<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-16641
RAINBOW TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 953745398
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
50 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA 92618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 450-7300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK
Indicate by check mark whether the Registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As at March 16, 2000, the aggregate market value of the voting stock of the
Registrant (based upon the closing sales price of the shares on the NASDAQ
National Market System) held by non-affiliates was approximately $464,877,568.
As at March 16, 2000, there were outstanding 12,193,510 shares of Common
Stock of the Registrant, par value $.001 per share.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Proxy Statement to be submitted to the
Commission on or before April 30, 2000, are incorporated by reference into Part
III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INTRODUCTORY NOTE
The Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby. These
forward-looking statements include (i) the existence and development of the
Company's technical and manufacturing capabilities, (ii) anticipated
competition, (iii) potential future growth in revenues and income, (iv)
potential future decreases in costs, and (v) the need for, and availability of
additional financing.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on the assumption that the Company will not
lose a significant customer or customers or experience increased fluctuations of
demand or rescheduling of purchase orders, that the Company's markets will
continue to grow, that the Company's products will remain accepted within their
respective markets and will not be replaced by new technology, that competitive
conditions within the Company's markets will not change materially or adversely,
that the Company will retain key technical and management personnel, that the
Company's forecasts will accurately anticipate market demand, that there will be
no material adverse change in the Company's operations or business and that the
Company will not experience significant supply shortages with respect to
purchased components, sub-systems or raw materials. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. In addition, the business and operations of
the Company are subject to substantial risks which increase the uncertainty
inherent in the forward-looking statements. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved.
ITEM 1. BUSINESS
General
Rainbow Technologies, Inc., a Delaware corporation, (the "Company") is a
leading developer and supplier of computer network security products that secure
the rights to software and other digital content, and that provide privacy and
security for computer network and Internet communications and commerce. In
addition, the Company provides creative, technical and consulting services that
assist clients to transition their business processes to the Internet through
custom, high performance, secure eBusiness solutions.
The Company's products include: (i) software protection products for (a)
anti-piracy, (b) license management and tracking, and (c) software distribution
over the Internet (the "Software Protection Products"); (ii) information
security products to protect network and satellite communications (the
"Information Security Products"); and (iii) Internet security products for: (a)
accelerated Internet commerce transaction capabilities in a secure environment,
(b) access controls for computer networks including Virtual Private Networks;
and (c) professional services with expertise in eCommerce, Knowledge Management,
Infrastructure, Security, Business Intelligence, Wireless Computing, and
Business Consulting (the "Internet Products and Services").
The Company's principal offices and subsidiaries are located in North
America, Europe and Asia. Unless the context otherwise requires, the term
"Company" refers to Rainbow Technologies, Inc. and its subsidiaries.
Industry Background
Since its inception in 1984, the Company has been the leading developer and
supplier of proprietary security products that prevent unlicensed use and piracy
of software, and products that protect the confidentiality of digital content
transmitted over telecommunications systems. The Company applies "encryption"
technology in all of its security products. Encryption is the process of making
data indecipherable to anyone other than authorized users. The computer and
software industries have evolved from a market
2
<PAGE> 3
comprised primarily of stand-alone personal computers and single licensed
software programs to a market where computers are connected to networks,
including the Internet, and software licenses are purchased for multiple users
within entire enterprises. The Company has kept pace with the evolving market by
applying its encryption expertise to computer security products and solutions
that correspond to market changes.
The Company believes that the increased use and acceptance of computer
network and Internet communications to distribute Web-based content and conduct
electronic commerce have caused computer network security to become a paramount
business concern. The Company also believes that business needs for secure,
reliable and scalable computer network and Internet communications provide a
substantial market opportunity for the Company's security products and services.
A recent industry report from International Data Corporation (IDC) estimates
that the number of Internet users will grow from 97 million in 1998 to 320
million by 2002 with commensurate growth in electronic commerce from $32 billion
to $426 billion over that same period. In addition, the Company believes that
the market for the electronic delivery of digital content will continue to grow
rapidly. For example, IDC estimates that the worldwide market for Internet
software distribution will increase from approximately $200 million in 1997 to
approximately $5.9 billion by 2001, a 133% compound annual growth rate.
The Company expects to take advantage of the anticipated explosive growth
in Internet commerce and communications by expanding its market and product
focus to improve and broaden its encryption technology to offer new computer
network security products and services supporting Internet commerce and
communications.
During 1999, the Company acquired three companies which provide
professional services with expertise in eCommerce, Knowledge Management,
Infrastructure, Application Development, ERP Integration, Security, Business
Intelligence, Wireless Computing and Business Consulting. The Company helps
companies transition their business processes to the Internet through custom,
high performance, secure eBusiness solutions.
Intranets, Extranets and Websites (collectively "Internet Applications")
provide companies with a new set of tools for improving basic business processes
such as communications, data transmission, marketing, transaction processing and
customer service. An Intranet enables a company's employees to receive corporate
information and training efficiently, communicate through e-mail, use the
internal network's business application and access proprietary information and
legacy databases. An Extranet can extend part or all of the functionality of a
secure Intranet to selected business partners outside of the company, such as
customers, suppliers or distributors. On the consumer side, Websites support the
full cycle of customer interaction with a brand. Websites can present
advertising and marketing materials in new and compelling fashions, display
products and services in electronic catalogs, offer products and services for
sale online, process transactions and fulfill orders, provide customers with
rapid and accurate responses to their questions and gather customer feedback
efficiently.
Businesses are rapidly adopting Internet Applications. Companies
implementing Internet Applications often must rely on fundamentally new business
approaches because these solutions utilize new technologies and allow companies
to implement a broad scope of business process improvements. Businesses seeking
to realize the benefits provided by Internet Applications face a formidable
series of challenges presented by the need to link business strategy with new
and rapidly changing technologies and continuously updated content. Before
creating an Intranet, Extranet or Website, a company must first conduct a
thorough needs assessment to review its strategic business requirements and
compare them to the capabilities of its existing processes and systems. Next,
the company must design the solution and develop an implementation plan. The
implementation, establishment and maintenance of the solution will require
significant technical expertise in a number of areas, such as electronic
commerce systems, security and privacy technologies, application and database
programming, mainframe and legacy integration technologies and advanced user
interface and multimedia production.
To perform the multitude of Internet professional services, a company would
have to make substantial commitments of time, money and technical personnel to
keep current with rapidly evolving technologies, content presentation techniques
and competitors' offerings. Professionals with the requisite strategic,
technical
3
<PAGE> 4
and creative skills are often in short supply and many organizations are
reluctant to expand their internal information systems or marketing departments
for particular engagements at a time when they are attempting to minimize fixed
costs to increase returns on investment. At the same time, external economic
factors encourage organizations to focus on their core competencies and limit
workforces in the information technology management area. Accordingly, many
businesses have chosen to outsource a significant portion of the design,
development and maintenance of their Intranets, Extranets and Websites to
independent professionals. These independent professionals can leverage
accumulated strategic, technical and creative talent and track developments in a
field characterized by extremely short technology, process and content
lifecycles.
The Company believes that the rapidly increasing demand for Internet
applications has created a significant market opportunity for its unique
services.
Strategy
SOFTWARE PROTECTION PRODUCTS. The Company's strategy for its Software
Protection Products is to offer software and information publishers a suite of
products and services that prevent the unauthorized use of software and digital
content, such as Web-based content, and products that enable the secure delivery
of software over the Internet. The Company has continually expanded its offering
of Software Protection Products by focusing its research and development efforts
and strategic acquisition plans on software security protection solutions for
use on a variety of computer operating systems and hardware platforms. This
includes the Company's license management and Internet license delivery products
for software developers and information technology managers. The Company also
offers software and information publishers professional consulting services to
assist them in assessing, designing and implementing software and digital
content security solutions.
INFORMATION SECURITY PRODUCTS. The Company's Information Security Products
strategy is to offer the U.S. Government and commercial enterprises, requiring
the highest level of security, products and development services to assist
clients with assessing, designing and implementing computer network security,
access control and Information Security Products solutions. In furtherance of
this strategy, the Company has built relationships with industry organizations
to expand the Company's sales opportunities. The Company has also invested
significant resources in pursuing opportunities to develop innovative network
security technology and products for U.S. Government and commercial
applications. The Company intends to utilize technology and products developed
for the U.S. Government to create and introduce new commercial network security
products. Also, the Company is marketing its Internet Products and Services to
the U.S. Government.
INTERNET PRODUCTS AND SERVICES. The Company's strategy for its Internet
Products and Services is to offer companies involved in electronic commerce
industries, and manufacturers of Internet computer servers, Internet appliances,
firewalls, routers and switching equipment, a suite of products that provide
accelerated transaction processing in a secure environment, and that provide
access control to computer networks, Internet Websites and Virtual Private
Networks ("VPNs"). A VPN is a network of interconnected computers where the
privacy of the communication between any two computers on the network is
maintained through the use of encryption technology. The Company's Internet
Products and Services include proprietary technology that enables businesses
offering Internet commerce and communications accelerated transaction processing
in a secure environment. The Company also offers its customers a portable
security hardware device or "token" that authenticates client access to VPNs,
secured computer network equipment and the Internet. The Company has invested
significant resources in marketing and building strategic relationships with
leading Internet equipment providers and electronic commerce industries such as
financial and electronic brokerage services and telecommunications. The Company
intends to introduce new Internet Products and Services that combine high
performance encryption, acceleration and advanced telecommunication features.
The Company also intends to offer professional consulting services to assist
clients in determining computer network and Internet security requirements and
in designing and implementing the appropriate network security solutions. The
Company's strategy is to continue to expand its customer base using the
Company's unique ability to provide secure eCommerce solutions. Acquisitions and
geographic expansion are part of the Company's
4
<PAGE> 5
strategy. The Company believes that its experience in providing security
solutions to digital applications and unique processes enable the Company to
differentiate its offering of services from other consulting entities.
SOFTWARE PROTECTION PRODUCTS
The Company's Software Protection Products combine sophisticated hardware
and software encryption technology to prevent the illegal distribution and use
of software. When software is protected by the Company's Sentinel suite of
hardware products (the "key"), the software program sends queries to the key
that is attached to the parallel port of the computer. The key immediately
evaluates each query and responds. The correct response ensures that standard
operation of the software will continue without interruption. If the key is not
present, the software will not operate. The keys incorporate the Company's
proprietary "algorithms" programmed into Company designed "ASIC" computer chips.
An algorithm is a mathematical procedure for manipulating digital information
with the intent of securing the information. An "ASIC" or "Application Specific
Integrated Circuit" is a logic circuit designed for a specific usage and
implemented in an integrated circuit. Once Sentinel protection is implemented,
developers need only include a Sentinel key with each software package shipped.
The end-user installs the software as usual, then simply plugs the enclosed
Sentinel key into the appropriate port on their computer.
The Company also offers software-based products that provide software
license management and that provide Software Protection Products over the
Internet. These products offer software developers greater flexibility in how
their products are licensed and distributed.
The Company's Software Protection Products include:
SENTINELSUPERPRO. Features the Company's next generation ASIC technology.
This is the industry's first key to combine multiple algorithms with
programmable memory for increased security and flexibility. This product is
compatible with DOS, Windows and Windows NT based applications.
SENTINELPRO. An algorithm-based key utilizing the Company's proprietary
ASIC technology for the protection of DOS, Windows, Windows NT, OS/2, UNIX or
XENIX based applications.
SENTINELEVE3. Software protection for Apple Macintosh-based software.
Attaches to the ADB or USB port making it compatible with Apple PowerMac, iMac
and PowerBook computers. Protects stand-alone and/or multiple modular
applications.
SENTINEL LICENSE MANAGER. A software-based license management product for
Windows, Netware and UNIX environments. The product allows developers to control
network usage of software with remote upgrade capabilities. End-users are
offered a wide variety of licensing models for them to try, buy and use
software. Product features include the capability to securely distribute
software on CD-ROM or via the Internet.
SENTINELEXPRESS. A software licensing tool for software developers to
provide Software Protection Products and license activation via the Internet. It
allows developers to securely distribute demos and licensed applications on the
Internet, and automatically generate or activate software licenses from the
developer's Website. It allows consumers to evaluate, purchase and activate
software automatically and easily through a developer's Website 24-hours a day.
INFORMATION SECURITY PRODUCTS
The Company believes the importance of protecting the privacy and security
of satellite and computer network communications has increased in direct
proportion to technological advances, capabilities and overall growth in
telecommunications industries. Information security remains critical to
government and defense applications, and is increasingly valued by private
sector businesses to protect communications. The Company's Information Security
Products are comprised of ASIC circuits, electronic assemblies and products to
encrypt electronic communications, and are designed and developed by the Company
for use in government and commercial applications.
5
<PAGE> 6
The Company's Information Security Products are currently categorized into
four general areas of customer applications:
SPACE-BASED PRODUCTS. These products are comprised of ASIC circuits and
electronic assemblies to decrypt (unscramble) satellite command links and
encrypt (scramble) the communications that provide vital information about the
satellite (telemetry).
GROUND-BASED COMMUNICATIONS PRODUCTS. These ASIC circuits, electronic
assemblies and equipment encrypt satellite command links and decrypt telemetry
links.
VOICE COMMUNICATIONS PRODUCTS. These consist of ASIC circuits, electronic
assemblies and equipment that encrypt and decrypt voice transmissions over radio
or telephone communications networks.
DATA COMMUNICATIONS PRODUCTS. These products, which are comprised of ASIC
circuits, electronic assemblies and equipment, encrypt and decrypt data or
digital information transmitted over communications networks or into storage
media.
INTERNET PRODUCTS AND SERVICES
The Company's Internet Products use patent-pending technology to provide
Internet commerce companies and manufacturers of Internet computer servers,
firewalls, routers and switching equipment with increased security and
accelerated Internet commerce transaction capabilities. A "firewall" is
technology used for preventing unwanted inbound or outbound data at the boundary
of a computer network based upon a set of established rules. A "router" is a
computer networking device that is responsible for directing the "route" data
will travel enroute to its final destination.
The Company's Internet Products also include portable security tokens that
offer a security solution to a variety of computer network, Internet and
information control issues, including secure access to VPNs.
The Company's Internet Products and Services include:
CRYPTOSWIFT. A high performance security co-processor for Internet computer
transaction servers engaged in Internet commerce, electronic brokerage,
financial services and other applications that require security functions of
privacy and strong user authentication. It economically addresses the problem of
server overload due to the calculation intense mathematics associated with
"public key" encryption. This form of encryption is widely deployed in all Web
servers and browsers in use today and is the basis for Secure Sockets Layer
(SSL) and Secure Electronic Transaction (SET) protocols. CryptoSwift is an
industry standard PCI bus card with a proprietary ASIC co-processor. Using
patent pending "wide integer" multipliers, it performs all the mathematics
associated with public key encryption, allowing the server CPU to perform less
calculation intense tasks. CryptoSwift offers plug-in compatibility with
Netscape, Microsoft, Sun, HP and LINUX server and operating system software.
NETSWIFT. NetSwift is a PCI card that provides encrypted processing and
acceleration for original manufacturers of firewalls, routers and switching
equipment. NetSwift is an encryption processor that can either accept data and
return encrypted data, or accept encrypted data and return clear data. The
security processing performed by NetSwift is provided through the Company's
proprietary "FastMap" encryption processor. NetSwift also provides manufacturers
with a scaleable security solution. Multiple NetSwift cards can be added to
computer hardware equipment to increase "IPSec" performance. "IPSec" is a
computer network security protocol that provides for confidentiality and
integrity of data transmitted over a computer network using the Internet
protocol technology.
IKEY. iKey is a security token that can serve as a solution to a wide
variety of computer security and information control issues. The iKey can be
plugged into any standard computer "USB port," and can serve to authenticate
users for ensuring secure access to VPNs and computer network equipment. A "USB
port" is a standard connectivity technology included on most new computers,
servers and portable computer devices. Through user identification data
contained in each iKey, the network is able to grant access according to the
user's authorization level.
6
<PAGE> 7
SERVICES. The Company provides custom, high performance, secure eBusiness
solutions. The Company specializes in the following services:
1. Electronic Commerce Solutions
2. Business Intelligence Services. Business Intelligence turns raw
data into accessible, meaningful information to support better business
decisions. The Company's Business Intelligence team links data sources,
integrates complex back-end systems and designs data cubes to efficiently
group data for meaningful presentation, analysis and reporting. The
Company's clients use this information to recognize consumer trends,
identify additional sales opportunities, detect cost reduction potentials
and discover operational efficiencies. The Company's approach to a Business
Intelligence project includes identifying key dimensions and measures,
performing dimensional modeling, identifying data sources and deploying one
or more data marts. This approach allows for rapid design, creation and
Proof of Concept prior to deploying your Business Intelligence solution.
3. Knowledge Management. The primary goal of Knowledge Management (KM)
is to deliver the collective intellectual assets of an organization to its
individual knowledge workers, helping them make informed decisions. Such
intellectual assets come in many forms. Effective KM strategies optimize
sources of valuable information and deliver a competitive advantage. The
Company can rapidly deliver knowledge/business portal technologies to
enable best practices in KM to foster information sharing and
collaboration.
4. Wireless Computing. The Company offers packaged and customized
wireless solutions for applications such as: data collection; mobile
transportation and logistics; ERP integration; warehouse management;
work-in-progress; asset tracking; consignment inventory; compliance
labeling; retail ordering; Sales Force Automation; and wireless networks.
Each wireless computing project is a unique, custom endeavor involving
research, evaluation, design, client validation, development and
comprehensive implementation services.
5. Infrastructure/Networking. A well-designed and constructed systems
infrastructure is essential to successful eBusiness operations. These
solutions typically span multiple platforms and business-critical
applications demanding unified operation and integration for efficiency.
6. Application Development. The Company provides custom desktop
solutions, application integration and conversion using project management,
analysis, design and quality assurance techniques. The Company's services
include both in-house or on-site software development and support; project
scope can range from a single application to support for a full-scale
business management system. The Company's application development
competencies span multiple platforms. The Company Microsoft and industry
standard development tools. Development is provided on the IBM AS/400 and
multiple UNIX environments. The Company also has extensive experience
integrating DB2/400 databases with Windows-and UNIX-based applications.
7. Business Consulting. Starting or converting to an eBusiness-based
organization often requires fundamental changes in the way one does
business, affecting departments, processes and company culture. Advanced
planning is essential to successful eBusiness implementation. The Company
offers the services to assist its clients in organization planning and
managing the client's eBusiness strategy.
8. ERP Integration. The Company integrates ERP systems with a variety
of eBusiness applications. The Company offers a range of ERP consulting
services including evaluation and optimization of current business
processes, custom workflow development and integration with multiple
systems and data sources. The Company's goal is to create scalable
solutions that allow an organization to realize the full potential of its
ERP system.
RESEARCH AND DEVELOPMENT
Because of the rapid technological advances and other changes affecting the
Company's markets, the Company's competitive position hinges upon the adaptation
of its products to such changes in the market. Introduction of new products that
gain market acceptance is crucial to sustainable growth. Accordingly, the
Company directs research and development activity toward applying its encryption
technology to design and develop new security products and the enhancement of
existing products.
7
<PAGE> 8
In furtherance of this strategy, in January 1999, the Company entered into
an agreement with a processor developer to design and fabricate a new ASIC chip
which is intended to replace existing ASIC chips used in a number of the
Company's security products. Expenditures for research and development related
to Software Protection Products for the years ended December 31, 1999, 1998 and
1997 were $5,319,000, $5,905,000, and $5,830,000, respectively, or as a
percentage of Software Protection Products revenues, 9%, 10% and 10%,
respectively. The Company believes that as a result of its development efforts,
its technological leadership could broaden in the future.
The Company performs research and development with regard to its
Information Security Products in connection with U.S. Government contracts. The
costs incurred by the Company in connection with such research and development
activities are substantially recoverable by the Company pursuant to the terms of
these contracts. The Company believes that some of the research and development
performed under such contracts can be applied to the emerging issues of
information security. Expenditures for unfunded research and development related
to Information Security Products for the years ended December 31, 1998 and 1997
were $115,000 and $189,000, respectively, or as a percentage of Information
Security Products revenues, 0.2% and 0.6%, respectively. There were no unfunded
research and development expenditures related to Information Security Products
for the year ended December 31, 1999.
Expenditures for research and development related to Internet Products and
Services for the years ended December 31, 1999, 1998, 1997 were $3,992,000,
$2,838,000, and $1,460,000, respectively. The increases in expenditures support
a growing product line in the areas of performance acceleration and
authentication.
Expenditures for research and development related to Quantum Manufacturing
Technologies, Inc. ("QMT") for the years ended December 31, 1999, 1998 and 1997
were $1,552,000, $1,323,000 and $945,000, respectively.
SALES AND MARKETING
SOFTWARE PROTECTION PRODUCTS
The Company markets its Software Protection Products to software publishers
throughout the world for use with their software programs selling at retail for
$500 or more in the United States, and for use with lower priced software
programs sold internationally. For 1999, 1998 and 1997, 56%, 62%, and 67%,
respectively, of the Company's Software Protection Products sales were made in
the United States and 44%, 38%, and 33%, respectively, were made
internationally. Since its formation, the Company has shipped over 20,000,000
keys to more than 34,000 customers. Among the Company's major customers are
Autodesk, Inc., ESRI, Inc., Intellution, Inc., Macromedia, and Adobe, Inc.
The Company has its own direct sales and marketing personnel for Software
Protection Products in North America, Europe and Asia Pacific. In addition, the
Company has over 50 distributors worldwide. During 1999, 1998 and 1997, the
Company had no single customer that accounted for ten percent or more of the
Company's revenues.
The Company's direct sales force calls on targeted software publishers in
order to increase usage of the Company's products. The direct sales force
pursues a global marketing plan that focuses on multinational software.
All operating units of the Company exhibit at trade shows and advertise in
trade publications. The Company's technical support personnel also assist in the
Company's marketing effort through pre-sale and post-sale activity.
8
<PAGE> 9
INFORMATION SECURITY PRODUCTS
The Company markets its Information Security Products directly to the U.S.
Government and commercial enterprises requiring the highest level of security,
products and development services to assist them with assessing, designing and
implementing computer network security, access control and Information Security
Products solutions. Also, the Company maintains close relationships with
government-related agencies and the aerospace industry. Through these
relationships, the Company receives contracts for services and products on a
selected source basis. In addition, contracts are awarded to the Company in
response to requests for proposal from U.S. Government agencies and aerospace
companies.
INTERNET PRODUCTS AND SERVICES
Products
The Company markets its Internet Products directly to manufacturers of
Internet computer servers, Internet appliances, Internet firewalls, routers and
switching equipment, and to industries involving electronic commerce such as
financial and electronic brokerage services and telecommunications. The Company
markets these products through its own direct sales and marketing personnel. The
Company's direct sales force calls on Fortune 1000 companies and companies
providing Internet related encrypted electronic commerce or secure Web server
environments.
Services
The Company markets its services to Fortune 500 companies, mid-sized
organizations and e-start-ups. The Company has expertise in a variety of
industries including manufacturing, transportation, telecommunications,
entertainment, finance and education. The Company has a direct sales force, but
also obtains many of its leads from its partnerships. The Company is a Microsoft
Certified Solutions Provider, IBM Business Partner, Lotus Premier Partner,
Symbol Business Partner, Cisco Channel Partner (Security Specialization),
Hewlett Packard Channel Partner and Intermec Premier Partner.
MANUFACTURING
SOFTWARE PROTECTION PRODUCTS
The Company's Software Protection Products hardware keys are manufactured
by subcontractors in the United States, Asia and Europe from components
specified and approved by the Company. The components include ASIC chips,
standard computer memory chips and standard computer hardware parts. The Company
maintains control over the purchasing of materials and the planning and
scheduling of the manufacturing and assembly process. After assembly of the
components, the keys are delivered to the Company's facilities in the United
States and Europe where the products are inspected, tested and configured. The
Company believes that it is the lowest cost producer of software protection
products and believes that this will continue to be a competitive advantage.
INFORMATION SECURITY PRODUCTS
For its Information Security Products, the Company's manufacturing
operations include the testing of ASICs and the final assembly and testing of
its satellite and network communications products.
The Company has specific encryption technology embedded into ASIC circuits
that are fabricated to the Company's specifications by ASIC circuit
manufacturers. The Company currently has relationships with three such ASIC
circuit manufacturers. These ASIC circuits are processed to the specifications
of the U.S. Government and the Company. Any interruption in the availability of
these ASIC circuits could have a material adverse effect on the operations of
the Company.
The Company currently has a manufacturing relationship with Raytheon
Systems Company to manufacture the Company's principal Information Security
Products. Raytheon assumed the obligations of AlliedSignal, Inc., to manufacture
the Information Security Products in September 1998. Raytheon is the sole
supplier of the product. The manufacturing agreement expired in December 1999.
The Company is currently
9
<PAGE> 10
working with other companies to provide additional manufacturing sources for
product. Any interruption in the availability of the product could have a
material adverse effect on the operations of the Company. Raytheon has also
assumed the obligation to complete the development of an enhanced version of the
Company's principal Information Security Products.
Prior to the expiration of the manufacturing agreement with Raytheon, the
Company established a manufacturing relationship with EFTC to manufacture the
Company's principal Information Security products. EFTC is the sole supplier of
the products. The manufacturing agreement expires in December, 2000. The Company
is currently working with other companies to provide additional manufacturing
sources for the products. Any interruption in the availability of the products
would have a material adverse affect on the operations of the Company.
INTERNET SECURITY PRODUCTS
The Company's Internet Security Products are manufactured by subcontractors
in the United States from components specified and approved by the Company. The
components include ASIC chips, standard computer related chips and standard
computer hardware parts. The Company maintains control over the purchasing of
materials and the planning and scheduling of the manufacturing and assembly
process. After assembly of the components, the products are delivered to the
Company's facilities in the United States where the products are inspected,
tested and configured.
The Company currently has one supplier of the ASIC chip used in the
Company's Internet Security Products. The Company currently has a relationship
with a chip supplier that has multiple foundries available to produce the ASIC
chip. If the supplier is unable to fulfill the Company's requirements, the
Company may experience an interruption in the production of its Internet
Security Products until an alternative source of supply is developed. The
Company maintains a six-month inventory of ASIC chips in order to limit the
potential for such an interruption. The Company believes that there are a number
of companies capable of commencing the manufacture of its ASIC chips within six
months of such an interruption.
BACKLOG
The Company manufactures its Software Protection Products and Internet
Products and Services on the basis of its forecast of near-term demand and
maintains inventory in advance of receipt of firm customer orders. Customer
orders are generally placed on an "as needed" basis and are usually shipped by
the Company within one week after receipt of the order. Recently, the Company
has received several multi-million dollar orders for its Internet Products and
Services with deliveries scheduled over six to nine months.
As of December 31, 1999, the backlog for both of the Company's Information
and Internet Security Products is approximately equal to 1999 revenues for these
business segments.
INTELLECTUAL PROPERTY
The Company believes that the value of its security products is dependent
upon its proprietary algorithms and encryption techniques remaining "trade
secrets." The Company has obtained copyright protection on certain of its
products and trademark protection for certain of its trade names. The Company
also owns several patents for its Information Security Products, and the Company
has U.S. Patent applications for certain technology included in its Internet
Products and Services. There can be no assurance that the Company's proprietary
technology will remain a secret or that others will not develop similar
technology and use such technology to compete with the Company. There can be no
assurance that if the Company decides to apply for additional patents in the
future for any of its products, or on any new technology or products derived
therefrom, that patents will be granted.
10
<PAGE> 11
COMPETITION
SOFTWARE PROTECTION PRODUCTS
The worldwide software and information protection industry is highly
competitive and characterized by rapid technological advances in both computer
hardware and software development. The Company believes it is the industry
leader with an estimated 30% worldwide market share. The Company's principal
competitors are Aladdin Knowledge Systems, Ltd., SCM Microsystems, Inc., and
Macrovision Corporation. The Company believes that it offers the most cost
effective Software Protection Products available to software publishers.
Although certain of the Company's competitors offer lower prices, the Company
believes that its technical support services and the ease of implementation of
its products favorably distinguish the Company from its competitors.
INFORMATION SECURITY PRODUCTS
The Company's principal competitors for its Information Security Products
are Motorola, Inc., VLSI Technology, Inc., Group Technologies, Inc., and Cylink
Corporation. The Company believes its unique products, encryption expertise and
large number of U.S. Government endorsed products are a significant competitive
advantage.
INTERNET PRODUCTS AND SERVICES
Products
The Company's competitors for its current Internet Products are hi/fn,
Inc., n-Cipher, Inc., Chrysalis Symbolic Design, Inc., and Information Resource
Engineering, Inc. The Company was first to deliver an encryption accelerator
product to improve the performance of Internet transaction servers. The Company
believes it is the leading supplier of accelerator products into the Internet
server market.
Services
The Company's principal competitors in this space are a variety of national
and regional eCommerce integrators.
EMPLOYEES
The Company presently employs approximately 594 full-time employees divided
among sales and marketing, manufacturing, research and development and
administration. The Company believes that its employee relations are excellent.
The employees and the Company are not parties to any collective bargaining
agreements.
RECENT EVENTS
On October 22, 1999, the Company completed the acquisition of InfoCal LLC
(InfoCal). InfoCal creates collaborative intranet/extranet applications,
knowledge portals and distance learning applications and specializes in
messaging strategy migration and implementation. The total transaction value was
$3.5 million, including $3 million paid in cash and 36,530 shares of Rainbow
common stock valued at $500,000. In addition to the initial consideration, there
is contingent consideration of up to $500,000 in each of the 2000 and 2001
calendar years. The contingent payments are based upon achievement of certain
financial, revenue and strategic goals. Any additional consideration will be
recorded as goodwill. This acquisition has been accounted for using the purchase
method of accounting. Approximately $3.5 million was allocated to goodwill. The
goodwill is being amortized on a straight-line basis over ten years.
On September 16, 1999, the Company completed the acquisition of InfoSec
Labs, Inc. (InfoSec). InfoSec has core competency in both enterprise and
Internet security solutions and is renowned for its security assessment and
education programs. The total transaction value was $3.1 million, including $1.6
million paid in cash and 120,209 shares of Rainbow common stock valued at $1.5
million. This acquisition has been
11
<PAGE> 12
accounted for using the purchase method of accounting. Approximately $3.1
million was allocated to goodwill and is being amortized on a straight-line
basis over ten years.
