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1
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(MARK ONE)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
COMMISSION FILE NUMBER 1-7335
LEE PHARMACEUTICALS
-------------------
(Name of small business issuer in its charter)
CALIFORNIA 95-2680312
---------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1444 SANTA ANITA AVENUE, SOUTH EL MONTE, CALIFORNIA 91733
--------------------------------------------------- -----
(Address of principal executive offices) (Zip code)
ISSUER'S TELEPHONE NUMBER: (818) 442-3141
----------------
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common stock, par value $.10 American Stock Exchange, Inc.
per share
SECURITIES REGISTERED UNDER SECTION 12 (g) OF THE EXCHANGE ACT: NONE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ----
--- ----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year: $8,118,000 Gross
As of the close of business on November 29, 1996, the aggregate market value of
Lee Pharmaceuticals common stock held by nonaffiliates was $571,121.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. Common stock, par value $.10;
4,135,162 shares outstanding as of the close of business on November 29, 1996.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Lee Pharmaceuticals is engaged in the research, development, purchase,
manufacture, and marketing of consumer personal care products and professional
dental products, all of which are targeted for the improved well-being of the
human body. The Company's business is directed to two main areas: (a) the
development and marketing of a range of consumer products including nail
extenders and strengtheners, depilatories, feminine hygiene products and
over-the-counter drug items and (b) the manufacture and sale of materials and
supplies for use in the professional dental health field. For all years
presented, revenues, operating results and identifiable assets of the consumer
products group were in excess of 90% of total company operations.
Lee Pharmaceuticals' executive offices are located at 1444 Santa Anita
Avenue, South El Monte, California 91733, and its telephone number is (818)
442-3141. The Company was incorporated in April 1971 as a California
corporation.
CONSUMER PRODUCTS SEGMENT
The Company's consumer products line consists primarily of a variety of
artificial fingernail extenders and related fingernail products. In addition,
the Company manufactures and sells hair removal and related feminine products,
antacid tablets, nasal care products, infant items and a variety of
over-the-counter drug products. The Company's product lines have been developed
internally, particularly in the case of fingernail products, and by outside
product line acquisitions.
In fiscal years 1993 and 1994, the research and development capability of Lee
Pharmaceuticals generated several new product entries, including Lee Press-On
Body Tattoos, Lee Brush-On Nail Bleach, Lee Nail Whitener and the Lee Fancy
Fingers Nail Jewelry Kit. In addition, the consumer products line of the
Company was further diversified by the acquisition of seven products from other
manufacturers, including six over-the-counter drug products and Sundance, a line
of aloe vera skin care products.
In fiscal year 1995, the research and development capability of Lee
Pharmaceuticals generated several new product entries, including a new product
line -- Lee Press-On Nails - Professional Salon Style in fourteen high fashion
nail colors plus a nail extender product line known as Lee Elegant Edge Nail Tip
kits. In addition, there was further diversification of the Company's consumer
products line by the acquisition of products from other manufacturers, including
aloe vera skin care products, a line of men's after shave lotions, infant care
items and additional over-the-counter drug products.
In fiscal 1996, the research and development capability of Lee
Pharmaceuticals generated new product entries primarily in the nail care
category-specifically eight new colors of Lee Press On Nails in trendy,
fashionable colors. In addition, two holiday displays-Lee Halloween Fun Press
On Nails and Lee Holiday Elegance-Christmas, were developed. Lee
Pharmaceuticals expanded it's personal care category of products through two
acquisitions. On February 15, 1996, Lee acquired the Breath-Gard-TM- breath
tablets from Sundance Healthcare Products, Inc. in Valencia, California. On
September 20, 1996, Lee Pharmaceuticals acquired the full line of
Aquafilter-Registered Trademark- Cigarette Holders from the Aquafilter
Corporation, Ft. Lauderdale, FL. The acquisition of this well recognized
filtration system and its assimilation into the Lee Pharmaceuticals marketing
and distribution program is intended to be an important contribution to the
Company's growth in 1997 and beyond.
In fiscal 1997 to date, the Company purchased two oral care brands from
Lactona Corporation for $175,000 including inventory valued at approximately
$30,000. Also, in fiscal 1997, the Company purchased twenty-eight (28)
brands including ointments, nutritional supplements, vitamins, analgesics,
and various over-the-counter (OTC) brands from Roberts Laboratories, Inc.
for $1,168,089.
DOMESTIC CONSUMER PRODUCTS MARKETING
Consumer products are sold nationally, principally through major retail drug,
food and discount department store chains. Retail distribution is primarily
accomplished through a network of independent general merchandise sales
representatives. All lines are advertised in a variety of media, including
television, magazines and newspapers.
CONSUMER PRODUCTS COMPETITION
The Consumer Products Division of Lee Pharmaceuticals operates in a highly
competitive environment. In the area of fingernail extension, Lee
Pharmaceuticals competes with five to six companies, some of which are larger
companies with greater financial resources.
Competition in the depilatory product category is intense, with competitors
even more numerous than in the artificial fingernail field. The acquisition of
Zip Wax and Bikini Bare brands of hair removal products has given Lee
Pharmaceuticals two brands in this category.
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3
Lee Pharmaceuticals continues to expand its product line via a combination of
acquisitions and in-house research and development activity. The consumer
products line was historically dominated by nail extension, nail treatment, and
nail decor products, but it now includes depilatory products, wax hair removal
products, feminine deodorant products, a nail biting deterrent product, nasal
care items, over-the-counter drug products, skin care products, men's fragrance
products, and tobacco accessory products. The Company's consumer products line
today is no longer restricted solely to the cosmetics business.
REGULATION OF CONSUMER PRODUCTS
The Company's consumer products are regulated by the Food and Drug
Administration. The regulations deal principally with consumer safety and with
the effectiveness of the products for the purposes for which they are proposed
to be used. For many years, the cosmetic regulations were applied only in cases
of adulteration or misbranding. Under the Fair Packaging and Labeling Act
(1966), the FDA has moved to require new labeling data as to ingredients in
cosmetics.
The Company believes that all its cosmetic products are manufactured and sold
in compliance with the laws of each state and that no pre-marketing clearance of
its products is required from any state. The Company maintains a comprehensive
data file on each of its consumer products and believes that it would be able to
apply for any required clearances expeditiously if data were ever required for
its cosmetic products.
To the extent the Company's products are marketed in foreign countries,
foreign laws are applicable as well as FDA regulations which control export of
cosmetics. To date, where regulations have been established by foreign
ministries of health which differ from those established in the United States,
the Company has been able to make acceptable substitutions. As a result,
marketing of the products has not been significantly impeded by foreign
regulations.
Material Safety Data Sheets (MSDS) are available on all its consumer finished
products. The MSDS's are supplied to the Company's customers upon request.
All products for export shipped by air or sea which contain listed hazardous
materials meet United Nations Standards as of January 1991. The requirements
are based on the U.N.'s performance-oriented packaging (POP) specifications
found in the "Transport of Dangerous Goods" commonly called "The Orange Book".
DENTAL PRODUCTS SEGMENT
From its inception in 1971 through 1996, the Company at various times
introduced dental products designed to satisfy specific material or supply
requirements of the practicing dental professional and of the orthodontic and
endodontic specialist.
Its dental product line consists of a variety of restorative materials
(filling materials, core build up materials), splints, orthodontic brackets,
Maryland bridge adhesives, and enamel and dentin bonding materials and related
products.
In 1991, the Company licensed the right to certain patents and technology
developed by the American Dental Association Health Foundation through research
it sponsored at the Paffenbarger Center for Excellence in Dental Research at the
National Institute of Technology and Standards for fabricating dental inserts
and inlays of special formulas of beta quartz. The Company has been marketing
nine shapes and sizes, and is now introducing twenty-six more sizes and shapes
which are intended to offer the dentist several new classes of restorations
between amalgam and composite restorations on the one hand, and laboratory
inlays on the other hand. These new beta quartz designs are intended to permit
the dentist to prepare inlays in one visit, directly at the chairside, without
the need for time consuming impressions, or the need for expensive laboratory
work.
DENTAL MARKETING IN THE UNITED STATES
The Company markets its dental, orthodontic and endodontic products in the
United States through telephone solicitation, direct mail, advertisement in
trade journals, attendance at conventions, and dental dealers. The Company
plans and executes its own marketing programs, prepares its own technical
literature, produces its own clinical and marketing films, and regularly
displays its dental products at conventions throughout the country.
DENTAL MARKETING OUTSIDE THE UNITED STATES
The Company markets dental products outside the United States through foreign
dental distributors who either solicit individual dentists and orthodontists and
sell the Company's products to them directly for use in the treatment of their
patients, or sell through local dealers whom they engage to sell the Company's
products on their behalf. The Company plans and executes its own international
marketing programs and regularly displays its dental products at international
conventions.
DENTAL COMPETITION
The dental preventive and restorative materials industry is highly
competitive, and the Company's market share in the total industry is
insignificant. The Company competes with larger corporations which have greater
financial resources and believes other companies may enter this field. The
Company's principal competitors are 3M Dental Division, Kerr, Dentsply, and
Unitek. The principal methods of competition are in the area of product
marketing performance, technical assistance provided to the customer, and price.
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REGULATION OF DENTAL PRODUCTS
FOOD AND DRUG ADMINISTRATION
Dental materials are classified as devices under the Medical Device
Amendments of 1976 to the Federal Food, Drug and Cosmetic Act.
All the dental device products marketed by the Company were registered as
devices with the FDA at the mandatory time (December 31, 1977). All new devices
marketed after May 28, 1976, must be processed under the FDA premarketing
notification regulation (510 k) for determination of equivalency to preenactment
devices, or the product must be submitted as a new device which requires
providing considerable extra test data.
The Safe Medical Devices Act (SMDA) became law on November 28, 1990,
requiring all serious injuries and serious illness contributed to or caused by
medical devices to be reported to distributors, manufacturers and the FDA. SMDA
also requires all premarket submissions to the FDA to contain adequate
information on safety and effectiveness.
As required by the FDA, the Company observes certain procedures and policies
in the manufacture, quality control, and after-sale monitoring of performance
for its products. Although the various criteria to be used by the FDA in
regulating devices have not been finalized, the Company believes that all of its
products and procedures comply with all current and anticipated device
regulations. Over half the Company's products fall into the FDA's Class II
classification which requires that those products must meet certain performance
standards. The Company believes that all affected products meet all current
performance standards.
For those products placed in Class II, final marketing approval from the FDA
is contingent on final acceptance of the Panel's findings and on development of
standards (in large part being done by the American Dental Association). It is
expected that, based upon current available information, most of the Company's
products will meet the standards currently anticipated; for the products that do
not meet the standards, the Company will have to submit adequate data directly
to the FDA. Failure to gain approval by the FDA could impede the marketing of
these devices to the point of removal from the market until such time as
clearance is obtained.
OTHER GOVERNMENTAL REGULATIONS
To the extent the Company's products are marketed in foreign countries, the
Company believes it has complied with the laws of such countries, and with the
FDA regulations which control export of devices. It is anticipated that
compliance with the FDA regulations will ensure compliance also with applicable
foreign laws and regulations, although certain foreign countries could develop
more restrictive laws and regulations that could impede the Company's ability to
market its dental products in foreign countries.
The Company believes that all its dental products are manufactured and sold
in compliance with the laws of each state and country to whom the Company
exports and that no premarketing clearance of its products is required from any
state.
DEPARTMENT OF TRANSPORTATION
The Materials Transportation Bureau administers the Hazardous Materials
Regulation, effective July 7, 1975. It has been ascertained that those dental
products and components marketed by the Company which fall within the provisions
of the regulations are brought into compliance by proper labeling and/or filing
for exemptions. The Company believes that it is in full compliance with all
bureau regulations applicable to its products and that compliance with these
regulations will not significantly impede the marketing of its products.
APPLICABLE TO ALL SEGMENTS
FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
YEAR ENDED SEPTEMBER 30
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1996 1995 1994
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(000) (000) (000)
United States export sales
(except Canada)...................... $ 834 $ 1,161 $ 781
RESEARCH PROGRAM
The Company conducts a research program to enhance its present products
and to develop new products. The members of the research staff devote a
majority of their time to development of new products and to production in
the areas of quality control and technical assistance. As needed, clinical
research on products is also done under contract with dental schools and
clinics. The Company follows the policy of expensing all research and
development costs when incurred. During the years ended September 30, 1996,
1995, and 1994, the Company spent approximately $178,000, $186,000, and
$289,000, respectively, on research activities relating to the development of
new products or the improvement of existing products. The recent Company
trend has been in the direction of brand acquisitions rather than extensive
internal research and development. Effective July 1996 the Company
eliminated it's internal research and development department, and decided
that future testing and research, that cannot be absorbed by its quality
assurance and production control departments, will be placed outside the
Company.
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RAW MATERIALS
The raw materials used by the Company in the manufacture of most of its
dental and consumer products are obtained from commercial sources where they are
presently available in sufficient quantities and are refined by the Company as
needed for use in its products. The Company generally carries sufficient
amounts of raw materials inventory to meet the delivery requirements of
customers.
PATENTS AND TRADEMARKS
The Company has adopted the policy of making patent disclosures on its
products and of filing applications for patents on the products or on aspects of
their manufacture or use when appropriate. The Company owns forty U.S. patents,
and owns the rights in a number of other U. S. patent applications pending. A
U.S. patent on sculptured nails has been granted. There are currently ten
foreign patents held by the Company. In addition, one design patent has been
granted for a nail buffer and for artificial nails. There is no assurance that
any of the patent applications will be granted or that, if granted, the Company
will be afforded any competitive advantages thereby. The Company believes that,
while patent protection is desirable in certain areas, it is not essential;
therefore, certain foreign patents have been abandoned as not necessary to the
interest of the Company. In addition to the forty patents noted above, which
apply to dental and consumer products, the Company has been assigned three U.S.
patents which relate to general epoxy chemistry. Two of these may be used by
the Epoxylite Corporation for other than medical and dental products without the
payment of any royalty or other consideration. United States trademarks for the
major dental products have been granted. Additional trademarks for other
products have been applied for, both in the U. S. and in foreign countries.
Trademarks for certain minor products, or in countries with minor market
potential, have been abandoned as not necessary to the interest of the Company.
The Company has the right to use the name "Epoxylite" in connection with the
marketing and sale of its medical and dental products and owns the trademark
"Epoxylite" in medical and dental categories. The Epoxylite Corporation owns
the trademark "Epoxylite" in all other categories. The trademark "Epoxylite" is
registered for medical and dental classifications in the U.S., Canada, Mexico,
England, France, and numerous other countries. The Company owns, or
applications are pending for, trademarks for the names under which each of its
principal products is marketed.
CURRENT REGULATORY REGISTRATION
The Company is registered with the federal and State of California FDA
agencies as a manufacturer and distributor of Drugs, Medical Devices and
Cosmetics. The Company is also registered as a waste generator with the
Environmental Protection Agency (EPA).
ENVIRONMENTAL PROTECTION REGULATION AND LITIGATION
The Company believes that its manufacturing facilities are operated in
compliance with all federal, state and local provisions regulating the discharge
of materials into the environment or otherwise relating to the protection of the
environment.
The Company owns a manufacturing facility located in South El Monte,
California. The California Regional Water Quality Control Board (The "RWQCB"),
has alleged that the soil and shallow groundwater at the site are contaminated.
On August 12, 1991, the Board issued a "Cleanup and Abatement Order" directing
the Company to conduct further testing and cleanup the site. The Company did
not complete the testing, and in June, 1992, the RWQCB requested that the EPA
evaluate the contamination and take appropriate action. At the EPA's request,
Ecology & Environment, Inc. conducted an investigation of soil and groundwater
on the Company's property. Ecology & Environment Inc.'s Final Site Assessment
Report, which was submitted to the EPA in June 1994, did not rule out the
possibility that some of the contamination originated on-site, and resulted from
either past or current operations on the property. While the Company may be
liable for all or part of the costs of remediating the contamination on its
property, the remediation cost is not known at this time. The EPA has not taken
any further action in this matter, but may do so in the future.
The Company and nearby property owners are in the process of engaging a
consultant to perform a site investigation with respect to soil and shallow
groundwater contamination. Based upon proposals received to date, the Company
currently estimates the cost to perform the site investigation to be $175,000.
Accordingly, while recognizing it may be jointly and severally liable for the
entire cost, the accompanying financial statements include the proportionate
amount ($87,500) which the Company believes is its liability for a site
investigation.
The tenants of nearby properties upgradient have sued the Company alleging
that hazardous materials from the Company's property caused contamination on the
properties leased by the tenants. The Company does not believe there is any
basis for the allegations and is vigorously defending the lawsuit. The case
name is del ray industrial enterprises, inc. v. ROBERT MALONE, ET AL., Los
Angeles County Superior Court, Northwest District, commenced August 21, 1991.
In this action, the plaintiff alleges environmental contamination by defendants
of its property, and seeks a court order preventing further contamination and
monetary damages. The Company does not believe there is any basis for the
allegations and is vigorously defending the lawsuit.
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6
The Company's South El Monte manufacturing facility is also located over a
large area of possibly contaminated regional groundwater which is part of the
San Gabriel Valley Superfund site. The Company has been notified that it is a
potentially responsible party ("PRP") for the contamination. The cost of any
cleanup of the groundwater is not known at this time. In September 1992 EPA
announced that the levels of contamination in the Whittier Narrows area of the
Superfund site were sufficiently low and that it was not planning a cleanup at
this time, but rather would continue to monitor the groundwater for an
indefinite period. The Company's property is adjacent to the Whittier Narrows
area. Except as described above, it is not clear what action the EPA will take
with respect to the Company's property.
In August 1995 the Company was informed that the EPA entered into an
Administrative Order on Consent with Cardinal Industrial Finishes ("Cardinal")
for a PRP lead remedial investigation and feasibility study (the "Study") which,
the EPA states, will both characterize the extent of groundwater contamination
in South El Monte and analyze alternatives to control the spread of
contamination. The Company and others have entered into the South El Monte
Operable Unit Site Participation Agreement with Cardinal pursuant to which,
among other things, Cardinal will contract with an environmental firm to conduct
the Study. The Study is anticipated to take eighteen to twenty-four months.
The Company's share of the cost of the Study is currently $15,000 which has been
accrued for in the accompanying financial statements during fiscal year 1995.
The City of South El Monte, the city in which the Company has it's
manufacturing facility, is located in the San Gabriel Valley. The San Gabriel
Valley has been declared a Superfund site. The 1995 Water Quality Control Plan
issued by the California Regional Water Quality Control Board states that the
primary groundwater basin pollutants in the San Gabriel Valley are volatile
organic compounds from industry, nitrates from subsurface sewage disposal and
past agricultural activities. In addition, the Plan noted that hundreds of
underground storage tanks leaking gasoline and other toxic chemicals have
existed in the San Gabriel Valley. The California Department of Toxic Substance
Control have declared large areas of the San Gabriel Valley to be
environmentally hazardous and subject to cleanup work.
The Company believes the City of South El Monte does not appear to be located
over any of the major plumes. However, the EPA recently announced it is
studying the possibility that, although the vadose soil and groundwater, while
presenting cleanup problems, there may be a contamination by DNAPs (dense
non-aqueous phase liquids), i.e., "sinkers", usually chlorinated organic
cleaning solvents. The EPA has proposed to drill six "deep wells" throughout
the City of South El Monte at an estimated cost of $1,400,000. The EPA is
conferring with SEMPOA (South El Monte Property Owners Association) as to cost
sharing on this project. SEMPOA has obtained much lower preliminary cost
estimates. The outcome cost and exact scope of this are unclear at this time.
The Securities and Exchange Commission has issued a formal order of
investigation concerning certain matters, including the Company's environmental
liabilities. The Company is cooperating with the investigation.
The Company has been seeking reimbursement of cleanup costs from its
insurance carriers. One carrier has paid certain amounts towards cleanup costs
that may be incurred by buying back its policy and legal fees actually incurred.
The Company continues to seek reimbursement from other carriers, although no
such other payments have been received or agreed to, and there can be no
assurances that any such payments will be received. Some carriers have denied
liability for costs, based on their review and analysis of the insurance
policies, the history of the site, the nature of the claims, and current court
decisions in such cases.
Currently, the Company does not have any reliable information on the likely
cleanup costs of its property. Thus, it cannot determine the extent, if any, of
its share of liability for any such cleanup costs.
OTHER REGULATIONS
During the last several years, several state, local and federal agencies have
finalized or proposed regulations relating to hazardous materials. These include
Los Angeles County Hazardous Materials Business Plan, California and federal
OSHA "right to know" laws, EPA "community right to know" laws and Extremely
Hazardous Substance Regulations, Los Angeles County's program for monitoring and
closing underground tanks, the California Safe Drinking and Toxic Enforcement
Act of 1986 (Prop 65), California Connelly-Sterling Toxic Hot Spots Information
Act and AQMD's New Source of Carcinogenic Air Contaminants (Rule 1401). The
Company believes it is in compliance with these regulations that are in effect
and is anticipating it will be in compliance with those of these acts yet to be
finalized.
The Internal Standards Organization in September 1996 released specifications
(ISO 14000) for companies to use as guidelines in reducing worldwide
contamination and improving on recycling operations. The Company believes that
demonstrating that the Company meets these specifications is good citizenship
and also in time will be necessary for international trade. The Company is
proceeding to apply for an ISO 14000 rating.
EMPLOYEES
The Company's work force of 75 presently includes 22 permanent employees,
both salaried and hourly, and 53 personnel leased through employment agencies.
OTHER
The Company is not dependent upon any one supplier for any important raw
material item. Most raw material items are commodities and readily available in
the market. In most instances, the Company utilizes two or more suppliers to
furnish raw materials as needed. Sources are believed to be sufficient to
satisfy current and anticipated needs.
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Demand for the Company's principal product line is not seasonal. The
depilatory line of products is, however, generally seasonal, with demand
significantly higher during the spring and summer months.
Although the Company does not believe that it is dependent upon any one
customer or distributor, a customer accounted for 11% and 7% of the Company's
net revenues during fiscal 1996 and 1995, respectively. No other customer
accounted for 10% or more of the Company's net revenues for those fiscal years.
Backlog is not a significant factor in the Company's business. Most orders
are filled immediately and in any event, are cancelable under certain
conditions. There are no material contracts with distributors.
Consumer Products Division returns must include proof of purchase, sales
receipt and a written explanation of the reason for the return. The Company
generally provides credits for replacement of product, however, on occasion it
may provide a cash refund.
In addition, discontinued or overstocked items may be returned once the
customer receives a computer printed "return authorization" and "shipping
labels" for full case stock of factory fresh product to be sent freight prepaid
to the Company's warehouse. The customer will not receive credit for additional
merchandise that may have been added to the return. Also, the Company issues a
damaged merchandise allowance of 1/2 of 1% visibly deducted on each and every
invoice from the total net value of that invoice in lieu of accepting returns of
damaged merchandise. Finally, only 20% of the original merchandise order of
custom packed assortments is subject to return.
The Company's sales return policy for the Dental Division, is as follows:
"products returned to Lee Pharmaceuticals for credit must be sent postage paid
and within 90 days of purchase". Defective merchandise can be replaced free of
charge at any time prior to the date of expiration. Excessively used or
improperly stored merchandise is not eligible for replacement.
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ITEM 2. DESCRIPTION OF PROPERTIES.
The Company occupies, through ownership or lease, seven buildings on
contiguous lots in South El Monte, California. The Company owns the following:
APPROXIMATE
SQUARE
ADDRESS FOOTAGE USAGE
- ------- ------- -----
1428 Santa Anita Avenue 12,000 Chemical processing and filling
The Company leases the following:
<TABLE>
<CAPTION>
APPROXIMATE AGGREGATE LEASE
SQUARE ANNUAL EXPIRATION
ADDRESS FOOTAGE RENTAL DATE USAGE
- ------- ----------- --------- ---------- -----
<S> <C> <C> <C> <C>
1434 Santa Anita Avenue 11,000 $52,812 11/30/2000 Inventory control, purchasing, personnel, data processing,
accounting offices and dental production/shipping
1460 Santa Anita Avenue (1) 15,000 64,728 11/30/2000 Executive January 15, 1996, the building was subleased.
1470 Santa Anita Avenue (2) 8,000 43,056 11/30/2000 Effective July 16, 1996, the building was subleased.
1500 Santa Anita Avenue 18,000 85,884 11/30/2000 Warehouse, consumer packaging operations, injection molding
and corrugated printing
1516 Santa Anita Avenue 18,000 87,960 11/30/2000 Sales/marketing offices, consumer shipping, and warehouse
1444 Santa Anita Avenue (3) 10,000 66,744 11/30/2005 Executive office, research facility, quality control and
bottle printing
1427 Lidcombe Avenue 6,000 28,134 11/30/2000 Maintenance and chemical processing (rear building)
1425 Lidcombe Avenue 6,000 28,134 11/30/2000 Chemical processing and packaging
1445 Lidcombe Avenue (3) (4) 8,000 62,652 11/30/2005 Effective November 8, 1995, the building was subleased on a
one-year agreement.
The gross monthly rental income is $3,678.
</TABLE>
(1) The Company entered into a sublease agreement, effective January 15, 1996,
which expires November 30, 2000. The gross annual rental income is
$57,250. The tenant occupies 13,000 square feet of the total 15,000 square
footage. In June 1998 the sublessee will commence occupancy of the entire
15,000 square footage and the monthly rent will be adjusted accordingly.
The sublease includes a cost of living adjustment in June 1998.
(2) The Company entered into a sublease agreement, effective July 16, 1996,
which expires November 30, 2000. The gross annual rental income is
$39,312. In July 1998 the sublease will be adjusted from $3,276 per month
to $3,360 per month.
(3) This property is treated as a sale leaseback agreement between the Company
and one of its directors (former Chairman). The monthly lease payments
were set at the prevailing rates in the area at the time the leases were
written. The buildings were bought by Ronald G. Lee, President, from Dr.
Henry L. Lee, former Chairman, in December 1995.
(4) The gross monthly rental income is $3,678. The Company will continue to
sublease the building until the owner can locate a buyer.
All of the Company's business segments use the properties owned or leased
by the Company except for 1470 Santa Anita Avenue (subleased effective July
16, 1996), 1460 Santa Anita Avenue (subleased effective January 15, 1996),
and 1445 Lidcombe Avenue (subleased effective November 8, 1995).
The Company has a right of first refusal to acquire most of the buildings
which it leases.
The Company believes that its existing facilities are adequate to enable it
to continue to produce its products at their present volume together with
any moderate increases thereto.
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9
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of its business, the Company is involved from time to
time in litigation. In the opinion of management of the Company none of the
litigation currently pending will have a material effect on its business or
financial condition. See Item I - "Applicable to all segments - Environmental
protection regulation and litigation" (including the SEC formal investigation)
for additional information concerning certain litigation and an investigation by
the Securities and Exchange Commission.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
<PAGE>
10
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
Lee Pharmaceuticals' Common Stock has been traded on the American Stock
Exchange since October 24, 1973. During January 1996 the Company's Common Stock
was delisted from the American Stock Exchange (AMEX) and was no longer traded on
the AMEX. The Company did not meet the guidelines for continued listing of the
Company's Common Stock on the American Stock Exchange. Effective January 25,
1996, the Company's Common Stock commenced trading on the electronic
over-the-counter bulletin board under the trading symbol LPHM. For the two most
recent fiscal years, its shares have closed at high and low trading prices as
follows:
QTR HIGH LOW
FY 1996 1Q $ .6875 $ .2500
2Q .4375 .0625
3Q .2500 .0938
4Q .2000 .1400
FY 1995 1Q $ .9375 $ .4375
2Q 1.0000 .5000
3Q .6875 .4375
4Q .8750 .5000
There were approximately 851 shareholders of record of the Company's Common
Stock as of the close of business on September 30, 1996.
