<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: JUNE 30, 1998 Commission file number: 0-16332
NATIONAL INFORMATION GROUP
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3031790
(State of Incorporation) (IRS Employer Identification No.)
395 OYSTER POINT BOULEVARD, SUITE 500
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(Address of principal executive office) (Zip Code)
(650) 872-6772
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 4,106,382 shares as
of August 10, 1998.
<PAGE> 2
NATIONAL INFORMATION GROUP
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997 2
Consolidated Statements of Earnings for the periods
ended June 30, 1998 and 1997 3
Consolidated Statements of Shareholders' Equity
for the six months ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-15
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 2 - Changes in Securities 15
Item 3 - Defaults Upon Senior Securities 15
Item 4 - Submission of Matters to a Vote of Security Holders 15-16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
1
<PAGE> 3
NATIONAL INFORMATION GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30, 1998 and December 31, 1997
(in thousands of dollars, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
(unaudited)
<S> <C> <C>
ASSETS:
Fixed maturities $12,727 $15,359
Equity securities 5,523 4,200
Short-term investments 4,492 9,290
------- -------
Total investments 22,742 28,849
------- -------
Cash 1,794 1,113
Net premiums and
accounts receivable 12,376 8,990
Accrued interest receivable 451 449
Property and equipment, net 6,903 5,424
Deferred acquisition costs 2,446 2,704
Deferred federal income taxes receivable 3,293 3,117
Intangible assets 15,458 13,178
Other assets 2,063 2,918
------- -------
Total assets $67,526 $66,742
======= =======
LIABILITIES:
Reserve for losses and LAE $ 3,155 $ 3,232
Unearned premiums 5,622 6,217
Commissions payable 921 837
Accrued expenses and other
liabilities 6,759 6,125
Drafts payable 262 832
Notes payable 11,700 9,601
Reserve for return premiums 1,910 4,399
Deferred revenue 8,511 7,719
------- -------
Total liabilities 38,840 38,962
------- -------
SHAREHOLDERS' EQUITY:
Common stock, no par value;
authorized, 15,000,000 shares;
issued and outstanding 4,106,382
in 1998 and 4,032,882 in 1997 19,276 18,610
Retained earnings 9,410 9,170
------- -------
Total shareholders' equity $28,686 $27,780
------- -------
Total liabilities and
shareholders' equity $67,526 $66,742
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
NATIONAL INFORMATION GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the periods ended June 30, 1998 and 1997
(in thousands of dollars, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Second Quarter Six Months
---------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net premiums written $ 4,577 $ 5,067 $ 8,826 $ 9,714
Change in unearned premiums (92) (596) 595 (1,066)
----------- ----------- ---------- -----------
Net premiums earned 4,485 4,471 9,421 8,648
Real estate information services 9,182 5,673 17,685 9,979
Tracking fees 2,133 1,834 4,176 3,594
Net commission income 383 171 452 388
Net investment income 460 444 889 899
----------- ----------- ---------- -----------
TOTAL REVENUES 16,643 12,593 32,623 23,508
----------- ----------- ---------- -----------
Loss and LAE incurred 1,590 1,673 3,563 2,886
Commissions to
non-affiliates 1,024 686 1,888 1,101
Personnel expenses 7,923 5,621 14,947 10,572
All other expenses 5,488 3,278 10,724 6,434
----------- ----------- ---------- -----------
TOTAL EXPENSES 16,025 11,258 31,122 20,993
----------- ----------- ---------- -----------
Income before provision
for income taxes 618 1,335 1,501 2,515
Provision for
income taxes 191 497 485 875
----------- ----------- ---------- -----------
NET INCOME $ 427 $ 838 $ 1,016 $ 1,640
=========== =========== ========== ===========
Weighted average common and
common equivalent shares
outstanding:
Basic 4,101,985 3,909,893 4,087,311 3,909,829
=========== =========== ========== ===========
Diluted 4,306,676 3,989,724 4,292,002 3,989,660
=========== =========== ========== ===========
Per share results:
Net income per share:
Basic $ 0.10 $ 0.21 $ 0.25 $ 0.42
=========== =========== ========== ===========
Diluted $ 0.10 $ 0.21 $ 0.24 $ 0.41
=========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
NATIONAL INFORMATION GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the six months ended June 30, 1998 and 1997
(in thousands of dollars, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
Total
Common Stock Share-
--------------------- Retained holders'
Shares Amount Earnings Equity
--------- ------- -------- --------
<S> <C> <C> <C> <C>
Balance at
Dec. 31, 1996 3,896,937 $17,592 $ 10,960 $ 28,552
Net income -- -- 1,640 1,640
Options exercised 19,166 101 -- 101
Dividends paid -- -- (4,229) (4,229)
Unrealized loss, net
of deferred tax -- -- (32) (32)
--------- ------- -------- --------
Balance at
June 30, 1997 3,916,103 $17,693 $ 8,339 $ 26,032
========= ======= ======== ========
Balance at
Dec. 31, 1997 4,032,882 $18,610 $ 9,170 $ 27,780
Net income -- -- 1,016 1,016
Options exercised 73,500 666 -- 666
Dividends paid -- -- (608) (608)
Unrealized loss,
net of deferred tax -- -- (168) (168)
--------- ------- -------- --------
Balance at
June 30, 1998 4,106,382 $19,276 $ 9,410 $ 28,686
========= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
NATIONAL INFORMATION GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1998 and 1997
(in thousands of dollars, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,016 $ 1,640
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,127 610
Change in assets and liabilities:
Increase in net premiums and accounts
receivable and accrued interest receivable (3,388) (3,420)
(Increase) decrease in deferred acquisition costs 258 (306)
Increase (decrease) in insurance liabilities (3,732) 3,346
Increase in deferred federal tax receivable (176) (215)
Other, net (208) 602
-------- --------
Net cash provided (used) by operating activities (5,102) 2,257
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (5,449) (25,434)
Sale of investments 127 207
Maturity of investments 11,262 30,625
Purchase of equipment (2,313) (1,254)
-------- --------
Net cash provided by investing activities 3,627 4,144
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised 666 100
Dividends to shareholders (608) (4,229)
Proceeds from borrowing 2,740 --
Principal payments on notes payable (642) (500)
-------- --------
Net cash provided (used) by financing activities 2,156 (4,629)
-------- --------
Net increase in cash and cash equivalents 681 1,772
Cash and cash equivalents at beginning of period 1,113 3,183
-------- --------
Cash and cash equivalents at end of period $ 1,794 $ 4,955
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
NATIONAL INFORMATION GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Information
In the opinion of management, the financial information for National
Information Group, formerly National Insurance Group, ("National" and, together
with its subsidiaries, the "Company") contained in this Report reflects all
adjustments (consisting only of normal recurring adjustments) which are
necessary to a fair presentation of financial position and results of operations
for the interim periods. The results for the three month and six month period
ended June 30, 1998 are not necessarily indicative of the results to be expected
in the future.
The consolidated balance sheet data at December 31, 1997 was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting principles.
2. Acquisition
In September 1997, two wholly-owned subsidiaries of National acquired
substantially all of the assets and assumed certain liabilities of American
Realty Tax Services, Inc., a Virginia corporation, and American Realty Tax
Services of New York, Inc., a Virginia corporation (collectively, "ARTS"). As a
result of this acquisition, National performs real estate tax services through
its wholly-owned subsidiaries, Pinnacle Real Estate Tax Services, Inc., a
Delaware corporation, and Pinnacle Real Estate Tax Services of New York, Inc., a
Delaware corporation (collectively, "PinTax"). Please refer to "Notes to
Consolidated Financial Statements" in the Company's annual report on Form 10-K
for the year ended December 31, 1997 for details regarding this transaction. The
financial results for the second quarter of 1998 reflect the operating results
of PinTax, but the results for the comparable period of 1997 do not.
Pursuant to the asset purchase agreement, PinTax paid to the sellers of
ARTS (the "Sellers") in May 1998 approximately $2.47 million in additional
consideration ("Additional Consideration"). The Additional Consideration
resulted from PinTax receiving cash revenues in excess of certain targets for
the twelve month period ended April 30, 1998. Approximately $1.44 million of
Additional Consideration was paid in cash; the remaining $1.03 million of
Additional Consideration was paid in the form of a note to the Sellers (the
"Purchaser Note"). The Purchaser Note bears simple interest of 8% per annum.
Principal and interest are due in equal quarterly installments over the three
years ending May 2001, with the first installment due on June 18, 1998.
3. Dividend
On May 1, 1998 the Company's Board of Directors declared a dividend of
$0.04 per share, which was paid on May 29, 1998 to shareholders of record on May
18, 1998. The aggregate amount of the dividend payment was $164,255.
4. Comprehensive income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income is defined as the change in
equity of a
6
<PAGE> 8
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The Company's comprehensive income for the
three month period ended June 30, 1998 and June 30, 1997 includes unrealized
losses net of deferred tax of $157,000 and $31,000, respectively. For the six
month period ended June 30, 1998 and June 30, 1997, comprehensive income
includes unrealized losses net of deferred taxes of $168,000 and $32,000,
respectively. The Company's comprehensive income for the three month period
ended June 30, 1998 and June 30, 1997 was $270,000 and $807,000, respectively.
The Company's comprehensive income for the six month period ended June 30, 1998
and June 30, 1997 was $848,000 and $1,608,000, respectively.
5. Segment reporting
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 requires publicly-held
companies to report financial and other information about key revenue-producing
segments of the entity for which such information is available and utilized by
the chief operating decision maker. Specific information to be reported for
individual segments includes profit or loss, certain revenue and expense items
and total assets. A reconciliation of segment financial information to amounts
reported in the financial statements would be provided. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. The Company does
not believe that SFAS No. 131 will have a material impact on its financial
statements.
6. Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance for determining whether computer software is internal-use software and
on accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. The Company has not yet determined the
impact, if any, of adopting SOP 98-1, which will be effective for the Company's
fiscal year ending December 31, 1999.
7. Reclassification
For comparative purposes, certain prior year amounts have been
reclassified to conform to the current year presentation. Such reclassifications
had no impact on net income or shareholders' equity.
8. Subsequent events
On August 6, 1998 the Company's Board of Directors declared a dividend
of $0.05 per share. The dividend is payable on August 25, 1998 to shareholders
of record on August 17, 1998.
These quarterly interim financial statements are unaudited.
7
<PAGE> 9
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the interim
financial statements and the notes thereto, which are set forth elsewhere in
this Report.
In addition to historical information, this Report contains
forward-looking statements. Such statements include, but are not limited to,
forward-looking statements made in this Report which are identified by the words
"believe", "expects", "aware", "anticipates" or similar expressions as they
relate to National Information Group ("National" and, together with its
subsidiaries, the "Company") or its management. These forward-looking statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those reflected in these forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in this Report under the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Future Operating Results." These forward-looking
statements reflect management's opinions as of the date of this Report. Undue
reliance should not be placed on such forward looking statements. The Company
undertakes no obligation to revise or publicly release the results of any
revision to these forward-looking statements. Readers should carefully review
the risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
SECOND QUARTER OF 1998 COMPARED WITH SECOND QUARTER OF 1997:
The dollar amounts referred to in this section comparing operating
results for the three months ended June 30, 1997 with June 30, 1998 are
approximate amounts stated in millions unless otherwise indicated. These figures
are based upon the financial statements included elsewhere in this Report, which
amounts are stated in thousands, unless otherwise noted. All percentages
referred to in this section comparing operating results for the three months
ended June 30, 1997 with June 30, 1998 are approximate percentages and are based
only on dollar amounts set forth in the financial statements contained elsewhere
in this Report, which amounts are stated in thousands, unless otherwise noted.
Revenue
Total revenues of the Company for the second quarter increased from
$12.6 million in 1997 to $16.6 million in 1998, an increase of $4.0 million, or
32.2%.
Net premiums written by the Company's wholly owned subsidiary, Great
Pacific Insurance Company ("GPIC"), for the second quarter decreased from $5.1
million in 1997 to $4.6 million in 1998, a decrease of $490,000, or 9.7%. The
decrease was primarily a result of the loss in the third and fourth quarter of
1997 of two hazard insurance tracking customers.
Net premiums earned by GPIC for the second quarter of 1998 did not
materially change from the $4.5 million earned in the comparable period of 1997.
Premium revenue is generally earned ratably over a twelve month period and is
affected by policies written over the prior twelve months and by policies
canceled during the quarter. Such cancellations would be applicable to premiums
written in all prior periods. The combined effect of changes in premiums
written, earned and canceled within any period is
8
<PAGE> 10
measured in terms of the change in unearned premiums. For the three months ended
June 30, 1998, unearned premiums increased by $92,000, compared to an increase
in unearned premiums of $596,000 for the same quarter of 1997.
Real estate information services revenue, which includes revenues from
flood zone determination services and real estate tax services, increased from
$5.7 million in the second quarter of 1997 to $9.2 million in the same quarter
of 1998, an increase of $3.5 million, or 61.9%. Approximately 76% of the
increase was a result of the September 1997 acquisition of certain assets and
assumption of certain liabilities of American Realty Tax Services, Inc. and
American Realty Tax Services of New York, Inc. (the "Arts Acquisition"). As a
result of the Arts Acquisition, National, through its wholly-owned subsidiaries,
Pinnacle Real Estate Tax Services, Inc. and Pinnacle Real Estate Tax Services of
New York, Inc. (collectively, "PinTax"), derives revenues from performing real
estate tax services for certain customers. The remaining amount of the increase
was a result of an increase in the volume of flood zone determination services
from new and existing customers.
Tracking fees for the second quarter increased from $1.8 million in 1997
to $2.1 million in 1998, an increase of $299,000, or 16.3%. The increase was a
result of growth in the motor vehicle lease portfolios of the Company's
customers.
Expenses
Loss and loss adjustment expenses (LAE) incurred for the second quarter
decreased from $1.7 million (37.4% of net premiums earned) in 1997 to $1.6
million (35.5% of net premiums earned) in 1998, a decrease of $83,000, or 5.0%.
The average loss and loss adjustment expense per new claim reported in the
second quarter of 1998 was approximately $6,600, compared to $9,100 for the same
period in 1997. The number of claims for losses increased from 183 in 1997 to
241 in 1998.
Commissions to non-affiliates in the second quarter increased from
$686,000 (15.3% of net premiums earned) in 1997 to $1.0 million (22.8% of net
premiums earned) in 1998, an increase of $338,000 or 49.3%. The percentage of
commissions paid to net premiums earned varies depending upon customer and
agent/broker mix. The increase in commission expense - both in amount and as a
percentage of net premiums earned -- is due to a larger percentage of GPIC's
agents and brokers earning higher commission rates.
Personnel expenses in the second quarter increased from $5.6 million in
1997 to $7.9 million in 1998, an increase of $2.3 million, or 41.0%. This
increase was a result of (i) personnel expenses of PinTax, the expenses of which
were not reported in the second quarter of 1997 because the Arts Acquisition
occurred in September 1997; (ii) an increase in the volume of flood zone
determination services and motor vehicles being tracked; and (iii) an increase
in hiring of corporate and operations personnel to facilitate growth in the
Company's customer base. Personnel expenses as a percent of total revenue
increased from 44.6% in 1997 to 47.6% in 1998.
All other expenses in the second quarter increased from $3.3 million in
1997 to $5.5 million in 1998, an increase of $2.2 million, or 67.4%. This
increase was primarily a result of general, administrative and operating
expenses of PinTax, the expenses of which were not reported in the second
quarter of 1997 because the Arts Acquisition occurred in September 1997. In
addition, the increase in other expenses was a result of an increase in general,
administrative and operating costs of the Company's other subsidiaries resulting
from growth in the Company's customer base.
9
<PAGE> 11
As a result of the above factors, income before provision for income
taxes for the second quarter decreased from $1.3 million in 1997 to $618,000 in
1998, a decrease of $717,000. Net income for the second quarter of 1997 was
$838,000, or $0.21 per diluted share compared with net income of $427,000, or
$0.10 per diluted share in 1998. The weighted average number of diluted shares
outstanding for the second quarter of 1997 and 1998 were 3,989,724 and
4,306,676, respectively.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1997:
Revenue
Total revenue of the Company for the six month period increased from
$23.5 million in 1997 to $32.6 million in 1998, an increase of $9.1 million, or
38.8%.
Net premiums written for the period decreased from $9.7 million in 1997
to $8.8 million in 1998, a decrease of $888,000, or 9.1%. The decrease was
primarily a result of the loss in the third and fourth quarters of 1997 of two
hazard insurance tracking customers.
Net premiums earned by GPIC for the period increased from $8.6 million
in 1997 to $9.4 million in 1998, an increase of $773,000, or 8.9%. Premium
revenue is generally earned ratably over a twelve month period and is affected
by policies written over the prior twelve months and by policies canceled during
the quarter. Such cancellations would be applicable to premiums written in all
prior periods. The combined effect of changes in premiums written, earned and
canceled within any period is measured in terms of the change in unearned
premiums. For the six months ended June 30, 1998, unearned premiums decreased by
$595,000, compared to a increase in unearned premiums of $1.1 million for the
same six months of 1997. The decrease was primarily a result of the loss in the
third and fourth quarters of 1997 of two hazard insurance tracking customers.
Real estate information services revenue for the period increased from
$10.0 million in 1997 to $17.7 million in 1998, an increase of $7.7 million, or
77.2%. Approximately 62% of the increase was a result of revenues from real
estate tax services; these revenues were not reported in the six months ended
June 30, 1997 since the Arts Acquisition occurred in September 1997. The
remaining amount of the increase was a result of an increase in the volume of
flood zone determination services from new and existing customers.
Tracking fees for the period increased from $3.6 million in 1997 to $4.2
million in 1998, an increase of $582,000, or 16.2%. The increase primarily
resulted from the growth in the motor vehicle lease portfolios of the Company's
customers.
Expenses
Loss and loss adjustment expenses (LAE) incurred for the six month
period increased from $2.9 million (33.4% of net premiums earned) in 1997 to
$3.6 million (37.8% of net premiums earned) in 1998, an increase of $677,000 or
23.5%. The average loss and loss adjustment expense per new claim reported in
the six month period ended June 30, 1998 was approximately $6,500, compared to
$8,000 for the same period in 1997. The number of claims for losses increased
from 359 in the first 6 months of 1997 to 543 in the same period of 1998.
10
<PAGE> 12
Commissions to non-affiliates for the period increased from $1.1 million
(12.7% of net premiums earned) in 1997 to $1.9 million (20.0% of net premiums
earned) in 1998, an increase of $787,000, or 71.5%. The percentage of
commissions paid to net premiums earned varies depending upon customer and
agent/broker mix. The increase in commission expense - both in amount and as a
percentage of net premiums earned -- is due to a larger percentage of GPIC's
agents and brokers earning higher commission rates.
Personnel expenses for the period increased from $10.6 million in 1997
to $14.9 million in 1998, an increase of $4.4 million or 41.4%. This increase
was a result of (i) personnel expenses of PinTax, the expenses of which were not
reported in the first six months of 1997 because the Arts Acquisition occurred
in September 1997; (ii) an increase in the volume of flood zone determination
services and motor vehicles being tracked; and (iii) an increase in hiring of
corporate and operations personnel to facilitate growth in the Company's
customer base. Personnel expenses as a percent of total revenue increased from
45.0% in 1997 to 45.8% in 1998.
All other expenses in the six month period increased from $6.4 million
in 1997 to $10.7 million in 1998, an increase of $4.3 million, or 66.7%. This
increase was primarily a result of general, administrative and operating
expenses of PinTax, the expenses of which were not reported in the six months
ended June 30, 1997 because the Arts Acquisition occurred in September 1997. In
addition, the increase in other expenses was a result of an increase in general,
administrative and operating costs of the Company's other subsidiaries resulting
from growth in the Company's customer base.
As a result of the above factors, income before provision for income
taxes for the first six month period decreased from $2.5 million in 1997 to $1.5
million in 1998, a decrease of $1.0 million. Net income for the first six months
of 1997 was $1.6 million, or $0.41 per diluted share compared with net income of
$1.0 million, or $0.24 per diluted share in 1998. The weighted average number of
diluted shares outstanding for the six months ended June 30, 1997 and 1998 were
3,989,660 and 4,292,002, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of a company's ability to secure sufficient cash
to meet its contractual obligations and operating needs. National is a holding
company with no operations and no sources of income itself except interest or
investment income. The principal assets of National are the stock of its
subsidiaries. National is, and for the foreseeable future will continue to be,
dependent on the dividends from its subsidiaries and lines of credit to meet its
liquidity requirements, including debt service obligations. Dividends payable to
National by GPIC are subject to certain regulatory restrictions described below.
The Company's primary sources of cash are from operating income and
lines of credit. In the second quarter of 1998, the Company derived a
substantial portion of its operating cash from the operating profits of Pinnacle
Data Corporation ("Pinnacle Data"), as well as the net premiums written from
GPIC. The Company believes that its cash flow from operations, existing cash
balances and lines of credit will be sufficient to meet its working capital
needs for the foreseeable future.
In May 1998, National entered into a $2 million revolving credit
facility (the "Credit Facility") with its primary commercial bank. The Credit
Facility replaced National's previous revolving credit facility (the "Previous
Facility"). The only material changes to the Previous Facility were: (i) an
increase
11
<PAGE> 13
in the amount of credit by $1 million; and, (ii) an extension of the maturity
date to March 31, 1999. As of June 30, 1998, National had no outstanding
borrowings under the Credit Facility and was in compliance with all its terms
and covenants.
In May 1998, New ARTS Acquisition Inc., a Delaware corporation ("New
ARTS"), a wholly owned subsidiary of National, entered into a promissory note
(the "Acquisition Facility") with the Company's primary commercial bank to
replace a previous promissory note dated September 1997 (the "Original
Acquisition Facility"), which had been executed in connection with the financing
of the ARTS Acquisition. The only material change to the Acquisition Facility
from the Original Acquisition Facility was the extension of the time period
during which New ARTS was permitted to draw funds from April 30, 1998 to July
31, 1998. In May 1998, New ARTS borrowed an additional $1.5 million under the
Acquisition Facility, which was drawn in connection with the payment of
Additional Consideration to the Sellers of ARTS. As of June 30, 1998, New ARTS'
outstanding borrowings under the Acquisition Facility were $10.8 million. The
Acquisition Facility provides for borrowings up to $11.3 million through July
31, 1998, although no additional amounts were drawn after June 30, 1998. The
Acquisition Facility requires New ARTS to pay principal and interest over the
five years ended June 30, 2003. As of June 30, 1998, New ARTS was in compliance
with all terms and covenants of the Acquisition Facility.
In May 1998, New ARTS entered into a note (the "Purchaser Note") with
the Sellers of ARTS as partial payment of the Additional Consideration paid to
the Sellers in May 1998. The face amount of the Purchaser Note is $1.03 million.
The Purchaser Note bears simple interest at the rate of 8% per annum. Principal
and interest are due in equal quarterly installments over the three years ending
May 2001, with the first installment due June 18, 1998. As of June 30, 1998, New
ARTS was in compliance of the terms of the Purchaser Note.
GPIC collects and invests premiums written in advance of the payments
for associated claims. In the absence of a catastrophic loss, this timing
difference between premium collection and claims payment, combined with
investment income, normally provides short-term funds in excess of normal
operating demands for cash. As of June 30, 1998, the Company had cash and
short-term investments aggregating $6.3 million compared to $10.4 million at
December 31, 1997.
Of the Company's cash and short-term investments as of June 30, 1998,
$5.3 million was held by GPIC compared to $8.7 million at December 31, 1997.
Insurance companies, including GPIC, are subject to laws and regulations which
restrict their ability to pay dividends to parent companies or other
shareholders. Under California law, the maximum amount of dividends that GPIC
may pay National in any twelve (12) month period without prior regulatory
approval is the greater of (i) net income for the preceding calendar year, or
(ii) 10% of policyholders' surplus (shareholders' equity adjusted to a statutory
basis) as of the previous December 31. For the year ended December 31, 1997,
GPIC had net income of $1.7 million and as of December 31, 1997, policyholders'
surplus of $25.6 million. For the year ending December 31, 1998, the maximum
dividend permitted to be paid by GPIC to National is approximately $2.8 million.
In May 1998, GPIC made a dividend payment to National in the amount of $2.5
million.
Industry and regulatory guidelines suggest that a property and casualty
insurers' annual statutory net written premium should not exceed approximately
three times its policyholder's surplus. GPIC's surplus ratio is significantly
lower than such guidelines. For the year ended December 31, 1997, GPIC's net
written premium to policyholder surplus ratio was .8 to 1. Management believes
that, as of June 30, 1998, this ratio has not materially changed.
Consolidated stockholders' equity at June 30, 1998, totaled $28.7
million, or $6.68 per diluted share compared to $27.8 million, or $6.73 per
diluted share, at December 31, 1997.
12
<PAGE> 14
Inflation or deflation and other factors generally affect the rate of
investment return in the securities and financial markets, and increases and
decreases in such investment return rates have a corresponding effect on the
Company's investment income.
FACTORS AFFECTING FUTURE OPERATING RESULTS
These factors, together with statements regarding certain risks and
uncertainties contained in other parts of this Report, may affect the Company's
operating results. Investors should read this section in connection with any
forward-looking statement made in this Report, including statements preceded or
followed by the words "believes", "anticipates", "expects", "aware" or similar
expressions as they relate to the Company or its management.
Flood Zone Determinations
The Company derives a substantial portion of its total revenues from
fees for flood zone determination services. These services are primarily
provided to assist lenders in complying with federal laws which in many
instances require lenders to determine whether property being financed is
located in a federally designated Special Flood Hazard Area ("SFHA") and require
borrowers to obtain flood insurance. Any change in federal legislation or
secondary market requirements changing these requirements on lenders or
borrowers, or the development by competitors of enhanced service or delivery
systems could have a material adverse effect on the Company's business or
operating results.
Earnings Volatility
The Company's financial results can be significantly affected by a
number of factors. Those factors include, but are not limited to, the volume of
lender-placed insurance and the rate of cancellation of insurance policies, the
addition or loss of customers, changes in the number of loans or personal
property leases being tracked for major customers, increases or decreases in
interest rates, increased losses and loss adjustment expenses (LAE),
catastrophic loss or a series of loss events, and assessments from mandatory
insurance pools or associations. In addition, revenues from the Company's flood
zone determination services are directly related to the volume of mortgage loan
originations, both new and refinanced, and any change in the level of such
activity could have a material impact on the Company's performance.
The Insurance Industry
The Company derives a significant amount of its revenues from insurance
premiums and investment income. In the event that, for whatever reason, GPIC
experiences abnormally high losses, purchases reinsurance from reinsurers who
will not or cannot pay losses submitted, or other adverse developments occur,
then any such event or combination of events could have a material adverse
impact on the Company. In addition, insurance companies and others have often
been sued under certain legal theories, such as bad faith handling or settlement
of claims, which could subject GPIC to liability in excess of policy limits. An
adverse outcome of any such lawsuit could have a material negative impact on the
Company.
Reserve Adequacy
GPIC is required to maintain reserves to cover its estimated ultimate
liability for loss and loss adjustment expenses with respect to reported losses
and incurred but not reported claims. These reserves
13
<PAGE> 15
are estimates of what GPIC expects the ultimate settlement and administration of
claims will cost, and are based on known facts and circumstances, predictions of
future events, estimates of future trends in claims severity and other variable,
subjective factors. No assurances can be given that such estimates will be
adequate to cover actual losses incurred by GPIC. Any significant changes in
GPIC's estimate of ultimate losses on reported claims may materially adversely
affect the results of GPIC's operations in the period reported. GPIC has at
times in the past experienced adverse developments in its loss reserves. GPIC's
loss and loss adjustment expense reserves are reviewed on an annual basis by
unaffiliated actuaries. GPIC's most recent actuarial review of such reserves as
of December 31, 1997 concluded that the reserves (i) met the requirements of the
insurance laws of California, (ii) were computed in accordance with accepted
loss reserving standards and principles and (iii) make a reasonable provision
for all unpaid loss and loss expense obligations of GPIC under the terms of its
policies and agreements.
GPIC also maintains a reserve for return premiums which is based upon
GPIC's historical experience. As is prevalent in the lender-placed insurance
industry, a substantial amount of GPIC's premiums written are refunded to
policyholders. The amount of such refunds can be affected by, among other
things, inaccurate or untimely data submitted by customers, which GPIC uses as a
basis for recording written premiums or the loss of a significant customer. No
assurance can be given that the reserve for return premiums will be adequate to
cover actual refunded premiums paid by GPIC in the future.
Underwriting Risks
Traditional insurance companies underwrite risks individually or by
class, following an in-depth analysis of such risks. Although GPIC applies
underwriting techniques to a small portion of insured risks, the immediate
coverage required by purchasers of lender-placed insurance generally requires
GPIC to write specialized insurance within pre-designated limits and geographic
area, at a flat rate, without the application of traditional underwriting
criteria to individual risks. Accordingly, GPIC may be insuring individual risks
that it might not have insured had it applied traditional analysis to such
risks. In addition, GPIC may not have adequate spread of risk in a particular
geographic area.
Reinsurance Considerations
GPIC's business is partially dependent upon its ability to cede to
reinsurers risks insured by GPIC. The amount, availability and cost of
reinsurance are subject to prevailing market conditions, beyond the control of
GPIC, which can affect GPIC's level of business and profitability. GPIC is
ultimately liable for the reinsured risk if for any reason the reinsurers do not
cover or will not pay GPIC for the losses of the insureds. As a result of the
increased cost and more limited availability of reinsurance, in the future, GPIC
may elect to retain a higher portion of the risk historically ceded to
reinsurers. If GPIC were to retain a higher proportion of insured risks, it
would increase its exposure to significant losses relating to properties insured
by GPIC. This increased exposure could have a material adverse effect on GPIC's
results of operation.
Rapid Technological Change and New Products; Product Delays
The markets for the Company's information services are highly
competitive and characterized by rapidly changing technology. The Company
believes that its future success will depend, in part, on its ability to
identify, develop, install and support new services in a timely fashion, and on
market acceptance of such services. No assurance can be given that the
introduction of new technologies will enable the
14
<PAGE> 16
Company to gain market share, realize cost savings, increase revenues or retain
customers.
Shortage of Skilled Labor
The Company's delivery and upgrade of products and services to its
customers is dependent upon, among other factors, the Company's ability to
attract and retain key analytical and management professionals, including
skilled computer programmers and systems analysts. Businesses located in San
Francisco, San Mateo, Contra Costa, Alameda and Santa Clara counties of
California are experiencing a tightening of the local labor market for these
professionals, which may result in one or more of the following: an increase in
personnel costs, a delay in service installations, and a reduction in customer
service. The Company is unable to predict when the conditions in the local labor
market will change.
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is routinely a party to litigation incidental to its
business and, from time to time, is a party to other litigation. While the
ultimate results of such litigation cannot presently be determined on the date
of this Report, management believes that no individual item of litigation or
group of similar items of litigation is likely to have a material adverse effect
on the consolidated financial position of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on June 15, 1998. At
the annual meeting, the shareholders elected Bard E. Bunaes, Bruce A. Cole,
Lawrence M. Goodman, Saul B. Jodel and Mark A. Speizer to serve as directors of
the Company for the ensuing year, amended the Company's Articles of
Incorporation to change the name of the Company, and ratified the selection of
Coopers & Lybrand, LLP, as the Company's independent accountants for the year
ending December 31, 1998.
The votes for each of the proposals at the annual meeting were as follows:
Proposal
1. Election of Directors:
All nominees for director were elected with 3,966,858 shares voting for and
19,350 shares withheld.
<TABLE>
<CAPTION>
Broker
For Against Withheld Non-votes
--------- ------- -------- ---------
<S> <C> <C> <C> <C>
2. Amendment to Articles of
Incorporation to change 3,972,221 9,680 4,307 --
the name of the Company
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
Broker
For Against Withheld Non-votes
--------- ------- -------- ---------
<S> <C> <C> <C> <C>
3. Appointment of 3,982,803 3,405 -- --
Coopers & Lybrand, LLP
</TABLE>
No other matters were submitted to a vote of security holders of the
Company at the annual meeting or otherwise during the quarter.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
<TABLE>
<S> <C>
10.1 Amendment No. 2 to Credit Terms and Conditions, dated May 12,
1998 to Credit Terms and Conditions, dated as of April 2, 1997
between Imperial Bank and National Information Group.
10.2 Note dated May 12, 1998, made by National Information Group
payable to Imperial Bank in the original principal amount of
$2,000,000.
10.3 Note dated May 12, 1998, made by New Arts Acquisition, Inc.
payable to Imperial Bank in the original principal amount of
$11,268,000.
10.4 Purchaser note dated May 26, 1998 made by New Arts Acquisition,
Inc., payable to JMD Group, Inc. in the original amount of
$1,027,768.
10.5 First Amendment to At Will Employment Agreement by and between
National Information Group and Douglas H. Helm dated April 15,
1998.
10.6 Office Lease dated January 1, 1998 between Systron Business Center,
LLC and Pinnacle Data Corporation for the premises located at
2727 Systron Drive, Concord, California.
10.7 Lease dated June 24, 1998 between BD 34th Properties, Inc. and
National Information Group for the premises located at Building 302
at 6950 South Country Club, Tucson, Arizona.
10.8 Deed of Lease dated May 8, 1998 between FCP-Dulles Business Park I,
L.C. and Pinnacle Real Estate Tax Services, Inc. for the premises
located at 14026 Thunderbolt Place, Suite 200, Chantilly, Virginia.
11.1 Computation of weighted average shares outstanding and earnings
per share.
27.1 Financial data schedule.
</TABLE>
(b) Reports on Form 8-K
The Company filed an 8-K on June 15, 1998 announcing a change in its name
from National Insurance Group to National Information Group.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL INFORMATION GROUP
---------------------------
(REGISTRANT)
/s/ MARK A. SPEIZER
DATE: August 13, 1998 ----------------------------
(SIGNATURE)
Mark A. Speizer, Chairman
of the Board and Chief
Executive Officer
/s/ GREGORY S. SAUNDERS
DATE: August 13, 1998 ----------------------------
(SIGNATURE)
Gregory S. Saunders,
Executive Vice President, Treasurer
and Chief Financial Officer
(Principal Financial Officer)
17
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<S> <C>
10.1 Amendment No. 2 to Credit Terms and Conditions, dated May 12,
1998 to Credit Terms and Conditions, dated as of April 2, 1997
between Imperial Bank and National Information Group.
10.2 Note dated May 12, 1998, made by National Information Group
payable to Imperial Bank in the original principal amount of
$2,000,000.
10.3 Note dated May 12, 1998, made by New Arts Acquisition, Inc.
payable to Imperial Bank in the original principal amount of
$11,268,000.
10.4 Purchaser note dated May 26, 1998 made by New Arts Acquisition,
Inc., payable to JMD Group, Inc. in the original amount of
$1,027,768.
10.5 First Amendment to At Will Employment Agreement by and between
National Information Group and Douglas H. Helm dated April 15,
1998.
10.6 Office Lease dated January 1, 1998 between Systron Business Center,
LLC and Pinnacle Data Corporation for the premises located at
2727 Systron Drive, Concord, California.
10.7 Lease dated June 24, 1998 between BD 34th Properties, Inc. and
National Information Group for the premises located at Building 302
at 6950 South Country Club, Tucson, Arizona.
10.8 Deed of Lease dated May 8, 1998 between FCP-Dulles Business Park I,
L.C. and Pinnacle Real Estate Tax Services, Inc. for the premises
located at 14026 Thunderbolt Place, Suite 200, Chantilly, Virginia.
11.1 Computation of weighted average shares outstanding and earnings
per share.
27.1 Financial data schedule.
</TABLE>
18
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 2 TO THE CREDIT TERMS AND CONDITIONS
This Amendment No. 2 to Credit Terms and Conditions ("Amendment") dated May
12, 1998, to that certain Credit Terms and Conditions, dated as of April 2, 1997
(as modified, amended and supplemented to the date hereof, the "Agreement"), is
entered into by and between Imperial Bank, as lender, and National Insurance
Group, as borrower.
All capitalized terms used, but not defined herein, shall have the same
meaning as set forth in the Agreement.
In consideration of the mutual covenants contained herein, the parties
hereby agree that the Agreement is hereby amended as follows.
1. Section B4 of the Agreement is hereby amended and restated to read in
its entirety as follows:
"4. NET WORTH. Maintain, on a consolidated basis, a tangible net worth
(meaning the excess of all assets, excluding and value for good will other
than the goodwill for New Arts Acquisition, Inc. which shall be included,
trademarks, patents, copyrights, leaseholds, organization expense and other
similar intangible items, over its liabilities) of not less than twenty
five million dollars ($25,000,000) to increase each fiscal year end,
commencing with the fiscal year end 1998, by Borrower's net income (without
deduction for losses), minus dividends paid."
2. Except as provided herein, the Agreement remains unchanged and in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
National Insurance Group Imperial Bank
By: /s/ ROBERT P. BARBAROWICZ By: /s/ JOSEPH MCCARTHY
---------------------------- ----------------------------
Robert P. Barbarowicz Joseph McCarthy,
Executive Vice President Vice President
General Counsel & Secretary
<PAGE> 1
EXHIBIT 10.2
[IMPERIAL BANK LOGO]
PROMISSORY NOTE
<TABLE>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 06-12-1998 08-01-1999 716065529 900
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
________________________________________________________________________________
Borrower: NATIONAL INSURANCE GROUP Lender: Imperial Bank
395 Oyster Point Blvd. East Bay Regional Office
Suite 500 1331 N. California Blvd.
S. San Francisco, CA 94080 Suite 400
Walnut Creek, CA 94596-9504
________________________________________________________________________________
Principal Amount: $2,000,000.00 Initial Rate: 9.250% Date of Note: May 12, 1998
PROMISE TO PAY. NATIONAL INSURANCE GROUP ("Borrower") promises to
pay to Imperial Bank ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Two Million & 00/100
Dollars ($2,000,000.00) or so much as may be outstanding, together
with interest on the unpaid outstanding principal balance of each
advance. Interest shall be calculated from the date of each advance
until payment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all
outstanding principal plus all accrued unpaid interest on June 1,
1999. In addition, Borrower will pay regular monthly payments of
accrued unpaid interest beginning June 30, 1998, and all subsequent
interest payments are due on the last day of each month after that.
The annual interest rate for this Note is computed on a 365/360
basis; that is, by applying the ratio of the annual interest rate
over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal
balance is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs and any
late charges, then to any unpaid interest, and any remaining amount to
principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to
change from time to time based on changes in an index which is the
Imperial Bank Prime Rate (the "Index"). The Prime Rate is the rate
announced by Lender as its Prime Rate of interest from time to time.
Lender will tell Borrower the current index rate upon Borrower's
request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more
often than each day. The Index currently is 8.500%. The interest rate
to be applied to the unpaid principal balance of this Note will be at
a rate of 0.750 percentage points over the Index, resulting in an
initial rate of 9.250%. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by
applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full
prepayment of this Note, Borrower understands that Lender is entitled
to a minimum interest charge of $250.00. Other than Borrower's
obligation to pay any minimum interest charge, Borrower may pay
without penalty all or a portion of the amount owed earlier than it
is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will reduce
the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be
charged 5.000% of the unpaid portion of the regularly scheduled
payment.
DEFAULT. If any event of default, as defined in the Credit Terms and
Conditions Agreement dated April 2, 1997, other than a default in
payment, is curable and if Borrower has not been given a notice of a
breach of the same provision of this Note within the preceding
twelve (12) months, it may be cured (an no event of default will
have occurred) If Borrower, after receiving written notice from
Lender demanding cure of such default: (a) cures the default within
ten (10) days; or (b) if the cure requires more than ten (10) days,
immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon an event of default as defined in the Credit
Terms and Conditions Agreement dated April 2, 1997, Lender may
declare the entire unpaid principal balance on this Note and all
accrued unpaid interest immediately due, without notice, and then
Borrower will pay that amount. Upon Borrower's failure to pay all
amounts declared due pursuant to this section, including failure to
pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, do one or both of the following: (a)
increase the variable interest rate on this Note to 5.750 percentage
points over the index, and (b) add any unpaid accrued interest to
principal and such sum will bear interest therefrom until paid at the
rate provided in this Note (including any increased rate). Lender
may hire or pay someone else to help collect this Note if Borrower
does not pay. Borrower also will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment
collection services. Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been
delivered to Lender and accepted by Lender in the State of
California. If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of Los Angeles
County, the State of California. Lender and Borrower hereby waive the
right to any jury trial in any action, proceeding, or counterclaim
brought by either Lender or Borrower against the other. (Initial Here
____) This Note shall be governed by and construed in accordance
with the laws of the State of California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if
Borrower makes a payment on Borrower's loan and the check or
preauthorized charge with which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges,
and transfers to Lender all Borrower's right, title and interest in
and to, Borrower's accounts with Lender (whether checking, savings,
or some other account), including without limitation all accounts
held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all
trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on
this Note against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit.
Advances under this Note may only be requested in writing by
Borrower or by an authorized person. All communications,
instructions, or directions by telephone or otherwise to Lender are to
be directed to Lender's office shown above. The following party or
parties are authorized to request advances under the line of credit
until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: Mark A. Speizer,
Chairman/CEO; Bruce A. Cole, President; Robert P. Barbarowicz,
Executive VP/Secretary; and Gregory S. Saunders, Executive VP/CFO.
Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b)
credited in any of Borrower's accounts with Lender. The unpaid
principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including
daily computer print-outs. Lender will have no obligation to advance
funds under this note if: (a) Borrower or any guarantor is in default
under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection
with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Lender; (d) Borrower has
applied funds provided pursuant to this Note for purposes other than
those authorized by Lender; or (e) Lender in good faith deems itself
insecure under this Note or any other agreement between Lender and
Borrower.
REFERENCE PROVISION. 1. Other than (i) non-judicial foreclosure and
all matters in connection therewith regarding security interests in
real or personal property; or (ii) the appointment of a receiver, or
the exercise of other provisional remedies (any and all of which may
be initiated pursuant to applicable law), each controversy, dispute
or claim between the parties arising out of or relating to this
document ("Agreement"), which controversy, dispute or claim is not
settled in writing within thirty (30) days after the "Claim Date"
(defined as the date on which a party subject to the Agreement gives
written notice to all other parties that a controversy, dispute or
claim exists), will be settled by a reference proceeding in
California in accordance with the provisions of Section 638 et seq.
of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the
settlement of any controversy, dispute or claim concerning this
Agreement, including whether such controversy, dispute or
<PAGE> 2
05-12-1998 PROMISSORY NOTE Page 2
(Continued)
- --------------------------------------------------------------------------------
claim is subject to the reference proceeding and except as set forth above, the
parties waive their rights to initiate any legal proceedings against each other
in any court or jurisdiction other than the Superior Court in the County where
the Real Property, if any, is located or Los Angeles County if none (the
"Court"). The referee shall be a retired Judge of the Court selected by mutual
agreement of the parties, and if they cannot so agree within forty-five (45)
days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers for a temporary
judge, as authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of Court (or
any subsequently enacted Rule). Each party shall have one peremptory challenge
pursuant to CCP 170.6. The referee shall (a) be requested to set the matter for
hearing within sixty (60) days after the Claim Date and (b) try any and all
issues of law or fact and report a statement of decision upon them, if possible,
within ninety (90) days of the Claim Date. Any decision rendered by the referee
will be final, binding and conclusive and judgment shall be entered pursuant to
CCP 644 in any court in the State of California having jurisdiction. Any party
may apply for a reference proceeding at any time after thirty (30) days
following notice to any other party of the nature of the controversy, dispute or
claim, by filing a petition for a hearing and/or trial. All discovery permitted
by this Agreement shall be completed no later than fifteen (15) days before the
first hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested discovery for any
reason whatsoever, including, without limitation, legal objections raised to
such discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents shall be responded to within ten (10) days
after service. All disputes relating to discovery which cannot be resolved by
the parties shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending appointment of the referee as provided herein,
the Superior Court is empowered to issue temporary and/or provisional remedies,
as appropriate.
2. Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter, except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
3. The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The rules
of evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to finding of fact, conclusions of law, a written statement of decision, and the
right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
4. In the event that the enabling legislation which provides for appointment
of a referee is released (and no successor statute is enacted), any dispute
between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, 1280 through 1294.2 of the CCP as amended
from time to time. The limitations with respect to discovery as set forth
hereinabove shall apply to any such arbitration proceeding.
CREDIT TERMS AND CONDITIONS AGREEMENT. This Note is subject to the provisions
of the Credit Terms and Conditions Agreement dated April 2, 1997 and all
amendments thereto and replacements therefor.
DEFAULT PROVISION. Any default under the obligations of New Arts Acquisition,
Inc. to Bank shall constitute a default hereunder. Defaults shall include those
defaults contained in the Credit Terms and Conditions executed by the
undersigned.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
NATIONAL INSURANCE GROUP
X /s/ ROBERT P. BARBAROWICZ
----------------------------
Authorized Officer
Robert P. Barbarowicz
Executive Vice President
General Counsel and Secretary
================================================================================
Variable Rate, Line of Credit. LASER PRO, Reg. U.S. Pat & T.M. Off.,
Ver. 3.24b (c) 1996 CFI ProServices, Inc.
All rights reserved. (CA-D20 E.3.24 F3.24a 18NIG.LN C2-OVL)
<PAGE> 1
Exhibit 10.3
[LOGO]
IMPERIAL BANK
Innovative Business Banking
Marketing
PROMISSORY NOTE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$11,268,000.00 06-12-1998 718089938 900
- --------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability
of this document to any particular loan or item.
- --------------------------------------------------------------------------------------------
BORROWER: MEW ARTS ACQUISITION, INC. LENDER: Imperial Bank
395 Oyster Point Blvd., #500 East Bay Regional Office
S. San Francisco, CA 94080 1331 N. California Blvd., Suite 400
Walnut Creek, CA 94596-9504
- --------------------------------------------------------------------------------------------
</TABLE>
PRINCIPAL AMOUNT: $11,268,000.00 INITIAL RATE: 9.750%
DATE OF NOTE: May 12, 1998
PROMISE TO PAY. NEW ARTS ACQUISITION, INC. ("Borrower") promises to pay to
Imperial Bank ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Eleven Million Two Hundred Sixty Eight
Thousand & 00/100 Dollars ($11,268,000.00), together with interest on the
unpaid principal balance from May 12, 1998, until paid in full.
PAYMENT. Subject to any payment changes resulting from changes in the Index,
Borrower will pay this loan in accordance with the following payment schedule:
Advances under the Note shall be available through July 31, 1998. On said
date, the outstanding balance of advances under the Note shall be
converted to an amortizing loan payable in 32 equal monthly payments of
principal including interest based upon a 10 year amortization commencing
on August 31, 1998. On March 31, 2001, the then outstanding balance of
advances under the Note shall be payable in 27 equal monthly payments of
principal including interest based upon a 3 year amortization commencing
on April 30, 2001. All principal and accrued but unpaid interest shall in
any event be due and payable on June 30, 2003. The monthly payments shall
be adjusted annually on the anniversary date of the note to reflect the
then applicable rate of interest and the balance of the respective initial
amortization periods. Notwithstanding the amount specified as the monthly
payment, the amount due monthly shall never be less than interest accrued.
The annual interest rate for this Note is computed on a 385/360 basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender
at Lender's address shown above or at such other place as Lender may designate
in writing. Unless otherwise agreed or required by applicable law, payments
will be applied first to any unpaid collection costs and any late charges, then
to any unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an Index which is the Imperial Bank Prime
Rate (the "Index"). The Prime Rate is the rate announced by Lender as its Prime
Rate of interest from time to time. Lender will tell Borrower the current index
rate upon Borrower's request. Borrower understands that Lender may make loans
based on other rates as well. The interest rate change will not occur more
often than each day. The Index currently is 8.500%. The interest rate to be
applied to the unpaid principal balance of this Note will be at a rate of 1.250
percentage points over the Index, resulting in a current rate of 9.750%.
NOTICE: Under no circumstances will the interest rate on this Note be more than
the maximum rate allowed by applicable law. Whenever increases occur in the
interest rate, Lender, at its option, may do one or more of the following: (a)
increase Borrower's payments to ensure Borrower's loan will pay off by its
original final maturity date, (b) increase Borrower's payments to cover
accruing interest, (c) increase the number of Borrower's payments, and (d)
continue Borrower's payments at the same amount and increase Borrower's final
payment.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a minimum interest
charge of $250.00. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be
charged 5.000% of the unpaid portion of the regularly scheduled
payment.
DEFAULT. If any event of default, as defined in the Credit Terms and
Conditions Agreement dated September 11, 1997 other than a default
in payment, is curable and if Borrower has not been given a notice
of a breach of the same provision of this Note within the preceding
twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from
Lender demanding cure of such default: (a) cures the default within
ten (10) days; or (b) if the cure requires more than ten (10) days,
immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon an event of default, as defined in the Credit
Terms and Conditions Agreement dated September 11, 1997 Lender may
declare the entire unpaid principal balance on this Note and all
accrued unpaid interest immediately due, without notice, and then
Borrower will pay that amount. Upon Borrower's failure to pay all
amounts declared due pursuant to this section, including failure
to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, do one or both of the following: (a)
increase the variable interest rate on this Note to 6.250 percentage
points over the Index, and (b) add any unpaid accrued interest to
principal and such sum will bear interest therefrom until paid at the
rate provided in this Note (including any increased rate). Lender may
hire or pay someone else to help collect this Note if Borrower does
not pay. Borrower also will pay Lender that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all
other provided by law. This Note has been delivered to Lender and
accepted by Lender in the State of California. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction
of the courts of Los Angeles County, the State of California. Lender
and Borrower hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender or Borrower
against the other. (Initial Here ________) This Note shall be
governed by and construed in accordance with the laws of the State of
California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
REFERENCE PROVISION. 1. Other than (i) non-judicial foreclosure and all matters
in connection therewith regarding security interests in real or personal
property; or (ii) the appointment of a receiver, or the exercise of other
provisional remedies (any and all of which may be initiated pursuant to
applicable law), each controversy, dispute or claim between the parties arising
out of or relating to this document ("Agreement"), which controversy, dispute or
claim is not settled in writing within thirty (30) days after the "Claim Date"
(defined as the date on which a party subject to the Agreement gives written
notice to all other parties that a controversy, dispute or claim exists), will
be settled by a reference proceeding in California in accordance with the
provisions of Section 838 et seq. of the California Code of Civil Procedure, or
their successor section ("CCP"), which shall constitute the exclusive remedy
for the settlement of any controversy, dispute or claim concerning this
Agreement, including whether such controversy, dispute or
<PAGE> 2
claim is subject to the reference proceeding and except as set forth above, the
parties waive their rights to initiate any legal proceedings against each other
in any court or jurisdiction other than the Superior Court in the County where
the Real Property, if any, is located or Los Angeles County if none (the
"Court"). The referee shall be a retired Judge of the Court selected by mutual
agreement of the parties, and if they cannot so agree within forty-five (45)
days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers for a temporary
judge, as authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of Court (or
any subsequently enacted Rule). Each party shall have one peremptory challenge
pursuant to CCP 170.6. The referee shall (a) be requested to set the matter for
hearing within sixty (60) days after the Claim Date and (b) try any and all
issues of law or fact and report a statement of decision upon them, if possible,
within ninety (90) days of the Claim Date. Any decision rendered by the referee
will be final, binding and conclusive and judgment shall be entered pursuant to
CCP 644 in any court in the State of California having jurisdiction. Any party
may apply for a reference proceeding at any time after thirty (30) days
following notice to any other party of the nature of the controversy, dispute or
claim, by filling a petition for a hearing and/or trial. All discovery permitted
by this Agreement shall be completed no later than fifteen (15) days before the
first hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested discovery for any
reason whatsoever, including, without limitation, legal objections raised to
such discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents shall be responded to within ten (10) days
after service. All disputes relating to discovery which cannot be resolved by
the parties shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending appointment of the referee as provided herein,
the Superior Court is empowered to issue temporary and/or provisional remedies,
as appropriate.
2. Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter, except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
3. The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The rules
of evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of law, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under the provision.
4. In the event that the enabling legislation which provides for appointment
of a referee is repealed (and no successor statute is enacted), any dispute
between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court. In accordance
with the California Arbitration Act, 1280 through 1294.2 of the CCP as amended
from time to time. The limitations with respect to discovery as set forth
hereinabove shall apply to any such arbitration proceeding.
CREDIT TERMS AND CONDITIONS AGREEMENT. This Note is subject to the provisions of
the Credit Terms and Conditions Agreement dated September 11, 1997 and all
amendments thereto and replacements therefor.
DEFAULT PROVISION. Any default under the obligations of National Insurance Group
to Bank shall constitute a default hereunder. Defaults shall include those
defaults contained in the Credit Terms and Conditions executed by the
undersigned.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
NEW ARTS ACQUISITION, INC. Robert P. Barbarowicz
Executive Vice President
/s/ ROBERT P. BARBAROWICZ General Counsel and Secretary
- --------------------------------------
Authorized Officer
<PAGE> 1
EXHIBIT 10.4
PURCHASER NOTE
$1,027,768.34 May 26, 1998
FOR VALUE RECEIVED, New Arts Acquisition, Inc., a Delaware corporation
("Purchaser"), hereby promises to pay to the order of JMD Group, Inc., a
Virginia corporation ("Seller"), the principal sum of One Million Twenty-Seven
Thousand Seven Hundred Sixty-eight and 34/100 Dollars ($1,027,768.34), together
with interest as provided below on the unpaid principal balance of this
Promissory Note (this "Note") until paid in full in lawful money of the United
States.
1. Terms and Conditions of Payments. The term of this Note shall be the
third (3rd) anniversary of Closing (the "Maturity Date") under that certain
Assets Purchase Agreement by and among Purchaser, National Insurance Group
("National"), Pinnacle Real Estate Tax Services, Inc. (formerly named Pinnacle
American Realty Tax Services, Inc.), Pinncale Real Estate Tax Services of New
York, Inc. (formerly named Pinnacle American Realty Tax Services of New York,
Inc.), Seller and American Realty Tax Services of New York, Inc., which
Agreement is August 15, 1997, as amended by Amendment No. 1, dated as of
September 18, 1997 (the "Purchase Agreement"). Purchaser shall pay Seller equal
quarterly payments of One Hundred Two Thousand Seven Hundred Seventy-six and
83/100 Dollars ($102,776.83) of principal and all interest accrued on the
outstanding balance thereafter, commencing on June 18, 1998. Any and all unpaid
amounts of principal, interest, costs and fees shall be paid on the Maturity
Date.
2. Interest. The outstanding principal shall bear simple interest at a
rate equal to eight (8%) per annum. The rate of interest applicable hereunder
shall be calculated on the basis of actual days elapsed over a 365-day year.
3. Late Payment Charge. If any payment due hereunder, including, but
not limited to, any final payment, is not received by Seller within ten (10)
calendar days after its due date, Purchaser shall pay a late payment charge
equal to five percent (5%) of the amount then due (including both principal and
interest).
4. Default. This Note shall be in default if Purchaser fails or refuses
to perform any obligation under this Note and such nonperformance is continuing
for more than ten (10)
1
<PAGE> 2
days after the giving of written notice by Seller (an "Event of Default").
5. Default Interest Rate. Upon an Event of the Default hereunder,
Seller, in Seller's sole and absolute discretion and without notice or demand,
may raise the rate of interest accruing on the unpaid principal balance hereof
by three (3) percentage points above the rate of interest otherwise applicable,
independent of whether Seller elects to accelerate the unpaid principal balance
as a result of such Event of Default. If judgment is entered against Purchaser
on this Note, the amount of the judgment entered (which may include principal,
interest, fees and costs) shall bear interest at the default interest rate
described in this paragraph, to be determined on the date of the entry of the
judgment.
6. Assignment. This Note is not assignable by Seller, and any purported
assignment in violation of this Paragraph shall be void and of no effect.
7. Application of Payments. All payments under this Note shall be
applied first to any costs, expenses and charges then due and payable by
Purchaser, second to accrued but unpaid interest, and then to outstanding
principal.
8. Set Offs. Purchaser must pay the principal and interest payment as
provided herein, subject, however, to reduction under Purchaser's right of
set-off pursuant to Section 9.7 of that certain Purchase Agreement executed of
even date herewith between Purchaser and Seller.
9. Waiver Regarding Notice. Purchaser and any endorsers or guarantors
of this Note severally waive presentment, demand and presentation for payment,
notice of nonpayment and dishonor, protest and notice of protest, or any other
notices of whatever kind of nature, bringing of suit and diligence in taking
any action to collect any sum owing hereunder. From time to time, without in
any way affecting the obligation of Purchaser to pay the outstanding principal
balance of this Note and any interest accrued thereon and fully to observe and
perform the covenants and obligations of Purchaser under this Note, without
affecting the duties and obligations of any endorser hereto, without affecting
the duties and obligations of any guarantor hereof, without giving notice to or
obtaining the consent of Purchaser or any endorsers hereto or guarantor hereof
and without liability on the part of Seller, the Seller may, at its option, (i)
extend the time for payment of interest hereon and/or principal hereof, (ii)
reduce the payments hereunder, (iii)
2
<PAGE> 3
release anyone liable on this Note, (iv) accept a renewal of this Note, (v)
modify the terms and/or time of payment of this Note, (vi) join in any extension
or subordination, (vii) exercise any right or election hereunder, and/or (viii)
modify the rate of interest or period of amortization or principal due date of
this Note. No one or more of such actions shall constitute a novation or operate
to release any party liable for this Note, either as Purchaser, endorser,
guarantor or otherwise.
10. Remedies. Upon the occurrence of an Event of Default, Seller
shall have the right to cause the entire unpaid principal balance hereof,
together with all accrued interest thereon, attorneys' fees and all fees,
charges, costs and expenses, if any, owed by Purchaser to Seller hereunder, to
become immediately due and payable in full by giving written notice to
Purchaser. Upon the occurrence of an Event of Default, Seller may avail itself
of any and all legal and equitable rights and remedies which Seller may have at
law or in equity or under this Note or any other document evidencing and/or
securing the debt evidenced hereby, including, but not limited to, the right to
accelerate the indebtedness due under this Note as described in the preceding
sentence. The remedies of Seller hereof as provided herein shall be distinct and
cumulative, and may be pursued singly, successively or together, at the sole
discretion of Seller, and may be exercised as often as occasion therefor shall
arise. Failure to exercise any of the foregoing options upon the occurrence of
an Event of Default shall not constitute a waiver of the right to exercise the
same or any other option at any subsequent time in respect of the same or any
other Event of Default, and no single or partial exercise of any right or remedy
shall preclude other or further exercise of the same or any other right or
remedy. Seller shall have no duty to exercise any or all of the rights and
remedies herein provided or contemplated. The acceptance by Seller of any
payment hereunder that is less than payment in full of all mounts due and
payable at the time of such payment shall not constitute a waiver of the right
to exercise any of the foregoing rights or remedies at that time, or nullify any
prior exercise of any such rights or remedies without the express written
consent of Seller.
11. Expenses of Collection. Should this Note be referred to an
attorney for collection after an Event of Default, whether or not suit has been
filed or any other action instituted or taken to enforce or collect under this
Note, Purchaser shall pay all reasonable costs and fees (including attorneys'
fees) of Seller and expenses in connection with such referral and enforcement.
3
<PAGE> 4
12. Waiver. Neither any course of dealing by Seller nor any failure or
delay on its part to exercise any right, power or privilege hereunder shall
operate as a waiver hereof unless said waiver is in writing and signed by
Seller, and then only to the extent specifically set forth in said writing. A
waiver as to one event shall not be construed as a continuing waiver or as a
bar to, or waiver of, any right or remedy as to any subsequent event. Purchaser
hereby waivers the benefit of the Homestead exemption as to the debts,
obligations and covenant imposed by this Note and/or the Assignment.
13. General Provisions.
(a) This Note shall be governed and construed, and all rights and
obligations hereunder determined, in accordance with the laws of the
Commonwealth of Virginia, and shall be binding upon the successors and assigns
of Purchaser and inure to the benefit of Seller.
(b) Any provision in this Agreement that is unenforceable or
invalid in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such unenforceability or invalidity without affecting the
remaining provisions hereof or affecting the enforceability or validity of such
provision in any other jurisdiction.
(c) It is expressly agreed that time is of the essence in the
performance of the obligations set forth in this Note.
(d) This Note is guaranteed pursuant to that certain Guaranty
executed by National as of the date hereof.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has duly executed this Promissory Note the day and year first above
written.
NEW ARTS ACQUISITION, INC.,
a Delaware corporation
By: /s/ ROBERT P. BARBAROWICZ
------------------------------------
Robert P. Barbarowicz
Its Executive Vice President,
General Counsel and Secretary
4
<PAGE> 1
EXHIBIT 10.5
FIRST AMENDMENT
TO
AT WILL EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO AT WILL EMPLOYMENT AGREEMENT (the "Amendment") is
made and entered into as of the 15th day of April, 1998, by and between Douglas
H. Helm, an individual ("Employee"), and NATIONAL INSURANCE GROUP, a California
corporation ("National"), and any and all of its subsidiaries that currently
exist or may exist in the future.
WHEREAS, Employee and National entered into that certain at will
employment agreement, dated May 7, 1997 (the "Employment Agreement"); and
WHEREAS, Employee and National desire to amend the Employment Agreement
as provided herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Employee and National hereby
agree to the following:
1. Except to the extent the context required otherwise, all defined
terms used herein shall have the meaning ascribed to them in the Employment
Agreement.
2. Pursuant to Section 1.4 of the Employment Agreement, National is
currently holding $127,029.97 of cumulative Excess Commissions, as defined in
Section 1.4(a) of the Employment Agreement. National and the Employee hereby
amend the terms of the Employment Agreement such that the entire amount of the
cumulative Excess Commissions will be paid upon execution of this Amendment.
Employee hereby acknowledges that upon receipt of such payment he shall have
received all Cumulative Excess Commissions to which he is entitled and that
National shall have no further obligation to Employee with respect to any
Cumulative Excess Commissions.
3. Section 1.4(d) of the Employment Agreement is hereby deleted in its
entirety. Employee hereby acknowledged that he shall have no rights under the
Employment Agreement or otherwise to purchase any common stock of any
subsidiary of National in any initial public offering or otherwise or at any
particular price.
4. Each party has read, understands and agrees to the terms of this
Amendment and the undersigned are duly authorized to execute this Amendment for
themselves or on behalf of the party for which they are signing. Except as
amended or modified
1
<PAGE> 2
hereby, the Employment Agreement shall remain in full force and effect, and,
except as specifically set forth herein, this Amendment shall not operate or be
construed to change, modify, extend, restrict, broaden or otherwise affect the
Employment Agreement.
5. This Amendment may be executed in counterparts, each of which shall
be deemed an original and all of said counterparts shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment to be
effective as of the date set forth above.
EMPLOYEE:
/s/ DOUGLAS H. HELM
----------------------------------------
Douglas H. Helm
NATIONAL
/s/ MARK A. SPEIZER
----------------------------------------
Mark A. Speizer
Chairman of the Board and
Chief Executive Officer
2
<PAGE> 1
EXHIBIT 10.6
OFFICE LEASE
between
SYSTRON BUSINESS CENTER, LLC
Landlord
and
PINNACLE DATA CORPORATION
Tenant
January 1, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Article 1 REAL PROPERTY, BUILDING, AND PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Lease of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Appurtenant Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Landlord's Reservation of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Preparation of Premises; Acceptance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Rentable Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Right of First Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Article 2 LEASE TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Lease Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Confirmation of Lease Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Lease Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Delay in Delivery of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Option To Extend Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Article 3 BASE RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Definition of "Base Rent"--Limited Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Initial Payment; Proration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Article 4 ADDITIONAL RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Additional Rent; Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.3 Calculation and Payment of Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.4 Taxes and Other Charges for Which Tenant Is Directly Responsible . . . . . . . . . . . . . . . . 9
4.5 Landlord's Books and Records; Tenant's Audit Rights . . . . . . . . . . . . . . . . . . . . . . . 9
Article 5 SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Article 6 USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Permitted Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Rules and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.3 Additional Restrictions on Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Article 7 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.1 Definition of "Laws and Orders." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.2 Repairs, Replacements, Alterations, and Improvements . . . . . . . . . . . . . . . . . . . . . . 10
7.3 Collateral Estoppel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Article 8 HAZARDOUS MATERIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.1 Use of Hazardous Material. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.4 Remediation Obligations; Tenant's Rights on Cleanup by Landlord . . . . . . . . . . . . . . . . . 11
8.5 Definition of "Hazardous Material." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Article 9 UTILITIES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.1 Standard Tenant Utilities and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.2 Overstandard Tenant Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.3 Interruption of Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Article 10 REPAIRS AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.1 Tenant's Repair and Maintenance Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.2 Landlord's Repair and Maintenance Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 13
Article 11 ALTERATIONS AND ADDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
11.1 Landlord's Consent to Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
11.2 Compliance of Alterations With Laws and Insurance Requirements . . . . . . . . . . . . . . . . . 14
11.3 Manner of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11.4 Payment for Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11.5 Construction Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11.6 Landlord's Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11.7 Initial Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Article 12 COVENANT AGAINST LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Article 13 EXCULPATION, INDEMNIFICATION, AND INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
13.2 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
13.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
13.4 Compliance With Insurer Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13.5 Tenant's Liability Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13.6 Tenant's Workers' Compensation and Employer Liability Coverage . . . . . . . . . . . . . . . . . 17
13.7 Tenant's First Party Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
13.8 Other Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
13.9 Form of Policies and Additional Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 18
13.10 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
13.11 Disclosures Regarding Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Article 14 DAMAGE AND DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
14.1 Repair of Damage by Landlord. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
14.2 Repair Period Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
14.3 Landlord's Option To Terminate or Repair . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
- i -
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
14.4 Tenant's Option To Terminate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
14.5 Rent Abatement Due to Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
14.6 Damage Near End of Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
14.7 Effective Date of Termination; Rent Apportionment . . . . . . . . . . . . . . . . . . . . . . . 19
14.8 Waiver of Statutory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Article 15 CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15.1 Definition of "Condemnation." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15.2 Effect on Rights and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15.3 Termination of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15.4 Effect of Condemnation if Lease Is Not Terminated . . . . . . . . . . . . . . . . . . . . . . . 20
15.5 Allocation of Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15.6 Temporary Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Article 16 ASSIGNMENT AND SUBLEASING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
16.1 Restricted Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
16.2 Transfer Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
16.3 Landlord's Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
16.4 Transfer Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
16.5 Effect of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
16.6 Transfers of Ownership Interests and Other Organizational Changes . . . . . . . . . . . . . . . 22
Article 17 SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
17.1 Surrender of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
17.2 Removal of Tenant Property by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Article 18 HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
18.1 Holdover Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Article 19 ESTOPPEL CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
19.1 Obligation To Provide Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 23
19.2 Failure To Deliver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Article 20 SUBORDINATION, NONDISTURBANCE, AND ATTORNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
20.1 Automatic Subordination; Nondisturbance Agreement To Include Specified Terms. . . . . . . . . . 24
20.2 Subordination Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
20.3 Attornment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
20.4 Notice of Default; Right To Cure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Article 21 DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
21.1 Tenant's Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
21.2 Replacement of Statutory Notice Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 24
21.3 Landlord's Remedies on Tenant's Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
21.4 Form of Payment After Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
21.5 Efforts To Relet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
21.6 Acceptance of Rent Without Waiving Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
21.7 Tenant's Remedies on Landlord's Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Article 22 LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
22.1 Landlord's Right To Perform Tenant's Obligations . . . . . . . . . . . . . . . . . . . . . . . . 26
22.2 Reimbursement by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Article 23 LATE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
23.1 Late Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
23.2 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Article 24 NONWAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
24.1 Nonwaiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
24.2 Acceptance and Application of Payment; Not Accord and Satisfaction . . . . . . . . . . . . . . . 26
Article 25 DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
25.1 Waiver of Right to Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
25.2 Resolving Disagreement Over Fair Market Rental Value . . . . . . . . . . . . . . . . . . . . . . 27
Article 26 ATTORNEY FEES AND COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
26.1 Attorney Fees and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Article 27 LANDLORD'S ACCESS TO PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
27.1 Landlord's Access to Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
27.2 Restrictions on Entry; Tenant's Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
27.3 Method of Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
27.4 Emergency Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Article 28 SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
28.1 Building Name; Landlord's Signage Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
28.2 Tenant's Signage Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Article 29 TENANT PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
29.1 Number of Parking Spaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
29.2 Changes in Location, Layout, and Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Article 30 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
30.1 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
30.2 Word Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
30.3 Counting Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
30.4 Entire Agreement; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
30.5 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
30.6 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
30.7 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
30.8 Independent Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
30.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
30.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
30.11 Force Majeure--Specific Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
30.12 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
30.13 Modifications Required by Landlord's Lender . . . . . . . . . . . . . . . . . . . . . . . . . . 30
30.14 Recording . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
30.15 Liability of Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
30.16 Transfer of Landlord's Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
30.17 Submission of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
30.18 Legal Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
30.19 Right To Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
30.20 No Air Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
30.21 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
- iii -
<PAGE> 5
OFFICE LEASE
This Office Lease is made by the Landlord and Tenant named below, who agree
as follows:
Part I
SUMMARY OF BASIC LEASE INFORMATION
The basic terms of this Lease are:
1. Date of Lease: January 1, 1998
2. Landlord: Systron Business Center, LLC, a California limited liability
company
3. Tenant: Pinnacle Data Corporation, a California corporation
4. Premises and Building:
(a) Building (Section 1.1): 2727 Systron Drive, Concord, CA. The
"Building" located on the Real Property is shown on the attached Exhibit A.
(b) Total Number of Rentable Square Feet in the Building
(Section 1.1): 90,948
(c) Premises (Section 1.1): Approximately 30,000 Rentable Square
Feet of space located in the Building, as shown on Exhibit A.
(d) Expansion of Premises (Section 1.6): Tenant has a right of
first refusal to expand the Premises to include additional space that may
become available, as shown on Exhibit A, during the term of the Lease, such
right of first refusal to be exercised in accordance with Section 1.6.
5. Lease Term:
(a) Duration (Section 3.1): Ten (10) years and zero (0) months.
(b) Lease Commencement Date (Section 3.1): March 15, 1998.
(c) Lease Expiration Date (Section 2.1): The last day of the
month in which the tenth (10th) anniversary of the Lease Commencement Date
occurs.
(d) Optional Term Extensions (Section 2.5): Two (2) extensions
for five (5) years each.
6. Base Rent (Section 3.1): (Measured From Lease Commencement Date)
Base Rent is subject to adjustment as set forth in Section 3.1.
<TABLE>
<CAPTION>
Months Monthly Base Rent
------ -----------------
<S> <C>
3/15/98-10/31/98 Rental Abatement
11/1/98-2/28/03 $40,500
3/1/03-8/31/05 $42,000
9/1/05-Lease Expiration Date $45,000
</TABLE>
7. Additional Rent (Article 4): Tenant's Share of Increased Direct
Expenses (Section 4.2.6): Approximately 32.99%.
8. Security Deposit (Article 5): None
9. Permitted Use (Section 6.1): General office.
10. Liability insurance (minimum) (Section 13.5.10):
(a) General aggregate limit: $3,000,000.
(b) Personal injury and advertising injury limit: $3,000,000.
(c) Each occurrence limit: $2,000,000
(d) Fire damage liability limit (any one fire): $2,000,000.
11. Late charge and interest (Article 23):
(a) Late charge (Section 23.1): Three percent (3%).
(b) Interest on delinquent Rent (Section 23.2): Wall Street
Journal Prime Rate (or if such rate is no longer published such other prime
rate reasonably selected by Landlord) plus two percent (2%).
<PAGE> 6
12. Parking (Article 29): Four parking stalls on the Real Property for
each 1,000 Rentable Square Feet included within the Premises, of which four
spaces shall be reserved and all others shall be non-exclusive, and two
non-exclusive parking stalls on the unlighted lot adjacent to the Real Property
for each 1,000 Rentable Square Feet included within the Premises.
13. Addresses for notices (Section 30.10.3):
Landlord's address: Systron Business Center, LLC
c/o Sean M. Cooley
Cornish & Carey Commercial
1333 N. California Blvd., Suite 343
Walnut Creek, CA 94596
Tenant's address: Pinnacle Data Corporation
395 Oyster Point Blvd., Suite 500
South San Francisco, CA 94080-1933
Attention: Donald S. Grant
Copy to: Robert Barbarowicz, General Counsel
Telephone: (650) 872-6772
Facsimile: (650) 872-4777
Address of Landlord's lender (Section 30.10.4): Owens Financial Group, Inc.
2221 Olympic Blvd.
Walnut Creek, CA 94596
14. Brokers (Section 30.21): Cornish & Carey Commercial represents
Landlord; Grubb & Ellis Company represents Tenant. Both Brokers' commissions
are to be paid by Landlord.
Each reference in this Lease to any provision in this Summary shall be
construed to incorporate all the terms provided under that provision of the
Summary. In the event of any conflict between a provision in this Summary and a
provision in the balance of the Lease, the latter shall control.
