U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ___________ to ____________.
Commission File Number 0-21221
MICROVISION, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Washington 91-1600822
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
2203 Airport Way South, Suite 100, Seattle, Washington 98134
(Address of Principal Executive Offices)
Issuer's telephone number, including area code: (206) 623-7055
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________
As of September 30, 1998, 6,023,326 shares of the Company's common stock, no par
value, were outstanding.
Transitional Small Business Disclosure Format: Yes_____ No __X__
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PART I
FINANCIAL INFORMATION
Page
----
Item 1 - Financial Statements
Balance Sheet at September 30, 1998 and December 31, 1997 3
Statement of Operations for the three and nine months ended 4
September 30, 1998 and 1997
Statement of Cash Flows for the nine months ended 5
September 30, 1998 and 1997
Statement of Comprehensive Loss for the three months 6
and nine months ended September 30, 1998 and 1997
Notes to Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 2 - Change in Securities and Use of Proceeds 18
Item 3 - Defaults Upon Senior Securities 18
Item 4 - Submission of Matters to a Vote of Security Holders 18
Item 5 - Other Information 19
Item 6 - Exhibit and Reports on Form 8-K 19
2
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MICROVISION, INC.
<TABLE>
Balance Sheet
<CAPTION>
September 30, December 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,935,000 $ 5,049,200
Investment securities available-for-sale 800,000 3,792,000
Accounts receivable, net 1,336,100 150,000
Costs and estimated earnings in excess
OF billings on uncompleted contracts 364,800 843,800
Other current assets 155,500 113,100
----------- -----------
Total current assets 6,591,400 9,948,100
Property and equipment, net 1,365,100 772,700
Other assets 110,300 20,000
----------- -----------
$ 8,066,800 $10,740,800
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,148,300 $ 768,200
Accrued liabilities 1,320,400 715,900
Billings in excess of costs and
estimated earnings on uncompleted contracts 476,600 -
Current portion of capital lease obligations 95,200 22,700
----------- -----------
Total current liabilities 3,040,500 1,506,800
----------- -----------
Capital lease obligations,
net of current portion 222,400 69,600
----------- -----------
Shareholders' Equity
Common stock 25,504,800 25,375,300
Deferred compensation (202,200) (701,200)
Unrealized holding loss
on investment securities - (1,200)
Accumulated deficit (20,498,700) (15,508,500)
----------- -----------
Total shareholders' equity 4,803,900 9,164,400
----------- -----------
$ 8,066,800 $10,740,800
=========== ===========
See accompanying notes to financial statements.
</TABLE>
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MICROVISION, INC.
<TABLE>
Statement of Operations
(Unaudited)
<CAPTION>
Three months ended September 30, Nine months ended September 30,
------------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Contract revenue $ 1,818,800 $ 750,300 $ 5,582,900 $ 852,500
Research and development expense 2,529,500 1,362,600 7,315,300 2,946,000
Marketing, general and
administrative expense 976,000 702,900 3,490,600 2,110,100
----------- ----------- ----------- -----------
Total expenses 3,505,500 2,065,500 10,805,900 5,056,100
----------- ----------- ----------- -----------
Loss from operations (1,686,700) (1,315,200) (5,223,000) (4,203,600)
Other income - - - 222,500
Interest income 67,600 143,600 257,100 476,700
Interest expense (11,400) (400) (24,300) (1,700)
----------- ----------- ----------- -----------
Net loss $(1,630,500) $(1,172,000) $(4,990,200) $(3,506,100)
=========== =========== =========== ===========
Net loss per share $ (0.27) $ (0.20) $ (0.84) $ (0.61)
=========== =========== =========== ===========
Weighted average shares outstanding 6,016,400 5,791,700 5,975,400 5,784,300
=========== =========== =========== ===========
Net loss per share assuming dilution $ (0.27) $ (0.20) $ (0.84) $ (0.61)
=========== =========== =========== ===========
Weighted average shares outstanding
assuming dilution 6,016,400 5,791,700 5,975,400 5,784,300
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
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MICROVISION, INC.
<TABLE>
Statement of Cash Flows
(Unaudited)
<CAPTION>
Nine months ended September 30,
------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $(4,990,200) $ (3,506,100)
Adjustments to net cash used in operations:
Depreciation 350,900 84,900
Non-cash expenses related to issuance of stock,
warrants and options and deferred compensation 396,400 86,400
Changes in:
Accounts receivable (1,186,100) (238,800)
Costs and expenses in excess of billings 479,000 -
Other current assets (42,400) (458,900)
Other assets (90,300) 16,400
Accounts payable 380,100 2,200
Accrued liabilities 604,500 (31,200)
Billings in excess of costs and expenses 476,600 -
----------- ------------
Net cash used in operating activities (3,621,500) (4,045,100)
----------- ------------
Cash flows from investing activities:
Sales of investment securities, net 2,993,200 -
Purchases of property and equipment (676,600) (383,000)
----------- ------------
Net cash provided by (used in) investing activities 2,316,600 (383,000)
----------- ------------
Cash flows from financing activities:
Principal payments on capital leases (41,400) -
Issuance of common stock 232,100 184,200
----------- ------------
Net cash provided by financing activities 190,700 184,200
----------- ------------
Net decrease in cash and cash equivalents (1,114,200) (4,243,900)
Cash and cash equivalents at beginning of period 5,049,200 14,265,800
----------- ------------
Cash and cash equivalents at end of period $ 3,935,000 $ 10,021,900
=========== ============
Non-Cash Investing and Financing Activities
(Unaudited)
Property and equipment acquired
under capital lease agreements $ 266,700 $ -
=========== ============
Reversal of deferred compensation $ 137,300 $ -
=========== ============
</TABLE>
See accompanying notes to financial statements.
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MICROVISION, INC.
<TABLE>
Statement of Comprehensive Loss
(Unaudited)
<CAPTION>
Three months ended September 30, Nine months ended September 30,
------------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(1,630,500) $(1,172,000) $(4,990,200) $(3,506,100)
Other comprehensive income:
Unrealized gain on investment
securities available-for-sale 4,700 - 1,200 -
----------- ----------- ----------- -----------
Comprehensive loss $(1,625,800) $(1,172,000) $(4,989,000) $(3,506,100)
=========== =========== =========== ===========
</TABLE>
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MICROVISION, INC.
Notes to Financial Statements
September 30, 1998
Management's Statement
The accompanying unaudited financial statements of Microvision, Inc. (the
"Company") at September 30, 1998 and for the three and nine month periods ended
September 30, 1998 have been prepared in accordance with generally accepted
accounting principles for interim financial information on a basis consistent
with the audited financial statements of the Company for the twelve month period
ended December 31, 1997. These statements include all adjustments (consisting
only of normal recurring accruals) that, in the opinion of the Company's
management, are necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented. The interim
results are not necessarily indicative of results that may be expected for a
full year and should be read in conjunction with MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS set forth herein and
with the Company's audited financial statements for the year ended December 31,
1997, which are included in the Company's Annual Report on Form 10-KSB as filed
with the Securities and Exchange Commission.
Non-Recourse Receivables Assignment Facility
The Company has established a non-recourse receivables assignment facility
(the "Facility") with a financial institution. The Facility allows the Company
to assign accounts receivable to the financial institution on a non-recourse
basis for cash. The maximum amount of assigned but uncollected receivables at
any one time is $2,500,000. The Facility, which carries an administration fee
and an interest discount, expires on September 24, 1999. As of September 30,
1998, approximately $1,500,000 of receivables were assigned under this Facility
and were recorded by the Company as a reduction of trade accounts receivable.
Computation of Net Loss Per Share
Net loss per share and net loss per share assuming dilution information is
computed using the weighted average number of shares of common stock outstanding
during each period in which the Company reports a loss. Common equivalent shares
issuable upon the exercise of outstanding options and warrants to purchase
shares of the Company's common stock (using the treasury stock method) are not
included in the calculation of the net loss per share and net loss per share
assuming dilution because the effect of their inclusion is anti-dilutive.
7
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Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
The information set forth in this Item 2 contains forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Such statements may include, but are not limited to,
projections of revenues, income, or loss, capital expenditures, plans for
product development and cooperative arrangements, future operations, financing
needs or plans of the Company, as well as assumptions relating to the foregoing.
With respect to the discussion below under "Year 2000," factors that could
affect the actual results include the possibility that remediation programs will
not operate as intended, the Company's failure to timely or completely identify
all software or hardware applications requiring remediation, unexpected costs,
and the uncertainty associated with the impact of year 2000 issues on the
Company's customers, vendors and others with whom it does business. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements, which speak only as of the date
the statement was made. Such statements are inherently subject to risks and
uncertainties as further described herein and in the "Considerations Related to
the Company's Business" section of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997, as filed with the Securities and Exchange
Commission. The Company's actual results may differ materially from the results
projected in the forward-looking statements.
Overview
The Company commenced operations in May 1993 to develop and commercialize
technology for displaying images and information onto the retina of the viewer's
eye. In 1993, the Company acquired an exclusive license (the "Exclusive
License") to the Virtual Retinal Display(TM) technology ("VRD"(TM)) from the
University of Washington and entered into a research agreement (the "Research
Agreement") with the University of Washington to further develop the VRD
technology. The Company was in the development stage as of and for the period
ended December 31, 1996. In connection with its development activities, the
Company incurred costs to incorporate and establish its business activities as
well as develop and market VRD technology. As of December 31, 1997, the Company
was no longer considered a development stage enterprise. Since the completion of
its initial public offering in August 1996, the Company also has established and
equipped its own in-house laboratory for the continuing development of the VRD
technology and has transferred the core research and development work from the
University of Washington's Human Interface Technology Lab to the Company. The
Company has incurred substantial losses since its inception and expects to
continue to incur significant operating losses over the next several years.
The Company's objective is to be a leading provider of personal display
products and imaging technology in a broad range of professional and consumer
applications. The Company expects to achieve this objective and to generate
revenues through a combination of the following activities: technology licensing
to original equipment manufacturers ("OEMs") of consumer electronics products;
provision of engineering services associated with cooperative product
development arrangements and research contracts; and the manufacture and sale of
high-performance personal display products to professional users directly and
through OEMs and through joint ventures.
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The Company is in discussions with systems and equipment manufacturers in
the defense and wireless communications, computing, and commercial and consumer
electronics industries concerning the potential development of or co-development
of specific products that the Company believes to be the most commercially
viable.
To date, the Company's revenues have been derived from development
contracts with both commercial and government customers. Revenues from sales of
products may not occur for several years.
The Company currently has several prototype versions of the VRD including
monochromatic and color portable units and a full-color bench-top model. The
Company plans to continue funding prototype and demonstration versions of
products incorporating the VRD technology throughout 1998 and 1999. Future
revenues, profits and cash flow, and the Company's ability to achieve its
strategic objectives as described herein will depend upon a number of factors,
including acceptance of the VRD technology by various industries and OEMs,
market acceptance of products incorporating the VRD technology and the technical
performance of such products. Additionally, the Company must be able to attract,
retain and motivate qualified technical and management personnel and anticipate
and adapt to a rapidly changing, competitive market for information display
technologies.
Plan of Operation
The Company intends to continue entering into strategic co-development
relationships with systems and equipment manufacturers to pursue the development
of commercial products incorporating VRD technology. The Company continues to
identify, assess and pursue various market and product opportunities available
to the Company for the commercialization of the VRD technology and to identify
and evaluate potential co-development partners. The Company plans to continue to
expand its sales and marketing staff in support of its objective of
commercializing the VRD technology.
The Company also plans to continue investing in ongoing innovation and
improvements to the VRD technology, including the development of component
technology and additional prototypes, as well as design of subsystems and
products. The Company has established, staffed, and equipped an in-house
laboratory to support VRD technology development and product development
engineering associated with current and potential future development contracts.
The Company plans to continue hiring technical personnel to achieve the
Company's technology development objectives and to continue performing on the
Company's development contracts.
Results of Operations
The Company's revenues have been derived generally from development
contracts with both commercial and government customers. As of September 30,
1998, the Company had an accumulated deficit since inception of $20.5 million.
The Company expects to continue and to increase expenditures in research and
development as well as in sales, marketing and administration as it continues to
focus its efforts on further development and refinement of the VRD technology
and as it continues to pursue commercialization of the VRD technology.
9
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THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1997
Revenue in the three months ended September 30, 1998 increased $1,068,500
to $1,818,800 or 142% from $750,300 in the comparable period in 1997. The
revenue for the period ended September 30, 1998 was derived from contracts into
which the Company entered during both 1997 and the current year.
Research and development expenses in the three months ended September 30,
1998 increased $1,166,900 or 86% to $2,529,500 from $1,362,600 in the comparable
period in 1997. In the period ended September 30, 1997, the Company made a
payment of $320,800 to the University of Washington pursuant to the Research
Agreement. The balance of the expenses of $2,529,500 and $1,041,800 in the
periods ended September 30, 1998 and 1997, respectively, was incurred directly
by the Company in part to further develop the VRD technology.
The increase in research and development expenses of $1,166,900 for the
quarter ended September 30, 1998 over the comparable period in 1997 reflects
continued implementation of the Company's operating plan, which calls for
building its technical staff, supporting activities to further develop the
Company's technology, establishing and equipping its own in-house laboratory,
and performing work in support of the Company's sales and marketing activities
related to the commercialization of the VRD technology. The increase also
includes increased costs incurred in the performance of contracts.
In 1997, the Company made the final payment due under its Research
Agreement with the University of Washington, which resulted in the Company
having paid in full the $5.1 million license fee due under its exclusive license
for the VRD technology. In September 1997, the Company and the UW agreed to
extend the term of the Research Agreement from October 31, 1997 to March 31,
1998 at no additional cost to the Company. In March 1998, the Company and the UW
agreed to extend the term of the Research Agreement from March 31, 1998 to
December 31, 1998, at no additional cost to the Company. The extension is
expected to enable the UW to complete performance of certain research activities
under the Research Agreement.
The Company expects its research and development expenses to increase in
the future over prior periods. In addition to costs associated with performing
on contracts, the Company plans to continue to build its technical staff and
research capabilities in support of current and potential future contracts, to
expand internal research and development activities, to increase technical
support of sales and marketing efforts, and to prepare for performing on future
contracts relating to the commercialization of the VRD technology.
Marketing, general and administrative expenses in the three months ended
September 30, 1998 increased $273,100 or 39% to $976,000 from $702,900 in the
comparable period in 1997. The increase includes increased aggregate
compensation and associated support costs for employees including those employed
at September 30, 1997 and those hired subsequent to that date in sales and
marketing and in administration. The Company expects marketing, general and
administrative expenses to increase in future periods as the Company makes
additional investments in sales and marketing activities to promote its VRD
technology and anticipated
10
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products, and as it adds to its sales and marketing and administrative staff
and increases the level of corporate and administrative activity.
Net interest income in the three months ended September 30, 1998 was
$56,200 compared to net interest income of $143,200 in the comparable period of
1997. This decrease was due principally to lower average cash balances in the
three months ended September 30, 1998, compared to the same period in 1997,
representing the remaining net proceeds received by the Company from its initial
public offering in August 1996.
During the quarter the Company demonstrated a microminiature scanner that
represents a breakthrough for a wide variety of next-generation display and
imaging products. The development is significant because of the degree of system
miniaturization it enables, and because it has the potential to afford
significant production economies through the use of highly automated batch
fabrication techniques. The patented device, in which optical surfaces and small
hinges are formed on silicon wafers using semiconductor fabrication techniques,
is an example of a technology known as microelectromechanical systems or MEMS.
While the technology will initially be used in the Company's Virtual Retinal
Display system, the device can also be used as an optical sensor or camera by
rapidly scanning light reflected from the surface of an object onto a
photoreceptor.
Also during the quarter ended September 30, 1998 the Company announced that
it had successfully conducted its first demonstrations of a laser projection
television display using the same principles as the Company's technology. The
full color 17" image projected by the prototype system has the resolution of a
VGA computer monitor and provides full motion video. With additional
development, the Company plans to increase the size of the projected image and
to improve resolution to extremely high levels. This application reflects the
Company's plans to leverage its display and imaging technology to enable a
breadth of applications.
In August, the Company delivered its second helmet mounted display (HMD) to
Saab AB and Ericcsson Saab Avionics AB for evaluation in their aircraft
simulators. The prototype - a full color high resolution HMD system uses the
Company's VRD technology to allow superior image fidelity for fighter pilots.
This latest prototype supports the on-going effort between the Company and Saab
AB and Ericcsson Saab Avionics to evaluate the VRD technology for HMD's for use
in fighter aircraft. The delivery demonstrates the Company's ability to meet the
technology requirements of providing exceptional color and resolution -- not
obtainable by commercial display technologies - to the industry's leading
defense and aerospace companies.
The Company continues to increase its intellectual property (IP) portfolio
both related to its proprietary VRD technology and in other technologies. Rapid
growth of the IP portfolio is a part of the Company's marketing strategy and
aggressive micro-display technology research and development efforts.
11
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In September, the Company announced it had filed eight new patent
applications covering a wide range of optics and scanning technologies. With the
new applications, the Company holds exclusive rights to 11 issued patents and
34 pending U.S. patents as well as rights to a number of non-U.S. patent
applications.
Recent Events
Subsequent to September 30, 1998, the Company announced that it had entered
into a contract with the Wallace-Kettering Neuroscience Institute to collaborate
on the design and manufacture of an advanced head-wearable display for use in
neurosurgery. The display, which will incorporate Microvision's VRD technology,
is expected to allow surgeons to view anatomical images and other relevant data
during surgery. Unlike current surgical displays, Microvision's head-wearable
system is expected to provide "see-through" readability at SVGA resolution and a
high brightness level to allow the surgeon to easily access information while
simultaneously performing the surgical procedure. In addition, the system's full
color palette and high contrast level is expected to enable the surgeon to see
true tissue differentiation. The contract calls for the Company to deliver the
first version of the device by the third quarter of 1999.
Also subsequent to the end of the quarter, the Company entered into a
contract to develop a lightweight, head-wearable display for the U.S. Navy. The
VRD enabled display will be used on naval vessels to provide an enhanced user
interface to complex on-board information systems. Under the initial phase of
the development effort, the Company will deliver a prototype display for sea
trial testing as early as December 1998.
Also subsequent to the end of the quarter, the Company announced the
addition of Admiral William Owens and Doug Trumbull to the board of directors.
Owens is currently the vice chairman of Teledesic, a telecommunications services
company. Admiral Owens has also served as Vice Chairman of the Joint Chiefs of
Staff, the second highest ranking military officer in the United States.
Trumbull is a leading innovator in visual effects. With a career in the
entertainment business spanning over 30 years, he is currently the President and
CEO of Entertainment Design Workshop of Sheffield, Mass.
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NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
TO NINE MONTHS ENDED SEPTEMBER 30, 1997
Revenue in the nine months ended September 30, 1998 increased by $4,730,400
or 555% to $5,582,900 from $852,500 in the comparable period in 1997. The
revenue for the period ended September 30, 1998 was derived from contracts into
which the Company entered during both 1997 and the current year.
Research and development expenses in the nine months ended September 30,
1998 increased by $4,369,300 or 148% to $7,315,300 from $2,946,000 in the
comparable period in 1997. In the period ended September 30, 1997, the Company
made payments totaling $962,400 to the University of Washington pursuant to the
Research Agreement. The balance of the expenses of $7,315,300 and $1,983,600 in
the periods ended September 30, 1998 and 1997, respectively, were incurred
directly by the Company in part to further develop the VRD technology.
The increase in research and development expenses of $4,369,300 for the
nine months ended September 30, 1998 over the comparable period in 1997 reflects
continued implementation of the Company's operating plan, which calls for
building its technical staff, supporting activities to further develop the
Company's technology, establishing and equipping its own in-house laboratory,
and performing work in support of the Company's sales and marketing activities
related to the commercialization of the VRD technology. The increase includes
costs associated with the Company's acquisition of the exclusive license on
certain MEMS based microminiature scanner technology. The increase also includes
increased costs incurred in the performance of contracts.
The Company expects its research and development expenses to increase in
the future over prior periods. In addition to costs associated with performing
on contracts, the Company plans to continue to build its technical staff and
research capabilities in support of current and potential future contracts, to
expand internal research and development activities, to increase technical
support of sales and marketing efforts, and to prepare for performing on future
contracts relating to the commercialization of the VRD technology.
Marketing, general and administrative expenses in the nine months ended
September 30, 1998 increased $1,380,500 or 65% to $3,490,600 from $2,110,100 in
the comparable period in 1997. The increase includes increased aggregate
compensation and associated support costs for employees including those employed
at September 30, 1997 and those hired subsequent to that date in sales and
marketing and in administration. The Company expects marketing, general and
administrative expenses to increase in future periods as the Company makes
additional investments in sales and marketing activities to promote its VRD
technology and anticipated products and as it adds to its sales and marketing
and administrative staff and increases the level of corporate and administrative
activity.
Other income for the nine months ended September 30, 1997 was $222,500,
which resulted from the reduction of an accrued liability for litigation upon
settlement of the matter at a lesser amount than the established reserve.
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Net interest income in the nine months ended September 30, 1998 was
$232,800 compared to net interest income of $475,000 in the comparable period of
1997. This decrease was due principally to lower average cash balances in the
nine months ended September 30, 1998, as compared to the same period in 1997,
representing the remaining net proceeds received by the Company from its initial
public offering in August 1996.
LIQUIDITY AND CAPITAL RESOURCES
From inception through July 1996, the Company financed its operations
primarily through private equity sales and a private placement of convertible
subordinated notes. In August 1996, the Company completed its initial public
offering of 2,250,000 units, each unit consisting of one share of common stock
and one five-year redeemable warrant to purchase one share of common stock at
$12.00 per share. The Company received net proceeds from the offering of
approximately $15.5 million after deducting underwriting discounts and offering
expenses.
At September 30, 1998 the Company had $4.7 million in combined cash, cash
equivalents and investment securities available-for-sale. The Company believes
that these funds together with revenue earned on contracts will satisfy its
budgeted cash requirements for several quarters based on the Company's current
operating plan. Actual expenses, however, may exceed the amounts budgeted, and
will depend, in part, on the opportunities that arise for commercialization of
the VRD technology. The Company may require additional capital earlier to
develop products, to respond to competitive pressures, to meet unanticipated
development difficulties, or for other working capital purposes. There can be no
assurance that any additional financing will be available when needed or, if
available, on terms satisfactory to the Company.
During the quarter ended September 30, 1998, the Company established a
non-recourse receivables assignment facility with a financing institution to
facilitate the Company's working capital requirements. During the quarter,
approximately $1,500,000 of receivables were assigned to the financing
institution for cash.
Subsequent to September 30, 1998, the Company entered into a lease for
office space to house the Company's operations over the longer term by providing
space to accommodate planned growth in staff, lab and production space
requirements. Under the terms of the lease, the Company would lease between
92,000 square feet and 101,000 square feet in two commitments over the first
four years of the seven year term of the lease. Based on the initial commitment
of approximately 67,500 square feet, the base rent expense during the first year
of occupancy is at approximately $861,000, increasing to approximately $931,000
in the second year. The proposed lease is a triple net lease, which requires the
Company to pay operating expenses in addition to the base rent. The lease terms
include an option for the Company to extend the initial lease term for one
period of five years, a second option to extend for an additional period of two
years, and other options to acquire additional space should the need arise. The
terms of the lease require the Company to provide the landlord with a lease bond
in the amount of $1,150,000 as credit enhancement for the lease. The requirement
for the lease bond can be eliminated when the Company meets certain financial
criteria as described in the lease. In addition, the Company has
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the option to finance up to $420,000 of tenant improvements through the
landlord. Should it exercise all or part of this election, the Company would be
required to provide the landlord with a letter of credit to support such
borrowing. Occupancy is expected late in the first quarter of 1999. The
effectiveness of the lease is conditioned on the approval of the board of
directors of the landlord.
The Company's future expenditures and capital requirements will depend on
numerous factors, including the progress of its research and development
program, the progress in its commercialization activities, the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights, competing technological and market developments and the ability
of the Company to establish cooperative development, joint venture and licensing
arrangements. If the Company is successful in establishing co-development and
joint venture arrangements, it is expected that the Company's partners would
fund certain non-recurring engineering costs for product development.
Nevertheless, the Company expects its cash requirements to increase
significantly each year as it expands its operations.
YEAR 2000 COMPLIANCE STRATEGY
The Company has developed and is implementing a comprehensive strategy for
updating its information technology ("IT") and non-IT systems for Year 2000
("Y2K") compliance. These systems include PC-based hardware, embedded systems,
and enterprise software (available Company-wide) and individual software
(available on a user-by-user basis). The Company's strategy for achieving Y2K
compliance includes evaluating its current systems and software for Y2K
compliance, purchasing new systems and software where necessary and developing
contingency plans for those systems that the Company cannot control.
Essentially all of the Company's IT systems have been purchased within the
last three years. During that period, Y2K compliance has been a consideration in
the purchase of all of the Company's primary IT and non-IT systems. The Company
believes that it has currently reached the following levels of compliance:
------------------------- -------------------
Technology Current level
of compliance
------------------------- -------------------
PC-based hardware 90%
------------------------- -------------------
Embedded systems 25%
------------------------- -------------------
Enterprise software 70%
------------------------- -------------------
Individual software 50%
------------------------- -------------------
The Company has entered into a lease to occupy new premises beginning in
the first half of 1999. See "-Liquidity and Capital Resources." Pursuant to the
terms of the lease, the lessor is responsible for making the systems serving the
facility "Year 2000 Compliant".
The Company's Y2K strategy includes identifying third parties whose failure
to be Y2K compliant could have a material adverse impact on the Company's
operations or financial condition. This process includes examining the Company's
interaction with other IT systems including those of vendors and parties with
which it communicates via e-mail and other information systems. The
15
<PAGE>
Company plans to request a statement from all significant vendors and third
parties reporting their Y2K compliance status. If such vendors or other third
parties raise Y2K compliance concerns, the Company plans to utilize backup
vendors that are Y2K compliant. In addition, the Company plans to request a
statement from all of its customers regarding their levels of Y2K compliance.
The Company presently expects its overall Y2K assessment to be completed
within the first quarter of 1999. There is no assurance, however, that taking
the steps described within the proposed timeframe will ensure complete Y2K
compliance.
To date, the cost of the Company's Y2K compliance strategy has been
immaterial. The Company will have a budget of potential expenditures relating to
its Y2K compliance strategy upon completion of its assessment in the first
quarter of 1999.
The effect on the Company of an internal Y2K failure, a third party Y2K
failure or a combination of internal and external Y2K failures could range from
a minor disruption in the Company's purchases to an extended interruption in the
IT and non-IT systems of third-parties whose operations materially impact the
Company's operations. Such an interruption could result in a material adverse
effect on the Company's operating results and financial position. In addition,
if the Company has a production product by the year 2000, the potential for a
material adverse effect on the Company would increase. There can be no assurance
that such a scenario, or part of such a scenario, will not occur.
The Company's contingency plans for a Y2K disruption of its operations
include making additional purchases from vendors for the 90 day period following
January 1, 2000 in order to insure the availability of materials needed for the
Company to perform on its contractual obligations. The Company is also in the
process of developing backup plans that will enable it to continue operations
with the least amount of downtime and expense. There is no assurance, however,
that such backup plans will enable the Company to avoid a materially adverse
impact on its results of operations in the event of a Y2K disruption.
16
<PAGE>
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to, nor is its property subject to, any
material pending legal proceeding.
Item 2. Changes In Securities and Use of Proceeds
In July 1998, the Company issued 3,500 shares of restricted common
stock to a vendor as compensation for having provided the Company with
exclusive rights to utilize the vendor's services for technology
development projects in the Company's field of use.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders of the Company was held on
October 15, 1998.
Richard F. Rutkowski, Stephen R. Willey, Richard A. Raisig, Jacob
Brouwer, Robert A. Ratliffe, Richard A. Cowell, and Walter J. Lack
were elected as directors for one year terms expiring at the next
annual meeting of shareholders.
