - 5 -
2.2 Tenant Acceptance Agreement .............................................. - 5 -
2.3 Removal of Tenant's Personal Property .................................... - 5 -
2.4 Holding Over ............................................................. - 6 -
2.5 Assignment and Subleasing ................................................ - 6 -
2.6 Transfer of Tenants ...................................................... - 8 -
2.7 Right of Recapture ....................................................... - 8 -
III. RENT, RENT ADJUSTMENT AND DEPOSITS ................................................ - 8 -
3.1 Base Rental .............................................................. - 8 -
3.2 [INTENTIONALLY DELETED] .................................................. - 8 -
3.3 Operating Expenses and Property Taxes .................................... - 8 -
3.4 Commitment Deposit ....................................................... - 10 -
3.5 Security Deposit ......................................................... - 10 -
3.6 Payments ................................................................. - 10 -
3.7 Rent for Partial Months .................................................. - 10 -
IV. PREPARATION, MAINTENANCE AND REPAIR OF PREMISES ................................... - 11 -
4.1 Preparation of the Premises .............................................. - 11 -
4.2 Repairs by Tenant ........................................................ - 11 -
4.3 Repairs by Landlord ...................................................... - 11 -
4.4 Alterations by Tenant .................................................... - 11 -
4.5 Discharge of Liens ....................................................... - 12 -
4.6 Damage and Destruction ................................................... - 12 -
4.7 Eminent Domain ........................................................... - 14 -
4.8 Reports of Defects ....................................................... - 14 -
4.9 Landlord's Right to Enter Premises ....................................... - 14 -
V. USE AND SERVICES .................................................................. - 15 -
5.1 Use ...................................................................... - 15 -
5.2 Services ................................................................. - 15 -
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
VI. COMPLIANCE WITH LAWS .............................................................. - 17 -
6.1 Tenant's Compliance with Laws ............................................ - 17 -
6.2 Rent Control ............................................................. - 17 -
6.3 Building Alterations ..................................................... - 17 -
6.4 Taxes Payable by Tenant .................................................. - 17 -
VII. INSURANCE, LIABILITY AND INDEMNIFICATION .......................................... - 18 -
7.1 Insurance ................................................................ - 18 -
7.2 Waiver of Subrogation .................................................... - 18 -
7.3 Indemnity ................................................................ - 18 -
7.4 Liability of Landlord .................................................... - 19 -
7.5 Limitation of Liability .................................................. - 20 -
VIII. EVENT OF DEFAULT AND RELATED REQUIREMENTS ......................................... - 20 -
8.1 Default and Remedies ..................................................... - 20 -
8.2 Insolvency or Bankruptcy ................................................. - 24 -
8.3 Late Payments ............................................................ - 24 -
8.4 Attorneys' Fees for Collection ........................................... - 25 -
8.5 Waiver of Homestead ...................................................... - 25 -
8.6 No Waiver of Rights ...................................................... - 25 -
IX. MISCELLANEOUS PROVISIONS .......................................................... - 25 -
9.1 Broker ................................................................... - 25 -
9.2 Addresses and Notices .................................................... - 25 -
9.3 Entire Agreement and Exhibits ............................................ - 26 -
9.4 Subordination and Attornment ............................................. - 26 -
9.5 Estoppel Certificate ..................................................... - 27 -
9.6 Severability ............................................................. - 27 -
9.7 Captions ................................................................. - 27 -
9.8 Successors and Assigns ................................................... - 27 -
9.9 Georgia Law .............................................................. - 28 -
9.10 Time is of the Essence ................................................... - 28 -
9.11 Execution ................................................................ - 28 -
9.12 Force Majeure ............................................................ - 28 -
9.13 Multiple Tenants ......................................................... - 28 -
9.14 Mutual Warranty of Authority ............................................. - 28 -
9.15 Parking Rights ........................................................... - 28 -
9.16 No Recordation of Lease .................................................. - 28 -
9.17 Hazardous Substances ..................................................... - 29 -
9.18 Names .................................................................... - 30 -
9.19 Shared Communications Services ........................................... - 30 -
9.20 Ownership and Management Disclosure ...................................... - 30 -
9.21 Effect of Lease Termination .............................................. - 30 -
9.22 Special Stipulations ..................................................... - 30 -
</TABLE>
- ii -
<PAGE> 6
SCHEDULE OF EXHIBITS
EXHIBIT "A": Floor Plan(s)
ATTACHMENT "A-1" First Refusal Space
ATTACHMENT "A-2" 200 Building First Refusal Space
EXHIBIT "B": Tenant Acceptance Agreement
EXHIBIT "C": Tenant Improvement Agreement
ATTACHMENT "C-1" Base Building Condition
ATTACHMENT "C-2": Schedule for Planning, Pricing and Construction of
Tenant Improvements
EXHIBIT "D": Rules and Regulations
EXHIBIT "E": Special Stipulations
- iii -
<PAGE> 7
OFFICE LEASE
THIS LEASE AGREEMENT (the "Lease"), dated as of ___________, 2000, made by
and between the undersigned Landlord and the undersigned Tenant;
W I T N E S S E T H T H A T:
Landlord, for and in consideration of the rents, covenants, agreements,
and stipulations herein contained, to be paid, kept, and performed by Tenant,
has leased and rented, and by these presents hereby leases and rents unto
Tenant, and Tenant hereby leases upon the terms and conditions herein contained,
the Premises described in Section 1.1(b) below, with no easement for light or
air included in the Premises. This Lease shall create the relationship of
landlord and tenant between Landlord and Tenant; no estate shall pass out of
Landlord, and Tenant has only a usufruct which is not subject to levy and sale.
So long as Tenant shall observe and perform the covenants and agreements binding
on it hereunder and subject to the terms and provisions hereof, Tenant shall at
all times during the Lease Term peacefully and quietly have and enjoy possession
of the Premises.
This Lease shall be applied and construed in a commercially reasonable
manner. Whenever herein the consent, approval or concurrence of either Landlord
or Tenant shall be required for action or forbearance by the other party, it is
agreed that such consent, approval or concurrence shall not be unreasonably
withheld, delayed or conditioned, except as to matters specified as being in the
discretion or sole discretion of the party from which the consent, approval or
concurrence is required. Discretionary consent, approval or concurrence may be
withheld, delayed or conditioned without regard to any standard of
reasonableness.
I.
PREMISES AND OTHER DEFINITIONS
Unless the context otherwise specifies or requires, the following terms
shall have the meanings herein specified:
1.1 Premises. Terms used in defining Premises are:
(a) The term "Building" shall mean 100 Deerfield Point, 12725 Morris
Road Extension, Alpharetta, Georgia 30004, which consists of a an office
building with four (4) floors of office space.
<PAGE> 8
(b) The term "Premises" shall mean that portion of the Building
located on the floor(s) of the Building specified in the Lease Summary,
which portion is shown on the floor plan(s) attached hereto as Exhibit
"A". Upon any expansion or contraction of the Premises pursuant to the
terms of this Lease or other agreement of the parties, the term "Premises"
shall be deemed to apply to such space as adjusted by such expansion or
contraction.
1.2 Area of the Premises. Terms used in defining the area of the Premises
are:
(a) The "Rentable Area" of the Premises for all purposes of this
Lease shall be the agreed quantity of square footage so designated in the
Lease Summary. The "Rentable Area" or any space on any multi-tenant floor
of the Building shall be determined by multiplying the Usable Area of such
space by a factor of 1.1575 and the "Rentable Area" of any space on any
floor of the Building leased entirely to a single tenant shall be
determined by multiplying the Usable Area of such space by a factor of
1.1085.
(b) The "Usable Area" of the Premises for all purposes of this Lease
shall be the agreed quantity of square footage so designated in the Lease
Summary. The "Usable Area" of the Premises and of the Building shall be
the "usable area" thereof as defined and calculated pursuant to the
Standard Method for Measuring Floor Area in Office Buildings (ANSI/BOMA
Z65.1-1996).
1.3 Tenant's Percentage Share. Terms used in defining Tenant's Percentage
Share are:
(a) The "Rentable Area" of the Building is as set forth in the Lease
Summary attached to this Lease.
(b) Based upon the initial Premises, the term "Tenant's Percentage
Share" means and shall be equal to the percentage stated in the Lease
Summary. Landlord and Tenant acknowledge that Tenant's Percentage Share
has been obtained by dividing the Rentable Area of the Premises by
ninety-five percent (95%) of the agreed Rentable Area of the Building, and
multiplying the quotient by 100. In the event Tenant's Percentage Share is
changed during a calendar year by reason of a change in the Rentable Area
of the Premises or the Rentable Area of the Building, Tenant's Percentage
Share shall thereafter mean the result obtained by using the revised
Rentable Area in the foregoing formula. If the Tenant's Percentage Share
changes during a calendar year, Tenant's Percentage Share for the calendar
year shall be determined on the basis of the number of days during such
calendar year at each percentage share.
1.4 "Operating Expenses" shall mean all costs paid or incurred by Landlord
in the management, operation, maintenance, repair and security of the Building
and related amenities in a prudent, businesslike and commercially reasonable
manner, including, without limitation, the following:
(a) Costs and expenses for the maintenance and repair of the
Building and the personal property used in connection therewith,
including, without limitation, (i) the heating, ventilating, and air
conditioning equipment, (ii) plumbing and electrical systems, (iii) light
bulbs and glass, including replacement thereof, and (iv) elevators.
(b) Cleaning and janitorial costs and expenses, including window
cleaning expenses, for the Building.
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<PAGE> 9
(c) Landscaping and grounds maintenance costs and expenses.
(d) Utility costs and expenses including, without limitation, those for
electricity and other fuels and forms of power or energy, water charges, sewer
and waste disposal.
(e) Costs and expenses of redecorating, repainting, and recarpeting the
common areas of the Building; provided, however, that, except as specified in
subsections (f) and (j) hereof, the costs of structural changes to the Building
which should be capitalized in accordance with sound accounting principles shall
not be allocated or charged to the Premises without Tenant's prior written
approval.
(f) Costs of all repairs, alterations, additions, changes, replacements,
and other items required by any law or governmental regulation imposed after the
date of this Lease including structural changes, regardless of whether such
costs, when incurred, are classified as capital expenditures.
(g) Cost of wages and salaries of all persons engaged in the management,
operation, maintenance, repair and security of the Building, and so-called
fringe benefits, including social security taxes, unemployment insurance taxes,
costs for providing coverage for disability benefits, costs of any pensions,
hospitalization, welfare or retirement plans, or any other similar or like
expense incurred under the provisions of any collective bargaining agreement,
costs of uniforms, and all other costs or expenses which the Landlord pays to or
on behalf of employees engaged in the management, operation, maintenance, repair
and security of the Building. This item of Operating Expenses shall include,
without limitation, executive salaries, expenses, fringe benefits and other
compensation to management personnel to the extent reasonably and directly
allocable to the management, operation maintenance, repair and security of the
Building.
(h) Charges of any independent contractor which, under contract with the
Landlord or its manager or representatives, does any of the work of operating,
maintaining, repairing or providing security for the Building.
(i) All reasonable legal and accounting fees and expenses, including,
without limitation, such fees and expenses related to seeking or obtaining
reductions in and/or refunds of Property Taxes.
(j) Amortization over such period of time as Landlord shall reasonably
determine, with interest at a rate per annum equal to the greater of (i) the
Prime Rate plus two percentage points or (ii) the rate Landlord is paying for
funds borrowed for the purpose of financing the capital improvements in
question, of capital expenditures for capital improvements made by Landlord
after completion of the Building where such capital improvements are for the
purpose of, or result in, reducing Operating Expenses.
(k) Landlord's insurance costs and expenses for all types of insurance
carried by Landlord with respect to the Building.
(l) Security service costs and expenses.
(m) Management fees and expenses.
(n) Property Taxes.
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<PAGE> 10
(o) Such other costs, fees and expenses paid by Landlord from time to
time, in connection with the management, operation, maintenance, repair and
security of the building.
Operating Expenses shall not include (i) depreciation on the Building other than
depreciation on exterior window blinds provided by Landlord and carpeting in
public corridors and common areas, (ii) tenant improvement costs, (iii) real
estate brokers' commissions, (iv) interest and capital items other than those
referred to above, and (v) the cost of special services rendered to a particular
tenant of the Building, which are payable by such tenant. If the average
occupancy level was less than ninety-five (95%) percent of the total Rentable
Area of the Building during a calendar year, the actual Operating Expenses
(exclusive of Property Taxes for this purpose only) for that calendar year shall
be adjusted to equal Landlord's reasonable estimate of Operating Expenses had
ninety-five (95%) percent of the total Rentable Area of the Building been
occupied. For purposes of determining Operating Expenses for any calendar year,
Property Taxes shall be determined as if the Building were fully assessed,
regardless of the actual amount of Property Taxes. Landlord and Tenant
acknowledge that certain of the costs of management, operations, maintenance,
repair and security of the development from time to time shall be allocated
among and shared by the owners of two or more of the buildings in the
development (including the Building). The determination of such costs and their
allocation shall be made by Landlord in accordance with sound accounting
principles. Accordingly, the term "Operating Expenses", as used in this Lease,
from time to time shall include some costs, expenses, and taxes enumerated above
which were incurred with respect to other buildings in the development but which
are allocated to and shared by the Building in accordance with the foregoing.
Notwithstanding the foregoing, Tenant understands and agrees that its rights to
use other portions of the development of which the Building is a part are those
available to the general public and that this Lease does not grant to it
additional rights of use.
1.5 "Prime Rate" shall mean the rate of interest announced from time to
time by Wachovia Bank of Georgia, N.A. as its prime rate of interest. An
increase or decrease in the Prime Rate shall result in a corresponding increase
or decrease in the rate of interest being charged hereunder and shall take
effect on the day the increase or decrease in the Prime Rate is made effective.
In the event that Wachovia Bank of Georgia, N.A. shall abandon or abolish the
practice of publishing the Prime Rate, or should the same become
unascertainable, Landlord shall designate a comparable reference rate which
shall then be deemed to be the Prime Rate under this Lease.
1.6 "Property Taxes" shall mean the following: (a) personal property ad
valorem taxes imposed upon the furniture, fixtures, machinery, equipment,
apparatus, systems, and appurtenances used in connection with the Building for
the operation thereof; (b) real estate ad valorem taxes, assessments, impact
fees, sewer charges and transit taxes; and (c) any other federal, state, or
local governmental charge, general, special, ordinary or extraordinary (but not
including income or franchise taxes or any other taxes imposed upon or measured
by Landlord's income or profits, unless the same shall be imposed in lieu of
real estate ad valorem taxes) which may now or hereafter be levied or assessed
against the Building and the land underlying the Building or the rents derived
from the Building (in the case of special taxes or assessments which may be
payable in installments, only the amount of installments paid during a calendar
year shall be included in the taxes for that year).
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<PAGE> 11
II.
TERM, ASSIGNMENT AND SUBLETTING
2.1 Term. Tenant takes and accepts the Premises from Landlord in their
present condition and as suited for the use intended by Tenant, except for such
improvements as may be expressly provided for in Section 4.1, for the term
described below (the "Initial Lease Term"). The Initial Lease Term shall
commence on the date specified in the Lease Summary as the Commencement Date
(the "Commencement Date"), the date on which Landlord obtains a temporary or
permanent certificate of occupancy (or other documentation permitting legal
occupancy of the Premises) for the Premises and shall end at 6:00 p.m. Atlanta
local time on the date specified in the Lease Summary as the Expiration Date
(the "Expiration Date") (the Initial Lease Term and any and all extensions
thereof to be collectively referred to as the "Lease Term") The rental and other
payments due hereunder from Tenant (other than payments for tenant improvement
work as set forth in the Tenant Improvement Agreement) shall commence on the
Commencement Date. If for any reason whatsoever the Premises are not
substantially completed by the Commencement Date, or if Landlord, for any reason
whatsoever, cannot deliver possession of the Premises to Tenant on the
Commencement Date, this Lease shall not be void or voidable, nor shall Landlord
be liable to Tenant for any resulting loss or damages. If Landlord is unable to
deliver possession of the Premises by the Commencement Date set forth in the
Lease Summary for any reason other than delay caused by Tenant (including
changes in the Drawings and Specifications), the Commencement Date and the
Expiration Date shall both be postponed by the number of days of delivery of
possession of the Premises is so delayed. Such deferral shall be Tenant's sole
remedy for Landlord's failure to deliver possession of the Premises. Except as
aforesaid, no delay of possession shall operate to relieve Tenant of Tenant's
obligations to Landlord (including the payment of rent and other amounts) as
provided in this Lease. Notwithstanding the foregoing, if possession of the
Premises has not been delivered to Tenant within six (6) months following the
Commencement Date, for any reason whatsoever, either Landlord or Tenant, at its
option at any time thereafter but prior to the delivery of possession, may
terminate this Lease by notice to the other, and Landlord and Tenant shall
thereupon be released from all obligations under this Lease. Landlord shall be
deemed to have delivered possession of the Premises for Tenant's occupancy and
Base Rental shall begin accruing upon the later of the following dates to occur
(i) the Commencement Date, or (ii) the date upon which Landlord has notified
Tenant in writing that Landlord has obtained a temporary or permanent
certificate of occupancy (or other documentation permitting legal occupancy of
the Premises) and that the Tenant Improvements are substantially complete,
subject only to completion of items customarily classified as "punchlist items"
in the construction industry (such date hereinafter referred to as the
"Occupancy Date").
2.2 Tenant Acceptance Agreement. Within thirty (30) days after the
Occupancy Date, Tenant shall execute and deliver to Landlord a Tenant Acceptance
Agreement in the form attached hereto as Exhibit "B". Tenant may state in such
Tenant Acceptance Agreement any defects in the Premises remaining to be repaired
or completed by Landlord, and Tenant thereby shall preserve its objection to
such listed defects. Tenant shall have waived objection to any defects not so
listed in the Tenant Acceptance Agreement except that Tenant shall retain the
right to object to latent defects not subject to detection upon reasonable
inspection of the Premises prior to occupancy thereof, provided that objections
to latent defects not disclosed in writing to Landlord within thirty (30) days
subsequent to the Occupancy Date shall be deemed waived.
2.3 Removal of Tenant's Personal Property. Upon or prior to the
termination of this Lease, Tenant shall remove from the Premises and the
Building all its personal property (including, without limitation, all wiring
and cabling installed by Tenant or its contractors), and peaceably surrender the
Premises to Landlord in the same condition as on the Occupancy Date, normal wear
and tear excepted. Such property of Tenant not
-5-
<PAGE> 12
so removed from the Premises or the Building upon the termination of this Lease
shall be considered abandoned by Tenant and may be disposed of by Landlord in
any manner whatsoever without accounting to Tenant for same or being liable in
any way to Tenant for such disposition. Upon surrender of possession of the
Premises, Tenant shall deliver to Landlord all keys to the Premises.