Part II
LEASE PROVISIONS
Article 1
REAL PROPERTY, BUILDING, AND PREMISES
1.1 Lease of Premises. Subject to Section 1.6 relating to Tenant's
right to expand the Premises, Landlord leases to Tenant and Tenant leases from
Landlord the premises described in Summary of Basic Lease Information (Summary)
Section 4(c), which are located in the Building, as shown on Exhibit A and
described in Summary Section 4(c) (the "Premises"). The outline of the
Premises is set forth in Exhibit A. The Rentable Area of the Premises and the
Rentable Area of the Building are set forth in Summary Sections 4(b) and 4(c).
The Building, the Common Areas servicing the Building, and the land on which
the Building is located are sometimes collectively referred to as the "Real
Property." Tenant acknowledges that Landlord has made no representation or
warranty regarding the condition of the Real Property except as specifically
stated in this Lease.
1.2 Appurtenant Rights. Tenant is granted the right at all times
during the Lease Term to the nonexclusive use of the common corridors and
hallways, stairwells, restrooms, and other public or common areas located on
the Real Property (the "Common Area"). Landlord, however, has the discretion
to determine the manner in which those public and common areas are maintained
and operated, and the use of those areas shall be subject to the Rules and
Regulations, as defined in Section 6.2.
1.3 Landlord's Reservation of Rights. The following rights are
reserved to Landlord:
(a) The right to all of the Building except for the space
within the Premises and except as otherwise provided in this Lease;
(b) The right to change all elements of the Real Property
except for the space within the Premises and except as otherwise provided in
this Lease; and
(c) The rights reserved to Landlord by provisions of this
Lease or by operation of law.
Any changes that Landlord makes to the Real Property as permitted by this
Section 1.3 must be carried out in a manner that will not unreasonably
interfere with Tenant's use of the Premises.
1.4 Preparation of Premises; Acceptance. The rights and obligations
of the parties regarding the construction of the "Initial Tenant Improvements"
(as defined in the Leasehold Improvement Agreement attached to this Lease as
Exhibit B) in the Premises before the commencement of the Lease Term are stated
in the Leasehold Improvement Agreement. If this Lease conflicts with the
Leasehold Improvement Agreement, the Leasehold Improvement Agreement shall
prevail.
1.5 Rentable Area. The Rentable Area of the Building and the
Premises specified in Summary Sections 4(b) and 4(c) shall be deemed conclusive
and binding on the parties regardless of the actual square footage. For
purposes of this Lease: (a) "Rentable Area" shall be calculated pursuant to
the Standard Method For Measuring Floor Area in Office Buildings
- 2 -
<PAGE> 7
(ANSI/BOMA Z65.1, 1996); and (b) "Rentable Square Feet" and "Rentable Footage"
shall have the same meaning as the term "Rentable Area".
1.6 Right of First Refusal. Landlord grants to Tenant a right of
first refusal ("First-Refusal Right") with respect to the space shown on
Exhibit A ("First Refusal Space"). Tenant's First-Refusal Right shall be on
the terms and conditions set forth in this Section 1.6.
1.6.1. Superior Rights. The First-Refusal Right shall
begin only after the expiration or earlier termination of the following leases
("Superior Leases"), including any renewal or extension of the Superior Leases
(whether or not such renewal or extension is under an express written provision
in a Superior Lease or consummated under a lease amendment or new lease):
(a) Any lease existing as of the Lease
Commencement Date with respect to any portion of the First-Refusal Space; and
(b) With respect to any portion of the
First-Refusal Space that is not subject to a lease as of the date of this
Lease, the first lease pertaining to each such particular First-Refusal Space
entered into by Landlord after the Lease Commencement Date.
In addition, the First-Refusal Right shall be subordinate and secondary to all
rights of expansion, rights of first refusal, rights of first offer, or similar
rights granted to the tenants of the Superior Leases or to other tenants of
Landlord with respect to the First Refusal Space. The rights described in this
Section 1.6.1 shall be known collectively as "Superior Rights."
1.6.2. Procedure for Landlord's Notice. Landlord shall
provide Tenant with written notice ("First-Refusal Notice") from time to time
when Landlord has entered into a letter of intent for any portion of the
First-Refusal Space . The First-Refusal Notice shall: (a) describe the
First-Refusal Space that is subject to the letter of intent ("Specific
First-Refusal Space"); (b) state the terms and conditions of the letter of
intent and (c) state that Tenant shall have ten (10) Business Days (as defined
in Section 30.3) to respond to the First-Refusal Notice, as provided in this
Lease.
1.6.3. Procedure for Tenant's Acceptance. If Tenant
wishes to exercise Tenant's First-Refusal Right with respect to the Specific
First-Refusal Space, Tenant shall, within ten (10) Business Days after delivery
of the First-Refusal Notice to Tenant, deliver notice to Landlord of Tenant's
exercise of its First-Refusal Right with respect to all the Specific First
Refusal Space and Tenant's acceptance of all of the terms and conditions
specified in the First Refusal-Notice. Any amendment or counter-proposal of
the terms contained in the First Refusal Notice shall be deemed a rejection of
the First Refusal Notice. Tenant must elect to exercise its First-Refusal
Right, if at all, only with respect to all the space offered by Landlord to
Tenant in the First-Refusal Notice, and Tenant may not elect to lease only a
portion of that space.
1.6.4. Effect of Tenant's Failure To Exercise
First-Refusal Right. If Tenant does not exercise its First-Refusal Right
within the response period specified in Section 1.6.3.
(a) Landlord shall not offer to another tenant or
prospective tenant less than all Specific First-Refusal Space.
(b) Tenant shall, if Landlord desires to lease
less than all the Specific First-Refusal Space, first have a further right to
lease this smaller First-Refusal Space under an additional First-Refusal Notice
and on the terms set forth in this Section 1.6.
1.6.5. Restrictions on First-Refusal Right. The
First-Refusal Right shall be personal to the originally named Tenant and shall
be exercisable only by the originally named Tenant (and not any assignee,
sublessee, or other transferee of Tenant's interest in this Lease). The
originally named Tenant may exercise the First-Refusal Right only if that
Tenant occupies the entire Premises as of the date of the First-Refusal Notice.
Tenant shall not have the right to lease First-Refusal Space if Tenant is in
Default under this Lease as of the date of the attempted exercise of the
First-Refusal Right by Tenant or (at Landlord's option) as of the scheduled
date of delivery of the Specific First-Refusal Space to Tenant.
Article 2
LEASE TERM
2.1 Lease Term. The provisions of this Lease shall be effective as
of the date of this Lease. The term of this Lease ("Lease Term") shall be the
period stated in Summary Section 5(a). The Lease Term shall commence on the
date (the "Lease Commencement Date") stated in Summary Section 5(b) and shall
expire on the date (the "Lease Expiration Date") stated in Summary Section 5(c)
unless this Lease is sooner terminated as provided in this Lease.
2.2 Confirmation of Lease Information. Landlord shall deliver to
Tenant a notice in the form set forth in Exhibit C, attached to this Lease,
which Tenant shall execute and return to Landlord within fifteen (15) days
after receipt. Landlord shall use reasonable efforts to deliver the notice
within thirty (30) days after the Lease Commencement Date.
2.3 Lease Year. For purposes of this Lease, the term "Lease Year"
means each consecutive twelve-month (12-month) period during the Lease Term,
subject to the provisions of this Section 2.3. The first Lease Year commences
on the Lease Commencement Date and ends on the last day of the eleventh (11th)
calendar month thereafter. The second (2nd) and each succeeding Lease Year
commences on the first day of the next calendar month. The last Lease Year ends
on the Lease Expiration Date or earlier date of termination.
- 3 -
<PAGE> 8
2.4 Delay in Delivery of Premises. If Substantial Completion of the
Tenant Improvements has not occurred by the Outside Date, as defined in Section
2.4.1, Tenant's sole remedy, in addition to those stated in Section 3.1, shall
be to terminate this Lease as provided in this Section 2.4.
2.4.1. Definition of "Outside Date." For purposes of
this Section 2.4, the Outside Date shall be April 15, 1998, as extended by the
number of days of Tenant Delays described in Exhibit B and by the number of
days of Force Majeure delays as defined in Section 30.11.
2.4.2. Tenant's Termination Notice. If Substantial
Completion of the work that Landlord is required to do pursuant to the
Leasehold Improvement Agreement has not occurred by the Outside Date, Tenant's
sole remedy shall be the right to deliver a notice to Landlord ("Outside Date
Termination Notice") electing to terminate this Lease effective on Landlord's
receipt of the Outside Date Termination Notice ("Effective Date"). The Outside
Date Termination Notice must be delivered by Tenant to Landlord, if at all, no
earlier than the Outside Date and no later than thirty (30) days after the
Outside Date.
2.5 Option To Extend Term. Landlord grants to Tenant two (2)
options to extend the Lease Term (each, an Extension Option) for a period of
five (5) years (each an Option Term) each, subject to the conditions described
in this Section 2.5. Tenant shall have no other right to extend the term beyond
the last Option Term.
2.5.1. Conditions of Option. Each Extension Option
shall be subject to the following conditions:
(a) The Extension Option may be exercised only
by written notice delivered by Tenant to Landlord as provided in Section 2.5.3
and only if, as of the date of delivery of the notice or as of the commencement
of the applicable Option Term, Tenant is not in Default under this Lease after
the expiration of any applicable cure periods.
(b) The rights contained in this Section 2.5 may
be exercised only by the originally named Tenant.
(c) If Tenant properly exercises the Extension
Option, the Lease Term, as it applies to the entire Premises then leased by
Tenant, shall be extended for the applicable Option Term.
2.5.2. Option Rent. The Rent payable by Tenant during
the Option Term ("Option Rent") shall be equal to ninety-five percent (95%) of
the Fair Market Rental Value of the Premises as of the commencement of the
applicable Option Term. For purposes of this Section 2.5, Fair Market Rental
Value of the Premises shall be the rental rate, including all escalations, at
which tenants lease comparable space as of the commencement of the Option Term.
No over-standard tenant improvements installed by Tenant will have an impact on
the determination of the Fair Market Rental Value. For purposes of this
Section 2.5.2, "comparable space" shall be office space that is:
(a) Not subleased; (b) not subject to another
tenant's expansion rights; (c) comparable in
size, location, floor height and quality to the
Premises; (d) leased for a term comparable to the
Option Term; and (e) located in comparable
buildings in the Concord/Walnut Creek area.
2.5.3. Exercise of Option. The Extension Option must be
exercised by Tenant, if at all, only at the time and in the manner provided in
this Section 2.5.3.
2.5.3.1 Interest Notice. If Tenant wishes to
exercise an Extension Option, Tenant shall deliver written notice ("Interest
Notice") to Landlord no less than six (6) months before the expiration of the
initial Lease Term.
2.5.3.2 Option Rent Notice. After receipt of
Tenant's Interest Notice, Landlord shall deliver notice ("Option Rent Notice")
to Tenant no less than four (4) months before the expiration of the initial
Lease Term, stating the Option Rent, based on Landlord's determination of the
Fair Market Rental Value of the Premises as of the date that is four (4) months
before the commencement date of the Option Term.
2.5.3.3 Exercise Notice. If Tenant wishes to
exercise the Extension Option, Tenant must, on or before the earlier of (a) the
date occurring ninety (90) days before the expiration of the initial Lease Term
or the first Option Term, as the case may be or (b) the date occurring thirty
(30) days after Tenant's receipt of the Option Rent Notice, exercise the
Extension Option by delivering written notice ("Exercise Notice") to Landlord.
2.5.3.4 Objection to Option Rent. If Tenant
wishes to contest the Option Rent stated in the Option Rent Notice, Tenant must
provide, with the Exercise Notice, written notice to Landlord that Tenant
objects to the stated Option Rent. If Tenant provides such written objection,
the parties shall follow the procedure described in Section 25.2, and the
Option Rent shall be determined as set forth in that Section.
2.5.3.5 Failure To Deliver Timely Notice. If
Tenant fails to deliver a timely Interest Notice:
(a) Tenant shall not lose its right to exercise the
Extension Option and shall still be entitled to deliver the Exercise Notice;
(b) Landlord shall not be required to deliver the Option Rent Notice; (c)
Tenant shall be considered to have objected to the Option Rent; and (d) The
parties shall follow the procedure described in Section 25.2, and the Option
Rent shall be determined as set forth in that Section.
2.5.4. Amendment to Lease. If Tenant timely exercises
its Extension Option, Landlord and Tenant shall, within fifteen (15) days after
the Option Rent is determined under this Section 2.5 or Article 25, execute an
amendment to this Lease extending the Lease Term on the terms and conditions
set forth in this Section 2.5. Such amendment shall provide for the Base Year
to be adjusted to the first year of each Option Term.
- 4 -
<PAGE> 9
2.5.5. As-Is Condition. If Tenant timely and validly
exercises its Extension Option, Landlord shall have no obligation to construct
any additional improvements in, or to contribute any funds for improvement of,
the Premises except that Landlord shall furnish a retrofit allowance for the
construction of improvements within the Premises in an amount equal to $4.50
per rentable square foot of the Premises.
Article 3
BASE RENT
3.1 Definition of "Base Rent"--Limited Setoff. Tenant shall pay to
Landlord base rent ("Base Rent") in equal monthly installments as set forth in
Summary Section 6, in advance on or before the first day of every calendar
month during the Lease Term, without any setoff or deduction except as provided
in Sections 14.5, 15.4, 15.6 and 21.7. Payment shall be made at such place
that Landlord may from time to time designate in writing. Payment must be in
United States dollars, either in the form of a check (drawn on a bank located
in the State of California) or via electronically transmitted funds. If
Substantial Completion occurs after March 1, 1998, then monthly Base Rent for
each month during the period beginning November 1, 1998 through February 28,
2003 shall be reduced by an amount equal to the product of $1,350.00 times the
number of days after March 1, 1998 that Substantial Completion occurs, divided
by 52. (For example, if Substantial Completion occurs on March 11, 1998, that
is, 10 days after March 1, 1998, then : $1,350.00 times 10 equals $13,500.00,
divided by 52 equals $259.62; and $40,500.00 minus $259.62 equals $40,240.38.
In this example, monthly Base Rent would be reduced from $40,500.00 per month
to $40,240.38 per month from November 1, 1998 through February 28, 2003.)
3.2 Initial Payment; Proration. The Base Rent for the first full
calendar month of the Lease Term shall be paid on the full execution of this
Lease. If any payment date (including the Lease Commencement Date) for "Rent,"
as defined in Section 4.1, falls on a day other than the first day of that
calendar month, or if any Rent payment is for a period shorter than one
calendar month, the Rent for that fractional calendar month shall accrue on a
daily basis for each day of that fractional month at a daily rate equal to
1/365 of the total annual Rent. All other payments or adjustments that are
required to be made under the terms of this Lease and that require proration on
a time basis shall be prorated on the same basis.
3.3 Application of Payments. All payments received by Landlord from
Tenant shall be applied to the oldest payment obligation owed by Tenant to
Landlord. No designation by Tenant, either in a separate writing or on a check
or money order, shall modify this clause or have any force or effect.
Article 4
ADDITIONAL RENT
4.1 Additional Rent; Rent. In addition to paying the Base Rent
specified in Article 3, commencing on the first day of the thirteenth (13th)
month of the Lease Term, Tenant shall pay as additional rent Tenant's Share (as
defined in Section 4.2.6) of the increase in annual Direct Expenses (as defined
in Section 4.2.1) that are in excess of the amount of Direct Expenses
applicable to the Base Year ("Increased Direct Expenses"). Tenant shall not be
required to pay Increased Direct Expenses of more than four percent (4%) over
the previous Expense Year's Direct Expenses, except that any increases in Tax
Expenses shall not be subject to this limitation and shall be included in
Increased Direct Expenses to be paid by Tenant regardless of the amount of
increase. Increased Direct Expenses in excess of the foregoing limitation
shall not be included in Increased Direct Expenses for subsequent Expense
Years. (The Base Year for purposes of this Lease shall be calendar year
1998.) That additional rent, together with other amounts of any kind (other
than Base Rent) payable by Tenant to Landlord under the terms of this Lease,
shall be collectively referred to in this Lease as "Additional Rent." Base Rent
and Additional Rent are collectively referred to in this Lease as "Rent." All
amounts due under this Article 4 as Additional Rent are payable for the same
periods and in the same manner, time, and place as the Base Rent. Without
limitation on other obligations of Tenant that survive the expiration of the
Lease Term, Tenant's obligations to pay the Additional Rent provided for in
this Article 4 survive the expiration of the Lease Term, subject to the
provisions of Section 4.3.2.
4.2 Definitions. The following definitions apply in this Article 4:
4.2.1. Direct Expenses. "Direct Expenses" mean Operating
Expenses plus Tax Expenses.
4.2.2. Expense Year. "Expense Year" means each calendar
year in which any portion of the Lease Term falls, through and including the
calendar year in which the Lease Term expires.
4.2.3. Operating Expenses. "Operating Expenses" means
all expenses, costs, and amounts of every kind that Landlord pays or incurs
during any Expense Year because of or in connection with the ownership,
operation, management, maintenance, or repair of the Real Property.
4.2.3.1 Examples of Operating Expenses. The
definition of "Operating Expenses" includes, but is not limited to, any amounts
paid or incurred for:
(a) The cost of supplying any
utilities.
(b) The cost of operating, managing,
maintaining, and repairing the following systems: utility, mechanical,
sanitary, storm drainage.
(c) The cost of supplies and tools and
of equipment, maintenance, and service contracts in connection with those
systems.
- 5 -
<PAGE> 10
(d) The cost of licenses,
certificates, permits, and inspections.
(e) The cost of contesting the
validity or applicability of any government enactments that may affect the
Operating Expenses.
(f) The costs incurred in connection
with the implementation and operation of a transportation system management
program or similar program.
(g) The cost of insurance carried by
Landlord, in amounts reasonably determined by Landlord, provided, however, that
earthquake insurance shall be maintained only to the extent it is available at
a commercially reasonable price and, if earthquake insurance is not included in
the Base Year but is subsequently carried by Landlord, the Base Year Operating
Expenses will be adjusted as if earthquake insurance had been carried.
(h) Fees, charges, and other costs
including management fees (or amounts in lieu of such fees), which management
fees shall not exceed three percent (3%) of rents, consulting fees, legal fees,
and accounting fees of all persons engaged by Landlord or otherwise reasonably
incurred by Landlord in connection with the operation, management, maintenance,
and repair of the Real Property.
(i) The cost of parking area
maintenance, repair, and restoration, including resurfacing, repainting,
restriping, and cleaning.
(j) Wages, salaries, and other
compensation and benefits of all persons providing services to the Real
Property, including those engaged in the operation, maintenance, or security of
the Real Property plus employer's Social Security taxes, unemployment taxes,
insurance, and any other taxes imposed on Landlord that may be levied on those
wages, salaries, and other compensation and benefits. Notwithstanding anything
to the contrary in this Section 4.2.3.1(j), Landlord's general overhead
expenses shall not be included in Operating Expenses. If any of Landlord's
employees provide services for more than one building of Landlord, only the
prorated portion of those employees' wages, salaries, other compensation and
benefits, and taxes reflecting the percentage of their working time devoted to
the Real Property shall be included in Operating Expenses.
(k) Payments under any easement,
license, operating agreement, declaration, restrictive covenant, or instrument
relating to the sharing of costs by the Real Property.
(l) Amortization (including interest
on the unamortized cost at a rate equal to the floating commercial loan rate
announced from time to time by Bank of America, N.T.&S.A. (or such other bank
reasonably selected by Landlord) as its prime rate plus two (2) percentage
points per annum of the cost of acquiring or renting personal property used in
the maintenance, repair, and operation of the Building and Real Property.
(m) The cost of capital improvements or
other costs incurred in connection with the Real Property that are intended as
a labor-saving device or to effect other economies in the maintenance or
operation of all or part of the Real Property to the extent of Landlord's
reasonable estimate of savings in Operating Expenses as a result of such costs.
All such permitted capital expenditures shall be amortized (including interest
on the unamortized cost at the rate stated in Section (l)) over their useful
life, as reasonably determined by Landlord.
(n) The cost to clean, paint and
waterproof the Real Property. Notwithstanding the foregoing, to the extent
that any such costs are considered capital expenditures per Generally Accepted
Accounting Principles, such capital expenditures shall be amortized (including
interest on the unamortized costs at the rate stated in Section (l)) over their
useful life as reasonably determined by Landlord.
4.2.4. Adjustment of Operating Expenses. Operating
Expenses shall be adjusted as follows:
4.2.4.1 Gross-Up Adjustment When Building Is
Less Than Fully Occupied. If the occupancy of the Building during any part of
the Base Year is less than 100 percent, Landlord shall make an appropriate
adjustment of the variable components of Operating Expenses for the Base Year,
as reasonably determined by Landlord using sound accounting and management
principles, to determine the amount of Operating Expenses that would have been
incurred had the Building been 100 percent occupied. This amount shall be
considered to have been the amount of Operating Expenses for the Base Year. For
purposes of this Section 4.2.4.1, "variable components" include only those
component expenses that are affected by variations in occupancy levels.
4.2.4.2 Exclusions From Operating Expenses.
Despite any other provision of Section 4.2, Operating Expenses shall not
include:
(a) Depreciation, interest, or
amortization on mortgages or ground lease payments, except as otherwise stated
in this Section 4.2.
(b) Legal fees incurred in negotiating
and enforcing tenant leases.
(c) Real estate brokers' leasing
commissions.
(d) Initial improvements or
alterations to tenant spaces.
(e) The cost of providing any service
directly to and paid directly by any tenant.
- 6 -
<PAGE> 11
(f) Any costs expressly excluded from
Operating Expenses elsewhere in this Lease.
(g) Costs of any items for which
Landlord receives reimbursement from insurance proceeds or a third party.
Insurance proceeds shall reduce Operating Expenses in the year in which they
are received, except that any deductible amount under any insurance policy
shall be included within Operating Expenses.
(h) Costs of capital improvements,
except as otherwise stated in this Section 4.2.
4.2.4.3 Additional Operating Expense
Exclusions. Despite any other provision of Section 4.2, Operating Expenses
shall also not include:
(a) Interest, principal, depreciation,
attorney fees, costs of environmental investigations or reports, points, fees,
and other lender costs and closing costs on any mortgage or mortgages, ground
lease payments, or other debt instrument encumbering the Real Property.
(b) Insurance premiums to the extent
of any refunds of those premiums.
(c) Any bad debt loss, rent loss, or
reserves for bad debt or rent loss.
(d) Landlord's costs of electricity
and other utilities, items, benefits, and services that are provided to other
tenants or occupants at no special cost but that are only offered or provided
to Tenant at a special or increased cost.
(e) Interest or penalties resulting
from late payment of any operating expense by Landlord due to Landlord's
negligence or willful misconduct (unless Landlord in good faith disputes a
charge and subsequently loses or settles that dispute) or due to the negligence
or willful misconduct of another tenant.
(f) Costs, fees, and compensation paid
to Landlord, or to Landlord's subsidiaries or affiliates, for services in or to
the Real Property to the extent that they exceed the charges for comparable
services rendered by an unaffiliated third party of comparable skill,
competence, stature, and reputation.
(g) Costs associated with:
(1) Operation of the business of the
ownership of the Real Property or entity that constitutes Landlord or
Landlord's property manager, as distinguished from the cost of Building
operations, including the costs of partnership or corporate accounting and
legal matters; defending or prosecuting any lawsuit with any mortgagee, lender,
ground lessor, broker, tenant, occupant, or prospective tenant or occupant;
selling or syndicating any of Landlord's interest in the Real Property; and
disputes between Landlord and Landlord's property manager;
(2) Landlord's general corporate or
partnership overhead and general administrative expenses, including the
salaries of management personnel who are not directly related to the Real
Property and primarily engaged in the operation, maintenance, and repair of the
Real Property, except to the extent that those costs and expenses are included
in the management fees, so long as these costs do not exceed reasonable
industry standards; or
(3) Wages, salaries, and other
compensation paid to any executive employee of Landlord or Landlord's property
manager above the grade of building manager for the Building or paid to any
off-site personnel, so long as these costs do not exceed reasonable industry
standards.
(h) Advertising and promotional
expenditures primarily directed toward leasing tenant space in the Real
Property.
(i) Leasing commissions,
space-planning costs, attorney fees and costs, disbursements, and other
expenses:
(1) Incurred in connection with
leasing, other negotiations, or disputes
with tenants, occupants, prospective
tenants, or other prospective occupants
of the Building; or (2) associated with
the enforcement of any leases.
(j) Costs incurred (including permit,
license, and inspection fees but excluding utilities) or cash consideration
paid in renovating or otherwise improving, decorating, painting, or
redecorating space for tenants, prospective tenants, or other occupants or in
renovating or redecorating vacant space available for those tenants,
prospective tenants, or other occupants. This exclusion does not apply to
remove from Operating Expenses the costs of ordinary maintenance supplied to
the tenants of the Building or the costs for renovating or otherwise improving,
decorating, painting, or redecorating the common areas of the Real Property.
(k) Costs arising from:
(1) Hazardous Material, as defined in Section 8.5, that
was installed by Landlord, its agents, or employees and that, at the time of
installation, Landlord knew or should have known was Hazardous Material; or (2)
despite any other provision of this Lease (including any provision relating to
capital expenditures), the presence of any Hazardous Material in or about the
Premises, Building, or Real Property (including Hazardous Material in the
ground, water, or soil) that was not placed in the Premises, Building, or Real
Property by Tenant and/or Tenant Parties as defined in Section 13.1.
- 7 -
<PAGE> 12
(l) Expenses, costs, and disbursements
relating to, or arising directly or indirectly from, the testing for or
analysis, handling, removal, treatment, disposal, remediation, or replacement
of asbestos or asbestos-containing materials in, on, around, beneath, or from
the Real Property.
(m) Costs incurred because the
Building or common areas violate any valid, applicable building code,
regulation, or law in effect and as interpreted by government authorities
before the date of this Lease.
(n) Except as provided in Section
4.2.3.1(m) Capital improvement, capital replacement, or related costs.
4.2.5. Tax Expenses. "Tax Expenses" means all federal,
state, county, or local government or municipal taxes, fees, charges, or other
impositions of every kind (whether general, special, ordinary, or
extraordinary) that are paid or incurred by Landlord during any Expense Year
(without regard to any different fiscal year used by any government or
municipal authority) because of or in connection with the ownership, leasing,
and operation of the Real Property. Tax Expenses shall include taxes, fees, and
charges such as real property taxes, general and special assessments, transit
taxes, leasehold taxes, and taxes based on the receipt of rent (including gross
receipts or sales taxes applicable to the receipt of rent, unless required to
be paid by Tenant); personal property taxes imposed on the fixtures, machinery,
equipment, apparatus, systems, and equipment; appurtenances; furniture; and
other personal property used in connection with the Real Property. Tax
Expenses shall also include taxes, assessments or charges imposed on a real
property tax bill for the Real Property for the implementation and operation of
a transportation system management program or similar program, in each case if
required by law.
4.2.5.1 Adjustment of Taxes. Tenant hereby
acknowledges that title to the Real Property was transferred to Landlord during
1997 before the execution of this Lease, that the Real Property has been or is
in the process of being permanently reassessed (as distinguished from a
so-called "Proposition 8" reassessment) to reflect Landlord's purchase price
for the Real Property and that Tax Expenses for the Base Year shall take into
account such reassessment. In addition, for purposes of this Lease, Tax
Expenses shall be calculated as if the tenant improvements in the Building were
fully constructed and the Real Property, the Building, and all tenant
improvements in the Building were fully assessed for real estate tax purposes
for the entire Base Year. These provisions shall survive the Lease Expiration
Date or other termination of this Lease.
4.2.5.2 Included Tax Expenses. Tax Expenses
shall include:
(a) Any assessment, tax, fee, levy, or
charge in addition to, or in partial or total substitution of, any assessment,
tax, fee, levy, or charge previously included within the definition of "real
property tax." Tenant and Landlord acknowledge that Proposition 13 was adopted
by the voters of the State of California in June 1978 and that assessments,
taxes, fees, levies, and charges may be imposed by government agencies for
services such as fire protection; street, sidewalk, and road maintenance;
conservation; refuse removal; and other government services formerly provided
without charge to property owners or occupants. In further recognition of the
decrease in the level and quality of government services and amenities as a
result of Proposition 13 (or as a result of any other restriction on real
property taxes whether by law or by choice of the applicable legislative or
assessing body), Tax Expenses shall also include any government or private
assessments (or the Building's contribution toward a government or private
cost-sharing agreement) for the purpose of augmenting or improving the quality
of services and amenities normally provided by government agencies. Tenant and
Landlord intend that all new and increased assessments, taxes, fees, levies,
and charges and all similar assessments, taxes, fees, levies, and charges be
included within the definition of "Tax Expenses" for purposes of this Lease.
(b) Any assessment, tax, fee, levy, or
charge allocable to, or measured by, the area of the Premises or the rent
payable under this Lease, including any gross income tax with respect to the
receipt of that rent, or on or relating to the possession, leasing, operating,
management, maintenance, alteration, repair, use, or occupancy by Tenant of the
Premises or any portion of the Premises.
(c) Any assessment, tax, fee, levy, or
charge on this transaction or any document to which Tenant is a party, creating
or transferring an interest or an estate in the Premises.
(d) Any possessory taxes charged or
levied in place of real property taxes.
4.2.5.3 Contest Costs; Refunds. Any expenses
incurred by Landlord in attempting to protest, reduce, or minimize Tax Expenses
shall be included in Tax Expenses in the Expense Year in which those expenses
are paid. Such tax refunds shall be deducted from Tax Expenses in the Expense
Year in which they are received by Landlord.
4.2.5.4 Excluded Taxes. Despite any other
provision of Section 4.2.5 (except as provided in Section 4.2.5.2 or levied
entirely or partially in lieu of Tax Expenses), the following shall be excluded
from Tax Expenses:
(a) All excess profits taxes, franchise
taxes, gift taxes, capital stock taxes, inheritance and succession taxes,
estate taxes, federal and state income taxes, and other taxes applied or
measured by Landlord's general or net income (as opposed to rents, receipts, or
income attributable to operations at the Building);
(b) Any items included as Operating
Expenses; and
(c) Any items paid by Tenant under
Section 4.4.
4.2.5.5 Proposition 13 Protection. Despite any
other provision of this Lease, if during the Lease Term, any sale, refinancing,
or change in ownership of all or part of the Real Property is consummated and,
as a result, all or part of the Real Property is reassessed ("Reassessment")
for real estate tax purposes by the appropriate government authority, the terms
of this Section 4.2.5.5 shall apply. Tenant hereby acknowledges that title to
the Real Property was transferred to Landlord
- 8 -
<PAGE> 13
during 1997 before the execution of this Lease, that the Real Property has been
or is in the process of being permanently reassessed (as distinguished from a
so-called "Proposition 8" reassessment) to reflect Landlord's purchase price
for the Real Property and that Tax Expenses for the Base Year shall take into
account to such reassessment.
(a) Tenant shall not be obligated to pay
any portion of the Tax Increase relating to a Reassessment occurring during the
Term.
(b) For purposes of this Section
4.2.5.5, the term "Tax Increase" shall mean that portion of the Tax Expenses,
as calculated immediately following the Reassessment, that is attributable
solely to the Reassessment. Accordingly, a Tax Increase shall not include any
portion of the Tax Expenses, as calculated immediately following the
Reassessment, that is:
(1) Attributable to the initial assessment of the
value of the Real Property, the Base Building, or the tenant improvements
located in the Building; (2) attributable to assessments or adjustments to
assessments pending immediately before the Reassessment that were conducted
during, and included in, that Reassessment or that were otherwise rendered
unnecessary following the Reassessment; or (3) attributable to the annual
inflationary increase in real estate taxes.
4.2.6. Tenant's Share. "Tenant's Share" means the
percentage stated in Summary Section 7(a). Tenant's Share is calculated by
multiplying the number of Rentable Square Feet of the Premises by 100 and
dividing the product by the total Rentable Square Feet in the Building. If
either the Premises or the Building is expanded or reduced, Tenant's Share
shall be appropriately adjusted. Tenant's Share for the Expense Year in which
that change occurs shall be determined on the basis of the number of days
during the Expense Year in which each such Tenant's Share was in effect.
4.3 Calculation and Payment of Additional Rent. Tenant's Share of
any Direct Expenses for any Expense Year shall be calculated and paid as
follows:
4.3.1. Calculation. Tenant shall pay Tenant's Share of
Direct Expenses for each Expense Year in the manner stated in Section 4.3.2.
4.3.2. Statement of Actual Increased Direct Expenses and
Payment by Tenant. Landlord shall endeavor to give to Tenant on or before the
first day of April following the end of each Expense Year a statement
("Statement") stating the Direct Expenses incurred or accrued for that
preceding Expense Year and the amount of the Increased Direct Expenses. On
receipt of the Statement for each Expense Year ending during the Lease Term,
Tenant shall pay, with its next installment of Base Rent due, the full amount
of Tenant's Share of such Increased Direct Expenses, less the amounts (if any)
paid during that Expense Year as Estimated Increased Direct Expenses (as
defined in Section 4.3.3). Landlord's failure to furnish the Statement for any
Expense Year in a timely manner shall not prejudice Landlord from enforcing its
rights under this Article 4. Even if the Lease Term has expired and Tenant has
vacated the Premises, if when the final determination is made of Tenant's Share
of the Increased Direct Expenses for the Expense Year in which this Lease
terminates it is determined that Tenant owes Tenant's Share of Increased Direct
Expenses, Tenant shall immediately pay to Landlord the amount calculated under
Section 4.3.1. The provisions of this Section 4.3.2 shall survive the
expiration or earlier termination of the Lease Term.
Tenant shall not be obligated to pay the amount of Increased Direct
Expenses with respect to any Expense Year if Landlord fails to deliver to
Tenant a Statement with respect to such Expense Year within one (1) year after
the end of such Expense Year. Landlord may deliver a corrected Statement to
Tenant with respect to any Expense Year if the corrected Statement is delivered
to Tenant within eighteen (18) months after the end of such Expense Year, and
Tenant shall pay the Increased Direct Expenses as provided on the corrected
Statement. Notwithstanding the foregoing, Landlord may deliver a Statement or
corrected Statement to Tenant with respect to Tax Expenses for any Expense Year
within ninety (90) days after receipt of a bill for Tax Expenses for any prior
Expense Year. If any corrected Statement shall evidence a refund due to
Tenant, Landlord shall promptly deliver the same together with such refund to
Tenant, notwithstanding the expiration of the aforesaid periods.
4.3.3. Statement of Estimated Increased Direct Expenses.
Landlord shall give Tenant a yearly expense estimate statement ("Estimate
Statement") stating Landlord's reasonable estimate ("Estimate") of the total
amount of Increased Direct Expenses for the then current Expense Year and
Tenant's Share of such Increased Direct Expenses ("Estimated Expenses").
Landlord's failure to furnish the Estimate Statement for any Expense
Year in a timely manner shall not preclude Landlord from enforcing its rights to
collect Increased Direct Expenses under this Article 4. Tenant shall pay with
each installment of Base Rent due, one-twelfth (1/12) of the Estimated Expenses
for the then-current Expense Year. Until a new Estimate Statement is furnished,
Tenant shall pay monthly, along with the monthly Base Rent installments, an
amount equal to one twelfth (1/12th) of the total Estimated Expenses stated in
the previous Estimate Statement delivered by Landlord to Tenant.
4.3.4. Refund of Overpayment of Direct Expenses. If the
Statement shows that the Direct Expenses for any Expense Year ending or
beginning within the Lease Term is less than the Estimated Expenses actually
paid by Tenant for that Expense Year, Landlord shall credit Tenant's next
payment of Base Rent and Estimated Expenses with the amount by which Tenant's
payments of Estimated Expenses exceed the actual Direct Expenses due for that
Expense Year. If the Statement shows that Tenant's payments of Estimated
Expenses exceed the actual Direct Expenses due for that Expense Year by more
than three and one-half percent (3 1/2%), the Landlord shall pay to Tenant
annual interest on the overpaid amount, from the date overpaid until credited
or refunded, at the interest rate stated in Section 23.2 of this Lease. If the
Statement is provided to Tenant after the end of the Lease Term, Landlord shall
include with the Statement a refund of the amount by which Tenant's payments of
Estimated Expenses exceed the actual Direct Expenses due for that Expense Year,
along with any interest due in accordance with this Section 4.3.4.
4.4 Taxes and Other Charges for Which Tenant Is Directly
Responsible. Tenant shall reimburse Landlord, on demand, as Additional Rent for
any taxes required to be paid by Landlord that are not already included in Tax
Expenses (excluding state,
- 9 -
<PAGE> 14
local, and federal personal or corporate income taxes measured by the net
income of Landlord from all sources and estate and inheritance taxes)
regardless of whether such taxes are now customary or within the contemplation
of the parties to this Lease, when those taxes are:
(a) Measured by or reasonably attributable to:
(1) The cost or value of Tenant's equipment, furniture,
fixtures, and other personal property located in the Premises; or (2) the cost
or value of any leasehold improvements made in or to the Premises by or for
Tenant (to the extent that the cost or value of those leasehold improvements
exceeds the cost or value of a building-standard build-out, as determined by
Landlord, regardless of whether title to those improvements is vested in Tenant
or Landlord); or
(b) Assessed either on this transaction or on any document to
which Tenant is a party that creates or transfers an interest or an estate in
the Premises.
4.5 Landlord's Books and Records; Tenant's Audit Rights. Tenant
and its authorized representatives may examine, inspect, audit, and copy the
records of Landlord regarding each Statement at Landlord's office during normal
business hours within six (6) months after the furnishing of the Statement.
Unless Tenant takes written exception to any item within one (1) year after the
furnishing of that Statement, the Statement shall be considered as final and
accepted by Tenant except that Landlord may, at any time during the one-year
period, following the delivery of the statement submit a corrected Statement to
Tenant if Operating Expenses and Tax Expenses on the original Statement were
overstated or understated.
Tenant and its authorized representatives shall have the right, at Tenant's
cost and on no less than ten (10) days' prior written notice to Landlord and
during Landlord's normal business hours, to audit Landlord's records regarding
Operating Expenses and Tax Expenses. Such an audit shall be performed at
Landlord's principal accounting offices by a certified public accounting firm.
That firm's primary business must be certified public accounting and may not be
compensated on the basis of the amount of Direct Expenses saved by Tenant as a
result of such audit, and that firm shall be selected by Tenant and approved by
Landlord. Landlord's approval shall not be unreasonably delayed or withheld.
There shall be no more than one (1) audit of Operating Expenses or Tax Expenses
for any twelve-month (12-month) period.
To facilitate an audit by Tenant, Landlord shall keep its books and records
applicable to Operating Expenses and Tax Expenses available to Tenant on a
reasonable basis for the longer of (1) two (2) years after the Lease Expiration
Date or (2) one (1) year after the resolution of any dispute concerning
Operating Expenses and Tax Expenses. Any audit of Operating Expenses and Tax
Expenses for any calendar year must be begun one (1) year after Landlord's
delivery of the Statement for that year, or the right to audit Operating
Expenses and Tax Expenses for that year shall be deemed waived.
Tenant agrees diligently to pursue and complete (or to drop) any audit
begun by Tenant, and Landlord agrees it shall not unreasonably interfere with
the execution of Tenant's audit rights. Tenant shall bear all fees and costs of
the audit, unless the parties determine that Operating Expenses and Tax
Expenses taken as a whole for the Real Property for any Expense Year, were
overstated by more than three and one- half percent (3.5%). In that event,
Landlord shall pay for the reasonable costs of that audit. Pending resolution
of any disputes over Operating Expenses and Tax Expenses, Tenant shall pay to
Landlord any Additional Rent alleged to be due from Tenant as reflected on
Landlord's Statement or any invoice issued on the basis of Landlord's
Statement.
Article 5
SECURITY DEPOSIT
[Intentionally Omitted]
Article 6
USE
6.1 Permitted Use. Tenant shall use and occupy the Premises solely
for the "Permitted Use," as defined in the Summary. Tenant shall not use or
occupy, or permit the Premises to be used or occupied, for any other purpose
without Landlord's prior written consent, which may be withheld in Landlord's
sole and absolute discretion.
6.2 Rules and Regulations. Tenant shall comply with the rules
attached to this Lease as Exhibit D and any reasonable non discriminatory
amendments or additions promulgated by Landlord from time to time for the
safety, care, and cleanliness of the Premises, Building, and Real Property or
for the preservation of good order ("Rules and Regulations") as long as the
Rules and Regulations do not take precedence over the specific terms and
conditions of this Lease. Landlord shall not be responsible to Tenant for the
failure of any other tenants or occupants of the Building to comply with the
Rules and Regulations.
6.3 Additional Restrictions on Use. In addition to complying with
other provisions of this Lease concerning use of the Premises:
(a) Tenant shall not use or allow any person to use the
Premises for any purpose that is contrary to the Rules and Regulations, that
violates any Laws and Orders, that constitutes waste or nuisance, that would
unreasonably interfere with another occupant's permitted use of the Building or
that does not comply with the standards set forth in Section 6.4;
(b) Tenant shall not use or allow any person to use the
Premises for any purpose that violates any recorded covenants, conditions, and
restrictions that now or later affect the Real Property; and
(c) Tenant shall not use or allow any person to use the
Premises for any purpose, use or manner of use that would generate unreasonable
noise, unreasonable risk of fire or unreasonable odors, or for any purpose that
would directly or materially interfere with other tenants' permitted uses of
their demised premises.
- 10 -
<PAGE> 15
Article 7
COMPLIANCE WITH LAWS
7.1 Definition of "Laws and Orders." For purposes of this Lease,
the term "Laws and Orders" includes all federal, state, county, city, or
government agency laws, statutes, ordinances, standards, rules, requirements,
or orders now in force or hereafter enacted, promulgated, or issued. The term
also includes government measures regulating or enforcing public access or
occupational or health or safety standards for employers, employees, landlords,
or tenants.
7.2 Repairs, Replacements, Alterations, and Improvements. Tenant,
at Tenant's sole expense, shall promptly make all repairs, replacements,
alterations, or improvements needed to comply with all Laws and Orders to the
extent that the Laws and Orders relate to or are triggered by (a) Tenant's
particular use of the Premises, or (b) any Alterations made in the Premises.
Except for compliance required as a result of Tenant's particular use of the
Premises and/or any Alternation made in the Premises, Landlord, at Landlord's
sole expense, shall promptly make all repairs, replacements, alterations, or
improvements in the Premises and/or the Common Area needed to comply with all
Laws and Orders.
7.3 Collateral Estoppel. The judgment of any court of competent
jurisdiction, or the admission of Tenant in any judicial or administrative
action or proceeding that Tenant has violated any Laws and Orders shall be
conclusive, between Landlord and Tenant, of that fact, whether or not Landlord
is a party to that action or proceeding.
Article 8
HAZARDOUS MATERIAL
8.1 Use of Hazardous Material. Tenant shall not cause or permit any
Hazardous Material, as defined in Section 8.5, to be generated, brought onto,
used, stored, or disposed of in or about the Premises or the Real Property by
Tenant or its agents, employees, contractors, subtenants, or invitees, except
for such office products that are required in the ordinary course of Tenant's
business conducted on the Premises or are otherwise approved by Landlord.
Tenant shall:
(a) Use, store, and dispose of all such Hazardous Material in
strict compliance with all applicable statutes, ordinances, and regulations in
effect during the Lease Term that relate to public health and safety and
protection of the environment ("Environmental Laws"), including those
Environmental Laws identified in Section 8.4; and
(b) Comply at all times during the Lease Term with all
Environmental Laws.
8.2 Indemnification. Tenant shall, at Tenant's sole expense and
with counsel reasonably acceptable to Landlord, indemnify, defend, and hold
harmless the Landlord and the Landlord's shareholders, directors, officers,
employees, partners, affiliates, and agents with respect to all losses arising
out of or resulting from the release of any Hazardous Material in or about the
Premises or the Real Property, or the violation of any Environmental Law, by
Tenant or Tenant's agents, contractors, or invitees. This indemnification
includes all losses, liabilities, obligations, penalties, fines, claims,
actions (including remedial or enforcement actions of any kind and
administrative or judicial proceedings, orders, or judgments), damages
(including consequential and punitive damages), and costs (including attorney,
consultant, and expert fees and expenses) resulting from the release or
violation. This indemnification shall survive the expiration or termination of
this Lease.
8.3 Indemnification by Landlord. Tenant acknowledges receipt of
the "Report of Soil and Groundwater Assessment, ASE Job No. 3106, Former
Systron/Donner/Whittaker Facility," prepared by AquaScience Engineers, dated
May 29, 1997 ("Environmental Report"). Landlord shall, at Landlord's sole
expense and with counsel reasonably acceptable to Tenant, indemnify, defend,
and hold harmless the Tenant Parties to the extent of all losses arising out of
or resulting from the release of any Hazardous Material in or about the
Premises or the Real Property or the violation of any Environmental Law
occurring before the Lease Commencement Date, including without limitation the
Hazardous Material identified in the Environmental Report, and all losses
arising out of or resulting from the release of any Hazardous Material in or
about the Premises or the Real Property or the violation of any Environmental
Law by Landlord Parties or any party other than Tenant, occurring after the
Lease Commencement Date. This indemnification includes all losses,
liabilities, obligations, penalties, fines, claims, actions (including remedial
or enforcement actions of any kind and administrative or judicial proceedings,
orders, or judgments), damages (including consequential and punitive damages),
and costs (including attorney, consultant, and expert fees and expenses)
resulting from the release or violation. This indemnification shall survive the
expiration or termination of this Lease.
8.4 Remediation Obligations; Tenant's Rights on Cleanup by
Landlord. If the presence of any Hazardous Material brought onto the Premises
or the Real Property by Tenant or by Tenant's employees, agents, contractors,
or invitees results in contamination of the Real Property, Tenant shall
promptly take all necessary actions, at Tenant's sole expense, to return the
Real Property to the condition that existed before the introduction of such
Hazardous Material. Tenant shall first obtain Landlord's approval of the
proposed remedial action. This provision does not limit the indemnification
obligations set forth in Section 8.2.
8.5 Definition of "Hazardous Material." As used in this Article 8,
the term "Hazardous Material" shall mean any hazardous or toxic substance,
material, or waste that is or becomes regulated by the United States, the State
of California, or any local government authority having jurisdiction over the
Building. Hazardous Material includes:
(a) Any "hazardous substance," as that term is defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(CERCLA) (42 United States Code Sections 9601-9675); (b) "Hazardous waste," as
that term is defined in the Resource Conservation and Recovery Act of 1976
(RCRA) (42 United States Code Sections 6901-6992k); (c) any pollutant,
contaminant, or hazardous, dangerous, or toxic chemical, material, or
substance, within the meaning of any other applicable federal, state, or local
law, regulation, ordinance, or requirement (including consent decrees and
administrative orders imposing liability or standards of conduct concerning any
hazardous, dangerous, or toxic waste, substance,
- 11 -
<PAGE> 16
or material, now or hereafter in effect); (d) petroleum products; (e)
radioactive material, including any source, special nuclear, or byproduct
material as defined in 42 United States Code Sections 2011-2297g-4; (f)
asbestos in any form or condition; and
(g) polychlorinated biphenyls ("PCBs") and substances or compounds
containing PCBs.
Article 9
UTILITIES AND SERVICES
9.1 Standard Tenant Utilities and Services. Subject to applicable
government rules, regulations, and guidelines and the rules or actions of the
public utility furnishing the service, Landlord shall provide the following
utilities and services unless otherwise stated in this Lease:
9.1.1. Heating and Air-Conditioning.
9.1.1.1 Hours and Specifications. Landlord
shall provide heating, ventilation, and air-conditioning ("HVAC") on Mondays
through Fridays from 8 a.m. through 7 p.m. ("Building Hours") except for the
dates of observation of New Year's Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, Christmas Day, and other locally and nationally
recognized holidays that are observed by a majority of the Comparable Buildings
("Holidays").
9.1.2. Electricity. Landlord shall provide electricity
for lighting and power in the Premises during Building Hours except for
Holidays. All costs for electricity for lighting and power used by Tenant
outside of Building Hours or on Holidays shall be paid by Tenant. Electricity
for Tenant's lighting and other power purposes shall be at a nominal 208/220
volts. No electrical circuit for the supply of power shall require a current
capacity exceeding twenty (20) amperes. Landlord shall replace lamps, starters,
and ballasts for Building Standard lighting fixtures within the Premises on
Tenant's request. The cost of such replacement shall be included in Operating
Expenses. Tenant shall replace lamps, starters, and ballasts for non-Building
Standard lighting fixtures within the Premises at Tenant's expense. All
lighting installed as a part of the initial Tenant Improvements shall be
considered "Building Standard".
9.1.3. Water. Landlord shall provide city water from the
regular outlets for drinking, lavatory, and toilet purposes.
9.1.4. Janitorial Services. Landlord shall provide
janitorial services in and about the Premises and the restrooms in the Common
Areas serving the Premises on Mondays through Fridays, except on Holidays, in
accordance with the specifications attached to this Lease as Exhibit E.
9.2 Overstandard Tenant Use. Tenant shall not, without Landlord's
prior written consent, use heat-generating machines, machines other than normal
fractional horsepower office machines, or equipment or lighting other than
building standard lights in the Premises that may materially adversely affect
the temperature otherwise maintained by the air-conditioning system or
materially increase the water normally furnished to the Premises by Landlord
under Section 9.1.
Landlord shall have the right to install supplementary air-conditioning
units or other facilities at locations in the Premises reasonably approved by
Tenant, including supplementary or additional metering devices. Within thirty
(30) days after billing by Landlord, Tenant shall pay Landlord's actual cost for
such supplementary facilities, including the cost of (a) installation,
operation, and maintenance; and (b) increased wear and tear on existing
equipment.
If Tenant uses water, electricity, heat, or air-conditioning in excess
of that required to be supplied by Landlord under Section 9.1, Tenant shall pay
to Landlord, within thirty (30) days after billing, Landlord's actual cost of
providing such excess service, without profit or overhead but including the cost
of (a) installation, operation, and maintenance of equipment installed to supply
the excess service; and (b) increased wear and tear on existing equipment caused
by Tenant's excess consumption. Landlord may install devices to separately meter
any increased use. Within thirty (30) days after billing by Landlord, Tenant
shall pay the increased cost directly to Landlord, including the cost of the
additional metering devices.
Tenant's use of electricity shall never exceed the capacity of the
feeders serving the Building and Premises or the risers or wiring installation.
Landlord and Tenant agree that Tenant's use shall not be considered to exceed
such capacity as long as Tenant's use of lighting fixtures and incidental use
equipment in the Premises does not exceed 20 watts of connected load per
rentable square foot of the Premises to the applicable bus riser. If Tenant
wishes to use heat, ventilation, or air-conditioning during hours other than
those for which Landlord is obligated to supply such utilities under Section
9.1, Tenant shall give Landlord reasonable prior notice of Tenant's desired use,
and Landlord shall supply such utilities to Tenant at an hourly cost to Tenant
as shall be calculated to reimburse Landlord for Landlord's actual cost of
supplying such utilities, without profit or overhead but including the cost of
increased wear and tear on existing equipment caused by such non-Building-Hour
use. Amounts payable by Tenant to Landlord under this Section 9.2 for use of
additional utilities and services shall be considered Additional Rent under this
Lease and shall be billed on a monthly basis.
9.3 Interruption of Utilities. Except as provided in Section
21.7.2, Tenant agrees that Landlord shall not be liable for damages, by
abatement of Rent or otherwise, for failure to furnish or delay in furnishing
any service (including telephone and telecommunication services) or for
diminution in the quality or quantity of any service when the failure, delay,
or diminution is entirely or partially caused by:
(a) Repairs, replacements, or improvements; (b) strike,
lockout, or other labor trouble; (c) inability to secure electricity, gas,
water, or other fuel at the Building after reasonable effort to do so; (d)
accident or casualty; (e) act or Default of Tenant or other parties; or (f) any
other cause beyond Landlord's reasonable control.
- 12 -
<PAGE> 17
Such failure, delay, or diminution shall not be considered to constitute an
eviction or a disturbance of Tenant's use and possession of the Premises or
relieve Tenant from paying Rent or performing any of its obligations under this
Lease, subject to Section 21.7.2.
Landlord shall not be liable under any circumstances for a loss of or
injury to property or for injury to or interference with Tenant's business,
including loss of profits through, in connection with, or incidental to a
failure to furnish any of the utilities or services under this Article 9.
Landlord may comply with mandatory or voluntary controls or guidelines
promulgated by any government entity relating to the use or conservation of
energy, water, gas, light, or electricity or the reduction of automobile or
other emissions without creating any liability of Landlord to Tenant under this
Lease, subject to Section 21.7.2, as long as compliance with voluntary controls
or guidelines does not materially and unreasonably interfere with Tenant's use
of the Premises.
Article 10
REPAIRS AND MAINTENANCE
10.1 Tenant's Repair and Maintenance Obligations. Subject to
Articles 14 and 15, and except as provided in Section 10.2, Tenant shall, at
Tenant's sole expense and in accordance with the terms of this Lease (including
Article 11), repair and maintain in good order and condition (reasonable wear
and tear excepted) the interior of the entire Premises, including without
limitation all heating, ventilation, air conditioning, plumbing, electricity,
life safety, rest rooms, lavatories, and other Building systems located within
the Premises.
Despite the foregoing, if Landlord is responsible for construction of
the improvements under the Leasehold Improvement Agreement, Tenant shall not be
responsible for the repair of any latent defects in such improvements that
Landlord was required to construct to the extent that such defects existed as of
the Lease Commencement Date and were of such a nature that Tenant could not
normally discover them in the exercise of reasonable diligence in Tenant's
inspection of the Premises on or before the Lease Commencement Date and are
reported to Landlord within one (1) year after the Commencement Date. Any repair
and maintenance work affecting the Building systems shall be performed only by
the contractor used by Landlord in the Real Property for such work, unless that
contractor is unwilling or unable to perform the work, in which event Tenant may
use the services of another qualified contractor reasonably approved by
Landlord. Landlord may, but need not, make such repairs and maintenance if:
(a) Tenant fails to perform any repair and maintenance
obligation within thirty (30) days after written notice by Landlord to Tenant
of the need for such repairs and maintenance; or
(b) Tenant fails to commence any repair and maintenance
obligation for which the reasonable completion period exceeds thirty (30) days,
and to diligently prosecute this obligation to completion.
Within thirty (30) days after a written demand from Landlord (including a
reasonably particularized statement), Tenant shall pay Landlord Landlord's
reasonable, actual, out-of-pocket costs incurred in connection with the repairs
and maintenance plus interest at the Lease Rate from the date these costs are
incurred until the date of Tenant's repayment. Despite any other provision of
this Section 10.1, in the event of an emergency Landlord shall have the right
to perform any Tenant repair and maintenance obligation that Tenant fails to
perform promptly. Within thirty (30) days after written demand (including a
reasonably particularized statement), Tenant shall pay Landlord Landlord's
reasonable costs incurred in connection with the repair and maintenance
obligation.
10.2 Landlord's Repair and Maintenance Obligations. Subject to
Articles 14 and 15, Landlord shall, as part of the Operating Expenses (to the
extent permitted by Article 4), repair and maintain in good order and condition
(reasonable wear and tear excepted):
(a) All portions of the Building that are outside the
Premises, including the structural portions of the Premises, areas and building
systems above the ceiling of the Premises and on the inside of each of the
walls to the Premises, the roof and foundations, the life safety systems, and
any maintenance of perimeter walls, including glazing of exterior windows; b)
All other Common Areas located on the Real Property.
Repairs shall be made promptly after written notice from Tenant or other actual
notice to Landlord of the need for such repair to keep the applicable portion
of the Premises, Building, Real Property, and other items in the condition
described in this clause. Landlord shall not be in Default of its repair and
maintenance obligations under this Section 10.2 if Landlord performs the
repairs and maintenance within thirty (30) days after written notice by Tenant
to Landlord of the need for such repairs and maintenance, except that in the
event Tenant notifies Landlord that repairs are required on an emergency basis
to prevent injury to persons, significant damage to property, or material
interference with Tenant's operation of its business, then Landlord shall
commence the repair as soon as is reasonably possible. If, due to the nature of
the particular repair or maintenance obligation, more than thirty (30) days are
reasonably required to complete it, Landlord shall not be in Default under this
Section 10.2 if Landlord begins work within this thirty-day (30-day) period and
diligently prosecutes this work to completion. Except as provided in Section
21.7.2, no abatement of rent and no liability of Landlord shall result for any
injury to or interference with Tenant's business arising from the making of or
failure to make any repairs, replacements, alterations, or improvements in or
to any portion of the Premises, Building, Real Property, fixtures,
appurtenances, or equipment. Tenant waives and releases its rights, including
its right to make repairs at Landlord's expense, under California Civil Code
Sections 1941-1942 or any similar law, statute, or ordinance now or hereafter
in effect.
Article 11
ALTERATIONS AND ADDITIONS
11.1 Landlord's Consent to Alterations. Tenant may not make any
improvements, alterations, additions, or changes to the Premises
("Alterations") without obtaining Landlord's prior written consent.
- 13 -
<PAGE> 18
11.1.1. Consent Procedure. Tenant shall request such
consent by written notice to Landlord, which must be accompanied by the plans
and specifications for the proposed work. Landlord shall either give or
withhold its consent within fifteen (15) days of the receipt by Landlord of
Tenant's request for consent.
11.1.2. Reasonable Consent. Landlord shall not
unreasonably withhold its consent to proposed Alterations. The Alterations for
which Landlord may reasonably withhold consent include but are not limited to
those that would or could:
(a) Affect the structure of the Building; (b)
affect the Building systems of the Building; (c) result in Landlord's being
required under Laws and Orders to perform any work that Landlord could
otherwise avoid or defer ("Additional Required Work"), unless Tenant agrees in
writing to pay for the entire cost of the design and construction of the
Additional Required Work; (d) result in a material increase in the demand for
utilities or services that Landlord is required to provide, unless Tenant
agrees to pay the additional cost; or (e) cause an increase in the premiums for
hazard or liability insurance carried by Landlord, unless Tenant agrees to pay
the amount of the increase in premiums.
11.1.3. Costs of Review. If it is reasonably necessary
for Landlord to obtain the assistance of architects, engineers, or other
consultants to evaluate the proposed Alterations, Tenant shall reimburse
Landlord for amounts paid by Landlord for the reasonable fees and costs of
those consultants in reviewing the proposed Alterations.
11.1.4. Minor Alterations. Despite any other provision of
this Section 11.1 but subject to all other provisions of this Article 11,
Tenant shall be permitted to make Alterations to the interior improvements of
the Premises without Landlord's prior written consent but only if:
(a) At least fifteen (15) days before
construction is begun, Tenant gives Landlord written notice of the nature and
extent of the intended Alterations, specifying the contractor that Tenant
intends to use; (b) the proposed Alterations do not affect the exterior
appearance or structure of the Building or the Building systems or otherwise
require a building permit; (c) the proposed Alterations could not result in
Landlord's being required to perform any Additional Required Work; (d) the
proposed Alterations do not involve the installation of stairways, vaults, or
other equipment or improvements that would cost more to remove than ordinary
improvements for general office use; (e) the proposed Alterations do not
involve or affect any asbestos or asbestos-containing materials in the
Building; and (f) the particular Alteration, together with all other
Alterations made within twelve (12) months of the particular Alteration, does
not cost more than Twenty Thousand Dollars ($20,000) in the aggregate.
11.1.5. Removal of Alterations. When Tenant requests
Landlord's consent to a proposed Alteration, or before the commencement of any
Alteration for which Landlord's consent is not required, Tenant may ask
Landlord in writing whether Landlord will require that the Alteration be
removed on expiration or earlier termination of the Lease Term. Landlord shall
respond to this inquiry in writing within fifteen (15) days. If Landlord states
in its response that it will not require removal, Tenant shall not be required
to remove this Alteration.
11.2 Compliance of Alterations With Laws and Insurance
Requirements. Tenant shall cause all Alterations to comply with the following:
(a) Applicable Laws and Orders; and (b) applicable
requirements of a fire-rating bureau.
Tenant shall also comply with those requirements in the course of
constructing the Alterations. Before beginning construction of any Alteration,
Tenant shall obtain a valid building permit and any other permits that may be
required by any government entity having jurisdiction over the Premises. Tenant
shall provide copies of those permits to Landlord before the work begins.
Tenant shall, at Tenant's sole expense, perform any Additional Required
Work which shall be subject to the same requirements as any Alteration. If any
Additional Required Work must be performed outside the Premises, Landlord may
elect to perform that work at Tenant's expense.
11.3 Manner of Construction. Tenant shall build Alterations
entirely within the Premises and in conformance with Landlord's construction
rules and regulations, using only contractors and subcontractors reasonably
approved in writing by Landlord. All work relating to any Alterations shall be
done in a good and workmanlike manner, using new materials equivalent in
quality to those used in the construction of the initial improvements to the
Premises. All work shall be diligently prosecuted to completion.
Tenant shall ensure that all work is performed in a manner that does
not obstruct access to or through the Real Property or its Common Areas and that
does not interfere either with other tenants' use of their premises or with any
other work being undertaken or the Real Property. Tenant shall take all measures
necessary to ensure that labor peace is maintained at all times.
Within twenty (20) days after completion of any Alterations, Tenant
shall deliver to Landlord a reproducible copy of the drawings of Alterations as
built.
11.4 Payment for Improvements. Tenant shall promptly pay all
charges and costs incurred in connection with any Alteration, as and when
required by the terms of any agreements with contractors, designers, or
suppliers. At least seven (7) days before beginning construction of any
Alteration, Tenant shall give Landlord written notice of the expected
commencement date of that construction to permit Landlord to post and record a
notice of nonresponsibility.
On completion of any Alteration, Tenant shall:
- 14 -
<PAGE> 19
(a) Cause a timely notice of completion to be recorded in the
office of the recorder of the county in which the Building is located, in
accordance with Civil Code Section 3093 or any successor statute;
(b) Deliver to Landlord evidence of full payment and final
unconditional waivers of all liens for labor, services, or materials; and
(c) Reimburse Landlord for any actual expenses paid to third
parties or for additional expenses reasonably incurred by Landlord in
connection with the construction of any Alteration (in addition to the expenses
described in Section 11.1.3).
11.5 Construction Insurance. Before construction begins, Tenant
shall deliver to Landlord reasonable evidence that damage to, or destruction
of, the Alterations during construction will be covered either by the policies
that Tenant is required to carry under Article 13 or by a policy of builder's
all-risk insurance in an amount approved by Landlord.
If Landlord requires Tenant to provide builder's all-risk insurance for
the proposed Alterations, Tenant shall provide a copy of the policy, any
endorsements, and an original certificate of insurance that complies with
Section 13.9.3.
Tenant shall cause each contractor and subcontractor to maintain all
workers' compensation insurance required by law and liability insurance
(including property damage) in amounts reasonably required by Landlord. Tenant
shall provide evidence of that insurance to Landlord before construction begins.
11.6 Landlord's Property.
By written notice to Tenant at least either sixty (60) days before
expiration of the Lease Term or fifteen (15) days after any earlier termination
of this Lease, Landlord may require Tenant, at Tenant's sole expense, to remove
any Alterations specified by Landlord and restore the Premises to their
configuration and condition before the Alterations were made (unless Landlord
previously notified Tenant that such removal would not be required, under
Section 11.1.5). If Tenant fails to complete that restoration before expiration
of the Lease Term or, in the case of earlier termination, within fifteen (15)
days after written notice from Landlord requesting the restoration, Landlord may
do so and charge the cost of the restoration to Tenant.
11.7 Initial Improvements. The construction of the initial
improvements to the Premises shall be governed by the terms of the Leasehold
Improvement Agreement, attached to this Lease as Exhibit B, and not the terms
of this Article 11.
Article 12
COVENANT AGAINST LIENS
Tenant shall not be the cause of any liens or allow such liens to
exist, attach to, be placed on, or encumber Landlord's or Tenant's interest in
the Premises, Building, or Real Property by operation of law or otherwise.
Tenant shall not suffer or permit any lien of mechanics, material suppliers, or
others to be placed against the Premises, Building, or Real Property with
respect to work or services performed or claimed to have been performed for
Tenant or materials furnished or claimed to have been furnished to Tenant or to
the Premises on behalf of or for the benefit of Tenant. Landlord has the right
at all times to post and keep posted on the Premises any notice that it
considers necessary for protection from such liens.
If any such lien attaches or Tenant receives notice of any such lien,
Tenant shall cause the lien to be released and removed of record within ten (10)
days after Landlord's demand. Despite any other provision of this Lease, if the
lien is not released and removed within ten (10) days after Landlord delivers
notice of the lien to Tenant, Landlord may immediately take all action necessary
to release and remove the lien, without any duty to investigate the validity of
it. All expenses (including reasonable attorney fees) incurred by Landlord in
connection with release of the lien shall be considered Additional Rent under
this Lease and be immediately due and payable by Tenant.
Article 13
EXCULPATION, INDEMNIFICATION, AND INSURANCE
13.1 Definition of "Tenant Parties" and "Landlord Parties." For
purposes of this Article 13, the term "Tenant Parties" refers singularly and
collectively to Tenant and Tenant's officers, directors, shareholders,
partners, trustees, members, agents, employees, and independent contractors as
well as to all persons and entities claiming through any of these persons or
entities. The term "Landlord Parties" refers singularly and collectively to
Landlord and Landlord's officers, directors, shareholders, partners, trustees,
members, agents, employees, and independent contractors as well as to all
persons and entities claiming through any of these persons or entities.
13.2 Exculpation.
13.2.1. Exculpation. To the fullest extent permitted by
law, Tenant, on its behalf and on behalf of all Tenant Parties, waives all
claims (in law, equity, or otherwise) against Landlord Parties arising out of,
knowingly and voluntarily assumes the risk of, and agrees that Landlord Parties
shall not be liable to Tenant Parties for any of the following to the extent
the same occur on or about the Premises:
(a) The injury or death of any person; or
(b) The loss of, injury or damage to, or
destruction of any tangible or intangible property, including the resulting
loss of use, economic losses, and consequential or resulting damage of any kind
from any cause.
- 15 -
<PAGE> 20
This exculpation clause shall not apply to claims against Landlord
Parties to the extent that a final judgment of a court of competent jurisdiction
establishes that the injury, loss, damage, or destruction was proximately caused
by Landlord Parties' negligence, fraud, willful injury to person or property, or
violation of law.
13.3 Indemnification.
13.3.1. Tenant's Indemnification of Landlord Parties. To
the fullest extent permitted by law but subject to this Section 13.3, Tenant
shall, at Tenant's sole expense and with counsel reasonably acceptable to
Landlord, indemnify, defend, and hold harmless Landlord Parties from and
against all Claims, as defined in Section 13.3.2, from any cause arising out of
or relating (directly or indirectly) to this Lease, the tenancy created under
this Lease, or the Premises, including:
(a) The use or occupancy, or manner of use or
occupancy, of the Premises or Real Property by Tenant Parties;
(b) Any act, error, omission, or negligence of
Tenant Parties in, on, or about the Real Property;
(c) Tenant's conducting of its business;
(d) Any alterations, activities, work, or things
done, omitted, or permitted by Tenant Parties in, at, or about the Premises or
Real Property, including the violation of or failure to comply with any
applicable laws, statutes, ordinances, standards, rules, regulations, orders,
decrees, or judgments in existence on the Lease Commencement Date or enacted,
promulgated, or issued after the date of this Lease, except to the extent that
compliance with such legal requirements is expressly made the responsibility of
Landlord in Article 7 or 10, and
(e) Any breach or Default in performance of any
obligation on Tenant's part to be performed under this Lease.
13.3.2. Definition of Claims. For purposes of this Lease,
"Claims" means any and all claims, losses, costs, damage, expenses,
liabilities, liens, actions, causes of action (whether in tort or contract, law
or equity, or otherwise), charges, assessments, fines, and penalties of any
kind (including consultant and expert expenses, court costs, and attorney fees
actually incurred).
13.3.3. Type of Injury or Loss. This indemnification
extends to and includes Claims for:
(a) Injury to any persons (including death at
any time resulting from that injury);
(b) Loss of, injury or damage to, or destruction
of tangible property (including all loss of use resulting from that loss,
injury, damage, or destruction); and
(c) Economic losses and consequential or
resulting damage.
13.3.4. Indemnification; Consequential Damages. Despite
any other provision of this Lease:
(a) Tenant's indemnification in Section 13.3.1
shall not apply to any Claim caused by or arising out of the negligence of
Landlord Parties or to the extent that a Claim against Landlord Parties
actually arises out of the misconduct of Landlord Parties; and
(b) Nothing in this Lease shall impose any
obligation on Landlord to be responsible or liable for, and Tenant releases
Landlord from all liability for, consequential damages suffered by Tenant.
13.3.5. Relationship of Indemnity to Other Lease
Obligations. Tenant's agreement to indemnify Landlord under this Article 13 are
not intended to and shall not:
(a) Restrict, limit, or modify the parties'
respective insurance and other obligations under this Lease, such indemnity
covenants being independent of the parties' insurance and other obligations;
(b) Be restricted, limited, or modified by
compliance with their respective insurance requirements and other obligations
under this Lease;
(c) Relieve any insurance carrier of its
obligations under policies required to be carried under this Lease, to the
extent that such policies cover, or if carried would have covered, the matters
subject to the parties' respective indemnification obligations; or
(d) Supersede any inconsistent agreement of the
parties set forth in any other provision of this Lease.
13.3.6. Attorney Fees. The prevailing party shall be
entitled to recover its actual attorney fees and court costs incurred in
enforcing the indemnification clauses set forth in this Section 13.3.
13.4 Compliance With Insurer Requirements. Tenant shall, at
Tenant's sole expense, comply with all reasonable requirements, guidelines,
rules, orders, and similar mandates and directives in effect on the Lease
Commencement Date that (a) have been disclosed to Tenant by Landlord and (b)
pertain to Tenant's business operations, conduct, or use of the Premises and
the Building, whether imposed by Tenant's insurers, Landlord's insurers, or
both. If Tenant's business operations, conduct, or use of the Premises, other
than for normal office purposes, later cause any increase in the premium for
any insurance policies carried
- 16 -
<PAGE> 21
by Landlord, Tenant shall, within ten (10) Business Days after receipt of
written notice from Landlord, reimburse Landlord for the increase. Tenant
shall, at Tenant's sole expense, comply with all rules, orders, regulations, or
requirements of the American Insurance Association (formerly the National Board
of Fire Underwriters) and of any similar body in effect during the term of this
Lease and any renewal term that (a) have been disclosed to Tenant by Landlord
and (b) pertain to Tenant's business operations, conduct, or use of the
Premises or the Building.
13.5 Tenant's Liability Coverage. Tenant shall, at Tenant's sole
expense, maintain the coverages set forth in this Section 13.5.
13.5.1. Commercial General Liability Insurance. Tenant
shall obtain commercial general liability insurance written on an "occurrence"
policy form, covering bodily injury, property damage, personal injury, and
advertising injury arising out of or relating (directly or indirectly) to
Tenant's business operations, conduct, assumed liabilities, or use or occupancy
of the Premises or the Building.
13.5.2. Broad Form Coverage. Tenant's liability coverage
shall include all the coverages typically provided by the Broad Form
Comprehensive General Liability Endorsement, including broad form property
damage coverage (which shall include coverage for completed operations).
Tenant's liability coverage shall further include premises-operations coverage,
owners and contractors protective (OCP) coverage (when reasonably required by
Landlord), and the broadest available form of contractual liability coverage.
It is the parties' intent that Tenant's contractual liability coverage provide
coverage to the maximum extent possible of Tenant's indemnification obligations
under this Lease.
13.5.3. Primary Insured. Tenant shall be the first or
primary named insured.
13.5.4. Additional Insureds. Landlord and any lender of
Landlord shall be named by endorsement as additional insureds under Tenant's
general liability coverage. The additional insured endorsement must be on ISO
Form CG 20 11 11 85 or an equivalent reasonably acceptable to Landlord.
13.5.5. Cross-Liability; Severability of Interests.
Tenant's general liability policies shall be endorsed as needed to provide
cross-liability coverage for Tenant, Landlord, and any lender of Landlord and
to provide severability of interests.
13.5.6. Primary Insurance Endorsements for Additional
Insureds. Tenant's general liability policies shall be endorsed as needed to
provide that the insurance afforded by those policies to the additional
insureds is primary and that all insurance carried by Landlord Parties is
strictly excess and secondary and shall not contribute with Tenant's liability
insurance.
13.5.7. Scope of Coverage for Additional Insureds. The
coverage afforded to Landlord and any lender of Landlord must be at least as
broad as that afforded to Tenant and may not contain any terms, conditions,
exclusions, or limitations applicable to Landlord or any lender of Landlord
that do not apply to Tenant.
13.5.8. Delivery of Certificate, Policy, and
Endorsements. Before the Lease Commencement Date, Tenant shall deliver to
Landlord the endorsements referred to in this Section 13.5 as well as a
certified copy of Tenant's liability policy or policies and an original
certificate of insurance, executed by an agent of the insurer or insurers,
evidencing compliance with the liability insurance requirements. Tenant shall
obtain a certificate that provides for no less than thirty (30) days' advance
written notice to Landlord from the insurer or insurers of any cancellation,
nonrenewal, or material change in coverage or available limits of liability and
that shall confirm compliance with the liability insurance requirements in this
Lease.