The amendment of the Company's 1996 Stock Option Plan to increase the
number of shares of Common Stock reserved for issuance upon exercise
of options granted under the Plan from 750,000 shares to 3,000,000
shares was approved.
The appointment of PricewaterhouseCoopers LLP as independent auditors
of the Company for the year ending December 31, 1998 was approved.
17
<PAGE>
Shareholders cast their votes as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- - ---------------------------- --------- ------- ---------------- ----------------
Nominee/Proposal For Against Abstain/Withhold Broker Non-Votes
- - ---------------------------- --------- ------- ---------------- ----------------
Richard F. Rutkowski 5,088,892 -- 18,716 -
- - ---------------------------- --------- ------- ---------------- ----------------
Stephen R. Willey 5,088,892 -- 18,716 -
- - ---------------------------- --------- ------- ---------------- ----------------
Richard A. Raisig 5,088,892 -- 18,716 -
- - ---------------------------- --------- ------- ---------------- ----------------
Walter J. Lack 5,088,892 -- 18,716 -
- - ---------------------------- --------- ------- ---------------- ----------------
Robert A. Ratliffe 5,088,892 -- 18,716 -
- - ---------------------------- --------- ------- ---------------- ----------------
Richard A. Cowell 5,088,892 -- 18,716 -
- - ---------------------------- --------- ------- ---------------- ----------------
Jacob Brouwer 5,088,792 -- 18,816 -
- - ---------------------------- --------- ------- ---------------- ----------------
Amendment of Stock
Option Plan 1,854,701 309,390 25,267 2,939,492
- - ---------------------------- --------- ------- ---------------- ----------------
Appointment of
PricewaterhouseCoopers LLP 5,088,295 7,455 11,858 -
- - ---------------------------- --------- ------- ---------------- ----------------
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
--------
10.1 Lease between S/I Northcreek II, LLC and Microvision, Inc.,
dated October 27, 1998
10.2 Fourth amendment to office lease between the City of Seattle
and Microvision, Inc. dated July 23, 1998 relating to Suite
100 of office building located at 2203 Airport Way South,
Seattle, Washington 98134
10.3 Microvision, Inc. 1996 Stock Option Plan, as amended
10.4 Non-recourse Receivable Purchase Agreement dated as of
September 25, 1998 between Silicon Valley Financial Services
and Microvision, Inc.
11. Computation of Net Loss Per Share and Net Loss Per Share
Assuming Dilution
27. Financial Data Schedule
18
<PAGE>
b. Reports on Form 8-K
-------------------
During the quarterly period ended September 30, 1998, the
Company filed no Current Reports on Form 8-K.
19
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MICROVISION, INC.
Date: November 16, 1998 RICHARD F. RUTKOWSKI
----------------------------------------
Richard F. Rutkowski
President, Chief Executive Officer
(Principal Executive Officer)
Date: November 16, 1998 RICHARD A. RAISIG
------------------------------------
Richard A. Raisig
Chief Financial Officer
(Principal Financial and
Accounting Officer)
20
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- - ------- -----------
10.1 Lease between S/I Northcreek II, LLC and Microvision, Inc.,
dated October 27, 1998
10.2 Fourth amendment to office lease between the City of Seattle
and Microvision, Inc. dated July 23, 1998 relating to Suite
100 of office building located at 2203 Airport Way South,
Seattle, Washington 98134
10.3 Microvision, Inc. 1996 Stock Option Plan, as amended
10.4 Non-recourse Receivable Purchase Agreement dated as of
September 25, 1998 between Silicon Valley Financial Services
and Microvision, Inc.
11. Computation of Net Loss Per Share and Net Loss Per Share
Assuming Dilution
27. Financial Data Schedule
THIS LEASE ("Lease") dated as of the 27th day of October, 1998, is made by
and between S/I NORTHCREEK II, A WASHINGTON LIMITED LIABILITY COMPANY
("Landlord"), and MICROVISION, INC., A WASHINGTON CORPORATION ("Tenant").
ARTICLE I: DEFINITIONS
1.01 Defined Terms. The following terms shall have the meanings specified
in this Section, unless otherwise specifically provided. Other terms may be
defined in other parts of the Lease.
Landlord: S/I NORTHCREEK II, LLC
Landlord's Address: c/o Schnitzer Northwest
11830 N.E. 195th Street
Bothell, Washington 98011
Tenant: MICROVISION, INC.
Tenant's Address: Prior to Lease Commencement:
2203 Airport Way South, Suite 100
Seattle, Washington 98134
Attn: Richard Raisig, Vice President of Operations
and Chief Financial Officer
After Lease Commencement:
At the Premises
Attn: Richard Raisig, Vice President of Operations
and Chief Financial Officer
Tenant's Use: Office, laboratory, research and development and light
manufacturing for a company in the business of
electro-optics technology development and ancillary and
related purposes
Project: NORTH CREEK TECHNOLOGY CAMPUS I
Property: Approximately 214,865 square feet of gross land area
constituting the real property described in Exhibit "A-1"
and depicted on the Project Site Plan attached as Exhibit
"B."
Building: That certain two (2) story concrete tilt-up office building
designated as Building F on the Project Site Plan attached
hereto as Exhibit B with a rentable area of approximately
67,471 square feet
<PAGE>
to be constructed by Landlord on the Property, as well as
Building E shown on the Site Plan when occupied by Tenant
pursuant to Section 2 below.
Premises: Approximately 67,471 rentable square feet consisting of the
entire Rentable Area (as defined in Section 2.01) of the
Building, as shown on the Property Site Plan attached as
Exhibit "C."
Term: Commencing upon the Commencement Date (as defined in Section
4.01) and expiring seven (7) years (84 months) thereafter,
with an Option to Extend for a five (5) year Extended Term
pursuant to Section 2.05(b) and 4.03, and an Option to
Extend for an additional two (2) year Extended Term pursuant
to Section 2.06(b) below.
Scheduled
Commencement
Date: March 4, 1999
Base Rent:
(a) Initial Term
(i) Initial Premises (67,471 RSF Building F)
Months Monthly Installments
1 - 12 $79,291.00*
13 - 42 $83,525.00*
43 - 84 $91,992.00*
*To be adjusted to reflect actual square footage of the Premises, as verified by
Landlord's and Tenant's architect upon substantial completion, to the extent the
Rentable Area of Building F is less or more than 67,471 square feet, the
shortfall or excess shall reduce or increase, as applicable, the Base Rent for
the Building F Premises at the rate of $1.1752 per square foot for Months 1 - 12
of the Lease Term; $1.2379 per square foot of shortfall or excess for months
13-42 of the Lease Term, and $1.3634 per square foot of shortfall or excess for
months 43-84 of the Lease Term.
(ii) Expansion Space in Building E (Sections 2.04, 2.05 and/or 2.06) -
Months relate to months of initial Lease Term during which
Expansion Space is leased, as applicable:
Months Rent Per RSF per Month
1 - 42 $1.1500
43 - 84 $1.2755
2
<PAGE>
(b) Extended Term: Fair market rental value as determined pursuant to Section
4.03
Prepaid Rent: $79,291.00 applicable to Month 1
Security Deposit: $79,291.00
Tenant's Share of Building F: 100%
Tenant's Share of Project (for Building F only upon full development of the
Project): 23.54%
Surface Parking Spaces: Approximately 226 uncovered surface parking spaces
adjacent to the Building shall be provided for the
non-exclusive use of Tenant, its employees and
visitors.
Exhibits Exhibit A-1: Legal Description of Building F Property
Exhibit A-2: Legal Description of Building E Property
Exhibit B: Project Site Plan
Exhibit C: Property Site Plan
Exhibit D: Work Schedule
Exhibit E-1: List of Plans and Specifications for Base Building "F"
Exhibit E-2: Outline Specifications to Base Building Shell and
Design/Build Mechanical & Electrical Systems
Exhibit E-3: Tenant Improvement Plans for Building F Premises
Exhibit F: Notice of Commencement of Lease
Exhibit G: Estoppel Certificate
Exhibit H: Form of Memorandum of Lease
Exhibit I: Rules and Regulations
Exhibit J: Form of Letter of Credit
Exhibit K: Form of Bond
ARTICLE II: PREMISES AND COMMON AREAS LEASED
2.01 Project; Property; Building; Premises. Landlord hereby leases to
Tenant, and Tenant hereby leases from Landlord, subject to the provisions of
this Lease, the Premises to be located within Building F to be constructed by
Landlord as more fully described in Section 3.01 below, on the Property legally
described in Exhibit A-1 attached hereto and by this reference incorporated
herein, which Property is a portion of the "Project" identified in Section 1.01.
The location of the Property, Building F to be built on the Property and the
location of the Premises are more particularly shown on the Project Site Plan
and Property Site Plan attached hereto as Exhibit B and Exhibit C, respectively.
The term Rentable Area as used in this Lease will be determined using the
"Standard Method of Measuring Floor Area in Office Buildings" (reprinted
3
<PAGE>
June 7, 1996) by BOMA International. Notwithstanding the above, the Rentable
Area of the Premises shall not be decreased to reflect any mechanical
penetrations completed in connection with Tenant Improvements to the Premises.
The Project Site Plan and the Property Site Plan attached hereto as Exhibit B
and Exhibit C, respectively, are attached for location reference purposes only
and shall not constitute a representation by Landlord to be the final plan of
the Project or to require Landlord to build any improvements or to otherwise
comply with the site plans; provided, however, except as may be required in
order to comply with any applicable laws, ordinances, codes or regulations,
Landlord shall not make changes to such site plans which would materially affect
access to the Premises or availability of parking spaces to which Tenant is
entitled pursuant to this Lease, without Tenant's prior written approval, which
approval shall not be unreasonably withheld or delayed. Tenant acknowledges
that, except as otherwise expressly set forth in this Lease, neither Landlord
nor any agent of Landlord has made any representation or warranty with respect
to the Premises, the Building, the Common Areas or the Project or their
suitability for the conduct of Tenant's business. In addition to Tenant's lease
of the Premises within Building F, Tenant has the obligation and option to lease
additional space within another building ("Building E"), to be constructed by
Landlord on the property legally described in Exhibit A-2. When and to the
extent Tenant leases the First Expansion Space, Second Expansion Space or Third
Expansion Space (collectively, the "Expansion Space") pursuant to Sections 2.04,
2.05 and/or 2.06 below, (a) the term "Premises", as used in this Lease, shall be
deemed to include the initial Premises in Building F and the applicable
Expansion Space leased by Tenant; (b) the term "Building", as such term is used
in this Lease, shall mean both Building E and Building F; and (c) the term
"Property", as used in this Lease, shall be deemed to mean the real property
legally described in Exhibit A-1 and Exhibit A-2. In addition, at such time and
from time to time as Tenant commences to lease all or any portion of the
Expansion Space, Tenant shall pay Additional Rent with respect to such Expansion
Space, and Tenant's Share of Operating Expenses incurred with respect to
Building E and the real property legally described in Exhibit A-2, pursuant to
Tenant's Share of such Building E as determined pursuant to Subsection
6.01(b)(iii) below. Landlord confirms that the zoning in effect for the real
property described in Exhibits A-1 and A-2 as of the date of this Lease permits
the Premises and Building to be used for the purpose set forth in Section 1.01
above.
2.02 Common Areas. In addition to the Premises, Tenant shall have the
non-exclusive right to use in common with other tenants and/or occupants of the
Property, the Project and the master project commonly known as Schnitzer North
Creek (the "Master Project"), the following areas of the Property, Project and
Master Project: parking areas and facilities, roadways, sidewalks, walkways,
parkways, plazas, levees, driveways and landscaped areas and similar areas and
facilities situated within the exterior areas of the Property, Project and
Master Project and not otherwise designated for the exclusive or restricted use
by Landlord and/or individual tenants of other buildings located within the
Property, Project or Master Project (collectively, "Common Areas"). Tenant
acknowledges that Landlord shall have no obligation to construct or complete any
additional buildings within the Project or Master Project or improvements to the
Common Areas other than Landlord's obligation to complete the construction of
the sitework and Common Area of the Property pursuant to Article III below and
as depicted on Exhibit E-1 and E-2 attached hereto (to the extent applicable to
the Property or necessary to provide access to the
4
<PAGE>
Property) and the improvements to be made by Landlord to the property described
in Exhibit A-2, including without limitation the construction of Building E and
the Common Areas of such property as shown on the Project Site Plan. Tenant's
right to utilize the Common Areas shall at all times be subject to Landlord's
reserved rights therein as described in Section 17.04 hereof, the Rules and
Regulations referred to in Section 17.15 hereof and all covenants, conditions
and restrictions ("CC&Rs") now or hereafter affecting or encumbering the
Project; provided that the same do not materially and adversely affect the
general right of Tenant to use the Common Areas or other express rights of
Tenant under this Lease.
2.03 Exclusion of Space for Months 1 - 12. Notwithstanding the description
of the Premises in Sections 1.01 and 2.01 above, Landlord and Tenant acknowledge
that the Base Rent identified in Section 1.01 for the first twelve (12) months
of the Lease Term contemplates Tenant's occupancy of approximately 49,000
rentable square feet of the Premises, as determined by the Plans (as such term
is defined in Section 3.01(b)) for such twelve (12) month period. To the extent
Tenant occupies more than 49,000 square feet at any time during said first
twelve (12) months of the Lease Term, Tenant shall be required to commence and
continue to pay during the remainder of the initial twelve (12) month period,
additional monthly Base Rent equal to $.2292 multiplied by the number of square
feet occupied by Tenant in excess of 49,000 square feet. Once Tenant occupies
any portion of the Premises in excess of 49,000 square feet, Tenant shall
thereafter continue to pay Rent thereon for the remainder of said first (12)
months of the Lease Term, whether or not Tenant continues to occupy such space,
and Tenant shall commence to pay Base Rent on the entire 67,471 square feet of
the Building on the thirteenth month of the Lease Term, whether or not Tenant
occupies the same (which increased Base Rent is reflected in the rent schedule
set forth in Section 1.01 from and after the thirteenth month of the Lease
Term). Landlord shall improve such additional space on or before the date ninety
(90) days after the later of (a) receipt of a permit for the applicable
improvements; or (b) notification by Tenant that Landlord should proceed with
construction of the improvements, which improvements shall be completed in
accordance with Section 3.01 below, to the extent applicable, and shall be
subject to the total tenant improvement allowance for improvement of the entire
Premises set forth in Subsection 3.01(d)(2).
2.04 Lease of First Expansion Space.
(a) Tenant shall have the right and obligation to lease additional
space (the "First Expansion Space") with a Rentable Area of between 25,000 and
34,000 square feet (as determined by Landlord), to be located in Building E of
the Project, which Building E is to be constructed by Landlord on the real
property legally described in Exhibit A-2 in the general location shown on the
Project Site Plan. Tenant shall commence to lease the First Expansion Space in
one or more increments (as determined by Landlord) commencing during the period
between the thirty-seventh (37th) and forty-eighth (48th) months of the Lease
Term (the "First Expansion Period"). The First Expansion Space shall, as
determined by Landlord, be made available in either a single block of space or
one or more contiguous or non-contiguous spaces in said Building E. Landlord
shall give Tenant not less than twelve months notice, on one or more occasions,
that all or a portion of the First Expansion Space will be available for lease
by Tenant on a date within the First Expansion Period, which notice shall
specify
5
<PAGE>
the size and location of the applicable First Expansion Space and the
date on which it shall be available which date shall allow Tenant at least
thirty (30) days to construct tenant improvements prior to commencing to pay
Rent with respect to such First Expansion Space. Tenant shall be obligated to
lease, and shall be allowed to take occupancy of, such portion of the First
Expansion Space commencing on the later of (i) the date set forth in said notice
or (ii) the date thirty (30) days after the current tenant of the applicable
First Expansion Space vacates the space; provided, however, in the event the
applicable First Expansion Space becomes available prior to the date set forth
in Landlord's notice, Landlord shall have the right to give Tenant a
supplemental notice accelerating the date of Tenant's lease of such First
Expansion Space to an earlier date within the First Expansion Period, in which
event Tenant shall commence leasing the applicable First Expansion Space on the
date set forth in such supplemental notice, which date shall not be earlier than
the date sixty (60) days after Tenant's receipt of such supplemental notice.
(b) Landlord shall provide a per square foot improvement allowance for
improvements to be made by Tenant to the First Expansion Space equal to the
difference between $25.00 per square foot of the First Expansion Space leased by
Tenant and the cumulative average per square foot cost of improvements
previously made to and existing in the applicable First Expansion Space (as
reasonably determined by Landlord and based on records or other substantiation
provided to Tenant). For illustrative purposes only, in the event the First
Expansion Space, as determined by Landlord pursuant to Section 2.04(a) above,
consists of a total of 25,000 rentable square feet, and if Landlord had
previously expended $500,000.00 on improvements to such First Expansion Space
(which constitutes an average of $20.00 per square foot: $500,000.00 divided by
25,000 = 20), Tenant would be entitled to an amount equal to $5.00 per square
foot of the applicable First Expansion Space as a tenant improvement allowance
to reimburse Tenant for actual leasehold improvements made by Tenant to the
First Expansion Space. In the event Landlord has previously expended sums in
excess of an average of $25.00 per square foot in improvement of the applicable
First Expansion Space, Tenant will not be entitled to any allowance pursuant to
this Subsection 2.04(b). Tenant shall be obligated to pay all improvement costs
in excess of such allowance. Landlord shall reimburse Tenant for the cost of
actual improvements made by Tenant to the First Expansion Space, up to the
maximum amount of the allowance as determined above in this Subsection 2.04(b),
upon completion by Tenant of all its improvements to the applicable First
Expansion Space and the providing by Tenant to Landlord of reasonably acceptable
documentation substantiating such costs and full lien releases from all
contractors and subcontractors providing work to the applicable First Expansion
Space.
(c) Upon the date Tenant is required to commence leasing any
applicable First Expansion Space as set forth in Subsection 2.04(a) above, the
applicable portion of the First Expansion Space will be deemed to become a part
of the Premises and Tenant shall begin paying Base Rent on the First Expansion
Space at the per rentable square foot for Expansion Space as set forth in
Section 1.01, as the same may be increased pursuant to the terms of said Section
1.01 or if the Term is extended pursuant to Section 4.03 of this Lease. In
addition, Tenant shall be required to pay Additional Rent (as defined in Section
5.02 and 6.01 below) with respect to the First Expansion Space and Tenant's
Share of Building E and the Project shall be calculated and adjusted as set
forth in Subsection 6.01(b)(iii) below.
6
<PAGE>
(d) Landlord and Tenant shall enter into an amendment to this Lease
within thirty (30) days after Tenant's receipt of notice from Landlord that
applicable First Expansion Space will be available, which amendment shall set
forth the changes to the Lease as may be required by this Section 2.04 and as
otherwise reasonably appropriate. Landlord shall prepare and present a proposed
amendment as contemplated by this Subsection and Tenant shall have five (5) days
after receipt thereof to execute the same or respond with reasonable requested
revisions thereto.
(e) From time to time upon request by Tenant, but not more frequently
than once in any six (6) month period, Landlord shall provide Tenant with floor
plans for Building E showing the location, square footage and expiration date of
applicable leases of First Expansion Space designated by Landlord.
2.05 Option to Lease Second Expansion Space.
(a) Tenant shall have the option to lease, and Landlord shall have the
obligation to provide, additional space (the "Second Expansion Space") with a
Rentable Area of between 8,500 and 17,000 square feet (as determined by Landlord
in its sole discretion), to be located in Building E. The Second Expansion Space
may, as determined by Landlord, be made available in either a single block of
space or one or more contiguous or non-contiguous spaces in said Building E and
shall be made available for lease by Tenant at one or more times between the
sixty-first (61st) and seventy-second (72nd) months of the Lease Term (the
"Second Expansion Period"). Landlord shall give Tenant not less than six (6)
months, notice that all or any portion of the Second Expansion Space identified
in such notice by size and location, will become available for lease by Tenant
on a date within the Second Expansion Period specified in said notice from
Landlord, which date shall allow Tenant at least thirty (30) days to construct
its tenant improvements before being obligated to pay Rent with respect to such
offered Second Expansion Space. Tenant shall have the right and option to elect
to lease the applicable Second Expansion Space identified in Landlord's notice,
by giving Landlord written notice of such election on or before the date thirty
(30) days after receipt by Tenant of Landlord's notice offering such Second
Expansion Space for lease. In the event Tenant does not elect to lease the
applicable Second Expansion Space by timely notice to Landlord as required
above, Landlord shall have no further obligation to lease such offered space to
Tenant and Landlord shall be deemed to have fulfilled its obligation to offer
Tenant Second Expansion Space to the extent of the square foot Rentable Area of
the Second Expansion Space offered to Tenant but which Tenant does not elect to
lease. For illustrative purposes only, if Landlord offers Tenant an increment of
Second Expansion Space of 7,500 rentable square feet and Tenant fails to elect
to lease such Second Expansion Space pursuant to this Subsection 2.05(a),
Landlord will be relieved of its obligation to offer 7,500 rentable square feet
of Second Expansion Space to Tenant and Landlord shall only be obligated to
offer to Tenant, effective at some time during the Second Expansion Period,
another increment or increments of Second Expansion Space of a total area of not
less than 1,000 rentable square feet (and up to a total of 9,500 rentable square
feet at Landlord's sole election). Notwithstanding the above, Tenant's failure
to elect to lease all or any portion of the Second Expansion Space shall not
affect Tenant's rights to lease all or a portion of the Third Expansion Space.
7
<PAGE>
(b) As a condition to and automatically upon Tenant's exercise of its
Option to lease all or any portion of the Second Expansion Space, Tenant will be
deemed to have exercised its Option to Extend the term of the Lease for an
additional five (5) year period commencing at the expiration of the Initial
Term, on the terms and conditions set forth in Section 4.03 below (including the
allowance described in Section 4.03(d) below) and the Base Rent for the Extended
Term shall be determined pursuant to Section 4.03(e) below; provided, however
Landlord's first notice under Section 2.05(a) shall include Landlord's
Determination of the Fair Market Base Rent for the Extended Term and Tenant's
first notice of its election to lease Second Expansion Space pursuant to Section
2.05(a) shall indicate whether it agrees or disagrees with Landlord's
determination. If Tenant disagrees with Landlord's determination, Tenant shall
have no right to withdraw its election to extend the Lease Term and the
procedure for determining fair market rental for the Extended Term pursuant to
Section 4.03(e) below shall be used to determine fair market Base Rent for the
Extended Term.
(c) Upon exercise by Tenant of its option pursuant to this Section
2.05, Landlord shall provide Tenant with an allowance of $4.35 per square foot
of the Second Expansion Space leased by Tenant to reimburse Tenant for actual
costs of leasehold improvements made by Tenant to the Second Expansion Space.
(d) Tenant shall commence its lease of any applicable Second Expansion
Space on the later to occur of (i) the date set forth in Landlord's notice
offering the applicable Second Expansion Space, or (ii) the date thirty (30)
days after the current tenant of the applicable Second Expansion Space vacates
the space, on which date Tenant shall commence paying Base Rent on the
applicable Second Expansion Space at the per rentable square foot rate for
Expansion Space set forth in Section 1.01 above, as the same may be increased
pursuant to the terms of said Section 1.01, Section 4.03 or otherwise in this
Lease. In addition, Tenant shall be required to pay Additional Rent (as defined
in Section 5.02 and 6.01 below) with respect to the Second Expansion Space and
Tenant's Share of Building E and the Project shall be calculated and adjusted as
set forth in Subsection 6.01(b)(iii) below. . (e) In the event Landlord is
required to relocate one or more tenants of Building E to make the Second
Expansion Space, or portion thereof, available to Tenant, Tenant will reimburse
Landlord for any Moving Expenses incurred by Landlord in relocating such tenant
or tenants; provided, however, Tenant shall not be obligated to pay more than a
cumulative total amount of $127,000.00 for reimbursement of such Moving Expenses
under this Subsection 2.05(e) and 2.06(e) below. The term "Moving Expenses"
shall include the actual costs incurred in connection with a physical move to a
location not more than fifty (50) miles from the Property, including breakdown
and packing, moving and set-up at the Premises, necessary technical and support
services in connection with the disconnection of electrical and computer
equipment and reinstalling such equipment at the relocated premises and printing
services required to replace inventory of tenant's printed materials, including
without limitation, stationary, brochures, and business cards, all as evidenced
by invoices or other written substantiation submitted to Tenant.
8
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(f) Landlord and Tenant shall enter into an amendment to this Lease
within thirty (30) days after Tenant's written election to lease any portion of
the Second Expansion Space, or portion thereof, which amendment shall set forth
the changes to the Lease as may be required by this Section 2.05 and as
otherwise reasonably appropriate. Landlord shall prepare and present a proposed
amendment as contemplated by this Subsection and Tenant shall have five (5) days
after receipt thereof to execute the same or respond with reasonable requested
revisions thereto.
(g) Landlord shall have no obligation to provide notices or allow
Tenant to occupy any Second Expansion Space during any period in which a
material Event of Default by Tenant exists under this Lease. In addition,
notwithstanding anything herein to the contrary, in the event there is more than
one material Event of Default by Tenant under Section 13.01 below in any
eighteen (18) month period during the Lease Term, at Landlord's election and in
its sole discretion, by written notice to Tenant Landlord may terminate all
future rights of Tenant to lease the Second Expansion Space pursuant to this
Section 2.05 in which event the same shall become, null and void and Tenant
shall have no further rights under this Section 2.05. For purposes of this
Subsection (g), the term "material" shall mean cumulative monetary default(s) in
excess of $50,000.00 which is not cured within the applicable cure period set
forth in Section 13.01 below.
2.06 Option to Lease Third Expansion Space.
(a) Provided and on the condition that the Lease Term has been
extended pursuant to Section 2.05(b) or Section 4.03 below, Tenant shall have
the option to lease, and Landlord shall have the obligation to provide,
additional space (the "Third Expansion Space") with a Rentable Area of between
17,000 and 34,000 square feet (as determined by Landlord in its sole
discretion), to be located in Building E. The Third Expansion Space may, as
determined by Landlord, be made available in either a single block of space or
one or more contiguous or non-contiguous spaces in said Building E and shall be
made available for lease by Tenant at one or more times between the
eighty-seventh (87th) and one hundred second (102nd) months of the Lease Term
(the "Third Expansion Period"). Landlord shall give Tenant not less than twelve
(12) months notice that all or any portion of the Third Expansion Space
identified in such notice by size and location will become available for lease
by Tenant on a date within the Third Expansion Period specified in said notice
from Landlord, which date shall allow Tenant at least thirty (30) days to
construct tenant improvements before becoming obligated to pay Rent on the
offered Third Expansion Space. Tenant shall have the right and option to elect
to lease the applicable Third Expansion Space identified in Landlord's notice,
by giving Landlord written notice of such election on or before the date thirty
(30) days after receipt by Tenant of Landlord's notice offering such Third
Expansion Space for lease. In the event Tenant does not elect to lease the
applicable Third Expansion Space by timely notice to Landlord as required above,
Landlord shall have no further obligation to lease such offered space to Tenant
and Landlord shall be deemed to have fulfilled its obligation to offer Tenant
Third Expansion Space to the extent of the square foot Rentable Area of the
Third Expansion Space offered to Tenant but which Tenant does not elect to
lease.
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(b) Upon and simultaneously with Tenant's exercise of its option to
lease all or any portion of the Third Expansion Space, Tenant will have an
option to extend the Term of the Lease for two (2) years from the date on which
the first Extended Term would otherwise expire (the "Second Extended Term").
Tenant shall notify Landlord of such election to extend the term of the Lease
pursuant to this subsection at the same time as Tenant notifies Landlord of its
election to lease the Third Expansion Space.