On May 12, 1999, the Company completed the acquisition of Systematic
Systems Integration (Systematic) for an initial purchase price of $9.6 million
in cash with an additional cash payment of $1.5 million accrued for at December
31, 1999 and paid in January, 2000. In addition, the purchase agreement provides
for contingent payments of up to $1.7 million. These payments are based upon the
attainment of certain revenue and gross margin goals for calendar year 2000.
This acquisition has been accounted for using the purchase method of accounting.
The entire purchase price has been allocated to goodwill and any additional
consideration paid will also be recorded as goodwill. The goodwill is being
amortized on a straight-line basis over ten years. Systematic is a
California-based eCommerce integration services firm that enables companies to
seamlessly integrate diverse software and hardware platforms, communication
systems and Internet technologies.
ITEM 2. PROPERTIES
The Company's executive offices and principal facility are located in a
55,800 square foot building in Irvine, California. The Company leases the
facility pursuant to a lease expiring June, 2000.
The Company owns a 5,000 square foot facility in the United Kingdom that is
used primarily for northern European sales and administration. The Company also
owns an 8,000 square foot facility in Paris, France that is used primarily for
southern European sales and administration.
The Company leases a facility in Torrance, California, that is used as a
sales, administration, design and production facility. The lease is for 48,000
square feet, and expires in 2002.
The Company also leases facilities in Long Beach, California, that are used
as sales, administration, design and development facilities. The leases total
approximately 26,000 square feet, and expire in 2001 and 2004.
ITEM 3. LEGAL PROCEEDINGS
In September 1998, a patent infringement action was filed against the
Company by Globetrotter, Inc., alleging that certain of the Company's products
infringe patents owned by Globetrotter. The complaint seeks unspecified monetary
damages and a permanent injunction banning the use of the products alleged to
infringe the Globetrotter patents. The Company believes the claims are without
merit, and will vigorously defend against the claims made in the action. The
Company has filed a counter claim against Globetrotter alleging anti-trust and
unfair competition.
In July 1998, a patent infringement claim was filed against the Company by
Andrew Pickholtz, alleging that certain of the Company's products infringe
patents owned by Pickholtz. The complaint seeks unspecified monetary damages.
The Company believes the claims are without merit, and will vigorously defend
against the claims made in the action.
The Company does not believe that any liabilities related to the legal
proceedings to which it is a party are likely to be, individually or in the
aggregate, material to the Company's consolidated condition or results of
operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Neither the Board of Directors nor any security holder submitted any matter
during the fourth quarter of the fiscal year covered by this Report to a vote of
the security holders through solicitation of proxies or otherwise.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is traded on the NASDAQ National Market
System under the symbol "RNBO." The following table sets forth high and low
"sales" prices of the shares of Common Stock of the Company for the periods
indicated (as reported by the National Quotation Bureau).
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
2000 First Quarter (through February 29, 2000)............. 44.000 20.500
1999 First Quarter......................................... 26.375 9.750
1999 Second Quarter........................................ 11.875 7.938
1999 Third Quarter......................................... 15.250 9.500
1999 Fourth Quarter........................................ 24.688 12.875
1998 First Quarter......................................... 19.583 15.000
1998 Second Quarter........................................ 19.333 13.333
1998 Third Quarter......................................... 16.000 10.438
1998 Fourth Quarter........................................ 20.125 11.875
</TABLE>
All per share data reflects the Company's 3-for-2 stock split effective
July 1, 1998.
As of February 29, 2000, there were approximately 6,300 holders of record
of the Company's Common Stock including those shares held in "street name."
The Company has never paid cash dividends on its Common Stock and the Board
of Directors intends to retain all of its earnings, if any, to finance the
development and expansion of its business. However, there can be no assurance
that the Company can successfully expand its operations or that such expansion
will prove profitable. Future dividend policy will depend upon the Company's
earnings, capital requirements, financial condition and other factors considered
relevant by the Company's Board of Directors.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data has been derived from
the consolidated financial statements of the Company for the five years ended
December 31, 1999 and reflects the impact of the acquisitions of Software
Security Inc. ("SSI"), on October 4, 1996, and Mykotronx, Inc. ("Mykotronx"), on
June 1, 1995, which were both accounted for using the pooling-of-interests
method. Share amounts for all years presented have been adjusted to reflect the
impact of a 3-for-2 stock split effective July 1, 1998.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------
1999 1998(1) 1997 1996 1995
-------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED INCOME
STATEMENT DATA:
Total revenues...................... $121,089 $109,232 $ 94,724 $81,710 $72,584
Income before taxes................. 13,164 8,922 19,202 17,936 16,790
Net income.......................... 8,137 2,490 11,332 10,517 9,814
Net income per share:
Basic............................ $ .71 $ .21 $ .97 $ .91 $ .87
Diluted.......................... .67 .21 .95 .88 .84
Shares used in calculating
net income per share:
Basic............................ 11,527 11,699 11,653 11,615 11,267
Diluted.......................... 12,106 11,973 11,968 11,910 11,651
SELECTED CONSOLIDATED BALANCE SHEET
DATA:
Total assets........................ $130,538 $109,753 $103,051 $93,364 $82,274
Working capital..................... 48,936 59,763 55,776 60,166 50,690
Long-term debt, net of current
portion.......................... 1,014 1,458 1,616 2,145 2,616
Shareholders' equity................ 97,890 92,201 86,359 79,076 68,251
</TABLE>
- ---------------
(1) The results of operations for the year ended December 31, 1998 reflects an
asset impairment charge of $3.9 million, a $1.5 million write-off of
acquired in-process research and development, and a $1.3 million write-off
of a fully impaired investment.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following is management's discussion and analysis of certain
significant factors that have affected the profitability of the Company's
business segments (Software Protection Products, Information Security Products,
and Internet Products and Services) and its consolidated results of operations
and financial condition during the periods included in the accompanying
consolidated financial statements. The following should be read in conjunction
with the consolidated financial statements and related notes.
ACQUISITIONS
On October 22, 1999, the Company completed the acquisition of InfoCal LLC
(InfoCal). InfoCal creates collaborative intranet/extranet applications,
knowledge portals and distance learning applications and specializes in
messaging strategy migration and implementation. The total transaction value was
$3.5 million, including $3 million paid in cash and 36,530 shares of Rainbow
common stock valued at $500,000. In addition to the initial consideration, there
is contingent consideration of up to $500,000 in each of the 2000 and 2001
calendar years. The contingent payments are based upon achievement of certain
financial, revenue and strategic goals. Any additional consideration will be
recorded as goodwill. This acquisition has been accounted for using the purchase
method of accounting. Approximately $3.5 million was allocated to goodwill. The
goodwill is being amortized on a straight-line basis over ten years.
On September 16, 1999, the Company completed the acquisition of InfoSec
Labs, Incorporated (InfoSec). InfoSec has core competency in both enterprise and
internet security solutions and is renowned for
14
<PAGE> 15
its security assessment and education programs. The total transaction value was
$3.1 million, including $1.6 million paid in cash and 120,209 shares of Rainbow
common stock valued at $1.5 million. This acquisition has been accounted for
using the purchase method of accounting. Approximately $3.1 million was
allocated to goodwill and is being amortized on a straight-line basis over ten
years.
On May 12, 1999, the Company completed the acquisition of Systematic
Systems Integration (Systematic) for an initial purchase price of $9.6 million
in cash with an additional cash payment of $1.5 million accrued for at December
31, 1999 and paid in January 2000. In addition, the purchase agreement provides
for contingent payments of up to $1.7 million. These payments are based upon the
attainment of certain revenue and gross margin goals for calendar year 2000.
This acquisition has been accounted for using the purchase method of accounting.
The entire purchase price has been allocated to goodwill and any additional
consideration paid will also be recorded as goodwill. The goodwill is being
amortized on a straight-line basis over ten years. Systematic is a
California-based eCommerce integration services firm that enables companies to
seamlessly integrate diverse software and hardware platforms, communication
systems and Internet technologies.
On February 26, 1998, the Company completed the acquisition of Wyatt River
Software, Inc. (Wyatt). Wyatt develops, manufactures, and markets network
license management software. The total transaction value was $9 million,
including $3.9 million paid in cash to Wyatt stockholders and $5.1 million in
assumed liabilities. This acquisition has been accounted for under the purchase
method of accounting. The purchase price has been allocated based upon estimated
fair values at the date of acquisition. Approximately $1.5 million of the
purchase price was written off as in-process research and development at the
acquisition date, approximately $2.7 million was allocated to developed
software, and the remaining $4.8 million was allocated to goodwill and other
intangibles. The goodwill and other intangibles are being amortized on a
straight-line basis over five years. At December 31, 1998, the Company wrote-off
developed software related to the Wyatt acquisition which had a net book value
of $427,000. This amount has been included in research and development expense
for the year ended December 31, 1998.
On March 6, 1998, the Company entered into an agreement to purchase certain
assets from Elan Computer Group, Inc. (Elan) for $800,000. The assets included
Elan's license manager software technology, which the Company had previously
licensed from Elan, and Elan's end-user maintenance and support relationships.
In connection with the transaction, the Company entered into a Litigation
Cooperation Agreement with Elan in connection with a patent infringement lawsuit
entitled Globetrotter Software, Inc. vs. Elan Computer Group, Inc. No. 97-4176CW
which is currently pending in the United States District Court for the Northern
District of California. The action claims that the Elan technology infringes
upon patents owned by Globetrotter. The lawsuit is deemed to include any and all
claims made now or in the future by Globetrotter Software, Inc. Prior to the
asset purchase agreement with Elan, the Company had an investment in Elan of
$1,320,000. The Company owned less than 20% of Elan's stock and accounted for
the investment under the cost method. During the first quarter of fiscal 1998,
the Company wrote-off its investment in Elan, as it was determined that the
Company's original investment was fully impaired.
In October 1997, the Company acquired certain assets from AlliedSignal,
Inc. for approximately $7 million in cash comprising AlliedSignal's "KIV-7"
information security product line. The Company is the sole supplier of KIV-7 to
various agencies of the U.S. Government. Simultaneous with the closing of the
asset purchase transaction, the Company entered into a manufacturing and
development agreement with AlliedSignal whereby Allied-Signal was to manufacture
current KIV-7 products for the Company and complete the development of an
enhanced version of the KIV-7 product. Raytheon assumed this manufacturing and
development agreement in September, 1998.
In May 1997, the Company completed its obligations pursuant to a Stock
Purchase Agreement entered into in March 1996 which resulted in the Company
investing approximately $6 million in QMT. In the fourth quarter of 1998, the
Company determined that the aggregate estimated future undiscounted operating
cash flows of QMT were less than the carrying amount of long-lived assets
related to QMT. Based on its evaluation, the Company determined the assets with
a carrying value of $6.1 million were impaired and wrote them down by $3,942,000
to the estimated fair value. Fair value was based on estimated discounted future
operating cash
15
<PAGE> 16
flows of QMT. The charge had no impact on the Company's 1998 cash flows or its
ability to generate cash flows in the future. As a result of the charges,
depreciation and amortization expense related to those assets will decrease in
future periods. As of December 31, 1999, the Company owns a 51% interest in QMT
and accordingly recognizes a minority interest share in its losses. QMT, located
in Albuquerque, New Mexico owns an exclusive worldwide license from Sandia
National Laboratories for the commercial use and exploitation of a patented
pulsed power ion beam materials treatment technology known as "IBEST."
At December 31, 1999, the Company performed a review for impairment of the
long-lived assets of QMT. The aggregate undiscounted cash flows estimated to be
generated by QMT during the life of its long-lived assets are greater than their
$2.1 million carrying value indicating no impairment exists at December 31,
1999. However, there is uncertainty related to the estimates used to determine
these undiscounted cash flows. The most significant and uncertain of these
estimates is future revenues. A significant shortfall from these revenue
projections could result in these assets becoming impaired as early as June 30,
2000. The Company anticipates performing impairment reviews related to the
long-lived assets of QMT on a quarterly basis in order to monitor the
achievement of its revenue projections.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Software Protection Products revenue for the year ended December 31, 1999
increased 4% to $59,400,000 as compared with 1998. Revenues from international
markets increased by 22% while revenues from domestic markets decreased by 7%.
The increase in revenues from international markets was primarily attributable
to an increase in sales generated through the addition of offices in Australia,
Taiwan and China, and the Company's reorganization of its international
operations. The average selling price per product for the year ended December
31, 1999 increased approximately 2% from the year ended December 31, 1998. Unit
volume for the year ended December 31, 1999 increased by 2% as compared with
1998.
During the year ended December 31, 1999, approximately 18% of the Company's
Software Protection Products revenue was subject to currency fluctuations, down
from 19% in 1998. Software Protection Products revenue in the future is expected
to continue to be affected by foreign currency rate fluctuations.
Information Security Products revenue for the year ended December 31, 1999
decreased 10% to $45,297,000, as compared with 1998. The revenue decline was
primarily due to a shift in government spending from security products to
defense products.
Internet Products and Services revenue for the year ended December 31, 1999
increased 857% to $16,175,000 as compared with 1998. The revenue growth was
primarily due to the increase in sales of Cryptoswift products and revenues
generated through the acquisition of Systematic.
Gross profit from Software Protection Products for the year ended December
31, 1999 was 70% of revenues compared with 71% of revenues for the year ended
December 31, 1998.
Gross profit from Information Security Products for the year ended December
31, 1999 was 15% of revenues compared with 22% of revenues for the year ended
December 31, 1998. The decrease in gross profit was due to the change in mix
from more profitable product contracts to less profitable research and
development contracts.
Gross profit from Internet Products and Services for the year ended
December 31, 1999 was 50% of revenues compared with 54% of revenues for the year
ended December 31, 1998. The decrease in gross profit was due to higher costs
associated with the eCommerce integration services revenues.
There can be no assurance that the Company will improve or maintain the
level of gross profit percentages it experienced during the year ended December
31, 1999.
Consolidated selling, general and administrative expenses for the year
ended December 31, 1999 were 27% of revenues compared with 24% of revenues for
the year ended December 31, 1998. Selling, general and administrative expenses
for the year ended December 31, 1999 increased by $6,593,000 as compared with
1998. This increase was primarily due to additional staff and higher marketing
expenses for new internet security product introductions and the opening of
sales offices in Asia.
16
<PAGE> 17
Total research and development expenses for each of the years ended
December 31, 1999 and 1998 was 9% of revenues. Current research and development
activities are primarily focused on additional ASIC development for future
products and the adaptation of the Company's existing internet security products
to additional software operating environments and computer platforms.
Goodwill amortization in 1999 decreased by $356,000 to $2,438,000 as
compared with 1998, due to a lower average goodwill balance in 1999 as compared
to 1998, resulting from the write-off of goodwill related to QMT at December 31,
1998, partially offset by the amortization of goodwill related to acquisitions
in 1999. For the year ended December 31, 1999, goodwill amortization was 2% of
revenues compared to 3% of revenues for the year ended December 31, 1998.
Interest income for the year ended December 31, 1999, decreased by 37% to
$862,000, as compared with 1998, primarily due to lower average cash and cash
equivalent balances during 1999.
At December 31, 1999, the Company held a 51% interest in one of its
subsidiaries, QMT, referred to as Ion Beam Surface Treatment in the Company's
financial statements. For the year ended December 31, 1999, QMT incurred a
$1,869,000 loss, including a write-off of impaired long-lived assets of
$144,000. The Company recognized a minority interest share in the 1999 loss of
approximately $880,000.
During the year ended December 31, 1999, the Company incurred foreign
currency gains of $752,000, primarily due to dollar denominated deposit accounts
maintained in Europe. During the year ended December 31, 1998, the Company
recognized foreign currency losses of $90,000, also primarily due to dollar
denominated deposit accounts maintained in Europe. Such foreign currency gains
and losses result from the movement in the value of the U.S. dollar against the
functional currencies used by the Company's foreign subsidiaries.
The effective tax rate was 38% for the year ended December 31, 1999
compared to 72% for the year ended December 31, 1998. The effective tax rate for
1998 was negatively affected due to non-deductibility of the charges related to
acquired in-process research and development, the non-deductibility of the
write-off of a long-term investment, and asset impairment charges related to
QMT. Excluding the effect of these charges, the effective tax rate was 43% for
the twelve months ended December 31, 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Software Protection Products revenue for the year ended December 31, 1998
decreased 5% to $57,238,000 as compared with 1997. The decline in revenue was
primarily due to the economic problems in Asia and other emerging markets.
Revenues in European markets increased 9% in 1998 as compared with 1997. The
average selling price per product for the year ended December 31, 1998 decreased
approximately 7% from the year ended December 31, 1997.
During the years ended December 31, 1998 and 1997, approximately 19% of the
Company's Software Protection Products revenue was subject to currency
fluctuations. Software Protection Products revenue in the future is expected to
continue to be affected by foreign currency rate fluctuations.
Information Security Products revenue for the year ended December 31, 1998
increased 48% to $50,236,000, as compared with 1997. The revenue growth was
primarily due to increased shipments of secure network communication products.
Internet Products and Services revenue for the year ended December 31, 1998
increased 661% to $1,690,000 as compared with 1997. The revenue growth was
primarily due to the adoption of Hewlett Packard and Watchguard as OEM's for the
Company's Internet products.
Gross profit from Software Protection Products for the year ended December
31, 1998 was 71% of revenues which was consistent with the year ended December
31, 1997. There can be no assurance that the Company will improve or maintain
the level of gross profit percentage it experienced during the year ended
December 31, 1998.
17
<PAGE> 18
Gross profit from Information Security Products for the year ended December
31, 1998 was 22% of revenues compared with 20% of revenues for the year ended
December 31, 1997. The increase in gross profit was due to the change in mix
from less profitable research and development contracts to more profitable
product contracts.
Gross profit from Internet Products and Services for the year ended
December 31, 1998 was 54% of revenues compared with 51% of revenues for the year
ended December 31, 1997. The increase in gross profit was due to the decrease in
overall unit costs as a result of the increase in total sales.
Selling, general and administrative expenses for the years ended December
31, 1998 were 24% of revenues compared with 23% of revenues for the year ended
December 31, 1997. Selling, general and administrative expenses for the year
ended December 31, 1998 increased by $4,642,000 as compared with 1997. This
increase was primarily due to additional staff and higher marketing expenses for
new product introductions in software protection and internet security products
and subsidiary reorganization costs which were primarily related to the
Company's efforts to lower its future effective tax rate.
Research and development expenses for both years ended December 31, 1998
and 1997 was 9% of revenues. Current research and development activities are
primarily focused on additional ASIC development for future products and the
adaptation of the Company's existing products to additional software operating
environments and computer platforms.
Goodwill amortization for the year ended December 31, 1998 increased
$1,002,000 as compared with 1997 due to an increase in goodwill resulting from
the 1998 Wyatt acquisition.
In the fourth quarter 1998, the Company determined that the aggregate
estimated future undiscounted operating cash flows of QMT, a majority owned
subsidiary, referred to as Ion Beam Surface Treatment in the Company's financial
statements, were less than the carrying amount of long-lived assets related to
QMT. Based on its evaluation, the Company determined the assets with a carrying
value of $6,105,000 were impaired and wrote them down by $3,942,000 to the
estimated fair value. Fair value was based on estimated discounted future
operating cash flows of QMT. For the year ended December 31, 1998, the Company
recognized a minority interest share in the loss of QMT.
During the year ended December 31, 1998, the Company wrote-off $1,500,000
of in-process research and development acquired in Wyatt acquisition.
Interest income for the year ended December 31, 1998 decreased by 14% to
$1,375,000, as compared with 1997, primarily due to lower average cash and cash
equivalent balances during 1998.
During the first quarter of fiscal 1998, the Company wrote-off a $1,320,000
investment which was determined to be fully impaired. This amount has been
included in other income (expense), net for the year ended December 31, 1998.
During the year ended December 31, 1998, the Company incurred foreign
currency losses of $90,000, primarily due to dollar denominated deposit accounts
maintained in Europe. During the year ended December 31, 1997, the Company
recognized foreign currency losses of $167,000, also primarily due to dollar
denominated deposit accounts maintained in Europe. Such foreign currency gains
and losses result from the movement in the value of the U.S. dollar against the
functional currencies used by the Company's foreign subsidiaries.
The effective tax rate was 72% for the year ended December 31, 1998
compared to 41% for the year ended December 31, 1997. The effective tax rate for
1998 was negatively affected due to non-deductibility of the charges related to
acquired in-process research and development, the non-deductibility of the
write-off of the original investment in Elan, and impairment charges related to
its investment in QMT. Excluding the effect of these charges, the effective tax
rate was 43% for the twelve months ended December 31, 1998.
18
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of operating funds have been from
operations and proceeds from sales of the Company's equity securities. The
Company's cash flow from operations during 1999, 1998 and 1997 was $11,127,000,
$12,269,000, and $12,948,000, respectively. The impact of a higher accounts
receivable balance in 1999 was partially offset by amortization and depreciation
and higher accounts payable and accrued liability balances. The impact of a
higher accounts receivable balance in 1998 was offset by the asset impairment
charge related to QMT.
Net cash used in investing activities for 1999 increased from 1998 due to
the acquisition of Systematic, InfoSec and InfoCal, offset by increased proceeds
from the sale of marketable securities. Net cash used in investing activities
for 1998 increased from 1997 due to the acquisition of Wyatt and increased
proceeds from the sales of marketable securities during 1997.
The Company intends to use its capital resources to expand its product
lines and for possible acquisitions of additional products and technologies. The
Company has no significant capital commitments or requirements at this time.
At December 31, 1999 the Company's subsidiaries in France and the
Netherlands carry approximately $9.9 million and $2.7 million, respectively, in
interest earning deposits which may result in foreign exchange gains or losses
due to the fact that the functional currency in those subsidiaries is not the
U.S. dollar.
Management believes that the effect of inflation on the business of the
Company for the past three years has been minimal.
The Company believes that its current working capital of $48,936,000 and
anticipated working capital to be generated by future operations will be
sufficient to support the Company's working capital requirements through at
least December 31, 2000.
IMPACT OF YEAR 2000
Year 2000 problems are the result of computer programs being written using
two digits rather than four to define the applicable year. If not corrected,
many computer applications could fail or create erroneous results by not
recognizing "00" to mean the year 2000.
In 1999, the Company completed its testing of all critical software and
hardware systems and determined that all are Year 2000 compliant. Vendor
certifications were received from all critical vendors indicating that they were
either currently compliant or that they would be compliant by December 31, 1999.
The Company has not experienced and does not expect to experience any
significant Year 2000 problems or interruptions. There can be no assurance that
mission critical vendors and customers will not incur a Year 2000 problem or
interruption, but the Company believes adequate computer file backup procedures
and manual operating procedures will enable the continuance of the critical
processes of its business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk that losses may occur in the
values of financial instruments as a result of movements in interest rates,
foreign currency exchange rates and commodity prices. The Company is exposed to
changes in financial market conditions in the normal course of its business due
to its use of certain financial instruments as well as transacting in various
foreign currencies and translation of its foreign subsidiaries financial
statements to the U.S. dollar.
INTEREST RATE RISK
At December 31, 1999 and 1998, the Company's cash equivalents and
short-term investments included approximately $1.2 million and $6.5 million,
respectively, of fixed income securities. These securities are subject to
interest rate risk and may decline in value when interest rates change. At
December 1999 all of the Company's fixed income securities mature during 2012.
An adverse change of 10% in interest rates would have
19
<PAGE> 20
an immaterial effect on the fair value of these securities. These investments do
not represent a material market risk to the Company. The Company places
substantially all of its interest bearing investments with major financial
institutions and, by policy limits the amount of credit exposure to any one
financial institution. Additionally, the Company does not hold or issue
financial instruments for trading, profit or speculative purposes.
EQUITY PRICE RISK
The Company holds investments in various available-for-sale equity
securities which are subject to price risk. The fair value of such investments,
as of December 31, 1999 and 1998 was approximately $2 million. The potential
change in the fair value of these investments, assuming a 10% decline in prices
would be approximately $200,000 for 1999 and 1998.
FOREIGN EXCHANGE RATE RISK
The Company operates internationally and has adopted local currencies as
the functional currencies for its foreign subsidiaries because their principal
economic activities are most closely tied to the respective local currencies.
This exposes the Company to market risk from changes in foreign exchange rates
to the extent that transactions are not denominated in the U.S. dollar. In
consolidation, the Company converts the accounts of its foreign subsidiaries
from the functional currency to the U.S. dollar. As a result the Company faces
the risk that the foreign currencies will have declined in value as compared to
the U.S. dollar, resulting in a foreign currency translation loss. Assuming an
adverse 10% foreign exchange rate fluctuation, the Company would have
experienced translation losses of approximately $2 million for 1999 and 1998.
The Company's earnings are affected by fluctuations in the value of the U.S
dollar as compared to foreign currencies as a result of the sales of its
products in foreign markets. Assuming an adverse 10% foreign exchange rate
fluctuation, the Company would have had a decrease in net income of
approximately $500,000 and $200,000 for the years ended December 31, 1999 and
1998, respectively. This calculation assumes that each exchange rate would
change in the same direction relative to the U.S. dollar. In addition, to the
direct effects of changes in exchange rates, which are a changed dollar value of
the resulting sales, changes in exchange rates also affect the volume of sales
or the foreign currency sales price as competitors' products become more or less
attractive. The Company's sensitivity analysis of the effects of changes in
foreign currency exchange rates does not factor in a potential change in sales
levels or local currency prices.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Schedule of the Company are
listed in Item 14 (a) and included herein on pages F-1 through F-24.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The Company has not had any disagreement with its independent auditors on
any matter of accounting principles or practices or financial statement
disclosure.
20
<PAGE> 21
PART III
ITEM 10. ALL DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information appearing under the caption "Election
of Directors" in the Company's Proxy Statement to be submitted to the Commission
on or before April 30, 2000.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information appearing under the caption "Executive
Compensation" in the Company's Proxy Statement to be submitted to the Commission
on or before April 30, 2000.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information appearing under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Company's Proxy
Statement to be submitted to the Commission on or before April 30, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information appearing under the caption "Certain
Relationships and Related Transactions" in the Company's Proxy Statement to be
submitted to the Commission on or before April 30, 2000.
21
<PAGE> 22
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors.
Consolidated Balance Sheets at December 31, 1999 and 1998.
Consolidated Statements of Income for the years ended December 31, 1999,
1998 and 1997.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
II. Consolidated Valuation and Qualifying Accounts for the years ended
December 31, 1999, 1998 and 1997.
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2(i) Agreement and Plan of Reorganization, dated as of January
26, 1995 among the Company, Rainbow Acquisition Inc., a
California corporation and a wholly owned subsidiary of
Rainbow, and Mykotronx, Inc., a California corporation
("Mykotronx") (incorporated by reference to the Company's
Registration Statement on Form S-4 under the Securities Act
of 1933, as amended, effective on April 20, 1995,
Registration No. 33-89918).
2(ii) Agreement and Plan of Merger, dated September 30, 1996, by
and among the Company, RNBO Acquisition Corporation, a
Nevada corporation and a wholly-owned subsidiary of the
Company, and Software Security, Inc., a Connecticut
corporation (incorporated by reference to Exhibit 2(ii) of
the Company's 1996 Annual Report on Form 10-K under the
Securities Exchange Act of 1934 filed in March 1997 (the
"1996 10-K")).
2(iii) Agreement and Plan of Merger, dated March 6, 1998, by and
among the Company, WRS Acquisition Corp, a California
corporation and wholly owned subsidiary of the Company, and
Wyatt River Software, Inc. (incorporated by reference to
Exhibit 2(iii) of the Company's 1997 Annual Report on Form
10-K under the Securities Exchange Act of 1934 filed in
March 1998 (the "1997 10-K")).
3(i) Articles of Incorporation of Rainbow, as amended
(incorporated by reference to Exhibit 3(a) to Rainbow's
Registration Statement on Form S-18 under the Securities Act
of 1933, as amended, filed on July 20, 1987 -- File No.
33-15956-LA (the "S-18 Registration Statement")).
3(ii) By-Laws of Rainbow (incorporated by reference to Exhibit
3(b) to the S-18 Registration Statement).
4(a) See Exhibit 3(i).
4(b) See Exhibit 3(ii).
4(c) Rights Agreement, dated as of July 29, 1997, between the
Company and U.S. Stock Transfer Corporation, as Rights Agent
(incorporated by reference to Exhibit 4(c) to the Company's
1997 10-K).
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10(a) Lease for premises at 50 Technology Drive, Irvine,
California, dated June 1, 1995, between the Company and
Birtcher Medical Systems, Inc., a California corporation
(filed as an exhibit to the Company's 1995 Form 10-K).
10(b) Agreement, dated October 1996, between the Company and
National Semiconductor Corporation (incorporated by
reference to Exhibit 10(b) of the Company's 1998 Annual
Report on Form 10-K under the Securities Exchange Act of
1934 filed in March, 1999 (the "1998 10-K")).
10(c) Agreement, dated December 1998, between the Company and EM
Microelectronic -- Marin S.A. (incorporated by reference to
Exhibit 10(c) of the 1998 10-K).
10(d) 1990 Incentive Stock Option Plan as amended (incorporated by
reference to Exhibit 10(j) of the 1991 10-K).
10(e) Employment Agreement, dated February 16, 1990, between the
Company and Walter W. Straub (incorporated by reference to
Exhibit 10(j) of the 1989 10-K).
10(f) Change of Control Agreement, dated February 16, 1990,
between the Company and Walter W. Straub (incorporated by
reference to Exhibit 10(k) of the 1989 10-K).
10(g) Employment Agreement, dated January 15, 1992, between the
Company and Peter M. Craig (incorporated by reference to
Exhibit 10(m) of the 1991 10-K).
10(h) Change of Control Agreement, dated January 15, 1992, between
the Company and Peter M. Craig (incorporated by reference to
Exhibit 10(n) of the 1991 10-K).
10(i) Employment Agreement, dated January 5, 1995, between the
Company and Norman L. Denton, III (incorporated by reference
to Exhibit 10(j) of the Company's 1994 Annual Report on Form
10-K under the Securities Exchange Act of 1934, filed in
March 1995 (the "1994 10-K")).