The Company has not paid any cash dividends and has no present intention of
paying cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
FISCAL YEARS ENDED SEPTEMBER 30, 1996, AND SEPTEMBER 30, 1995
Net revenues decreased during fiscal 1996 by $2,202,000 or 24% when compared
to fiscal 1995. The decrease in net revenues was the result of lower sales
volume of the Company's nail extender products and depilatories. An overall
decline in the artificial nail volume and continued customer consolidations by
the retailers is the cause for the reduced sales volume. The reduction in net
revenues was marginally offset by sales of the Company's newly acquired
over-the-counter brands. The new brand acquisitions accounted for approximately
4% of the total net revenues for fiscal 1996. The Company's sales returns
increased $267,000 or 29% when comparing fiscal years 1996 and 1995. This
increase was attributed to continued customer consolidations by the retailer
industry and change in the retailers planogram with fewer SKU's (stock keeping
units) of the Company's product being carried.
As noted under "Description of Business - Consumer Products Segment" the
Company has pursued a policy of diversifying its product line and has
increasingly emphasized lower priced products.
Cost of sales as a percentage of gross revenues decreased during fiscal 1996
when compared to fiscal year 1995. The decreased cost of sales percentage (40%
versus 47%) is the result of the utilization of less direct labor manpower, the
Company's ability to consolidate it's production facilities (reducing the
overall occupied facility square footage by 32%) since August 1995, and a lesser
charge for inventory obsolescence in the fourth quarter for fiscal 1996 versus
1995 of $77,000 and $355,000, respectively. This accounts for an additional 7%
reduction since the Company's fiscal year 1995 filed report. The above cost of
sales decrease (40% versus 47%) was partially offset by higher costs associated
with the disposition of excess and obsolete inventory.
Selling and advertising expenses decreased $971,000 or 24% when comparing
fiscal years 1996 and 1995. The cost reductions occurred in several major
expense classifications, namely: (1) decrease in payroll and related fringe
benefits due to cutbacks of personnel, (2) decline in advertising promotion
costs, and (3) lower manufacturer representative commissions (lower sales
volume).
Research and development expenses decreased $8,000 or 4% to $178,000 for
1996, as compared to $186,000 during fiscal 1995. A reduction in personnel
and related fringe benefit costs explains the reduction in expenditures. The
recent Company trend has been in the direction of brand acquisitions rather
than extensive internal research and development. Effective July 1996 the
Company eliminated it's internal research and development department, and
decided that future testing and research, that cannot be absorbed by its
quality assurance and production control departments, will be placed outside
the Company.
<PAGE>
11
General and administrative expenses remained constant when comparing fiscal
year 1996 and 1995. When comparing fiscal year 1996 and 1995, the following key
expense categories decreased due to their non recurring nature such as; an
environmental cleanup accrual ($102,500) and a write-off of an affiliate
receivable ($83,000). The above reduction in expenses were offset primarily by
increases in higher payroll and related fringe benefits ($98,000), legal
expenses ($32,000) and loan fees related to the Company's renewal of a note
payable to the bank regarding a real estate loan and the Company's accounts
receivable financing and security agreement ($16,000).
Interest expense increased $18,000 or 5% when comparing fiscal years 1996 and
1995. The increase was attributed to the Company's new accounts receivable
financing arrangement effective May 21, 1996. The minimum interest expense per
month was $3,000.
Gain on sale of buildings relates to the sale leaseback arrangement since
1991 whereby the Company is realizing a constant deferred gain over the lease
term.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $395,000 at September 30, 1996, as compared with
$1,260,000 at September 30, 1995. The decrease in working capital of $865,000
was primarily due to an increase in current liabilities of $510,000 (basically
new borrowings and unpaid product brand acquisitions) and a decrease in current
assets of $355,000 primarily due to a decrease in accounts receivable and
inventories. The ratio of current assets to current liabilities was 1.1 to 1 at
September 30, 1996, and 1.3 to 1 at September 30, 1995, a decline of .2 to 1.
In comparing fiscal years 1996 and 1995, accounts receivable turnover
declined (5.8 versus 8.1) primarily due to the extended number of days credit
sales remained uncollected. Accounts payable as a percentage of total costs and
expenses increased (22% versus 16%) due basically to the extended payment terms
with some of the Company's vendors.
Customer consolidations, as expected, materialized in fiscal 1996 and will,
no doubt, continue in fiscal 1997. Management continues to face lower retail
store inventory levels and expanded computerization (EDI - electronic data
interchange) in the field.
The Company has an accumulated deficit of $5,775,000. The Company's
recurring losses from operations and inability to generate sufficient cash flow
from normal operations to meet its obligations as they came due raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's ability to continue in existence is dependent upon future
developments, including achieving a level of profitable operations sufficient to
enable it to meet its obligations as they become due.
In order to increase its working capital, the Company reduced it's occupied
facility square footage by 7% since July 1996 by subleasing the vacated
facility. The sublease agreement expires in November 30, 2000, which is the
same expiration date of the Company's master lease. This transaction will
reduce the Company's annual rent expense by approximately $39,300. The Company
has continued to reduce it's inventory of slow moving items at a price below the
listed sales price and scrapping excess inventory items in light of the reduced
facility square footage. The effective reduction in inventory was $342,000
($162,000 actual) plus $180,000 brand acquisition inventory acquired in
September 1996 which was not available for shipment until October 1996.
Effective May 21, 1996, the Company obtained accounts receivable financing
whereby 65% of the eligible domestic accounts receivable, not to exceed
$1,000,000, can be financed. The financing is secured by accounts receivable,
equipment, inventories, and certain other assets. Also, the Company was
successful in renegotiating it's real estate loan ($289,000) which was to mature
in March 1996. The new maturity date is March 2001. The loan is being
amortized on a ten (10) year basis.
The Company does not believe that inflation had a significant impact on its
operations during fiscal years 1996 and 1995.
ITEM 7. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
PAGE
INDEX TO FINANCIAL STATEMENTS NUMBER
<S> <C>
Independent Auditor's Report 12
Financial Statements:
Balance sheet as of September 30, 1996 13
Statements of operations for each of the years in the two-year period
ended September 30, 1996 14
Statements of changes in stockholders' equity (deficiency) for each of
the years in the two-year period ended September 30, 1996 15
Statements of cash flows for each of the years in the two-year period
ended September 30, 1996 16
Notes to financial statements 17-24
</TABLE>
All schedules not filed or included herein are omitted either because they
are not applicable or not required, or the required information is included in
the financial statements or notes thereto.
<PAGE>
12
GEORGE BRENNER
CERTIFIED PUBLIC ACCOUNTANT
9300 WILSHIRE BOULEVARD, SUITE 480
BEVERLY HILLS, CALIFORNIA 90212
Independent Auditor's Report
Board of Directors
Lee Pharmaceuticals
South El Monte, California
I have audited the accompanying balance sheet of Lee Pharmaceuticals as of
September 30, 1996 and the related statements of operations, changes in
stockholders' equity, and cash flows for each of the years in the two-year
period ended September 30, 1996. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Lee Pharmaceuticals as of September
30, 1996, and the results of its operations and its cash flows for each of the
years in the two-year period ended September 30, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1 to
the financial statements, the Company's recurring losses from operations and
inability to generate sufficient cash flow from normal operations raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Notes 1 and
15. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
As discussed in Note 10 to the financial statements, the Company is involved in
various matters involving environmental cleanup issues. The Company is
presently planning and/or participating in remedial cost studies and has made
the appropriate provision in the financial statements for the cost of these
studies. However, the ultimate outcome of these matters cannot presently be
determined. Accordingly, no provision for any loss that may result from the
resolution of these matters has been made in the accompanying financial
statements.
Very truly yours,
GEORGE BRENNER
George Brenner, CPA
December 10, 1996
Beverly Hills, California
<PAGE>
13
LEE PHARMACEUTICALS
BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,000
Accounts receivable, less allowance for doubtful accounts of $170,000
and sales returns allowance of $295,000 (Note 5A) . . . . . . . . . . . . . . . . 1,112,000
Due from related party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,000
Inventories (Notes 3 and 5A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,298,000
Prepaid royalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 755,000
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395,000
-------------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,646,000
-------------
Property, plant and equipment, at cost (Notes 5 and 9):
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,000
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,000
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,515,000
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346,000
-------------
7,114,000
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . 6,543,000
-------------
NET PROPERTY, PLANT AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . 571,000
-------------
INTANGIBLE AND OTHER ASSETS, net of accumulated amortization
of $3,481,000 (Notes 4, 5A, and 8) . . . . . . . . . . . . . . . . . . . . . . . . . 2,798,000
-------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,015,000
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,000
Notes payable, other (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . 717,000
Current portion - royalty agreements . . . . . . . . . . . . . . . . . . . . . . . . 736,000
Current portion - note payable related party (Note 7). . . . . . . . . . . . . . . . 70,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,644,000
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599,000
Due to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348,000
Deferred income (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,000
-------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,251,000
LONG-TERM NOTES PAYABLE TO RELATED PARTIES (Note 7). . . . . . . . . . . . . . . . . . . 3,239,000
LONG-TERM PAYABLE - royalty agreements, less current portion $736,000. . . . . . . . . . 781,000
LONG-TERM NOTES PAYABLE, other (Note 8). . . . . . . . . . . . . . . . . . . . . . . . . 300,000
LONG-TERM NOTES PAYABLE TO BANKS (Note 9). . . . . . . . . . . . . . . . . . . . . . . . 377,000
DEFERRED INCOME (Note 6).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207,000
-------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,155,000
-------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' DEFICIENCY (Notes 11 and 13):
Common stock, $.10 par value; authorized 7,500,000 shares;
issued and outstanding, 4,135,162 shares. . . . . . . . . . . . . . . . . . . . . 413,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,222,000
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,775,000)
-------------
TOTAL STOCKHOLDERS' DEFICIENCY. . . . . . . . . . . . . . . . . . . . . . . . . . (1,140,000)
-------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,015,000
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
14
LEE PHARMACEUTICALS
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
GROSS REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,118,000 $ 10,053,000
Less: Sales returns, discounts and allowances (1,181,000) (914,000)
------------ ------------
NET REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . 6,937,000 9,139,000
------------ ------------
COSTS AND EXPENSES:
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . 3,228,000 4,762,000
Selling and advertising. . . . . . . . . . . . . . . . . . . 3,106,000 4,077,000
General and administrative . . . . . . . . . . . . . . . . . 1,087,000 1,110,000
Research and development . . . . . . . . . . . . . . . . . . 178,000 186,000
------------ ------------
TOTAL COSTS AND EXPENSES . . . . . . . . . . . . . . . . . . . . 7,599,000 10,135,000
------------ ------------
OPERATING LOSS. . . . . . . . . . . . . . . . . . . . . . . . . (662,000) (996,000)
INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . (381,000) (363,000)
GAIN ON SALE OF BUILDINGS AND OTHER (Note 6) . . . . . . . . . . 65,000 65,000
OTHER INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 12,000
------------ ------------
NET LOSS (Note 12) . . . . . . . . . . . . . . . . . . . . . . . $ (970,000) $ (1,282,000)
------------ ------------
------------ ------------
PER SHARE:
Net loss (Note 2). . . . . . . . . . . . . . . . . . . . . . $ (.23) $ (.31)
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
15
LEE PHARMACEUTICALS
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
Common Stock Retained
------------ Additional Earnings
Number of Paid-in (Accumulated
Shares Amount Capital Deficit) Total
---------- ---------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 4,135,162 $ 413,000 $ 4,222,000 $ (3,523,000) $ 1,112,000
Net loss (1,282,000) (1,282,000)
----------- ------------ ------------ ------------ ------------
Balance at September 30, 1995 4,135,162 413,000 4,222,000 (4,805,000) (170,000)
Net loss (970,000) (970,000)
----------- ------------ ------------ ------------ ------------
Balance at September 30, 1996 4,135,162 $ 413,000 $ 4,222,000 $ (5,775,000) $ (1,140,000)
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
16
LEE PHARMACEUTICALS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (970,000) $ (1,282,000)
------------ -------------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,000 249,000
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . 950,000 245,000
(Decrease) in deferred income . . . . . . . . . . . . . . . . . . . . (65,000) (65,000)
(Gain) on disposal of property, plant and equipment. . . . . . . . . . (9,000) (19,000)
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable . . . . . . . . . . . . . . 219,000 (398,000)
(Increase) in due from related party . . . . . . . . . . . . . . . . . (73,000)
Decrease in inventories. . . . . . . . . . . . . . . . . . . . . . . . 162,000 962,000
(Increase) decrease in other current assets. . . . . . . . . . . . . . (63,000) 278,000
Increase in accounts payable . . . . . . . . . . . . . . . . . . . . . 8,000 358,000
(Decrease) increase in due to related parties. . . . . . . . . . . . . (40,000) 223,000
(Decrease) in customer advances and deposits . . . . . . . . . . . . . (26,000)
(Decrease) in accrued salaries and wages . . . . . . . . . . . . . . . (48,000)
Increase (decrease) in other accrued liabilities . . . . . . . . . . . 144,000 (170,000)
(Decrease) increase in accrued royalties . . . . . . . . . . . . . . . (7,000) 83,000
------------ -------------
Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,388,000 1,672,000
------------ -------------
Net cash provided by operating activities . . . . . . . . . . . . . 418,000 390,000
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment . . . . . . . . . . . . . . (146,000) (98,000)
Proceeds from sale of equipment. . . . . . . . . . . . . . . . . . . . 9,000 26,000
Acquisition of product brands. . . . . . . . . . . . . . . . . . . . . (622,000) (552,000)
------------ -------------
Net cash (used in) investing activities . . . . . . . . . . . . . . (759,000) (624,000)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) bank loans . . . . . . . . . . . . . . . . 88,000 (7,000)
(Payments on) proceeds from notes payable to related party . . . . . . (37,000) 193,000
Proceeds from notes payable-other. . . . . . . . . . . . . . . . . . . 852,000 65,000
(Decrease) in long-term royalty agreements . . . . . . . . . . . . . . (744,000)
Increase in bank overdraft . . . . . . . . . . . . . . . . . . . . . . 72,000
------------ -------------
Net cash provided by (used in) financing activities . . . . . . . . 231,000 251,000
------------ -------------
NET (DECREASE) INCREASE IN CASH. . . . . . . . . . . . . . . . . . . . . . (110,000) 17,000
Cash, beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . 123,000 106,000
------------ -------------
Cash, end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,000 $ 123,000
------------ -------------
------------ -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 270,000 $ 138,000
------------ -------------
------------ -------------
Acquisition of product brands:
Fair value of assets acquired. . . . . . . . . . . . . . . . . . . . . $ 922,000 $ 628,000
Fair value of liabilities incurred . . . . . . . . . . . . . . . . . . (300,000) (76,000)
------------ -------------
Net cash payments . . . . . . . . . . . . . . . . . . . . . . . . . $ 622,000 $ 552,000
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
17
LEE PHARMACEUTICALS
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company manufactures and markets consumer products to national and
regional retailers of varying financial strength. The Company also
manufactures and sells dental products to dental service providers
principally in the United States. For all years presented, sales,
operating results and identifiable assets of the consumer products
group were in excess of 87% of total company operations.
CONTINUED EXISTENCE
The financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has an accumulated
deficit of $5,775,000. The Company's recurring losses from operations
and inability to generate sufficient cash flow from normal operations
to meet its obligations as they came due raise substantial doubt about
the Company's ability to continue as a going concern. The Company's
ability to continue in existence is dependent upon future
developments, including obtaining additional financing and achieving a
level of profitable operations sufficient to enable it to meet its
obligations as they become due. Management's plans in regard to these
matters are described in Note 15 - "Subsequent Events." The financial
statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
INVENTORIES
Inventories are stated at the lower of average cost or market using
the first-in, first-out method.
DEPRECIATION AND AMORTIZATION
Property, plant and equipment are depreciated using the straight-line
method over estimated useful lives of three to ten years for machinery
and equipment and building improvements and thirty-one years for the
building. Leasehold improvements are amortized over the shorter of
the estimated useful lives of the assets or the related lease term.
Royalties are amortized ($792,000 per year) over the maximum period of
the royalty agreement. All other intangibles are amortized ($158,000
per year) over estimated useful lives which range from six (6) to
forty (40) years..
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to an existing condition caused
by past operations, and which do not contribute to current or future
revenue generation, are expensed. The Company's proportionate share
of the liabilities are recorded when environmental remediation and/or
cleanups are probable, and the costs can be reasonably estimated.
Management believes that the amount accrued at September 30, 1995 for
remedial cost studies ($102,500) is adequate based on current
information available. Consequently, no additional provision has been
recorded in fiscal year 1996. See Note 10 - "Assessment for
environmental cleanup."
MAJOR CUSTOMER
The Company had one major customer with sales volume approximating 11%
and 7% of the Company's net revenues for the years ending September
30, 1996, and 1995, respectively. The amount due from the customer
was $249,000 and $118,000 at September 30, 1996, and 1995,
respectively, and is included in accounts receivable in these
financial statements.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and trade receivables.
The Company places its cash with high credit quality financial
institutions. At times such investments may be in excess of the FDIC
limit. In regards to trade receivables, the risk is limited due to
the large number of customers comprising the customer base, and the
dispersion in different industries and geographies. Generally, the
Company does not require collateral for its trade receivables.
INCOME TAXES
Income taxes are provided based on earnings reported for financial
statement purposes. In accordance with FASB Statement No. 109, the
asset and liability method requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of
temporary differences between tax basis and financial reporting basis
of assets and liabilities.
<PAGE>
18
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosures 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.
NOTE 2 - NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common
shares outstanding which were 4,135,162 in 1996 and 1995. Common
stock equivalents (common stock options) for fiscal 1996 and 1995 were
not considered in the net loss per share computations since the effect
was anti-dilutive.
NOTE 3 - INVENTORIES
Inventories consist of the following at September 30, 1996:
Raw materials . . . . . . . . . . . $ 1,989,000
Work-in-process . . . . . . . . . . 364,000
Finished goods. . . . . . . . . . . 474,000
--------------
2,827,000
Allowance for obsolescence . . . . 529,000
--------------
Total . . . . . . . . . . . . . . . $ 2,298,000
--------------
--------------
NOTE 4 - INTANGIBLE ASSETS
The Company acquired certain product lines in 1996 (See Note 14) and
prior years. Certain amounts related to these acquisitions were
allocated to intangible assets. Included in intangible and other
assets at September 30, 1996, are the following intangible assets:
Goodwill . . . . . . . . . . . . . . $ 1,373,000
Covenants not to compete . . . . . . 1,972,000
Trademark . . . . . . . . . . . . . 322,000
Royalty agreements . . . . . . . . . 2,286,000
Other . . . . . . . . . . . . . . . 326,000
--------------
Total . . . . . . . . . . . . . . . 6,279,000
Less: accumulated amortization . . (3,481,000)
--------------
Intangibles - Net . . . . . . . . . $ 2,798,000
--------------
--------------
NOTE 5 - NOTES PAYABLE, OTHER - CURRENT
A. Note payable to bank (accounts
receivable financing), secured
by accounts receivable, equipment,
inventories, and certain other
assets, maximum revolving advance
is $1,000,000 (based on domestic
accounts receivable as defined in
the agreement), requires minimum
monthly interest of $3,000, interest
rate is 8% above the prime rate. The
agreement is for a term of two years
from May 1996 and is renewable for
successive one year periods
thereafter. $ 388,000
B. Note payable to seller on
acquisition of product brand as
follows: $50,000 due on each of
November 1, 1996, December 1, 1996,
January 2, 1997, and January 10,
1997, and $100,000 due on April 1,
1997, plus interest at the rate of
8.25% is payable on the above
principal payments. All amounts
payable to seller by buyer after the
closing date are personally guaranteed
by the Company's Chairman. 300,000
C. Note payable unsecured, bearing
interest at bank's prime rate
(8.25% at September 30, 1996,
maturing January 1997). 10,000
D. Notes payable other 19,000
--------------
$ 717,000
--------------
--------------
NOTE 6 - RELATED PARTY TRANSACTIONS
In 1991 the Company sold and leased back two of its operating
facilities in a transaction with its former Chairman. An initial gain
was recognized and a deferred gain was recorded which is to be
amortized over the term of the two leases which expire November 2000.
The amount of deferred gain realized during 1996 and 1995 was $65,000.
<PAGE>
19
The amounts of rents paid to related parties were $133,000 and
$147,000 for September 30, 1996, and 1995, respectively.
During the fiscal year ending September 30, 1996, the total interest
expensed to related parties (Note 7) was $281,000 out of which
$270,000 was paid and $329,000 was accrued as of September 30, 1996,
in addition to other accruals of $19,000.
During the fiscal year ending September 30, 1995, the total interest
expensed to related parties (Note 7) was $291,000 out of which $66,000
was paid and $318,000 was accrued as of September 30, 1995.
The Company's primary agent for purchasing television advertising was
Western International Media Corp. (WIMC) whose President and Chief
Executive Officer, Dennis F. Holt, was a Director of the Company
during fiscal year 1995 and resigned in October 1995. Television
advertising expenses to WIMC were $204,000 for the year ended
September 30, 1995.
NOTE 7 - NOTES PAYABLE - RELATED PARTIES
A. Notes payable to related parties,
unsecured, bearing interest at bank's
prime rate (8.25% at September 30, 1996),
maturing January 2005. $ 90,000
B. Note payable to officer, unsecured,
bearing interest at bank's prime rate
(8.25% at September 30, 1996), principal
is maturing and accrued interest is
payable in January 2005. 193,000
C. Note payable to officer, unsecured, bearing
interest at bank's prime rate (8.25% at
September 30, 1996), principal is maturing
and accrued interest is payable in
January 2005. 150,000
D. Note payable to officer, unsecured, bearing
interest at bank's prime rate (8.25% at
September 30, 1996), principal is maturing
and accrued interest is payable in January
2005. 371,000
E. Notes payable to related party, secured by
product brand, bearing interest at bank's
prime rate (8.25% at September 30, 1996),
principal is maturing and accrued interest
is payable in January 2005. 400,000
F. Note payable to related party, secured by
assets of the Company (secondary position)
bearing interest at bank's prime rate
(8.25% at September 30, 1996), and
principal payable based on a twelve (12)
year fully amortized schedule commencing
March 15, 1997. 1,440,000
G. Notes payable to officer, secured by
product brand, bearing interest at bank's
prime rate (8.25% at September 30, 1996),
principal is maturing and accrued
interest is payable in January 2005. 250,000
H. Note payable to officer, secured by
product brand, bearing interest at bank's
prime rate (8.25% at September 30, 1996),
principal is maturing and accrued interest
is payable in January 2005. 100,000
I. Note payable to officer, unsecured,
bearing interest at bank's prime rate
(8.25% at September 30, 1995), principal
is maturing and accrued interest is payable
in July 1998. 65,000
J. Note payable to officer, unsecured,
(8.25% at September 30, 1996), principal
is maturing and accrued interest is
payable in January 2005. 250,000
--------------
$ 3,309,000
Less current portion (70,000)
--------------
$ 3,239,000
--------------
--------------
In connection with the sale of two buildings by the former Chairman to
the current Chairman, certain notes were exchanged between the two
parties and an early note payment of $27,000 was made to the current
Chairman.
<PAGE>
20
At September 30, 1996, the Company was committed to the following
minimum principal payments.
MINIMUM
YEAR ENDING PRINCIPAL
SEPTEMBER 30, PAYMENT
1997 $ 70,000
1998 185,000
1999 120,000
2000 120,000
2001 120,000
Thereafter 2,694,000
--------------
Total $ 3,309,000
--------------
--------------
NOTE 8 - NOTES PAYABLE, OTHER - NONCURRENT
A. Note payable secured by product
brand, bearing interest at 15%,
interest payable monthly, maturing
December 1997. The note was modified
from its original maturity date of
July 1996. $ 50,000
B. Note payable secured by product
brand, bearing interest at 15%,
interest payable monthly, maturing
December 1997. The note was modified
from its original maturity date of
July 1996. 50,000
C. Note payable secured by product
brands, bearing interest at 15%,
interest payable monthly, maturing
December 1997. The note was modified
from its original maturity date of
July 1996. 100,000
D. Note payable secured by product
brands, bearing interest at 15%,
interest payable monthly, maturing
December 1997. 100,000
--------------
$ 300,000
--------------
--------------
NOTE 9 - NOTE PAYABLE TO BANKS
A. Notes payable to bank, secured
by a deed on land and building,
requires monthly payments of $4,200,
including interest at the bank's
reference rate plus 4%, maturing
March 2001. $ 272,000
B. Note payable to bank, secured by
production equipment related to a
product brand acquisition, requires
monthly payments of $2,750, including
interest at the bank's prime rate plus
8%, maturing May 1998. 100,000
C. Note payable to bank, other 5,000
--------------
$ 377,000
--------------
--------------
NOTE 10- COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
At September 30, 1996, the Company was committed to its Chairman and
to others under noncancelable operating leases for land and buildings
requiring minimum annual rentals as follows:
YEAR ENDING
SEPTEMBER 30, OTHERS CHAIRMAN
1997 $ 391,000 $ 129,000
1998 391,000 129,000
1999 391,000 129,000
2000 391,000 129,000
2001 65,000 129,000
Thereafter - 540,000
------------ ------------
Total $ 1,629,000 $ 1,185,000
------------ ------------
------------ ------------
<PAGE>
21
Generally, the leases provide that maintenance, insurance and a
portion of property taxes are to be paid by the Company. The Company
also has a right of first refusal to acquire most of the buildings
which it leases. The Company's rental expense for the years ended
September 30, 1996, and 1995, was $523,000 and $552,000, respectively.
Some of the above leases are subleased to other companies. Two of the
three subleases are long term with annual rental revenues as follows:
YEAR ENDING SUBLEASE
SEPTEMBER 30, REVENUES
1997 $ 96,500
1998 96,800
1999 97,600
2000 97,600
2001 16,300
-----------
Total $ 404,800
-----------
-----------
ASSESSMENT FOR ENVIRONMENTAL CLEANUP
The Company owns a manufacturing facility located in South El
Monte, California. The California Regional Water Quality Control
Board (The "RWQCB"), has alleged that the soil and shallow groundwater
at the site are contaminated. On August 12, 1991, the Board issued a
"Cleanup and Abatement Order" directing the Company to conduct further
testing and cleanup the site. The Company did not complete the
testing, and in June 1992 the RWQCB requested that the EPA evaluate
the contamination and take appropriate action. At the EPA's request,
Ecology & Environment, Inc. conducted an investigation of soil and
groundwater on the Company's property. Ecology & Environment Inc.'s
Final Site Assessment Report, which was submitted to the EPA in June
1994, did not rule out the possibility that some of the contamination
originated on-site, and resulted from either past or current
operations on the property. While the Company may be liable for all
or part of the costs of remediating the contamination on its property,
the remediation cost is not known at this time. The EPA has not taken
any further action in this matter, but may do so in the future.
The Company and nearby property owners are in the process of engaging
a consultant to perform a site investigation with respect to soil and
shallow groundwater contamination. Based upon proposals received to
date, the Company currently estimates the cost to perform the site
investigation to be $175,000. Accordingly, while recognizing it may
be jointly and severally liable for the entire cost, the financial
statements as of September 30, 1995, recognized the proportionate
amount ($87,500) which the Company believes is its liability for a
site investigation.