2.4 Holding Over. Tenant may remain in possession of the Premises after
the Expiration Date of this Lease for a period of up to three months on the same
terms and conditions under the Lease as exist on the Expiration Date (except
that Base Rental and Additional Rental for such holdover month shall be
increased to one hundred twenty-five percent (125%) of the Base Rental and
Additional Rental in effect immediately prior to the Expiration Date), so long
as Tenant provides Landlord written notice of such holdover at least six (6)
months prior to the Expiration Date. Such notification from Tenant shall have
the effect of extending the term of the Lease for the period set forth in the
notification, subject to the aforesaid three (3) month limitation; if no length
of the extension period is set forth in such notice, then such extension shall
be deemed to be for a period of three (3) months. Aside from the foregoing,
there shall be no extension or renewal of this Lease by operation of law, and if
Tenant remains in possession of the Premises after the termination of this Lease
(as it may be extended pursuant to the first sentence of this Section 2.4)
without written authorization executed by Landlord and Tenant, but with the
acquiescence or consent of Landlord, Tenant shall be deemed to be occupying the
Premises under a month-to-month periodic tenancy at a monthly rental equal to
one hundred fifty (150%) percent of the Base Rental in effect during the last
month of the Lease Term, plus all Additional Rental provided for in this Lease,
and otherwise subject to all the covenants and provisions of this Lease insofar
as the same are applicable to a month-to-month periodic tenancy. Landlord and
Tenant agree that any such periodic tenancy may be terminated by thirty (30)
days prior written notice by either party to the other party. If Tenant remains
in possession after termination of this Lease (as it may be extended pursuant to
the first sentence of this Section 2.4) without Landlord's acquiescence or
consent, Tenant thereupon shall be deemed a tenant-at-sufferance subject to
summary eviction as provided by law.
2.5 Assignment and Subleasing.
(a) Tenant shall not, without Landlord's prior written consent,
which consent shall not be unreasonably withheld, (i) assign, convey,
mortgage, pledge, encumber, or otherwise transfer (whether voluntarily, by
operation of law, or otherwise) this Lease or any interest thereunder;
(ii) allow any transfer thereof or any lien upon Tenant's interest by
operation of law; (iii) sublease the Premises or any part thereof; or (iv)
permit the use or occupancy of the Premises or any portion thereof by any
party other than Tenant; and any attempt to consummate any of the
foregoing without Landlord's consent shall be void.
(b) Notwithstanding anything herein to the contrary, if at any time
or from time to time during the Lease Term, Tenant desires to sublease all
or a portion of the Premises or assign the Lease, Tenant shall notify
Landlord in writing (hereinafter referred to in this Section 2.5 as the
"Notice") of the terms of the proposed subleasing or assignment, the
identity of the proposed assignee or sublessee, the area proposed to be
subleased (if a sublease is proposed), and such other information as
Landlord may specify to evaluate Tenant's request. Landlord shall then
have the options: (i) to sublease from Tenant such space (hereinafter
referred to as "Subject Space") at the same Base Rental and Additional
Rental as Tenant is required to pay to Landlord under this Lease for the
same space; (ii) to terminate this Lease; or (iii) to review such proposed
assignment or sublease for approval or disapproval. The option to
sublease, to terminate, or to review, as the case may be, shall be
exercisable by Landlord in writing within a period of thirty (30) days
after receipt of the Notice; and if Landlord fails to otherwise
-6-
<PAGE> 13
notify Tenant, Landlord shall be deemed to have elected to review such
proposed assignment or sublease for approval or disapproval pursuant to
Section 2.5(e).
(c) If Landlord elects to terminate this Lease and the Subject Space
constitutes the entire Premises, then this Lease shall terminate on the
date set forth in Landlord's notice to Tenant, which termination shall be
no earlier than thirty (30) and no later than ninety (90) days after the
date of such notice. If the Subject Space does not constitute the entire
Premises and Landlord so exercises its option to terminate this Lease with
respect to the Subject Space, then this Lease shall remain in full force
and effect except that the Base Rental and Tenant's Percentage Share shall
be reduced to conform to the reduced Rentable Area of the Premises.
(d) In the event Landlord exercises the option to sublease the
Subject Space, the term of the subleasing from Tenant to Landlord shall be
the term set forth in the Notice (which shall not be longer than the then
current Lease Term unless Landlord expressly agrees in writing that any
extension or renewal option contained in this Lease will apply to such
Subject Space) and shall be on such terms and conditions as are contained
in this Lease to the extent applicable, except that Landlord shall have
the right further to sublease or assign the sublease of Subject Space.
(e) If Landlord fails to exercise either its option to sublease or
its option to terminate within the aforesaid thirty-day period but elects
to review the proposed assignment or sublease for approval or disapproval,
Tenant shall submit to Landlord within twenty (20) days after said period
a copy of the proposed assignment or sublease and such additional
information concerning the proposed assignee or sublessee as may be
requested by Landlord for Landlord's review. Within thirty-five (35) days
subsequent to Landlord's receipt of the proposed assignment or sublease
and such requested additional information, Landlord shall approve or
disapprove in writing the proposed assignment or sublease and the proposed
assignee or sublessee. Failure to so approve or disapprove shall be deemed
disapproval by Landlord.
(f) Notwithstanding the giving by Landlord of its consent to any
assignment or sublease with respect to the Premises, no assignee or
sublessee may exercise any expansion option, preemptive right or so-called
right of first refusal to lease, or term renewal or extension option under
this Lease except in accordance with a separate written agreement entered
into directly between such assignee or sublessee and Landlord. Subsequent
to an approved assignment or sublease, the original Tenant shall have no
right to exercise on behalf of the assignee or sublessee (as to the space
assigned or subleased) any expansion option, preemptive right or so-called
right of first refusal to lease or term renewal or extension option.
(g) Tenant agrees to pay, as additional rental, to Landlord, on
demand, reasonable costs incurred by Landlord (i) in connection with any
request by Tenant for Landlord to consent to any assignment or subleasing
by Tenant, and (ii) in providing any services or materials to any assignee
or sublessee of Tenant.
(h) Any transfer or series of transfers resulting in a change in the
controlling interest in Tenant (whether Tenant is a corporation,
partnership, trust or other entity), whether voluntarily, by operation of
law, or otherwise, shall be deemed an assignment of this Lease within the
meaning of this Section 2.5.
-7-
<PAGE> 14
(i) If, with the consent of Landlord, this Lease is assigned or the
Premises or any part thereof is subleased or occupied by any party other
than Tenant, Landlord may, after default by Tenant, collect rent from the
assignee, subtenant or occupant, and apply the net amount collected to the
Base Rental and Additional Rental herein reserved, but no such assignment,
subleasing, occupancy or collection shall be deemed (i) a waiver of any of
Tenant's covenants contained in this Lease, (ii) the acceptance by
Landlord of the assignee, subtenant or occupant as Tenant, or (iii) the
release of Tenant from further performance by Tenant of its covenants
under this Lease.
(j) Landlord's approval of or consent to an assignment or sublease
transaction shall not operate to release Tenant from its liability
hereunder, and shall not affect Landlord's rights under this Section 2.5
as to any subsequent proposed assignment or sublease.
(k) Tenant covenants and agrees to deliver to Landlord one (1) fully
executed counterpart of the instruments and documents (including
amendments thereto) evidencing any approved assignment or subleasing
effected pursuant to this Lease. Such delivery shall be made promptly
following the execution of any such instrument or document.
2.6 Transfer of Tenants. [Intentionally deleted.]
2.7 Right of Recapture. If the Premises, or any portion thereof, are
abandoned or deserted, or are vacated for a period of more than thirty (30)
consecutive days, then Landlord may, at its option, either (i) terminate this
Lease and cause possession of Premises to be returned to Landlord upon demand,
or (ii) terminate this Lease form time to time as to a portion or portions of
the Premises and cause such portion or portions of the Premises to be returned
to Landlord upon demand, without terminating the Lease as to the balance of the
Premises. Following any termination of this Lease as to a portion or portions of
the Premises, Tenant shall have no further rights with respect to such portion
or portions of the Premises, and shall immediately surrender such portion or
portions of the Premises broom-clean, with all people and property of Tenant
removed therefrom, and Tenant shall have no further obligation to pay rent with
respect to such portion or portions of the Premises, but Tenant shall continue
to be liable for all of its obligations under this Lease with respect to such
portion or portions of the Premises arising prior to such termination and with
respect to all obligations under this Lease relating to those portions of the
Premises for which this Lease has not been terminated.
III.
RENT, RENT ADJUSTMENT AND DEPOSITS
3.1 Base Rental. Tenant shall pay to Landlord an annual base rent in
monthly installments for and during the Lease Term the amounts specified in the
Lease Summary (the "Base Rental"). The monthly installments of Base Rental shall
be paid in advance on the first day of every calendar month during the Lease
Term.
3.2 [INTENTIONALLY DELETED]
3.3 Operating Expenses and Property Taxes. In addition to the Base
Rental, Tenant, as additional rental, shall pay, for each calendar year during
the Lease Term, Tenant's Percentage Share of the total increase, if any, in
Operating Expenses for the calendar year in question over the Operating
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<PAGE> 15
Expenses Stop designated in the Lease Summary (provided, however, that for
purposes of any partial calendar year during the term of this Lease, the
Operating Expense Stop for such partial year shall be a fraction of the
Operating Expense Stop designated in the Lease Summary, the numerator of which
is the number of days of such calendar year falling within the Lease term, and
the denominator of which is 365). The additional rental payable pursuant to this
Section 3.3 (the "Additional Rental") shall be determined and adjusted in
accordance with the following procedures:
(a) During each December of the Lease Term beginning with December
2000, or as soon thereafter as practicable, Landlord shall give Tenant
written notice of its estimate of Additional Rental payable under this
Section 3.3 for the ensuing calendar year. On or before the first day of
each month during the ensuing calendar year, Tenant shall pay to Landlord
1/12 of such estimated amounts together with the Base Rental, provided
that if such notice is not given in December Tenant shall continue to pay
during the ensuing calendar year on the basis of the amounts payable
during the calendar year just ended, until the month after such notice is
given. If at any time or times it appears to Landlord that the actual
amount payable under this Section 3.3 for the current calendar year will
vary from Landlord's estimate by more than 5%, Landlord may revise, by
notice to Tenant, its estimate for such year, and subsequent payments by
Tenant for such year shall be based upon such revised estimate. Failure to
make a revision contemplated by the immediately preceding sentence shall
not prejudice Landlord's right to collect the full amounts of Additional
Rental payable under this Section 3.3.
(b) Within one-hundred and twenty (120) days after the close of each
calendar year during the Lease Term beginning with calendar year 2000, or
as soon after such 120-day period as practicable, Landlord shall deliver
to Tenant a statement of the adjustments to be made pursuant to this
Section 3.3 for the calendar year just ended certified by certified public
accountants designated by Landlord, and such statement shall be final and
binding upon Landlord and Tenant absent manifest error. If on the basis of
such statement Tenant owes an amount that is less than the estimated
payments for the calendar year just ended previously made by Tenant,
Landlord shall credit such excess to the next payments of Additional
Rental coming due pursuant to this Section 3.3 or, if the term of this
Lease is about to expire, refund such excess to Tenant if Tenant is not in
default under this Lease (in the instance of an event of default such
excess shall be held as additional security for Tenant's performance, may
be applied by Landlord to cure any such event of default, and shall not be
refunded until any such event of default is cured). If on the basis of
such statement Tenant owes an amount that is more than the estimated
payments for the calendar year just ended previously made by Tenant,
Tenant shall pay the deficiency to Landlord within thirty (30) days after
delivery of the statement.
(c) If the Lease term shall expire on a day other than the last day
of a calendar year, the amount of Additional Rental payable pursuant to
this Section 3.3 shall be the product of multiplying the Additional Rental
which otherwise would have been payable for the full calendar year by a
fraction, the numerator of which is the actual number of days of the
calendar year in question included within the Lease Term, and the
denominator of which is 365. The expiration of this Lease shall not affect
the obligations of Landlord and Tenant pursuant to subsection (b) of this
Section 3.3 to be performed subsequent to such expiration.
(d) Landlord agrees to maintain records of Operating Expenses. All
such records shall be retained following the furnishing by Landlord to
Tenant of Landlord's statement of accounting as to such costs until
Tenant's rights under this subsection (d) have been exercised or
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have expired. Within sixty (60) days after receiving Landlord's statement
of adjustment pursuant to Section 3.3(b) above, Tenant, or its permitted
representative, shall have the right to examine but not copy Landlord's
books and records respecting Operating Expenses at Tenant's sole cost and
expense, and Landlord shall reasonably cooperate in any such inspection or
audit. Such examination will be upon reasonable prior notice to Landlord
and during normal business hours at the office of Landlord's Building
Manager or such other place designated by Landlord following Tenant's
receipt of the Landlord's statement, and the results of such audit shall
be reported to Landlord not later than forty-five (45) days after the date
on which such examination commences. The results of such review shall be
for the benefit of Landlord and Tenant only, shall be maintained in
confidence by Tenant and shall not be disseminated or furnished to any
other person or entity. Tenant may use accountants or other professionals
to aid Tenant in conducting the audit, but Tenant may not use any
accountants or other professionals that are paid on a contingent fee basis
or are owned by, affiliated with, employed by or related to any office
building landlords or office building management companies or services.
If, as a result of Tenant's review, Tenant claims that any particular
items were incorrectly included as Operating Expenses or incorrectly
reflected as to the amount due under this Lease or Tenant claims any
mathematical errors exist in Landlord's statement, Tenant shall give
written notice to Landlord within the forty-five (45) day period
prescribed above. Said notice shall clearly reflect the reasons for the
disagreement and the amount claimed by Tenant as owed from Landlord.
Tenant and Landlord shall then meet in an effort to resolve the
differences in their respective findings. If Tenant does not commence an
examination within the aforesaid 60-day period or does not submit its
results to Landlord within the aforesaid 45-day period, Tenant's rights
under this subsection (d) respecting Landlord's subject statement of
adjustment shall expire and be of no further force or effect.
3.4 Commitment Deposit. In consideration of the execution of this Lease by
Landlord, Tenant has paid to Landlord, and Landlord hereby acknowledges receipt
of the Commitment Deposit amount specified in the Lease Summary (the "Commitment
Deposit"). Upon Tenant's timely taking possession of the Premises, the
Commitment Deposit shall be applied to the monthly installment(s) of Base Rental
first becoming due hereunder. Should Tenant fail to take timely possession of
the Premises as aforesaid, the Premises having been readied for Tenant's
possession as provided in this Lease, the Commitment Deposit shall be retained
by Landlord for application in reduction, but not in satisfaction, of damages
suffered by Landlord as a result of Tenant's failure to take possession in a
timely manner.
3.5 Security Deposit. [Intentionally Deleted.]
3.6 Payments. Tenant shall pay to Landlord all Base Rental, Additional
Rental, and all other charges due and owing by Tenant under this Lease without
deduction or set off, in legal tender, and at Landlord's address specified in
the Lease Summary or as otherwise directed from time to time by Landlord.
3.7 Rent for Partial Months. A prorated monthly installment, based on a
thirty (30) day month, shall be paid in advance (i) on the Commencement Date for
any fraction of a month if the Lease Term begins on any day other than the first
day of any month and (ii) on the first day of the final month of the Lease Term
for any fraction of a month if the Lease Term shall terminate on any day other
than the last day of any month.
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IV.
PREPARATION, MAINTENANCE AND REPAIR OF PREMISES
4.1 Preparation of the Premises.
(a) Landlord shall construct or install in the Premises the Tenant
Improvements, as defined in and to be constructed or installed pursuant to
the provisions of the Tenant Improvement Agreement which is attached
hereto as Exhibit "C". Landlord and Tenant agree to comply with all of the
terms and provisions of the Tenant Improvement Agreement, including,
without limitation, the obligation to pay, as Additional Rental, all
amounts due Landlord under Section 3 thereof according to the payment
procedures contained therein.
(b) If Tenant causes the Tenant Improvements to exceed in value the
value of the Base Building Condition plus Landlord's Allowance for Tenant
Improvement Costs (as such terms are defined in the Tenant Improvement
Agreement), and if the installment or construction of such Tenant
Improvements causes an increase in the ad valorem taxes on the Building,
then Tenant shall pay from time to time, as additional rental, any such
increase in ad valorem taxes on demand of Landlord.
4.2 Repairs by Tenant. Tenant shall at its own expense keep the Premises
in good repair and tenantable condition and indemnify Landlord against any loss,
damage, or expense arising by reason of any failure of Tenant so to keep the
Premises in good repair and tenantable condition or due to any act or neglect of
Tenant, its agents, employees, contractors, invitees, licensees, tenants, or
assignees. If Tenant fails to perform, or cause to be performed, such
maintenance and repairs, then at the option of Landlord, in its sole discretion,
any such maintenance or repair may be performed or caused to be performed by
Landlord and the cost and expense thereof charged to Tenant, and Tenant shall
pay the amount thereof to Landlord on demand as additional rental.
4.3 Repairs by Landlord. Landlord shall maintain in good order and repair,
subject to normal wear and tear, casualty to and condemnation of the Building
(excluding the Premises and other portions of the Building leased to other
tenants), including without limitation, public areas, the parking lot and
landscaped areas, elevators, stairs, corridors, common restrooms, the
mechanical, plumbing and electrical systems and the structure itself (including
the glass exterior surfaces of the Premises). The cost of any such repairs or
maintenance to the foregoing necessitated by the intentional acts or omissions,
negligence or gross negligence of Tenant, or its agents, employees, contractors,
invitees, licensees, tenants or assignees, however, shall be reimbursed by
Tenant to Landlord upon demand as additional rental.
4.4 Alterations by Tenant. Tenant shall make no alterations or additions
of any kind in or to the Premises without first obtaining Landlord's prior
written consent. Such consent may be granted or withheld in Landlord's sole
discretion; provided, however, Landlord agrees it will not unreasonably withhold
its consent to cosmetic or non-structural alterations or additions which do not
involve structure, walls, floors, Building systems, electrical installations or
the obtaining of building permits. Except as may otherwise be agreed by Landlord
in writing at the time of granting its consent, all such work, including
additions, fixtures, and Tenant Improvements (but excluding moveable office
furniture and equipment and other personal property of Tenant) made or placed in
or upon the Premises by either Tenant or Landlord shall be and become the
Landlord's property at the termination of this Lease by lapse of time or
otherwise,
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<PAGE> 18
all without compensation or payment to Tenant. Approved alterations or additions
made by Tenant shall be at the sole expense and liability of Tenant, and
Tenant's indemnity in Subsection 7.3(d) hereof shall apply to any contractors
engaged by Tenant in connection therewith. Landlord shall have the right to take
depreciation with respect to the Tenant Improvements to the extent of the
Landlord's Allowance and Tenant shall have the right to take depreciation with
respect to Tenant Improvements to the extent that it contributes towards the
cost of Tenant Improvements in excess of Landlord's Allowance.
4.5 Discharge of Liens. Tenant is not authorized to contract for or on
behalf of Landlord for work on or the furnishing of materials to the Premises or
any other part of the Building. Tenant shall discharge of record by payment,
bond or otherwise, within ten (10) days subsequent to the date of its receipt of
notice thereof from Landlord, any mechanic's, laborer's or similar lien filed
against the Premises or the Building for work or materials claimed to have been
furnished at the instance of Tenant. If Tenant shall fail to cause such lien or
claim of lien to be so discharged or bonded within such period, in addition to
any other right or remedy it may have, Landlord may, but shall not be obligated
to, discharge the same by paying the amount claimed to be due or by procuring
the discharge of such lien or claim by deposit in court or bonding, and in any
such event, Landlord shall be entitled, if Landlord so elects, to compel the
prosecution of any action for the foreclosure of such lien or claim by the
claimant and to pay the amount of the judgment, if any, in favor of the
claimant, with interest, costs and allowances. Tenant shall pay as additional
rental on demand from time to time any sum or sums so paid by Landlord and all
costs and expenses incurred by Landlord, including, but not limited to,
attorneys' fees in processing such discharge or in defending any such action.