(c) Landlord's first notice under Section 2.06(a) shall include
Landlord's Determination of the Fair Market Base Rent for the Third Expansion
Space during the remainder of the Extended Term and for the Second Extended Term
(if exercised by Tenant) and Tenant's first notice of its election to lease
Third Expansion Space pursuant to Section 2.06(a) shall indicate whether Tenant
elects to exercise the option to extend for the Second Extended Term and whether
or not Tenant agrees or disagrees with Landlord's Determination of Fair Market
Base Rent for the Third Expansion Space for the remainder of the Extended Term
and, if applicable, for the entire Premises for the Second Extended Term. If
Tenant elects to exercise its option to lease Third Expansion Space and, if
applicable, its exercise of its option to Lease the Premises for the Second
Extended Term, but Tenant disagrees with Landlord's Determination of Fair Market
Base Rent for the same, Tenant shall have no right to withdraw its election to
lease the Third Expansion Space or to extend the Lease Term for the Second
Extended Term and the procedure for determining fair market rental for the Third
Expansion Space for the remainder of the Extended Term and the Second Extended
Term, if applicable, shall be completed pursuant to Section 4.03 (e) below.
(d) Subject to exercise by Tenant of its option to extend the Lease
for the Second Extended Term pursuant Subsection 2.06(b) above, Landlord shall
provide Tenant with an allowance of up to $4.65 per square foot of the Third
Expansion Space leased by Tenant to reimburse Tenant for actual costs for
leasehold improvements made by Tenant to the Third Expansion Space.
(e) Tenant shall commence its lease of any applicable Third Expansion
Space on the later to occur of (i) the date set forth in Landlord's notice
offering the applicable Third Expansion Space, or (ii) the date thirty (30) days
after the current tenant of the applicable Third Expansion Space vacates the
space, on which date Tenant shall commence paying Base Rent on the applicable
Third Expansion Space at the greater of (i) the fair market rental value of the
Third Expansion Space as determined by Landlord and Tenant pursuant to the
procedures of Section 4.03 below, or (ii) the per rentable square foot rate for
the remainder of the Premises pursuant to this Lease as is in effect at the time
of the commencement by Tenant of its Lease of the applicable Third Expansion
Space, as the same may be increased pursuant to the terms of said Section 1.01,
Section 4.03 or otherwise in this Lease. In addition, Tenant shall be required
to pay Additional Rent (as defined in Section 5.02 and 6.01 below) with respect
to the Third Expansion Space and Tenant's Share of Building E and the Project
shall be calculated and adjusted as set forth in Subsection 6.01(b)(iii).
(f) In the event Landlord is required to relocate one or more tenants
of Building E to make the Third Expansion Space, or portion thereof, available
to Tenant, Tenant
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will reimburse Landlord for any Moving Expenses (as defined in Subsection
2.05(e) above) incurred by Landlord in relocating such tenant or tenants in
accordance with and subject to the limitations of Section 2.05(e) above.
Notwithstanding the above, in the event any tenant or tenants which Landlord is
required to relocate in order to make all or any portion of the Third Expansion
Space available for lease by Tenant, had an initial lease term of at least seven
(7) years and are required to be relocated only after the expiration of such
initial term, Landlord shall contribute up to $2.65 per square foot of the Third
Expansion Space occupied by such relocated tenant or tenant for such Moving
Expenses up to a total of $90,000.00 and, subject to the dollar limitations set
forth in Section 2.05(e) above Tenant shall only be required to reimburse
Landlord pursuant to this Subsection 2.06(f) for such Moving Expenses in excess
of the amount to be paid by Landlord pursuant to this Subsection 2.06(f).
(g) Landlord and Tenant shall enter into an amendment to this Lease
within thirty (30) days after Tenant's written election to lease any portion of
the Third Expansion Space, or portion thereof, which amendment shall set forth
the changes to the Lease as may be required by this Section 2.05 and as
otherwise reasonably appropriate. Landlord shall prepare and present a proposed
amendment as contemplated by this Subsection and Tenant shall have five (5) days
after receipt thereof to execute the same or respond with reasonable requested
revisions thereto.
(h) Landlord shall have no obligation to provide notices or allow
Tenant to occupy any Third Expansion Space during any period in which a material
Event of Default by Tenant exists under this Lease. In addition, notwithstanding
anything herein to the contrary, in the event there is more than one material
Event of Default by Tenant under Section 13.01 below in any eighteen (18) month
period during the Lease Term, at Landlord's election and in its sole discretion,
by written notice to Tenant Landlord may terminate all future rights of Tenant
to lease the Third Expansion Space pursuant to this Section 2.06 and such
provisions shall become null and void and Tenant shall have no further rights
under this Section 2.06. For purposes of this Subsection (h), the term
"material" shall mean cumulative monetary default(s) in excess of $50,000.00
which is not cured within the applicable cure period set forth in Section 13.01
below.
2.07 Holdover of Tenancies in Expansion Space. If the date that any portion
of the First, Second or Third Expansion Space is to be available to Tenant is
delayed beyond the date specified in Landlord's notice (including the thirty
(30) days allocated for construction of Tenant's improvements) due to holding
over by the prior tenant, Landlord shall aggressively pursue eviction of such
tenant so as to enable Tenant to take occupancy of the subject Expansion Space
as soon as practicable and, to the extent Landlord receives holdover rent from
such tenant in excess of the rental which would have been paid by Tenant under
this Lease had Tenant been able to occupy the Premises as contemplated herein
during such holdover period, Tenant shall be entitled to receive such excess
compensation as full satisfaction of any obligation of Landlord to provide
Tenant occupancy of the applicable Expansion Space during such holdover period.
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ARTICLE III: IMPROVEMENTS
3.01 Construction of Building F and Premises in Building F.
(a) Completion Schedule. Attached hereto as Exhibit D is a schedule
(the "Work Schedule") agreed upon by Landlord and Tenant setting forth the
estimated timetable for the planning, permitting, construction and completion of
the Premises to be built within the Building F on the Property legally described
in Exhibit A-1.
(b) Building and Premises Plans. A list of the plans and
specifications for the sitework and Building shell are attached hereto as
Exhibit E-1 and by this reference incorporated herein (the "Building F Shell
Plans"). In addition to the Building F Shell Plans, Landlord's architect, JPC
Architecture Group, in cooperation with Tenant and its consultants, shall
prepare final working drawings and specifications for the improvements to the
Premises (the "Tenant Improvement Plans for Building F") which shall be subject
to the approval of Landlord and Tenant in accordance with the Work Schedule and
which, when approved, shall be attached hereto as Exhibit E-3. The Building F
Shell Plans and the Tenant Improvement Plans for Building F are together
referred to herein as the "Plans." After final approval of the Tenant
Improvement Plans for Building F, no material changes to such Tenant Improvement
Plans for Building F shall be made except with the approval of both Landlord and
Tenant.
(c) Construction of Building F and Premises in Building F. Landlord
shall work with Sierra Construction Company or other contractor chosen by
Landlord (the "Contractor") for construction of the Building and the tenant
improvements to the Premises in Building F ("Building F Tenant Improvements").
It is the intent of Landlord and Tenant that Landlord shall enter into a
separate or supplemental guaranteed maximum price contract with Contractor for
construction of the Building F Tenant Improvements and that Contractor will
competitively bid the subcontracts to qualified subcontractors with final
subcontracts being awarded by Contractor. Tenant shall have the right to provide
input on the selection of the electrical design/build subcontractor and Landlord
shall accommodate Tenant's desires with respect to the same to the extent
economically and practically reasonable in Landlord's discretion. After the
Tenant Improvement Plans for Building F have been prepared, and approved by the
parties, final pricing has been approved by Landlord and Tenant and building
permits have been issued, Landlord shall cause the Building and the Premises to
be constructed by the Contractor in accordance with the Plans. Landlord shall
supervise the completion of such work and shall use its good faith efforts to
secure substantial completion of the work in accordance with the Work Schedule.
The cost of such work shall be paid as provided in Paragraph 3.01(d) below.
(d) Payment for Construction of Building and Premises
(1) Subject to Sections 3.01(d)(2) and (3) below, Landlord shall
pay for the following costs:
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(aa) Payment of the cost of preparing the Plans, including
mechanical, electrical, plumbing and structural drawings and of all other
aspects necessary to complete the Plans.
(bb) The payment of plan check, permit and license fees
relating to construction of the Building and the Premises.
(cc) Construction of the Building pursuant to the Building
Shell Plans on a "turn-key" basis.
(2) Landlord shall provide the following funds in connection with
the design and construction of the Building F Tenant Improvements:
(aa) Within five (5) business days after presentation to
Landlord of invoices or other reasonable substantiation, Landlord will pay up to
the sum of $10,120.00 for the cost of space planning, design and construction
drawings incurred in connection with the planning and design of the Building F
Tenant Improvements. Any such costs in excess of $10,120.00 shall be paid by
Tenant upon receipt by Tenant of invoices for the same (or be funded from the
allowance available under Subsection (bb).
(bb) Landlord will pay up to the sum of $25.00 per square
foot of the Premises in Building F, to the extent and at the time the same are
improved, which allowance shall be applied to space planning, construction
drawings, fees and permits and hard costs as reflected in the construction
contract and changes thereto, and Washington State Sales Tax with respect to the
Building F Tenant Improvements pursuant to the Tenant Improvement Plans for
Building F. Except as otherwise provided by Subsection (cc) below, any such
costs in excess of $25.00 per square foot of the Premises in Building F improved
pursuant to Tenant Improvement Plans for Building F shall be paid by Tenant into
Landlord's construction account simultaneously with execution by Landlord of the
construction contract for the same.
(cc) At Tenant's written election to Landlord at the time of
Landlord's entering into of the construction contract for the Tenant
Improvements, Landlord shall fund up to an additional $420,000.00 toward the
cost of the Tenant Improvements in excess of the per square foot allowance
provided in (bb) above; provided, that, as a condition to Landlord's obligation
to fund such excess improvements, Landlord and Tenant shall enter into an
amendment to this Lease so as to increase the Base Rent for the Building F
Premises by an amount necessary to amortize the total amount of excess costs
paid by Landlord pursuant to this Subsection (cc) over the initial Term of this
Lease at a 10.47% effective annual amortization rate.
(dd) Landlord shall provide an allowance of $7,000.00 to be
used to pay for a security system to be installed in the Premises, payable
within five (5) business days after Tenant's presentation to Landlord of an
invoice or other reasonable substantiation of the cost of such system.
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(3) Tenant will, at its sole cost and expense, pay for any
improvements to the Premises not expressly included in the Plans and shall
arrange for the installation of all Tenant's furniture, fixtures and equipment
associated with its business. Costs associated with Tenant's equipment, layout,
design and construction coordination for any improvements not expressly included
in the Plans are also the sole responsibility of Tenant.
(e) Delay in Completion. If there shall be a delay in substantial
completion of Building F or the Premises or the issuance of a Certificate of
Occupancy for the same as a result of:
(1) Tenant's failure to approve any item or perform any other
obligation in accordance with and by the date specified in the Work Schedule
within five (5) business days after receipt of notice from Landlord;
(2) Tenant's request for changes in materials, finishes or
installations other than those readily available;
(3) Tenant's request to deviate from the Plans; or
(4) Tenant's interference with Landlord's construction of the
Building or the Premises during Tenant's work within the Premises (whether such
work is performed by Tenant or its contractor or by Landlord or its contractor
on Tenant's behalf);
(5) Tenant's failure to provide funds, the LC and/or Bond, or to
otherwise comply with its obligations under this Lease;
(each a "Tenant Delay") then the Commencement Date of the Term of the Lease
shall be accelerated by the number of days of such delay. In the event Landlord
claims any such failure, request or interference will cause such a delay,
Landlord shall promptly notify Tenant thereof. The Building and the Premises
shall be deemed substantially complete notwithstanding the fact that minor
details of construction, mechanical adjustments or decorations which do not
materially interfere with Tenant's use and enjoyment of the Building remain to
be performed (items normally referred to as "punch list" items).
3.02 Completion and Delivery. The term "substantial completion" as used in
the Lease shall mean the date of substantial completion of the Building and
Premises in accordance with the Plans such that Tenant may commence the
installation of any of Tenant's equipment (to the extent such equipment is not
already begun pursuant to Section 4.01) and occupy the Premises for the conduct
of its business (subject to the completion of any additional construction to be
performed by Tenant). Certification by Landlord's architect (and confirmation by
Tenant's architect) as to the substantial completion of the Premises shall be
conclusive and binding upon Landlord and Tenant. By taking occupancy of the
Premises, Tenant shall be deemed to have accepted the Premises and the Building
as substantially complete, except that Tenant shall, within
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five (5) business days after entering into possession of the Premises, provide
Landlord with a list of incomplete and/or corrective items present in the
Premises. Landlord shall diligently complete, as soon as reasonably possible,
any items of work and adjustment on such list as are not completed upon
substantial completion of the Premises. Tenant's acceptance of the Premises
pursuant to this Subsection 3.02 shall not extend to any defects which are not
reasonably ascertainable during a visual inspection.
3.03 Construction of Tenant Improvements in Building E. Construction of
Tenant's improvements to each portion of the First Expansion Space, Second
Expansion Space and Third Expansion Space shall be managed by Tenant and made by
contractors of Tenant's choice, and Tenant shall bear full responsibility for
the cost of such improvements, subject to any applicable tenant improvement
allowance provided by Landlord under this Lease. Tenant's plans for improvements
of each such portion of the Expansion Space shall be subject to Landlord's prior
written approval, which shall not be unreasonably withheld or delayed.
Landlord's decisions regarding such plans shall be made within thirty (30) days
after Landlord's receipt of the same together with a request by Tenant for
approval pursuant to this Section 3.03. If Landlord does not inform Tenant of
its decision with respect to such plans within such thirty (30) day period, such
plans shall be deemed approved. Other than as expressly set forth herein, all
improvements and alterations made by Tenant shall be completed in accordance
with Section 9.02 and 9.03 below. The aforementioned thirty (30) day period
shall not diminish Tenant's right to have a thirty (30) day period following
vacancy by the previous tenant to construct its tenant improvements prior to the
commencement of Rent for the Expansion Space in question.
3.04 Right to Terminate. In the event (a) the Premises have not been
substantially completed by July 6, 1999, due to delays not within Landlord's
reasonable control (as defined below); or (b) the Premises have not been
substantially completed by June 4, 1999 due to delays within Landlord's
reasonable control (but in no way resulting from any Tenant Delays) then Tenant
may elect to terminate this Lease by written notice to Landlord, in which event
this Lease shall terminate, Tenant shall receive a refund of its security
deposit and prepaid rent, if any, as well as the return and termination of the
LC and Bond provided pursuant to Section 17.26 (or any proceeds thereof) and
neither party shall have any further rights or obligations hereunder. For
purposes of this Section 3.04, the term "delays beyond Landlord's reasonable
control" shall mean any delays resulting from Tenant's acts or omissions
(including without limitation any Tenant Delay described in Section 3.01 (e)
above), inclement weather (defined as weather which delays critical path
activities of construction of the Improvements), earthquake, flood, fire or
other casualty, strike or other labor trouble, material shortages, governmental
controls, or any other cause, whether similar or dissimilar to the above, beyond
Landlord's reasonable control (any of which delays are referred to herein as
"delays beyond Landlord's reasonable control". Except as expressly contemplated
above in this Section 3.04, Landlord shall not be liable to Tenant or any other
party, nor shall Tenant have any recourse against Landlord, for any direct or
indirect damages as a result of Landlord's failure to deliver the Premises to
Tenant within the time periods contemplated herein and/or in the Work Schedule.
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ARTICLE IV: TERM
4.01 Term. The Term shall commence ("Commencement Date") on the later to
occur of (a) the date of substantial completion of the Premises, or (b) the date
of receipt of a temporary certificate of occupancy or other approval by the City
of Bothell allowing occupancy of the Premises by Tenant; provided, however, that
the Commencement Date shall be subject to acceleration for delays in completion
of the Building or the Premises attributable to Tenant, as more particularly set
forth in this Lease. The Term shall expire at the expiration of the Lease Term
of seven (7) years set forth in Section 1.01, unless sooner terminated or
extended as provided in Sections 2.05(b), 2.06(b) and 4.03. Notwithstanding the
above, Landlord agrees to use its good faith efforts to allow Tenant limited
access to the Building F thirty (30) days prior to the Commencement Date or
otherwise as mutually agreed by Landlord and Tenant; provided, that Tenant's
entry into the Building during such period shall be limited to installation of
Tenant's furniture, fixtures and equipment; provided, further that such early
entry by Tenant shall in no way interfere with or cause delays in Landlord's
construction; and provided further that such early entry by Tenant shall be at
Tenant's sole risk and Tenant shall be deemed to have waived and released
Landlord, its agents, employees and contractors from and with respect to any
personal injury or property damage resulting from, during or in connection with
such early occupancy.
4.02 Notice of Commencement Date. Landlord shall inform Tenant of the
estimated date of substantial completion at least fifteen (15) days prior to
such date. At such time as the date of substantial completion and the
Commencement Date have been determined, Landlord shall deliver to Tenant a
written confirmation in the form attached hereto as Exhibit F ("Notice of
Commencement") of said dates of substantial completion and the Commencement
Date. The Notice of Commencement shall be binding upon Tenant unless Tenant
objects to the Notice in writing delivered to Landlord within five (5) days of
Tenant's receipt of said Notice of Commencement.
4.03 Option to Extend. Landlord hereby grants Tenant the right to extend
the term of the Lease for an additional period of five (5) years (such extended
period is hereinafter referred to as the "Extended Term") on the same terms and
conditions contained in the Lease, except that (i) Base Rent for the Extended
Term shall be as set forth hereinbelow, and (ii) no additional options to extend
shall apply following the expiration of the Extended Term. Except as otherwise
provided in Section 2.05(b) and 2.06(b), written notice of Tenant's exercise of
its option to extend ("Option to Extend") the Term of this Lease for the
Extended Term must be given to Landlord no less than thirteen (13) months prior
to the date the Term of the Lease would otherwise expire. If Tenant is in
material default under this Lease, Tenant shall have no right to exercise its
Option to Extend the Term of this Lease pursuant to this Section 4.03 until such
default is cured; provided, that the period of time within which said option may
be exercised shall not be extended or enlarged by reason of Tenant's inability
to exercise said option because of a default. In the event Tenant validly
exercises its Option to Extend the Term of this Lease as herein provided, Base
Rent shall be adjusted as of the commencement date of the Extended Term as
follows:
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(a) Except in the event of an election by Tenant of its Option to
Extend pursuant to Section 2.05(b) or 2.06(b) (which shall be controlled by such
Subsections and Subsection 4.03(e) below), within thirty (30) days after
exercise of its Option to Extend by Tenant, Landlord shall provide Tenant with
Landlord's determination of the fair market Base Rent for the Extended Term,
including periodic increases as dictated by the current market ("Landlord's
Determination of Base Rent for Extended Term"). Tenant shall provide notice to
Landlord within ten (10) business days after receipt of such notice from
Landlord as to whether Tenant accepts Landlord's Determination of Base Rent for
Extended Term and, at such time Tenant may notify Landlord that Tenant revokes
its exercise of its Option to Extend, in which event Tenant will have no further
rights under this Section. Tenant shall have no such right to revoke its
exercise of its Option to Extend exercised or deemed to be exercised pursuant to
Sections 2.05(b) or 2.06(b) above. In the event Tenant does not agree to
Landlord's Determination of Base Rent for Extended Term but does not elect to
revoke the exercise of its Option to Extend pursuant to the above sentence,
Landlord and Tenant shall attempt to agree upon Base Rent for the Premises for
the Extended Term, such rent to be the fair market rental value of the Premises
for the Extended Term, as defined in Subsection (d) below. If the parties are
unable to agree upon the Base Rent for the Extended Term by the date three (3)
months prior to the commencement of the Extended Term, then within ten (10) days
thereafter each party, at its own cost and by giving notice to the other party,
shall appoint a real estate appraiser with at least five (5) years full-time
commercial real estate appraisal experience in the area in which the Premises
are located to appraise and set Base Rent for the Extended Term. If a party does
not appoint an appraiser within ten (10) days after the other party has given
notice of the name of its appraiser, the single appraiser appointed shall be the
sole appraiser and shall set Base Rent for the Extended Term. If each party
shall have so appointed an appraiser, the two appraisers shall meet promptly and
attempt to set the Base Rent for the Extended Term. If the two appraisers are
unable to agree within thirty (30) days after the second appraiser has been
appointed, they shall attempt to select a third appraiser meeting the
qualifications herein stated within ten (10) days after the last day the two
appraisers are given to set Base Rent. If the two appraisers are unable to agree
on the third appraiser within such ten (10) day period, either of the parties to
this Lease, by giving five (5) days notice to the other party, may apply to the
then presiding judge of the Superior Court of King County for the selection of a
third appraiser meeting the qualifications stated in this paragraph. Each of the
parties shall bear one-half (1/2) of the cost of appointing the third appraiser
and of paying the third appraiser's fee. The third appraiser, however selected,
shall be a person who has not previously acted in any capacity for either party.
(b) Within thirty (30) days after the selection of the third
appraiser, a majority of the appraisers shall set Base Rent for the Extended
Term. If a majority of the appraisers are unable to set Base Rent within the
stipulated period of time, the three appraisals shall be added together and
their total divided by three (3). The resulting quotient shall be the Base Rent
for the Premises during the Extended Term. If, however, the low appraisal and/or
the high appraisal is/are more than ten percent (10%) lower and/or higher than
the middle appraisal, the low appraisal and/or the high appraisal shall be
disregarded. If only one (1) appraisal is disregarded, the remaining two (2)
appraisals shall be added together and their total divided by two (2), and the
resulting quotient shall be Base Rent for the Premises during the Extended Term.
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(c) For purposes of the appraisal, the term "-fair market rental
value-" shall mean the price that a ready and willing tenant would pay, as of
the Extended Term commencement date, as rent to a ready and willing landlord of
premises comparable to the Premises in the Kirkland/Bellevue/Redmond/Bothell
market, if such premises were exposed for lease on the open market for a
reasonable period of time; including any rent increases and, only if the
determination of rent is made within twelve (12) months of commencement of the
Extended Term, prevailing rent concessions over the Extended Term to the extent
normal under then current market conditions; provided, that Base Rent for any
applicable Extended Term shall not be less than the Base Rent in effect during
the month immediately preceding the commencement of such Extended Term.
(d) In the event Tenant exercises its Option to Extend pursuant to
this Section 4.03 (but not in the event of an exercise of the second option
pursuant to Section 2.06(b) above), Landlord shall provide Tenant with an
allowance of up to $4.65 per square foot of the Building F Premises to reimburse
Tenant for actual costs for leasehold improvements of the Premises made by
Tenant to the Building F Premises.
(e) In the event Tenant is deemed to exercise its Option to Extend
pursuant to this Section 4.03 in connection with its lease of the Second
Expansion Space pursuant to Section 2.05(b) above, Landlord shall, within thirty
(30) days after exercise by Tenant of such option, forward to Tenant Landlord's
Determination of Base Rent of Extended Term for the Extended Term and Tenant
shall have the option, by written notice to Landlord within thirty (30) days
after receipt of Landlord's Determination of (i) electing to accept Landlord's
Determination of Base Rent for the Extended Term, (ii) electing to defer
determination of the fair market rental value for the Extended Term until the
date twelve (12) months prior to the commencement of the Extended Term (in which
event the procedures of 4.03 (a)-(c) above, to the extent applicable, shall
commence as of such date), or (iii) electing to determine the fair market rental
value pursuant to the provisions of this 4.03 as soon as practicable after the
deemed exercise by Tenant of this Option to Extend, which fair market rental
value shall be determined as of the date of such deemed exercise (but shall not
be less than the Base Rent in effect at such time) and the Base Rent commencing
at the commencement of the Extended Term or Second Extended Term, as applicable,
shall be such fair market rental value determined after the deemed exercise of
Tenant's Option to Extend, increased by four and one-half percent (4.5%) per
annum (prorated as applicable) from the date of such determination to the
commencement of the Extended Term.
ARTICLE V: RENT
5.01 Base Rent. The Base Rent ("Base Rent") shall be as set forth in
Section 1.01, subject to adjustment to the extent applicable pursuant to
Sections 2.03, 3.01(d)(2)(cc), and 4.03 above. The Base Rent shall be paid in
advance on the first day of each and every month during the Term to Landlord at
the address set forth in Section 1.01 hereof, or at such other place as Landlord
may direct in writing pursuant to Section 5.05, without any prior demand
therefor and without any abatement, deduction or setoff whatsoever. If the Term
commences on any day other
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than the first day of a calendar month and/or ends on any day other than the
last day of a calendar month, Base Rent for the fraction(s) of a month at the
commencement and/or upon the expiration of the Term shall be prorated based upon
the actual number of days in such fractional month(s). Simultaneously with
execution of this Lease, Tenant shall pay to Landlord the Prepaid Rent specified
in Section 1.01, which shall be applied to Tenant's Base Rent obligation for the
first month of the Lease Term.
5.02 Additional Rent. In addition to Base Rent, Tenant shall pay to
Landlord all sums of money or other charges required to be paid by the Tenant
under this Lease (other than Base Rent and the Prepaid Rent), including but not
limited to Operating Expenses (as defined in Article VI hereof) (all such sums
being herein deemed "Additional Rent"), whether or not the same are designated
"Additional Rent" the same shall be payable in lawful money of the United States
of America without deduction, set-off or abatement whatsoever. Any Additional
Rent provided for in this Lease shall become due with the next monthly
installment of Base Rent unless otherwise provided. The term "Rent", as used in
this Lease, shall refer collectively to "Base Rent" and "Additional Rent."
5.03 Late Payment. If any payment of Rent is not received by Landlord
within ten (10) days after the same is due, Tenant shall pay to Landlord a late
payment charge equal to five percent (5%) of the amount of such delinquent
payment of Rent in addition to the installment of Rent then owing, regardless of
whether or not a notice of default has been given by Landlord. In addition,
Tenant shall pay interest on such late payment and late charge from and after
the expiration of thirty (30) days following the due date of the late payment at
an interest rate equal to the lesser of (a) the prevailing prime (reference)
rate as published by Seafirst Bank (or any successor bank) at its Seattle main
branch office, or any successor rate of interest, plus three (3) percentage
points, or (b) the maximum rate permitted by applicable law (hereafter the
"Default Rate"), until such amounts are paid. Landlord and Tenant recognize that
the damages which Landlord will suffer as a result of Tenant's failure to timely
pay Rent are difficult or impracticable to ascertain, and agree that said
interest and late charge are a reasonable approximation of the damages which
Landlord will suffer in the event of Tenant's late payment. This provision shall
not relieve Tenant from payment of Rent at the time and in the manner herein
specified. Acceptance by Landlord of any such interest and late charge shall not
constitute a waiver of Tenant's default with respect to said overdue amount, nor
shall it prevent Landlord from exercising any other rights or remedies available
to Landlord.
5.04 Security Deposit. Simultaneously with execution of this Lease, Tenant
shall deposit with Landlord the sum specified as the Security Deposit in Section
1.01 of this Lease. This deposit shall constitute partial consideration for the
execution of this Lease. Landlord shall pay Tenant the remaining balance
thereof, less any Rent or other sums then due Landlord, without any liability
for interest thereon, within thirty (30) days after the expiration or prior
termination of the Lease Term, or any extension thereof. Landlord shall be
entitled to withdraw from the deposit the amount of any unpaid Base Rent,
Additional Rent or other charges not paid to Landlord when due, and Tenant shall
immediately re-deposit an amount equal to that so withdrawn within ten (10) days
of demand.
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5.05 Place of Payment. All Rent and any other payments due Landlord by
Tenant under this Lease shall be paid at the address set forth in Section 1.01
or at such other place as Landlord may direct in accordance with Section 17.01;
provided, that notice of a change of address shall become effective fifteen (15)
days after Tenant's receipt of the notice.
ARTICLE VI: ADDITIONAL RENT AND CHARGES
6.01 Operating Expenses. In addition to Base Rent and other sums payable by
Tenant under this Lease, Tenant shall pay to Landlord, as Additional Rent,
Tenant's Share of the Operating Expenses (as such term is defined below).