13.5.9. Concurrency of Primary, Excess, and Umbrella
Policies. Tenant's liability insurance coverage may be provided by a
combination of primary, excess, and umbrella policies, but those policies must
be absolutely concurrent in all respects regarding the coverage afforded by the
policies. The coverage of any excess or umbrella policy must be at least as
broad as the coverage of the primary policy.
13.5.10. Liability Limits. The minimum acceptable
limits of liability for Tenant's liability insurance are set forth in Summary
Section 10.
13.5.11. "Per Location" Endorsement. Tenant shall, at
Tenant's sole expense, procure a "per location" endorsement or equivalent
reasonably acceptable to Landlord so that the general aggregate and other
limits apply separately and specifically to the Premises.
13.5.12. Survival of Insurance Requirements. Tenant
shall, at Tenant's sole expense, maintain in full force and effect the
liability insurance coverages required under this Lease and shall maintain
Landlord Parties and any lender specified by Landlord as additional insureds,
as required by Section 13.5.4 of this lease, for a period of no less than two
(2) years after expiration or earlier termination of this Lease.
13.6 Tenant's Workers' Compensation and Employer Liability
Coverage. Tenant shall procure and maintain workers' compensation insurance as
required by law.
13.7 Tenant's First Party Insurance. Tenant shall, at Tenant's sole
expense, procure and maintain the first party insurance coverages described in
this Section 13.7.
13.7.1. Property Insurance. Tenant shall procure and
maintain property insurance coverage for all office furniture, trade fixtures,
office equipment, merchandise, and all other items of Tenant's property in, on,
at, or about the Premises and the Building, including property installed by,
for, or at the expense of Tenant but excluding:
- 17 -
<PAGE> 22
(a) "Tenant Improvements," as defined in the
Leasehold Improvement Agreement; and
(b) Other improvements, betterments,
alterations, and additions to the Premises that are insured by Landlord under
this Lease.
Tenant's property insurance shall fulfill the following
requirements:
(a) It must be written on the broadest available
"all-risk" (special-causes-of-loss) policy form or an equivalent form
acceptable to Landlord;
(b) It must include an agreed-amount
endorsement for no less than one hundred (100) percent of the full replacement
cost (new without deduction for depreciation) of the covered items and
property; and
(c) The amounts of coverage must meet any
coinsurance requirements of the policy or policies.
It is the parties' intent that Tenant shall structure its
property insurance program so that no coinsurance penalty shall be imposed and
there shall be no valuation shortfalls or disputes with any insurer or with
Landlord. Tenant's property insurance coverage shall include vandalism and
malicious mischief coverage, sprinkler leakage coverage, and earthquake
sprinkler leakage coverage.
Landlord shall maintain full replacement cost property
insurance coverage for the "Tenant Improvements," as defined in the Leasehold
Improvement Agreement, and for all other improvements, betterments,
alterations, and additions to the Premises approved in writing by Landlord.
13.7.2. Business Income and Extra Expense Coverage.
Tenant shall further procure and maintain business income (business
interruption) insurance and extra expense coverage with coverage amounts that
shall reimburse Tenant for all direct or indirect loss of income and charges
and costs incurred arising out of all perils insured against by Tenant's
property insurance coverage, including prevention of, or denial of use of or
access to, all or part of the Premises or the Building, as a result of those
perils.
The business income and extra expense coverage shall provide
coverage for no less than twelve (12) months of the loss of income, charges,
and costs contemplated under the Lease and shall be carried in amounts
necessary to avoid any coinsurance penalty that could apply. The business
income and extra expense coverage shall be issued by the insurer that issues
Tenant's other first party coverage.
13.8 Other Insurance Coverage. Once every three (3) years during
the Lease Term and on the commencement of any renewal term, Landlord shall have
the right to engage insurance consultants to review the insurance coverages
maintained by Tenant. If, in the opinion of those consultants, any aspect of
Tenant's general liability, property, or other insurance program is inadequate
to protect the interests of Landlord, as contemplated by this Article 13,
Tenant shall, at its sole expense, comply promptly with the consultant's
recommendations. Tenant, however, shall not be required to procure or maintain
other or further coverages that are:
(a) Beyond those typically maintained by similarly situated
parties leasing reasonably similar amounts and types of space for use in
comparable buildings in the same submarket; or
(b) Not available at commercially reasonable rates.
13.9 Form of Policies and Additional Requirements.
13.9.1. Insurance Independent of Exculpation and
Indemnification. Tenant's insurance obligations set forth in Sections 13.4-
13.10 are independent of Tenant's exculpation, indemnification, and other
obligations under this Lease and shall not be construed or interpreted in any
way to restrict, limit, or modify Tenant's exculpation, indemnification, or
other obligations or to limit Tenant's liability under this Lease.
13.9.2. Form of Policies. In addition to the requirements
set forth in Section 13.5.8, the insurance required of Tenant under this
Article 13 must:
(a) Name Landlord and any other party Landlord
specifies by endorsement as an additional insured;
(b) Be issued by an insurance company with a
rating of no less than A-X in the current Best's Insurance Guide, or that is
otherwise acceptable to Landlord, and admitted to engage in the business of
insurance in the State of California;
(c) Be primary insurance for all claims under it
and provide that any insurance carried by Landlord Parties and Landlord lenders
is strictly excess, secondary, and noncontributing with any insurance carried
by Tenant; and
(d) Provide that insurance may not be canceled,
nonrenewed, or the subject of material change in coverage or available limits
of coverage, except on thirty (30) days' prior written notice to Landlord and
Landlord's lenders.
13.9.3. Tenant's Delivery of Policy, Endorsements, and
Certificates. Tenant shall deliver the policy or policies, along with any
endorsements to them and certificates required by this Article 13, to Landlord:
(a) On or before the Lease Commencement Date;
- 18 -
<PAGE> 23
(b) At least thirty (30) days before the
expiration date of any policy; and
(c) On renewal of any policy.
13.9.4. Blanket Insurance. Tenant shall be permitted to
provide the insurance required under this Lease by obtaining a blanket policy
or policies to be maintained by Tenant. The coverages afforded to Landlord and
Landlord's lenders under this Lease shall in no way be limited, diminished, or
reduced under such blanket policy or policies.
13.10 Waiver of Subrogation. Landlord and Tenant agree to cause
the insurance companies issuing their respective property (first party)
insurance to waive any subrogation rights that those companies may have against
Tenant or Landlord, respectively, as long as the insurance is not invalidated
by the waiver. If the waivers of subrogation are contained in their respective
insurance policies, Landlord and Tenant waive any right that either may have
against the other on account of any loss or damage to their respective property
to the extent that the loss or damage is insured under their respective
insurance policies.
13.11 Disclosures Regarding Real Property. The Real Property and
the Premises are located in a special studies zone as designated under the
Alquist-Priolo Special Studies Zone Act (California Public Resources Code
Section Section 2621-2630) and is located within a special Flood Hazard Area as
set forth on a Federal Emergency Management Agency "Flood Insurance Rate Map"
or "Flood Hazard Boundary Map" (12 CFR Section 339.6).
Article 14
DAMAGE AND DESTRUCTION
14.1 Repair of Damage by Landlord. Tenant agrees to notify Landlord
in writing promptly of any damage to the Premises resulting from fire,
earthquake, or any other identifiable event of a sudden, unexpected, or unusual
nature ("Casualty"). If the Premises are damaged by a Casualty, any Common
Areas of the Real Property providing access to the Premises are damaged to the
extent that Tenant does not have reasonable access to the Premises, and if
neither Landlord nor Tenant has elected to terminate this Lease under this
Article 14, Landlord shall promptly and diligently restore such Common Areas,
and the Tenant Improvements originally constructed by Landlord, to
substantially the same condition as existed before the Casualty, except for
modifications required by building codes and other laws.
14.2 Repair Period Notice. Landlord shall, within thirty (30) days
after the date of the Casualty, provide written notice to Tenant indicating the
anticipated period for repairing the Casualty ("Repair Period Notice"). The
Repair Period Notice shall be accompanied by a certified statement executed by
the contractor retained by Landlord to complete the repairs or, if Landlord has
not retained a contractor, a licensed contractor not affiliated with landlord,
certifying the contractor's opinion about the anticipated period for repairing
the Casualty. The Repair Period Notice shall also state, if applicable,
Landlord's election either to repair or to terminate the Lease under Section
14.3.
14.3 Landlord's Option To Terminate or Repair. Landlord may elect
either to terminate this Lease or to effectuate repairs if:
(a) The Repair Period Notice estimates that the period for
repairing the Casualty exceeds one-hundred and eighty (180) days from the date
of the Casualty;
(b) The estimated repair cost of the Premises or the
Building, even though covered by insurance, exceeds fifty percent (50%) of the
full replacement cost; or
(c) Insurance proceeds actually received by Landlord are
insufficient to pay for at least 95% of the total cost of restoration.
Landlord's election shall be stated in the Repair Period Notice.
Despite any other provision of this Article 14, Landlord may not elect to
terminate this Lease under this Article unless Landlord elects also to
terminate the Leases of all similarly situated Tenants, provided that Landlord
has the right under each applicable lease to terminate based on the extent of
the Casualty.
14.4 Tenant's Option To Terminate. If the Repair Period Notice
provided by Landlord indicates that the anticipated period for repairing the
Casualty exceeds two-hundred and seventy (270) days, Tenant may elect to
terminate this Lease by providing written notice ("Tenant's Termination
Notice") to Landlord within thirty (30) days after receiving the Repair Period
Notice. If Tenant does not elect to terminate within this thirty-day (30-day)
period, Tenant shall be considered to have waived the option to terminate.
14.5 Rent Abatement Due to Casualty. Landlord and Tenant agree
that Tenant's Rent shall be fully abated during the period beginning on the
later of (a) the date of the Casualty or (b) the date on which Tenant ceases to
occupy the Premises and ending on the date of substantial completion of
Landlord's restoration obligations as provided in this Article 14 ("Abatement
Period"). If, however, Tenant is able to occupy or does occupy a portion of the
Premises, Rent shall be abated during the Abatement Period only for the portion
of the Premises not able to be occupied by Tenant. Subject to Section 14.4, the
Rent abatement provided in this Section 14.5 is Tenant's sole remedy due to the
occurrence of the Casualty. Landlord shall not be liable to Tenant or any other
person or entity for any direct, indirect, or consequential damage (including
lost profits of Tenant or loss of or interference with Tenant's business),
whether or not caused by the negligence of Landlord or Landlord's employees,
contractors, licensees, or invitees, due to, arising out of, or as a result of
the Casualty (including but not limited to the termination of the Lease in
connection with the Casualty). Tenant agrees to maintain business interruption
insurance in amounts and with coverage no less than that required by Section
13.7.2 to provide coverage regarding such matters.
14.6 Damage Near End of Term. Despite any other provision of this
Article 14, if the Premises is destroyed or damaged by a Casualty during the
last twelve (12) months of the Lease Term, Landlord and Tenant shall each have
the option to terminate
- 19 -
<PAGE> 24
this Lease by giving written notice to the other of the exercise of that option
within thirty (30) days after that damage or destruction. If Tenant is not then
in Default under this Lease, however, Tenant may negate Landlord's election to
terminate under this Section 14.6 by electing, within ten (10) days after
receipt of Landlord's termination notice, to exercise any unexercised option to
extend this Lease. If Tenant negates Landlord's election, this Lease shall
continue in effect unless Landlord has the right to, and elects to, terminate
this Lease under Section 14.3.
14.7 Effective Date of Termination; Rent Apportionment. If Landlord
or Tenant elects to terminate this Lease under this Article 14 in connection
with a Casualty, this termination shall be effective thirty (30) days after
delivery of notice of such election. Tenant shall pay Rent, properly
apportioned up to the date of the Casualty. After the effective date of the
termination, Landlord and Tenant shall be discharged of all future obligations
under this Lease, except for those provisions that, by their terms, survive the
expiration or earlier termination of the Lease.
14.8 Waiver of Statutory Provisions. The provisions of this Lease,
including those in this Article 14, constitute an express agreement between
Landlord and Tenant that applies in the event of any Casualty to the Premises,
Building, or Real Property. Tenant, therefore, fully waives the provisions of
any statute or regulation, including California Civil Code Sections 1932(2) and
1933(4), for any rights or obligations concerning a Casualty.
Article 15
CONDEMNATION
15.1 Definition of "Condemnation." As used in this Lease, the term
"Condemnation" means a permanent taking through (a) the exercise of any
government power (by legal proceedings or otherwise) by any public or
quasi-public authority or by any other party having the right of eminent domain
("Condemnor") or (b) a voluntary sale or transfer by Landlord to any Condemnor,
either under threat of exercise of eminent domain by a Condemnor or while legal
proceedings for condemnation are pending.
15.2 Effect on Rights and Obligations. If, during the Lease Term or
the period between the date of execution of this Lease and the date on which
the Lease Term begins, there is any Condemnation of all or part of the
Premises, Building, or Real Property on which the Premises and Building are
constructed, the rights and obligations of the parties shall be determined
under this Article 15, and Rent shall not be affected or abated except as
expressly provided in this Article. Landlord shall notify Tenant in writing of
any Condemnation within thirty (30) days after the later of (a) the filing of a
complaint by Condemnor or (b) the final agreement and determination by Landlord
and Condemnor of the extent of the taking ("Condemnation Notice").
15.3 Termination of Lease.
15.3.1. Definition of "Termination Date." The
"Termination Date" shall be the earliest of:
(a) The date on which Condemnor takes possession
of the property that is subject to the Condemnation; (b) the date on which
title to the property subject to the Condemnation is vested in Condemnor; (c)
if Landlord has elected to terminate, the date on which Landlord requires
possession of the property in connection with the Condemnation, as specified in
written notice delivered to Tenant no less than thirty (30) days before that
date; or (d) if Tenant has elected to terminate, thirty (30) days after
Landlord's receipt of written notice of termination from Tenant.
If both Landlord and Tenant have elected to terminate under
this Article 15, the Termination Date shall be the earliest of the dates
described in Sections (a)-(c).
15.3.2. Automatic Termination. If the Premises are
totally taken by Condemnation, this Lease shall terminate as of the Termination
Date, and the Award shall be allocated between Landlord and Tenant in
accordance with Section 15.5.
15.3.3. Landlord's Right To Terminate. Landlord shall
have the option to terminate this Lease if:
(a) Ten percent (10%) or more of the Rentable
Square Feet of the Building; (b) any portion of the Building or Real Property
reasonably necessary for Landlord to operate the Building is taken through
Condemnation, and Landlord also terminates the leases of all other similarly
situated tenants (as reasonably determined by Landlord) in the Building; or (c)
any other areas providing access to the Real Property are taken through
Condemnation, and Landlord also terminates the leases of all other similarly
situated tenants (as reasonably determined by Landlord) in the Building.
15.3.4. Tenant's Right To Terminate. Tenant shall have
the option to terminate this Lease by providing thirty (30) days' written
notice to Landlord if one or more of the following are taken through
Condemnation:
(a) Thirty percent (30%) or more of the Rentable
square feet of the Premises; or (b) any portion of the common area that
provides Tenant with its primary access to the Premises and that, if taken,
would materially impair Tenant's access to and business activities on the
Premises during normal Business Hours.
Tenant's notice must be given within thirty (30) days after
Tenant's receipt of the Condemnation Notice required by Section 15.2.
15.3.5. Tenant's Waiver. Tenant agrees that its rights to
terminate this Lease due to partial Condemnation are governed by this Article
15. Tenant waives all rights it may have under California Code of Civil
Procedure Section 1265.130, or otherwise, to terminate this Lease based on a
partial Condemnation.
15.3.6. Proration of Rent. If this Lease is terminated
under this Article 15, the termination shall be effective on the Termination
Date, and Landlord shall prorate Rent to that date. Tenant shall be obligated
to pay Rent for the period up
- 20 -
<PAGE> 25
to, but not including, the Termination Date as prorated by Landlord. Landlord
shall return to Tenant prepaid Rent allocable to any period on or after the
Termination Date.
15.4 Effect of Condemnation if Lease Is Not Terminated. If any part
of the Premises is taken by Condemnation and this Lease is not terminated:
(a) Rent shall be proportionately reduced based on the
rentable square footage of the Premises taken; (b) Landlord shall, at
Landlord's sole expense, accomplish all necessary restoration to the Premises
and the Building resulting from the Condemnation; and (c) Rent shall be abated
for the portion of the remaining Premises not usable by Tenant until Landlord
completes the restoration.
15.5 Allocation of Award.
15.5.1. Landlord's Right to Award. Except as provided in
Section 15.5.2 in connection with a Condemnation:
(a) Landlord shall be entitled to receive all
compensation and anything of value awarded, paid, or received in settlement or
otherwise ("Award"); and (b) Tenant irrevocably assigns and transfers to
Landlord all rights to and interests in the Award and fully releases and
relinquishes any claim to, right to make a claim on, or interest in the Award.
15.5.2. Tenant's Right to Compensation. Despite Section
15.5.1, Tenant shall have the right to make a separate claim in the
Condemnation proceeding for: (1) the taking of the unamortized or
undepreciated value of any Alteration owned and paid for by Tenant that Tenant
has the right to remove at the end of the Lease Term and that Tenant elects not
to remove; (2) reasonable removal and relocation costs for any leasehold
improvements that Tenant has the right to remove and elects to remove (if
Condemnor approves of the removal); (3) relocation costs under Government Code
Section 7262, the claim for which Tenant may pursue by separate action
independent of this Lease; and (4) the loss of good will.
15.6 Temporary Taking. If a temporary taking of part of the
Premises occurs through (a) the exercise of any government power (by legal
proceedings or otherwise) by Condemnor or (b) a voluntary sale or transfer by
Landlord to any Condemnor, either under threat of exercise of eminent domain by
a Condemnor or while legal proceedings for condemnation are pending, Rent shall
abate during the time of such taking in proportion to the portion of the
Premises taken. The entire Award relating to the temporary taking shall be and
remain the property of Landlord. Tenant irrevocably assigns and transfers to
Landlord all rights to and interest in the Award and fully releases and
relinquishes any claim to, right to make a claim on, and any other interest in
the Award.
Article 16
ASSIGNMENT AND SUBLEASING
16.1 Restricted Transfers.
16.1.1. Consent Required; Definition of "Transfer."
Except as otherwise provided in this Article 16, Tenant shall obtain Landlord's
written consent before entering into or permitting any Transfer. A "Transfer"
consists of any of the following, whether voluntary or involuntary, and whether
effected by death, operation of law, or otherwise:
(a) Any assignment, mortgage, pledge,
encumbrance, or other transfer of any interest in this Lease; (b) any sublease
or occupancy of any portion of the Premises by any persons other than Tenant
and its employees, invitees, guests, and agents; and (c) any of the changes
(e.g., a change of ownership or reorganization) included in the definition of
Transfer in Section 16.6.
Any person to whom any Transfer is made or sought to be made is a "Transferee."
16.1.2. Landlord's Remedies. If a Transfer fails to
comply with this Article 16, Landlord may, at its option, do either or both of
the following: (a) void the Transfer or (b) declare Tenant in Default under
Section 21.1. If Landlord declares Tenant in Default under Section 21.1, Tenant
has thirty (30) days in which to cure the Default after receiving written
notice of the Default from Landlord notwithstanding any contrary cure period
specified in Section 21.1.
16.2 Transfer Procedure.
16.2.1. Transfer Notice. Before entering into or
permitting any Transfer, Tenant shall provide in writing to Landlord a
"Transfer Notice" at least thirty (30) days before the proposed effective date
of the Transfer. The Transfer Notice shall include all of the following:
(a) Information regarding the proposed
Transferee, including the name, address, and ownership of Transferee; the
nature of Transferee's business; and, if the Transferee will be an assignee of
this Lease or a subtenant current financial statements of Transferee (certified
by an officer, a partner, or an owner of Transferee); and
(b) All the material terms of the proposed
Transfer, including the consideration payable by Transferee, the portion of the
Premises to be transferred ("Subject Space"), a general description of any
planned alterations or improvements to the Subject Space that Tenant knows of,
the proposed use of the Subject Space, the effective date of the Transfer, and
a copy of all documentation concerning the proposed Transfer to the extent then
available (with updates as soon as they are available).
- 21 -
<PAGE> 26
Within ten (10) Business Days of receipt of the Transfer
Notice, Landlord shall notify Tenant in writing if the Transfer Notice is
complete. If it is not, Landlord shall inform Tenant what additional
information is required to make the Transfer Notice complete. Within three (3)
Business Days of receipt of any additional information Landlord requests from
time to time, Landlord shall notify Tenant in writing if the Transfer Notice is
complete. If Landlord fails to respond within the required time, the Transfer
Notice shall be considered complete. Although Landlord may condition its
consent to a Transfer on Landlord's reasonable approval of the final Transfer
documentation, Landlord may not require such final documentation for completion
of the Transfer Notice.
16.2.2. Transfer Fee. Within thirty (30) days after
Landlord's written request, Tenant shall pay as Additional Rent any reasonable
legal fees that Landlord incurs in reviewing and processing the Transfer Notice
("Transfer Fee") as long as Tenant shall not be required to pay more than
$1,500 as a Transfer Fee in connection with any one Transfer;
16.2.3. Limits of Consent. If Landlord consents to any
Transfer, the following limits apply:
(a) Landlord does not agree to waive or modify
the terms and conditions of this Lease.
(b) Landlord does not consent to any further
Transfer by either Tenant or Transferee.
(c) Tenant remains liable under this Lease, and
any guarantor of the Lease remains liable
under the guaranty.
(d) Tenant may enter into that Transfer in
accordance with this Article 16 if:
(1) The Transfer occurs within six (6)
months after Landlord's consent; (2) the
Transfer is on substantially the same terms
as specified in the Transfer Notice; and (3)
Tenant delivers to Landlord, promptly after
execution, an original, executed copy of all
documentation pertaining to the Transfer in a
form reasonably acceptable to Landlord
(including Transferee's agreement to be
subject and subordinate to the Lease and to
assume Tenant's obligations under the Lease
that arise after the date of the Transfer to
the extent that they apply to the Subject
Space). Landlord shall respond promptly after
Tenant requests that Landlord approve the
form of the Transfer documentation.
(e) If the Transfer occurs after six (6) months
or the terms of the Transfer have materially changed from those in the Transfer
Notice, Tenant shall submit a new Transfer Notice under Section 16.2.1,
requesting Landlord's consent. A material change is one the terms of which
would have entitled Landlord to refuse to consent to the Transfer initially. A
change to the economic terms of the Transfer that makes it more favorable to
Transferee shall not, however, be considered a material change.
16.3 Landlord's Consent. Landlord may not unreasonably withhold
its consent to any proposed Transfer that complies with this Article 16.
16.3.1. Reasonable Grounds For Denying Consent. Reasonable
grounds for denying consent include but are not limited to the following: (a)
Transferee's character, reputation, business, or use is not consistent with the
character or quality of the Building or the uses of other tenants in the
Building; or (b) Transferee's financial condition is inadequate to support the
Lease obligations of Transferee under the Transfer documents, after taking into
account Tenant's continued financial liability under the Lease.
16.3.2. Unreasonable Grounds For Denying Consent.
Notwithstanding anything to the contrary in Section 16.3.1, Transferree's
financial condition shall not be a reasonable ground for denying consent if the
requested Transfer is as a result of a sale of Tenant or its parent company,
National Insurance Group, and the proposed Transferee is the purchasing entity;
and either (a) if the proposed transfer will take place during the period
covered by the Guaranty in Section 30.22, the Transferee has a net worth equal
to that of Tenant at the time of execution of this Lease and an entity with a
net worth equal to or greater than that of National Insurance Group at the time
of execution of this Lease guarantees the Transferee's obligations and
performance under the Lease in a form substantially similar to Exhibit F; or (b)
if the proposed Transfer will take place after the period covered by the
Guaranty in Section 30.22, the Transferee has a net worth of equal or greater
value to that of Tenant at the time of execution of this Lease. For purposes of
this Section 16.3.2, "net worth" shall be calculated according to Generally
Accepted Accounting Principles.
16.3.3. Landlord's Written Response. Within ten (10) days
after receiving the completed Transfer Notice, Landlord shall approve or
disapprove the proposed Transfer in writing.
16.4 Transfer Premium.
16.4.1. Transfer Premium Payment. As a reasonable condition
to Landlord's consent to any Transfer, Tenant shall pay to Landlord fifty
percent (50%) of any Transfer Premium, as defined in Section 16.4.2.
16.4.2. Definition of "Transfer Premium." "Transfer
Premium" means all Rent and other consideration actually received by Tenant from
Transferee (including key money and bonus money and any payment in excess of
fair market value for services rendered by Tenant to Transferee or assets,
fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee
in connection with the Transfer ("Transferee Rent")), after deducting:
(a) The Rent payable by Tenant under this Lease
(excluding the Transfer Premium) for the Subject Space ("Tenant Rent"); (b)
reasonable leasing commissions paid by Tenant; (c) other reasonable
out-of-pocket costs paid by Tenant (including attorney fees, advertising costs,
and expenses of readying the Subject Space for occupancy by Transferee); (d)
any consideration paid by Tenant to Transferee or any third party to induce
Transferee to consummate the Transfer; and (e) any losses Tenant has sustained
due to the Subject Space being vacate for a period of time before the transfer.
- 22 -
<PAGE> 27
16.4.3. Monthly Payment of Transfer Premium; Calculation.
Tenant shall pay the Transfer Premium on a monthly basis, together with its
payment of Additional Rent under Article 4. In calculating the Transfer
Premium, Tenant shall first deduct all the Transfer Costs from any Transferee
Rent received, provided that Transfer Costs referenced in clauses (b), (c) and
(d) above shall be amortized over the term of the Transfer.
16.4.4. Audit of Transfer Premium. Tenant shall allow
Landlord to review and audit Tenant's books and records for the purpose of
verifying Tenant's calculation of the Transfer Premium.
16.5 Effect of Transfer.
16.5.1. Right To Collect Rent. If this Lease is
assigned, Landlord may collect Rent directly from Transferee. If all or part of
the Premises is subleased and Tenant defaults, Landlord may collect Rent
directly from Transferee. Landlord may then apply the amount collected from
Transferee to Tenant's monetary obligations under this Lease. Collecting Rent
from a Transferee or applying that Rent to Tenant's monetary obligations does
not waive any provisions of this Article 16.
16.6 Transfers of Ownership Interests and Other Organizational
Changes.
16.6.1. Change of Ownership; Reorganization. For purposes
of this Article 16, "Transfer" also includes:
(a) If Tenant is a partnership or limited
liability company, the transfer, within a twelve-month (12-month) period, of
fifty percent (50%) or more of the partnership or membership interests; or the
dissolution of the partnership or limited liability company without its
immediate reconstitution.
(b) For so long as Tenant is a closely held
corporation (i.e., one whose stock is not publicly held and not traded through
an exchange or over the counter), the sale or other transfer, within a
twelve-month (12-month) period, of more than an aggregate of fifty percent
(50%) of the voting shares of Tenant (other than to immediate family members by
reason of gift or death) or the dissolution, merger, consolidation, or other
reorganization of Tenant. Notwithstanding anything to the contrary in this
Section 16.6.1, if Tenant is a closely held corporation, it shall not be a
Transfer if Tenant's stock becomes publicly held and traded.
16.6.2. Permitted Transfers. Despite any other provision
of this Lease, Landlord's consent is not required for any Transfer to an
Affiliate, as defined in Section 16.6.3, as long as the following conditions
are met:
(a) Landlord receives written notice of the
Transfer (as well as any documents or information reasonably requested by
Landlord regarding the Transfer or Transferee); and (b) Transferee assumes in
writing all of Tenant's obligations under this Lease subject to the Transfer.
16.6.3. Definition of "Affiliate." An "Affiliate" means
any entity that: (a) controls, is controlled by, or is under common control
with Tenant; (b) is the transferee of all or substantially all of Tenant's
assets or stock; or (c)results from the merger or consolidation of Tenant with
another entity . "Control" means the direct or indirect ownership of more than
fifty percent (50%) of the voting securities of an entity or possession of the
right to vote more than fifty percent (50%) of the voting interest in the
ordinary direction of the entity's affairs.
Article 17
SURRENDER OF PREMISES
17.1 Surrender of Premises. No act of either party or its
authorized representatives shall constitute acceptance of a surrender of the
Premises unless that intent is specifically acknowledged in a writing signed by
both parties. At the option of Landlord, a surrender and termination of this
Lease shall operate as an assignment to Landlord of all subleases or
subtenancies. Landlord shall exercise this option by giving notice of that
assignment to all subtenants within ten (10) days after the effective date of
the surrender and termination.
17.2 Removal of Tenant Property by Tenant. Upon expiration or
termination of the Lease Term, Tenant shall quit the Premises and surrender
possession to Landlord in accordance with this Section 17.2. Tenant shall leave
the Premises in as good order and condition as when Tenant took possession of
the Premises and as thereafter improved by Landlord or Tenant, except for
reasonable wear and tear, obsolescence, and repairs that are specifically made
the responsibility of Landlord and except as provided in Article 15.
Tenant shall, without expense to Landlord, remove or cause to be
removed from the Premises:
(a) All debris and rubbish; (b) any items of furniture,
equipment, freestanding cabinet work, and other articles of personal property
owned by Tenant or installed or placed by Tenant at its expense in the
Premises; and (c) any similar articles of any other persons claiming under
Tenant that Landlord requires to be removed.
Tenant shall, at Tenant's sole option and expense, also remove from the
Premises all fixtures and trade fixtures installed on the Premises by Tenant at
its expense. Tenant shall, at Tenant's expense, repair all damage to the
Premises and the Building resulting from that removal.
- 23 -
<PAGE> 28
Article 18
HOLDING OVER
18.1 Holdover Rent. If Tenant remains in possession of the
Premises after expiration or earlier termination of this Lease without
Landlord's consent, Tenant's continued possession shall be on the basis of a
tenancy at sufferance and Tenant shall pay as rent during the first sixty (60)
days of the holdover period an amount equal to one-hundred and twenty-five
percent (125%) of the Base Rent and Additional Rent payable under this Lease
for the last full month before the date of expiration or termination. For any
holdover period in excess of sixty (60) days, Tenant shall pay an amount equal
to one-hundred and fifty percent (150%) of the Base Rent and Additional Rent
payable under this Lease for the last full month before the date of expiration
or termination.
Article 19
ESTOPPEL CERTIFICATES
19.1 Obligation To Provide Estoppel Certificates. Within ten (10)
Business Days after receipt of a written request by Landlord, Tenant shall
execute and deliver to Landlord an estoppel certificate. The certificate shall
contain any information reasonably requested by and/or party or by any existing
or prospective lender, mortgagee, or purchaser.
19.2 Failure To Deliver. The failure of Tenant to execute or
deliver an estoppel certificate in the required time period shall constitute an
acknowledgment by Tenant that the statements requested in the estoppel
certificate are true and correct, without exception. The failure by Tenant to
execute or deliver an estoppel certificate or other document or instrument as
required in this Article 19, for ten (10) Business Days after notice of such
failure from the party requesting the certificate, document, or instrument,
shall constitute a material breach of this Lease.
Article 20
SUBORDINATION, NONDISTURBANCE, AND ATTORNMENT
20.1 Automatic Subordination; Nondisturbance Agreement To Include
Specified Terms. This Lease is subject and subordinate to: (a) the lien of any
mortgages, deeds of trust, or other encumbrances ("Encumbrances") of the Real
Property; (b) all present and future ground or underlying leases ("Underlying
Leases") of the Real Property now or hereafter in force against the Real
Property; (c) all renewals, extensions, modifications, consolidations, and
replacements of the items described in Sections (a)-(b); and (d) all advances
made or hereafter to be made on the security of the Encumbrances.
Despite any other provision of this Article 20, any Encumbrance holder or
lessor may elect that this Lease shall be senior to and have priority over that
Encumbrance or Underlying Lease whether this Lease is dated before or after the
date of the Encumbrance or Underlying Lease. No such subordination shall be
effective unless and until Landlord obtains from the holder of the Encumbrance
placed against the premises a commercially-reasonable nondisturbance agreement
in recordable form, providing that in the event of any foreclosure, sale under
a power of sale, ground or master lease termination, or transfer in lieu of any
of the foregoing, or the exercise of any other remedy under any such
Encumbrance, Tenant's use, possession, and enjoyment of the Premises shall not
be disturbed and this Lease shall continue in full force and effect as long as
Tenant is not in Default.
20.2 Subordination Agreement. If Tenant has received the
nondisturbance agreement referred to in Section 20.1, Tenant shall, within ten
(10) Business Days after Landlord's request, execute any further instruments or
assurances in recordable form that Landlord reasonably considers necessary to
evidence or confirm the subordination or superiority of this Lease to any such
Encumbrances or Underlying Leases. Tenant's failure to execute and deliver
such instrument(s) shall constitute a Default under this Lease only if Landlord
has first delivered the nondisturbance agreement to Tenant.
20.3 Attornment. Tenant covenants and agrees to attorn to the
transferee of Landlord's interest in the Real Property by foreclosure, deed in
lieu of foreclosure, exercise of any remedy provided in any Encumbrance or
Underlying Lease, or operation of law (without any deductions or setoffs)
except as expressly provided in this Lease or in any nondisturbance agreement,
if requested to do so by the transferee, and to recognize the transferee as the
lessor under this Lease. The transferee shall not be liable for:
(a) Any acts, omissions, or Defaults of Landlord that
occurred before the sale or conveyance; or
(b) The return of any security deposit except for deposits
actually paid to the transferee and except as expressly provided in this Lease
or in any nondisturbance agreement.
20.4 Notice of Default; Right To Cure. Tenant agrees to give
written notice of any default by Landlord to the holder of any prior
Encumbrance or Underlying Lease. Tenant agrees that, before it exercises any
rights or remedies under the Lease, the lienholder or lessor shall have the
right, but not the obligation, to cure the default (either by itself or by a
receiver for the Real Property) within the same time, if any, given to Landlord
to cure the default, plus an additional thirty (30) days, except that (i) only
ten (10) days shall be permitted in the case of a default in the payment of
money from Landlord to Tenant; and (ii) in the event of an emergency, the
lienholder or lessor shall be required to commence a cure as soon as is
reasonably possible, and in the event the lender or lienholder fails to do so,
Tenant shall have the right to cure to avoid the risk of in jury to persons,
significant damage to property, or material interference with Tenant's
operation of its business. Tenant agrees that this cure period shall be
extended by the time necessary for the lienholder to begin foreclosure
proceedings and to obtain possession of the Building or Real Property, as
applicable, as long as the lienholder:
(a) Notifies Tenant, within twenty (20) days after receipt of
Tenant's notice, of the lienholder's intention to effect this remedy; and
(b) Institutes immediate steps to effect this remedy or
institutes immediate legal proceedings to appoint a receiver for the Real
Property or to foreclose on or recover possession of the Real Property within
the thirty-day (30-day) or
- 24 -
<PAGE> 29
ten-day (10-day) period and thereafter prosecutes the remedy or legal
proceedings to completion with due diligence and continuity.
Article 21
DEFAULTS AND REMEDIES
21.1 Tenant's Default. The occurrence of any of the following shall
constitute a Default by Tenant under this Lease ("Default"):
(a) Tenant's failure to pay when due any Rent required to be
paid under this Lease if the failure continues for five (5) Business Days after
written notice of the failure from Landlord to Tenant;
(b) Tenant's failure to provide any instrument or assurance
as required by Section 20.2 or estoppel certificate as required by Section 19.1
if the failure continues for five (5) Business Days after written notice of the
failure from Landlord to Tenant; or
(c) Tenant's failure to perform any other obligation under
this Lease if the failure continues for thirty (30) days after written notice
of the failure from Landlord to Tenant. If the required cure of the noticed
Default cannot be completed within thirty (30) days, Tenant's failure to
perform shall constitute a Default under the Lease unless Tenant undertakes to
cure the failure within thirty (30) days and diligently and continuously
attempts to complete the cure as soon as reasonably possible.
21.2 Replacement of Statutory Notice Requirements. When this Lease
requires service of a notice, that notice shall replace rather than supplement
any equivalent or similar statutory notice, including any notices required by
Code of Civil Procedure Section 1161 or any similar or successor statute. When
a statute requires service of a notice in a particular manner, service of that
notice (or a similar notice required by this Lease) in the manner required by
Section 30.10 shall replace and satisfy the statutory service-of-notice
procedures, including those required by Code of Civil Procedure Section 1162 or
any similar or successor statute.
21.3 Landlord's Remedies on Tenant's Default. On the occurrence of
a Default by Tenant, Landlord shall have the right to pursue any one or more of
the following remedies in addition to any other remedies now or later available
to Landlord at law or in equity. These remedies are not exclusive but
cumulative.
21.3.1. Termination of Lease. Landlord may terminate this
Lease and recover possession of the Premises. Once Landlord has terminated this
Lease, Tenant shall immediately surrender the Premises to Landlord. On
termination of this Lease, Landlord may recover from Tenant all of the
following:
(a) The worth at the time of the award of any
unpaid Rent that had been earned at the time of the termination, to be computed
by allowing interest at the rate set forth in Article 23 but in no case greater
than the maximum amount of interest permitted by law;
(b) The worth at the time of the award of the
amount by which the unpaid Rent that would have been earned between the time of
the termination and the time of the award exceeds the amount of unpaid Rent
that Tenant proves could reasonably have been avoided, to be computed by
allowing interest at the rate set forth in Section 23.2 but in no case greater
than the maximum amount of interest permitted by law;
(c) The worth at the time of the award of the
amount by which the unpaid Rent for the balance of the Lease Term after the
time of the award exceeds the amount of unpaid Rent that Tenant proves could
reasonably have been avoided, to be computed by discounting that amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of the
award plus one percent (1%);
(d) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to
perform obligations under this Lease, including brokerage commissions and
advertising expenses, expenses of remodeling the Premises for a new tenant
(whether for the same or a different use), and any special concessions made to
obtain a new tenant; and
(e) Any other amounts, in addition to or in lieu
of those listed above, that may be permitted by applicable law.
21.3.2. Continuation of Lease in Effect. Landlord shall
have the remedy described in Civil Code Section 1951.4, which provides that,
when a tenant has the right to sublet or assign (subject only to reasonable
limitations), the landlord may continue the lease in effect after the tenant's
breach and abandonment and recover Rent as it becomes due. Accordingly, if
Landlord does not elect to terminate this Lease on account of any Default by
Tenant, Landlord may enforce all of Landlord's rights and remedies under this
Lease, including the right to recover all Rent as it becomes due.
21.3.3. Tenant's Subleases. If Landlord elects to
terminate this Lease on account of any Default by Tenant, Landlord may:
(a) Terminate any sublease, license, concession,
or other consensual arrangement for possession entered into by Tenant and
affecting the Premises.
(b) Choose to succeed to Tenant's interest in
such an arrangement. If Landlord elects to succeed to Tenant's interest in such
an arrangement, Tenant shall, as of the date of notice by Landlord of that
election, have no further right to, or interest in, the Rent or other
consideration receivable under that arrangement.
- 25 -
<PAGE> 30
21.4 Form of Payment After Default. If, on three (3) occasions
within a twelve-month (12-month) period, Tenant fails to pay any amount due
under this Lease within five (5) Business Days after the due date or if Tenant
draws a check on an account with insufficient funds, Landlord shall have the
right to require that any subsequent amounts paid by Tenant to Landlord under
this Lease (to cure a Default or otherwise) be paid in the form of cash, money
order, cashier's or certified check drawn on an institution acceptable to
Landlord, or other form approved by Landlord despite any prior practice of
accepting payments in a different form.
21.5 Efforts To Relet. For purposes of this Article 21, Tenant's
right to possession shall not be considered to have been terminated by
Landlord's efforts to relet the Premises, by Landlord's acts of maintenance or
preservation with respect to the Premises, or by appointment of a receiver to
protect Landlord's interests under this Lease. This list is merely illustrative
of acts that may be performed by Landlord without terminating Tenant's right to
possession.
21.6 Acceptance of Rent Without Waiving Rights. Under Article 24,
Landlord may accept Tenant's payments without waiving any rights under this
Lease, including rights under a previously served notice of Default. If
Landlord accepts partial payments after serving a notice of Default, Landlord
may nevertheless commence and pursue an action to enforce rights and remedies
under the previously served notice of Default, unless the default is entirely
cured, without giving Tenant any further notice or demand.
21.7 Tenant's Remedies on Landlord's Default.
21.7.1. Landlord's Default. Except as provided in
Section 10.2, Landlord's failure to perform any of its obligations under this
Lease shall constitute a default by Landlord under the Lease if the failure
continues for thirty (30) days after written notice of the failure from Tenant
to Landlord. If the required performance cannot be completed within thirty (30)
days, Landlord's failure to perform shall constitute not a default under the
Lease unless Landlord fails to undertake to cure the failure within thirty (30)
days and diligently and continuously attempts to complete this cure as soon as
reasonably possible, except as provided in Section 10.2.
21.7.2. Rent Abatement. If Tenant is unable to use, and
does not use, all or part of the Premises ("Affected Area") as a result of an
Abatement Event, as defined in Section 21.7.2.1, and if this Abatement Event
continues for either (i) three (3) consecutive Business Days, where the cure
for the Abatement Event is reasonably within the control of Landlord, or (ii)
ten (10) Business Days, where the cure for the Abatement Event is not
reasonably within the control of Landlord, after Landlord's receipt of notice
from Tenant of the Abatement Event ("Eligibility Period"), the Rent payable
under this Lease shall be abated or reduced after the expiration of the
Eligibility Period for such time that Tenant continues to be prevented from
using, and does not use, the Affected Area in the proportion that the Rentable
Area of the Affected Area bears to the total Rentable Area of the Premises.
Notwithstanding anything to the contrary in this Section 21.7.2, if an
Abatement Event occurs more than once in a one (1) year period, then the
Eligibility Period after which Rent is abated shall be reduced to one (1)
Business Day, where the cure for the Abatement Event is reasonably within the
control of Landlord.
21.7.2.1 Abatement Event. An "Abatement
Event" is:
(a) Landlord's performance of or
failure to perform any repair, maintenance, or alteration that substantially
interferes with Tenant's use of the Premises or which concerns an emergency
involving risk of life or injury to persons or significant damage to property;
(b) Any failure of or interruption in
utilities or services required to be supplied by Landlord to the Premises; or
(c) Any failure of Landlord to provide
Tenant with access to the Premises.
Article 22
LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS
22.1 Landlord's Right To Perform Tenant's Obligations. All
obligations to be performed by Tenant under this Lease shall be performed by
Tenant at Tenant's expense and without any reduction of Rent. If Tenant is in
Default on any obligation, Landlord may, after notice to Tenant as required by
Section 21.2, perform the obligation on Tenant's behalf, without waiving
Landlord's rights for Tenant's failure to perform any obligations under this
Lease and without releasing Tenant from such obligations.
22.2 Reimbursement by Tenant. Within fifteen (15) days after
receiving a statement from Landlord, Tenant shall pay to Landlord the amount of
expense reasonably incurred by Landlord, under Section 22.1, in performing
Tenant's obligation as Additional Rent.
Article 23
LATE PAYMENTS
23.1 Late Charges. If any Rent payment is not received by Landlord
or Landlord's designee within ten (10) days after that Rent is due, Tenant
shall pay to Landlord a late charge of three percent (3%) of such overdue
amount liquidated damages, in lieu of actual damages (other than interest under
Section 23.2 and attorney fees and costs under Section 26.1). The parties agree
that this late charge represents a reasonable estimate of the expenses that
Landlord will incur because of any late payment of Rent (other than interest
and attorney fees and costs). Tenant shall pay the late charge as Additional
Rent with the next installment of Rent.
- 26 -
<PAGE> 31
23.2 Interest. If any Rent payment is not received by Landlord or
Landlord's designee within ten (10) days after that Rent is due, Tenant shall
pay to Landlord annual interest on the past-due amount, from the date due until
paid, at the Prime Rate published by the Wall Street Journal (or if such rate
is no longer published such substitute rate reasonable selected by Landlord
plus two percent (2%) rate per year ("Lease Rate").
Article 24
NONWAIVER
24.1 Nonwaiver. No waiver of any provision of this Lease shall be
implied by any failure of either party to enforce any remedy for the violation
of that provision, even if that violation continues or is repeated. Any waiver
by a party of any provision of this Lease must be in writing. Such written
waiver shall affect only the provision specified and only for the time and in
the manner stated in the writing.
24.2 Acceptance and Application of Payment; Not Accord and
Satisfaction. No receipt by either party of a lesser payment than the Rent
required under this Lease shall be considered to be other than on account of
the earliest amount due, and no endorsement or statement on any check or letter
accompanying a payment or check shall be considered an accord and satisfaction.
Each party may accept checks or payments without prejudice to its right to
recover all amounts due and pursue all other remedies provided for in this
Lease. Either party's receipt of monies from the other party after giving
notice to the other party terminating this Lease in no way reinstates,
continues, or extends the Lease Term or affects that Termination Notice. After
the service of notice terminating this Lease, the beginning of an action, or
the entry of final judgment in any action, either party may receive monies from
the other party. The payment and receipt of the payment shall not waive or
affect such prior notice, action, or judgment.
Article 25
DISPUTE RESOLUTION
25.1 Waiver of Right to Jury Trial. Landlord and Tenant waive
their respective rights to trial by jury of any contract or tort claim,
counterclaim, cross-complaint, or cause of action in any action, proceeding, or
hearing brought by either party against the other on any matter arising out of
or in any way connected with this Lease, the relationship of Landlord and
Tenant, or Tenant's use or occupancy of the Premises, including any claim of
injury or damage or the enforcement of any remedy under any current or future
law, statute, regulation, code, or ordinance.
Landlord's initials Tenant's initials
------- -------
25.2 Resolving Disagreement Over Fair Market Rental Value. If
Tenant timely and effectively objects to Landlord's determination of Fair
Market Rental Value under Section 2.5.2, the disagreement shall be resolved
under this Section 25.2.
25.2.1. Negotiated Agreement. Landlord and Tenant shall
diligently attempt in good faith to agree on the Fair Market Rental Value on or
before the tenth (10th) day after Tenant's objection to the Fair Market Rental
Value ("Outside Agreement Date").
25.2.2. Parties' Separate Determinations. If Landlord and
Tenant fail to reach agreement on or before the Outside Agreement Date,
Landlord and Tenant shall each make a separate determination of the Fair Market
Rental Value and notify the other party of this determination within five (5)
days after the Outside Agreement Date.
25.2.2.1 Two Determinations. If each
party makes a timely determination of the Fair Market Rental Value, those
determinations shall be submitted to arbitration in accordance with Section
25.2.3.
25.2.2.2 One Determination. If Landlord
or Tenant fails to make a determination of the Fair Market Rental Value within
the five-day (5-day) period, that failure shall be conclusively considered to
be that party's approval of the Fair Market Rental Value submitted within the
five-day (5-day) period by the other party.
25.2.3. Arbitration. If both parties make timely
individual determinations of the Fair Market Rental Value under Section 25.2.2,
the Fair Market Rental Value shall be determined by arbitration under this
Section.
25.2.3.1 Scope of Arbitration. The
determination of the arbitrator(s) shall be limited to the sole issue of
whether Landlord's or Tenant's submitted Fair Market Rental Value is the
closest to the actual Fair Market Rental Value as determined by the
arbitrator(s), taking into account the requirements of Section 2.5.2.
25.2.3.2 Qualifications of Arbitrator(s).
The arbitrator(s) shall each be a licensed real estate broker who has been
active in the leasing or appraising of commercial office properties in the
Concord/Walnut Creek area over the ten-year (10-year) period ending on the date
of their appointment as arbitrator(s).
25.2.3.3 Parties' Appointment of
Arbitrators. Within fifteen (15) days after the Outside Agreement Date,
Landlord and Tenant shall each appoint one arbitrator and notify the other
party of the arbitrator's name and business address.
25.2.3.4 Appointment of Third Arbitrator.
If each party timely appoints an arbitrator, the two (2) arbitrators shall,
within ten (10) days after the appointment of the second arbitrator, agree on
and appoint a third arbitrator (who shall be qualified under the same criteria
set forth above for qualification of the initial two (2) arbitrators) and
provide notice to Landlord and Tenant of the arbitrator's name and business
address.
- 27 -
<PAGE> 32
25.2.3.5 Arbitrators' Decision. Fair
Market Rental Value shall be determined within thirty (30) days of the
appointment of the third arbitrator and the third arbitrator shall notify
Landlord and Tenant hereof immediately. The arbitrators shall have the right
to consult experts and competent authorities for factual information or
evidence pertaining to a determination of Fair Market Rental Value, but any
such consultation shall be made in the presence of both parties, with full
right on their parts to cross-examine. Each party-appointed arbitrator shall
state in writing his or her determination of Fair Market Rental Value,
supported by the reasons therefor, and shall make counterpart copies for each
of the other arbitrators. The arbitrators shall arrange for simultaneous
exchange of such proposed resolutions and the three appraisals shall be added
together and their total divided by three; the resulting quotient shall be the
Fair Market Rental Value. 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 appraisal(s) exceeding such ten percent (10%) limit shall
be disregarded. If only one appraisal is disregarded, the remaining two
appraisals shall be added together and their total divided by two; the
resulting quotient shall be the Fair Market Rental Value. If both the low
appraisal and the high appraisal are disregarded as stated in this Section, the
middle appraisal shall be the Fair Market Rental Value.
25.2.3.6 If Only One Arbitrator Is
Appointed. If either Landlord or Tenant fails to appoint an arbitrator within
fifteen (15) days after the Outside Agreement Date, the arbitrator timely
appointed by one of them shall reach a decision and notify Landlord and Tenant
of that decision within thirty (30) days after the arbitrator's appointment.
The arbitrator's decision shall be binding on Landlord and Tenant.
25.2.3.7 If Only Two Arbitrators Are
Appointed. If each party appoints an arbitrator in a timely manner, but the
two (2) arbitrators fail to agree on and appoint a third arbitrator within the
required period, the arbitrators shall be dismissed without delay and the issue
of Fair Market Rental Value shall be submitted to binding arbitration under the
Commercial Real Estate Arbitration rules of the American Arbitration
Association ("AAA"), subject to the provisions of this Section 25.3.
25.2.3.8 If No Arbitrator Is Appointed.
If Landlord and Tenant each fail to appoint an arbitrator in a timely manner,
the matter to be decided shall be submitted without delay to binding
arbitration under Commercial Real Estate Arbitration rules of AAA, subject to
the provisions of this Section 25.3.
25.2.3.9 Cost of Arbitration. The cost of
the arbitration shall be paid by the losing party.
Article 26
ATTORNEY FEES AND COSTS
26.1 Attorney Fees and Costs. If either party undertakes litigation
against the other party arising out of or in connection with this Lease, the
prevailing party shall be entitled to recover from the other party reasonable
attorney fees and court costs incurred. The prevailing party shall be
determined under Civil Code Section 1717(b)(1) or any successor statute.
Article 27
LANDLORD'S ACCESS TO PREMISES
27.1 Landlord's Access to Premises. Landlord and its agents may, at
reasonable times and on reasonable oral or written notice to Tenant, enter the
Premises to:
(a) Inspect the Premises; (b) show the Premises to
prospective purchasers or mortgagees or to ground lessors or underlying
lessors; (c) show the Premises, during the final year of the Lease Term, to
prospective tenants; (d) serve, post, and keep posted notices; (e) repair,
alter, or improve the Premises or Building that Landlord deems necessary or
desirable; (f) make necessary repairs to the Building structure or systems; (g)
perform services required or permitted of Landlord by law or by this Lease; (h)
perform any covenants of Tenant that Tenant fails to perform, in accordance
with Article 22; or (i) such other matters as Landlord reasonably deems
necessary or desirable.
27.2 Restrictions on Entry; Tenant's Waiver. To the extent
reasonably practicable, Landlord shall exercise its rights under this Article
27 at such times and in such a manner as to reasonably minimize the impact on
Tenant's business in and occupancy of the Premises. Except in an emergency or
when accompanied by an authorized representative of Tenant, Landlord shall not
enter Tenant's vaults or the special security areas designated in writing by
Tenant.
Landlord may enter the Premises under this Article 27 without the
abatement of Rent, subject to Section 21.7, and may take reasonable steps to
accomplish the stated purposes. Tenant waives any claims for damages caused by
Landlord's entry, in accordance with this Article 27, including damage claims
for (a) injuries; (b) inconvenience to or interference with Tenant's business;
(c) lost profits; and (d) loss of occupancy or quiet enjoyment of the Premises,
except to the extent any of the foregoing are caused by the negligence or
willful misconduct of Landlord or any of Landlord's agents.
27.3 Method of Entry. Landlord shall at all times have a key or,
if applicable, a card key with which to unlock all the doors in the Premises,
excluding Tenant's vaults, safes, and special security areas designated in
writing by notice to Landlord. In an emergency situation, Landlord shall have
the right to use any means that Landlord considers proper to open the doors in
and to the Premises. Any such entry into the Premises by Landlord shall not be
considered a forcible or unlawful entry into, or a detainer of, the Premises or
an actual or constructive eviction of Tenant from any portion of the Premises.
27.4 Emergency Entry. Despite any other provision of this Article
27, Landlord and Landlord's agents may enter the Premises without any advance
notice when necessary to address emergency situations. For purposes of this
Article, an emergency situation is one that poses a threat of imminent bodily
harm or property damage. If Landlord makes an emergency entry onto the Premises
when no authorized representative of Tenant is present, Landlord shall provide
telephone notice to Tenant as soon as
- 28 -
<PAGE> 33
reasonably possible within twenty-four (24) hours after that entry and shall
take reasonable steps to secure the Premises until a representative of Tenant
arrives at the Premises.
Article 28
SIGNS
28.1 Building Name; Landlord's Signage Rights. Subject to Tenant's
signage rights under this Article 28, Landlord may at any time change the name
of the Building and install, affix, and maintain all signs on the Real Property
as Landlord may, in Landlord's sole discretion, desire. Tenant shall not have
or acquire any property right or interest in the name of the Building. Tenant
may use the name of the Real Property.
28.2 Tenant's Signage Rights.
28.2.1. Tenant's Monument Sign. Tenant shall have the
non-exclusive right to construct a monument sign located on the Real Property
and fronting on Systron Drive to display Tenant's trade name and direct
visitor's to Tenant's driveway ("Monument Sign"). Tenant's right to maintain
its name on the Monument Sign shall be subject to the following requirements:
(a) All expenses in connection with the
construction, installation, and maintenance of Tenant's sign shall be paid by
Tenant.
(b) The design, size, location, materials,
colors, and lighting of the Monument Sign shall be approved by Landlord in
Landlord's reasonable discretion.
(c) Tenant must obtain all applicable permits
and authorizations by government authorities before beginning to install
Tenant's name on the Monument Sign.
(d) Tenant shall maintain repair and insure the
Monument Sign at Tenant's sole cost and expense.
28.2.2. Nontransferability. Tenant's signage rights
under this Section 28.2.2. may not be assigned to any assignee of this Lease or
to any subtenant of Tenant.
28.2.3. Removal, Repair, and Restoration. On termination
or expiration of the Lease Term or on expiration of Tenant's sign rights under
this Section 28, Landlord shall have the right to permanently remove the
Monument Sign or permanently remove Tenant's name (including its logo) from the
Monument Sign, repair any damage to the Monument Sign resulting from the
removal of Tenant's name, and restore the land on which the Monument Sign was
located to the condition that existed before the installation of the Monument
Sign. Tenant shall pay to Landlord, within thirty (30) days after demand, all
expenses incurred in connection with that removal, repair, and restoration.
28.2.4. Prohibited Signs and Other Items. Tenant may not
display any signs on the exterior or roof of the Building or in the Common
Areas of the Building or the Real Property. Tenant may not install or display
any signs, window coverings, blinds (even if located behind the
Landlord-approved window coverings for the Building), or other items visible
from the exterior of the Premises without Landlord's prior written approval,
which Landlord may, in Landlord's sole discretion, grant or withhold. Any
signs, notices, logos, pictures, names, or advertisements that are installed by
or for Tenant without Landlord's approval may be removed without notice by
Landlord at Tenant's expense.
28.2.5. Directory. Landlord shall, at Landlord's sole
expense, provide and maintain throughout the Lease Term a directory on the Real
Property exclusively for the display of the names and suite numbers of tenants
on the Real Property. Tenant is entitled to display its name and Premises
address in the directory without additional expense to Tenant.
Article 29
TENANT PARKING
29.1 Number of Parking Spaces. Tenant shall be entitled to use
throughout the Lease Term the number of unreserved parking spaces for use in
common with other tenants of the Real Property in the Common Area up to the
maximum number set forth in Summary Section 12.
29.2 Changes in Location, Layout, and Service. Landlord
specifically reserves the right to grant reserved spaces, change the location,
size, configuration, design, layout, and all other aspects of the parking
facility. Landlord may close off or restrict access to the parking facility
from time to time to facilitate construction, alteration, or improvements,
without incurring any liability to Tenant and without any abatement of Rent
under this Lease. Landlord shall have no obligation to police or patrol the
parking area.
Article 30
MISCELLANEOUS
30.1 Captions. The captions of articles and Sections and the table
of contents of this Lease are for convenience only and have no effect on the
interpretation of the provisions of this Lease.
30.2 Word Usage. Unless the context clearly requires otherwise:
- 29 -
<PAGE> 34
(a) The plural and singular numbers shall each be considered
to include the other; (b) the masculine, feminine, and neuter genders shall
each be considered to include the others; (c) "shall," "will," "must,"
"agrees," and "covenants" are each mandatory; (d) "may" is permissive; (e) "or"
is not exclusive; and (f) "includes" and "including" are not limiting.
30.3 Counting Days. Days shall be counted by excluding the first
day and including the last day. For purposes of this Agreement, "Business Day"
means any day other than Saturday, Sunday or a holiday observed by national or
federally chartered banks. If the last day is a Saturday, Sunday, or legal
holiday as described in Government Code Sections 6700-6701, it shall be
excluded. Any act required by this Lease to be performed by a certain day shall
be timely performed if completed before 5 p.m. local time on that date. If the
day for performance of any obligation under this Lease is a Saturday, Sunday,
or legal holiday, the time for performance of that obligation shall be extended
to 5 p.m. local time on the first following date that is not a Saturday,
Sunday, or legal holiday.
30.4 Entire Agreement; Amendments. This Lease and all exhibits
referred to in this Lease constitute the final, complete, and exclusive
statement of the terms of the agreement between Landlord and Tenant pertaining
to Tenant's lease of space in the Real Property and supersedes all prior and
contemporaneous understandings or agreements of the parties. Neither party has
been induced to enter into this Lease by, and neither party is relying on, any
representation or warranty outside those expressly set forth in this Lease.
This Lease may be amended only by an agreement in writing signed by Landlord
and Tenant.
30.5 Exhibits. The Exhibits if applicable, attached to this Lease
are a part of this Lease and incorporated into this Lease by reference.
30.6 Partial Invalidity. If a court or arbitrator of competent
jurisdiction holds any Lease clause to be invalid or unenforceable in whole or
in part for any reason, the validity and enforceability of the remaining
clauses, or portions of them, shall not be affected.
30.7 Binding Effect. Subject to Article 16, this Lease shall bind
and benefit the parties to this Lease and their legal representatives and
successors in interest.
30.8 Independent Covenants. This Lease shall be construed as
though its covenants between Landlord and Tenant are independent and not
dependent.
30.9 Governing Law. This Lease shall be construed and enforced in
accordance with the laws of the State of California.
30.10 Notices. All notices (including requests, demands, approvals,
or other communications) under this Lease shall be in writing.
30.10.1. Method of Delivery. Notice shall be
sufficiently given for all purposes as follows:
(a) When personally delivered to the
recipient, notice is effective on delivery.
(b) When mailed first class to the last
address of the recipient known to the party giving notice, notice is effective
on delivery.
(c) When mailed by certified mail with
return receipt requested, notice is effective on receipt if delivery is
confirmed by a return receipt.
(d) When delivered by overnight delivery
Federal Express/Airborne/United Parcel Service/DHL WorldWide Express with
charges prepaid or charged to the sender's account, notice is effective on
delivery if delivery is confirmed by the delivery service.
(e) When sent by telex or fax to the last
telex or fax number of the recipient known to the party giving notice, notice
is effective on receipt as long as (1) a duplicate copy of the notice is
promptly given by first-class or certified mail or by overnight delivery or (2)
the receiving party delivers a written confirmation of receipt. Any notice
given by telex or fax shall be considered to have been received on the next
Business Day if it is received after 5 p.m. (recipient's time) or on a
nonbusiness day.
30.10.2. Refused, Unclaimed, or Undeliverable Notices.
Any correctly addressed notice that is refused, unclaimed, or undeliverable
because of an act or omission of the party to be notified shall be considered
to be effective as of the first date that the notice was refused, unclaimed, or
considered undeliverable by the postal authorities, messenger, or overnight
delivery service.
30.10.3. Addresses. Addresses for purposes of giving
notice are set forth in Summary Section 13. Either party may change its address
or telex or fax number by giving the other party notice of the change in any
manner permitted by this Section 30.11.
30.10.4. Lenders and Ground Lessor. If Tenant is
notified of the identity and address of Landlord's lender or ground or
underlying lessor, Tenant shall give to that lender or ground or underlying
lessor written notice of any default by Landlord under the terms of this Lease.
30.11 Force Majeure--Specific Exceptions. The time for performance
of an obligation other than the payment of money under this Lease shall be
extended for the period during which a party is prevented from performing by
acts of God, government, or other force or event beyond the reasonable control
of that party.
- 30 -
<PAGE> 35
30.12 Time of the Essence. Time is of the essence of this Lease and
each of its provisions and Exhibits.
30.13 Modifications Required by Landlord's Lender. If any
institutional lender of Landlord (e.g., bank, savings and loan association,
pension fund, insurance company, real estate investment trust) reasonably
requires a modification of this Lease, Tenant shall agree to that modification
as long as:
(a) Base Rent, Additional Rent, and any other amounts
required to be paid under this Lease, and the time and manner of payment, will
not be changed.
(b) The Term (including any Option Terms and the times
governing Tenant's exercise of any options) will not be changed.
(c) Tenant's possession of the Premises and rights to
possession and use of other parts of the Building and Real Property will not be
changed.
(d) Landlord's obligations to Tenant under this Lease will
not be reduced, and Tenant's obligations to Landlord under this Lease will not
be increased.
Tenant shall execute an amendment to this Lease evidencing
modifications required and permitted under this Section 30.13 within a
reasonable time after receipt of a written request.
30.14 Recording. Neither this Lease nor any short form of this
Lease shall be recorded.
30.15 Liability of Landlord. The liability of Landlord (including
all persons and entities that comprise Landlord, and any successor landlord)
and any recourse by Tenant against Landlord under all provision of this Lease
shall be limited to the interest of Landlord and Landlord's successors in
interest in and to the Real Property. On behalf of itself and all persons
claiming by, through, or under Tenant, Tenant expressly waives and releases
Landlord from any personal liability for breach of this Lease.
30.16 Transfer of Landlord's Interest. On a transfer of all of
Landlord's interest in the Building and Real Property and in this Lease,
Landlord shall be released from all liability and obligations under this Lease
that accrue after the effective date of transfer, and the following
restrictions:
(a) Landlord shall not be released from its obligations under
this Lease unless the transferee agrees in writing, for the benefit of Tenant,
to assume Landlord's obligations under this Lease from and after the date of
transfer; and
(b) If Landlord assigns its interest in this Lease to a
lender as additional security, this assignment shall not release Landlord from
its obligations under this Lease;
30.17 Submission of Lease. Submission of this document for
examination or signature by the parties does not constitute an option or offer
to lease the Premises on the terms in this document or a reservation of the
Premises in favor of Tenant. This document is not effective as a lease or
otherwise until executed and delivered by both Landlord and Tenant.
30.18 Legal Authority.
30.18.1. Corporate Authority. If either party is a
corporation:
(a) Each individual signing this Lease on
behalf of that corporation represents and warrants that each of them is duly
authorized to execute and deliver this Lease on behalf of the corporation;
(b) That the corporation is duly organized
and validly existing under the laws of a state of the United States; and
(c) That corporation and the individuals
signing this Lease on its behalf covenant that, within thirty (30) days after
the date of this Lease, the corporation shall deliver to the other party a duly
certified copy of a resolution of the corporation's board of directors
authorizing execution of this Lease.
30.18.2. Partnership Authority. If either party is a
partnership or a limited liability partnership, each individual executing this
Lease on behalf of the partnership represents and warrants that:
(a) Each of them is duly authorized to
execute and deliver this Lease on behalf of the partnership in accordance with
the partnership agreement, or an amendment to the partnership agreement, now in
effect; and
(b) That the partnership and the individual
signing this Lease on its behalf covenant that, within fifteen (15) days after
the date of this Lease, the partnership shall deliver to Landlord a duly
certified copy of a resolution, a certificate or other evidence reasonably
satisfactory to Landlord that the partnership has authorized execution of this
Lease.
30.18.3. Limited Liability Company Authority. If
either party is a limited liability company, each individual executing this
Lease on behalf of that company represents and warrants that:
(a) The individual(s) executing this Lease
on behalf of the company have full power and authority under the company's
governing documents to execute and deliver this Lease in the name of and on
behalf of the company;
- 31 -
<PAGE> 36
(b) The company is a limited liability
company duly organized and validly existing under the laws of a state of the
United States; and
(c) The company and the individuals signing
this Lease on his behalf covenant that, within fifteen (15) days after the date
of this Lease, the company shall deliver to the Landlord a duly certified copy
of a resolution or other document reasonably satisfactory to Landlord
confirming authorization of the execution of this Lease.
30.19 Right To Lease. Landlord reserves the absolute right to
contract with any other person or entity to be a tenant in the Building as
Landlord, in Landlord's sole business judgment, determines best to promote the
interests of the Building. Tenant does not rely on the expectation, and
Landlord does not represent, that any specific tenant or type or number of
tenants will, during the Lease Term, occupy any space in the Building.
30.20 No Air Rights. No rights to any view from the Premises or to
exterior light or air to the Premises are created under this Lease.
30.21 Brokers. Landlord and Tenant each represents to the other
that it has had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease, except for the real estate brokers or
agents specified in Summary Section 14 (Brokers) and that they know of no other
real estate broker or agent who is entitled to a commission or finder's fee in
connection with this Lease. Tenant acknowledges that Sean Cooley, Vice
President of Cornish & Carey Commercial, is the acting broker for Landlord in
this transaction as well as a principal of Landlord. Tenant consents to Mr.
Cooley's role as a principal of Landlord and waives any potential conflict of
interest arising therefrom. Each party shall indemnify, protect, defend, and
hold harmless the other party against all claims, demands, losses, liabilities,
lawsuits, judgments, and costs and expenses (including reasonable attorney
fees) for any leasing commission, finder's fee, or equivalent compensation
alleged to be owing on account of the indemnifying party's dealings with any
real estate broker or agent other than the Brokers. Landlord agrees to pay a
commission to the Brokers regarding this transaction pursuant to a separate
agreement with such Brokers. The terms of this Section 30.21 shall survive the
expiration or earlier termination of the Lease Term.
30.22 Guaranty. National Insurance Group, Tenant's parent company,
shall guaranty Tenant's performance and obligations under this Lease during the
first three (3) Lease Years in the form attached as Exhibit F (the "Guaranty").
If after the first three (3) Lease Years, Tenant's net worth falls below its
level as of the date of execution of this Lease, the Guaranty shall be
immediately reinstated for an additional three (3) Lease Years. Tenant agrees
to provide Landlord with confidential financial statements establishing its net
worth on an annual basis, or more frequently as requested by Landlord, but in
no event more often than quarterly. Landlord agrees to keep such financial
statements confidential and shall not disclose them to any persons other than
its attorneys or other professional advisors whose review may be reasonably
necessary to assist Landlord in evaluating Tenant's financial status. For
purposes of this Section 30.22, "net worth" shall be calculated according to
Generally Accepted Accounting Principles.
Executed as of the date stated in Summary Section 1.
Landlord: Tenant:
Systron Business Center, LLC Pinnacle Data Corporation
a California limited liability company a California corporation
By: /s/ SEAN M. COOLEY By: /s/ DONALD S. GRANT
----------------------------------- -------------------------
Sean M. Cooley Name: DONALD S. GRANT
-----------------------
Title: VICE PRESIDENT/
FACILITIES
----------------------
By: /s/ JEFF WILCOX
-----------------------------------
Jeff Wilcox
- 32 -
<PAGE> 37
EXHIBIT A
SITE PLAN
<PAGE> 38
EXHIBIT A1
[FLOOR PLAN ]
<PAGE> 39
EXHIBIT A2
[FLOOR PLAN ]
<PAGE> 40
EXHIBIT A3
[FLOOR PLAN ]
<PAGE> 41
EXHIBIT B
LEASEHOLD IMPROVEMENT AGREEMENT
1. Final Plans. Landlord, at Landlord's sole cost and expense except as
provided below, shall commence and diligently pursue to completion those
improvements (the "Initial Tenant Improvements") to the Premises and the
Building which are described in the plans, specifications and/or drawings
prepared by JM Architects (the "Architect"), and dated December 3, 1997 (the
"Final Plans"). Both Tenant and Landlord have approved the Final Plans.
Notwithstanding the foregoing, if after the execution hereof, additional plans,
specifications and/or drawings ("Additional Plans") are required for the
construction of the Initial Tenant Improvements as shown on the Final Plans, the
Architect shall prepare and submit to Landlord and Tenant for their reasonable
approval such Additional Plans. Tenant shall promptly submit to Landlord any
information required by Landlord to complete such Additional Plans. Tenant shall
approve or disapprove of the Additional Plans within five (5) Business Days (or
such longer period as shall be reasonably required by the nature or scope of the
Additional Plans) of Tenant's receipt thereof. If Additional Plans are so
required and prepared, then all references hereinafter to the "Final Plans"
shall refer to the Final Plans as modified by the Additional Plans, as the same
may be further revised from time to time in accordance with the following
provisions of this Leasehold Improvement Agreement.
2. Tenant's Cost Items. Notwithstanding the provisions of Section 1
hereof, Tenant shall pay the cost of those portions of the Initial Tenant
Improvements described on Schedule I attached hereto ("Tenant's Above Standard
Items") up to the cost reasonably incurred by Landlord, all of which shall be
constructed and installed by Landlord as part of the Initial Tenant
Improvements. Tenant shall pay Landlord for Tenant's Above Standard Items within
five (5) days after the later of Tenant's occupancy of the Premises or
submission of a cost breakdown to Tenant showing the actual costs for Tenant's
Above Standard Items.
3. Construction.
(a) Landlord and Tenant acknowledge that Wilcox & Company
("Landlord's Contractor") has been selected as general contractor for the
construction of the Initial Tenant Improvements. As soon as is reasonably
practicable after mutual execution of this Lease, Landlord shall commence and
diligently pursue to completion construction of the Initial Tenant Improvements
by March 15, 1998 (the "Project Schedule"). "Substantial Completion" of the
Initial Tenant Improvements shall be deemed to have occurred when they have been
completed in accordance with Final Plans and all necessary governmental
approvals, including a certificate of occupancy, have been issued in connection
with such work, other than those approvals that require installation of Tenant's
furniture in the Premises, subject only to the completion or correction of Punch
List Items. "Punch List Items" shall mean incomplete or defective work or
materials in the Initial Tenant Improvements which are minor in scope, generally
regarded as punch list items under construction industry standards and do not
materially impair Tenant's use of the Premises for the conduct of Tenant's
business therein.
(b) Tenant shall accept possession of the Premises when the Initial
Tenant Improvements have been Substantially Completed; provided that Landlord
shall give Tenant at least seven (7) days prior written notice of the
anticipated date of Substantial Completion. Within ten (10) days after
Substantial Completion, Tenant, Landlord, the Architect and the Contractor shall
inspect the Initial Tenant Improvements, identify Punch List Items and prepare
an Initial Punch List. Landlord shall promptly complete all items on the Initial
Punch List. Tenant shall inspect the Initial Tenant Improvements and shall
deliver its Final Punch List to Landlord within five (5) days after Landlord has
completed the Initial Punch List Items. Landlord shall complete all Final Punch
List Items within thirty (30) days after the later of (x) Substantial Completion
of the Initial Tenant Improvements or (y) delivery of the Punch List by Tenant
to Landlord, or such longer period (not to exceed ninety (90) days) as shall
reasonably be required by the nature or
<PAGE> 42
scope of the Final Punch List Items. If Tenant shall discover additional Punch
List Items after preparation of the Final Punch List, Tenant shall give Landlord
notice thereof within thirty (30) days after such discovery (or after the date
that Tenant should have discovered the same through its normal use of the
Premises or as a result of diligent inspection of the Premises in preparation
for the Final Punch List). Tenant shall be deemed to waive all objections to
Punch List Items regarding which it does not give Landlord timely notice in
accordance with the foregoing.
(c) Landlord and Tenant agree that the estimated date of Substantial
Completion is March 15, 1998. The Lease Commencement Date shall be the date of
Substantial Completion.