4.6 Damage and Destruction.
(a) If the Building or Premises is damaged partially or wholly by
fire, the elements, act of God or other casualty, and if such damage
cannot, in Landlord's reasonable estimation, be materially restored within
ninety (90) days of such damage, then Landlord may, at its sole option,
terminate this Lease as of the date of such fire or casualty and the Lease
Term shall end on such date as if that date had been originally fixed in
this Lease for the expiration of the Lease Term. Landlord shall exercise
its option provided herein by written notice to Tenant within sixty (60)
days of such fire or other casualty.
(b) If this Lease is not terminated pursuant to subsection (a)
above, then Landlord shall proceed with all due diligence to repair and
restore the Building or Premises, as the case may be (except that Landlord
may elect not to rebuild, and thus terminate this Lease, if such damage
occurs during the last year of the Lease Term, regardless of any term
renewal option which is unexercised at the date of occurrence of the
casualty). Landlord's obligation to restore the Premises under the
preceding sentence may be discharged, in Landlord's discretion, by
Landlord's restoration of the Premises to Base Building Condition, as
defined in Exhibit "C" hereto, and Landlord's payment to Tenant toward
restoration of Tenant Improvements of a sum equal to Landlord's Allowance
for Tenant Improvement Costs prorated in proportion to the number of
square feet of Rentable Area of the Premises damaged, increased in the
same proportion as the increase in the CPI from date of initial
construction to the date of occurrence of the casualty (in which event
Tenant shall effect restoration of Tenant Improvements utilizing the funds
so provided by Landlord, which funds, in Landlord's discretion, may be
placed in an escrow for disbursement to Tenant and contractors upon
completion of the restoration work). In the event that Landlord shall fail
to complete such repairs and material restoration within one hundred fifty
(150) days after the date of such damage and Tenant's use and enjoyment of
the Premises is then materially
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<PAGE> 19
impaired by the uncompleted restoration, Tenant may at its option and as
its sole remedy terminate this Lease by delivering written notice to
Landlord, whereupon the Lease shall end on the date of such notice as if
the date of such notice were the date originally fixed in this Lease for
the expiration of the term hereof; provided, however, that if construction
is delayed because of changes, deletions or additions in construction
requested by Tenant, or because of strikes, lockouts, casualties, acts of
God, war, material or labor shortages, governmental regulation or control,
or other causes beyond the reasonable control of Landlord, the 150-day
period for restoration, repair, or rebuilding shall be extended for the
amount of time Landlord is so delayed. In no event shall Landlord be
required to rebuild, repair, or replace any personal property, equipment
or trade fixtures which belong to Tenant.
(c) If this Lease is not terminated by Landlord pursuant to this
Section 4.6 and if the Premises are unfit for occupancy in whole or in
part following such damage, the Base Rental payable during the period in
which the Premises are unfit for occupancy, with respect to the portion
unfit for occupancy, shall abate and Tenant's Percentage Share shall be
reduced in proportion to the number of square feet of Rentable Area of the
premises rendered unusable by such damage; provided, however, that no such
abatement and reduction shall be made under the provisions of this
subsection (c) in the event such damage shall have been caused through the
negligence or willful misconduct of Tenant, its agents, employees,
contractors, invitees, licensees, tenants or assignees.
(d) In the event of any damage or destruction to the Building or the
Premises, Tenant shall, upon notice from Landlord, remove forthwith, at
its sole cost and expense, such portion or all of the property belonging
to Tenant (other than partitions, fixtures, additions and similar
improvements), from such portion or all of the Building or the Premises as
Landlord shall request and Tenant agrees to indemnify and hold Landlord
harmless from any loss, liability, costs, and expenses, including
attorneys' fees, arising out of any claim of damage or injury as a result
of any alleged failure to secure properly the Premises prior to such
removal.
e) Any insurance which may be carried by Landlord or Tenant against
loss or damage to the Building or Premises shall be for the sole benefit
of the party carrying such insurance and under its sole control except
that Landlord's insurance may be subject to control by the holder or
holders of any indebtedness secured by a mortgage or deed to secure debt
covering any interest of Landlord in the Premises or the Building.
(f) Notwithstanding anything herein to the contrary, in the event
the holder of any indebtedness secured by a mortgage or deed to secure
debt covering the Premises or Building requires that any insurance
proceeds be paid to it, then Landlord shall have the right to terminate
this Lease by delivering written notice of termination to Tenant within
fifteen (15) days after such requirement is made by any such holder,
whereupon the Lease shall end on the date of such damage as if the date of
such damage were the date originally fixed in this Lease for the
expiration of the Lease Term.
(g) If any such casualty stated in this Section 4.6 occurs, Landlord
shall not be liable to Tenant for inconvenience, annoyance, loss of
profits, expenses, or any other type of injury or damage resulting from
the repair of any such damage, or from any repair, modification,
arranging, or rearranging of any portion of the Premises or any part or
all of the Building or for termination of this Lease as provided in this
Section 4.6.
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4.7 Eminent Domain.
(a) If all or any substantial part of the Building or of the
Premises should be taken for any public or quasi-public use under
governmental law, ordinance, or regulation, or by right of eminent domain,
or by private purchase in lieu thereof, and the taking would prevent or
materially interfere with the use of the Premises for the purpose for
which it is then being used, this Lease shall terminate effective when the
physical taking shall occur in the same manner as if the date of such
taking were the date originally fixed in this Lease for the expiration of
the Lease Term.
(b) If part of the Building or Premises is taken for any public or
quasi-public use under any governmental law, ordinance, or regulation, or
by right of eminent domain, or by private purchase in lieu thereof, and
this Lease is not terminated as provided in subsection (a) above, this
Lease shall not terminate but the Base Rental payable hereunder during the
unexpired portion of this Lease and Tenant's Percentage Share shall be
reduced to such extent, if any, as may be fair and reasonable under all of
the circumstances and Landlord shall undertake to restore the Building and
Premises to a condition suitable for Tenant's use, as near to the
condition thereof immediately prior to such taking as is reasonably
feasible under the circumstances.
(c) Tenant shall not share in any condemnation award or payment in
lieu thereof or in any award for damages resulting from any grade change
of adjacent streets, the same being hereby assigned to Landlord by Tenant;
provided, however, that Tenant may, to the extent provided by law,
separately claim against and receive from the condemning authority, if
legally payable, compensation for Tenant's removal, relocation costs, loss
of business, business interruption and loss of trade fixtures, but only if
and to the extent no such claim or award therefor will reduce or affect
Landlord's awards.
(d) Notwithstanding anything to the contrary contained in this
Section 4.7, if during the Lease Term the use or occupancy of any part of
the Building or Premises shall be taken or appropriated temporarily for
any public or quasi-public use under any governmental law, ordinance, or
regulation, or by right of eminent domain, this Lease shall be and remain
unaffected by such taking or appropriation and Tenant shall continue to
pay in full all rental payable hereunder by Tenant during the Lease Term.
In the event of any such temporary appropriation or taking, Tenant shall
be entitled to receive that portion of any award which represents
compensation for the loss of use or occupancy of the Premises during the
Lease Term, and Landlord shall be entitled to receive that portion of any
award which represents the cost of restoration and compensation for the
loss of use or occupancy of the Premises after the end of the term of this
Lease.
4.8 Reports of Defects. Tenant shall report to Landlord immediately in
writing any damage to or defective condition in or about the Building or
Premises known to Tenant.
4.9 Landlord's Right to Enter Premises. Tenant shall not change the locks
on any entrance to the Premises or install additional locks without Landlord's
prior written consent, which consent shall be in Landlord's discretion. Upon
Tenant's written request to Landlord, Landlord will make a reasonable change of
locks on behalf of Tenant and at Tenant's sole cost and expense. Landlord and
its agents, employees and contractors shall have the right to enter the Premises
at reasonable times and upon twenty-four (24) hours prior notice to Tenant,
except in the event of an emergency, to make necessary repairs,
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<PAGE> 21
additions, alterations and improvements to the Building, including, without
limitation, the erection, use and maintenance of pipes and conduits and repairs
to adjacent premises or other premises. Landlord shall also be allowed to take
into and through the Premises any and all needed materials that may be required
to make such repairs, additions, alterations and improvements, all without being
liable to Tenant in any manner whatsoever. During such time as work is being
carried on in or about the Premises, provided such work is carried out in a
manner so as not to interfere unreasonably with the conduct of Tenant's business
therein, the rent provided herein shall in no wise abate, and Tenant waives any
claim and cause of action against Landlord for damages by reason of loss or
interruption to Tenant's business and profits therefrom because of the
prosecution of any such work or any part thereof. In addition, Landlord and its
agents, employees and contractors shall have the right to enter the Premises
during normal business hours, without undue interference with the conduct of
Tenant's business therein, to inspect and examine the Premises and to exhibit
the Premises to prospective purchasers, tenants and lenders. In the event of
emergency, or if otherwise necessary to prevent injury to persons or damage to
property, such entry to the Premises may be made by force without any liability
whatsoever on the part of Landlord for damage resulting from such forcible
entry.
V.
USE AND SERVICES
5.1 Use. Tenant shall use the Premises for the purposes stated in the
Lease Summary and for no other purpose. Tenant shall not use the Premises for
any illegal purpose, nor violate any statute, regulation, rule or order of any
governmental body in its use thereof, nor create or allow to exist any nuisances
or trespasses, nor do any act in or about the Premises or bring anything onto or
into the Premises which will in any way increase the rate of insurance on the
Premises nor deface or injure the Premises or overload the floor of the
Premises.
5.2 Services. Provided no event of default shall have occurred under this
Lease, Landlord agrees to provide to Tenant, as Landlord deems reasonably
necessary, the following services:
(a) General cleaning and janitorial service required as a result of
normal, prudent use of the Premises and only on Mondays through Fridays,
inclusive, with New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas Day and such other holidays which are observed
regionally or nationally as Landlord may designate from time to time
(herein collectively called the "Holidays") excepted;
(b) Heating and air-conditioning service daily on Mondays through
Fridays, inclusive, with Holidays excepted, from 8:00 A.M. to 6:00 P.M.
and on Saturdays, if not a Holiday, from 8:00 A.M. to 1:00 P.M. Landlord
reserves the right to prohibit the use of machines and equipment which
generate heat in their operation unless and until arrangements are made by
Tenant, acceptable to Landlord, to obtain and install in the Premises at
Tenant's cost supplementary air-conditioning equipment, and the cost of
operation and maintenance of such equipment shall be paid by Tenant on the
Base Rental payment dates at such rates as are established from time to
time by Landlord. Should Tenant desire either heating or air-conditioning
at times when such services are not furnished by Landlord under the terms
of this Lease, Landlord may elect, entirely at its option, to furnish such
services as requested by Tenant upon not less than
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<PAGE> 22
24 hours notice from Tenant, at Tenant's expense and at such hourly charge
as is from time to time determined by Landlord, which charges Tenant shall
promptly pay upon invoice from Landlord. Payments for such additional
services shall be deemed additional rental due from Tenant.
(c) Elevator service daily on Mondays through Fridays, inclusive,
with Holidays excepted, from 8:00 A.M. to 6:00 P.M. and on Saturdays, if
not a Holiday, from 8:00 A.M. to 1:00 P.M. At least one elevator shall be
operative at all other hours;
(d) Landlord shall furnish electric current in a quantity sufficient
to ensure that Tenant has constant access to and ability to use a minimum
of seven (7) watts per usable square foot of the Premises for Building
standard tenant lighting and small business machinery only from electric
circuits designated by Landlord for Tenant's use. Such circuits will be
fed into one or more of the existing electrical panels (a 480/277 volt
panel or panels for Building standard tenant lighting and a 208/120 volt
panel or panels for tenant outlet requirements) in the electrical closet
or closets located on the same Building floor as the Premises. Tenant's
usage of said panels on any given floor shall not exceed Tenant's pro rata
share (based on rentable square footage) of the panels' capacity. Tenant
shall not use any electrical equipment which in Landlord's opinion will
overload the wiring installations or interfere with the reasonable use
thereof by other users in the Building. Tenant shall not install or
operate in the Premises any electric power generation equipment or
transformer carrying substantial non-linear loads, producing above-average
amounts of heat, or not having the capability of neutralizing harmonic
distortion. Tenant shall not, without Landlord's prior written consent in
each instance, connect any items such as non-Building standard tenant
lighting, vending equipment, printing or duplicating machines, computers
(other than desktop word processors and personal computers), auxiliary air
conditioners, and other computer-related equipment to the Building's
electrical system, or make any alteration or addition to the system. If
Tenant desires any such items, additional 208/120 volt electrical power
beyond that supplied by Landlord as provided above, electric current in
excess of 208/120 volts for purposes other than Building standard tenant
lighting, or other special power requirements or circuits, then Tenant may
request Landlord to provide such supplemental power or circuits to the
Premises, which request Landlord may grant or withhold in its sole
discretion. If Landlord furnishes such power or circuits, Tenant shall pay
Landlord, on demand, the cost of the design, installation and maintenance
of the facilities required to provide such additional or special electric
power or circuits, and the cost of all electric current so provided at a
rate not to exceed that which would be charged by Georgia Power Company,
or its successor, if Tenant were a direct customer thereof. Landlord may
require separate electrical metering of such supplemental electric power
or circuits to the Premises, and Tenant shall pay, on demand, the cost of
the design, installation and maintenance of such metering facilities. In
no event shall Tenant have access to any electrical closets in the
Building, it being agreed that any electrical engineering design or
contract work shall be performed at Tenant's expense by Landlord or an
electrical engineer and/or electrical contractor designated by Landlord.
All invoices respecting the design, installation and maintenance of the
facilities requested by Tenant shall be paid within thirty (30) days of
Tenant's receipt thereof. Landlord's charge to Tenant for the cost of
electric current so provided shall be paid within thirty (30) days of
receipt of invoice by Tenant; and
(e) Common use restrooms, toilets, and drinking fountains available
on each floor or partial floor of the Building occupied by Tenant.
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VI.
COMPLIANCE WITH LAWS
6.1 Tenant's Compliance with Laws. Tenant shall comply, at its own
expense, with all statutes, regulations, rules, ordinances, and orders of any
governmental body, department, or agency thereof which apply to or result from
Tenant's use or occupancy of the Premises and shall abide by and observe the
Rules and Regulations attached to this Lease as Exhibit "D" and such other rules
and regulations for the use, occupancy, or operation of the Building as may
hereafter be established in writing by Landlord.
6.2 Rent Control. Tenant waives the benefit of all existing and future
rent control laws and similar governmental rules and regulations, whether in
time of war or not, to the full extent permitted by law.
6.3 Building Alterations. If, in order to maintain the Building as an
office building or otherwise, Landlord shall be required by any governmental
authority to repair, alter, remove, construct, reconstruct, or improve any part
or all of the Building or Premises, Tenant's obligations under this Lease will
not be affected and Tenant waives all claims for injury, damage, or abatement of
rent because of such repair, alteration, removal, construction, reconstruction,
or improvement, or lack thereof; provided, however, that if such action by
Landlord shall render the Premises partially or wholly unfit for occupancy and
if, in Landlord's reasonable estimation, it cannot complete such acts within
ninety (90) days, then at the option of Landlord to be exercised by giving
written notice to Tenant within sixty (60) days following the date of notice to
Landlord by such governmental authority, this Lease shall terminate on the date
of such election and Tenant shall immediately surrender the Premises to
Landlord. In such event Tenant shall continue to owe and pay rent and other
charges up to but not beyond the time of such surrender. If Landlord shall elect
not to terminate this Lease as provided above, Landlord and Tenant shall have
the same respective rights and obligations as provided above in Sections 4.6(b)
and (c), and the provisions of Section 4.6(g) shall apply regardless of whether
or not Landlord elects to terminate this Lease.
6.4 Taxes Payable by Tenant. In addition to Base Rental and other charges
to be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for
any and all taxes payable by Landlord whether or not now customary or within the
contemplation of the parties hereto, to the extent not included in Property
Taxes: (a) upon, measured by or reasonably attributable to the cost or value of
Tenant's equipment, furniture, fixtures and other personal property located in
the Premises or by the cost or value of any improvements made in or to the
Premises by Tenant regardless of whether title to such improvements shall be in
Tenant or Landlord; (b) upon or measured by the rental payable hereunder in the
nature of a sales tax upon rent or a so-called "rent tax", but not federal or
state income taxes of Landlord; and (c) upon this transaction or any document to
which Tenant is a party creating or transferring an interest in the Premises. In
the event that it shall not be lawful for Tenant so to reimburse Landlord, the
monthly rental payable to Landlord under this Lease shall be revised to net
Landlord the same net rental after imposition of any such tax upon Landlord as
would have been payable to Landlord if such tax had not been imposed.
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VII.
INSURANCE, LIABILITY AND INDEMNIFICATION
7.1 Insurance.
(a) Tenant agrees to carry fire and extended coverage insurance
insuring Tenant's interest in its improvements and betterments to the
Premises and any and all furniture, equipment, supplies, and other
property owned, leased, held, or possessed by it and contained therein,
such insurance coverage to be in an amount equal to the full insurable
value of such improvements and property.
(b) Tenant also agrees to carry a policy or policies of worker's
compensation and comprehensive general liability insurance, including
personal injury and property damage, with contractual liability
endorsement, in the amount of Five Hundred Thousand Dollars ($500,000.00)
for property damage and One Million Dollars ($1,000,000.00) per occurrence
for personal injuries or deaths of persons occurring in or about the
Premises. Said policies shall: (i) name Landlord as an additional insured
and insure Landlord's contingent liability under this Lease, (ii) be
issued by an insurance company which is reasonably acceptable to Landlord
and licensed to do business in the State of Georgia, and (iii) provide
that said insurance shall not and may not be canceled unless thirty (30)
days prior written notice shall have been given to Landlord. Said policy
or policies, or certificates thereof, shall be delivered to Landlord by
Tenant upon commencement of the term of the Lease and upon each renewal of
said insurance.
7.2 Waiver of Subrogation. Tenant shall obtain from its insurers under
all policies of fire, theft, public liability and other insurance maintained by
it at any time during the term of this Lease insuring or covering the Building
or any portion thereof or operations therein, a waiver of all rights of
subrogation which the insurer might have against Landlord, and Tenant shall
indemnify Landlord against any loss or expense, including reasonable attorney's
fees, resulting from the failure to obtain such waiver.
7.3 Indemnity. Tenant agrees to indemnify and hold Landlord harmless from
and defend Landlord against any and all claims or liability for any injury or
death to any person or damage to any property whatsoever:
(a) either (i) occurring in, on or about the Premises, or (ii)
occurring in, on, or about any facilities (including, without limitation,
elevators, stairways, passageways or hallways) the use of which Tenant may
have in conjunction with other tenants of the Building, when such injury,
death or damage shall be caused by the act, neglect or fault of, or
omission of any duty with respect to the same, by Tenant, its agents,
employees, contractors, invitees, licensees, tenants, or assignees;
(b) arising from any work or thing whatsoever done by or on behalf
of Tenant in or about the Premises or from transactions of the Tenant
concerning the Premises;
(c) arising from any breach or event of default on the part of the
Tenant in the performance of any covenant or agreement on the part of the
Tenant to be performed pursuant to the terms of this Lease; or
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(d) otherwise arising from any act or neglect of the Tenant, or any
of its agents, employees, contractors, invitees, licensees, tenants or
assignees.