10(j) Change of Control Agreement, dated January 5, 1995, between
the Company and Norman L. Denton, III (incorporated by
reference to Exhibit 10(k) to the 1994 10-K).
10(k) Employment Agreement, dated January 5, 1995, between the
Company and Patrick E. Fevery (incorporated by reference to
Exhibit 10(l) of the 1994 10-K).
10(l) Change of Control Agreement, dated January 5, 1995, between
the Company and Patrick E. Fevery (incorporated by reference
to Exhibit 10(m) of the 1994 10-K).
10(m) Employment Agreement, dated January 5, 1995, between the
Company and Paul A. Bock (incorporated by reference to
Exhibit 10(n) of the 1994 10-K).
10(n) Change of Control Agreement, dated January 5, 1995, between
the Company and Paul A. Bock (incorporated by reference to
Exhibit 10(o) of the 1994 10-K).
10(o) Employment Agreement, dated April 7, 1997, between the
Company and Aviram Margalith (incorporated by reference to
Exhibit 10(o) of the 1997 10-K).
10(p) Change of Control Agreement, dated April 7, 1997, between
the Company and Aviram Margalith (incorporated by reference
to Exhibit 10(p) of the 1997 10-K).
10(q) Employment Agreement, dated January 1, 1998, between the
Company and Laurie Casey (incorporated by reference to
Exhibit 10(q) of the 1997 10-K).
10(r) Change of Control Agreement, dated January 1, 1998, between
the Company and Laurie Casey (incorporated by reference to
Exhibit 10(r) of the 1997 10-K).
10(s) Employment Agreement, dated January 1, 1998, between the
Company and Richard Burris (incorporated by reference to
Exhibit 10(s) of the 1997 10-K).
10(t) Change of Control Agreement, dated January 1, 1998, between
the Company and Richard Burris (incorporated by reference to
Exhibit 10(t) of the 1997 10-K).
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10(u) Manufacturing Agreement, dated September 30, 1997, between
AlliedSignal, Inc. and Mykotronx, Inc. (incorporated by
reference to Exhibit 10(u) of the 1998 10-K).
10(v) Development Agreement, dated September 30, 1997, between
AlliedSignal, Inc. and Mykotronx, Inc. (incorporated by
reference to Exhibit 10(v) of the 1998 10-K).
10(w) Agreement for Design and Product Purchase, dated September
4, 1997, between IBM Microelectronics and Rainbow
Technologies, Inc. and Mykotronx, Inc. (incorporated by
reference to Exhibit 10(w) of the 1998 10-K).
10(x) Leases for premises at 357, 359, and 371 Van Ness Way,
Torrance, California, dated September 8, 1993, September 25,
1996 and October 2, 1997, respectively, between Surf
Management Associates, a California limited partnership, and
Mykotronx, Inc., a California Corporation.
10(y) Lease for premises at 111 West Ocean Boulevard, Long Beach,
California, between Stevens Creek Associates, a California
general partnership, and the Company.
21 List of Rainbow's wholly-owned subsidiaries.
23(a) Consent of Independent Auditors.
27 Financial data schedule.
</TABLE>
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the three months ended
December 31, 1999.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RAINBOW TECHNOLOGIES, INC.
By: /s/ WALTER M. STRAUB
------------------------------------
Walter M. Straub
Date: March 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ WALTER M. STRAUB President, Chief Executive March 27, 2000
- ----------------------------------------------------- Officer, and Chairman of the
Walter M. Straub Board
/s/ AVI MARGALITH Vice President, Chief Operating March 27, 2000
- ----------------------------------------------------- Officer
Avi Margalith
/s/ PATRICK E. FEVERY Vice President and Chief March 27, 2000
- ----------------------------------------------------- Financial Officer
Patrick E. Fevery
/s/ ALAN K. JENNINGS Director March 27, 2000
- -----------------------------------------------------
Alan K. Jennings
/s/ RICHARD P. ABRAHAM Director March 27, 2000
- -----------------------------------------------------
Richard P. Abraham
/s/ MARVIN HOFFMAN Director March 27, 2000
- -----------------------------------------------------
Marvin Hoffman
/s/ FREDERICK M. HANEY Director March 27, 2000
- -----------------------------------------------------
Frederick M. Haney
</TABLE>
25
<PAGE> 26
RAINBOW TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income........................... F-4
Consolidated Statements of Shareholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
Schedule II -- Consolidated Valuation and Qualifying
Accounts.................................................. F-24
</TABLE>
F-1
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Rainbow Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Rainbow
Technologies, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Rainbow
Technologies, Inc. at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Ernst & Young LLP
Orange County, California
February 22, 2000
F-2
<PAGE> 28
RAINBOW TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 26,709,000 $ 29,900,000
Marketable securities available-for-sale.................. 1,173,000 6,495,000
Accounts receivable, net of allowance for doubtful
accounts of $579,000 and $291,000 in 1999 and 1998,
respectively........................................... 28,671,000 20,753,000
Inventories............................................... 12,033,000 10,891,000
Unbilled costs and fees................................... 2,916,000 2,740,000
Prepaid expenses and other current assets................. 7,155,000 3,815,000
------------ ------------
Total current assets.............................. 78,657,000 74,594,000
Property, plant and equipment, at cost:
Buildings................................................. 7,497,000 8,580,000
Furniture................................................. 1,703,000 1,338,000
Equipment................................................. 17,060,000 13,738,000
Leasehold improvements.................................... 1,641,000 1,177,000
------------ ------------
27,901,000 24,833,000
Less accumulated depreciation and amortization............ 11,145,000 8,873,000
------------ ------------
Net property, plant and equipment................. 16,756,000 15,960,000
Goodwill, net of accumulated amortization of $12,764,000 and
$11,731,000 in 1999 and 1998, respectively................ 21,498,000 6,318,000
Product licenses, net of accumulated amortization of
$1,749,000 and $1,190,000 in 1999 and 1998,
respectively.............................................. 5,567,000 5,855,000
Other assets, net of accumulated amortization of $2,790,000
and $1,463,000 in 1999 and 1998, respectively............. 8,060,000 7,026,000
------------ ------------
$130,538,000 $109,753,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit............................................ $ 6,000,000 $ --
Accounts payable.......................................... 8,900,000 5,542,000
Payable related to Systematic acquisition................. 1,500,000 --
Accrued payroll and related expenses...................... 6,155,000 5,150,000
Other accrued liabilities................................. 6,927,000 3,861,000
Long-term debt, due within one year....................... 239,000 278,000
------------ ------------
Total current liabilities......................... 29,721,000 14,831,000
Long-term debt, net of current portion...................... 1,014,000 1,458,000
Other liabilities........................................... 1,913,000 1,263,000
Commitments and contingencies............................... -- --
Shareholders' equity:
Common stock, $.001 par value, 20,000,000 shares
authorized, 11,683,979 and 11,773,595 shares issued and
outstanding in 1999 and 1998, respectively............. 12,000 12,000
Additional paid-in capital................................ 28,613,000 30,335,000
Accumulated other comprehensive loss...................... (1,173,000) (447,000)
Retained earnings......................................... 70,438,000 62,301,000
------------ ------------
Total shareholders' equity........................ 97,890,000 92,201,000
------------ ------------
$130,538,000 $109,753,000
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 29
RAINBOW TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
REVENUES:
Software Protection Products........................ $ 59,400,000 $ 57,238,000 $60,125,000
Information Security Products....................... 45,297,000 50,236,000 33,894,000
Internet Products and Services...................... 16,175,000 1,690,000 222,000
Ion Beam Surface Treatment.......................... 217,000 68,000 483,000
------------ ------------ -----------
Total revenues.............................. 121,089,000 109,232,000 94,724,000
OPERATING EXPENSES:
Cost of Software Protection Products................ 17,597,000 16,747,000 17,484,000
Cost of Information Security Products............... 38,410,000 39,360,000 27,228,000
Cost of Internet Products and Services.............. 8,019,000 781,000 109,000
Cost of Ion Beam Surface Treatment.................. 116,000 30,000 419,000
Selling, general and administrative................. 32,970,000 26,377,000 21,735,000
Research and development............................ 10,863,000 10,181,000 8,424,000
Goodwill amortization............................... 2,438,000 2,794,000 1,792,000
Asset impairment charge............................. -- 3,942,000 --
Acquired research and development................... -- 1,500,000 --
------------ ------------ -----------
Total operating expenses.................... 110,413,000 101,712,000 77,191,000
------------ ------------ -----------
Operating income...................................... 10,676,000 7,520,000 17,533,000
Interest income....................................... 862,000 1,375,000 1,605,000
Interest expense...................................... (191,000) (220,000) (255,000)
Other income, net..................................... 1,817,000 247,000 319,000
------------ ------------ -----------
Income before provision for income taxes.............. 13,164,000 8,922,000 19,202,000
Provision for income taxes............................ 5,027,000 6,432,000 7,870,000
------------ ------------ -----------
Net income............................................ $ 8,137,000 $ 2,490,000 $11,332,000
============ ============ ===========
NET INCOME PER SHARE:
Basic............................................... $ 0.71 $ 0.21 $ 0.97
============ ============ ===========
Diluted............................................. $ 0.67 $ 0.21 $ 0.95
============ ============ ===========
SHARES USED IN COMPUTING NET INCOME PER SHARE:
Basic............................................... 11,527,000 11,699,000 11,653,000
============ ============ ===========
Diluted............................................. 12,106,000 11,973,000 11,968,000
============ ============ ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 30
RAINBOW TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
-------------------- PAID-IN COMPREHENSIVE RETAINED TREASURY
SHARES AMOUNT CAPITAL LOSS EARNINGS STOCK TOTAL
---------- ------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996......... 11,663,083 $12,000 $30,682,000 $ (97,000) $48,479,000 $ -- $79,076,000
Exercise of common stock options... 302,396 -- 2,064,000 -- -- -- 2,064,000
Purchase and retirement of common
stock............................ (238,725) -- (2,767,000) -- -- -- (2,767,000)
Purchase of common stock........... -- -- -- -- -- (2,187,000) (2,187,000)
Tax benefit of employee stock
options.......................... -- -- 650,000 -- -- -- 650,000
Other comprehensive loss:
Unrealized loss on marketable
securities (net of deferred
taxes of $158,000)............. -- -- -- (227,000) -- -- (227,000)
Translation adjustment (net of
deferred taxes of
$1,099,000).................... -- -- -- (1,582,000) -- -- (1,582,000)
-----------
Total other comprehensive
loss......................... (1,809,000)
Net income......................... -- -- -- -- 11,332,000 -- 11,332,000
-----------
Comprehensive income............... 9,523,000
---------- ------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997......... 11,726,754 12,000 30,629,000 (1,906,000) 59,811,000 (2,187,000) 86,359,000
Exercise of common stock options... 221,393 -- 1,900,000 -- -- -- 1,900,000
Purchase and retirement of common
stock............................ (41,250) -- (661,000) -- -- -- (661,000)
Retirement of common stock......... (133,302) -- (2,187,000) -- -- 2,187,000 --
Tax benefit of employee stock
options.......................... -- -- 654,000 -- -- -- 654,000
Other comprehensive income:
Unrealized loss on marketable
securities (net of deferred
taxes of $42,000).............. -- -- -- (56,000) -- -- (56,000)
Translation adjustment (net of
deferred taxes of
$1,143,000).................... -- -- -- 1,515,000 -- -- 1,515,000
-----------
Total other comprehensive
income....................... 1,459,000
Net income......................... -- -- -- -- 2,490,000 -- 2,490,000
-----------
Comprehensive income............... 3,949,000
---------- ------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998......... 11,773,595 12,000 30,335,000 (447,000) 62,301,000 -- 92,201,000
Exercise of common stock options... 313,519 -- 3,417,000 -- -- -- 3,417,000
Purchase and retirement of common
stock............................ (559,874) -- (7,974,000) -- -- -- (7,974,000)
Issuance of common stock........... 156,739 -- 2,000,000 -- -- -- 2,000,000
Tax benefit of employee stock
options.......................... -- 835,000 -- -- -- 835,000
Other comprehensive loss:
Unrealized gain on marketable
securities (net of deferred
taxes of $39,000).............. -- -- -- 63,000 -- -- 63,000
Translation adjustment (net of
deferred taxes of $484,000).... -- -- -- (789,000) -- -- (789,000)
-----------
Total other comprehensive
loss......................... (726,000)
Net income......................... -- -- -- -- 8,137,000 -- 8,137,000
-----------
Comprehensive income............... 7,411,000
---------- ------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999......... 11,683,979 $12,000 $28,613,000 $(1,173,000) $70,438,000 $ -- $97,890,000
========== ======= =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 31
RAINBOW TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 8,137,000 $ 2,490,000 $ 11,332,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization............................................. 4,440,000 4,368,000 2,850,000
Depreciation............................................. 3,007,000 3,637,000 2,120,000
Change in deferred income taxes.......................... (764,000) 2,444,000 (3,097,000)
Allowance for doubtful accounts.......................... 434,000 217,000 182,000
Loss from retirement of property, plant, and equipment... 117,000 49,000 32,000
Write-off of long-term investment........................ -- 1,320,000 158,000
Asset impairment charge.................................. -- 3,942,000 45,000
Write-off of capitalized software and developed
software............................................... -- 1,211,000 242,000
Minority interest in subsidiary's earnings............... (891,000) (1,653,000) (448,000)
Write-off of acquired research and development........... -- 1,500,000 --
Provision for loss on contract........................... -- -- 400,000
Changes in operating assets and liabilities:
Accounts receivable.................................... (8,883,000) (5,095,000) (1,587,000)
Inventories............................................ (1,361,000) (1,159,000) (2,811,000)
Unbilled costs and fees................................ (176,000) (958,000) 467,000
Prepaid expenses and other current assets.............. (1,648,000) 478,000 (282,000)
Accounts payable....................................... 3,555,000 517,000 348,000
Accrued liabilities.................................... 4,050,000 1,713,000 4,053,000
Billings in excess of costs and fees................... 1,239,000 (67,000) (227,000)
Income taxes payable................................... (129,000) (2,685,000) (829,000)
------------ ------------ ------------
Net cash provided by operating activities............ 11,127,000 12,269,000 12,948,000
Cash flows from investing activities:
Purchase of marketable securities........................ -- (5,770,000) (11,995,000)
Sale of marketable securities............................ 5,322,000 6,116,000 16,364,000
Purchases of property, plant, and equipment.............. (4,934,000) (5,029,000) (6,749,000)
Net cash paid for acquisition of Wyatt River Software,
Inc.................................................... -- (8,027,000) --
Net cash paid for acquisition of Systematic Systems
Integration, Inc....................................... (9,590,000) -- --
Net cash paid for acquisition of InfoSec Labs, Inc....... (1,647,000) -- --
Net cash paid for acquisition of InfoCal LLC............. (2,965,000) -- --
Investment by new partners in QM Technologies, Inc....... 660,000 1,047,000 --
Other non-current assets................................. (906,000) (1,660,000) (1,130,000)
Capitalized software development costs................... (1,907,000) (1,241,000) (1,493,000)
Purchase of new product line............................. -- -- (7,000,000)
Acquired cash from QM Technologies, Inc.................. -- -- 556,000
------------ ------------ ------------
Net cash used in investing activities................ (15,967,000) (14,564,000) (11,447,000)
Cash flows from financing activities:
Exercise of Rainbow common stock options................. 3,417,000 1,900,000 2,064,000
Borrowing from line of credit............................ 6,000,000 -- --
Payment of long-term debt................................ (306,000) (139,000) (279,000)
Purchase of treasury stock............................... -- (661,000) (2,187,000)
Purchase and retirement of common stock.................. (7,974,000) -- (2,767,000)
------------ ------------ ------------
Net cash provided by (used in) financing
activities........................................ 1,137,000 1,100,000 (3,169,000)
Effect of exchange rate changes on cash.................... 512,000 1,539,000 (511,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents....... (3,191,000) 344,000 (2,179,000)
Cash and cash equivalents at beginning of period........... 29,900,000 29,556,000 31,735,000
------------ ------------ ------------
Cash and cash equivalents at end of period................. $ 26,709,000 $ 29,900,000 $ 29,556,000
============ ============ ============
Supplemental disclosure of cash flow information:
Income taxes paid........................................ $ 1,807,000 $ 6,871,000 $ 9,827,000
Interest paid............................................ 182,000 159,000 259,000
</TABLE>
See accompanying notes.
F-6
<PAGE> 32
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Rainbow Technologies, Inc. (the Company) develops, manufactures, programs
and markets products which prevent the unauthorized use of intellectual
property, including software programs; develops and manufactures information
security products for satellite communications; and develops and manufactures
internet security products to provide privacy and security for network
communications. The accompanying financial statements consolidate the accounts
of the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. Certain amounts previously
reported have been reclassified to conform with the 1999 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial
statements. Actual results could differ from those estimates. Significant
estimates made in preparing these financial statements include the allowance for
doubtful accounts, the reserve for inventory obsolescence, accrued warranty
costs, the allowance for deferred tax assets, total estimated contract costs
associated with billed and unbilled contract revenue and revenue projections
used to estimate future cash flow projections to determine recoverability of the
long-lived assets of Quantum Manufacturing Technologies, Inc. ("QMT").
At December 31, 1999, the Company performed a review for impairment of the
long-lived assets of QMT. The aggregate undiscounted cash flows estimated to be
generated by QMT during the life of its long-lived assets are greater than their
$2.1 million carrying value indicating no impairment exists at December 31,
1999. However, there is uncertainty related to the estimates used to determine
these undiscounted cash flows. The most significant and uncertain of these
estimates is future revenues. A significant shortfall from these revenue
projections could result in these assets becoming impaired as early as June 30,
2000. The Company anticipates performing impairment reviews related to the
long-lived assets of QMT on a quarterly basis in order to monitor the
achievement of its revenue projections.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
All investment securities are considered to be available-for-sale and are
carried at fair value. Management determines classification at the time of
purchase and re-evaluates its appropriateness at each balance sheet date. The
Company's marketable securities consist of tax-exempt and other debt instruments
that bear interest at variable rates. As of December 31, 1999, gross unrealized
losses were $124,000 while gross unrealized losses were $226,000 as of December
31, 1998. There were no material realized gains or losses for the years ended
December 31, 1999, 1998 and 1997. The cost of securities sold is based on the
specific identification method. The Company's portfolio of marketable debt
securities at December 31, 1999 matures during 2012.
SOFTWARE DEVELOPMENT COSTS
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs
F-7
<PAGE> 33
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established
upon completion of a working model. Amortization of capitalized software
development costs commences when the products are available for general release
to customers and are determined using the straight-line method over the expected
useful lives of the respective products.
At December 31, 1999 and 1998, the Company had capitalized computer
software costs, net of amortization, of $3,501,000 and $2,182,000, respectively.
Amortization of computer software development costs for the years ended December
31, 1999, 1998 and 1997 amounted to $588,000, $233,000 and $173,000,
respectively. During 1998 and 1997, the Company wrote-off $784,000 and $242,000,
respectively, of previously capitalized computer software development costs
which were determined to be obsolete.
INVENTORIES
Inventoried costs relating to long-term contracts are stated at the actual
production cost, including pro-rata allocations of factory overhead and general
and administrative costs incurred to date, reduced by amounts identified with
revenue recognized on units delivered. The costs attributed to units delivered
under such long-term contracts are based on the estimated average cost of all
units expected to be produced.
Inventories other than inventoried costs relating to long-term contracts
are stated at the lower of cost (first-in, first-out basis) or market.
PROPERTY, PLANT AND EQUIPMENT
Additions to property, plant, equipment and leasehold improvements are
recorded at cost and depreciated on the straight-line method over their
estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings............................................. 31 years
Furniture............................................. 5 to 7 years
Equipment............................................. 3 to 7 years
Leasehold improvements................................ Term of lease
</TABLE>
INTANGIBLE ASSETS
Intangible assets consisting of goodwill, product licenses and patents are
amortized using the straight-line method over seven to ten years. Goodwill
represents the excess of purchase price over the estimated fair value of assets
acquired.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" (FAS 121), the Company records impairment losses on long-lived
assets used in operations when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets.
REVENUE RECOGNITION
Software Protection Products and Internet Security Products
The Company recognizes revenues from product sales at the time of shipment.
Provision is currently made for estimated product returns which may occur under
programs the Company has with certain of its distributors.
F-8
<PAGE> 34
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Information Security Products
Catalog product revenues and revenues under certain fixed-price contracts
calling for delivery of a specified number of units are recognized as deliveries
are made. Revenues under cost-reimbursement contracts are recognized as costs
are incurred and include estimated earned fees in the proportion that costs
incurred to date bear to total estimated costs. Certain contracts are awarded on
a fixed-price incentive fee basis. Incentive fees on such contracts are
considered when estimating revenues and profit rates and are recognized when the
amounts can reasonably be determined. The costs attributed to units delivered
under fixed-price contracts are based on the estimated average cost per unit at
contract completion. Profits expected to be realized on long-term contracts are
based on total revenues and estimated costs at completion. Revisions to contract
profits are recorded in the accounting period in which the revisions are made.
Estimated losses on contracts are recorded when identified. For research and
development and other cost-plus-fee type contracts, the Company recognizes
contract earnings using the percentage-of-completion method. The estimated
contract revenues are recognized based on percentage-of-completion as determined
by the cost-to-cost basis whereby revenues are recognized ratably as contract
costs are incurred.
WARRANTY
The Company generally warrants its products for one year. An estimate of
the amount required to cover warranty expense on products sold is charged
against income at the time of sale.
ADVERTISING
The Company expenses the costs of advertising as incurred. Advertising
expense was $3,709,000, $2,857,000 and $2,601,000 for 1999, 1998, and 1997,
respectively.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred.
INCOME TAXES
Deferred taxes are provided for items recognized in different periods for
financial and tax reporting purposes in accordance with Financial Accounting
Standards Board Statement No. 109, "Accounting For Income Taxes."
FOREIGN CURRENCY
Balance sheet accounts denominated in foreign currency are translated at
exchange rates as of the date of the balance sheet and income statement accounts
are translated at average exchange rates for the period. Translation gains and
losses are accumulated as a separate component of Shareholders' Equity. The
Company has adopted local currencies as the functional currencies for its
subsidiaries because their principal economic activities are most closely tied
to the respective local currencies.
The Company may enter into foreign exchange contracts as a hedge against
foreign currency denominated receivables. It does not engage in currency
speculation. Foreign currency transaction gains and losses are included in
current earnings. There were no foreign exchange contracts at December 31, 1999
or 1998.
STOCK OPTION PLANS
Effective January 1, 1996, the Company adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS No. 123) and
F-9
<PAGE> 35
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
accordingly, is continuing to account for its stock-based compensation plans
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations. The adoption of SFAS No. 123 had no
impact on the Company's consolidated results of operations or financial
position.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the assumed conversion of all
dilutive securities, consisting of employee stock options.
CONCENTRATIONS OF BUSINESS AND CREDIT RISK
Financial instruments which potentially subject the Company to credit risk
consist principally of trade receivables and interest bearing investments. The
Company performs on-going credit evaluations of its customers and generally does
not require collateral. The Company maintains adequate reserves for potential
losses and such losses, which have historically been minimal, have been included
in management's estimates. The Company places substantially all of its interest
bearing investments with major financial institutions and, by policy, limits the
amount of credit exposure to any one financial institution.
The Company sells the majority of its Software Protection Products and
Internet Products and Services to software developers and wholesale distributors
throughout North America, Europe and Asia Pacific. The majority of the Company's
Information Security Products are sold to the U.S. Government (Note 3). The U.S.
Government accounted for over 68%, 67%, and 52% of contract revenues in 1999,
1998, and 1997, respectively. In addition, approximately 50% and 67% of contract
accounts receivable and 71% and 73% of unbilled costs and fees at December 31,
1999 and 1998, respectively, were related to the U.S. Government.
The Company currently has a manufacturing relationship with Raytheon
Systems Company to manufacture the Company's principal Information Security
Products. Raytheon assumed the obligations of AlliedSignal, Inc. to manufacture
the Information Security Products in September 1998. Raytheon is the sole
supplier of the product. The manufacturing agreement expired in December 1999.
The Company is currently working with other companies to provide additional
manufacturing sources for product. Any interruption in the availability of the
product could have a material adverse effect on the operations of the Company.
Raytheon has also assumed the obligation to complete the development of an
enhanced version of the Company's principal Information Security Products.
Prior to the expiration of the manufacturing agreement with Raytheon, the
Company established a manufacturing relationship with EFTC to manufacture the
Company's principal Information Security products. EFTC is the sole supplier of
the products. The manufacturing agreement expires in December, 2000. The Company
is currently working with other companies to provide additional manufacturing
sources for the products. Any interruption in the availability of the products
would have a material adverse affect on the operations of the Company.
The Company currently has one supplier of the ASIC chip used in the
Company's Internet Products and Services. The Company currently has a
relationship with a chip supplier that has multiple foundries available to
produce the ASIC chip. If the supplier is unable to fulfill the Company's
requirements, the Company may experience an interruption in the production of
its Internet Products and Services until an alternative source of supply is
developed. The Company maintains a six-month inventory of ASIC chips in order to
limit the potential for such an interruption. The Company believes that there
are a number of companies capable of commencing the manufacture of its ASIC
chips within six months of such an interruption.
F-10
<PAGE> 36
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income (loss) depending on whether a
derivative is designed as part of a hedge transaction and, if so, the type of
hedge transaction involved. The Company does not expect that adoption of SFAS
No. 133 will have a material impact on its consolidated financial position or
results of operations.
2. ACQUISITIONS
On October 22, 1999, the Company completed the acquisition of InfoCal LLC
(InfoCal). InfoCal creates collaborative intranet/extranet applications,
knowledge portals and distance learning applications and specializes in
messaging strategy migration and implementation. The total transaction value was
$3.5 million, including $3 million paid in cash and 36,530 shares of Rainbow
common stock valued at $500,000. In addition to the initial consideration, there
is contingent consideration of up to $500,000 in each of the 2000 and 2001
calendar years. The contingent payments are based upon achievement of certain
financial, revenue and strategic goals. Any additional consideration will be
recorded as goodwill. This acquisition has been accounted for using the purchase
method of accounting. Approximately $3.5 million was allocated to goodwill and
is being amortized on a straight-line basis over ten years. Results of
operations for InfoCal are included in the Company's consolidated results of
operations beginning on October 22, 1999.
On September 16, 1999, the Company completed the acquisition of InfoSec
Labs, Inc. (InfoSec). InfoSec has core competency in both enterprise and
internet security solutions and security assessment and education programs. The
total transaction value was $3.1 million, including $1.6 million paid in cash
and 120,209 shares of Rainbow common stock valued at $1.5 million. This
acquisition has been accounted for using the purchase method of accounting.
Approximately $3.1 million was allocated to goodwill and is being amortized on a
straight-line basis over ten years. Results of operations for InfoSec are
included in the Company's consolidated results of operations beginning on
September 16, 1999.
On May 12, 1999, the Company completed the acquisition of Systematic
Systems Integration (Systematic) for an initial purchase price of $9.6 million
in cash with an additional $1.5 million accrued for at December 31, 1999, and
was paid in January 2000. In addition, the purchase agreement provides for
contingent payments of up to $1.7 million. These payments are based upon the
attainment of certain revenue and gross margin goals for calendar year 2000.
This acquisition has been accounted for using the purchase method of accounting.
The entire purchase price has been allocated to goodwill and any additional
consideration paid will also be recorded as goodwill. The goodwill is being
amortized on a straight-line basis over ten years. Systematic is a
California-based eCommerce integration services firm that enables companies to
seamlessly integrate diverse software and hardware platforms, communication
systems and internet technologies. Results of operations for Systematic are
included in the Company's consolidated results of operations beginning on May
12, 1999.
On February 26, 1998, the Company completed the acquisition of Wyatt River
Software, Inc. (Wyatt). Wyatt develops, manufactures, and markets network
license management software. The total transaction value was $9 million,
including $3.9 million paid in cash to Wyatt stockholders and $5.1 million in
assumed liabilities. This acquisition has been accounted for under the purchase
method of accounting. The purchase price has been allocated based upon estimated
fair values at the date of acquisition. Approximately $1.5 million of the
purchase price was written off as in-process research and development at the
acquisition date, approximately $2.7 million was allocated to developed
software, and the remaining $4.8 million was allocated to goodwill and other
intangibles. The goodwill and other intangibles are being amortized on a
F-11
<PAGE> 37
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
straight-line basis over five years. At December 31, 1998 the Company wrote-off
developed software related to the Wyatt acquisition which had a net book value
of $427,000. This amount has been included in research and development expense
for the year ended December 31, 1998. Results of operations for Wyatt were
included in the Company's consolidated results of operations beginning on
February 26, 1998.
On March 6, 1998, the Company entered into an agreement to purchase certain
assets from Elan Computer Group, Inc. (Elan) for $800,000. The assets included
Elan's license manager software technology, which the Company had previously
licensed from Elan, and Elan's end-user maintenance and support relationships.
In connection with the transaction, the Company entered into a Litigation
Cooperation Agreement with Elan in connection with a patent infringement lawsuit
entitled Globetrotter Software, Inc. vs. Elan Computer Group, Inc. No. 97-4176CW
which is currently pending in the United States District court for the Northern
District of California. The action claims that the Elan technology infringes
upon patents owned by Globetrotter. The lawsuit is deemed to include any and all
claims made now or in the future by Globetrotter Software, Inc. Prior to the
asset purchase agreement with Elan, the Company had an investment in Elan of
$1,320,000. The Company owned less than 20% of Elan's stock and accounted for
the investment under the cost method. During the first quarter of fiscal 1998
the Company wrote-off its investment in Elan, as it was determined that the
Company's original investment was fully impaired.
In October 1997, the Company acquired certain assets from AlliedSignal,
Inc. for approximately $7 million in cash comprising AlliedSignal's "KIV-7"
information security product line. The Company is the sole supplier of KIV-7 to
various agencies of the U.S. Government. Simultaneous with the closing of the
asset purchase transaction, the Company entered into a manufacturing and
development agreement with AlliedSignal whereby Allied-Signal will continue to
manufacture current KIV-7 products for the Company, and will complete the
development of an enhanced version of the KIV-7 product. Raytheon assumed this
manufacturing and development agreement in September 1998.