(d) Landlord shall obtain from Landlord's Contractor a guaranty to
Landlord and Tenant which provides that: (i) the Initial Tenant Improvements
shall be free from any defects in workmanship and materials for a period of not
less than one (1) year from the date of completion thereof; (ii) the Initial
Tenant Improvements shall be completed in a good and workmanlike manner using
new materials; (iii) the Initial Tenant Improvements shall be completed in
substantial accordance with the Final Plans for the Initial Tenant Improvements;
(iv) all building systems and equipment will be (and for a period of one (1)
year will remain) in good working order and capable of functioning to the
performance standards for the Premises at full legal occupancy as such standards
are set forth in the Final Plans; (v) all subcontractors or suppliers shall be
responsible for the replacement or repair, without additional charge, of all
work done or furnished in accordance with the contract that shall become
defective within one (1) year after the later to occur of (a) completion of the
work performed by such contractor or subcontractor and (b) the Lease
Commencement Date; and (vi) all of Landlord's Contractor's guarantees and
warranties under this Section 3(d) shall inure to the benefit of both Landlord
and Tenant, as their respective interests may appear, and can be directly
enforced by either.
4. Changes. In the event that Tenant shall desire any change in or to the
Final Plans or the Project Schedule (a "Change"), Tenant shall request that the
Architect prepare a change order with respect to such change (a "Change Order"),
and, if determined appropriate by Landlord, revised Final Plans implementing
such Change. Tenant shall pay all fees required by public entities and all fees
and charges of the Architect in preparing the Change Order and any revisions to
the Final Plans in connection therewith. Landlord's approval shall be required
for any such changes (which approval shall not be unreasonably withheld or
delayed). In the event that Landlord shall approve any proposed Change, together
with such approval, if practicable, and if not practicable as soon thereafter as
is practicable, Landlord shall give Tenant notice of the estimate increase or
decrease in the cost of the Initial Tenant Improvements which would result from
incorporating such Change and the change, if any, in the project Schedule, the
commencement or completion of the Initial Tenant Improvements and the Lease
Commencement Date which would result from incorporating such Change. Within two
(2) Business Days after notice of such costs and delays, Tenant shall notify
Landlord in writing whether Tenant approves the Change. If Tenant fails to
approve the Change within such two (2) Business Day period, construction of the
Initial Tenant Improvements shall proceed as provided in accordance with the
Final Plans as they existed prior to the requested Change. If, following
Tenant's review of the estimated costs and delays, Tenant desires Landlord to
incorporate the Change into the Initial Tenant Improvements, then Tenant and
Landlord shall execute the Change Order for such Change, and the term "Final
Plans" and the "Project Schedule" shall thereafter be amended and shall be
deemed to refer to the previous Final Plans and Project Schedule as amended by
the Change order and, if applicable, as revised and approved pursuant to the
foregoing. If the Change increases the cost of the Initial Tenant Improvements,
Tenant shall be liable for the additional cost. If the Change decreases the cost
of the Initial Tenant Improvements, the decrease in cost shall be a credit
against any costs for which Tenant is responsible hereunder by reason of any
other Change, or against the costs for which Tenant is responsible pursuant to
Section 2, above.
5. Early Entry. Landlord shall allow Tenant to enter the Premises for a
period of fifteen (15) days prior to the estimated date of Substantial
Completion for purposes of Tenant's installation of computers, data cabling,
furniture, fixtures, electronic communication equipment, telephones or other
equipment or for any other reasonable purposes related to Tenant's
2
<PAGE> 43
preparation for its occupancy of the Premises. Such installation shall be at
Tenant's sole cost and expense. Tenant shall coordinate with Landlord's
Contractor in the installation of the Initial Tenant Improvements and the work
Tenant wishes to install pursuant to this Section 5. Such early entry shall be
without liability for Base Rent or Additional Rent but the provisions of
Sections 11 and 13 of the Lease shall apply in full during such early entry,
and Tenant shall be solely responsible for all such furniture, fixtures and
equipment and for any loss or damage thereto from any cause whatsoever.
6. Tenant Delays.
(a) As used herein, "Tenant Delays" shall mean any delay in
Substantial Completion of the Initial Tenant Improvements to a date later than
March 15, 1998 caused by any of the following: (i) the failure of Tenant to
approve any Additional Plans or to submit to Landlord any information required
in connection therewith within the time periods set forth in Section 1, above,
(ii) any Changes requested by Tenant (including any costs or delays resulting
from proposed Changes that are not ultimately made), (iii) the inclusion in the
Initial Tenant Improvements of any so-called "long-lead" materials (such as
fabrics, paneling, tiling, carpeting, light fixtures, or other items, in each
case where the same are of unusual character or limited availability), (iv) any
early entry into the Premises by Tenant pursuant to Section 5, above, (v) any
other delay or interference by Tenant with the construction schedule of the
Initial Tenant Improvements, (vi) any delay caused by Tenant failing to comply
with the requirements of this Exhibit B.
(b) Landlord will notify Tenant of any Tenant Delay as soon as
reasonably practicable after Landlord becomes aware of such Tenant Delay,
together with Landlord's then good faith estimate of the probable duration of
such Tenant Delay. Without limitation, Landlord will notify Tenant of "long
lead items" as soon as reasonably practicable after being advised of the delay
by the suppliers involved, or otherwise becoming aware of the delay. Landlord
will suggest alternative products to alleviate the delay, if possible, and may
substitute reasonably equivalent products with Tenant's approval, which
approval shall not be unreasonably withheld.
INITIALS:
LANDLORD: TENANT:
________________________________ ________________________________
3
<PAGE> 44
SCHEDULE 1
[CORNISH & CAREY COMMERCIAL LETTERHEAD]
December 18, 1997
Mr. Don Grant
c/o National Insurance Group
Mr. Scott Ellis
Grubb Ellis Company
1646 N. California Blvd., Suite 500
Walnut Creek, CA 94596
RE: National Insurance Group at 2727 Systron Drive, Concord, CA
Dear Scott:
I wanted to respond to questions that have arisen from the cost estimates for
the above referenced build-out from Wilcox & Company dated December 12, 1997.
The ownership has reviewed the estimates and would like to suggest the
following in order to commence with the working drawings and initial
construction. The business points are as follows:
Construction: The Landlord shall build the plan dated
December 3, 1997 as drawn by JM
Architects on a "turn-key" basis with
the following exceptions noted in items
A, B, C & D:
A.) Workout room to receive one-half the
specified mirrors.
B.) Tenant to pay for work counter
delineated in the "Above Standard
Items." The cost of the counter can
substantially be reduced by using a
standard melamine finish is used.
C.) The cost of moving and
re-installing the folding doors
shall be at Tenant's expense.
Tenant has the option to use
Landlord's Contractor who will
charge time and materials with a not
to exceed figure of $5,422.00.
D.) Tenant to delete the sidelights in
the gym area due to exiting issues
that may cause the glass treatment
to be fire rated.
SCHEDULE 1
<PAGE> 45
National Insurance Group
December 18, 1997
Page 2
E.) Landlord shall provide a mutually
acceptable carpet that shall be
specified to last for ten years.
The Landlord may not necessarily use
Mohawk Regatta that is currently
specified. It is the intent to work
closely with the Tenant on this
issue.
F.) The Landlord shall provide 50 foot
candle light at the 30" work
surface which will meet Title 24.
Architecture: Landlord shall contract with Tenant's
architect, JM Architects, for the
construction document. Construction
documents must be ready to submit for
permit December 31, 1997.
Occupancy and Rent Commencement: Based on the following critical dates,
occupancy can be provided March 15,
1998. Rent shall commence November 1,
1998.
Lease Execution: December 30, 1997.
Letter of Indemnification: Executed by December 17, 1998.
We trust that the aforementioned items satisfies your group. If acceptable
please sign where indicated, and we shall proceed with all aspects of
construction.
We look forward to your occupancy.
Sincerely,
CORNISH & CAREY COMMERCIAL
/s/ SEAN COOLEY
- ---------------------
Sean Cooley
Vice President
Agreed and Accepted
By:
------------------------------------
Date:
----------------------------------
cc: Jeff Wilcox, Systron Business Center, LLC
<PAGE> 46
EXHIBIT C
Confirmation of Lease Information
Pinnacle Data Corporation
395 Oyster Point Blvd., Suite 500
South San Francisco, CA 94080-1933
Attention: Donald S. Grant
Re: Systron Drive Lease
Ladies and Gentlemen:
This is to confirm that the Lease Commencement Date for the Office Lease of
premises at 2727 Systron Drive, Concord, CA between you as tenant and the
undersigned as landlord is March 20, 1998.
Very truly yours,
Systron Business Center,
a California Limited Liability Company
By /s/ Donald Grant
-------------------------------------
Title: VICE PRESIDENT/FACILITIES
---------------------------------
<PAGE> 47
EXHIBIT D
RULES AND REGULATIONS
ATTACHED TO AND MADE A PART OF OFFICE LEASE
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or used for any purpose
other than ingress and agress. The halls, passages, entrances, elevators,
stairways, balconies and roof are not for the use of the general public, and
Landlord shall in all cases retain the right to control or prevent access
thereto by all person whose presence in the judgment of Landlord shall be
prejudicial to the safety, character, reputation or interests of the Project
and its tenants, provided that nothing herein contained shall be construed to
prevent such access by persons with whom the tenant normally deals in the
ordinary course of its business unless such persons are engaged in illegal
activities. No tenant and no employees of any tenant shall go upon the roof of
the Project without the written consent of Landlord.
2. No awnings or other projections shall be attached to the outside
walls of the Project without the prior written consent of Landlord. Except as
otherwise specifically approved by Landlord, all electrical ceiling fixtures
hung in offices or spaces along the perimeter of the Project must be
fluorescent, or a quality, type, design and bulb color approved by Landlord.
3. No sign, advertisement or notice shall be exhibited, painted or
affixed by any tenant on any part of, or so as to be seen from the outside of,
the Premises or the Project without the prior written consent of Landlord. In
the event of the violation of the foregoing by any tenant, Landlord may remove
same without any liability, and may charge the expense incurred in such removal
to the tenant violating this rule. Interior signs on doors and directory tablet
shall be inscribed, painted or affixed for each tenant by Landlord at the
expense of such tenant, and shall be of a size, color and style acceptable to
Landlord.
4. The toilets and wash basins and other plumbing fixtures shall not be
used for any purpose other than for which they were constructed, and no
sweepings, rubbish, rags or other substances shall be thrown therein. All damage
resulting from any misuse of the fixtures shall be borne by the tenant who, or
whose servants, employees, agents, visitors or licensees shall have caused the
same.
5. No tenant shall mark, paint, drill into, or in any way deface any
part of the Project. No boring, cutting or stringing of wires or laying of
linoleum or other similar floor coverings shall be permitted except with the
prior written consent of Landlord as Landlord may direct.
6. No bicycles, vehicles or animals of any kind shall be brought into
or kept in or about the Premises and no cooking shall be done or permitted by
any tenant on the Premises except that the use of microwave ovens and the
preparation of coffee, tea, hot chocolate and similar items for the tenant and
its employees and business visitors shall be permitted. No tenant shall cause or
permit any unusual or objectionable odors to escape from the Premises.
7. Except as may be specifically permitted by the Lease, the Premises
shall not be used for manufacturing or for the storage of merchandise except as
such storage may be incidental to the use of the Premises for general office
purposes. No tenant shall occupy or permit any portion of his premises to be
occupied as an office for a public stenographer or typist, or for the
manufacture or sale of liquor, narcotics, or tobacco in any form, or as a
medical office, or as a barber shop, manicure shop or employment agency. No
tenant shall engage or pay any employees on the Premises except those actually
working for such tenant on the Premises nor advertise for laborers giving an
address at the Premises. The Premises shall not be used for lodging or sleeping
or for any immoral or illegal purposes.
8. No tenant shall make, or permit to be made any unseemly or
disturbing noises, sounds or vibrations or disturb or interfere with occupants
of this or neighboring buildings or premises or those having business with them
whether by the use of any musical instruments, radio, phonograph, unusual
noise, or in any other way.
9. No tenant shall throw anything out of doors or down the passageways.
10. No tenant shall at any time bring or keep upon the Premises any
inflammable, combustible or explosive fluid, chemical or substance. The tenant
shall not do or permit anything to be done in the leased premises, or bring or
keep anything therein, which shall in any way increase the rate of fire
insurance on the Project, or on the property kept therein, or obstruct or
interfere with the rights of other tenants, or in any way injure or annoy them,
or conflict with the regulations of the Fire Department or the fire laws, or
with any insurance policy upon the Project, or any part thereof, or with any
rules and ordinances established by the Board of Health or other governmental
authority.
<PAGE> 48
11. No additional locks or bolts of any kind shall be placed on any of
the doors or windows by any tenant, nor shall any changes be made in existing
locks or the mechanism thereof. Each tenant must, upon the termination of this
tenancy, restore to Landlord all keys of stores, offices, and toilet rooms,
either furnished to, or otherwise procured by, such tenant, and in the event of
the loss of any keys so furnished, such tenant shall pay to Landlord the cost
of replacing the same or of changing the lock or locks opened by such lost key
if Landlord shall deem it necessary to make such change.
12. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which Landlord may determine from time to time. The moving of safes or other
fixtures or bulky matter of any kind must be made upon previous notice to the
manager of the Project and under his supervision, and the persons employed by
any tenant for such work must be acceptable to Landlord. Landlord reserves the
right to inspect all safes, freight or other bulky articles to be brought into
the Project and to exclude from The Project all safes, freight or other bulky
articles which violate any of these Rules and Regulations or the lease of which
these Rules and Regulations are a part. Landlord reserves the right to prohibit
or impose conditions upon the installation in the Premises of heavy objects
which might overload the floors.
13. Landlord shall have the right to prohibit any advertising by any
tenant which, in Landlord's opinion, tends to impair the reputation of the
Project or its desirability as an office building and upon written notice from
Landlord any tenant shall refrain from or discontinue such advertising.
14. Any persons employed by any tenant to do janitor work, shall, while
in the Project and outside of the Premises, be subject to and under the control
and direction of the manager of the Project (but not as an agent or servant of
said manager or of Landlord, and tenant shall be responsible for all acts of
such persons).
15. All doors opening onto public corridors shall be kept closed,
except when in use for ingress and egress.
16. The requirements of tenants will be attended to only upon
application to the Office of the Building.
17. Canvassing, soliciting and peddling in the Project are prohibited
and each tenant shall cooperate to prevent the same.
18. All office equipment of any electrical or mechanical nature shall
be placed by tenants in the Premises in settings approved by Landlord, to
absorb or prevent any vibration, noise or annoyance.
19. No air conditioning unit or other similar apparatus shall be
installed or used by any tenant without the written consent of Landlord.
20. There shall not be used in any space, or in the public halls of the
Project, either by tenants or others, any hand trucks except those equipped
with rubber tires and side guards.
21. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires or
stringing of wires will be allowed without written consent of Landlord. The
location of telephones, call boxes and other office equipment affixed to the
premises shall be subject to the approval of Landlord.
22. Tenant shall cooperate with Landlord in obtaining maximum
effectiveness of the cooling system by closing drapes when the sun's rays fall
directly on windows of the Premises. Tenant shall not obstruct, alter or in any
way impair the efficient operation of Landlord's heating, ventilating and air
conditioning system and shall not place bottles, machines, parcels or any other
articles on the induction unit enclosure so as to interfere with air flow.
Tenant shall not tamper with or change the setting of any thermostats or
temperature control valves.
23. All parking drives and area, pedestrian walkways and other public
areas forming a part of the Project shall be under the sole and absolute control
of Landlord with the exclusive right to regulate and control these areas. Tenant
agrees to conform to the rules and regulations that may be established by
Landlord for these areas from time to time.
24. If there is any conflict between this Rules and Regulations and the
Office Lease of which they are a part, the provisions of the Office Lease shall
control.
2
<PAGE> 49
EXHIBIT E
JANITORIAL SPECIFICATIONS
<PAGE> 50
EXHIBIT E
Systron, Concord
December 2, 1997
CLEANING SPECIFICATIONS
<TABLE>
- --------------------------------------------------------------------------------
Common Areas: As Per Per Per
Kitchen & Dining Areas Required Week Month Year
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
1. Vacuum Carpets, Mats 5x
- --------------------------------------------------------------------------------
2. Dust Mop Floors 5x
- --------------------------------------------------------------------------------
3. Damp Mop Floors 3x
- --------------------------------------------------------------------------------
4. Spot Clean Walls 5x
- --------------------------------------------------------------------------------
5. Wipe Tables and Chairs 6x
- --------------------------------------------------------------------------------
Machine Scrub Floors X
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
Common Areas: Entry, As Per Per Per
Lobby & Corridors Required Week Month Year
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
1. Sweep Entry, & Stairs 5x
- --------------------------------------------------------------------------------
2. Vacuum Walk-Off Mat 5x
- --------------------------------------------------------------------------------
3. Wipe Walls 5x
- --------------------------------------------------------------------------------
4. Damp Mop Floor 5x
- --------------------------------------------------------------------------------
5. Machine Scrub Floor X 5x
- --------------------------------------------------------------------------------
6. Change Lights X
- --------------------------------------------------------------------------------
7. Disinfect Drinking Fountain 5x
- --------------------------------------------------------------------------------
8. Clean Lobby Doors 5x
- --------------------------------------------------------------------------------
9. Wash Windows and Sidelights 4x
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 51
EXHIBIT E
Systron, Concord
December 2, 1997
CLEANING SPECIFICATIONS
<TABLE>
- --------------------------------------------------------------------------------
Office Areas As Per Per Per
and Meeting Rooms Required Week Month Year
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
1. Vacuum Carpeted Areas 5x
- --------------------------------------------------------------------------------
2. Spot Clean Carpet X
- --------------------------------------------------------------------------------
3. Remove Trash 5x
- --------------------------------------------------------------------------------
4. Remove Recyclables X
- --------------------------------------------------------------------------------
5. Dust Horizontal Surfaces 5x
- --------------------------------------------------------------------------------
6. Dust Ceiling Vents 2x
- --------------------------------------------------------------------------------
7. High Dust 1x
- --------------------------------------------------------------------------------
8. Low Dust 4x
- --------------------------------------------------------------------------------
9. Disinfect Telephone Handset 1x
- --------------------------------------------------------------------------------
10. Dust Mop Vinyl Floors 5x
- --------------------------------------------------------------------------------
11. Damp Mop Vinyl Floors X
- --------------------------------------------------------------------------------
12. Damp Wipe Walls, Doors, Etc. X 5x
- --------------------------------------------------------------------------------
13. Turn Off Lights 5x
- --------------------------------------------------------------------------------
14. Change Lights X
- --------------------------------------------------------------------------------
15. Dust Blinds 1x
- --------------------------------------------------------------------------------
16. Clean All Tools & Equipment 5x
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
Restrooms As Per Per Per
Required Week Month Year
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
1. Re-Stock All Dispensers 5x
- --------------------------------------------------------------------------------
2. Sweep Floors 5x
- --------------------------------------------------------------------------------
3. Clean & Disinfect Fixtures 5x
- --------------------------------------------------------------------------------
4. Clean Mirrors 5x
- --------------------------------------------------------------------------------
5. Wipe Receptacles 5x
- --------------------------------------------------------------------------------
6. Spot Clean Partitions, Walls 1x
- --------------------------------------------------------------------------------
7. Remove Trash 5x
- --------------------------------------------------------------------------------
8. Dust (Vac) Ceiling Vents 1x
- --------------------------------------------------------------------------------
9. Damp Mop & Disinfect Floor 5x
- --------------------------------------------------------------------------------
10. Wash Partitions, Walls, Doors 1x
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 52
EXHIBIT F
GUARANTY
Dated: January 1, 1998
IN CONSIDERATION of and as an inducement for the execution and delivery
by Systron Business Center, LLC, a California limited liability company, as
landlord ("Landlord"), of the Office Lease (the "Lease") dated January 1, 1998,
with Pinnacle Data Corporation, a California corporation as tenant ("Tenant"),
covering that certain demised premises located at 2727 Systron Drive, Concord,
CA (the "Premises"), the undersigned, National Insurance Group, a Delaware
corporation ("Guarantor"), hereby agrees as follows:
1. For good, adequate and valuable consideration, Guarantor
unconditionally and irrevocably guarantees to Landlord the full and prompt
payment of rent and any and all other sums and charges payable by Tenant under
the Lease, and hereby further unconditionally and irrevocably guarantees the
full and timely performance and observance of all the covenants, terms,
conditions and agreements provided to be performed and observed by Tenant under
the Lease and any amendment or modification thereof, including, without
limitation, interest, costs, fees and expenses (including attorneys' fees). Such
guaranty includes a guaranty of all obligations that would have accrued under
the Lease but for the commencement of a case or other proceeding under any law
governing bankruptcy, insolvency, reorganization, liquidation or other like
proceeding. As used herein, the term Tenant shall include Tenant and any entity
created by the commencement of a case under Title 11 of the United States Code
of any successor statute (the "Bankruptcy Code") or any other insolvency,
bankruptcy, reorganization or liquidation proceeding or any trustee, liquidator,
sequestrator or receiver of Tenant or Tenant's property or similar person
appointed pursuant to any law generally governing insolvency, bankruptcy,
reorganization, liquidation, receivership or like proceeding.
2. Guarantor hereby covenants and agrees to and with Landlord that
if Tenant shall at any time fail to make any payment of any such rent or other
such sums and charges payable by Tenant under the Lease, or if Tenant should
fail to perform or observe any of the terms, covenants, provisions or conditions
contained in the Lease, Guarantor shall forthwith pay such rent and other such
sums and charges and any arrears thereof, and shall forthwith faithfully perform
and fulfill all of such terms, covenants, conditions and provisions, and will
pay all damages that may arise in consequence of any default by Tenant under the
Lease, including without limitation, all reasonable attorneys' fees and
disbursements incurred by Landlord or caused by any such default and/or by the
enforcement of this Guaranty.
3. Guarantor's obligations under this Guaranty shall be binding on
Guarantor's successors and assigns. All references to Landlord and Tenant in
this Guaranty shall be deemed to include their successors, assigns or
subtenants, as the case may be.
4. The provisions of the Lease may be changed by agreement between
Landlord and Tenant without the consent of and without notice to Guarantor, and
such change shall not in any way limit Guarantor's obligations hereunder. The
Lease may be assigned by Landlord or Tenant (and the Premises, or a portion
thereof, may be sublet by Tenant) without consent of or notice to Guarantor.
This Guaranty shall guarantee the performance of the Lease as so changed or
assigned. Without limiting the generality of the foregoing. Guarantor waives the
rights and benefits under Civil Code Section 2819, and agrees that by doing so
Guarantor's liability shall continue even if Landlord and Tenant alter any Lease
obligations, or Guarantor's remedies or rights against Tenant are impaired or
suspended without Guarantor's consent by such alteration of Lease obligations.
5. This Guaranty shall not be modified or affected by Landlord's
failure or delay from time to time to enforce any of its rights under either the
Lease or this Guaranty.
6. If Tenant fails to perform its obligations under the Lease,
Landlord may proceed against either Guarantor or Tenant, or both, or Landlord
may enforce against Guarantor or Tenant any rights that Landlord has under the
Lease or applicable law. If the Lease terminates and Landlord has any rights
against Tenant after termination, Landlord may enforce those rights against
Guarantor, without giving previous notice to Tenant or Guarantor.
7. Except to the extent a defense arises out of a default by
Landlord under the Lease, Guarantor's obligations hereunder are not conditioned
or contingent upon the genuineness, validity, regularity or enforceability of
the Lease. Guarantor hereby waives any and all benefits and defenses under Civil
Code Section 2810 (except to the extent a defense arises out of a default by
Landlord under the Lease) and Guarantor agrees that, by doing so, except to the
extent a defense arises out of a default by Landlord under the Lease, Guarantor
is liable even if Tenant had no liability at the time of the execution of the
Lease or thereafter ceases to be liable. Guarantor waives any and all benefits
and defenses (except to the extent a defense arises out of a default by Landlord
under the Lease) under Civil Code Section 2809 and agrees that by doing so,
Guarantor's liability may be larger in amount and more burdensome than that of
Tenant. Guarantor waives the right to plead any and all statutes of limitation
as a defense to Guarantor's liability hereunder or the enforcement of this
Guaranty.
<PAGE> 53
8. Guarantor waives all benefits and defenses under Civil Code Sections
2845, 2848 and 2850, including without limitation: (a) the right to require
Landlord to proceed against Tenant, proceed against or exhaust any security that
Landlord holds from Tenant, or pursue any other remedy in Landlord's power; (b)
any defense to its obligations hereunder based on the termination of Tenant's
liability unless such termination is due to a breach of Landlord's Lease
obligations or as provided in the Lease; (c) all presentments, demands for
performance, notice of nonperformance, protests, notices of protest, notices of
dishonor, notices of acceptance of this Guaranty and, except as provided in the
Lease, all other notices of every kind and nature; and (d) all notices of the
existence, creation, or incurring of new or additional obligations.
9. The obligations of Tenant under the Lease to execute and deliver
estoppel statements and applicable financial statements if any shall be deemed
to also require the same from Guarantor with respect to the Guaranty.
10. Guarantor's liability hereunder shall continue until all sums due
under the Lease have been paid and all obligations to be performed under the
Lease have been performed.
11. The obligations under the Guaranty shall remain in full effect and
Guarantor shall not be discharged by any of the following events: (a)
insolvency, bankruptcy, reorganization arrangement, adjustment, composition,
assignment for the benefit of creditors, liquidation, winding up, dissolution of
Tenant or Guarantor; (b) any merger, acquisition, consolidation or change in the
structure of Tenant, or any sale, lease, transfer or other disposition of any of
Tenant's assets or any sale or other transfer of interests in Tenant by
Guarantor; or (c) any sale, exchange, assignment, hypothecation or other
transfer, in whole or in part, of Landlord's interest in the Premises or the
Lease.
12. Guarantor has executed this Guaranty based solely on its independent
investigation of Tenant's financial condition. Guarantor hereby assumes
responsibility for keeping informed of Tenant's financial condition and all
other circumstances affecting Tenant's performance of its obligations under the
Lease. Landlord shall have no duty to advise Guarantor of any information known
to it regarding such financial condition or such circumstances.
13. Guarantor hereby waives the benefits and defenses under Civil Code
Sections 2847, 2848 and 2849 and agrees that by doing so Guarantor shall not
exercise its right of subrogation or reimbursement against Tenant until after
all amounts due and payable under the Lease have been paid and Tenant has
otherwise performed all of Tenant's obligations under the Lease. If the above
waiver is found by a court of competent jurisdiction to be void or voidable,
Guarantor agrees to subordinate its rights of subrogation and reimbursement
against Tenant to Landlord's rights against Tenant.
14. Guarantor warrants and represents that there is no action or
proceeding pending or, to Guarantor's knowledge, threatened, against Guarantor
before any court or administrative agency which could materially, adversely
affect Guarantor's financial condition. The above warranty and representation
shall survive the execution and delivery of this Guaranty and is expressly made
for the benefit of Landlord, its successors and assigns.
15. All demands, notices and other communications to Guarantor under this
Guaranty shall be in writing, and shall be deemed to have been duly given when
personally delivered or three days after the date deposited in the Untied States
Postal Service, first-class postage prepaid, certified with return receipt
requested, addressed to Guarantor at the address specified below Guarantor's
signature or at such other address as may hereafter be furnished in writing by
Guarantor to Landlord.
16. Guarantor represents and warrants that it is duly authorized to
execute and deliver this Guaranty, and that the Guaranty is binding on Guarantor
in accordance with its terms. Upon request, Guarantor shall deliver to Landlord
a certified copy of the resolution authorizing or ratifying the execution of
this Guaranty.
17. Landlord may assign this Guaranty without Guarantor's consent and
without in any affecting the liability of Guarantor under this Guaranty. This
Guaranty shall inure to the benefit of Landlord and its successors and assigns.
18. The prevailing party in any dispute arising under this Guaranty
between Guarantor and Landlord shall be entitled to its costs, fees and expenses
incurred in connection with such dispute, including, without limitation,
reasonable attorneys' fees.
19. If all or any portion of the obligations guaranteed hereunder are paid
or performed, Guarantor's obligations hereunder shall continue and remain in
full force and effect in the event that all or any part of such payment or
performance is avoided or recovered directly or indirectly from Landlord as a
preference, fraudulent transfer or otherwise, irrespective of (a) any notice of
revocation given by Guarantor prior to such avoidance or recovery, and (b)
payment in full under the Lease.
20. If any part of this Guaranty is determined to be illegal or
unenforceable, all other parts shall remain in effect.
<PAGE> 54
21. This Guaranty shall be enforced, interpreted and governed in
accordance with the laws of the State of California, and any question arising
hereunder shall be construed or determined according to such laws irrespective
of its conflict of laws rules. Guarantor agrees that all actions or proceedings
arising in connection with this Guaranty shall be tried and litigated in federal
or, in the absence of federal subject matter jurisdiction, state courts located
in the State of California unless such actions or proceedings are required to be
brought in another court to obtain subject matter jurisdiction over the matter
in controversy. Guarantor waives any right it may have to assert by way of
motion, as a defense or otherwise the doctrine of forum non conveniens or to
object to venue in any proceeding brought in accordance with the immediately
preceding sentence. Guarantor hereby consents to the jurisdiction of the courts
of the State of California. Service of process, sufficient for personal
jurisdiction in any action against Guarantor, may be made by registered or
certified mail, return receipt requested, to its address specified below the
signature of Guarantor.
22. This Guaranty embodies the entire agreement among the parties with
respect to the matters set forth herein, and supersedes all prior agreements
among the parties with respect thereto.
23. Guarantor acknowledges receipt of copies of Civil Code Sections 2809,
2810, 2845, 2847, 2848, 2849 and 2850 and that Guarantor fully understands the
effect of the waiver of provisions thereof and has consulted with legal counsel
to the extent required to understand the terms and conditions of this Guaranty.
24. Guarantor's obligations and guaranty pursuant to this Guaranty shall
be for the first three (3) Lease Years, as defined in the Lease. If after the
first three (3) Lease Years, Tenant's net worth falls below Tenant's net worth
as of the date of execution of the Lease, the Guarantor agrees to immediately
reinstate this Guaranty.
IN WITNESS WHEREOF, National Insurance Group has caused this Guaranty to
be signed by its duly authorized officer this __ day of January, 1998.
NATIONAL INSURANCE GROUP,
a Delaware corporation
By _________________________
Its _____________________
____________________________
____________________________
____________________________
(Address)
(SEAL)
ATTEST:
____________________________
Secretary
<PAGE> 55
LEASEHOLD IMPROVEMENT AGREEMENT
1. Final Plans. Landlord, at Landlord's sole cost and expense except as
provided below, shall commence and diligently pursue to completion those
improvements (the "Initial Tenant Improvements") to the Premises and the
Building which are described in the plans, specifications and/or drawings
prepared by JM Architects (the "Architect"), and dated December 3, 1997 (the
"Final Plans"). Both Tenant and Landlord have approved the Final Plans.
Notwithstanding the foregoing, if after the execution hereof, additional plans,
specifications and/or drawings ("Additional Plans") are required for the
construction of the Initial Tenant Improvements as shown on the Final Plans, the
Architect shall prepare and submit to Landlord and Tenant for their reasonable
approval such Additional Plans. Tenant shall promptly submit to Landlord any
information required by Landlord to complete such Additional Plans. Tenant shall
approve or disapprove of the Additional Plans within five (5) Business Days (or
such longer period as shall be reasonably required by the nature or scope of the
Additional Plans) of Tenant's receipt thereof. If Additional Plans are so
required and prepared, then all references hereinafter to the "Final Plans"
shall refer to the Final Plans as modified by the Additional Plans, as the same
may be further revised from time to time in accordance with the following
provisions of this Leasehold Improvement Agreement.
2. Tenant's Cost Items. Notwithstanding the provisions of Section 1
hereof, Tenant shall pay the cost of those portions of the Initial Tenant
Improvements described on Schedule I attached hereto ("Tenant's Above Standard
Items") up to the cost reasonably incurred by Landlord, all of which shall be
constructed and installed by Landlord as part of the Initial Tenant
Improvements. Tenant shall pay Landlord for Tenant's Above Standard Items within
five (5) days after the later of Tenant's occupancy of the Premises or
submission of a cost breakdown to Tenant showing the actual costs for Tenant's
Above Standard Items.
3. Construction.
(a) Landlord and Tenant acknowledge that Wilcox & Company
("Landlord's Contractor") has been selected as general contractor for the
construction of the Initial Tenant Improvements. As soon as is reasonably
practicable after mutual execution of this Lease, Landlord shall commence and
diligently pursue to completion construction of the Initial Tenant Improvements
by March 15, 1998 (the "Project Schedule"). "Substantial Completion" of the
Initial Tenant Improvements shall be deemed to have occurred when they have been
completed in accordance with Final Plans and all necessary governmental
approvals, including a certificate of occupancy, have been issued in connection
with such work, other than those approvals that require installation of Tenant's
furniture in the Premises, subject only to the completion or correction of Punch
List Items. "Punch List Items" shall mean incomplete or defective work or
materials in the Initial Tenant Improvements which are minor in scope, generally
regarded as punch list items under construction industry standards and do not
materially impair Tenant's use of the Premises for the conduct of Tenant's
business therein.
(b) Tenant shall accept possession of the Premises when the Initial
Tenant Improvements have been Substantially Completed; provided that Landlord
shall give Tenant at least seven (7) days prior written notice of the
anticipated date of Substantial Completion. Within ten (10) days after
Substantial Completion, Tenant, Landlord, the Architect and the Contractor shall
inspect the Initial Tenant Improvements, identify Punch List Items and prepare
an Initial Punch List. Landlord shall promptly complete all items on the Initial
Punch List. Tenant shall inspect the Initial Tenant Improvements and shall
deliver its Final Punch List to Landlord within five (5) days after Landlord has
completed the Initial Punch List Items. Landlord shall complete all Final Punch
List Items within thirty (30) days after the later of (x) Substantial Completion
of the Initial Tenant Improvements or (y) delivery of the Punch List by Tenant
to Landlord, or such longer period (not to exceed ninety (90) days) as shall
reasonably be required by the nature or
<PAGE> 56
scope of the Final Punch List Items. If Tenant shall discover additional Punch
List Items after preparation of the Final Punch List, Tenant shall give Landlord
notice thereof within thirty (30) days after such discovery (or after the date
that Tenant should have discovered the same through its normal use of the
Premises or as a result of diligent inspection of the Premises in preparation
for the Final Punch List). Tenant shall be deemed to waive all objections to
Punch List Items regarding which it does not give Landlord timely notice in
accordance with the foregoing.
(c) Landlord and Tenant agree that the estimated date of Substantial
Completion is March 15, 1998. The Lease Commencement Date shall be the date of
Substantial Completion.
(d) Landlord shall obtain from Landlord's Contractor a guaranty to
Landlord and Tenant which provides that: (i) the Initial Tenant Improvements
shall be free from any defects in workmanship and materials for a period of not
less than one (1) year from the date of completion thereof; (ii) the Initial
Tenant Improvements shall be completed in a good and workmanlike manner using
new materials; (iii) the Initial Tenant Improvements shall be completed in
substantial accordance with the Final Plans for the Initial Tenant Improvements;
(iv) all building systems and equipment will be (and for a period of one (1)
year will remain) in good working order and capable of functioning to the
performance standards for the Premises at full legal occupancy as such standards
are set forth in the Final Plans; (v) all subcontractors or suppliers shall be
responsible for the replacement or repair, without additional charge, of all
work done or furnished in accordance with the contract that shall become
defective within one (1) year after the later to occur of (a) completion of the
work performed by such contractor or subcontractor and (b) the Lease
Commencement Date; and (vi) all of Landlord's Contractor's guarantees and
warranties under this Section 3(d) shall inure to the benefit of both Landlord
and Tenant, as their respective interests may appear, and can be directly
enforced by either.
4. Changes. In the event that Tenant shall desire any change in or to the
Final Plans or the Project Schedule (a "Change"), Tenant shall request that the
Architect prepare a change order with respect to such change (a "Change Order"),
and, if determined appropriate by Landlord, revised Final Plans implementing
such Change. Tenant shall pay all fees required by public entities and all fees
and charges of the Architect in preparing the Change Order and any revisions to
the Final Plans in connection therewith. Landlord's approval shall be required
for any such changes (which approval shall not be unreasonably withheld or
delayed). In the event that Landlord shall approve any proposed Change, together
with such approval, if practicable, and if not practicable as soon thereafter as
is practicable, Landlord shall give Tenant notice of the estimate increase or
decrease in the cost of the Initial Tenant Improvements which would result from
incorporating such Change and the change, if any, in the project Schedule, the
commencement or completion of the Initial Tenant Improvements and the Lease
Commencement Date which would result from incorporating such Change. Within two
(2) Business Days after notice of such costs and delays, Tenant shall notify
Landlord in writing whether Tenant approves the Change. If Tenant fails to
approve the Change within such two (2) Business Day period, construction of the
Initial Tenant Improvements shall proceed as provided in accordance with the
Final Plans as they existed prior to the requested Change. If, following
Tenant's review of the estimated costs and delays, Tenant desires Landlord to
incorporate the Change into the Initial Tenant Improvements, then Tenant and
Landlord shall execute the Change Order for such Change, and the term "Final
Plans" and the "Project Schedule" shall thereafter be amended and shall be
deemed to refer to the previous Final Plans and Project Schedule as amended by
the Change order and, if applicable, as revised and approved pursuant to the
foregoing. If the Change increases the cost of the Initial Tenant Improvements,
Tenant shall be liable for the additional cost. If the Change decreases the cost
of the Initial Tenant Improvements, the decrease in cost shall be a credit
against any costs for which Tenant is responsible hereunder by reason of any
other Change, or against the costs for which Tenant is responsible pursuant to
Section 2, above.
5. Early Entry. Landlord shall allow Tenant to enter the Premises for a
period of fifteen (15) days prior to the estimated date of Substantial
Completion for purposes of Tenant's installation of computers, data cabling,
furniture, fixtures, electronic communication equipment, telephones or other
equipment or for any other reasonable purposes related to Tenant's
2
<PAGE> 57
preparation for its occupancy of the Premises. Such installation shall be at
Tenant's sole cost and expense. Tenant shall coordinate with Landlord's
Contractor in the installation of the Initial Tenant Improvements and the work
Tenant wishes to install pursuant to this Section 5. Such early entry shall be
without liability for Base Rent or Additional Rent but the provisions of
Sections 11 and 13 of the Lease shall apply in full during such early entry,
and Tenant shall be solely responsible for all such furniture, fixtures and
equipment and for any loss or damage thereto from any cause whatsoever.
6. Tenant Delays.
(a) As used herein, "Tenant Delays" shall mean any delay in
Substantial Completion of the Initial Tenant Improvements to a date later than
March 15, 1998 caused by any of the following: (i) the failure of Tenant to
approve any Additional Plans or to submit to Landlord any information required
in connection therewith within the time periods set forth in Section 1, above,
(ii) any Changes requested by Tenant (including any costs or delays resulting
from proposed Changes that are not ultimately made), (iii) the inclusion in the
Initial Tenant Improvements of any so-called "long-lead" materials (such as
fabrics, paneling, tiling, carpeting, light fixtures, or other items, in each
case where the same are of unusual character or limited availability), (iv) any
early entry into the Premises by Tenant pursuant to Section 5, above, (v) any
other delay or interference by Tenant with the construction schedule of the
Initial Tenant Improvements, (vi) any delay caused by Tenant failing to comply
with the requirements of this Exhibit B.
(b) Landlord will notify Tenant of any Tenant Delay as soon as
reasonably practicable after Landlord becomes aware of such Tenant Delay,
together with Landlord's then good faith estimate of the probable duration of
such Tenant Delay. Without limitation, Landlord will notify Tenant of "long
lead items" as soon as reasonably practicable after being advised of the delay
by the suppliers involved, or otherwise becoming aware of the delay. Landlord
will suggest alternative products to alleviate the delay, if possible, and may
substitute reasonably equivalent products with Tenant's approval, which
approval shall not be unreasonably withheld.
INITIALS:
LANDLORD TENANT:
[SIG] /s/ DONALD S. GRANT
- ----------------------------------- -----------------------------------
Vice President/Facilities
3
<PAGE> 58
GUARANTY
Dated: January 1, 1998
IN CONSIDERATION of and as an inducement for the execution and delivery by
Systron Business Center, LLC, a California limited liability company, as
landlord ("Landlord"), of the Office Lease (the "Lease") dated January 1, 1998,
with Pinnacle Data Corporation, a California corporation as tenant ("Tenant"),
covering that certain demised premises located at 2727 Systron Drive, Concord,
CA (the "Premises"), the undersigned, National Insurance Group, a Delaware
corporation ("Guarantor"), hereby agrees as follows:
1. For good, adequate and valuable consideration, Guarantor
unconditionally and irrevocably guarantees to Landlord the full and prompt
payment of rent and any and all other sums and charges payable by Tenant under
the Lease, and hereby further unconditionally and irrevocably guarantees the
full and timely performance and observance of all the covenants, terms,
conditions and agreements provided to be performed and observed by Tenant under
the Lease and any amendment or modification thereof, including, without
limitation, interest, costs, fees and expenses (including attorneys' fees).
Such Guaranty includes a guaranty of all obligations that would have accrued
under the Lease but for the commencement of a case or other proceeding under
any law governing bankruptcy, insolvency, reorganization, liquidation or other
like proceeding. As used herein, the term Tenant shall include Tenant and any
entity created by the commencement of a case under Title 11 of the United
States Code of any successor statute (the "Bankruptcy Code") or any other
insolvency, bankruptcy, reorganization or liquidation proceeding or any
trustee, liquidator, sequestrator or receiver of Tenant or Tenant's property or
similar person appointed pursuant to any law generally governing insolvency,
bankruptcy, reorganization, liquidation, receivership or like proceeding.
2. Guarantor hereby covenants and agrees to and with Landlord that if
Tenant shall at any time fail to make any payment of any such rent or other
such sums and charges payable by Tenant under the Lease, or if Tenant should
fail to perform or observe any of the terms, covenants, provisions or conditions
contained in the Lease, Guarantor shall forthwith pay such rent and other such
sums and charges and any arrears thereof, and shall forthwith faithfully
perform and fulfill all of such terms, covenants, conditions and provisions,
and will pay all damages that may arise in consequence of any default by Tenant
under the Lease, including without limitation, all reasonable attorneys' fees
and disbursements incurred by Landlord or caused by any such default and/or by
the enforcement of this Guaranty.
3. Guarantor's obligations under this Guaranty shall be binding on
Guarantor's successors and assigns. All references to Landlord and Tenant in
this Guaranty shall be deemed to include their successors, assigns or
subtenants, as the case may be.
4. The provisions of the Lease may be changed by agreement between
Landlord and Tenant without the consent of and without notice to Guarantor, and
such change shall not in any way limit Guarantor's obligations hereunder. The
Lease may be assigned by Landlord or Tenant (and the Premises, or a portion
thereof, may be sublet by Tenant) without consent of or notice to Guarantor.
This Guaranty shall guarantee the performance of the Lease as so changed or
assigned. Without limiting the generality of the foregoing, Guarantor waives the
rights and benefits under Civil Code Section 2819, and agrees that by doing so
Guarantor's liability shall continue even if Landlord and Tenant alter any Lease
obligations, or Guarantor's remedies or rights against Tenant are impaired or
suspended without Guarantor's consent by such alteration of Lease obligations.
5. This Guaranty shall not be modified or affected by Landlord's
failure or delay from time to time to enforce any of its rights either the
Lease or this Guaranty.
6. If Tenant fails to perform its obligations under the Lease,
Landlord may proceed against either Guarantor or Tenant, or both, or Landlord
may enforce against Guarantor or Tenant any rights that Landlord has under the
Lease or applicable law. If the Lease terminates and Landlord has any rights
against Tenant after termination, Landlord may enforce those rights against
Guarantor, without giving previous notice to Tenant or Guarantor.
7. Except to the extent a defense arises out of a default by Landlord
under the Lease, Guarantor's obligations hereunder are not conditioned or
contingent upon the genuineness, validity, regularity or enforceability of the
Lease. Guarantor hereby waives any and all benefits and defenses under Civil
Code Section 2810 (except to the extent a defense arises out of a default by
Landlord under the Lease) and Guarantor agrees that, by doing so, except to the
extent a defense arises out of a default by Landlord under the Lease, Guarantor
is liable even if Tenant had no liability at the time of the execution of the
Lease or thereafter ceases to be liable. Guarantor waives any and all benefits
and defenses (except to the extent a defense arises out of a default by
Landlord under the Lease) under Civil Code Section 2809 and agrees that by
doing so, Guarantor's liability may be larger in amount and more burdensome
than that of Tenant. Guarantor waives the right to plead any and all statutes of
limitation as a defense to Guarantor's liability hereunder or the enforcement
of this Guaranty.
<PAGE> 59
8. Guarantor waives all benefits and defenses under Civil Code Sections
2845, 2848 and 2850, including without limitation: (a) the right to require
Landlord to proceed against Tenant, proceed against or exhaust any security that
Landlord holds from Tenant, or pursue any other remedy in Landlord's power; (b)
any defense to its obligations hereunder based on the termination of Tenant's
liability unless such termination is due to a breach of Landlord's Lease
obligations or as provided in the Lease; (c) all presentments, demands for
performance, notice of nonperformance, protests, notices of protest, notices of
dishonor, notices of acceptance of this Guaranty and, except as provided in the
Lease, all other notices of every kind and nature; and (d) all notices of the
existence, creation, or incurring of new or additional obligations.
9. The obligations of Tenant under the Lease to execute and deliver
estoppel statements and applicable financial statements if any shall be deemed
to also require the same from Guarantor with respect to the Guaranty.
10. Guarantor's liability hereunder shall continue until all sums due
under the Lease have been paid and all obligations to be performed under the
Lease have been performed.
11. The obligations under the Guaranty shall remain in full effect and
Guarantor shall not be discharged by any of the following events: (a)
insolvency, bankruptcy, reorganization arrangement, adjustment, composition,
assignment for the benefit of creditors, liquidation, winding up, dissolution of
Tenant or Guarantor; (b) any merger, acquisition, consolidation or change in the
structure of Tenant, or any sale, lease, transfer or other disposition of any of
Tenant's assets, or any sale or other transfer of interests in Tenant by
Guarantor; or (c) any sale, exchange, assignment, hypothecation or other
transfer, in whole or in part, of Landlord's interest in the Premises or the
Lease.
12. Guarantor has executed this Guaranty based solely on its independent
investigation of Tenant's financial condition. Guarantor hereby assumes
responsibility for keeping informed of Tenant's financial condition and all
other circumstances affecting Tenant's performance of its obligations under the
Lease. Landlord shall have no duty to advise Guarantor of any information known
to it regarding such financial condition or such circumstances.
13. Guarantor hereby waives the benefits and defenses under Civil Code
Sections 2847, 2848 and 2849 and agrees that by doing so Guarantor shall not
exercise its right of subrogation or reimbursement against Tenant until after
all amounts due and payable under the Lease have been paid and Tenant has
otherwise performed all of Tenant's obligations under the Lease. If the above
wavier is found by a court of competent jurisdiction to be void or voidable,
Guarantor agrees to subordinate its rights of subrogations and reimbursement
against Tenant to Landlord's rights against Tenant.
14. Guarantor warrants and represents that there is no action or
proceeding pending or, to Guarantor's knowledge, threatened, against Guarantor
before any court or administrative agency which could materially, adversely
affect Guarantor's financial condition. The above warranty and representation
shall survive the execution and delivery of this Guaranty and is expressly made
for the benefit of Landlord, its successors and assigns.
15. All demands, notices and other communications to Guarantor under this
Guaranty shall be in writing, and shall be deemed to have been duly given when
personally delivered or three days after the date deposited in the United States
Postal Service, first-class postage prepaid, certified with return receipt
requested, addressed to Guarantor at the address specified below Guarantor's
signature or at such other address as may hereafter be furnished in writing by
Guarantor to Landlord.
16. Guarantor represents and warrants that it is duly authorized to
execute and deliver this Guaranty, and that the Guaranty is binding on Guarantor
in accordance with its terms. Upon request, Guarantor shall deliver to Landlord
a certified copy of the resolution authorizing or ratifying the execution of
this Guaranty.
17. Landlord may assign this Guaranty without Guarantor's consent and
without in any affecting the liability of Guarantor under this Guaranty. This
Guaranty shall inure to the benefit of Landlord and its successors and assigns.
18. The prevailing party in any dispute arising under this Guaranty
between Guarantor and Landlord shall be entitled to its costs, fees and expenses
incurred in connection with such dispute, including, without limitation,
reasonable attorneys' fees.
19. If all or any portion of the obligations guaranteed hereunder are paid
or performed, Guarantor's obligations hereunder shall continue and remain in
full force and effect in the event that all or any part of such payment or
performance is avoided or recovered directly or indirectly from Landlord as a
preference, fraudulent transfer or otherwise, irrespective of (a) any notice of
revocation given by Guarantor prior to such avoidance or recovery, and (b)
payment in full under the Lease.
20. If any part of this Guaranty is determined to be illegal or
unenforceable, all other parts shall remain in effect.
<PAGE> 60
21. This Guaranty shall be enforced, interpreted and governed in
accordance with the laws of the State of California, and any question arising
hereunder shall be construed or determined according to such laws irrespective
of its conflict of laws rules. Guarantor agrees that all actions or proceedings
arising in connection with this Guaranty shall be tried and litigated in federal
or, in the absence of federal subject matter jurisdiction, state courts located
in the State of California unless such actions or proceedings are required to be
brought in another court to obtain subject matter jurisdiction over the matter
in controversy. Guarantor waives any right it may have to assert by way of
motion, as a defense or otherwise the doctrine of forum non conveniens or to
object to venue in any proceeding brought in accordance with the immediately
preceding sentence. Guarantor hereby consents to the jurisdiction of the courts
of the State of California. Service of process, sufficient for personal
jurisdiction in any action against Guarantor, may be made by registered or
certified mail, return receipt requested, to its address specified below the
signature of Guarantor.
22. This Guaranty embodies the entire agreement among the parties
with respect to the matters set forth herein, and supersedes all prior
agreements among the parties with respect thereto.
23. Guarantor acknowledges receipt of copies of Civil Code Sections
2809, 2810, 2845, 2847, 2848, 2849 and 2850 and that Guarantor fully understands
the effect of the waiver of provisions thereof and has consulted with legal
counsel to the extent required to understand the terms and conditions of this
Guaranty.
24. Guarantor's obligations and guaranty pursuant to this Guaranty
shall be for the first three (3) Lease Years, as defined in the Lease. If after
the first three (3) Lease Years, Tenant's net worth falls below Tenant's net
worth as of the date of execution of the Lease, the Guarantor agrees to
immediately reinstate this Guaranty.
IN WITNESS WHEREOF, National Insurance Group has caused this Guaranty to
be signed by its duly authorized officer this ___ day of January, 1998.
NATIONAL INSURANCE GROUP,
a Delaware corporation
By /s/ DONALD S. GRANT
---------------------------------
Its Vice President/Facilities
---------------------------------
395 Oyster Point Blvd., #500
South San Francisco, CA 94080
(SEAL)
ATTEST:
- -----------------------------
Secretary
<PAGE> 1
EXHIBIT 10.7
LEASE
(MULTI-TENANT BUILDING)
DATED JUNE 24, 1998
BETWEEN
BD 34TH PROPERTIES, INC., LANDLORD
AND
NATIONAL INSURANCE GROUP, TENANT
<PAGE> 2
LEASE
(MULTI-TENANT BUILDING)
1. PARTIES. This Lease, dated, for reference purposes only, June
24, 1998, is made by and between BD 34th Properties, Inc., an Arizona
corporation (herein called "Landlord"), and National Insurance Group, a
California corporation (herein called "Tenant").
2. PREMISES; PARKING. Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord and subject to the terms, covenants and conditions
set forth herein, that certain space consisting of approximately 48,998 square
feet as more specifically shown cross-hatched on EXHIBIT A attached hereto and
made a part hereof ("Premises") located in the building known as Building 302 at
6950 South Country Club, Tucson, Arizona 85706, as more specifically described
on EXHIBIT A ("Building") and which is part of a project, which is improved with
Building 303, landscaping, parking facilities, common area improvements and
other appurtenances (collectively "Project"). The Project, including all
improvements and appurtenances, is shown on EXHIBIT B.
Tenant's total parking entitlement is two hundred ninety-four (294)
parking spaces, not to exceed ninety-seven (97) spaces at the Building with the
balance at Building 303 until Building 303 is leased, otherwise occupied or
sold. Upon the leasing, occupancy or sale of Building 303 Landlord will provide
substitute parking across the street on the property shown on EXHIBIT C so that
Tenant will have at all times not to exceed two hundred ninety-four (294)
parking spaces.
3. TERM; IMPROVEMENTS; COMMENCEMENT DATE.
3.1. TERM. The term (the "Term") of this Lease shall be for
ten (10) years commencing on the Commencement Date (as defined in paragraph 3.3)
and ending ten (10) years later, unless this Lease is sooner terminated or
extended pursuant to any provision hereof.
3.2. BASE BUILDING AND TENANT IMPROVEMENTS.
(a) At the Commencement Date, Landlord shall deliver
to Tenant a Base Building consisting of (i) the Building and building
improvements in their present condition and configuration and (ii) those
additional improvements (but none others) specifically described in EXHIBIT D,
at Landlord's sole cost and expense. Because the Base Building is an existing
structure, Landlord is making no representations or warranties, express or
implied, or other affirmative statements to Tenant regarding the condition of
the Base Building or its suitability for Tenant's intended purposes, excepting
only those expressly set forth in this paragraph 3.2(a) and in paragraph 8.
Landlord agrees, however, to enforce any unexpired warranty on the Base
Building.
Notwithstanding the foregoing, (i) it will be a
condition precedent to the obligations of Tenant to begin paying Rent that on
the Commencement
-1-
<PAGE> 3
Date the Base Building and the systems therein will function, and (ii) Landlord,
at Landlord's sole expense, shall, in addition to its undertakings described in
EXHIBIT D, (a) provide an HVAC system that, as of the Commencement Date, will be
in sufficiently good operating condition that Trane will issue to Tenant a
service maintenance agreement, the cost of which agreement shall be borne by
Tenant; (b) remove the scale from the floor and make any necessary repairs to
the affected floor area; (c) deal with the asbestos ("Asbestos") in the Premises
as disclosed by the Asbestos Survey dated July 24, 1992 prepared by
Environmental Engineering Consultants, Inc. (the "Asbestos Survey") and noted in
the Hazardous Materials Disclosure Statement attached as EXHIBIT G (the
"Disclosure Statement") as required by the Environmental Laws, including
necessary removal, containment and monitoring/management thereafter; and (d)
dispose of any or all of the approximately six hundred (600) light fixtures in
the Premises containing PCB's in the event Tenant, at its sole election wants
the light fixtures replaced, the replacement cost of which will be charged
against the Allowance. Other than bearing the cost of disposal of these fixtures
and dealing with the Asbestos in the manner described above, Landlord will have
no further responsibility or liability to Tenant whatsoever as a result of the
PCB-containing fixtures or the Asbestos. Prior to the Commencement Date, Tenant
shall reimburse Landlord for the costs incurred by Landlord in the removal,
containment and management of the Asbestos in accordance with the Asbestos
Survey and, at the election of either Landlord or Tenant, these costs may be
charged against the Allowance.
(b) Landlord agrees to provide Tenant with an
Allowance for Tenant Improvements to the Premises not to exceed Twenty Dollars
($20.00) per square foot, or Nine Hundred Seventy-Nine Thousand Nine Hundred
Sixty Dollars ($979,960.00) (48,998 sq. ft. x $20.00). Attached to this Lease as
EXHIBIT E is a preliminary description of the Tenant Improvements. Landlord and
Tenant will mutually and cooperatively develop Final Plans for the Tenant
Improvements as expeditiously as possible. Landlord will be required to provide
no Tenant Improvements other than the Tenant Improvements depicted in the Final
Plans, other than consensual changes agreed to by both parties and the general
contractor per signed change orders.
(c) Tenant acknowledges that Tenant's timely and
diligent cooperation with Landlord is essential, and Tenant agrees to provide
Landlord and Landlord's agents with timely and thorough programs of Tenant's
requirements, reviews, comments and approvals.
(d) Any change in the Tenant Improvements described
preliminarily in EXHIBIT E requested by Tenant shall (i) be reasonable, (ii) not
involve major structural changes, (iii) require no additional land, (iv) result
in no violation of any CC&R's or applicable laws and regulations, (v) have
Landlord's written approval, which Landlord may not unreasonably withhold, and
(vi) require Tenant to pay any additional cost required to implement such
change, beyond the Allowance. No change in the Base Building will occur after
the design process for the Tenant Improvements has commenced.
(e) Upon completion of the process described above,
Landlord shall submit the Final Plans to the City of Tucson for approval. If
the City of
-2-
<PAGE> 4
Tucson review process evolves material changes in the Final Plans, Landlord will
notify Tenant promptly and Tenant shall promptly deliver to Landlord Tenant's
written comments on such changes. Landlord and Tenant shall have the right to
approve any such material changes in the Final Plans.
(f) After Landlord and Tenant have completed the
foregoing process, Landlord shall obtain the necessary permits and commence and
diligently proceed to complete, through Chestnut Construction Company as general
contractor, the construction of the Tenant Improvements substantially as
described in the Final Plans, and provide all necessary transportation, labor,
materials, tools, implements and appliances required to construct the Tenant
Improvements.
(g) Except only for Landlord's affirmative
statements in paragraph 8, Landlord is making no express or implied warranties
or other affirmative statements to Tenant regarding the condition of the
Premises or the Tenant Improvements. Tenant acknowledges that Landlord will be
utilizing the professional services of a general contractor and although
Landlord is making no express or implied representations or warranties as to the
Tenant Improvements, and shall have no liability to Tenant for any defective
work or noncompliance in the Tenant Improvements, Landlord will provide Tenant
with the benefits of any warranty that Landlord receives, which will include a
one-year warranty from Chestnut Construction Company on the Tenant Improvements.
Tenant acknowledges that it has reviewed with Chestnut Construction Company the
terms of the warranty it will receive from Chestnut Construction Company on the
Tenant Improvements. Tenant acknowledges that some or all of these warranties
require ongoing maintenance of building components for the warranties to remain
valid, and Tenant agrees to discharge all maintenance required by the terms of
any warranties and to enter into the appropriate service agreements at Tenant's
sole expense. Tenant will be hiring an architect to design and plan the Tenant
Improvements and, notwithstanding any provision in this Lease to the contrary,
Landlord shall have no responsibility, or liability, to Tenant for any design
error or defect or noncompliance caused by the acts or the omissions of the
architect.
(h) If the actual cost of the Tenant Improvements
exceeds the Allowance, the excess will be paid to Landlord by Tenant before
Tenant may occupy the Premises for the conduct of its business. If the actual
cost of the Tenant Improvements is less than the Allowance, Tenant will not be
entitled to a cash refund or to any credit against Rent, but Tenant will be
entitled to use the savings against the cost of additional improvements or
alterations made to the Premises in the future, provided that all such
improvements or alterations shall be in compliance with paragraph 9.5. Rent set
forth on EXHIBIT F assumes use of the entire Allowance. If the actual cost of
the Tenant Improvements is less than the Allowance, the Tenant Improvements
component of Rent will be readjusted based on the actual amount of the Allowance
used and will be amortized over the balance of the Term at nine percent (9%) per
annum. If Tenant draws on the Allowance in the future as provided herein, Rent
will again be adjusted in the same manner to include the increment, which will
be amortized over the balance of the Term at nine percent (9%) per annum.
-3-
<PAGE> 5
(i) Landlord may act as, or employ the services of,
a construction manager to oversee the performance of the general contractor
performing the Tenant Improvements. A construction management fee of Twenty
Thousand Dollars ($20,000.00) shall be paid to Landlord in respect to such
services, which will be a charge against the Allowance as and when invoices
therefore are received. Landlord will in turn pay the construction manager
employed by Landlord.
3.3. COMMENCEMENT DATE. The term of this Lease shall commence
on (the "Commencement Date") the earlier of (i) the date on which Tenant takes
possession of the Premises to conduct its business (for a purpose other than
fit-up), or (ii) the day on which both a temporary certificate of occupancy (or
equivalent approval of completion) and the architect's certificate of
substantial completion have been issued for the Premises, whereupon the Premises
shall be deemed Ready for Occupancy. The certificate of occupancy may contain
stipulations and conditions so long as it permits Tenant to take occupancy of
the Premises and use the Premises for the purpose contemplated by this Lease.
Tenant shall take possession of the Premises within five (5) business days after
a temporary certificate of occupancy and the architect's certificate of
substantial completion have been issued. Landlord and Tenant shall execute a
written statement specifying (a) the Commencement Date and (b) the termination
date of this Lease, which when executed will become part of this Lease.
3.4. DELIVERY. Landlord will make every reasonable effort to
cause the Premises to be Ready for Occupancy by Tenant between July 15 and July
29, 1998, provided that Landlord shall have no liability to Tenant if,
notwithstanding Landlord's reasonable efforts, Landlord is unable to meet this
schedule.
Notwithstanding any provision in this Lease to the contrary,
date of delivery or any other scheduled date of performance by Landlord under
this paragraph 3.4 shall be extended one (1) day for each day of Tenant Delay
and one (1) day for each day of delay caused by Force Majeure. "Tenant Delay"
shall mean any delay in Landlord's commencement or completion of Improvements
that occurs as a result of: (i) any request by Tenant either that Landlord
perform any work in addition to that required under the Final Plans or that
Landlord delay commencement or completion of the Improvements for any reason
including, without limitation, time for contractor, subcontractor, supplier or
materialman performance arising out of a change order or a change in the Final
Plans or the Improvements requested by Tenant, (ii) any change by Tenant to the
Final Plans after final approval thereof, (iii) any failure of Tenant to respond
to any request for approval required hereunder within the time period specified
for such response or, where no specific response time is specified, within a
reasonable period of time no less than two (2) business days after the request,
(iv) any delay in Landlord's construction of the Improvements caused by Tenant's
interference with Landlord's work or Tenant's activities in the Premises, or (v)
any other act or omission of Tenant or an Event of Default by Tenant that
actually delays commencement or completion of the Improvements. Force Majeure
shall have the meaning ascribed to it in paragraph 42.
-4-
<PAGE> 6
Notwithstanding the foregoing, if Landlord fails to deliver the
Premises to Tenant, Ready for Occupancy, by October 31, 1998 for reasons other
than Tenant Delay, Tenant in its sole and absolute discretion and for its sole
and exclusive remedy shall have the option to terminate this Lease with no
further obligation to Landlord, provided that Tenant gives Landlord written
notice of Tenant's election to terminate on or before November 15, 1998.
3.5. EARLY POSSESSION. If Tenant occupies the Premises prior
to the Commencement Date for the purpose of conducting its business and not as
provided in paragraph 3.6, such occupancy shall be subject to all provisions
hereof, such occupancy shall not advance the termination date, and Tenant shall
pay Rent for such period at the initial monthly rates set forth below.
3.6. EARLY ENTRY. Landlord shall permit Tenant to enter the
Premises on reasonable prior notice prior to the Commencement Date for the
purpose of placing on the Premises furniture, fixtures and equipment (including
without limitation cabling, computer networks and communications equipment) and
any other improvements and alterations permitted under paragraph 9.5.
If Tenant does enter the Premises prior to the Commencement
Date, Tenant shall procure and maintain insurance policies required pursuant to
paragraph 10 and provide written indemnification to Landlord in form reasonably
acceptable to Landlord prior to such entry. Landlord and Tenant shall carefully
coordinate their respective efforts so as not to interfere with the objectives
of paragraph 3.2. Entry by Tenant shall be made so as to comply in all respects
with paragraph 9.5 and the other provisions of this Lease, all applicable
ordinances, regulations and requirements of the City of Tucson and in such a
manner so as not to interfere with Landlord or Landlord's contractors in the
performance of the construction work contemplated hereby. Tenant shall pay
utility charges reasonably allocated to Tenant by Landlord, and Tenant shall not
use the Premises for the storage of inventory or otherwise commence business
without the express prior written consent of Landlord. Landlord shall not be
responsible for repainting or cleaning the Improvements as a result of any
damage or wear resulting from Tenant's early entry.
4. RENT; OTHER CHARGES.
4.1. MONTHLY RENT. Subject to the qualification in the
following subparagraph, Tenant shall pay to Landlord as rent ("Rent") for the
Premises monthly payments, in advance, without deduction, off-set or demand, on
the first (1st) day of each month of the Term hereof at the rates set forth
below. Rent for any period during the Term hereof which is for less than one
month shall be a pro rata portion of the monthly installment based upon a thirty
(30) day month. Rent shall be payable in lawful money of the United States to
Landlord at the address stated herein or to such other persons or at such other
places as Landlord may designate in writing from time to time.
-5-
<PAGE> 7
Rent shall commence upon, but not before, the earlier of (a)
Tenant's taking possession of the Premises to conduct its business (for a
purpose other than fit-up), or (b) Landlord's delivery of the Premises Ready for
Occupancy.
Monthly Rent payable by Tenant to Landlord for the initial ten
(10) year Term of this Lease shall be at the rates set forth in EXHIBIT F. For
purposes of calculating Rent payable by Tenant to Landlord during the entire
Term of this Lease (including any Renewal Term), Landlord and Tenant hereby
agree that the Premises shall be deemed to contain 48,998 square feet, subject
to increase as provided in paragraph 47 below.
4.2. RENTAL TAXES. Tenant further agrees to pay to Landlord
with Rent, or at any other time during or after the Term of this Lease within
thirty (30) days after written demand, at Landlord's election, any excise, sales
or transaction privilege tax imposed or levied by any government or governmental
agency upon Landlord on account of this Lease, Rent paid hereunder by Tenant or
any other payments made or obligations discharged or benefits conferred by
Tenant hereunder, including without limitation, payments of Tenant's
Proportionate Share of Operating Costs under paragraph 5, Real Property Taxes
under paragraph 6, and the costs of insurance under paragraph 10. Tax
calculations will be subject to applicable changes in local and state tax
ordinances.
4.3. PROPORTIONATE SHARE. Tenant's Proportionate Share of the
Building shall be obtained by dividing the number of square feet in the Premises
(forty-eight thousand nine hundred ninety-eight [48,998]) by the total number of
square feet of rentable area in the Building (one hundred one thousand two
hundred twenty-six [101,226]) for a Proportionate Share of 48.405%. Tenant's
Proportionate Share of the Project shall be obtained by dividing the number of
square feet in the Premises (forty-eight thousand nine hundred ninety-eight
[48,998]) by the total number of square feet of rentable area in the Project
(two hundred three thousand eight hundred twenty-six [203,826]) for a
Proportionate Share of 24.039%.
5. OPERATING COSTS. Tenant shall, for the entire Term, and during
all Renewal Terms, pay to Landlord, as additional rent, without any set-off,
deduction or abatement, Tenant's Proportionate Share of Operating Costs incurred
by Landlord in the operation, maintenance, repair and management of the Building
and the Project, as applicable. Operating Costs shall be based on a one hundred
percent (100%)-occupied building whether or not the entire Building is actually
occupied.
"Operating Costs" are hereby defined to include, but shall not be
limited to: (i) real estate taxes and assessments levied or assessed against the
Building or the Project, general or special, ordinary or extraordinary, foreseen
or unforeseen, including, without limitation, ad valorum taxes, personal
property taxes, transit taxes, special or extraordinary assessments, government
levies, substitute taxes, assessments, excises, charges or fees assessed or
levied in lieu of the foregoing, and expenses and fees incurred in protesting
any of the foregoing taxes or assessments, but excluding income taxes, franchise
taxes, inheritance taxes and gift taxes; (ii) insurance premiums and
-6-
<PAGE> 8
costs including deductibles for the all-risk property and casualty insurance
that Landlord maintains under this Lease; (iii) the yearly amortization of
capital costs incurred by Landlord for improvements or structural repairs to the
Building or to the Project required to comply with any laws, rules or
regulations of any governmental authority having jurisdiction over the Building
or the Project which are enacted after the commencement date of this Lease, or
with any changes in laws, rules or regulations of any governmental authority
having jurisdiction over the Building or the Project which existed on the
commencement date of this Lease, but which changes were enacted or come into
effect after the commencement date of this Lease, or the application of either
("Legally Mandated Alterations"), or for the purposes of reducing Operating
Costs, which shall be amortized over the useful life of such improvements or
repairs at nine percent (9%) per annum, as reasonably estimated by Landlord;
(iv) costs of maintenance, repair, and replacement of the parking areas and
driveways (including periodic resurfacing as needed), sidewalks, loading docks
(if any), exterior light fixtures, landscaping, common signage, other common
areas and elements, and regular painting, care and maintenance of the exterior
of the Building; (v) the common fire protection, lighting, electrical, plumbing
and utility systems located in or serving the Building or the Project; (vi)
service, repair and maintenance of the roof on the Building (including
reasonable preventive care but excluding structural repairs/replacements); (vii)
costs of electricity, water and other utilities for the common areas; (viii) the
refuse collection for the Building for the Project if Landlord in its sole and
absolute discretion elects to provide such service; (ix) the reasonable cost of
any maintenance contract for any system or component in the Building or in the
Project (including without limitation the roof) or for any asbestos management
program employed on a periodic basis for the purpose of inspecting and
maintaining the condition of certain asbestos-containing materials and for the
air and other monitoring thereof, and the reasonable cost of any contract for
services provided to all tenants in the Building or in the Project; (x)
reasonable management fees charged by Landlord, an affiliate of Landlord or any
other entity managing the Building or the Project or any part thereof; (xi)
reasonable reserves for Operating Costs; (xii) assessments, charges, and fees
levied, assessed or imposed against the Building or the Project or any part
thereof under any CC&RS or any property owner association or authority; (xiii)
wages, salaries and compensation of employees, consulting, accounting, legal,
maintenance and other services; and (xiv) any other reasonable cost, charge, or
expense which under generally accepted accounting principles would be regarded
as a maintenance and operating expense of the Building or the Project, and, if
and to the extent Landlord is responsible under the provisions of this Lease for
maintenance and repair of such areas, improvements or property, the cost of any
repairs, alterations, additions, charges, replacements and the like which under
generally accepted accounting principles consistently applied are properly
classified as capital expenditures, capital repairs or capital improvements, but
excluding the cost of correcting structural defects in construction, and
excluding the cost of any repair made in accordance with paragraphs 11 and 15.
In no event will Operating Costs include, nor will Tenant be obligated
to pay for, (A) structural improvements (excepting Legally Mandated
Alterations), (B) depreciation, (C) Landlord's overhead, (D) unless caused by
Tenant, repairs,
-7-
<PAGE> 9
alterations, additions, improvements or replacements made to rectify or correct
any defect in the materials or workmanship of the Building or the Project or to
comply with any requirements of any governmental authority (excepting Legally
Mandated Alterations), (E) damage and repairs attributable to fire or other
casualty; (F) damage and repairs paid for under any insurance policy carried by
Landlord in connection with the Building or the Project; (G) costs incurred due
to violation by Landlord of the terms and conditions of this Lease; (H) legal
fees, brokerage commissions, advertising costs or other related expenses
incurred in connection with leasing; (I) accountants' fees; (J) sculptures or
artwork; (K) fees and costs incurred in connection with the defense of
Landlord's title or interest in the Building or the Project or any part thereof;
(L) rent and other costs payable under any ground lease; and (M) principal,
interest and other amounts paid pursuant to any loan secured by the Project or
the Building or any part thereof.
As soon as reasonably practicable prior to the commencement of each
calendar year during the Term, Landlord shall furnish to Tenant an estimate of
Tenant's Proportionate Share of Operating Costs for the ensuing calendar year
and Tenant shall pay, as additional rent hereunder together with each
installment of Rent, one-twelfth (1/12th) of its estimated annual share of such
Operating Costs. (Landlord shall also furnish to Tenant, prior to Tenant's
taking possession of the Premises, an estimate of Tenant's Proportionate Share
of Operating Costs for the current calendar year, which Tenant shall pay in the
same manner.) As soon as reasonably practicable (but in no event later than
ninety (90) days) after the end of each calendar year during the Lease Term,
Landlord shall furnish to Tenant a statement of the actual Operating Costs for
the previous calendar year, including Tenant's share of such amount, and within
thirty (30) days thereafter Tenant shall pay to Landlord, or Landlord to Tenant,
as the case may be, the difference between such actual and estimated Operating
Costs paid by Tenant. Tenant's share of such Operating Costs for the years in
which this Lease commences and terminates shall be prorated based upon the dates
of commencement and termination of the Lease Term.
The annual statement of actual Operating Costs shall be certified to be
correct by Landlord. Landlord shall maintain full and accurate books and records
with respect to all Operating Costs for a period of not less than one (1) year.