7.4 Liability of Landlord. Except as otherwise provided herein, Landlord
shall be liable to Tenant for direct damages proximately occasioned by the
negligence or intentional acts of Landlord, its agents and employees acting
within the scope of their agency or employment, but not for consequential or
speculative damages such as business loss. Landlord shall not be liable to
Tenant or to any person, firm, corporation or other business association
claiming by, through or under Tenant, for failure to furnish or for delay in
furnishing any service provided for in this Lease, and no such failure or delay
by Landlord shall be an actual or constructive eviction of Tenant nor shall any
such failure or delay operate to relieve Tenant from the prompt and punctual
performance of each and all the covenants to be performed herein by Tenant; nor
for defects in the cooling, heating, electric, water, elevator, or other
apparatus or systems or for water discharged from sprinkler systems in the
Building; nor for the theft, mysterious disappearance, or loss of any property
of Tenant whether from the Premises or any part of the Building. Landlord agrees
to make reasonable efforts to protect Tenant from interference or disturbance by
third persons, including other tenants; however, Landlord shall not be liable
for any interference, disturbance or act whether caused by another tenant or
tenants of Landlord or other person, nor shall Tenant be relieved from any
obligation herein because of such interference, disturbance or act.
Notwithstanding the provisions of this Section 7.4 to the contrary, if
Landlord fails to furnish or delays in furnishing any service Landlord is
obligated to provide under this Lease for any reason not beyond Landlord's
reasonable control, Tenant shall be entitled to abate Base Rental until the
service is restored, but only under the following terms and conditions:
(a) The loss of service must be of a material nature so as to render
the Premises substantially unusable for the purposes contemplated by this
Lease;
(b) At the time of the loss of service, Tenant must give written
notice promptly to Landlord of the loss of service and its claim for
abatement under this Section 7.4 and Tenant only shall be entitled to
abatement of Base Rental, assuming all other conditions of this Section
7.4 are satisfied, commencing on the day such notice is given to Landlord,
provided that if such service is restored or replaced within ten (10) days
after Landlord's receipt of such notice, then Tenant shall not be entitled
to any such abatement;
(c) If such loss of service continues for a period of one hundred
twenty (120) consecutive days from the date of Tenant's notice to Landlord
of the loss of service, then Tenant may terminate this Lease by written
notice to Landlord, and thereafter neither party shall have any obligation
to the other except for obligations created hereunder which shall survive
such termination;
(d) Landlord may prevent or stop abatement by providing
substantially the same service by temporary or alternative means until the
cause of the loss of service can be corrected;
(e) In no event shall Tenant be entitled to any abatement of rent as
a result of (i) any loss of service as a result of an event contemplated
under any of Sections 4.6, 4.7, 6.3 or 9.12 of this Lease except to the
extent set forth in those Sections, or (ii) any loss of service to any
area
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outside of the Premises if such loss of service is not essential to the
customary use and enjoyment of the Premises by Tenant; and
(f) Abatement or lease termination as provided above in this Section
7.4 shall be Tenant's sole remedy for loss of service.
7.5 Limitation of Liability. Landlord's obligations and liability with
respect to this Lease shall be limited solely to Landlord's interest in the
Building, as such interest is constituted from time to time, and neither
Landlord (beyond its interest in the Building) nor any officer, director,
shareholder or partner of Landlord shall have any personal liability whatsoever
with respect to this Lease. In any action or proceeding brought to enforce the
obligation of Landlord to Tenant under this Lease, Landlord and Tenant agree
that any final judgment or decree shall be enforceable against Landlord only to
the extent of Landlord's interest in the Building, as aforesaid, and any such
judgment or decree shall not be capable of execution against, nor be a lien on,
any assets of Landlord other than its interest in the Building, as aforesaid.
VIII.
EVENT OF DEFAULT AND RELATED REQUIREMENTS
8.1 Default and Remedies.
(a) The occurrence of any of the following shall constitute an event
of default ("Default") by Tenant hereunder:
(i) The Base Rental, Additional Rental or any other sum of
money payable under this Lease is not paid when due, and such
failure of payment shall continue for more than five (5) business
days subsequent to the date of receipt by Tenant of written notice
of non-payment from Landlord, provided that Landlord shall not be
obligated to provide such notice and opportunity to cure more than
two (2) times in any calendar year during the Lease Term, and the
third or any subsequent occasion of such failure during any such
calendar year shall constitute a Default. No right to receive notice
or cure period in favor of Tenant shall affect Tenant's obligation
to pay late fees or interest under Section 8.3 for having failed to
make timely payment of a monetary obligation;
(ii) The Premises are, without Landlord's prior written
consent, vacated or not used as regularly or consistently as would
normally be expected for similar premises put to general office use,
even though the Tenant continues to pay the stipulated monthly rent,
for any one continuous period in excess of five (5) business days,
or in the aggregate in excess of twelve (12) business days during
any twelve-month period elapsing during the Lease Term;
(iii) [INTENTIONALLY DELETED]
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(iv) Tenant's interest in the Lease or the Premises shall be
subjected to any attachment, levy, or sale pursuant to any order or
decree entered against Tenant in any legal proceeding and such order
or decree shall not be vacated within fifteen (15) days of entry
thereof;
(v) Tenant breaches or fails to comply with any of the Rules and
Regulations in Exhibit "D" hereto, as the same may hereafter be
amended from time to time, and such breach or failure shall continue
for more than five (5) days subsequent to the date of receipt by
Tenant of written notice of such breach or failure from Landlord;
(vi) Tenant breaches or fails to comply with any other term,
provision, condition, or covenant of this Lease, and such breach or
failure shall continue for more than twenty (20) days subsequent to
the date of receipt by Tenant of written notice of such breach or
failure from Landlord [if the matter in question is not reasonably
susceptible of cure by Tenant within the twenty-day period, then
Tenant shall have such additional time as may reasonably be
necessary, but no more than an additional seventy (70) days, within
which to effect curative action provided that Tenant institutes the
curative action within the twenty-day period and prosecutes the same
diligently to completion];
(vii) Tenant, if a corporation, joint venture, partnership, limited
partnership or trust, without Landlord's prior written consent and
the written assumption of this Lease by another party approved by
Landlord, both in Landlord's discretion, shall be dissolved or its
entity status otherwise changed or terminated;
(viii) If Tenant is a general partnership or a limited partnership,
there shall be instituted by or against any one or more general
partners of Tenant, without final dismissal thereof within thirty
(30) days of the date of institution, of any proceeding under state
insolvency laws or of any proceeding under the United States
Bankruptcy Code; or
(ix) If there are one or more guarantors of all or any part of
Tenant's obligations under this Lease, there shall be instituted by
or against any one or more of such guarantors, without final
dismissal thereof within thirty (30) days of the date of
institution, of any proceeding under state insolvency laws or of any
proceeding under the United States Bankruptcy Code.
(b) Upon the occurrence of a Default, Landlord shall have the option
to do and perform any one or more of the following in addition to, and not
in limitation of, any other remedy or right permitted it at law or in
equity or by this Lease:
(i) Landlord, with or without terminating this Lease, may
immediately or at any time thereafter reenter the Premises and
perform, correct or repair any condition which shall constitute a
failure on Tenant's part to keep, observe, perform, satisfy, or
abide by any term, condition, covenant, agreement, or obligation of
this Lease or of the Rules and Regulations now in effect or
hereafter adopted, and Tenant shall fully reimburse and compensate
Landlord on demand
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for all costs and expenses incurred by Landlord in such
performance, correction or repairing, including accrued
interest as provided in the next sentence. All sums so
expended to cure Default shall accrue interest from the date
of demand until date of payment at a rate of interest which is
the lower of (x) a per annum rate equal to the Prime Rate plus
two percent, or (y) sixteen (16%) percent per annum, but in no
event at a rate higher than that permitted by applicable law.
(ii) Landlord, with or without terminating this Lease, may
immediately or at any time thereafter demand in writing that
Tenant vacate the Premises and thereupon Tenant shall vacate
the Premises and remove therefrom all property thereon
belonging to or placed on the Premises by, at the direction
of, or with consent of Tenant within ten (10) days of receipt
by Tenant of such notice from Landlord, whereupon Landlord
shall have the right to reenter and take possession of the
Premises. Any such demand, reentry and taking possession of
the Premises by Landlord shall not of itself constitute an
acceptance by Landlord of a surrender of this Lease or of the
Premises by Tenant and shall not of itself constitute a
termination of this Lease by Landlord.
(iii) Landlord, with or without terminating this Lease, may
immediately or at any time thereafter reenter the Premises and
remove therefrom Tenant and all property belonging to or
placed on the Premises by, at the direction of, or with
consent of Tenant. Any such reentry and removal by Landlord
shall not of itself constitute an acceptance by Landlord of a
surrender of this Lease or of the Premises by Tenant and shall
not of itself constitute a termination of this Lease by
Landlord.
(iv) Landlord, with or without terminating this Lease, may
immediately or at any time thereafter relet the Premises or
any part thereof for such time or times, at such rental or
rentals and upon such other terms and conditions as Landlord
in its sole discretion may deem advisable, and Landlord may
make any alterations or repairs to the Premises which it may
deem necessary or proper to facilitate such reletting; and
Tenant shall pay all costs of such reletting including but not
limited to the cost of any such alterations and repairs to the
Premises, attorneys' fees, and brokerage commissions; and if
this Lease shall not have been terminated, Tenant shall
continue to pay all rent and all other charges due under this
Lease up to and including the date of beginning of payment of
rent by any subsequent tenant of part or all of the Premises,
and thereafter Tenant shall pay monthly during the remainder
of the term of this Lease the difference, if any, between the
rent and other charges collected from any such subsequent
tenant or tenants and the rent and other charges reserved in
this Lease, but Tenant shall not be entitled to receive any
excess of any such rents collected over the rents reserved
herein.
(v) Landlord may immediately or at any time thereafter
terminate this Lease, and this Lease shall be deemed to have
been terminated upon receipt by Tenant of written notice of
such termination. Upon such termination Landlord shall have
the right to recover from Tenant, as liquidated damages, the
following:
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(A) the worth, at the time of the award, of the unpaid rent
that has been earned at the time of termination of this Lease;
and
(B) the worth, at the time of the award, of the amount by
which the unpaid rent that would have been earned after the
date of termination of this Lease until the time of the award
exceeds the amount of rent that could have been reasonably
obtained by Landlord using reasonable diligence to relet the
Premises; and
(C) the worth, at the time of the award, of the amount by
which the unpaid rent for the balance of the Lease Term (or
the then current extension period) after the time of the award
exceeds the amount of rent that could have been reasonably
obtained by Landlord using reasonable diligence to relet the
Premises.
The following words and phrases as used in this Section
8.1(b)(v) shall have the following meanings:
(x) The "worth at the time of the award" as used in Section
8.1(b)(v)(A) and (B) shall be computed by allowing interest at
the lesser of (a) the Prime Rate plus three percent (3%) or
(b) the maximum rate permitted by law.
(y) The "worth at the time of the award" as used in Section
8.1(b)(v)(C) shall be computed by discounting the amount at
the discount rate of eight percent (8%) per annum; and
(z) The term "time of the award" shall mean either the date
upon which Tenant pays to Landlord the amount recoverable by
Landlord as set forth above or the date of entry of any
determination, order or judgment of any court, whichever first
occurs.
(vi) Landlord may exercise all remedies granted a "Secured
Party" under the Georgia Uniform Commercial Code. Landlord
shall have a lien upon all goods, chattels or personal
property of any description belonging to Tenant which are
placed in, or become a part of, the Premises, as security for
the performance by Tenant of its obligations under this Lease,
which lien shall not be in lieu of or in any way affect any
statutory landlord's lien given by law, but shall be
cumulative thereto; and Tenant hereby grants to Landlord a
security interest in all such property placed in the Premises.
In the event Landlord exercises its option to terminate this
Lease, or to reenter and relet the Premises as provided
herein, Landlord may at its option take possession of all of
Tenant's property on the Premises and sell the same at public
or private sale after giving Tenant reasonable notice of the
time and place of any public sale, or of the time after which
any private sale is to be made, for cash or on credit, or for
such prices and terms as Landlord deems best, with or without
having the property present at such sale. In addition,
Landlord may at its option foreclose this lien in the manner
and form provided by the foreclosure of security instruments
or in any other manner permitted by law. The proceeds of any
such foreclosure or sale shall be applied first to the
necessary and proper expense of removing, storing and selling
such property, including reasonable attorney's fees, then to
the payment of any
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indebtedness, other than rent, due hereunder from Tenant to
Landlord, including interest thereon, then to the payment of
any rent or other sums due or to become due under this Lease,
with the balance, if any, to be paid to Tenant. Tenant shall
at the request of Landlord, execute and deliver such
additional documents as may be requested, including a Uniform
Commercial Code Financing Statement(s) (Form 1), to perfect
this security interest.
(c) If Landlord reenters the Premises or terminates this Lease pursuant to
any of the provisions of this Lease, Tenant hereby waives all claims for
damages which may be caused by such reentry or termination by Landlord.
Tenant shall and does hereby agree to indemnify and hold Landlord harmless
from any loss, cost (including court costs and attorneys' fees), or
damages suffered by Landlord by reason of such reentry or termination. No
such reentry or termination shall be considered or construed to be a
forcible entry.
(d) No course of dealing between Landlord and Tenant or any failure or
delay on the part of Landlord in exercising any rights of Landlord under
this Section 8.1 or under any other provisions of this Lease shall operate
as a waiver of any rights of Landlord hereunder or under any other
provisions of this Lease, nor shall any waiver of a Default on one
occasion operate as a waiver of any subsequent Default or of any other
Default. No express waiver shall affect any condition, covenant, rule, or
regulation other than the one specified in such waiver and that one only
for the time and in the manner specifically stated.
(e) The exercise by Landlord of any one or more of the rights and remedies
provided in this Lease shall not prevent the subsequent exercise by
Landlord of any one or more of the other rights and remedies herein
provided. All remedies provided for in this Lease are cumulative and may,
at the election of Landlord, be exercised alternatively, successively, or
in any other manner and are in addition to any other rights provided for
or allowed by law or in equity.
8.2 Insolvency or Bankruptcy. The making by Tenant of an assignment for
the benefit of its creditors, the appointment under state law of a receiver to
take possession of all or substantially all of Tenant's assets, or the voluntary
or involuntary involvement of Tenant as a principal in a state law insolvency or
reorganization proceeding, may, at the option of Landlord, be deemed and
declared a Default by Tenant hereunder. Tenant covenants and agrees promptly to
notify Landlord in writing of (i) the occurrence of any of the events described
in the preceding sentence or any event similar thereto, whether occurring in
Georgia or any other jurisdiction, and (ii) the institution by or against Tenant
of any proceeding under the United States Bankruptcy Code including a copy of
the petition filed to initiate such proceeding.
8.3 Late Payments. Tenant shall pay, in the event Base Rental, Additional
Rental, or other charge to be paid by Tenant hereunder is not paid when due, (A)
a late fee of five (5%) percent of the amount past due, which late fee Tenant
acknowledges is an agreed reimbursement to Landlord for the administrative
expense incurred by Landlord as a result of Tenant's late payment and not a
penalty; and (B) interest on the amount past due (excluding late fees) at a rate
which is the lower of (x) a per annum rate equal to the Prime Rate plus three
percent, or (y) sixteen (16%) percent per annum, but in no event at a rate
higher than that permitted by applicable law, from due date until paid. Should
Tenant make a partial payment of past due amounts, the amount of such partial
payment shall be applied first, to late fees, second, to accrued but unpaid
interest, and third, to past due amounts, in inverse order of their due date.
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8.4 Attorneys' Fees for Collection. If any Base Rental, Additional Rental
or other debt owing by Tenant to Landlord hereunder is collected by or through
an attorney-at-law, Tenant agrees to pay an additional amount, as attorneys'
fees, equal to fifteen percent (15%) of such amount owed to Landlord.
8.5 Waiver of Homestead. Tenant hereby waives and renounces all homestead
or exemption rights which Tenant may have under or by virtue of the
Constitutions and Laws of the United States of America, the State of Georgia,
and any other State as against any debt or sum Tenant may owe Landlord under
this Lease and hereby transfers, conveys, and assigns to Landlord all homestead
or exemption rights which may be allowed or set apart to Tenant, including such
as may be set apart in any bankruptcy proceeding to pay any debt or sum owing by
Tenant to Landlord hereunder.
8.6 No Waiver of Rights. No failure or delay of either party to exercise
any right or power given it herein or to insist upon strict compliance by the
other party of any obligation imposed on it herein and no custom or practice of
either party hereto at variance with any term hereof shall constitute a waiver
or a modification of the terms hereof by either party or any right it has herein
to demand strict compliance with the terms hereof by the other party. Neither
party has or shall have any authority to waive any provision of this Lease
unless such waiver is expressly made in writing.
IX.
MISCELLANEOUS PROVISIONS
9.1 Broker. Tenant represents and warrants to Landlord that (except with
respect to any broker identified in the Lease Summary as "Tenant's Broker") no
broker, agent, commission salesperson, or other person has represented Tenant in
the negotiations for and procurement of this Lease and of the Premises and that
(except with respect to any broker identified in the Lease Summary) no
commissions, fees or compensation of any kind are due and payable in connection
herewith to any broker, agent, commission salesperson, or other person. Tenant
agrees to indemnify and hold Landlord harmless from all loss, cost and damage
(including reasonable attorneys' fees and court costs) suffered or incurred by
Landlord as a result of a breach by Tenant of the representation and warranty
contained in the immediately preceding sentence or as a result of Tenant's
failure to pay commissions, fees or compensation due to any broker who
represented Tenant, whether or not disclosed. Landlord and Tenant each represent
and disclose to the other that Tenant's Broker identified in the Lease Summary
has represented Tenant, and that Barry Real Estate Companies, Inc. ("Landlord's
Broker") has represented Landlord in the negotiation of this Lease. The
commissions or other compensation due and payable to Tenant's Broker and to
Landlord's Broker by reason of this Lease will be paid by Landlord pursuant to
separate written agreements.
9.2 Addresses and Notices. All notices, unless oral notice is specified,
required or permitted to be given with respect to this Lease in order to be
effective shall be in writing and shall be sent to the address of the intended
party at its address specified in the Lease Summary. Notices shall be sent
either by local or overnight courier service, or by the United States Postal
System, certified or registered mail, return receipt requested, with postage and
charges prepaid. Notices by courier service shall be deemed effective on date of
delivery to the specified address. Notices by the United States Postal System
shall be deemed effective on the third (3rd) business day subsequent to date of
postmark or on the date of actual
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receipt by the addressee, whichever shall be the earlier. In the event of a
change of address by either party, such party shall give written notice thereof
in accordance with the foregoing.