(a) Estimated Expenses. Upon the Commencement of the Lease Term, and
thereafter prior to the commencement of each calendar year occurring wholly or
partially within the Term, Landlord shall estimate the annual Operating Expenses
payable by Tenant pursuant to this provision, and Tenant shall pay to Landlord
on the first day of each month in advance, one-twelfth (1/12th) of Tenant's
Share of such estimated amount. In the event that during any calendar year of
the Term (but not more than once in any calendar year), Landlord determines that
the actual Operating Expenses for such year will exceed (or be less than) the
estimated Operating Expenses, Landlord may revise such estimate by written
notice to Tenant, in reasonably sufficient detail to substantiate the revisions,
and Tenant shall pay to Landlord, concurrently with the regular monthly rent
payment next due following the receipt of the revised estimate, an amount equal
to one monthly installment thereof multiplied by the number of months expired
during such calendar year to and including the month of such payment, if an
excess is due, or in the event Landlord's estimate is less than the prior
estimate, Tenant shall receive a credit against its next payment of Operating
Expenses for any overpayment by Tenant to date. Subsequent installments shall be
payable concurrently with the regular monthly Base Rent due for the balance of
the calendar year and shall continue until the next calendar year's estimate is
rendered. Within ninety (90) days following the end of each year, Landlord shall
provide Tenant with a written statement of the actual total Operating Expenses
for such year, in reasonably sufficient detail with supporting documentation as
Tenant may reasonably request to verify such expenses, and there shall be an
adjustment made to account for any difference between Tenant's Share of the
actual and the estimated Operating Expenses for the previous year. If Tenant has
overpaid the amount of Operating Expenses owing pursuant to this provision,
Landlord shall, provided Tenant is not in default of any Rent or other monetary
payment hereunder, credit such overpayment to Tenant's account or promptly
refund such overpayment if this Lease has terminated or expired. If Tenant has
underpaid the amount of Operating Expenses owing pursuant to this provision,
Tenant shall pay the total amount of such deficiency to Landlord as Additional
Rent with the next payment of Base Rent due under this Lease following delivery
of written notice of said deficiency from Landlord to Tenant. Landlord shall
keep its books of account and records concerning Operating Expenses in
compliance with generally accepted accounting principles and retain the same for
three (3) years after the calendar year for which they were prepared. Unless
Tenant objects in writing regarding specific discrepancies in the Operating
Expense calculations for any calendar year within six (6) months after receipt
of Landlord's final calculations for such calendar year,
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Tenant shall be deemed to have approved the same and to have waived the right to
object to such calculations. Tenant has the right to audit Landlord's books and
records for Operating Expenses for any calendar year, at any time within the six
(6) month period following Tenant's receipt of Landlord's final calculations for
such applicable calendar year, with or without specific objection or discrepancy
in mind. Tenant shall pay for any such audit unless such audit reveals an
overpayment by Tenant of more than $10,000.00 for an applicable calendar year,
in which event Landlord shall pay the cost of such audit. In the event Landlord
disputes any discrepancy in Tenant's audit, at Landlord's request, the matter
shall be submitted to binding arbitration with the American Arbitration
Association in its Seattle, Washington office. Upon any final determination of
overpayment or underpayment by Tenant of Operating Expenses pursuant to this
Section 6.01, the party owing the payment or refund to the other shall pay the
same, together with interest thereon at the rate set forth in Section 5.03 above
from the date of the determination within ten (10) days after such
determination. Notwithstanding anything in this Section 6.01 to the contrary,
commencing with the second calendar year of the Lease Term, Tenant's Share of
Common Area maintenance costs (defined as the cost of landscaping, parking
sweeping and snow removal, janitorial and other controllable expenses associated
with the physical upkeep of the Common Areas) shall not increase by more than
seven percent (7%) per calendar year on a cumulative basis.
(b) Defined Terms.
(i) Operating Expenses Inclusions. For purposes of this Lease,
"Operating Expenses" means an amount equivalent to the total of all expenses and
costs incurred in connection with the ownership, operation, management,
maintenance and repair of the Building, the Property, and the Common Areas,
including, without limitation:
A. The costs of operating, maintaining, repairing and making
replacements to the Common Areas, the Building and the Premises, including but
not limited to: gardening and landscaping; painting; lighting; sanitary control;
personal property taxes; public liability insurance and property damage
insurance; utilities for Common Areas; licenses and fees for Common Area
facilities; sweeping; removal of snow and ice, trash, rubbish, garbage and other
refuse; repairing, restriping and resurfacing of parking area; and maintenance
of and property taxes on personal property, machinery and equipment used in
Common Area maintenance.
B. All Real Property Taxes (as defined below) assessed against
the Project or Property, as applicable, including land, Building and
improvements thereon or thereto.
C. All premiums for fire, extended coverage and other insurance
the Landlord reasonably deems necessary and keeps in force on or with respect to
the Project, Property or Building of which the Premises are a part and
commercially reasonable deductibles payable in connection therewith.
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D. The cost of operating, maintaining, repairing and replacing
any electrical, mechanical, automatic fire sprinkler and other utilities systems
serving the Premises which serve the Premises in common with the entire
Building.
E. The cost of maintenance and repair of the roof, exterior
walls, membrane, foundation, and other exterior portions of the Building, and
reasonable reserves for the same.
F. Reasonable property management charges in an amount not to
exceed current market rates for similar management arrangements between
unrelated parties.
G. Costs of repairs, replacements, equipment and improvements
which are necessary to adequately maintain or protect the Project, Building and
Common Areas and/or which are required by law or governmental regulation enacted
after the date of this Lease, which are of a capital nature (as determined by
GAAP accounting), and reasonable reserves for the same; provided, that for
capital repairs, replacement, equipment and improvements which have an estimated
life which extends beyond the Lease Term (as the same may be extended) the cost
thereof shall be prorated based upon a straight-line amortization over said
estimated life and in the case of equipment, the extent to which the equipment
is used for the benefit of the Project, Building and Common Areas, rather than
for other property.
H. Any other costs levied, assessed or imposed by or at the
direction of, or resulting from statutes or regulations or interpretations
thereof promulgated by any federal or governmental authority in connection with
the use or occupancy of the Project.
I. Assessments made on or with respect to the Property made
pursuant to any CC&Rs, PUD conditions and/or owner's associations affecting the
Property.
J. Compensation (including wages and employer paid benefits and
taxes ) of employees and contractors to the extent engaged in the operation and
maintenance of the Property and/or Building.
(ii) Operating Expense Exclusions. Notwithstanding the foregoing,
Operating Expenses to be reimbursed by Tenant shall not include:
A. Expenses which are separately metered or reasonably allocated
to the Premises or other leased area of the Building, which expenses shall be
billed separately to Tenant or such other tenant, as applicable.
B. Costs incurred in connection with the initial construction or
design of the Building or to correct defects in the original construction or
design of the Building or Common Areas.
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C. Depreciation.
D. Costs, fines or penalties incurred due to violation by
Landlord of any applicable law.
E. Expenses incurred by Landlord in respect of individual tenants
and/or the improvement or renovation of tenants' leasehold improvements,
including leasing commissions, attorneys' fees arising from lease disputes and
other specific costs incurred for the account of specific tenants.
F. Repairs or replacements to the extent that the cost of the
same is recoverable by the Landlord pursuant to original construction
warranties.
G. Interest on debt, return on equity, or capital retirement of
debt, including mortgage and ground lease payments and costs of capital
improvements except as expressly provided above.
H. Legal fees and disbursements relating to legal matters other
than such fees and costs directly relating to Operating Expense issues in
connection with the Building, Premises and/or Common Areas.
I. Landlord's general overhead, including salaries and benefits
of employees to the extent not engaged in the operation and maintenance of the
Property and/or Building;
J. Costs of repairs necessitated by condemnation or damage or
casualty or the wrongful or negligent act or omission of any person other than
Tenant, its agents, employees or contractors, except for the cost of reasonable
deductibles;
K. Cost of services provided to other tenants but not to Tenant.
L. Cost of services to the extent materially in excess of
competitive market rates.
M. Costs incurred in connection with making the systems serving
the Project, Property, Building, Premises or Common Areas "year 2000 compliant"
i.e., able to accurately process date/time data from, into and between the
twentieth and twenty-first centuries, and the years 1999 and 2000 and leap year
calculations, to the extent such technology is available at the time of
Landlord's installation of the systems and Landlord should have reasonably been
expected to incur such costs in connection with its initial development of the
Project, Property, Building, Premises or Common Areas, as applicable.
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Additional Rent payable by Tenant which would not otherwise be due until
after the date of the expiration or earlier termination of the Lease shall, if
the exact amount is uncertain at the time this Lease expires or terminates, be
paid by Tenant to Landlord upon such expiration or termination in an amount to
be reasonably determined by Landlord, with an adjustment to be made once the
exact amount is known and a final reconciliation provided by Landlord to Tenant
with such supporting documentation as Tenant may reasonably request.
(iii) Tenant's Share. For purposes of this Lease, "Tenant's Share"
means the percentage obtained by dividing the Rentable Area of the Premises by
the aggregate Rentable Area of all premises available for lease, whether leased
or not, in the Building. Accordingly, Tenant's Share of Operating Expenses
attributable to Building F and the Property on which it is situated is 100%,
while Tenant's Share of Operating Expenses attributable to Building E and the
Property on which it is situated, cannot be determined precisely as of the date
of this Lease and therefore will be calculated using the aforementioned formula
if and when Tenant expands into Building E in accordance with the terms of this
Lease. However, with respect to Operating Expenses attributable to Common Areas
constructed by Landlord for the five (5) buildings comprising the Project,
Tenant's Share of the same shall be calculated by dividing the Rentable Area of
the Premises by the aggregate Rentable Area of all premises for lease, whether
leased or not, in the Project; provided, however Tenant's Share of the Project
with respect to the Building F Premises shall not exceed 23.54% and Tenant's
Share of the Project with respect to the Building E Premises shall not exceed
23.54% based upon a 100% occupancy by Tenant of Building E, or a pro-rated
portion thereof in the event Tenant leases less than 100% of Building E. The
foregoing notwithstanding, Tenant's Share with respect to a particular Operating
Expense with respect to the Project may decrease if, in Landlord's reasonable
discretion, the expense in question will be more economical for the tenants of
the Project if undertaken for an area or scope within the Master Project but
beyond the buildings and the Common Areas of the Project. Similarly, subject to
the limitation on annual increases in Tenant's Share of Common Area maintenance
costs set forth in Section 6.01(a) above, Tenant's Share with respect to a
particular Operating Expense may increase if, in Landlord's reasonable
discretion, supported by documentation as Tenant may reasonably request, such
increase is justified as an equitable adjustment in light of the proportionately
greater benefit to Tenant.
(iv) Real Property Taxes. For purposes of this Lease, "Real Property
Taxes" shall consist of all transit charges, housing fund assessments, real
estate taxes and all other taxes relating to the Building, Property and/or the
Project, as applicable, all other taxes which may be levied in lieu of real
estate taxes, all assessments, local improvement districts, assessment bonds,
levies, fees and other governmental charges, including, but not limited to,
charges for traffic facilities and improvements, water service studies, and
improvements or amounts necessary to be expended because of governmental orders,
whether general or special, ordinary or extraordinary, unforeseen as well as
foreseen, of any kind and nature for public improvements, services, benefits, or
any other purpose, which are assessed, levied, confirmed, imposed or become a
lien upon the Building or the Property or become payable during the Term (or
which become payable after the expiration or earlier termination hereof and are
attributable in whole or in part to any period during the Term hereof), together
with all costs and expenses incurred by Landlord in successfully
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contesting, resisting or appealing any such taxes, rates, duties, levies or
assessments. "Real Property Taxes" shall exclude any franchise, estate,
inheritance or succession transfer tax of Landlord, or personal property taxes
except to the extent relating to personal property used for work on or with
respect to the Building Property or Project or located in the Common Areas of
the Project, Property and/or Building, or any federal or state income, profits
or revenue tax or charge upon the net income of Landlord from all sources;
provided, however, that if at any time during the Term there is levied or
assessed against Landlord a federal, state or local tax or excise tax on rent,
or any other tax however described on account of rent or gross receipts or any
portion thereof, Tenant shall pay one hundred percent (100%) of the Tenant's
Share of any said tax or excise applicable to Tenant's Rent as Additional Rent.
Notwithstanding the above, Tenant's liability to pay or reimburse Landlord for
assessments is limited to those installments payable during the Lease Term ( and
any extensions thereof). The installments payable by Tenant shall be calculated
assuming payment of all assessments over the longest period permitted by the
applicable authority.
6.02 Tenant's Personal Property Taxes. Tenant shall pay or cause to be
paid, prior to delinquency, any and all taxes and assessments levied upon all
trade fixtures, inventories and other real or personal property placed or
installed in and upon the Premises by Tenant. If any such taxes on Tenant's
personal property or trade fixtures are levied against Landlord or Landlord's
property or if the assessed value of the Building is increased by the inclusion
therein of a value placed upon such real or personal property or trade fixtures
of Tenant, and if Landlord pays the taxes based upon such increased assessment,
Tenant shall, upon demand, repay to Landlord the taxes so levied or the portion
of such taxes resulting from such increase in the assessment.
ARTICLE VII: INSURANCE
7.01 Landlord's Insurance. During the Term, Landlord shall procure and
maintain in full force and effect with respect to the Building and Common Areas,
at full replacement value, a policy or policies of all-risk insurance (including
sprinkler leakage, vandalism and malicious mischief coverage, and any other
endorsements required by the holder of any fee or leasehold mortgage or as
Landlord reasonably deems to be prudent). If the annual premiums charged
Landlord for such casualty insurance exceed the standard premium rates because
the nature of Tenant's operations results in increased exposure, then Tenant
shall, upon receipt of appropriate premium invoices, reimburse Landlord for such
increased amount. Landlord shall have the right, at its option, to keep and
maintain in full force and effect during the Term such other insurance in such
amounts and on such terms as Landlord and/or any first mortgagees or the
beneficiary of any first trust deed against the Building, the Property and/or
the Project may reasonably require from time to time in form, in amounts and for
insurance risks against which a prudent Landlord would protect itself, including
but not limited to rental abatement, earthquake and flood insurance. Landlord
shall also maintain commercial liability coverage in and amount of not less than
$3,000,000.00, combined single limit ( which may be satisfied by a blanket
policy maintained by Landlord and/or its affiliates) and covering the indemnity
obligations of Landlord pursuant to Section 7.08(a)(ii) and with deductibles
reasonably determined by Landlord to be prudent.
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7.02 Public Liability. Tenant shall, at its own cost and expense, keep and
maintain in full force during the Term and any other period of occupancy of the
Premises by Tenant, a policy or policies of commercial liability insurance,
written by a reputable insurance company authorized to do business in the State
of Washington in form and content acceptable to Landlord insuring Tenant's
activities with respect to the Premises, the Common Areas and the Project for
loss, damage or liability for personal injury or death of any person or loss or
damage to property occurring in, upon or about the Premises in an amount of not
less than Two Million Dollars ($2,000,000) combined single limit. The policy
shall insure the hazards of the Premises and Tenant's operations therein, shall
include independent contractor and contractual liability coverage (covering the
indemnity contained in Section 7.08(a)(i) hereof) and shall (a) name Landlord as
an additional insured; (b) contain a cross-liability provision and; (c) contain
a provision that the insurance provided hereunder shall be primary and
non-contributing with any other insurance available to Landlord.
7.03 Tenant's Property and Other Insurance. Tenant shall, at its own cost
and expense, keep and maintain in full force during the Term and any other
period of occupancy of the Premises, a policy or policies of standard form
property insurance insuring against the perils of fire, extended coverage,
vandalism, malicious mischief, special extended coverage ("all risk") and
sprinkler leakage. This insurance policy shall be upon all property owned by
Tenant, for which Tenant is legally liable or that was installed at Tenant's
expense, and which is located in the Premises, including without limitation,
furniture, fittings, installations, fixtures (other than the improvements
installed by Landlord), and any other personal property, in the amount of not
less than one hundred percent (100%) of the full replacement costs thereof. This
insurance policy shall also insure direct or indirect loss of Tenant's earning
attributable to Tenant's inability to use fully or obtain access to the
Premises.
7.04 Form of Insurance/Certificates. All policies shall be written in a
form satisfactory to Landlord and shall be taken out with insurance companies
licensed in the state in which the Building is located and holding a General
Policy Holder's Rating of "A" and a financial rating of "X" or better, as set
forth in the most current issues of Best's Insurance Guide. Tenant shall furnish
to Landlord, prior to Tenant's entry into the Premises and thereafter within ten
(10) days following the expiration of each such policy, a certificate of
insurance (or renewal thereof) issued by the insurance carrier of each policy of
insurance carried by Tenant pursuant hereto. Said certificates shall expressly
provide that such policies shall not be cancelable or subject to reduction of
coverage below the minimum amounts required by this Lease or required by any
lender having an interest in the Building or otherwise be subject to
modification except after thirty (30) days prior written notice to the parties
named as insured in this Section 7.04.
7.05 Tenant's Failure. If Tenant fails to maintain any insurance required
in the Lease, Tenant shall be liable for any loss or cost resulting from said
failure, and Landlord shall have the right to obtain such insurance on Tenant's
behalf and at Tenant's sole expense. This Section 7.05 shall not be deemed to be
a waiver of any of Landlord's rights and remedies under any other section of
this Lease. If Landlord obtains any insurance which is the responsibility of
Tenant to
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obtain under this Article VII, Landlord shall deliver to Tenant a written
statement setting forth the cost of any such insurance and showing in reasonable
detail the manner in which it has been computed and Tenant shall promptly remit
said amount as Additional Rent to Landlord.
7.06 Waiver of Subrogation. Any all risk policy or policies of fire,
extended coverage or similar casualty insurance which either party obtains in
connection with the Building, the Premises or Tenant's personal property therein
shall include a clause or endorsement denying the insurer any rights of
subrogation against the other party to the extent rights have been waived by the
insured prior to the occurrence of injury or loss. Landlord and Tenant waive any
rights of recovery against the other for injury or loss due to hazards covered
by insurance containing such a waiver of subrogation clause or endorsement to
the extent of the injury or loss covered thereby.
7.07 Tenant's Properties and Fixtures. Tenant assumes the risk of damage to
any furniture, equipment, machinery, goods, supplies or fixtures which are or
remain the property of Tenant or as to which Tenant retains the right of removal
from the Premises, except to the extent due to the willful misconduct or
negligent act or omission of Landlord, its agents, employees or contractors.
Tenant shall not do or keep anything in or about the Premises (except those
things Tenant presently does and keeps in connection with the uses set forth in
Section 10.01) which will in any way tend to increase insurance rates paid by
Landlord and maintained with respect to the Premises and/or the Project unless
Tenant pays directly to Landlord the increase cost of the premiums. In no event
shall Tenant carry on any activities which would invalidate any insurance
coverage maintained by Landlord. If Tenant's occupancy or business in, or on,
the Premises, whether or not Landlord has consented to the same, results in any
increase in premiums for the insurance carried by Landlord with respect to the
Building and/or the Project, Tenant shall pay any such increase in premiums as
Additional Rent within ten (10) days after being billed therefore by Landlord.
In determining whether increased premiums are a result of Tenant's use of the
Building, a schedule issued by the organization computing the insurance rate on
the Building and/or the Project showing the various components of such rate
shall be conclusive evidence of the several items and charges which make up such
rate. Tenant shall promptly comply with all reasonable requirements of the
insurance underwriters and/or any governmental authority having jurisdiction
thereover, necessary for the maintenance of reasonable fire and extended
insurance for the Building and/or the Project.
7.08 Indemnification.
(a) (i) Tenant, as a material part of the consideration to be rendered
to Landlord, and subject to subsection (b) below, hereby indemnifies and agrees
to defend and hold Landlord, the Premises and the Project harmless from and
against (i) any and all liability, penalties, losses, damages, costs and
expenses, demands, causes of action, claims, judgments or appeals arising from
any injury to any person or persons or any damage to any property as a result
Tenant's or Tenants' officers, employees, agents, assignees, subtenants,
concessionaires, licensees, contractors or invitees' use, maintenance,
occupation, operation or control of the Premises during the Term, or resulting
from any breach or default in the performance of any obligation to be performed
by Tenant hereunder or for which Tenant is responsible under the terms of the
Lease
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or pursuant to any governmental or insurance requirement, or arising from any
act, neglect, fault or omission of Tenant or any of Tenant's officers,
employees, agents, servants, subtenants, concessionaires, licensees, contractors
or invitees, and (ii) from and against all legal costs and charges, including
attorneys' and other professional fees, incurred in and about any of such
matters and the defense of any action arising out of the same or in discharging
the Property and/or Premises or any part thereof from any and all liens, charges
or judgments which may accrue or be placed thereon by reason of any act or
omission of the Tenant, except and to the extent as may arise out of the
negligence or willful misconduct of Landlord and/or its agents or employees.
(ii) Landlord, as a material part of the consideration to be
rendered to Tenant, and subject to subsection (b) below, hereby indemnifies and
agrees to defend and hold Tenant and the Premises harmless from and against (i)
any and all liability, penalties, losses, damages, costs and expenses, demands,
causes of action, claims, judgments or appeals arising from any injury to any
person or persons or any damage to any property as a result Landlord's or
Landlord's' officers, employees, agents, assignees, subtenants, concessionaires,
licensees, contractors or invitees' use, maintenance, occupation, operation or
control of the Building, Common Areas or Project during the Term, or resulting
from any breach or default in the performance of any obligation to be performed
by Landlord hereunder or for which Landlord is responsible under the terms of
the Lease or pursuant to any governmental or insurance requirement, or arising
from any act, neglect, fault or omission of Landlord or any of Landlord's
officers, employees, agents, servants, subtenants, concessionaires, licensees,
contractors or invitees, and (ii) from and against all legal costs and charges,
including attorneys' and other professional fees, incurred in and about any of
such matters and the defense of any action arising out of the same or in
discharging Tenant and/or Premises or any part thereof from any and all liens,
charges or judgments which may accrue or be placed thereon by reason of any act
or omission of the Landlord, except and to the extent as may arise out of the
negligence or willful misconduct of Tenant and/or its agents or employees.
(b) In the event of the concurrent negligence of Tenant, its
sublessees, assignees, invitees, agents, employees, contractors, or licensees on
the one hand and the negligence of Landlord, its agents, employees or
contractors on the other hand, which concurrent negligence results in injury or
damage to persons or property of any nature and howsoever caused, and relates to
the construction, alteration, repair, addition to, subtraction from, improvement
to or maintenance of the Common Areas or Premises such that RCW 4.24.115 is
applicable, Tenant's obligation to indemnify Landlord as set forth in this
Section 7.08 shall be limited to the extent of Tenant's negligence and that of
Tenant's officers, sublessees, assignees, invitees, agents, employees,
contractors or licensees, including Tenant's proportional share of costs,
attorneys' fees and expenses incurred in connection with any claim, action or
proceeding brought with respect to such injury or damage. LANDLORD AND TENANT
EACH HEREBY WAIVE AND AGREE THAT THEY WILL NOT ASSERT THEIR RESPECTIVE
INDUSTRIAL INSURANCE IMMUNITY UNDER TITLE 51 RCW IF SUCH ASSERTION WOULD BE
INCONSISTENT WITH THE RIGHT OF THE OTHER PARTY TO INDEMNIFICATION PURSUANT TO
THIS SECTION 7.08. THE PARTIES AGREE THAT THIS PROVISION WAS MUTUALLY
NEGOTIATED.
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(c) In no event shall Landlord, its agents, employees and/or
contractors be liable for any personal injury or death or property damage caused
by other lessees or persons in or about the Premises or the Property, or caused
by public or quasi-public work, or for consequential damages arising out of any
loss of the use of the Premises or any equipment or facilities therein by Tenant
or any person claiming through or under Tenant, except to the extent any such
injury or damage is due to the willful misconduct or negligent act or omission
of Landlord, its agents, employees or contractors.
7.09 Damage to Tenant's Property. Notwithstanding the provisions of Section
7.08 to the contrary, except to the extent due to the willful misconduct or
negligent act or omission of Landlord, Landlord, its agents, employees and/or
contractors shall not be liable for (i) any damage to property entrusted to
employees or security officers of the Building or the Property, (ii) loss or
damage to any property by theft or otherwise, or (iii) any injury or damage to
persons or property resulting from fire, explosion, falling substances or
materials, steam, gas, electricity, water or rain which may leak from any part
of the Building, the Common Areas or the Property or from the pipes, appliances
or plumbing work therein or from the roof, street, or subsurface or from any
other place or resulting from dampness or any other cause, except to the extent
Landlord receives consideration for such damage or injury from a third party.
Neither Landlord nor its agents shall be liable for interference with light or
other incorporeal hereditaments. Tenant shall give prompt notice to Landlord in
case Tenant is or becomes aware of fire or accidents in the Building, the Common
Areas or any other portion of the Project or of defects therein in the fixtures
or equipment. Nothing in this Section 7.09 shall be deemed to limit Landlord's
insurance, maintenance and repair obligations set forth elsewhere in this Lease.
ARTICLE VIII: REPAIRS AND MAINTENANCE
8.01 Landlord Repairs and Maintenance. Subject to Landlord's right to
reimbursement from Tenant pursuant to Section 6.01 hereof, to the extent
applicable, Landlord shall at its expense maintain in good condition and repair
the structural portions of the Building including without limitation the
foundation, roof and membrane and shall maintain in good condition the exterior
of the Building, utilities to their point of connection to the Premises and the
Common Areas of the Property. Landlord shall commence and diligently pursue any
such necessary repairs within a reasonable amount of time after receipt of
notice from Tenant (and as promptly as possible in the case of maintenance
emergencies affecting Tenant's ability to operate its business). In the event
Landlord fails to make any such repairs or otherwise meet its obligations under
this Section, Tenant may, upon not less than thirty (30) days' notice to
Landlord, perform such task or repair, and Landlord shall promptly reimburse
Tenant for the reasonable cost of the same within five (5) business days after
demand; provided, that in no event shall Tenant take any such action on behalf
of Landlord with respect to any repairs which may affect occupancy or quiet
enjoyment of other tenants of the Building or which will affect the structural
or mechanical systems of the Building. Except for equipment or systems installed
by Tenant, Landlord shall also maintain at its expense (subject to reimbursement
pursuant to Section 6.01), in good condition and repair, the elevators and the
electrical, plumbing, HVAC and other service systems located outside of the
interior
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surface of the exterior walls of the Premises, under the floor and above the
ceiling of the Premises. Landlord shall not be liable for any failure to make
any repairs or to perform any maintenance unless such failure shall persist for
an unreasonable time after written notice of the need for such repairs or
maintenance is given to Landlord by Tenant, but not longer than the date thirty
(30) days from Landlord's receipt of notice of the necessity for such repairs.
There shall be no abatement of Rent and, except for the negligence or willful
misconduct of Landlord or its employees, contractors or agents, no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvement in or to any
portion of the Premises or in or to fixtures, appurtenances and equipment
therein; provided, that Landlord, its employees, agents and contractors shall
use reasonable efforts not to unreasonably interfere with Tenant's business in
exercise of Landlord's rights or obligations hereunder. Except as may otherwise
be expressly set forth herein, Tenant affirms that (a) neither Landlord nor any
agent, employee or officer of Landlord has made any representation regarding the
condition of the Premises, the Building, the Common Areas or the Project, and
(b) Landlord shall not be obligated to undertake any repair, alteration,
remodel, improvement, painting or decorating.
8.02 Utilities and Services. Subject to reimbursement pursuant to Section
6.01 above, Landlord shall furnish or cause to be furnished to the Premises
lines for water, electricity, sewage, telephone and gas. Tenant shall pay before
delinquency, at its sole cost and expense, all charges for water, gas, heat,
electricity, power, telephone service, sewer service charges and other utilities
or services charged or attributable to the Premises; provided, however, that if
any such services or utilities shall be billed to Landlord and are not
separately billed to the Premises, Tenant shall pay to Landlord as Additional
Rent, an amount equal to that proportion of the total charges therefor which the
Rentable Area of the Premises bears to the rentable area of leased area covered
by such charges Notwithstanding the above, in the event Tenant uses any such
services during non-standard building hours or in excess of that normally
provided to other tenants of the Building or Project, as determined by Landlord
from time to time, Tenant shall pay the actual cost of such after-hours or
excess services used by Tenant based upon Landlord's reasonable allocation
thereof based upon such respective usage.