The tenants of nearby properties upgradient have sued the Company
alleging that hazardous materials from the Company's property caused
contamination on the properties leased by the tenants. The case name
is DEL RAY INDUSTRIAL ENTERPRISES, INC. v. ROBERT MALONE, ET AL., Los
Angeles County Superior Court, Northwest District, commenced August
21, 1991. In this action, the plaintiff alleges environmental
contamination by defendants of its property, and seeks a court order
preventing further contamination and monetary damages. The Company
does not believe there is any basis for the allegations and is
vigorously defending the lawsuit.
The Company's South El Monte manufacturing facility is also located
over a large area of possibly contaminated regional groundwater which
is part of the San Gabriel Valley Superfund site. The Company has
been notified that it is a potentially responsible party ("PRP") for
the contamination. The cost of cleanup of the groundwater is not
known at this time. In September 1992 EPA announced that the levels
of contamination in the Whittier Narrows area of the Superfund site
were sufficiently low and that it was not planning a cleanup at this
time, but rather would continue to monitor the groundwater for an
indefinite period. The Company's property is adjacent to the Whittier
Narrows area. Except as described above, it is not clear what action
the EPA will take with respect to the Company's property.
In August 1995 the Company was informed that the EPA entered into an
Administrative Order on Consent with Cardinal Industrial Finishes
("Cardinal") for a PRP lead remedial investigation and feasibility
study (the "Study") which, the EPA states, will both characterize the
extent of groundwater contamination in South El Monte and analyze
alternatives to control the spread of contamination. The Company and
others have entered into the South El Monte Operable Unit Site
Participation Agreement with Cardinal pursuant to which, among other
things, Cardinal will contract with an environmental firm to conduct
the Study. The Study is anticipated to take eighteen to twenty-four
months. The Company's share of the cost of the Study is currently
$15,000 and was accrued for in the financial statements as of
September 30, 1995.
The City of South El Monte, the city in which the Company has it's
manufacturing facility, is located in the San Gabriel Valley. The San
Gabriel Valley has been declared a Superfund site. The 1995 Water
Quality Control Plan issued by the California Regional Water Quality
Control Board states that the primary groundwater basin pollutants in
the San Gabriel Valley are volatile organic compounds from industry,
nitrates from subsurface sewage disposal and past
<PAGE>
22
agricultural activities. In addition, the Plan noted that hundreds of
underground storage tanks leaking gasoline and other toxic chemicals
have existed in the San Gabriel Valley. The California Department of
Toxic Substance Control have declared large areas of the San Gabriel
Valley to be environmentally hazardous and subject to cleanup work.
The Company believes the City of South El Monte does not appear to be
located over any of the major plumes. However, the EPA recently
announced it is studying the possibility that, although the vadose
soil and groundwater, while presenting cleanup problems, there may be
a contamination by DNAPs (dense non-aqueous phase liquids), i.e.,
"sinkers", usually chlorinated organic cleaning solvents. The EPA has
proposed to drill six "deep wells" throughout the City of South El
Monte at an estimated cost of $1,400,000. The EPA is conferring with
SEMPOA (South El Monte Property Owners Association) as to cost sharing
on this project. SEMPOA has obtained much lower preliminary cost
estimates. The outcome cost and exact scope of this are unclear at
this time.
The Securities and Exchange Commission has issued a formal order of
investigation concerning certain matters, including the Company's
environmental liabilities. The Company is cooperating with the
investigation.
The Company has been seeking reimbursement of cleanup costs from its
insurance carriers. One carrier has paid certain amounts towards
cleanup costs that may be incurred by buying back its policy and legal
fees actually incurred. The Company continues to seek reimbursement
from other carriers, although no such other payments have been
received or agreed to, and there can be no assurances that any such
payments will be received. Some carriers have denied liability for
costs, based on their review and analysis of the insurance policies,
the history of the site, the nature of the claims, and current court
decisions in such cases.
Currently, the Company does not have any reliable information on the
likely cleanup costs of its property. Thus, it cannot determine the
extent, if any, of its share of liability for any such cleanup costs.
NOTE 11- STOCK OPTIONS
Under the Company's 1985 Employee Incentive Stock Option Plan, as
amended, common stock options may be granted to officers and other key
employees for the purchase of up to a total of 580,000 shares of
common stock of the Company at a price per share equal to its fair
market value on the date of grant. Options expire five years from the
date of grant, are contingent upon continued employment and become
exercisable in equal installments during each of the three years
beginning eighteen months after the date of grant.
The following table sets forth the number of shares under option and
the related option prices at September 30, 1995, and 1996:
OPTION PRICE RANGE
NUMBER PER SHARE
Outstanding at September 30, 1994 . . . . . 572,000 $1.25 -- $4.13
Granted . . . . . . . . . . . . . . . 165,000 $0.50
Canceled . . . . . . . . . . . . . . . (270,000) $1.25 -- $2.07
---------
Outstanding at September 30, 1995 . . . . . 467,000 $0.50 -- $1.31
Canceled . . . . . . . . . . . . . . . (261,500) $0.50 -- $1.3125
---------
Outstanding at September 30, 1996 . . . . . 205,500 $0.50 -- $1.3125
---------
---------
At September 30, 1996, 61,000 shares are eligible to be exercised. No
additional options can be granted under this plan.
The 1987 Stock Option Plan was adopted by the Board of Directors on
January 4, 1988, and was approved by the Company's shareholders on
March 8, 1988. This Stock Option Plan provides for the granting of
options to the Company's outside directors for the purchase of a total
of 50,000 shares of common stock of the Company at a price per share
equal to the fair market value on the date of grant. Options expire
five years from the date of grant and become exercisable in equal
installments during each of the three years beginning eighteen months
after the date of grant.
At September 30, 1996, options to purchase 16,600 shares were
outstanding and 8,000 shares are eligible to be exercised at a price
of $1.31 per share.
NOTE 12- INCOME TAXES
As of September 30, 1996, the Company had net operating loss (NOL)
carryforwards of approximately $6,770,000 for Federal and $3,920,000
for California which for tax purposes can be used to offset future
Federal and California income taxes. The differences in the state
carryforwards relate primarily to the treatment of loss carryforwards
and depreciation of property, plant and equipment. The carryforwards
expire from 2005 through 2011. The Company has provided an allowance
for the entire amount of the deferred asset applicable to the NOL.
<PAGE>
23
NOTE 13- EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
The Company established an Employee Stock Ownership Plan and Trust
("Plan") effective December 1, 1985. The Plan is a tax-qualified
employee stock ownership plan which is designed to invest primarily in
the common stock of the Company for the benefit of the employees and
their beneficiaries.
The benefits provided by the Plan are paid for entirely by the
Company. The Company contributions are used to purchase the common
stock of the Company which is credited to the individual accounts
maintained for each participant. For each twelve-consecutive-month
period of employment, employees receive a one-year period of service
credit. After three years of service employees have a 20% vested
interest in their accounts under the Plan, increasing at a rate of 20%
per year with full vesting occurring at seven years of service.
The Plan consists of a stock bonus plan, ("Plan A") and a money
purchase pension plan, ("Plan B"). Under Plan A, the Company's Board
of Directors annually determines the amount to be contributed to the
Plan. The contribution by the Company for any single plan year
(October 1 through September 30) cannot exceed fifteen percent (15%)
of the total compensation paid to Plan participants for the year.
Plan B requires an automatic contribution equal to ten percent (10%)
of participant compensation each Plan Year. The Company did not make
any contributions (expense) related to Plan A for the year ending
September 30, 1996, or September 30, 1995.
Effective June 30, 1993, Plan B was terminated; therefore, there was
no contribution under Plan B for the year ended September 30, 1996,
or for the period October 1, 1994, through September 30, 1995. All
participants under Plan B became 100% vested on July 1, 1993, due to
the termination of Plan B.
Effective September 30, 1995, Plan A was terminated. All participants
under Plan A became 100% vested on September 30, 1995, due to the
termination of Plan A.
In November 1996 the Company received its final determination letter
from the Internal Revenue Service. During fiscal 1997 all
participants account balances will be distributed by the Company.
NOTE 14- ACQUISITIONS
On June 15, 1995, the Company purchased certain assets of the Brush 'n
Floss-Registered Trademark- product which is a patented device to
facilitate tooth flossing from Sundance Healthcare Products, Inc. for
approximately $24,000 cash. The purchase price ($24,000) includes a
$20,000 prepayment of a five year royalty which is being expensed
monthly commencing July 1995.
On June 30, 1995, the Company purchased certain assets of the Baby
Gasz-TM- and Baby Gumz-TM- brand of baby products from Reinhard Labs,
Inc. for approximately $73,000 cash. The Company signed a consulting
agreement whereby the Company prepaid the three (3) year consulting
fee ($60,000) which is included in the $73,000 purchase price. The
consulting fee is expensed monthly commencing July 1, 1995, through
June 30, 1998. The original royalty agreement was for a period of
five (5) years, commencing July 1, 1995, and based on 10% of net
sales. The royalty payments are payable thirty (30) days after each
calendar quarter. The Company bought out all future royalty
obligations and any other claims Reinhard Labs, Inc. had in July 1996
for $13,000.
On August 10, 1995, the Company purchased certain assets of the
XS-Registered Trademark- line of hangover relief/over indulgence
products from Barnett Laboratories, Inc. for approximately $129,000.
In addition, the Company signed a consulting agreement to pay Barnett
Laboratories, Inc. $75,000. The Company is required to remit $5,000
per month, commencing on September 1, 1995, plus accrued interest at
10%. The payments will continue for the next fifteen (15) months.
The royalty agreement covers a period of sixty-four and two-thirds (64
2/3) months, commencing August 10, 1995, and is payable thirty (30)
days after each quarter. The royalty agreement is based on 25% of net
sales.
On September 20, 1996, the Company purchased certain assets of the
Aquafilter line of disposable cigarette filters from Aquafilter
Corporation, a wholly owned subsidiary of Scott's Liquid Gold Inc.,
for $800,000. The Company remitted $500,000 at closing. Payments of
$50,000 are due on each of November 1, 1996, December 1, 1996, January
2, 1997, and January 10, 1997, plus $100,000 due on April 1, 1997,
plus accrued interest at 8.25%. All amounts payable to the Seller by
the Company (Buyer) after closing date are personally guaranteed by
the Company's Chairman.
NOTE 15- SUBSEQUENT EVENTS (UNAUDITED)
In order to increase its working capital, the Company developed the
following financial plan. The Company has taken steps to conserve
cash by further reducing its occupied facility square footage by 7%
since July 1996. Effective July 16, 1996, the Company agreed to
sublease an 8,000 square foot facility. The sublease agreement
expires November 30, 2000. The total annual gross rental income
(before the Company's rent expense) is approximately $39,000. Also,
the Company will continue its review to further reduce the amount of
working capital tied up in inventory. The Company will be
manufacturing internally all of its newly acquired brands to the
extent possible.
<PAGE>
24
NOTE 16- FOURTH QUARTER RESULTS
The Company's unaudited operating loss for the fourth quarter, ended
September 30, 1996, was $542,000. The $542,000 loss was related to:
(1) increased inventory obsolescence allowance of $77,000, (2)
increased allowance for return merchandise of $50,000, and (3) lower
sales volume. In the first three quarters the Company averaged over
$2,000,000 in gross revenues per quarter. However, during the fourth
quarter, gross revenues were approximately $1,700,000 or a more than
15% reduction in gross sales volume from the prior three (3) quarters.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
As previously reported in a Current Report on Form 8-K, on September 27,
1995, the Board of Directors of Lee Pharmaceuticals authorized, effective
September 27, 1995, (1) the termination of the engagement of Meir & Meir as
independent auditors for Lee Pharmaceuticals for the fiscal year ended September
30, 1995 and (2) the engagement of Jeffery, Corrigan & Shaw, 245 South Los
Robles Avenue, Suite 400, Pasadena, California 91101-2894, as independent
auditors for Lee Pharmaceuticals for fiscal 1995. Jeffery, Corrigan & Shaw was
engaged as the Company's principal independent auditors on September 29, 1995.
During the fiscal year ended September 30, 1994 and through September 27,
1995 there were no disagreements with Meir & Meir on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of Meir &
Meir would have caused them to make reference in connection with their report to
the subject matter. The Company had been informed by Meir & Meir that
information had come to their attention that made them conclude that the scope
of the audit should be expanded to include an expert opinion regarding the
environmental issues the Company is involved with. The finding of such expert
may materially impact the fairness or reliability of the previously issued audit
reports or the underlying financial statements, or the financial statements to
be issued covering the fiscal periods subsequent to the date of the most recent
audited financial statements (including information that might preclude the
issuance of an unqualified report). The request by Meir & Meir to include the
expert opinion in the fiscal 1995 audit was not the basis for the Company's
change in independent accountants.
Prior to such firm's engagement, Jeffery, Corrigan & Shaw was not consulted
by the Company (or anyone acting on its behalf) regarding (1) either the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
Lee Pharmaceuticals' financial statements or (2) any matter that was either the
subject of a "disagreement" of a "reportable event" as such terms are defined in
Regulation S-K promulgated by the Securities and Exchange Commission.
As previously reported in a Current Report on Form 8-K, on October 27, 1995,
the Board of Directors of Lee Pharmaceuticals authorized, effective October 27,
1995, (1) the termination of the engagement of Jeffery, Corrigan & Shaw as
independent auditors for Lee Pharmaceuticals for the fiscal year ended September
30, 1995 and (2) the engagement of George Brenner, CPA, 9300 Wilshire Boulevard,
Suite 480, Beverly Hills, California 90212, as independent auditor for Lee
Pharmaceuticals for fiscal 1995. George Brenner, CPA was engaged as the
Company's principal independent auditor on October 27, 1995.
In connection with its activities for the period September 27, 1995, (the
date Jeffery, Corrigan & Shaw was engaged), through October 27, 1995, there were
no disagreements on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Jeffrey, Corrigan & Shaw would have caused them
to make reference in connection with their report to the subject matter.
Jeffrey, Corrigan & Shaw was unable to proceed with the audit engagement because
of its failure to obtain the insurance it believed was necessary.
Prior to such firm's engagement, George Brenner, CPA was not consulted by the
Company (or anyone acting on its behalf) regarding (1) either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on Lee Pharmaceuticals'
financial statements or (2) any matter that was either the subject of a
"disagreement" of a "reportable event" as such terms are defined in Regulation
S-K promulgated by the Securities and Exchange Commission.
<PAGE>
25
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT.
Directors are elected to serve until the next annual stockholders' meeting or
until their respective successors have been elected and qualified or as
otherwise provided in the bylaws. Set forth below for the current directors and
executive officers are their ages, principal occupations during the past five
years, and the period during which they have served as a director or officer of
the Company.
<TABLE>
<CAPTION>
A DIRECTOR
POSITIONS HELD OR OFFICER PRINCIPAL OCCUPATION
NAME AGE WITH COMPANY SINCE DURING THE PAST FIVE YEARS (1)
<S> <C> <C> <C> <C>
Dr. Henry L. Lee 70 Director 1971 Chairman of the Board of Lee Pharmaceuticals thru
April 1995 when he retired, available as a consultant,
currently a Director of the Company
Ronald G. Lee 44 President, Chairman 1977 President and since April 1995, Chairman of the Board
and Director of the Company
Michael L. Agresti 54 Vice President - 1977 Vice President - Finance, Treasurer and Secretary Finance,
Treasurer and of the Company
Secretary
William M. Caldwell IV 49 Director 1987 President of Union Jack Group, a merchant
banking firm
</TABLE>
(1) None of the companies named, other than the Company, is a parent,
subsidiary or other affiliate of the Company.
FAMILY RELATIONSHIPS
Ronald G. Lee is the son of Dr. Henry L. Lee.
<PAGE>
26
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information with respect to remuneration paid
by the Company to the executive officers of the Company with total annual salary
and bonus of at least $100,000 for services in all capacities while acting as
officers and directors of the Company during the fiscal years ended September
30, 1996, 1995, and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------ ---------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)
- ------------------ ---- ---------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Ronald G. Lee 1996 179,624 2,382 (1) -- -- (4)
President, Chairman 1995 178,595 5,734 (1) 80,000(2) -- (4)
(since April 26, 1995) 1994 206,244 3,884 (1) 55,000(2) 1,909(4)
& Director
Theo. H. Dettlaff, Vice 1996 118,224 -- -- -- (5)
President, President 1995 167,575 -- 51,500(3) -- (5)
of Consumer Products 1994 185,791 -- 55,000(3) 2,728(5)
Division & Director (6)
</TABLE>
(1) Includes reimbursement of medical and dental expenses not covered by the
Company's insurance plan of $2,382, $5,081, and $713, respectively, in
1996, 1995, and 1994 and non cash fringe benefits of $653 and $3,171,
respectively, in 1995 and 1994.
(2) The Company granted 80,000 stock options on May 8, 1995, which had an
option price of $.50 at the date of grant and 55,000 stock options on
January 24, 1994, which had an option price of $1.31 at the date of grant.
(3) The Company granted 51,500 stock options on May 8, 1995, which had an
option price of $.50 at the date of grant and 55,000 stock options on
January 24, 1994, which had an option price of $1.31 at the date of grant.
(4) Amount represents the fair market value of Company shares purchased and/or
forfeitures in the Company's Employee Stock Ownership Plan and Trust of $0
in 1996, $0 in 1995, and $349 in 1994 and life insurance policy with an
annual premium of $0 in 1996, $0 in 1995, and $1,560 in 1994.
(5) Amount represents the fair market value of Company shares purchased and/or
forfeitures in the Company's Employee Stock Ownership Plan and Trust of $0
in 1996, $0 in 1995, and $311 in 1994 and life insurance policy with an
annual premium of $0 in 1996, $0 in 1995, and $2,417 in 1994.
(6) He ceased being an officer and director of the Company in March 1996.
Each of the directors of the Company who is not employed by the Company
receives a director's fee of $750 for each quarter and $500 for each
meeting of the Board of Directors attended, except Dr. Henry L. Lee. As
holder of the honorary title of Founder Chairman Dr. Lee waived his fees.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
NUMBER OF UNEXERCISED OPTIONS
AT FISCAL YEAR END (#)
-----------------------------
NAME EXERCISABLE/UNEXERCISABLE
- ---- -----------------------------
Ronald G. Lee 36,666/98,334
<PAGE>
27
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
The Company established an Employee Stock Ownership Plan and Trust ("Plan")
effective December 1, 1985. The Plan is a tax-qualified employee stock
ownership plan which is designed to invest primarily in the common stock of the
Employer for the benefit of the employees and their beneficiaries.
The benefits provided by the Plan are paid for entirely by the Employer.
The Employer contributions are used to purchase the common stock of the
Employer, which is credited to the individual accounts maintained for each
participant. In addition to providing an opportunity for employees to
participate in the Employer's growth through stock ownership and to provide
funds for employees' retirement, the Plan is designed to be available as a
technique of corporate finance to the Employer.
All employees who had completed at least a six-month period of service with
the Employer as of the effective date of this Plan (December 1, 1985) became
participants in the Plan as of such date. Every other employee will become a
participant in the Plan as of the first day of the month coinciding with or next
following the date upon which he completes a six-month period of service
provided that he is employed by the Employer on such date.
The Employer makes contributions only on behalf of the participants who are
employed by it on the last day of each Plan year, September 30. Contributions
made on behalf of the employees will not be taxable to them until the time
benefits are actually paid to them.
Effective October 1, 1989, the Plan consists of two (2) parts: Plan A, a
stock bonus plan, and Plan B, a money purchase pension plan. The Company's
Board of Directors determines the amount to be contributed annually to Plan A up
to a maximum of fifteen percent (15%) participant compensation for the Plan year
(October 1 through September 30). The contribution under Plan B is a non-
discretionary amount equal to ten percent (10%) of participant compensation for
the Plan year. The contribution by the Company to the Trust for any single Plan
year cannot exceed twenty-five percent (25%) of the total compensation paid to
Plan participants for the year.
Company contributions are allocated to each Participant's Company
Contribution Account in the proportion that his compensation for the Plan year
bears to the total compensation paid to all participants for the Plan year.
Forfeitures which arise under Plan A are allocated to the accounts of the other
participants at the end of the Plan year during which the forfeitures arise due
to termination of employment in the same manner as Company contributions are
allocated. Forfeitures which arise under Plan B are used to offset the
Company's required contribution under Plan B.
The term "vested" as applied in the context of employee benefit plans
refers to that portion of a participant's accounts which has become
nonforfeitable because the participant has accrued a certain number of period-
of-service credits. If a participant reaches normal retirement age (age 65),
becomes permanently disabled, dies or retires at age 65, his interest in his
accounts becomes immediately 100% vested, i.e. nonforfeitable.
The Plan has been amended to conform with the requirements of the Tax
Reform Act of 1986 and effective October 1, 1989, the vesting schedule of the
Plan is as follows:
PERIOD OF SERVICE VESTED PERCENTAGE
Less than 3 years 0%
3 years 20%
4 years 40%
5 years 60%
6 years 80%
7 years 100%
The following tabulation shows the interest in the Plan and vesting
percentages of the officers who are named in the Cash Compensation Table and all
executive officers as a group as of September 30, 1996.
INTEREST IN THE PLAN
SHARES OF CASH VESTED
NAME COMMON STOCK AMOUNT PERCENTAGE
Ronald G. Lee 46,427 $163 100%
All executive officers 67,333 $238 100%
as a group (2 persons)
Effective July 1, 1993, the plan was amended for a second time. On June
30, 1993, Plan B was terminated; therefore, all participants became 100% vested,
in Plan B only, effective July 1, 1993. No contribution was made to Plan A or B
for the period October 1, 1993, through September 30, 1994.
Effective September 30, 1995, Plan A was terminated. All participants
under Plan A became 100% vested on September 30, 1995, due to the termination of
Plan A. No contribution was made to Plan A or B for fiscal year 1995 or 1996.
In connection with the termination of Plan A, the Company wrote off the Employee
Stock Ownership Plan and Trust receivable as of September 30, 1995.
In November 1996 the Company received its final determination letter from the
Internal Revenue Service. During fiscal 1997 all participants account balances
will be distributed by the Company.
<PAGE>
28
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the persons who, as of November 30, 1996, were
known to the Company to be beneficial owner of more than five percent of the
Company's Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
<S> <C> <C> <C>
Common Stock Ronald G. Lee 343,342 shares (1) (2) 8%
1444 Santa Anita Avenue
South El Monte, CA 91733
Common Stock Dr. Henry L. Lee 292,334 shares (1) 7%
1444 Santa Anita Avenue
South El Monte, CA 91733
</TABLE>
(1) Includes 28,000 shares of the Company's common stock which Dr. Lee holds
as trustee for the benefit of certain family members. He has the right
to vote such shares but otherwise disclaims beneficial ownership.
The following table sets forth the ownership of the Company's Common
Stock by its directors and its named executive officers and all executive
officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
<S> <C> <C> <C>
Common Stock Ronald G. Lee 343,342 (1) (2) 8%
Common Stock Dr. Henry L. Lee 292,334 (3) 7%
Common Stock William M. Caldwell IV 7,733 (2) *
Common Stock All officers and directors
as a group (4 persons) 691,433 (1) (2) 17%
</TABLE>
(1) Includes shares held under the Plan.
(2) Includes shares subject to options exercisable at or within 60 days after
December 31, 1996.
(3) Includes 28,000 shares of the Company's common stock which Dr. Lee holds as
trustee for the benefit of certain family members. He has the right to
vote such shares but otherwise disclaims beneficial ownership.
* Less than 1%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company's primary agent for purchasing television advertising was Western
International Media Corp. (WIMC) whose President and Chief Executive Officer,
Dennis F. Holt, was a Director of the Company during fiscal year 1995 and
resigned in October 1995. Television advertising expenses to WIMC were $204,000
for the year ended September 30, 1995. Western International Media Corp.
realized a commission of approximately $19,000 from the purchase of such time
during fiscal year ended September 30, 1995. In addition, Mr. Holt received a
direct remuneration from the Company of $2,000 during fiscal year 1995 as a
Director's fee.
The information regarding borrowings from and sale and leaseback transactions
between the Company and it's Chairman of the Board which is contained in Item 6
and Note 6 of Notes to Financial Statements is incorporated herein by this
reference.
<PAGE>
29
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibits have been or are being filed herewith,
and are numbered in accordance with Item 601 of Regulation S-B:
The following exhibits are filed herewith:
10.24 - Secured promissory note dated September 17, 1996,
between Lee Pharmaceuticals and Preferred Business
Credit, Inc.
10.25 - Promissory notes evidencing advances made by the
Registrant
10.26 - Promissory notes which were amended in July 1996
evidencing advances made to the Registrant
10.27 - Sublease dated November 22, 1995, for the premises
located at 1460 Santa Anita Avenue, South El Monte,
California
10.28 - Sublease dated June 11, 1996, for the premises located
at 1470 Santa Anita Avenue, South El Monte, California
10.29 - Lease dated December 1, 1995, for the premises located
at 1444 Santa Anita Avenue, South El Monte, California
10.30 - Lease dated December 1, 1995, for the premises located
at 1445 Lidcombe Avenue, South El Monte, California
The following exhibits have previously been filed by the Company:
3.1 - Articles of Incorporation, as amended (1)
3.4 - By-laws, as amended December 20, 1977 (2)
3.5 - Amendment of By-laws effective March 14, 1978 (2)
3.6 - Amendment to By-laws effective November 1, 1980 (3)
10.1 - Qualified Stock Option Plan including forms of
grant (4)
10.2 - 1985 Employee Incentive Stock Option Plan (5)
10.3 - Description of bonus agreements between the Registrant
and its officers (2)
10.4 - Lease dated December 1, 1990, for the premises located
at 1470 Santa Anita Avenue, South El Monte,
California (6)
10.5 - Lease dated April 16, 1990, for the premises located at
1425 and 1427 Lidcombe Avenue, South El Monte,
California (6)
10.6 - Lease dated April 16, 1990, for the premises located at
1434 Santa Anita Avenue, South El Monte, California (6)
10.7 - Lease dated April 16, 1990, for the premises located at
1460 Santa Anita Avenue, South El Monte, California (6)
10.8 - Lease dated April 16, 1990, for the premises located at
1457 Lidcombe, South El Monte, California (6)
10.9 - Lease dated April 16, 1990, for the premises located at
1500 Santa Anita Avenue, South El Monte, California (6)
10.10 - Lease dated April 16, 1990, for the premises located at
1516 Santa Anita Avenue, South El Monte, California (6)
10.11 - Lease dated March 1, 1991, for the premises located at
1444 Santa Anita Avenue, South El Monte, California (6)
10.12 - Lease dated March 1, 1991, for the premises located at
1445 Lidcombe Avenue, South El Monte, California (7)
<PAGE>
30
10.13 - Promissory notes which were amended in September 1992
evidencing advances by the Registrant's officers and
directors (8)
10.14 - Promissory notes which were amended in September 1994
evidencing advances by the Registrant's officers and
directors (9)
10.15 - Promissory notes evidencing advances made to the
Registrant's officers and directors (9)
10.16 - Promissory notes evidencing advances made to the
Registrant (9)
10.17 - Promissory notes which were amended in January 1995
evidencing advances by the Registrant's officers and
directors (10)
10.18 - Promissory notes evidencing advances made by the
Registrant's officers and directors (10)
10.19 - Promissory notes which were amended in July 1995
evidencing advances made to the Registrant (10)
10.20 - Royalty agreement dated August 31, 1994, between Lee
Pharmaceuticals and The Fleetwood Company, regarding a
brand acquisition (10)
10.21 - Royalty agreement dated October 4, 1988, between Lee
Pharmaceuticals and Roberts Proprietaries, Inc.
regarding a brand acquisition (10)
10.22 - Note payable to bank dated April 26, 1996, between Lee
Pharmaceuticals and San Gabriel Valley Bank, secured by
the deed on land and building (11)
10.23 - Loan and security agreement dated May 21, 1996, between
Lee Pharmaceuticals and Preferred Business Credit, Inc.
regarding a revolving credit facility financing (11)
(1) Filed as an Exhibit of the same number with the Company's Form S-1
Registration Statement filed with the Securities and Exchange
Commission on February 5, 1973, (Registrant No. 2-47005), and
incorporated herein by reference.