Tenant shall have the right at any time during normal business hours and
upon reasonable prior notice to Landlord to inspect and/or audit Landlord's
books and records with respect to Operating Costs. Tenant shall not have the
right, however, to inspect and audit Landlord's books and records with respect
to Operating Costs of any given year following the one hundred eightieth (180th)
day after Tenant's receipt of the statement of the actual Operating Costs for
the year in question. Landlord will bear the reasonable costs of Tenant's audit
if the audit discloses an overcharge by Landlord of more than five percent (5%).
The auditor shall be a CPA acceptable to Landlord and Tenant.
-8-
<PAGE> 10
6. TAXES.
6.1. PERSONAL PROPERTY TAXES.
(a) Tenant shall pay prior to delinquency all taxes
assessed against and levied upon trade fixtures, furnishings, furniture,
equipment and all other personal property of Tenant contained in the Premises or
elsewhere. When possible, Tenant shall cause such trade fixtures, furnishings,
furniture, equipment and all other personal property to be assessed and billed
separately from the Premises.
(b) If any of Tenant's personal property shall be
assessed with the Premises, Tenant shall pay Landlord the taxes attributable to
Tenant within thirty (30) days after receipt of a written statement from
Landlord setting forth the taxes applicable to Tenant's property.
6.2. TAX PROTEST. If Tenant desires to have the Real Property
Tax protested, Tenant shall notify Landlord at least sixty (60) days prior to
any deadline to protest the Real Property Tax. At Landlord's option Landlord may
elect to protest the Real Property Tax itself, in which event Landlord shall
diligently pursue such protest, the reasonable cost of which shall be one of the
Operating Costs under paragraph 5, or Landlord may elect to permit Tenant to
protest the Real Property tax at Tenant's sole expense. If required by law, the
Real Property Tax shall be paid under protest and in the lawfully prescribed
manner to preserve the right of protest. Landlord and Tenant shall cooperate one
with the other in conjunction with any protest of the Real Property Tax. Nothing
in this paragraph shall relieve Tenant of its obligation to pay to Landlord the
Real Property Tax as one of the Operating Costs under paragraph 5 required under
this Lease when due. In any event, Landlord shall always have the right to
protest the Real Property Tax.
7. SECURITY DEPOSIT. Tenant shall deposit with Landlord upon the
earlier of Tenant's early entry upon, or taking occupancy of, the Premises, one
(1) month Rent as security for Tenant's faithful performance of all Tenant's
obligations hereunder, including, without limitation, any liabilities of Tenant
under paragraph 14.2(d) and (i). If Tenant fails to pay rent or other charges
due hereunder or otherwise defaults with respect to any provision of this Lease,
within the applicable grace period, Landlord may use, apply or retain all or any
portion of said deposit for the payment of any rent, damages or other charge in
default or for which Landlord may suffer thereby. If Landlord so uses or applies
all or any portion of said deposit, Tenant shall within twenty (20) days after
written demand therefor deposit cash with Landlord in an amount sufficient to
restore said deposit to the full amount hereinabove stated and Tenant's failure
to do so shall be a material breach of this Lease. Landlord shall not be
required to keep said deposit separate from its general accounts. If Tenant
performs all of Tenant's obligations hereunder, said deposit, or so much thereof
as has not theretofore been applied by Landlord shall be returned, without
payment of interest or other increment for its use, to Tenant (or, at Landlord's
option, to the last assignee, if any, of Tenant's interest hereunder) at the
expiration of the term hereof,
-9-
<PAGE> 11
and after Tenant has vacated the Premises. No trust relationship is created
herein between Landlord and Tenant with respect to said security deposit.
8. USE; COMPLIANCE WITH LAW; ENVIRONMENTAL; CONDITION.
8.1. USE. The Premises shall be used and occupied only for
(a) general office and telemarketing purposes and for light manufacturing and
(b) such other similar purposes as may be approved by Landlord in writing, which
approval shall not be unreasonably withheld; provided, however, that all uses of
the Premises must be lawful, shall be in compliance with all zoning regulations,
codes, stipulations and conditions, as well as any CC&R's, shall be compatible
and in harmony with, and reflect credit to, the Project, of which the Premises
are a part, and shall not result in, nor have a reasonable likelihood of
resulting in, the release or discharge of contaminants, pollutants or hazardous
substances or wastes or give rise to cleanup or other liabilities or obligations
under the environmental laws. It is Tenant's responsibility to comply with all
applicable zoning ordinances or other ordinances, regulations, requirements,
stipulations, covenants and restrictions affecting Tenant's use or occupation of
the Premises.
8.2. COMPLIANCE WITH LAW.
(a) Other than the Asbestos and the light fixtures
containing PCB's (the "PCB's"), Landlord, without undertaking any investigation,
and without assuming any duty to investigate, other than the studies, surveys,
assessments, letter and conditions noted in the Disclosure Statement, has no
actual knowledge that the Premises, in their condition on the Commencement Date,
and without regard to the specific use for which Tenant will use the Premises,
materially violate any applicable law, regulation, rule, statute, zoning or
building code in effect on the Commencement Date ("Legal Requirements")
excepting only any violation that does not materially and adversely affect
Tenant's actual use and enjoyment of the Premises or will not put Tenant to any
expense. If it is determined, however, that the Premises are in material
violation of the Legal Requirements as of the Commencement Date and such
violation either (i) materially and adversely affects Tenant's actual use and
enjoyment of the Premises or (ii) legal authority requires that the Premises be
brought into compliance with the Legal Requirements, then it will be the
responsibility of Landlord, and not of Tenant, to take such steps as are
reasonably required, in orderly fashion, and at Landlord's sole expense, to
bring the Premises into compliance with the Legal Requirements. Landlord will
have no responsibility under this subparagraph unless Tenant gives Landlord
written notice of such a violation within one hundred eighty (180) days after
the Commencement Date.
(b) Except as provided in paragraph 8.2(a), Tenant
shall, at Tenant's expense, comply promptly with all applicable laws, statutes,
ordinances, rules, regulations, orders, covenants, restrictions of record,
insurance underwriters' requirements, and all other requirements in effect
during the term or any part of the term hereof, present or future, regulating
Tenant's operation on and occupancy and use of the Premises, exclusive of
Legally Mandated Alterations. Tenant shall not use the Premises, including
placing loads upon any floor or wall, in a manner for which the Premises were
-10-
<PAGE> 12
not designed, engineered or constructed. Tenant shall not place a load upon any
floor or wall exceeding the load per square foot (or other applicable unit) area
which such floor or wall was designed to carry and/or which is prescribed by any
law or regulation in existence during the term of this lease. Tenant shall not
use nor permit the use of the Premises in any manner that will tend to create
waste or a nuisance or, if there shall be more than one tenant in the building
containing the Premises, shall tend to offend, annoy or disturb such other
tenants. Tenant shall not cause the Premises to fall out of compliance with the
Americans with Disabilities Act (the Premises at Landlord's expense shall be in
compliance at the Commencement Date excepting only any noncompliance resulting
from design or other error caused by Tenant or its own agents or consultants).
The Premises, this Lease and Tenant's use of the Premises shall at all times
during this Lease be subject to and in full compliance with any CC&R's now or
later in force against the Premises.
8.3. ENVIRONMENTAL.
(a) The terms "Environmental Law" and "Environmental
Laws" include all current and future federal, state and local environmental
laws, statutes, rules, regulations and ordinances, as the same may be amended
and modified from time to time, including but not limited to, common law, the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
the Resource Conservation and Recovery Act ("RCRA"), the Toxic Substances
Control Act ("TSCA"), and also including, but not limited to, any current or
future law, statute, rule, regulation or ordinance (whether federal, state or
local) regulating, protecting, preserving, cleaning or concerning the
environment (including air, soil, subsoil, water, ground water, land use or
operations).
(b) The terms "Hazardous Substance" and "Hazardous
Substances" include any and all hazardous substances, hazardous wastes,
hazardous materials, regulated substances, toxic substances, pesticides,
fungicides, rodenticides, petroleum products, asbestos or asbestos-containing
materials, polychlorinated biphenyls, radon gas, urea formaldehyde foam
insulation, flammable items, explosives, radioactive materials, paints,
solvents, lead, cyanide, DDT, printing inks, acids, ammonia compounds and other
chemical products, PCBs and similar compounds, and any other products or
materials which may have adverse effects on the environment or the health and
safety of persons, and any and all other substances, wastes, pollutants,
contaminants and materials regulated or controlled in any manner by any
Environmental Law.
(c) Tenant shall not cause or permit any Hazardous
Substance to be generated, produced, brought upon, transported to or from, used,
stored, recycled, treated or disposed of in or about the Premises by Tenant, its
agents, employees, contractors, sublessees or invitees without the prior written
consent of Landlord. It is not intended by any provision in paragraph 8.3, or in
any other part of this Lease, that Tenant will have responsibility or liability
to Landlord for (i) any Hazardous Substance dumped or placed on the Premises by
a wholly unrelated third party without the knowledge or consent of Tenant and
that was not caused or contributed to, directly or indirectly, by Tenant, its
agents, employees, contractors, assignees, sublessees or invitees, and this
sentence shall not be construed to exculpate Tenant from the
-11-
<PAGE> 13
consequences of any such act or omission by an assignee or a sublessee of Tenant
or the agents, employees, contractors, sublessees or invitees of either or both;
(ii) the Asbestos or the treatment thereof (excepting only Tenant's payment
obligation under paragraph 3.2(a)); or (iii) any Hazardous Material or other
condition described in the Disclosure Statement or by any study, survey,
assessment or letter noted in the Disclosure Statement ("Excluded Conditions").
Landlord shall be entitled to take into account such factors as Landlord may
reasonably determine to be relevant in determining whether to grant or withhold
consent to Tenant's proposed activity with respect to Hazardous Substances, and
to require appropriate safeguards and other protection. Landlord shall not
unreasonably withhold its written consent to Tenant's use of substances which
may qualify as Hazardous Substances but which are incidental to Tenant's use of
the Premises and which can be used safely without risk to the environment and
which shall be used in full compliance with applicable Environmental Laws. In no
event, however, shall Landlord be required to consent to the installation or use
of any storage tanks or containers on the Premises, or to any use, activity, or
practice which may pose an environmental risk to, and/or result in the release,
spill, discharge, or disposal of Hazardous Substances in, upon, under, or about
the Premises, or adjacent property (including but not limited to the air or the
ground water). Tenant shall not, and Tenant shall ensure that Tenant's agents,
employees, contractors, sublessees and invitees shall not, release, spill,
discharge, or dispose of any Hazardous Substance in, upon, under, or about the
Premises, or adjacent property (including but not limited to the air or the
ground water). Tenant shall not install nor permit to be installed on or in the
Premises any substance containing asbestos and determined to be hazardous by any
governmental authority or any friable asbestos. If any such substance or any
friable asbestos is determined to be in or on the Premises as a result of the
actions of Tenant, Tenant shall promptly comply with any applicable
Environmental Laws (which may or may not require removal of the material), at
Tenant's expense.
(d) Tenant shall fully comply with, and cause its
agents, employees, contractors, sublessees, and invitees to fully comply with
all Environmental Laws in respect with their use of the Premises. Tenant shall
obtain, comply with, and provide Landlord with copies of all permits required in
connection with Tenant's use of the Premises or by any Environmental Law.
(e) Landlord or its agents may enter the Premises at
all reasonable times to inspect and conduct tests in order to monitor Tenant's
compliance with all applicable Environmental Laws and the provisions of this
paragraph 8.3. In the absence of an emergency Landlord and its agents shall
schedule any inspection or testing of the Premises in a way to minimize
interference with Tenant's operations on the Premises.
(f) Tenant shall promptly notify Landlord of any of
the following:
(i) Any emission, spill, release, or
discharge into the environment of any Hazardous Substances.
-12-
<PAGE> 14
(ii) Any correspondence or communication to
Tenant or its agents regarding the presence or suspected presence of Hazardous
Substances on the Premises or regarding the application of the Environmental
Laws to the Premises or Tenant's activities on the Premises.
(iii) Tenant's knowledge of any circumstances
reasonably likely to give rise to a claim that Tenant, Landlord, or the Premises
may be in violation of the Environmental Laws.
(iv) Any change in Tenant's activities on the
Premises that will change or has the potential to change Tenant's or Landlord's
obligations or liabilities under the Environmental Laws.
(g) Excepting the Excluded Conditions, Tenant shall
indemnify, defend and hold Landlord and Landlord's shareholders, directors,
officers, partners, members, agents, employees, and affiliates, and their
respective successors and assigns, harmless, through counsel reasonably
acceptable to Landlord, for, from, and against all costs, expenses, claims
(including, without limitation, toxic-tort or third-party claims), damages,
actions, liabilities, suits, investigations, judgments, impositions, clean-up
and remediation costs (including without limitation, costs of removing
transformers or other equipment which contain polychlorinated biphenyls,
underground storage tanks and asbestos or asbestos-containing materials and the
costs of cleaning any contaminated drywells), "super priority" liens, fines
(civil or criminal) and penalties of every nature, whatsoever, including without
limitation, related attorneys' fees and expenses incurred by Landlord and
Landlord's shareholders, directors, officers, partners, members, agents,
employees, and affiliates, and their respective successors and assigns, directly
or indirectly, by reason of Tenant's breach of any provision of this paragraph
8.3, or by reason of any violation of, or noncompliance with, or the application
of, any Environmental Law, by, or by reason of the acts or omissions of, Tenant
or its agents, employees, contractors, sublessees, or invitees, or the use and
occupation of the Premises by any of them (but excluding the acts and omissions
of Landlord or its agents, employees, contractors, sublessees, or invitees) in,
upon, about, or under the Premises, including but not limited to a release,
spill, discharge or disposal of a Hazardous Substance. This indemnification by
Tenant shall include, without limitation, all costs of any investigation,
monitoring, removal, restoration, abatement, repair, clean up, detoxification or
other ameliorative work required by any governmental agency or Environmental
Law. The provisions of this paragraph 8.3 shall survive the expiration or
termination of this Lease, termination of Tenant's occupancy of the Premises, or
Tenant's abandonment or vacation of the Premises.
(h) Landlord shall indemnify, defend and hold Tenant
and Tenant's shareholders, directors, officers, partners, members, agents,
employees, and affiliates, and their respective successors and assigns,
harmless, through counsel reasonably acceptable to Tenant, for, from, and
against all costs, expenses, claims (including, without limitation, toxic-tort
or third-party claims), damages, actions, liabilities,
-13-
<PAGE> 15
suits, investigations, judgments, impositions, clean-up and remediation costs
(including without limitation, costs of removing transformers or other equipment
which contain polychlorinated biphenyls, underground storage tanks and asbestos
or asbestos-containing materials [excepting the Asbestos identified in the
Asbestos Survey] and the costs of cleaning any contaminated drywells), "super
priority" liens, fines (civil or criminal) and penalties of every nature,
whatsoever, including without limitation, related attorneys' fees and expenses
incurred by Tenant and Tenant's shareholders, directors, officers, partners,
members, agents, employees, and affiliates, and their respective successors and
assigns, directly or indirectly, by reason of a release, spill, discharge, or
disposal of a Hazardous Substance by Landlord or its agents, employees,
subcontractors, or invitees, in, upon, about, or under the Premises which occurs
prior to the earlier of the Commencement Date or the date on which Tenant takes
possession of the Premises to conduct its business, or by reason of Landlord's
own storage or treatment of a Hazardous Substance in, upon, about, or under the
Premises or violation of, or noncompliance with, any Environmental Law, but
excluding the acts and omissions of Tenant or its agents, employees,
contractors, sublessees, or invitees including, without limitation, any release,
spill, discharge or disposal of a Hazardous Substance by Tenant or its agents,
employees, contractors, sublessees, or invitees, or by reason of Landlord's
breach of any obligation under this subparagraph (h). This indemnification by
Landlord shall include, without limitation, all costs of any investigation,
monitoring, removal, restoration, abatement, repair, clean up, detoxification or
other ameliorative work required by any governmental agency or Environmental
Law. The provisions of this paragraph 8.3(h) shall survive the expiration or
termination of this Lease. Notwithstanding any provision in this Lease to the
contrary, Landlord's only obligation to Tenant in respect to the Asbestos or the
PCB's is the express undertaking of Landlord agreed to in paragraph 3.2(a).
(i) Landlord hereby makes disclosure to Tenant of
the environmental conditions noted in the Disclosure Statement attached as
EXHIBIT G or in the studies, assessments, surveys and letter described therein,
all of which Landlord has either earlier delivered to Tenant or made available
to Tenant for its own review.
8.4. CONDITION OF PREMISES.
(a) Landlord shall deliver the Premises to Tenant
clean and free of debris on the Commencement Date (unless Tenant is already in
possession or has made an early entry under paragraph 3.6) and Landlord further
affirms to Tenant that the plumbing, lighting and loading doors in the Premises
shall be in good operating condition on the Commencement Date, excepting any
Asbestos or the PCB's contained in the light fixtures. In the event that it is
determined that this affirmation is untrue, unless Tenant has caused the
problem, it shall be the obligation of Landlord, after receipt of written notice
from Tenant setting forth with specificity the nature of the violation, which
Landlord must receive within 180 days after the Commencement Date, to promptly,
at Landlord's sole cost, rectify such violation. Tenant's failure to give such
written notice to Landlord promptly after Tenant's actual discovery of the
violation shall cause the conclusive presumption that Landlord has complied with
all of Landlord's obligations hereunder.
-14-
<PAGE> 16
(b) Except as otherwise expressly provided in this
Lease, Tenant hereby accepts the Premises in the condition existing as of the
Commencement Date or the date that Tenant takes possession of the Premises,
whichever is earlier, subject to all applicable zoning, municipal, county and
state laws, ordinances and regulations governing and regulating the use of the
Premises and any CC&R's, and accepts this Lease subject thereto and to all
matters disclosed thereby. Tenant acknowledges that neither Landlord nor
Landlord's agent has made any representation or warranty or other promise as to
the suitability of the Premises for the conduct of Tenant's business other than
as set forth in the express provisions of this Lease.
9. MAINTENANCE, REPAIRS AND ALTERATIONS.
9.1. TENANT'S OBLIGATIONS. Excepting only Landlord's
obligations under paragraph 9.4, Tenant shall maintain, replace, and keep in
good order, condition and repair, the interior of the Premises, and every part
thereof, (whether or not the need for such repairs occurs as a result of
Tenant's use, any prior use, the elements or the age of such portion of the
Premises) including, without limiting the generality of the foregoing, the
maintenance, repair and replacement of all plumbing, heating, air conditioning,
ventilating, electrical, lighting facilities and equipment within the Premises,
fixtures, walls (interior), ceilings, floors, windows (unless defective), doors
and plate glass located within the Premises. Tenant shall also be responsible
for regular painting of the interior of the Premises. Tenant shall, at all times
throughout the Term, including all renewals and extensions, and at its sole
expense, keep and maintain the interior and the exterior of the Premises in a
clean, safe, orderly, sanitary and first class condition in compliance with all
applicable laws, codes, ordinances, rules and regulations, exclusive of Legally
Mandated Alterations, free of any accumulation of dirt and rubbish, and Tenant
shall arrange its own trash removal. Tenant is free to use its own professional
management or facilities management in its maintenance of the Premises so long
as the quality thereof is in keeping with Tenant's obligations to Landlord under
this Lease.
9.2. SURRENDER. On the last day of the term hereof, or on any
sooner termination, Tenant shall surrender the Premises to Landlord in the same
condition as when received, ordinary wear and tear excepted, clean and free of
damage or debris. Tenant shall repair any damage to the Premises occasioned by
the installation or removal of Tenant's trade fixtures, furnishings and
equipment. Notwithstanding anything to the contrary otherwise stated in this
Lease, Tenant shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, space heaters, air conditioning and plumbing on the
Premises in good operating condition.
9.3. LANDLORD'S RIGHTS. If Tenant fails to perform Tenant's
obligations under this paragraph, or under any other paragraph of this Lease,
Landlord may at its option (but shall not be required to) enter upon the
Premises or take other appropriate action after ten (10) days prior written
notice to Tenant (except in the case of urgency, in which case no notice shall
be required), perform such obligations on Tenant's behalf and put the same in
good order, condition and repair, or take other appropriate action, and the cost
thereof, together with interest thereon at two points over the Bank of
-15-
<PAGE> 17
America prime rate announced from time to time, shall become due and payable on
demand as additional rental to Landlord.
9.4. LANDLORD'S OBLIGATIONS. Notwithstanding paragraph 9.1,
Landlord shall repair and maintain the roof (structural and nonstructural),
structural floor, exterior structural walls, foundations, parking areas,
driveways, sidewalks, loading docks, exterior light fixtures, landscaping,
common signage and other common elements and common areas, in good order and
repair, except that Tenant shall repair and pay for any damage thereto caused by
Tenant or Tenant's employees, agents or invitees, or by Tenant's default
hereunder. Tenant shall immediately give Landlord written notice of any defect
or need of repair after which Landlord shall have reasonable opportunity to
repair same or cure such defect. Landlord's liability hereunder shall be limited
to the cost of such repairs or curing such defect. Landlord shall not be liable
for damage to Tenant's improvements, fixtures, inventory and equipment within
the Premises. In the event of failure by Landlord to perform its covenants and
obligations to repair and maintain the Premises under this paragraph 9.4, Tenant
may, at its option, after ten (10) days written notice, or sooner in an
emergency, proceed to make such repairs or perform such maintenance and be
reimbursed by Landlord ten (10) business days after written demand by Tenant. If
Landlord fails to pay Tenant when due any sum owing hereunder interest at two
points over the Bank of America prime rate announced from time to time shall
accrue on such sum.
With the exception of roof structure, structural floor, exterior
structural walls and foundations, all costs and expenses incurred by Landlord
under this paragraph 9.4 for the repair and maintenance of the Premises, the
Building and the Project, as enumerated above, shall be included in Operating
Costs under paragraph 5, for which Tenant will be obligated to pay its
Proportionate Share thereof to Landlord.
Except for the obligations, if any, of Landlord under paragraph
8.2(a), this paragraph 9.4 and paragraph 11 (relating to destruction of the
Premises), Landlord have no obligation, in any manner whatsoever, to repair,
replace and maintain the Premises or the improvements located thereon or the
equipment therein, all of which obligations are intended to be that of the
Tenant under paragraph 9.1 hereof, excluding any Legally Mandated Alterations.
Tenant expressly waives the benefit of any statute or law now or hereinafter in
effect which would otherwise afford Tenant the right to make repairs at
Landlord's expense or to terminate this Lease because of Landlord's failure to
keep the Premises in good order, condition and repair, but Tenant's waiver shall
not relieve Landlord of any express contractual repair obligations placed on
Landlord by this Lease. Notwithstanding the foregoing, should Landlord receive
any warranties or guaranties of any materials, equipment or workmanship and such
warranty or guaranty is applicable to portions of the Premises for which Tenant
is liable to repair and maintain as required hereunder, Landlord shall enforce
such warranties to the fullest possible extent.
-16-
<PAGE> 18
9.5. ALTERATIONS AND ADDITIONS.
(a) Tenant shall not, without Landlord's prior
written consent, which shall not unreasonably be withheld, make any alterations,
improvements, additions or Utility Installations in, on or about the Premises,
except for nonstructural alterations not exceeding Twenty-Five Thousand Dollars
($25,000.00) per alteration and Two Hundred Fifty Thousand Dollars ($250,000.00)
in cumulative costs during the term of this Lease. In any event, Tenant shall
make no change or alteration to the exterior of the Premises (including without
limitation expansion of the building) or to the exterior of the building on the
Premises or to the structural or mechanical elements of the Premises or add a
mezzanine or increase the useable floor area in the Premises without Landlord's
prior written consent. Such alterations and additions shall not decrease the
value of the Premises, or impair the structural integrity of the Premises. As
used in this paragraph 9.5 the term "Utility Installation" shall mean window
coverings, air lines, power panels, electrical distribution systems, space
heaters, air conditioning, plumbing and fencing. Landlord may require that
Tenant remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term, and restore the Premises to their
prior condition or, at Landlord's election, reimburse Landlord for the cost of
such restoration. Landlord may require Tenant to provide Landlord, at Tenant's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of any improvements having a projected cost of
Fifty Thousand Dollars ($50,000.00) or more, to insure Landlord against any
liability for mechanic's and materialmen's liens and to insure completion of the
work. Landlord may impose reasonable conditions from time to time with respect
to the improvements to which Landlord may consent, including without limitation,
compliance with all laws, rules, Environmental Laws, regulations, ordinances and
requirements of governments or governmental agencies, and the time and manner in
which such work shall be accomplished. Should Tenant make any alterations,
improvements, additions or Utility Installations without the prior approval of
Landlord, Landlord may require that Tenant remove any or all of the same.
Landlord shall have the right to approve Tenant's contractor(s), which approval
shall not be unreasonably withheld.
Notwithstanding the foregoing, Tenant may add Tenant's
communications equipment to the roof of the Premises so long as all roof-mounted
equipment strictly complies with applicable CC&R's, laws and building codes and
does not interfere with any roof-mounted equipment of other tenants. Tenant will
be solely responsible for all structural and non-structural modifications
required to install or remove its roof-mounted equipment. All work will be done
at Tenant's expense in strict compliance with the provisions of this paragraph
9.5. Landlord shall have the right to have a representative of Landlord present
at all times during such installation or removal. Landlord will have no
responsibility whatsoever for the safety or well being of Tenant's roof-mounted
equipment. Tenant will repair immediately any damage caused to the roof or other
parts of the Premises.
(b) Any alterations, improvements, additions, or
Utility Installations in, or about the Premises that Tenant shall desire to make
and which requires
-17-
<PAGE> 19
the consent of the Landlord shall be presented to Landlord in written form, with
proposed detailed plans. Landlord shall have ten (10) business days to review
the proposed alterations, improvements, additions or Utility Installations and
related detailed plans. If Landlord shall give its consent, the consent shall be
deemed conditioned upon Tenant acquiring a permit to do so from appropriate
governmental agencies (if legally required), the furnishing of a copy thereof to
Landlord prior to the commencement of the work and the compliance by Tenant of
all conditions of the permit in a prompt and expeditious manner and compliance
by Tenant with all laws, rules, regulations, recommendations and/or requirements
of any government or governmental agency. In no event shall Tenant cause the
Premises to fall out of compliance with such laws, rules, regulations,
recommendations or requirements.
(c) Tenant shall pay, when due, all claims for
labor, professional services and materials furnished to or for Tenant at or for
use in the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Tenant shall
give Landlord not less than ten (10) business days' notice prior to the
commencement of any work in the Premises, and Landlord shall have the right to
post notices of non-responsibility in or on the Premises as provided by law. If
Tenant shall, in good faith, contest the validity of any such lien, claim or
demand, then Tenant shall, at its sole expense defend itself and Landlord
against the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof against the Landlord or the
Premises, upon the condition that if Landlord shall require, Tenant shall
furnish to Landlord a surety bond satisfactory to Landlord in an amount equal to
one hundred fifty percent (150%) of such contested lien claim or demand
indemnifying Landlord against liability for the same and holding the Premises
free from the effect of such lien or claim
(d) Unless Landlord informs Tenant in writing when
such items are installed that Landlord will require their removal at the end of
the Term, all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Tenant),
which may be made on the Premises, shall become the property of Landlord and
remain upon and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of this paragraph 9.5 (d), Tenant's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Tenant and may be removed by Tenant subject to the provisions of paragraph 9.2,
and subject to Landlord's statutory landlord's lien rights in the event of
Tenant's uncured default under this Lease. Removal of alterations, improvements,
additions or utility installations under this paragraph will be without damage
to, or defacement of, the Premises, and Tenant at its sole expense shall restore
the Premises to the condition they were in before the installation, ordinary
wear and tear excepted.
-18-
<PAGE> 20
10. INSURANCE AND INDEMNITY.
10.1. LIABILITY INSURANCE.
(a) Tenant shall, at Tenant's expense, obtain and
keep in force during the term of this Lease and during Tenant's occupancy of the
Premises a policy of comprehensive (broad form) general liability insurance with
a Three Million Dollar ($3,000,000.00) combined single limit for bodily injury,
including death, and property damage, including but not limited to, contractual
liability under this Lease and personal injury, covering the Premises and
Tenant's use and occupancy thereof against all claims on account of bodily
injury or death and property damage occurring upon, in or about the Premises or
in connection with the ownership, maintenance use and/or occupancy of the
Premises and all appurtenant areas. Landlord and at Landlord's option any
mortgagee of Landlord shall be named as insured or additional insureds under the
policy. The policy shall insure performance by Tenant of its indemnity
provisions contained in this Lease. The limits of said insurance shall not,
however, limit the liability of Tenant hereunder. Tenant shall comply with all
rules, orders, directions, regulations, requirements and recommendations of the
Board of Underwriters and the Insurance Services Office or any similar bodies
and shall not do or permit anything to be done in or upon the Premises or bring
upon or keep anything therein which shall increase the rates of any insurance on
the Premises.
10.2. PROPERTY INSURANCE.
(a) Landlord shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Premises in the amount of the full replacement value thereof, excluding
foundation, grading and excavation costs, as the same may exist from time to
time, against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, flood (in the event same is required by
a lender having a lien on the Premises), and special extended coverage ("all
risk"). Said insurance shall provide for payment of loss thereunder to Landlord
or to the holders of mortgages or deeds of trust on the Premises. Landlord may,
in addition, obtain and keep in force during the term of this Lease a policy of
rental value insurance covering all of Tenant's rent and additional rent
obligations under this Lease for a period of one year, with loss payable to
Landlord. A stipulated value or agreed amount endorsement deleting the
coinsurance provision of the policy shall be procured with said insurance, as
well as an automatic increase in insurance endorsement causing the increase in
annual property insurance coverage by 2% per quarter. If such insurance coverage
has a deductible clause, Tenant shall be liable for such deductible amount up to
a maximum of Ten Thousand Dollars ($10,000.00). Tenant shall pay to Landlord, as
additional rent, Tenant's Proportionate Share of the costs of all insurance
and/or deductible required hereunder within thirty (30) days after demand by
Landlord.
(b) Landlord will not insure Tenant's fixtures or
equipment, or insure tenant improvements and other property unless the tenant
improvements have
-19-
<PAGE> 21
become a part of the Premises under paragraph 9 hereof. Tenant shall insure its
own fixtures, equipment, tenant improvements and other property.
10.3. INSURANCE POLICIES. Insurance required hereunder shall
be in companies holding a "General Policyholders Rating" of at least A-, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Key Rating Guide". Tenant shall
provide to Landlord copies of insurance certificates evidencing the existence
and the amounts of insurance required in paragraph 10.1 (and in paragraph 10.2
if Tenant is required to obtain and keep it in force) upon Tenant's execution of
this Lease. No such policy shall be cancelable or subject to reduction of
coverage or other modification except after thirty (30) days prior written
notice to Landlord. Tenant shall, at least thirty (30) days prior to the
expiration of such policies, furnish Landlord and any mortgagee of Landlord
named as an insured with renewal certificates, or Landlord may, in such event,
or in any other event when Tenant has failed to provide insurance coverage as
required hereunder, at its option, order such insurance and charge the cost
thereof to Tenant, which amount shall be payable by Tenant upon demand. Tenant
shall not do or permit to be done anything which shall invalidate the insurance
policies referred to in this paragraph 10. If Tenant does or permits to be done
anything which shall increase the costs of the insurance policies referred to in
paragraph 10.2, then Tenant shall forthwith upon Landlord's demand reimburse
Landlord for any additional premiums attributable to any act or omission or
operation of Tenant causing such increase in the cost of insurance. Any
insurance maintained by Tenant under this Lease shall be primary and
non-contributory with any insurance coverage separately maintained by Landlord.
10.4. WAIVER OF SUBROGATION. Tenant and Landlord each hereby
release and relieve the other, and waive their entire right of recovery against
the other for loss or damage arising out of or incident to the perils insured
against under paragraph 10.2 which perils occur in, on or about the Premises,
whether due to the negligence of Landlord or Tenant or their agents, employees,
contractors and/or invitees but only to the extent that insurance policies then
in effect permit such waiver without impairing coverage and only to the extent
of the coverage provided by such insurance policies. Tenant and Landlord shall,
upon obtaining the policies of insurance required hereunder, give notice to the
insurance carrier or carriers that the foregoing mutual waiver of subrogation is
contained in this Lease.
10.5. TENANT'S INDEMNITY OF LANDLORD. Tenant shall indemnify,
defend, and hold harmless Landlord for, from and against any and all claims
arising from Tenant's or Tenant's sublessee's or assignee's (or their respective
agents, servants, employees or contractors) use or occupancy of the Premises, or
from the conduct of Tenant's business or from any activity, work or things done,
permitted or suffered by Tenant or Tenant's sublessee or assignee (or their
respective agents, servants, employees or contractors) in or about the Premises
and shall further indemnify, defend and hold harmless Landlord for, from and
against any and all claims arising from any breach or default in the performance
of any obligation on Tenant's part to be performed under the terms of this
Lease, including, without limitation, the provisions of paragraph 8.2,
-20-
<PAGE> 22
or arising from any negligence of the Tenant, or any of Tenant's agents,
contractors or employees, and from and against all costs, attorneys' fees,
expenses and liabilities incurred in the defense of any such claim or any action
or proceeding brought thereon; and in case any action or proceeding be brought
against Landlord by reason of such claim, Tenant upon notice from Landlord shall
defend the same at Tenant's expense by counsel reasonably satisfactory to
Landlord. Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of damage to property or injury to persons in, upon or about
the Premises arising from any cause, excepting the negligence or intentional
wrongs of Landlord or Landlord's agents, employees or contractors, or Landlord's
breach of this Lease, and Tenant hereby waives all claims in respect thereof
against Landlord. Tenant's obligations and liabilities under this paragraph 10.5
shall survive the term(s) of this Lease, termination of this Lease or
termination of Tenant's occupancy of the Premises. Notwithstanding the
foregoing, Tenant shall have no liability hereunder on account of defects in the
Premises not caused by Tenant or the agents, employees, contractors or invitees
of Tenant.
10.6. EXEMPTION OF LANDLORD LIABILITY. Except as expressly
provided to the contrary in Paragraph 10.7, and excepting loss or damage caused
by the negligence of or intentional acts of Landlord or Landlord's agents,
employees or contractors, or Landlord's breach of this Lease, Tenant hereby
agrees that Landlord shall not be liable for injury to Tenant's business or for
any loss of income therefrom or for damage to the goods, wares, merchandise or
other property of Tenant, Tenant's employees, invitees, customers or any other
person in or about the Premises; nor shall Landlord be liable for injury to the
person of Tenant, Tenant's employees, agents or contractors, whether such damage
or injury is caused by or results from fire, steam, electricity, gas, water or
rain, or from the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures,
or from any other cause, whether damage or injury results from conditions
arising upon the Premises or upon other portions of the building of which the
Premises are a part, or from other sources or places and regardless of whether
the cause of such damage or injury or the means of repairing the same is
inaccessible to Tenant.
10.7. LANDLORD'S INDEMNITY OF TENANT. Landlord shall
indemnify, defend, and hold harmless Tenant for, from and against any and all
claims arising from the conduct of Landlord's business or from any activity,
work or things done, permitted or suffered by Landlord (or Landlord's agents,
servants, employees or contractors) in or about the Premises and shall further
indemnify, defend and hold harmless Tenant for, from and against any and all
claims arising from any breach or default in the performance of any obligation
on Landlord's part to be performed under the terms of this Lease, including any
breach of an express warranty made by Landlord under this Lease, or arising from
any negligence of the Landlord, or any of Landlord's agents, contractors or
employees, and from and against all costs, attorneys' fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Tenant by reason of such claim, Landlord upon notice from Tenant shall
defend the same at Landlord's expense by counsel reasonably satisfactory to
Tenant. Landlord's obligations and liabilities under this paragraph 10.7 shall
-21-
<PAGE> 23
survive the termination of this Lease. Notwithstanding the foregoing, Landlord
shall have no liability hereunder on account of defects in the Premises not
caused by Landlord or the agents, employees, contractors or invitees of
Landlord.
11. DAMAGE OR DESTRUCTION.
11.1. DEFINITIONS.
(a) "Premises Partial Damage" shall mean damage or
destruction to the Improvements to the extent that the cost of repair is less
than 25% of the then replacement cost of the Improvements as a whole.
(b) "Premises Total Destruction" shall herein mean
damage or destruction to the Improvements to the extent that the cost of repair
is 25% or more of the then replacement cost of such Improvements as a whole.
(c) "Insured Loss" shall herein mean damage or
destruction which was caused by an event required to be covered by the insurance
described in paragraph 10, and sufficient insurance proceeds are available for
repairs and restoration free of any claim of the holder of a mortgage or deed of
trust on the Premises.
11.2. PARTIAL DAMAGE - INSURED LOSS. Subject to the provisions
of paragraphs 11.4, 11.5 and 11.6, if at any time during the term of this Lease
there is damage which is an Insured Loss and which falls into the classification
of Premises Partial Damage, then Landlord shall, unless Landlord's mortgagee or
lender requires otherwise, at Landlord's expense, repair such damage (but not
Tenant's fixtures, equipment or tenant improvements unless the same have become
a part of the Premises pursuant to paragraph 9.5) as soon as reasonably possible
and this Lease shall continue in full force and effect. If the insurance
proceeds received by Landlord are not sufficient to effect such repair (unless
the insufficiency results from Tenant's failure (if the insuring party) to
adequately insure the Premises), Landlord shall contribute the short-fall and
shall make such repairs as soon as reasonably possible and this Lease shall
continue in full force and effect. If the insurance proceeds received by
Landlord are insufficient to effect such repairs because of Tenant's own failure
(if the insuring party) to adequately insure the Premises, Tenant shall
contribute the short-fall.
11.3. PARTIAL DAMAGE - UNINSURED LOSS. Subject to the
provisions of paragraphs 11.4, 11.5, and 11.6, if at any time during the term of
this Lease there is damage which is not an Insured Loss and which falls within
the classification of Premises Partial Damage, unless caused by Tenant's Breach
of this Lease or by any other act of Tenant (in which event Tenant shall make
the repairs at Tenant's expense), Landlord may at Landlord's option either (i)
repair such damage as soon as reasonably possible at Landlord's expense, in
which event this Lease shall continue in full force and effect, or (ii) give
written notice to Tenant within thirty (30) days after the date of the
occurrence of such damage of Landlord's intention to cancel and terminate this
Lease, as of the date of the occurrence of such damage. In the event Landlord
elects to give such notice of Landlord's
-22-
<PAGE> 24
intention to cancel and terminate this Lease, Tenant shall have the right within
ten (10) days after the receipt of such notice to give written notice to
Landlord of Tenant's intention to repair such damage at Tenant's expense,
without reimbursement from Landlord, in which event this Lease shall continue in
full force and effect, and Tenant shall proceed to make such repairs as soon as
reasonably possible. If Tenant does not give such notice within such ten (10)
day period this Lease shall be canceled and terminated as of the date of the
occurrence of such damage.
11.4. TOTAL DESTRUCTION. If at any time during the term of
this Lease there is damage, whether or not an Insured Loss (including
destruction required by any authorized public authority), which falls into the
classification of Premises Total Destruction, this Lease shall automatically
terminate as of the date of such total destruction.
11.5. DAMAGE NEAR END OF TERM. If at any time during the last
nine months of the Term of this Lease there is damage, whether or not an Insured
Loss, which falls within the classification of Premises Partial Damage, Landlord
or Tenant may terminate this Lease as of the date of occurrence of such damage
by giving written notice to Tenant of Landlord's election to do so within thirty
(30) days after the date of occurrence of such damage.
11.6. ABATEMENT OF RENT; TENANT'S REMEDIES.
(a) In the event of damage described in paragraphs
11.2 or 11.3, and Landlord or Tenant repairs or restores the Premises pursuant
to the provisions of this paragraph 11, Rent payable hereunder for the period
during which such damage, repair or restoration continues shall be equitably
abated on the damaged building in proportion to the degree to which Tenant's use
of the building is prevented. Except for abatement of Rent, if any, Tenant shall
have no claim against Landlord for any loss or damage including, without
limitation, loss of business suffered by reason of any such damage, destruction,
repair or restoration.
(b) If Landlord shall be obligated, or otherwise
elects, to repair or restore the Premises under the provisions of this paragraph
11 and shall not commence such repair or restoration within a reasonable period
of time after the casualty, with due consideration given to adjustment of loss,
plans and governmental approvals, subject to reasonable extension for Force
Majeure beyond Landlord's control or because it is otherwise impracticable for
Landlord to commence repairs within such time period, Tenant may at Tenant's
option cancel and terminate this Lease by giving Landlord written notice of
Tenant's election to do so at any time prior to the commencement of such repair
or restoration. In such event this Lease shall terminate as of the date of such
notice.
11.7. TERMINATION - ADVANCE PAYMENTS. Upon termination of this
Lease pursuant to this paragraph 11, an equitable adjustment shall be made
concerning advance Rent and any advance payments made by Tenant to Landlord.
Landlord shall, in
-23-
<PAGE> 25
addition, return to Tenant within thirty (30) days after termination of this
Lease so much of Tenant's security deposit (if any) as has not been applied by
Landlord.
11.8. WAIVER. Tenant waives the provisions of any statutes
which relate to termination of leases when leased property is damaged, injured
or destroyed and agrees that such event shall be governed by the terms of this
Lease.
12. UTILITIES. Tenant shall pay for all water, sewer, gas, heat,
light, power, electricity, telecommunications including telephone and other
utilities and services supplied to the Premises, together with any taxes
thereon. At the Commencement Date, the Premises' HVAC system will have a BTU
meter to record separately Tenant's utility costs associated with its own HVAC
system and the two additional electric sub-meters described in EXHIBIT D. If any
services are not separately metered to Tenant, or if they are sub-metered but
the utility provider provides only one billing to Landlord, Tenant shall pay a
reasonable proportion to be determined by Landlord in its reasonable discretion
of all charges jointly metered with other premises, without mark-up for profit
to Landlord. If Tenant fails to utilize utilities that are provided to the
Premises by Landlord to accommodate Tenant's needs, resulting in a charge to
Landlord, Tenant shall pay Landlord the cost thereof upon demand (example:
Tenant requests natural gas, Landlord makes the necessary improvements with a
right to a credit based on gas volume delivered to the Premises, Tenant fails to
use gas and Landlord does not recoup its investment). Tenant is solely
responsible for all service deposits required by utilities and providers and if
Landlord has advanced any service deposit (with no obligation to do so) on
behalf of Tenant, Tenant will reimburse Landlord on demand.
13. ASSIGNMENT AND SUBLETTING.
13.1. LANDLORD'S CONSENT REQUIRED. Tenant shall not
voluntarily or by operation of law assign, transfer, mortgage, sublet or
otherwise transfer or encumber all or any part of Tenant's interest in this
Lease or in the Premises, without Landlord's prior written consent, which shall
not be unreasonably withheld, delayed or conditioned. A transfer of any
percentage interest in Tenant (whether stock, partnership interest, limited
liability membership, or otherwise) in a single transaction or a related series
of transactions; or any increase in the amount of issued and/or outstanding
shares of capital stock of any corporate Tenant and/or the creation of one or
more additional classes of capital stock of any corporate Tenant, in a single
transaction or a related series of transactions, with the result that fifty
percent (50%) or more of the beneficial and record ownership in and to such
Tenant shall be transferred or voting control of the company shall change, shall
be deemed an assignment within the meaning of the foregoing sentence. Landlord
and Tenant agree that the following factors may be considered by Landlord in any
reasonable determination of the appropriateness of Tenant's request to assign or
sublet the Premises:
(a) The financial strength of the proposed
subtenant/assignee must demonstrate an ability on the part of the
subtenant/assignee to discharge the Tenant's obligations under this Lease;
-24-
<PAGE> 26
(b) The business reputation of the proposed
subtenant/assignee shall not be detrimental to Landlord's development;
(c) The use of the Premises by the proposed
subtenant/assignee must be expressly authorized under paragraph 8 and will not
be more environmentally sensitive than the use thereof by the existing Tenant.
Landlord shall respond to Tenant's request for consent hereunder within ten (10)
business days and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease. Landlord's failure to respond to Tenant's request within the
required time period will be deemed a withholding of consent. Any assignee or
sublessee (including without limitation an assignee or surviving entity under
the following subparagraph) must assume and agree to comply with and be bound by
all of the provisions of this Lease, in full, and in a form reasonably
satisfactory to Landlord, the obligations of Tenant under this Lease and under
any other written agreement now or hereafter existing between Landlord and
Tenant. Landlord agrees that it shall not intentionally and advertently release
from liability any assignee or sublessee who has assumed and agreed to comply
with and be bound by all of the provisions of this Lease.
Notwithstanding the foregoing, if Landlord has approved
an assignee with a net worth at least equal to that of Tenant (i) at the date of
Landlord's approval of such assignee and (ii) one (1) year later, and if no
Event of Default in the payment of Rent has occurred during that one-year
period, Landlord will release Tenant from all future liability under this Lease.
Any release of Tenant will be prospective only and will not relieve Tenant from
any liability to Landlord for acts or omissions occurring prior to the date on
which Tenant qualifies for release. Tenant will provide Landlord with true,
accurate and complete financial information on the assignee as Landlord shall
reasonably request accurately reflective of the assignee's financial condition
as of both dates indicated above.
13.2. NO RELEASE OF TENANT. Excepting only as provided in the
immediately preceding paragraph, regardless of Landlord's consent, no subletting
or assignment shall release Tenant from Tenant's obligations past, present or
future, or alter the primary liability of Tenant to pay Rent and to perform all
other obligations to be performed by Tenant hereunder. The acceptance of Rent by
Landlord from any other person shall not be deemed to be a waiver by Landlord of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Tenant or any successor of Tenant, in the performance
of any of the terms hereof, Landlord may proceed directly against Tenant without
the necessity of exhausting remedies against said assignee. Landlord may consent
to subsequent assignments or subletting of this Lease or amendments or
modifications to this Lease with assignees of Tenant, without notifying Tenant,
or any successor of Tenant, and without obtaining its or their consent thereto
and such action shall not relieve Tenant of liability under this Lease,
provided, however, that no
-25-
<PAGE> 27
such amendment or modification to this Lease shall increase the Rent or other
monetary obligations required hereunder without the prior written consent of
Tenant.
13.3. PROFITS. In the event Landlord consents to any such
assignment or subletting, and as a condition thereto, Tenant shall pay to
Landlord fifty percent (50%) of all net profit derived by Tenant from such
assignment or subletting, after first deducting Tenant's reasonable subleasing
expenses. For purposes of the foregoing, profit shall be deemed to include, but
shall not be limited to, the amount of all rent and additional rent payable by
such assignee or subtenant in excess of the Rent set forth in this Lease, and
rent adjustments, payable by Tenant under this Lease. If a part of the
consideration for such assignment or subletting shall be payable other than in
cash, the payment to Landlord shall be in cash or its share of any non-cash
consideration based upon the fair market value thereof. Tenant shall and hereby
agrees that it will furnish to Landlord upon request from Landlord a complete
statement, certified by the chief financial officer of Tenant, setting forth in
detail the computation of all profit derived and to be derived from such
assignment or subletting, such computation to be made in accordance with
generally accepted accounting principles. Tenant agrees that Landlord or its
authorized representatives shall be given access at all reasonable times to the
books, records and papers of Tenant relating to any such assignment or
subletting, and Landlord shall have the right to make copies thereof. The
percentage of Tenant's profit due Landlord hereunder shall be paid to Landlord
within ten (10) days of receipt by Tenant of all payments made from time to time
by such assignee or subtenant to Tenant.
13.4. ATTORNEY'S FEES. In the event Tenant shall assign or
sublet the Premises or request the consent of Landlord to any assignment or
subletting, then Tenant shall pay Landlord's reasonable attorneys fees incurred
in connection therewith.
13.5. RECAPTURE. Notwithstanding the foregoing, Landlord shall
have the right, to be exercised by giving written notice to Tenant within
fifteen (15) days after receipt of Tenant's request to assign or sublet all or
part of the Premises during either Renewal Term but not during the initial
ten-year Term, to recapture the space described in Tenant's request and such
recapture notice shall, if given, terminate this Lease with respect to the space
described as of the date stated in Tenant's request. Tenant's request shall
state the name and address of the proposed assignee or subtenant and a true and
complete copy of the proposed assignment or sublease shall be delivered to
Landlord with Tenant's request. In the event of any termination pursuant to this
paragraph, Tenant shall, at its sole cost and expense, discharge in full any
commission which may be due and owing as a result of any proposed assignment or
subletting by Tenant. Rent shall be pro rated if Landlord recaptures only a
portion of the Premises.
14. DEFAULTS; REMEDIES.
14.1. DEFAULTS. The occurrence of any one or more of the
following events shall constitute a material default and breach of this Lease
(an "Event of Default") by Tenant:
-26-
<PAGE> 28
(a) Tenant's refusal to take possession of the
Premises upon the Commencement Date. Tenant's vacation or abandonment of the
Premises shall not be deemed an Event of Default by Tenant under this Lease so
long as Tenant has sufficiently secured the Premises so as to prevent waste,
vandalism, damage or other harm thereto, or deterioration thereof, and is
otherwise in full compliance with all requirements of this Lease without any
Event of Default.
(b) The failure by Tenant to make any payment of
Rent or any other payment required to be made by Tenant hereunder, as and when
due, where such failure shall continue for a period of ten (10) days after
Tenant's receipt of written notice of Tenant's failure to make such payment.
(c) The failure by Tenant to observe or perform any
of the covenants, conditions or provisions of this Lease to be observed or
performed by Tenant, other than described in paragraphs (a) or (b) above or in
paragraphs (d) through (f) below, where such failure shall continue for a period
of thirty (30) days after written notice thereof from Landlord to Tenant;
provided, however, that if the nature of Tenant's default is such that more than
thirty (30) days are reasonably required for its cure, then Tenant shall not be
deemed to be in default if Tenant commenced such cure within said thirty (30)
day period and thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Tenant of any general
arrangement or assignment for the benefit of creditors; (ii) Tenant becomes a
"debtor" as defined in 11 U.S.C. ? 101 or any successor statute thereto (unless,
in the case of a petition filed against Tenant, the same is dismissed within
sixty (60) days); (iii) the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where possession is not restored to Tenant
within thirty (30) days; or (iv) the attachment, execution or other judicial
seizure of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where such seizure is not discharged within
thirty (30) days; provided, however, in the event that any provision of this
paragraph 14.1(d) is contrary to any applicable law, such provision shall be
enforceable only to the fullest extent permitted by law.
(e) The discovery by Landlord that any financial
statement or other financial information given to Landlord by Tenant, any
assignee of Tenant, any subtenant of Tenant, any successor in interest of Tenant
(including without limitation an entity surviving a merger with Tenant) or any
guarantor of Tenant's obligation hereunder, and any of them, was materially
false or materially misrepresented any item or condition.
(f) Tenant shall do or permit anything to be done
which creates a lien upon the Premises which is not paid, discharged or bonded
around within thirty (30) days after such lien is created or recorded.
14.2. REMEDIES. In the event of any such Event of Default by
Tenant, Landlord may at any time thereafter, with or without notice or demand or
-27-
<PAGE> 29
termination of this Lease, and without waiving or limiting Landlord in the
exercise of any right or remedy which Landlord may have under this Lease or
otherwise at law or in equity by reason of such Event of Default exercise any
one or more of the following remedies:
(a) Re-enter the Premises and eject all persons
therefrom. Retain or take possession of any property belonging to Tenant upon
the Premises pursuant to Landlord's statutory landlord lien rights. Such
Property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Tenant, and Landlord shall (unless negligent) in
no event be liable for any damage or loss thereto; or
(b) Lock the doors to and otherwise secure the
Premises and exclude Tenant and all other persons therefrom (except those
authorized by Landlord in its sole and absolute discretion); or
(c) Institute suit against Tenant to collect each
installment of rent or other sum as it becomes due or to enforce any other
obligation under this Lease; or
(d) With or without terminating the Lease, terminate
Tenant's right to possession of the Premises by any lawful means, judicially or
nonjudicially, in which case Tenant shall immediately surrender possession of
the Premises to Landlord and Landlord shall have the right to reenter the
Premises and remove all persons and property therefrom using all force
reasonably necessary for this purpose. In such event, or in the event of
Landlord's pursuit of its other rights and remedies, Landlord shall be entitled
to recover from Tenant all damages incurred by Landlord by reason of Tenant's
default including, but not limited to, the cost of recovering possession of the
Premises; the cost to Landlord of designing, engineering and constructing for
Tenant any tenant improvements or other features of the Improvements that are of
a specialized or non-general nature not ordinarily included in a general-use
building; expenses of reletting, including necessary renovation and alteration
of the Premises and the removal of special improvements made for Tenant,
reasonable attorney's fees, advertising expenses, the costs of protecting and
caring for the Premises while vacant, the cost of removing and storing Tenant's
property; any real estate commission actually paid; the worth at the time of
award by the court having jurisdiction thereof of the amount by which the unpaid
Rent for the balance of the term after the time of such award exceeds the amount
of such rental loss for the same period that Tenant proves could be reasonably
avoided; and that portion of any leasing commission paid by Landlord pursuant to
paragraph 16 applicable to the unexpired Term of this Lease. All of the
foregoing amounts shall be and become immediately due and payable from Tenant to
Landlord upon a default, at Landlord's election, which may be exercised with or
without the giving of notice, but this sentence shall not operate to relieve
Landlord from the giving of any notice required under paragraph 14.1.
(e) Maintain Tenant's right to possession in which
case this Lease shall continue in effect whether or not Tenant shall have
abandoned the
-28-
<PAGE> 30
Premises. In such event Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including, without limitation, the right
to recover Rent as it becomes due hereunder and any other damages incurred by
Landlord from time to time. Notwithstanding that Landlord shall have maintained
Tenant's right to possession or shall not have terminated the Lease for a
default, Landlord may at anytime thereafter, upon notice to Tenant, terminate
the Lease and/or Tenant's right to possession for such prior default.
(f) Pursue any other remedy now or hereafter
available to Landlord under the laws or judicial decisions of the state wherein
the Premises are located. Unpaid installments of Rent and other unpaid monetary
obligations of Tenant under the terms of this Lease shall bear interest from the
date due at the rate of five (5) points over the announced prime rate of Bank of
America in existence from time to time.
(g) No such re-entry or taking of possession or
other remedial action by Landlord shall be construed as an election on
Landlord's part to terminate or surrender this Lease unless a written notice of
such intention is then or thereafter served on Tenant.
(h) No failure by Landlord to insist upon the strict
performance of any covenant, agreement, term or condition of this Lease or to
exercise any right or remedy consequent upon a breach thereof, and no acceptance
of full or partial Rent during the continuance of any such breach, shall
constitute a waiver of any such breach or of such covenant, agreement, term or
condition. No covenant, agreement, term or condition of this Lease to be
performed or complied with by Tenant, and no breach thereof, shall be waived,
altered, modified or terminated except by written instrument executed by
Landlord. No waiver of any breach shall affect or alter this Lease, but each and
every covenant, agreement, term and condition of this Lease shall continue in
full force and effect with respect to any other then existing or subsequent
breach thereof.
(i) If Tenant breaches any of the covenants,
agreements, terms or conditions contained in this Lease, Landlord shall be
entitled to obtain and retain all sums held by Landlord or Tenant, by any
trustee or in any account provided for herein, to enjoin such breach or
threatened breach, and to invoke any right and remedy allowed at law or in
equity or by statute or otherwise as though re-entry, summary proceedings and
other remedies were not provided for in this Lease.
(j) If Landlord elects to pursue Tenant for future
Rent or damages incurred by Landlord by reason of Tenant's default, Landlord
agrees to make commercially reasonable efforts to relet the Premises and to
mitigate its damages.
14.3. DEFAULT BY LANDLORD. Landlord shall not be in default
under this Lease unless Landlord fails to perform obligations required of
Landlord within a reasonable time, but in no event later than thirty (30) days
after written notice by Tenant to Landlord and to the holder of any first
mortgage or deed of trust covering the Premises whose name and address shall
have theretofore been furnished to Tenant in writing,
-29-
<PAGE> 31
specifying wherein Landlord has failed to perform such obligation; provided,
however, that if the nature of Landlord's obligation is such that more than
thirty (30) days are required for performance then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion. The holder of any first
mortgage or deed of trust covering the Premises shall, in any event, have,
beyond the time allotted to Landlord to cure, an additional thirty (30) days
itself to cure if it so elects. Tenant shall have the right as its sole and
exclusive remedy to seek specific performance of this Lease and sue for any
direct out-of-pocket expenses it incurs as a result of Landlord's material
default in the event Landlord and the holder of any first mortgage or deed of
trust covering the Premises fail to cure within the grace periods allotted
hereunder a material default of Landlord under this Lease.
LANDLORD AND TENANT, EACH BEING FULLY INFORMED BY THEIR
RESPECTIVE COUNSEL OF THE LEGAL CONSEQUENCES, WAIVE THE RIGHT TO TRIAL BY JURY.
14.4. LATE CHARGES. Tenant hereby acknowledges that late
payment by Tenant to Landlord of Rent and other sums due hereunder will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are not
limited to, processing and accounting charges, and late charges which may be
imposed on Landlord by the terms of any mortgage or trust deed covering the
Premises. Accordingly, if any installment of Rent or any other sum due from
Tenant shall not be received by Landlord or Landlord's designee within fifteen
(15) days after such amount shall be due, including the ten-day notice and cure
period, then, without any requirement for notice to Tenant, Tenant shall pay to
Landlord a late charge equal to five percent (5%) of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event constitute a waiver
of Tenant's default with respect to such overdue amount, nor prevent Landlord
from exercising any of the other rights and remedies granted hereunder. In the
event that a late charge is payable hereunder, whether or not collected, for
three (3) consecutive installments of Rent, then Rent shall automatically become
due and payable quarterly in advance, rather than monthly, notwithstanding
paragraph 4 or any other provision of this Lease to the contrary.
14.5. IMPOUNDS. In the event that a late charge is payable
hereunder, whether or not collected, three or more times under the terms of this
Lease, Tenant shall pay to Landlord, if Landlord shall so request, in addition
to any other payments required under this Lease, a monthly advance installment,
payable at the same time as the monthly Rent, as estimated by Landlord, for Real
Property Tax and insurance expenses on the Premises which are payable by Tenant
under the terms of this Lease. Such fund shall be established to insure payment
when due, before delinquency, of any or all such Real Property Taxes and
insurance premiums. If the amount paid to Landlord by Tenant under the
provisions of this paragraph are insufficient to discharge the obligations of
Tenant to pay such Real Property Taxes and insurance premiums as the same become
due, Tenant shall pay to Landlord, upon Landlord's demand, such additional sums
necessary to pay such obligations. All moneys paid to Landlord under this
paragraph may
-30-
<PAGE> 32
be intermingled with other moneys of Landlord and shall not bear interest. In
the event of a default in the obligations of Tenant to perform under this Lease,
then any balance remaining from funds paid to Landlord under the provisions of
this paragraph may, at the option of Landlord, be applied to the payment of any
monetary default of Tenant in lieu of being applied to the payment of Real
Property Tax and insurance premiums and Tenant shall still be liable for and pay
promptly upon demand the Real Property Tax and insurance premiums required under
this Lease.
15. CONDEMNATION. If the Premises or any portion is taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 25% of the floor area of the
Improvements is taken by condemnation, either Landlord or Tenant shall have the
right to terminate this Lease as of the date the condemning authority takes
title or possession, whichever first occurs, upon giving written notice of such
election within ten (10) days after Landlord shall have given Tenant written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken title or possession, whichever
first occurs). In the event of a termination resulting from such a taking, both
Landlord and Tenant shall be released from further liability under the Lease. If
Landlord or Tenant do not terminate this Lease in accordance with the foregoing,
this Lease shall remain in full force and effect as to the portion of the
Premises remaining, except that Rent shall be reduced in the proportion that the
floor area taken bears to the total floor area of the Improvements. If the
nature, location or extent of any proposed taking or appropriation affecting the
Premises is such that Landlord elects in good faith to demolish all or
substantially all of the building, then Landlord shall have the right to
terminate this Lease upon giving notice of termination to Tenant at any time
after such condemnation. In the event of such termination, both Landlord and
Tenant shall be released from any further liability under this Lease.
Any award for the condemnation of all or any part of the Premises shall
be the property of Landlord, whether such award shall be made as compensation
for diminution in value of the leasehold or for the taking of the fee, including
without limitation the Base Building and the Tenant Improvements, or as
severance damages; provided, however, that Tenant shall be entitled to pursue
against the condemning authority but not against Landlord any award to which
Tenant may be entitled from such condemning authority for loss of or damage to
Tenant's trade fixtures and removable personal property, as well as Tenant's
relocation costs and loss of good will to the extent these are compensable. If
this Lease is terminated, an equitable adjustment shall be made within a
reasonable period of time concerning advance rent and any advance payments made
by Tenant to Landlord and Landlord shall, in addition, return to Tenant within
thirty (30) days after termination of this Lease so much of Tenant's security
deposit as has not been applied by Landlord. In the event that this Lease is not
terminated by reason of such condemnation, Landlord shall to the extent of
severance damages received by Landlord, free of any claim of the holder of a
mortgage or deed of trust on the Premises, in connection with such condemnation,
repair any damage to the Premises caused by such condemnation except to the
extent
-31-
<PAGE> 33
that Tenant has been reimbursed therefor by the condemning authority. Tenant
hereby waives any statutory rights of termination which may arise by reason of
any partial taking of the Premises by condemnation.
16. BROKER'S FEE.
(a) CB Richard Ellis, a licensed real estate broker in the
State of Arizona, represents Landlord with respect to this Lease transaction. CB
Richard Ellis, on behalf of Landlord, will enter (or has entered) into a
commission agreement with Cushman and Wakefield. Landlord shall pay to CB
Richard Ellis a real estate brokerage fee per the terms of such commission
agreement. Neither the broker named above nor any other real estate agent,
salesperson, finder or broker shall be deemed or considered as a third party
beneficiary of this paragraph. Landlord and Tenant may alter, amend or modify
this lease or any related document without the consent of any such broker
salesperson, agent or finder. Excepting Landlord's obligation to CB Richard
Ellis working in conjunction with Cushman and Wakefield, Landlord and Tenant
each hereby agree to indemnify and defend the other from and against any claim
for commission or brokerage or finders fees from any party claiming all or part
of same arising out of a relationship with or through the indemnifying party and
the indemnifying party shall defend any claim or action for a commission or fee
by counsel acceptable to the indemnified party promptly upon notice from the
indemnified party.
17. ESTOPPEL CERTIFICATE; COOPERATION WITH LANDLORD'S LENDERS;
FINANCIAL INFORMATION.
(a) Tenant shall at any time upon not less than fifteen (15)
days' prior written notice from Landlord execute, acknowledge and deliver to
Landlord a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modifications and certifying that this Lease, as so modified, is in full force
and effect) and the date to which Rent and other charges are paid in advance, if
any; (ii) acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder, or specifying such defaults if any
are claimed; (iii) acknowledging that the Premises are in the condition called
for in the Lease and the Improvements have been satisfactorily completed, or if
not, then specifying why they are not; (iv) acknowledging that Tenant has
unconditionally accepted the Premises, is in possession thereof, and no defense
to the Lease enforcement exists, or if such is not the case, then specifying
why; and (v) agreeing to provide any Landlord mortgagee or lender with
reasonable opportunity to cure defaults by the Landlord. Any such statement may
be conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises, who, at Landlord's request, shall be co-addressees of the statement.
(b) At Landlord's option, Tenant's failure to deliver such
statement within such time shall be a material breach of this Lease or shall be
conclusive upon Tenant (i) that this Lease is in full force and effect, without
modification except as may be represented by Landlord, (ii) that there are no
uncured defaults in Landlord's performance, (iii) that not more than one month's
rent has been paid in advance; (iv) that
-32-
<PAGE> 34
the Premises have been satisfactorily completed by Landlord and that Tenant is
in possession thereof; (v) that no defenses exist to the enforcement of the
Lease; and (vi) that Tenant agrees to be bound by provision (v) in paragraph
17(a) above.
(c) If Landlord desires to finance, refinance or sell the
Premises, or any part thereof, or if Landlord's lender requires financial
information on Tenant, Tenant hereby agrees to deliver to any lender or
purchaser designated by Landlord such financial statements of Tenant as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three years' financial statements of Tenant. All such financial
statements shall be received by Landlord and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
(d) Tenant hereby represents and warrants to Landlord that
all balance sheets, statements of profit and loss and other financial data
furnished by Tenant and any guarantor to Landlord (the "Financial Information")
prior to the execution of this Lease fairly present the financial condition of
Tenant and such guarantor as of the dates thereof, and the results of its
operations for the periods for which the same are furnished; and there has been
no change in the assets, liabilities or financial condition of Tenant and such
guarantor from that set forth in the Financial Information, other than changes
in the ordinary course of business, none of which changes has been materially
adverse to Tenant and such guarantor. The foregoing representations and
warranties shall apply equally to all financial information furnished by Tenant
and any guarantor to Landlord after the execution of this Lease.
Tenant hereby acknowledges that the Financial Information is a
material inducement to Landlord's entering into this Lease with Tenant.
Tenant agrees, within ninety (90) days after the end of Tenant's
accounting year, at the request of Landlord, or at the request of the holder of
any first mortgage upon the Premises or lender, to furnish to Landlord or its
mortgagee or lender, a certified balance sheet and profit and loss statement for
Tenant's last accounting year.
18. LANDLORD'S LIABILITY. The term "Landlord" as used herein shall
mean only the owner or owners at the time in question of the fee title or a
Tenant's interest in a ground lease of the Premises. In the event of any
transfer of such title or interest, Landlord herein named (and in case of any
subsequent transfers then the grantor) shall be relieved from and after the date
of such transfer of all liability as respects Landlord's obligations thereafter
to be performed, provided that any funds in the hands of Landlord or the then
grantor at the time of such transfer, in which Tenant has an interest, shall be
delivered to the grantee. The obligations contained in this Lease to be
performed by Landlord shall, subject as aforesaid, be binding on Landlord's
successors and assigns only during their respective periods of ownership.
Any claim which Tenant may have against Landlord for default in
performance of any of the obligations herein contained to be kept and performed
by Landlord shall be deemed waived unless such claim is asserted by written
notice thereof to Landlord within
-33-
<PAGE> 35
a reasonable period of time following Tenant's actual discovery of the basis of
Tenant's claim against Landlord. Furthermore, Tenant agrees to look solely to
Landlord's interest in the Premises for the recovery of any judgment from
Landlord or the payment of any obligation, liability or claim under, arising out
of or relating to this Lease, it being hereby agreed that except to the extent
of Landlord's interest in the Premises, Landlord, any assets of Landlord, or if
Landlord is a partnership, its partners whether general or limited, or if
Landlord is a corporation, Landlord, its directors, officers or shareholders, or
if Landlord is a limited liability company, Landlord and its members shall never
be liable for any judgments, claims, obligations or liabilities under, arising
out of, or relating to this Lease.
19. SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
20. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Landlord not paid when due shall bear interest from
the date due at the rate of two points over the prime rate of Bank of America
announced from time to time. Payment of such interest shall not excuse or cure
any default by Tenant under this Lease, provided, however, that interest shall
not be payable on late charges incurred by Tenant nor on any amounts upon which
late charges are paid by Tenant. If Tenant's default is subject to late charge,
Landlord may charge interest or impose the late charge as it sees fit, but may
not impose both on the same defaulted obligation. The reciprocal is true: Any
amount Landlord owes to Tenant if not paid when due shall bear interest from the
date due at the rate of two points over the prime rate of Bank of America
announced from time to time.
21. TIME OF ESSENCE. Time is of the essence of each and every
obligation and duty under this Lease.
22. ADDITIONAL RENT. Any monetary obligation of Tenant to Landlord
under the terms of this Lease shall be deemed to be additional rent and shall be
collectible as such.
23. INCORPORATION OF PRIOR AGREEMENTS; DISCLAIMER OF REPRESENTATIONS
AND WARRANTIES; AMENDMENTS. This Lease contains all agreements of the parties
with respect to the Premises. No prior agreement, representation or
understanding, whether oral or written, pertaining to any such matter shall be
effective. Landlord hereby disclaims all representations and warranties, express
or implied, and all covenants, promises, and understandings, concerning the
condition, suitability, or habitability of the Premises, excepting only those
which are set forth in this Lease explicitly. This Lease may be modified in
writing only, signed by the parties in interest at the time of modification.
Tenant hereby acknowledges that no real estate broker or agent or any agent or
employee of Landlord made any oral or written warranties or representations to
Tenant relative to the condition or use by Tenant of the Premises.
-34-
<PAGE> 36
24. NOTICES. Any notice required or permitted to be given hereunder
shall be in writing and may be given by personal delivery (which may include
overnight courier and facsimile transmission) or by certified mail, postage
prepaid, return receipt requested, and if given personally or by mail, shall be
deemed sufficiently given if addressed to Tenant or to Landlord at the address
noted below the signature of the respective parties, as the case may be. Either
party may by notice to the other specify a different address for notice purposes
except that upon Tenant's taking possession of the Premises, the Premises shall
constitute Tenant's address for notice purposes. Any notice shall be deemed
received upon personal delivery or three (3) days after deposit into certified
or registered U.S. Mail.
25. WAIVERS. No waiver by Landlord of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Tenant of the same or any other provision. Landlord's consent to, or approval
of, any act shall not be deemed to render unnecessary the obtaining of
Landlord's consent to or approval of any subsequent act by Tenant. The
acceptance of rent hereunder by Landlord shall not be a waiver of any preceding
breach by Tenant of any provision hereof, other than the failure of Tenant to
pay the particular rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such rent. The reciprocal is true:
No waiver by Tenant of any provision hereof shall be deemed a waiver of any
other provision hereof or of any subsequent breach by Landlord of the same or
any other provision.
26. RECORDING; CONFIDENTIALITY. If Tenant requests, the parties
shall execute a short-form memorandum of lease in recordable form setting forth
the date of the Lease, the names of the parties, a description of the premises,
the length of the term (and any renewal provisions), but in no event shall such
short-form memorandum of lease set forth the rental rate or any other
"proprietary" information belonging to Landlord.
Landlord and Tenant agree to maintain to the greatest degree practicable
the confidentiality of this transaction. Tenant shall control the communication
process relative to communications to the community and the press including
press releases. Tenant will coordinate these communications with Landlord.
27. HOLDING OVER. If Tenant, with Landlord's consent, remains in
possession of the Premises or any part thereof after the expiration of the term
hereof and without executing a new lease therefor, such occupancy shall be a
tenancy from month to month at a rental in the amount of one hundred twenty-five
percent (125%) of the rent paid or payable during the last month of the term of
this lease plus all other charges payable hereunder and upon all the other
provisions of this Lease pertaining to the obligations of Tenant, but all
options and rights of first refusal, if any, granted under the terms of this
Lease shall be deemed terminated and be of no further effect during such
month-to-month tenancy. If Tenant, without Landlord's express written consent,
remains in possession of the Premises or any part thereof after expiration of
the term hereof, Landlord may re-enter and take possession of the Premises and
have all other remedies set forth in Paragraph 14.2, provided that in addition
to such remedies (and not in lieu thereof), Tenant shall pay for each day of
occupancy after expiration of the term hereof a sum equal to one hundred
-35-
<PAGE> 37
fifty percent (150%) of the monthly rent for the last month of the term prorated
on a daily basis based upon a thirty day month.
28. CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies hereunder or at law or in equity.
29. COVENANTS AND CONDITIONS. Each provision of this Lease
performable by Tenant shall be deemed both a covenant and a condition.
30. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Tenant and subject to the provisions of
paragraph 18, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State of
Arizona.
31. SUBORDINATION.
(a) This Lease, at Landlord's option, shall be subordinate
to any ground lease, mortgage, deed of trust, or any other hypothecation or
security now or hereafter placed upon the Premises and to any and all advances
made on the security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. If any mortgagee, deed of trust beneficiary
or trustee, or ground lessor shall elect to have this Lease prior to the lien of
its mortgage, deed of trust or ground lease, and shall give written notice
thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of
trust, or ground lease, whether this Lease is dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Tenant agrees to execute any documents reasonably
required to effectuate an attornment, a subordination or to make this Lease
prior to the lien of any mortgage or deed of trust covering the Premises,
provided that, as a condition to Tenant's obligation herein, Landlord shall
cause any lender holding a lien on the Premises to concurrently provide Tenant
with a subordination/non-disturbance agreement on the lender's standard form,
which provides assurances to Tenant that so long as Tenant is not in default
hereunder beyond any applicable notice and cure period, Tenant's right of
possession and other leasehold rights under this Lease shall not be disturbed in
the event of a foreclosure or other enforcement of such lien. Tenant's failure
to execute such documents within fifteen (15) days after written demand shall
constitute a material default by Tenant hereunder, or, at Landlord's option,
Landlord shall execute such documents on behalf of Tenant as Tenant's
attorney-in-fact.
32. ATTORNEY'S FEES. If either party named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
such action, on trial or appeal, shall be entitled to its reasonable attorney's
fees to be paid by the losing party as fixed by the court.