8.03 Tenant Repairs and Maintenance. Except as otherwise set forth in
Sections 8.01 and 8.02 above, Tenant shall, at Tenant's sole cost and expense,
keep and maintain the entire Premises, including but not by way of limitation,
all interior walls, doors, ceiling, fixtures, furnishings, drapes, specialty
lamps, light bulbs, starters and ballasts, carpets and floor coverings, and any
utility and mechanical systems within the Premises installed by Tenant, in good
repair and in a clean and safe condition. Upon expiration of the Term, Tenant
shall surrender the Premises to Landlord in the same condition as when leased,
reasonable wear and tear and damage by fire or other casualty not required to be
repaired pursuant to this Lease excepted. Notwithstanding the above, Tenant
shall not be responsible for maintaining or repairing pre-existing defects in
the Premises or repairs necessitated by the Landlord's defaults, fire or other
casualty (except for reasonable deductibles), condemnation and ordinary wear and
tear.
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8.04 Non-liability of Landlord. Notwithstanding anything to the contrary
contained in Sections 8.01 or 8.02 above or elsewhere in this Lease, Landlord
shall not be in default hereunder or be liable for any damages directly or
indirectly resulting from, nor shall the Rent herein reserved be abated or
rebated by reason of (a) the temporary interruption or curtailment of the use of
the Premises as a result of the installation of any equipment in connection with
the development, maintenance or repair of the Building or Project; or (b) any
failure to furnish or delay in furnishing any services required to be provided
by Landlord, unless and to the extent such failure or delay is caused by
accident or any condition created by the willful misconduct or negligence of
Landlord, its agents, employees or contractors; or (c) the limitation,
curtailment, rationing or restriction by governmental authority or public
utility of the use of water or electricity, gas or any other form of energy or
any other service or utility whatsoever serving the Premises or Project.
8.05 Inspection of Premises. Landlord, at reasonable times and, except for
emergencies, upon a minimum of 24 hours' notice in writing identifying the
parties who will visit, may enter the Premises, under Tenant escort if Tenant so
requests, to complete construction undertaken by Landlord on the Premises, to
inspect, clean, improve or repair the same, to inspect the performance by Tenant
of the terms and conditions hereof, show the Premises to prospective purchasers,
tenants and lenders and for all other purposes as Landlord shall reasonably deem
necessary or appropriate; provided, that Landlord shall use reasonable efforts
not to interfere with Tenant's business in exercise of Landlord's rights
hereunder. With respect to maintenance emergencies and/or except for the willful
misconduct or negligence of Landlord, its agents, employees or contractors,
Tenant hereby waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises and any other loss in, upon or about the Premises, arising from
exercise by Landlord of its rights hereunder except as otherwise provided in
Article XI hereof. Landlord's entry shall be at Landlord's risk. Landlord shall
use reasonable efforts to respect and protect the confidentiality of any
information that is learned about Tenant or Tenant's business as a result of
such entry.
ARTICLE IX: FIXTURES, PERSONAL PROPERTY AND ALTERATIONS
9.01 Fixtures and Personal Property. Tenant, at Tenant's expense, may
install any necessary trade fixtures, equipment and furniture in the Premises,
provided that such items are installed and are removable without damage to the
structure of the Premises. Landlord reserves the right to approve or disapprove
of any interior improvements which are visible from outside the Premises or
which violate the CC&R's on wholly aesthetic grounds. Such improvements must be
submitted for Landlord's written approval prior to installation or, at
Landlord's request, Tenant shall remove or replace such items at Tenant's sole
expense. Said trade fixtures, equipment and furniture shall remain Tenant's
property and shall be maintained in good condition while on the Premises and
removed by Tenant upon the expiration or earlier termination of the Lease. As a
covenant which shall survive the expiration or earlier termination of the Lease,
Tenant shall repair, at Tenant's sole expense, all damage caused by the
installation or removal of said trade fixtures,
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equipment, furniture or temporary improvements. If Tenant fails to remove the
foregoing items prior to or upon the expiration or earlier termination of this
Lease, Landlord, at its option and without liability to Tenant for loss thereof,
may keep and use them or remove any or all of them and cause them to be stored
or sold in accordance with applicable law, and Tenant shall, upon demand of
Landlord, pay to Landlord as Additional Rent hereunder all costs and expenses
incurred by Landlord in so storing and/or selling said items. In the event any
such fixtures, equipment, and/or furniture of Tenant are sold by Landlord, the
proceeds of such sale shall be applied, first, to all expenses of Landlord
incurred in connection with storage and sale; second, to any amounts owed by
Tenant to Landlord under this Lease or otherwise, and, third, the remainder, if
any, shall be paid to Tenant.
9.02 Alterations. Tenant shall not make or allow to be made any material
alterations, additions or improvements to the Premises (defined as alterations,
additions or improvements costing a cumulative amount in excess of $15,000.00),
or alterations, additions or improvements which affect the structural or
mechanical systems of the Building, either at the inception of the Lease or
subsequently during the Term, without obtaining the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed. Tenant
shall deliver to Landlord the contractor's name, references and state license
number, as well as full and complete plans and specifications of all such
alterations, additions or improvements, and any subsequent modifications or
additions to such plans and specifications, and no proposed work shall be
commenced or continued by Tenant until Landlord has received and given its
written approval of each of the foregoing. Landlord shall either approve or
disapprove any proposed alteration, addition or improvement on or before fifteen
(15) business days following receipt of all of the foregoing items. Landlord
does not expressly or implicitly covenant or warrant that any plans or
specifications submitted by Tenant are accurate, safe or sufficient or that the
same comply with any applicable laws, ordinances, building codes, or the like.
Further, Tenant shall indemnify and hold Landlord and the Building harmless from
any loss, cost or expense, including attorneys' fees and costs, incurred by
Landlord as a result of any defects in design, materials or workmanship
resulting from Tenant's alterations, additions or improvements to the Premises.
All alterations, additions or improvements shall remain the property of Tenant
until termination of the Lease, at which time they shall, unless otherwise
elected by Landlord by written notice to Tenant, be and become the property of
Landlord. Landlord may, as a condition to approval of any such alterations,
additions or improvements, require Tenant to remove any partitions, counters,
railings and/or other improvements installed by Tenant during the Term, and
Tenant shall repair all damage resulting from such removal or, at Landlord's
option, shall pay to Landlord all costs arising from such removal. All repairs,
alterations, additions and restorations by Tenant hereinafter required or
permitted shall be done in a good and workmanlike manner and in compliance with
all applicable laws and ordinances, building codes, by-laws, regulations and
orders of any federal, state, county, municipal or other public authority and of
the insurers of the Premises. If required by Landlord, Tenant shall secure at
Tenant's own cost and expense a completion and lien indemnity bond or other
adequate security, including without limitation an indemnity agreement from
Tenant's parent, if any, in form and substance reasonably satisfactory to
Landlord. Except for the initial Tenant Improvements to the Building F Premises
and tenant improvements to be completed by tenant on the Expansion Space
pursuant to Sections 2.04, 2.05
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and 2.06 above, Tenant shall reimburse Landlord for Landlord's reasonable
charges (including any professional fees incurred by Landlord and a reasonable
administrative fee as established by Landlord from time to time) for reviewing
and approving or disapproving plans and specifications for any proposed
alterations.
9.03 Liens. Tenant shall promptly file and/or record, as applicable, all
notices of completion provided for by law, and shall pay and discharge all
claims for work or labor done, supplies furnished or services rendered at the
request of Tenant or at the request of Landlord on behalf of Tenant, and shall
keep the Premises and Property free and clear of all mechanics' and
materialmen's liens in connection therewith. Landlord shall have the right, and
shall be given ten (10) business days written notice by Tenant prior to
commencement of the work, to post or keep posted on the Premises, or in the
immediate vicinity thereof, any notices of non-responsibility for any
construction, alteration, or repair of the Premises by Tenant. If any such lien
is filed, Tenant shall cause same to be discharged of record within ten (10)
days following written notice thereof, or if Tenant disputes the correctness or
validity of any claim of lien, Tenant may contest the lien and, if requested to
do so by Landlord, shall provide a bond or other security in a form and amount
sufficient to insure that title to the Property remains free from the lien
claimed. If said lien is determined by the relevant court or by legal settlement
to be valid and is thereafter not timely discharged Landlord may, but shall not
be required to, take such action or pay such amount as may be necessary to
remove such lien and Tenant shall pay to Landlord as Additional Rent any such
amounts expended by Landlord, together with interest thereon at the Default Rate
(as defined in Section 5.04 hereof), within five (5) days after notice is
received from Landlord of the amount expended by Landlord.
ARTICLE X: USE AND COMPLIANCE WITH LAWS
10.01 General Use and Compliance with Laws. Tenant shall only use the
Premises for the purposes described in Section 1.01 above, and uses customarily
incidental thereto and for no other use without the prior written the consent of
Landlord. Tenant shall, at Tenant's sole cost and expense, comply with all
requirements of municipal, county, state, federal and other applicable
governmental authorities now or hereafter in force pertaining to Tenant's
business operations, alterations and/or specific use of the Premises and/or the
Project, and shall secure any necessary permits therefore and shall faithfully
observe in the use of the Premises and the Project, all municipal, county,
state, federal and other applicable governmental entities' requirements which
are now or which may hereafter be in force. Tenant, in Tenant's use and
occupancy of the Premises, shall not subject or permit the Premises and/or the
Project to be used in any manner which would tend to damage any portion thereof,
or which would increase the cost of any insurance paid by Landlord with respect
thereto. Tenant shall not do or permit anything to be done in or about the
Premises, the Common Areas and/or the Project which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Common Areas
and/or the Project or use or allow the Premises or any portion of the Project to
be used for any improper, immoral, unlawful or objectionable purpose, nor shall
Tenant cause, maintain or permit a nuisance in, on or about the Premises, the
Common Areas and/or the Project. Tenant shall comply with all
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covenants and obligations in the CC&R's which affect the use and operation of
the Premises, the Common Areas and/or the Project.
10.02 Hazardous Materials. Tenant shall not cause or permit any Hazardous
Materials (as defined hereinbelow) to be brought upon, kept or used in or about
the Building, the Property, the Common Areas and/or the Project by Tenant, its
agents, employees, contractors, licensees or invitees, except such Hazardous
Materials that are typical in Tenant's business and that are at all times, used,
kept and stored in the manner that complies with all laws, rules, regulations
and ordinances now or hereafter regulating any such Hazardous Materials. If
Tenant breaches the covenants and obligations set forth herein or, if the
presence of Hazardous Materials on, in or about the Building, the Property or
the Common Areas caused by Tenant, its agents, employees, contractors, licensees
or invitees results in contamination of all or any portion of the Project or any
other property, whether or not adjacent thereto, then Tenant shall indemnify,
defend and hold Landlord free and harmless from and against any and all claims,
judgments, damages, penalties, fines, costs, liabilities and losses (including,
without limitation, sums paid in settlement of claims, attorneys' fees,
consultant fees and expert fees) which arise during or after the Term as a
result of such contamination. This indemnification by Tenant of Landlord shall
include, without limitation, any and all costs incurred with any investigation
of site conditions and any cleanup, remedial, removal or restoration work
required by any federal, state or local governmental agency or political
subdivision because of the presence of such Hazardous Materials caused by
Tenant, its agents, employees, contractor, licensees and/or invitees in, on or
about the Building, the Common Areas or the soil or ground water on or under the
Property. The provisions of this Section 10.02 shall survive the expiration or
earlier termination of this Lease. For purposes of the Lease, the term
"Hazardous Materials" shall mean the following: (a) those substances included
within the definitions of "hazardous substances," "pollutant," or "contaminant"
in the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Sections 9601 et. seq. as heretofore or hereafter amended, the
regulations promulgated pursuant to such Act and state laws and regulations
similar to or promulgated pursuant to such Act; (b) any material, waste or
substance which is (i) petroleum, (ii) asbestos, (iii) flammable explosive, or
(iv) radioactive; and (c) such other substances, materials and wastes which are
or become regulated as hazardous or toxic under federal, state or local law.
Likewise, Landlord shall indemnify, defend and hold Tenant free and harmless
from and against any and all claims, judgments, damages, penalties, fines,
costs, liabilities and losses (including without limitation, sums paid in
settlement of claims, attorneys' fees, consultant fees and expert fees) which
arise during or after the Lease Term as a result of contamination existing upon
commencement of the Lease Term by no fault of Tenant, or as otherwise results
directly from Landlord's acts or omissions. Landlord hereby warrants to Tenant
that, to Landlord's knowledge, it has not received written notification from any
governmental authority regarding actual or probable contamination of the
Property by Hazardous Substances.
10.03 Signs. The Tenant shall not paint, display, inscribe, place or affix
any sign, picture, advertisement, notice, lettering, or direction on any part of
the outside of the Building or the Project or visible from the outside of the
Premises, the Building or the Project, except as first approved by Landlord or
as may be set forth in the Plans. Landlord will provide a concrete
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monument and enclosure in front of Building F as shown on the Project Site Plan
for Tenant-procured signage and logo and allow Tenant to affix or erect a
corporate logo and name on the Building exterior at Tenant's sole cost and
expense, all of which signage shall be subject to approval by Landlord, the
North Creek Owner's Associate and the City of Bothell.
10.04 Americans with Disabilities Act. Landlord warrants that as of the
Lease Commencement Date, the Building and Common Areas will comply with the
Americans with Disabilities Act of 1990 and any related rules and regulations,
as amended from time to time ("ADA"); provided, however, Tenant represents that
the Premises will not be a "public accommodation" as defined by the ADA and
acknowledges that the improvements to the Premises will not be required to meet
the requirements applicable to a public accommodation. To the extent applicable,
Tenant shall perform and pay for compliance with the ADA affecting the Premises
that is required with respect to Tenant's business and by actions taken by
Tenant to improve, alter or remodel the Premises, and by change to the ADA
enacted or promulgated after the Lease Commencement Date that require
modification to work performed by Tenant within the Premises. Throughout the
Term of this Lease, and subject to reimbursement by Tenant pursuant to Section
6.01 to the extent applicable, Landlord shall perform and pay for compliance
with the ADA for work performed by Landlord within the Building and Common
Areas, as well as outside of the Premises, including without limitation,
provision of an accessible path of travel to the Premises.
ARTICLE XI: DAMAGE AND DESTRUCTION
11.01 Reconstruction. If the Premises, Building or Common Areas are damaged
or destroyed during the Term, Landlord shall, except as hereinafter provided,
diligently repair or rebuild the same to substantially the condition which
existed immediately prior to such damage or destruction. If Landlord is
obligated or elects to repair or restore such damaged improvements as herein
provided, Landlord shall be obligated to make repair or restoration of only
those portions of the Premises which were provided at Landlord's expense or as
part of the installation by Landlord for Tenant and the repair and/or
restoration of other items within the Premises shall be the obligation of the
Tenant.
11.02 Rent Abatement. Rent due and payable hereunder shall be abated
proportionately during any period in which, by reason of any such damage or
destruction, there is substantial interference with the operation of Tenant's
business in the Premises. Such abatement shall continue for the period
commencing with such damage or destruction and ending with a substantial
completion by Landlord of the work of repair or reconstruction which Landlord is
obligated or undertakes to do. If it be determined that continuation of business
is not practical pending reconstruction, and if Landlord does not elect to or is
unable to provide alternative temporary space for continuation of such business,
then Rent due and payable hereunder shall abate, until reconstruction is
substantially completed or until business is totally or partially resumed,
whichever is the earlier. Tenant shall not be entitled to any claim,
compensation or damages for loss in the use in the whole or any part of the
Premises (including loss of business)
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and/or any inconvenience or annoyance occasioned by such damage, repair,
reconstruction or restoration.
11.03 Excessive Damage or Destruction. If the Building or the Premises is
damaged or destroyed to the extent that it cannot within Landlord's reasonable
discretion, with reasonable diligence, be fully repaired or restored by Landlord
within the earlier of (i) one hundred eighty (180) days after the date of the
damage or destruction, or (ii) the expiration of the Term hereof, either
Landlord or Tenant may terminate this Lease by written notice to the other
within thirty (30) days of the date of the damage or destruction. If the Lease
is not so terminated (or otherwise terminated pursuant to this Article 11), this
Lease shall remain in full force and effect and Landlord shall diligently repair
and restore the damage as soon as reasonably possible. If Landlord is delayed or
prevented from repairing and/or restoring the damage to the Building within two
hundred sixty (260) days after the occurrence of such damage or destruction,
Landlord or Tenant may at any time thereafter (but prior to the substantial
completion of said repair and/or restoration by Landlord) terminate this Lease
by ten (10) days prior written notice to the other, whereupon Landlord and
Tenant shall (except as otherwise expressly provided in this Lease) be released
from any further obligations under this Lease.
11.04 Uninsured Casualty. Notwithstanding anything contained herein to the
contrary, in the event of damage to or destruction of all or any portion of the
Building, which damage or destruction is not covered to the extent of 95% of the
total cost of repair and reconstruction, less deductibles, by the insurance
proceeds received by Landlord under the insurance policies required under
Article 7.01 hereinabove, Landlord may terminate this Lease by written notice to
Tenant given within sixty (60) days after the date of notice to Landlord that
said damage or destruction is not so covered. If Landlord does not elect to
terminate this Lease, the Lease shall remain in full force and effect and the
Building shall be repaired and rebuilt in accordance with the provisions for
repair set forth in Section 11.01 hereinabove. Nothing in this Article 11 shall
be construed as a waiver of Tenant's right to bring a claim against Landlord
should insurance coverage be unavailable to Landlord due to Landlord's failure
to obtain or maintain the insurance coverage expressly required by this Lease.
11.05 Waiver. With respect to any damage or destruction which Landlord is
obligated to repair or may elect to repair under the terms of this Article 11,
and to the extent permitted by law, Tenant hereby waives any rights to terminate
this Lease pursuant to rights otherwise accorded by law to tenants to the extent
inconsistent with the provisions of this Lease.
11.06 Mortgagee's Right. Notwithstanding anything herein to the contrary,
if the holder of any indebtedness secured by a mortgage or deed of trust
covering the Property, the Building and/or the Project requires that the
insurance proceeds be applied to such indebtedness, then Landlord shall have the
right to terminate this Lease by delivering written notice of termination to
Tenant within fifteen (15) days after such requirement is made. Upon any
termination of this Lease under the provisions hereof, the parties shall be
released without further obligation to the other from date possession of the
Premises is surrendered to Landlord, except for items which are theretofore
accrued and are then unpaid, return of the Security Deposit in
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accordance with Section 5.04 and final reconciliation of Operating Expenses in
accordance with Section 6.01(a). In addition, upon such termination Landlord
shall return and cancel the LC and Bond given pursuant to Section 17.26 or
refund any excess proceeds thereof, as applicable.
11.07 Damage Near End of Term. Notwithstanding anything to the contrary
contained in this Article XI, in the event the Premises or the Building are
subject to excessive damage (as defined in Section 11.03) during the last twelve
(12) months of the Term or any applicable extension periods, either party may
terminate this Lease by written notice to the other within thirty (30) days
after the date of such damage. For purposes of this Section 11.07, the Lease
Term shall be deemed to include any extension of the Lease Terms which Tenant
has an option to elect if, as of the date of the damage, Tenant has exercised
the option or, if the date of exercise has not yet occurred, if Tenant gives
written notice to Landlord of its exercise of such option within fifteen (15)
days after the date of the damage.
ARTICLE XII: EMINENT DOMAIN
12.01 Eminent Domain. In the event the whole of the Premises, Building,
Property or Common Areas, or such part thereof as shall substantially interfere
with Tenant's use and occupation thereof, shall be taken for any public or
quasi-public purpose by any lawful power or authority by exercise of the right
of appropriation, condemnation or eminent domain, or is sold in lieu of or to
prevent such taking, either party shall have the right to terminate this Lease
effective as of the date possession is required to be surrendered to said
authority. Except as provided below, Tenant shall not assert any claim against
Landlord or the taking authority for any compensation because of such taking,
and Landlord shall be entitled to receive the entire amount of any award without
deduction for any estate or interest of Tenant granted in this Lease. Nothing
contained in this Section 12.01 shall be deemed to give Landlord any interest in
any separate award made to Tenant for the taking of personal property and
fixtures belonging to Tenant or for Tenant's moving expenses. In the event the
amount of property or the type of estate taken shall not substantially interfere
with the conduct of Tenant's business, Landlord shall be entitled to the entire
amount of the award without deduction for any estate or interest of Tenant,
Landlord shall promptly proceed to restore the affected areas to substantially
their same condition prior to such partial taking less the portion thereof lost
in such condemnation, and the Base Rent shall be proportionately reduced by the
time during which, and the portion of the Premises which, Tenant shall have been
unable to use in its business on account of said taking and restoration.
ARTICLE XIII: DEFAULT
13.01 Events of Default. The occurrence of any of the following events
shall constitute an "Event of Default" on the part of the Tenant:
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(a) Tenant shall fail to pay on or before the due date any installment
of Rent or other payment required pursuant to this Lease and such failure is not
cured within five (5) business days after written notice from Landlord, which
cure period shall be deemed to run simultaneously with any notice and cure
period required under the Washington unlawful detainer or eviction statutes;
(b) Tenant shall abandon the Premises, whether or not Tenant is in
default of the Rent payments due under this Lease;
(c) Tenant shall fail to comply with any term, provision, or covenant
of this Lease, other than the payment of Rent or other sums of money due
hereunder, and such failure is not cured within twenty (20) days after written
notice thereof to Tenant (said notice being in lieu of, and not in addition to,
any notice required as a prerequisite to an unlawful detainer or similar action
for possession of the Premises); provided that if the nature of such cure is
such that a longer cure period is necessary, Tenant shall only be in default if
Tenant shall have failed to commence such cure within said twenty (20) day
period and thereafter to have diligently prosecuted such cure to completion;
(d) Tenant shall file a petition or be adjudged a debtor or bankrupt
or insolvent under the United States Bankruptcy Code, as amended, or any similar
law or statute of the United States or any State; or a receiver or trustee shall
be appointed for all or substantially all of the assets of Tenant and such
appointment or petition, if involuntary, is not dismissed within sixty (60) days
of filing; or
(e) Tenant shall make an assignment for the benefit of creditors.
13.02 Remedies.
(a) Upon the occurrence of any Event of Default set forth in this
Lease, in addition to any other remedies available to Landlord at law or in
equity, Landlord shall have the immediate option to terminate this Lease and all
rights of Tenant hereunder. In the event that Landlord shall elect to so
terminate this Lease, then Landlord may recover from Tenant: (i) any unpaid rent
which has been earned at the time of such termination plus interest at the rates
contemplated by this Lease; plus (ii) the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably avoided
plus interest at the rates contemplated by this Lease; plus (iii) the worth at
the time of award of the amount by which the unpaid rent for the balance of the
Term after the time of award exceeds the amount of such rental loss that Tenant
proves could be reasonably avoided; plus (iv) the unamortized balance of the
value of any free Rent provided pursuant to Section 1.01 above at the monthly
Base Rent rate for the fourth month of the Lease Term as amortized over the
initial Term of this Lease; plus (v) any other amount necessary to compensate
Landlord for all the damage proximately caused by Tenant's failure to perform
Tenant's obligation under this Lease or which in the ordinary course of things
would be likely to result therefrom, including, but not limited to, costs to
reimprove the Premises, or
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portions thereof, for a new tenant and leasing commissions. As used in
Subsections 13.02(a) (iii) above, the "worth at the time of award" is computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%).
(b) In the event of any such default by Tenant, Landlord shall also
have the right with or without terminating this Lease, to re-enter the Premises
and remove all persons and property from the Premises; such property may be
removed and stored in a public warehouse or elsewhere at the cost of and for the
account of the Tenant. No re-entry or taking possession of the Premises by
Landlord pursuant to this Section 13.02(b) shall be construed as an acceptance
of a surrender of the Premises or an election to terminate this Lease unless a
written notice of such intention is given to Tenant or unless the termination
thereof is decreed by a court of competent jurisdiction.
(c) In the event of the vacation or abandonment of the Premises by
Tenant or in the event that Landlord shall elect to re-enter as provided above
or shall take possession of the Premises pursuant to legal proceedings or
pursuant to any notice provided by law, then if Landlord does not elect to
terminate this Lease as provided above, Landlord may from time to time, without
terminating this Lease, either recover all Rent as it becomes due or relet the
Premises or any part thereof for the Term of this Lease on terms and conditions
as Landlord at its sole discretion may deem advisable with the right to make
alterations and repairs to the Premises. In the event that Landlord shall elect
to so relet, the rents received by Landlord from such reletting shall be
applied: first to the payment of any indebtedness other than Rent due hereunder
from Tenant to Landlord; second to the payment of any costs of such reletting;
third, to the payment of the cost of any alterations and repairs to the Premises
reasonably necessary in connection with such reletting; fourth, to the payment
of Rent due and unpaid hereunder; and the residual, if any, shall be held by
Landlord and applied to payment of future Rent as the same shall become due and
payable hereunder. Should that portion of such rents received from such
reletting during the month which is applied to the payment of Rent be less than
the Rent payable during that month by Tenant hereunder, then Tenant shall pay
any such deficiency to Landlord immediately upon demand therefor by Landlord.
Such deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord, as soon as is certain, any of the costs and expenses incurred by
Landlord in such reletting or in making such alterations and repairs not covered
by the rents received from such reletting.
(d) In addition to any and all other non-exclusive remedies of
Landlord pursuant to Subsections (a)-(c) above, in the event Landlord terminates
this Lease or reenters the Premises due to a default by Tenant, Landlord shall
be entitled to obtain from Tenant, additional damages (in addition to any and
all other damages to which Landlord may be entitled) in the lump sum amount of
$200,000.00, which the parties agree shall be the agreed and liquidated damages
to Landlord for concessions to be incurred or granted by Landlord in leasing
space in Building E as may be required in order to lease-up such space subject
to the options of Tenant granted pursuant to Section 2 above. The parties agree
that such damages are difficult to determine and have agreed to the above
$200,000.00 as the liquidated amount of compensation to Landlord for the various
concessions made by Landlord for other tenants of Building E. The above
liquidated
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amount shall not be deemed to include any Rent or other sums owing by Tenant
with respect to Building E Premises or other damages incurred by Landlord as a
result of Tenant's default under this Lease. Notwithstanding the above, the
above $200,000.00 liquidated amount shall be reduced on each annual anniversary
of the Commencement Date to the following amounts:
Lease Year 2 $179,222.00
Lease Year 3 $156,268.00
Lease Year 4 $130,911.00
Lease Year 5 $102,898.00
Lease Year 6 $ 71,952.00
Lease Year 7 $ 37,766.00
(e) All rights, options and remedies of Landlord contained in this
Lease shall be construed and held to be cumulative, and no one of them shall be
exclusive of the other, and Landlord shall have the right to pursue any one or
all of such remedies or any other remedy or relief which may be provided by law,
whether or not stated in this Lease. No waiver of any default of Tenant
hereunder shall be implied from any acceptance by Landlord of any Rent or other
payments due hereunder or any omission by Landlord to take any action on account
of such default if such default persists or is repeated, and no express waiver
shall affect defaults other than as specified in said waiver. The consent or
approval of Landlord to or of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to waive or render unnecessary Landlord's consent
or approval to or of any subsequent similar acts by Tenant.