(2) Filed as Exhibits 3.4, 3.5 and 13.18 with the Company's Form 10-K
Annual Report for the fiscal year ended September 30, 1978, filed with
the Securities and Exchange Commission in December 1978 and
incorporated herein by reference.
(3) Filed as an Exhibit of the same number with the Company's Form 10-K
Annual Report for the fiscal year ended September 30, 1979, filed with
the Securities and Exchange Commission in December 1979 and
incorporated herein by reference.
(4) Filed as Exhibit 5.1 with the Company's Form 10-K Annual Report for
the fiscal year ended September 30, 1973, filed with the Securities
and Exchange Commission in December 1973 and incorporated herein by
reference.
(5) Filed as Exhibits 13.27 and 13.28 with the Company's Form 10-K Annual
Report for the fiscal year ended September 30, 1986, filed with the
Securities and Exchange Commission in December 1986 and incorporated
herein by reference.
(6) Filed as Exhibit 13.31 with the Company's Form 10-K Annual Report for
the fiscal year ended September 30, 1990, filed with the Securities
and Exchange Commission in December 1990 and incorporated herein by
reference.
(7) Filed as Exhibit 13.32 with the Company's Form 10-K Annual Report for
the fiscal year ended September 30, 1991, filed with the Securities
and Exchange Commission in December 1991 and incorporated herein by
reference.
(8) Filed as Exhibit 13.33 with the Company's Form 10-K Annual Report for
the fiscal year ended September 30, 1992, filed with the Securities
and Exchange Commission in December 1992 and incorporated herein by
reference.
(9) Filed as Exhibits 10.14, 10.15, and 10.16 with the Company's Form 10-
KSB Annual Report for the fiscal year ended September 30, 1994, filed
with the Securities and Exchange Commission in December 1994 and
incorporated herein by reference.
<PAGE>
31
(10) Filed as Exhibits 10.17, 10.18, 10.19, 10.20, and 10.21 with the
Company's Form 10-KSB Annual Report for the fiscal year ended
September 30, 1995, filed with the Securities and Exchange Commission
in December 1995 and incorporated herein by reference.
(11) Filed as Exhibits 10.1 and 10.2 with the Company's Form 10-QSB
Quarterly Report for the nine months ended June 30, 1996, filed with
the Securities and Exchange Commission in August 1996 and incorporated
herein by reference.
(b) Reports on Form 8-K:
None
<PAGE>
32
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
LEE PHARMACEUTICALS
Date: December 20, 1996 RONALD G. LEE
-------------------------- -----------------------------------
Ronald G. Lee
Chairman of the Board
In accordance with the Securities Exchange Act of 1934, this report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date: December 20, 1996 RONALD G. LEE
---------------------- -----------------------------------
Ronald G. Lee
Chairman of the Board
(Principal Executive Officer) and
Director
Date: December 20, 1996 HENRY L. LEE, JR.
---------------------- -----------------------------------
Henry L. Lee, Jr.
Director
Date: December 20, 1996 WILLIAM M. CALDWELL IV
---------------------- -----------------------------------
William M. Caldwell IV
Director
Date: December 20, 1996 MICHAEL L. AGRESTI
---------------------- -----------------------------------
Michael L. Agresti
Vice President - Finance
(Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT 10.24
Page 1
SECURED PROMISSORY NOTE
$100,000.00 Pasadena, California
September 17, 1996
FOR VALUE RECEIVED, the undersigned hereby jointly and severally (if applicable)
promises to pay to PREFERRED BUSINESS CREDIT, INC., a California Corporation, at
300 N. Lake Ave., Pasadena, California, 91101, or at such other address as the
holder may specify in writing, the principal sum of One Hundred Thousand and
00/100 Dollars ($100,000.00) plus interest as provided below.
This note shall bear interest at the rate of 16.25% per annum, computed on the
basis of a 360 day year for actual days elapsed. This rate is based upon the
prime rate of interest of 8.25%, the rate in effect as of this date. The prime
rate of interest is the prime rate announced as being charged by Bank of
America, San Francisco, from time to time. In the event the prime rate is from
time to time hereafter changed, the rate of interest provided in this note shall
be correspondingly changed. For each month the rate of interest charged under
this note shall be based upon the average prime rate in effect during such
month. In no event shall the rate of interest chargeable hereunder be less than
1% per month.
Principal shall be payable in 20 equal monthly installments of $2,750.00
commencing November 1, 1996, and continuing thereafter on the 1st day of each
month, plus interest shall be payable monthly commencing October 1, 1996, and
continuing thereafter on the 1st day of each month, and one final installment on
May 21, 1998, equal to all principal outstanding together with all accrued and
unpaid interest.
This note is secured by that certain Loan and Security Agreement ("Agreement")
dated May 21, 1996, and is subject to all of the terms and conditions thereof.
In the event of default under the Agreement, including but not limited to, the
failure to pay any installment of principal or interest hereunder when due, the
holder of this note may, at its election and without notice to the undersigned,
declare the entire balance hereof immediately due and payable.
If any installment of principal or interest hereunder is not paid when due, the
holder shall have the following rights in addition to the rights set forth in
the preceding paragraph: (a) the right to add unpaid interest to principal and
to have such amount thereafter bear interest as provided in this note, and (b)
if any installment is more than ten days past due, the right to collect a charge
equal to the greater of $15.00 or five percent of the delinquent payment. This
charge is the result of a reasonable endeavor by the undersigned and the holder
to estimate the holder's added costs and damages resulting from the
undersigned's failure to timely make payments under this note; hence the
undersigned agrees that the charge shall be presumed to be the amount of damage
sustained by the holder since it is extremely difficult to determine the actual
amount necessary to reimburse the holder of such damages. If this note is not
paid when due, the undersigned further promises to pay all costs of collection,
foreclosure fees and reasonable attorney's fees incurred by the holder whether
or not suit is filed hereon.
<PAGE>
EXHIBIT 10.24
Page 2
Provided the undersigned is not then in default hereunder or under any other
agreement with the holder of this note, this note may be prepaid at any time
after one year from the date hereof by paying the balance of principal owing
plus all accrued and unpaid interest and charges, together with a prepayment
charge of N/A on the amount prepaid.
Presentment for payment, notice of dishonor, protest, and notice of protest are
expressly waived. This note cannot be changed, modified, amended or terminated
orally.
WAIVER OF TRIAL BY JURY. THE UNDERSIGNED, TO THE EXTENT IT MAY LEGALLY DO SO,
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION,
CAUSE OF ACTION, OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS NOTE, OR IN
ANY WAY CONNECTED WITH, OR RELATED TO, OR INCIDENTAL TO, THE DEALINGS OF THE
PARTIES HERETO WITH RESPECT TO THIS NOTE OR THE TRANSACTIONS RELATED THERETO, IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND IRRESPECTIVE OF WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE UNDERSIGNED, TO THE EXTENT IT MAY
LEGALLY DO SO, HEREBY AGREES THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF
ACTION, OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT
THE HOLDER OF THIS NOTE MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE UNDERSIGNED TO
THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, this Note has been executed and delivered on the date first
set forth above.
LEE PHARMACEUTICALS
By: Ronald G. Lee
----------------------------
Ronald G. Lee, President
<PAGE>
EXHIBIT 10.25
Note 1
$100,000 South El Monte, California December 20, 1995
For value received, Lee Pharmaceuticals promises to pay Mark Di Salvo or
order, at South El Monte, California the sum of ONE HUNDRED THOUSAND DOLLARS,
with interest from December 22, 1995, on unpaid principal at the rate of
fifteen (15) per cent per annum; principal payable on July 22, 1996.
Interest shall be calculated on the basis of the unpaid principal balance
daily, based on a 365 day year, actual day month, payable monthly. Principal
and interest shall be payable in lawful money of the United States. If
action be instituted on this note, I promise to pay such sum as the Court may
fix as attorney's fees. This note is secured by the product brands
BIKINI.BARE-Registered Trademark- .and.NOSE.BETTER-Registered Trademark-.
December 28, 1995 Ronald G. Lee
- ------------------------------- ----------------------------------------
Date Lee Pharmaceuticals - Ronald G. Lee
December 29, 1995 Michael L. Agresti
- ------------------------------- ----------------------------------------
Date Lee Pharmaceuticals - Michael L. Agresti
<PAGE>
EXHIBIT 10.25
Note 2
STRAIGHT NOTE
$100,000 South El Monte, California February 16, 1996
For value received, Lee Pharmaceuticals promises to pay Mark Di Salvo or
order, at South El Monte, California the sum of ONE HUNDRED THOUSAND DOLLARS,
with interest from February 20, 1996, on unpaid principal at the rate of fifteen
(15) per cent per annum; principal payable on January 31, 1998. Interest shall
be calculated on the basis of the unpaid principal balance daily, based on a 365
day year, actual day month, payable monthly. Principal and interest shall be
payable in lawful money of the United States. If action be instituted on this
note, I promise to pay such sum as the Court may fix as attorney's fees. This
note is secured by the product brand.
February 23, 1996 Ronald G. Lee
- ------------------------------- ----------------------------------------
Date Lee Pharmaceuticals - Ronald G. Lee
February 26, 1996 Michael L. Agresti
- ------------------------------- ----------------------------------------
Date Lee Pharmaceuticals - Michael L. Agresti
<PAGE>
EXHIBIT 10.26
Note 1
MODIFICATION TO PROMISSORY NOTE
WHEREAS, on December 20, 1995, Lee Pharmaceuticals ("Maker") and Mark
DiSalvo ("Holder") entered into an agreement ("Note") whereby Lee
Pharmaceuticals was to pay to Mark DiSalvo the sum of One Hundred Thousand
Dollars; and
WHEREAS, the parties thereto desire to modify said note,
NOW, THEREFORE, the parties modify said note as follows:
1. The maturity date of the note is extended from July 22, 1996, until
December 22, 1997.
2. All other terms and conditions of the note remain the same.
Ronald G. Lee
--------------------------------
Lee Pharmaceuticals
By: Ronald G. Lee, President
Mark DiSalvo
--------------------------------
Mark DiSalvo
<PAGE>
EXHIBIT 10.26
Note 2
MODIFICATION TO PROMISSORY NOTE
WHEREAS, on July 3, 1995, Lee Pharmaceuticals ("Maker") and Mark DiSalvo
("Holder") entered into an agreement ("Note") whereby Lee Pharmaceuticals was to
pay to Mark DiSalvo the sum of Fifty Thousand Dollars; and
WHEREAS, the parties thereto desire to modify said note,
NOW, THEREFORE, the parties modify said note as follows:
1. The maturity date of the note is extended from July 6, 1996, until
December 8, 1997.
2. All other terms and conditions of the note remain the same.
Ronald G. Lee
--------------------------------
Lee Pharmaceuticals
By: Ronald G. Lee, President
Mark DiSalvo
--------------------------------
Mark DiSalvo
<PAGE>
EXHIBIT 10.26
Note 3
MODIFICATION TO PROMISSORY NOTE
WHEREAS, on July 3, 1995, Lee Pharmaceuticals ("Maker") and Sass DiSalvo
("Holder") entered into an agreement ("Note") whereby Lee Pharmaceuticals was to
pay to Sass DiSalvo the sum of Fifty Thousand Dollars; and
WHEREAS, the parties thereto desire to modify said note,
NOW, THEREFORE, the parties modify said note as follows:
1. The maturity date of the note is extended from July 6, 1996, until
December 8, 1997.
2. All other terms and conditions of the note remain the same.
Ronald G. Lee
--------------------------------
Lee Pharmaceuticals
By: Ronald G. Lee, President
Sass DiSalvo
--------------------------------
Sass DiSalvo
<PAGE>
STANDARD SUBLEASE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Sublease, dated, for reference purposes only, November 22,
1995 is made by and between Lee Pharmaceuticals, Inc., a California
Corporation (herein called "Sublessor") and MC Finishing, Inc., a California
Corporation (herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the
County of Los Angeles, State of California, commonly known as 1460 Santa
Anita Avenue, South El Monte, CA 91733 and described as an approximately
14,560 square foot free-standing concrete block building, on approximately
.70 acres of land.
Said real property, including the land and all improvements thereon, is
hereinafter called the "Premises".
3. TERM.
3.1 TERM. The term of this Sublease shall be for Fifty-eight (58) months
and sixteen (16) days commencing on January 15, 1996 and ending on November
30, 2000 unless sooner terminated pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if for
any reason Sublessor cannot deliver possession of the Premises to Sublessee
on said date. Sublessor shall not be subject to any liability therefore, nor
shall such failure affect the validity of this Lease or the obligations of
Sublessee hereunder or extend the term hereof, but in such case Sublessee
shall not be obligated to pay rent until possession of the Premises is
tendered to Sublessee; provided, however, that if Sublessor shall not have
delivered possession of the Premises within sixty (60) days from said
commencement date. Sublessee may, at Sublessee's option, by notice in writing
to Sublessor within ten (10) days thereafter, cancel this Sublease, in which
event the parties shall be discharged from all obligations thereunder. If
Sublessee occupies the Premises prior to said commencement date, such
occupancy shall be subject to all provisions hereof, such occupancy shall not
advance the termination date and Sublessee shall pay rent for such period at
the initial monthly rates set forth below.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of $4,770.90, in advance, on the 15th day of each month of
the term hereof. Sublessee shall pay Sublessor upon the execution hereof
$4,770.90 as rent for January 15, 1996 - February 14, 1996. Please refer to
Paragraph 15 -Rental Increases.
Rent for any period during the term hereof which is for less than one month
shall be a prorata portion at the monthly installment. Rent shall be payable
in lawful money of the United States to Sublessor at the address stated
herein or to such other persons or at such other places as Sublessor may
designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $4,770.90 as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. If Sublessee fails to pay rent or other
charges due hereunder, or otherwise defaults with respect to any provision of
this Sublease, Sublessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for the
payment at any other sum to which Sublessor may become obligated by reason at
Sublessee's default, or to compensate Sublessor for any loss or damage which
Sublessor may suffer thereby. It Sublessor so uses or applies all or any
portion of said deposit, Sublessee shall within ten (10) days after written
demand therefore deposit cash with Sublessor in an amount sufficient to
restore said deposit to the full amount hereinabove stated and Sublessee's
failure to do so shall be a material breach of this Sublease. Sublessor shall
not be required to keep said deposit separate from its general accounts. If
Sublessee performs all of Sublessee's obligations hereunder, said deposit, or
so much thereof as has not theretofore been applied by Sublessor, shall be
returned, without payment of interest or other increment for its use to
Sublessee (or at Sublessor's option, to the last assignee, if any, of
Sublessee's interest hereunder) at the expiration of the term hereof, and
after Sublessee has vacated the Premises. No trust relationship is created
herein between Sublessor and Sublessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for offices and
warehousing and distribution of buffing wheels and abrasives and all legal
uses related thereto and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its existing
state, but without regard to the use for which Sublessee will use the
Premises, does not violate any applicable building code regulation or
ordinance at the time that this Sublease is executed. In the event that it is
determined that this warranty has been violated, then it shall be the
obligation of the Sublessor, atter written notice from Sublessee, to
promptly, at Sublessor's sole cost and expense, rectify any such violation.
In the event that Sublessee does not give to Sublessor written notice at the
violation of this warranty within 1 year from the commencement of the term of
this Sublease, it shall be conclusively deemed that such violation did not
exist and the correction of the same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a). Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statutes,
ordinances, rules, regulations, orders, restrictions of record, and
requirements in effect during the term or any part of the term hereof
regulating the use by Sublessee of the Premises. Sublessee shall not use or
permit the use of the Premises in any manner that will tend to create waste
or a nuisance or, it there shall be more than one tenant of the building
containing the Premises, which shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a)
Sublessee hereby accepts the Premises in their condition existing as of the
date of the execution hereof, subject to all applicable zoning, municipal,
county and state laws, ordinances, and regulations governing and regulating
the use of the Premises and accepts this Sublease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto Sublessee
acknowledges that neither Sublessor nor Sublessor's agents have made any
representation or warranty as to the suitability of the Premises for the
conduct of Sublessee's business.
7. MASTER LEASE
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy at which is attached
hereto marked Exhibit 1, dated April 16, 1990 wherein Art Weiss, Inc., a
California Corporation is the lessor, hereinafter referred to as the "Master
Lessor"
7.2 This Sublease is and shall be at all times subject and subordinate to
the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions
of the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this
Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Lessor" is
used it shall be deemed to mean the Sublessor herein and wherever in the
Master Lease the word "Lessee" is used it shall be deemed to mean the
Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease.
Sublessee does hereby expressly assume and agree to perform and comply with,
for the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease EXCEPT for the following paragraphs which
are excluded therefrom: N/A
American Industrial Real Estate Association 1978
<PAGE>
7.5 The obligations that Sublessee has assumed under paragraph 7.4 hereof
are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has NOT assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgements, costs, damages, claims or demands, including
reasonable attorneys fees, arising out of Sublessee's failure to comply with
or perform Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however, to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of
and from all liability, judgments, costs, damages, claims or demands arising
out of Sublessor's failure to comply with or perform Sublessor's Remaining
Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigned and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of Parapraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a
default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the rents
accruing under this Sublease. However, if Sublessor shall default in the
performance of its obligations to Master Lessor then Master Lessor may, at
its option, receive and collect, directly from Sublessee, all rent owing and
to be owed under this Sublease. Master Lessor shall not, by reason of this
assignment of the Sublease nor by reason of the collection of the rents from
the Sublessee, be deemed liable to Sublessee for any failure of the Sublessor
to perform and comply with Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease,
to Pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such
rents to Master Lessor without any obligation or right to inquire as to
whether such default exists and notwithstanding any notice from or claim from
Sublessor to the contrary and Sublessor shall have no right or claim against
Sublessee for any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without
the consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within 10 days of the date hereof, Master
Lessor signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then this Sublease, nor the
Master Lessor's consent, shall not be effective unless, within 10 days of the
date hereof, said guarantors sign this Sublease thereby giving guarantors
consent to this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or
alter the primary liability of Sublessor to pay the rent and perform and
comply with all of the obligations of Sublessor to be performed under the
Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any
one else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent to
any subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master Lease.
Master Lessor may proceed directly against Sublessor, any guarantors or any one
else liable under the Master Lease or this Sublease without first exhausting
Master Lessor's remedies against any other person or entity liable thereon to
Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor nor any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations under
the Master Lease, then Master Lessor, at its option and without being obligated
to do so, may require Sublesee to attorn to Master Lessor in which event Master
Lessor shall undertake the obligations of Sublessor under this Sublease from the
time of the exercise of said option to termination of this Sublease but Master
Lessor shall not be liable for any prepaid rents nor any security deposit paid
by Sublessee, nor shall Master Lessor be liable for any other defaults of the
Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor
at the end of this document shall constitute their consent to the terms of
this Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default within
ten days after service of such notice of default on Sublessee. If such default
is cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor.
10. BROKERS FEE.
1O.1 Upon execution hereof by all parties, Sublessor shall pay to CB
Commercial Real Estate Group, Inc., a licensed real estate broker, (herein
called "Broker"), a fee as set forth in a separate agreement between
Sublessor and Broker, or in the event there is no separate agreement between
Sublessor and Broker, the sum of $10,350.60, for brokerage services rendered
by Broker to Sublessor in this transaction.
10.2 Sublessor agrees that if Sublessee execises any option or right of
first refusal granted by Sublessor herein, or any option or right substantially
similar thereto, either to extend the term of this Sublease, to renew this
Sublease, to purchase the Premises, or to lease or purchase adjacent property
which Sublessor may own or in which Sublessor has an interest, or if Broker is
the procuring cause of any lease, sublease, or sale pertaining to the Premises
or any adjacent property which Sublessor may own or in which Sublessor has an
interest, then as to any of said transactions Sublessor shall pay to Broker a
fee, in cash, in accordance with the schedule of Broker in effect at the time of
the execution of this Sublease. Notwithstanding the foregoing, Sublessor's
obligation under this Paragraph 10.2 is limited to a transaction in which
Sublessor is acting as a sublessor, lessor or seller.
10.3 Master Lessor agrees, by its consent to this Sublease, that if
Sublessee shall exercise any option or right of first refusal granted to
Sublessee by Master Lessor in connection with this Sublease, or any option or
right substantially similar thereto, either to extend the Master Lease, to
renew the Master Lease, to purchase the Premises or any part thereof, or to
lease or purchase adjacent property which Master Lessor may own or in which
Master Lessor has an interest, or if Broker is the procuring cause of any
other lease or sale entered into between Sublessee and Master Lessor
pertaining to the Premises. any part thereof, or any adjacent property which
Master Lessor owns or in which it has an interest, then as to any of said
transactions Master Lessor shall pay to Broker a fee, in cash, in accordance
with the schedule of Broker in effect at the time of its consent to this
Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due
and payable upon the exercise of any option to extend or renew, as to any
extension or renewal; upon the execution of any new lease, as to a new lease
transaction or the exercise of a right of first refusal to lease; or at the
close of escrow, as to the exercise of any option to purchase or other sale
transaction.
10.5 Any transferee at Sublessor's interest in this Sublease, or of
Master Lessor's interest in the Master Lease, by accepting an assignment
thereof, shall be deemed to have assumed the respective obligations of
Sublessor or Master Lessor under this Paragraph 10. Broker shall be deemed to
be a third-party beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an action
to enforce the terms hereof or to declare rights hereunder, the prevailing
party in any such action, on trial and appeal, shall be entitled to his
reasonable attorney's fees to be pad by the losing party as fixed by the
Court. The provision of this paragraph shall inure to the benefit of the
Broker named herein who seeks to enforce a right hereunder.
<PAGE>
12. Additional Provisions. [If there are no additional provisions draw a line
from this point to the next printed word after the space let here. If there are
additional provisions place the same here.)
Please see attached Addendum.
If this Sublease has been filled in it has been prepared for submission to
your attorney for his approval. No representation or recommendation is made
by the real estate broker or its agents or employees as to the legal
sufficiency, legal effect, or tax consequences of this Sublease or the
transaction relating thereto.
Executed at Lee Pharmaceuticals Inc.
----------------------- ---------------------------------------
on 12/10/95 By /s/Ronald G. Lee
------------------------------- ------------------------------------
address 1434 Santa Anita Avenue By
-------------------------- ------------------------------------
South El Monte, CA 91733 "Sublessor" (Corporate Seal)
- ----------------------------------
Executed at MC Finishing, Inc.
---------------------- ----------------------------------------
on By
------------------------------- -------------------------------------
address 14601 Arminita Street By
-------------------------- -------------------------------------
Van Nuys, CA 91402 Sublessee" (Corporate Seal)
- ----------------------------------
Executed at Art Weiss, Inc.
---------------------- ----------------------------------------
on 12/13/95 By /s/ Art Weiss
------------------------------- -------------------------------------
address 10616 E. Rush Street By
-------------------------- -------------------------------------
South El Monte, CA 91733 "Master Lessor" (Corporate Seal)
- ----------------------------------- --------------------
Executed at David Buegen
----------------------- ----------------------------------------
on /s/David Buegen
-------------------------------- ----------------------------------------
address 14601 Arminita Street
- ----------------------------------- ----------------------------------------
Van Nuys, CA 91402 "Guarantors"
- -----------------------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION. 345 So. Figueroa St., M-1, Los Angeles, CA 90071. (213)
656-6772.
<PAGE>
ADDENDUM TO STANDARD SUBLEASE DATED NOVEMBER 22, 1995 BY AND BETWEEN LEE
PHARMACEUTICALS ("SUBLESSOR"), MC FINISHING, INC. ("SUBLESSEE") AND ART WEISS
("MASTER LESSOR") REGARDING THE REAL PROPERTY LOCATED AT 1460 SANTA ANITA
AVENUE, SOUTH EL MONTE, CALIFORNIA 91733
- -------------------------------------------------------------------------------
13. OPTION TO EXPAND
Lessee, prior to June 14, 1998, at Lessee's sole option, may elect to
lease the additional 2,005 square foot area, which will remain occupied
by Lee Pharmaceuticals, by providing Lee Pharmaceuticals with a minimum
of ninety (90) days prior written notice. Lessee may only elect to
expand into the entire 2,005 square foot additional area and may not, in
any way, elect to expand only into a portion thereof. Should Lessee
elect to exercise its right to expand under this Paragraph 13, the new
square footage shall be deemed to be 14,560 square feet and the monthly
rental rate shall be altered accordingly.
Should Lessee not choose to exercise its right hereunder, Lessee's
square footage will automatically increase to 14,560 square feet on June
15, 1998 and its rent will be adjusted accordingly.
14. CONDITION OF PREMISES
The premises shall be delivered in broom-swept usable condition on or
before the lease commencement date, unless otherwise agreed to in
writing.
15. RENTAL INCREASE
On June 15, 1998 the rental rate shall increase to $5,824.00.
16. LATE PAYMENT:
Sublessee hereby acknowledges that late payment by Sublessee to
Sublessor of Base Rent or other sums due hereunder will cause Sublessor
to incur costs not contemplated by this Sublease. Accordingly, if any
installment of Base Rent or any other sum due from Sublessee is not
received by Sublessor or Sublessor's designee within ten (10) days after
such amount is due, then, without any requirement for notice to
Sublessee, Sublessee shall pay to Sublessor a late charge equal to ten
percent (10%) of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs
Sublessor will incur by reason of late payment by Sublessee. Acceptance
of such late charge by Sublessor shall in no event constitute a waiver
of Sublessee's default with respect to such overdue amount, nor prevent
Sublessor from exercising any of the other rights and remedies granted
hereunder.
17. PERSONAL GUARANTY OF LEASE:
Performance of the terms and conditions under this Sublease by MC
Finishing, Inc. shall be personally guaranteed by David Buegen. Please
refer to the attached Guaranty of Lease.
18. AGENCY DISCLOSURE:
Sublessor and Sublessee each warrant that they have dealt with only CB
Commercial Real Estate Group, Inc., in connection with this transaction.
Sublessor and Sublessee hereby confirm that they were timely advised of
the dual representation and that they consent to the same, and that they
do not expect said Broker to disclose to either of them the confidential
information of the other party.
19. SUBLEASE GOVERNS:
In the event of any conflict between the printed provisions of the
Master Lease and this Sublease, including this Addendum, this Sublease,
including this Addendum, shall govern, as it pertains to this Sublease.
<PAGE>
[Floor Plan]
<PAGE>
20. ADDENDUM GOVERNS:
In the event of any conflict between the printed provisions of the
Sublease and this Addendum, this Addendum shall govern.
21. ELECTRICITY:
Lee Pharmaceuticals shall pay on a monthly basis, its proportionate
share of the electrical bill, estimated at $70.00 per month, and to be
verified at a later date.
SUBLESSEE SUBLESSOR
MC Finishing, Inc. Lee Pharmaceuticals, Inc.
By: David Buegen By: Ronald G. Lee
-------------------------- --------------------------
Date: 12-6-95 Date: 12-8-95
------------------------ -------------------------
MASTER LESSOR'S CONSENT
Art Weiss, Inc.