-36-
<PAGE> 38
33. LANDLORD'S ACCESS. Landlord and Landlord's agents shall have the
right to enter the Premises at all reasonable times and (unless an emergency)
upon reasonable notice and from time to time for the purpose of inspecting the
same, showing the same to prospective purchasers, lenders, or tenants, and
making such alterations, repairs, improvements or additions to the Premises or
to the buildings of which they are a part as Landlord may deem necessary or
desirable. Landlord may at any time place on or about the Premises any ordinary
"For Sale" signs and Landlord may at any time during the last one hundred eighty
(180) days of the term hereof place on or about the Premises any ordinary "For
Lease" signs, all without rebate of rent or liability to Tenant. If Landlord is
placing "For Sale" signs on or about the Premises, Landlord will consult with
Tenant in good faith to find a reasonable way to avoid giving the impression
that Tenant is selling its business or going out of business.
34. AUCTIONS. Tenant shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises without first
having obtained Landlord's prior written consent.
35. SIGNS. Tenant shall not place any sign upon the Premises without
Landlord's prior written consent, which shall not be unreasonably withheld.
Tenant's signs must comply with any CC&R's and sign regulations. All signage
shall comply with any CC&R's and sign regulations.
36. DISPUTE RESOLUTION. In the event of any dispute or claim arising
with respect to the construction of the Base Building or the Tenant
Improvements, including issues over cost or allegedly defective work, the
parties agree to use their reasonable efforts to promptly resolve such dispute
by non-binding mediation with Landlord's architect as mediator. Mediation shall
be conducted in accordance with the mediation procedures of the American
Arbitration Association or other reasonable procedures determined by the
mediator. Failing the acceptance of the results of mediation, any dispute or
claim shall be resolved by arbitration in accordance with the Construction
Industry Arbitration Rules of the American Arbitration Association. Any award or
decision by arbitration shall be final and binding. The costs of mediation or
arbitration, if any, shall be borne by the party or parties as determined by the
mediator or arbitrator resolving the dispute. Delays resulting from disputes and
arbitration may be considered Force Majeure. Mediation and/or arbitration shall
be limited to the construction issues enumerated above.
37. GUARANTOR. If the Addendum to this Lease provides that the
obligations of Tenant under this Lease shall be guaranteed by one or more
guarantors, delivery of fully executed guarantees in the form attached to this
Lease as an exhibit from such guarantors (executed by both spouses if a
guarantor is married) shall be a condition precedent to Landlord's duty of
performance under this Lease. Tenant hereby covenants to provide fully executed
guarantees to Landlord at the same time Tenant executes this Lease.
38. QUIET POSSESSION. Upon Tenant paying Rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Tenant's part
-37-
<PAGE> 39
to be observed and performed hereunder, Tenant shall have quiet possession of
the Premises for the entire term hereof against the acts of the Landlord,
subject to all of the provisions of this Lease. The individuals executing this
Lease on behalf of Landlord represent and warrant to Tenant that they are fully
authorized and legally capable of executing this Lease on behalf of Landlord and
that such execution is binding upon all parties holding an ownership interest in
the Premises.
39. OPTIONS.
39.1. DEFINITION. If Landlord has granted Tenant any option or
right of first refusal in the Addendum, as used in this paragraph the word
"Option(s)" shall have the meanings set forth in the Addendum.
39.2. OPTIONS PERSONAL. Each Option granted to Tenant in this
Lease is personal to Tenant and may not be exercised or be assigned, voluntarily
or involuntarily, by or to any person or entity other than Tenant. No assignee
or sublessee of Tenant's rights under this Lease shall have the right to
exercise any Option granted under this Lease. The Options granted to Tenant are
not assignable separate and apart from this Lease. Options granted to Tenant, if
any, shall be granted only in the Addendum. Notwithstanding anything in
paragraph 39 to the contrary, nothing in paragraph 39 is intended to or shall be
deemed to grant to Tenant any Options.
39.3. MULTIPLE OPTIONS. In the event that Tenant has any
multiple options to extend or renew this Lease a later Option cannot be
exercised unless the prior Option to extend or renew this Lease has been so
exercised.
39.4. EFFECT OF DEFAULT ON OPTIONS.
(a) Tenant shall have no right to exercise an
Option, notwithstanding any provision in the grant of Option to the contrary,
(i) during the time commencing from the date Landlord gives to Tenant a notice
of default pursuant to paragraph 14.1 and continuing until the default alleged
in such notice of default is cured, or (ii) during the period of time commencing
on the day after a monetary obligation to Landlord is due from Tenant and unpaid
continuing until the obligation is paid, or (iii) at any time after any other
event of default described in paragraph 14.1, or (iv) in the event that Landlord
has given to Tenant three or more notices of default under paragraph 14.1, or
Tenant has been in default three or more times under paragraph 14.1, whether or
not the defaults are cured, during the twelve (12) month period prior to the
time that Tenant intends to exercise the Option.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Tenant's inability to
exercise an Option because of the provisions of the foregoing paragraph. An
Option and all rights of Tenant thereunder shall terminate upon the termination
or expiration of this Lease or upon the termination of Tenant's right of
occupancy under this Lease.
-38-
<PAGE> 40
(c) All rights of Tenant under the provisions of an
Option shall terminate and be of no further force or effect, notwithstanding
Tenant's due and timely exercise of the Option, if, after such exercise and
during the term of this Lease, Tenant commits an uncured default or a default
which by its nature cannot be cured under paragraph 14.1.
40. SECURITY MEASURES. Tenant hereby acknowledges that Rent payable
to Landlord hereunder does not include the cost of guard service or other
security measures and that Landlord shall have no obligation whatsoever to
provide same. Tenant assumes all responsibility for the protection of Tenant,
its agents, its employees and servants, its invitees and its property from acts
of third parties.
41. EASEMENTS; RULES AND REGULATIONS; ETC. Landlord reserves to
itself the right, from time to time, to grant such easements, rights,
dedications, plats and replats that Landlord reasonably deems necessary or
desirable, and to cause the recordation of same, so long as such do not
unreasonably interfere with the use of the Premises by Tenant. Tenant shall sign
any of the aforementioned documents upon request of Landlord.
Landlord may establish from time to time reasonable rules and
regulations applicable to the Premises for the benefit, care, management and
operation of the Premises. Landlord shall provide Tenant with reasonable notice
of all rules and regulations. Tenant agrees to faithfully observe and comply
with all such rules and regulations.
42. FORCE MAJEURE. Landlord shall not be responsible for any delay
or failure in the observance or performance of any term or condition of this
Lease to be observed or performed by Landlord to the extent that such delay or
failure results from action, omission, or order of, or failure or refusal to
grant approvals by, governmental authorities; unexpected or uncommon delays in
the issuance of building or other permits; civil commotions; strikes, fires,
acts of God or the public enemy; inability to procure labor, material, fuel,
electricity, or other forms of energy; any weather-caused delay or any other
cause beyond the reasonable control of Landlord, whether or not similar to the
matters herein specifically enumerated. Any such delay or failure shall extend
by like time any period of performance by Landlord and shall not be deemed a
breach of or failure to perform this Lease or any provisions hereof, and the
foregoing provision shall take precedence over any other provision in this Lease
to the contrary. Conversely, any one or more of the enumerated Force Majeure
events shall extend by like time any period of performance by Tenant and shall
not be deemed a breach of or failure to perform this Lease or any provisions
hereof, provided that this Force Majeure provision shall not apply to, or
excuse, Tenant's failure to punctually pay any monetary sum owed hereunder
including, without limitation, Rent, Tenant's Proportionate Share of Operating
Costs or any other sum of money payable to Landlord or to any third party or
authority, or to provide the insurance required hereunder.
-39-
<PAGE> 41
43. AUTHORITY. If Tenant is a corporation, trust, general or limited
partnership, or limited liability company, each individual executing this Lease
on behalf of such entity represents and warrants that he or she is duly
authorized to execute and deliver this Lease on behalf of said entity. Tenant
shall upon execution of this Lease deliver to Landlord evidence of such
authority satisfactory to Landlord.
44. CONFLICT. Any conflict between the printed provisions of this
Lease and any typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions. The Addendum shall be controlling over
the foregoing provisions of this Lease.
45. ADDENDUM. Attached hereto is the Addendum which constitutes an
integral part of this Lease.
The parties hereto have executed this Lease on the dates specified
immediately next to their respective signatures.
Executed on BD 34TH PROPERTIES, INC.
June 24, 1998 By DONALD DIAMOND
- -------------------------- -----------------------------------
Address Its: Vice President
3740 East 34th Street -------------------------------
Tucson, AZ 85713
- -------------------------- "LANDLORD"
Executed on June 24, 1998 NATIONAL INSURANCE GROUP
395 Oyster Point By BRUCE A. COLE
5th Floor -----------------------------------
- -------------------------- Its: President
Address -------------------------------
South San Francisco
- -------------------------- "TENANT"
-40-
<PAGE> 42
ADDENDUM TO LEASE
DATED JUNE 24, 1998
BETWEEN BD 34TH PROPERTIES, INC. AND
NATIONAL INSURANCE GROUP
THIS ADDENDUM TO LEASE ("Addendum") is attached to and made a part of
the attached Lease between BD 34th PROPERTIES, INC., an Arizona corporation, as
Landlord, and NATIONAL INSURANCE GROUP, as Tenant. In the event of any conflict
between the terms of this Addendum and the terms of the attached Lease, the
terms of this Addendum shall govern. This Addendum and the attached Lease are
collectively called the "Lease".
46. OPTIONS TO EXTEND. Subject to the terms and conditions of
paragraph 39, Tenant shall have the right to extend the Term of this Lease for
two (2) successive periods of five (5) years each (the "Renewal Terms"), by
giving written notice of exercise of these options to Landlord at least nine (9)
months before expiration of the initial ten (10) year Term and the First Renewal
Term, as applicable. If Tenant fails to deliver timely written notice of
exercise of a renewal option to Landlord, all renewal options shall lapse and
Tenant will have no further privilege to extend the Term. Each Renewal Term
shall be on the same terms and conditions of this Lease (unless patently
inapplicable) except that the initial Rent payable by Tenant to Landlord at the
start of each Renewal Term shall be based on ninety-five percent (95%) of the
"market rental rate" at the time of renewal for comparable space in competing
buildings of similar size, type, quality and location, fully improved with
tenant improvements, as reasonably calculated by Landlord for each Renewal Term.
If Landlord and Tenant are unable to agree on the "market rental rate"
to be applied to the Premises, Landlord and Tenant shall select a highly
qualified and reputable real estate professional with at least ten (10) years of
experience in the relevant leasing market (the "Arbiter") to determine the
"market rental rate." If Landlord and Tenant are unable to agree on the Arbiter,
the resident manager of the largest commercial real estate brokerage house in
Tucson will select the Arbiter from a major brokerage house other than his or
her own. The term "largest" means the brokerage house with the largest sales
volume in the preceding calendar year.
During each Renewal Term, Rent shall increase annually by a factor of
three percent (3%).
In addition to paying the Rent determined pursuant to this paragraph 46,
Tenant will continue to pay Tenant's Proportionate Share of Operating Costs and
all other sums required under this Lease during each Renewal Term.
47. RIGHT OF FIRST REFUSAL ON DELCO ELECTRONICS CORPORATION'S SPACE
IN THE BUILDING. So long as Tenant is not in default under this Lease, Tenant
shall have
-1-
<PAGE> 43
a right of first refusal to lease, "as is," additional available space in the
Building should Delco Electronics Corporation move out of its space, which must
be physically contiguous to (actually abutting) the Premises. Tenant will advise
Landlord of its election to lease such additional space within fifteen (15) days
after Landlord sets forth in writing the terms of a leasing opportunity that
Landlord desires to accept. If Tenant elects to take the additional space,
Landlord and Tenant will execute an amendment to this Lease adding to the
Premises the additional space, increasing the Rent, adjusting Tenant's
Proportionate Share of Operating Costs and making such other necessary changes
to the Lease as may be required by the addition of such space to the Premises.
The rental rate to be applied to the additional space will be the higher of (a)
the rate Tenant is currently paying Landlord for the Premises as of the
effective date of Tenant's occupancy of the additional space, subject to
subsequent escalation of Rent required under this Lease, or (b) the rate
Landlord was offering, or was offered by, the other prospective tenant.
If Tenant timely fails to exercise its right of first refusal under this
paragraph 47, Landlord will be free to lease all or any portion of such space on
such terms as Landlord in its sole discretion may elect.
If this Lease or Tenant's right to possession of the Premises shall
expire or terminate for any reason whatsoever before Tenant exercises its rights
under this paragraph, then immediately upon such expiration or termination,
Tenant's rights under this paragraph shall simultaneously terminate and become
null and void. The rights granted under this paragraph are strictly personal to
Tenant and the authorized assignee of Tenant's rights under this Lease and are
nontransferable.
48. MISCELLANEOUS. Wherever this Lease requires Tenant to do
something on or after "demand" by Landlord the demand shall be written.
-2-
<PAGE> 44
EXHIBIT A TO LEASE
[NATIONAL INSURANCE GROUP, INC. PREMISES MAP]
<PAGE> 45
EXHIBIT B TO LEASE
[SITE MAP]
<PAGE> 46
[SITE MAP]
<PAGE> 47
EXHIBIT D
Chestnut Construction Corporation will provide the following work items to
fulfill the owners requirements for improvements for National Insurance Group at
Building 302, 2900 East Elvira.
ENTRY ACCESS
- Construct concrete ramp and stairway to allow ADA
compliant access to building. Ramp and stairs to have
painted steel railings to meet City of Tucson Building
Codes. Provide access way from north and east parking
areas for employee access. Employee access shall be
through the new entry ramp at north elevation or the
existing door at east side of Building 302.
PARKING AREA
- Cut down and remove weeds in paved areas
- Apply soil sterilent to control new growth
- Provide painting and striping for 294 parking spaces
- Relamp existing parking lot light fixtures as required
for 294 parking spaces
- Provide 2 additional wall pack light fixtures at south
side of Building 303 for employee access lighting
- Cut back existing landscaping and remove weeds along north
side of Building 302 and between access walkway and south
side of Building 303
ELECTRICAL SERVICE
- Provide electric submeters to separate power requirements
at chiller units and National Insurance Group
- Provide 1000 amps of 480/277 volt 3 phase electrical
service for National Insurance Group.
HVAC
- Refurbish existing Air Handler Units and control system
for a functional system
- Install 1 BTU meter at northeast's Air Handler Unit to
provide method of determining National Insurance Group
conditioned air costs
RESTROOM CORE
- Modify existing Men's and Women's Rooms as requested to
meet ADA complaint standards
- Refurbish existing or provide new electric drinking
fountain as required
<PAGE> 48
EXHIBIT E
[LOGO]
CHESTNUT
CONSTRUCTION INTERIOR IMPROVEMENTS FOR
NATIONAL INSURANCE GROUP
Preliminary Cost Breakout
<TABLE>
<S> <C>
PERMITS & WASTEWATER FEES (Allowance) $ 14,800
GENERAL CONDITIONS 21,188
DEMOLITION & DISPOSAL 6,832
CONCRETE 660
MISCELLANEOUS ROUGH CARPENTRY 350
METAL STUDS & DRYWALL 111,950
INSULATION 4,885
DOORS, FRAMES & HARDWARE 11,450
GLASS & GLAZING 1,200
ACOUSTICAL CEILINGS 13,664
PAINT & STAIN 24,395
PAINT DUCTWORK (Allowance) 7,500
FLOORCOVERING & BASE ($20.00/S.Y. Allowance) 110,700
MILLWORK 8,000
CERAMIC TILE 7,330
TOILET PARTITIONS & ACCESSORIES 6,530
CHAINLINK FENCING 2,200
FIRE SPRINKLERS 9,000
PLUMBING 29,000
H.V.A.C. 135,000
ELECTRICAL 122,600
COMPUTER ROOM ELECTRICAL (Allowance) 10,000
DECORATIVE SPECIALTIES (Allowance) 2,500
CONTINGENCY (Allowance) 10,000
SALES TAX 34,550
OVERHEAD & PROFIT 53,154
--------
TOTAL $769,338
</TABLE>
<PAGE> 49
EXHIBIT F TO LEASE
NATIONAL INSURANCE RENT
<TABLE>
<CAPTION>
(2)
Monthly (3)
(1) Rent On Total
Rental Rate Total Monthly Tenant Monthly Lease
Per Sq. Ft. Sq. Feet Shell Rent Improvements Rent Terms
----------- -------- ---------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Year 1 0.45 48,998 22,049 12,414 34,463 NNN
Year 2 0.45 48,998 22,049 12,414 34,463 NNN
Year 3 0.45 48,998 22,049 12,414 34,463 NNN
Year 4 0.492 48,998 24,094 12,414 36,508 NNN
Year 5 0.492 48,998 24,094 12,414 36,508 NNN
Year 6 0.492 48,998 24,094 12,414 36,508 NNN
Year 7 0.537 48,998 26,328 12,414 38,742 NNN
Year 8 0.537 48,998 26,328 12,414 38,742 NNN
Year 9 0.537 48,998 26,328 12,414 38,742 NNN
Year 10 0.587 48,998 28,769 12,414 41,183 NNN
Years 11-15 (4)
Years 16-20 (4)
</TABLE>
Notes:
- -----
(1) Rent is adjusted every three years.
(2) Based on full $20 tenant improvement amortized over 10 years at 9%. Actual
Ti rent will depend on actual amount of tenant improvements and remaining
term of lease.
(3) Plus applicable rental tax
(4) Five year renewal option at 95% of then current market rent with 3% annual
increases.
<PAGE> 50
EXHIBIT G TO LEASE
EXHIBIT G
HAZARDOUS MATERIALS DISCLOSURE STATEMENT
Landlord hereby makes disclosure of each release, discharge, emission,
installation, and/or disposal of a Hazardous Material on or about the Project or
adjacent thereto that is described in the following environmental reports and
assessments, copies of which have been provided to Tenant, all of which are
incorporated herein by this reference:
1. Environmental Site Assessment dated 1/3/92, prepared by Southwestern
Laboratories, Inc., of Dallas, Texas, for the Resolution Trust Corporation c/o
First Gibraltar Bank FSB, SwL Report No. 9252-188
2. Limited Phase 2 Environmental Assessment Report dated 6/26/92,
prepared by Environmental Engineering Consultants, Inc. for M-3 Engineering and
Technology, Inc., EEC Project #T1280
3. Asbestos Survey dated 7/24/92, prepared by Environmental Engineering
Consultants, Inc. for M-3 Engineering & Technology Corp., Project No. 5117 (two
volumes)
4. Letter report of Site Inspection of Building 302 dated 4/8/97 by
Environmental Engineering Consultants, Inc. for Gromatzky Dupree & Associates,
EEC Project No. 5451
Without limiting the generality of the foregoing, Landlord makes specific
disclosure that regional groundwater in the area adjacent to the Project has
been affected by TCE plumes originating from the Hughes Aircraft facility at
Tucson International Airport, from the Airport itself, and from the Burr Brown
Corporation facility approximately one mile north of the Premises.
Without undertaking any investigation, and without assuming any duty to
investigate, Landlord has no actual knowledge (i) whether groundwater in the
area of the Project itself has been affected by any of the TCE plumes referenced
above, or (ii) of any other release, discharge, emission, installation, and/or
disposal of any Hazardous Material on or about the Project or adjacent thereto.
<PAGE> 51
ADDENDUM TWO TO LEASE
Dated June 24, 1998
between BD 34TH PROPERTIES, INC. and
NATIONAL INSURANCE GROUP
THIS ADDENDUM TO LEASE ("Addendum") is attached to and made a part of the
attached Lease between BD 34th PROPERTIES, INC., an Arizona corporation, as
Landlord, and NATIONAL INSURANCE GROUP, as Tenant. In the event of any conflict
between the terms of this Addendum and the terms of the attached Lease, the
terms of this Addendum shall govern. This Addendum Two and the attached Lease
are collectively called the "Lease."
49. LANDSCAPE CLEAN UP. Landlord and Tenant agree that the Landscape
Clean Up to be performed by Landlord is identified in yellow on the aerial
survey titled "A.L.T.A./A.C.S.M. LAND TITLE SURVEY."
<PAGE> 1
DEED OF LEASE
THIS DEED OF LEASE (this "Lease") is made as of the 8th day of May,
1998 (the "Date of Lease"), by FCP-DULLES BUSINESS PARK I, L.C., a Virginia
limited liability company ("Landlord"), and PINNACLE REAL ESTATE TAX SERVICES,
INC., a Delaware corporation ("Tenant").
Landlord and Tenant, intending legally to be bound, hereby covenant and
agree as set forth below.
ARTICLE I
BASIC LEASE PROVISIONS
The following terms, when used herein, shall have the meanings set
forth below.
1.1 Premises. For purposes of this Lease, the gross rentable square
footage of the Premises shall be deemed to be 33,363 square feet, known as of
the Date of Lease as Suite 200 and located in the Building as outlined on
Exhibit A-1 attached hereto and made a part hereof. The premises are measured in
accordance with the Greater Washington Commercial Association of Realtors
standard method of measurement (GWCAR), based on construction plans for the
Building, and the exterior walls of the Building, which have been constructed as
of the date hereof, and the parties hereby stipulate to such measurement.
1.2 Building. The building containing approximately 58,393 gross
rentable square feet shown on Exhibit A-2 attached hereto and made a part
hereof, and all alterations, additions, improvements, restorations or
replacements now or hereafter made thereto, with an address of:
14026 Thunderbolt Place
Chantilly, Virginia 22021
1.3 Term. Ten (10) years.
1.4 Commencement Date. October 1, 1998, subject to adjustment as set
forth in Article 4.
1.5 Expiration Date. September 30, 2008, subject to adjustment as set
forth in Article 4.
1.6 Base Rent. $13.00 for each rentable square foot of the Premises for
the first Lease Year which is equal to a total of $ 433,719.00 for the first
Lease Year payable in equal monthly installments of $36,143.25. The Base Rent
shall be increased annually by an amount equal to three percent (3%) of the
previous Lease Year's Base Rent commencing the second Lease Year in accordance
with the following schedule:
<TABLE>
<CAPTION>
Lease Year Annual Base Rent Monthly Installment
---------- ---------------- -------------------
<S> <C> <C>
1 $ 433,719.00 $ 36,143.25
2 $ 446,730.60 $ 37,227.55
3 $ 460,132.44 $ 38,344.37
4 $ 473,936.52 $ 39,494.71
5 $ 488,154.60 $ 40,679.55
6 $ 502,799.16 $ 41,899.93
7 $ 517,883.16 $ 43,156.93
8 $ 533,419.68 $ 44,451.64
9 $ 549,422.28 $ 45,785.19
10 $ 565,904.88 $ 47,158.74
</TABLE>
1.7 Security Deposit. Not Applicable.
1
<PAGE> 2
1.8 Tenant's Proportionate Share of Common Area Expenses. 57.14% of the
Common Area Expenses allocable to the Building which is based upon the Premises
containing 33,363 gross rentable square feet of the Building containing a total
of 58,393 gross rentable square feet.
1.9 Tenant's Proportionate Share of Real Estate Taxes. 57.14% of the
Real Estate Taxes allocable to the Building which is based upon the Premises
containing 33,363 gross rentable square feet of the Building containing a total
of 58,393 gross rentable square feet.
1.10 Parking Space Allocation. 120 spaces, which shall be without
charge, in unreserved, non-exclusive parking spaces available in the Parking
Facilities, except for six (6) reserved parking spaces which shall be located in
proximity to the main entrance of the Premises, as shown on Exhibit A-2.
1.11 Permitted Use. General office and administrative use. No other
purpose.
1.12 Tenant's Trade Name. Pinnacle Real Estate Tax Services, Inc.
1.13 Broker(s). Landlord's: The Carey Winston Company
Tenant's: CB Commercial Real Estate in conjunction
with Cushman Realty Corporation
1.14 Landlord's Address. FCP-Dulles Business Park I, L.C.
c/o Crimson Partners, L.C.
455 Spring Park Place
Suite 100
Herndon, Virginia 22070
Attn: R. Kevin Dougherty
With a copy to: Mark S. Tenenbaum, Esq.
Tenenbaum & Saas, P.C.
4330 East-West Highway
Suite 1150
Bethesda, MD 20814
1.15 Tenant's Address.
Before occupancy: Pinnacle Real Estate Tax Services, Inc.
395 Oyster Point, Suite 500
South San Francisco, CA 94080
Attn: Donald S. Grant, V.P. Facilities
With a copy to: Pinnacle Real Estate Tax Services, Inc.
395 Oyster Point, Suite 500
South San Francisco, CA 94080
Attn: Robert Barbarowicz, General Counsel
After Occupancy: Pinnacle Real Estate Tax Services, Inc.
14026 Thunderbolt Place
Chantilly, Virginia 22021
Attn: Gunnar Bergstrom,
Executive Vice President
With a copy to: Pinnacle Real Estate Tax Services, Inc.
395 Oyster Point, Suite 500
South San Francisco, CA 94080
Attn: Donald S. Grant, V.P. Facilities
2
<PAGE> 3
With a copy to: Pinnacle Real Estate Tax Services, Inc.
395 Oyster Point, Suite 500
South San Francisco, CA 94080
Attn: Robert Barbarowicz, General Counsel
1.16 Guarantor and Guarantor's Address:
National Insurance Group
395 Oyster Point, Suite 500
South San Francisco, CA 94080
ARTICLE 2
DEFINITIONS
The following terms, when used herein, shall have the meanings set
forth below.
2.1 Additional Rent. As defined in Section 5.3.
2.2 Agents. Officers, partners, directors, employees, agents,
licensees, customers and invitees.
2.3 Alterations. Alterations, decorations, additions or improvements of
any kind or nature to the Premises or the Building, whether structural or
non-structural, interior, exterior or otherwise.
2.4 Calendar Year. A period of twelve (12) months commencing on each
January 1 during the Term, except that the first Calendar Year shall be that
period from and including the Commencement Date through December 31 of that same
year, and the last Calendar Year shall be that period from and including the
last January 1 of the Term through the earlier of the Expiration Date or date of
Lease termination.
2.5 Common Area. All areas, improvements, facilities and equipment from
time to time designated by Landlord for the common use or benefit of Tenant,
other tenants of the Building and their Agents, including, without limitation,
roadways, entrances and exits, landscaped areas, open areas, exterior lighting,
service drives, loading areas, pedestrian walkways, sidewalks, stairs, ramps,
maintenance and utility rooms and closets, exterior utility lines, common window
areas, common trash areas and Parking Facilities.
2.6 Common Area Expenses. As defined in Section 7.2.
2.7 Dulles Business Park: The planned office development described in
that certain Declaration dated October 25, 1984 and recorded in the Clerk's
Office of the Circuit Court for Fairfax County, Virginia at Deed Book 6046 at
Page 218, and re-recorded in Deed Book 6877 at page 1528, as amended by
instruments recorded in Deed Book 6712 at page 780, Deed Book 7028 at Page 1392
and Deed Book 7539 at Page 193 among the aforesaid land records, as the same may
be improved, modified, reconfigured, expanded and/or contracted from time to
time in the discretion of Landlord and its affiliates.
2.8 Event of Default. As defined in Article 22.
2.9 Herein, hereafter, hereunder and hereof. Under this Lease,
including, without limitation, all Exhibits and any Riders.
2.10 Including and/or includes. Including, but not limited to, and/or
includes, without limitation. The term "including" and like terms used herein to
identify particular items as being related to (or examples of) a descriptive
term, phrase or provision shall, unless where expressly indicated to the
contrary, be viewed as non-
3
<PAGE> 4
exclusive, and the identification of particular items, or use of such examples,
shall not limit any other item or example which fits within the particular
descriptive term, phrase or provision.
2.11 Interest Rate. Per annum interest rate listed as the base rate on
corporate loans at large U.S. money center commercial banks as published from
time to time under "Money Rates" in the Wall Street Journal plus two percent (2
%), but in no event greater than the maximum rate permitted by law. In the event
the Wall Street Journal ceases to publish such rates, Landlord shall choose at
Landlord's sole discretion a similar publication which publishes such rates.
2.12 Land. The piece or parcel of land described in Exhibit A-2 and all
rights, easements and appurtenances thereunto belonging or pertaining, or such
portion thereof as shall be allocated by Landlord to the Building.
2.13 Lease Year. Each consecutive twelve (12) month period elapsing
after (i) the Commencement Date if the Commencement Date occurs on the first day
of a month, or (ii) the first day of the month following the Commencement Date
if the Commencement Date does not occur on the first day of a month.
2.14 Mortgage. Any mortgage, deed of trust, security interest or title
retention interest affecting the Building or the Land.
2.15 Mortgagee. The holder of any note or obligation secured by a
mortgage, deed of trust, security interest or title retention interest affecting
the Building or the Land, including, without limitation, lessors under ground
leases, sale-leasebacks and lease-leasebacks.
2.16 Parking Facilities. All parking areas now or hereafter made
available by Landlord for use by tenants of the Building, including, without
limitation, open-air parking, parking decks and parking areas under or within
the Building, whether reserved, non-exclusive or otherwise.
2.17 Project. That portion of the Dulles Business Park office
development which is owned from time to time by Landlord and/or its affiliates,
or any portion thereof which was at one time owned by Landlord to the extent the
same, after the transfer thereof by Landlord to a third party, is then
maintained in common with any buildings still owned by Landlord, whether
pursuant to reciprocal maintenance, easement or other agreements, or otherwise.
2.18 Real Estate Taxes. As defined in Article 8.
2.19 Rent. Base Rent and Additional Rent.
2.20 Rules and Regulations. The rules and regulations set forth in
Exhibit C attached hereto and made a part hereof, as the same may be amended or
supplemented from time to time.
2.21 Substantial Completion. As defined in the Work Agreement attached
hereto and made a part hereof as Exhibit B.
2.22 Substantial Part. More than fifty percent (50%) of the rentable
square feet of the Premises or the Building, as the case may be.
2.23 Work Agreement. As set forth in Exhibit B attached hereto and made
a part of.
4
<PAGE> 5
ARTICLE 3
THE PREMISES
3.1 Lease of Premises. In consideration of the agreements contained
herein, Landlord hereby leases the Premises to Tenant, and Tenant hereby leases
the Premises from Landlord, for the Term and upon the terms and conditions
hereinafter provided. As an appurtenance to the Premises, Tenant shall have the
non-exclusive right, together with other tenants of the Building and their
Agents, to use the Common Area. Landlord shall retain absolute dominion and
control over the Common Area and shall operate and maintain the Common Area in
such manner as Landlord, in its sole but reasonable judgment shall determine
consistent with standards applicable for a first class office/flex building;
provided, however such exclusive right shall not operate to prohibit Tenant from
its use of the Premises for the Permitted Use. Landlord expressly reserves the
right permanently to change, modify or eliminate, or temporarily to close, any
portion of the Common Area. The Premises are leased subject to, and Tenant
agrees not to violate, all present and future covenants, conditions and
restrictions of record which affect the Land.
3.2 Landlord's Reservations. In addition to the other rights of
Landlord under this Lease, Landlord reserves the right (i) to change the name of
the Building, (ii) to install, erect, use, maintain and repair mains, pipes,
conduits and other such facilities to serve the Building's tenants in and
through the Premises, (iii) to grant to anyone the exclusive right to conduct
any particular business or undertaking in the Building, (iv) to control the use
of the roof and exterior walls of the Building for any purpose, and (v) to
modify the size and configuration of the Common Area, including the construction
of temporary or permanent structures or improvements therein. Landlord may
exercise any or all of the foregoing rights without being deemed to be guilty of
an eviction, actual or constructive, or a disturbance or interruption of the
business of Tenant or Tenant's use or occupancy of the Premises, subject to
Article 12 of this Lease.
ARTICLE 4
TERM
The Term shall commence on the Commencement Date and expire at midnight
on the Expiration Date. Except as provided in Exhibit B, if Substantial
Completion of the Premises has not occurred on the date set forth in Article I
as the Commencement Date (other than as a result of Tenant Delays), or if Tenant
uses or accepts possession of the Premises before the date set forth in Article
I as the Commencement Date, then the Commencement Date shall be the earlier of
(i) the first Monday occurring after the date of Substantial Completion or (ii)
the date upon which Tenant commences business operations within the Premises
(exclusive of Tenant's Move-In and Early Work, as defined and described in
Section 6.5 of Exhibit B). In such event, the Commencement Date shall be
adjusted accordingly so that the period of the Term is not changed. If requested
by Landlord, Tenant shall within fifteen (15) days of such request sign a
declaration acknowledging the Commencement Date and the Expiration Date in the
form attached hereto and made a part hereof as Exhibit D .
ARTICLE 5
RENT
5.1 Base Rent. Tenant shall pay to Landlord the Base Rent as specified
in Section 1.6.
5.2 Payment of Base Rent. Base Rent for each Lease Year shall be
payable in equal monthly installments, in advance, without demand, notice,
deduction, offset or counterclaim, on or before the first day of each and every
calendar month during the Term; provided, however, that the installment of the
Base Rent payable for the first full calendar month of the Term (and, if the
Commencement Date occurs on a date other than on the first day of a calendar
mouth, Base Rent prorated from such date until the first day of the following
month) shall be due and payable on the full execution and delivery of this
Lease. Tenant shall pay the Base Rent and all
5
<PAGE> 6
Additional Rent, by good check, made payable to Landlord or in lawful currency
of the United States of America, to Landlord at 455 Spring Park Place, Suite
100, Herndon, Virginia 22070 or to such other address or in such other manner as
Landlord from time to time specifies by written notice to Tenant. Any payment
made by Tenant to Landlord on account of Base Rent may be credited by Landlord
to the payment of any late charges then due and payable and to any Base Rent or
Additional Rent then past due before being credited to Base Rent currently due.
5.3 Additional Rent. All sums payable by Tenant under this Lease, other
than Base Rent, shall be deemed "Additional Rent", and, unless otherwise set
forth herein, shall be payable in the same manner as set forth above for Base
Rent.
5.4 Acceptance of Rent. If Landlord shall direct Tenant to pay Base
Rent or Additional Rent to a "lockbox" or other depository whereby checks in
payment of Base Rent or Additional Rent (or both, as the case may be) are
initially cashed or deposited by a person or entity other than Landlord (albeit
on Landlord's authority), Tenant agrees to make such payments in a timely
fashion in accordance with such direction from Landlord.
ARTICLE 6
[INTENTIONALLY DELETED]
ARTICLE 7
COMMON AREA EXPENSES
7.1 Tenant's Proportionate Share. Tenant shall pay to Landlord
throughout the Term, as Additional Rent, Tenant's Proportionate Share of the
Common Area Expenses. In the event that the Commencement Date or the Expiration
Date are other than the first day of a Calendar Year then Tenant's Proportionate
Share of the Common Area Expenses shall be adjusted to reflect the actual period
of occupancy during the Calendar Year.
7.2 Common Area Expenses Defined. As used herein, the term "Common Area
Expenses" shall mean all expenses and costs of every kind and nature which
Landlord incurs because of or in connection with the ownership, maintenance,
management and operation of the Building (which expressly includes the Land, the
Building and the Common Area). To the extent the Building is part of, or
continues to maintained in conjunction with, the Project, Landlord shall have
the right (but not the obligation) to provide certain services contemplated
herein to the Building in conjunction with one or more buildings in the Project,
in which event an appropriate portion of the expenses associated therewith
(based on the relative square footage of the Buildings, or, if allocation based
solely on square footage would be inequitable, based on the relative benefit to
each such building from such expense) shall be allocated by Landlord to the
Building as Common Area Expenses hereunder. By way of example, and not of
limitation, snow removal costs for the Project shall be allocated on an
appropriate basis between all tenantable buildings in the Project which receive
the benefit of such snow removal services under a single snow removal contract.
Common Area Expenses shall include, without limitation, all reasonable costs,
expenses and disbursements incurred or made in connection with the following:
(i) Wages and salaries of all employees, whether employed by Landlord
or the Building's management company, engaged in the operation and maintenance
or security of the Building and all costs related to or associated with such
employees or the carrying out of their duties, including uniforms and their
cleaning, taxes, auto allowances and insurance and benefits (including, without
limitation, contributions to pension and/or profit sharing plans and vacation or
other paid absences);
(ii) All supplies and materials, including janitorial and lighting
supplies, used directly in the operation and maintenance of the Building;
6
<PAGE> 7
(iii) All utilities, including, without limitation, electricity,
telephone (including, without limitation, all costs and expenses of telephone
service for the sprinkler alarm system, if any), water, sewer, power, gas,
heating, lighting and air conditioning for the Building, except to the extent
such utilities are charged directly to or paid by, a tenant of the building;
(iv) All insurance purchased by Landlord or the Building's management
company relating to the Building and any equipment or other property contained
therein or located thereon including, without limitation, casualty, liability,
rental loss, sprinkler and water damage insurance;
(v) All repairs to the Building (excluding repairs paid for by the
proceeds of insurance irrespective of any deductibles applicable thereto, or by
Tenant or other third parties other than as a part of the Common Area Expenses),
including interior and exterior, and regardless of whether foreseen or
unforeseen, except as provided in Section 12.1, below;
(vi) All maintenance of the Building, including, without limitation,
painting, ice and snow removal, landscaping, groundskeeping and the patching,
painting and resurfacing of roads, driveways and parking lots;
(vii) All maintenance, operation and service agreements for the
Building, and any equipment related thereto, including, without limitation,
service and/or maintenance agreements for the sprinkler system in the Building,
if any (excluding those paid for by Tenant or any other third parties other than
as a part of Common Area Expenses);
(viii) A management fee payable to Landlord or the company or companies
managing the Building, if any, not to exceed market rates for the management of
similar buildings to the Building in the vicinity of the Building in Fairfax
County Virginia;
(ix) Accounting and legal fees incurred in connection with the
operation and maintenance of the Building or related thereto;
(x) Any additional services not provided to the Building at the
Commencement Date but thereafter provided by Landlord as Landlord shall deem
necessary or desirable in connection with the management or operation of the
Building, the Land and the Common Area;
(xi) All private assessments, whether general, special or otherwise,
levied against Landlord or the Building pursuant to any declaration or other
instrument affecting the Building or any part or component thereof, including
without limitation that certain Declaration for the Dulles Business Park as the
same may be amended from time to time in accordance with the terms thereof;
(xii) any capital expenditures (1) incurred for the intended purpose of
reducing Common Area Expenses or utility costs by an amount which, over the
useful life of the item to which such capital expenditure relates, exceeds the
cost of the capital expenditure incurred to produce such savings, or (2)
incurred to comply with change in any governmental laws, orders, regulations or
other requirements (e.g., a code-mandated life safety system) to the extent such
change is enacted or effected after the Date of Lease (including any such change
in laws or in the interpretation thereof which results in any loss of
"grandfathering" or other exception to compliance to which Landlord is entitled
under existing laws or regulations as of the Date of Lease); provided that all
capital expenditures described above shall be amortized on a monthly payment
basis over the actual useful life of the item in question, as reasonably
determined by Landlord in accordance with generally accepted accounting
principles, based on the type of the equipment replaced, together with interest
at the Interest Rate (or such higher interest rate as may have been paid by
Landlord on funds borrowed for the purposes of incurring such capital
expenditures), and only the total monthly payments of principal and interest
coming due in each applicable calendar year during the Term, as determined under
such amortization schedule, shall be recoverable by Landlord under this Section
in any such calendar year, and in the case of clause (1), above, shall not
exceed
7
<PAGE> 8
the amount of the reduction in Common Area Expenses realized or derived as a
result of such expenditure in any year during which such expenditure is being
recovered under this subparagraph;
(xiii) Subject to Section 7.3, below, all other expenses and costs
reasonably necessary for operating and maintaining the Building.
7.3 Exclusions from Common Area Expenses. Notwithstanding Section 7.2
to the contrary, the following costs and expenses shall be excluded from Common
Area Costs:
(i) Costs and expenses associated with the operation of the business of
the ownership or entity which constitutes "Landlord" as distinguished from the
costs of building operations, including but not limited to partnership
accounting and legal matters, costs of defending any lawsuits with any mortgagee
(except to the extent the actions of Tenant may be in issue), costs of selling,
syndicating, financing, mortgaging or hypothecating any of Landlord's interest
in the Building, costs of disputes between Landlord and its property manager or
between Landlord and its employees (if any) who are not engaged in Building
operations, or outside fees paid in connection with disputes with other tenants
(except to the extent such fees are paid in connection with the enforcement of
lease covenants which will inure to the benefit of other tenants of the
Property);
(ii) Costs incurred in connection with the original design and
construction of the Building;
(iii) Costs of alterations or improvements of the Premises or the
premises of other tenants, except to the extent required by applicable law or
reasonably incurred to reduce Common Area Expenses;
(iv) Depreciation, interest and principal payments on mortgages and
other debt costs, if any, (exclusive of any portions paid for real estate taxes,
insurance or other expenses which are properly included in Common Area
Expenses), except as expressly contemplated in Section 7.2(xii), above, with
respect to the amortization of and the interest factor attributable to the cost
of certain capital expenses permitted to be included as Common Area Expenses;
(v) Costs of correcting defects in the design or construction of the
Building or the materials used in the construction of the Building or the
equipment or appurtenances thereto;
(vi) Additional incremental expenses directly resulting from the
negligence of Landlord or Landlord's Agents;
(vii) Legal fees, space planners' fees, real estate brokers' leasing
commissions and advertising expenses incurred in connection with the original
development or original leasing of the Building or future leasing of the
Building;
(viii) The portion of any cost or expense which is reimbursed to
Landlord by Landlord's insurance carrier or any tenant's insurance carrier;
(ix) Any bad debt loss, rent loss, or reserves for bad debts or rent
loss;
(x) The expense of providing a level of service to any other tenant of
the Building which materially exceeds the level of service provided to Tenant
without additional charge, to the extent of such excess;
(xi) The portion of any wages of any employee which is attributable to
hours not devoted to the Property;
(xii) Fines, penalties and (except as otherwise permitted herein)
interest;
8
<PAGE> 9
(xiii) Amounts paid as ground rental by Landlord (exclusive of any
portions paid for real estate taxes, insurance or other expenses which are
properly included in Common Area Expenses);
(xiv) Any operating costs to provide services which are solely for the
benefit of retail tenants;
(xv) Any recalculation of, or additional, Common Area Expenses actually
incurred more than one year prior to the year in which Landlord proposes that
such costs be included, except as permitted pursuant to Section 7.2 (xii),
above;
(xvi) Capital expenditures, except as provided for in Section 7.2(xii),
above;
(xvii) Costs incurred by Landlord with respect to goods and services
(including utilities sold and supplied to tenants and occupants of the Building)
to the extent that Landlord is entitled to reimbursement for such costs (other
than through reimbursements of tenants' share of Common Area Expenses;
(xviii) Costs, including permit, license and inspection costs, incurred
with respect to the installation of tenant improvements made for new tenants in
the Building, or incurred in renovating, decorating, or redecorating vacant
space for tenants or other occupants of the Building;
(xix) The portion of any fee (including management fees), charge or
expense which exceeds by more than a de minimis amount the market rates for
goods and services provided in exchange therefor, for properties similar to and
located in the same general vicinity as the Property (including overhead, profit
increment paid to Landlord or to subsidiaries or affiliates of Landlord for
services in the Building, to the extent the same exceeds by more than a de
minimis amount the costs of such services rendered by reputable unaffiliated
third parties supplying such services or items to properties similar to and
located in the same general vicinity as the Property );
(xx) Any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord in the Building;
(xxi) Rental expenses incurred to lease air conditioning systems,
elevators or other equipment ordinarily considered to be of a capital nature
which, if purchased rather than leased, would not be included in Common Area
Expenses pursuant to Paragraph 7.2(xii) and 7.3(xvi), above;
(xxii) Electric power costs for which any Tenant directly contracts
with the local public service company; and
(xxiii) Any mark-up on utilities provided by Landlord.
It is understood that Common Area Expenses will be reduced by all trade and
quantity discounts received by Landlord or Landlord's managing agent in the
purchase of goods, utilities or services in connection with the operation of the
Building. In calculating Common Area Expenses hereunder, no individual
expenditure will be charged more than once. Landlord agrees to use commercially
reasonable efforts to effect an equitable apportionment of bills for services
rendered to the Building and any other property owned by Landlord. Landlord
agrees to keep books and records showing Common Area expenses in accordance with
a system of accounts and accounting practices which are consistently applied.
7.4 Estimated Payments. Landlord shall submit to Tenant, before the
beginning of each Calendar Year, a statement of Landlord's estimate of the
Common Area Expenses payable by Tenant during such Calendar Year. In addition to
the Base Rent, Tenant shall pay to Landlord on or before the first day of each
month during such Calendar Year an amount equal to one-twelfth (1/12) the
estimated Common Area Expenses payable by Tenant for such Calendar Year as set
forth in Landlord's statement. If Landlord fails to give Tenant notice of its
9
<PAGE> 10
estimated payments due under this Section for any Calendar Year, then Tenant
shall continue making monthly estimated payments in accordance with the estimate
for the previous Calendar Year until a new estimate is provided. If Landlord
determines that, because of unexpected increases in Common Area Expenses or
other reasons, Landlord's estimate of the Common Area Expenses was too low, then
Landlord shall have the right to give a new statement of the estimated Common
Area Expenses due from Tenant for such Calendar Year or the balance thereof and
to bill Tenant for any deficiency which may have accrued during such Calendar
Year, and Tenant shall thereafter pay monthly estimated payments based on such
new statement.
7.5 Actual Common Area Expenses. Within one hundred twenty (120) days
after the end of each Calendar Year, Landlord shall submit a statement to Tenant
showing the actual Common Area Expenses for such Calendar Year and Tenant's
Proportionate Share of the amount of such Common Area Expenses. If for any
Calendar Year, Tenant's estimated monthly payments exceed Tenant's Proportionate
Share of the actual Common Area Expenses for such Calendar Year, then Landlord
shall give Tenant a credit in the amount of the overpayment toward Tenant's next
monthly payments of estimated Common Area Expenses. If for any Calendar Year
Tenant's estimated monthly payments are less than Tenant's Proportionate Share
of the actual Common Area Expenses for such Calendar Year, then Tenant shall pay
the total amount of such deficiency to Landlord within thirty (30) days after
receipt of the statement from Landlord. Landlord's and Tenant's obligations with
respect to any overpayment or underpayment of Common Area Expenses shall survive
the expiration or termination of this Lease.
7.6 Tenant's Right to Audit. Tenant and its authorized representative
shall, upon reasonable prior written notice, have the right at its sole expense
(except as provided below) to examine, inspect and copy the records of Landlord
regarding each statement of Common Area Expenses and Taxes within sixty (60)
days after receipt of such statement, in order to determine whether to proceed
with an audit thereof. In the event Tenant shall dispute the amount set forth in
Landlord's statement of actual Common Area Expenses, Tenant shall have the
right, not later than one hundred twenty (120) days following receipt of such
statement, to cause Landlord's books and records with respect to the preceding
Calendar Year to be audited by an independent Certified Public Accountant
mutually acceptable to Landlord and Tenant. Such audit shall occur upon not less
than five (5) days prior written notice to Landlord, at Landlord's place of
business or the actual location of Landlord's books and records if different
from Landlord's place of business, during Landlord's normal business hours. The
amounts payable under this Section by Landlord to Tenant or by Tenant to
Landlord, as the case may be, shall be appropriately adjusted on the basis of
such audit. If such audit discloses a liability for further refund by Landlord
to Tenant in excess of five percent (5%) of the payments previously made by
Tenant for such Calendar Year, the reasonable cost of such audit shall be borne
by Landlord and shall not be considered as a Common Area Expense for purposes of
this Lease; otherwise, the cost of such audit shall be borne by Tenant. If
Tenant shall not request an audit in accordance with the provisions of this
Section within one hundred twenty (120) days after receipt of Landlord's
statement of actual Common Area Expenses, such statement shall be conclusively
binding upon Landlord and Tenant.
ARTICLE 8
TAXES
8.1 Generally. Tenant shall pay to Landlord throughout the Term, as
Additional Rent, Tenant's Proportionate Share of Real Estate Taxes, In the event
the Commencement Date or the Expiration Date are other than the first (1st) day
of a Calendar Year, the Tenant's Proportionate Share of the Real Estate Taxes
shall be adjusted to reflect the actual period of occupancy during the Calendar
Year. "Real Estate Taxes" shall mean all taxes and assessments, including but
not limited to, general or special, ordinary or extraordinary, foreseen or
unforeseen, assessed, levied or imposed by any governmental authority upon the
Building and the Land and upon the fixtures, machinery, equipment or systems in,
upon or used in connection with any of the foregoing, and the rental, revenue or
receipts derived therefrom, under the current or any future taxation or
assessment system or modification of, supplement to, or substitute for such
system. Real Estate Taxes also shall include special assessments which are in
the nature of or in substitution for real estate taxes, including, without
limitation, road
10
<PAGE> 11
improvement assessments, special tax district assessments, special use area
assessments and school district assessments, provided that Taxes shall not
include any special assessments for off-site improvements hereafter incurred by
Landlord if such assessments are negotiated by Landlord in exchange for
development rights or zoning or other governmental approvals for the benefit of
properties other than the Property, or which do not directly benefit the
Property (it being agreed, however, that assessments made by any special tax
district, special use area and school district, to the extent such assessment
district was created with respect to multiple properties that include properties
not owned by Landlord, as opposed to being created by Landlord in order to
indirectly fund improvements or zoning rights that benefit properties owned by
Landlord other than the Property, such as assessments made as part of the Route
28 taxing district, shall be included within the definition of Real Estate
Taxes). If at any time the method of taxation prevailing at the Date of Lease
shall be altered so that in lieu of, as a substitute for or in addition to the
whole or any part of the taxes now levied or assessed, there shall be levied or
assessed a tax of whatever nature, then the same shall be included as Real
Estate Taxes hereunder. Further, for the purposes of this Article, Real Estate
Taxes shall include the reasonable expenses (including, without limitation,
attorneys' fees) incurred by Landlord in challenging or obtaining or attempting
to obtain a reduction of such Real Estate Taxes, regardless of the outcome of
such challenge. Notwithstanding the foregoing, Landlord shall have no obligation
to challenge Real Estate Taxes. If, as a result of any such challenge, a tax
refund is made to Landlord, then the amount of such refund less the expenses of
the challenge shall be deducted from Real Estate Taxes due in the Lease Year
such refund is received. Landlord shall charge Tenant for its Proportionate
Share of Real Estate Taxes in accordance with the procedures established under
Sections 7.4 and 7.5 for payment of Common Area Expenses.
8.2 Cap on Taxes and Common Expenses for Calendar Year 1998.
Notwithstanding Sections 7.5 and 8.1, above, to the contrary, the aggregate
amount of Taxes and Common Area Expenses charged by Landlord to Tenant during
the first full Lease Year shall not exceed an annualized amount equal to
$70,062.30 (which is the product obtained by multiplying $2.10 per annum times
the 33,363 square foot rentable area of the Premises). The foregoing cap shall
not be effective after the first Lease Year.
ARTICLE 9
PARKING
9.1 Parking Spaces. During the Term, Tenant shall have the right to use
the Parking Space Allocation for its employees, agents, business guests and
invitees. Tenant's Parking Space Allocation shall consist of unreserved and
non-exclusive parking spaces available in the Parking Facilities, except for six
(6) reserved parking spaces which shall be located in proximity to the main
entrance of the Premises, as shown on Exhibit A-2. Tenant shall not overburden
the Parking Facilities, and any usage in excess of the Parking Space Allocation
may, at Landlord's election, be deemed to overburden the Parking Facilities.
9.2 Changes to Parking Facilities. Landlord shall have the right, from
time to time, without Tenant's consent, to change, alter, add to, temporarily
close or otherwise affect the Parking Facilities in such manner as Landlord, in
its sole discretion, deems appropriate including, without limitation, the right
to designate reserved spaces available only for use by one or more tenants
(however, in such event, those parking spaces shall still be deemed Common Area
for the Purpose of the definition of Common Area Expenses), provided that,
except in emergency situations or situations beyond Landlord's control, Landlord
shall provide alternative Parking Facilities.
ARTICLE 10
USE
Tenant shall occupy the Premises solely for the Permitted Use. The
Premises shall not be used for any other purpose without the prior written
consent of Landlord. Tenant shall comply, at Tenant's expense, with (i) all
present and future laws, ordinances, regulations and orders of the United States
of America, the
11
<PAGE> 12
Commonwealth of Virginia and any other public or quasi-public federal, state or
local authority having jurisdiction over the Premises, and (ii) any reasonable
requests of Mortgagee or any insurance company providing coverage with respect
to the Premises. Tenant shall not use or occupy the Premises in any manner that
is unlawful or dangerous or that shall constitute waste, unreasonable annoyance
or a nuisance to Landlord or the other tenants of the Building.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
11.1 Consent. Tenant shall not assign, transfer, mortgage or otherwise
encumber this Lease or sublet or rent (or permit a third party to occupy or use)
the Premises, or any part thereof, nor shall any assignment or transfer of this
Lease or the right of occupancy hereunder be effected by operation of law or
otherwise, without the prior written consent of Landlord which shall not be
unreasonably withheld or delayed. Without limitation, it shall not be
unreasonable for Landlord to deny its consent to any proposed assignment or
sublease if, at the time receives Tenant's Proposal Notice (defined below), an
Event of Default is then continuing under this Lease. Tenant must request
Landlord's consent to such assignment or sublease in writing at least thirty
(30) days prior to the commencement date of the proposed sublease or assignment,
which written request (a "Proposal Notice") must include (a) the name and
address of the proposed assignee or subtenant, (b) the nature and character of
the business of the proposed assignee or subtenant, (c) financial information
(including financial statements) of the proposed assignee or subtenant, and (d)
a copy of the proposed sublease or assignment agreement. Tenant shall also
provide any additional information Landlord reasonably requests regarding such
proposed assignment or subletting. For purposes of the foregoing prohibitions,
but subject to the permissive rights provided for under Section 11.3, below, a
transfer at any one time or in a series of "step transactions" of more than
fifty percent (50%) of an interest in Tenant (whether stock, partnership
interest or other form of ownership or control) by any person(s) or entity(ties)
having an interest in ownership or control of Tenant at the Date of Lease shall
be deemed to be an assignment of this Lease. If Landlord consents to the
proposed assignment or subletting, the initial Tenant and any Guarantor shall
remain liable under this Lease. Any assignment, encumbrance, or sublease without
Landlord's written consent shall be voidable by Landlord and, at Landlord's
election, constitute an Event of Default hereunder. Neither the consent by
Landlord to any assignment, transfer, encumbrance or subletting nor the
collection or acceptance by Landlord of rent from any assignee, subtenant or
occupant shall be construed as a waiver or release of the initial Tenant or any
Guarantor from the terms and conditions of this Lease or relieve Tenant or any
subtenant, assignee or other party from obtaining the consent in writing of
Landlord to any further assignment, transfer, encumbrance or subletting. Tenant
hereby assigns to Landlord the rent and other sums due from any subtenant,
assignee or other occupant of the Premises and hereby authorizes and directs
each such subtenant, assignee or other occupant to pay such rent or other sums
directly to Landlord; provided, however, that until the occurrence of an Event
of Default, Tenant shall have the license to continue collecting such rent and
other sums. In addition, with respect to any sublease or assignment by Tenant,
Tenant hereby assigns and agrees to pay to Landlord one-half (1/2) of the amount
by which the subrent or other consideration directly or indirectly received by
Tenant with respect to the applicable space from any subtenant or assignee
exceeds the Rent allocable thereto, calculated after subtracting the amount of
all out-of-pocket expenses paid by Tenant directly in connection with such
sublease or assignment (including as legal expenses and leasing commissions
arising out of the sublease, subleasehold improvements costs, etc.).
11.2 Affiliated Entity; Sale of Business. Notwithstanding Section 11.1
to the contrary, but provided (a) an Event of Default shall not then be
continuing under this Lease, (b) such transfer is not effectuated as part of a
transaction or series of transfers orchestrated in order to effect a transfer of
this Lease (or Tenant's interest herein) in isolation to Tenant's other
leasehold interests and assets, (c) the creditworthiness of Tenant is not
diminished thereby, and (d) both Tenant and the assignee or sublessee (as the
case may be) remain fully liable for the obligations of Tenant under this Lease,
Tenant shall have the right, without Landlord's prior written consent, to assign
this Lease or sublet the Premises to (i) any wholly owned subsidiary of Tenant
or to any parent
12
<PAGE> 13
corporation of Tenant, or (ii) any affiliate or entity otherwise under common
control with Tenant or any affiliate or entity under common control with a
parent or subsidiary of Tenant, control being understood to mean ownership of
more than 50% of the beneficial interests of an entity together with the
exclusive right to exercise voting control over the management and operation of
the entity in question, or (iii) any entity which acquires all or substantially
all of the assets or stock of Tenant, by merger, consolidation, acquisition or
other business reorganization. An "affiliate" shall mean any corporations or
other business entities which control, are controlled by, or are under common
control with the entity in question, as the term control is defined above.
Tenant shall give Landlord written notice of any such sublease or assignment
promptly after the same is effectuated. Any provision of the foregoing sections
of this Article 11 to the contrary notwithstanding, Landlord agrees that the
offer and sale by Tenant (or any stockholder of Tenant) of any stock pursuant to
an effective registration statement filed pursuant to the Securities Act of 1933
(including any initial public offering of registered stock of the Tenant) shall
not constitute an assignment of this Lease, and shall not require the consent or
approval of Landlord. The initial Tenant and any transferee pursuant to a
sublease, assignment or transfer made in accordance with this Section 11.2 shall
be jointly and severally liable for the obligations of "Tenant" under the Lease
from and after the date of such sublease, assignment and/or transfer, including
the obligation to comply with the provisions of this Article 11 with regard to
any subsequent sublease, assignment or transfer.
ARTICLE 12
MAINTENANCE AND REPAIR
12.1 Landlord's Obligations. As long as no Event of Default by Tenant
has occurred and is continuing, Landlord shall, at its expense, maintain the
roof, foundation and the structural soundness of the exterior walls of the
Building in good repair, reasonable wear and tear excepted. Tenant shall repair
and pay for any damage caused by the negligence of Tenant or Tenant's employees,
agents or invitees, or caused by Tenant's default hereunder. The term "walls" as
used in this Section shall include windows, glass and doors which are part of
the exterior walls of the Building. Tenant shall immediately give Landlord
written notice of any defect or need for repairs, and after such notice,
Landlord shall have a reasonable opportunity to repair or cure such defect,
provided in the event of a bona fide emergency involving an imminent risk of
death or injury to persons or material damage to property (an "Emergency"), and
provided (i) such action will not interfere with the other occupants of the
Building or the use of their respective premises or jeopardize their health,
safety or welfare, and (ii) Landlord has not already commenced curative action,
Tenant shall be empowered to undertake immediate repairs of such nature as would
be Landlord's responsibility and in such event, Tenant shall notify Landlord
promptly after such repairs have been undertaken. If Landlord fails to proceed
to repair or maintain the Premises with reasonable diligence and within the
reasonable time period referenced above, or if Tenant undertakes Emergency
repairs as above stated and such Emergency was not brought about by the
negligence or willful misconduct of Tenant or Tenant's Agents, then Tenant may,
in addition to any other remedies Tenant may have at law or in equity, perform
such repairs or maintenance and charge Landlord for the reasonable and actual
cost thereof (which charge (A) shall be communicated by formal written notice
accompanied by all invoices and other documentation evidencing the need for and
scope of such repairs, and if applicable, the basis for Tenant's determination
that an Emergency existed, and (B) shall, solely to the extent it arises in the
context of an Emergency , and not as a result of Landlord's failure to proceed
with the repair with due diligence and within the fifteen (15) business day
period provided herein, be included within Common Area Expenses under this Lease
to the extent the same is in fact reimbursed by Landlord and would have been
included as a Common Area Expense had the same been performed by Landlord
pursuant hereto). Landlord shall either reimburse to Tenant the amount so
requested by Tenant, or dispute in writing Tenant's right to have undertaken the
repair(s) in question, or the reasonableness of the costs incurred by Tenant in
undertaking such repair(s) (by written notice delivered to Tenant), within
thirty (30) days after receipt of Tenant's invoice and documentation justifying
Tenant's expenditure of such amount; and if Landlord fails to deliver either a
notice of dispute or the required payment within such thirty (30) day period,
Tenant shall thereafter have the right to deduct the amount reflected within
such invoice from the next payments of Base Rent and Additional Rent becoming
due hereunder. To the extent Landlord only disputes a portion of Tenant's
invoice, Landlord shall indicate same in its notice of dispute and shall pay the
undisputed portion within such thirty (30) day period. If disputed by Landlord
in a timely fashion,
13
<PAGE> 14
Tenant shall have no right of offset until after receiving a final, non-
appealable judgment in its favor with respect to such claim provided such
final non-appealable judgment remains unpaid for a period of thirty (30) days.
Tenant shall immediately give Landlord written notice of any defect or need for
repairs. After such notice, Landlord shall have a reasonable opportunity to
repair or cure such defect. Landlord's liability with respect to any defects,
repairs or maintenance for which Landlord is responsible under any of the
provisions of this Lease shall be limited to the cost of such repairs or
maintenance or the curing of such defect.
12.2 Tenant's Obligations. Subject to Article 21 of this Lease, Tenant
shall, at its own expense, maintain all parts of the Premises (except those for
which Landlord is either expressly responsible or elects to undertake pursuant
to Section 12.1 or 12.3 of this Lease) in good condition, promptly making all
necessary repairs and replacements, including, but not limited to, any special
office entry, interior walls and finish work, floors and floor covering,
interior downspouts, interior lighting and interior electric systems, HVAC
systems (including fixtures and equipment), plumbing work and fixtures, termite
and pest extermination, and regular removal of trash and debris (unless
undertaken by Landlord). Tenant shall, at its own expense, keep the sidewalks in
front of the Premises free from obstructions of any and all nature, keep the
Premises in a clean and sanitary condition, maintain suitable receptacles within
the Premises for trash and refuse, and promptly remove from the Premises all
accumulations of trash and refuse. In order to fulfill the immediately foregoing
obligations, Tenant shall, at its expense, enter into a contract for janitorial
and/or char service with a contractor reasonably acceptable to Landlord. Unless
otherwise provided for by Landlord, Tenant shall, at its expense, enter into a
regularly scheduled preventive maintenance/service contract for all hot water,
heating and air conditioning systems and equipment within the Premises. The
maintenance contractor, the contract and the maintenance schedule must be given
prior approval in writing by Landlord. The service contract must include all
services suggested by the equipment manufacturer in the operation/maintenance
manual and must become effective (and a copy thereof delivered to Landlord)
within thirty (30) days of the date Tenant takes possession of the Premises.
Without the prior written consent of the Landlord, Tenant shall not have access
to the roof of the Building for any purpose whatsoever except as provided in
Section 29.2, below.
12.3 Landlord's Right to Maintain or Repair. If, within fifteen (15)
business days following notice to Tenant, Tenant fails to commence to repair or
replace any damage to the Premises or Building which is Tenant's obligation to
perform, and diligently pursue timely completion of such repair and replacement,
and upon written notice to Tenant of its intention to do so (except in cases of
Emergency, in which event Landlord shall be empowered, but not obligated, to act
immediately to the extent necessary to avoid or minimize the risk of death or
injury to persons or material damage to Property), Landlord may, at its option,
cause all required maintenance, repairs or replacements to be made. Tenant shall
promptly pay Landlord all costs incurred in connection therewith plus interest
thereon at the Interest Rate from the due date until paid.
12.4 Compliance with Laws. Tenant, at Tenant's sole expense, shall
comply with all laws, rules, orders, ordinances, directions, regulations and
requirements of federal, state, county and municipal authorities now in force or
which may hereafter be in force, which shall impose any duty upon Landlord or
Tenant with respect to the use, occupancy or alteration of the Premises or with
respect to the repair, maintenance and replacement of the Premises (hereinafter,
"Applicable Laws"). Notwithstanding the foregoing, Landlord (at its sole expense
except as provided in Article 7, above) and not Tenant, shall be required to (i)
perform any modifications required by Applicable Laws to the Building Shell
(i.e., structural components, the exterior cladding or perimeter glass) or
Building systems (excluding Tenant's modifications thereto), and (ii) cure any
non-compliance of the Premises existing as of the Commencement Date with regard
to Applicable Laws in effect as of the Commencement Date, including building and
fire/life safety codes, except to the extent such modifications or curative
actions are required as a result of (i) Tenant's requirements for the Tenant
Improvements constructed pursuant to Exhibit B, (ii) any Alterations performed
by or at the request of Tenant, (iii) Tenant's particular use of the Premises to
the extent the same is not general office use, (iv) any special equipment
installed by Tenant within the Premises, or (v) any other acts or omissions of
Tenant or Tenant's Agents.
14
<PAGE> 15
ARTICLE 13
INITIAL CONSTRUCTION; ALTERATIONS
13.1 Initial Construction. Landlord and Tenant agree that the
construction of the Tenant Improvements (as defined in Exhibit B attached hereto
and made a part hereof) and other initial construction with respect to the
Premises shall be performed in accordance with Exhibit B.
13.2 Alterations. Tenant shall not make or permit any Alterations
without the prior written consent of Landlord, other than minor interior
cosmetic Alterations which do not involve the issuance of a building permit and
which do not affect the exterior of, or any structural elements or mechanical,
electrical, plumbing and HVAC systems within, the Building. Landlord may impose
any reasonable conditions to its consent, including, without limitation, (i)
delivery to Landlord of written or unconditional waivers of mechanic's and
materialmen's liens as to the Premises, the Building and the Land for all work,
labor and services to be performed and materials to be furnished, signed by all
contractors, subcontractors, materialmen and laborers participating in the
Alterations, (ii) prior approval of the plans and specifications and Tenant's
contractor(s) with respect to the Alterations, and (iii) supervision by
Landlord's representative (at Tenant's expense, not to exceed 3% of the cost
thereof) of the Alterations. The Alterations shall conform to the requirements
of Landlord's and Tenant's insurers and of the Federal, state and local
governments having jurisdiction over the Premises, shall be performed in
accordance with the terms and provisions of this Lease in a good and workmanlike
manner befitting a first class office building and shall not adversely affect
the value, utility or character of the Premises. If the Alterations are not
performed as herein required, Landlord shall have the right, at Landlord's
option, to halt any further Alterations, or to require Tenant to perform the
Alterations as herein required or to require Tenant to return the Premises to
its condition before such Alterations. Notwithstanding the foregoing, if any
mechanic's or materialmen's lien is filed against the Premises, the Building or
the Land for work claimed to have been done for, or materials claimed to have
been furnished to or for the benefit of, Tenant, such lien shall be discharged
of record by Tenant within ten (10) days by the payment thereof or the filing of
any bond required by law. If Tenant shall fail to discharge any such lien,
Landlord may (but shall not be obligated to) discharge the same, the cost of
which shall be paid by Tenant within three (3) days of demand by Landlord. Such
discharge by Landlord, shall not be deemed to waive or release the default of
Tenant in not discharging the same. Neither Landlord's consent to the
Alterations nor anything contained in this Lease shall be deemed to be the
agreement or consent of Landlord to subject Landlord's interest in the Premises,
the Building or the Land to any mechanic's or materialmen's liens which may be
filed in respect of the Alterations.
13.3 Removal of Alterations. Except to the extent Tenant requests and
Landlord designates otherwise at the time Landlord approves such Alterations,
all or any part of the Alterations made after the Commencement Date of this
Lease (including, without limitation, wall-to-wall carpet and wiring), whether
made with or without the consent of Landlord, shall, at the election of
Landlord, either be removed by Tenant at its expense before the expiration of
the Term or shall remain upon the Premises and be surrendered therewith at the
Expiration Date or earlier termination of this Lease as the property of Landlord
without disturbance, molestation or injury. If Landlord requires the removal of
all or part of the Alterations, Tenant, at its expense, shall repair any damage
to the Premises or the Building caused by such removal. If Tenant fails to
remove the Alterations upon Landlord's request, then Landlord may (but shall not
be obligated to) remove the same and the cost of such removal and repair of any
damage caused by the same, together with any and all damages which Landlord may
suffer and sustain by reason of the failure of Tenant to remove the same, shall
be charged to Tenant and paid upon demand.
13.4 Landlord Alterations. Landlord shall have no obligation to make
any Alterations in or to the Premises, the Building, the Common Area or the Land
except as specifically provided in the Work Agreement.
15
<PAGE> 16
ARTICLE 14
SIGNS
14.1 General Sign Provision. Except as expressly permitted hereby, no
sign, advertisement or notice shall be inscribed, painted, affixed, placed or
otherwise displayed by Tenant on any part of the Land or the outside or the
inside (including, without limitation, the windows) of the Building or the
Premises. Any permitted signs shall be installed and maintained by Landlord at
Tenant's sole expense. All signage shall be in compliance with all applicable
laws and ordinances, and all covenants, conditions and restrictions applicable
to the Dulles Business Park. If any prohibited sign, advertisement or notice is
nevertheless exhibited by Tenant, Landlord shall have the right to remove the
same, and Tenant shall pay any and all expenses incurred by Landlord in such
removal, together with interest thereon at the Interest Rate, upon demand.
Landlord shall have the right to prohibit any sign, advertisement, notice or
statement to the public by Tenant which, in Landlord's opinion, tends to impair
the reputation of the Building or its desirability as a first class office
building.
14.2 Special Sign Rights. Section 14.1 to the contrary notwithstanding,
Landlord agrees, pursuant to and subject to the provisions of Exhibit B, but in
all events subject to all applicable laws and ordinances, all covenants,
conditions and restrictions applicable to the Dulles Business Park including the
Declaration, and any general signage program applicable to the Dulles Business
Park, to provide Tenant with exclusive exterior signage rights on eastern and
southern exterior facades of the Building, which will permit the installation by
Tenant (at its expense) of a single exterior building identification sign on
each such facade, identifying Tenant by name and/or corporate logo, to be
located at the top of the Building at a location designated by Landlord subject
to Tenant's reasonable consent, and subject to the prior rights to exterior
signage in favor of ECS (as such term is defined herein), to the extent
permitted by applicable law.
ARTICLE 15
TENANT'S EQUIPMENT AND PROPERTY
15.1 Moving Tenant's Property. Any and all damage or injury to the
Premises or the Building caused by moving the property of Tenant into or out of
the Premises, or due to the same being on the Premises, shall be repaired by
Landlord, at the expense of Tenant. Tenant shall promptly remove from the Common
Area any of Tenant's furniture, equipment or other property there deposited.
15.2 Installing and Operating Tenant's Equipment. Without first
obtaining the written consent of Landlord, which consent shall not be
unreasonably withheld, Tenant shall not install or operate in the Premises (i)
any electrically operated equipment or other machinery, other than standard
office equipment that does not require wiring, cooling or other service in
excess of Building standards, (ii) any equipment of any kind or nature
whatsoever which will require any material changes, replacements or additions
to, or changes in the use of, any water, heating, plumbing, air conditioning or
electrical system of the Premises or the Building, or (iii) any equipment which
causes the floor load to exceed a load limit which is reasonably appropriate for
a "concrete slab-on grade" one story building. Machines and equipment which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein so as to be objectionable to Landlord or any
other Building tenant shall be installed and maintained by Tenant, at its
expense, on vibration eliminators or other devices sufficient to eliminate such
noise and vibration.
ARTICLE 16
RIGHT OF ENTRY
Tenant shall permit Landlord or its Agents, at any time and upon one
(1) business days prior notice (which may include non-written notice for minor
entries not likely to cause a significant disturbance to Tenant's quiet
enjoyment), and without notice in the event of an Emergency, to enter the
Premises, without charge therefor to Landlord and without diminution of Rent,
(i) to examine, inspect and protect the Premises and the Building,
16
<PAGE> 17
(ii) to make such alterations and repairs or perform such maintenance which in
the sole but reasonable judgment of Landlord may be deemed necessary or
desirable, (iii) to exhibit the same to prospective purchasers of the Building
or to present or future Mortgagees or (iv) to exhibit the same to prospective
tenants during the last twelve (12) months of the Term and to erect on the
Premises a suitable sign indicating the Premises are available. Nothing set
forth in this Article 16 shall be deemed to diminish Landlord's obligation (if
any) to provide rental reduction or abatement pursuant to Sections 18.3 or 21.1
of this Lease, to the extent such Sections are by their terms applicable in the
context of a Landlord entry pursuant to this Article 16.
ARTICLE 17
INSURANCE
17.1 Insurance Rating. Tenant shall not conduct or permit any activity,
or place any equipment or material, in or about the Premises, the Building or
the Common Area which will increase the rate of fire or other insurance on the
Building or insurance benefitting any other tenant of the Building; and if any
increase in the rate of insurance is determined by any insurance company or by
the applicable insurance rating bureau to be due to any activity, equipment or
material of Tenant in or about the Premises, the Building or the Common Area,
such determination shall be conclusive evidence that the increase in such rate
is due to the same and, as a result thereof, Tenant shall pay such increase to
Landlord upon demand.