(f) Notwithstanding anything in this Subsection 13.02 to the contrary,
in the event Tenant has not been in "material default" under this Lease during
the eighteen (18) month period immediately preceding an Event of Default
hereunder, then in such event, Landlord shall not exercise its remedies to
terminate this Lease or terminate Tenant's possession under this Lease unless or
until Tenant has failed to cure the Event of Default within fifteen (15) days
after receipt of notice from Landlord of such Event of Default. For purposes of
this Subsection (f) the term "material default" shall mean an Event of Default
requiring payment of a sum equal to or in excess of $50,000.00 within the
applicable cure period pursuant to Section 13.01 above. The limitations set
forth in this Subsection (f) shall not prevent Landlord from pursuing any other
available remedy, including without limitation, application of any Security
Deposit or a draw on the LC and/or Bond tendered pursuant to Section 17.26
below, nor shall such limitations prevent the amounts outstanding from accruing
interest at the Default Rate pursuant to Section 5.03 above.
13.03 Landlord's Default. Landlord shall not be in default unless Landlord
fails to perform its obligations under this Lease within thirty (30) days after
written notice by Tenant, or if such failure is not reasonably capable of being
cured within such thirty (30) day period, Landlord shall not be in default
unless Landlord has failed to commence the cure and diligently pursue the cure
to completion. In no event shall Tenant have the remedy to terminate this Lease
except upon final adjudication of competent jurisdiction authorizing such
default.
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ARTICLE XIV: FILING OF PETITION
Section 14.01 Tenant's Bankruptcy.
Landlord and Tenant (as either debtor or debtor-in-possession) agree that
if a petition ("Petition") is filed by or against tenant under any chapter of
Title 11 of the United States Code (the "Bankruptcy Code"), the following
provisions shall apply:
(a) Adequate protection for Tenant's obligations accruing after filing
of the Petition and before this Lease is rejected or assumed shall be provided
within 15 days after filing in the form of a security deposit equal to three
months' Basic Rent and Additional Rent and other Lease charges, to be held by
the court or an escrow agent approved by Landlord and the court.
(b) The sum of all amounts payable by Tenant to Landlord under this
Lease constitutes reasonable compensation for the occupancy of the Premises by
Tenant.
(c) Tenant or Trustee shall give Landlord at least 30 days written
notice of any abandonment of the Premises or any proceeding relating to
administrative claims. If Tenant abandons without notice, Tenant or Trustee
shall stipulate to entry of an order for relief from stay to permit Landlord to
reenter and relet the Premises.
(d) If Tenant failed to timely and fully perform any of its
obligations under this Lease before the filing of the Petition, whether or not
Landlord has given Tenant written notice of that failure and whether or not any
time period for cure expired before the filing of the Petition, Tenant shall be
deemed to have been in default on the date the Petition was filed for all
purposes under the Bankruptcy Code.
(e) For the purposes of Section 365(b)(1) of the Bankruptcy Code,
prompt cure of defaults shall mean cure within 30 days after assumption.
(f) For the purposes of Section 365(b)(1) and 365(f)(2) of the
Bankruptcy Code, adequate assurance of future performance of this Lease by
Tenant, Trustee or any proposed assignee will require that Tenant, Trustee or
the proposed assignee deposit three months of Basic Rent and Additional Rent
into an escrow fund (to be held by the court or an escrow agent approved by
Landlord and the court) as security for such future performance. In addition, if
this Lease is to be assigned, adequate assurance of future performance by the
proposed assignee shall require that: (i) the assignee have a tangible net worth
not less than the net worth of Tenant as of the Commencement Date or that such
assignee's performance be unconditionally guaranteed by a person or entity that
has a tangible net worth not less than the net worth of Tenant as of the
Commencement Date; (ii) the assignee demonstrate that it possesses a history of
success in operating a business of similar size and complexity in a similar
market as Tenant's business; and (iii) assignee assume in writing all of
Tenant's obligations relating to the Premises or this Lease. All credit
enhancements required pursuant to Section 17.26 below will be
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required to be maintained subsequent to any such assignment, subject to the
termination or release of the same pursuant to the specific provisions of
Section 17.26.
(g) If Tenant or Trustee intends to assume and/or assign this Lease,
Tenant or Trustee shall provide Landlord with 30 days written notice of the
proposed action, separate from and in addition to any notice provided to all
creditors. Notice of a proposed assumption shall state the assurance of prompt
cure, compensation for loss and assurance of future performance to be provided
to Landlord. Notice of a proposed assignment shall state: (i) the name, address,
and federal tax identification and registration numbers of the proposed
assignee; (ii) all of the terms and conditions of the proposed assignment, and
(iii) the assignee's proposed adequate assurance of future performance to be
provided to Landlord.
(h) If Tenant is in default under this Lease when the Petition is
filed, Landlord shall not be required to provide Tenant or Trustee with services
or supplies under this Lease or otherwise before Tenant assumes this Lease,
unless Tenant compensates Landlord for such services and supplies in advance.
ARTICLE XV: ASSIGNMENT AND SUBLETTING
15.01 Prohibition. Tenant shall not assign, mortgage, pledge or otherwise
transfer or encumber this Lease, in whole or in part, nor sublet, assign, or
permit occupancy by any party other than Tenant of all or any part of the
Premises, without the prior written consent of Landlord in each instance which
consent shall not be unreasonably withheld or delayed; provided, that nothing
herein shall be deemed to prohibit occupancy (without any assignment or
subletting) of portions of the Premises by Tenant's affiliates. Tenant shall at
the time the Tenant requests the consent of Landlord, deliver to Landlord such
information in writing as Landlord may reasonably require respecting the
proposed assignee or subtenant including, without limitation, the name, address,
nature of business, ownership, financial condition and reputation of such
proposed assignee or subtenant and Landlord shall have not less than ten (10)
business days after receipt of all required information to elect one of the
following: (a) consent to such proposed assignment, encumbrance or sublease, or
(b) refuse such consent, which refusal shall be on reasonable grounds. In
addition, as a condition to Landlord's consent to any assignment, sublease or
encumbrance of this Lease shall be the delivery to Landlord of a true copy of
the fully executed instrument of assignment, transfer or encumbrance and an
agreement executed by the assignee, sublessee or other transferee in form and
substance satisfactory to Landlord and expressly enforceable by Landlord,
whereby the assignee assumes and agrees to be bound by the terms and provisions
of this Lease and perform all the obligations of Tenant hereunder with respect
to the assigned or subleased portion of the Premises. No assignment or
subletting by Tenant shall relieve Tenant of any obligation under this Lease,
including Tenant's obligation to pay Base Rent and Additional Rent hereunder or
be deemed to allow a release of the LC or Bond pursuant to Section 17.26 until
such time as allowed to be terminated or released pursuant to the provisions of
said Section 17.26. Any purported assignment or subletting contrary to the
provisions hereof
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without consent shall be void. The consent by Landlord to any assignment or
subletting shall not constitute a waiver of the necessity for such consent to
any subsequent assignment of subletting.
15.02 Excess Rental. If pursuant to any assignment or sublease, Tenant
receives rent, either initially or over the term of the assignment or sublease,
in excess of the Rent called for hereunder, or in the case of this sublease of a
portion of the Premises in excess of such Rent fairly allocable to such portion,
after appropriate adjustments to assure that all other payments called for
hereunder are appropriately taken into account and deducting Tenant's cost of
subletting, including improvements and commissions, Tenant shall pay to
Landlord, as Additional Rent hereunder, fifty percent (50%) of the excess of
each such payment of rent received by Tenant after its receipt.
15.03 Scope. The prohibition against assigning or subletting contained in
this Article XIV shall be construed to include a prohibition against any
assignment or subletting by operation of law. If this Lease be assigned, or if
the underlying beneficial interest of Tenant is transferred, or if the Premises
or any part thereof be sublet or occupied by anybody other than Tenant, Landlord
may collect rent from the assignee, subtenant or occupant and apply the net
amount collected to the Rent herein reserved and apportion any excess rent so
collected in accordance with the terms of the immediately preceding paragraph,
but no such assignment, subletting, occupancy or collection shall be deemed a
waiver of this covenant, or the acceptance of the assignee, subtenant or
occupant as tenant, or a release of Tenant from the further performance by
Tenant of covenants on the part of Tenant herein contained. No assignment or
subletting shall affect the continuing primary liability of Tenant (which,
following assignment, shall be joint and several with the assignee), and Tenant
shall not be released from performing any of the terms, covenants and conditions
of this Lease.
15.04 Waiver. Notwithstanding any assignment or sublease, or any
indulgences, waivers or extensions of time granted by Landlord to any assignee
or sublessee or failure of Landlord to take action against any assignee or
sublease, Tenant hereby agrees that Landlord may, at its option, and upon not
less than ten (10) days' notice to Tenant, proceed against Tenant without having
taken action against or joined such assignee or sublessee, except that Tenant
shall have the benefit of any indulgences, waivers and extensions of time
granted to any such assignee or sublessee.
15.05 Change in Control. If Tenant is a partnership, a withdrawal of or
change in partners, in one or more transfers, owning more than a fifty percent
(50%) interest in the partnership, shall constitute a voluntary assignment and
shall be subject to the provisions of this Article XV. If the Tenant is a
corporation, a transfer of fifty percent (50%) or more of the corporation's
stock or assets in one or more transfers to a single party and/or its
affiliates, or a transfer in the control of such company pursuant to a merger,
consolidation, sale of assets or otherwise, shall be deemed for the purposes
hereof to be an assignment of this Lease, and shall be subject to the provisions
of this Article XV. Notwithstanding anything in this Lease to the contrary,
Landlord's prior consent shall not be required for any assignment, sublease or
other transfer of Tenant's interest in the Premises or the Lease to any
corporation with which Tenant
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may merge or consolidate or become affiliated as a parent, subsidiary, holding
company or otherwise, or to an entity in which Tenant has a controlling
interest; provided, that such successor entity has a tangible net worth and
associated proportions of current and fixed assets with corresponding associated
proportions of current and long-term liabilities the same or better than that of
Tenant as of the date of this Lease and provided that Tenant is not released
from liability hereunder. Neither shall the restrictions of this Section apply
to the sale of shares of Tenant in connection with a public offering under NYSE,
NASDAQ or AMEX.
ARTICLE XVI: ESTOPPEL CERTIFICATE, ATTORNMENT AND SUBORDINATION
16.01 Estoppel Certificates. Within ten (10) business days after request
therefor by Landlord, or if on any sale, assignment or hypothecation by Landlord
of Landlord's interest in the Property, the Project and/or the Premises, or any
part thereof, an estoppel certificate shall be required from Tenant, Tenant
shall deliver, in recordable form, a certificate in the form attached hereto as
Exhibit G, or in such substantially similar form as requested by Landlord, to
any proposed mortgagee or purchaser, and to Landlord, certifying (if such be the
case) that this Lease is in full force and effect, the date of Tenant's most
recent payment of Rent, and that Tenant has no defenses or offsets outstanding,
or stating those claimed by Tenant, and any other information contained in such
Exhibit G or reasonably requested by Landlord or such proposed mortgagee or
purchaser. Tenant's failure to deliver said statement within said period shall,
at Landlord's option be an Event of Default hereunder and shall in any event be
conclusive upon Tenant that: (i) this Lease is in full force and effect, without
modification except as may be represented by Landlord; (ii) there are no uncured
defaults in Landlord's performance and Tenant has no right to offset,
counterclaim or deduction against Rent hereunder; and (iii) no more than one
period's Base Rent has been paid in advance.
16.02 Attornment. Tenant shall, in the event any proceedings are brought
for the foreclosure of, or in the event of exercise of the power of sale under,
any mortgage or deed of trust made by Landlord, its successors or assigns,
encumbering the Building, or any part thereof or in the event of termination of
a ground lease, if any, and if so requested, attorn to the purchaser upon such
foreclosure or sale or upon any grant of a deed in lieu of foreclosure and
recognize such purchaser as Landlord under this Lease; provided, that such
purchaser recognizes Tenant's rights under this Lease and agrees not to disturb
Tenant's quiet possession of the Premises for so long as Tenant is not in
default hereunder.
16.03 Subordination. The rights of Tenant hereunder are and shall be, at
the election of any mortgagee or the beneficiary of a deed of trust encumbering
the Property and or Building, subject and subordinate to the lien of such
mortgage or deed of trust, or the lien resulting from any other method of
financing or refinancing, now or hereafter in force against the Property and/or
the Building, and to all advances made or hereafter to be made upon the security
thereof; provided, however, that notwithstanding such subordination, so long as
Tenant is not in default under any of the terms, covenants and conditions of the
Lease, neither the Lease nor any of the rights of Tenant hereunder shall be
terminated or subject to termination by any trustee's sale, any action to
enforce the security, or by any proceeding or action in foreclosure. If
requested, Tenant
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agrees to execute such documentation as may be required by Landlord or its
lender to further effect the provisions of this Article.
16.04 Recording. At the written request of either Landlord or Tenant, the
parties shall execute and record a Memorandum of Lease in the form attached
hereto as Exhibit H. In addition, in the event that Landlord or its lender
requires this Lease or a memorandum thereof to be recorded in priority to any
mortgage, deed of trust or other encumbrance which may now or at any time
hereafter affect in whole or in part the Building, the Property or the Project,
and whether or not any such mortgage, deed of trust or other encumbrance shall
affect only the Building, the Property or the Project, or shall be a blanket
mortgage, deed of trust or encumbrance affecting other premises as well, the
Tenant covenants and agrees with Landlord that the Tenant shall execute promptly
upon request from Landlord any certificate, priority agreement or other
instrument which may from time to time be requested to give effect thereto;
provided that the same is consistent with the terms of this Article 16.
ARTICLE XVII: MISCELLANEOUS
17.01 Notices. All notices required to be given hereunder shall be in
writing and mailed postage prepaid by certified or registered mail, return
receipt requested, or by personal delivery, to the appropriate address indicated
in Section 1.01 hereof or at such other place or places as either Landlord or
Tenant may, from time to time, respectively, designate in a written notice given
to the other. Notices shall be deemed sufficiently served upon the earlier of
actual receipt or the expiration of three (3) days after the date of mailing
thereof.
17.02 Successors Bound. This Lease and each of its covenants and conditions
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective assignees, subject to the provisions hereof. Whenever in this
Lease a reference is made to Landlord, such reference shall be deemed to refer
to the person in whom the interest of Landlord shall be vested, and Landlord
shall have no obligation hereunder as to any claim arising after the transfer of
its interest in the Building. Any successor or assignee of the Tenant who
accepts an assignment of the benefit of this Lease and enters into possession or
enjoyment hereunder shall thereby assume and agree to perform and be bound by
the covenants and conditions thereof. Nothing herein contained shall be deemed
in any manner to give a right of assignment without the prior written consent of
Landlord pursuant to, or otherwise as provided in, Article XV hereof.
17.03 Waiver. No waiver of any default or breach of any covenant by either
party hereunder shall be implied from any omission by either party to take
action on account of such default if such default persists or is repeated, and
no express waiver shall affect any default other than the default specified in
the waiver and said waiver shall be operative only for the time and to the
extent therein stated. Waivers of any covenant, term or condition contained
herein by either party shall not be construed as a waiver of any subsequent
breach of the same covenant, term or condition. The consent or approval by
either party to or of any act by either party requiring
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further consent or approval shall not be deemed to waive or render unnecessary
their consent or approval to or of any subsequent similar acts.
17.04 Subdivision and Easements. Landlord reserves the right to: (a)
subdivide the Project and/or Property; (b) alter the boundaries of the Property;
and (c) grant easements on the Property and/or Project and dedicate for public
use portions thereof; provided, however, that no such grant or dedication shall
materially interfere with Tenant's parking rights hereunder or its use of the
Premises. Tenant hereby consents to such subdivision, boundary revision, and/or
grant or dedication of easements and agrees from time to time, at Landlord's
request, to execute, acknowledge and deliver to Landlord, in accordance with
Landlord's instructions, any and all documents, instruments, maps or plats
necessary to effectuate Tenant's consent thereto.
17.05 Landlord's Reserved Rights in Common Areas. Landlord reserves the
right from time to time, provided that Tenant's use and enjoyment of the
Premises is not materially and adversely affected thereby, to: (a) install, use,
maintain, repair and replace pipes, ducts, conduits, wires and appurtenant
meters and equipment for service to other parts of the Building above the
ceiling surfaces, below the floor surfaces, within the walls and in the central
core areas, and to relocate any pipes, ducts, conduit, wires and appurtenant
meters in the Building which are so located or located elsewhere outside the
Building; (b) make changes to the Common Areas and/or the parking facilities
located thereon, including, without limitation, changes in the location, size,
shape and number of driveways, entrances, parking spaces, parking areas, loading
and unloading areas, ingress, egress, direction of traffic, landscaped areas and
walkways; (c) close temporarily all or any portion of the Common Areas and/or
the Building in order to perform any of the foregoing or any of Landlord's
obligations under this Lease, so long as reasonable access to the Building
remains available during normal business hours; and (d) alter, relocate or
expand, and/or to add additional structures and improvements to, or remove same
from, all or any portion of the Common Areas or other portions of the Project;
provided, that Landlord shall repair any damage to the Premises resulting from
the exercise by Landlord of its rights hereunder and provided, further that no
such changes shall materially affect the usability of the Premises by Tenant,
the visibility of or access to the Premises or reduce available parking provided
to the Premises pursuant to Section 1.01.
17.06 Accord and Satisfaction. No payment by Tenant or receipt by Landlord
of a lesser amount than the Rent herein stipulated shall be deemed to be other
than on account of the Rent, nor shall any endorsement or statement on any check
or any letter accompanying any check or payment as Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Rent or pursue any other remedy
provided in this Lease.
17.07 Limitation of Landlord's Liability. The obligations of Landlord under
this Lease do not constitute personal obligations of the individual partners,
directors, officers, employees or shareholders of Landlord or its partners, and
Tenant shall look solely to the Property, and the rents and profits therefrom,
for satisfaction of any liability in respect of this
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Lease and will not seek recourse against the individual partners, directors,
officers, employees or shareholders of Landlord or its partners or any of their
personal assets for such satisfaction.
17.08 Time. Time is of the essence of every provision hereto.
17.09 Attorneys' Fees. In the event either party requires the services of
an attorney in connection with enforcing the terms of this Lease or in the event
suit is brought for the recovery of any Rent due under this Lease or the breach
of any covenant or condition of this Lease, or for the restitution of the
Premises to Landlord and/or eviction of Tenant during the Term of this Lease, or
after the expiration thereof, the prevailing party will be entitled to a
reasonable sum for attorneys' fees, witness fees and other court costs, both at
trial and on appeal.
17.10 Captions and Article Numbers. The captions, article and section
numbers and table of contents appearing in this Lease are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or intent or such sections or articles of this Lease nor in any way affect
this Lease.
17.11 Severability. If any term, covenant, condition or provision of this
Lease, or the application thereof to any person or circumstance, shall to any
extent be held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, covenants, conditions or provisions
of this Lease, or the application thereof to any person or circumstance, shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
17.12 Applicable Law. This Lease, and the rights and obligations of the
parties hereto, shall be construed and enforced in accordance with the laws of
the state in which the Building is located.
17.13 Submission of Lease. The submission of this document for examination
and negotiation does not constitute an offer to lease, or a reservation of or
option for leasing the Premises. This document shall become effective and
binding only upon execution and delivery hereof by Landlord and Tenant. No act
or omission of any officer, employee or agent of Landlord or Tenant shall alter,
change or modify any of the provisions hereof.
17.14 Holding Over. Should Tenant, or any of its successors in interest,
hold over the Premises or any part thereof after the expiration or earlier
termination of this Lease without Landlord's prior written consent, such holding
over shall constitute and be construed as tenancy at sufferance only, at a
monthly rent equal to one hundred fifty percent (150%) of the Base Rent owed
during the final month of the Term of this Lease and otherwise upon the terms
and conditions in the Lease, so far as applicable. Should Tenant, or any of its
successors in interest, hold over the Premises or any part thereof after the
expiration or earlier termination of this Lease with Landlord's prior written
consent, such holding over shall constitute and be construed as a tenancy from
month to month only, at a fair market monthly rent as agreed by Landlord and
Tenant and otherwise upon the terms and conditions of this Lease, so far as
applicable. The acceptance by Landlord of Rent after such expiration or early
termination shall not result in a
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renewal or extension of this Lease. The foregoing provisions of this Section
17.14 are in addition to and do not affect Landlord's right of re-entry or any
other rights of Landlord hereunder or as otherwise provided by law. If Tenant
fails to surrender the Premises on the expiration of this Lease and/or to remove
all Tenant's fixture and/or personal property pursuant to Section 9.01 hereof,
Tenant shall indemnify and hold Landlord harmless from and against all loss or
liability, including without limitation, any claim made by any succeeding tenant
resulting from such failure to surrender by Tenant and any attorneys' fees and
costs incurred by Landlord with respect to any such claim.
17.15 Rules and Regulations. At all times during the Term, Tenant shall
comply with Rules and Regulations for the Building and the Project, as set forth
in Exhibit I attached hereto, together with such amendments thereto as Landlord
may from time to time reasonably adopt and enforce in a non-discriminatory
fashion.
17.16 Parking. Tenant shall be entitled to the number of vehicle parking
spaces designated in Section 1.01 hereof for the non-exclusive use of Tenant,
its employees, visitors and customers, the location of which shall be determined
by Landlord upon completion of the Building. Except for the number of stalls
reserved for Tenant pursuant to Section 1.01 or as otherwise designated by
Landlord, parking spaces shall be available for the common use of the tenants,
subtenants and invitees of the Project on a non-exclusive basis, subject to any
reasonable restrictions from time to time imposed by Landlord. Landlord shall
not allow reserved parking (other than designated "Visitor" parking) of any
stalls on the Property without Tenant's prior written consent, which shall not
be unreasonably withheld or delayed. In the event Tenant notifies Landlord that,
due to the use of parties other than Tenant, its employees, agents, contractors,
visitors and invitees of available non-exclusive parking stalls, Tenant is not
receiving the substantial benefit of the number of stalls to which Tenant is
entitled pursuant to Section 1.01, Landlord shall take such reasonable actions
so as to ensure the availability for Tenant's use of the number of stalls to
which Tenant is entitled pursuant to this Lease. Tenant shall take reasonable
measures to ensure that its officers, employees or invitees do not use more than
the number of spaces designated in Section 1.01 or any spaces which have been
specifically reserved by Landlord to other tenants or for such other uses as
have been designated by appropriate governmental entities as being restricted to
certain uses. Tenant shall at all times comply and cause its officers, employees
and invitees to comply with any parking Rules and Regulations as Landlord may
from time to time reasonably adopt. In the event the parking allocated to Tenant
pursuant to this Lease becomes insufficient for Tenant's needs Landlord shall,
to the extent feasible, upon notice from Tenant, use good faith efforts to
provide additional parking to Tenant in areas adjacent or near to the Premises
which are not otherwise allocated for use of tenants of other buildings of the
Project, upon terms and conditions mutually acceptable to the parties. Tenant
shall pay rates for such excess parking as may be reasonably determined by
Landlord as adjusted from time to time. In the event Landlord determines to
improve existing Common Areas of the Project to provide additional parking to
the tenants of the Project, in addition to parking allocations allocated on the
Project Site Plan, Landlord shall give Tenant the right to use (at rental rates
set by Landlord) a pro rata portion of such additional parking based upon
Tenant's Share of the Project.
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17.17 No Nuisance. Tenant shall conduct its business and control its
agents, employees, invitees and visitors in such a manner as not to create any
nuisance, or interfere with, annoy or disrupt any other tenant or Landlord in
its operation of the Building or Project.
17.18 Broker. Each of Tenant and Landlord warrant that it has had no
discussions, negotiations and/or other dealings with any real estate broker or
agent in connection with the negotiation of this Lease other than Kidder Mathews
& Segner and Business Space Resource Ltd. ("Brokers"), and that it knows of no
other real estate broker or agent who is or may be entitled to any commission or
finder's fee in connection with this Lease. Landlord shall pay Brokers a
commission pursuant to separate agreements. Each Tenant and Landlord agrees to
indemnify the other and hold the other harmless from and against any and all
claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses
(including without limitation, attorneys' fees and costs) with respect to any
leasing commission or equivalent compensation alleged to be owing on account of
such party's discussions, negotiations and/or dealings with any real estate
broker or agent. This Section 17.18 is not intended to benefit any third parties
and shall not be deemed to give any rights to brokers or finders. No
commission(s) or finders fee(s) shall be paid to Tenant, employee(s) of Tenant
or any unlicensed representative of Tenant.
17.19 Landlord's Right to Perform. Upon Tenant's failure to perform any
obligation of Tenant hereunder after notice from Landlord pursuant to Section
13.01 above, including without limitation, payment of Tenant's insurance
premiums, charges of contractors who have supplied materials or labor to the
Premises, etc., Landlord shall have the right to perform such obligation of
Tenant on behalf of Tenant and/or to make payment on behalf of Tenant to such
parties. Tenant shall reimburse Landlord the reasonable cost of Landlord's
performing such obligation on Tenant's behalf, including reimbursement of any
amounts that may be expended by Landlord, plus interest at the Default Rate, as
Additional Rent.
17.20 Assignment by Landlord. In the event of a sale, conveyance, or other
transfer by Landlord of the Building, the Property or the Project or in the
event of an assignment of this Lease by Landlord (collectively an "Assignment"),
the same shall operate to release Landlord from any further liability upon any
of the covenants or conditions, express or implied, herein contained on the part
of Landlord attributable to the time period commencing with an Assignment, and
from any and all further liability, obligations, costs and expenses, demands,
causes of action, claims or judgments arising out of this Lease from and after
the effective date of the Assignment. In such event, Tenant agrees to look
solely to the successor in interest of transferor. If any Security Deposit is
given by Tenant to secure performance of Tenant's covenants hereunder, Landlord
shall transfer such Security Deposit to any purchaser and thereupon Landlord
shall be discharged from any further liability in reference thereto.
17.21 Entire Agreement. This Lease sets forth all covenants, promises,
agreements, conditions and understandings between Landlord and Tenant concerning
the Building and the Project, and there are no covenants, promises, agreements,
conditions or understandings, either oral or written, between Landlord and
Tenant other than as are herein set forth. No subsequent
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alteration, amendment, change or addition to the Lease shall be binding upon
Landlord or Tenant unless reduced to writing and signed by Landlord and Tenant.
17.22 Consents. Whenever the approval or consent of Landlord or Tenant is
required under the terms of this Lease, such consent shall not be unreasonably
withheld or delayed.
17.23 Exhibits. Exhibits A through K are attached to this Lease after the
signatures after the signatures and by this reference incorporated herein.
17.24 Conditions. Landlord's and Tenant's obligations under this Lease are
conditioned upon (a) approval of the transaction contemplated by this Lease by
the board of directors of both Landlord and Tenant on or before the date fifteen
(15) days after execution of this Lease by both parties; and (b) approval by all
municipalities having jurisdiction over the Project and the issuance of all
required permits for the construction of the Building, related site and utility
work and the tenant improvement work contemplated by this Lease on or before
March 1, 1999, which period shall be extended day for day for any "Tenant
Delays". In the event said conditions are not satisfied, this Lease shall
terminate, all sums paid by Tenant to Landlord hereunder shall be promptly
refunded to Tenant and the LC and Bond provided by Tenant pursuant to Section
17.26 below shall be returned to Tenant or released, as applicable.
17.25 Moving Allowance. Landlord shall fund to Tenant a moving and
relocation allowance in the total amount of $255,861.00 to reimburse Tenant for
moving and relocation expenses associated with moving Tenant's operations from
its existing location to the Premises. Landlord shall fund said moving allowance
in a lump sum payment to Tenant upon Tenant's taking of occupancy of the
Premises.