By: Art Weiss
--------------------------
Date: 12/13/95
------------------------
<PAGE>
GUARANTY OF LEASE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
Whereas Lee Pharmaceuticals, Inc. ("Sublessor"), hereinafter referred to
as "Lessor", and MC Finishing, Inc. ("Sublessee"), hereinafter referred to
as "Lessee", are about to execute a document entitled "Lease" dated November 22,
1995 concerning the premises commonly known as 1460 Santa Anita Avenue, South El
Monte, CA 91733 wherein Lessor will lease the premises to Lessee, and
WHEREAS, David Buegen hereinafter referred to as "Guarantors" have a
financial interest in Lessee, and
WHEREAS, Lessor would not execute the Lease if Guarantors did not
execute and deliver to Lessor this Guarantee of Lease.
NOW THEREFORE, for and in consideration of the execution of the
foregoing Lease by Lessor and as a material inducement to Lessor to execute
said Lease, Guarantors hereby jointly, severally, unconditionally and
irrevocably guarantee the prompt payment by Lessee of all rentals and all
other sums payable by Lessee under said Lease and the faithful and prompt
performance by Lessee of each and every one of the terms, conditions and
covenants of said Lease to be kept and performed by Lessee.
It is specifically agreed and understood that the terms of the
foregoing Lease may be altered, affected, modified or changed by agreement
between Lessor and Lessee. or by a course of conduct, and said Lease may be
assigned by Lessor or any assignee of Lessor without consent or notice to
Guarantors and that this Guaranty shall thereupon and thereafter guarantee
the performance of said Lease as so changed, modified, altered or assigned
This Guaranty shall not be released, modified or affected by failure
or delay on the part of Lessor to enforce any of the rights or remedies of
the Lessor under said Lease, whether pursuant to the terms thereof or at law
or in equity
No notice of default need be given to Guarantors, it being
specifically agreed and understood that the guarantee of the undersigned is a
continuing guarantee under which Lessor may proceed forthwith and immediately
against Lessee or against Guarantors following any breach or default by
Lessee or for the enforcement of any rights which Lessor may have as against
Lessee pursuant to or under the terms of the within Lease or at law or in
equity
Lessor shall have the right to proceed against Guarantors hereunder
following any breach or default by Lessee without first proceeding against
Lessee and without previous notice to or demand upon either Lessee or
Guarantors.
Guarantors hereby waive (a) notice of acceptance of this Guaranty, (b)
demand of payment, presentation and protest, (c) all right to assert or plead
any statute of limitations as to or relating to this Guaranty and the Lease,
(d) any right to require the Lessor to proceed against the Lessee or any
other Guarantor or any other person or entity liable to Lessor, (e) any right
to require Lessor to apply to any default any security deposit or other
security it may hold under the Lease, (f) any right to require Lessor to
proceed under any other remedy Lessor may have before proceeding against
Guarantors, (g) any right of subrogation.
Guarantors do hereby subrogate all existing or future indebtedness of
Lessee to Guarantors to the obligations owed to Lessor under the Lease and this
Guaranty.
Any married woman who signs this Guaranty expressly agrees that
recourse may be had against her separate property for all of her obligations
hereunder.
The obligations of Lessee under the Lease to execute and deliver
estoppel statements and financial statements, as therein provided, shall be
deemed to also require the Guarantors hereunder to do and provide the same
relative to Guarantors.
The term "Lessor" whenever hereinabove used refers to and means the
Lessor in the foregoing Lease specifically named and also any assignee of
said Lessor, whether by outright assignment or by assignment for security,
and also any successor to the interest of said Lessor or of any assignee in
such Lease or any part thereof, whether by assignment or otherwise So long as
the Lessor's interest in or to the leased premises or the rents, issues and
profits therefrom, or in, to or under said Lease, are subject to any mortgage
or deed of trust or assignment for security, no acquisition by Guarantors of
the Lessor's interest in the leased premises or under said Lease shall affect
the continuing obligation of Guarantors under this Guaranty which shall
nevertheless continue in full force and effect for the benefit of the
mortgagee, beneficiary, trustee or assignee under such mortgage, deed of
trust or assignment, of any purchase at sale by judicial foreclosure or under
private power of sale, and of the successors and assigns of any such
mortgagee, beneficiary, trustee, assignee or purchaser.
The term "Lessee" whenever hereinabove used refers to and means the
Lessee in the foregoing Lease specifically named and also any assignee or
sublessee of said Lease and also any successor to the interests of said
Lessee, assignee or sublessee of such Lease or any part thereof, whether by
assignment. sublease or otherwise.
In the event any action be brought by Said Lessor against Guarantors
hereunder to enforce the obligation of Guarantors hereunder. the unsuccessful
party in such action shall pay to the prevailing party therein a reasonable
attorney's fee which shall be fixed by the court.
If this Form has been filled in It has been prepared for
submission to your attorney for his approval. No representation
or recommendation is made by the real estate broker or its agents
or employees as to the legal sufficiency, legal effect, or fax
consequences of this Form or the transaction relating thereto.
Executed at David Buegen
-------------------------- -------------------------------------
on 12-10-95 /s/David Buegen
------------------------------------ -------------------------------------
address 14601 Arminita Street
------------------------------ -------------------------------------
Van Nuys, CA 91402 "GUARANTORS"
- --------------------------------------
- - 1977-American Industrial Real Estate Association.
All rights reserved. No part of these works may be reproduced in any form
without permission in writing.
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL, REAL ESTATE
ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles, CA 90071.
(213)687-8777.
<PAGE>
STANDARD SUBLEASE
American Industrial Real Estate Association
[Logo]
1. PARTIES. This Sublease, dated, for reference purposes only, June 11,
1996, is made by and between Lee Pharmaceuticals, a California
Corporation (herein called "Sublessor") and Maxsilk, Inc., a California
Corporation (herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the
County of Los Angeles, State of California, commonly known as 1470 Santa
Anita Avenue, South El Monte, California 91733 and described as an
approximately 8,400 square foot free-standing building; APN #8118-002-010
Said real property, including the land and all improvements thereon, is
hereinafter called the "Premises".
3. TERM.
3.1 Term. The term of this Sublease shall be for Fifty-two and one-half
(52-1/2) months commencing on July 16, 1996 and ending on November 30, 2000
unless sooner terminated pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if
for any reason Sublessor cannot deliver possession of the Premises to
Sublessee on said date. Sublessor shall not be subject to any liability
therefore, nor shall such failure affect the validity of this Lease or the
obligations of Sublessee hereunder or extend the term hereof, but in such
case Sublessee shall not be obligated to pay rent until possession of the
Premises is tendered to Sublessee; provided, however, that if Sublessor shall
not have delivered possession of the Premises within sixty (60) days from
said commencement date. Sublessee may, at Sublessee's option, by notice in
writing to Sublessor within ten (10) days thereafter, cancel this Sublease,
in which event the parties shall be discharged from all obligations
thereunder. If Sublessee occupies the Premises prior to said commencement
date, such occupancy shall be subject to all provisions hereof, such
occupancy shall not advance the termination date and Sublessee shall pay rent
for such period at the initial monthly rates set forth below.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of $3,276.00, in advance, on the 16th day of each month of
the term hereof. Sublessee shall pay Sublessor upon the execution hereof
$3,276.00 as rent for August 16 - September 15, 1996. On July 16, 1998, the
Base Monthly Rental Rate shall increase to Three Thousand Three Hundred Sixty
Dollars ($3,360.00) and shall remain at such through the base lease term.
Rent for any period during the term hereof which is for less than one month
shall be a prorata portion of the monthly installment. Rent shall be payable
in lawful money of the United States to Sublessor at the address stated
herein or to such other persons or at such other places as Sublessor may
designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $3,276.00 as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. If Sublessee fails to pay rent or other
charges due hereunder, or otherwise defaults with respect to any provision of
this Sublease, Sublessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for the
payment at any other sum to which Sublessor may become obligated by reason at
Sublessee's default, or to compensate Sublessor for any loss or damage which
Sublessor may suffer thereby. If Sublessor so uses or applies all or any
portion of said deposit, Sublessee shall within ten (10) days after written
demand therefore deposit cash with Sublessor in an amount sufficient to
restore said deposit to the full amount hereinabove stated and Sublessee's
failure to do so shall be a material breach of this Sublease. Sublessor shall
not be required to keep said deposit separate from its general accounts. If
Sublessee performs all of Sublessee's obligations hereunder, said deposit, or
so much thereof as has not theretofore been applied by Sublessor, shall be
returned, without payment of interest or other increment for its use to
Sublessee (or at Sublessor's option, to the last assignee, if any, of
Sublessee's interest hereunder) at the expiration of the term hereof, and
after Sublessee has vacated the Premises. No trust relationship is created
herein between Sublessor and Sublessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for Warehousing
and distribution of silk flowers, office uses, and all legal uses related
thereto, and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its existing
state, but without regard to the use for which Sublessee will use the
Premises, does not violate any applicable building code regulation or
ordinance at the time that this Sublease is executed. In the event that it is
determined that this warranty has been violated, then it shall be the
obligation of the Sublessor, after written notice from Sublessee, to
promptly, at Sublessor's sole cost and expense, rectify any such violation.
In the event that Sublessee does not give to Sublessor written notice at the
violation of this warranty within 1 year from the commencement of the term of
this Sublease, it shall be conclusively deemed that such violation did not
exist and the correction of the same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statutes,
ordinances, rules, regulations, orders, restrictions of record, and
requirements in effect during the term or any part of the term hereof
regulating the use by Sublessee of the Premises. Sublessee shall not use or
permit the use of the Premises in any manner that will tend to create waste
or a nuisance or, it there shall be more than one tenant of the building
containing the Premises, which shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a)
Sublessee hereby accepts the Premises in their condition existing as of the
date of the execution hereof, subject to all applicable zoning, municipal,
county and state laws, ordinances, and regulations governing and regulating
the use of the Premises. and accepts this Sublease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto Sublessee
acknowledges that neither Sublessor nor Sublessor's agents have made any
representation or warranty as to the suitability of the Premises for the
conduct of Sublessee's business.
7. MASTER LEASE
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy at which is attached
hereto marked Exhibit 1, dated April 16, 1990 wherein Art Weiss is the
lessor, hereinafter referred to as the "Master Lessor"
7.2 This Sublease is and shall be at all times subject and subordinate
to the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions
of the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this
Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Lessor" is
used it shall be deemed to mean the Sublessor herein and wherever in the
Master Lease the word "Lessee" is used it shall be deemed to mean the
Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease.
Sublessee does hereby expressly assume and agree to perform and comply with,
for the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease EXCEPT for the following paragraphs which
are excluded therefrom: Base Tax Year is 1996-1997.
American Industrial Real Estate Association 1978
<PAGE>
7.5 The obligations that Sublessee has assumed under paragraph 7.4 hereof
are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has NOT assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgements, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's assumed obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however, to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a default
shall occur in the performance of Sublessor's Obligations under the Master
Lease, that Sublessor may receive, collect and enjoy the rents accruing under
this Sublease. However, if Sublessor shall default in the performance of its
obligations to Master Lessor then Master Lessor may, at its option, receive and
collect, directly from Sublessee, all rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such
rents to Master Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Sublessor
to the contrary and Sublessor shall have no right or claim against Sublessee for
any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without the
consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
lease have been guaranteed by third parties then this Sublease, nor the Master
Lessor's consent, shall not be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving guarantors consent to
this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or alter
the primary liability of Sublessor to pay the rent and perform and comply with
all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any one
else liable under the Master Lease shall not be deemed a waiver by Master Lessor
of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent to any
subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master Lease,
Master Lessor may proceed directly against Sublessor, any guarantors or any one
else liable under the Master Lease or this Sublease without first exhausting
Master Lessor's remedies against any other person or entity liable thereon to
Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and assignments
of the Master Lease or this Sublease or any amendments or modifications thereto
without notifying Sublessor nor any one else liable under the Master Lease and
without obtaining their consent and such action shall not relieve such persons
from liability.
(f) In the event that Sublessor shall default in its obligations under
the Master Lease, then Master Lessor, at its option and without being obligated
to do so, may require Sublessee to attorn to Master Lessor in which event Master
Lessor shall undertake the obligations of Sublessor under this Sublease from the
time of the exercise of said option to termination of this Sublease but Master
Lessor shall not be liable for any prepaid rents nor any security deposit paid
by Sublessee, nor shall Master Lessor be liable for any other defaults of the
Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor
at the end of this document shall constitute their consent to the terms of
this Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default within
ten days after service of such notice of default on Sublessee. If such default
is cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor.
10. BROKERS FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to CB
Commercial Real Estate Services Group, Inc., a licensed real estate broker,
(herein called "Broker"), a fee as set forth in a separate agreement between
Sublessor and Broker, or in the event there is no separate agreement between
Sublessor and Broker, the sum of $ per separate agreement for brokerage
services rendered by Broker to Sublessor in this transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right of
first refusal granted by Sublessor herein, or any option or right substantially
similar thereto, either to extend the term of this Sublease, to renew this
Sublease, to purchase the Premises, or to lease or purchase adjacent property
which Sublessor may own or in which Sublessor has an interest, or if Broker is
the procuring cause of any lease, sublease, or sale pertaining to the Premises
or any adjacent property which Sublessor may own or in which Sublessor has an
interest, then as to any of said transactions Sublessor shall pay to Broker a
fee, in cash, in accordance with the schedule of Broker in effect at the time of
the execution of this Sublease. Notwithstanding the foregoing, Sublessor's
obligation under this Paragraph 10.2 is limited to a transaction in which
Sublessor is acting as a sublessor, lessor or seller.
10.3 Master Lessor agrees, by its consent to this Sublease, that if
Sublessee shall exercise any option or right of first refusal granted to
Sublessee by Master Lessor in connection with this Sublease, or any option or
right substantially similar thereto, either to extend the Master Lease, to
renew the Master Lease, to purchase the Premises or any part thereof, or to
lease or purchase adjacent property which Master Lessor may own or in which
Master Lessor has an interest, or if Broker is the procuring cause of any
other lease or sale entered into between Sublessee and Master Lessor
pertaining to the Premises. any part thereof, or any adjacent property which
Master Lessor owns or in which it has an interest, then as to any of said
transactions Master Lessor shall pay to Broker a fee, in cash, in accordance
with the schedule of Broker in effect at the time of its consent to this
Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due
and payable upon the exercise of any option to extend or renew, as to any
extension or renewal; upon the execution of any new lease, as to a new lease
transaction or the exercise of a right of first refusal to lease; or at the
close of escrow, as to the exercise of any option to purchase or other sale
transaction.
10.5 Any transferee at Sublessor's interest in this Sublease, or of Master
Lessor's interest in the Master Lease, by accepting an assignment thereof, shall
be deemed to have assumed the respective obligations of Sublessor or Master
Lessor under this Paragraph 10. Broker shall be deemed to be a third-party
beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an action
to enforce the terms hereof or to declare rights hereunder, the prevailing party
in any such action, on trial and appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the Court. The
provision of this paragraph shall inure to the benefit of the Broker named
herein who seeks to enforce a right hereunder.
<PAGE>
12. ADDITIONAL PROVISIONS. (If there are no additional provisions draw a line
from this point to the next printed word after the space left here. If there are
additional provisions place the same here )
a. RENTAL ABATEMENT PERIOD: The period from July 16, 1996 - August
15, 1996 and the period from July 16, 1999 - August 15, 1999
shall be deemed rent free.
b. TENANT IMPROVEMENTS BY SUBLESSOR: Sublessor, at Sublessor's sole cost
and expense, shall perform the following tenant improvements:
(i) Remove office area as further outlined in the attached Exhibit
"A";
(ii) Repaint and recarpet remaining office area;
(iii) Remove fence on north side of property;
(iv) Replace warehouse ceiling foil, as needed.
(vi) Paint western (front) side of building.
(v) Clean front entrance door frame.
(vi) Clean restrooms.
(vii) Sublessee shall be allowed to choose carpet and paint (for the
front of the building) color, subject to Sublessor's final
approval.
c. TENANT IMPROVEMENTS BY SUBLESSEE: Sublessor hereby grants Sublessee
permission, at Sublessee's sole cost and expense, to install iron bars
on the windows and an iron gate at the south driveway entrance.
d. ADDITIONAL AREAS: Sublessor shall allow Sublessee to use for container
trucks, though not exclusively, the driveway adjacent to the northern
end of the property during the initial term of the Sublease. In
consideration for use of the driveway, Sublessee shall permit
Sublessor to use Sublessee's driveway on the south end of the subject
premises for approximately one (1) week during the Sublease term to
relocate an approximately 2,000 square foot area from 1460 Santa Anita
(property to the south). Sublessor will not impede Sublessee's truck
traffic during this relocation.
e. PERSONAL GUARANTEE: The performance of the terms and conditions by
Maxsilk, Inc. ("Sublessee") under this Sublease shall be personally
guaranteed by Angie Fu.
f. SUBLEASE GOVERNS: In the event of any conflict between the printed
provisions of the Master Lease and this Sublease, this Sublease shall
govern, as it pertains to this Sublease.
IF THIS SUBLEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE
TRANSACTION RELATING THERETO.
Executed at Lee Pharmaceuticals
------------------------ ----------------------------------------
On By /s/ RON LEE
--------------------------------- --------------------------------------
address 1434 Santa Anita Avenue By Ron Lee, President
---------------------------- --------------------------------------
South El Monte, CA 91733
- ----------------------------------- "Sublessor" (Corporate Seal)
Executed at Maxsilk Inc.
------------------------ ----------------------------------------
on By /s/ ANGIE FU
--------------------------------- -------------------------------------
address 1470 Santa Anita Avenue By Angie Fu, President
---------------------------- --------------------------------------
South El Monte, CA 91733
- ----------------------------------- "Sublessee" (Corporate Seal)
Executed at Art Weiss
------------------------ ----------------------------------------
on By /s/ KERRY L. WEISS FOR ART WEISS
--------------------------------- -------------------------------------
address 10616 E. Rush Street By Art Weiss, Principal
---------------------------- --------------------------------------
South El Monte, CA 91733
- ----------------------------------- "Master Lessor" (Corporate Seal)
Executed at Angie Fu
------------------------ ----------------------------------------
on By: /s/ ANGIE FU
------------------------ -------------------------------------
address 1470 Santa Anita Avenue Angie Fu
------------------------ ----------------------------------------
South El Monte, CA 91733
- ----------------------------------- "Guarantors"
NOTE: These forms are often modified to meet changing requirements of law
and needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles, CA 90071. (213)
687-8777.
<PAGE>
GUARANTY OF LEASE [LOGO]
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
WHEREAS, Lee Pharmaceuticals, a California Corporation ("Sublessor"),
hereinafter referred to as "Lessor", and Maxsilk, Inc., a California
Corporation, hereinafter referred to as "Lessee", are about to execute a
document entitled "Lease" dated June 11, 1996 concerning the premises
commonly known as 1470 Santa Anita Avenue, South, El Monte, California 91733
wherein Lessor will lease the premises to Lessee, and
WHEREAS, Angie Fu, a Married Woman hereinafter referred to as "Guarantors"
have a financial interest in Lessee, and
WHEREAS, Lessor would not execute the Lease if Guarantors did not execute
and deliver to Lessor this Guarantee of Lease.
NOW THEREFORE, for and in consideration of the execution of the foregoing
Lease by Lessor and as a material inducement to Lessor to execute said Lease,
Guarantors hereby jointly, severally, unconditionally and irrevocably guarantee
the prompt payment by Lessee of all rentals and all other sums payable by Lessee
under said Lease and the faithful and prompt performance by Lessee of each and
every one of the terms, conditions and covenants of said Lease to be kept and
performed by Lessee.
It is specifically agreed and understood that the terms of the foregoing
Lease may be altered, affected, modified or changed by agreement between Lessor
and Lessee, or by a course of conduct, and said Lease may be assigned by Lessor
or any assignee of Lessor without consent or notice to Guarantors and that this
Guaranty shall thereupon and thereafter guarantee the performance of said Lease
as so changed, modified, altered or assigned.
This Guaranty shall not be released, modified or affected by failure or
delay on the part of Lessor to enforce any of the rights or remedies of the
Lessor under said Lease, whether pursuant to the terms thereof or at law or in
equity.
No notice of default need be given to Guarantors, it being specifically
agreed and understood that the guarantee of the undersigned is a continuing
guarantee under which Lessor may proceed forthwith and immediately against
Lessee or against Guarantors following any breach or default by Lessee or for
the enforcement of any rights which Lessor may have as against Lessee pursuant
to or under the terms of the within Lease or at law or in equity
Lessor shall have the right to proceed against Guarantors hereunder
following any breach or default by Lessee without first proceeding against
Lessee and without previous notice to or demand upon either Lessee or
Guarantors.
Guarantors hereby waive (a) notice of acceptance of this Guaranty, (b)
demand of payment, presentation and protest, (c) all right to assert or plead
any statute of limitations as to or relating to this Guaranty and the Lease, (d)
any right to require the Lessor to proceed against the Lessee or any other
Guarantor or any other person or entity liable to Lessor, (e) any right to
require Lessor to apply to any default any security deposit or other security it
may hold under the Lease, (f) any right to require Lessor to proceed under any
other remedy Lessor may have before proceeding against Guarantors, (g) any right
of subrogation.
Guarantors do hereby subrogate all existing or future indebtedness of
Lessee to Guarantors to the obligations owed to Lessor under the Lease and this
Guaranty.
Any married woman who signs this Guaranty expressly agrees that recourse
may be had against her separate property for all of her obligations hereunder.
The obligations of Lessee under the Lease to execute and deliver estoppel
statements and financial statements, as therein provided, shall be deemed to
also require the Guarantors hereunder to do and provide the same relative to
Guarantors.
The term "Lessor" whenever hereinabove used refers to and means the
Lessor in the foregoing Lease specifically named and also any assignee of
said Lessor, whether by outright assignment or by assignment for security,
and also any successor to the interest of said Lessor or of any assignee in
such Lease or any part thereof, whether by assignment or otherwise. So long as
the Lessor's interest in or to the leased premises or the rents, issues and
profits therefrom, or in, to or under said Lease, are subject to any mortgage
or deed of trust or assignment for security, no acquisition by Guarantors of
the Lessor's interest in the leased premises or under said Lease shall
effect the continuing obligation of Guarantors under this Guaranty which
shall nevertheless continue in full force and effect for the benefit of the
mortgagee, beneficiary, trustee or assignee under such mortgage, deed of
trust or assignment, of any purchase at sale by judicial foreclosure or under
private power of sale, and of the successors and assigns of any such
mortgagee, beneficiary, trustee, assignee or purchaser.
The term "Lessee" whenever hereinabove used refers to and means the Lessee
in the foregoing Lease specifically named and also any assignee or sublessee of
said Lease and also any successor to the interests of said Lessee, assignee or
sublessee of such Lease or any part thereof, whether by assignment, sublease or
otherwise.
In the event any action be brought by said Lessor against Guarantors
hereunder to enforce the obligation of Guarantors hereunder, the unsuccessful
party in such action shall pay to the prevailing party therein a reasonable
attorney's fee which shall be fixed by the court.
Lessor shall be interpreted as Sublessor and Lessee shall be interpreted as
Sublessee.
IF THIS FORM HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS FORM OR THE
TRANSACTION RELATING THERETO.
Executed at /s/ ANGIE FU
------------------------ ----------------------------------------
on Angie Fu
--------------------------------- ----------------------------------------
address 1470 Santa Anita Avenue
-------------------------- ----------------------------------------
South El Monte, California 91733 "GUARANTORS"
- -----------------------------------
* 1977-American Industrial Real Estate Association.
All rights reserved. No part of these works may be reproduced in any form
without permission in writing.
NOTE: These forms are often modified to meet changing requirements of law
and needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles, CA 90071.
(213)687-8777.
<PAGE>
AMENDMENT TO STANDARD SUBLEASE DATED JUNE 11, 1996 MADE BY AND BETWEEN LEE
PHARMACEUTICALS ("SUBLESSOR"), MAXSILK, INC. ("SUBLESSEE") AND ART WEISS
("MASTER LESSOR") FOR THE REAL PROPERTY LOCATED AT 1470 SANTA ANITA AVENUE,
SOUTH EL MONTE, CALIFORNIA 91733
As it pertains to Item 12.d "Additional Areas" of the above-referenced Standard
Sublease, the following is expressly understood and hereby acknowledged by
Sublessee, Sublessor and Master Lessor.
The occurrence of one (1) or more of the following items shall render this
subject Paragraph 12.d ("Additional Areas") null and void. The items are as
follows:
(a) In the event of a breach of the lease contract on the property located at
1500 Santa Anita Avenue, South El Monte, California 91733 between Lee
Pharmaceuticals ("Lessee") and Art Weiss ("Lessor");
(b) In the event of a change in occupancy at 1500 Santa Anita Avenue, South El
Monte, California 91733;
(c) In the event of a change in occupancy at 1467 Lidcombe Avenue, South El
Monte, California 91733.
Should any one (1) of the aforementioned events occur, then upon receipt by Lee
Pharmaceuticals and Maxsilk, Inc. of written demand by Art Weiss ("Master
Lessor"), Lee Pharmaceuticals, at its sole cost and expense, shall re-install a
chain link fence along the existing property line of the subject property
(properties) in which a change of occupancy has occurred.
Agreed and accepted:
SUBLESSEE
MAXSILK, INC.
By: /s/ Angie Fu
---------------------------
Angie Fu, President
Date: 7/9/96
-------------------------
SUBLESSOR
LEE PHARMACEUTICALS
By: /s/ Ron Lee
---------------------------
Ron Lee, President
Date: 7/9/96
-------------------------
MASTER LESSOR
ART WEISS
By: /s/ Kerry L. Weiss for Art Weiss
---------------------------
Art Weiss, Principal
Date:_________________________
<PAGE>
[Floor plan]
KAW
RGL g
<PAGE>
LETTER AGREEMENT DATED JULY 8, 1996 MADE BY AND BETWEEN LEE PHARMACEUTICALS
("SUBLESSOR") AND MAXSILK, INC. ("SUBLESSEE") REGARDING THE REAL PROPERTY
LOCATED AT 1470 SANTA ANITA AVENUE, SOUTH EL MONTE, CALIFORNIA 91733
As it pertains to the Standard Sublease dated June 11, 1996 made by and between
the above-referenced Sublessor and Sublessee, and regarding the premises located
at 1470 Santa Anita Avenue in South El Monte, California, Sublessor and
Sublessee hereby agree to the following additional terms and conditions:
1. Sublessor, at Sublessor's sole cost and expense, shall remove approximately
forty feet (40') of the eastern (rear) fence to allow for easier access to
the dock-high loading door. No sliding gate will be installed. Sublessor
has a current month-to-month arrangement with the adjacent Tenant occupying
the property located at 1467 Lidcombe Avenue in South El Monte, California,
regarding Sublessor's use of the rear "leased" area. Sublessee's proposed
use of the rear "leased" area is entirely contingent upon Sublessor's
continued month-to-month arrangement with the adjacent Tenant at 1467
Lidcombe. Should either party terminate the subject month-to-month
agreement, Sublessee's use of the rear "leased" area shall terminate.
This tenant improvement by Sublessor shall be in addition to those items listed
under Paragraph 12.b "Tenant Improvements by Sublessor" in the Standard Sublease
dated June 11, 1996.
Agreed and accepted:
SUBLESSEE SUBLESSOR
MAXSILK, INC. LEE PHARMACEUTICALS
BY: /s/ Angie Fu BY: /s/ RON LEE
----------------------- ---------------------
ANGIE FU, PRESIDENT RON LEE, PRESIDENT
DATE: 7/9/96 DATE: 7/9/96
-------------------- -------------------
<PAGE>
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- GROSS
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
December 1, 1995 is made by and between Ronald G. Lee ("LESSOR") and Lee
Pharmaceuticals, a California Corporation ("LESSEE"), (collectively the
"PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known by the street address of 1444 Santa Anita Avenue, South El
Monte, CA 91733 located in the County of Los Angeles, State of California and
generally described as (describe briefly the nature of the property) a
concrete block, one story office and research facility, building approximately
9,800 square feet ("PREMISES"). (See Paragraph 2 for further provisions.)