In May 1997, the Company completed its obligations pursuant to a Stock
Purchase Agreement entered into in March 1996 which resulted in the Company
investing approximately $6 million in QMT. QMT, located in Albuquerque, New
Mexico owns an exclusive worldwide license from Sandia National Laboratories for
the commercial use and exploitation of a patented pulsed power ion beam
materials treatment technology known as "IBEST." In the fourth quarter of 1998,
the Company determined that the aggregate estimated future undiscounted
operating cash flows of QMT were less than the carrying amount of long-lived
assets related to QMT. Based on its evaluation, the Company determined the
assets with a carrying value of $6.1 million were impaired and wrote them down
by $3,942,000 to the estimated fair value. Fair value was based on estimated
discounted future operating cash flows of QMT. The FAS 121 charge had no impact
on the Company's 1998 cash flows or its ability to generate cash flows in the
future. As a result of the FAS 121 charges, depreciation and amortization
expense related to those assets will decrease in future periods. As of December
31, 1999, the Company owns a 51% interest in QMT and accordingly recognizes a
minority interest share in its losses. QMT incurred a 1999 loss of approximately
$1.9 million, including a write-off of impaired assets of approximately
$144,000. The Company recognized a minority interest share in the 1999 loss of
approximately $880,000. See Use of Estimates footnote for discussion regarding
the Company's review of QMT long-lived assets for recoverability at December 31,
1999.
3. GOVERNMENT CONTRACTS
The Company is both a prime contractor and subcontractor under fixed-price
and cost reimbursement contracts with the U.S. Government (Government). At the
commencement of each contract or contract modification, the Company submits
pricing proposals to the Government to establish indirect cost rates applicable
to such contracts. These rates, after audit and approval by the Government, are
used to settle costs on contracts completed during the previous fiscal year.
F-12
<PAGE> 38
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
To facilitate interim billings during the performance of its contracts, the
Company establishes provisional billing rates, which are used in recognizing
contract revenue and contract accounts receivable. These provisional billing
rates are adjusted to actual at year-end and are subject to adjustment after
Government audit.
The Company has unbilled costs and fees of $2,916,000 and $2,740,000 at
December 31, 1999 and 1998, respectively. Based on the Company's experience with
similar contracts in recent years, the unbilled costs and fees are expected to
be collected within one year.
4. INVENTORIES
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Inventoried costs relating to long-term contracts, net of
amounts attributed to revenues recognized to date....... $ 4,535,000 $ 5,237,000
Finished goods............................................ 4,804,000 4,426,000
Raw materials............................................. 1,648,000 917,000
Work in process........................................... 1,046,000 311,000
----------- -----------
$12,033,000 $10,891,000
=========== ===========
</TABLE>
General and administrative expenses in inventory at December 31, 1999 and
1998 were $498,000 and $434,000, respectively.
5. LONG-TERM DEBT
Long-term debt consists of a note payable to a bank with principal and
interest at 11.9%, payable quarterly in French Francs. The note matures in
January 2005 and is secured by a building with a net book value of $4,673,000 at
December 31, 1999. Annual principal payments are as follows:
<TABLE>
<S> <C>
2000............................................. $ 239,000
2001............................................. 239,000
2002............................................. 239,000
2003............................................. 239,000
2004............................................. 239,000
Thereafter....................................... 58,000
----------
$1,253,000
==========
</TABLE>
6. LINE OF CREDIT
The Company has a $15 million revolving line of credit which expires on
June 7, 2001. At December 31, 1999, there was $6 million outstanding under the
line of credit. The credit line requires that certain financial ratios be
maintained. Interest on the outstanding balance is designated by the Company and
is computed based on either the prime rate, the fluctuating rate of interest
most recently announced by the lender, or at a fixed rate based on 1.25% above
LIBOR, the reserve percentage prescribed by the Board of Governors of the
Federal Reserve System, at each fixed rate term. The interest rate at December
31, 1999 was 7.75%. The Company also pays the lender an unused commitment fee
computed at one-quarter percent of the average daily unused amount of the line
of credit.
F-13
<PAGE> 39
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive income is comprised of foreign currency
translation adjustment losses of $1,107,000, net of deferred taxes, and
unrealized losses on marketable securities of $66,000, net of deferred taxes.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values presented are estimates of the fair value of the financial
instruments at a specific point in time using available market information and
appropriate valuation methodologies. These estimates are subjective in nature
and involve uncertainties and significant judgment in the interpretation of
current market data. Therefore, the fair values presented are not necessarily
indicative of amounts the Company could realize or settle currently. The Company
does not intend to dispose of or liquidate such instruments prior to maturity.
The carrying values and estimated fair values of the Company's financial
instruments are as follows at December 31:
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Marketable securities............. $1,173,000 $1,173,000 $6,495,000 $6,495,000
Long-term debt.................... 1,253,000 1,459,000 1,736,000 2,052,000
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The Company has purchase commitments with various vendors arising out of
the normal course of business for approximately $8,457,000 as of December 31,
1999. These purchase commitments have terms less than one year.
Annual obligations under non-cancelable operating leases are as follows:
<TABLE>
<S> <C>
2000............................................. $1,442,000
2001............................................. 1,110,000
2002............................................. 608,000
2003............................................. 570,000
2004............................................. 547,000
Thereafter....................................... --
----------
$4,277,000
==========
</TABLE>
Rent expense charged to operations for the years ended December 31, 1999,
1998 and 1997 was $1,743,000, $1,628,000 and $1,663,000, respectively.
Litigation
In September 1998, a patent infringement action was filed against the
Company by Globetrotter, Inc., alleging that certain of the Company's products
infringe patents owned by Globetrotter. The complaint seeks unspecified monetary
damages and a permanent injunction banning the use of the products alleged to
infringe the Globetrotter patents. The Company believes the claims are without
merit, and will vigorously defend against the claims made in the action. The
Company has filed a counter claim against Globetrotter alleging anti-trust and
unfair competition.
In July 1998, a patent infringement claim was filed against the Company by
Andrew Pickholtz, alleging that certain of the Company's products infringe
patents owned by Pickholtz. The complaint seeks unspecified
F-14
<PAGE> 40
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
monetary damages. The Company believes the claims are without merit, and will
vigorously defend against the claims made in the action.
The Company does not believe that any liabilities related to the legal
proceedings to which it is a party are likely to be, individually or in the
aggregate, material to the Company's consolidated condition or results of
operation.
10. STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123 requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
On April 12, 1990, the Board of Directors of the Company approved the
Company's 1990 Stock Option Plan under which non-statutory or incentive stock
options may be granted to key employees and individuals who provide services to
the Company. Up to an aggregate of 450,000 shares of the Company's common stock
were originally authorized for issuance. Options become exercisable and expire
at the discretion of the Board of Directors, although the plan specifies that no
options shall be exercisable prior to 12 months from the date of grant and all
options expire ten years from the date of grant. In June 1993, the shareholders
approved an amendment to the Company's Restated 1990 Stock Option Plan
authorizing the issuance of an additional 450,000 shares of common stock. In May
1995, an additional increase of 750,000 was approved and in June 1997 an
additional increase of 750,000 was approved. As of December 31, 1999 the total
number of shares reserved for issuance under the existing stock option plans
were 3,453,000 and the total number of options available for grant was 255,000.
The following is a summary of changes in options outstanding pursuant to
the plan for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- --------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- -------------- ---------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of
year...................... 2,779,869 $10.98 2,409,674 $10.35 2,012,583 $ 9.54
Granted................... 999,725 12.11 727,650 12.44 886,800 11.30
Exercised................. (313,519) 10.90 (221,393) 8.58 (302,396) 6.84
Forfeited and Expired..... (268,120) 12.38 (136,062) 11.40 (187,313) 11.79
--------- ------ ---------- ------ --------- ------
Outstanding -- end of
year...................... 3,197,955 $11.23 2,779,869 $10.98 2,409,674 $10.35
========= ========== =========
Exercisable at end of
year...................... 1,633,323 $10.52 1,428,130 $10.18 1,069,083 $ 9.61
Weighted-average fair value
of options granted during
the year.................. $5.55 $4.85 $4.37
</TABLE>
F-15
<PAGE> 41
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$4.00 to 5.82.. 31,321 1.1 $ 4.35 31,066 $ 4.33
7.33 to 10.31.. 914,178 5.9 9.05 720,964 8.77
11.00 to
15.92........ 2,251,456 8.1 12.21 881,293 12.17
16.88 to
16.88........ 1,000 9.9 16.88 -- --
</TABLE>
The weighted average remaining contractual life of stock options
outstanding at December 31, 1999, 1998 and 1997 was 7.4 years, 7.6 years and 8.0
years, respectively.
Pro forma information regarding net income and earnings per share is
required by SFAS 123 and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1999, 1998 and 1997: risk free interest rate of 5.6% for 1999,
4.8% for 1998 and 5.7% for 1997; dividend yield of 0% for 1999, 1998 and 1997;
volatility factor of the expected market price of the Company's common stock of
0.51 for 1999, 0.42 for 1998 and 0.39 for 1997; and a weighted-average life of
the option of 4.0 years for 1999, 1998 and 1997.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Pro forma net income.......................... $6,568,000 $1,305,000 $10,120,000
Pro forma earnings per share:
Basic....................................... $ .57 $ .11 $ .87
Diluted..................................... $ .54 $ .11 $ .85
</TABLE>
The results above are not likely to be representative of the effects of
applying SFAS 123 on reported net income or loss for future years as these
amounts reflect the expense for only one to three years vesting.
11. SHAREHOLDER'S RIGHTS PLAN
In July 1997, the Board of Directors of the Company adopted a Shareholder's
Rights Plan. In doing so, the Board of Directors declared a dividend of one
right (a "Right") for each outstanding share of the Company's Common Stock, as
of August 5, 1997 and subsequently with respect to each subsequent issuance of a
share of Common Stock. Following a "Distribution Date," each holder of a Right
is entitled to purchase, at a stated purchase price, shares of the Company's
Common Stock or other property having a value equal to two times the purchase
price. A Distribution Date will occur on the earlier of (i) the tenth day after
a public announcement that a person other than the Company or its affiliates has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding Common Stock (such person thereby
F-16
<PAGE> 42
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
becoming an "Acquiring Person"), or (ii) the tenth business day after the date
of the commencement of, or first public announcement of the intent of any person
to commence a tender or exchange offer, the consummation of which would result
in such person becoming an Acquiring Person. Following a Distribution Date, the
Rights of an Acquiring Person are null and void and not exercisable. Outstanding
Rights are redeemable by the Board of Directors at any time prior to a
Distribution Date at a redemption price of $0.01 per Right. The Rights will
expire at the close of business on August 5, 2002, unless earlier exercised by
the holder or redeemed by the Company.
12. INCOME TAXES
The provision for income taxes consists of the following for the years
ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal..................................... $4,227,000 $2,096,000 $ 7,447,000
State....................................... 716,000 562,000 1,362,000
Foreign..................................... 848,000 1,330,000 2,158,000
---------- ---------- -----------
5,791,000 3,988,000 10,967,000
Deferred:
Federal..................................... (813,000) 2,311,000 (2,605,000)
State....................................... 49,000 266,000 (254,000)
Foreign..................................... -- (133,000) (238,000)
---------- ---------- -----------
(764,000) 2,444,000 (3,097,000)
---------- ---------- -----------
$5,027,000 $6,432,000 $ 7,870,000
========== ========== ===========
</TABLE>
A reconciliation of the statutory federal income tax provision to the
actual provision follows for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Statutory federal income tax expense.......... $ 4,607,000 $3,122,000 $6,721,000
State taxes, net of federal benefit........... 569,000 518,000 720,000
Non-deductible amortization of goodwill....... 431,000 969,000 627,000
Non-deductible subsidiary loss................ 313,000 601,000 --
In-process research and development
write-off................................... -- 525,000 --
Write-off long-term investment................ -- 455,000 --
Effect of foreign operations, net............. (1,217,000) (54,000) (19,000)
Non-deductible merger related costs........... -- -- (57,000)
Research and experimentation credit........... -- -- (119,000)
Municipal interest............................ (22,000) -- (209,000)
Other, net.................................... 346,000 296,000 206,000
----------- ---------- ----------
$ 5,027,000 $6,432,000 $7,870,000
=========== ========== ==========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-17
<PAGE> 43
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Significant components of the Company's deferred tax assets and liabilities
are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves not currently tax deductible...... $ 1,862,000 $ 1,472,000
Contract revenue recognized for tax reporting
purposes............................................. 1,238,000 1,439,000
Cumulative translation adjustment....................... 646,000 --
State taxes not currently deductible.................... 521,000 456,000
Foreign tax loss carryforwards.......................... 517,000 527,000
----------- -----------
Total deferred tax assets.......................... 4,784,000 3,894,000
Valuation allowance for deferred tax assets............. (517,000) (527,000)
----------- -----------
4,267,000 3,367,000
Deferred tax liabilities:
Tax depreciation........................................ (1,894,000) (1,661,000)
Amortization of intangibles............................. (893,000) (423,000)
Book/tax basis difference in Wyatt River assets......... (201,000) (296,000)
Accruals without tax effect............................. (83,000) (188,000)
Cumulative translation adjustment....................... -- (367,000)
----------- -----------
Total deferred tax liabilities..................... (3,071,000) (2,935,000)
----------- -----------
Net deferred tax asset.................................... $ 1,196,000 $ 432,000
=========== ===========
</TABLE>
United States and foreign earnings before income taxes are as follows for
the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
United States................................ $ 7,262,000 $5,348,000 $15,400,000
Foreign...................................... 5,902,000 3,574,000 3,802,000
----------- ---------- -----------
$13,164,000 $8,922,000 $19,202,000
=========== ========== ===========
</TABLE>
The Company realized tax benefits of $835,000, $654,000, and $650,000 in
1999, 1998 and 1997, respectively, from the exercise of non-qualified stock
options and disqualifying disposition of incentive stock options.
13. BENEFIT PLANS
At December 31, 1999, the Company sponsored two tax deferred defined
contribution plans for all eligible US employees. Under both plans, the employer
matches certain employee contributions. During the years ended December 31,
1999, 1998 and 1997, Company contributions under both Plans totaled
approximately $453,000, $476,000, and $368,000, respectively.
14. RELATED PARTY TRANSACTIONS
There were no purchases of services from companies controlled by directors
of the Company for the year ended December 31, 1999 and $39,000 and $273,000,
respectively, for the years ended December 31, 1998 and 1997. The former
shareholders of Systematic have been employed by the Company since May, 1999.
See Note 2.
F-18
<PAGE> 44
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
15. INDUSTRY SEGMENTS
The Company operates in three industry segments. The first segment is the
development and sale of devices which protect data and software from
unauthorized use (Software Protection Products segment). The second segment is
the development and sale of information security products to provide privacy and
security for voice communication and data transmission (Information Security
Products segment). The third segment is the development and sale of products
which accelerate performance of security servers and provide access control to
computer networks, Internet Websites and virtual private networks, and services
that enable companies to integrate diverse software and hardware platforms
(Internet Products and Services).
A summary of the Company's operations by industry segment follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
INTERNET
SOFTWARE INFORMATION PRODUCTS AND
PROTECTION SECURITY SERVICES OTHER/ELIMIN CONSOLIDATED
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
External customers.................... $59,400,000 $45,297,000 $16,175,000 $ 217,000 $121,089,000
Intersegment.......................... 95,000 1,869,000 -- (1,964,000) --
Operating income (loss)................. 11,850,000 5,917,000 (5,275,000) (1,816,000) 10,676,000
Interest expense........................ 177,000 3,000 11,000 -- 191,000
Interest income......................... 671,000 174,000 12,000 5,000 862,000
Income tax expense...................... 2,802,000 2,217,000 8,000 -- 5,027,000
Capital expenditures.................... 2,319,000 1,661,000 1,016,000 (62,000) 4,934,000
Identifiable assets..................... 110,899,000 32,165,000 29,561,000 (42,087,000) 130,538,000
Significant non-cash items:
Changes in deferred taxes............. (764,000) -- -- -- (764,000)
Depreciation and amortization......... 4,289,000 1,530,000 1,859,000 (231,000) 7,447,000
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------
INTERNET
SOFTWARE INFORMATION PRODUCTS AND
PROTECTION SECURITY SERVICES OTHER/ELIMIN CONSOLIDATED
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
External customers.................... $57,238,000 $50,236,000 $ 1,690,000 $ 68,000 $109,232,000
Intersegment.......................... -- 1,224,000 11,000 (1,235,000) --
Operating income (loss)................. 3,098,000 9,862,000 (3,824,000) (1,616,000) 7,520,000
Interest expense........................ 220,000 -- -- -- 220,000
Interest income......................... 1,111,000 264,000 -- -- 1,375,000
Income tax expense...................... 3,974,000 3,949,000 (1,491,000) -- 6,432,000
Capital expenditures.................... 1,705,000 1,014,000 973,000 1,337,000 5,029,000
Identifiable assets..................... 86,860,000 31,104,000 634,000 (8,845,000) 109,753,000
Significant non-cash items:
Changes in deferred taxes............. 2,068,000 376,000 -- -- 2,444,000
Depreciation and amortization......... 4,911,000 1,346,000 212,000 1,536,000 8,005,000
Asset impairment charge............... -- -- -- 3,942,000 3,942,000
Write-off of in-process research and
development......................... 1,500,000 -- -- -- 1,500,000
</TABLE>
F-19
<PAGE> 45
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------
INTERNET
SOFTWARE INFORMATION PRODUCTS
PROTECTION SECURITY AND SERVICES OTHER/ELIMIN CONSOLIDATED
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
External customers.................... $60,125,000 $33,894,000 $ 222,000 $ 483,000 $ 94,724,000
Intersegment.......................... -- 1,789,000 -- (1,789,000) --
Operating income (loss)................. 15,392,000 6,192,000 (2,906,000) (1,145,000) 17,533,000
Interest expense........................ 255,000 -- -- -- 255,000
Interest income......................... 1,430,000 144,000 -- 31,000 1,605,000
Income tax expense...................... 6,478,000 2,554,000 (1,162,000) -- 7,870,000
Capital expenditures.................... 1,094,000 1,431,000 408,000 3,816,000 6,749,000
Identifiable assets..................... 84,134,000 27,847,000 633,000 (9,563,000) 103,051,000
Significant non-cash items:
Changes in deferred taxes............. (1,042,000) (2,055,000) -- -- (3,097,000)
Depreciation and amortization......... 3,840,000 614,000 193,000 323,000 4,970,000
</TABLE>
F-20
<PAGE> 46
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
A summary of the Company's operations by geographic area follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------
UNITED STATES NETHERLANDS FRANCE UNITED KINGDOM EUROPE
------------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers................ $94,379,000 $12,426,000 $ 4,644,000 $ 4,350,000 $ 2,844,000
Transfers between
geographic areas......... 4,126,000 6,627,000 629,000 -- --
----------- ----------- ----------- ----------- -----------
Revenues............... $98,505,000 $19,053,000 $ 5,273,000 $ 4,350,000 $ 2,844,000
=========== =========== =========== =========== ===========
Operating income (loss).... $ 2,213,000 $ 9,997,000 $ (634,000) $ 6,000 $ (771,000)
Identifiable assets........ 96,930,000 8,702,000 16,769,000 4,457,000 1,564,000
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------------
ASIA-PACIFIC ELIMINATION CONSOLIDATED
------------ ------------ ------------
<S> <C> <C> <C>
Sales to unaffiliated
customers................ $2,446,000 $ -- $121,089,000
Transfers between
geographic areas......... 95,000 (11,477,000) --
---------- ------------ ------------
Revenues............... $2,541,000 $(11,477,000) $121,089,000
========== ============ ============
Operating income (loss).... $ (75,000) $ (60,000) $ 10,676,000
Identifiable assets........ 2,346,000 (230,000) 130,538,000
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------
UNITED STATES NETHERLANDS FRANCE UNITED KINGDOM EUROPE
------------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers................ $87,649,000 $ 8,508,000 $ 4,735,000 $ 5,051,000 $ 3,246,000
Transfers between
geographic areas......... 3,160,000 4,028,000 661,000 1,358,000 93,000
----------- ----------- ----------- ----------- -----------
Revenues............... $90,809,000 $12,536,000 $ 5,396,000 $ 6,409,000 $ 3,339,000
=========== =========== =========== =========== ===========
Operating income (loss).... $ 4,162,000 $ 5,117,000 $(1,838,000) $ 1,070,000 $(1,199,000)
Identifiable assets........ 78,240,000 5,938,000 19,762,000 4,994,000 896,000
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------------
ASIA-PACIFIC ELIMINATION CONSOLIDATED
------------ ------------ ------------
<S> <C> <C> <C>
Sales to unaffiliated
customers................ $ 43,000 $ -- $109,232,000
Transfers between
geographic areas......... -- (9,300,000) --
---------- ------------ ------------
Revenues............... $ 43,000 $ (9,300,000) $109,232,000
========== ============ ============
Operating income (loss).... $ 8,000 $ 200,000 $ 7,520,000
Identifiable assets........ 93,000 (170,000) 109,753,000
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------
UNITED STATES NETHERLANDS FRANCE UNITED KINGDOM EUROPE
------------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers................ $74,972,000 $ 133,000 $ 5,193,000 $11,332,000 $ 3,094,000
Transfers between
geographic areas......... 4,226,000 -- 927,000 1,692,000 --
----------- ----------- ----------- ----------- -----------
Revenues............... $79,198,000 $ 133,000 $ 6,120,000 $13,024,000 $ 3,094,000
=========== =========== =========== =========== ===========
Operating income (loss).... $13,163,000 $ 33,000 $ (879,000) $ 4,940,000 $ 316,000
Identifiable assets........ 77,508,000 938,000 17,411,000 6,361,000 1,203,000
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------------
ASIA-PACIFIC ELIMINATION CONSOLIDATED
------------ ------------ ------------
<S> <C> <C> <C>
Sales to unaffiliated
customers................ $ -- $ -- $ 94,724,000
Transfers between
geographic areas......... -- (6,845,000) --
---------- ------------ ------------
Revenues............... $ -- $ (6,845,000) $ 94,724,000
========== ============ ============
Operating income (loss).... $ -- $ (40,000) $ 17,533,000
Identifiable assets........ -- (370,000) 103,051,000
</TABLE>
Geographic information for Europe encompasses the Company's operations in
Germany and Russia while Asia-Pacific encompasses the Company's operations in
China, Taiwan and Australia. In determining operating income for each geographic
area, sales and purchases between geographic areas have been accounted for on
the basis of internal transfer prices set by the Company. Identifiable assets
are those tangible and intangible assets used in operations in each geographic
area.
F-21
<PAGE> 47
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
16. SUPPLEMENTARY QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Software Protection Products........ $14,275,000 $15,067,000 $14,273,000 $15,785,000
Information Security Products....... 11,049,000 11,029,000 9,910,000 13,309,000
Internet Products and Services...... 735,000 3,268,000 5,862,000 6,310,000
Ion Beam Surface Treatment.......... 27,000 60,000 120,000 10,000
----------- ----------- ----------- -----------
Total revenues.............. $26,086,000 $29,424,000 $30,165,000 $35,414,000
=========== =========== =========== ===========
COST OF REVENUES:
Software Protection Products........ $ 3,994,000 $ 4,565,000 $ 4,096,000 $ 4,942,000
Information Security Products....... 10,270,000 9,746,000 8,117,000 10,277,000
Internet Products and Services...... 442,000 1,217,000 2,903,000 3,457,000
Ion Beam Surface Treatment.......... 26,000 7,000 6,000 77,000
----------- ----------- ----------- -----------
Total cost of revenues...... $14,732,000 $15,535,000 $15,122,000 $18,753,000
=========== =========== =========== ===========
Operating income...................... $ 1,552,000 $ 2,524,000 $ 2,944,000 $ 3,656,000
Net income............................ 1,285,000 1,690,000 2,075,000 3,087,000
Net income per share:
Basic............................... $ .11 $ .15 $ .18 $ .27
Diluted............................. .10 .15 .18 .25
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998(1) 1998 1998 1998(2)
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Software Protection Products........ $14,171,000 $14,450,000 $14,250,000 $14,367,000
Information Security Products....... 10,801,000 12,211,000 12,297,000 14,927,000
Internet Products and Services...... 48,000 91,000 201,000 1,350,000
Ion Beam Surface Treatment.......... 10,000 8,000 9,000 41,000
----------- ----------- ----------- -----------
Total revenues.............. $25,030,000 $26,760,000 $26,757,000 $30,685,000
=========== =========== =========== ===========
COST OF REVENUES:
Software Protection Products........ $ 3,555,000 $ 3,859,000 $ 4,364,000 $ 4,969,000
Information Security Products....... 8,573,000 9,235,000 9,513,000 12,039,000
Internet Products and Services...... 32,000 179,000 107,000 463,000
Ion Beam Surface Treatment.......... 20,000 -- 1,000 9,000
----------- ----------- ----------- -----------
Total cost of revenues...... $12,180,000 $13,273,000 $13,985,000 $17,480,000
=========== =========== =========== ===========
Operating income (loss)............... $ 2,103,000 $ 4,394,000 $ 3,804,000 $(2,781,000)
Net income (loss)..................... (619,000) 2,869,000 2,601,000 (2,361,000)
Net income (loss) per share:
Basic............................... $ (.05) $ .25 $ .22 $ (.20)
Diluted............................. (.05) .23 .21 (.20)
</TABLE>
(1) The results of operations for the quarter ended March 31, 1998 reflects a
$1.5 million write-off of acquired in-process research and development and a
$1.3 million write-off of a fully impaired investment.
(2) The results of operations for the quarter ended December 31, 1998 reflects
an asset impairment charge of $3.9 million.
F-22
<PAGE> 48
RAINBOW TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
The Company has restated its Form 10-Q's for the three month periods ended
March 31, June 30, and September 30, 1998. The above quarterly financial data is
derived from the restated Form 10-Q's, as applicable. In September 1998, the
Securities and Exchange Commission issued a letter to the American Institute of
Certified Public Accountants wherein a new suggested valuation method for
in-process research and development determination was provided. The new
valuation method was to be retroactively applied to all acquisitions in 1998.
Accordingly, during the fourth quarter of 1998 the Company performed a new
valuation analysis related to the acquisition of Wyatt in February, 1998 (see
note 2 to the Notes to Consolidated Financial Statements), which resulted in the
Company adjusting the write-off taken in the first quarter of 1998 related to
in-process research and development acquired in the Wyatt acquisition.
Net income per share is computed independently for each of the quarters
presented and the summation of quarterly amounts may not equal the total net
income per share reported for the year.
F-23
<PAGE> 49
RAINBOW TECHNOLOGIES, INC.
SCHEDULE II -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
BALANCE AT DEDUCTIONS/ BALANCE AT
BEGINNING RECOVERIES AND END OF
DESCRIPTION OF YEAR ADDITIONS WRITE-OFFS YEAR
----------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C>
For the year ended December 31:
1999
Allowance for doubtful accounts receivable... $291,000 $434,000 $(146,000) $579,000
1998
Allowance for doubtful accounts receivable... $500,000 $217,000 $(426,000) $291,000
1997
Allowance for doubtful accounts receivable... $330,000 $182,000 $ (12,000) $500,000
</TABLE>
F-24
<PAGE> 50
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2(i) Agreement and Plan of Reorganization, dated as of January 26,
1995 among the Company, Rainbow Acquisition Inc., a California
corporation and a wholly owned subsidiary of Rainbow, and
Mykotronx, Inc., a California corporation ("Mykotronx")
(incorporated by reference to the Company's Registration
Statement on Form S-4 under the Securities Act of 1933, as
amended, effective on April 20, 1995, Registration No.
33-89918).
2(ii) Agreement and Plan of Merger, dated September 30, 1996, by and
among the Company, RNBO Acquisition Corporation, a Nevada
corporation and a wholly-owned subsidiary of the Company, and
Software Security, Inc., a Connecticut corporation
(incorporated by reference to Exhibit 2(ii) of the Company's
1996 Annual Report on Form 10-K under the Securities Exchange
Act of 1934 filed in March 1997 (the "1996 10-K")).
2(iii) Agreement and Plan of Merger, dated March 6, 1998, by and
among the Company, WRS Acquisition Corp, a California
corporation and wholly owned subsidiary of the Company, and
Wyatt River Software, Inc. (incorporated by reference to
Exhibit 2(iii) of the Company's 1997 Annual Report on Form
10-K under the Securities Exchange Act of 1934 filed in March
1998 (the "1997 10-K")).
3(i) Articles of Incorporation of Rainbow, as amended (incorporated
by reference to Exhibit 3(a) to Rainbow's Registration
Statement on Form S-18 under the Securities Act of 1933, as
amended, filed on July 20, 1987 -- File No. 33-15956-LA (the
"S-18 Registration Statement")).
3(ii) By-Laws of Rainbow (incorporated by reference to Exhibit 3(b)
to the S-18 Registration Statement).
4(a) See Exhibit 3(i).
4(b) See Exhibit 3(ii).
4(c) Rights Agreement, dated as of July 29, 1997, between the
Company and U.S. Stock Transfer Corporation, as Rights Agent
(incorporated by reference to Exhibit 4(c) to the Company's
1997 10-K).
10(a) Lease for premises at 50 Technology Drive, Irvine, California,
dated June 1, 1995, between the Company and Birtcher Medical
Systems, Inc., a California corporation (filed as an exhibit
to the Company's 1995 Form 10-K).
10(b) Agreement, dated October 1996, between the Company and
National Semiconductor Corporation (incorporated by reference
to Exhibit 10(b) of the Company's 1998 Annual Report on Form
10-K under the Securities Exchange Act of 1934 filed in
March, 1999 (the "1998 10-K")).
10(c) Agreement, dated December 1998, between the Company and EM
Microelectronic -- Marin S.A. (incorporated by reference to
Exhibit 10(c) of the 1998 10-K).
10(d) 1990 Incentive Stock Option Plan as amended (incorporated by
reference to Exhibit 10(j) of the 1991 10-K).
10(e) Employment Agreement, dated February 16, 1990, between the
Company and Walter W. Straub (incorporated by reference to
Exhibit 10(j) of the 1989 10-K).