9.3 Entire Agreement and Exhibits. This Lease constitutes and contains
the sole and entire agreement of Landlord and Tenant with respect to the
Premises and no prior or contemporaneous oral or written representation or
agreement between the parties and affecting the Premises shall have legal
effect. No modification or amendment of this Lease shall be binding upon the
parties unless such modification or amendment is in writing and signed by
Landlord and Tenant. The content of each and every exhibit, attachment and the
Lease Summary which is referenced in this Lease as being attached hereto is
incorporated into this Lease as fully as if set forth in the body of this Lease.
9.4 Subordination and Attornment.
(a) Except as provided in subsections (c) and (d) below, this Lease
and all rights of Tenant hereunder are and shall be subject and
subordinate to (i) the lien, title and interest of any first-in-priority
mortgage, first-in-priority deed to secure debt, first-in-priority deed of
trust, or other first-in-priority instrument in the nature thereof which
may now or hereafter affect Landlord's estate or interest in and to the
Building or the land underlying the Building and to any other
first-in-priority instrument encumbering the fee title of the Building or
the land underlying the Building and to any modifications, renewals,
consolidations, extensions, or replacements thereof; and (ii) all ground
leases which may hereafter be executed affecting the Building or the land
underlying the Building.
(b) Subsection (a) above shall be self-operative, and no further
instrument of subordination shall be required by the holder of any such
instrument affecting or encumbering the Building or the land underlying
the Building. In confirmation of such subordination, Tenant shall, upon
demand, at any time or times, execute, acknowledge and deliver to Landlord
or the holder of any such mortgage, deed to secure debt, deed of trust, or
other instrument or to the lessor under any such ground lease, without
expense, any and all instruments that may be requested by Landlord or such
holder or such lessor to evidence the subordination of this Lease and all
rights hereunder to any such mortgage, deed to secure debt, deed of trust,
or other instrument or the grant of any such ground lease, and each such
renewal, modification, consolidation, replacement, and extension thereof.
(c) Tenant shall, upon demand of Landlord, at any time or times,
execute, acknowledge, and deliver to Landlord or to the holder of any
mortgage, deed to secure debt, deed of trust, or other instrument
affecting or encumbering the Building or the land underlying the Building
or to the lessor under any ground lease affecting the Building or the land
underlying the Building, without expense, any and all instruments that may
be necessary to make this Lease superior to any such mortgage, deed to
secure debt, deed of trust or other instrument or the grant of any such
ground lease, and each renewal, modification, consolidation, replacement,
and extension thereof.
(d) If the holder of any mortgage, deed to secure debt, deed of
trust or other instrument affecting or encumbering the Building or the
land underlying the Building or if the lessor under any ground lease
affecting the Building or the land underlying the Building shall hereafter
succeed to the rights of Landlord under this Lease, whether through
possession or foreclosure action or exercise of private power of sale or
delivery of a new lease, Tenant shall,
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at the option of such holder or lessor, attorn to and recognize such
successor as Tenant's landlord under this Lease as of the date of such
succession to Landlord's interest and shall promptly execute and deliver
any instrument that may be necessary to evidence such attornment. Upon
such attornment, this Lease shall continue in full force and effect as a
direct lease between such successor Landlord and Tenant, subject to all of
the terms, covenants, and conditions of this Lease.
9.5 Estoppel Certificate. At any time and from time to time, Tenant, on
or before the date specified in a request therefor made by Landlord, which date
shall not be earlier than ten (10) days from the making of such request,
covenants and agrees to execute, acknowledge and deliver to Landlord a
certificate evidencing (i) whether or not this Lease is in full force and
effect, (ii) whether or not this Lease has been amended in any manner, and if so
specifying such amendment or amendments, (iii) whether or not there are any
existing events of default on the part of Landlord hereunder to the knowledge of
Tenant and specifying the nature of such events of default, if any, and (iv) the
date to which rent, and other amounts due hereunder, if any, have been paid.
Each certificate delivered pursuant to this Section may be relied on by any
prospective purchaser or transferee of Landlord's interest hereunder or of any
part of Landlord's property or by any mortgagee of Landlord's interest hereunder
or of any part of Landlord's property or by an assignee of any such mortgagee or
by any ground lessor of Landlord's interest hereunder.
9.6 Severability. If any clause or provision of this Lease is or becomes
illegal, invalid or unenforceable because of present or future laws or any rule
or regulation of any governmental body or entity, effective during the Lease
Term, the intention of the parties hereto is that the remaining parts of this
Lease shall not be affected thereby, unless the lack of such clause or provision
is, in the sole determination of Landlord, essential to the rights of both
parties in which event Landlord shall have the right to terminate this Lease on
written notice to Tenant.
9.7 Captions. The captions used in this Lease are for convenience only
and do not in any way limit or amplify the terms and provisions hereof.
9.8 Successors and Assigns. The words "Landlord" and "Tenant" as used
herein shall include the respective contracting party, whether singular or
plural, and whether an individual, masculine or feminine, or a corporation,
general partnership, joint venture, limited partnership or trust. The provisions
of this Lease shall inure to the benefit of and be binding upon Landlord and
Tenant, and their respective successors, heirs and assigns, subject, however, in
the case of Tenant, to the provisions of Section 2.5 hereof. It is understood
and agreed that the term "Landlord", as used in this Lease, means only the
owner(s), or the lessee(s), from time to time of the Building and/or the land
underlying the Building so that in the event of any sale or sales of the
Building and/or the land underlying the Building, or of any lease thereof, the
Landlord named herein shall be and hereby is entirely freed and relieved of all
covenants and obligations of Landlord hereunder accruing thereafter to the
extent of such sale or lease, and it shall be deemed without further agreement
that the purchaser, or the lessee, as the case may be, has assumed and agreed,
to the same extent, to carry out any and all covenants and obligations of
Landlord hereunder during the period such party has possession of all or such
portion of the Building and/or the land underlying the Building which it has
purchased or leased. Should all of the land underlying the Building and the
entire Building be severed as to ownership by sale and/or lease, then, unless
the Tenant is otherwise notified to the contrary in writing, either the owner of
the entire Building or the lessee of the entire Building, as the case may be,
which has the right to lease space in the Building to tenants shall be
-27-
<PAGE> 34
deemed the "Landlord". Tenant shall be bound to any successor landlord for all
the terms, covenants, and conditions hereof and shall execute any attornment
agreement not in conflict herewith at the request of any successor landlord.
9.9 Georgia Law. The laws of the State of Georgia shall govern the
interpretation, validity, performance and enforcement of this Lease.
9.10 Time is of the Essence. Time is of the essence of this Lease. Unless
specifically provided otherwise, all references to terms of days or months shall
be construed as references to calendar days or calendar months, respectively.
9.11 Execution. This Lease may be executed in any number of counterparts,
each of which shall be deemed an original and any of which shall be deemed to be
complete in itself and may be introduced into evidence or used for any purpose
without the production of the other counterparts.
9.12 Force Majeure. A party to this Lease shall be excused from the
performance of its duties and obligations under this Lease, except obligations
for the payment of money such as Base Rental, for the period of delay, but in no
event longer than ninety (90) days, caused by labor disputes, governmental
regulations, riots, war, insurrection, acts of God or other causes beyond the
control of the party whose performance is being excused (but such causes shall
not include insufficiency of funds).
9.13 Multiple Tenants. Should more than one party enter into this Lease
as Tenant, each party so constituting Tenant shall be liable, jointly and
severally with the other or others, for all obligations of Tenant under this
Lease, and Landlord may enforce its rights hereunder against such party with or
without seeking enforcement thereof against the other or others.
9.14 Mutual Warranty of Authority. Landlord warrants to Tenant that
Landlord is a validly existing limited partnership under the laws of the State
of Georgia, that its entry into and performance of this Lease has been duly
authorized, and that the party executing this Lease on its behalf is duly
authorized to do so. Tenant, if other than an individual, warrants to Landlord
that Tenant is a validly existing legal entity under the laws of the state of
its formation and that it is duly qualified to do business in the State of
Georgia, that its entry into and performance of this Lease has been duly
authorized, and that the officer(s), partner(s) or trustee(s), as applicable,
executing this Lease on its behalf are duly authorized to do so.
9.15 Parking Rights. For use by Tenant and its employees and invitees,
Landlord shall provide for Tenant's use during normal business hours for the
Building the number of unassigned parking spaces in the surface parking lot
adjacent to the Building as designated in the Lease Summary. Such parking spaces
shall be provided to Tenant free of charge during the initial term of this Lease
and any extension hereof.
9.16 No Recordation of Lease. This Lease is not in recordable form, and
Tenant agrees not to record or permit the recording of this Lease.
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<PAGE> 35
9.17 Hazardous Substances.
(a) Tenant hereby covenants that Tenant shall not cause or permit any
"Hazardous Substances" (as hereinafter defined) to be placed, held, located or
disposed of in, on or at the Premises or any part thereof and neither the
Premises nor any part thereof shall ever be used as a dump site or storage site
(whether permanent or temporary) for any Hazardous Substances during the Lease
Term.
(b) Tenant hereby agrees to indemnify Landlord and hold Landlord harmless
from and against any and all losses, liabilities, including strict liability,
damages, injuries, expenses, including reasonable attorneys' fees, costs of any
settlement or judgment and claims of any and every kind whatsoever paid,
incurred or suffered by, or asserted against, Landlord by any person or entity
or governmental agency for, with respect to, or as a direct or indirect result
of, the presence on or under, or the escape, seepage, leakage, spillage,
discharge, emission, discharging or release from, the Premises of any Hazardous
Substance (including, without limitation, any losses, liabilities, including
strict liability, damages, injuries, expenses, including reasonable attorneys'
fees, costs of any settlement or judgment or claims asserted or arising under
the Comprehensive Environmental Response, Compensation and Liability Act, any
so-called federal, state or local "Superfund" or "Superlien" laws, statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability, including strict liability, substances or standards of
conduct concerning any Hazardous Substance), provided, however, that the
foregoing indemnity is limited to matters arising solely from Tenant's violation
of the covenant contained in subsection (a) above.
(c) For purposes of this Lease, "Hazardous Substances" shall mean and
include those elements or compounds which are contained in the list of hazardous
substances now or hereafter adopted by the United States Environmental
Protection Agency (the "EPA") or the list of toxic pollutants designated by
Congress or the EPA or which are now or hereafter defined as hazardous, toxic,
pollutant, infectious or radioactive by any other Federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree regulating,
relating to, or imposing liability or standards of conduct concerning, any
hazardous, toxic or dangerous waste, substance or material, as now or at any
time hereafter in effect.
(d) Landlord shall have the right but not the obligation, and without
limitation of Landlord's rights under this Lease, to enter onto the Premises or
to take such other actions as it deems necessary or advisable to cleanup,
remove, resolve or minimize the impact of, or otherwise deal with, any Hazardous
Substance following receipt of any notice from any person or entity (including
without limitation the EPA) asserting the existence of any Hazardous Substance
in, on or at the Premises or any part thereof which, if true, could result in an
order, suit or other action against Tenant or Landlord or both. All reasonable
costs and expenses incurred by Landlord in the exercise of any such rights,
which costs and expenses result from Tenant's violation of the covenant
contained in subsection (a) above, shall be deemed additional rental under this
Lease and shall be payable by Tenant upon demand.
(e) This Section 9.17 shall survive cancellation, termination or
expiration of this Lease.
-29-
<PAGE> 36
9.18 Names. Upon written notice to Tenant, Landlord reserves the right,
from time to time, to change the name of the development, the name of the
Building and the street address of the Building. Tenant shall not, without the
prior written consent of Landlord, use the name given the development, the
Building, or any other deceptively similar name, or use any associated service
mark or logo of the development or the Building for any purpose other than
Tenant's business address.
9.19 Shared Communications Services. Landlord may contract with a vendor
(the "Shared Services Vendor") to make available to tenants of the Building
certain shared communications services. With respect to such shared
communications services, if and so long as available, Landlord and Tenant agree
as follows:
(a) Tenant, at its election, may contract with Shared Services
Vendor or any other vendor for communications services, including, without
limitation, Southern Bell Telephone and Telegraph Company, the public
utility provider of telecommunications regulated by the Georgia Public
Service Commission. Tenant may make such election at its sole and absolute
discretion.
(b) Tenant acknowledges and agrees that Shared Services Vendor is an
independent contractor of Landlord and not Landlord's employee, agent,
partner or joint venturer and Tenant waives any and all right Tenant may
have or claim to have to assert the contrary.
(c) Tenant acknowledges and agrees that any cessation or
interruption of shared communications services or default by Shared
Services Vendor under the terms and conditions of Tenant's agreement with
Shared Services Vendor shall not constitute a default under this Lease nor
a constructive eviction by Landlord of Tenant. Tenant agrees that it shall
not abate or setoff against any amount of Base Rental, Rental Adjustment,
additional rent or other sum due under this Lease for any claim against
Shared Services Vendor or for a default under Tenant's agreement with
Shared Services Vendor. Tenant waives and releases Landlord from any and
all claims Tenant may have, now or in the future, against Landlord, if
any, that arise from or are related to the acts, omissions, negligence or
gross negligence of Shared Services Vendor or its agents and employees.
9.20 Ownership and Management Disclosure. Landlord discloses to Tenant,
and Tenant acknowledges, that Landlord is the owner of record of the Building
and the Premises and that Landlord's Broker and its affiliates are authorized to
manage the Building and the Premises on behalf of Landlord. The address of both
is 50 Glenlake Parkway, Suite 520, Atlanta, Georgia 30328.
9.21 Effect of Lease Termination. No termination of this Lease by reason
of exercise of an optional right, lapse of time, failure of condition or
election of a party to terminate shall release or otherwise relieve either party
from liability for breach of this Lease or from performance of any contractual
obligation provided herein accruing prior to such termination. The possessory
rights of Tenant, however, shall cease and expire as of the effective time of
any such termination.
9.22 Special Stipulations. The Special Stipulations, if any, attached
hereto as Exhibit "E" and made a part hereof, are hereby incorporated herein and
in the event they conflict with any of the foregoing provisions, the Special
Stipulations shall control.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
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<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have duly executed and sealed this
Lease as of the date and year first above stated.
LANDLORD:
DEERFIELD HOLDINGS, L.P.,
a Georgia limited partnership
By: BS DEERFIELD, LLC, a Georgia
limited liability company,
as its sole General Partner
By: /s/ Christian B. Schoen
Name: Christian B. Schoen
Its: Manager
[SEAL]
TENANT:
INTEGRATED INFORMATION SYSTEMS, INC.,
a Delaware corporation
By: Craig A. King
Name: Craig A. King
Title: Vice President
Attest:
Title:
[SEAL]
-31-
<PAGE> 38
[GRAPHIC FLOOR PLAN]
EXHIBIT "A"
<PAGE> 39
[GRAPHIC FLOOR PLAN]
EXHIBIT "A-1"
FIRST REFUSAL SPACE
<PAGE> 40
[GRAPHIC FLOOR PLAN]
ATTACHMENT "A-2"
200 BUILDING FIRST REFUSAL SPACE
B A R R Y
Real Estate Services
<PAGE> 41
EXHIBIT "B"
TENANT ACCEPTANCE AGREEMENT
This Agreement, made this ____ day of _________, 2000, between DEERFIELD
HOLDINGS, L.P., a Georgia limited partnership, (hereinafter referred to as
"Landlord") and INTEGRATED INFORMATION SYSTEMS, INC., a Delaware corporation
(hereinafter referred to as "Tenant");
W I T N E S S E T H T H A T:
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated
____________, 2000 (the "Lease") for Suite _____ (the "Premises") in the
building known as ____________________ 100 Deerfield Point located at 12725
Morris Road Extension, Alpharetta, Georgia 30004; and
WHEREAS, Landlord and Tenant agreed to execute this Agreement to confirm
the actual Commencement and Expiration dates of the Lease Term, and for other
purposes;
NOW, THEREFORE, pursuant to the provisions of Article II of the Lease,
Landlord and Tenant mutually agree as follows:
1. The Commencement Date of the Lease Term is__________, 2000. The
Expiration Date of the Lease Term is __________, 2005.
2. Tenant is in possession of, and has accepted, the Premises demised by
the Lease, and acknowledges that all the work to be performed by Landlord in the
Premises as required by the terms of the Lease except as set forth in Paragraph
3 below, if any, has been satisfactorily completed. Tenant further certifies
that all conditions of the Lease required of Landlord as of this date have been
fulfilled and there are no defenses or setoffs against the enforcement of the
Lease by Landlord.
3. Landlord and Tenant acknowledge pursuant to Section 2.2 of the Lease
that the following items remain to be completed or corrected, which items
Landlord agrees to accomplish within a reasonable time subsequent to the
Commencement Date (if none, so state):
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have duly executed and sealed this
Agreement as of the date and year first above stated.
LANDLORD:
DEERFIELD HOLDINGS, L.P.,
a Georgia limited partnership
By: BS DEERFIELD, LLC, a Georgia
limited liability company,
as its sole General Partner
By:
Name: Christian B. Schoen
Its: Manager
[SEAL]
TENANT:
INTEGRATED INFORMATION SYSTEMS, INC.,
a Delaware corporation
By:
Name:
Title:
Attest:
Title:
[SEAL]
-2-
<PAGE> 43
EXHIBIT "C"
TENANT IMPROVEMENT AGREEMENT
This Agreement, made this _____ day of _________, 2000, between DEERFIELD
HOLDINGS, L.P., a Georgia limited partnership (hereinafter referred to as
"Landlord") and INTEGRATED INFORMATION SYSTEMS, INC., a Delaware corporation
(hereinafter referred to as "Tenant");
W I T N E S S E T H T H A T:
WHEREAS, the undersigned Landlord and Tenant have executed, sealed, and
delivered a certain Lease Agreement (hereinafter referred to as the "Lease") to
which this Agreement is attached, and into which this Agreement is fully
incorporated by reference, as Exhibit "C";
WHEREAS, the Lease provides for the leasing of space (the "Premises")
within 100 Deerfield Point, located at 12725 Morris Road Extension, Alpharetta,
Georgia 30004 (hereinafter referred to as the "Building");
WHEREAS, terms which are defined in the Lease when used herein shall have
the same meanings ascribed thereto as set forth in the Lease; and
WHEREAS, Landlord and Tenant desire to set forth herein their respective
agreements regarding the improvement of the Premises;
NOW, THEREFORE, in consideration of the foregoing recitals, the execution
and delivery of the Lease by the parties hereto, the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant, intending to be legally
bound, hereby agree as follows:
SECTION 1. TENANT IMPROVEMENTS.
Section 1.01. Tenant Improvements.
The term "Tenant Improvements" shall mean all improvements constructed or
installed in or on the Premises in accordance with the Drawings and
Specifications, as hereinafter defined.
Section 1.02. Base Building Condition.
The term "Base Building Condition" shall mean the condition of the
Premises described in Attachment C-1 attached hereto and incorporated herein by
this reference.
SECTION 2. DRAWINGS AND SPECIFICATIONS.
Section 2.01. Definition.