1.3 TERM: 9 years and 11 months ("ORIGINAL TERM") commencing December 22,
1995 ("COMMENCEMENT DATE") and ending November 30, 2005 ("EXPIRATION DATE").
(See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: ____________________________ ("EARLY POSSESSION DATE").
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $5,562.00 per month ("BASE RENT"), payable on the 1st day of
each month commencing January 1, 1996 (See Paragraph 4 for further provisions.)
/ / If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $_________________________________________
as Base Rent for the period_____________________________________________________
_______________________________________________________________________________.
1.7 SECURITY DEPOSIT: $5,562.00 ("SECURITY DEPOSIT"). (See Paragraph 5 for
further provisions.)
1.8 PERMITTED USE: Epoxy resin formulation, research, testing, and other
legal related usages. (See Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY." $_____ is the "BASE
PREMIUM." (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
_____________________________________________________________________ represents
/ /Lessor exclusively ("LESSOR'S BROKER"); / / both Lessor and Lessee, and
_____________________________________________________________________ represents
/ / Lessee exclusively ("LESSEE'S BROKER"); / / both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by___________________________________________________________________
_______________________________________________ ("GUARANTOR"). (See Paragraph 37
for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs ___ through ___ and Exhibits ________________________________________
__________________________________ all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by
Lessee, shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee
does not give Lessor written notice of a non-compliance with this warranty
within thirty (30) days after the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or
to be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify the same at Lessor's expense. If Lessee
does not give Lessor written notice of a non-compliance with this warranty
within six (6) months following the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the
Premises for Lessee's intended use, (b) that Lessee has made such
investigation as it deems necessary with reference to such matters and assumes
all responsibility therefor as the same relate to Lessee's occupancy of the
Premises and/or the term of this Lease, and (c) that neither Lessor, nor any
of Lessor's agents, has made any oral or written representations or warranties
with respect to the said matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be at no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises.
In such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be
abated for the period of such early possession. All other terms of this Lease,
however, shall be in effect during such period. Any such early possession
shall not affect nor advance the Expiration Date of the Original Term.
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3.3 DELAY In POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date, if
one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease,
or the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to
pay rent or perform any other obligation of Lessee under the terms of this
Lease until Lessor delivers possession of the Premises to Lessee. If
possession of the Premises is not delivered to Lessee within sixty (60) days
after the Commencement Date, Lessee may, at its option, by notice in writing
to Lessor within ten (10) days thereafter, cancel this Lease, in which event
the Parties shall be discharged from all obligations hereunder; provided,
however, that if such written notice by Lessee is not received by Lessor
within said ten (10) day period, Lessee's right to cancel this Lease shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the term actually commences, if possession is
not tendered to Lessee when required by this Lease and Lessee does not
terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to what Lessee
would otherwise have enjoyed under the terms hereof, but minus any days of
delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on
or before the day on which it is due under the terms of this Lease. Base Rent
and all other rent and charges for any period during the term hereof which is
for less than one (1) full calendar month shall be prorated based upon the
actual number of days of the calendar month involved. Payment of Base Rent and
other charges shall be made to Lessor at its address stated herein or to such
other persons or at such other addresses as Lessor may from time to time
designate in writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or
retain all or any portion of said Security Deposit for the payment of any
amount due Lessor or to reimburse or compensate Lessor for any liability,
cost, expense, loss or damage (including attorneys' fees) which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any
portion of said Security Deposit, Lessee shall within ten (10) days after
written request therefor deposit moneys with Lessor sufficient to restore said
Security Deposit to the full amount required by this Lease. Any time the Base
Rent increases during the term of this Lease, Lessee shall; upon written
request from Lessor, deposit additional moneys with Lessor sufficient to
maintain the same ratio between the Security Deposit and the Base Rent as
those amounts are specified in the Basic Provisions. Lessor shall not be
required to keep all or any part of the Security Deposit separate from its
general accounts. Lessor shall, at the expiration or earlier termination of
the term hereof and after Lessee has vacated the Premises, return to Lessee
(or, at Lessor's option, to the last assignee, if any, of Lessee's interest
herein), that portion of the Security Deposit not used or applied by Lessor.
Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for
no other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective
assignees and subtenants of the Lessee, its assignees and subtenants, for a
modification of said permitted purpose for which the premises may be used or
occupied, so long as the same will not impair the structural integrity of the
improvements on the Premises, the mechanical or electrical systems therein, is
not significantly more burdensome to the Premises and the improvements
thereon, and is otherwise permissible pursuant to this Paragraph 6. If Lessor
elects to withhold such consent, Lessor shall within five (5) business days
give a written notification of same, which notice shall include an explanation
of Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises,
is either; (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or
fractions thereof. Lessee shall not engage in any activity in, on or about the
Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i)
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but
in compliance with all Applicable Law, use any ordinary and customary
materials reasonably required to be used by Lessee in the normal course of
Lessee's business permitted on the Premises, so long as such use is not a
Reportable Use and does not expose the Premises or neighboring properties to
any meaningful risk of contamination or damage or expose Lessor to any
liability therefor. In addition, Lessor may (but without any obligation to do
so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by Lessor, Lessee shall immediately give
written notice of such fact to Lessor. Lessee shall also immediately give
Lessor a copy of any statement, report, notice, registration, application,
permit, business plan, license, claim, action or proceeding given to, or
received from, any governmental authority or private party, or persons
entering or occupying the Premises, concerning the presence, spill, release,
discharge of, or exposure to, any Hazardous Substance or contamination in, on,
or about the Premises, including but not limited to all such documents as may
be involved in any Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include,
but not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage tanks, unless
specifically so agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "APPLICABLE LAW," which term is used in
this Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any
manner to the Premises (including but not limited to matters pertaining to
(i) industrial hygiene, (ii) environmental conditions on, in, under or about
the Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or
storage tank), now in effect or which may hereafter come into effect, and
whether or not reflecting a change in policy from any previously existing
policy. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information,
including, but not limited to, permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with
any Applicable Law specified by Lessor, and shall immediately upon receipt,
notify Lessor in writing (with copies of any documents involved) of any
threatened or actual claim, notice, citation, warning, complaint or report
pertaining to or involving failure by Lessee or the Premises to comply with
any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise at reasonable times, for the purpose
of inspecting the condition of the Premises and for verifying compliance by
Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3),
and to employ experts and/or consultants in connection therewith and/or to
advise Lessor with respect to Lessee's activities, including but not limited
to the installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent
violation or contamination. In any such case, Lessee shall upon request
reimburse Lessor or Lessor's Lender, as the case may be, for the costs and
expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc),
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7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee,
and whether or not the need for such repairs occurs as a result of Lessee's
use, any prior use, the elements or the age of such portion of the Premises),
including, without limiting the generality of the foregoing, all equipment or
facilities serving the Premises, such as plumbing, heating, air conditioning,
ventilating, electrical, lighting facilities, boilers, fired or unfired
pressure vessels, fire sprinkler and/or standpipe and hose or other automatic
fire extinguishing system, including fire alarm and/or smoke detection systems
and equipment, fire hydrants, fixtures, walls (interior and exterior),
ceilings, floors, windows, doors, plate glass, skylights, landscaping,
driveways, parking lots, fences, retaining walls, signs, sidewalks and
parkways located in, on, about, or adjacent to the Premises, but excluding
foundations, the exterior roof and the structural aspects of the Premises.
Lessee shall not cause or permit any Hazardous Substance to be spilled or
released in, on, under or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of, the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous
Substance and/or storage tank brought onto the Premises by or for Lessee or
under its control. Lessee, in keeping the Premises in good order, condition
and repair, shall exercise and perform good maintenance practices. Lessee's
obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof
in good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance
for, and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire
sprinkler and/or standpipe and hose or other automatic fire extinguishing
systems, including fire alarm and/or smoke detection, (iv) landscaping and
irrigation systems, (v) roof covering and drain maintenance and (vi) asphalt
and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's expense,
keep the foundations, exterior roof and structural aspects of the Premises in
good order, condition and repair, Lessor shall not, however, be obligated to
paint the exterior surface of the exterior walls or to maintain the windows,
doors or plate glass or the interior surface of exterior walls. Lessor shall
not, in any event, have any obligation to make any repairs until Lessor
receives written notice of the need for such repairs. It is the intention of
the Parties that the terms of this Lease govern the respective obligations of
the Parties as to maintenance and repair of the Premises. Lessee and Lessor
expressly waive the benefit of any statute now or hereafter in effect to the
extent it is inconsistent with the terms of this Lease with respect to, or
which affords Lessee the right to make repairs at the expense of Lessor or to
terminate this Lease by reason of, any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is
used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises.
The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can
be removed without doing material damage to the Premises. The term
"ALTERATIONS" shall mean any modification of the improvements on the Premises
from that which are provided by Lessor under the terms of this Lease, other
than Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by lessee that are not yet owned
by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any
Alterations or Utility Installations in, on, under or about the Premises
without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises
(excluding the roof), as long as they are not visible from the outside, do not
involve puncturing, relocating or removing the roof or any existing walls, and
the cumulative cost thereof during the term of this Lease as extended does not
exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented
to Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities, (ii) the furnishing
of copies of such permits together with a copy of the plans and specifications
for the Alteration or Utility Installation to Lessor prior to commencement of
the work thereon, and (iii) the compliance by Lessee with all conditions of
said permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and in compliance
with all Applicable Law. Lessee shall promptly upon completion thereof furnish
Lessor with as-built plans and specifications therefor. Lessor may (but
without obligation to do so) condition its consent to any requested Alteration
or Utility Installation that costs $10,000 or more upon Lessee's providing
Lessor with a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such Alteration or Utility Installation and/or
upon Lessee's posting an additional Security Deposit with Lessor under
Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at
or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor
in an amount equal to one and one-half times the amount of such contested lien
claim or demand, indemnifying Lessor against liability for the same, as
required by law for the holding of the Premises free from the effect of such
lien or claim. In addition, Lessor may require Lessee to pay Lessor's
attorney's fees and costs in participating in such action if Lessor shall
decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain
upon and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that
any or all Lessee Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris
and in good operating order, condition and state of repair, ordinary wear and
tear excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or
by Lessee performing all of its obligations under this Lease. Except as
otherwise agreed or specified in writing by Lessor, the Premises, as
surrendered, shall include the Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Alterations and/or Utility Installations, as well as the removal of any
storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all
as may then be required by Applicable Law and/or good service practice.
Lessee's Trade Fixtures shall remain the property of Lessee and shall be
removed by Lessee subject to its obligation to repair and restore the Premises
per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) Lessee shall pay to Lessor any insurance cost increase ("INSURANCE
COST INCREASE") occurring during the term of this Lease. "INSURANCE COST
INCREASE" is defined as any increase in the actual cost of the insurance
required under Paragraphs 8.2(b), 8.3(a) and 8.3(b). ("REQUIRED INSURANCE"),
over and above the Base Premium, as hereinafter defined, calculated on an
annual basis. "INSURANCE COST INCREASE" shall include, but not be limited to,
increases resulting from the nature of Lessee's occupancy, any act or omission
of Lessee, requirements of the holder of a mortgage or deed of trust covering
the Premises, increased valuation of the Premises, and/or a premium rate
increase. If the parties insert a dollar amount in Paragraph 1.9, such amount
shall be considered the "BASE PREMIUM." In lieu thereof, if the Premises have
been previously occupied, the "BASE PREMIUM" shall be the annual premium
applicable to the most recent occupancy. If the Premises have never been
occupied, the "BASE PREMIUM" shall be the lowest annual premium reasonably
obtainable for the Required Insurance as of the commencement of the Original
Term, assuming the most nominal use possible of the Premises. In no event,
however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b) (Liability Insurance Carried By Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to Lessor within
thirty (30) days after receipt by Lessee of a copy of the premium statement or
other reasonable evidence of the amount due. If the insurance policies
maintained hereunder cover other property besides the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such Insurance Cost
Increase attributable only to the Premises showing in reasonable detail the
manner in which such amount was computed. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement or Expiration of the
Lease term.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $1,000,000
per occurrence with an "Additional Insured-Managers or Lessors of Premises"
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Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as carried by Lessee shall not, however, limit the liability of
Lessee nor relieve Lessee of any obligation hereunder. All insurance to be
carried by Lessee shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring
Party, Lessor shall also maintain liability insurance described in Paragraph
8.2(a), above, in addition to, and not in lieu of, the insurance required to
be maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep
in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("LENDER(S)"), insuring loss or
damages to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. Lessee Owned Alterations and Utility
Installations shall be insured by Lessee under Paragraph 8.4. If the coverage
is available and commercially appropriate, such policy or policies shall
insure against all risks of direct physical loss or damage (except the perils
of flood and/or earthquake unless required by a Lender), including coverage
for any additional costs resulting from debris removal and reasonable amounts
of coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered cause of
loss, but not including plate glass insurance. Said policy or policies shall
also contain an agreed valuation provision in lieu of any coinsurance clause,
waiver of subrogation, and inflation guard protection causing an increase in
the annual property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers
for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and Lender(s), insuring the loss of the full rental and
other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an
agreed valuation provision in lieu of any coinsurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. Since Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's
option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to
that carried by the Insuring Party under Paragraph 8.3. Such insurance shall
be full replacement cost coverage with a deductible of not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee
for the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party with
respect to the insurance required by this Paragraph 8.4 and shall provide
Lessor with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by a
Lender having a lien on the Premises, as set forth in the most current issue
of "Best's Insurance Guide." Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in this
Paragraph 8. Lessee shall cause to be delivered to Lessor certified copies
of, or certificates evidencing the existence and amounts of, the insurance,
and with the additional insureds, required under Paragraph 8.2(a) and 8.4. No
such policy shall be cancelable or subject to modification except after
thirty (30) days prior written notice to Lessor. Lessee shall at least thirty
(30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in
tort) against the other, for loss of or damage to the Waiving Party's property
arising out of or incident to the perils required to be insured against under
Paragraph 8. The effect of such releases and waives of the right to recover
damages shall not be limited by the amount of insurance carried or required,
or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or
damages, costs, liens, judgments, penalties, permits, attorney's and
consultant's fees, expenses and/or liabilities arising out of, involving, or
in dealing with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Broach by Lessee
in the performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited
to, the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims mad against Lessor)
litigated and/or reduced to judgment, and whether well founded or not. In case
any action or proceeding be brought against Lessor by reason of any of the
foregoing matters, Lessee upon notice from Lessor shall defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether the said injury or damage results from conditions
arising upon the Premises or upon other portions of the building of which the
Premises are a part, or from other sources or places, and regardless of
whether the cause of such damage or injury or the means of repairing the same
is accessible or net. Lessor shall not be liable for any damages arising from
any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's
negligence or breach of this Lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE or DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage
or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations
the repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances
or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. Notwithstanding the foregoing, if the
required insurance was not in force or the insurance proceeds are not
sufficient to effect such repair, the Insuring Party shall promptly contribute
the shortage in proceeds as and when required to complete said repairs. In the
event, however, the shortage in proceeds was due to the fact that, by reason
of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lesser shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore
the unique aspects of the Premises unless Lessee provides Lessor with the
funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall complete them
as soon as reasonably possible and this Lease shall remain in full force and
effect. If Lessor does not receive such funds or assurance within said period,
Lessor may nevertheless elect by written notice to Lessee within ten (10) days
thereafter to make such restoration and repair as is commercially reasonable
with Lessor paying any shortage in proceeds, in which case this Lease shall
remain in full force and effect. If in such case Lessor does not so elect,
then this Lease shall terminate sixty (60) days following the occurrence of
the damage or destruction. Unless otherwise agreed, Lessee shall in no event
have any right to reimbursement from Lessor for any funds contributed by
Lessee to repair
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any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net
proceeds of any such insurance shall be made available for the repairs if
made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either; (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which
event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the giving of such
notice. In the event Lessor elects to give such notice of Lessor's intention
to terminate this Lease, Lessee shall have the right within ten (10) days
after the receipt of such notice to give written notice to Lessor of Lessee's
commitment to pay for the repair of such damage totally at Lessee's expense
and without reimbursement from Lessor. Lessee shall provide Lessor with the
required funds or satisfactory assurance thereof within thirty (30) days
following Lessee's said commitment. In such event this Lease shall continue
in full force and effect, and Lessor shall proceed to make such repairs as
soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the funds or assurance thereof within
the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or
willful act of Lessee. In the event, however, that the damage or destruction
was caused by Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term at this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor
may, at Lessor's option, terminate this Lease effective sixty (60) days
following the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within thirty (30) days after the date
of occurrence of such damage. Provided, however, if Lessee at that time has
an exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by, within twenty (20) days following the
occurrence of the damage, or before the expiration of the time provided in
such option for its exercise, whichever is earlier ("EXERCISE PERIOD"), (i)
exercising such option and (ii) providing Lessor with any shortage in
insurance proceeds (or adequate assurance thereof) needed to make the
repairs. If Lessee duly exercises such option during said Exercise Period and
provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such
damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option and provide such
funds or assurance during said Exercise Period, then Lessor may at Lessor's
option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in
the grant of option to the contrary.
9.6 ABATEMENT AT RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial Damage
- -Insured), whether or not Lessor or Lessee repairs or restores the Premises,
the Base Rent, Real Property Taxes, insurance premiums, and other charges, if
any, payable by Lessee hereunder for the period during which such damage, its
repair or the restoration continues (not to exceed the period for which
rental value insurance is required under Paragraph 8.3(b)), shall be abated
in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at any
time prior to the commencement of such repair or restoration, give written
notice to Lessor and to any Lenders of which Lessee has actual notice of
Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice to
Lessor and such Lenders and such repair or restoration is not commenced within
thirty (30) days after receipt of such notice, this Lease shall terminate as
of the date specified in said notice. If Lessor or a Lender commences the
repair or restoration of the Premises within thirty (30) days after receipt of
such notice, this Lease shall continue in full force and effect. "COMMENCE" as
used in this Paragraph shall mean either the unconditional authorization of
the preparation of the required plans, or the beginning of the actual work on
the Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Law and this Lease shall continue in full force and effect, but subject to
Lessor's rights under Paragraph 13), Lessor may at Lessor's option either (i)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect, or (ii) if the estimated cost to
investigate and remediate such condition exceeds twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the giving of
such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten (10)
days after the receipt of such notice to give written notice to Lessor of
Lessee's commitment to pay for the investigation and remediation of such
Hazardous Substance Condition totally at Lessee's expense and without
reimbursement from Lessor except to the extent of an amount equal to twelve
(12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination. If a Hazardous Substance Condition occurs for
which Lessee is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided in Paragraph
9.6(a) for a period of not to exceed twelve (12) months.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor
shall, in addition, return to Lessee so much of Lessee's Security Deposit as
has not been, or is not then required to be, used by Lessor under the terms of
this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which Real
Property Taxes applicable to the Premises increase over the fiscal tax year
during which the Commencement Date occurs ("TAX INCREASE"). Subject to
Paragraph 10.1(b), payment of any such Tax Increase shall be made by Lessee
within thirty (30) days after receipt of Lessor's written statement setting
forth the amount due and the computation thereof. Lessee shall promptly
furnish Lessor with satisfactory evidence that such taxes have been paid. If
any such taxes to be paid by Lessee shall cover any period of time prior to or
after the expiration or earlier termination of the term hereof, Lessee's share
of such taxes shall be equitably prorated to cover only the period of time
within the tax fiscal year this Lease is in effect, and Lessor shall reimburse
Lessee for any overpayment after such proration.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to
the Premises, and to require such current year's Tax Increase to be paid in
advance to Lessor by Lessee, either; (i) in a lump sum amount equal to the
amount due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be
that equal monthly amount which, over the number of months remaining before
the month in which the applicable tax installment would become delinquent
(and without interest thereon), would provide a fund large enough to fully
discharge before delinquency the estimated Tax Increase to be paid. When the
actual amount of the applicable Tax Increase is known, the amount of such
equal monthly advance payment shall be adjusted as required to provide the
fund needed to pay the applicable Tax Increase before delinquency. If the
amounts paid to Lessor by Lessee under the provisions of this Paragraph are
insufficient to discharge the obligations of Lessee to pay such Tax Increase
as the same becomes due, Lessee shall pay to Lessor, upon Lessor's demand,
such additional sums as are necessary to pay such obligation. All moneys paid
to Lessor under this Paragraph may be intermingled with other moneys of
Lessor and shall not bear interest. In the event of a Breach by Lessee in the
performance of the obligations of Lessee under this Lease, then any balance
of funds paid to Lessor under the provisions of this Paragraph may, subject
to proration as provided in Paragraph 10.1(a), at the option of Lessor, be
treated as an additional Security Deposit under Paragraph 5.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding Paragraph 10.1(a) hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any increase
in real Property Taxes assessed by reason of Alterations or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor's right to rent or other income therefrom,
and/or Lessor's business of leasing the Premises. The term "REAL PROPERTY
TAXES" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring, or changes in
applicable law taking effect, during the term of this Lease, including but not
limited to a change in the ownership of the Premises or in the improvements
thereon, the execution of this Lease, or any modification, amendment or
transfer thereof, and whether or not contemplated by the Parties.
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10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, utility
Installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause its Trade Fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property
of Lessor. If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property or, At Lessor's option, as provided
in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. if any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or
in the Premises without Lessor's prior written consent given under and subject
to the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a
formal assignment or hypothecation of this Lease or Lessee's assets occurs,
which results or will result in a reduction of the Net Worth of Lessee, as
hereinafter defined, by an amount equal to or greater than twenty-five percent
(25%) of such Net Worth of Lessee as it was represented to lessor at the time
of the execution by lessor of this lease or at the time of the most recent
assignment to which lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever
time said Net Worth of Lessee was or is greater, shall be considered an
assignment of this Lease by Lessee to which Lessor may reasonably withhold its
consent. "Net Worth of Lessee" for purposes of this Lease shall be the net
worth of Lessee (excluding any guarantors) established under generally
accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, At Lessor's option, be
a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to
treat such unconsented to assignment or subletting as a noncurable Breach,
Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon
thirty (30) days written notice ("Lessor's Notice"), increase the monthly Base
Rent to fair market rental value or one hundred ten percent (110%) of the Base
Rent then in effect, whichever is greater. Pending determination of the new
fair market rental value, if disputed by Lessee, Lessee shall pay the amount
set forth in Lessor's Notice, with any overpayment credited against the next
installment(s) of Base Rent coming due, and any underpayment for the period
retroactively to the effective date of the adjustment being due and payable
immediately upon the determination thereof. Further, in the event of such
Breach and market value adjustment, (i) the purchase price of any option to
purchase the Premises held by Lessee shall be subject to similar adjustment to
the then fair market value (without the Lease being considered an encumbrance
or any deduction for depreciation or obsolescence, and considering the
Premises at its highest and best use and in good condition), or one hundred
ten percent (110%) of the price previously in effect, whichever is greater,
(ii) any index-oriented rental or price adjustment formulas contained in this
Lease shall be adjusted to require that the base index be determined with
reference to the index applicable to the time of such adjustment, and (iii)
any fixed rental adjustments scheduled during the remainder of the Lease term
shall be increased in the same ratio as the new market rental bears to the
Base Rent in effect immediately prior to the market value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive RELIEF.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee
or sublessee of the obligations of lessee under this Lease, (ii) release
Lessee of any obligations hereunder, or (iii) alter the primary liability of
Lessee for the payment of Base Rent and other sums due Lessor hereunder or for
the performance of any other obligations to be performed by Lessee under this
Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach
by Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee
or anyone else liable on the Lease or sublease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's
remedies against any other person or entity responsible therefor to Lessor, or
any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the current monthly
Base Rent, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may
be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE to SUBLETTING. The
following terms and conditions shall apply to any subletting by LESSEE of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of
this or any other assignment of such sublease to Lessor, nor by reason of the
collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's
obligations to such sublessee under such sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice
from Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents and other charges due
and to become due under the sublease. Sublessee shall rely upon any such
statement and request from Lessor and shall pay such rents and other charges
to Lessor without any obligation or right to inquire as to whether such Breach
exists and notwithstanding any notice from or claim from Lessee to the
contrary. LeSSEE shall have no right or claim against said sublessee, or,
until the Breach has been cured, against Lessor, for any such rents and other
charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to such sublessor or for any other
prior Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default,
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and that Lessor may include the cost of such services and costs in said notice
as rent due and payable to cure said Default. A "DEFAULT" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" is defined as the occurrence of any one or more of the following
Defaults, and, where a grace period for cure after notice is specified herein,
the failure by Lessee to cure such Default prior to the expiration of the
applicable grace period, shall entitle Lessor to pursue the remedies set forth
in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third
party, as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) days following written notice thereof by or on behalf of
Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16
or 37, (v) the subordination or non-subordination of this Lease per Paragraph
30, (vi) the guaranty of the performance of Lessee's obligations under this
Lease if required under Paragraphs 1.11 and 37, (vii) the execution of any
document requested under Paragraph 42 (easements), or (viii) any other
documentation or information which Lessor may reasonably require of Lessee
under the terms of this Lease, where any such failure continues for a period
of ten (10) days following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than
those described in subparagraphs (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or
on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably
required for its cure, then it shall not be deemed to be a Breach of this
Lease by Lessee if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment
of a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided,
however, in the event that any provision of this subparagraph (e) is contrary
to any applicable law, such provision shall be of no force or effect, and not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurance or security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to
Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required
bonds, insurance policies, or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable
by Lessee to Lessor upon invoice therefor. If any check given to Lessor by
Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its
option, may require all future payments to be made under this Lease by Lessee
to be made only by cashier's check. In the event of a Breach of this Lease by
Lessee, as defined in Paragraph 13.1, with or without further notice or
demand, and without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and that portion of the leasing commission paid by Lessor applicable to
the unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the prior sentence 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%). Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph. If termination
of this Lease is obtained through the provisional remedy of unlawful detainer,
Lessor shall have the right to recover in such proceeding the unpaid rent and
damages as are recoverable therein, or Lessor may reserve therein the right to
recover all or any part thereof in a separate suit for such rent and/or
damages. If a notice and grace period required under subparagraphs 13.1(b),
(c) or (d) was not previously given, a notice to pay rent or quit, or to
perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer
statute shall run concurrently after the one such statutory notice, and the
failure of Lessee to cure the Default within the greater of the two such grace
periods shall constitute both an unlawful detainer and a Breach of this Lease
entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach
and abandonment and recover the rent as it becomes due, provided Lessee has
the right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver
to protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of
which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS,"
shall be deemed conditioned upon Lessee's full and faithful performance of all
of the terms, covenants and conditions of this Lease to be performed or
observed by Lessee during the term hereof as the same may be extended. Upon
the occurrence of a Breach of this Lease by Lessee, as defined in Paragraph
13.1, any such inducement Provision shall automatically be deemed deleted from
this Lease and of no further force or effect, and any rent, other charge,
bonus, inducement or consideration theretofore abated, given or paid by Lessor
under such an Inducement Provision shall be immediately due and payable by
Lessee to Lessor, and recoverable by Lessor as additional rent due under this
Lease, notwithstanding any subsequent cure of said Breach by Lessee. The
acceptance by Lessor of rent or the cure of the Breach which initiated the
operation of this Paragraph shall not be deemed a waiver by Lessor of the
provisions of this Paragraph unless specifically so stated in writing by
Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing
for such purpose, of written notice specifying wherein such obligation of
Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days after such notice
are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
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14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "CONDEMNATION"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the
floor area of the Premises, or more than twenty-five percent (25%) of the land
area not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of
such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the Base Rent shall be reduced
in the same proportion as the rentable floor area of the Premises taken bears
to the total rentable floor area of the building located on the Premises. No
reduction of Base Rent shall occur if the only portion of the Premises taken
is land on which there is no building. Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of
the leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any compensation separately awarded
to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages
received, over and above the legal and other expenses incurred by Lessor in
the condemnation matter, repair any damage to the Premises caused by such
condemnation, except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such
repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $ ) for brokerage services rendered by
said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) or any Option subsequently granted which is substantially
similar to an Option granted to Lessee in this Lease, or (b) if Lessee
acquires any rights to the Premises or other premises described in this Lease
which are substantially similar to what Lessee would have acquired had an
Option herein granted to Lessee been exercised, or (c) if Lessee remains in
possession of the Premises, with the consent of Lessor, after the expiration
of the term of this Lease after having failed to exercise an Option, or (d) if
said Brokers are the procuring cause of any other lease or sale entered into
between the Parties pertaining to the Premises and/or any adjacent property in
which Lessor has an interest, or (e) if Base Rent is increased, whether by
agreement or operation of an escalation clause herein, then as to any of said
transactions, Lessor shall pay said Brokers a fee in accordance with the
schedule of said Brokers in effect at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent
of its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers
is entitled to any commission or finder's fee in connection with said
transaction. Lessee and Lessor do each hereby agree to indemnify, protect,
defend and hold the other harmless from and against liability for compensation
or charges which may be claimed by any such unnamed broker, finder or other
similar party by reason of any dealings or actions of the indemnifying Party,
including any costs, expenses, attorneys' fees reasonably incurred with
respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the
Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee
and such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes
herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior
Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of
any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph
23. The addresses noted adjacent to a Party's signature on this Lease shall
be that Party's address for delivery or mailing of notice purposes. Either
Party may by written notice to the other specify a different address for
notice purposes, except that upon Lessee's taking possession of the Premises,
the Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to
be given to Lessor hereunder shall be concurrently transmitted to such party
or parties at such addresses as Lessor may from time to time hereafter
designate by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices
delivered by United States Express Mail or overnight courier that guarantees
next day delivery shall be deemed given twenty-four (24) hours after delivery
of the same to the United States Postal Service or courier. If any notice is
transmitted by facsimile transmission or similar means, the same shall be
deemed served or delivered upon telephone confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail.