10(f) Change of Control Agreement, dated February 16, 1990, between
the Company and Walter W. Straub (incorporated by reference to
Exhibit 10(k) of the 1989 10-K).
10(g) Employment Agreement, dated January 15, 1992, between the
Company and Peter M. Craig (incorporated by reference to
Exhibit 10(m) of the 1991 10-K).
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10(h) Change of Control Agreement, dated January 15, 1992, between
the Company and Peter M. Craig (incorporated by reference to
Exhibit 10(n) of the 1991 10-K).
10(i) Employment Agreement, dated January 5, 1995, between the
Company and Norman L. Denton, III (incorporated by reference
to Exhibit 10(j) of the Company's 1994 Annual Report on Form
10-K under the Securities Exchange Act of 1934, filed in March
1995 (the "1994 10-K")).
10(j) Change of Control Agreement, dated January 5, 1995, between
the Company and Norman L. Denton, III (incorporated by
reference to Exhibit 10(k) to the 1994 10-K).
10(k) Employment Agreement, dated January 5, 1995, between the
Company and Patrick E. Fevery (incorporated by reference to
Exhibit 10(l) of the 1994 10-K).
10(l) Change of Control Agreement, dated January 5, 1995, between
the Company and Patrick E. Fevery (incorporated by reference
to Exhibit 10(m) of the 1994 10-K).
10(m) Employment Agreement, dated January 5, 1995, between the
Company and Paul A. Bock (incorporated by reference to Exhibit
10(n) of the 1994 10-K).
10(n) Change of Control Agreement, dated January 5, 1995, between
the Company and Paul A. Bock (incorporated by reference to
Exhibit 10(o) of the 1994 10-K).
10(o) Employment Agreement, dated April 7, 1997, between the Company
and Aviram Margalith (incorporated by reference to Exhibit
10(o) of the 1997 10-K).
10(p) Change of Control Agreement, dated April 7, 1997, between the
Company and Aviram Margalith (incorporated by reference to
Exhibit 10(p) of the 1997 10-K).
10(q) Employment Agreement, dated January 1, 1998, between the
Company and Laurie Casey (incorporated by reference to Exhibit
10(q) of the 1997 10-K).
10(r) Change of Control Agreement, dated January 1, 1998, between
the Company and Laurie Casey (incorporated by reference to
Exhibit 10(r) of the 1997 10-K).
10(s) Employment Agreement, dated January 1, 1998, between the
Company and Richard Burris (incorporated by reference to
Exhibit 10(s) of the 1997 10-K).
10(t) Change of Control Agreement, dated January 1, 1998, between
the Company and Richard Burris (incorporated by reference to
Exhibit 10(t) of the 1997 10-K).
10(u) Manufacturing Agreement, dated September 30, 1997, between
AlliedSignal, Inc. and Mykotronx, Inc. (incorporated by
reference to Exhibit 10(u) of the 1998 10-K).
10(v) Development Agreement, dated September 30, 1997, between
AlliedSignal, Inc. and Mykotronx, Inc. (incorporated by
reference to Exhibit 10(v) of the 1998 10-K).
10(w) Agreement for Design and Product Purchase, dated September 4,
1997, between IBM Microelectronics and Rainbow Technologies,
Inc. and Mykotronx, Inc. (incorporated by reference to Exhibit
10(w) of the 1998 10-K).
10(x) Leases for premises at 357, 359 and 371 Van Ness Way,
Torrance, California, dated September 8, 1993, September 25,
1996 and October 2, 1997, respectively, between Surf
Management Associates, a California Limited Partnership, and
Mykotronix, Inc., a California corporation.
10(y) Lease for premises at 111 West Ocean Boulevard, Long Beach,
California, dated November 24, 1999, between Stevens Creek
Associates, a California general partnership, and the Company.
21 List of Rainbow's wholly-owned subsidiaries.
23(a) Consent of Independent Auditors.
27 FINANCIAL DATA SCHEDULE.
</TABLE>
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the three months ended December
31, 1999.
<PAGE> 1
[SURF MANAGEMENT, INC. LETTERHEAD]
July 15, 1999
Mr. Ted Bettwy
Mykotronx, Inc.
357 Van Ness Way
200
Torrance, CA 90501
RE: CONSUMER PRICE INDEX (C.P.I.) ADJUSTMENT
Dear Bob:
According to the terms of your lease agreement, you have a rent adjustment on
September 1, 1999.
This rental adjustment is based on the change in the Consumer Price Index (CPI)
for the period June 1998 to June 1999. The CPI for this period has increased
2%, representing an increase of $445.00. However, your lease provides for the
increase to be 50% of the comparison index. This will reduce your increase to
$223.00.
Therefore, effective September 1, 1999 your rent will be $22,489.00 per month.
We will send you a statement reflecting the increase.
Sincerely,
SURF MANAGEMENT ASSOCIATES
BY: SURF MANAGEMENT, INC.
BY: /s/ STEVEN P. FECHNER
- ---------------------------------------
Steven P. Fechner, President
357 Van Ness Way, Suite 100, Torrance, California 90501-1487
Post Office Box 3217, Torrance, California 90510-3217
Ph. (310) 533-5900 Fax (310) 533-0775
<PAGE> 2
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("First Amendment") is made and entered into as
of this 4th day of March 1997, by and between Surf Management Associates, a
California Limited Partnership ("Lessor") and Mykotronx, Inc. a California
Corporation ("Lessee")
RECITALS
A. Lessor and Lessee entered into that certain Lease Agreement dated as of
September 8, 1993 (the "Lease"), whereby Lessor leased to Lessee
approximately 19,335 rentable square feet of office space located in
Suite #200 (entire 2nd floor) at 357 Van Ness Way, Torrance, California
90501.
B. Lessor and Lessee now desire to amend the Lease as herein set forth:
1. Lessee will occupy an additional 105 sq. ft. of space known as
Suite #27
2. The Lease shall be modified as follows:
A. Para. 1.2(a) Premises; is hereby amended by deleting 19,335
sq. ft. and substituting 19,440 sq. ft.
B. Para. 1.5 Base Rent; is hereby amended by deleting $21,762
and substituting $21,881 per month. Lessee shall have annual
adjustments in accordance with Para. 49.d of the lease.
C. Para. 1.6(b) Common Area Operating Expenses; is hereby
amended by deleting 9.6% and substituting 9.75%
3. All changes in the First Addendum to Lease to become effective
March 1, 1997.
4. Except as set forth in the First Amendment to Lease, the Lease
shall remain unchanged and in full force and effect.
Now, therefore, the parties hereto have executed this First Amendment as of the
date set forth below.
LESSOR: MADISON AVENUE NORTH LESSEE: MYKOTRONX, INC.
a California Limited Partnership a California Corporation
BY: /s/ STEVEN P. FECHNER BY: THEODORE S. BETTWY
---------------------------------- ------------------------------------
Steven P. Fechner, President Theodore S. Bettwy, President
<PAGE> 3
[SURF MANAGEMENT, INC. LETTERHEAD]
September 27, 1996
Mr. Ted Bettwy
Mykotronx, Inc.
357 Van Ness Way #200
Torrance, CA 90501
RE: Lease Extension dated September 25, 1996 for
357 Van Ness Way, #200, Torrance, Ca. 90501
Dear Mr. Bettwy:
This letter will document our additional agreement that, subject to execution of
the above referenced lease by Lessor and Lessee, and in consideration of
Lessee's faithful performance of the terms and conditions of this Lease, rent
for September 2001 and five-twelfths (5/12) January 2002 of the lease term will
be abated. Lessee shall continue to pay all other charges defined in the lease,
including, but not limited to Common Area Operating Expenses and Trash.
It's a pleasure working with you to accommodate your additional leasing
requirements.
Sincerely,
SURF MANAGEMENT ASSOCIATES
BY: SURF MANAGEMENT, INC.
BY: /s/ STEVEN P. FECHNER
- ---------------------------------------
Steven P. Fechner, President
357 Van Ness Way, Suite 100, Torrance, California 90501-1487
Post Office Box 3217, Torrance, California 90510-3217
Ph. (310) 533-5900 Fax (310) 533-0775
<PAGE> 4
PLEASE SIGN AND RETURN BOTH
COPIES. A FULLY EXECUTED COPY
WILL BE RETURNED TO YOU.
LEASE EXTENSION
RE: 357 VAN NESS WAY, #200, TORRANCE, CA. 90501
- --------------------------------------------------------------------------------
DATE: September 25, 1996
The undersigned hereby agree to extend that certain Lease dated SEPTEMBER 8,
1993 between SURF MANAGEMENT ASSOCIATES and MYKOTRONX, INC. for ONE (1) YEAR
AND FIVE (5) MONTH(s) commencing SEPTEMBER 1, 2000 and ending JANUARY 31, 2002
at a monthly rent of *SEE BELOW payable in advance on the first day of each
month.
*The rental rate shall be the same rate as in effect on August 31, 2000 plus
CPI adjustment September 1, 2000. Lessee shall have another CPI adjustment
effective September 1, 2001 per Para. 46.d of the lease.
ALL OTHER TERMS AND CONDITIONS OF SAID LEASE WILL REMAIN IN FULL FORCE AND
EFFECT AND ARE IN NO WAY AFFECTED BY RENEWAL.
LESSEE: MYKOTRONX, INC.
BY: /s/ THEODORE S. BETTWY DATE: 30 Oct 96
---------------------------------- ----------------
Theodore S. Bettwy, President
LESSOR: SURF MANAGEMENT ASSOCIATES
BY: SURF MANAGEMENT, INC.
BY: /s/ STEVEN P. FECHNER DATE: October 3, 1996
---------------------------------- ----------------
Steven P. Fechner, President
<PAGE> 5
[SURF MANAGEMENT, INC. LETTERHEAD]
MAY 3, 1995
Mr. Ted Bettwy
Mkyotronx, Inc.
357 Van Ness Way, #200
Torrance, CA 90501
RE: Lease extension dated April 28, 1995 for
357 Van Ness Way, #200, Torrance, Ca. 90501
Dear Mr. Bettwy:
This letter will document our additional agreement that, subject to execution
of the above referenced lease by Lessor and Lessee, and in consideration of
Lessee's faithful performance of the terms and conditions of this Lease, rent
for the months of September 1998, September 1999 and August 2000 will be abated.
It is a pleasure working with you on your expansion requirements and we look
forward to a long and lasting relationship.
Sincerely,
SURF MANAGEMENT ASSOCIATES
BY: SURF MANAGEMENT, INC.
BY: /s/ STEVEN P. FECHNER
- ---------------------------------------
Steven P. Fechner, President
357 Van Ness Way, Suite 100, Torrance, California 90501-1487
Post Office Box 3217, Torrance, California 90510-3217
Ph. (310) 533-5900 Fax (310) 533-0775
<PAGE> 6
PLEASE SIGN AND RETURN BOTH
COPIES. A FULLY EXECUTED COPY
WILL BE RETURNED TO YOU.
LEASE EXTENSION
RE: 357 VAN NESS WAY, #200, TORRANCE, CA. 90501
- --------------------------------------------------------------------------------
DATE: APRIL 28, 1995
The undersigned hereby agree to extend that certain Lease dated SEPTEMBER 8,
1993 between SURF MANAGEMENT ASSOCIATES and MYKOTRONX, INC. for TWO (2) YEAR(s)
commencing SEPTEMBER 1, 1998 and ending AUGUST 31, 2000 at a monthly rent of
*SEE BELOW payable in advance on the first day of each month.
*The rental rate shall be the same rate as in effect on August 31, 1998 plus CPI
increase September 1, 1998. Lessee shall have another CPI increase effective
September 1, 1999 per Para. 46.d of the lease.
Lessor shall, at Lessor's expense, provide a conference area in Suite #200 per
Lessee's layout. Lessee shall be responsible for the cost of upgrades such as
2x2 ceiling grid ($330), 2x2 lighting ($1,600), additional incandescent lighting
($3,000), wall covering ($2,500) and any draperies or other unusual items.
ALL OTHER TERMS AND CONDITIONS OF SAID LEASE WILL REMAIN IN FULL FORCE AND
EFFECT AND ARE IN NO WAY AFFECTED BY RENEWAL.
LESSEE; MYKOTRONX, INC.
BY: /s/ THEODORE S. BETTWY DATE: 4 May 95
---------------------------------- ----------------
Theodore S. Bettwy, President
LESSOR: SURF MANAGEMENT ASSOCIATES
BY: SURF MANAGEMENT, INC.
BY: /s/ STEVEN P. FECHNER DATE: 5/4/95
---------------------------------- ----------------
Steven P. Fechner, President
<PAGE> 7
LESSOR'S COPY
STANDARD INDUSTRIAL LEASE - MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO "AIR"]
1. PARTIES. This Lease, dated, for reference purposes only, September 8, 1993,
is made by and between SURF MANAGEMENT ASSOCIATES, a California Limited
Partnership (herein called "Lessor") and MYKOTRONX, INC., a California
corporation (herein called "Lessee").
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
real property situated in the County of Los Angeles, State of California,
commonly known as 357 Van Ness Way, 2nd Floor, Torrance, California 90501 and
described as approximately 19,335 square feet of office space more commonly
known as Suites 200, 206, 208, 210, 220, 230, 240, 250, 260, 280 and 290,
herein referred to as the "Premises," as may be outlined on an Exhibit attached
hereto, including rights to the Common Areas as hereinafter specified but not
including any rights to the roof of the Premises or to any Building in the
Industrial Center. The Premises are a portion of a building, herein referred to
as the "Building." The Premises, the Building, the Common Areas, the land upon
which the same are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "Industrial Center."
2.2 VEHICLE PARKING. Lessee shall be entitled to seventy-seven (77)
vehicle parking spaces, unreserved and unassigned, on those portions of the
Common Areas designated by Lessor for parking. Lessee shall not use more
parking spaces than said number. Said parking spaces shall be used only for
parking by vehicles no larger than full size passenger automobiles or pick-up
trucks, herein called: "Permitted Size Vehicles." Vehicles other than Permitted
Size Vehicles are herein referred to as "Oversized Vehicles." Lessee shall not
park vehicles overnight.
2.2.1 Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
2.2.2 If Lessee permits or allows any of the prohibited activities
described in paragraph 2.2 of this Lease, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor, Lessee and of other
lessees of the Industrial Center and their respective employees, suppliers,
shippers, customers and invitees, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.
2.4 COMMON AREAS--LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the rights herein granted to use the Common Areas be deemed to include
the right to store any property, temporarily or permanently, in the Common
Areas. Any such storage shall be permitted only by the prior written consent of
Lessor or Lessor's designated agent, which consent may be revoked at any time.
In the event that any unauthorized storage shall occur then Lessor shall have
the right, without notice, in addition to such other rights and remedies that
it may have, to remove the property and charge the cost to Lessee, which cost
shall be immediately payable upon demand by Lessor.
2.5 COMMON AREAS--RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable rules and regulations with respect thereto. Lessee
agrees to abide by and conform to all such rules and regulations, and to cause
its employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance with
said rules and regulations by other lessees of the Industrial Center.
2.6 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways; (b) To close
temporarily any of the Common Areas for maintenance purposes, so long as
reasonable access to the Premises remains available; (c) To designate other
land outside the boundaries of the Industrial Center to be a part of the Common
Areas; (d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional improvements,
repairs or alterations to the Industrial Center, or any portion thereof; (f) To
do and perform such other acts and make such other changes in, to or with
respect to the Common Areas and Industrial Center as Lessor may, in the
exercise of sound business judgment, deem to be appropriate.
2.6.1 Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that Lessee is entitled to under paragraph 2.2 be reduced.
3. TERM.
3.1 TERM. The term of this Lease shall be for three (3) years commencing
on September 1, 1993 and ending on August 31, 1996 unless sooner terminated
pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason beyond the reasonable control of the Lessor, Lessor cannot deliver
possession of the Premises to Lessee on said date, Lessor shall not be subject
to any liability therefor, nor shall such failure affect the validity of this
Lease or the obligations of Lessee hereunder or extend the term hereof, but in
such case, Lessee shall not be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease, except as may be otherwise
provided in this Lease, until possession of the Premises is tendered to Lessee;
provided, however, that if Lessor shall not have delivered possession of the
Premises within thirty (30) days from said commencement date, Lessee may, at
Lessee's option, by notice in writing to Lessor within ten (10) days thereafter,
cancel this Lease, in which event the parties shall be discharged from all
obligations hereunder; provided further, however, that if such written notice of
Lessee is not received by Lessor within said ten (10) day period, Lessee's right
to cancel this Lease hereunder shall terminate and be of no further force or
effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date, and Lessee shall
pay rent for such period at the initial monthly rates set forth below.
4. RENT.
4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the Premises,
without any offset or deduction, except as may be otherwise expressly provided
in this Lease, on the 1st day of each month of the term hereof, monthly payments
in advance of $21,269.00*. See paragraph 47.
*See paragraph #47 herein for rent schedule. There shall be annual C.P.I.
adjustments per Paragraph #46.d herein.
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the Base Rent. Rent shall be payable in lawful
money of the United States to Lessor at the address stated herein or to such
other persons or at such other places as Lessor may designate in writing.
4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term
hereof, in addition to the base rent, Lessee's share, as hereinafter defined,
of all Operating Expenses, as hereinafter defined, during each calendar year of
the term of this Lease, in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease as 9.6
percent.
(b) "Operating Expenses" is defined, for purposes of this Lease, as
all costs incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean, good
order and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities and fences and gates.
(bb) See Para. 46.a herein.
(cc) Tenant directories.
(dd) Fire detection systems including sprinkler system
maintenance and repair.
-1-
<PAGE> 8
(ee) Security services.
(ff) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense."
(ii) The cost of water, gas and electricity to service the Common
Areas.
(c) The inclusion of the improvements, facilities and services set forth
in paragraph 4.2(b)(i) of the definition of Operating Expenses shall not be
deemed to impose an obligation upon Lessor to either have said improvements or
facilities or to provide those services unless the Industrial Center already has
the same, Lessor already provides the services, or Lessor has agreed elsewhere
in this Lease to provide the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses is
presented to Lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Operating
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each twelve-month period of the Lease term, on the same day as
the Base Rent is due hereunder. In the event that Lessee pays Lessor's estimate
of Lessee's Share of Operating Expenses as aforesaid, Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Operating
Expenses incurred during the preceding year. If Lessee's payments under this
paragraph 4.2(d) during said preceding year exceed Lessee's Share as indicated
on said statement, Lessee shall be entitled to credit the amount of such
overpayment against Lessee's Share of Operating Expenses next falling due. If
Lessee's payments under this paragraph during said preceding year were less than
Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the
amount of the deficiency within ten (10) days after delivery by Lessor to Lessee
of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$10,482.00* as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Lessor may become obligated by reason of Lessee's default, or to
compensate Lessor for any loss or damage which Lessor may suffer thereby. If
Lessor so uses or applies all or any portion of said deposit, Lessee shall
within ten (10) days after written demand therefor deposit cash with Lessor in
an amount sufficient to restore said deposit to the full amount then required of
Lessee. If the monthly rent shall, form time to time, increase during the term
of this Lease, Lessee shall, at the time of such increase, deposit with Lessor
additional money as a security deposit so that the total amount of the security
deposit held by Lessor shall at all times bear the same proportion to the then
current Base Rent as the initial security deposit bears to the initial Base Rent
set forth in paragraph 4. Lessor shall not be required to keep said security
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit. *To be
transferred from leases dated 3/2/87, 11/4/87, 2/10/92 and 11/30/92.
6. USE.
6.1 USE. The Premises shall be used and occupied only for
offices for company doing technical computer design and manufacturing
and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will occupy the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. The warranty contained in this paragraph
6.2(a) shall be of no force or effect if, prior to the date of this Lease,
Lessee was an owner or occupant of the Premises and, in such event, Lessor shall
correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises
and of the Common Areas. Lessee shall not use nor permit the use of the Premises
or the Common Areas in any manner that will tend to create waste or a nuisance
or shall tend to disturb other occupants of the Industrial Center.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on the Lease commencement date (unless Lessee is already in possession)
and Lessor warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was an owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee 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 Premise, and
any covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1. LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage. Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations of the
Common Areas and all parts thereof, as well as providing the services for which
there is an Operating Expense pursuant to paragraph 4.2. Lessor shall not,
however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors or plate glass of the Premises. Lessor shall have no obligation to make
repairs under this paragraph 7.1 until a reasonable time after receipt of
written notice from Lessee of the need for such repairs; Lessee expressly waives
the benefits of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Premises in good order, condition
and repair. Lessor shall not be liable for damages or loss of any kind or nature
by reason of Lessor's failure to furnish any Common Area Services when such
failure is caused by accident, breakage, repairs, strikes, lockout, or other
labor disturbances or disputes of any character, or any other cause beyond the
reasonable control of Lessor.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense, shall
keep in good order, condition and repair the Premises and every part thereof
including, without limiting the generality of the foregoing, electrical and
lighting facilities and equipment within the Premises, fixtures, interior walls
and interior surfaces of exterior walls, ceiling, windows, doors, plate glass,
and skylights located within the Premises. Lessor reserves the right to procure
and maintain the ventilating and air conditioning system maintenance contract
and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the
cost thereof.
(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon
the Premises after ten (10) days' prior written notice to Lessee (except in the
case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Lessor
together with Lessee's next Base Rent installment.
(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee
shall leave the air lines, power panels, electrical distribution systems,
lighting fixtures, ???
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, or Utility Installations in, on or
about the Premises, or the Industrial Center. Lessee shall make no change or
alteration to the exterior of the Premises nor the exterior of the Building nor
the Industrial Center without Lessor's prior written consent. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window
coverings, air lines, power panels, electrical distribution systems, lighting
fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may
require that Lessee remove any or all of said alterations, improvements,
additions or Utility Installations at the
-2-
<PAGE> 9
expiration of the term, and restore the Premises and the Industrial Center to
their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor
against any liability for mechanic's and materialmen's liens and to insure
completion of the work. Should Lessee make any alterations, improvements,
additions or Utility installations without the prior approval of Lessor, Lessor
may, at any time during the term of this Lease, require that Lessee remove any
or all of the same.
(b) Any alterations, improvements, additions or Utility installations
in or about the Premises or the Industrial Center that Lessee shall desire to
make and which requires the consent of the Lessor shall be presented to Lessor
in written form, with proposed detailed plans. If Lessor shall give its consent,
the consent shall be deemed conditioned upon Lessee acquiring a permit to do so
from appropriate governmental agencies, the furnishing of a copy thereof to
Lessor prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, or the Industrial Center, or any
interest therein. Lessee shall give lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises or the Industrial Center, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a surety
bond satisfactory to Lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
Premises and the Industrial Center free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs
in participating in such action if Lessor shall decide it is to Lessor's best
interest to do so.
(d) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall be the property of
Lessor and shall remain upon and be surrendered with the Premises at the
expiration of the Lease term, unless Lessor requires their removal pursuant to
paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d),
Lessee'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,
and other than Utility Installations, shall remain the property of Lessee and
may be removed by Lessee subject to the provisions of paragraph 7.2.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of Lessor or Lessee, or any other lessee of the Industrial Center,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the premises.
B. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE -- LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance
of the Premises and the Industrial center. Such insurance shall be in an amount
not less than $500,000.00 per occurrence. The policy shall insure performance
by Lessee of the indemnity provisions of this Paragraph 8. The limits of said
insurance shall not, however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE -- LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Industrial Center in an amount not less than $500,000.00 per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Industrial Center Improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection 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), special extended perils
("all risk," as such term is used in the insurance industry), plate glass
insurance and such other insurance as Lessor deems advisable. In addition,
Lessor shall obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all Operating Expenses for said period.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) After the term of this Lease has commenced, Lessee shall not be
responsible for paying Lessee's Share of any increase in the property insurance
premium for he Industrial Center specified by Lessor's insurance carrier as
being caused by the use, acts or omissions of any other lessee of the
Industrial Center, or by the nature of such other lessee's occupancy which
create an extraordinary or unusual risk.
(b) Lessee, however, shall pay the entirety of any increase in the
property insurance premium for the Industrial Center over what it was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Lessor's Insurance carrier as being caused by the nature of
Lessee's occupancy or any act or omission of Lessee.
(c) Lessee shall pay to Lessor, during the term hereof, in addition
to the rent, Lessee's Share (as defined in paragraph 4.2[a]) of the amount of
any increase in premiums for the insurance required under paragraphs 8.2 and 8.3
over and above such premiums paid during the Base Period, as hereinafter
defined, whether such premium increase shall be the result of the nature of
Lessee's occupancy, any act or omission of Lessee, requirements of the holder of
a mortgage or deed of trust covering the Premises, increased valuation of the
Premises, or general rate increases. In the event that the Premises have been
occupied previously, the words "Base Period" shall mean the last twelve months
of the prior occupancy. In the event that the Premises have never been occupied
previously, the premiums during the "Base Period" shall be deemed to be the
lowest premiums reasonably obtainable for said insurance assuming the most
nominal use of the Premises. Provided, however, in lieu of the Base Period, the
parties may insert a dollar amount at the end of this sentence which figure
shall be considered as the insurance premium for the Base Period: $1,098.23. In
no event, however, shall Lessee be responsible for any portion of the premium
cost attributable to liability insurance coverage in excess of $500,000
procured under paragraph 8.2.
(d) Lessee shall pay any such premium increases to Lessor within 30
days after receipt by Lessee of a copy of the premium statement or other
satisfactory evidence of the amount due. If the insurance policies maintained
hereunder cover other improvements in addition to the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such increase attributable
to the Premises and showing in reasonable detail, the manner in which such
amount was computed. If the term of this Lease shall not expire concurrently
with the expiration of the period covered by such insurance, Lessee's liability
for premium increases shall be prorated on an annual basis.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not
do or permit to be done anything which shall invalidate the insurance policies
carried by Lessor. Lessee shall deliver to Lessor copies of the liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
commencement date of this Lease. No such policy shall be cancellable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior
to the expiration of such policies, furnish Lessor with renewals or "binders"
thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor 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
which perils occur in, on or about the Premises, whether due to the negligence
of Lessor or Lessee or their agents, employees, contractors and/or invitees.
Lessee and Lessor 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.
8.7. INDEMNITY. Except for the negligent acts of the Lessor or Lessor's
agents, employees, contractors, customers or invitees, Lessee shall indemnify
and hold harmless Lessor from and against any and all claims arising from
Lessee's use of the Industrial Center, or from the conduct of Lessee's business
or from any activity, work or things done, permitted or suffered by Lessee in
or about the Premises or elsewhere and shall further indemnify and hold harmless
Lessor from and against any and all claims arising from any breach or default in
the performance of any obligation on Lessee's part to be performed under the
terms of this Lease, or arising from any act or omission of Lessee, or any of
Lessee's agents, contractors, or employees, and from and against all costs,
attorney's 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 Lessor by reason of any such claim, Lessor shall
cooperate with Lessee in such defense. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Industrial Center arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FORM LIABILITY. Except for the negligent acts of
the Lessor or Lessor's agents, employees, contractors, customers or invitees,
Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's
business or any loss of income therefrom or for damage to the goods, wares,
merchandise or other property of Lessee, Lessee's employees, invitees,
customers, or any other person in or about the Premises or the Industrial
Center, nor shall Lessor be liable for injury to the person of Lessee, Lessee'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 said damage or injury results form conditions arising upon the Premises
or upon other portions of the Industrial Center, 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 Lessee. Lessor shall not be liable for any
damages arising from any act or neglect of any other lessee, occupant or user of
the Industrial Center, nor from the failure of Lessor to enforce the provisions
of any other lease of the Industrial Center, except for the negligent acts of
the Lessor or Lessor's agents, employees, contractors, customers or invitees.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean if the Premises are damaged
or destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the Premises.
-3-
<PAGE> 10
(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are part is damaged or destroyed to the extent that the cost
to repair is less than fifty percent of the then replacement cost of the
Building.
(d) "Premises Building Total Destruction" shall mean if the Building
of which the Premises are part is damaged or destroyed to the extent that the
cost of repair is fifty percent or more of the then replacement cost of the
Building.
(e) "Industrial Center Buildings" shall mean all of the buildings on
the Industrial Center site.
(f) "Industrial Center Building Total Destruction" shall mean if the
Industrial Center Buildings are damaged or destroyed to the extent that the cost
of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was caused
by an event required to be covered by the insurance described in paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(h) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring excluding all improvements
made by lessees.
9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, 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 either Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's expense, repair such damage to the Premises, but not Lessee's
fixtures, equipment or tenant improvements, as soon as reasonably possible and
this lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, 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 or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from using the Premises, Lessor may at
lessor's option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after the
date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's intention
to repair such damage at Lessee's expense, without reimbursement from Lessor,
in which event this Lease shall continue in full force and effect, and Lessee
shall proceed to make such repairs as soon as reasonably possible. If Lessee
does not give such notice within such 10-day period this Lease shall be
cancelled and terminated as of the date of the occurrence of such damage.
9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.
(a) Subject to paragraph 9.4(b), if at any time during the term of
this Lease there is damage, whether or not it is an insured Loss, and which
falls into the classifications of either (i) Premises Total Destruction, or (ii)
Premises Building Total Destruction, or (iii) Industrial Center Buildings Total
Destruction, then Lessor may at Lessor's option either (i) repair such damage or
destruction, but not Lessee's fixtures, equipment or tenant improvements, as
soon as reasonably possible at Lessor's expense, and this Lease shall continue
in full force and effect, or (ii) give written notice to Lessee within thirty
(30) days after the date of occurrence of such damage of Lessor's intention to
cancel and terminate this Lease, in which case this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last six
months of the term of this Lease there is substantial damage, whether or not an
Insured Loss, which falls within the classification of Premises Partial Damage,
Lessor may at Lessor's option cancel and terminate this lease as of the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the even that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is
to be exercised at all, no later than twenty (20) days after the occurrence of
an Insured Loss falling within the classification of Premises Partial Damage,
during the last six months of the term of this Lease. If Lessee duly exercises
such option during said twenty (20) day period, Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. If Lessee fails to exercise such option during said
twenty (20) day period, then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of said twenty (20) day period, notwithstanding any term or provision
in the grant of option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event lessor repairs or restores the Premises pursuant to
the provisions of this paragraph 9, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent, if any, Lessee shall have no claim against
Lessor for any damage suffered by reason of any such damage, destruction,
repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this paragraph 9 and shall not commence such repair or
restoration within ninety (90) days after such obligation shall accrue, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee'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.