The term "Drawings and Specifications" shall mean the final drawings,
specifications, and finish schedules for the Tenant Improvements which shall be
prepared and approved by Landlord and Tenant in accordance with the following
procedure:
(a) As soon as reasonably possible after execution of this Tenant
Improvement Agreement, but in no event later than ten (10) days
thereafter, Tenant shall either inform Landlord that Tenant desires to use
the architect designated by Landlord ("Landlord's architect") to prepare
final working drawings and specifications necessary to commence
construction of the Tenant Improvements or inform Landlord of the identity
of the architect or other design specialist whom Tenant desires to use for
such work. Landlord shall have the right of approval over any architect or
other design specialist selected by Tenant and shall
<PAGE> 44
advise Tenant promptly of Landlord's decision either approving or
disapproving the person or firm selected by Tenant.
(b) If Tenant elects to use Landlord's architect as provided in subsection
(a) above, Tenant shall commence working with said architect promptly so
that final working drawings and specifications can be prepared for
Landlord's approval. If Tenant elects to use an independent architect or
design specialist and if the same is approved by Landlord, Tenant agrees
to commence working with such professional promptly and further agrees
that such work shall be performed in accordance with professional
standards for design and construction criteria. The architect selected by
Tenant, whether Landlord's architect or other architect or design
specialist selected by Tenant with Landlord's approval, shall hereinafter
be referred to as the "Tenant's Architect".
(c) As soon as reasonably possible, but no more than thirty (30) days
after making its election under subsection (b) above, Tenant shall deliver
to Landlord Tenant's proposed final working drawings and specifications
for the Tenant Improvements. Landlord shall promptly review and resubmit
the same to Tenant, either with Landlord's approval, or with Landlord's
approval subject to comments, or with Landlord's disapproval. If Landlord
fails to respond within thirty (30) days after receiving such proposed
final drawings and specifications, Landlord shall be deemed to have given
its disapproval. Tenant shall resubmit any such drawings and
specifications which are returned by Landlord without complete approval as
promptly as possible, and such resubmitted drawings and specifications
shall contain the information or changes required by Landlord. Once
Landlord then satisfies itself that such drawings and specifications are
acceptable, Landlord shall so notify Tenant and the same shall constitute
the "Drawings and Specifications" for purposes of this Tenant Improvement
Agreement.
(d) Promptly after receipt of the Drawings and Specifications, Landlord
shall obtain from a contractor designated by Landlord ("Landlord's
Contractor") a price estimate for the Tenant Improvements and shall submit
the same to Tenant for its approval. If Tenant disapproves such price
estimate, Tenant agrees to work promptly with Tenant's Architect and
Landlord's Contractor to alter the Drawings and Specifications as
necessary to cause the price estimate based thereon to be acceptable to
Tenant. The aggregate design and construction cost for the Tenant
Improvements, once approved by Tenant, shall hereinafter be referred to as
"Tenant Improvement Costs". Upon determination of the Tenant Improvement
Costs, Tenant shall be deemed to have given final approval to the Drawings
and Specifications and Landlord shall be deemed to have been authorized to
proceed, through Landlord's Contractor, with the work of constructing and
installing the Tenant Improvements in accordance with the Drawings and
Specifications.
SECTION 3. PAYMENT OF COSTS.
Section 3.01. Landlord's Costs for Drawings and Specifications.
Tenant shall be solely responsible for the cost of preparing and
finalizing all drawings and specifications as set forth in Sections 2.01(a)
through (d) above. Notwithstanding the foregoing, Tenant may apply the
Landlord's Allowance for Tenant Improvement Costs (as hereinafter defined) to
the payment of the cost of the preparation of such drawings and specifications.
Section 3.02. Landlord's Allowance for Tenant Improvement Costs.
Landlord shall pay the Tenant Improvement Costs up to, but not exceeding,
the amount specified in the Lease Summary (the "Landlord's Allowance for Tenant
Improvement Costs").
Section 3.03. Tenant's Costs.
Tenant shall pay to Landlord, as additional rental, the following:
<PAGE> 45
(a) The Tenant Improvement Costs over and above the Landlord's Allowance
for Tenant Improvement Costs;
(b) The cost (including fees for architects, engineers, interior designers
and other professionals) of preparing and finalizing all drawings and
specifications as set forth in Sections 2.01(a) through (d), over and
above the Design Fee Allowance; and
(c) The cost of making any and all changes in and to the Drawings and
Specifications and any and all increased costs in the Tenant Improvement
Costs, including construction management fees, resulting therefrom.
The aggregate of all costs described above in subsections (a) through (c) of
this Section 3.03 are hereinafter referred to collectively as "Tenant's Costs."
Section 3.04. Payment Schedule for Tenant's Costs.
Tenant shall pay to Landlord the Tenant's Costs as follows:
(a) Fifty percent (50%) of the amount of Tenant's Costs then known to
Landlord and Tenant shall be paid prior to the commencement of any work of
constructing and installing the Tenant Improvements;
(b) Forty percent (40%) of the amount of Tenant's Costs then known to
Landlord and Tenant shall be paid within thirty (30) days after the
commencement of the work of constructing and installing the Tenant
Improvements; and
(c) The balance of Tenant's Costs shall be paid immediately upon
Landlord's notification to Tenant that the work of constructing and
installing the Tenant Improvements has been substantially completed.
Section 3.05. Changes in Drawings and Specifications.
If at any time after the Tenant Improvement Costs are determined Tenant
desires to make changes in the Drawings and Specifications, Tenant shall submit
to Landlord for approval working drawings and specifications for any and all
such desired changes. The process of finalizing and approving such drawings and
specifications shall be in the same manner as set forth in Section 2 above. Once
any and all changes and modifications are approved, Landlord shall promptly
submit the same to Landlord's Contractor for pricing. The procedure for
determining an approved cost for such changes shall be as set forth in Section 2
above. Once a cost for such changes has been approved, all references in this
Agreement to "Drawings and Specifications" shall be to the Drawings and
Specifications adopted pursuant to the procedures of Section 2 above, as changed
and modified pursuant to this Section 3.05, and all references to "Tenant
Improvement Costs" shall be deemed to include the aggregate approved cost for
the changes as determined in this Section 3.05. Once the changes and the costs
therefor have been approved, Tenant shall be deemed to have given full
authorization to Landlord to proceed with the work of constructing and
installing the Tenant Improvements in accordance with the Drawings and
Specifications, as changed and modified. Landlord shall have the optional right
to require Tenant to pay in one lump sum to Landlord, in advance of commencement
of work, any and all increases in the Tenant Improvement Costs which result from
approved changes to the Drawings and Specifications.
Section 3.06. Failure to Pay Tenant's Costs.
Failure by Tenant to pay Tenant's Costs in accordance with this Section 3
will constitute a failure by Tenant to pay rent when due under the Lease and
shall therefor constitute a Default by Tenant under the Lease, and Landlord
shall have all of the remedies available to it under the Lease and at law or in
equity for nonpayment of rent.
Section 3.07. Landlord's Disbursement Obligations.
<PAGE> 46
Landlord agrees to disburse the Landlord's Allowance for Tenant
Improvement Costs and the Tenant's Costs (to the extent deposited by Tenant with
Landlord) to pay the Tenant Improvement Costs as and when the same become due
and payable. Landlord shall be entitled to rely on the accuracy of any and all
invoices and fee statements for labor and materials performed on or furnished to
the Premises in connection with the Tenant Improvements and to rely, to the
extent submitted, on any and all certifications as to Tenant Improvement Costs
submitted by Landlord's Contractor and/or Tenant's Architect.
Section 3.08. Finish Work in Addition to Tenant Improvements.
All work in or about the Premises which is not within the scope of the
work necessary to construct and install the Tenant Improvements, such as
delivering and installing furniture, telephone equipment, wiring, and office
equipment, shall be furnished and installed by Tenant entirely at Tenant's
expense. Tenant shall adopt a schedule for performing such additional work
consistent with the schedule of Landlord's Contractor and shall see that such
work is conducted in such a manner as to maintain harmonious labor relations and
as not to interfere unreasonably with or to delay the work of constructing or
installing the Tenant Improvements. Tenant agrees further that such additional
work shall be conducted and accomplished so as not to interfere with Landlord's
ability to obtain a certificate of occupancy for the Premises, and the costs
associated with curing or correcting such interference, if any, shall be part of
Tenant's Costs. Landlord shall give access and entry to the Premises to Tenant
and its contract parties performing such additional work and reasonable
opportunity and time to enable Tenant and such contract parties to perform and
complete such work. All of such additional work and Tenant's use (and the use by
its contract parties) of the Premises for such purposes shall be entirely in
accordance with the Lease, including without limitation this Agreement.
Section 3.09. Schedule.
Subject to the terms of this Agreement and the other provisions of the
Lease, Landlord and Tenant agree to use their best efforts to comply with the
Schedule for Planning, Pricing and Construction of Tenant Improvements, attached
hereto as Attachment "C-2".
IN WITNESS WHEREOF, the parties have duly executed and sealed this
Agreement as of the date and year first above stated.
LANDLORD:
DEERFIELD HOLDINGS, L.P.,
a Georgia limited partnership
By: BS DEERFIELD, LLC, a Georgia
limited liability company,
as its sole General Partner
By: /s/ Christian B. Schoen
-----------------------------
Name: Christian B. Schoen
Its: Manager
[SEAL]
TENANT:
<PAGE> 47
INTEGRATED INFORMATION SYSTEMS, INC.,
a Delaware corporation
By: /s/ Craig A. King
-------------------------------
Name: Craig A. King
Title: Vice President
Attest:
Title:
[SEAL]
<PAGE> 48
DEERFIELD POINT
- --------------------------------------------------------------------------------
ATTACHMENT "C-1"
BASE BUILDING IMPROVEMENTS
The Base Building Improvement and systems as described below shall be furnished
by Landlord at Landlord's sole cost and expense and are in addition to the
Tenant Improvement Allowance. These include:
1. The Building structure will be designed for a minimum floor load of 70 lbs.
live load plus a 20 lbs. partition dead load.
2. The Building shell will include a built-out and finished interior core,
stairwell enclosures, exterior perimeter walls (minus sheetrock) and all
building columns. The interior core on each floor will include men's and
women's restroom facilities, one drinking fountain, electrical, telephone,
janitorial and mechanical closets, stairways and an elevator lobby. All
walls adjacent to public traffic areas will be vinyl finished. All doors
throughout the premises will be 3'0" solid core, 8'10.5" in height with
two-knuckle hinges and metal door frames included. The restroom facilities
on each floor of the Premises will be based on the latest edition of the
Standard Plumbing Code. In accordance with the ADA, as defined in the
Lease, handicapped, accessible water closets will be provided for both men
and women on each floor, as required by applicable laws or building codes.
Restrooms will have individual toilet stalls with ceramic tile wet walls
and floors, ceiling hung partitions between stalls, gypsum board front
walls and returns with millwork louvered doors, and gypsum ceilings with
carpeted vestibules.
3. A concrete floor will be installed with a smoothed trowel finish for
installation of glued-down carpet. The floor will be poured level and
finished in accordance with current ACI Standards at a tolerance of 1/4" in
10 ft. A topping of Gyp-Crete 2000 or an approved equivalent shall be used
to level the floor to within 1/4" overall if the Base Building flooring is
not finished per spec.
4. The ground level building lobby will be fully finished with millwork and
fabric paneled walls, stone floors and drywall ceilings.
5. Throughout the Building, including all corridors and stairwells, a life
safety system will be installed in accordance with the more stringent of
applicable national, state and local codes or the Americans with
Disabilities Act Regulations. The life safety system for the Building will
include sufficient capacity to accommodate additional devices required for
Tenant buildout. It shall consist of sprinklers, smoke detectors, internal
fire alarm and annunciator system, elevator recall, emergency lighting,
self-illuminating exit signs, fire hoses, stairwell pressurization and
extinguishers as required by applicable codes or Tenant's safety
requirements. The sprinkler system will have an approved water flow alarm
connection and tamper-proof detection device, connected to a central
station or direct to the fire/police departments. It will include all
distribution of mains, laterals, uprights and upright heads.
6. Electrical distribution will be provided to the main panel boxes in the
electrical closet on each floor. The electrical system shall be sized for a
connected load of 7.0 watts/usable sq. ft. exclusive of lighting and HVAC.
Each 480: 120/208 step-down transformer serving designated branch circuit
panels primarily dedicated to personal computer loads shall have a "K"
rating of no less than 4. Power will be provided in highly reliable
concrete-encased under-ground duct lines providing clean uninterrupted
power.
1
<PAGE> 49
DEERFIELD POINT
- --------------------------------------------------------------------------------
7. A suspended, revealed edge acoustical ceiling will be supplied and stocked
on the floor. It will be listed by Underwriter's Laboratories, Inc.
(Materials List) as Fire Hazard Classification and will have a minimum
thickness of 3/4" with a foil back. The ceiling height will be 9'0"
throughout all rooms on each floor. Fissured acoustical tile will be
installed on a 2' x 2' mechanically suspended grid system. Ceiling grid
will be a thin profile 9/16 inch grid. It will have a minimum noise
reduction coefficient of .55, a minimum sound transmission classification
rating of 35, and a minimum combustibility rating of Class I or equal to
that of local code requirements, whichever is greater.
8. The light fixtures will be 2' x 4' x 3" parabolic fixtures with 18 cell
louvers. Lamps are to be T-8 "warm white" energy saving type. Ballasts
shall also be energy efficient, high power factor U.L. listed, Class P, and
have a sound rating of "A". Lighting fixtures without whips will be stocked
on the floor, not connected.
9. The Building will be equipped with a variable air volume (VAV) and power
induction unit (PIU) heating, ventilation and air conditioning system with
individual packaged fan units provided on each floor. The system will
contain bag type air filters. The fan system shall run continuously during
business hours with no duty cycling. All ducts shall be separately zoned by
floor, with individual controls provided within Tenant's Premises. These
individual zones, thermostatically controlled, shall be preset and tamper
proof. The minimum allowable rate is one (1) thermostat and PIU/VAV per
1,400 square feet of usable area, and a minimum of one (1) diffuser for
each 200 square feet of usable area. The location of these thermostats and
the interior diffusers will be configured according to the Tenant's final
space plan at Tenant's cost. Perimeter diffusers are provided as Base
Building. The system will be designed to maintain a space temperature
between 70-75 degrees Fahrenheit on a year-round basis, based on a maximum
average occupancy of one (1) person for each 200 square feet of usable
area. Lobby to be on constant air volume, not on (VAV) system. The
requirements for ventilation shall comply with present ASHRAE (American
Society of Heating, Refrigeration and Air Conditioning Engineers) standard
62-1989 as a minimum requirement. After hours heating and cooling can be
provided at the cost of $35 per hour per floor.
10. Telephone service will be brought to the Building's main telephone room.
Fiber optic cable will be available to the building.
11. Horizontal window blinds will be installed on all windows.
12. Two (2) automatic geared passenger elevators will be provided. One freight,
geared elevator will be provided with 3,500 lbs. capacity, 7'-0" wide by
6'2" deep with a high hat accommodating heights of 11'-0". It will be
accessed via a large freight elevator lobby. Elevator cabs will be equipped
with an emergency communications/alarm system, including a bell
annunciator, connected to the building central alarm system. The elevator
controls will have Braille lettering for eyesight impaired persons.
13. A loading area will be provided with maximum tractor/van clearance.
14. An electronically controlled card access building security system or
equivalent system will be provided. This system can control all entry areas
to Tenant's Premises from elevator lobbies on full floors that Tenant
occupies or at suite entrances from public corridors. This system will
control main building systems to ensure that Tenant's employees and
property are adequately safeguarded. Each card is to be separately coded
for individual employee access and the system can be configured for a
multitude of authorized access levels.
2
<PAGE> 50
DEERFIELD POINT
- --------------------------------------------------------------------------------
15. Carpeting will be installed in elevator lobbies and in common corridors on
all multiple tenancy floors, in color and type as selected by Landlord.
16. All roadways necessary for Tenant's access to and egress from the Building
will be completed.
17. A directory shall be provided in the lobby of the Building and Tenant shall
be allowed space on the directory in proportion to the total rentable area
that Tenant occupies in the Building.
3
<PAGE> 51
ATTACHMENT "C-2"
Schedule for Planning, Pricing and
Construction of Tenant Improvements
<TABLE>
<CAPTION>
DATE ACTIVITY
- ---- --------
<S> <C>
Complete - Tenant shall select architect or space designer with Landlord's approval.
March 20, 2000 - Tenant shall furnish to Landlord final working drawings and specifications for Tenant
Improvements.
March 22, 2000 - Drawings and Specifications submitted to contractors for bid.
March 31, 2000 - Landlord approves drawings and specifications.
March 31, 2000 - Contractor and Final Bid approved by Landlord and Tenant.
April 3, 2000 - Construction of Tenant Improvement begins.
May 26, 2000 - Construction Complete.
May 26, 2000 - Tenant move-in begins.
June 1, 2000 - Commencement Date.
</TABLE>
***
<PAGE> 52
EXHIBIT "D"
RULES AND REGULATIONS
1. The sidewalks, and public portions of the Building, such as
entrances, passages, courts, elevators, vestibules, stairways, corridors or
halls, and the streets, alleys or ways surrounding or in the vicinity of the
Building shall not be obstructed, even temporarily, or encumbered by Tenant or
used for any purpose other than ingress and egress to and from the Premises.
2. No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades, louvered openings, tinted
coating, film or screens shall be attached to or hung in, or used in connection
with, any window, glass surface or door of the Premises, without the prior
written consent of Landlord, unless installed by Landlord.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by Tenant on any part of the outside of
the Premises or Building or on corridor walls or windows or other glass surfaces
(including without limitation glass storefronts). Signs on entrance door or
doors shall conform to building standard signs, samples of which are on display
in Landlord's rental office. Signs on doors shall, at Tenant's expense, be
inscribed, painted or affixed for each tenant by sign makers approved by
Landlord. In the event of the violation of the foregoing by Tenant, Landlord may
remove same without any liability, and may charge the expense incurred by such
removal to Tenant.
4. The sashes, sash doors, skylights, windows, heating, ventilating and
air conditioning vents 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 window sills.
5. No show cases or other articles shall be put in front of or affixed
to any part of the exterior of the Building, nor placed in the public halls,
corridors, or vestibules without the prior written consent of Landlord.
6. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be borne by Tenant.
7. Tenant shall not in any way deface any part of the Premises or the
Building. If Tenant desires to use linoleum or other similar floor covering, an
interlining of builder's deadening felt shall be first affixed to the floor, by
a paste or other material, soluble in water; the use of cement or other similar
adhesive materials, which are not water soluble, are expressly prohibited.
8. No bicycles, vehicles, or animals of any kind shall be brought into
or kept in or about the Premises. No cooking shall be done or permitted by
Tenant on the Premises except in conformity to law and then only in the utility
kitchen, if any, as set forth in Tenant's layout, which is to be primarily used
by Tenant's employees for heating beverages and light snacks. Tenant shall not
cause or permit any unusual or objectionable odors to be produced upon or
permeate from the Premises.
<PAGE> 53
9. No space in the Building shall be used for manufacturing,
distribution, or for the storage of merchandise or for the sale of merchandise,
goods, or property of any kind at auction.
10. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of the Building or
neighboring buildings or premises or those having business with them, whether by
the use of any musical instrument, radio, talking machine, unmusical noise,
whistling, singing, or in any other way. Tenant shall not throw anything out of
the doors, windows or skylights or down the passageways. Tenant shall not cause
or permit any unseemly or disturbing activity or conduct to be visible through
any window, opening, doorway, glass storefront or other glass surface or any
other means of visibility that disturbs or interferes with (i) tenants or other
occupants of the building or their licensees or invitees or (ii) neighboring
buildings or premises or those having business with them, including without
limitation, receptions, parties, recreation and other activities of a social
nature not directly related to Tenant's use of the Premises.