17.2 Liability Insurance. Tenant shall, at its sole cost and expense,
procure and maintain throughout the Term a commercial general liability policy
insuring against claims, demands or actions for bodily injury, death, personal
injury, and loss or damage to property arising out of or in connection with: (i)
the Premises; (ii) the condition of the Premises; (iii) Tenant's operations in,
maintenance and use of the Premises, Building and Common Area, and (iv) Tenant's
liability assumed under this Lease. Such insurance shall have such combined
single limit as reasonably required by Landlord from time to time, but in no
event less than Two Million Dollars ($2,000,000.00) per occurrence, on an
occurrence basis, and shall be primary over any insurance carried by Landlord.
Endorsements shall be obtained for cross-liability and contractual liability.
17.3 Insurance for Personal Property. Tenant shall, at its sole cost
and expense, procure and maintain throughout the Term a property insurance
policy (written on an "All Risk" basis) insuring all of Tenant's personal
property, including but not limited to equipment, furniture, fixtures,
furnishings and leasehold improvements which are the responsibility of Tenant,
for not less than the full replacement cost of said property. All proceeds of
such insurance shall be used to repair or replace Tenant's property. In
addition, Tenant shall, at its sole cost and expense, procure and maintain
business interruption insurance in an amount not less than the Base Rent due
hereunder for the first Lease Year.
17.4 Requirements of Insurance Coverage. All such insurance required to
be carried by Tenant herein shall be with an insurance company licensed to do
business in the Commonwealth of Virginia and rated not lower than A-XII in the
A.M. Best Rating Guide. Such insurance (i) shall contain an endorsement that
such policy shall remain in full force and effect notwithstanding that the
insured has released its right of action against any party before the occurrence
of a loss; (ii) shall name Landlord and, at Landlord's request, any Mortgagee or
ground lessor, as additional insured parties; and (iii) shall provide that the
policy shall not be canceled, failed to be renewed or materially amended without
at least thirty (30) days' prior written notice to landlord and, at Landlord's
request, any Mortgagee. On or before the Commencement Date and, thereafter, not
less than thirty (30) days before the expiration date of the insurance policy, a
certificate evidencing such policy (including any renewal or replacement policy)
which shall expressly allow Landlord to rely thereupon, together with evidence
satisfactory to Landlord of the payment of all premiums for such policy, shall
be delivered to Landlord and, at Landlord's request, to any Mortgagee.
17
<PAGE> 18
17.5 Waiver of Subrogation. Each party hereby releases the other party
hereto from liability for any loss or damage to any building, structure or
tangible personal property, or any resulting loss of income, or losses under
worker's compensation laws and benefits, notwithstanding that such loss, damage
or liability may arise out of the negligent or intentionally tortious act or
omission of the other party or its Agents, if such loss or damage is covered by
insurance benefitting the party suffering such loss or damage or was required to
be covered by insurance pursuant to this Lease. Each party hereto shall use
reasonable efforts to have a waiver of subrogation clause (providing that such
waiver of right of recovery against the other party shall not impair the
effectiveness of such policy or the insured's ability to recover) included in
its said policies, and shall promptly notify the other in writing if such clause
cannot be included in any such policy; if such waiver of subrogation clause
shall not be available, then the foregoing waiver of right of recovery shall be
void.
17.6 Security. In the event that Landlord engages the services of a
professional security system for the Building, it is understood that such
engagement shall in no way increase Landlord's liability for occurrences and/or
consequences which such a system is designed to detect or avert and that Tenant
shall look solely to its insurer as set out above for claims for damages or
injury to any person or property. In no event shall this Section 17.6, nor any
other provision of this Lease, be construed to create any express or implied
obligation on the part of Landlord to secure Project, Premises, Building or
Common Areas, or otherwise provide security services for the Project, Premises,
Building or Common Areas.
17.7 Landlord's Insurance. At all times during the Lease Term, Landlord
will maintain, as a Common Area Expense hereunder, (a) fire and extended
coverage insurance covering the Building, including all of the Tenant
Improvements, in an amount equal to one hundred percent (100%) of the
replacement value thereof, (b) public liability and property damage insurance of
the types and amounts described in Section 12. 1, above, or such greater amounts
as Landlord may deem prudent or as are necessary to satisfy the requirements of
Landlord's Mortgagee, if any, and (c) rent loss insurance in an amount equal to
not less than twelve (12) months rent for the Building. Landlord shall also have
the right to obtain such other types and amounts of insurance coverage on the
Building and Landlord's liability in connection with the Building as are
customary or advisable for comparable office/flex projects in the
Chantilly/Dulles area of Fairfax County, Virginia, as determined by Landlord in
Landlord's reasonable judgment based on then current insurance industry products
and practices. Such insurance shall contain commercially reasonable deductibles
as are customary or advisable for comparable office/flex projects in the
Chantilly/Dulles area of Fairfax County, Virginia.
ARTICLE 18
LANDLORD SERVICES AND UTILITIES
18.1 Ordinary Services to the Premises. Landlord shall maintain the
Common Areas (including exterior of the Building and the Land) in a manner
consistent with other similar first class office/flex projects in the general
vicinity of the Building in Chantilly/Dulles area of Fairfax County, Virginia.
Landlord agrees to furnish landscaping, grounds maintenance, and snow clearing
for the areas used in common by the tenants of the Building. In addition,
Landlord shall arrange for trash removal from common exterior trash dumpsters
serving the Building, into which Tenant's interior trash shall be deposited by
Tenant (and/or Tenant's janitorial service contractor) pursuant to reasonable
rules and regulations governing such trash removal as Landlord may establish in
accordance with applicable law (which may, if applicable, include a requirement
that Tenant comply at Tenant's expense with federal, state and/or local
requirements applicable to trash recycling). All of the foregoing services shall
be furnished by Landlord and reimbursed by Tenant as part of Common Area
Expenses. Subject to Section 18.3, below, Landlord shall be under no
responsibility or liability for failure or interruption in such services whether
caused by breakage, accident, strikes, repairs or for any other cause or causes
beyond the control of Landlord, nor in any event for any indirect or
consequential damages; and failure or omission on the part of Landlord to
furnish such service shall not be construed as an eviction of Tenant, nor work
an abatement of Rent, nor render Landlord liable in damages, nor release Tenant
from prompt fulfillment of any of the covenants under this Lease.
18
<PAGE> 19
18.2 Utility Charges. All telephone, electricity, gas, heat and other
utility service furnished to the Premises shall be paid for by Tenant except to
the extent the cost of same is included within Common Area Expenses. Landlord
shall cause electrical service to the Premises to be separately metered or
measured. The cost of any such meter shall he borne by Tenant in accordance with
Exhibit B.
18.3 Interruption in Services. Notwithstanding any provision of this
Article 18 to the contrary, in the event that the supply of water or electricity
(individually an "Essential Service," and collectively, the "Essential
Services") to the Premises is interrupted as a result of the negligence or
willful misconduct of Landlord, or its Agents, (and not as a result of any cause
beyond Landlord's reasonable control, such as a general electrical outage or
blackout) and such interruption continues for a period exceeding three (3)
consecutive business days after Tenant first notifies Landlord of such
interruption in writing, and as a result thereof Tenant is unable to and does
not in fact conduct business from the Premises or any applicable portion
thereof, then from and after such third (3rd) consecutive business day, Tenant
shall be entitled to abate its Rent and additional rent obligations hereunder as
to the Premises or portion thereof which is not usable (and not used) until such
time as the applicable Essential Service is restored. Other than Tenant's right
to perform Landlord's obligations after a default by Landlord, and to be
reimbursed for the cost of such performance, the foregoing shall constitute
Tenant's sole and exclusive remedy in the event of an interruption of the
services described in this Article 18 (including any Essential Services) to the
Premises.
ARTICLE 19
LIABILITY OF LANDLORD
19.1 No Liability. Except where due to Landlord or its Agents' gross
negligence or willful misconduct, and except as provided in Section 18.3, above,
Landlord and its Agents shall not be liable to Tenant or its Agents for, and
Tenant, for itself and its Agents, does hereby release Landlord and its Agents
from liability for, any damage, compensation or claim arising from (i) the
necessity of repairing any portion of the Premises or the Building or the Common
Area or any structural defects thereto, (ii) any interruption in the use of the
Premises or the Common Area for any reason including any interruption or
suspension of utility service, (iii) fire or other casualty or personal or
property injury, damage or loss resulting from the use or operation (by
Landlord, Tenant, or any other person whomsoever) of the Premises or the
Building or the Common Area, (iv) any robbery, assault, theft or other criminal
act, or (v) any leakage in the Premises or the Building from water, rain, snow
or other cause whatsoever. Except as expressly provided herein, no such
occurrence shall give rise to diminution or abatement of Rent or constructive
eviction. Notwithstanding the foregoing, any goods, automobiles, property or
personal effects stored or placed by Tenant or its Agents in or about the
Premises, the Building or the Common Area shall be at the sole risk of Tenant;
Tenant hereby expressly waives its right to recover against Landlord and its
Agents therefor. Tenant hereby waives any claim it might have against Landlord
or its Agents for any consequential damages or business losses sustained by
Tenant arising out of the loss or damage to any person or property of Tenant, or
any interruption in the use of the Premises or the Common Area, for any reason.
Tenant acknowledges its obligation to insure against such losses and damages.
19.2 Tenant's Indemnity. Tenant shall indemnify, defend, protect and
hold Landlord and its Agents harmless from and against any and all damages,
claims, liabilities, costs or expenses (including, without limitation,
attorneys' or other professionals' fees) of every kind and nature (including,
without limitation, those arising from any injury or damage to any person,
property or business) claimed against Landlord or its Agents by any third party
or sustained by Landlord and its Agents in favor of any third party, directly or
indirectly, as a result of, arising from or in connection with (i) Tenant's or
its Agents' use and occupancy of the Premises, (ii) Tenant's breach of any
provision of this Lease; or (iii) any act, omission or negligence of Tenant or
its Agents.
19.3 Landlord's Indemnity. Landlord shall indemnify, defend, protect
and hold Tenant and its Agents harmless from and against any and all damages,
claims, liabilities, costs or expenses (including, without limitation,
attorneys' or other professionals' fees) of every kind and nature (including,
without limitation, those arising from any injury or damage to any person,
property or business) claimed against Tenant or its Agents by any third party or
sustained by Tenant or its Agents in favor of any third party, directly or
indirectly, as a result
19
<PAGE> 20
of, arising from or in connection with (i) Landlord's breach of any provision of
this Lease; or (ii) any act, omission or negligence of Landlord or its Agents.
ARTICLE 20
RULES AND REGULATIONS
Tenant and its Agents shall at all times abide by and observe the Rules
and Regulations and any amendments thereto that may be promulgated from time to
time by Landlord for the operation and maintenance of the Building and the
Common Area and the Rules and Regulations shall be deemed to be covenants of the
Lease to be performed and/or observed by Tenant. Nothing contained in this Lease
shall be construed to impose upon Landlord any duty or obligation to enforce the
Rules and Regulations, or the terms or provisions contained in any other lease,
against any other tenant of the Building. Landlord shall not be liable to Tenant
for any violation by any party of the Rules and Regulations or the terms of any
other Building lease. If there is any inconsistency between this Lease and the
Rules and Regulations, this Lease shall govern. Landlord reserves the right to
amend and modify the Rules and Regulations as it deems necessary. Landlord
agrees that it shall not enforce any such Rules and Regulations against Tenant
in a discriminatory fashion.
ARTICLE 21
DAMAGE; CONDEMNATION
21.1 Damage to the Premises. If the Premises shall be damaged by fire
or other cause without the fault or negligence of Tenant or its Agents, Landlord
shall diligently and as soon as practicable after such damage occurs (taking
into account the time necessary to effect a satisfactory settlement with any
insurance company involved) repair such damage at the expense of Landlord;
provided, however, that Landlord's obligation to repair such damage shall not
exceed the proceeds of insurance available to Landlord (reduced by any proceeds
retained pursuant to the rights of Mortgagee). Notwithstanding the foregoing, if
the Premises or the Building is damaged by fire or other cause to such an extent
that, in Landlord's sole but reasonable judgment, the damage cannot be
substantially repaired within one hundred eighty (180) days after the date of
such damage, or if the Premises are damaged during the last two (2) Lease Years,
then Landlord or Tenant within thirty (30) days from the date of such damage may
terminate this Lease by notice to the other. If either Landlord or Tenant
terminates this Lease, the Rent shall be apportioned and paid to the date of
such termination. If neither Landlord nor Tenant so elects to terminate this
Lease but the damage required to be repaired by Landlord is not repaired within
one hundred eighty (180) days from the date of such damage (such one hundred
eighty (180) day period to be extended by the period of any delay outside the
direct control of Landlord plus a reasonable period for a satisfactory
settlement with any insurance company involved), Tenant, within thirty (30) days
from the expiration of such one hundred eighty (180) day period (as the same may
be extended), may terminate this Lease by notice to Landlord. During the period
that Tenant is deprived of the use of the damaged portion of the Premises for
the normal operation of its business (and in facts ceases such use), and
provided such damage is not the consequence of the gross negligence of Tenant or
its Agents, Base Rent and Tenant's Proportionate Share shall be reduced by the
ratio that the rentable square footage of the Premises for which Tenant is
deprived of use for normal business purposes (and in facts ceases such use) by
virtue of such damage bears to the total rentable square footage of the Premises
before such damage. All injury or damage to the Premises or the Building
resulting from the fault or negligence of Tenant or its Agents shall be repaired
by Tenant, at Tenant's expense, and Rent shall not abate. If Tenant shall fail
to do so or if Landlord shall so elect, Landlord shall have the right to make
such repairs, and any expense so incurred by Landlord, together with interest
thereon at the Interest Rate, shall be paid by Tenant upon demand.
Notwithstanding anything herein to the contrary, Landlord shall not be required
to rebuild, replace or repair any non-standard tenant improvements, tenant
extras or Alterations or any personal property of Tenant.
21.2 Condemnation. If the whole or a Substantial Part of the Premises
or the Building shall be taken or condemned by any governmental or
quasi-governmental authority for any public or quasi-public use or purpose
(including, without limitation, sale under threat of such a taking), then the
Term shall cease and terminate as of the date when title vests in such
governmental or quasi-governmental authority, and Rent shall be prorated to the
date when title vests in such governmental or quasi-governmental authority. If
less than a
20
<PAGE> 21
Substantial Part of the Premises is taken or condemned by any governmental or
quasi-governmental authority for any public or quasi-public use or purpose
(including, without limitation, sale under threat of such a taking), Base Rent
and Tenant's Proportionate Share shall be reduced by the ratio that the portion
so taken bears to the rentable square footage of the Premises before such
taking, effective as of the date when title vests in such governmental or
quasi-governmental authority, and this Lease shall otherwise continue in full
force and effect. Tenant shall have no claim against Landlord (or otherwise) as
a result of such taking, and Tenant hereby agrees to make no claim against the
condemning authority for any portion of the amount that may be awarded as
compensation or damages as a result of such taking; provided, however, that
Tenant may, to the extent allowed by law, claim an award for moving expenses and
for the taking of any of Tenant's property (other than its leasehold interest in
the Premises) which does not, under the terms of this Lease, become the property
of Landlord at the termination hereof, as long as such claim is separate and
distinct from any claim of Landlord and does not diminish Landlord's award.
Tenant hereby assigns to Landlord any right and interest it may have in any
award for its leasehold interest in the Premises.
ARTICLE 22
DEFAULT
22.1 Events of Default. Each of the following shall constitute an
"Event of Default": (i) Tenant fails to pay Rent within five (5) days after
written notice from Landlord; provided that no such notice shall be required if
at least two such notices shall have been given during the same Lease Year; (ii)
Tenant fails to observe or perform any other term, condition or covenant herein
binding upon or obligating Tenant within fifteen (15) business days after
written notice from Landlord (or, in the case of any such failure which cannot
with due diligence be cured within fifteen (15) business days, within such
additional period, if any, as may be reasonably required by Tenant to cure such
failure with due diligence provided Tenant promptly commences such cure and
diligently pursues such cure to a successful completion) provided, however, that
the foregoing cure period shall not be invoked in cases of Emergency to prevent
Landlord from exercising its rights under Section 22.5 below to perform an
obligation which Tenant has failed to perform under this Lease on Tenant's
behalf (and at Tenant's expense) to the extent necessary to eliminate the
imminent risk of death or injury to persons or material damage to Property, as
determined by Landlord in its sole, but reasonable, judgment; (iii) Tenant
abandons or vacates the Premises (unless Tenant has secured the Premises, is
continuing to maintain the Premises so as to prevent waste or deterioration
thereto, is current in the payment of Rent under this Lease, and is not
otherwise in default hereunder, in which event Tenant's mere vacating of the
Premises shall not, by itself, constitute an Event of Default; (iv) Tenant or
any Guarantor makes or consents to a general assignment for the benefit of
creditors or a common law composition of creditors, or a receiver of the
Premises or all or substantially all of Tenant's or Guarantor's assets is
appointed, or (v) Tenant or Guarantor files a voluntary petition in any
bankruptcy or insolvency proceeding, or an involuntary petition in any
bankruptcy or insolvency proceeding is filed against Tenant or Guarantor and is
not discharged by Tenant or Guarantor within sixty (60) days. To the extent
Tenant is entitled to a written notice of any failure of performance or default
by it pursuant to this Section 22.1, Landlord agrees to provide concurrent
notice of such failure or default to Guarantor, at the notice address set forth
herein.
22.2 Landlord's Remedies. Upon the occurrence of an Event of Default,
Landlord, at its option, without further notice or demand to Tenant, may to the
fullest extent permitted by law, and in addition to all other rights and
remedies provided in this Lease, at law or in equity:
(i) Terminate this Lease and Tenant's right of possession of the
Premises, and recover all damages to which Landlord is entitled under law,
specifically including, but without limitation, all of Landlord's expenses of
reletting (including, without limitation, rental concessions to new tenants,
repairs, Alterations, legal fees and brokerage commissions). In addition, if
Landlord elects to terminate this Lease, every obligation of Landlord hereunder
shall cease as of the date of such termination, but the same shall not affect
the liability of Tenant for payment of Rent and performance of all other terms
and conditions of this Lease to the date of termination, plus any damages and/or
other sums recoverable by Landlord under this Article 22 or otherwise at law or
in equity.
21
<PAGE> 22
1
(ii) Terminate Tenant's right of possession of the Premises without
terminating this Lease, which termination of possession shall be by applicable
legal process, in which event Landlord may, but shall not be obligated to, relet
the Premises, or any part thereof, for the account of Tenant, for such rent and
term and upon such other conditions as are acceptable to Landlord. For purposes
of such reletting, Landlord is authorized to redecorate, repair, alter and
improve the Premises to the extent necessary in Landlord's sole discretion.
Until Landlord relets the Premises, Tenant shall remain obligated to pay Rent to
Landlord as provided in this Lease. If and when the Premises are relet and if a
sufficient sum is not realized from such reletting after payment of all
Landlord's expenses of reletting (including, without limitation, rental
concessions to new tenants, repairs, Alterations, legal fees and brokerage
commissions) to satisfy the payment of Rent due under this Lease for any month,
Tenant shall pay Landlord any such deficiency upon demand. Tenant agrees that
Landlord may file suit to recover any sums due Landlord under this Section from
time to time and that such suit or recovery of any amount due Landlord shall not
be any defense to any subsequent action brought for any amount not previously
reduced to judgment in favor of Landlord.
(iii) Terminate this Lease and Tenant's right of possession of the
Premises, and recover from Tenant, at Landlord's sole and exclusive option,
either (A) the net present value of the Rent due from the date of termination
until the Expiration Date, discounted at the lesser of the Interest Rate as of
the date of termination or a discount rate which equals the interest rate for
U.S. Treasury Securities having a maturity corresponding to the scheduled
Expiration Date of this Lease, plus two hundred (200) basis points, or (B)
"Indemnity Payments" which shall mean an amount equal to the Base Rent and
Additional Rent and other payments provided for in this Lease which would have
become due and owing thereunder from time to time during the unexpired Lease
Term after the effective date of the termination, but for such termination, less
the Base Rent and Additional Rent and other payments, if any, actually collected
by Landlord and allocable to the Premises. If Landlord elects to pursue
Indemnity Payments in lieu of the amount recoverable under clause (A) of this
subparagraph (iii), above, Tenant shall, on demand, make Indemnity Payments
monthly, and Landlord may sue for all Indemnity Payments at any time after they
accrue, either monthly, or at less frequent intervals. Tenant further agrees
that Landlord may bring suit for Indemnity Payments at or after the end of the
Lease Term as originally contemplated under this Lease, and Tenant agrees that,
in such event, Landlord's cause of action to recover the Indemnity Payments
shall be deemed to have accrued on the last day of the Lease Term as originally
contemplated.
(iv) Re-enter and repossess the Premises and remove all persons and
effects therefrom, by summary proceeding, ejectment or other legal action, but
only with applicable legal process. Landlord shall have no liability by reason
of any such re-entry, repossession or removal.
(v) Recover from Tenant, to the extent permitted under the laws of the
Commonwealth of Virginia, the value and/or cost of all concessions made to or
for the benefit of Tenant under this Lease.
(vi) Recover from Tenant, to the extent not already recovered pursuant
to the preceding subparagraphs of this Section 22.2, any other amount which is
necessary to compensate Landlord for economic damages sustained by Landlord and
caused by Tenant's failure to perform Tenant's obligations under this Lease,
including, without limitation, any costs or expenses incurred by Landlord: (i)
in retaking possession of the Premises; (ii) in maintaining, repairing,
preserving, restoring, replacing, cleaning, altering or rehabilitating the
Premises or a portion thereof, including expenses incurred in performing such
acts in connection with any reletting to a new tenant or tenants; (iii) for
leasing commissions incurred in connection with any reletting to a new tenant or
tenants; and/or (iv) for any other commercially reasonable costs incurred by
Landlord in reletting the Premises.
22.3 Rights Upon Possession. If Landlord takes possession pursuant to
this Article, with or without this Lease, Landlord may, at its option, enter
into the Premises, remove Tenant's Alterations, signs, personal property,
equipment and other evidences of tenancy, and store them at Tenant's risk and
expense or dispose of them as Landlord may see fit, and take and hold possession
of the Premises; provided, however, that if Landlord elects to take possession
only without terminating this Lease, such entry and possession shall not
terminate this Lease or release Tenant or any Guarantor, in whole or in part,
from the obligation to pay the Rent reserved
22
<PAGE> 23
hereunder for the full Term or from any other obligation under this Lease or any
guaranty thereof. Landlord will not exercise self help without applicable legal
process in order to recover possession of the Premises.
22.4 No Waiver. If Landlord shall institute proceedings against Tenant
and a compromise or settlement thereof shall be made, the same shall not
constitute a waiver of any other covenant, condition or agreement herein
contained, nor of any of Landlord's rights hereunder. No waiver by Landlord of
any breach shall operate as a waiver of such covenant, condition or agreement,
or operate as a waiver of such covenant, condition or agreement itself, or of
any subsequent breach thereof. No payment of Rent by Tenant or acceptance of
Rent by Landlord shall operate as a waiver of any breach or default by Tenant
under this Lease. No payment by Tenant or receipt by Landlord of a lesser than
the monthly installment of Rent herein stipulated shall be deemed to be other
than a payment on account of the earliest unpaid Rent, nor shall any endorsement
or statement on any check or communication accompanying a check for the payment
of 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 to pursue any other remedy provided in this Lease. No re-entry by
Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered
an acceptance of a surrender of the Lease.
22.5 Right of Landlord to Cure Tenant's Default. If an Event of Default
shall occur, then Landlord may (but shall not be obligated to) make such payment
or do such act to cure the Event of Default, and charge the amount of the
expense thereof, together with interest thereon at the interest Rate, to Tenant.
Such payment shall be due and payable upon demand; however, the making of such
payment or the taking of such action by Landlord shall not be deemed to cure the
Event of Default or to stop Landlord from the pursuit of any remedy to which
Landlord would otherwise be entitled. Any such payment made by Landlord on
Tenant's behalf shall bear interest until paid at the Interest Rate.
22.6 Late Payment. If Tenant fails to pay any Rent within five (5) days
after such Rent becomes due and payable, Tenant shall pay to Landlord a late
charge of five percent (5%) of the amount of such overdue Rent. In addition, any
such late Rent payment shall bear interest from the date such Rent became due
and payable to the date of payment thereof by Tenant at the Interest Rate. Such
late charge and interest shall be due and payable within two (2) days after
written demand from Landlord.
22.7 Landlord Default. If Landlord shall fail to keep or perform any of
its obligations under this Lease, which failure on Landlord's part continues for
fifteen (15) business days after Landlord's receipt of a written notice from
Tenant specifying the failure (or, in the case of any such failure which cannot
with due diligence be cured within fifteen (15) business days, within such
additional period, if any, as may be reasonably required by Landlord to cure
such failure with due diligence provided Landlord commences such cure within the
initial fifteen (15) business day period and thereafter diligently pursues same
to completion), and without waiving or releasing Landlord from any obligation or
limiting any other remedy available to Tenant at law or in equity by virtue of
such uncured default, Tenant shall have the right (but not the obligation) to
make such payment or perform such obligation and all sums so paid by Tenant and
all necessary and incidental costs and expenses, including reasonable attorney's
fees paid to independent legal counsel, incurred by Tenant in making such
payment or performing such obligation, together with interest thereon at the
Interest Rate from the date of payment, shall be paid by Landlord to Tenant on
demand, and if not so paid by Landlord, Tenant shall have the right to pursue
any legal remedies available to it to collect payment. Except as specifically
provided in this Lease to the contrary, in no event shall Tenant be entitled to
offset any sums due and owing from Landlord to Tenant against any Rent or
Additional Rent thereafter payable under this Lease. This Section 22.7 shall not
modify any rights or remedies of Tenant expressly established under Section 12.1
or any of the other provisions of this Lease.
ARTICLE 23
MORTGAGES
23.1 Subordination. Subject to Section 23.4, below, this Lease is and
shall be subject and subordinate to all ground or underlying leases and to any
first Mortgage(s) which may now or hereafter affect such lease or the
23
<PAGE> 24
Land and to all renewals, modifications, consolidations, replacements and
extensions thereof. Tenant shall execute promptly any instrument that Landlord
or any first Mortgagee may reasonably request confirming such subordination.
Notwithstanding the foregoing, before any foreclosure sale under a Mortgage, the
Mortgagee shall have the right to subordinate the Mortgage to this Lease, and,
in the event of a foreclosure, this Lease may continue in full force and effect
and Tenant shall attorn to and recognize as its landlord the purchaser of
Landlord's interest under this Lease. Tenant shall, upon the request of a
Mortgagee or purchaser at foreclosure, execute, acknowledge and deliver any
instrument that as for its purpose and effect the subordination of the lien of
any Mortgage to this Lease or Tenant's attornment to such Purchaser, provided
that the holder of such mortgage or other lien on the Building or Property shall
contemporaneously execute an "SNDA" with Tenant meeting the requirements of
Section 23.4, below.
23.2 Mortgagee Protection. Tenant agrees to give any Mortgagee by
certified mail, return receipt requested, a copy of any notice of default served
upon Landlord, provided that before such notice Tenant has been notified in
writing of the address of such Mortgagee. Tenant further agrees that if Landlord
shall have failed to cure such default within the time provided for in this
Lease, then Mortgagee shall have an additional thirty (30) days within which to
cure such default; provided, however, that (i) if such default cannot be
reasonably cured within that time, then such Mortgagee shall have such
additional time as may be necessary to cure such default so long as Mortgagee
has commenced and is diligently pursuing the remedies necessary to cure such
default (including, without limitation, the commencement of foreclosure
proceedings, if necessary), in which event this Lease shall not be terminated or
Rent abated while such remedies are being so diligently pursued, and (ii) the
foregoing additional cure right shall not affect or delay Tenant's right to
abatement or reduction of rent pursuant to Section 18.3, above, to the extent
applicable under the terms of such Section. In the event of the sale of the Land
or the Building, by foreclosure or deed in lieu thereof, the Mortgagee or
purchaser at such sale shall be responsible for the return of the Security
Deposit only to the extent that such Mortgagee or purchaser actually received
the Security Deposit.
23.3 Modification Due to Financing. If, in connection with obtaining
construction or permanent financing for the Premises, the Building or the Land,
any lender (or Mortgagee) shall request reasonable modifications of this Lease
as a condition to such financing, Tenant shall promptly execute a modification
of this Lease, provided such modifications do not materially increase the
financial obligations of Tenant hereunder or materially adversely affect the
leasehold interest hereby created or Tenant's reasonable use and enjoyment of
the Premises. Tenant and any Guarantor shall each, prior to execution and
throughout the Term, upon request from time to time, provide such financial
information and documentation about itself to Landlord or Mortgagee as may be
requested.
23.4 Non-Disturbance Agreement. Landlord agrees to obtain a
Subordination, Non-Disturbance and Attornment Agreement from any future
mortgagee for the Building in a form to be negotiated between Landlord, Tenant
and the applicable mortgagee or deed of trust holder, using such mortgagee's
standard form, and approval of which by Tenant and Landlord shall not be
unreasonably withheld, conditioned or delayed (as reasonably approved by
Landlord, Tenant and such mortgagee, an "SNDA"), providing, inter alia, (i) for
the subordination of this Lease to such mortgage, (ii) for the attornment of
Tenant to Landlord's successor in title, and (iii) that, as long as Tenant is
not in Default hereunder beyond any applicable notice and cure period, Tenant's
right of possession and other leasehold rights shall not be disturbed in the
event of a foreclosure of such mortgage. Upon obtaining such SNDA from such
mortgagee, Tenant agrees to promptly execute and deliver such SNDA to Landlord.
In addition, within thirty (30) days after the date of final execution and
delivery of this Lease by both Landlord and Tenant, Landlord, Tenant and
Landlord's existing mortgagee shall execute and deliver an SNDA which is
consistent with the provisions of this Section 23.4. Landlord and Tenant agree
that the SNDA attached as Exhibit E hereto is mutually acceptable to them.
ARTICLE 24
SURRENDER; HOLDING OVER
24.1 Surrender of the Premises. Tenant shall peaceably surrender the
Premises to Landlord on the Expiration Date or earlier termination of this
Lease, in broom-clean condition and in as good condition as when
24
<PAGE> 25
Tenant took possession, including, without limitation, the repair of any damage
to the Premises caused by the removal of any of Tenant's personal property or
trade fixtures from the Premises, except for reasonable wear and tear and loss
by fire or other casualty not caused by Tenant or its Agents. Any of Tenant's
personal property left on or in the Premises, the Building or the Common Area
after the Expiration Date or earlier termination of this Lease shall be deemed
to be abandoned, and, at Landlord's option, title shall pass to Landlord under
this Lease.
24.2 Holding Over. In the event that Tenant shall not immediately
surrender the Premises to Landlord on the Expiration Date or earlier termination
of this Lease, Tenant shall be deemed to be a month to month tenant upon all of
the terms and provisions of this Lease, except the monthly Base Rent shall be
125% of the monthly Base Rent in effect during the last month of the Term during
the first month thereof and 150% of the monthly Base Rent in effect during the
last month of the Term for any period thereafter. Notwithstanding the foregoing,
if Tenant shall hold over after the Expiration Date or earlier termination of
this Lease, and Landlord shall desire to regain possession of the Premises
immediately, then Landlord may forthwith re-enter and take possession of the
Premises. Tenant shall indemnify Landlord against all liabilities and damages
sustained by Landlord by reason of such retention of possession, provided Tenant
will not be responsible for losses or claims suffered by Landlord on account of
any delay in delivery of the Premises or any part thereof to a successor tenant
unless either (i) Landlord notifies Tenant prior to the Lease expiration date
that Landlord has entered into a Lease or letter of intent with a prospective
replacement Tenant which requires Landlord to perform construction within the
Premises, or otherwise tender possession thereof to a new tenant, promptly after
the Lease expiration date, and Tenant still fails to surrender possession of the
Premises on or before the Lease expiration date, or (ii) Tenant fails to vacate
the Premises promptly after Landlord notifies Tenant that it requires possession
of the Premises in order to deliver possession thereof to a replacement tenant
to the extent such notice is given after the scheduled Lease expiration date or
in connection with any other permitted termination of this Lease.
ARTICLE 25
QUIET ENJOYMENT
Landlord covenants that if Tenant shall pay Rent and perform all of the
terms and conditions of this Lease to be performed by Tenant, Tenant shall
during the Term peaceably and quietly occupy and enjoy possession of the
Premises without molestation or hindrance by Landlord or any party claiming
through or under Landlord, subject to the provisions of this Lease and any
Mortgage to which this Lease is subordinate and easements, conditions and
restrictions of record affecting the Land.
ARTICLE 26
TENANT'S COVENANTS REGARDING HAZARDOUS MATERIALS
26.1 Definition. As used in this Lease, the term "Hazardous Material"
means any flammable items, explosives, radioactive materials, hazardous or toxic
substances, material or waste or related materials, including any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "infectious wastes," "hazardous materials" or "toxic substances" now or
subsequently regulated under any federal, state or local laws, regulations or
ordinances including, without limitation, oil, petroleum-based products, paints,
solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia
compounds and other chemical products, asbestos, PCBs and similar compounds, and
including any different products and materials which are subsequently found to
have adverse effects on the environment or the health and safety of persons.
26.2 General Prohibition. Tenant shall not cause or permit any
Hazardous Material to be generated, produced, brought upon, used, stored,
treated, discharged, released, spilled or disposed of on, in, under or about the
Premises, the Building or the Land by Tenant or its Agents, affiliates,
sublessees or assignees without the prior written consent of Landlord. Landlord
shall be entitled to take into account such factors or facts as Landlord may in
its good faith business judgment determine to be relevant in determining whether
to grant, condition or withhold consent to Tenant's proposed activity with
respect to Hazardous Material and Tenant shall
25
<PAGE> 26
indemnify, defend and hold Landlord and its Agents harmless from any and all
actions (including, without limitation, remedial or enforcement actions of any
kind, administrative or judicial proceedings, and orders or judgments arising
out of or resulting therefrom), costs, claims, damages (including, without
limitation, punitive damages), expenses (including, without limitation,
attorneys', consultants' and experts' fees, court costs and amounts paid in
settlement of any claims or actions), fines, forfeitures or other civil,
administrative or criminal penalties, injunctive or other relief (whether or not
based upon personal or bodily injury, property damage, contamination of, or
adverse effects upon, the environment, water tables or natural resources),
liabilities or losses payable to any third party and arising from a breach of
this prohibition by Tenant, its Agents, affiliates, sublessees or assignees. In
no event, however, shall Landlord be required to consent to the installation or
use of any storage tanks in, on or under the Premises, the Building or the Land.
If Landlord consents to the generation, production, use, storage, treatment or
disposal of Hazardous Materials in or about the Premises by Tenant, its Agents,
affiliates, sublessees or assignees, then, in addition to any other requirements
or conditions that Landlord may impose in connection with such consent, (1)
Tenant promptly shall deliver to Landlord copies of all permits, approvals,
filings, and reports reflecting the legal and proper generation, production,
use, storage, treatment or disposal of all Hazardous Materials generated, used,
stored, treated or removed from the Premises, the Building and the Land and,
upon Landlord's request, copies of all hazardous waste manifests relating
thereto, and (2) upon expiration or earlier termination of this Lease, Tenant
shall cause all Hazardous Materials arising out of or related to the use or
occupancy of the Premises by Tenant or its Agents, affiliates, sublessees or
assignees to be removed from the Premises, the Building and the Land and
transported for use, storage or disposal in accordance with all applicable laws,
regulations and ordinances and Tenant shall provide Landlord with evidence
reasonably satisfactory to Landlord of the same.
26.3 Notice. In the event that Hazardous Materials are discovered upon,
in, or under the Premises, the Building or the Land and any governmental agency
or entity having jurisdiction over the Premises, the Building or the Land
requires the removal of such Hazardous Materials, Tenant shall be responsible
for removing those Hazardous Materials arising out of or related to the use or
occupancy of the Premises by Tenant or its Agents, affiliates, sublessees or
assignees but not those of its predecessors. Notwithstanding the foregoing,
Tenant shall not take any remedial action in or about the Premises, the Building
or the Land, nor enter into any settlement agreement, consent decree or other
compromise with respect to any claims relating to any Hazardous Material in any
way connected with the Premises, the Building or the Land without first
notifying Landlord of Tenant's intention to do so and affording Landlord the
opportunity to appear, intervene or otherwise appropriately assert and protect
Landlord's interest with respect thereto. Tenant immediately shall notify
Landlord in writing of: (i) any spill, release, discharge or disposal of any
Hazardous Material in, on or under the Premises, the Building, the Land or any
portion thereof, (ii) any enforcement, cleanup, removal or other governmental or
regulatory action instituted, contemplated or threatened (if Tenant has notice
thereof) pursuant to any Hazardous Materials Laws; (iii) any claim made or
threatened by any person against Tenant, the Premises, the Building or the Land
relating to damage, contribution, cost recovery, compensation, loss or injury
resulting from or claimed to result from any Hazardous Materials; and (iv) any
reports made to any environmental agency or entity arising out of or in
connection with any Hazardous Materials in, on, under or about or removed from
the Premises, the Building or the Land, including any complaints, notices,
warnings, reports or asserted violations in connection therewith. Tenant also
shall supply to Landlord as promptly as possible, and in any event within five
(5) business days after Tenant first receives or sends the same, copies of all
claims, reports, complaints, notices, warnings or asserted violations relating
in any way to the Premises, the Building, the Land or Tenant's use or occupancy
thereof.
26.4 Medical Wastes.
(i) To the extent Tenant's Permitted Use of the Premises in any way
involves the handling, use, disposal and/ or processing of medical waste,
including but not limited to (A) human or animal tissue, blood, urine and/or
other bodily fluids, materials and/or biological byproducts, and (B) medical
supplies (such as, but not limited to, used syringes, gauze and bandages, etc.)
(hereinafter, collectively, "Medical Waste"), Tenant shall be solely responsible
for the proper use, storage, removal and disposal of same from the Premises.
Tenant shall
26
<PAGE> 27
make arrangements with a reputable and duly licensed disposal company or
contractor for the proper disposal of Medical Waste, in accordance with lawfully
permitted methods of Medical Waste disposal, and Tenant shall pay all costs
associated with such disposal. Tenant shall not place any Medical Waste in any
of the Common Areas without Landlord's prior consent. In its processing, use and
disposal of Medical Waste, Tenant shall comply with all applicable laws,
regulations and ordinances governing the generation, use, processing and
disposal thereof, as well as any additional requirements which Landlord may
reasonably establish from time to time by written notice to Tenant.
(ii) Tenant shall bear all costs and liability resulting from the
presence of Medical Waste which is caused or permitted by Tenant (or Tenant's
agents, employees or contractors) in, on or under the Premises, the Building or
The Project (including without limitation, liability arising from the
transportation of Medical Waste to or from the Premises, Building and/or Project
and the cleanup of Medical Waste therefrom.)
(iii) Tenant shall indemnify Landlord, its agents, employees or
contractors, from and against any and all claims, losses, damages, liabilities
and expenses (including reasonable attorneys' fees) incurred, suffered or
sustained by (or brought against) Landlord arising from or associated with: (i)
the acts or omissions of Tenant, its agents, employees or contractors with
respect to the presence of Medical Waste at the Premises, the Building and/or
The Project (including without limitation, liability arising from the
transportation of Medical Waste to or from the Premises or the cleanup of
Medical Waste); (ii) the storage and disposal of Medical Waste by Tenant, its
agents, employees or contractors; or (iii) Tenant's operations at the Premises
related to the processing, use and disposal of Medical Waste. This
indemnification shall survive termination of the Lease.
26.5 Landlord's Covenants Regarding Hazardous Materials.
26.5.1 Landlord represents to Tenant that, to the Landlord's
knowledge, based upon the Preliminary Environmental Assessment of the Property
performed on Landlord's behalf by Engineering Consulting Services, Ltd. ("ECS")
and dated September 18, 1997 (the "Existing Report"), the Property does not
contain any Hazardous Materials except as noted in the Existing Report. Landlord
has provided Tenant prior to Lease execution with a complete copy of the
Existing Report, which Tenant acknowledges having received. If, during the Lease
Term, (a) Landlord is notified of or introduces Hazardous Materials in, on or
under the Property, or there is a violation of the requirements of any
applicable environmental laws which is not the responsibility of Tenant under
Sections 26.2 or 26.3, above, or (b) there is Hazardous Materials contamination
in, on or under the Property which is not the responsibility of Tenant pursuant
to Sections 26.2 and 26.3, above, then as between Landlord and Tenant, Landlord
shall be solely responsible for making a prompt assessment of the scope and
nature of the problem, and for taking remedial action, in conjunction (if
appropriate) with applicable federal, state or local authorities; and in the
event the presence of such Hazardous Materials was caused by Landlord, or its
authorized agents, employees or contractors, or pre-existed Tenant's occupancy
of the Premises, or was not caused by Tenant, its agents, employees,
contractors, sublessees, assignees, transferees or (while within the Premises)
invitees, Landlord shall be responsible for the cost to remediate any such
contamination and/or correct any such violation. The foregoing is without
prejudice to Landlord's right to seek recovery of damages or losses from the
parties at fault in connection with any incident involving the introduction,
presence or disposal of Hazardous Materials within the Land, Building or
Premises. In addition, Landlord shall not cause any Hazardous Material to be
generated, produced, brought upon, used, stored, treated, discharged, released,
spilled or disposed of on, in, under or about the Premises, the Building or the
Land by Landlord or its Agents.
26.5.2. Landlord shall indemnify, defend and hold Tenant and
its Agents harmless from any and all actions (including, without limitation,
remedial or enforcement actions of any kind, administrative or judicial
proceedings, and orders or judgments arising out of or resulting therefrom),
costs, claims, damages (including, without limitation, punitive damages),
expenses (including, without limitation, attorneys', consultants' and experts'
fees, court costs and amounts paid in settlement of any claims or actions),
fines, forfeitures or other civil, administrative or criminal penalties,
injunctive or other relief (whether or not based upon personal or bodily
27
<PAGE> 28
injury, property damage, contamination of, or adverse effects upon, the
environment, water tables or natural resources), liabilities or losses payable
to any third party because of, or arising out of or relating to the violation of
any of Landlord's representations, warranties and covenants under this Section
26.5 by Landlord or its employees, agents or affiliates.
26.6 Survival. The respective rights and obligations of Landlord and
Tenant under this Article 26 shall survive the expiration or earlier termination
of this Lease without limitation.
ARTICLE 27
CONTINGENCIES
This Lease and the obligations of the parties hereto are subject to the
execution and delivery by NATIONAL INSURANCE GROUP ("Guarantor") of that certain
Guaranty of Lease attached as Exhibit F hereto and made a part hereof (the
"Guaranty") by this reference. If Guarantor fails to deliver the Guaranty to
Landlord fully executed simultaneous with the final execution and delivery of
this Lease by Tenant, then this Lease shall be void ab initio.
ARTICLE 28
MISCELLANEOUS
28.1 No Representation by Landlord. Tenant acknowledges that neither
Landlord or its Agents nor any broker has made any representation or promise
with respect to the Premises, the Building, the Land or the Common Area, except
as herein expressly set forth, and no rights, privileges, easements or licenses
are acquired by Tenant except as expressly set forth herein and in Exhibit B.
Except as otherwise set forth herein or in Exhibit B of this Lease, Tenant, by
taking possession of the Premises shall accept the Premises and the Building "AS
IS".
28.2 No Partnership. Nothing contained in this Lease shall be deemed or
construed to create a partnership or joint venture of or between Landlord and
Tenant, or to create any other relationship between Landlord and Tenant other
than that of landlord and tenant.
28.3 Brokers. Landlord recognizes Broker(s) as the sole broker(s)
procuring this Lease and shall pay Broker(s) a commission therefor pursuant to a
separate agreement between Broker(s) and Landlord. Landlord and Tenant each
represents and warrants to the other that it has not employed any broker, agent
or finder other than Broker(s) relating to this Lease. Landlord shall indemnify
and hold Tenant harmless, and Tenant shall indemnify and hold Landlord harmless,
from and against any claim for brokerage or other commission arising from or out
of any breach of the indemnitor's representation and warranty.
28.4 Estoppel Certificate/Financial Information. (a) Tenant shall,
without charge, at any time and from time to time, within ten (10) business days
after request therefor by Landlord, Mortgagee, any purchaser of the Land or the
Building or any other interested person, execute, acknowledge and deliver to
such requesting party a written estoppel certificate certifying, as of the date
of such estoppel certificate, the following: (i) that this Lease is unmodified
and in full force and effect (or if modified, that the Lease is in full force
and effect as modified and setting forth such modifications); (ii) that the Term
has commenced (and setting forth the Commencement Date and Expiration Date);
(iii) that Tenant is presently occupying the Premises; (iv) the amounts of Base
Rent and Additional Rent currently due and payable by Tenant; (v) that any
Alterations required by the Lease to have been made by Landlord have been made
to the satisfaction of Tenant; (vi) that there are no existing set-offs,
charges, liens, claims or defenses against the enforcement of any right
hereunder, including without limitation, Base Rent or Additional Rent (or, if
alleged, specifying the same in detail); (vii) that no Base Rent (except the
first installment thereof) has been paid more than thirty (30) days in advance
of its due date; (viii) that Tenant has no knowledge of any then uncured default
by Landlord of its obligations under this Lease (or, if Tenant has such
knowledge, specifying the same in detail); (ix) that Tenant is not in default;
(x) that the
28
<PAGE> 29
address to which notices to Tenant should be sent is as set forth in the Lease
(or, if not, specifying the correct address); and (xi) any other certifications
reasonably requested by Landlord. In
(b) Prior to Lease execution, Tenant shall deliver such financial
statements (including a balance sheet and an income/loss statement) for Tenant's
most recent fiscal year (1997) which Guarantor shall certify to Landlord as
being true and correct in all material respects and prepared in accordance with
generally accepted accounting principles, consistently applied. Within thirty
(30) days after request by Landlord, Tenant shall deliver to Landlord financial
statements of Tenant (including a balance sheet and an income/loss statement)
for its most recently ended fiscal year and interim financial statements for its
most recently ended quarter, in both cases certified by Guarantor as (i) being
true and correct in all material respects, and (ii) prepared in accordance with
generally accepted accounting principles, consistently applied. In addition,
within thirty (30) days after request by Landlord, Tenant shall cause Guarantor
to deliver to Landlord financial statements of Guarantor (including a balance
sheet and an income/loss statement) for its most recently ended fiscal year and
interim financial statements for its most recently ended quarter, in both cases
certified by Guarantor as being true and correct in all material respects, and
accompanied by an opinion of a certified public accountant that such statements
were prepared in accordance with generally accepted accounting principles,
consistently applied. Tenant acknowledges and agrees that (i) during the
continuation of any failure by Tenant to provide any of the financial statements
described in this Section 28.4(b), and (ii) in the event any of financial
information provided by Tenant to Landlord is materially inaccurate or
incomplete, Landlord shall have certain additional rights against Guarantor
pursuant to the terms of the Section 32(b) of the Guaranty.
28.5 Waiver of July Trial. Tenant hereby waives trial by jury in any
action, proceeding or counterclaim brought by Landlord against Tenant with
respect to any matter whatsoever arising out of or in any way connected with
this Lease, the relationship of Landlord and Tenant hereunder or Tenant's use or
occupancy of the Premises. In the event Landlord commences any proceedings for
nonpayment of Rent, Tenant shall not interpose any non-compulsory counterclaims.
This shall not, however, be construed as a waiver of Tenant's right to assert
such claims in any separate action brought by Tenant.
28.6 Notices. All notices or other communications hereunder shall be in
writing and personally delivered, delivered by Federal Express or other
regionally or nationally recognized overnight courier, or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed and sent,
if to Landlord to Landlord's Address specified in Section 1.14 or if to Tenant
to Tenant's Address specified in Section 1.15. All such notices shall be deemed
duly given upon the earlier to occur of actual receipt or refusal of delivery.
Landlord and Tenant may from time to time by written notice to the other
designate another address for receipt of future notices. To the extent is
entitled to a written notice of any failure of performance or default by Tenant
pursuant to Section 22.1 of this Lease, Landlord agrees to provide concurrent
notice of such failure or default to Guarantor, at the notice address set forth
herein.
28.7 Invalidity of Particular Provisions. If any provisions of this
Lease or the application thereof to any person or circumstances shall to any
extent be invalid or unenforceable, the remainder of this Lease, or the
application of such provision to persons or circumstances other than those to
which it is invalid or unenforceable, shall not be affected thereby, and each
provision of this Lease shall be valid and be enforced to the full extent
permitted by law.
28.8 Gender and Number. All terms and words used in this Lease,
regardless of the number or gender in which they are used, shall be deemed to
include any other number or gender as the context may require.
28.9 Benefit and Burden. Subject to the provisions of Article II and
except as otherwise expressly provided, the provisions of this Lease shall be
binding upon, and shall inure to the benefit of, the parties hereto and each of
their respective representatives, heirs, successors and assigns. Landlord may
freely and fully assign its interest hereunder.
29
<PAGE> 30
28.10 Entire Agreement. This Lease (which includes the Exhibits and
Rider attached hereto) contains and embodies the entire agreement of the parties
hereto, and no representations, inducements or agreement, oral or otherwise,
between the parties not contained in this Lease shall be of any force or effect.
This Lease (other than the Rules and Regulations, which may be changed from time
to time as provided herein) may not be modified, changed or terminated in whole
or in part in any manner other than by an agreement in writing duly signed by
Landlord and Tenant
28.11 Authority.
(i) If Tenant signs as a corporation, the person executing this Lease
on behalf of Tenant hereby represents and warrants that Tenant is a duly formed
and validly existing corporation, in good standing, qualified to do business in
the Commonwealth of Virginia, that the corporation has full power and authority
to enter into this Lease and that he or she is authorized to execute this Lease
on behalf of the corporation.
(ii) If Tenant signs as a partnership, the person executing this Lease
on behalf of Tenant hereby represents and warrants that Tenant is a duly formed,
validly existing partnership qualified to do business in the Commonwealth of
Virginia, that the partnership has full power and authority to enter into this
Lease, and that he or she is authorized to execute this Lease on behalf of the
partnership.
28.12 Attorneys' Fees. If, as a result of any default of Landlord or
Tenant in its performance of any of the provisions of this Lease, the other
party uses the services of an attorney in order to secure compliance with such
provisions or recover damages therefor, or to terminate this Lease or evict
Tenant, the non-prevailing party shall reimburse the prevailing party upon
demand for any and all reasonable attorneys' fees and expenses so incurred by
the prevailing party.
28.13 Interpretation. This Lease is governed by the laws of the
Commonwealth of Virginia.
28.14 No Personal Liability; Sale. Neither Landlord nor its Agents,
whether disclosed or undisclosed, shall have any personal liability under any
provision of this Lease. In the event of a judgment in favor of Tenant which
remains unpaid, Tenant's right of redress, execution and levy shall be limited
to the equity of Landlord in the Building as described in Article 1 hereof. In
the event that the original Landlord hereunder, or any successor owner of the
Building, shall sell or convey the Building, all liabilities and obligations on
the part of the original Landlord, or such successor owner, under this Lease
accruing after the effective date of transfer or conveyance shall terminate as
of the day of such sale, and all liabilities and obligations on the part of the
Landlord accruing on and after the effective date of transfer or conveyance
shall automatically be binding on the new owner (and the transferor Landlord
shall thereupon be released from such future obligations and liabilities).
Tenant agrees to attorn to such new owner. Any successor to Landlord's interest
shall not be bound by (i) any payment of Base Rent or Additional Rent for more
than one (1) month in advance, except for the payment of the first installment
of First Year Base Rent or (ii) as to any Mortgagee or any purchaser at
foreclosure, any amendment or modification of this Lease made without the
consent of such Mortgagee.
28.15 Time of the Essence. Time is of the essence as to both Landlord's
and Tenant's obligations contained in this Lease.
28.16 Force Majeure. Except as hereafter provided, neither Landlord nor
Tenant shall be considered to be in default of an obligation under this Lease
nor liable for loss or damage for failure to perform an obligation (nor shall
the other party be released from any of its obligations under this Lease if the
non-performing party is delayed in performing an obligation), where the
performance of such obligation by the non-performing party is delayed as a
result of event of "Force Majeure" which shall mean any acts of God, strikes,
lockouts, labor difficulties, materials shortages, moratoria, explosions,
sabotage, accidents, riots, civil commotions, acts of war, results of any
warfare or warlike conditions in this or any foreign country, fire or casualty,
unusually inclement
30
<PAGE> 31
weather, unusual governmental delays (which shall include any County processing
time for the building permit for the Tenant Improvements in excess of forty five
(45) days after submission of construction drawings), unusual and unforeseeable
legal requirements, energy shortages or other causes beyond the reasonable
control of the non-performing party, provided that in no event shall (i)
financial inability be considered an event of Force Majeure, and (ii) in no
event shall Force Majeure excuse the timely performance by any party hereto of
its monetary obligations under this Lease.
28.17 Headings. Captions and headings are for convenience of reference
only.
28.18 Memorandum of Lease. Tenant shall, at the request of Landlord,
execute and deliver a memorandum of lease in recordable form. Tenant shall not
record such a memorandum or this Lease without Landlord's consent. In the event
Tenant requests recordation of a memorandum of this Lease, Tenant shall be
obligated to pay all costs, fees and taxes, if any, associated with such
recordation.
28.19 [Intentionally Deleted]
28.20 Attorney-in-Fact. If Tenant fails or refuses to execute and
deliver any instrument or certificate required to be delivered by Tenant
hereunder (including, without limitation, any instrument or certificate required
under Article 23 or Section 27.4 hereof) within the time periods required
herein, then Tenant hereby appoints Landlord as its attorney-in-fact with full
power and authority to execute and deliver such instrument or certificate for
and in the name of Tenant
28.21 Effectiveness. The furnishing of the form of this Lease shall not
constitute an offer and this Lease shall become effective upon and only upon its
execution by and delivery to each party hereto.
ARTICLE 29
SPECIAL PROVISIONS
29.1 Renewal Option(s).
29.1.1 Provided Tenant is not in monetary or other material
Default of this Lease beyond any applicable cure periods at the time its rights
hereunder are to be exercised, Tenant shall have the option (each, a "Renewal
Option") to extend the Lease Term for one (1) period of sixty (60) months
(referred to as the "Renewal Term") provided Tenant gives written notice to
Landlord of its election to exercise such Renewal Option (the "Renewal Notice")
not less than six (6) months prior to the expiration of the last day of the
initial Lease Term.
29.1.2 All terms and conditions of this Lease, including
without limitation, all provisions governing the payment of Additional Rent,
shall remain in full force and effect during the Renewal Term, except the Base
Rent shall be as set forth in this Section 29.1.
29.1.3 The Base Rent payable upon the commencement of the
Renewal Term shall equal the then prevailing market rental rate (including base
rental rate and escalation rate) applicable to renewal terms with respect to
comparable space in comparable buildings in the vicinity of the Project, (the
"Fair Market Rate" or "FMR") at the time of the commencement of the applicable
Renewal Term, determined based upon then existing renewal market conditions
applicable to the leasing of comparable space in comparable buildings in the
vicinity of The Project (taking into consideration all relevant factors,
including use, location, quality, age and location of the applicable building,
the definition of net rentable area and allowances and other concessions
typically given under renewal leases in comparable properties to the Property in
the vicinity of the Project). Further, the Fair Market Rate shall be determined
on a triple-net basis. Landlord and Tenant shall negotiate in good faith and in
accordance with the procedure set forth in Section 29.1.4, below, to determine
the Fair Market Rate which will be applicable during the Renewal Term, with the
goal of concluding such negotiation or triggering a determination of the FMR
using a three-appraiser method (as described in Section 29.1.5, below) within
not more than sixty (60) days after the date of Landlord's receipt of the
Renewal Notice.
31
<PAGE> 32
29.1.4 Within ten (10) business days after Landlord receives
Tenant's Renewal Notice exercising the Renewal Option, Landlord will provide
Tenant with a written notice (the "FMR Notice") indicating the base rental rate
and annual escalation rate which Landlord in good faith believes represents the
then current FMR for the Premises. If Tenant is in agreement with the base
rental rate and annual escalation rate stated in the FMR Notice, Tenant shall so
notify Landlord within ten (10) business days after its receipt thereof, in
which case such base rental rate and annual escalation rate shall constitute the
FMR for such Renewal Term within the meaning of this Section 29.1. If Tenant
believes in good faith that the base rental rate and annual escalation rate
stated by Landlord in the FMR Notice are in excess of actual FMR for the
Premises, Tenant shall so notify Landlord in writing prior to the end of the ten
(10) business day period after Tenant received Landlord's FMR Notice, stating in
its response (hereinafter referred to as "Tenant's Counterproposal") the base
rental rate and annual escalation rate which Tenant in good faith believes
represents the then current FMR for the Premises. If Tenant fails to respond to
the Landlord's FMR Notice within such ten (10) business day period, Tenant shall
be deemed to have accepted the base rental rate and annual escalation rate
stated in Landlord's FMR Notice. If Tenant does provide Tenant's Counterproposal
to Landlord in a timely fashion, and Landlord agrees that the base rental rate
and annual escalation rate stated in Tenant's Counterproposal represent the then
current FMR, Landlord shall so notify Tenant within ten (10) business days after
its receipt thereof, in which case such base rental rate and annual escalation
rate shall constitute the FMR for such Renewal Term within the meaning of this
Section 29.1. If Landlord fails to respond to the Tenant's Counterproposal
within ten (10) days after Landlord's receipt of the Tenant's Counterproposal,
or rejects the rental rate and escalation rate stated therein, then the parties
agree to submit the issue of what constitutes the appropriate FMR for the
Premises for the Renewal Term to determination using a "three appraiser method"
as described in Section 29.1.5, below.
29.1.5 If the parties submit the issue of what constitutes the
appropriate FMR for the Premises for the Renewal Term to determination using a
"three appraiser method", then the basic rent and annual escalations applicable
during the Renewal Term shall be equal to the FMR and annual escalation rates
determined by a board of three (3) licensed real estate appraisers, one of whom
shall be named by Landlord, one by Tenant, and the two so appointed shall select
the third. Each member of the board of appraisers shall be licensed in the
Commonwealth of Virginia as a real estate appraiser, with a substantial
familiarity in the field of commercial office/flex leasing in the
Chantilly/Dulles area of Fairfax County, Virginia, having no less than ten (10)
years experience in such field, and recognized as ethical and reputable within
the field. Landlord and Tenant agree to make their appointments within five (5)
business days after the earlier to occur of (i) the expiration of the ten (10)
day period after Landlord's receipt of Tenant's Counterproposal, or (ii) the
date Landlord notifies Tenant of its rejection of Tenant's Counterproposal. The
two (2) appraisers selected by Landlord and Tenant shall promptly select a third
appraiser within ten (10) days after the second to be appointed has been
appointed, and each appraiser, within ten (10) days after the third appraiser is
selected, shall submit his or her determination of the said FMR and escalations
(taking into account the provisions of Section 51.3 hereof). If either of the
parties fail to select an appraiser within the aforesaid time periods, such
party's appraiser shall be designated (in compliance with the applicable
criteria set forth above and affiliated with a different company from the other
broker) by an agent of the Fairfax County Board of Realtors in office at such
time; and if the appraisers selected by Landlord and Tenant (or on their behalf
) are unable to reach agreement on the identity of the third appraiser within
the applicable ten (10) day period, then the third appraiser shall be designated
(in compliance with the applicable criteria set forth above) by an agent of the
Fairfax County Board of Realtors in office at such time. The FMR shall be the
average of amount determined by the two appraisers whose determinations are
closest in amount to each other (or if two appraisers reach an identical
determination, the determination of such two appraisers), provided that if the
two (2) most proximate determinations of FMR differ by more than ten percent
(10%), then the determination of FMR by such board of three appraisers shall be
null and void, and Landlord and Tenant shall, within five (5) business days
thereafter, appoint a new board of three different real estate appraisers
meeting the above-stated criteria, who shall convene in accordance with the
procedures and time frames set forth above in order to render a new
determination, as if the first determination had never taken place. After the
Fair Market Rent has been established, the appraisers shall immediately notify
the parties in writing, and such determination shall be conclusive and binding
upon the parties. Landlord and Tenant shall each pay the fee of the appraiser
selected by it, and they shall equally share the payment of the fee of the third
appraiser.
32
<PAGE> 33
29.2 Roof Rights.
29.2.1 Subject to (i) compliance with all rules, regulations,
statutes and codes of any governmental authority having jurisdiction thereover,
(ii) compliance with any covenants, conditions and restrictions applicable to
Dulles Business Park and (iii) subject to Landlord's prior written consent,
which consent shall not be unreasonably withheld, conditioned or delayed, Tenant
shall have the right of access to and the non-exclusive use of the roof of the
Buildings for the installation of a single rooftop satellite communication
device (Tenant's "Roof Use"); provided further that such installation and the
Roof Use shall not void any roof or other warranty applicable to the Building
and that all such installations shall be located and screened in a manner
mutually acceptable to both Landlord and Tenant in their reasonable discretion.
29.2.2 If the rate of any insurance carried by Landlord is
increased as a result of Tenant's Roof Use, then Tenant will pay to Landlord
within thirty (30) days after Landlord delivers to Tenant a certified statement
from Landlord's insurance carrier stating that the rate increase was caused by
Tenant's Roof Use, a sum equal to the difference between the original premium
and the increased premium resulting from the Roof Use.
29.2.3 Landlord has not made any representations or promises
pertaining to the suitability of the Building's rooftop for the Roof Use.
Tenant, for the purpose of this paragraph and its right to rooftop access
hereunder, accepts the rooftop in its "as is" condition. The foregoing
notwithstanding, Landlord agrees to cooperate with Tenant during the design
phase of the Building (if and to the extent practicable) to design and engineer
an area of the roof to be constructed within which Tenant's Roof Use may be
conducted and which will be suitable for such purpose, provided Tenant provides
appropriate specifications to Landlord during such design process to enable
Landlord to cause the design to accommodate such use.
29.2.4 Tenant will obtain prior to installation, any and all
necessary licenses, approvals, permits, etc., necessary for the installation,
maintenance and use of any equipment installed pursuant to this Section 29.2.
Tenant's Roof Use shall not in any way conflict with any applicable law,
statute, ordinance or governmental rules or regulation now in force or which may
hereafter be enacted. The Tenant will, at its sole cost and expense, promptly
comply or ensure that the Building complies with all laws, statutes, ordinances,
governmental rules or regulations, or requirements of any board of fire
insurance underwriters or other similar bodies now or hereafter constituted
relating to or affecting Tenant's Roof Use. Tenant shall indemnify and hold
Landlord harmless from and against any and all loss, cost (including reasonable
attorney's fees incurred in defending Landlord), damage or liability arising out
of any violations of said laws, statutes, ordinances rule or regulations.
29.2.5 Tenant's Roof Use shall be exercised: (1) in such
manner as will not create any hazardous condition or interfere with or impair
the operation of the heating, ventilation, air conditioning, plumbing,
electrical, fire protection, life safety, public utilities or other systems or
facilities in the Buildings; (2) in compliance with all applicable laws, codes
and regulations; (3) in such a manner as will not directly or indirectly
interfere with, delay, restrict or impose any expense, work or obligation upon
Landlord in the use or operation of the Buildings; (4) at Tenant's cost,
including the cost of repairing all damage to the Buildings and any personal
injury and/or property damage attributable to the installation, inspection,
adjustment, maintenance, removal or replacement of any equipment or apparatus on
the roofs approved hereunder; and (5) in a manner which will not void or
invalidate any roof warranty then in effect with respect to the roof of the
Building. Tenant's Roof Use shall be used solely in the ordinary course of
Tenant's business operations, and any use of the roof outside of the ordinary
course of Tenant's business operations (such as, but not limited to, subleasing
portions of the roof for profit to third parties, in order for such third
parties to establish communications transmission facilities) shall be subject to
Landlord's consent, which consent shall not be unreasonably withheld, but may be
conditioned, inter alia, upon the payment by Tenant to Landlord of one-half of
any net revenues paid to Tenant in respect thereof.
33
<PAGE> 34
29.3 UPS/Generator Rights.
29.3.1 Subject to (i) compliance with all rules, regulations,
statutes and codes of any governmental authority having jurisdiction thereover,
(ii) compliance with any covenants, conditions and restrictions applicable to
Dulles Business Park, and (iii) subject to Landlord's prior written consent,
which consent shall not be unreasonably withheld, conditioned or delayed, Tenant
shall have the right of access to and the non-exclusive use of a portion of the
ground area immediately appurtenant to the Premises for the installation of
Uninterrupted Power Supply (UPS) equipment and/or standby generators (Tenant's
"Grounds Use"); provided further that such installation and Grounds Use shall be
located and screened in a manner mutually acceptable to both Landlord and Tenant
in their reasonable discretion.
29.3.2 If the rate of any insurance carried by Landlord is
increased as a result of Tenant's Grounds Use, then Tenant will pay to Landlord
within thirty (30) days after Landlord delivers to Tenant a certified statement
from Landlord's insurance carrier stating that the rate increase was caused by
Tenant's Grounds Use, a sum equal to the difference between the original premium
and the increased premium resulting from the Grounds Use.
29.3.3 Landlord has not made any representations or promises
pertaining to the suitability of the land appurtenant to the Building for the
Grounds Use. Tenant, for the purpose of this paragraph, accepts the applicable
portion of such land area in its "as is" condition. The foregoing
notwithstanding, Landlord agrees to cooperate with Tenant during the design
phase of the Building (to the extent practicable) to design and engineer an area
appurtenant to the Premises within which Tenant's Grounds Use may be conducted
and which will be suitable for such purpose, provided Tenant provides
appropriate specifications to Landlord during such design process to enable
Landlord to cause the design to accommodate such use.
29.3.4 Tenant will obtain prior to installation, any and all
necessary licenses, approvals, permits, etc., necessary for the installation,
maintenance and use of any equipment installed pursuant to this Section 29.3.
Tenant's Grounds Use shall not in any way conflict with any applicable law,
statute, ordinance or governmental rules or regulation now in force or which may
hereafter be enacted. The Tenant will, at its sole cost and expense, promptly
comply or ensure that the connection of Tenant's Ground Use to the Premises
complies with all laws, statutes, ordinances, governmental rules or regulations,
or requirements of any board of fire insurance underwriters or other similar
bodies now or hereafter constituted relating to or affecting thereto. Tenant
shall indemnify and hold Landlord harmless from and against any and all loss,
cost (including reasonable attorney's fees incurred in defending Landlord),
damage or liability arising out of any violations of said laws, statutes,
ordinances rule or regulations.
29.3.5 Tenant's Grounds Use shall be exercised: (1) in such
manner as will not create any hazardous condition or interfere with or impair
the operation of the heating, ventilation, air conditioning, plumbing,
electrical, fire protection, life safety, public utilities or other systems or
facilities in the Building; (2) in compliance with all applicable laws, codes
and regulations; (3) in such a manner as will not directly or indirectly
interfere with, delay, restrict or impose any expense, work or obligation upon
Landlord in the use or operation of the Building; and (4) at Tenant's cost
(subject to reimbursement from any applicable Improvement Allowance pursuant to
Exhibit B), including the cost of repairing all damage to the Building and any
personal injury and/or property damage attributable to the installation,
inspection, adjustment, maintenance, removal or replacement of any equipment or
apparatus on the roofs approved hereunder. Tenant's Grounds Use shall be used
solely in the ordinary course of Tenant's business operations, and is personal
to Tenant and any party to whom Tenant assigns this Lease or sublets a portion
of the Premises pursuant to Section 11.4 hereof.
29.4 Tenant's Outdoor Area.
Subject (i) to governmental approval, (ii) the further provisions of
this Section 29.4, and (iii) to the requirement that the same not adversely
affect truck access and truck turnaround to and from the ECS loading
34
<PAGE> 35
dock, Landlord agrees that Tenant may install, at its expense (including as part
of the Improvement Allowance to the extent set forth in Exhibit B) a patio with
picnic benches, a basketball backboard and half-court basketball court striping
area (the "Basketball Area") and planters intended to create a landscape buffer
between the exterior area adjacent to the Premises and the exterior area
adjacent to the premises occupied by ECS (the "ECS Premises"), substantially as
depicted in Schedule B-2 of this Lease or as otherwise consented to by Landlord
in its reasonable discretion ("Tenant's Outdoor Area"). Tenant agrees to limit
usage of the Basketball Area to the hours of 12:00 noon through 2:00 p.m. daily,
and after 5:00 p.m., daily, provided Tenant may, but only with the consent of
ECS or its successors in occupancy of the ECS Premises, use the Basketball Area
at such other times as may be approved by such occupant(s) of the ECS Premises.
Tenant, for the purpose of this paragraph, accepts the applicable portion of
such land area in its "as is" condition and agrees not to adversely affect any
storm drainage facilities, utility installations or other facilities serving the
Building located within the affected area in the installation and use of such
area. Such installation shall be considered a part of the Tenant Improvements,
to be performed by Tenant pursuant to Section 6.5(a) of Exhibit B, if installed
as part of the initial construction of Tenant Improvements to the Premises, or
as an Alteration pursuant to Article 13 of this Lease, if installed after the
Substantial Completion of the Tenant Improvements (provided Landlord hereby
evidences its approval of Tenant's Outdoor Area as depicted in Schedule B-2 for
purposes of Article 13). The installation and use of Tenant's Outdoor Area shall
be conducted (1) in such manner as will not create any hazardous condition or
interfere with or impair the operation of the heating, ventilation, air
conditioning, plumbing, electrical, fire protection, life safety, public
utilities or other systems or facilities in the Building; (2) in compliance with
all applicable laws, codes and regulations; (3) at Tenant's cost (subject to
reimbursement from any applicable Improvement Allowance pursuant to Exhibit B),
including the cost of repairing all damage to the Building and any personal
injury and/or property damage attributable to the installation, inspection,
adjustment, maintenance, use, removal or replacement of any equipment or
apparatus therein; and (4) in a manner which will not adversely affect ECS's
truck access and turnaround requirements as determined by ECS in its sole, but
reasonable, judgment. Tenant shall have the right to restrict the use of such
area to its employees and invitees, provided Tenant agrees that the occupant(s)
of the ECS Premises shall have the right of exclusive use of the balance of the
outdoor area adjacent to Tenant's Outdoor Area, including for installation and
use of similar picnic facilities and the like.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the 8th day of May, 1998.
LANDLORD:
FCP-DULLES BUSINESS PARK I, L.C., a Virginia
limited liability company
By: CRIMSON PARTNERS, L.C., a Virginia
limited liability company
By: /s/ R. KEVIN DOUGHERTY (SEAL)
--------------------------------------
Name: R. Kevin Dougherty
Title: Managing Member
TENANT:
PINNACLE REAL ESTATE TAX SERVICES, INC., a
Delaware corporation
By: /s/ DONALD S. GRANT (SEAL)
--------------------------------------
Title: Donald S. Grant, Vice President -
Facilities
35
<PAGE> 36
EXHIBIT A-1
(Plan Showing Premises)
36
<PAGE> 37
EXHIBIT A-2
(Plat Showing Land and Building)
37
<PAGE> 38
EXHIBIT B
WORK AGREEMENT
This Work Agreement is attached to and made a part of that certain Deed
of Lease dated as of May 8, 1998 (the "Lease"), between FCP-DULLES BUSINESS PARK
I, L.C., a Virginia limited liability company ("Landlord"), and PINNACLE REAL
ESTATE TAX SERVICES, INC. ("Tenant"). The terms used in this Exhibit that are
defined in the Lease shall have the same meanings as provided in the Lease.
1. General.
1.1 Purpose. This Agreement sets forth the terms and conditions
governing the design, permitting and construction of all
tenant improvements to be installed in the Premises in
accordance with the Approved Plans and any change orders
thereto ("Tenant Improvements").
1.2 Tenant's Representative. Tenant acknowledges that Tenant has
appointed Donald Grant as its authorized representative
("Tenant's Representative") with full power and authority to
bind Tenant for all actions taken with regard to the Tenant
Improvements. To the extent any actions and decisions were
taken by Tenant's Representative with regard to the Tenant
Improvements prior to the execution of this Work Agreement,
such actions are hereby ratified by Tenant. Landlord shall not
be obligated to respond to or act upon any plan, drawing,
change order or approval or other matter relating to the
Tenant Improvements until it has been executed by Tenant's
Representative. Neither Tenant nor Tenant's Representative
shall be authorized to direct Landlord's general contractor
with respect to the Tenant Improvements. In the event that the
Landlord's general contractor performs any work for Tenant
under a separate written contract or written instruction from
Tenant or Tenant's Representative, then Landlord shall have no
liability for the cost of such work, the cost of corrective
work required as a result of such work, any delay that may
result from such work, or any other problem in connection with
such work.
2. Work and Materials
2.1 Tenant Improvements. Landlord, at Tenant's expense, shall
construct the Premises in accordance with the Tenant Plans (as
defined below). The Tenant Plans shall be conclusive as to the
entire scope of work to be performed by Landlord with respect
to the Tenant Improvements.