9.6 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAX INCREASE. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Industrial Center, provided,
however, that Lessee shall pay, in addition to rent, Lessee's Share (as defined
in paragraph 4.2[a]) of the amount, if any, by which real property taxes
applicable to the Premises increase over the fiscal real estate tax year 1993
- - 1994. Such payment shall be made by Lessee within thirty (30) days after
receipt of lessor's written statement setting forth the amount of such increase
and the computation thereof. If the term of this Lease shall not expire
concurrently with the expiration of the tax fiscal year, Lessee's liability for
increased taxes for the last partial lease year shall be prorated on an annual
basis.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other lessees or by Lessor for the
exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor
at the time that Operating Expenses are payable under paragraph 4.2(c) the
entirety of any increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises by Lessee or at Lessee's
request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any licensed fee, commercial rental
tax, improvement bond or bonds, levy or tax (other than inheritance, personal
income or estate taxes) imposed on the Industrial Center or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Industrial Center. The term
"real property tax" shall also include any tax, fee, levy, assessment or charge
(i) in substitution of, partially or totally, any tax, fee, levy, assessment or
charge hereinabove included within the definition for "real property tax," or
(ii) the nature of which was hereinbefore included within the definition of
"real property tax," or (iii) which is imposed for a service or right not
charged prior to June 1, 1978, or, if previously charged, has been increased
since June 1, 1978, or (iv) which is imposed as a result of a transfer, either
partial or total of Lessor's interest in the Industrial Center or which is added
to a tax or charge hereinbefore included within the definition of real property
tax by reason of such transfer, or (v) which is imposed by reason of this
transaction, any modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Industrial Center is not separately
assessed, Lessee's Share of the real property tax liability shall be an
equitable proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to be
determined by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property
of Lessor.
(b) If any of lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to the
Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
-4-
<PAGE> 11
12. ASSIGNMENT AND SUBLETTING
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease without the need for notice to Lessee under paragraph 13.1.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof. Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control of Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate,"
provided that before such assignment shall be effective said assignee shall
assume, in full, the obligations of Lessee under this Lease.
12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's consent, no
assignment shall release Lessee of Lessee's obligations hereunder or alter the
primary liability of Lessee to pay the Base Rent and Lessee's Share of Operating
Expenses, and to perform all other obligations to be performed by Lessee
hereunder. Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of rent shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the breach of
any of the terms or conditions of this paragraph 12 or this Lease. Consent to
one assignment shall not be deemed consent to any subsequent assignment. In the
event of default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments of this Lease or amendments or
modifications to this Lease with assignees of Lessee, without notifying Lessee,
or any successor of Lessee, and without obtaining its or their consent thereto
and such action shall not relieve Lessee of liability under this Lease.
12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of Lessor's
consent, the following terms and conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be included in subleases:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease; Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublease as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublessee shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) If Lessee's obligations under this Lease have been guaranteed by
third parties, then a sublease, and Lessee's consent thereto, shall not be
effective unless said guarantors give their written consent to such sublease and
the terms thereof.
(d) The consent by Lessor to any subletting shall not release Lessee
from its obligations or alter the primary liability of Lessee to pay the rent
and perform and comply with all of the obligations of Lessee to be performed
under this Lease.
(e) The consent by Lessor to any subletting shall not constitute a
consent to any subsequent subletting by Lessee or to any assignment or
subletting by the sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or modifications
thereto without notifying Lessee or anyone else liable on the Lease or sublease
and without obtaining their consent and such action shall not relieve such
persons from liability.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(h) Each and every consent required of Lessee under a sublease shall
also require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any part of
the premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by
Lessee shall not constitute an acknowledgement that no default then exists
under this Lease of the obligations to be performed by Lessee nor shall such
consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(k) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset
from and against Lessee for any such defaults cured by the sublessee.
12.5 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorney's fees incurred in
connection therewith, such attorney's fees not to exceed $200.00 for each such
request.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other payment
required to be made by Lessee hereunder, as and when due, where such failure
shall continue for a period of three (3) days after written notice thereof from
Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay
Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to
Pay Rent or Quit shall also constitute the notice required by this subparagraph.
(c) Except as otherwise provided in this Lease, the failure by Lessee to
observe or perform any of the covenants, conditions or provisions of this Lease
to be observed or performed by Lessee, other than described in paragraph (b)
above, where such failure shall continue for a period of thirty (30) days after
written notice thereof from Lessor to Lessee; provided, however, that if the
nature of Lessee's noncompliance is such that more than thirty (30) days are
reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion. To the extent
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to Lessor by
Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in
interest of Lessee or any guarantor of Lessee's obligation hereunder, was
materially false.
13.2 REMEDIES. In the event of any such material default by Lessee, Lessor
may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default:
(a) Terminate Lessee's right to possession of the premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the premises, expenses of reletting, including
necessary renovation and alteration of the premises, reasonable attorney's
fees, and any real estate commission actually paid; the worth at the time of
award by the court have 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 Lessee proves could be
reasonably avoided; that portion of the leasing commission paid by Lessor
pursuant to paragraph 15 applicable to the unexpired term of this Lease.
-5-
<PAGE> 12
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease,including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor 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 Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expenses or other sums due
hereunder will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Industrial Center. Accordingly, if any installment of Base
Rent, Operating Expenses, or any other sum due from Lessee shall not be received
by Lessor or Lessor's designee within ten (10) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a late charge equal to 6% of such overdue amount. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
costs Lessor will incur by reason of late payment by Lessee. Acceptance of such
late charge by Lessor shall in no event constitute a waiver of Lessee's default
with respect to such overdue amount, nor prevent Lessor from exercising any of
the other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of any of the aforesaid monetary obligations of Lessee, then Base
Rent shall automatically become due and payable quarterly in advance, rather
than monthly, notwithstanding paragraph 4.1 or any other provision of this Lease
to the contrary.
14. CONDEMNATION. If the Premises or any portion thereof or the Industrial
Center are taken under the power of eminent domain or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than ten
percent of the floor area of the Premises, or more than twenty-five percent of
that portion of the Common Areas designated as parking for the Industrial Center
is taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing only within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this Lease
as of the date the condemning authority takes such possession. If Lessee does
not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the rent shall be reduced in the proportion that the floor area of
the Premises taken bears to the total floor area of the Premises. No reduction
of rent shall occur if the only area taken is that which does not have the
Premises located thereon. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any award for loss of or damage to Lessee's trade fixtures
and removable personal property. In the event that this Lease is not terminated
by reason of such condemnation, Lessor shall to the extent of severance damages
received by Lessor in connection with such condemnation, repair any damage to
the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority. Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
NONE Licensed real estate broker(s), a fee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s), the sum of $-0-, for brokerage
services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option, as defined
in paragraph 39.1 of this Lease, which is granted to Lessee under this Lease, or
any subsequently granted option which is substantially similar to an Option
granted to Lessee under this Lease, or if Lessee acquires any rights to the
Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, then as to any of said transactions.
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interests in this Lease, whether such
transfer is by agreement or by operations of law, shall be deemed to have
assumed Lessor's obligation under this paragraph 15. Said broker shall be a
third party beneficiary of the provisions of this paragraph 15.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party 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 modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Premises or of the business
of the requesting party.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Industrial
Center, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) year's financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Industrial Center, and except as expressly
provided in paragraph 15, in the event of any transfer of such title or interest
Lessor 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 Lessor's obligations thereafter to be performed, provided that any
funds in the hands of Lessor or the then grantor at the time of such transfer,
in which Lessee has an interest, shall be delivered to the grantee. The
obligations contained in this Lease to be performed by Lessor shall, subject as
aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of
any other provision thereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease; provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and Insurance and tax expenses payable shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only; signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction
nor the Lessor or any employee or agents of any of said persons has made any
oral or written warranties or representations to Lessee relative to the
condition or use by Lessee of the Premises or the Industrial Center and Lessee
acknowledges that Lessee assumes all responsibility regarding the Occupational
Safety Health Act, the legal use and adaptability of the Premises and the
compliance thereof with all applicable laws and regulations in effect during
the term of this Lease except as otherwise specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor 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 Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee.
-6-
<PAGE> 13
24. WAIVERS No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy with a ninety (90) day written notice
of intent to vacate premises.
27. CUMULATIVE REMEDIES. No remedy of election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Industrial Center is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the
Industrial Center is located.
30. SUBORDINATION.
(a) This Lease, and any Option granted hereby, at Lessor'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 Industrial Center and
to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Industrial Center as Lessor may deem necessary or desirable. Lessor may at any
time place on or about the Premises or the Building any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All activities of
Lessor pursuant to this paragraph shall be without abatement of rent, nor shall
Lessor have any liability to Lessee for the same.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas,
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Industrial
Center without Lessor's prior written consent. Under no circumstances shall
Lessee place a sign on any roof of the Industrial Center.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of the Lessor, terminate all or any existing
subtenancies or may, at the option of the Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Industrial Center.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Industrial Center or other property of
Lessor or the right of first offer to lease other space within the Industrial
Center or other property of Lessor; (3) the right or option to purchase the
Premises or the Industrial Center, or the right of first refusal to purchase the
Premises or the Industrial Center, or the right of first offer to purchase the
Premises or the Industrial Center, or the right or option to purchase other
property of Lessor, or the right of first refusal to purchase other property of
Lessor or the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof,and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee, provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the date after a monetary obligation to Lessor is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) at any time after an event of default described in
paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give
notice of such default to Lessee), or (iv) in the event that Lessor has given to
Lessee three or more notices of default under paragraph 13.1(b) or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period of
time immediately prior to the time that Lessee attempts to exercise the subject
Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option. If, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessee commits a default described in paragraphs 13.1(a), 13.1(d) or
13.1(e) without any necessity of Lessor to give notice of such default to
Lessee), or (iv) Lessor gives to Lessee three or more notices of default under
paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured.
40. SECURITY MEASURES. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Industrial Center or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
-7-
<PAGE> 14
41. EASEMENTS. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so long
as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign
any of the aforementioned documents upon request of Lessor and failure to do so
shall constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment, under protest, and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. It shall be adjudged
that there was no legal obligation on the part of said party to pay such sum or
any part thereof, said party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
43. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
45. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease. This Lease
shall become binding upon Lessor and Lessee only when fully executed by Lessor
and Lessee.
46. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs
46.a through 46.f and Exhibit A which constitute a part of this Lease.
47. Lessee shall pay $1.10 per square foot on space it is able to occupy. Upon
signature of lease, it will occupy 12,995 square feet and pay $14,295.00 per
month. After Lessee occupies all 19,335 square feet of space on the second
floor, it shall pay the full 421,268.00 per month. As Lessee occupies following
suites, its rent shall be increased the following amount:
Suite #208 - 1,150 square feet: $1,265.00 per month
Suite #210 - 1,150 square feet: $1,265.00 per month
Suite #220 - 1,820 square feet: $2,002,00 per month
Suite #240 - 1,120 square feet: $1,232.00 per month
Suite #260 - 1,100 square feet: $1,210.00 per month.
48. Lessor shall reimburse Lessee for Common Area Janitorial expense in item
#47 above.
49. Lessor shall, at Lessor's expense, provide following improvements as suites
are available:
Suite #280:
A) remove cabinets in workroom and install door into adjacent office,
B) build walls to create two (2) private offices out of large room along
windows,
C) install door into Suite #260 from workroom area.
Suite #208/210:
A) demolish all existing improvements to prepare area for
Lessee's construction. All work after this demolition shall be paid for
by Lessee.
Suite#260:
A) create two (2) offices out of large room by window,
B) paint and carpet are to be in good condition.
Upon occupancy of entire floor:
A) build a wall at top of stairs creating a private lobby area,
B) install door to janitors closet for access to roof
50. This lease supersedes lease dated September 2, 1993.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR
APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR
ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR
TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO.
THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR
SURF MANAGEMENT ASSOCIATES,
a California Limited Partnership
By SURF MANAGEMENT, INC., General Partner
--------------------------------------
By STEVEN P. FECHNER
--------------------------------------
Steven P. Fechner, Vice President
Executed on 9/16/93
-----------------------------
(Corporate Seal)
ADDRESS FOR NOTICES AND RENT
357 Van Ness Way, #100
- ----------------------------------------
Torrance, California 90501
- ----------------------------------------
(310) 533-5900
- ----------------------------------------
LESSEE
MYKOTRONX, INC., a California Corporation
By [illegible]
--------------------------------------
By
--------------------------------------
Executed on 16 Sept 93
-----------------------------
(Corporate Seal)
ADDRESS
- -----------------------------------------
- -----------------------------------------
- -----------------------------------------
<PAGE> 15
46. ADDENDUM
46.a Lessor shall arrange for a trash collection service for all tenants
on the premises of which the Premises are a part. Lessee shall pay its
proportionate share of the trash collection charges based on the proportionate
amount of building space occupied and trash load deposited in the common trash
containers by Lessee, as determined by Lessor. The fee to Lessee for trash
collection shall be $76.00* per month which may be increased if it is
determined that the fee charged is insufficient to remove Lessee's trash or if
trash rates are increased. Lessee shall not deposit any household trash or
other trash not specifically created in the normal course of operating its
business. No hazardous substances shall be disposed of in the trash bins or
anywhere on the premises. Fee shall increase at rate of $10 per 1,000 square
feet whenever Lessee occupies additional space through term of lease.
46.b This lease is subject to all matters of record affecting the real
property of which the Premises are a part, including, without limitation,
covenants, conditions, restrictions, reservations, rights of way, easements and
exceptions, whether existing or hereafter created.
46.c Subject to Lessee's right to deduct the cost of subleasing any space
occupied by Lessee, if Lessee, with Lessor's consent, as required by this
Lease, enters into a sublease of the entire Premises hereunder, and if Lessee
receives from the sublessee, rent or other consideration, either initially or
over the term of the sublease, in excess of the rent due Lessor under the
Lease, or if Lessee enters into a sublease of less than the entire Premises
hereunder and receives from the sublessee rent or other consideration in excess
of the rent due Lessor under this Lease fairly allocable to the portion of the
Premises so subleased after appropriate adjustments to assure that all other
payments called for under this Lease are appropriately taken into account, then
in either such event, Lessee shall pay to Lessor, as additional rent hereunder,
one half of the excess rent or other consideration so received by Lessee from
the sublessee. Such payment shall be made by Lessee to Lessor within ten (10)
days following receipt by Lessee from its sublessee of payment of such excess
rent or other consideration. A fully executed copy of all subleases must be
given to Lessor by Lessee.
46.d ANNUAL C.P.I. ADJUSTMENT: Monthly Rent shall be adjusted upward every
year beginning on the first day of the month following the passage of the
initial twelve (12) calendar months of the lease term ("Adjustment Date"), and
on the first day of such month for each successive year of the lease term
thereafter. The adjustment shall be calculated by referring to the Consumer
Price Index as published by the United States Department of Labor, Bureau of
Labor Statistics, all Urban Consumers, All Items (1982/84=100 base), Los
Angeles/Anaheim/Riverside Area. The Base Period Index shall be the CPI for the
calendar month which is three (3) months prior to the month of the Estimated
Commencement Date set forth in Paragraph 3.1. The Base Period Index shall be
compared with the CPI (the "Comparison Index") for the same calendar month
which is three (3) months prior to the Adjustment Date. If the Comparison Index
is higher than the Base Period Index, then the Basic Monthly Rent payable by
Lessee hereunder shall be increased by 50% of the increase of the Comparison
Index over the Base Period Index. In no event shall the monthly rent be adjusted
downward. (By way of illustration only, if Lessee's commencement date was August
1, 1990, then the Base Period Index is that for May 1990 [Assume 249.1], the
Base Period Index would be compared with the Comparison Index for May 1991
[Assume 267.3], and because the Comparison Index for May 1991 is 7.3% higher,
the rent commencing on August 1, 1991, would be 3.66% higher).
Lessor shall notify Lessee of the increase in Basic Monthly Rent within ninety
(90) days after each Adjustment Date; provided, however, failure to give such
notice shall not constitute a waiver of Lessor's right to collect the Increased
Basic Monthly Rent. In the event the Bureau of Labor Statistics ceases to
publish this Consumer Price Index, the parties may agree to use any similar type
index or if they are unable to agree upon a substitute index, the parties shall
select an independent arbitrator who shall determine an alternate method of
computing the increased rental. Annual adjustment shall be at one-half (1/2) of
Consumer Price Index.
46.e Merchandise sold on the Premises shall not be sold on a retail basis
to the general public. No warehouse, garage, clearance, or any other type of
sale to the general public is allowed on the Premises without the written
consent of Lessor and any required City permits.
46.f HAZARDOUS SUBSTANCES.
(1) Reportable Uses Require Consent. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity, in on or about the Premises
which constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances without the express prior written consent of Lessor and compliance
in a timely manner (at Lessee's sole cost and expense) with all Applicable Law
(as defined in Section (d) below). "REPORTABLE USE" shall mean (i) the
installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or
<PAGE> 16
46.f. HAZARDOUS SUBSTANCES (CONT'D)
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in
the normal course of Lessee's business permitted on the Premises, so long as
such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion,
deems necessary to protect itself, the public, the Premises and the
environment against damage, contamination or injury and/or liability therefrom
or therefor, including, but not limited to, the installation (and removal on or
before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements) and/or
the deposit of an additional Security Deposit under Paragraph 5 hereof. In the
event that Lessee, at the expiration of the term of the Lease, or, if such term
has been extended, at the expiration of the applicable extended term, has not
vacated the premises and/or has not complied with all of the terms and
provisions contained in paragraph 46.f of the Lease, Lessee's obligation to pay
monthly rent and other monetary obligations to Lessor shall continue at one
hundred twenty-five percent (125%) of the rate in effect at such date of
termination until such time as Lessee has fully complied with all of the terms
and provisions in paragraph 46.f.
(2) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located, in, on, under or about the Premises, other than
as previously consented to by Lessor, Lessee shall immediately give written
notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy
of any statement, report, notice, registration, application, permit, business
plan, license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure
to, any Hazardous Substance or contamination in, on or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(3) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 46.f shall include,
but not be limited to the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration of earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage tanks, unless
specifically so agreed by Lessor in writing at the time of such agreement.
(4) LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "APPLICABLE LAW," which term is used in
this Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any
manner to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and ground water conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or
the Premises to comply with any Applicable Law.
(5) INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 7.2(b) shall have the right to enter the Premises with prior notice
at reasonable times, for the purpose of inspecting the condition of the
Premises and for verifying compliance by Lessee with this Lease and all
Applicable Laws (as defined in Section (d) above), and to employ experts and/or
consultants in connection therewith and/or to advise Lessor with respect to
Lessee's activities, including but not limited to the installation, operation,
use, monitoring, maintenance, or removal of any Hazardous Substance or storage
tank on or from the Premises. The costs and expenses of any such inspections
shall be paid by the party requesting same, unless a Default or Breach of this
Lease, violation of Applicable Law, or a contamination, caused or materially
contributed to by Lessee is found to exist to be imminent, or unless the
inspection is requested or ordered by a governmental authority as the result of
any such existing or imminent violation or contamination. In any such case,
Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may
be, for the costs and expenses of such inspections.
<PAGE> 17
RULES AND REGULATIONS EXHIBIT A
1. No sign, placard, picture advertisement, name or notice shall be
inscribed, displayed, printed or affixed to any part of the outside or inside
of the Business Center without the prior consent of Lessor. Lessor shall have
the right to remove any unauthorized sign, placard, picture, advertisement,
name or notice to, and at the expense of, Lessee. All approved signs or
lettering on doors shall be printed, painted, affixed or inscribed at the
expense of Lessee by a person approved by Lessor. Lessee shall not place
anything, or allow anything to be placed, near the glass or any window, door,
partition or wall which may appear unsightly from outside the Premises. Lessee
shall not, without prior written consent of Lessor, otherwise sunscreen any
window.
2. The sidewalks, halls, passages, exits, entrances, and stairways shall not
be obstructed by any of the Lessees or used by them for any other purpose other
than for ingress and egress to and from their respective Premises.
3. Lessee shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the Premises without prior consent of
Lessor, and shall provide Lessor with copies of any new entry keys.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein. The expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the Lessee, or the Lessee's employees or guests who shall
have caused it.
5. Lessee shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. Lessee shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to
be occupied or used in a manner offensive or objectionable to the Lessor or
other occupants of the Business Center by reason of noise, odors and/or
vibrations, or interfere in any way with other Lessees or those having business
therein, nor shall any animals or birds be brought in or kept in or about the
Premises or the Business Center.
7. Lessee shall not use or keep in the Premises or the Building any kerosene,
gasoline or flammable or combustible fluid or material, or use any method of
heating or air conditioning other than that supplied by Lessor.
8. Lessor will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting wires will be
allowed without the consent of the Lessor. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject to
the approval of Lessor.
9. Lessor reserved the right to exclude or expel from the Business Center,
any person who, in the judgment of Lessor, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the Business Center.
10. Lessee shall not disturb, solicit, or canvass any occupant of the business
center and shall cooperate to prevent same.
11. Without the written consent of Lessor, Lessee shall not use the name of
the Business Center in connection with or in promoting or advertising the
business of Lessee except at Lessee's address.
12. No contact paper or wallpaper of any type may be applied anywhere without
Lessor's written permission, including the application to any walls, cabinets,
doors, etc. Costs associated with returning the premises to its original
condition if this clause is violated will be deducted from the security deposit.
13. Lessor shall have the exclusive right to control and operate all public
portions of the Business Center.
14. Lessee and Lessee's employees, customers, agents, and contractors shall
observe all normal vehicle codes while at the Business Center and will not
drive their vehicles in excess of 5 miles per hour while on the premises.
Lessee shall be responsible for enforcing these rules with its employees,
customers, agents, and contractors.
<PAGE> 18
[SURF MANAGEMENT, INC. LETTERHEAD]
December 27, 1999
Mr. Jim Kopycki, President
Mykotronx, Inc.
357 Van Ness Way
200
Torrance, CA 90501
RE: CONSUMER PRICE INDEX (C.P.I.) ADJUSTMENT - 359 Van Ness Way,
Torrance, Ca.
Dear Mr. Kopycki:
According to the terms of your lease agreement, you have a rent adjustment on
February 1, 2000.
This rental adjustment is based on the change in the Consumer Price Index
(C.P.I.) for the period from November 1998 to November 1999. The C.P.I. for
this period has increased 2.3% representing an increase of $590.00 per month.
However, your lease provides for the increase to be 50% of the comparison
index. This will reduce your increase to $295.00
Therefor, effective February 1, 2000 your rent will be $25,927.00 per month. We
will send you a statement reflecting the increase.
Sincerely,
SURF MANAGEMENT ASSOCIATES
BY: SURF MANAGEMENT, INC.
By: /s/ STEVEN P. FLETCHER
- ------------------------------------
Stephen P. Fletcher, President
cc: Accounting
357 Van Ness Way, Suite 100, Torrance, California 90501-1487
Post Office Box 3217, Torrance, California 90510-3217
Ph. (310) 533-5900 Fax (310) 533-0775
<PAGE> 19
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
September 25, 1996, is made by and between SURF MANAGEMENT ASSOCIATES, a
California Limited Partnership ("LESSOR") and MYKOTRONX,INC., a California
Corporation ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 359 Van Ness Way, located in the City of
Torrance, County of Los Angeles, State of California, with zip code 90501, as
outlined on Exhibit B attached hereto ("PREMISES"). The "BUILDING" is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): approximately 28,667 square feet of space
(entire building). In addition to Lessee's rights to use and occupy the Premises
as hereinafter specified, Lessee shall have non-exclusive rights to the Common
Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall
not have any rights to the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along with all
other buildings and improvements thereon, are herein collectively referred to as
the "INDUSTRIAL CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: 90 unreserved vehicle parking spaces ("UNRESERVED PARKING
SPACES"); and -0- reserved vehicle parking spaces ("RESERVED PARKING SPACES").
(Also see Paragraph 2.6.)
1.3 TERM: 5 years and 0 months ("ORIGINAL TERM") commencing February 1,
1997 ("COMMENCEMENT DATE") and ending January 31, 2002 ("EXPIRATION DATE").
(Also see Paragraph 3.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (Also see Paragraphs
3.2 and 3.3.)
1.5 BASE RENT: $25,227 per month ("BASE RENT"), payable on the 1st day of
each month commencing February 1997 (Also see Paragraph 4.)
[X] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum 49.d, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $25,227 as Base Rent for the month of
February 1997.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: fourteen point
thirty-three percent (14.33%) ("LESSEE'S SHARE") as determined by [ ] prorata
square footage of the Premises as compared to the total square footage of the
project or [ ] other criteria as described in Addendum ____.
1.7 SECURITY DEPOSIT: $ None ("SECURITY DEPOSIT"). (Also see Paragraph 5.)
1.8 PERMITTED USE: company doing technical computer design and
manufacturing ("PERMITTED USE") (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[ ] _____________________ represents Lessor exclusively ("LESSOR'S BROKER");
[ ] N/A represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] _____________________ represents both Lessor and Lessee ("DUAL AGENCY").
(Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon occupancy of the premises by Lessee,
Lessor shall pay to said Broker(s) jointly, or in such separate shares as they
may mutually designate in writing, a fee as set forth in a separate written
agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of
$_______________) for brokerage services rendered by said Broker(s) in
connection with this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by ________________________________________________________________
("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49.a through 49.l, and Exhibits A through B, all of
which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems, and loading doors, if any, in the Premises, other than
those constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a non-
compliance with this warranty within thirty (30) days after the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including, but not limited to, the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations, and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
-1-
<PAGE> 20
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking for the Industrial Center. Lessee shall not use more parking
spaces than said number. Said parking spaces shall be used for parking by
vehicles no larger than full-size passenger automobiles or pick-up trucks,
herein called "PERMITTED SIZE VEHICLES." Vehicles other than Permitted Size
Vehicles shall be parked and loaded or unloaded as directed by Lessor in the
Rules and Regulations (as defined in Paragraph 40) issued by Lessor. (Also see
Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in Paragraph
1.4 and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including, but not limited to, the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee by the Early Possession Date, if one is specified in
Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement
Date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease, or the obligations of Lessee
hereunder, but in such case, Lessee shall not, except as otherwise provided
herein, be obligated to pay rent or perform any other obligation of Lessee under
the terms of this Lease until Lessor delivers possession of the Premises to
Lessee. If possession of the Premises is not delivered to Lessee within sixty
(60) days after the Commencement Date, Lessee may, at its option, by notice in
writing to Lessor within ten (10) days after the end of said sixty (60) day
period, cancel this Lease, in which event the parties shall be discharged from
all obligations hereunder; provided further, however, that if such written
notice of Lessee is not received by Lessor within said ten (10) day period,
Lessee's right to cancel this Lease hereunder shall terminate and be of no
further force or effect. Except as may be otherwise provided, and regardless of
when the Original Term actually commences, if possession is not tendered to
Lessee when required by this Lease and Lessee does not terminate this Lease, as
aforesaid, the period free of the obligation to pay Base Rent, if any, that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to the period during which the Lessee
would have otherwise enjoyed under the terms hereof, but minus any days of delay
caused by the acts, changes or omissions of Lessee. See Para. 49.g
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon a 30 day month involved. Payment of Base Rent and other
charges shall be made to Lessor at its address stated herein or to such other
persons or at such other addresses as Lessor may from time to time designate in
writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Any increase above the Base Real Property Taxes (as
defined in Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph
8.1).
(vii) The cost of insurance carried by Lessor with respect
to the Common Areas.
(viii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(xi) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such over-
-2-
<PAGE> 21
payment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank; (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority; and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to any
Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor
such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including,
but not limited to, the installation (and, at Lessor's option, removal on or
before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements) and/or
the deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including, but not limited to, all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including,
but not limited to, matters pertaining to (i) industrial hygiene; (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions; and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including,
but not limited to, permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDERS") shall have the right
to enter the Premises with prior notice at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Requirements (as defined in Paragraph 6.3),
and Lessor shall be entitled to employ experts and/or consultants in connection
therewith to advise Lessor with respect to Lessee's activities, including but
not limited to Lessee's installation, operation, use, monitoring, maintenance,
or removal of any Hazardous Substance on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease by Lessee or a violation of Applicable
Requirements or a contamination, caused or materially contributed to by Lessee,
is found to exist or to be imminent, or unless the inspection is requested or
ordered by a governmental authority as the result of any such existing or
imminent violation or contamination. In such case, Lessee shall upon request
reimburse Lessor or Lessor's Lender, as the case may be, for the costs and
expenses of such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair, including, without limiting
the generality of the foregoing, all equipment or facilities specifically
serving the Premises, such as electrical, lighting facilities, boilers, fired or
unfired pressure vessels, fire hose connections if within the Premises,
fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors,
windows, doors, plate glass, and skylights, but excluding any items which are
the responsibility of Lessor pursuant to Paragraph 7.2 below. Lessee, in keeping
the Premises in good order, condition and repair, shall exercise and perform
good maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.