11. Neither Tenant, nor any of Tenant's servants, employees, agents,
visitors, or licensees, shall at any time bring or keep upon the Premises any
inflammable, combustible or explosive fluid, or chemical substance, other than
reasonable amounts of cleaning fluids or solvents required in the normal
operation of Tenant's business offices.
12. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows by Tenant, nor shall any changes be made in existing
locks or the mechanism thereof, without the prior written approval of Landlord
and unless and until a duplicate key is delivered to Landlord. Tenant shall,
upon the termination of its tenancy, restore to Landlord all keys of stores,
offices and toilet rooms, either furnished to, or otherwise procured by, Tenant,
and in the event of the loss of any keys so furnished, Tenant shall pay to
Landlord the cost thereof.
13. Tenant shall not overload any floor. Tenant shall obtain Landlord's
consent before bringing any safes, freight, furniture, or bulky articles into
the Building and Landlord can specify to Tenant the location for the placement
of such articles. All removals, or the carrying in or out of any safes, freight,
furniture, or bulky matter of any description must take place during the hours
which Landlord or its agent may determine from time to time. Landlord reserves
the right to inspect all freight to be brought into the Building and to exclude
from the Building all freight which violates any of these Rules and Regulations
or the Lease of which these Rules and Regulations are a part.
14. Tenant shall not occupy or permit any portion of the Premises to be
occupied, without Landlord's expressed prior written consent, as an office for a
public stenographer or typist, or for the possession, storage, manufacture or
sale of liquor, narcotics, dope, tobacco in any form, or as a barber or manicure
shop, or as a public employment bureau or agency, or for a public finance
(personal loan) business; provided, however, nothing in this sentence shall be
deemed to prohibit Tenant or its employees or business invitees from personal
use of tobacco. Tenant shall not engage or pay any employees on the Premises,
except those actually working for Tenant on said premises, nor advertise for
laborers giving an address at the Building. Tenant shall not keep or utilize any
juke box, billiard or pool table or other recreational device at or in the
Premises.
15. Tenant agrees to employ such janitorial contractor as Landlord may
from time to time designate, for any waxing, polishing, and other maintenance
work of the Premises and of the Tenant's furniture, fixtures and equipment.
Tenant agrees that it shall not employ any other cleaning and
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<PAGE> 54
maintenance contractor, nor any individual, firm or organization for such
purpose without Landlord's prior written consent.
16. Landlord shall have the right to prohibit any advertising by Tenant
which, in Landlord's opinion, tends to impair the reputation of the Building or
its desirability as a building for offices, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
17. Landlord reserves the right to exclude from the Building between
the hours of 6:00 p.m. and 7:00 a.m. and at all hours on Sundays, legal holidays
and after 2:00 p.m. on Saturdays all persons who do not sign in and out on a
register in the lobby of the Building, showing the name of the person, the
Premises visited and the time of arrival and departure. All such persons
entering or leaving the Building during such times may be expected to be
questioned by the Building security personnel as to their business in the
Building. Landlord 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 the
case of invasion, mob, riot, public excitement or other circumstances rendering
such action advisable in the Landlord's opinion, Landlord reserves the right to
prevent access to the Building during the continuance of the same by such action
as Landlord may deem appropriate, including closing doors.
18. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose or for any other activity not appropriate, in
Landlord's sole discretion, to an office building of the quality and stature of
the Building.
19. The requirements of Tenant will be attended to only upon
application at the office of the Building. Building employees shall not perform
any work or do anything outside of their regular duties, unless under special
instructions from the office of Landlord.
20. Canvassing, soliciting, and peddling in the Building are prohibited
and Tenant shall cooperate to prevent the same.
21. There shall not be used in any space, or in the public halls of any
building, either by Tenant or by its jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards. No hand trucks shall be used in passenger elevators.
22. Tenant, in order to obtain maximum effectiveness of the cooling
system, shall lower and/or close the blinds or drapes when sun's rays fall
directly on windows of Premises. Tenant shall not remove the standard blinds
installed in the Premises.
23. All paneling, rounds or other wood products not considered
furniture shall be of fire retardant materials. Before installation of any such
materials, certification of the materials' fire retardant characteristics shall
be submitted to Landlord or its agents, in a manner satisfactory to Landlord.
24. Tenant shall not install any vending machines in the Building or
Premises without Landlord's consent.
25. All articles and the arrangement style, color and general
appearance thereof, in the interior of the Premises that will be visible from
the exterior thereof, including, without limitation, window displays,
advertising matter, signs, merchandise, furniture, and store fixtures, shall be
subject to
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<PAGE> 55
Landlord's approval, and, in any case, shall be maintained in keeping with the
character and standards of the Building.
26. Landlord may waive any one or more of these Rules and Regulations
for the benefit of any particular Tenant or Tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in favor
of any other Tenant or Tenants, nor prevent Landlord from thereafter enforcing
any such Rules and Regulations against any or all of the Tenants of the
Building.
27. Tenant shall abide by no-smoking restrictions in all areas within
the Building, other than Tenant spaces, designated or posted by Landlord as
no-smoking areas.
28. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or part, the terms, covenants,
agreements and conditions of the main text (including Special Stipulations) of
the Lease, which text shall control in the instance of conflict.
29. Landlord reserves the right to make such other and reasonable rules
and regulations as in its judgment may from time to time be needed for safety,
care and cleanliness of the Building, and for the preservation of good order
therein. Such other Rules and Regulations shall be effective upon written
notification of Tenant.
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<PAGE> 56
EXHIBIT "E"
SPECIAL STIPULATIONS
Special Stipulations to Office Lease, dated ___________, 2000 by and
between DEERFIELD HOLDINGS, L.P., a Georgia limited partnership, as "Landlord,"
and INTEGRATED INFORMATION SYSTEMS, INC., a Delaware corporation, as "Tenant."
In the event of any conflict between the terms and conditions of any of the
following Special Stipulations and the terms and conditions of the main text of
this Lease or of any of the other exhibits to this Lease, the terms and
conditions of these Special Stipulations shall control. In addition to any other
terms whose definitions are fixed and defined by these Special Stipulations, the
terms used herein with the initial letter capitalized shall have the same
meaning ascribed to them as set forth in the main text of this Lease or any of
the other Exhibits. No inference or implication shall result from or
interpretation be based upon the deletion or omission of words or material from
the form on which this Lease appears or from a draft of this Lease, the words or
material have been deleted or omitted being as though they were never in such
form or draft.
1. Temporary Premises. As an accommodation to Tenant, Landlord agrees
to allow Tenant temporary use and occupancy of Suite 130 on the Lobby Level of
the Building containing approximately 6,514 square feet of Rentable Area
(hereinafter referred to as "Temporary Premises") from the date of this Lease
through and expiring May 31, 2000. The Temporary Premises shall be so provided
in its existing condition AS IS without requirement for improvement thereto by
Landlord, and Tenant will be responsible for the installation of carpet,
securing the space, distribution of necessary power and the installation of
necessary lighting. Tenant's occupancy of the Temporary Premises shall be free
from Base Rental and Additional Rental but shall otherwise be subject to and in
accordance with all of the terms and conditions of this Lease. In the event
Tenant does not take possession of the Premises, the lease of the Temporary
Premises shall terminate on May 31, 2000.
2. Signage. Tenant shall have the non-exclusive right to have Tenant's
tradename installed by Landlord, at Tenant's expense, on the existing entryway
sign located at near the entryway to the Building, subject to the following
terms and conditions:
(a) Tenant's sign shall be in the nature of an identification sign with
the word "Integrated Information Systems, Inc." or other tradename used
by Tenant or an affiliate of Tenant approved by Landlord in writing,
and related corporate logo, all in the standard corporate logo style.
Landlord reserves the right to review and approve the location, color,
size, configuration, materials, workmanship and design of Tenant's
identification sign.
(b) Subject to satisfaction of the other provisions of this Special
Stipulation, Landlord agrees to maintain such entryway sign at
Landlord's expense (but such expense shall be deemed Operating Expenses
for purposes of Sections 1.4 and 3.3 of the Lease).
(c) The entryway sign may, at Landlord's option, include the names
and/or logos of Landlord, the Building or other tenants in the Building
from time to time.
(d) No assignee or subtenant of Tenant shall succeed to Tenant's right
to maintain its tradename on the entryway sign.
(e) If Tenant and Tenant's affiliates collectively ever occupy less
than 10,000 square feet of Rentable Area in the Building, then Landlord
shall have the option, at its sole expense, to remove Tenant's
tradename from the entryway sign. In any event, Tenant's rights under
this Special Stipulation shall cease and terminate immediately upon the
expiration or any earlier termination
<PAGE> 57
of this Lease.
(f) All design costs incurred with respect to Tenant's initial
identification sign, if any, installed by or on behalf of Tenant
pursuant to this Special Stipulation on the entryway sign shall be
Tenant's expense. All such costs with respect to any replacement of
such initial identification sign shall also be Tenant's obligation. All
costs for which Tenant is responsible shall be paid by Tenant to
Landlord, in full, within thirty (30) days of Tenant's receipt of an
invoice from Landlord.
3. Extension Option. Landlord grants to Tenant two (2) options to
extend the Lease Term upon and subject to the following terms and conditions:
(a) The period of extension for the first option shall be five (5)
years, commencing at 6:01 p.m. Atlanta, Georgia time on the date
specified in the Lease Summary as the Expiration Date and ending at
6:00 p.m. Atlanta, Georgia time on the fifth (5th) anniversary of the
Expiration Date (such option being hereinafter referred to as the
"First Extension Option" and its period hereinafter referred to as the
"First Extension Period"), and the period of extension for the second
option shall be five (5) years, commencing at 6:01 p.m. Atlanta,
Georgia time on the last day of the First Extension Period and ending
at 6:00 p.m. Atlanta, Georgia time on the tenth (10th) anniversary of
the Expiration Date (such option being hereinafter referred to as the
"Second Extension Option" and its period hereinafter referred to as the
"Second Extension Period") (the First Extension Option and Second
Extension Option are sometimes hereinafter referred to, collectively,
as the "Extension Options" and, individually, as an "Extension Option";
and the First Extension Period and Second Extension Period are
sometimes hereinafter referred to, collectively, as the "Extension
Periods" and, individually, as an "Extension Period").
(b) Tenant must exercise the First Extension Option by written notice
to Landlord given at least nine (9) months but not more than twelve
(12) months before the Expiration Date (the "First Extension Notice").
Tenant must exercise the Second Extension Option by written notice
given at least nine (9) months but not more than twelve (12) months
before the end of the First Extension Period (the "Second Extension
Notice"). If Tenant fails to give timely notice of its exercise of the
First Extension Option, both the First Extension Option and the Second
Extension Option shall lapse unexercised. If Tenant fails to give
timely notice of its exercise of the Second Extension Option, the
Second Extension Option shall lapse unexercised.
(c) Each Extension Option shall be applicable to the entire Premises,
as it may have been expanded or contracted from time to time pursuant
to the terms of this Lease.
(d) The terms and conditions of this Lease, as it may have been amended
from time to time, shall remain in full force and effect during each
Extension Period, except that (i) annual Base Rental per square foot of
Rentable Area of the Premises shall be adjusted at the commencement of
the First Extension Period to the rate agreed upon between Landlord and
Tenant as provided below; (ii) annual Base Rental per square foot of
Rentable Area of the Premises shall be further adjusted at the
commencement of the Second Extension Period to the rate agreed upon
between Landlord and Tenant as provided below; and (iii) Tenant shall
have one less Extension Option than it had prior to the commencement of
each such Extension Period. Landlord and Tenant expressly acknowledge
and agree, without limiting the generality of the foregoing, that
Tenant shall not be entitled to any further Landlord's Allowance for
Tenant Improvement Costs with respect to the Premises for any Extension
Period.
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<PAGE> 58
(e) If Tenant duly and timely delivers to Landlord the First Extension
Notice or the Second Extension Notice (provided this Lease is in effect
at such time) within the time periods designated in this Special
Stipulation, then Landlord and Tenant shall negotiate in good faith the
Base Rental for the Premises, and any expansions thereto, during the
First Extension Period and Second Extension Period, respectively. If
Landlord and Tenant have not executed a written amendment to this Lease
setting forth the Base Rental for the Premises during the First
Extension Period within thirty (30) days after Landlord's receipt of
the First Extension Notice, then (i) the First Extension Notice shall
be null and void and of no further force or effect, (ii) neither
Landlord nor Tenant shall have any further duty to continue such
negotiations nor any further liability to the other with respect to the
negotiations pursuant to the First Extension Notice, and (iii) Tenant
shall have no further rights to extend the term of this Lease beyond
the original Expiration Date. If Landlord and Tenant have entered into
a written amendment to this Lease for the First Extension Period but
have not executed a written amendment to this Lease setting forth the
Base Rental for the Premises during the Second Extension Period within
thirty (30) days after Landlord's receipt of the Second Extension
Notice, then (i) the Second Extension Notice shall be null and void and
of no further force or effect, (ii) neither Landlord nor Tenant shall
have any further duty to continue such negotiations nor any further
liability to the other with respect to the negotiations pursuant to the
Second Extension Notice, and (iii) Tenant shall have no further rights
to extend the term of this Lease beyond the First Extension Period. If
Landlord and Tenant reach agreement on the Base Rental rate for the
applicable Extension Period, Landlord and Tenant agree to enter into an
amendment to this Lease to document the exercise of the subject
Extension Option within ten (10) days after reaching such agreement.
(f) Notwithstanding anything in this Special Stipulation to the
contrary, Tenant shall have no right to exercise either of the
Extension Options under this Special Stipulation, nor shall Landlord
have any obligation to enter into a lease for either of the Extension
Periods with Tenant, at any time during which either (i) a Default
exists with respect to Tenant under this Lease, or (ii) this Lease is
not in full force and effect, or (iii) Tenant has assigned this Lease
or has entered into a sublease with respect to all or any portion of
the Premises.
4. Letter of Credit. In consideration of Landlord entering into this
Lease and other financial investments and concessions made by Landlord pursuant
to this Lease, Tenant hereby agrees as follows:
(a) Within five (5) days after the date of this Lease, Tenant shall
deliver to Landlord, as additional security for the obligations of
Tenant under the Lease, an unconditional, assignable and irrevocable
letter of credit issued by an Atlanta, Georgia bank reasonably
acceptable to Landlord ("Issuer"), in favor of Landlord, in the amount
of ONE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($150,000.00) (a
"Letter of Credit") in form and substance reasonably satisfactory to
Landlord. The term of the original Letter of Credit required under this
Special Stipulation shall commence as of or prior to the date of
delivery to Landlord and shall expire no earlier than April 1, 2000.
The expiration date of the Letter of Credit shall be clearly stated on
its face by month, day and year. The Letter of Credit shall be payable
by sight draft in the office of Issuer, or any of Issuer's
correspondent banks wherever located, when accompanied by either (i) a
statement signed by an authorized representative of Landlord certifying
that Tenant is in default under this Lease, and that Landlord has the
right to receive the amount of the requested draw pursuant to the
provisions of this Special Stipulation, or (ii) a statement signed by
Landlord that Tenant has filed a petition in bankruptcy or that an
involuntary petition in bankruptcy has been filed against Tenant. The
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<PAGE> 59
Letter of Credit shall permit partial and multiple draws up to the full
amount thereof and shall be unconditional.
(b) The Letter of Credit shall be replaced annually during each
calendar year of the Term with a new letter of credit issued by the
Issuer obtained by Tenant at Tenant's cost and delivered to Landlord on
or before the date which is thirty (30) days prior to the date on which
it would otherwise expire, with each such replacement (a "Renewal
Letter of Credit"; each "Renewal Letter of Credit" shall also be deemed
a "Letter of Credit" for purposes of this Special Stipulation) to be
effective for an additional period commencing immediately upon the
expiration of the Letter of Credit which it is replacing and expiring
on the next succeeding April 1. Except for the term thereof, each
Renewal Letter of Credit shall be identical in form and content to the
original Letter of Credit. If the original Letter of Credit provides by
its terms for automatic renewal absent notice to the contrary to
Landlord from the Issuer, then at least thirty (30) days prior to the
date such Letter of Credit would have expired in the absence of such
renewal, Tenant shall provide Landlord with written notice to Landlord
from the Issuer, confirming such renewal. If Tenant fails to deliver
the notice called for in the immediately preceding sentence or any
Renewal Letter of Credit to Landlord on or before the deadline for such
delivery, then a Default shall be deemed to have occurred with respect
to Tenant under this Lease, without the benefit of any further notice
or right to cure (notwithstanding anything in Section 8.1 to the
contrary), and Landlord shall be entitled to draw immediately the full
amount of the Letter of Credit, without notice to Tenant, and otherwise
to exercise any one or more of its rights and remedies under this Lease
or otherwise available at law or in equity as a result of such Default.
(c) If a Default has occurred with respect to Tenant, Landlord may draw
upon any Letter of Credit on one or more occasions. Thereafter,
Landlord shall be entitled to use, apply and retain the proceeds of
such draw or draws on a Letter of Credit for the payment of any one or
more of the following: (i) any Base Rental, Additional Rental or other
sums of money that Tenant may not have paid when due, (ii)
reimbursement to Landlord of any sum expended or advanced by Landlord
to Tenant or on Tenant's behalf in accordance with the provisions of
this Lease, including, without limitation, Landlord's Allowance for
Tenant Improvement Costs and brokerage commissions, and (iii)
reimbursement to Landlord of any sum which Landlord may expend or be
required to expend by reason of such Default, including, without
limitation, any damage or deficiency incurred by Landlord as a result
of the reletting of the Premises (as provided in this Lease). The use,
application or retention of the proceeds of such draw or draws on the
Letter of Credit, or any portion thereof, by Landlord shall not prevent
Landlord from making any further draws upon any Letter of Credit or
from exercising any other right or remedy available to Landlord under
the Lease or applicable law (it being intended that Landlord shall not
first be required to proceed to draw upon any Letter of Credit) and
shall not operate as a limitation on any recovery to which Landlord may
otherwise be entitled, provided that if the proceeds of the Letter of
Credit are applied by Landlord as provided above, the amount of the
proceeds so applied shall reduce the damages otherwise recoverable by
Landlord on account of any such Default with respect to Tenant.
(d) Tenant waives any right to require that resort be had to any
security deposit or any commitment deposit or credit on any books of
Landlord in favor of Tenant or any other person, or that Landlord
pursue any other remedy or remedies, prior to Landlord's pursuing any
draw under any Letter of Credit. In the event of a Default under this
Lease, Landlord shall have the right to enforce its rights, powers and
remedies hereunder or under any other instrument now or hereafter
evidencing, securing or otherwise relating to the transactions
contemplated by the Lease, or with respect to the Letter of Credit, in
any order and on one or more occasions, and all rights, powers and
remedies available to Landlord in such event shall
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<PAGE> 60
be non-exclusive and cumulative of all other rights, powers and
remedies provided thereunder or hereunder or by law or in equity, and
no exercise by Landlord of any such rights, powers or remedies shall
constitute an election of remedies by Landlord or shall preclude the
subsequent exercise by Landlord of any of the other rights, powers and
remedies available to Landlord. For avoidance of doubt, Landlord's
right to draw upon any Letter of Credit shall survive any termination
of this Lease.