2.2 Improvement Allowance. Landlord agrees to credit Tenant with
an allowance not to exceed Twenty-Five Dollars ($25.00) per
rentable square foot which is equal to a total of Eight
Hundred Thirty-Four Thousand, Seventy-five and 00/100 Dollars
($834,075) which shall be applicable to the cost of all Tenant
Improvements ("Improvement Allowance"). Except as specifically
provided below with regard to Landlord's agreement to fund
certain "Excess Costs" subject to Tenant's obligation to make
certain monthly payments in respect thereof, Landlord's total
financial obligation with respect to the purchase,
construction, and installation of the Tenant Improvements or
any other improvements to the Premises shall be limited solely
to the Improvement Allowance (and any financial obligations
which flow from any breach of Landlord's obligation to perform
punch list work hereunder), and except as specifically set
forth in this Lease, Tenant shall be solely responsible for
any and all such costs in excess of the Improvement Allowance.
Landlord agrees that Tenant may allocate up to $5,000 of the
Improvement Allowance to pay for demolition of certain asphalt
areas of the parking lot adjacent to the Premises and the
installation of landscaping therein, as approved by Landlord
in its reasonable discretion, which for purposes of this
provision shall be deemed to constitute Tenant Improvements
under the Lease.
38
<PAGE> 39
For purposes of this Exhibit B, the cost of all Tenant
Improvements shall mean any and all costs associated with the
design and construction of the Tenant Improvements (exclusive
of Base Building Improvements, as hereafter provided),
including the cost of all labor, services and materials
necessary to design, permit, inspect and construct the
Premises. Without limitation, the foregoing shall include all
architectural and engineering fees and costs, utility fees,
tap fees, systems development charges, fixture fees, fees and
costs for preparation of mechanical, electrical and plumbing
(MEP) drawings, inspection fees, construction management fees
provided for herein, and contractor profits, whether any of
the foregoing were furnished to, or by, Landlord, and whether
any of the foregoing were paid by Landlord prior to or after
Lease execution or prior to or after the commencement of
construction of the Tenant Improvements.
2.3 Bidding. The Tenant Improvements shall be competitively bid in
the following manner:
(a) Landlord shall cause the bidding package for the
Tenant Improvements to be submitted to at least three (3)
qualified general contractors, all of whom shall be
financially sound and able to complete the Tenant Improvements
within the time frames contemplated by the bidding materials.
Tenant shall have the right to designate one (1) qualified
general contractor to bid on the Tenant Improvements, which
general contractor shall be financially sound and able to
complete the Tenant Improvements within the time frames
contemplated by the bidding materials, and otherwise subject
to Landlord's reasonable approval. The bidding shall require
all contractors to provide for a construction schedule
consistent with the terms of this Lease, without special
additional charge or increased cost for overtime.
(b) All contractors shall submit their bids directly
to Landlord, who will review and analyze all bids submitted,
and Landlord shall format all the bids for review by Tenant;
and Landlord will prepare a bid format (the "Bid Format")
which lists all bids received, which Landlord agrees to
provide to Tenant within seven (7) days after receipt of the
last bid. The Bid Format is intended to make each bid
submitted comparable in scope so that the bid prices reflected
are based on substantially equal services and materials. In
the absence of a substantial basis for selecting otherwise,
Landlord agrees to accept the lowest bid reflected within the
Bid Format as long as the low bidder is able to meet any
timing requirements applicable hereunder.
Once the bid selection process has been completed, Landlord
will supply Tenant with its estimate of the total costs which
Landlord estimates will be applicable to the performance of
the Tenant Improvements (hereinafter referred to as the "Cost
Estimate"). Landlord agree to require all bidders to provide
as part of its bid (i) a warranty for the Tenant Improvements
for a period of one (1) year from Substantial Completion, to
the effect that all work will be performed in a good and
workmanlike manner, in accordance with the Approved Plans (as
modified by any written change orders), using new materials
and free from defects in materials and workmanship, and (ii) a
list of all "long lead items", that is, items specified by
Tenant in the Approved Plans which involve delayed delivery to
an extent that would cause delay in meeting the general
contractor's schedule for Substantial Completion and thereby
constitute an event of "Tenant Delay" under Section 6.3(f) of
this Exhibit B, below. In addition, each general contractor
will be asked to include in its bid as an optional item the
additional cost for obtaining and/or providing warranties on
certain building systems and equipment (to be designated by
Tenant in Tenant's Space Plan) which extend beyond one (1)
year (as also designated by Tenant).
2.4 Excess Costs. In the event the successful bid received
pursuant to Section 2.3, above, causes (or is likely to cause)
the total expenses associated with construction of the Tenant
Improvements
39
<PAGE> 40
to exceed the Improvement Allowance, Landlord shall promptly
notify Tenant of the amount (or Landlord's best estimate of
the amount) of the overage ("Excess Cost"). Tenant, within
five (5) days after receipt of Landlord's notice, shall notify
Landlord as to whether Tenant (i) wishes Landlord to commence
construction of the Tenant Improvements; or (ii) wishes to
re-design the Premises so as to reduce the Excess Cost. In the
event Tenant wishes to redesign the Premises so as to reduce
the Excess Cost:
(a) said redesign shall be performed at Tenant's
sole expense;
(b) said redesign shall be completed and
submitted to Landlord within ten (10) days
after Tenant's notice to Landlord that it
wishes to redesign the Premises so as to
reduce the Excess Cost;
(c) said redesign shall not delay the Lease
Commencement Date and any delay associated
therewith shall constitute a Tenant Delay
hereunder; and
(d) said redesign shall be conclusive and
binding on Tenant.
In the event Tenant elects not to redesign the Premises or to
partially redesign the Premises, any remaining Excess Cost
shall be paid for by Tenant as hereinafter provided. Tenant
shall have the right to amortize up to $5.00 per square foot
of Excess Costs over the initial ten (10) year Lease Term at a
twelve percent (12%) annual interest rate, which amount shall
be payable by Tenant to Landlord in equal monthly installments
of principal and interest which monthly installments shall be
paid (as additional rent hereunder) at the same time as
monthly payments of Base Rent otherwise stated to be due from
Tenant to Landlord under the Lease are due and payable from
Tenant to Landlord (but which monthly installments of
principal and interest shall not be subject to annual 3%
escalations as are otherwise applicable to Base Rent). Tenant
shall notify Landlord of such election within ten (10) days
after the Landlord provides Tenant with the Cost Estimate, or,
if applicable, within ten (10) days after the above-described
value engineering process has been completed and a revised
Cost Estimate prepared, failing which Tenant shall be deemed
to have elected not to amortize any Excess Cost. In the event
Tenant elects to amortize any Excess Cost, Landlord and Tenant
shall execute an amendment to the Lease verifying the amount
of the Excess Cost and Tenant's payment schedule therefor. If
the total Excess Cost exceeds $5.00 per square foot, or if
Tenant elects not to amortize all or any portion of the Excess
Cost (or if Tenant refuses to execute an amendment to the
Lease which correctly establishes the amount of the Excess
Cost and Tenant's payment schedule therefor within ten (10)
business days after the amendment is presented by Landlord to
Tenant for execution), then the portion of the Excess Cost not
amortized (up to the whole) or the entire Excess Cost if
Tenant fails to execute a correctly prepared amendment within
the aforesaid time period, shall be paid by Tenant as follows:
One third (1/3) on or before the date of commencement of
construction of the Tenant Improvements, one-third (1/3)
within thirty (30) days after construction of the Tenant
Improvements has been fifty percent (50%) completed (as
certified by the general contractor), and one-third (1/3) upon
substantial completion of the Tenant Improvements and in all
events on or before the Commencement Date.
Within thirty (30) days after completion of Landlord's Work,
Landlord shall provide Tenant with a written statement (the
"Final Statement") of the actual total cost of the Tenant
Improvements (hereafter, the "Actual Cost"). If the Final
Statement indicates that the Actual Cost was less than the
Improvement Allowance, Tenant shall be entitled to apply the
unused portion thereof (up to a maximum of $5.00 per rentable
square foot) (i) to pay for Tenant's satellite dish described
in Section 29.2, Tenant's above-ground generator described in
Section 29.3, Tenant's out-of-pocket moving expenses, or any
other items permitted to be installed by Tenant as part of the
Tenant Improvements pursuant to Section 6.5(a), below, (ii) to
pay for costs associated with the installation of Tenant's
Outdoor Area pursuant to Section 29.4 of the
40
<PAGE> 41
Lease, or (iii) as a credit against the first payments of Base
Rent becoming due under this Lease. If the Final Statement
indicates that the Actual Cost exceeded the sum of the
Improvement Allowance and the Excess Costs previously
disclosed and charged to Tenant pursuant to this Section 2.3
(collectively, the "Total Tenant Credit"), then Tenant shall
pay Landlord an amount equal to the difference between the
Actual Cost and the Total Tenant Credit within ten (10)
business days after receipt of Landlord's statement.
2.5 Base Building Improvements. Landlord agrees to construct, at
Landlord's sole expense, and in a diligent manner intended to
achieve substantial completion thereof consistent with the
timing requirements of this Lease, the shell of the Building
and certain base building improvements thereto, as described
in the plans referenced in Schedule B-1 attached hereto and
made a part hereof by this reference, including the
landscaping and parking areas reflected within such plans
(hereinafter referred to as the "Base Building Improvements"
and which shall include up to $2,000 in trees and bushes in
any asphalt cut-out areas adjacent to Tenant's windows which
Tenant elects to perform pursuant to Section 2.2, above). All
work to the interior of the Premises which is not reflected as
part of the Base Building Improvements within Schedule B-1
shall be deemed to be Tenant Improvements within the meaning
of this Exhibit B.
2.6 Construction. Promptly after the general contractor has been
selected and a construction contract executed (including any
value engineering performed pursuant to Section 2.4, above)
and a building permit has been received by Landlord for
construction of the Tenant Improvements, Landlord shall cause
its general contractor to commence and diligently pursue the
completion of installation of the Tenant Improvements in
accordance with the Approved Plans (and any written change
orders thereto). Landlord shall supervise such work (as
provided in Section 4, below) and shall use commercially
reasonable efforts to achieve Substantial Completion of the
Tenant Improvements within the timing requirements of this
Exhibit B. However, except as provided in Section 6.6 of this
Exhibit B, below, Landlord shall have no liability to Tenant
for any delay in commencement, construction or completion of
the Tenant Improvements.
3. Design.
3.1 Design of Tenant Improvements.
3.1.1 Space Plan. Landlord and Tenant have not reached
agreement on a space plan/layout of the Premises as of the
date of execution of this Lease. Promptly after Lease
execution (and in no event later than May 11, 1998), Tenant
shall cause its architect, Rusty Shaw of Architecture, Inc. of
Reston, Virginia to prepare and submit to Landlord for
approval (which shall not be unreasonably withheld) a space
plan for the entire Premises, defining the scope of the Tenant
Improvements. Promptly thereafter, Landlord shall indicate to
Tenant whether it has any objections to Tenant's proposed
space plan. If Landlord fails to provide a written objection
within four (4) days after the date Landlord receives the
applicable submission from Tenant's architect, the same shall
be deemed to have been approved by Landlord. If there are any
such objections, the parties will work together expeditiously
and in good faith to resolve such objections as quickly as
possible (and in all events no later than May 15, 1998). Any
delay by Tenant in provision or completion of a space plan
beyond the time frames described above which causes delay in
commencement or completion of the Workable Shell Structure or
Tenant Improvements shall constitute a Tenant Delay for all
purposes of this Lease. As approved by Landlord, Tenant's
space plan shall be referred to herein as the " Space Plan".
"CDS" shall mean and refer to the all plans for construction
of the Tenant Improvements, including construction drawings
and specifications and MEP plans to the extent required for
the permitting of all leasehold construction contemplated by
this Lease.
41
<PAGE> 42
3.1.2 Time Periods. In connection with the design of
Tenant Improvements to the Premises, the following maximum
time periods shall be allowed for the following matters:
<TABLE>
<CAPTION>
Matter Time Period
------ -----------
<S> <C>
(a) Submission by Tenant to Landlord (a) May 11, 1998
of Tenant's proposed Space Plan
(b) Final approval of Space Plan (b) May 15, 1998
(c) Tenant provides Landlord (c) June 30, 1998
with an initial draft of the
CDS.
(d) Landlord gives Tenant its (d) Five (5) working
approval of CD's by signing days after
and dating CD's. receipt of CD's
from Tenant
</TABLE>
Once the Lease has been fully executed, Landlord and Tenant
intend for each deadline expressed in this Work Agreement to
bind the parties even if such deadline passes before the date
the Lease is executed.
3.2 Approvals by Landlord. All Tenant Plans shall be subject to
Landlord's prior approval, which shall not be unreasonably
withheld, except that Landlord shall have complete discretion
with regard to granting or withholding approval of any Tenant
Plans to the extent they materially and adversely affect the
Building's structure or would be visible from the exterior of
the Building or any Common Area within the Building. Any
changes, additions or modifications that Tenant desires to
make to the Tenant Plans also shall be subject to Landlord's
prior written approval, which shall not be unreasonably
withheld except as provided above for Building structure or
appearance impact.
4. Construction and Construction Management.
4.1 Construction. After approval of the CD's, Landlord shall
administer the construction of the Tenant Improvements in
accordance with the approved CD's and approved change orders.
All Tenant Improvements shall be constructed by or under the
supervision of Landlord's general contractor with the
exception of those items constructed by Tenant's contractors
or vendors (which shall, unless otherwise set forth herein, be
limited to installation of telephone equipment, cabling,
specialized office equipment wiring and other items permitted
to be installed by Tenant pursuant to Section 6.5(a) of the
Lease).
4.2 Construction Management. Landlord may act as or employ the
services of a construction manager to oversee the performance
of the general contractor performing the Tenant Improvements.
A Construction Management fee equal to Twenty Thousand Dollars
($20,000.00) shall be paid to Landlord or such construction
manager from the Improvement Allowance in respect of such
services.
5. Change Orders. If Tenant requests any change or addition to the work or
materials to be provided by Landlord pursuant to this Exhibit after
Tenant's and Landlord's approval of the Construction Drawings
42
<PAGE> 43
and Specifications and Tenant's acceptance of the Cost Estimate,
Landlord shall respond to Tenant's request for consent as soon as
possible, but in no event later than three (3) working days after it
being made. If Landlord approves such request, Landlord shall as soon
as practicable after such approval notify Tenant of the cost of such
change order and the delay in Substantial Completion of the Premises,
if any, due to the change order which would be Tenant's sole
responsibility. All additional expenses attributable to any change
order requested by Tenant and approved by Landlord (net of any savings
realized therefrom), whether or not such change order relates to
improvements paid for under the Tenant Improvements, shall be payable
along with a five percent (5%) overhead and administrative fee to
Landlord by Tenant upon approval by Tenant of the change order cost
and/or delay, if any.
6. Substantial Completion.
6.1 General. Landlord shall use reasonable and diligent efforts to
Substantially Complete (as defined below) the Tenant
Improvements on or before October 1, 1998, but neither the
validity of this Lease nor the obligations of Tenant under
this Lease shall be affected by a failure to Substantially
Complete the Premises by such date, and Tenant shall have no
claim against Landlord because of Landlord's failure to
Substantially Complete the Premises on the date originally
fixed therefor. Landlord shall communicate with Tenant on a
regular basis regarding the progress of construction and the
status of completion relative to the projected date of
Substantial Completion, and will provide Tenant with not less
than thirty (30) days prior written notice of the date upon
which Landlord estimates that it will achieve substantial
completion of the Tenant Improvements once Landlord is able to
estimate a specific date with reasonable certainty.
6.2 Substantial Completion. "Substantial Completion" of the
Premises shall be conclusively deemed to have occurred as soon
as (i) the Tenant Improvements to be installed by Landlord
pursuant to this Work Agreement has been constructed in
accordance with the Tenant Plans approved change orders and
the Premises are ready to be utilized for general office
purposes, as certified by architect, and (ii) it is lawful for
Tenant to commence Tenant's Move-In and business operations
within the Premises, assuming all Tenant Work and furniture,
equipment and property installations to be made by Tenant are
in compliance with all applicable legal requirements. The
issuance of a temporary certificate of occupancy or
non-residential use permit by the proper governmental entity
shall be required for Substantial Completion, except to the
extent the same is denied due to the acts or omissions of
Tenant or Tenant's Agents. To the extent granted, a temporary
certificate of occupancy or non-residential use permit by the
proper governmental entity shall be deemed conclusive evidence
that Substantial Completion has occurred. Notwithstanding the
above, the Premises shall be considered Substantially Complete
and ready to be utilized for their intended purpose even
though (a) there remain to be completed in the Premises
certain long lead items, (b) there remain to be completed in
the Premises certain punch list items reasonably acceptable to
Landlord and Tenant, including but not limited to minor or
insubstantial details of construction, decoration or
mechanical adjustment, the lack of completion of which will
not materially interfere with Tenant's permitted use of the
Premises, and/or (c) there is a delay in the Substantial
Completion of the Premises due to a "Tenant Delay" as defined
below.
6.3 Tenant Delays. The following items shall be referred to
individually as, and shall constitute for all purposes of this
Lease, a "Tenant Delay":
(a) Tenant's failure to comply with any of the deadlines
specified in this Work Agreement; or
(b) Tenant's request for changes or additions to the
Tenant Improvements subsequent to the date of
Landlord's approval of the CDS; or
43
<PAGE> 44
(c) Tenant's failure to pay when due any amounts required
pursuant to this Work Agreement; or
(d) The performance of any work by any person or firm
employed or retained by Tenant; or
(e) Tenant's request for materials, finishes or
installations which are not available as needed to
meet the general contractor's schedule for
Substantial Completion, but only to the extent
identified by the general contractor as part of the
bidding process as set forth in Section 2.4, above,
or occurring in connection with a change order
requested by Tenant pursuant hereto (and identified
as part of the change order approval process); or
(f) Tenant's or Tenant's agent, including Tenant's
contractors vendors, and Representative's
interference with the general contractor's schedule;
or
(g) Any delay occasioned by Tenant's Early Work.
In the event of any delay in the construction of the Building
or any Tenant Improvements therein caused by Tenant Delay, the
same shall not result in any delay in the Commencement Date of
this Lease, even if the Substantial Completion of the Tenant
Improvements was delayed beyond the Commencement Date set
forth in Article 1 of the Lease, and in such event, the
Commencement Date shall be the date Tenant's Architect
reasonably estimates that the Tenant Improvements would have
been Substantially Completed but for such Tenant Delay
(provided that if Landlord disputes the date so estimated by
Tenant's Architect, and such dispute is not voluntarily
resolved by Landlord and Tenant within ten (10) business days
after Landlord's notifies Tenant of the existence of such
dispute, the parties agree to submit the matter in controversy
to binding arbitration (on an expedited basis) in accordance
with the commercial arbitration rules of the American
Arbitration Association.
The foregoing notwithstanding, Landlord agrees that (i) the
occurrence of any event or circumstance described in any of
clauses (a) through (g) of this Section 6.3 which does not
actually result in delay to the schedule for the planning,
design or construction of the Tenant Improvements shall not be
deemed a Tenant Delay (e.g., if an event or circumstance of
the type described in any of clauses (a) through (g) of this
Section 6.3 occurs at the same time as a contractor delay in
construction, and the delay reasonably attributable thereto
does not extend beyond the concurrent contractor delay, the
same shall not constitute a Tenant Delay to such extent).
Landlord and Tenant shall each notify the other within three
(3) business days after such party obtains knowledge of the
occurrence of any delay attributable to the other party, or to
any event of force majeure within the meaning of this Lease.
6.4 Punch List. Prior to delivery of possession of the Premises to
Tenant, Landlord's architect shall prepare a preliminary punch
list in writing for Landlord and Tenant's review and Landlord
and Tenant shall examine the Premises and shall agree on a
final "punch list" which shall specify the items of work that
require correction, repair or replacement. Tenant shall
approve such punch list in writing within two (2) working days
of the walk-through.
6.5 Early Work/Tenant's Move-In.
(a) Section 7 of this Exhibit B to the
contrary notwithstanding, Tenant shall be given access to the
Premises prior to the substantial completion of the Tenant
Improvements, as more fully set forth below, so that Tenant
may perform the installation of phone and data wiring and
cabling, a special computer room floor, a halon fire
protection system,
44
<PAGE> 45
supplementary HVAC units for Tenant's computer room and
enhancements to the security systems serving the Premises, and
other similar specialized equipment installations therein. Any
such work in the Premises prior to the date Landlord achieves
Substantial Completion of the Tenant Improvements is herein
referred to as "Early Work", and Tenant's entries into the
Premises prior to such date shall be strictly limited as
hereinafter set forth Landlord and Tenant agree that the
performance of any Early Work shall be in accordance with this
Paragraph 6.5.
(b) Any entry into the Premises prior to
Substantial Completion of the Tenant Improvements and/or the
Commencement Date (including without limitation any entry by
Tenant for Early Work) shall be subject to all of the terms
and conditions of the Lease, except that, other than as a
result of entries for purposes of actual occupancy and/or the
conduct of Tenant's business (including commencement of
business operations), Tenant shall not be required to pay Base
Rent, Tenant's Share of Expense Increases and/or increases in
Taxes and/or any other additional rent. In addition: (i) any
such entry by the Tenant, its agents, employees or contractors
(any and all of which to be referred to hereinafter as
"Tenant's Personnel") shall be subject to the insurance
requirements of Landlord's contractor (which shall provide
such requirements to Tenant within five (5) business days
after Tenant requests the same in writing); (ii) Tenant's
Early Work shall comply with any reasonable scheduling
requirements of Landlord's contractor and/or Landlord's
construction manager, and Tenant shall request permission to
enter the Premises in writing, specifying the requested date,
time of entry, and which items of Early Work Tenant intends to
perform, at least three (3) business days prior to any such
entry, and Landlord's contractor and/or Landlord's
construction manager shall respond promptly to such request,
in accordance with the scheduling restrictions and
requirements set forth hereinbelow; (iii) Tenant's Personnel
shall not be permitted to enter the Premises prior to the
Substantial Completion of the Tenant Improvements to perform
any Early Work unless and until Tenant receives permission
from Landlord's contractor or Landlord's construction manager
for such entry; (iv) in no event shall any Early Work delay
the Substantial Completion of the Tenant Improvements (and if
Tenant's Personnel cause any such delay, the same shall
constitute a "Tenant Delay" hereunder); and (v) Tenant shall
bear the full risk of loss for any materials, equipment, or
other property which Tenant's Personnel bring into the
Building or the Premises in connection with any Early Work,
which shall be at Tenant's sole risk, and Landlord shall not
have any liability therefor. Landlord agrees to cause its
contractor and construction manager to cooperate in good faith
with Tenant to accommodate Tenant's requested entry dates,
subject to the terms of this Section 6.5 and the reasonable
requirements of such contractor in order to complete the
construction of the Tenant Improvements in an orderly and
timely fashion.
(c) Only Tenant or Tenant's Personnel will
enter the Premises to perform the Early Work. Tenant or such
authorized individual(s) performing the Early Work on behalf
of Tenant will check in with Landlord's construction manager
upon entering the Premises and prior to commencing any Early
Work.
(d) Subject to Tenant's compliance with all
applicable legal requirements associated therewith, Landlord
also agrees that, between the date of Substantial Completion
of the Tenant Improvements and the Commencement Date (as such
terms are defined in the Lease), Tenant shall have the right
to move its furniture, equipment and personal property into
the Premises ("Tenant's Move-In") without the same being
deemed, by itself, to constitute the commencement of business
operations within the Premises by Tenant (provided that if
Tenant does in fact commence business operations from all or
any part of the Premises prior to the first Monday after the
date of Substantial Completion of the Tenant Improvements, the
provisions of Article 4 of the Lease shall apply with respect
to the establishment of such date as the Commencement Date).
With regard to Tenant's Move-In, Tenant agrees (i) that
45
<PAGE> 46
Tenant's Move-In shall be at Tenant's sole risk and expense,
and shall be subject to all of the terms and conditions of
this Lease, except the obligation to pay Base Rent or
Additional Rent, (ii) the timing and scope of Tenant's Move-In
shall be coordinated with Landlord's property manager and
general contractor and shall be conducted to as to permit the
orderly progress of any punch list work required to be
performed by Landlord and its general contractor, and (iii)
any delay in the completion of the construction of the Tenant
Improvements occasioned by Tenant's Move-In shall constitute a
"Tenant Delay" for all purposes of this Lease.
6.6 Penalty for Delayed Delivery. Landlord agrees that, in the
event Landlord fails to achieve Substantial Completion of the
Tenant Improvements for the Premises on or before November 15,
1998, which date shall be extended one (1) day for each day of
delay in the commencement or completion of Landlord's
construction of the Tenant Improvements caused by or resulting
from any Tenant Delay or Force Majeure (as so extended, such
date is herein referred to as the "Penalty Date"), Tenant
shall be entitled, in addition to deferral of the Commencement
Date pursuant to Article 4 of the Lease, to a credit against
Base Rent due hereunder in an amount equal to one (1) day of
Base Rent (calculated on a per diem basis for the first month
of the Term) for each day elapsing between the Penalty Date
and the date upon which Landlord achieves Substantial
Completion of the Tenant Improvements for the Premises. The
foregoing shall constitute Landlord's sole liability for
damages in the event of any delay in the Substantial
Completion of the Tenant Improvements past October 1, 1998.
7. Possession by Tenant. Except as provided in Section 6.5, above, with
respect to Tenant's Early Work and Tenant's Move-In, the taking of
possession of the Premises by Tenant shall constitute an acknowledgment
by Tenant that the Premises are in good condition and that all work and
materials provided by Landlord are satisfactory except as to any latent
defects discovered within the first (1st) lease year of the Term or
items contained in the punch list prepared as provided in Paragraph
6.4. Landlord agrees to correct and complete any such items outlined in
the punch list as soon as practicable, and, subject to Force Majeure
and Tenant Delay, within thirty (30) days after the Commencement Date.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Work
Agreement as of the 8th day of May, 1998.
LANDLORD:
FCP-DULLES BUSINESS PARK I, L.C., a Virginia
limited liability company
By: CRIMSON PARTNERS, L.C., a Virginia limited
liability company
By: /s/ R. KEVIN DOUGHERTY
----------------------------------------(SEAL)
Name: R. Kevin Dougherty
Title: Managing Member
TENANT:
PINNACLE REAL ESTATE TAX SERVICES, INC., a Delaware
corporation
By: /s/ DONALD S. GRANT (SEAL)
-----------------------------------------
Donald S. Grant, Vice President -
Facilities
46
<PAGE> 47
SCHEDULE B-1
Description of Base Building Improvements
Base building shell currently being constructed per Fairfax County Building
Permit 97199B1200, as described by specification sections 02 through 16, dated
July 15, 1997, as prepared by Donnally, Lederer & Vujcic, Associates (formerly
Richard Donnally Associates) and drawings as follows:
<TABLE>
<CAPTION>
Drawing Number Date/Revision
- -------------- -------------
<S> <C>
A-1 7/15/97
A-2 10/7/97
A-3 10/7/97
A-4 10/7/97
A-5 10/7/97
A-6 10/7/97
A-7 10/7/97
A-8 10/7/97
A-9 10/7/97
A-10 10/7/97
A-11 10/7/97
A-12 10/7/97
S 1 10/7/97
S 2 10/7/97
S 3 10/7/97
S 4 10/7/97
S 5 10/7/97
S 6 10/7/97
S-7 10/7/97
M-1 7/15/97
M-2 7/15/97
P-1 12/1/97
P-2 12/1/97
*P-3 12/1/97
E-1 12/1/97
E-2 12/1/97
E-3 12/1/97
E-4 12/1/97
</TABLE>
* Excluding the Water Loop shown on Drawing Number P-3 which was installed
during Building Constructio9n, but will be included in the Tenant
Imporovement Alowance.l
<PAGE> 48
SCHEDULE B-2
[FLOOR PLAN]
<PAGE> 49
EXHIBIT C
To the Lease Agreement dated as of May 8, 1998 between FCP-DULLES
BUSINESS PARK I, L.C., a Virginia limited liability company ("Landlord") and
PINNACLE REAL ESTATE TAX SERVICES, INC., a Delaware corporation ("Tenant").
Rules and Regulations - Wright I Building/Dulles Business Park
The following rules and regulations have been formulated for the safety
and well-being of all the tenants of the Building and become effective upon
occupancy. Strict adherence to these rules and regulations is necessary to
guarantee that each and every tenant will enjoy a safe and unannoyed occupancy
in the Building. Any repeated or continuing violation of these rules and
regulations by Tenant after notice from Landlord, shall be sufficient cause for
termination of this Lease at the option of Landlord.
Landlord may, upon request by any tenant, waive the compliance by such
tenant of any of the following rules and regulations provided that (i) no waiver
shall be effective unless signed by Landlord or Landlord's authorized agent;
(ii) any such waiver shall not relieve such tenant from the obligation to comply
with such rule or regulation in the future unless expressly consented to by
Landlord, and (iii) no waiver granted to any tenant shall relieve any other
tenant from the obligation of complying with the foregoing rules and regulations
unless such other tenant has received a similar waiver in writing from Landlord.
1. The sidewalks, entrances, passages, courts, vestibules, or
stairways, or other parts of the Building not occupied by any tenant shall not
be constructed or encumbered by any tenant or used for any purpose other than
ingress and egress to and from any tenant's Premises. Landlord shall have the
right to control and operate the public portions of the Building, and the
facilities furnished for the common use of the tenants, in such manner as
Landlord deems best for the benefit of the tenants generally. No tenant shall
permit the visit to its Premises of persons in such numbers or under such
conditions as to interfere with the use and enjoyment by other tenants of the
entrances, and other public portions or facilities of the Building.
2. No signs, awnings or other projections shall be attached to the
outside walls of any building without the prior written consent of Landlord. No
drapes, blinds, shades or screens shall be attached to or hung in, or used in
connection with, any window or door of the Premises, without the prior consent
of Landlord. Such signs, awnings, projections, curtains, blinds, screens or
other fixtures must be of a quality, type, design and color, and attached in the
manner approved by Landlord.
3. No show cases or other articles shall be put in front of or affixed
to any part of the exterior of the Building, nor placed in any interior Common
Area without the prior written consent of Landlord.
4. The water and wash closets and other plumbing fixtures shall not be
used for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be born by the tenant
who, or whose servants, employees, agents, visitors, or licensees, shall have
caused the same.
5. There shall be no marking, painting, drilling into or in anyway
defacing any part of the Project, Premises or the Building. No boring, cutting
or stringing or wires shall be permitted. No tenant shall construct, maintain,
use or operate within its Premises or elsewhere within or on the outside of the
Building, any electrical devices, wiring or apparatus in connection with a loud
speaker system or other sound system.
6. No animals, birds, pets of any kind shall be brought into or kept in
or about the Premises, and no cooking shall be done or permitted by any tenant
on its Premises except for a tenant's employee's own use.
47
<PAGE> 50
No tenant shall cause or permit any unusual or objectionable odors to be
produced or permeate from its Premises.
7. No tenant shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or any
neighboring building or Premises or with any person having business with such
occupants. No tenant shall throw anything out of the doors or windows or down
the corridors or stairs.
8. No inflammable, combustible, or explosive fluid, chemical or
radioactive substance shall be brought or kept upon the Premises.
9. No additional locks or bolts of any kind shall be placed upon any of
the doors, or windows, by any tenant, nor shall any changes be made in existing
locks or the mechanism thereof without prior approval from Landlord. Each tenant
shall, upon termination of its tenancy, restore to Landlord all keys of stores,
offices, storage, and toilet rooms either furnished to, or otherwise procured
by, such tenant, and in the event of the loss of any keys so furnished such
tenant shall pay to Landlord the cost of replacement thereof.
10. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which Landlord or its Agent may determine from time to time. Landlord reserves
the right to inspect all freight to be brought into the Premises and to exclude
from the Premises all freight which violates any of these Rules and Regulations
or the Lease of which these Rules and Regulations are a part.
11. Any person employed by any tenant to do janitorial work within its
premises must obtain Landlord's consent and such person shall, while in the
Building and outside of the Premises, comply with all instructions issued by the
superintendent of the Building. No tenant shall engage or pay any employees on
its Premises, except those actually working for such tenant on its Premises.
12. No tenant shall purchase spring water, ice, coffee, tea, soft
drinks, towels, or other like service, from any company or persons whose
repeated violations of these Regulations have caused, in Landlord's opinion, a
hazard or nuisance to the Building and/or its occupants.
13. Landlord reserves the right to exclude from the Building at all
times any person who is not known or does not properly identify himself to the
Building management. Each tenant shall be responsible for all persons for whom
he authorizes entry into or exit out of the Building and shall be liable to
Landlord for all acts of such persons.
14. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
15. No tenant shall occupy or permit any portion of its Premises to be
used or occupied for the possession, storage, manufacture, or sale of liquor,
narcotics, tobacco in any form. No tenant shall engage or pay any employees on
its Premises, except those actually working for such Tenant on said Premises,
nor advertise for laborers giving an address at said Premises.
16. Landlord's employees shall not perform any work for Tenant or do
anything outside of their regular duties, unless under special instruction from
the management of the Building.
17. Canvassing, soliciting, and peddling on the Premises is prohibited
and each Tenant shall cooperate to prevent the same.
18. No water cooler, plumbing or electrical fixtures shall be installed
by any Tenant without the prior written consent of Landlord.
48
<PAGE> 51
19. There shall not be used in any space, or in the public halls of the
Building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
20. Tenant shall not overload the floors or exceed the maximum floor
weight limits of the Premises.
21. If Landlord designates a certain portion of parking area for
employee or visitor parking, Tenant covenants that it will require its employees
to park in such area to the extent of spaces available. Landlord shall not be
responsible for enforcing Tenant's parking rights against any third parties.
22. Tenant agrees to conduct any vehicle or machine repair, painting,
or similar work only inside the Premises.
23. Tenant agrees not to operate any machinery in the Premises which
may cause vibration or damage to the Premises; not to use a loudspeaker which
can be heard outside the Premises, or to extend curb service to customers.
49
<PAGE> 52
EXHIBIT D
DECLARATION BY LANDLORD AND TENANT
AS TO DATE OF DELIVERY AND ACCEPTANCE OF
POSSESSION, LEASE COMMENCEMENT DATE, ETC.
THIS DECLARATION is hereby attached to and made a part of the Deed of
Lease dated as of May 8, 1998 (the "Lease"), between FCP-DULLES BUSINESS PARK I,
L.C., a Virginia limited liability company ("Landlord") and PINNACLE REAL ESTATE
TAX SERVICES, INC., a Delaware corporation ("Tenant"). All terms used in this
Declaration have the same meaning as they have in the Lease.
(i) Landlord and Tenant do hereby declare that possession of the
Premises was accepted by Tenant on ___________________;
(ii) As of the date hereof, the Lease is in full force and effect, and
Landlord has fulfilled all of its obligations under the Lease required to be
fulfilled by Landlord on or prior to said date (punch list items excepted);
(iii) The Lease Commencement Date is hereby established to be
___________________; and
(iv) The Lease Expiration Date is hereby established to
be___________________ unless the Lease is sooner terminated pursuant to any
provision thereof.
LANDLORD:
FCP-DULLES BUSINESS PARK I, L.C., a Virginia
limited liability company
By: CRIMSON PARTNERS, L.C., a Virginia limited
liability company
By: (SEAL)
----------------------------------------
Name: R. Kevin Dougherty
Title: Managing Member
TENANT:
PINNACLE REAL ESTATE TAX SERVICES, INC., a Delaware
corporation
By: (SEAL)
----------------------------------------------
Donald S. Grant, Vice President - Facilities
50
<PAGE> 53
EXHIBIT E
FORM OF SNDA
SUBORDINATION, NONDISTURBANCE AND
ATTORNMENT AGREEMENT
THIS AGREEMENT made this day of , 199 , between
____________________________, a ____________________ (hereinafter called
"Lender"), ________, a (herein after called "Tenant"), and FCP-DULLES BUSINESS
PARK I, L.C., a Virginia limited liability company (said landlord and its
successors and assigns occupying the position of landlord under the Lease
hereinafter called "Landlord").
W I T N E S S E T H T H A T :
WHEREAS, Lender is the owner and holder of a Deed of Trust, Mortgage
and Security Agreement (hereinafter called the "Security Instrument"), recorded
in Fairfax County, Virginia covering the real improvements thereon (hereinafter
collectively called the "Mortgaged Premises") securing the payment of the
promissory note in the stated principal amount of $__________ payable to the
order of Lender.
WHEREAS, Tenant is the tenant under Lease Agreement (hereinafter called
the "Lease") dated _____, made by Landlord, covering certain property
(hereinafter called the "Demised Premises") consisting of a part of the
Mortgaged Premises; and
WHEREAS, Tenant and Lender desire to confirm their understanding with
respect to the Lease and the Security Instrument;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, Lender and Tenant hereby agree and covenant as follows:
1. Subordination. The Lease now is, and shall at all times and for all
purposes continue to be, subject and subordinate, in each and every respect, to
the Security Instrument, with the provisions of the Security Instrument
controlling in all respects over the provisions of the Lease, it being
understood and agreed that the foregoing subordination shall apply to any and
all increases, renewals, modifications, extensions, substitutions, replacements
and/or consolidations of the loan evidenced by the Security Instrument.
2. Non-Disturbance. So long as (i) Tenant is not in default (beyond any
period given Tenant to cure such default) in the payment of rent or additional
rent or in the performance of any of the other terms, covenants or conditions of
the Lease on Tenant's part to be performed, (ii) the Lease is in full force and
effect according to its original terms, or with such amendments or modifications
as Lender shall have approved, and (iii) Tenant attorns to Lender or a purchaser
of the Mortgaged Premises as provided in Paragraph 3, then (a) Tenant's
possession, occupancy, use and quiet enjoyment of the Demised Premises under the
Lease, or any extensions or renewals thereof or acquisition of additional space
which may be effected in accordance with any option therefor in the Lease, shall
not be terminated, disturbed, diminished or interfered with by Lender in the
exercise of any of its rights under the Security Instrument, and (b) Lender will
not join Tenant as a party defendant in any action or proceeding for the purpose
of terminating Tenant's interest and estate under the Lease because of any
default under the Security Instrument.
3. Attornment. If Lender shall become the owner of the Mortgaged
Premises or the Mortgaged Premises shall be sold by reason of non-judicial or
judicial foreclosure of other proceedings brought to enforce the Security
Instrument of the Mortgaged Premises shall be conveyed by deed in lieu of
foreclosure, the Lease shall continue in
51
<PAGE> 54
full force and effect as a direct Lease between Lender or other purchaser of the
Mortgaged Premises, who shall succeed to the rights and duties of Landlord, and
Tenant shall attorn to Lender or such purchaser, as the case be, upon such
occurrence and shall recognize Lender or such purchaser, as the case may be, as
the Landlord under the Lease. Such attornment shall be effective and
self-operative without the execution of any further instrument on the part of
any of the parties hereto. Tenant agrees, however, to execute and deliver at any
time and from time to time, upon the request of Landlord or of any holder (s) of
any of the indebtedness or other obligations secured by the Security Instrument
or any such purchaser, any instrument or certificate which, in the sole
reasonable judgment of the requesting party, is necessary to or appropriate, in
connection with any such foreclosure or deed in lieu of foreclosure or
otherwise, to evidence such attornment. Tenant hereby waives the provisions of
any statute or rule of law, now or hereafter in effect, which may give or
purport to give Tenant any right or election to terminate or otherwise adversely
affect the Lease and the obligations of Tenant thereunder as a result of any
such foreclosure or deed in lieu of foreclosure.
4. Obligations and Remedies. If Lender shall become the owner of the
Mortgaged Premises or the Mortgaged Premises shall be sold by reason of
non-judicial or judicial foreclosure or other proceedings brought to enforce the
Security Instrument or the Mortgaged Premises shall be conveyed by deed in lieu
of foreclosure, Lender of other purchaser of the Mortgaged Premises, as the case
may be, shall have the same remedies by entry, action or otherwise in the event
of any default by Tenant (beyond any period given Tenant to cure such default)
in the payment of rent or additional rent or in the performance of any of the
other terms, covenants and conditions of the Lease on Tenant's part to be
performed that Landlord had or would have had if Lender or such purchaser had
not succeeded to the interest of Landlord. Upon attornment by Tenant as provided
herein, Lender or such purchaser shall be bound to Tenant under all the terms,
covenants and conditions of the Lease and Tenant shall have the same remedies
against Lender or such purchaser for the breach of agreement contained in the
Lease that Tenant might have had under the Least against Landlord if Lender or
such purchaser had not succeeded to the interest of Landlord; provided however,
that Lender or such purchaser shall not be liable or bound to Tenant:
(a) for any act or omission of any prior landlord (including Landlord);
provided, however, nothing contained herein shall be deemed to be waiver of
Tenant's rights or remedies in the event such default is not cured by Lender or
such purchaser after Lender acquires the Mortgaged Premises, or
(b) for any offsets or defenses which the Tenant might be entitled to
assert against Landlord arising prior to the date Lender takes possession of
Landlord's interest in the Lease or becomes a mortgagee in possession, subject
to Tenant's continued right of offset for any default by Landlord which remains
uncured provided notice of such default has been provided to Lender in
accordance with the provisions this Agreement; or
(c) for or by any rent or additional rent which Tenant might have paid
for more than the current month to any prior landlord (including Landlord); or
(d) by any amendment or modification of the Lease made without Lender's
consent which would either reduce the rent payment under the Lease, reduce the
term of the Lease or impose financial obligations on Landlord not currently
existing under the Lease; or
(e) for any security deposit, rental deposit or similar deposit given
by Tenant to a prior landlord (including landlord) unless such deposit is
actually paid over to Lender or such purchaser by the prior landlord; or
(f) for any portion of the Tenant Allowance ( as such term is defined
in the Lease) previously disbursed to Landlord by Lender pursuant to the
Construction Loan Agreement executed by and between Landlord and Lender; or
(g) for the construction of any improvements required of Landlord under
the Lease in the event Lender or such purchaser acquires title to the Mortgaged
Premises prior to full completion and acceptance by Tenant of
52
<PAGE> 55
improvements required under the Lease, provided, however, such lack of liability
on the part of the Lender or such purchaser pursuant to this subparagraph shall
not affect Tenant's rights described in the Lease in the event of such failure
to complete such improvements as long as Tenant has provided all applicable
notices and cure periods as required under the Lease and this Agreement, and if
Lender or such purchaser elects not to complete or perform such construction
after acquiring title to the Mortgaged Premises, and Tenant has complied with
the notice and cure periods provided for in the Lease as contemplated above,
Tenant shall have the right at any time thereafter but prior to the date Lender
or such purchaser recommences such construction and pursues same with all due
diligence, to terminate this Lease by written notice of termination to Lender or
such purchaser; or
(h) for the payment of any leasing commissions or other expenses for
which any prior landlord (including Landlord) incurred the obligations to pay;
or
(i) by any provision of the Lease restricting use of other properties
owned by Lender, as landlord; or
(j) by any notice given by Tenant to a prior landlord (including
Landlord) unless a copy thereof was also then given to Lender.
The person or entity to whom Tenant attorns shall be liable to Tenant under the
Lease only for matters arising during such person's or entity's period of
ownership, and such liability shall terminate upon the transfer by such person
or entity of its interest in the Lease and Mortgaged Premises.
5. No Abridgment. Nothing herein contained is intended, nor shall it be
construed, to abridge or adversely affect any right or remedy of Landlord under
the Lease in the event of any default by Tenant (beyond and period given Tenant
to cure such default) in the payment of rent or additional rent or in the
performance of any of the other terms, covenants or conditions of the Lease on
Tenant's part to be performed.
6. Notices of Default to Lender. Tenant agrees to give Lender a copy of
any default notice sent by Tenant to Landlord under the Lease.
7. Representations by Tenant. Tenant represents and warrants to Lender
that Tenant has validly executed the Lease; the Lease is valid, bringing and
enforceable and is in full force and effect in accordance with its terms; the
Lease has not been amended except as stated herein; no rent under the Lease has
been paid more than thirty (30) days in advance of its due date; there are no
defaults existing under the Lease; and Tenant, as of this date, has no charge,
lien, counterclaim or claim of offset under the Lease, or otherwise, against the
rents or other charges due or to become due under the Lease.
8. Rent Payment. If Lender shall become the owner of the Mortgaged
Premises or the Mortgaged Premises shall be sold by reason of non-judicial or
judicial foreclosure or other proceedings brought to enforce the Security
Instrument or the Mortgaged Premises shall be conveyed by deed in lieu of
foreclosure, Tenant agrees to pay all rents directly to Lender or other
purchaser of the Mortgaged Premises, as the case may be, in accordance with the
Lease immediately upon notice of Lender or such purchaser, as the case may be,
succeeding to Landlord's interest under the Lease. Tenant further agrees to pay
all rents directly to Lender immediately upon that Lender is exercising its
rights to such rents under the Security Instrument or any other loan documents
(including but not limited to any Assignment of Leases and Rents) following a
default by Landlord of other applicable party. Tenant shall be under no
obligation to ascertain whether a default by Landlord has occurred under the
Security Instrument or any other loan documents. Landlord waives any right,
claim or demand it may now or hereafter have against Tenant by reason of such
direct payment to Lender and agrees that such direct payment to Lender shall
discharge all obligations of Tenant to make such payment to Landlord.
9. Notice of Security Instrument. To the extent that the Lease shall
entitle Tenant to notice of any deed of trust or security agreement, this
Agreement shall constitute such notice to the Tenant with respect to the
Security
53
<PAGE> 56
Instrument and to any and all other deeds of trust and security agreements which
may hereafter be subject to the terms of this Agreement.
10. Landlord Defaults. Tenant agrees with Lender that effective as the
date of this Agreement: (i) Tenant shall not take any steps to terminate the
Lease for any default by Landlord or any succeeding owner of the Mortgaged
Premises until after giving Lender written notice of such default by Landlord or
any succeeding owner of the Mortgaged Premises until after giving Lender written
notice of such default, stating the nature of the default and giving Lender
thirty (30) days from receipt of such notice to effect cure of the same, or if
cure cannot be effected within said thirty (30) days due to the nature of the
default, Lender shall have a reasonable time to cure provided that it commences
cure within said thirty (30) day period of time and diligently carries such cure
to completion; and (ii) notice to Landlord shall not constitute notice to
Lender.
11. Liability of Lender. If Lender shall become the owner of the
Mortgaged Premises or the Mortgaged Premises shall be sold by reason of
foreclosure or other proceedings brought to enforce the Security Instrument or
the Mortgaged Premises shall be conveyed by deed in lieu of foreclosure, Tenant
agrees that, notwithstanding anything to the contrary contained in the Lease,
after such foreclosure, Lender shall have no personal liability to Tenant under
the Lease and Tenant shall look solely to the estate and property of Landlord in
the Mortgaged Premises, to the net proceeds of sale thereof or the rentals
received therefrom, for the satisfaction of Tenant's remedies for the collection
of a judgment or other judicial process requiring the payment of money by the
Landlord in the event of any default or breach by Landlord with respect to any
of the terms, covenants, and conditions of the Lease to be observed or performed
by Landlord and any other obligation of Landlord created by or under this Lease,
and no other property or assets of Landlord or of its partners, officers,
beneficiaries, co-tenants, shareholders, or principals (as the case may be)
shall be subject to levy, execution or other enforcement procedures for the
satisfaction of Tenant's remedies. The term "Landlord" as used herein shall be
limited to mean and include only the owner or owners at the time in question of
Landlord's interest in the Lease, which term shall include Lender in the event
Lender acquires title to the mortgaged Premises. Further, in the event of any
transfer by the Landlord of Landlord's interest in this Lease, Landlord (and in
the case of any subsequent transfers or conveyances, the then assignor),
including each of its partners, officers, beneficiaries, co-tenants,
shareholders or principals ( as the case may be) shall be automatically freed
and released, from and after the date of such transfer or conveyance, of all
liability for the performance of any covenants and agreements which accrue
subsequent to the date of such transfer of Landlord's interest.
12. Notice. Any notice or communication required or permitted hereunder
shall be given in writing, sent by (a) personal delivery, or (b) expedited
delivery service with proof of delivery, or (c) United States mail, postage
prepaid, registered or certified mail, or (d) telegram, addressed as follows:
To Lender: ______________________________________
______________________________________
______________________________________
Attention: __________________________
To Tenant: ______________________________________
______________________________________
______________________________________
______________________________________
or to such other address or to the attention of such other person as hereafter
shall be designated in writing by the applicable party sent in accordance
herewith. Any such notice or communication shall be deemed to have been given
and received either at the time of personal delivery or, in the case of delivery
service or mail, as of the date of the first
54
<PAGE> 57
attempted delivery at the address and in the manner provided herein, or in the
case of telegram, upon receipt.
13. No Amendment Assignment or Subletting of Lease. Lender and Tenant
agree that Tenant's interest in and obligations under the Lease shall not be
altered or modified without the prior written consent of Lender. Lender and
Tenant also agree that Tenant shall neither assign the Lease or allow it to be
assigned in any manner nor sublet the Demised Premises or any part thereof
without the prior written consent of Lender in any situation where Landlord's
consent to any such action required under the Lease (provided such consent by
Lender shall be subject to the same time frame and substantive standard of
review as is applicable to Landlord under the terms of the Lease).
14. No Termination of Lease. Tenant agrees that during the term of this
Agreement, Tenant will not enter into consensual termination of the Lease with
Landlord without prior written consent of Lender.
15. Modification. This Agreement may not be modified orally or in any
manner other than by an Agreement in writing signed by the parties hereto or
their respective successors in interest.
16. Successors of Lender . The term "Lender" as used throughout this
Agreement includes any successor of assign of Lender and any holder (s) of any
interest in the indebtedness secured by the Security Instrument.
17. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon parties hereto, their successors and assigns, and any
purchasers at foreclosure of the Mortgaged Premises, and their respective
successors and assigns.
18. Paragraph Headings. The paragraph headings contained in this
Agreement are for convenience only and shall in no way enlarge or limit the
scope or meaning of the various and several paragraphs hereof.
19. Gender and Number. Within this Agreement, words of any gender shall
be held and construed to include any other gender, and words in the singular
number shall be held and construed to include the plural and words in the plural
number shall be held and construed to include the singular, unless the context
otherwise requires.
20. Applicable Law. This Agreement and the rights and duties of the
parties hereunder shall be governed by all purposes by the law of the state
where the Mortgaged Premises is located and the law of the United States
applicable to transactions within such state.
55
<PAGE> 58
IN WITNESS WHEREOF, the parties hereto have hereunto caused this
Agreement to be duly executed as of the day and year first above written
----------------------------------------------,
a _______________________
By: _________________________________
Name:________________________________
Title:_______________________________
LENDER
-----------------------------------------------
By: _________________________________
Name:________________________________
Title:_______________________________
TENANT
FCP-DULLES BUSINESS PARK I, L.C., a Virginia
limited liability company
By: CRIMSON PARTNERS, L.C., a Virginia limited
liability company
By: (SEAL)
---------------------------------------
Name: R. Kevin Dougherty
Title: Managing Member
Date: _________________________________________
LANDLORD
CONSENT OF GUARANTOR
___________________________________________________________ as the
Guarantor of Tenant's obligations under the Lease, joins in the execution hereof
to evidence its consent to the provisions above its agreement that, so long as
Tenant shall be required to attorn to Lender or any other party pursuant to the
provisions above, the Guaranty of the Lease shall survive and continue in favor
of the party to whom Tenant must attorn.
--------------------------------------------------
GUARANTOR
56
<PAGE> 59
EXHIBIT F
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT ("Guaranty") is given as of the 8th day of May,
1998, by NATIONAL INSURANCE GROUP, a California corporation having an address at
395 Oyster Point, Suite 500, South San Francisco, CA 94080 ("Guarantor"), for
the benefit of FCP-DULLES BUSINESS PARK I, L.C., a Virginia limited liability
company ("Landlord") having an address at c/o Crimson Partners, L.C., 455 Spring
Park Place, Suite 100, Herndon, Virginia 22070, Attn: R. Kevin Dougherty, with
respect to certain obligations of PINNACLE REAL ESTATE TAX SERVICES, INC., a
Delaware corporation ("Tenant").
RECITALS
Pursuant to that certain Deed of Lease dated as of May 8, 1998, by and
between Landlord and Tenant (the "Lease", such term to include all extensions,
renewals, amendments and modifications thereof and substitutions therefor),
Tenant has leased from Landlord certain premises consisting of approximately
33,322 square feet of space located in the Wright I Building, Dulles Business
Park, Suite 200, 14026 Thunderbolt Place, Chantilly, Virginia 22021 (the "Leased
Premises"). Landlord is willing to enter into the Lease only if Guarantor gives
the Guaranty provided in this Guaranty Agreement. Guarantor is willing to enter
into this Guaranty Agreement so as to induce Landlord to enter into the Lease.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor, intending to be legally bound hereby, gives the
following Guaranty and indemnification to and for the benefit of Landlord.
Section 1. Guaranty. Except as, and solely to the extent,
limited by Section 32, below, the Guarantor guaranties the timely, complete,
continuous, and strict performance and observance by the Tenant of any and all
of the terms, covenants, agreements, and conditions contained in the Lease, both
monetary and non-monetary, and any existing or future documents, instruments,
agreements, and writings of every kind, nature, type, and variety which
evidence, reflect, embody, or secure the Lease, and all amendments,
modifications, and restatements thereof. The Guarantor hereby holds harmless and
indemnifies Landlord from and against any and all costs, claims, loss and
expenses, including attorneys' fees, incurred by Landlord as a result of a
failure by the Tenant or the Guarantor to satisfy the obligations imposed by the
Lease and/or this Guaranty. As used in this Guaranty, the term "Obligations"
shall refer to all obligations which the Guarantor has undertaken and assumed
pursuant to this Guaranty, both as described in this Section and in other
Sections of this Guaranty.
Section 2. Nature Of Guaranty. This Guaranty: (a) is (i)
irrevocable, and (ii) one of payment and not just collection; and (b) makes the
Guarantor a surety to Landlord with respect to the Obligations.
Section 3. Representations And Warranties Of Guarantor. The
Guarantor represents and warrants to Landlord that: (a) Guarantor is a validly
constituted corporation, created and existing under the laws of the State of
California, and has duly filed of public record all necessary certificates,
filings and consents to service of process required under all applicable laws;
(b) Guarantor has the full power to own its properties, to conduct its affairs,
to incur the Obligations and to enter into this Guaranty; (c) the execution and
delivery by the Guarantor of this Guaranty is in full accord with all of the
applicable provisions and requisites of the Guarantor's certificate of
incorporation and bylaws, and no consent of any party is necessary as a
prerequisite to the execution of this Guaranty Agreement by, and the enforcement
of this Guaranty Agreement against, Guarantor; and (d) the entering into and
performance of its obligations hereunder by Guarantor, including the
Obligations, is not in contravention with and will not constitute a default
under any agreement, indenture, credit agreement or other instrument to which
Guarantor is a party or to which it or its property is or may be bound.
57
<PAGE> 60
Section 4. Landlord Need Not Pursue Other Rights. Landlord
shall be under no obligation to pursue Landlord's rights under the Lease against
the Tenant before pursuing Landlord's rights against the Guarantor. Specifically
(but not by way of limitation), Guarantor waives the benefits of the provisions
of Sections 49-25 and 49-26 of the Code of Virginia.
Section 5. Certain Rights Of Landlord. The Guarantor hereby
assents to any and all terms and agreements between Landlord and the Tenant as
contained in the Lease, and all amendments and modifications thereof, whether
presently existing or hereafter made and whether oral or in writing. Landlord
may, without compromising, impairing, diminishing, or in any way releasing the
Guarantor from the Obligations and, without notifying or obtaining the prior
approval of the Guarantor, at any time or from time to time: (a) waive or excuse
a default by the Tenant, or delay in the exercise by Landlord of any or all of
Landlord's rights or remedies under the Lease with respect to such default or
defaults; (b) grant extensions of time for payment or performance by the Tenant;
(c) release, substitute, exchange, surrender, or add collateral of the Tenant or
waive, release, or subordinate, in whole or in part, any lien or security
interest held by Landlord on any real or personal property securing payment or
performance, in whole or in part, of the obligations of the Tenant to Landlord;
and (d) modify, change, renew, extend, or amend in any respect, the Lease, or
any document, instrument, or writing embodying or reflecting the same.
Section 6. Waivers By Guarantor. Except as provided in this
Section 6, below, Guarantor waives: (a) any and all notices whatsoever with
respect to this Guaranty or with respect to any of the obligations of the Tenant
to Landlord, including, but not limited to, notice of (i) Landlord's acceptance
hereof or Landlord's intention to act, or Landlord's action, in reliance hereon,
(ii) the present existence or future incurring of any of the obligations of the
Tenant to Landlord or any terms or amounts thereof or any change therein, (iii)
any default by the Tenant or any surety, pledgor, grantor of security, or any
person who has guarantied or secured in whole or in part the obligations of the
Tenant to Landlord, and (iv) the obtaining or release of any guaranty or surety
agreement, pledge, assignment, or other security for any of the obligations of
the Tenant to Landlord; (b) presentment and demand for payment of any sum due
from the Tenant and protest of nonpayment; and (c) demand for performance by the
Tenant. The foregoing notwithstanding, Guarantor does not waive its right to
receive notice of Tenant's default as and to the extent required pursuant to
Section 22.1 of the Lease.
Section 7. Subrogation Rights. Landlord shall have no duty or
obligation to Guarantor under the Lease or otherwise to take any action (or not
to fail to take any action) in order to preserve any right of subrogation
Guarantor might otherwise have against Tenant under applicable law by virtue of
Guarantor's performance of Tenant's Lease obligations under this Guaranty.
Section 8. Unenforceability Of Obligations Of Tenant. This
Guaranty shall be valid, binding, and enforceable even if the obligations of the
Tenant to Landlord which are guarantied hereby are now or hereafter become
invalid or unenforceable for any reason, including by adjudication under the
United States Bankruptcy Code.
Section 9. No Conditions Precedent. This Guaranty shall be
effective and enforceable immediately upon its execution. The Guarantor
acknowledges that no unsatisfied conditions precedent to the effectiveness and
enforceability of this Guaranty exist as of the date of its execution and that
the effectiveness and enforceability of this Guaranty is not in any way
conditioned or contingent upon any event, occurrence, or happening, or upon any
condition existing or coming into existence either before or after the execution
of this Guaranty.
Section 10. No Duty To Disclose. Landlord shall have no
present or future duty or obligation to discover or to disclose to the Guarantor
information, financial or otherwise, concerning the Tenant, any other guarantor,
or any collateral securing either the obligations of the Tenant to Landlord or
of any other person who may have guarantied in whole or in part the obligations
of the Tenant to Landlord. The Guarantor waives any right to claim or assert any
such duty or obligation on the part of Landlord.
Section 11. Existing Or Future Guaranties. The execution of
this Guaranty Agreement shall not
58
<PAGE> 61
discharge, terminate or in any way impair or adversely affect the validity or
enforceability of any other guaranty given by the Guarantor to Landlord, even if
such other guaranty pertains to the obligations of the Guarantor with respect to
the Lease. Nor shall the execution of any future guaranty by the Guarantor in
favor of Landlord or any of its members individually discharge, terminate, or in
any way impair or adversely affect the validity or enforceability of this
Guaranty. All guaranties given by the Guarantor to Landlord shall be cumulative
and shall remain in full force and effect until discharged and terminated in
accordance with their provisions, upon satisfaction of all the guarantied
obligations.
Section 12. Cumulative Liability. The liability of the
Guarantor under this Guaranty shall be cumulative to, and not in lieu of, the
Guarantor's liability under any other document or instrument by and between
Guarantor and Landlord or any of its members individually.
Section 13. Obligations Are Unconditional. The Obligations are
the absolute and unconditional duty and obligation of the Guarantor, and shall
be independent of any defense or any rights of setoff, recoupment or
counterclaim which the Guarantor might otherwise have against Landlord, and the
Guarantor shall pay and perform these Obligations free of any deductions and
without abatement, diminution or setoff; provided, however that notwithstanding
anything to the contrary herein contained, the Guarantor's obligation hereunder
in respect of the Lease shall not be greater than those of the Tenant, plus the
cost of Landlord's enforcement hereunder. Until such time as the Obligations
have been fully paid and performed, the Guarantor: (a) shall not suspend or
discontinue any payments provided for herein; (b) shall perform and observe all
of the covenants and agreements contained in this Guaranty; and (c) shall not
terminate or attempt to terminate this Guaranty for any reason. No delay by
Landlord in making demand on the Guarantor for satisfaction of the Obligations
shall prejudice or in any way impair Landlord's ability to enforce this
Guaranty.
Section 14. Expenses Of Collection And Attorneys' Fees. Should
this Guaranty be referred to an attorney for collection, the Guarantor shall pay
all of the holder's reasonable costs, fees and expenses resulting from such
referral, including reasonable attorneys' fees, which the holder may incur, even
though judgment has not been confessed or suit has not been filed. Guarantor's
liability under this Section 14 be in addition to, and shall apply without
regard to, any limitation on the Guarantor's liability set forth in Section 32,
below,
Section 15. Enforcement During Bankruptcy. Enforcement of this
Guaranty shall not be stayed or in any way delayed as a result of the filing of
a petition under the United States Bankruptcy Code, as amended, by or against
the Tenant.
Section 16. Remedies Cumulative. All of Landlord's rights and
remedies shall be cumulative and any failure of Landlord to exercise any right
hereunder shall not be construed as a waiver of the right to exercise the same
or any other right at any time, and from time to time, thereafter.
Section 17. Discharge Of Guaranty. This Guaranty shall not be
discharged and the Guarantor shall not be released from liability until all
Obligations have been satisfied in full and the satisfaction of such Obligations
is not subject to challenge or contest. If all or any portion of such
Obligations are satisfied and Landlord is required for any reason to pay to any
person the sums used to satisfy such Obligations, such Obligations shall remain
in effect and enforceable to the extent thereof.
Section 18. Subordination Of Certain Indebtedness. If the
Guarantor advances any sums to the Tenant or its successors or assigns or if the
Tenant or its successors or assigns shall become indebted to the Guarantor, such
sums and indebtedness shall be subordinate in all respects to the amounts then
or thereafter due and owing to Landlord by the Tenant.
Section 19. Renewals, Extensions Etc. This Guaranty shall
apply to all sums now or hereafter owed by the Tenant to Landlord pursuant to
the Lease, and to all extensions, modifications, amendments, renewals,
substitutions, and expansions of the Lease.
59
<PAGE> 62
Section 20. Choice Of Law. The laws of the Commonwealth of
Virginia (excluding, however, conflict of law principles) shall govern and be
applied to determine all issues relating to this Guaranty and the rights and
obligations of the parties hereto, including the validity, construction,
interpretation, and enforceability of this Guaranty and its various provisions
and the consequences and legal effect of all transactions and events which
resulted in the issuance of this Guaranty or which occurred or were to occur as
a direct or indirect result of this Guaranty having been executed.
Section 21. Consent To Jurisdiction; Agreement As To Venue.
The Guarantor irrevocably consents to the non-exclusive jurisdiction of the
courts of the Commonwealth of Virginia and of any division of the United States
District Court for Eastern District of Virginia, if a basis for federal
jurisdiction exists. The Guarantor agrees that venue shall be proper in any
court of the Commonwealth of Virginia selected by Landlord or in the United
States District Court for the Eastern District of Virginia, if a basis for
federal jurisdiction exists.
Section 22. Invalidity Of Any Part. If any provision or part
of any provision of this Guaranty shall for any reason be held invalid, illegal,
or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions or the remaining part of
any effective provisions of this Guaranty, and this Guaranty shall be construed
as if such invalid, illegal, or unenforceable provision or part thereof had
never been contained herein, but only to the extent of its invalidity,
illegality, or unenforceability.
Section 23. Amendment Or Waiver. This Guaranty may be amended
only by a writing duly executed by the Guarantor and Landlord. No waiver by
Landlord of any of the provisions of this Guaranty or any of the rights or
remedies of Landlord with respect hereto shall be considered effective or
enforceable unless in writing.
Section 24. Notices. All notices, requests and demands upon
the respective parties hereto shall be given by hand delivery, by recognized
overnight courier, or by United States mail, postage prepaid, certified or
registered mail, return receipt requested, addressed as set forth in the Lease,
or to such other address as either party may furnish in writing to the other for
such purpose. Such notices shall be deemed to have been given or made upon the
earlier to occur of actual receipt or refusal of delivery by the intended
recipient.
Section 25. Binding Nature. This Guaranty shall inure to the
benefit of and be enforceable by Landlord and Landlord's successors, assigns and
any other person to whom Landlord may grant an interest in the Obligations,
including any assignee or designee of the landlord's interest under the Lease,
and shall be binding upon and enforceable against the Guarantor and the
Guarantor's successors and assigns.
Section 26. Final Agreement. This Guaranty contains the final
and entire agreement between Landlord and the Guarantor with respect to the
Obligations. There are no separate oral or written understandings between
Landlord and the Guarantor with respect thereto.
Section 27. Tense, Gender, Defined Terms, Captions. As used
herein, the plural includes the singular, and the singular includes the plural.
The use of any gender applies to any other gender. All captions are for the
purpose of convenience only.
Section 28. Seal And Effective Date. This Guaranty is an
instrument executed under seal and is to be considered effective and enforceable
as of the date set forth on the first page hereof, independent of the date of
actual execution.
Section 29. Waiver Of Trial By Jury. The Guarantor hereby
agrees that any suit, action, or proceeding, whether claim or counterclaim,
brought or instituted by either party hereto or any successor or assign of any
party on or with respect to this Guaranty or which in any way relates, directly
or indirectly, to this Guaranty or any event, transaction, or occurrence arising
out of or in any way connected with this Guaranty, or the dealings of the
parties with respect thereto, shall be tried only by a court and not by a jury.
Guarantor HEREBY EXPRESSLY
60
<PAGE> 63
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING. The
Guarantor acknowledges and agrees that this Section is a specific and material
aspect of this Guaranty and that Landlord would not accept this Guaranty if this
waiver of jury trial Section were not a part of this Guaranty.
Section 30. Defenses Against Tenant. The Guarantor waives any
right to assert against Landlord any defense (whether legal or equitable),
claim, counterclaim, or right of setoff or recoupment which the Guarantor may
now or hereafter have against the Tenant.
Section 31. Continuing Guaranty. This Guaranty is a continuing
Guaranty of all existing and future obligations of the Tenant to Landlord in
connection with the Lease, and may not at any time be terminated by the
Guarantor. This Guaranty may be terminated only in writing by Landlord and upon
such terms and conditions as Landlord may impose. The foregoing provisions of
this Section 31 shall not affect any limitations upon this Guaranty or upon the
obligations of Guarantor which are set forth in Section 32, below. The foregoing
provisions of this Section 31 to the contrary notwithstanding, in the event of
any permitted assignment of the Lease under circumstances where the assignee (or
any entity guarantying the Lease as part of such assignment transaction pursuant
to a Guaranty in favor of Landlord which is substantially identical to this
Guaranty and which is executed and delivered to Landlord as of the effective
date of such permitted assignment) has a tangible net worth as of the effective
date of such permitted assignment which equals or exceeds the greater of (i) the
tangible net worth of Guarantor as of the date of execution of this Guaranty, or
(ii) the tangible net worth of Guarantor as of the effective date of such
permitted assignment, then Guarantor shall be released from its obligations
under this Guaranty to the extent the same have been assumed in writing or by
operation of law by such assignee or new guarantor.
Section 32. Limitation of Guarantor's Liability. (a) Subject
(i) to Section 32(b), below, and (ii) any amounts for which Guarantor is liable
under Section 14, above, but notwithstanding any other provision of this
Guaranty to the contrary, Guarantor's monetary liability to Landlord under this
Guaranty shall initially be limited to an amount (the "Limit of Guarantor's
Liability") equal to one hundred percent (100%) of the "Total Lease-Up Cost" (as
such term is hereinafter defined). In addition, provided Tenant has not
committed an "Event of Default" as defined in the Lease which is then continuing
(or any action or omission which, with the giving of notice or the passage of
time, or both, would constitute an Event of Default by Tenant under the Lease),
then as of the first day of each Lease Year, the Limit of Guarantor's Liability
shall equal (and, as applicable, be reduced to) that percentage of the Total
Lease-Up Cost as is set forth in the following schedule:
<TABLE>
<CAPTION>
Percentage of Total Lease-Up Cost
Lease Year as to which Guarantor's Liability
Hereunder is Limited
<S> <C>
1 100%
2 90%
3 80%
4 70%
5 60%
6 50%
7 40%
8 30%
9 20%
10 10%
Renewal Term No Liability
</TABLE>
The "Total Lease-Up Cost" shall mean the sum of (i) the Improvement Allowance
paid by Landlord pursuant to Exhibit B, (ii) any Excess Costs funded by Landlord
pursuant to Exhibit B, and (iii) the total aggregate amount of leasing
commissions paid by Landlord in respect of this Lease to Landlord's Broker and
to Tenant's Broker. By way of hypothetical example, and not of limitation, if
the Total Lease-Up Cost equals One Million Three Hundred
61
<PAGE> 64
Thousand Dollars ($1,300,000), then the Limit of Guarantor's Liability during
the fourth (4th) Lease Year shall be Nine Hundred Ten Thousand Dollars
($910,000).
(b) Notwithstanding Section 32(a), above, to the contrary, Guarantor
agrees that (i) during the continuation of any failure by Tenant to provide any
of the financial statements described in Section 28.4(b) of the Lease, and/or
(ii) in the event any financial information certified as true and correct by
Guarantor and provided by Tenant to Landlord under Section 28.4(b) of the Lease
is materially inaccurate or incomplete, the Limitation of Guarantor's Liability
shall cease to be applicable, and Guarantor's liability to Landlord pursuant to
this Guaranty shall not be limited, as if Section 32(a) were no longer a part of
this Guaranty.
IN WITNESS WHEREOF, the Guarantor has duly executed this Guaranty under
seal as of the date first above written (notwithstanding the actual date of
execution and delivery hereof).
ATTEST/WITNESS: GUARANTOR:
NATIONAL INSURANCE GROUP, a California corporation
____________________ By: _______________________________(SEAL)
(Corporate Seal) Greg Saunders, Chief Financial Officer
ACKNOWLEDGMENT
STATE OF ___________________________________:
: TO WIT:
CITY/COUNTY OF _________________:
I HEREBY CERTIFY that on this _____ day of May, 1998 before me, the
undersigned Notary Public of the aforesaid jurisdiction, personally appeared
Greg Saunders, who acknowledged himself to be the Chief Financial Officer of
National Insurance Group, a California corporation, who, being authorized so to
do, executed the foregoing Guaranty for the purposes therein contained by
signing the name of said corporation, by himself, as such Chief Financial
Officer.
WITNESS MY Hand and Notarial Seal.
____________________________________(SEAL)
NOTARY PUBLIC
My Commission expires:
[Seal]
62
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF WEIGHTED AVERAGE SHARES
OUTSTANDING AND EARNINGS PER SHARE
(in thousands of dollars except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
BASIC
SECOND QUARTER SIX MONTHS
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Actual common shares 4,032,882 3,896,937 4,032,882 3,896,937
outstanding
Weighted average common shares 69,103 12,956 54,429 12,892
issued upon exercise of stock
options
Total weighted average shares 4,101,985 3,909,893 4,087,311 3,909,829
outstanding
Net income $ 427 $ 838 $ 1,016 $ 1,640
========== ========== ========== ==========
Net income per share $ 0.10 $ 0.21 $ 0.25 $ 0.42
========== ========== ========== ==========
</TABLE>
<TABLE>
DILUTED
SECOND QUARTER SIX MONTHS
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Actual common shares 4,032,882 3,896,937 4,032,882 3,896,937
outstanding
Weighted average common shares 69,103 12,956 54,429 12,892
issued upon exercise of stock
options
Common shares issuable under 204,691 79,831 204,691 79,831
outstanding stock options
Total weighted average shares 4,306,676 3,989,724 4,292,002 3,989,660
outstanding
Net income $ 427 $ 838 $ 1,016 $ 1,640
========== ========== ========== ==========
Net income per share $ 0.10 $ 0.21 $ 0.24 $ 0.41
========== ========== ========== ==========
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000815555
<NAME> NATIONAL INFORMATION GROUP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 12,727
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 5,523
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 22,742
<CASH> 1,794
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,446
<TOTAL-ASSETS> 67,526
<POLICY-LOSSES> 3,155
<UNEARNED-PREMIUMS> 5,622
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 11,700
0
0
<COMMON> 19,276
<OTHER-SE> 9,410
<TOTAL-LIABILITY-AND-EQUITY> 67,526
9,421
<INVESTMENT-INCOME> 889
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 22,313
<BENEFITS> 3,563
<UNDERWRITING-AMORTIZATION> 3,949
<UNDERWRITING-OTHER> 23,610
<INCOME-PRETAX> 1,501
<INCOME-TAX> 485
<INCOME-CONTINUING> 1,016
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,016
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.24
<RESERVE-OPEN> 3,232
<PROVISION-CURRENT> 3,958
<PROVISION-PRIOR> (396)
<PAYMENTS-CURRENT> 1,716
<PAYMENTS-PRIOR> 1,923
<RESERVE-CLOSE> 3,155
<CUMULATIVE-DEFICIENCY> (396)
</TABLE>