If notice is received on a Sunday or legal holiday, it shall be deemed
received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any preceding Default or Breach by Lessee of any provision hereof, other than
the failure of Lessee to pay the particular rent so accepted. Any payment
given Lessor by Lessee may be accepted by Lessor on account of moneys or
damages due Lessor, notwithstanding any qualifying statements or conditions
made by Lessee in connection therewith, which such statements and/or
conditions shall be of no force or effect whatsoever unless specifically
agreed to in writing by Lessor at or before the time of deposit of such
payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
Initials_____
_____
GROSS PAGE 8
<PAGE>
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be initiated
in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor
under this Lease, but that in the event of Lessor's default with respect to
any such obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of Lessor's default
and allow such Lender thirty (30) days following receipt of such notice for
the cure of said default before invoking any remedies Lessee may have by
reason thereof. If any Lender shall elect to have this Lease and/or any Option
granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor, or (iii) be bound
by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT") from
the Lender that Lessee's possession and this Lease, including any options to
extend the term hereof, will not be disturbed so long as Lessee is not in
Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance
agreement as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal
thereon, shall be entitled to reasonable attorney's fees. Such fees may be
awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term, "PREVAILING
PARTY" shall include, without limitation, a Party or Broker who substantially
obtains or defeats the relief sought, as the case may be, whether by
compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorney's fee award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorney's fees reasonably incurred. Lessor shall be entitled to
attorney's fees, costs and expenses incurred in the preparation and service of
notices of Default and consultations in connection therewith, whether or not a
legal action is subsequently commenced in connection with such Default or
resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part, as Lessor may reasonably deem necessary.
Lessor may at any time place on or about the Premises or building any ordinary
"For Sale" signs and Lessor may at any time during the last one hundred twenty
(120) days of the term hereof place on or about the Premises any ordinary "For
Lease" signs. All such activities of Lessor shall be without abatement of rent
or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install,
and all revenues from the installation of, such advertising signs on the
Premises, including the roof, as do not unreasonably interfere with the
conduct of Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one or
all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by written
notice to the holder of any such lesser interest, shall constitute Lessor's
election to have such event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to
Lessor upon receipt of an invoice and supporting documentation therefor.
Subject to Paragraph 12.2(a) (applicable to assignment or subletting), Lessor
may, as a condition to considering any such request by Lessee, require that
Lessee deposit with Lessor an amount of money (in addition to the Security
Deposit held under Paragraph 5) reasonably calculated by Lessor to represent
the cost Lessor will incur in considering and responding to Lessee's request.
Except as otherwise provided, any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment
of this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgement that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the
time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate
Association, and each said Guarantor shall have the same obligations as Lessee
under this Lease, including but not limited to the obligation to provide the
Tenancy Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give:
(a) evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any Lease that Lessee has on other property
of Lessor; (b) the right of first refusal to lease the Premises or the right
of first offer to lease the Premises or the right of first refusal to lease
other property of Lessor or the right of first offer to lease other property
of Lessor; (c) the right to purchase the Premises, or the right of first
refusal to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee.
Initials_____
_____
GROSS PAGE 9
<PAGE>
is in full and actual possession of the premises and without the intention of
thereafter assigning or subletting. The options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this lease or
separately or apart therefrom, and no Option may be separated from this lease
in any manner, by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of
time any monetary obligation due Lessor from Lessee is unpaid (without regard
to whether notice thereof is given Lessee), or (iii) during the time Lessee is
in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee
three (3) or more notices of Default under Paragraph 13.1, whether or not the
Defaults are cured, during the twelve (12) month period immediately preceding
the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the term
of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of Default under Paragraph
13.1 during any twelve (12) month period, whether or not the Defaults are
cured, or (iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe
all reasonable rules and regulations which Lessor may make from time to time
for the management, safety, care, and cleanliness of the grounds, the parking
and unloading of vehicles and the preservation of good order, as well as for
the convenience of other occupants or tenants of such other buildings and
their invitees, and that Lessee will pay its fair share of common expenses
incurred in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute
and deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED
SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at South El Monte, California Executed at South El Monte, California
on December 4, 1995 on December 4, 1995
by LESSOR: by LESSEE:
Ronald G. Lee Lee Pharmaceuticals
President Michael L. Agresti
By /s/ Ronald G. Lee By /s/ Michael L. Agresti
_____________________________________ ____________________________________
Name Printed: Ronald G. Lee Name Printed: Lee Pharmaceuticals
Michael L. Agresti
Title: President Title: Vice President - Finance
By ____________________________________ By_____________________________________
Name Printed:__________________________ Name Printed:__________________________
Title:_________________________________ Title:_________________________________
Address:_______________________________ Address:_______________________________
_______________________________________ _______________________________________
Tel. No.(___)_______Fax No.(___)_______ Tel. No.(___)_______Fax No.(___)_______
NOTICE: These forms are often modified to meet changing requirements
of law and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 700 South Flower Street, Suite 600, Los Angeles, CA
90017. (213) 687-8777. Fax No. (213) 687-8616.
-C- COPYRIGHT 1990 - BY AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION. ALL RIGHTS RESERVED.
NO PART OF THESE WORKS MAY BE REPRODUCED IN ANY FORM WITHOUT
PERMISSION IN WRITING. FORM 105G-R-12/91
GROSS PAGE 10
<PAGE>
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
Dated December 1, 1995
By and Between Ronald G. Lee, LESSOR
and Lee Pharmaceuticals, LESSEE
49. Lessee agrees to accept the premises "as is". Any alterations or
improvements shall be done at Lessee's sole cost and expense.
50. Addendum to Lease: The parties hereto agree that the Addendum to this
Lease attached hereto has been executed concurrently with the execution of
this Lease and made a part of the same by reference.
51. Security Deposit: There is no security deposit required for the Lease of
building per Paragraph #5 of this Lease.
<PAGE>
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
Dated December 1, 1995
By and Between Ronald G. Lee, LESSOR
and Lee Pharmaceuticals, LESSEE
52. RENT ESCALATIONS
(a) On April 1, 1997, April 1, 1999, April 1, 2001, April 1, 2003,
April 1, 2005, Option period April 1, 2007, April 1, 2009 the monthly rent
payable under paragraph 4 of the attached Lease shall be adjusted by the
increase, if any, from the date this Lease commenced, in the Consumer Price
Index of the Bureau of Labor Statistics of the U.S. Department of Labor for
all Urban Consumers Los Angeles-Long Beach-Anaheim, California (1967=100),
"All Items", herein referred to as "C.P.I."
(b) The monthly rent, payable in accordance with paragraph (a) of this
Addendum shall be calculated as follows: the rent payable for the first month
of the term of this Lease, as set forth in paragraph 4 of the attached Lease,
shall be multiplied by a fraction the numerator of which shall be the C.P.I.
of the calendar month during which the adjustment is to take effect, and the
denominator of which shall be the C.P.I, for the calendar month in which the
original Lease term commences. The sum so calculated shall constitute the new
monthly rent hereunder, but in no event, shall such new monthly rent be less
than the rent payable for the month immediately preceding the date for rent
adjustment.
(c) Pending receipt of the required C.P.I. and determination of the actual
adjustment, Lessee shall pay an estimated adjusted rental, as reasonably
determined by Lessor by reference to the then available C.P.I. information.
Upon notification of the actual adjustment after publication of the required
C.P.I., any overpayment shall be credited against the next installment of rent
due, and any underpayment shall be immediately due and payable by Lessee.
Lessor's failure to request payment of an estimated or actual rent adjustment
shall not constitute a waiver of the right to any adjustment provided for in
the Lease or this addendum.
(d) In the event the compilation and/or publication of the C.P.I. shall be
transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the C.P.I. shall be
used to make such calculation. In the event that Lessor and Lessee cannot
agree on such alternative index, then the matter shall be submitted for
decision to the American Arbitration Association in accordance with the then
rules of said association and the decision of the arbitrators shall be
binding upon the parties. The cost of said Arbitrators shall be paid equally
by Lessor and Lessee.
53. OPTION TO EXTEND TERM:
Providing Lessee is not in default of any of the provisions of this
Lease, either at the time of the exercise of the option or at the time of the
commencement of the applicable extension period hereunder, Lessee may elect
to extend the term of this Lease for one (1) additional five (5) year period
by delivering to Lessor at least one hundred eighty (180) days before the end
of the original term a written notice of such election; otherwise this
extension agreement will therefore become null and void. The term of this Lease
shall thereupon be extended in accordance with Lessee's election, which
extension period shall begin on the day immediately following the last day of
the original term of the Lease. The extension periods hereunder shall be
subject to all the terms and conditions of this lease, except that the basic
rent for the five (5) year extension period shall be increased by the
percentage increase in the U.S. Department of Labor's Consumer Price Index Los
Angeles/Long Beach/Anaheim area (All Items) - All Urban Consumers ("Index"), as
designated in RENT ESCALATION ADDENDUM Paragraph # 52 .
54. Lessee agrees to indemnify the Lessor (owner) of any and all claims
regarding water contamination, pollution, etc. in consideration of lessor
buying the building.
Initials: _____ Initials: _____
_____ _____
RENT ESCALATIONS
<PAGE>
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- GROSS
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
December 1, 1995, is made by and between Ronald G. Lee ("LESSOR") and Lee
Pharmaceuticals, a California Corporation ("LESSEE"), (collectively the
"PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known by the street address of 1445 Lidcombe Avenue, South El Monte,
CA 91733 located in the County of Los Angeles, State of California and
generally described as (describe briefly the nature of the property) a one
story frame and stucco building, including warehouse and offices of
approximately 9,200 square feet ("Premises"). (See Paragraph 2 for further
provisions.)
1.3 TERM: 9 years and 11 months ("ORIGINAL TERM") commencing December 28,
1995 ("COMMENCEMENT DATE") and ending November 30, 2005 ("EXPIRATION DATE").
(See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: _________________________ ("EARLY POSSESSION DATE").
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $5,221.00 per month ("BASE RENT"), payable on the 1st
day of each month commencing January 1, 1996. (See Paragraph 4 for further
provisions.)
/x/ If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $________________________________________
as Base Rent for the period____________________________________________________
_______________________________________________________________________________.
1.7 SECURITY DEPOSIT: $5,221.00 ("SECURITY DEPOSIT"). (See Paragraph 5 for
further provisions.)
1.8 PERMITTED USE: furniture manufacturer and other legal related usages.(See
Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY." $________ is the "BASE
PREMIUM." (See Paragraph 6 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
___________________________________________________________________ represents
/ / Lessor exclusively ("LESSOR'S BROKER"); / / both Lessor and Lessee, and
___________________________________________________________________ represents
/ / Lessee exclusively ("LESSEE'S BROKER"); / / both Lessee and Lessor.
(See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by __________________________________________________________________
_______________________________________________ ("GUARANTOR"). (See Paragraph 37
for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs ___ through ___ and Exhibits _______________________________________
___________________________________all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by
Lessee, shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee
does not give Lessor written notice of a non-compliance with this warranty
within thirty (30) days after the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or
to be made by Lessee. If the Premises do not comply with said warranty,
Lessor shall, except as otherwise provided in this Lease, promptly after
receipt of written notice from Lessee setting forth with specificity the
nature and extent of such non-compliance, rectify the same at Lessor's
expense. If Lessee does not give Lessor written notice of a non-compliance
with this warranty within six (6) months following the Commencement Date,
correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire
sprinkler systems, security, environmental aspects, compliance with
Applicable Law, as defined in Paragraph 6.3) and the present and future
suitability of the Premises for Lessee's intended use, (b) that Lessee has
made such investigation as it deems necessary with reference to such matters
and assumes all responsibility therefor as the same relate to Lessee's
occupancy of the Premises and/or the term of this Lease, and (c) that neither
Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to the said matters other than as
set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be at no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises.
In such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be
abated for the period of such early possession. All other terms of this
Lease, however, shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
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3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date
is specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease,
or the obligations of Lessee hereunder, or extend the term hereof, but in
such case, Lessee shall not, except as otherwise provided herein, be
obligated to pay rent or perform any other obligation of Lessee under the
terms of this Lease until Lessor delivers possession of the Premises to
Lessee. If possession of the Premises is not delivered to Lessee within sixty
(60) days after the Commencement Date, Lessee may, at its option, by notice
in writing to Lessor within ten (10) days thereafter, cancel this Lease, in
which event the Parties shall be discharged from all obligations hereunder;
provided, however, that if such written notice by Lessee is not received by
Lessor within said ten (10) day period, Lessee's right to cancel this Lease
shall terminate and be of no further force or effect. Except as may be
otherwise provided, and regardless of when the term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee
does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on
or before the day on which it is due under the terms of this Lease. Base Rent
and all other rent and charges for any period during the term hereof which is
for less than one (1) full calendar month shall be prorated based upon the
actual number of days of the calendar month involved. Payment of Base Rent
and other charges shall be made to Lessor at its address stated herein or to
such other persons or at such other addresses as Lessor may from time to time
designate in writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee
fails to pay Base Rent or other rent or charges due hereunder, or otherwise
Defaults under this Lease (as defined in Paragraph 13.1), Lessor may use,
apply or retain all or any portion of said Security Deposit for the payment
of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all
or any portion of said Security Deposit, Lessee shall within ten (10) days
after written request therefor deposit moneys with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease. Any
time the Base Rent increases during the term of this Lease, Lessee shall;
upon written request from Lessor, deposit additional moneys with Lessor
sufficient to maintain the same ratio between the Security Deposit and the
Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit
separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not
used or applied by Lessor. Unless otherwise expressly agreed in writing by
Lessor, no part of the Security Deposit shall be considered to be held in
trust, to bear interest or other increment for its use, or to be prepayment
for any moneys to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises
in a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any
written request by Lessee, Lessees assignees or subtenants, and by
prospective assignees and subtenants of the Lessee, its assignees and
subtenants, for a modification of said permitted purpose for which the
premises may be used or occupied, so long as the same will not impair the
structural integrity of the improvements on the Premises, the mechanical or
electrical systems therein, is not significantly more burdensome to the
Premises and the improvements thereon, and is otherwise permissible pursuant
to this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall
within five (5) business days give a written notification of same, which
notice shall include an explanation of Lessor's reasonable objections to the
change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or
fractions thereof. Lessee shall not engage in any activity in, on or about
the Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i)
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but in compliance with all Applicable Law, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of Lessee's business permitted on the Premises, so long as such use is
not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor
to any liability therefor. In addition, Lessor may (but without any
obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion,
deems necessary to protect itself, the public, the Premises and the
environment against damage, contamination or injury and/or liability
therefrom or therefor, including, but not limited to, the installation (and
removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by Lessor, Lessee shall immediately give
written notice of such fact to Lessor. Lessee shall also immediately give
Lessor a copy of any statement, report, notice, registration, application,
permit, business plan, license, claim, action or proceeding given to, or
received from, any governmental authority or private party, or persons
entering or occupying the Premises, concerning the presence, spill, release,
discharge of, or exposure to, any Hazardous Substance or contamination in,
on, or about the Premises, including but not limited to all such documents as
may be involved in any Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits
and attorney's and consultant's fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for
Lessee or under Lessee's control. Lessee's obligations under this Paragraph 6
shall include, but not be limited to, the effects of any contamination or
injury to person, property or the environment created or suffered by Lessee,
and the cost of investigation (including consultant's and attorney's fees and
testing), removal, remediation, restoration and/or abatement thereof, or of
any contamination therein involved, and shall survive the expiration or
earlier termination of this Lease. No termination, cancellation or release
agreement entered into by Lessor and Lessee shall release Lessee from its
obligations under this Lease with respect to Hazardous Substances or storage
tanks, unless specifically so agreed by Lessor in writing at the time of such
agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently
and in a timely manner, comply with all "APPLICABLE LAW," which term is used
in this Lease to include ail laws, rules, regulations, ordinances,
directives, covenants, easements and restrictions of record, permits, the
requirements of any applicable fire insurance underwriter or rating bureau,
and the recommendations of Lessor's engineers and/or consultants, relating in
any manner to the Premises (including but not limited to matters pertaining
to (i) industrial hygiene, (ii) environmental conditions on, in, under or
about the Premises, including soil and groundwater conditions, and (iii) the
use, generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or
storage tank), now in effect or which may hereafter come into effect, and
whether or not reflecting a change in policy from any previously existing
policy. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information,
including, but not limited to, permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with
any Applicable Law specified by Lessor, and shall immediately upon receipt,
notify Lessor in writing (with copies of any documents involved) of any
threatened or actual claim, notice, citation, warning, complaint or report
pertaining to or involving failure by Lessee or the Premises to comply with
any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise at reasonable times, for the purpose
of inspecting the condition of the Premises and for verifying compliance by
Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3),
and to employ experts and/or consultants in connection therewith and/or to
advise Lessor with respect to Lessee's activities, including but not limited
to the installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance or storage tank on or from the Premises. The costs
and expenses of any such inspections shall be paid by the party requesting
same, unless a Default or Breach of this Lease, violation of Applicable Law,
or a contamination, caused or materially contributed to by Lessee is found to
exist or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent
violation or contamination. In any such case, Lessee shall upon request
reimburse Lessor or Lessor's Lender, as the case may be, for the costs and
expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc),
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7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee,
and whether or not the need for such repairs occurs as a result of Lessee's
use, any prior use, the elements or the age of such portion of the Premises),
including, without limiting the generality of the foregoing, all equipment or
facilities serving the Premises, such as plumbing, heating, air conditioning,
ventilating, electrical, lighting facilities, boilers, fired or unfired
pressure vessels, fire sprinkler and/or standpipe and hose or other automatic
fire extinguishing system, including fire alarm and/or smoke detection
systems and equipment, fire hydrants, fixtures, walls (interior and
exterior), ceilings, floors, windows, doors, plate glass, skylights,
landscaping, driveways, parking lots, fences, retaining walls, signs,
sidewalks and parkways located in, on, about, or adjacent to the Premises,
but excluding foundations, the exterior roof and the structural aspects of
the Premises. Lessee shall not cause or permit any Hazardous Substance to be
spilled or released in, on, under or about the Premises (including through
the plumbing or sanitary sewer system) and shall promptly, at Lessee's
expense, take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the cleanup of
any contamination of, and for the maintenance, security and/or monitoring of,
the Premises, the elements surrounding same, or neighboring properties, that
was caused or materially contributed to by Lessee, or pertaining to or
involving any Hazardous Substance and/or storage tank brought onto the
Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance
for, and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire
sprinkler and/or standpipe and hose or other automatic fire extinguishing
systems, including fire alarm and/or smoke detection, (iv) landscaping and
irrigation systems, (v) roof covering and drain maintenance and (vi) asphalt
and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's
expense, keep the foundations, exterior roof and structural aspects of the
Premises in good order, condition and repair, Lessor shall not, however, be
obligated to paint the exterior surface of the exterior walls or to maintain
the windows, doors or plate glass or the interior surface of exterior walls.
Lessor shall not, in any event, have any obligation to make any repairs until
Lessor receives written notice of the need for such repairs. It is the
intention of the Parties that the terms of this Lease govern the respective
obligations of the Parties as to maintenance and repair of the Premises.
Lessee and Lessor expressly waive the benefit of any statute now or hereafter
in effect to the extent it is inconsistent with the terms of this Lease with
respect to, or which affords Lessee the right to make repairs at the expense
of Lessor or to terminate this Lease by reason of, any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises.
The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that
can be removed without doing material damage to the Premises. The term
"ALTERATIONS" shall mean any modification of the improvements on the Premises
from that which are provided by Lessor under the terms of this Lease, other
than Utility Installations or Trade Fixtures, whether by addition or
deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined
as Alterations and/or Utility Installations made by Lessee that are not yet
owned by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any
Alterations or Utility Installations in, on, under or about the Premises
without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises
(excluding the roof), as long as they are not visible from the outside, do
not involve puncturing, relocating or removing the roof or any existing
walls, and the cumulative cost thereof during the term of this Lease as
extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All
consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by
subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's
acquiring all applicable permits required by governmental authorities, (ii)
the furnishing of copies of such permits together with a copy of the plans
and specifications for the Alteration or Utility Installation to Lessor prior
to commencement of the work thereon, and (iii) the compliance by Lessee with
all conditions of said permits in a prompt and expeditious manner. Any
Alterations or Utility Installations by Lessee during the term of this Lease
shall be done in a good and workmanlike manner, with good and sufficient
materials, and in compliance with all Applicable Law. Lessee shall promptly
upon completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessor may (but without obligation to do so) condition its consent
to any requested Alteration or Utility Installation that costs $10,000 or
more upon Lessee's providing Lessor with a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such Alteration
or Utility Installation and/or upon Lessee's posting an additional Security
Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at
or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises. If
Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the
amount of such contested lien claim or demand, indemnifying Lessor against
liability for the same, as required by law for the holding of the Premises
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's attorney's fees and costs in participating in such
action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises.
Lessor may, at any time and at its option, elect in writing to Lessee to be
the owner of all or any specified part of the Lessee Owned Alterations and
Utility Installations. Unless otherwise instructed per subparagraph 7.4(b)
hereof, all Lessee Owned Alterations and Utility Installations shall, at the
expiration or earlier termination of this Lease, become the property of
Lessor and remain upon and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed
by the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris
and in good operating order, condition and state of repair, ordinary wear and
tear excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or
by Lessee performing all of its obligations under this Lease. Except as
otherwise agreed or specified in writing by Lessor, the Premises, as
surrendered, shall include the Utility Installations. The obligation of
Lessee shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment,
and Alterations and/or Utility Installations, as well as the removal of any
storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all
as may then be required by Applicable Law and/or good service practice.