(b)
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection
-3-
<PAGE> 22
systems and equipment, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing the services for which there
is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not
be obligated to paint the exterior or interior surfaces of exterior walls nor
shall Lessor be obligated to maintain, repair or replace windows, doors or plate
glass of the Premises. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor, in an
amount equal to one and one-half times the amount of such contested lien claim
or demand, indemnifying Lessor against liability for the same, as required by
law for the holding of the Premises free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "INSURANCE COST INCREASE" is defined
as any increase in the actual cost of the insurance applicable to the Building
and required to be carried by Lessor pursuant to Paragraphs 8.2(b), 8.3(a) and
8.3(b), ("REQUIRED INSURANCE"), over and above the base Premium, as hereinafter
defined, calculated on an annual basis. "Insurance Cost Increase" shall
include, but not be limited to, requirements of the holder of a mortgage or
deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term "Insurance Cost Increase"
shall not, however, include any premium increases resulting from the nature of
the occupancy of any other lessee of the Building. If the parties insert a
dollar amount in Paragraph 1.9, such amount shall be considered the "BASE
PREMIUM." If a dollar amount has not been inserted in Paragraph 1.9 and if the
Building has been previously occupied during the twelve (12) month period
immediately preceding the Commencement Date, the "Base Premium" shall be the
annual premium applicable to such twelve (12) month period. If the Building was
not fully occupied during such twelve (12) month period, the "Base Premium"
shall be the lowest annual premium reasonably obtainable for the Required
Insurance as of the Commencement Date, assuming the most nominal use possible
of the Building. In no event, however, shall Lessee be responsible for any
portion of the premium cost attributable to liability insurance coverage in
excess of $1,000,000 procured under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "INSURED CONTRACT"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender or included in the Base
Premium), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections of
the Building required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
loss, but not including plate glass insurance. Said policy or policies shall
also contain an agreed valuation provision in lieu of any co-insurance clause,
waiver of subrogation, and inflation guard protection causing an increase in the
annual property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers
for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
-4-
<PAGE> 23
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall, at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for the negligent acts of Lessor or Lessor's agents,
employees, contractors, customers or invitees. Except for Lessor's negligence
and/or breach of express warranties, Lessee shall indemnify, protect, defend and
hold harmless the Premises, Lessor and its agents, Lessor's master or ground
lessor, partners and Lenders, from and against any and all claims, loss of rents
and/or damages, costs, liens, judgments, penalties, loss of permits, attorneys'
and consultants' fees, expenses and/or liabilities arising out of, involving, or
in connection with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any such
claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except for the negligent acts of
Lessor or Lessor's agents, employees, contractors, customers or invitees. Lessor
shall not be liable for injury or damage to the person or goods, wares,
merchandise or other property of Lessee, Lessee's employees, contractors,
invitees, customers, or any other person in or about the Premises, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures, or from any other cause, whether said injury or damage
results from conditions arising upon the Premises or upon other portions of the
Building of which the Premises are a part, from other sources or places, and
regardless of whether the cause of such damage or injury or the means of
repairing the same is accessible or not. Lessor shall not be liable for any
damages arising from any act or neglect of any other lessee of Lessor nor from
the failure by Lessor to enforce the provisions of any other lease in the
Industrial Center. Notwithstanding Lessor's negligence or breach of this Lease,
Lessor shall under no circumstances be liable for injury to Lessee's business or
for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is fifty percent (50%) or more of
the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations
and Utility Installations and Trade Fixtures) immediately prior to such damage
or destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE -- INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may, at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense, repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
-5-
<PAGE> 24
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "COMMENCE" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may, at
Lessor's option, either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000, whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include
any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including, but not limited to, a change in the ownership of the Industrial
Center or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be
the amount of Real Property Taxes, which are assessed against the Premises,
Building or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services supplied
to the Premises, including, but not limited to, electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
-6-
<PAGE> 25
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the proposed
assignment or sublease, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor. See Paragraph #49.c
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this Lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including, but not limited to, the obtaining of reasonably required
bonds, insurance policies, or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such pro-
-7-
<PAGE> 26
ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraphs
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be
entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above Lessee's share of
the legal and other expenses incurred by Lessor in the condemnation matter,
repair any damage to the Premises caused by such condemnation authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. BROKERS' FEES
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2
15.3
15.4
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within ten
(10) days after written notice from the other Party (the "REQUESTING PARTY")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including, but not limited to Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
-8-
<PAGE> 27
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the state in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of Rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including, but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including, but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease, including, but not limited to the obligation to
provide the Tenancy Statement and information required in Paragraph 16.
-9-
<PAGE> 28
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Upon payment by Lessee of the Rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Default under Paragraph 13.1 during
the twelve (12) month period immediately preceding the exercise of the Option,
whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
50. All existing leases at 357 Van Ness Way, except Suite 200, will be
cancelled when Lessee fully vacates each Suite. The rent will be prorated based
on actual date each individual suite is vacated.
51. The items listed on the repair plan dated 9/26/96 will be fixed at no
expense to Mkyotronx. All drywall damage will be repaired and the walls made
ready for painting. All building systems such as plumbing, HVAC and electrical
will be in good operating condition. All other tenant improvements shall be at
Lessee's expense, including paint or carpet, if desired.
52. Contingency: This lease is contingent upon the existing lease being
cancelled between Tylan General, Inc. and Surf Management Associates.
-10-
<PAGE> 29
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Torrance, California Executed at: Torrance, California
------------------------- -------------------------
on: 10/3/96 on: 10/3/96
---------------------------------- ----------------------------------
(Date) (Date)
BY LESSOR: SURF MANAGEMENT ASSOCIATES, BY LESSEE: MYKOTRONX, INC., a
a California Limited Partnership a California Corporation
BY: SURF MANAGEMENT, INC.,
General Partner
By: /s/ STEVEN P. FECHNER By: /s/ TED BETTWY
----------------------------------- -----------------------------------
Name Printed: Steven P. Fechner Name Printed: Ted Bettwy
------------------------- -------------------------
Title: President Title: President
-------------------------------- --------------------------------
Address: 357 Van Ness Way, #100 Address:
------------------------------ ------------------------------
Torrance, California 90501
- -------------------------------------- --------------------------------------
Telephone: (310) 533-5900 Telephone: ( )
--- ---------------------- --- ----------------------
Facsimile: (310)533-0775 Facsimile: ( )
--------------------------- ----- ---------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION,
345 So. Figueroa St., M-1, Los Angeles, California 90071. (213) 687-8777.
-11-
<PAGE> 30
49 ADDENDUM
49.a TRASH: Lessor shall arrange for a trash collection service for all tenants
on the premises of which the Premises are a part. Lessee shall pay its
proportionate share of the trash collection charges based on the proportionate
amount of building space occupied and trash load deposited in the common trash
containers by Lessee, as determined by Lessor. The fee to Lessee for trash
collection shall be $280.00 per month which may be increased if it is determined
that the fee charged is insufficient to remove Lessee's trash or if trash rates
are increased. Lessee shall not deposit any household trash or other trash not
specifically created in the normal course of operating its business. No
hazardous substances shall be disposed of in the trash bins or anywhere on the
premises.
49.b This lease is subject to all matters of record affecting the real
property of which the Premises are a part, including without limitation,
covenants, conditions, restrictions, reservations, rights of way, easements and
exceptions, whether existing or hereafter created.
49.c SUBLEASING: If Lessee, with Lessor's consent, as required by this Lease,
enters into a sublease of the entire Premises, and if Lessee receives from the
Sublessee, rent or other consideration, either initially or over the term of
the sublease, in excess of the rent due Lessor under the Lease, of if Lessee
enters into a sublease of less than the entire Premises and receives from the
Sublessee rent or other consideration in excess of the rent due Lessor under
this Lease fairly allocable to the portion of the Premises so subleased after
appropriate adjustments to assure that all other payments called for under this
Lease are appropriately taken into account, then in either such event, Lessee
shall pay to Lessor, as additional rent, one half of the excess rent or other
consideration so received by Lessee from the Sublessee. Such payment shall be
made by Lessee to Lessor within ten (10) days following receipt by Lessee from
its Sublessee of payment of such excess rent or other consideration. A fully
executed copy of all subleases must be given to Lessor by Lessee.
49.d CPI ADJUSTMENT(S) (CPI): The monthly rent for each month of the adjustment
period(s) specified below shall be increased using the method indicated below:
On (Fill in CPI Adjustment Date(s)): February, 1, 1998, 1999, 2000 and 2001 (the
monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease
shall be adjust by 50% of the change, if any, from the Base Rent Month specified
below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S.
Department of Labor for all Urban Consumers for Los Angeles/Anaheim/Riverside
Area. All items (1982/84 -100 base), herein referred to as "C.P.I."
The monthly rent payable shall be calculated as follows: the Base Rent set forth
in paragraph 1.5 of the attached Lease shall be multiplied by 50% of the
fraction the numerator of which shall be the C.P.I. of the calendar month three
(3) months prior to the month(s) specified above during which the adjustment is
to take effect, and the denominator of which shall be the C.P.I. of the calendar
month which is three (3) months prior to the first month of the term of this
Lease as set forth in paragraph 1.3 ("Base Month"). The sum so calculated shall
constitute the new monthly rent, but in no event, shall any such new monthly
rent be less than the rent payable for the month immediately preceding the date
for rent adjustment.
In the event the compilation and/or publication of the C.P.I. shall be
transferred to any other governmental department or bureau or agency or shall
be discontinued, then the Index most nearly the same as the C.P.I. shall be
used to make such calculation. In the event that Lessor and Lessee cannot agree
on such alternative Index, then the matter shall be submitted for decision to
the American Arbitration Association in accordance with the then rules of said
association and the decision of the arbitrators shall be biding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
Annual adjustment shall be at one-half (1/2) of the Consumer Price Index.
49.e PUBLIC SALES: Merchandise sold on the Premises shall not be sold on a
retail basis to the general public. No auctions, warehouse, garage, clearance,
or any other type of sale to the general public is allowed on the Premises
without the written consent of Lessor and any required governmental permits.
49.f CONFIDENTIALITY: Lessee agrees to maintain the confidentiality of the
terms of this Lease, and not to disclose such terms to any other occupants of
the Project.
49.g DELAY IN POSSESSION: Notwithstanding paragraph 3.2, if the Commencement
Date is delayed two (2) weeks or more, there shall be a corresponding shift in
the ending date of the lease. If the Commencement Date is delayed less than (2)
weeks, the ending date shall remain unchanged.
49.h SECURITY CAMERAS: Any Lessor supplied notices on the buildings regarding
security cameras, and any Lessor supplied cameras themselves are intended as a
theft deterrent only. Lessor supplied cameras are not operational. Lessee shall
be responsible for informing its employees, agents, contractors, visitors, etc.
that Lessor supplied cameras should not be relied upon for safety or security.
49.i SURRENDER/RESTORATION: In addition to the terms and conditions of
Paragraph 74(c), upon vacating the premises, Lessee shall, if necessary,
shampoo the carpeting, clean the restrooms and remove all debris. Should Lessee
elect not to perform these tasks, Lessor shall do so and charge a reasonable
fee for this service.
<PAGE> 31
RULES AND REGULATIONS EXHIBIT A
1. No sign, placard, picture advertisement, name or notice shall be
inscribed, displayed, printed or affixed to any part of the outside or inside
of the Industrial Center without the prior consent of Lessor. Lessor shall have
the right to remove any unauthorized sign, placard, picture, advertisement,
name or notice to, and at the expense of, Lessee. All approved signs or
lettering on doors shall be printed, painted, affixed or inscribed at the
expense of Lessee by a person approved by Lessor, and shall be at Lessee's
expense. Lessee shall not place anything, or allow anything to be placed, near
the glass or any window, door, partition or wall which may appear unsightly
from outside the Premises. Lessee shall not, without prior written consent of
Lessor, otherwise sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, and stairways shall not
be obstructed by any of the Lessees or used by them for any other purpose other
than ingress and egress to and from their respective Premises.
3. Lessee shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the Premises without prior consent of
Lessor, and shall provide Lessor with copies of any new entry keys.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein. The expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the Lessee, or the Lessee's employees or guests who shall
have caused it.
5. Lessee shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. Lessee shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to
be occupied or used in a manner offensive or objectionable to the Lessor or
other occupants of the Industrial Center by reason of noise, odors and/or
vibrations, or interfere in any way with other Lessees or those having business
therein.
7. No animals or birds be brought in or kept in or about the Premises or the
Business Center.
8. Lessee shall not use or keep in the Premises or the Building any kerosene,
gasoline or flammable or combustible fluid or material, or use any method of
heating or air conditioning other than that supplied by Lessor.
9. Lessor will direct electricians as to where and how telephone and
telegraph wires are to be introduced into the building. No boring or cutting
wires will be allowed without the consent of the Lessor. The location of
telephones, call boxes and other office equipment affixed to the Premises shall
be subject to the approval of Lessor.
10. Lessor reserved the right to exclude or expel from the Industrial Center
any person who, in the judgment of Lessor, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of the rules and regulations of the Industrial Center.
11. Lessee shall not disturb, solicit, or canvass any occupant of the
Industrial Center and shall cooperate to prevent same.
12. Without the written consent of Lessor, Lessee shall not use the name of
the Industrial Center in connection with or in promoting or advertising the
business of Lessee except as Lessee's address.
13. No contact paper or wallpaper of any type may be applied anywhere without
Lessor's written permission, including the application to any walls, cabinets,
doors, etc. The expense of returning the premises to its original condition if
this clause is violated will be deducted from the security deposit.
14. Lessee shall not, without the consent of Lessor, park vehicles or store
overnight in the common areas of the Industrial Center. Vehicles in violation
will be towed without notice to Lessee at Lessee's expense.
15. Lessee and Lessee's employees, customers, agents, and contractors shall
observe all normal vehicle codes while at the Industrial Center and will not
drive their vehicles in excess of 5 miles per hour while on the premises.
Lessee shall be responsible for enforcing these rules with its employees,
customers, agents, and contractors.
16.
<PAGE> 32
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
September 8, 1998, is made by and between SURF MANAGEMENT ASSOCIATES, a
California Limited Partnership ("LESSOR") and MYKOTRONX, INC., a California
Corporation ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 357 Van Ness Way, located in the City of
Torrance, County of Los Angeles, State of California, with zip code 90501, as
outlined on Exhibit B attached hereto ("PREMISES"). The "BUILDING" is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): approximately 3,360 rentable square feet of
office space more commonly known as Suite #150. In addition to Lessee's rights
to use and occupy the Premises as hereinafter specified, Lessee shall have
non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as
hereinafter specified, but shall not have any rights to the roof, exterior walls
or utility raceways of the Building or to any other buildings in the Industrial
Center. The Premises, the Building, the Common Areas, the land upon which they
are located, along with all other buildings and improvements thereon, are herein
collectively referred to as the "INDUSTRIAL CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: thirteen (13) unreserved vehicle parking spaces
("UNRESERVED PARKING SPACES"); and -0- reserved vehicle parking spaces
("RESERVED PARKING SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: 0 years and 3 months ("ORIGINAL TERM") commencing September 9,
1998 ("COMMENCEMENT DATE") and ending December 8, 1998* ("EXPIRATION DATE").
(Also see Paragraph 3.)
1.4 EARLY POSSESSION: _______________________________ ("EARLY POSSESSION
DATE"). (Also see Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $3,865.00 per month ("BASE RENT"), payable on the 1st day of
each month commencing September, 1998 (Also see Paragraph 4.)
1.6(a) BASE RENT PAID UPON EXECUTION: $_________________ as Base Rent for
the period _____________________________.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: one point seven
percent (1.7%) ("LESSEE'S SHARE") as determined by
[X] prorata square footage of the Premises as compared to the total square
footage of the project or [ ] other criteria as described in Addendum
________.
1.7 SECURITY DEPOSIT: $-0- ("SECURITY DEPOSIT"). (Also see Paragraph 5.)
1.8 PERMITTED USE: office for company doing technical computer design and
manufacturing ("PERMITTED USE") (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[ ] _____________________ represents Lessor exclusively ("LESSOR'S BROKER");
[ ] _____________________ represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] _____________________ represents both Lessor and Lessee ("DUAL AGENCY").
(Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the occupancy of the premises by Lessee,
Lessor shall pay to said Broker(s) jointly, or in such separate shares as they
may mutually designate in writing, a fee as set forth in a separate written
agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of
$_______________) for brokerage services rendered by said Broker(s) in
connection with this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by ________________________________________________________________
("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49.a through 52, and Exhibits A through B, all of which
constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems, and loading doors, if any, in the Premises, other than
those constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including, but not limited to, the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations, and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
<PAGE> 33
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking for the Industrial Center. Lessee shall not use more parking
spaces than said number. Said parking spaces shall be used for parking by
vehicles no larger than full-size passenger automobiles or pick-up trucks,
herein called "PERMITTED SIZE VEHICLES." Vehicles other than Permitted Size
Vehicles shall be parked and loaded or unloaded as directed by Lessor in the
Rules and Regulations (as defined in Paragraph 40) issued by Lessor. (Also see
Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in Paragraph
1.4 and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including, but not limited to, the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee by the Early Possession Date, if one is specified in
Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement
Date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease, or the obligations of Lessee
hereunder, but in such case, Lessee shall not, except as otherwise provided
herein, be obligated to pay rent or perform any other obligation of Lessee under
the terms of this Lease until Lessor delivers possession of the Premises to
Lessee. If possession of the Premises is not delivered to Lessee within sixty
(60) days after the Commencement Date, Lessee may, at its option, by notice in
writing to Lessor within ten (10) days after the end of said sixty (60) day
period, cancel this Lease, in which event the parties shall be discharged from
all obligations hereunder; provided further, however, that if such written
notice of Lessee is not received by Lessor within said ten (10) day period,
Lessee's right to cancel this Lease hereunder shall terminate and be of no
further force or effect. Except as may be otherwise provided, and regardless of
when the Original Term actually commences, if possession is not tendered to
Lessee when required by this Lease and Lessee does not terminate this Lease, as
aforesaid, the period free of the obligation to pay Base Rent, if any, that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to the period during which the Lessee
would have otherwise enjoyed under the terms hereof, but minus any days of delay
caused by the acts, changes or omissions of Lessee. See Para. 49.g
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon a 30 day month involved. Payment of Base Rent and other
charges shall be made to Lessor at its address stated herein or to such other
persons or at such other addresses as Lessor may from time to time designate in
writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Any increase above the Base Real Property Taxes (as
defined in Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph
8.1).
(vii) The cost of insurance carried by Lessor with respect
to the Common Areas.
(viii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(xi) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such over-
-2-
<PAGE> 34
payment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank; (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority; and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to any
Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor
such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including,
but not limited to, the installation (and, at Lessor's option, removal on or
before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements) and/or
the deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene; (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions; and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDERS") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises;
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection
-3-
<PAGE> 35
systems and equipment, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing the services for which there
is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not
be obligated to paint the exterior or interior surfaces of exterior walls nor
shall Lessor be obligated to maintain, repair or replace windows, doors or plate
glass of the Premises. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor, in an
amount equal to one and one-half times the amount of such contested lien claim
or demand, indemnifying Lessor against liability for the same, as required by
law for the holding of the Premises free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "INSURANCE COST INCREASES" is
defined as any increases in the actual cost of the insurance applicable to the
Building and required to be carried by Lessor pursuant to Paragraphs 8.2(b),
8.3(a) and 8.3(b). ("REQUIRED INSURANCE"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. "Insurance Cost Increase"
shall include, but not be limited to, requirements of the holder of a mortgage
or deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term "Insurance Cost Increase"
shall not, however, include any premium increases resulting from the nature of
the occupancy of any other lessee of the Building. If the parties insert a
dollar amount in Paragraph 1.9, such amount shall be considered the "BASE
PREMIUM." If a dollar amount has not been inserted in Paragraph 1.9 and if the
Building has been previously occupied during the twelve (12) month period
immediately preceding the Commencement Date, the "Base Premium" shall be the
annual premium applicable to such twelve (12) month period. If the Building was
not fully occupied during such twelve (12) month period, the "Base Premium"
shall be the lowest annual premium reasonably obtainable for the Required
Insurance as of the Commencement Date, assuming the most nominal use possible
of the Building. In no event, however, shall Lessee be responsible for any
portion of the premium cost attributable to liability insurance coverage in
excess of $1,000,000 procured under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "INSURED CONTRACT"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender or included in the Base
Premium), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections of
the Building required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
loss, but not including plate glass insurance. Said policy or policies shall
also contain an agreed valuation provision in lieu of any co-insurance clause,
waiver of subrogation, and inflation guard protection causing an increase in the
annual property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers
for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
-4-
<PAGE> 36
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall, at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend
the same at Lessee's expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is fifty percent (50%) or more of
the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations
and Utility Installations and Trade Fixtures) immediately prior to such damage
or destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE -- INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may, at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
-5-
<PAGE> 37
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "COMMENCE" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may, at
Lessor's option, either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000, whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2, applicable to the Industrial Center, and except as otherwise
provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include
any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including, but not limited to, a change in the ownership of the Industrial
Center or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "BASE REAL ESTATE PROPERTY TAXES"
shall be the amount of Real Property Taxes, which are assessed against the
Premises, Building or Common Areas in the calendar year during which the Lease
is executed. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services supplied
to the Premises, including, but not limited to, electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
-6-
<PAGE> 38
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including, but not limited to, the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the proposed
assignment or sublease, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor. See Paragraph #49.c
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this Lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including, but not limited to, the obtaining of reasonably required
bonds, insurance policies, or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and that portion of any leasing commission paid by Lessor in connection with
this Lease applicable to the unexpired term of this Lease. The worth at the time
of award of the amount referred to in provision (iii) of the immediately
preceding sentence shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco or the Federal Reserve Bank
District in which the Premises are located at the time of award plus one percent
(1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach
of this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such pro-
-7-
<PAGE> 39
ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraphs
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The Parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be
entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above Lessee's share of
the legal and other expenses incurred by Lessor in the condemnation matter,
repair any damage to the Premises caused by such condemnation authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. BROKERS' FEES
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2
15.3
15.4
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within ten
(10) days after written notice from the other Party (the "REQUESTING PARTY")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including, but not limited to, Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
-8-
<PAGE> 40
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of monies or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the state in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of Rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including, but not
limited to, architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including, but not
limited to, consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease, including, but not limited to, the obligation to
provide the Tenancy Statement and information required in Paragraph 16.
-9-
<PAGE> 41
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Upon payment by Lessee of the Rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Default under Paragraph 13.1 during
the twelve (12) month period immediately preceding the exercise of the Option,
whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("RULES AND REGULATIONS") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
50. Lessee shall take possession of premises in "as is" condition.
51. Lease shall convert to Month-to-Month basis, at same monthly rent as in
effect at end of lease term, upon lease termination date.
52. Lessee shall have Right of First refusal to lease the suite until January
31, 2002.
-10-
<PAGE> 42
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Torrance, California Executed at: _________________________
on: __________________________________ on: __________________________________
BY LESSOR: SURF MANAGEMENT ASSOCIATES BY LESSEE: MYKOTRONX, INC.
a California Limited Partnership A California corporation
BY: SURF MANAGEMENT, INC.,
General Partner
By: /s/ STEVEN P. FECHNER By: /s/ NANCY SCHUNKE
---------------------------------- ----------------------------------
Name Printed: Stephen P. Fechner Name Printed: Nancy Schunke
Title: President Title: Vice President - Finance
By:___________________________________ By:___________________________________
Name Printed:_________________________ Name Printed:_________________________
Title:________________________________ Title:________________________________
Address: 357 Van Ness Way, #100 Address:______________________________
Torrance, California 90501
Telephone: (310) 533-5900 Telephone: (___)______________________
Facsimile: (310) 533-0775_____________ Facsimile: (___)______________________
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
South Flower Street, Suite 600, Los Angeles, California 90017. (213)
687-8777.
-11-
<PAGE> 43
49 ADDENDUM
49.a TRASH: Lessor shall arrange for a trash collection service for all tenants
on the premises of which the Premises are a part. Lessee shall pay its
proportionate share of the trash collection charges based on the proportionate
amount of building space occupied and trash load deposited in the common trash
containers by Lessee, as determined by Lessor. The fee to Lessee for trash
collection shall be $35.00 per month which may be increased if it is determined
that the fee charged is insufficient to remove Lessee's trash or if trash rates
are increased. Lessee shall not deposit any household trash or other trash not
specifically created in the normal course of operating its business. No
hazardous substances shall be disposed of in the trash bins or anywhere on the
premises.
49.b This lease is subject to all matters of record affecting the real
property of which the Premises are a part, including without limitation,
covenants, conditions, restrictions, reservations, rights of way, easements and
exceptions, whether existing or hereafter created.
49.c SUBLEASING: If Lessee, with Lessor's consent, as required by this Lease,
enters into a sublease of the entire Premises, and if Lessee receives from the
Sublessee, rent or other consideration, either initially or over the term of
the sublease, in excess of the rent due Lessor under the Lease, or if Lessee
enters into a sublease of less than the entire Premises and receives from the
Sublessee rent or other consideration in excess of the rent due Lessor under
this Lease fairly allocable to the portion of the Premises so subleased after
appropriate adjustments to assure that all other payments called for under this
Lease are appropriately taken into account, then in either such event, Lessee
shall pay to Lessor, as additional rent, one half of the excess rent or other
consideration so received by Lessee from the Sublessee. Such payment shall be
made by Lessee to Lessor within ten (10) days following receipt by Lessee from
its Sublessee of payment of such excess rent or other consideration. A fully
executed copy of all subleases must be given to Lessor by Lessee.
49.d
49.e PUBLIC SALES: Merchandise sold on the Premises shall not be sold on a
retail basis to the general public. No auctions, warehouse, garage, clearance,
or any other type of sale to the general public is allowed on the Premises
without the written consent of Lessor and any required governmental permits.
49.f CONFIDENTIALITY: Lessee agrees to maintain the confidentiality of the
terms of this Lease, and not to disclose such terms to any other occupants of
the Project.
49.g DELAY IN POSSESSION: Notwithstanding paragraph 3.2, if the Commencement
Date is delayed two (2) weeks or more, there shall be a corresponding shift in
the ending date of the lease. If the Commencement Date is delayed less than (2)
weeks, the ending date shall remain unchanged.
49.h SECURITY CAMERAS: Any Lessor-supplied notices on the buildings regarding
security cameras, and any-Lessor supplied cameras themselves are intended as a
theft deterrent only. Lessor-supplied cameras are not operational. Lessee shall
be responsible for informing its employees, agents, contractors, visitors, etc.
that Lessor-supplied cameras should not be relied upon for safety or security.
49.i SURRENDER/RESTORATION: In addition to the terms and conditions of
Paragraph 7.4(c), upon vacating the premises, Lessee shall, if necessary,
shampoo the carpeting, clean the restrooms and remove all debris. Should Lessee
elect not to perform these tasks, Lessor shall do so and charge a reasonable
fee for this service.
<PAGE> 44
RULES AND REGULATIONS EXHIBIT A
1. No sign, placard, picture advertisement, name or notice shall be inscribed,
displayed, printed or affixed to any part of the outside or inside of the
Industrial Center without the prior consent of Lessor. Lessor shall have the
right to remove any unauthorized sign, placard, picture, advertisement, name or
notice to, and at the expense of, Lessee. All approved signs or lettering on
doors shall be printed, painted, affixed or inscribed at the expense of Lessee
by a person approved by Lessor, and shall be at Lessee's expense. Lessee shall
not place anything, or allow anything to be placed, near the glass or any
window, door, partition or wall which may appear unsightly from outside the
Premises. Lessee shall not, without prior written consent of Lessor, otherwise
sunscreen any window.
2. The sidewalks, halls, passages, exists, entrances, and stairways shall not
be obstructed by any of the Lessees or used by them for any other purpose other
than for ingress and egress to and from their respective Premises.
3. Lessee shall not alter any lock or install any new or additional locks or
any bolts or any doors or windows to the Premises without prior consent of
Lessor, and shall provide Lessor with copies of any new entry keys.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no foreign
substance of any kind whatsoever shall be thrown therein. The expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by the Lessee, or the Lessee's employees or guests who shall have caused
it.
5. Lessee shall not overload the floor of the Premises or in any way deface the
Premises or any part thereof.
6. Lessee shall not use, keep or permit to be used or kept any four or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Lessor or other
occupants of the Industrial Center by reason of noise, odors and/or vibrations,
or interfere in any way with other Lessees or those having business therein.
7. No animals or birds be brought in or kept in or about the Premises or the
Business Center.
8. Lessee shall not use or keep in the Premises or the Building any kerosene,
gasoline or flammable or combustible fluid or material, or use any method of
heating or air conditioning other than that supplied by Lessor.
9. Lessor will direct electricians as to where and how telephone and telegraph
wires are to be introduced into the building. No boring or cutting wires will be
allowed without the consent of the Lessor. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject to the
approval of Lessor.
10. Lessor reserved the right to exclude or expel from the Industrial Center any
person who, in the judgment of Lessor, in intoxicated or under the influence of
liquor or drugs, or who shall in any manner do any act in violation of any of
the rules and regulations of the Industrial Center
11. Lessee shall not disturb, solicit, or canvass any occupant of the Industrial
Center and shall cooperate to prevent same.
12. Without the written consent of Lessor, Lessee shall not use the name of the
Industrial Center in connection with or in promoting or advertising the
business of Lessee except as Lessee's address.
13. No contact paper or wallpaper of any type may be applied anywhere without
Lessor's written permission, including the application to any walls, cabinets,
doors, etc. The expense of returning the premises to its original condition if
this clause if violated will be deducted from the security deposit.
14. Lessee shall not, without the consent of Lessor, park vehicles or store
overnight in the common areas of the Industrial Center. Vehicles in violation
will be towed without notice to Lessee at Lessee's expense.
15. Lessee and Lessee's employees, customers, agents, and contractors shall
observe all normal vehicle codes while at the Industrial Center and will not
drive their vehicles in excess of 5 miles per hour while on the premises. Lessee
shall be responsible for enforcing these rules with its employees, customers,
agents, and contractors.
16. No cooking shall be done or permitted by any Lessee on the Premises, except
for a microwave, nor shall the Premises be used for the storage of merchandise
in office spaces, for washing clothes, for lodging, or any improper,
objectionable or immoral purposes.
<PAGE> 45
[DIAGRAM SUITE 140/160 AND SUITE 150]
<PAGE> 46
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[AIR LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
October 2, 1997, is made by and between SURF MANAGEMENT ASSOCIATES, a California
Limited Partnership ("LESSOR") and MYKOTRONX, INC., a California Corporation
("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 371 Van Ness Way, located in the City of
Torrance, County of Los Angeles, State of California, with zip code 90501, as
outlined on Exhibit B attached hereto ("PREMISES"). The "BUILDING" is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): approximately 4,210 rentable square feet of
office space commonly known as Suite 230. In addition to Lessee's rights to use
and occupy the Premises as hereinafter specified, Lessee shall have
non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as
hereinafter specified, but shall not have any rights to the roof, exterior walls
or utility raceways of the Building or to any other buildings in the Industrial
Center. The Premises, the Building, the Common Areas, the land upon which they
are located, along with all other buildings and improvements thereon, are herein
collectively referred to as the "INDUSTRIAL CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: twelve (12) unreserved vehicle parking spaces ("UNRESERVED
PARKING SPACES"); and -0- reserved vehicle parking spaces ("RESERVED PARKING
SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: 0 years and 6 months ("ORIGINAL TERM") commencing September 18,
1997 ("COMMENCEMENT DATE") and ending March 17, 1998 ("EXPIRATION DATE"). (Also
see Paragraph 3.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (Also see Paragraphs
3.2 and 3.3.)