17.26 Credit Enhancements.
(a) Letter of Credit. In the event Tenant elects to have Landlord
finance additional improvements pursuant to Section 3.01(d)(2)(cc), on or before
January 15, 1999, Tenant shall deliver to Landlord a site draft irrevocable
letter of credit issued by SeaFirst Bank, or other bank acceptable to Landlord
in its sole discretion, in the amount of $420,000.00, in the form attached
hereto as Exhibit J (the "LC"), as security for the full and faithful
performance of every provision of this Lease to be performed by Tenant during
the initial seven (7) year Lease Term. The LC shall be (i) unconditional and
irrevocable, (ii) permit partial draws by Landlord at any time upon notice by
Landlord that Tenant is in default under this Lease, and (iii) have a term of at
least one year, which shall be renewable each year throughout the initial Lease
Term. If Tenant defaults with respect to any provision of this Lease, including
but not limited to the provisions relating to the payment of Rent, the repair of
damage to the Premises caused by Tenant and/or cleaning the Premises upon
termination of this Lease, Landlord may draw on all or any part of the LC for
the payment of any Rent or any other sum in default and any and all other
amounts to which Landlord may be entitled under this Lease, including without
limitation Section 13.02. Upon any draw upon the LC by Landlord, Tenant shall,
upon demand by Landlord, restore the LC to its original amount (as may be
reduced as contemplated below). Tenant shall cause the LC to be renewed for
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each year of the initial Lease Term; provided, however, if Tenant has not been
in material default under the terms of this Lease, the amount of the LC shall
be reduced each year to the following amounts:
Lease Year Amount of LC
---------- ------------
2 $376,000.00
3 $328,160.00
4 $274,910.00
5 $216,090.00
6 $151,100.00
7 $ 79,310.00
The foregoing schedule notwithstanding, Tenant shall not be entitled to a
reduction in any year of the Lease Term if Tenant is at the time of the
scheduled reduction (the applicable anniversary of the Lease Commencement Date)
in material default (as defined in Section 13.02(f) above) or has been in
material default at any time during the twelve (12) month period immediately
preceding the scheduled reduction. If Tenant is not entitled to a reduction for
a given year, Tenant must wait until the next anniversary date of the Lease Term
to take the reduction corresponding to the next year; provided Tenant is
otherwise entitled to a reduction. If Tenant shall fail to provide such LC on or
before January 15, 1999, or fails to replace it with an approved LC not less
than thirty (30) days prior to the expiration date of any such LC, then the
Tenant shall be considered to be in default under the terms of this Lease and
Landlord shall have the right to exercise any of its available remedies pursuant
to Section 13.02 of this Lease and shall, in addition, have the right to draw
against the full amount of the LC and thereafter hold the same as security for
Tenant's obligations under this Lease for the entire initial seven (7) year
Lease Term. Landlord shall be entitled to withdraw from such sums the amount of
any unpaid Base Rent, Additional Rent or other charges not paid to Landlord when
due. Landlord shall pay Tenant the remaining balance thereof, if any, without
any liability for interest thereon, within thirty (30) days after the expiration
or prior termination of the Lease Term, if and only if Tenant has fully
performed all of its obligations under the terms of this Lease.
(b) Performance Bond. Tenant shall provide a performance bond ("Bond")
issued by Amwest Surety Insurance Company, or other surety company acceptable to
Landlord in its sole discretion, in favor of Landlord, as "Obligee", which Bond
shall be in the form attached hereto as Exhibit K and shall be in the amounts
and on the other terms required below:
(i) Within two (2) business days after satisfaction or waiver by
Landlord of its condition pursuant to Subsection 17.24(a) above, Tenant shall
provide Landlord with a Bond in the amount of $400,000.00. Effective as of
January 15, 1999, Tenant shall cause the Bond to be increased by an additional
amount of $750,000.00 to a total bond amount of $1,150,000.00. Failure of Tenant
to provide the initial Bond or the failure of Tenant to cause the Bond to be
increased as required above, shall constitute a material default under this
Lease. The Bond shall remain in existence during the entire initial seven (7)
year Term of this Lease; provided, however,
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in the event Tenant does not become in material default (as defined in Section
13.02(f) above) during the twelve (12) month period immediately preceding the
applicable anniversary date of this Lease, the amount to this Bond shall, at the
request of Tenant, be reduced to the following amount at the commencement of
each applicable Lease Year:
Lease Year Amount of Bond
---------- --------------
2 $1,129,227.00
3 $1,106,268.00
4 $1,080,911.00
5 $1,052,898.00
6 $1,021,952.00
The foregoing schedule notwithstanding, Tenant shall not be entitled to a
reduction in any year of the Lease Term if Tenant is at the time of the
scheduled reduction (the applicable anniversary of the Lease Commencement Date)
in material default (as defined in Section 13.02(f) above) or has been in
material default at any time during the twelve (12) month period immediately
preceding the scheduled reduction. If Tenant is not entitled to a reduction for
a given year, Tenant must wait until the next anniversary date of the Lease Term
to take the reduction corresponding to the next year; provided Tenant is
otherwise entitled to a reduction.
(ii) Notwithstanding Tenant's obligation to provide the Bond pursuant
to Subsection 17.26(b)(i) above, in the event Tenant meets either of the
following financial thresholds in (aa) or (bb) below, as substantiated to and
verified by Landlord, Tenant shall be released of its obligation to continue to
maintain the Bond:
(aa) As of the end of the quarter of determination, the Tenant
has or has shown (as substantiated by Tenant's financial statements prepared in
accordance with GAAP and filed as a 10Q or 10K form with the Securities and
Exchange Commission):
(A) Tangible Net Worth (as defined by GAAP) of at least $20
million; and
(B) Four quarters of positive cash flow of $500,000 or more
per quarter, excluding cash receipts from financing; and
(C) The Tenant has no long term funded debt (defined to
exclude (1) capital lease obligations collateralized only by the leased asset
and (2) debt that is subordinated to the lease obligations).
(bb) As of the end of the quarter of determination, the Tenant
has or has shown (as substantiated by Tenant's financial statements prepared in
accordance with GAAP and filed as a 10Q or 10K form with the Securities and
Exchange Commission):
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(A) Working Capital (defined below) of 1.5 times the
remaining balance of the base rent obligation through the Initial Term of the
lease: The base rent obligation shall include the Initial Premises, First
Expansion Space and Second Expansion Space, as defined by 1.01, 2.04 and 2.05,
respectively, only for the period through the initial lease term, unless and
until the Tenant declines or forgoes such expansion option, after which the base
rent for such expansion space will be excluded from the computation. Working
Capital shall be defined as the total of current assets of the Tenant plus the
amount of cash on deposit as collateral for the letter of credit or bond
supporting the Building F Default Enhancement, less the total current
liabilities.
(B) Four quarters of positive cash flow of $500,000 or more
per quarter, excluding cash receipts from financing; and
(C) The Tenant has no long term funded debt, (defined to
exclude (1) capital lease obligations collateralized only by the leased asset
and (2) debt that is subordinated to the lease obligations).
(iii) If Tenant defaults with respect to any provision of this
Lease, including but not limited to the provisions relating to the payment of
Rent, the repair of damage to the Premises caused by Tenant and/or cleaning the
Premises upon termination of this Lease, and provided, that the Letter of Credit
placed by Tenant in favor of Landlord pursuant to Section 17.26(a) has already
been drawn in its entirety, cancelled or is otherwise not available to Landlord,
Landlord may draw on all or any part of the Bond for the payment of any Rent or
any other sum in default and any and all other amounts to which Landlord may be
entitled pursuant to this Lease, pursuant to Section 13.02 above. In the event
this Lease is terminated by Landlord as a result of the default of Tenant,
Landlord may elect to draw upon and claim the full amount of such Bond. Upon any
draw upon or claim under the Bond by Landlord, Tenant shall, upon demand by
Landlord, restore the Bond to its original amount (as may be reduced as
contemplated above). Upon notification by the Surety of the cancellation of the
Bond, Tenant shall cause a replacement bond or letter of credit acceptable to
Landlord in its sole discretion to be tendered to Landlord on or prior to the
date thirty (30) days prior to the effective date of such cancellation. Failure
of Tenant to comply with any of the provisions of this Section 17.26 shall
constitute a material default under this Lease.
(c) Landlord and Tenant agree that the purpose of the LC and the Bond
is to provide sources of payment for sums owed to Landlord by Tenant according
to the terms of the Lease following Tenant's default. Accordingly, the LC and
the Bond are not liquidated damages. Nothing contained in this Section 17.26
shall be construed as increasing or decreasing any remedies to which Landlord
may be entitled pursuant to Section 13.02, including without limitation any sum
recoverable by Landlord for a given default, nor shall anything in this Section
17.26 be deemed to limit Landlord's obligation to mitigate damages, to the
extent required by applicable law.
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IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
"Landlord" "Tenant"
S/I NORTHCREEK II, LLC MICROVISION, INC.
By: ______________________ By: ________________________
Its: ______________________ Its: ________________________
54
FOURTH AMENDMENT OF OFFICE LEASE AGREEMENT
This Fourth Amendment of Office Lease Agreement is made and entered into this
23rd day of July 1998 by and between City of Seattle, a Washington municipal
corporation ("Landlord"), and Microvision, Inc., a Washington corporation
("Tenant").
Recitals: Landlord and Tenant entered into a written Office Lease Agreement
dated December 22, 1995, First Amendment of Office Lease Agreement dated January
26, 1996, and Second Amendment of Office Lease Agreement dated February 26,
1997, and Third Amendment of Lease Agreement dated November 13, 1997 (the
"Lease"), whereby Tenant leased from Landlord certain Premises consisting of
approximately 14,189 rentable square feet of space in Building A of Park 90/5,
the address of which is 2203 Airport Way South, Seattle, Washington, 98134;
known as Suite A-100. Landlord and Tenant desire to further amend the Lease to
increase the number of rentable square feet of space in the Premises, to adjust
Tenant's share of the Building and Tenant's Share of the Property, and to adjust
the Base Rent.
NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, effective upon execution of this Amendment, Landlord and
Tenant agree to amend the Lease as follows:
1. The following Subsection is hereby added to and shall become a party of
Section 1.3 "Premises":
1.3.2 Effective September 1, 1998, the square footage of the
Premises shall be increased from approximately 14,189 rentable
square feet to approximately 15,435 rentable square feet by
adding approximately 1,246 rentable square feet of space as
outlined in blue on the floor on the floor plan attached hereto
as Exhibit B.
2. The following Subsection is hereby added to and shall become a part
of Section 1.4 "Tenant's Share":
1.4.2 Effective September 1, 1998, Tenant's Share of the
Building shall be increased from 14.58% to 15.86% and Tenant's
Share of the Property shall be increased from 4.98% to 5.41%.
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3. The following Subsection is hereby added to and shall become a part
of Section 1.9 "Base Rent":
1.9.2 Effective September 1, 1998, the Base Rent shall be
increased from $10,937.36 per month to $12,071.22 per month.
4. Exhibit B is deleted in its entirety and replaced with the Exhibit
B attached hereto and made a part hereof.
5. Improvements. Tenant hereby accepts the Premises in "AS IS, WHERE
IS" condition. The provisions of the Lease pertaining to the Premises have
been completed and shall no longer apply; Landlord shall not be required to
make additional improvements to the Premises.
6. Agency Disclosure. Martin Smith Inc. hereby discloses that it
represents the Landlord in this transaction.
Except as set forth in this Fourth Amendment of Office Lease Agreement, all
the provisions of the Lease shall remain unchanged and in full force and
effect.
Dated the date first above written.
Landlord: Tenant:
The City of Seattle, a Washington Microvision, a Washington corporation
municipal corporation
By:_____________________________ By:_____________________________
Dwight D. Dively
Executive Services Director Its:_______________________
By:_____________________________
Its:_______________________
2
MICROVISION, INC.
1996 STOCK OPTION PLAN,
AS AMENDED
<PAGE>
TABLE OF CONTENTS
Page
1. Purpose. . . . . . . . . . . . . . . . . . . . . . . . .1
2. Administration . . . . . . . . . . . . . . . . . . . . .1
2.1 Procedures
2.2 Powers
2.3 Limited Liability
2.4 Securities Exchange Act of 1934
3. Stock Subject to This Plan . . . . . . . . . . . . . . .2
4. Eligibility. . . . . . . . . . . . . . . . . . . . . . .2
4.1 Optionees
4.2 Subsidiaries
5. Awards . . . . . . . . . . . . . . . . . . . . . . . . .3
5.1 Incentive Stock Options
5.2 Non-Qualified Stock Options
5.3 Vesting
5.4 Nontransferability
5.5 Termination of Options
(a) Generally
(b) For Cause; Resignation
(c) Retirement
(d) Disability
(e) Death
(f) Extension of Exercise Period Applicable to Termination
(g) Failure to Exercise Option
(h) Transfers; Leaves
6. Exercise . . . . . . . . . . . . . . . . . . . . . . . .7
6.1 Procedure
6.2 Payment
6.3 Withholding
6.4 Conditions Precedent to Exercise
7. Foreign Qualified Grants . . . . . . . . . . . . . . . .8
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8. Corporate Mergers, Acquisitions, Etc.. . . . . . . . . .8
9. Holding Period . . . . . . . . . . . . . . . . . . . . .8
10. Option Agreements
11. Adjustments On Changes in Capitalization . . . . . . . .8
11.1 Stock Splits, Capital Stock Adjustments
11.2 Effect of Merger, Sale of Assets, Liquidation or Dissolution
(a) Mergers, Sale of Assets, Other Transactions
(b) Liquidation; Dissolution
11.3 Fractional Shares
11.4 Determination of Board to Be Final
12. Securities Regulations . . . . . . . . . . . . . . . . .9
13. Amendment and Termination. . . . . . . . . . . . . . . 10
13.1 Plan
13.2 Option
13.3 Automatic Termination
14. Miscellaneous. . . . . . . . . . . . . . . . . . . . . 11
14.1 Time of Granting Options
14.2 No Status as Shareholder
14.3 Status as an Employee
14.4 Reservation of Shares
15. Effectiveness of This Plan . . . . . . . . . . . . . . 12
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MICROVISION, INC.
1996 STOCK OPTION PLAN,
AS AMENDED
1. Purpose. The purpose of the 1996 Stock Option Plan (the "Plan") is to provide
a means by which Microvision, Inc. (the "Company"), may attract, reward, and
retain the services or advice of current or future employees, officers,
directors, and agents of the Company and to provide added incentives to them by
encouraging stock ownership in the Company.
2. Administration. This Plan shall be administered by the Board of Directors of
the Company (the "Board") or, if the Board shall authorize a committee to
administer this Plan, by such committee to the extent so authorized; provided,
however, that only the Board of Directors may suspend, amend or terminate this
Plan as provided in Section 13, and provided further that a committee that
includes officers of the Company shall not be permitted to grant options to
persons who are officers of the Company. The administrator of this Plan is
referred to as the "Plan Administrator."
2.1 Procedures. The Board of Directors shall designate one member of the
Plan Administrator as chairman. The Plan Administrator may hold meetings at such
times and places as it shall determine. The acts of a majority of the members of
the Plan Administrator present at meetings at which a quorum exists, or acts
approved in writing by all Plan Administrator members, shall constitute valid
acts of the Plan Administrator.
2.2 Powers Subject to the specific provisions of this Plan, the Plan
Administrator shall have the authority, in its discretion: (a) to grant the
stock options described in Section 5, including Incentive Stock Options and
Non-Qualified Stock Options, and to designate each option granted as an
Incentive Stock Option or a Non-Qualified Stock Option; (b) to determine, in
accordance with Section 5.1(f) of this Plan, the fair market value of the shares
of Common Stock subject to options; (c) to determine the exercise price per
share of options; (d) to determine the Optionees to whom, and the time or times
at which, options shall be granted and the number of shares of Common Stock to
be represented by each option; (e) to interpret this Plan; (f) to prescribe,
amend and rescind rules and regulations relating to this Plan; (g) to determine
the terms and provisions of each option granted (which need not be identical)
and, with the consent of the Optionee, modify or amend each option; (h) to
reduce the exercise price per share of outstanding and unexercised options; (i)
to defer, with the consent of the Optionee, or to accelerate the exercise date
of any option; (j) to waive or modify any term or provision contained in any
option applicable to the underlying shares of Common Stock; (k) to authorize any
person to execute on behalf of the Company any instrument required to effectuate
the grant of an option previously granted by the Plan Administrator; and (l) to
make all other determinations deemed necessary or advisable for the
administration of this Plan. The interpretation and construction by the Plan
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Administrator of any terms or provisions of this Plan, any option issued
hereunder or of any rule or regulation promulgated in connection herewith and
all actions taken by the Plan Administrator shall be conclusive and binding on
all interested parties. The Plan Administrator may delegate administrative
functions to individuals who are officers or employees of the Company.
2.3 Limited Liability. No member of the Board of Directors or the Plan
Administrator or officer of the Company shall be liable for any action or
inaction of the entity or body, or another person or, except in circumstances
involving bad faith, of himself or herself. Subject only to compliance with the
explicit provisions hereof, the Board of Directors and Plan Administrator may
act in their absolute discretion in all matters related to the Plan.
2.4 Securities Exchange Act of 1934. At any time that the Company has a
class of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), this Plan shall be administered in
accordance with Rule 16b-3 adopted under the Exchange Act and Section 162(m) of
the Internal Revenue Code of 1986, as amended, and the regulations, proposed and
final, thereunder, as all may be amended from time to time, and each member of
the Plan Administrator shall be a "disinterested director" and an "outside
director" with the meaning of such Rule 16b-3 and Section 162(m), respectively.
3. Stock Subject to This Plan. Subject to adjustment as provided below and in
Section 11 hereof, the stock subject to this Plan shall be the Company's common
stock (the "Common Stock"), and the total number of shares of Common Stock to be
delivered on the exercise of all options granted under this Plan shall not
exceed 3,000,000 shares as such Common Stock was constituted on the date on
which this Plan was first amended by the Board as set forth on the last page
hereof. If any option granted under this Plan expires, is surrendered, exchanged
for another option, canceled or terminated for any reason without having been
exercised in full, the unpurchased shares subject thereto shall again be
available for purposes of this Plan, including for replacement options that may
be granted in exchange for such surrendered, canceled or terminated options.
Shares issued on exercise of options granted under this Plan may be subject to
restrictions on transfer, repurchase rights or other restrictions as determined
by the Plan Administrator.
4. Eligibility.
4.1 Optionees. The Plan Administrator may award options to any current or
future employee, officer or agent of the Company or its subsidiaries.
Non-employee directors of the Company shall not be eligible to participate in
the Plan. Any party to whom an option is granted under this Plan is referred to
as an "Optionee."
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4.2 Subsidiaries. As used in this Plan, the term "subsidiary" of a company
shall include any corporation in which such company owns, directly or
indirectly, at the time of the grant of an option hereunder, stock having 50% or
more of the total combined voting power of all classes of stock thereof.
5. Awards. The Plan Administrator, from time to time, may take the following
actions, separately or in combination, under this Plan: (a) grant Incentive
Stock Options, as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), to any employee of the Company or its subsidiaries, as
provided in Section 5.1 of this Plan; (b) grant options other than Incentive
Stock Options ("Non-Qualified Stock Options"), as provided in Section 5.2 of
this Plan; (c) grant options to officers, employees and others in foreign
jurisdictions, as provided in Section 7 of this Plan; and (d) grant options in
certain acquisition transactions, as provided in Section 8 of this Plan. No
employee may be granted options to acquire more than 100,000 shares in any
fiscal year of the Company.
5.1 Incentive Stock Options. Incentive Stock Options shall be subject to
the following terms and conditions:
(a) Incentive Stock Options may be granted under this Plan only to
employees of the Company or its subsidiaries, including employees who are
directors.
(b) No employee may be granted Incentive Stock Options under this Plan
to the extent that the aggregate fair market value, on the date of grant, of the
Common Stock with respect to which Incentive Stock Options are exercisable for
the first time by that employee during any calendar year, under this Plan and
under any other incentive stock option plan (within the meaning of Section 422
of the Code) of the Company or any subsidiary, exceeds $100,000. To the extent
that any option designated as an Incentive Stock Option exceeds the $100,000
limit, such option shall be treated as a Non-Qualified Stock Option. In making
this determination, options shall be taken into account in the order in which
they were granted, and the fair market value of the shares of Common Stock shall
be determined as of the time that the option with respect to such shares was
granted.
(c) An Incentive Stock Option may be granted under this Plan to an
employee possessing more than 10% of the total combined voting power of all
classes of stock of the Company (as determined pursuant to the attribution rules
contained in Section 424(d) of the Code) only if the exercise price is at least
110% of the fair market value of the Common Stock subject to the option on the
date the option is granted, as described in Section 5.1(f) of this Plan, and
only if the option by its terms is not exercisable after the expiration of five
years from the date it is granted.
(d) Except as provided in Section 5.5 of this Plan, no Incentive Stock
Option granted under this Plan may be exercised unless at the time of such
exercise the Optionee is
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employed by the Company or any subsidiary of the Company and the Optionee has
been so employed continuously since the date such option was granted.
(e) Subject to Sections 5.1.(c) and 5.1.(d) of this Plan, Incentive
Stock Options granted under this Plan shall continue in effect for the period
fixed by the Plan Administrator, except that no Incentive Stock Option shall be
exercisable after ten years from the date it is granted.
(f) The exercise price shall not be less than 100% of the fair market
value of the shares of Common Stock covered by the Incentive Stock Option at the
date the option is granted. The fair market value of shares shall be the closing
price per share of the Common Stock on the date of grant as reported on a
securities quotation system or stock exchange. If such shares are not so
reported or listed, the Plan Administrator shall determine the fair market value
of the shares of Common Stock in its discretion.
(g) The provisions of clauses (b) and (c) of this Section shall not
apply if either the applicable sections of the Code or the regulations
thereunder are amended so as to change or eliminate such limitations or to
permit appropriate modifications of those requirements by the Plan
Administrator.
5.2 Non-Qualified Stock Options. Non-Qualified Stock Options shall be
subject to the following terms and conditions:
(a) The exercise price may be more or less than or equal to the fair
market value of the shares of Common Stock covered by the Non-Qualified Stock
Option on the date the option is granted, and the exercise price may fluctuate
based on criteria determined by the Plan Administrator. The fair market value of
shares of Common Stock covered by a Non-Qualified Stock Option shall be
determined by the Plan Administrator, as described in Section 5.1(f).
(b) Unless otherwise established by the Plan Administrator, any
Non-Qualified Stock Option shall terminate ten years after the date it is
granted.
5.3 Vesting. To ensure that the Company will achieve the purposes of and
receive the benefits contemplated in this Plan, any option granted to any
Optionee hereunder shall be exercisable according to the vesting schedule, if
any, established by the Plan Administrator and set forth in the option grant
letter issued to each Optionee.
5.4 Nontransferability. Options granted under this Plan and the rights and
privileges conferred hereby may not be transferred, assigned, pledged or
hypothecated in any manner (whether by operation of law or otherwise) other than
by will or by the applicable laws of descent and distribution, shall not be
subject to execution, attachment or similar process, and shall be
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exercisable during the Optionee's lifetime only by the Optionee. Any purported
transfer or assignment in violation of this provision shall be void.
5.5 Termination of Options.
(a) Generally. Unless otherwise determined by the Plan Administrator
or specified in the Optionee's Option Agreement, if the Optionee's employment or
service with the Company terminates for any reason other than for cause,
resignation, retirement, disability or death, and unless by its terms the option
sooner terminates or expires, then the Optionee may exercise, for a three-month
period, that portion of the Optionee's option that was exercisable at the time
of such termination of employment or service (provided the conditions of Section
6.4 and any other conditions specified in the Option Agreement shall have been
met by the date of exercise of such option).
(b) For Cause; Resignation.
(i) If an Optionee is terminated for cause or resigns in lieu of
dismissal, any option granted hereunder shall be deemed to have terminated as of
the time of the first act that led or would have led to the termination for
cause or resignation in lieu of dismissal, and such Optionee shall thereupon
have no right to purchase any shares of Common Stock pursuant to the exercise of
such option, and any such exercise shall be null and void. Termination for
"cause" shall include (i) the violation by the Optionee of any reasonable rule
or policy of the Board of Directors or the Optionee's superiors or the chief
executive officer or the chief operating officer of the Company that results in
damage to the Company or which, after notice to do so, the Optionee fails to
correct within a reasonable time; (ii) any willful misconduct or gross
negligence by the Optionee in the responsibilities assigned to him or her; (iii)
any willful failure to perform his or her job as required to meet the objectives
of the Company; (iv) any wrongful conduct of an Optionee that has an adverse
impact on the Company or that constitutes a misappropriation of the assets of
the Company; (v) unauthorized disclosure of confidential information; or (vi)
the Optionee's performing services for any other company or person that competes
with the Company while he or she is employed by or provides services to the
Company, without the written approval of the chief executive officer of the
Company. "Resignation in lieu of dismissal" shall mean a resignation by an
Optionee of employment with or service to the Company if (i) the Company has
given prior notice to such Optionee of its intent to dismiss the Optionee for
circumstances that constitute cause, or (ii) within two months of the Optionee's
resignation, the chief operating officer or the chief executive officer of the
Company or the Board of Directors determines, which determination shall be final
and binding, that such resignation was related to an act that would have led to
a termination for cause.
(ii) If an Optionee resigns from the Company, the right of the
Optionee to exercise his or her option shall be suspended for a period of two
months from the date of resignation, unless the chief executive officer of the
Company or the Board of Directors
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determines otherwise in writing. Thereafter, unless there is a determination
that the Optionee resigned in lieu of dismissal, the option may be exercised at
any time before the earlier of (i) the expiration date of the option (which
shall have been similarly suspended) or (ii) the expiration of three months
after the date of resignation, for that portion of the Optionee's option that
was exercisable at the time of such resignation (provided the conditions of
Section 6.4 and any other conditions specified in the Option Agreement shall
have been met at the date of exercise of such option).
(c) Retirement. Unless otherwise determined by the Plan Administrator,
if an Optionee's employment or service with the Company is terminated with the
Company's approval for reasons of age, the Option may be exercised at any time
before the earlier of (a) the expiration date of the option or (b) the
expiration of three months after the date of such termination of employment or
service, for that portion of the Optionee's option that was exercisable at the
time of such termination of employment or service (provided the conditions of
Section 6.4 and any other conditions specified in the Option Agreement shall
have been met at the date of exercise of such option).
(d) Disability. Unless otherwise determined by the Plan Administrator,
if an Optionee's employment or relationship with the Company terminates because
of a permanent and total disability (as defined in Section 22(e)(3) of the
Code), the option may be exercised at any time before the earlier of (a) the
expiration date of the option or (b) the expiration of 12 months after the date
of such termination, for up to the full number of shares of Common Stock covered
thereby, including any portion not yet vested (provided the conditions of
Section 6.4 and any other conditions specified in the Option Agreement shall
have been met by the date of exercise of such option).
(e) Death. Unless otherwise determined by the Plan Administrator, in
the event of the death of an Optionee while employed by or providing service to
the Company, the option may be exercised at any time before the earlier of (a)
the expiration date of the option or (b) the expiration of 12 months after the
date of death by the person or persons to whom such Optionee's rights under the
option shall pass by the Optionee's will or by the applicable laws of descent
and distribution, for up to the full number of shares of Common Stock covered
thereby, including any portion not yet vested (provided the conditions of
Section 6.4 and any other conditions specified in the Option Agreement shall
have been met by the date of exercise of such option).
(f) Extension of Exercise Period Applicable to Termination. The Plan
Administrator, at the time of grant or at any time thereafter, may extend the
one-month, three-month and 12-month exercise periods to any length of time not
longer than the original expiration date of the option, and may increase the
portion of an option that is exercisable, subject to such terms and conditions
as the Plan Administrator may determine; provided, that any extension of the
exercise period or other modification of an Incentive Stock Option shall be
subject to the
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written agreement and acknowledgment by the Optionee that the extension or
modification disqualifies the option as an Incentive Stock Option.
(g) Failure to Exercise Option. To the extent that the option of any
deceased Optionee or of any Optionee whose employment or service terminates is
not exercised within the applicable period, all rights to purchase shares of
Common Stock pursuant to such options shall cease and terminate.
(h) Transfers; Leaves. For purposes of this Section 5.5, a transfer of
employment or other relationship between or among the Company and/or any
subsidiaries shall not be deemed to constitute a termination of employment or
other cessation of relationship with the Company or any of its subsidiaries. For
purposes of this Section 5.5, with respect to Incentive Stock Options,
employment shall be deemed to continue while the Optionee is on military leave,
sick leave or other bona fide leave of absence (as determined by the Plan
Administrator) in accordance with the policies of the Company.