(e) If Landlord makes any draw upon any Letter or Credit, Tenant shall
restore the Letter of Credit to the original amount thereof within five
(5) days after Tenant receives notice of such draw. Any failure by
Tenant to do so by such deadline shall constitute a Default by Tenant
under this Lease, without the necessity of any notice from Landlord and
without any grace on cure rights (notwithstanding anything in Section
8.1 to the contrary).
(f) If Landlord draws upon the Letter of Credit, the proceeds thereof
shall be the exclusive property of Landlord, and Tenant shall have no
interest whatsoever therein, but such proceeds shall be applied in
reduction of Tenant's obligations under this Lease and payment of
Landlord's damages, if any, as a result of Tenant's Default hereunder;
and if any proceeds of the Letter of Credit remain after all of
Tenant's obligations under this Lease and all of Landlord's damages
have been paid in full, such residual proceeds shall be promptly
refunded to Tenant, which obligation to refund shall survive any
termination of this Lease.
(g) Tenant acknowledges that Landlord has the right to transfer or
mortgage its interest in the Premises 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 its rights with respect to
the Letter of Credit subject to Landlord's obligations with respect to
the same. Upon written acknowledgment of such transferee's or
mortgagee's acceptance of such rights and assumption of Landlord's
obligations with respect to any Letter of Credit, Tenant shall look
solely to such transferee or mortgagee with respect to any Letter of
Credit, and Landlord shall thereby be released by Tenant from all
liability or obligation with respect to any Letter of Credit, or the
proceeds thereof.
(h) If Tenant fails to deliver the original Letter of Credit to
Landlord on or before the fifth (5th) day after the date of this Lease,
then a Default shall be deemed to have occurred with respect to Tenant
under this Lease, without the benefit of any further notice or right to
cure (notwithstanding anything in Section 8.1 to the contrary) and
Landlord shall be entitled to terminate this Lease at any time after
the aforesaid Letter of Credit delivery deadline, by written notice to
Tenant, and otherwise to exercise any one or more of its rights and
remedies under this Lease or otherwise available at law or in equity as
a result of such Default.
(i) The maximum amount of the Letter of Credit on which Landlord will
be entitled to draw shall be reduced monthly, with each timely payment
by Tenant of a full monthly installment of Base Rental under this
Lease, by the amount which the principal of a loan equal to the
original face amount of the Letter of Credit ($150,000.00) funded in
full on the Commencement Date would be amortized and repaid, as of the
date of each such monthly installment, together with accrued but unpaid
interest at the rate of ten percent (10%) per annum, in sixty (60)
equal monthly installments of principal and interest in the amount of
$3,160.72, assuming timely installment payments of principal and
interest but without prepayment, commencing on the first day of the
first calendar month beginning on or after the Commencement Date and
continuing on the first day of each of the succeeding fifty-nine (59)
calendar months.
5. Supplemental Tenant Improvement Allowance. Upon request from Tenant
prior
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<PAGE> 61
to the commencement of the Lease Term, and provided no Default has occurred,
Landlord shall provide Tenant with a supplemental tenant improvement allowance
(hereinafter referred to as the "Supplemental Tenant Improvement Allowance") in
an amount up to SEVEN AND NO/100 DOLLARS ($7.00) per square foot of Rentable
Area of the Premises. The Supplemental Tenant Improvement Allowance shall be
advanced by Landlord to pay actual Tenant Improvement Costs in the same manner,
and subject to the same conditions, as provided for the payment or application
of the Landlord's Allowance for Tenant Improvement Costs in the Tenant
Improvement Agreement. Landlord shall advance such Supplemental Tenant
Improvement Allowance (or such amount thereof so requested) within thirty (30)
days after receipt of Tenant's request therefor; any amount not so requested
prior to the commencement of the Lease Term shall be retained by Landlord.
Notwithstanding the foregoing, Landlord may, at its option (without obligation),
advance all or a portion of the Supplemental Tenant Improvement Allowance to pay
any amounts that are Tenant's obligation under the Tenant Improvement Agreement.
If Tenant requests and receives, or Landlord otherwise advances, all or any
portion of the Supplemental Tenant Improvement Allowance, monthly installments
of Base Rental payable pursuant to Section 3.1 of this Lease shall be increased
by Twenty-One and 54/100 Dollars ($21.54) for each $1,000 of the Supplemental
tenant Improvement Allowance advanced (or a proportionate amount of such Base
Rental increase for each proportionate amount of 1,000 of the Supplemental
Tenant Improvement Allowance advanced), commencing on the Commencement Date and
on the first day of each of the succeeding fifty-nine (59) calendar months. Upon
request of either party, Landlord and Tenant agree to enter into an amendment
and restatement of this Lease to reflect such increase in Base Rental hereunder
and the increase in Landlord's Allowance for Tenant Improvement Costs as a
result of the funding of all or a portion of the Supplemental Tenant Improvement
Allowance.
6. Right of First Refusal. Landlord hereby grants Tenant a right of
first refusal (the "First Refusal Right") to lease additional space in
accordance with the following:
(a) The space that is subject to such First Refusal Right shall be
space located on the Lobby level of the Building consisting of
approximately 5,268 square feet of Usable Area (6,098 square feet of
Rentable Area) and more particularly depicted on Attachment "A-1"
hereto (the "First Refusal Space").
(b) Except as otherwise provided in this Special Stipulation, if
Landlord makes or receives a bona fide written proposal to lease any
portion of the First Refusal Space to or from any prospective tenant,
Landlord shall notify Tenant in writing (such notice being hereafter
called the "Offer Notice") prior to entering into a Lease with respect
to all or any portion of such space. Such Offer Notice shall
specifically describe the portion of the First Refusal Space being
offered, as well as the date of its prospective availability. The Offer
Notice shall also constitute an offer by Landlord to lease the space
described in the Offer Notice to Tenant in accordance with the terms of
this Special Stipulation. Tenant shall have seven (7) business days
after its receipt of such Offer Notice to accept such offer pursuant to
this First Refusal Right and to lease all of such portion of the First
Refusal Space described in the Offer Notice from Landlord in accordance
with the terms of this Special Stipulation.
(c) Acceptance by Tenant of the offer set forth in the Offer Notice
shall be deemed effective only if such acceptance is given to Landlord
in a written notice of acceptance (the "Acceptance Notice")
specifically referring to the Offer Notice to which it relates,
received by Landlord within the seven (7) business day period
prescribed above for such acceptance. To be effective, such Acceptance
Notice must accept the offer set forth in the subject Offer Notice with
respect to all of the portion of the First Refusal Space described in
such Offer Notice.
(d) If Tenant duly and timely delivers to Landlord its Acceptance
Notice within such
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<PAGE> 62
seven (7) business day period in accordance with this Special
Stipulation, then Landlord and Tenant, within thirty (30) days of
Landlord's receipt of such Acceptance Notice, shall execute a written
amendment to the Lease setting forth the terms and conditions of the
lease of such portion of the First Refusal Space described in the Offer
Notice. If Tenant does not duly and timely deliver to Landlord its
Acceptance Notice within such seven (7) business day period in
accordance with this Special Stipulation, then Tenant shall be deemed
to have elected not to accept Landlord's offer set forth in the subject
Offer Notice.
(e) If Tenant exercises this First Refusal Right by duly and timely
delivering its Acceptance Notice to Landlord, Landlord shall deliver
each portion of the First Refusal Space to be leased by Tenant "as-is"
and available for installation of Tenant Improvements within thirty
(30) days after the date Landlord receives the Acceptance Notice.
Tenant Improvements shall be designed and installed in accordance with
the same procedures and conditions set forth in Exhibit "C" to this
Lease, except that Landlord's Allowance for Tenant Improvement Costs
per square foot of Rentable Area of the portion of the First Refusal
Space to be leased by Tenant for both the design and the construction
of tenant improvements to such space (it being acknowledged that there
shall be no separate design allowance) shall be equal to the product of
(x) $21.00 per square foot of Rentable Area of such portion of the
First Refusal Space, times (y) a fraction, the numerator of which is
the number of full calendar months, plus the fraction of any partial
calendar months, remaining in the Lease Term, measured from the rent
commencement date of the lease of such portion of the First Refusal
Space leased by Tenant, and the denominator of which is 60.
(f) Base Rental, Additional Rental and all other sums and charges
imposed by the Lease shall commence to accrue with respect to each
portion of the First Refusal Space to be leased by Tenant on the
earlier of (i) the date which is ninety (90) days after the date of
Tenant's Acceptance Notice, or (ii) the date on which Tenant occupies
such space for the purpose of conducting business therefrom.
(g) Subject to the other terms of this Special Stipulation, the portion
of the First Refusal Space leased by Tenant pursuant to an Acceptance
Notice shall become part of the Premises and shall be leased to Tenant
pursuant to the terms and conditions of this Lease (including, without
limitation, the same Base Rental rate per square foot of Rentable Area)
as then and thereafter in effect from time to time with respect to the
Premises, subject to revisions to such terms and conditions to conform
such lease of the subject portion of the First Refusal Space to the
specific terms of this Special Stipulation. Tenant's Percentage Share
shall be increased to reflect the lease of the subject portion of the
First Refusal Area, effective as of the rent commencement date for such
space, all in accordance with Section 1.3 of this Lease.
(h) If Tenant does not duly and timely deliver to Landlord its
Acceptance Notice within the aforesaid seven (7) business day period in
accordance with subparagraph (b) above, then Landlord shall be free to
enter into any lease with any prospective tenant with respect to all or
any part of that portion of the First Refusal Space that was the
subject of such Offer Notice, plus additional space leased in
conjunction therewith (including, without limitation, additional
portions of the First Refusal Space, provided such additional portions
of the First Refusal Space do not contain more than thirty percent
(30%) of the square feet of Usable Area of the portion of the First
Refusal Space that was offered to Tenant pursuant to the Offer Notice),
all on such terms and conditions as Landlord, in its sole discretion,
shall determine to be in Landlord's best interest. Tenant's rights
under this Special Stipulation shall be subject and subordinate to the
rights and options of the third party tenant under such lease,
including, without limitation, any expansion, extension or renewal
options,
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<PAGE> 63
rights of negotiation, or rights of refusal set forth therein. Upon
Landlord's execution of any such lease with a third party, Tenant's
rights under this Special Stipulation with respect to the space leased
shall terminate.
(i) Notwithstanding anything in this Special Stipulation to the
contrary, Tenant shall have no right to exercise the Right of First
Refusal under this Special Stipulation, nor shall Landlord have any
obligation to enter into a lease for any portion of the First Refusal
Space with Tenant, at any time during which either (i) a Default exists
with respect to Tenant under this Lease, or (ii) this Lease is not in
full force and effect, or (iii) Tenant has assigned this Lease or has
entered into a sublease with respect to all or any portion of the
Premises.
7. Additional Right to Lease. Landlord grants Tenant a right to lease
additional space in a building not existing on the date of this Lease to be
known as 200 Deerfield Point (the "200 Building") (the "Additional Lease Right")
in accordance with the following:
(a) The space that is subject to such First Refusal Right shall be
space located on the Lobby level of the 200 Building consisting of
approximately 10,000 square feet of Rentable Area and more particularly
depicted on Attachment "A-2" hereto (the "200 Building First Refusal
Space"). Tenant acknowledges that the floor plate for the 200 Building
is schematic only and that Landlord shall have the right to redesign
such floor plate and designate substantially equivalent space as the
200 Building First Refusal Space in terms of size and location after
such redesign.
(b) Except as otherwise provided in this Special Stipulation, if
Landlord makes or receives a bona fide written proposal to lease any
portion of the 200 Building First Refusal Space to or from any
prospective tenant, Landlord shall notify Tenant in writing (such
notice being hereafter called the "Offer Notice") prior to entering
into a lease with respect to all or any portion of such space. Such
Offer Notice shall specifically describe the portion of the 200
Building First Refusal Space being offered, as well as the date of its
prospective availability. The Offer Notice shall also constitute an
offer by Landlord to lease the space described in the Offer Notice to
Tenant in accordance with the terms of this Special Stipulation. Tenant
shall have seven (7) business days after its receipt of such Offer
Notice to accept such offer pursuant to this Additional Lease Right and
to lease all of such portion of the 200 Building First Refusal Space
described in the Offer Notice from Landlord in accordance with the
terms of this Special Stipulation.
(c) Acceptance by Tenant of the offer set forth in the Landlord's
Response Notice shall be deemed effective only if such acceptance is
given to Landlord in a written notice of acceptance (the "Acceptance
Notice") specifically referring to the Landlord's Offer Notice to which
it relates, received by Landlord within the seven (7) business day
period prescribed above for such acceptance. To be effective, such
Acceptance Notice must accept the offer set forth in the subject Offer
Notice with respect to all of the portion of the 200 Building First
Refusal Space described in such Offer Notice, if such portion of the
200 Building First Refusal Space has 5,000 square feet or less of
Rentable Area, or all or a portion of the subject portion of the 200
Building First Refusal Space, if the space so offered has more than
5,000 square feet of Rentable Area; provided, however any portion of
the 200 Building First Refusal Space not leased by Tenant must be of a
shape, size and location which Landlord, in Landlord's reasonable
discretion, considers reasonably marketable.
(d) If Tenant duly and timely delivers to Landlord its Acceptance
Notice within such seven (7) business day period in accordance with
this Special Stipulation, then Landlord and Tenant shall negotiate in
good faith the terms and conditions of an amendment to lease
E-7
<PAGE> 64
with respect to the subject portion of the 200 Building First Refusal
Space. If Landlord and Tenant have not executed a written amendment to
lease for the subject portion of the 200 Building First Refusal Space
within thirty (30) days after Landlord's receipt of the Acceptance
Notice, then (i) Landlord's Offer Notice and the Acceptance Notice
shall all be null and void and of no further force or effect, and (ii)
neither Landlord nor Tenant shall have any further duty to continue
such negotiations nor any further liability to the other with respect
to the negotiations pursuant to the Acceptance Notice. Thereafter,
Landlord shall be free to enter into any lease with any prospective
tenant with respect to all or any part of that portion of the 200
Building First Refusal Space that was the subject of such Offer Notice,
plus additional space leased in conjunction therewith (including,
without limitation, additional portions of the 200 Building First
Refusal Space, provided such additional portions of the 200 Building
First Refusal Space do not contain more than thirty percent (30%) of
the square feet of Usable Area of the portion of the 200 Building First
Refusal Space that was offered to Tenant pursuant to the Offer Notice),
all on such terms and conditions as Landlord, in its sole discretion,
shall determine to be in Landlord's best interest. Tenant's rights
under this Special Stipulation shall be subject and subordinate to the
rights and options of the third party tenant under such lease,
including, without limitation, any expansion, extension or renewal
options, rights of negotiation, or rights of refusal set forth therein.
Notwithstanding the foregoing, if Landlord has not entered into a lease
with respect to all of the subject portion of the 200 Building First
Refusal Space within two hundred ten (210) days after the date of
Landlord's Offer Notice, then Tenant's rights with respect to the
portion of the 200 Building First Refusal Space not leased shall be
reactivated.
(e) Tenant acknowledges that Landlord shall have no obligation to
construct the 200 Building.
(f) Notwithstanding anything in this Special Stipulation to the
contrary, Tenant shall have no right to exercise the Additional Lease
Right under this Special Stipulation, nor shall Landlord have any
obligation to offer any space to Tenant or enter into a lease for any
Additional Lease Space with Tenant pursuant hereto, at any time during
which either (i) a Default exists with respect to Tenant under this
Lease, or (ii) this Lease is not in full force and effect, or (iii)
Tenant has assigned this Lease or has entered into a sublease with
respect to all or any portion of the Premises.
8. Right of Tenant to Install Telecommunications Cable. If, at any time during
the term of this Lease, Tenant leases space in the 200 Building by delivering
to Landlord a fully executed lease or amendment to this Lease, then Tenant,
after delivering at least fifteen (15) days prior written notice to Landlord,
shall have the right, at Landlord's sole option, either: (i) to install
telecommunications cable in the underground conduit that Landlord may have
elected to construct between the 100 Building and the 200 Building ("Landlord's
Conduit"), provided that Landlord shall not be obligated to construct the
Landlord's Conduit, or (ii) if Landlord has not constructed Landlord's Conduit
or Landlord does not permit Tenant's utilization of the Landlord's Conduit, to
construct, at Tenant's sole cost and expense utilizing contractors reasonably
approved by Landlord, one (1) underground conduit in a location approved by
Landlord, in Landlord's sole discretion, linking the telecommunications system
of the Premises to the premises leased by Tenant in the 200 Building ("Tenant's
Conduit"). As a condition precedent to Tenant's right to construct the Tenant's
Conduit, Tenant shall deliver the plans and specifications for the Tenant's
Conduit to Landlord, for Landlord's approval, prior to the commencement of
construction. Tenant's utilization of the Landlord's Conduit or construction
and utilization of the Tenant's Conduit shall in no event be permitted to
interfere with the use or operation of the 100 Building or the 200 Building by
Landlord or Landlord's tenants or impair the structural integrity, systems or
amenities of either of such buildings. Upon the expiration or early termination
of this Lease or the
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<PAGE> 65
instrument pursuant to which Tenant has leased space in the 200
Building, Tenant shall (i) remove Tenant's telecommunications cables
from Landlord's Conduit or (ii) remove Tenant's Conduit, as the case
may be, in accordance with the terms and conditions for the removal of
Tenant's property set forth in Section 2.3 of this Lease and shall
return the property to the condition existing prior to the installation
of the Tenant's Conduit. If Tenant does not remove its
telecommunications cable or the Tenant's Conduit in accordance with the
immediately preceding sentence, then Landlord may (i) remove Tenant's
telecommunications cables from Landlord's Conduit or (ii) remove
Tenant's Conduit, as the case may be, and Tenant shall, immediately
upon demand, reimburse Landlord for the cost of such removal plus the
cost of restoring Landlord's property, the 100 Building or the 200
Building to their respective conditions prior to Tenant's use thereof.
Tenant shall not assign, license or sublet its interest in either the
Landlord's Conduit or Tenant's Conduit, as the case may be, such
conduit being for the exclusive use and benefit of Tenant. Tenant shall
not pay any fees in addition to Base Rent for the use of Landlord's
Conduit or Tenant's Conduit.
E-9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF INTEGRATED INFORMATION SYSTEMS, INC. AS OF MARCH
31, 2000, AND THE CONSOLIDATED STATEMENT OF OPERATIONS OF INTEGRATED INFORMATION
SYSTEMS, INC. FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 10413
<SECURITIES> 64240
<RECEIVABLES> 8184
<ALLOWANCES> 863
<INVENTORY> 64
<CURRENT-ASSETS> 1493
<PP&E> 19007
<DEPRECIATION> 2030
<TOTAL-ASSETS> 102276
<CURRENT-LIABILITIES> 10499
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 84053
<TOTAL-LIABILITY-AND-EQUITY> 102276
<SALES> 10454
<TOTAL-REVENUES> 10454
<CGS> 5515
<TOTAL-COSTS> 12880
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> (2267)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2267)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2267)
<EPS-BASIC> (0.14)
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</TABLE>