Lessee's Trade Fixtures shall remain the property of Lessee and shall be
removed by Lessee subject to its obligation to repair and restore the
Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) Lessee shall pay to Lessor any insurance cost increase ("INSURANCE
COST INCREASE") occurring during the term of this Lease. "INSURANCE COST
INCREASE" is defined as any increase in the actual cost of the insurance
required under Paragraphs 8.2(b), 8.3(a) and 8.3(b). ("REQUIRED INSURANCE"),
over and above the Base Premium, as hereinafter defined, calculated on an
annual basis. "INSURANCE COST INCREASE" shall include, but not be limited to,
increases resulting from the nature of Lessee's occupancy, any act or
omission of Lessee, requirements of the holder of a mortgage or deed of trust
covering the Premises, increased valuation of the Premises, and/or a premium
rate increase. If the parties insert a dollar amount in Paragraph 1.9, such
amount shall be considered the "BASE PREMIUM." In lieu thereof, if the
Premises have been previously occupied, the "BASE PREMIUM" shall be the
annual premium applicable to the most recent occupancy. If the Premises have
never been occupied, the "BASE PREMIUM" shall be the lowest annual premium
reasonably obtainable for the Required Insurance as of the commencement of
the Original Term, assuming the most nominal use possible of the Premises. In
no event, however, shall Lessee be responsible for any portion of the premium
cost attributable to liability insurance coverage in excess of $1,000,000
procured under Paragraph 8.2(b) (Liability Insurance Carried By Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to Lessor within
thirty (30) days after receipt by Lessee of a copy of the premium statement
or other reasonable evidence of the amount due. If the insurance policies
maintained hereunder cover other property besides the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such Insurance Cost
Increase attributable only to the Premises showing in reasonable detail the
manner in which such amount was computed. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement or Expiration of the
Lease term.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $1,000,000
per occurrence with an "Additional Insured-Managers or Lessors of Premises"
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Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as carried by Lessee shall not, however, limit the liability of
Lessee nor relieve Lessee of any obligation hereunder. All insurance to be
carried by Lessee shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDER(S)"), insuring loss
or damage to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if, by reason
of the unique nature or age of the improvements involved, such latter amount
is less than full replacement cost. Lessee Owned Alterations and Utility
Installations shall be insured by Lessee under Paragraph 8.4. If the coverage
is available and commercially appropriate, such policy or policies shall
insure against all risks of direct physical loss or damage (except the perils
of flood and/or earthquake unless required by a Lender), including coverage
for any additional costs resulting from debris removal and reasonable amounts
of coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered cause of
loss, but not including plate glass insurance. Said policy or policies shall
also contain an agreed valuation provision in lieu of any coinsurance clause,
waiver of subrogation, and inflation guard protection causing an increase in
the annual property insurance coverage amount by a factor of not less than
the adjusted U.S. Department of Labor Consumer Price Index for All Urban
Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease
is terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an
agreed valuation provision in lieu of any coinsurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental
income, property taxes, insurance premium costs and other expenses, if any,
otherwise payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. Since Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's
option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to
that carried by the Insuring Party under Paragraph 8.3. Such insurance shall
be full replacement cost coverage with a deductible of not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee
for the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party
with respect to the insurance required by this Paragraph 8.4 and shall
provide Lessor with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by a
Lender having a lien on the Premises, as set forth in the most current issue
of "Best's Insurance Guide." Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in this
Paragraph 8. Lessee shall cause to be delivered to Lessor certified copies
of, or certificates evidencing the existence and amounts of, the insurance,
and with the additional insureds, required under Paragraph 8.2(a) and 8.4. No
such policy shall be cancelable or subject to modification except after
thirty (30) days prior written notice to Lessor. Lessee shall at least thirty
(30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lesser ("Waiving Party") each hereby release and relieve the
other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured
against under Paragraph 8. The effect of such releases and waivers of the
right to recover damages shall not be limited by the amount of insurance
carried or required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's waster or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or
damages, costs, liens, judgments, penalties, permits, attorney's and
consultant's fees, expenses and/or liabilities arising out of, involving, or
in dealing with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Broach by
Lessee in the performance in a timely manner of any obligation on Lessee's
part to be performed under this Lease. The foregoing shall include, but not
be limited to, the defense or pursuit of any claim or any action or
proceeding involved therein, and whether or not (in the case of claims made
against Lessor) litigated and/or reduced to judgment, and whether well
founded or not. In case any action or proceeding be brought against Lessor by
reason of any of the foregoing matters, Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need
not have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by
or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether the said injury or damage results from conditions
arising upon the Premises or upon other portions of the building of which the
Premises are a part, or from other sources or places, and regardless of
whether the cause of such damage or injury or the means of repairing the same
is accessible or not. Lessor shall not be liable for any damages arising from
any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's
negligence or breach of this Lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE or DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than
50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land
and Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations
the repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a), irrespective of any deductible amounts or
coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances
or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE--INSURED LOSS. IF a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. Notwithstanding the foregoing, if the
required insurance was not in force or the insurance proceeds are not
sufficient to effect such repair, the Insuring Party shall promptly
contribute the shortage in proceeds as and when required to complete said
repairs. In the event, however, the shortage in proceeds was due to the fact
that, by reason of the unique nature of the improvements, full replacement
cost insurance coverage was not commercially reasonable and available, Lesser
shall have no obligation to pay for the shortage in insurance proceeds or to
fully restore the unique aspects of the Premises unless Lessee provides
Lessor with the funds to cover game, or adequate assurance thereof, within
ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, the party responsible for making the repairs
shall complete them as soon as reasonably possible and this Lease shall
remain in full force and effect. If Lessor does not receive such funds or
assurance within said period, Lessor may nevertheless elect by written notice
to Lessee within ten (10) days thereafter to make such restoration and repair
as is commercially reasonable with Lessor paying any shortage in proceeds, in
which case this Lease shall remain in full force and effect. If in such case
Lessor does not so elect, then this Lease shall terminate sixty (60) days
following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor
for any funds contributed by Lessee to repair
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any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net
proceeds of any such insurance shall be made available for the repairs if
made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which
event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the giving of such
notice. In the event Lessor elects to give such notice of Lessor's intention
to terminate this Lease, Lessee shall have the right within ten (10) days
after the receipt of such notice to give written notice to Lessor of Lessee's
commitment to pay for the repair of such damage totally at Lessee's expense
and without reimbursement from Lessor. Lessee shall provide Lessor with the
required funds or satisfactory assurance thereof within thirty (30) days
following Lessee's said commitment. In such event this Lease shall continue
in full force and effect, and Lessor shall proceed to make such repairs as
soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the funds or assurance thereof within
the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or
willful act of Lessee. In the event, however, that the damage or destruction
was caused by Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor
may, at Lessor's option, terminate this Lease effective sixty (60) days
following the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within thirty (30) days after the date
of occurrence of such damage. Provided, however, if Lessee at that time has
an exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by, within twenty (20) days following the
occurrence of the damage, or before the expiration of the time provided in
such option for its exercise, whichever is earlier ("EXERCISE PERIOD"), (i)
exercising such option and (ii) providing Lessor with any shortage in
insurance proceeds (or adequate assurance thereof) needed to make the
repairs. If Lessee duly exercises such option during said Exercise Period and
provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such
damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option and provide such
funds or assurance during said Exercise Period, then Lessor may at Lessor's
option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in
the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial Damage
- -Insured), whether or not Lessor or Lessee repairs or restores the Premises,
the Base Rent, Real Property Taxes, insurance premiums, and other charges, if
any, payable by Lessee hereunder for the period during which such damage, its
repair or the restoration continues (not to exceed the period for which
rental value insurance is required under Paragraph 8.3(b)), shall be abated
in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at
any time prior to the commencement of such repair or restoration, give
written notice to Lessor and to any Lenders of which Lessee has actual notice
of Lessee's election to terminate this Lease on a date not less than sixty
(60) days following the giving of such notice. If Lessee gives such notice to
Lessor and such Lenders and such repair or restoration is not commenced
within thirty (30) days after receipt of such notice, this Lease shall
terminate as of the date specified in said notice. If Lessor or a Lender
commences the repair or restoration of the Premises within thirty (30) days
after receipt of such notice, this Lease shall continue in full force and
effect. "COMMENCE" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Law and this Lease shall continue in full force and effect, but subject to
Lessor's rights under Paragraph 13), Lessor may at Lessor's option either (i)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect, or (ii) if the estimated cost to
investigate and remediate such condition exceeds twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the giving of
such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten
(10) days after the receipt of such notice to give written notice to Lessor
of Lessee's commitment to pay for the investigation and remediation of such
Hazardous Substance Condition totally at Lessee's expense and without
reimbursement from Lessor except to the extent of an amount equal to twelve
(12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as
reasonably possible and the required funds are available. If Lessee does not
give such notice and provide the required funds or assurance thereof within
the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance
Condition occurs for which Lessee is not legally responsible, there shall be
abatement of Lessee's obligations under this Lease to the same extent as
provided in Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made
concerning advance Base Rent and any other advance payments made by Lessee to
Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by
Lessor under the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises; provided, however,
that Lessee shall pay, in addition to rent, the amount, if any, by which Real
Property Taxes applicable to the Premises increase over the fiscal tax year
during which the Commencement Date occurs ("TAX INCREASE"). Subject to
Paragraph 10.1(b), payment of any such Tax Increase shall be made by Lessee
within thirty (30) days after receipt of Lessor's written statement setting
forth the amount due and the computation thereof. Lessee shall promptly
furnish Lessor with satisfactory evidence that such taxes have been paid. If
any such taxes to be paid by Lessee shall cover any period of time prior to
or after the expiration or earlier termination of the term hereof, Lessee's
share of such taxes shall be equitably prorated to cover only the period of
time within the tax fiscal year this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment after such proration.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to
the Premises, and to require such current year's Tax Increase to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
amount due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be
that equal monthly amount which, over the number of months remaining before
the month in which the applicable tax installment would become delinquent
(and without interest thereon), would provide a fund large enough to fully
discharge before delinquency the estimated Tax Increase to be paid. When the
actual amount of the applicable Tax Increase is known, the amount of such
equal monthly advance payment shall be adjusted as required to provide the
fund needed to pay the applicable Tax Increase before delinquency. If the
amounts paid to Lessor by Lessee under the provisions of this Paragraph are
insufficient to discharge the obligations of Lessee to pay such Tax Increase
as the same becomes due, Lessee shall pay to Lessor, upon Lessor's demand,
such additional sums as are necessary to pay such obligation. All moneys paid
to Lessor under this Paragraph may be intermingled with other moneys of
Lessor and shall not bear interest. In the event of a Breach by Lessee in the
performance of the obligations of Lessee under this Lease, then any balance
of funds paid to Lessor under the provisions of this Paragraph may, subject
to proration as provided in Paragraph 10.1(a), at the option of Lessor, be
treated as an additional Security Deposit under Paragraph 5.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding Paragraph 10.1(a) hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any increase
in Real Property Taxes assessed by reason of Alterations or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor's right to rent or other income therefrom,
and/or Lessor's business of leasing the Premises. The term "REAL PROPERTY
TAXES" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring, or changes in
applicable law taking effect, during the term of this Lease, including but
not limited to a change in the ownership of the Premises or in the
improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
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10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property
taxes for all of the land and improvements included within the tax parcel
assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information
as may be reasonably available. Lessor's reasonable determination thereof, in
good faith, shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause its Trade Fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the Real Property
of Lessor. If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property or, at Lessor's option, as
provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or
in the Premises without Lessor's prior written consent given under and
subject to the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a
formal assignment or hypothecation of this Lease or Lessee's assets occurs,
which results or will result in a reduction of the Net Worth of Lessee, as
hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor at
the time of the execution by Lessor of this Lease or at the time of the most
recent assignment to which Lessor has consented, or as it exists immediately
prior to said transaction or transactions constituting such reduction, at
whichever time said net worth of Lessee was or is greater, shall be
considered an assignment of this Lease by Lessee to which Lessor may
reasonably withhold its consent. "NET WORTH OF LESSEE" for purposes of this
Lease shall be the net worth of Lessee (excluding any guarantors) established
under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be
a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to
treat such unconsented to assignment or subletting as a noncurable Breach,
Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon
thirty (30) days written notice ("Lessor's Notice"), increase the monthly
Base Rent to fair market rental value or one hundred ten percent (110%) of
the Base Rent then in effect, whichever is greater. Pending determination of
the new fair market rental value, if disputed by Lessee, Lessee shall pay the
amount set forth in Lessor's Notice, with any overpayment credited against
the next installment(s) of Base Rent coming due, and any underpayment for the
period retroactively to the effective date of the adjustment being due and
payable immediately upon the determination thereof. Further, in the event of
such Breach and market value adjustment, (i) the purchase price of any option
to purchase the Premises held by Lessee shall be subject to similar
adjustment to the then fair market value (without the Lease being considered
an encumbrance or any deduction for depreciation or obsolescence, and
considering the Premises at its highest and best use and in good condition),
or one hundred ten percent (110%) of the price previously in effect,
whichever is greater, (ii) any index-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that the base
index be determined with reference to the index applicable to the time of
such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the
market value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee
or sublessee of the obligations of Lessee under this Lease, (ii) release
Lessee of any obligations hereunder, or (iii) alter the primary liability of
Lessee for the payment of Base Rent and other sums due Lessor hereunder or
for the performance of any other obligations to be performed by Lessee under
this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach
by Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee
or anyone else liable on the Lease or sublease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors
or any one else responsible for the performance of the Lessee's obligations
under this Lease, including the sublessee, without first exhausting Lessor's
remedies against any other person or entity responsible therefor to Lessor,
or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the current monthly
Base Rent, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may
be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for
the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed
or performed by Lessee during the term of said assignment or sublease, other
than such obligations as are contrary to or inconsistent with provisions of
an assignment or sublease to which Lessor has specifically consented in
writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then
constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and Lessor
may collect such rent and income and apply same toward Lessee's obligations
under this Lease; provided, however, that until a Breach (as defined in
Paragraph 13.1) shall occur in the performance of Lessee's obligations under
this Lease, Lessee may, except as otherwise provided in this Lease, receive,
collect and enjoy the rents accruing under such sublease. Lessor shall not,
by reason of this or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to
the sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the performance of
Lessee's obligations under this Lease, to pay to Lessor the rents and other
charges due and to become due under the sublease. Sublessee shall rely upon
any such statement and request from Lessor and shall pay such rents and other
charges to Lessor without any obligation or right to inquire as to whether
such Breach exists and notwithstanding any notice from or claim from Lessee
to the contrary. Lessee shall have no right or claim against said sublessee,
or, until the Breach has been cured, against Lessor, for any such rents and
other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of
such sublease; provided, however, Lessor shall not be liable for any prepaid
rents or security deposit paid by such sublessee to such sublessor or for any
other prior Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default,
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and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "DEFAULT" is defined
as a failure by the Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease.
A "BREACH" is defined as the occurrence of any one or more of the following
Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third
party, as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) days following written notice thereof by or on behalf of
Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with applicable law
per Paragraph 6.3, (ii) the inspection, maintenance and service contracts
required under Paragraph 7.1(b), (iii) the recission of an unauthorized
assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per
Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease
per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii)
the execution of any document requested under Paragraph 42 (easements), or
(viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice by or on
behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than
those described in subparagraphs (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or
on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably
required for its cure, then it shall not be deemed to be a Breach of this
Lease by Lessee if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment
of a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days;
provided, however, in the event that any provision of this subparagraph (e)
is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurance or security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made under this
Lease by Lessee to be made only by cashier's check. In the event of a Breach
of this Lease by Lessee, as defined in Paragraph 13.1, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor.
In such event Lessor shall be entitled to recover from Lessee: (i) the worth
at the time of the award of the unpaid rent which had been earned at the time
of termination; (ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and that portion of the leasing commission paid by Lessor applicable to
the unexpired term of this Lease. The worth at the time of award of the
amount referred to in provision (iii) of the prior sentence 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%). Efforts by
Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease
shall not waive Lessor's right to recover damages under this Paragraph. If
termination of this Lease is obtained through the provisional remedy of
unlawful detainer, Lessor shall have the right to recover in such proceeding
the unpaid rent and damages as are recoverable therein, or Lessor may reserve
therein the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay
rent or quit, or to perform or quit, as the case may be, given to Lessee
under any statute authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period purposes
required by subparagraphs 13.1(b), (c) or (d). In such case, the applicable
grace period under subparagraphs 13.1(b), (c) or (d) and under the unlawful
detainer statute shall run concurrently after the one such statutory notice,
and the failure of Lessee to cure the Default within the greater of the two
such grace periods shall constitute both an unlawful detainer and a Breach of
this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach
and abandonment and recover the rent as it becomes due, provided Lessee has
the right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver
to protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of
which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS,"
shall be deemed conditioned upon Lessee's full and faithful performance of
all of the terms, covenants and conditions of this Lease to be performed or
observed by Lessee during the term hereof as the same may be extended. Upon
the occurrence of a Breach of this Lease by Lessee, as defined in Paragraph
13.1, any such inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other
charge, bonus, inducement or consideration theretofore abated, given or paid
by Lessor under such an Inducement Provision shall be immediately due and
payable by Lessee to Lessor, and recoverable by Lessor as additional rent due
under this Lease, notwithstanding any subsequent cure of said Breach by
Lessee. The acceptance by Lessor of rent or the cure of the Breach which
initiated the operation of this Paragraph shall not be deemed a waiver by
Lessor of the provisions of this Paragraph unless specifically so stated in
writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that IF the
nature of Lessor's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Lessor shall
not be in breach of this Lease if performance is commenced within such thirty
(30) day period and thereafter diligently pursued to completion.
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14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "CONDEMNATION"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the Premises, or more than twenty-five percent
(25%) of the land area not occupied by any building, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing
within ten (10) days after Lessor shall have given Lessee written notice of
such taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession) terminate this Lease as of
the date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced in the same proportion as the
rentable floor area of the Premises taken bears to the total rentable floor
area of the building located on the Premises. No reduction of Base Rent shall
occur if the only portion of the Premises taken is land on which there is no
building. Any award for the taking of all or any part of the Premises under
the power of eminent domain or any payment made under threat of the exercise
of such power shall be the property of Lessor, whether such award shall be
made as compensation for diminution in value of the leasehold or for the
taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for
Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the
event that this Lease is not terminated by reason of such condemnation,
Lessor shall to the extent of its net severance damages received, over and
above the legal and other expenses incurred by Lessor in the condemnation
matter, repair any damage to the Premises caused by such condemnation, except
to the extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall be responsible for the payment of any amount in
excess of such net severance damages required to complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually
designate in writing, a fee as set forth in a separate written agreement
between Lessor and said Brokers (or in the event there is no separate written
agreement between Lessor and said Brokers, the sum of $ ) for brokerage
services rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) or any Option subsequently granted which is substantially
similar to an Option granted to Lessee in this Lease, or (b) if Lessee
acquires any rights to the Premises or other premises described in this Lease
which are substantially similar to what Lessee would have acquired had an
Option herein granted to Lessee been exercised, or (c) if Lessee remains in
possession of the Premises, with the consent of Lessor, after the expiration
of the term of this Lease after having failed to exercise an Option, or (d)
if said Brokers are the procuring cause of any other lease or sale entered
into between the Parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, or (e) if Base Rent is increased,
whether by agreement or operation of an escalation clause herein, then as to
any of said transactions, Lessor shall pay said Brokers a fee in accordance
with the schedule of said Brokers in effect at the time of the execution of
this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent
of its interest in any commission arising from this Lease and may enforce
that right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation
of this Lease and/or the consummation of the transaction contemplated hereby,
and that no broker or other person, firm or entity other than said named
Brokers is entitled to any commission or finder's fee in connection with said
transaction. Lessee and Lessor do each hereby agree to indemnify, protect,
defend and hold the other harmless from and against liability for
compensation or charges which may be claimed by any such unnamed broker,
finder or other similar party by reason of any dealings or actions of the
indemnifying Party, including any costs, expenses, attorneys' fees reasonably
incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in
form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and
all Guarantors of Lessee's performance hereunder shall deliver to any
potential lender or purchaser designated by Lessor such financial statements
of Lessee and such Guarantors as may be reasonably required by such lender or
purchaser, including but not limited to Lessee's financial statements for the
past three (3) years. All such financial statements shall be received by
Lessor and such lender or purchaser in confidence and shall be used only for
the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior
Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to
be performed by the Lessor shall be binding only upon the Lessor as herein-
above defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but
not exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service)
or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this
Lease shall be that Party's address for delivery or mailing of notice
purposes. Either Party may by written notice to the other specify a different
address for notice purposes, except that upon Lessee's taking possession of
the Premises, the Premises shall constitute Lessee's address for the purpose
of mailing or delivering notices to Lessee. A copy of all notices required or
permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by
regular mail the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours
after delivery of the same to the United States Postal Service or courier. If
any notice is transmitted by facsimile transmission or similar means, the
same shall be deemed served or delivered upon telephone confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Sunday or legal holiday, it
shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any preceding Default or Breach by Lessee of any provision hereof, other than
the failure of Lessee to pay the particular rent so accepted. Any payment
given Lessor by Lessee may be accepted by Lessor on account of moneys or
damages due Lessor, notwithstanding any qualifying statements or conditions
made by Lessee in connection therewith, which such statements and/or
conditions shall be of no force or effect whatsoever unless specifically
agreed to in writing by Lessor at or before the time of deposit of such
payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
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26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now
or hereafter placed by Lessor upon the real property of which the Premises
are a part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor
under this Lease, but that in the event of Lessor's default with respect to
any such obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of Lessor's default
and allow such Lender thirty (30) days following receipt of such notice for
the cure of said default before invoking any remedies Lessee may have by
reason thereof. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of
the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device,
and that in the event of such foreclosure, such new owner shall not: (i) be
liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets
or defenses which Lessee might have against any prior lessor, or (iii) be
bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving assurance (a "non-disturbance agreement")
from the Lender that Lessee's possession and this Lease, including any
options to extend the term hereof, will not be disturbed so long as Lessee is
not in Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection
with a sale, financing or refinancing of the Premises, Lessee and Lessor
shall execute such further writings as may be reasonably required to
separately document any such subordination or non-subordination, attornment
and/or non-disturbance agreement as is provided for herein.
31. ATTORNEY'S FEES. IF any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party
(AS hereafter defined) or Broker in any such proceeding, action, or appeal
thereon, shall be entitled to reasonable attorney's fees. Such fees may be
awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term,
"PREVAILING PARTY" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be,
whether by compromise, settlement, judgment, or the abandonment by the other
Party or Broker of its claim or defense. The attorney's fee award shall not
be computed in accordance with any court fee schedule, but shall be such as
to fully reimburse all attorney's fees reasonably incurred. Lessor shall be
entitled to attorney's fees, costs and expenses incurred in the preparation
and service of notices of Default and consultations in connection therewith,
whether or not a legal action is subsequently commenced in connection with
such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part, as Lessor may reasonably deem necessary.
Lessor may at any time place on or about the Premises or building any
ordinary "For Sale" signs and Lessor may AT any time during the last one
hundred twenty (120) days of the term hereof place on or about the Premises
any ordinary "For Lease" signs. All such activities of Lessor shall be
without abatement OF rent or liability to Lessee.
33. AUCTIONS. LESSEE shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the
roof) such signs as are reasonably required to advertise Lessee's own
business. The installation of any sign on the Premises by or for Lessee shall
be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility
Installations, Trade Fixtures and Alterations). Unless otherwise expressly
agreed herein, Lessor reserves all rights to the use of the roof and the
right to install, and all revenues from the installation of, such advertising
signs on the Premises, including the roof, AS do not unreasonably interfere
with the conduct of Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or A termination hereof by Lessor for
breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one
or all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by
written notice to the holder of any such lesser interest, shall constitute
Lessor's election to have such event constitute the termination of such
interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act
by or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of
a Hazardous Substance, practice or storage tank, shall be paid by Lessee to
Lessor upon receipt of an invoice and supporting documentation therefor.
Subject to Paragraph 12.2(e) (applicable to assignment or subletting), Lessor
may, as a condition to considering any such request by Lessee, require that
Lessee deposit with Lessor an amount of money (in addition to the Security
Deposit held under Paragraph 5) reasonably calculated by Lessor to represent
the cost Lessor will incur in considering and responding to Lessee's request.
Except as otherwise provided, any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment
of this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgement that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the
time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in
the form most recently published by the American Industrial Real Estate
Association, and each said Guarantor shall have the same obligations as
Lessee under this Lease, including but not limited to the obligation to
provide the Tenancy Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give:
(a) evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and
including in the case of a corporate Guarantor, a certified copy of a
resolution of its board of directors authorizing the making of such guaranty,
together with a certificate of incumbency showing the signature of the
persons authorized to sign on its behalf, (b) current financial statements of
Guarantor as may from time to time be requested by Lessor, (c) a Tenancy
Statement, or (d) written confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property
of Lessor; (b) the right of first refusal to lease the Premises or the right
of first offer to lease the Premises or the right of first refusal to lease
other property of Lessor or the right of first offer to lease other property
of Lessor; (c) the right to purchase the Premises, or the right of first
refusal to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any
person or entity other than said original Lessee while the original Lessee.
Initials_____
_____
GROSS PAGE 9
<PAGE>
is in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease
in any manner, by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of
time any monetary obligation due Lessor from Lessee is unpaid (without regard
to whether notice thereof is given Lessee), or (iii) during the time Lessee
is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of Default under Paragraph 13.1, whether or
not the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of Default under Paragraph
13.1 during any twelve (12) month period, whether or not the Defaults are
cured, or (iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe
all reasonable rules and regulations which Lessor may make from time to time
for the management, safety, care, and cleanliness of the grounds, the parking
and unloading of vehicles and the preservation of good order, as well as for
the convenience of other occupants or tenants of such other buildings and
their invitees, and that Lessee will pay its fair share of common expenses
incurred in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide
same. Lessee assumes all responsibility for the protection of the Premises,
lessee, its agents and invitees and their property from the acts of third
parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute
and deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED
SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at South El Monte, California Executed at South El Monte, California
--------------------------- --------------------------
on December 4, 1995 on December 4, 1995
--------------------------- --------------------------
by LESSOR: by LESSEE:
Ronald G. Lee Lee Pharamceuticals
--------------------------- --------------------------
President Michael L. Agresti
--------------------------- --------------------------
By /s/ Ronald G. Lee By /s/ Michael L. Agresti
_____________________________________ ____________________________________
Name Printed: Ronald G. Lee Name Printed: Lee Pharmaceuticals
Michael Agresti
Title: President Title: Vice President - Finance
--------------------------- --------------------------
By_____________________________________ By____________________________________
Name Printed:__________________________ Name Printed:_________________________
Title:_________________________________ Title:________________________________
Address:_______________________________ Address:______________________________
_______________________________________ ______________________________________
Tel. No.(___)________Fax No.(___)______ Tel. No.(___)________Fax No.(___)_____
GROSS PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 700 South Flower Street, Suite 600, Los Angeles, CA
90017. (213) 687-8777. Fax No. (213) 687-8616.
-C- COPYRIGHT 1990 - BY AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION. ALL RIGHTS RESERVED.
NO PART OF THESE WORKS MAY BE REPRODUCED
IN ANY FORM WITHOUT PERMISSION IN WRITING. FORM 105G-R-12/91
<PAGE>
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
Dated December 1, 1995
By and Between Ronald G. Lee, LESSOR
and Lee Pharmaceuticals, LESSEE
49. Lessee agrees to accept the premises "as is". Any alterations or
improvements shall be done at Lessee's sole cost and expense.
50. Addendum to Lease: The parties hereto agree that the Addendum to this
Lease attached hereto has been executed concurrently with the execution of
this Lease and made a part of the same by reference.
51. Security Deposit: There is no security deposit required for the Lease of
building per Paragraph #5 of this Lease.
<PAGE>
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
Dated December 1, 1995
By and Between Ronald G. Lee, LESSOR
and Lee Pharmaceuticals, LESSEE
52. RENT ESCALATION
(a) On April 1, 1997, April 1, 1999, April 1, 2001, April 1, 2003, April 1,
2005, Option period April 1, 2007, April 1, 2009
the monthly rent payable under paragraph 4 of the attached Lease shall be
adjusted by the increase, if any, from the date this Lease commenced, in the
Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department
of Labor for all Urban Consumers Los Angeles-Long Beach-Anaheim, California
(1967=100), "All Items", herein referred to as "C.P.I."
(b) The monthly rent, payable in accordance with paragraph (a) of this
Addendum shall be calculated as follows: the rent payable for the first month
of the term of this Lease, as set forth in paragraph 4 of the attached Lease,
shall be multiplied by a fraction the numerator of which shall be the C.P.I.
of the calendar month during which the adjustment is to take effect, and the
denominator of which shall be the C.P.I. for the calendar month in which the
original Lease term commences. The sum so calculated shall constitute the new
monthly rent hereunder, but in no event, shall such new monthly rent be less
than the rent payable for the month immediately preceding the date for rent
adjustment.
(c) Pending receipt of the required C.P.I. and determination of the actual
adjustment, Lessee shall pay an estimated adjusted rental, as reasonably
determined by Lessor by reference to the then available C.P.I. information.
Upon notification of the actual adjustment after publication of the required
C.P.I., any overpayment shall be credited against the next installment of rent
due, and any underpayment shall be immediately due and payable by Lessee.
Lessor's failure to request payment of an estimated or actual rent adjustment
shall not constitute a waiver of the right to any adjustment provided for in
the Lease or this addendum.
(d) In the event the compilation and/or publication of the C.P.I. shall be
transferred to any other governmental department or bureau or agency or shall
be discontinued, then the Index most nearly the same as the C.P.I. shall be
used to make such calculation. In the event that Lessor and Lessee cannot
agree on such alternative index, then the matter shall be submitted for
decision to the American Arbitration Association in accordance with the then
rules of said association and the decision of the arbitrators shall be
binding upon the parties. The cost of said Arbitrators shall be paid equally
by Lessor and Lessee.
53. OPTION TO EXTEND TERM:
Providing Lessee is not in default of any of the provisions of this
Lease, either at the time of the exercise of the option or at the time of the
commencement of the applicable extension period hereunder, Lessee may elect
to extend the term of this Lease for one (1) additional five (5) year period
by delivering to Lessor at least one hundred eighty (180) days before the end
of the original term a written notice of such election; otherwise this
extension agreement will therefore become null and void. The term of this Lease
shall thereupon be extended in accordance with Lessee's election, which
extension period shall begin on the day immediately following the last day of
the original term of the Lease. The extension periods hereunder shall be
subject to all the terms and conditions of this lease, except that the basic
rent for the five (5) year extension period shall be increased by the
percentage increase in the U.S. Department of Labor's Consumer Price Index Los
Angeles/Long Beach/Anaheim area (All Items) - All Urban Consumers ("Index") as
designated in RENT ESCALATION ADDENDUM Paragraph # 52.
54. Lessee agrees to indemnify the Lessor (owner) of any and all claims
regarding water contamination, pollution, etc. in consideration of lessor
buying the building.
Initials: _____ Initials_____
_____ _____
RENT ESCALATIONS
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<PAGE>
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0
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