6. Exercise.
6.1 Procedure. Subject to the provisions of Section 5.3 above, each option
may be exercised in whole or in part; provided, however, that no fewer than 100
shares (or the remaining shares then purchasable under the option, if less than
100 shares) may be purchased on any exercise of any option granted hereunder and
that only whole shares will be issued pursuant to the exercise of any option
(the number of 100 shares shall not be changed by any transaction or action
described in Section 8 or Section 11 unless the Plan Administrator determines
that such a change is appropriate). Options shall be exercised by delivery to
the Secretary of the Company or his or her designated agent of notice of the
number of shares with respect to which the option is exercised, together with
payment in full of the exercise price and any applicable withholding taxes.
6.2 Payment. Payment of the option exercise price shall be made in full
when the notice of exercise of the option is delivered to the Secretary of the
Company or his or her designated agent and shall be in cash or bank certified or
cashier's check or through irrevocable instructions to a stock broker to deliver
the amount of sales proceeds necessary to pay the appropriate exercise price and
withholding tax obligations, all in accordance with applicable governmental
regulations, for the shares of Common Stock being purchased. The Plan
Administrator may determine at the time the option is granted for Incentive
Stock Options, or at any time before exercise for Non-Qualified Stock Options,
that additional forms of payment will be permitted.
6.3 Withholding. Before the issuance of shares of Common Stock on the
exercise of an option, the Optionee shall pay to the Company the amount of any
applicable federal, state or local tax withholding obligations. The Company may
withhold any distribution in whole or in part until the Company is so paid. The
Company shall have the right to withhold such amount from
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<PAGE>
any other amounts due or to become due from the Company to the Optionee,
including salary (subject to applicable law) or to retain and withhold a number
of shares having a market value not less than the amount of such taxes required
to be withheld by the Company to reimburse it for any such taxes and cancel (in
whole or in part) any such shares so withheld.
6.4 Conditions Precedent to Exercise. The Plan Administrator may establish
conditions precedent to the exercise of any option, which shall be described in
the relevant Option Agreement.
7. Foreign Qualified Grants Options under this Plan may be granted to officers
and employees of the Company and other persons described in Section 4 who reside
in foreign jurisdictions as the Plan Administrator may determine from time to
time. The Board of Directors may adopt supplements to the Plan as needed to
comply with the applicable laws of such foreign jurisdictions and to give
Optionees favorable treatment under such laws; provided, however, that no award
shall be granted under any such supplement on terms more beneficial to such
Optionees than those permitted by this Plan.
8. Corporate Mergers, Acquisitions, Etc. The Plan Administrator may also grant
options under this Plan having terms, conditions and provisions that vary from
those specified in this Plan provided that such options are granted in
substitution for, or in connection with the assumption of, existing options
granted, awarded or issued by another corporation and assumed or otherwise
agreed to be provided for by the Company pursuant to or by reason of a
transaction involving a corporate merger, consolidation, acquisition of property
or stock, reorganization or liquidation to which the Company is a party.
9. Holding Period. Unless otherwise determined by the Plan Administrator, if a
person subject to Section 16 of the Exchange Act exercises an option within six
months of the date of grant of the option, the shares of Common Stock acquired
on exercise of the option may not be sold until six months after the date of
grant of the option.
10. Option Agreements. Options granted under this Plan shall be evidenced by
written stock option agreements (the "Option Agreements") that shall contain
such terms, conditions, limitations and restrictions as the Plan Administrator
shall deem advisable and that are consistent with this Plan. All Option
Agreements shall include or incorporate by reference the applicable terms and
conditions contained in this Plan.
11. Adjustments On Changes in Capitalization.
11.1 Stock Splits, Capital Stock Adjustments. The aggregate number and
class of shares for which options may be granted under this Plan, the number and
class of shares covered by each outstanding option and the exercise price per
share thereof (but not the total price), and each such option, shall all be
proportionately adjusted for any increase or decrease in the number
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of issued shares of Common Stock of the Company resulting from a stock split,
stock dividend or consolidation of shares or any like capital stock adjustment.
11.2 Effect of Merger, Sale of Assets, Liquidation or Dissolution.
(a) Mergers, Sale of Assets, Other Transactions. In the event of a
merger, consolidation or plan of exchange to which the Company is a party or a
sale of all or substantially all of the Company's assets (each, a
"Transaction"), the Board of Directors, in its sole discretion and to the extent
possible under the structure of the Transaction, shall select one of the
following alternatives for treating outstanding options under this Plan:
(i) Outstanding options shall remain in effect in accordance with
their terms;
(ii) Outstanding options shall be converted into options to
purchase stock in the corporation that is the surviving or acquiring corporation
in the Transaction. The amount, type of securities subject thereto and exercise
price of the converted options shall be determined by the Board of Directors of
the Company, taking into account the relative values of the companies involved
in the Transaction and the exchange rate, if any, used in determining shares of
the surviving corporation to be issued to holders of shares of the Company.
Unless otherwise determined by the Board of Directors, the converted options
shall be vested only to the extent that the vesting requirements relating to
options granted hereunder have been satisfied;
(iii) The Board of Directors provides a period before the
consummation of the Transaction during which outstanding options shall be
exercisable to the extent vested and, on the expiration of such period, all
unexercised options shall immediately terminate. The Board of Directors, in its
sole discretion, may accelerate the vesting of such options so that they are
exercisable in full during such period; or
(iv) The Board of Directors shall take such other action with
respect to outstanding options as the Board deems to be in the best interests of
the Company.
(b) Liquidation; Dissolution. If the Company is liquidated or
dissolved, options shall be treated in accordance with Section 11.2(a)(iii).
11.3 Fractional Shares. If the number of shares covered by any option is
adjusted, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.
11.4 Determination of Board to Be Final All adjustments under this Section
11 shall be made by the Board of Directors, and its determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive. Unless an Optionee agrees
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otherwise, any change or adjustment to an Incentive Stock Option shall be made,
if possible, in such a manner so as not to constitute a "modification," as
defined in Section 424(h) of the Code, and so as not to cause the Optionee's
Incentive Stock Option to fail to continue to qualify as an Incentive Stock
Option.
12. Securities Regulations.
Shares of Common Stock shall not be issued with respect to an option
granted under this Plan unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the Exchange Act, the
rules and regulations promulgated thereunder, applicable laws of foreign
countries and other jurisdictions and the requirements of any quotation service
or stock exchange on which the shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance, including the availability of an exemption from registration for the
issuance and sale of any shares hereunder. The inability of the Company to
obtain, from any regulatory body having jurisdiction, the authority deemed by
the Company's counsel to be necessary for the lawful issuance and sale of any
shares hereunder or the unavailability of an exemption from registration for the
issuance and sale of any shares hereunder shall relieve the Company of any
liability with respect of the nonissuance or sale of such shares as to which
such requisite authority shall not have been obtained.
As a condition to the exercise of an option, the Company may require
the Optionee to represent and warrant at the time of any such exercise that the
shares of Common Stock are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any relevant
provision of the aforementioned laws. The Company may place a stop-transfer
order against any shares of Common Stock on the official stock books and records
of the Company, and a legend may be stamped on stock certificates to the effect
that the shares of Common Stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel is provided (concurred in by counsel
for the Company) stating that such transfer is not in violation of any
applicable law or regulation. The Plan Administrator may also require such other
action or agreement by the Optionees as may from time to time be necessary to
comply with the federal and state securities laws. THIS PROVISION SHALL NOT
OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
THEREUNDER.
If any of the Company's capital stock of the same class as the Common
Stock subject to options granted hereunder is listed on a national securities
exchange, all shares of Common Stock issued hereunder if not previously listed
on such exchange shall be authorized by that exchange for listing thereon before
the issuance thereof.
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13. Amendment and Termination.
13.1 Plan. The Board of Directors may at any time suspend, amend or
terminate this Plan, provided that, except as set forth in Section 8, the
approval of the Company's shareholders is necessary within twelve months before
or after the adoption by the Board of Directors of any amendment that will:
(a) increase the number of shares of Common Stock to be reserved for
the issuance of options under this Plan;
(b) permit the granting of stock options to a class of persons other
than those now permitted to receive stock options under this Plan; or
(c) require shareholder approval under applicable law, including
Section 16(b) of the Exchange Act.
13.2 Options. Subject to the requirements of Section 422 of the Code with
respect to Incentive Stock Options and to the terms and conditions and within
the limitations of this Plan, the Plan Administrator may modify or amend
outstanding options granted under this Plan. The modification or amendment of an
outstanding option shall not, without the consent of the Optionee, impair or
diminish any of his or her rights or any of the obligations of the Company under
such option. Except as otherwise provided in this Plan, no outstanding option
shall be terminated without the consent of the Optionee. Unless the Optionee
agrees otherwise, any changes or adjustments made to outstanding Incentive Stock
Options granted under this Plan shall be made in such a manner so as not to
constitute a "modification," as defined in Section 425(h) of the Code, and so as
not to cause any Incentive Stock Option issued hereunder to fail to continue to
qualify as an Incentive Stock Option as defined in Section 422(b) of the Code.
13.3 Automatic Termination. Unless sooner terminated by the Board of
Directors, this Plan shall terminate ten years from the date on which this Plan
is adopted by the Board. No option may be granted after such termination or
during any suspension of this Plan. The amendment or termination of this Plan
shall not, without the consent of the Optionee, alter or impair any rights or
obligations under any option theretofore granted under this Plan.
14. Miscellaneous.
14.1 Time of Granting Options. The date of grant of an option shall, for
all purposes, be the date on which the Company completes the required corporate
action relating to the grant of an option; the execution of an Option Agreement
and the conditions to the exercise of an option shall not defer the date of
grant.
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14.2 No Status as Shareholder. Neither the Optionee nor any party to which
the Optionee's rights and privileges under the option may pass shall be, or have
any of the rights or privileges of, a shareholder of the Company with respect to
any of the shares of Common Stock issuable on the exercise of any option granted
under this Plan unless and until such option has been exercised and the issuance
(as evidenced by the appropriate entry on the books of the Company or duly
authorized transfer agent of the Company) of the stock certificate evidencing
such shares.
14.3 Status as an Employee. Nothing in this Plan or in any option granted
pursuant to this Plan shall confer on any Optionee any right to continue in the
employ of the Company, or to interfere in any way with the right of the Company
to terminate his or her employment or other relationship with the Company at any
time.
14.4 Reservation of Shares. The Company, during the term of this Plan, at
all times will reserve and keep available such number of shares of Common Stock
as shall be sufficient to satisfy the requirements of this Plan.
15. Effectiveness of This Plan. This Plan shall become effective on the date on
which it is adopted by the Board of Directors of the Company. No option granted
under this Plan to any officer or director of the Company shall become
exercisable until the Plan is approved by the shareholders, and any option
granted before such approval shall be conditioned on and is subject to such
approval.
Adopted by the Board of Directors on July 10, 1996, and approved by the
shareholders on August 9, 1996.
Amended by the Board of Directors on November 8, 1996.
Amended by the shareholders on October 15, 1998.
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Silicon Valley Financial Services
A Division of Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
(408) 654-1000 - Fax (408) 980-6410
This NON-RECOURSE RECEIVABLES PURCHASE AGREEMENT (the "Agreement"), dated
as of September 25, 1998, is between Silicon Valley Financial Services, a
division of Silicon Valley Bank, ("Buyer") and MICROVISION INC., a Washington
corporation, ("Seller"), with its chief executive office at:
Street Address: 2203 Airport Way South, Suite 100
City: Seattle
County: King
State: Washington
Zip code: 98134
Phone: (206 ) 515-0037
1. Definitions. In this Agreement:
-----------
1.1 "Payment" is when Buyer has received payments equal to the Total
Purchased Receivables.
1.2 "Purchased Receivables" is all accounts, receivables, chattel
paper, instruments, contract rights, documents, general intangibles, letters of
credit, drafts, bankers acceptances other rights to payment and all proceeds
arising from the invoices and other agreements on the Schedule. "Purchased
Receivables" also includes returned or rejected goods connected with the
Purchased Receivables, books and records about the Purchased Receivables or
returned or rejected goods; and proceeds from voluntary or involuntary
dispositions, including insurance proceeds.
1.3 "Related Property" is all returned or rejected goods connected
with the Purchased Receivables or books and records about the Purchased
Receivables or returned or rejected goods; or proceeds from voluntary or
involuntary dispositions, including insurance proceeds.
1.4 "Schedule" is the attached schedule showing the: Purchase Date,
Due Date, Total Purchased Receivables, Discount Rate, Purchase Price,
Administrative Fee and Interest Reserve amount.
2. Purchase and Sale of Receivables.
--------------------------------
2.1 Sale and Purchase. On the Purchase Date, Seller sells and Buyer
buys Seller's right, title, and interest (but none of Sellers obligations) to
payment from any person liable on a Purchased Receivable, ("Account Debtors").
Each purchase and sale is at Buyer's and Seller's discretion. Buyer will
not (i) pay Seller an aggregate outstanding amount exceeding Two Million Five
Hundred Thousand and No/100*****($2,500,000.00) or (ii) buy any Purchased
Receivable after September 24, 1999 (the "Maturity Date"). Each purchase and
sale will be on an assignment form acceptable to Buyer.
2.2 Payment of Purchase Price and Late Payment.
------------------------------------------
(a) Payment of Purchase Price. For each Purchased Receivable,
Buyer will pay Seller, on the Purchase Date, the Purchase Price, less the
Administrative Fee and legal fees (if any).
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(b) Late Payment. If Payment is made after the Due Date, as
listed on the Schedule, then on the earlier of Payment or 90 [60] days after the
scheduled payment date, Seller will also pay Buyer the product of the Discount
Rate and the average daily balance of the unpaid Purchased Receivable multiplied
by the number of days between the scheduled payment date or the earlier of the
date of actual payment or 90 [60] days after the scheduled payment date, divided
by 360; provided, however, that with respect to Purchased Receivables as to
which payment is to be made directly to Buyer, Seller shall not be liable for
making any such payment to Buyer until five (5) business days after receipt by
Seller from Buyer of the information reasonably required to calculate the amount
thereof.
(c) Late Payment Reserve. Buyer will maintain a reserve as listed
on the Schedule against any late payments on any Purchased Receivables, if any
late payment arises out of circumstances that are a breach of Seller's
representations. Buyer will retain an amount equal to the product of the
Discount Rate and the average daily balance of the unpaid Purchased Receivables
multiplied by the number of days between the scheduled payment date or the
earlier of the date of actual payment or 90 [60] days after the scheduled
payment date, divided by 360 days. If the late payment arises under any other
circumstances, Buyer will return the reserve to Seller.
2.3 Seller may not sell or convey any interest in Related Property
without Buyer's prior written consent. Seller will sign UCC financing statements
and any other instruments or documents to evidence, perfect or protect Buyer's
interests in the Purchased Receivables and Related Property. Seller will deliver
to Buyer all original instruments, chattel paper and documents about Purchased
Receivables and Related Property.
3. Collections, Payments and Remittances.
-------------------------------------
3.1 Application of Payments. All payments for any Purchased
Receivable, received by Seller or Buyer, are Buyer's property.
3.2 Collection by Buyer. Buyer is appointed Seller's attorney-in-fact
and may:
(a) demand, sue for and receive all payments for the Purchased
Receivables; and
(b) enforce payment of each Purchased Receivable in Seller's
name; and
(c) endorse Seller's name on checks or other instruments; and
(d) notify Account Debtors of the purchase and sale and require
all payments be made directly to Buyer[, provided that Buyer shall use its best
efforts contemporaneously to provide Seller a copy of any such notification];
and
(e) compromise, prosecute or defend any action or claim involving
a Purchased Receivable including filing or voting a claim in a bankruptcy case;
and
(f) require Seller, at its expense, to notify the Account Debtors
to pay Buyer directly; and
(g) require Seller reasonably to assist collecting and enforcing
claims and execute any documents in connection therewith that Buyer reasonably
requests; and
(h) do anything reasonably necessary or expedient in connection
with a Purchased Receivable.
4. Non-Recourse; Repurchase Obligations.
------------------------------------
4.1 Non-Recourse and Seller's Agreement to Repurchase. Buyer acquires
Purchased Receivables without recourse, except Seller will, at Buyer's option,
repurchase from Buyer any Purchased Receivable
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for a purchase price equal to the unpaid portion of any Purchased Receivable:
(a) For which there has been any breach of warranty,
representation or covenant in this Agreement; or
(b) For which the Account Debtor asserts any discount, allowance,
return, dispute, defense, right of recoupment, right of return, warranty claim,
or short payment.
4.2 Payment to Buyer. Seller will pay Buyer in immediately available
funds.
5. Representations, Warranties and Covenants.
-----------------------------------------
5.1 Purchased Receivables - Warranties, Representations and Covenants.
Seller represents, warrants and covenants for each Purchased Receivable:
(a) It is the owner with legal right to sell, transfer and assign
it, subject only to compliance with the Federal Assignment of Claims Act;
(b) The correct amount is on the Schedule and is not disputed;
(c) No payment is contingent on any obligation or contract, and
it has fulfilled all its obligations as of the Purchase Date;
(d) It is based on actual sale and delivery of goods and/or
services rendered, due no later than its Due Date and owing to Seller, it is not
past due or in default, has not been previously sold, assigned, transferred, or
pledged, and is free of any liens, security interests and encumbrances;
(e) There are no defenses, offsets, counterclaims or agreements
in which the Account Debtor may claim any deduction or discount;
(f) It reasonably believes no Account Debtor is insolvent as
defined in the United States Bankruptcy Code ("US Code") or the California
Uniform Commercial Code ("UCC") and no Account Debtor has filed or had filed
against it a voluntary or involuntary petition for relief under the US Code.;
and
(g) No Account Debtor has objected to payment for or the quality
or quantity of the subject of the Purchased Receivable.
5.2 Additional Warranties, Representations and Covenants. Seller
represents, warrants and covenants:
(a) Its name, form of organization, chief executive office, and
the place where the records about all Purchased Receivables are kept is shown at
the beginning of this Agreement and it will give Buyer at least 10 days prior
written notice of changes to its name, organization, chief executive office or
location of records.
(b) It has not filed a voluntary petition or had filed against it
an involuntary petition under the US Code and does not anticipate any filing.
(c) If Payment of any Purchased Receivable does not occur by its
Due Date then, upon Buyer's request, Seller will provide a written report,
within 10 days, of the reasons for the delay.
(d) While any Purchased Receivable is outstanding, Seller will
give Buyer copies of all Forms 10-K, 10-Q and 8-K (or equivalents) within 5 days
of its filing with the Securities and Exchange Commission.
6. Adjustments. If any Account Debtor asserts to Seller a discount,
allowance, return, offset, defense, warranty claim, or the like (an
"Adjustment") Seller will promptly advise Buyer and, with Buyer's approval,
resolve the
3
<PAGE>
dispute. Seller will resell any rejected, returned, or recovered personal
property for Buyer, at Seller's expense, with the proceeds payable to Buyer.
While Seller has returned goods that are Buyer's property, Seller will segregate
and mark them "property of Silicon Valley Financial Services." Buyer owns the
Purchased Receivables and until Payment has the right to take possession of any
rejected, returned, or recovered personal property.
7. Indemnification.
---------------
(a) If any Account Debtor is released from any payment obligation
for any Purchased Receivable because of: (i) Seller's act or omission; or (ii)
any of the documentation about the Purchased Receivables which results in
termination of any part of the Account Debtor's obligation for the Purchased
Receivables, then Seller will pay Buyer the lesser of the amount of the
Purchased Receivable not payable or the unpaid portion of the Purchased
Receivable.
(b) Seller indemnifies and holds Buyer harmless from any taxes
from this transaction (except Buyer's income taxes) and costs, expenses and
reasonable attorney fees if Buyer promptly notifies it of any taxes of which
Buyer has notice.
8. Repurchase Events. Any of the following is an Event of Repurchase:
-----------------
(a) Seller fails to pay Buyer any amount when due under Section
2.2(b), 4.1, 7, 9 or 10 and such amount is not paid within five (5) business
days of written demand therefor by Buyer (including, and not in addition to, any
notice given under the applicable Section);
[(b) An involuntary lien, garnishment, attachment or the like is
issued against or attaches to the Purchased Receivables or Related Property;]
and
(c) Seller breaches a material covenant, agreement, warranty, or
representation in this Agreement and the breach is not cured to Buyer's
reasonable satisfaction within 10 days after Buyer gives Seller oral or written
notice thereof [, provided, however, that any such oral notice shall promptly be
followed by a written notice]. A breach that cannot be cured is an immediate
default.
9. Repurchase Option. When an Event of Repurchase occurs Buyer shall have a
right to require Seller [, on ten (10) days' written notice,] to repurchase all
of the affected Purchased Receivables for a purchase price equal to the
amount(s) specified in Section 4.1. [Upon the occurrence of an Event of
Repurchase of the type specified in (i) Section 8(a), or (ii) Section 8(c)
affecting all or substantially all of the Purchased Receivables,] Buyer shall
also have all rights and remedies under this Agreement and the law, including
those of a secured party under the UCC, and the right to collect, dispose of,
sell, lease or use all Purchased Receivables and Related Property.
10. Fees, Costs and Expenses. Immediately on demand Seller will pay all
reasonable fees, costs and expenses (including attorney and professional fees)
that Buyer incurs from (a) preparing, negotiating, administering and enforcing
this Agreement or any other agreement, including amendments, waivers or
consents, (b) litigation or disputes relating to the Purchased Receivables [(but
only to the extent that such fees, costs and expenses arise out of or relate to
a breach of Seller's representations and warranties in Section 5 or Seller's
acts or omissions)], the Related Property, this Agreement or any other
agreement, (c) enforcing rights against Seller, (d) protecting or enforcing its
title to the Purchased Receivables or its security interest in the Related
Property, (e) collecting any amounts due from Seller or for a Purchased
Receivable under a breach of Seller's representation, warranty or covenant and
(f) any bankruptcy case or insolvency proceeding involving Seller[; provided,
however, that in the case of fees, costs and expenses arising in or relating to
a litigation or dispute between Buyer and Seller, Seller will only be liable for
payment to the extent Buyer is the substantially prevailing party therein].
Reimbursement for fees, costs, and expenses through the initial Purchase Date
will be limited to Three Thousand Five Hundred and No/100****($3,500.00).
11. Choice of Law, Venue and Jury Trial Waiver. California law governs this
Agreement. Seller and Buyer each submit to the exclusive jurisdiction of the
State and Federal courts in King County, Washington.
4
<PAGE>
SELLER AND BUYER EACH WAIVE ITS RIGHT TO A JURY TRIAL FROM ANY CAUSE OF ACTION
RELATED TO AGREEMENT, INCLUDING CONTRACT, TORT, BREACH OF DUTY OR OTHER CLAIM.
THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12. Notices. Notices or demands by either party about this Agreement must
be in writing and personally delivered or sent by an overnight delivery service,
by certified mail postage prepaid return receipt requested, or by FAX to the
addresses below:
Seller: MICROVISION INC.
2203 Airport Way South, Suite 100
Seattle, WA 98134
Attn: Chief Financial Officer
FAX: (206 )623-5961
Buyer: Silicon Valley Financial Services, A Division of
Silicon Valley Bank
3003 Tasman Drive/NC 481
Santa Clara, CA 95054
Attn: Credit Manager
FAX: (408) 980-6410
A party may change notice address by written notice to the other party.
13. General Provisions.
------------------
13.1 Successors and Assigns. This Agreement binds and is for the
benefit of successors and permitted assigns of each party. Seller may not assign
this Agreement or any rights under it without Buyer's prior written consent
which may be granted or withheld in Buyer's discretion. Buyer may, without the
consent of or notice to Seller, sell, transfer, or grant participation in any
part of Buyer's obligations, rights or benefits under this Agreement.
13.2 Indemnification. Seller will indemnify, defend and hold harmless
Buyer and its officers, employees, and agents against: (a) obligations, demands,
claims, and liabilities asserted by any other party in connection with the
transactions contemplated by this Agreement; and (b) losses or expenses
incurred, or paid by Borrower from or consequential to transactions between
Buyer and Seller (including reasonable attorneys fees and expenses), except in
either such case for losses caused by Buyer's gross negligence or willful
misconduct.
13.3 Time of Essence. Time is of the essence for performance of all
obligations in this Agreement.
13.4 Severability of Provision. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
13.5 Amendments in Writing, Integration. All amendments to this
Agreement must be in writing. This Agreement is the entire agreement about this
subject matter and supersedes prior negotiations or agreements.
13.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts and when executed
and delivered are one Agreement.
13.7 Survival. All covenants, representations and warranties made in
this Agreement continue in full force while any Purchased Receivable amount
remains outstanding. Seller's indemnification obligations survive until all
statutes of limitations for actions that may be brought against Buyer have run.
13.8 Confidential Information. Buyer will use the same degree of care
in handling Seller's
5
<PAGE>
confidential information that it uses for its own proprietary information, but
may disclose information; (i) to its subsidiaries or affiliates in connection
with their business with Seller, (ii) to prospective transferees or purchasers
of any interest in the Agreement, (iii) as required by law, regulation,
subpoena, or other order, (iv) as required in connection with an examination or
audit and (v) as it considers appropriate exercising the remedies under this
Agreement. Confidential information does not include information that is either:
(a) in the public domain or in Buyer's possession when disclosed, or becomes
part of the public domain after disclosure to Buyer; or (b) disclosed to Buyer
by a third party, if Buyer does not know that the third party is prohibited from
disclosing the information.
14. Bracketed Terms. All terms of this Agreement and the Schedule that are
set forth in bold face and brackets (e.g., "[, on ten (10) days' written
notice,]") are under review by Buyer and, except for Section 8(b), shall not be
deemed to be a part of this Agreement. Buyer covenants to amend and restate this
Agreement and the Schedule to include all or as many of such terms (and to
delete Section 8(b)) as it determines, upon the conclusion of its review process
and in its sole good faith discretion, are acceptable. Seller acknowledges that
such covenant of Buyer shall not be subject to specific performance and that
Buyer has no obligation to accept any of such terms (or to delete Section 8(b)).
SELLER: MICROVISION INC.,
a Washington corporation
By ______________________________
Title _____________________________
BUYER: SILICON VALLEY FINANCIAL SERVICES
A division of Silicon Valley Bank
By ______________________________
Title _____________________________
6
Exhibit 11
Microvision, Inc.
<TABLE>
Computation of Net Loss Per Share and
Net Loss Per Share Assuming Dilution
<CAPTION>
Three months ended September 30, Nine months ended September 30,
------------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(1,630,500) $(1,172,000) $(4,990,200) $(3,506,100)
=========== =========== ============ ===========
Shares used in computing net loss per
share and net loss per share assuming
dilution:
Weighted average shares outstanding 6,016,400 5,791,700 5,975,400 5,784,300
=========== =========== =========== ===========
Net loss per share $ (0.27) $ (0.20) $ (0.84) $ (0.61)
=========== =========== =========== ===========
Net loss per share, assuming dilution $ (0.27) $ (0.20) $ (0.84) $ (0.61)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
unaudited financial statements of Microvision, Inc., for the nine month period
ended September 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,935,000
<SECURITIES> 800,000
<RECEIVABLES> 1,354,100
<ALLOWANCES> (18,000)
<INVENTORY> 0
<CURRENT-ASSETS> 6,591,400
<PP&E> 1,887,900
<DEPRECIATION> (522,800)
<TOTAL-ASSETS> 8,066,800
<CURRENT-LIABILITIES> 3,040,500
<BONDS> 222,400
0
0
<COMMON> 25,504,800
<OTHER-SE> (20,700,900)
<TOTAL-LIABILITY-AND-EQUITY> 8,066,800
<SALES> 0
<TOTAL-REVENUES> 5,582,900
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,787,900
<LOSS-PROVISION> 18,000
<INTEREST-EXPENSE> (24,300)
<INCOME-PRETAX> (4,990,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,990,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,990,200)
<EPS-PRIMARY> (.84)
<EPS-DILUTED> (.84)
</TABLE>