1.5 BASE RENT: $4,841.00 per month ("BASE RENT"), payable on the 1st day of
each month commencing September 1997 (Also see Paragraph 4.)
[X] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum 49.d, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $4,841 as Base Rent for the period
first month.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: one point twenty
three percent (1.23%) ("LESSEE'S SHARE") as determined by [ ] prorata square
footage of the Premises as compared to the total square footage of the project
or [ ] other criteria as described in Addendum ________.
1.7 SECURITY DEPOSIT: $ none ("SECURITY DEPOSIT"). (Also see Paragraph 5.)
1.8 PERMITTED USE: offices for technical computer design and manufacturing
("PERMITTED USE") (Also see Paragraph 6.) WITH A 30 DAY WRITTEN NOTICE LEASE
MAY BE CANCELLED BY EITHER PARTY.
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[ ] _____________________ represents Lessor exclusively ("LESSOR'S BROKER");
[ ] N/A represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] _____________________ represents both Lessor and Lessee ("DUAL AGENCY").
(Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the occupancy of the premises by
Lessee, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of
$_______________) for brokerage services rendered by said Broker(s) in
connection with this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by ________________________________________________________________
("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 50, and Exhibits A through B, all of which
constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems, and loading doors, if any, in the Premises, other than
those constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be
reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises
under Applicable Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including, but not limited to, the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations, and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
<PAGE> 47
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking for the Industrial Center. Lessee shall not use more parking
spaces than said number. Said parking spaces shall be used for parking by
vehicles no larger than full-size passenger automobiles or pick-up trucks,
herein called "PERMITTED SIZE VEHICLES." Vehicles other than Permitted Size
Vehicles shall be parked and loaded or unloaded as directed by Lessor in the
Rules and Regulations (as defined in Paragraph 40) issued by Lessor. (Also see
Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
nonexclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in Paragraph
1.4 and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including, but not limited to, the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee by the Early Possession Date, if one is specified in
Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement
Date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease, or the obligations of Lessee
hereunder, but in such case, Lessee shall not, except as otherwise provided
herein, be obligated to pay rent or perform any other obligation of Lessee under
the terms of this Lease until Lessor delivers possession of the Premises to
Lessee. If possession of the Premises is not delivered to Lessee within sixty
(60) days after the Commencement Date, Lessee may, at its option, by notice in
writing to Lessor within ten (10) days after the end of said sixty (60) day
period, cancel this Lease, in which event the parties shall be discharged from
all obligations hereunder; provided further, however, that if such written
notice of Lessee is not received by Lessor within said ten (10) day period,
Lessee's right to cancel this Lease hereunder shall terminate and be of no
further force or effect. Except as may be otherwise provided, and regardless of
when the Original Term actually commences, if possession is not tendered to
Lessee when required by this Lease and Lessee does not terminate this Lease, as
aforesaid, the period free of the obligation to pay Base Rent, if any, that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to the period during which the Lessee
would have otherwise enjoyed under the terms hereof, but minus any days of delay
caused by the acts, changes or omissions of Lessee. See Para. 49.g.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon a 30 day month. Payment of Base Rent and other charges shall
be made to Lessor at its address stated herein or to such other persons or at
such other addresses as Lessor may from time to time designate in writing to
Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Any increase above the Base Real Property Taxes (as
defined in Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph
8.1).
(vii) The cost of insurance carried by Lessor with respect
to the Common Areas.
(viii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(ix) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such over-
-2-
<PAGE> 48
payment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank; (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority; and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to any
Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor
such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including,
but not limited to, the installation (and, at Lessor's option, removal on or
before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements) and/or
the deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including, but not limited to, all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including,
but not limited to, matters pertaining to (i) industrial hygiene; (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions; and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including,
but not limited to, permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDERS") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection
-3-
<PAGE> 49
systems and equipment, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing the services for which there
is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not
be obligated to paint the exterior or interior surfaces of exterior walls nor
shall Lessor be obligated to maintain, repair or replace windows, doors or plate
glass of the Premises. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor, in an
amount equal to one and one-half times the amount of such contested lien claim
or demand, indemnifying Lessor against liability for the same, as required by
law for the holding of the Premises free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "INSURANCE COST INCREASE" is defined
as any increase in the actual cost of the insurance applicable to the Building
and required to be carried by Lessor pursuant to Paragraphs 8.2(b), 8.3(a) and
8.3(b), ("REQUIRED INSURANCE"), over and above the Base Premium, as hereinafter
defined, calculated on an annual basis. "Insurance Cost Increase" shall
include, but not be limited to, requirements of the holder of a mortgage or
deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term "Insurance Cost Increase"
shall not, however, include any premium increases resulting from the nature of
the occupancy of any other lessee of the Building. If the parties insert a
dollar amount in Paragraph 1.9, such amount shall be considered the "BASE
PREMIUM." If a dollar amount has not been inserted in Paragraph 1.9 and if the
Building has been previously occupied during the twelve (12) month period
immediately preceding the Commencement Date, the "Base Premium" shall be the
annual premium applicable to such twelve (12) month period. If the Building was
not fully occupied during such twelve (12) month period, the "Base Premium"
shall be the lowest annual premium reasonably obtainable for the Required
Insurance as of the Commencement Date, assuming the most nominal use possible
of the Building. In no event, however, shall Lessee be responsible for any
portion of the premium cost attributable to liability insurance coverage in
excess of $1,000,000 procured under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "INSURED CONTRACT"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance. Said policy or policies shall also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
-4-
<PAGE> 50
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall, at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee, upon notice from Lessor, shall defend
the same at Lessee's expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is fifty percent (50%) or more of
the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations
and Utility Installations and Trade Fixtures) immediately prior to such damage
or destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE -- INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may, at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense, repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
-5-
<PAGE> 51
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "COMMENCE" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may, at
Lessor's option, either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000, whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2, applicable to the Industrial Center, and except as otherwise
provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include any
form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including, but not limited to, a change in the ownership of the Industrial
Center or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be the
amounts of Real Property Taxes, which are assessed against the Premises,
Buildings or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services supplied
to the Premises, including, but not limited to, electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
-6-
<PAGE> 52
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including, but not limited to, the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the proposed
assignment or sublease, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor. See Paragraph #49.c
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this Lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including, but not limited to, the obtaining of reasonably required
bonds, insurance policies, or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and that portion of any leasing commission paid by Lessor in connection with
this Lease applicable to the unexpired term of this Lease. The worth at the time
of award of the amount referred to in provision (iii) of the immediately
preceding sentence shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco or the Federal Reserve Bank
District in which the Premises are located at the time of award plus one percent
(1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach
of this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such pro-
-7-
<PAGE> 53
ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraphs
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The Parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be
entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above Lessee's share of
the legal and other expenses incurred by Lessor in the condemnation matter,
repair any damage to the Premises caused by such condemnation authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. BROKERS' FEES
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2
15.3
15.4
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within ten
(10) days after written notice from the other Party (the "REQUESTING PARTY")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including, but not limited to, Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
-8-
<PAGE> 54
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of Rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including, but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease, including but not limited to the obligation to
provide the Tenancy Statement and information required in Paragraph 16.
-9-
<PAGE> 55
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Upon payment by Lessee of the Rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during the twelve (12) month period immediately preceding the exercise of the
Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("RULES AND REGULATIONS") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
50. Lessee shall occupy premises in as is condition.
-10-
<PAGE> 56
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Torrance, California Executed at: Torrance, California
on: 10/29/97 on: 10/28/97
BY LESSOR: SURF MANAGEMENT ASSOCIATES, BY LESSEE: MYKOTRONX, INC.
a California Limited Partnership A California corporation
BY: SURF MANAGEMENT, INC.,
General Partner
By: /s/ STEVEN P. FECHNER By: /s/ A. MARGALITH
---------------------------------- ----------------------------------
Name Printed: Stephen P. Fechner Name Printed: A. Margalith
Title: President Title: President
By:___________________________________ By:___________________________________
Name Printed:_________________________ Name Printed:_________________________
Title:________________________________ Title:________________________________
Address: 357 Van Ness Way, #100 Address:______________________________
Torrance, California 90501
Telephone: (310) 533-5900 Telephone: (___)______________________
Facsimile: (310) 533-0775_____________ Facsimile: (___)______________________
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
South Flower Street, Suite 600, Los Angeles, California 90017. (213)
687-8777.
-11-
<PAGE> 57
49 ADDENDUM
49.a TRASH: Lessor shall arrange for a trash collection service for all tenants
on the premises of which the Premises are a part. Lessee shall pay its
proportionate share of the trash collection charges based on the proportionate
amount of building space occupied and trash load deposited in the common trash
containers by Lessee, as determined by Lessor. The fee to Lessee for trash
collection shall be $25.00 per month which may be increased if it is determined
that the fee charged is insufficient to remove Lessee's trash or if trash rates
are increased. Lessee shall not deposit any household trash or other trash not
specifically created in the normal course of operating its business. No
hazardous substances shall be disposed of in the trash bins or anywhere on the
premises.
49.b This lease is subject to all matters of record affecting the real
property of which the Premises are a part, including without limitation,
covenants, conditions, restrictions, reservations, rights of way, easements and
exceptions, whether existing or hereafter created.
49.c SUBLEASING: If Lessee, with Lessor's consent, as required by this Lease,
enters into a sublease of the entire Premises, and if Lessee receives from the
Sublessee, rent or other consideration, either initially or over the term of
the sublease, in excess of the rent due Lessor under the Lease, or if Lessee
enters into a sublease of less than the entire Premises and receives from the
Sublessee rent or other consideration in excess of the rent due Lessor under
this Lease fairly allocable to the portion of the Premises so subleased after
appropriate adjustments to assure that all other payments called for under this
Lease are appropriately taken into account, then in either such event, Lessee
shall pay to Lessor, as additional rent, one half of the excess rent or other
consideration so received by Lessee from the Sublessee. Such payment shall be
made by Lessee to Lessor within ten (10) days following receipt by Lessee from
its Sublessee of payment of such excess rent or other consideration. A fully
executed copy of all subleases must be given to Lessor by Lessee.
49.d
49.e PUBLIC SALES: Merchandise sold on the Premises shall not be sold on a
retail basis to the general public. No auctions, warehouse, garage, clearance,
or any other type of sale to the general public is allowed on the Premises
without the written consent of Lessor and any required governmental permits.
49.f CONFIDENTIALITY: Lessee agrees to maintain the confidentiality of the
terms of this Lease, and not to disclose such terms to any other occupants of
the Project.
49.g DELAY IN POSSESSION: Notwithstanding paragraph 3.2, if the Commencement
Date is delayed two (2) weeks or more, there shall be a corresponding shift in
the ending date of the lease. If the Commencement Date is delayed less than (2)
weeks, the ending date shall remain unchanged.
49.h SECURITY CAMERAS: Any Lessor supplied notices on the buildings regarding
security cameras, and any Lessor supplied cameras themselves are intended as a
theft deterrent only. Lessor supplied cameras are not operational. Lessee shall
be responsible for informing its employees, agents, contractors, etc. that
Lessor supplied cameras should not be relied upon for security.
49.i SURRENDER/RESTORATION: In addition to the terms and conditions of
Paragraph 74(c), upon vacating the premises Lessee shall, if necessary,
shampoo the carpeting, clean the restrooms and remove all debris. Should Lessee
elect not to perform these tasks, Lessor shall do so and charge a reasonable
fee for the service.
<PAGE> 58
RULES AND REGULATIONS EXHIBIT A
1. No sign, placard, picture advertisement, name or notice shall be inscribed,
displayed, printed or affixed to any part of the outside or inside of the
Industrial Center without the prior consent of Lessor. Lessor shall have the
right to remove any unauthorized sign, placard, picture, advertisement, name or
notice to, and at the expense of, Lessee. All approved signs or lettering on
doors shall be printed, painted, affixed or inscribed at the expense of Lessee
by a person approved by Lessor, and shall be at Lessee's expense. Lessee shall
not place anything, or allow anything to be placed, near the glass or any
window, door, partition or wall which may appear unsightly from outside the
Premises. Lessee shall not, without prior written consent of Lessor, otherwise
sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, and stairways shall not
be obstructed by any of the Lessees or used by them for any other purpose other
than for ingress and egress to and from their respective Premises.
3. Lessee shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the Premises without prior consent of
Lessor, and shall provide Lessor with copies of any new entry keys.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no foreign
substance of any kind whatsoever shall be thrown therein. The expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by the Lessee, or the Lessee's employees or guests who shall have caused
it.
5. Lessee shall not overload the floor of the Premises or in any way deface the
Premises or any part thereof.
6. Lessee shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Lessor or other
occupants of the Industrial Center by reason of noise, odors and/or vibrations,
or interfere in any way with other Lessees or those having business therein.
7. No animals or birds be brought in or kept in or about the Premises or the
Business Center.
8. Lessee shall not use or keep in the Premises or the Building any kerosene,
gasoline or flammable or combustible fluid or material, or use any method of
heating or air conditioning other than that supplied by Lessor.
9. Lessor will direct electricians as to where and how telephone and telegraph
wires are to be introduced into the building. No boring or cutting wires will be
allowed without the consent of the Lessor. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject to the
approval of Lessor.
10. Lessor reserved the right to exclude or expel from the Industrial Center any
person who, in the judgment of Lessor, is intoxicated or under the influence of
liquor or drugs, or who shall in any manner do any act in violation of any of
the rules and regulations of the Industrial Center.
11. Lessee shall not disturb, solicit, or canvass any occupant of the Industrial
Center and shall cooperate to prevent same.
12. Without the written consent of Lessor, Lessee shall not use the name of the
Industrial Center in connection with or in promoting or advertising the
business of Lessee except as Lessee's address.
13. No contact paper or wallpaper of any type may be applied anywhere without
Lessor's written permission, including the application to any walls, cabinets,
doors, etc. The expense of returning the premises to its original condition if
this clause if violated will be deducted from the security deposit.
14. Lessee shall not, without the consent of Lessor, park vehicles or store
overnight in the common areas of the Industrial Center. Vehicles in violation
will be towed without notice to Lessee at Lessee's expense.
15. Lessee and Lessee's employees, customers, agents, and contractors shall
observe all normal vehicle codes while at the Industrial Center and will not
drive their vehicles in excess of 5 miles per hour while on the premises. Lessee
shall be responsible for enforcing these rules with its employees, customers,
agents, and contractors.
16. No cooking shall be done or permitted by any Lessee on the Premises, except
for a microwave, nor shall the Premises be used for the storage of merchandise
in office spaces, for washing clothes, for lodging, or any improper,
objectionable or immoral purposes.
<PAGE> 59
371 VNBC
SUITE 230
[FLOORPLAN OF SUITE 230]
<PAGE> 1
RAINBOW TECHNOLOGIES
DBA
SYSTEMATIC SYSTEMS INTEGRATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
LEASE
<S> <C>
ARTICLE 1 - BASIC LEASE PROVISIONS...................................................1
ARTICLE 2 - TERM.....................................................................2
ARTICLE 3 - BASIC MONTHLY RENT.......................................................3
ARTICLE 4 - TAX RENT.................................................................3
ARTICLE 5 - OPERATING EXPENSE RENT [SEE ADDENDUM]....................................4
ARTICLE 6 - CAPITAL EXPENSE RENT [SEE ADDENDUM]......................................5
ARTICLE 7 - SECURITY DEPOSIT.........................................................6
ARTICLE 8 - USE......................................................................6
ARTICLE 9 - UTILITIES AND SERVICES...................................................6
ARTICLE 10 - PARKING LICENSE [SEE ADDENDUM]..........................................7
ARTICLE 11 - REPAIRS.................................................................8
ARTICLE 12 - CONDITION OF PREMISES...................................................8
ARTICLE 13 - ENTRY BY LANDLORD.......................................................8
ARTICLE 14 - ALTERATIONS & RENOVATIONS...............................................9
ARTICLE 15 - HAZARDOUS MATERIALS....................................................10
ARTICLE 16 - LIENS..................................................................10
ARTICLE 17 - BROKERS................................................................10
ARTICLE 18 - INSURANCE..............................................................10
ARTICLE 19 - INDEMNIFICATION........................................................11
ARTICLE 20 - DAMAGE OR DESTRUCTION..................................................12
ARTICLE 21 - EMINENT DOMAIN.........................................................13
ARTICLE 22 - INTERRUPTION OF USE....................................................13
ARTICLE 23 - SUBORDINATION, NONDISTURBANCE AND ATTORNMENT...........................14
ARTICLE 24 - OFFSET STATEMENT.......................................................14
ARTICLE 25 - BUILDING PLANNING [DELETED]............................................15
ARTICLE 26 - ASSIGNMENT AND SUBLETTING..............................................15
ARTICLE 27 - BANKRUPTCY AND INVOLUNTARY ASSIGNMENT..................................16
ARTICLE 28 - FINANCIAL STATEMENTS...................................................17
ARTICLE 29 - HOLDING OVER...........................................................17
ARTICLE 30 - DEFAULTS...............................................................17
ARTICLE 31 - REMEDIES...............................................................18
ARTICLE 32 - ATTORNEYS' FEES........................................................18
ARTICLE 33 - WAIVER OF JURY TRIAL...................................................19
ARTICLE 34 - NOTICES [SEE ADDENDUM].................................................19
ARTICLE 35 - GENERAL PROVISIONS.....................................................19
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ADDENDUM NO. 1
<S> <C>
ARTICLE 36 - TENANT IMPROVEMENTS.....................................................1
ARTICLE 37 - OPTION TO RENEW.........................................................1
ARTICLE 38 - SIGNS...................................................................3
ARTICLE 39 - RIGHT TO AUDIT..........................................................4
ADDENDUM TO ARTICLE 5 - OPERATING EXPENSE RENT.......................................6
ADDENDUM TO ARTICLE 6 - CAPITAL EXPENSE RENT.........................................7
ADDENDUM TO ARTICLE 10 - PARKING LICENSE.............................................7
ADDENDUM TO ARTICLE 34 - NOTICES.....................................................9
REAFFIRMATION OF LEASE...............................................................9
EXHIBIT "A" - LOCATION PLAN
EXHIBIT "B" - LEGAL DESCRIPTION
EXHIBIT "C" - RULES AND REGULATIONS
EXHIBIT "D" - WORK LETTER
SECTION 1 - CONSTRUCTION REPRESENTATIVES............................................1
SECTION 2 - LANDLORD'S AND TENANT'S WORK............................................1
SECTION 3 - PERFORMANCE SCHEDULE AND DELAYS.........................................1
SECTION 4 - PLANS AND PERMITS FOR TENANT'S WORK.....................................2
SECTION 5 - SELECTION OF CONTRACTOR TO PERFORM TENANT'S WORK........................3
SECTION 6 - ACCESS TO PREMISES......................................................3
SECTION 7 - WORK COSTS..............................................................4
SCHEDULE 1 - LANDLORD'S WORK.........................................................6
SCHEDULE 2 - CONSTRUCTION SCHEDULE...................................................6
SCHEDULE 3 - INSURANCE REQUIREMENTS..................................................6
SCHEDULE 4 - SUPERVISION FEES........................................................7
</TABLE>
ii
<PAGE> 4
LEASE
By this Lease dated November 24, 1999, for reference purposes
only, Landlord hereby leases to Tenant the Premises, together with the
non-exclusive right to use the Common Areas, upon and subject to the following
terms, covenants and conditions:
ARTICLE 1 - BASIC LEASE PROVISIONS
1.1 For purposes of this Lease, these certain provisions are defined as
follows:
(a) Landlord: Stevens Creek Associates, a
California general partnership, dba
TrizecHahn Landmark Square
Management.
(b) Tenant: Rainbow Technologies, Inc., a
Delaware corporation, dba Systematic
Systems Integration.
(c) Building: 111 West Ocean Boulevard, Long
Beach, California, consisting of
approximately:
Gross Rentable Square Feet: 440,032
(d) Premises: Suite 2000, subdivided into three
(3) areas to facilitate a phased
initial occupancy (all as indicated
on the location plan attached hereto
as Exhibit "A"), as follows:
<TABLE>
<CAPTION>
RENTABLE AREA
SUITE/AREA (IN SQUARE FEET)
---------- ----------------
<S> <C>
2000A 5,000
2000B 4,400
2000C 9,412
TOTAL SUITE 2000 18,812
</TABLE>
(e) Proportional Share: 4.28%
(f) Base Year: The calendar year 2000.
(g) Commencement Date: For each respective phase of initial
occupancy:
<TABLE>
<CAPTION>
SUITE/AREA COMMENCEMENT DATE
---------- -----------------
<S> <C>
2000A December 1, 1999
2000B January 1, 2000
2000C April 1, 2000
</TABLE>
(h) Termination Date: March 31, 2005.
(i) Basic Monthly Rent: Tenant's Basic Monthly Rent for each
effective date through the day prior
to the following effective date (or
the Termination Date, as the case
may be) shall be as follows:
<TABLE>
<CAPTION>
EFFECTIVE DATE BASIC MONTHLY RENT
-------------- ------------------
<S> <C>
December 1, 1999 $0.00
January 1, 2000 $17,860.00
April 1, 2000 $35,742.80
October 1, 2000 $37,529.94
January 1, 2001 $39,406.44
January 1, 2002 $41,376.76
January 1, 2003 $43,445.60
January 1, 2004 $45,617.88
</TABLE>
(j) Initial Security Thirty-Five Thousand Seven Hundred
Deposit: Forty-Two and 80/100 Dollars
($35,742.80).
Page 1 of 22
<PAGE> 5
(k) Parking Allotment: Seventy-three (73) automobiles.
(l) Procuring Broker: The Seeley Company.
(m) Permitted Use: General administrative office use
consistent with the character of a
first-class office building.
(n) Business Hours: 8:00 AM to 6:00 PM, Monday through
Friday, and 9:00 AM to 1:00 PM on
Saturdays excepting holidays
generally recognized in the State of
California.
1.2 For purposes of this Lease, the "Land" shall be defined as the site
upon which the Building, Common Areas and other related improvements,
facilities, service areas and equipment are located (as legally described in
Exhibit "B" attached hereto).
1.3 For purposes of this Lease, the "Common Areas" shall be defined as
those interior and exterior portions of the Building and such other areas,
facilities and equipment serving the Building, which are designated by Landlord
for the common use or benefit of tenants, tenants' employees, customers and
invitees, and/or members of the general public. Such areas, facilities and
equipment shall include, without limitation: entrances; exits; lobbies;
elevators; stairways; corridors; passageways; public washrooms; parking
facilities; loading areas; plazas; private sidewalks; landscaped areas;
walkways; mechanical, electrical and telephone rooms; utilities and related
facilities; electrical, mechanical, sprinkler, fire detection or prevention
equipment, security equipment, and related facilities; duct shafts; operating,
maintenance and storage areas; and service areas, equipment and facilities.
1.4 For purposes of this Lease, the "Leasehold Improvements" shall be
defined as all non-structural improvements in and to the Premises, including,
without limitation: partitions within the interior of the Premises and the
interior one-half of partitioning demising the Premises from adjacent premises
(whether slab-to-slab, ceiling-height or a lesser height), and the fixtures,
doors, windows, openings and finishes installed therein or thereon; the interior
drywall on exterior walls and partitions demising the Premises from Common
Areas; cabinetry, railings, paneling, and woodwork; integrated ceiling systems
(including grid, panels and lighting); carpeting and other floor finishes;
kitchen facilities (including sinks, appliances and other fixtures) or other
similar facilities; rest rooms intended to exclusively serve the Premises
(including showers, toilets, basins and other fixtures); the components of the
mechanical, heating, ventilation, air-conditioning, electrical, fire/life safety
and plumbing systems (collectively "Mechanical Systems") from the common point
of distribution on the floor for each such system to and throughout the
Premises; any Mechanical Systems or intra-Building telephone network cabling
which are independent of the base-Building Mechanical Systems and exclusively
serve the Premises (whether or not such system is contained entirely within the
Premises); and, Alterations which Landlord has not required Tenant to remove as
a condition of making such Alterations. The Leasehold Improvements shall include
all of the foregoing improvements in or to the Premises regardless of whether
such improvements either: existed in the Premises prior to Tenant's having
entered into this Lease; were paid for by either Landlord or Tenant (or a prior
tenant); were installed by either Tenant or Landlord as a condition of this
Lease; were installed by Landlord during the Term of this Lease to comply with
the requirements or directives of a government, quasi-government or regulatory
agency or authority; were installed by Landlord during the Term of this Lease
with the intent of reducing Operating Expenses; were installed by Landlord
during the Term of this Lease to maintain the quality, integrity and/or
character of the Land, Building, Common Areas and/or the machinery, equipment
and facilities related thereto; or, were installed by Tenant as an Alteration.
1.5 Notwithstanding the foregoing, those terms defined in Articles 1.1
through 1.4, above are subject to modification, revision or alteration by other
terms and conditions of this Lease, addenda, exhibits and other attachments
hereto.
ARTICLE 2 - TERM
2.1 The "Initial Term" of this Lease shall commence on the earliest
Commencement Date and continue to the Termination Date, unless sooner terminated
as otherwise provided herein. The "Term" of this Lease shall include the Initial
Term and any other period of Tenant's occupancy resulting either from Tenant's
holding over with Landlord's consent (pursuant to Article 29.2), or from
Tenant's exercise of an express option to renew, re-lease or extend the Term, or
other express agreement to extend the Term, all made in accordance with this
Lease (or a modification or addendum thereto made in accordance with this
Lease). Unless expressly stated to the contrary herein, any and all references
herein to "months" during the Term shall be deemed to refer to full calendar
months of the Term, beginning the earliest Commencement Date (if the
Commencement Date is the first day of a calendar month) or the first day of the
first full calendar month after the earliest Commencement Date (if the
Commencement Date is not the first day of a calendar month).
Page 2 of 22
<PAGE> 6
ARTICLE 3 - BASIC MONTHLY RENT
3.1 The first installment of Basic Monthly Rent is due on or before the
execution of this Lease. All other installments of Basic Monthly Rent are
payable in advance on the first day of each calendar month, together with any
monthly installments of estimated Tax Rent, Operating Expense Rent and Capital
Expense Rent (collectively "Total Monthly Rent"). Except as provided in Article
29, if the Commencement Date is not the first day of the calendar month or the
Termination Date is not the last day of the calendar month, then Total Monthly
Rent shall be prorated based upon a thirty (30) day month.
3.2 All amounts due or relating to Tenant's occupancy under this Lease,
other than Total Monthly Rent, are due and payable within thirty (30) days of
receipt of Landlord's invoice for same. Such amounts include, without
limitation: annual reconciliations and retroactive charges of Tax Rent,
Operating Expense Rent or Capital Expense Rent; Orders for Extra Work; charges
for extra utilities and services; and Late Charges (collectively "Additional
Rent"). All amounts due under this Lease or relating to Tenant's occupancy are
deemed to be rent, receivable as such, and subject to all remedies of Landlord
for nonpayment of rent. Tenant's obligation to pay all amounts owing under this
Lease shall survive Tenant's relinquishment of possession to Landlord, or the
expiration or early termination of this Lease.
3.3 Tenant agrees that Tenant's late payment of any sum due under this
Lease will cause Landlord to incur costs not contemplated hereunder, the exact
amount of which is impracticable or extremely difficult to fix. Therefore, if
all or any portion of any installment of Total Monthly Rent is not received by
Landlord by the fifth (5th) day of the month for which it is due, or if all or
any portion of any item of Additional Rent is not received by Landlord when due
pursuant to Article 3.2, then Tenant shall pay to Landlord a "Late Charge" of
ten percent (10%) of the overdue amount. Landlord and Tenant agree that the Late
Charge represents a fair and reasonable estimate of costs that Landlord will
incur by reason of any late payment by Tenant. Landlord's acceptance of a Late
Charge shall not constitute a waiver of Tenant's default with respect to the
overdue amount, or prevent Landlord from exercising any of the other rights and
remedies available to Landlord under this Lease or pursuant to law. The Late
Charge shall be in addition to, and not in lieu of, any interest which may
accrue pursuant to Article 35.11 of this Lease.
3.4 All amounts due Landlord shall be paid by Tenant, without deduction
or offset, in lawful money of the United States of America, which shall be legal
tender at the time of payment. Payments shall be made at the office of Landlord
or to such other person or at such other place as Landlord notifies Tenant.
Landlord reserves the right to require that payments be made by certified check
or cash. No receipt by Landlord of an amount less than the full amount due will
be deemed to be other than a payment on account, and no endorsement or statement
on any check or any accompanying writing effect or evidence an accord and
satisfaction; and, Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance or pursue any other right or remedy
of Landlord.
ARTICLE 4 - TAX RENT
4.1 For each successive calendar year of the Term after the Base Year
("Comparison Year"), Tenant shall pay to Landlord "Tax Rent", which shall be the
Proportional Share of the amount, if any, which the aggregate annual Property
Taxes for the Comparison Year exceeds the Property Taxes for the Base Year. Tax
Rent is payable in the manner set forth in Article 4.3. If this Lease terminates
on a day other than the last day of the Comparison Year, then Tax Rent for the
Comparison Year shall be prorated.
4.2 "Property Taxes" is defined for purposes of this Lease as: all costs
and expenses which Landlord or Landlord's managing agent has incurred or will
incur for real and personal property taxes, or any other assessments upon
Landlord's legal or equitable interest in the Land, Building, Common Areas and
all or any related facilities and improvements (including, without limitation,
leasehold taxes or other taxes or assessments levied in lieu thereof or in
addition thereto), whether imposed by a government authority or agency, or by a
special assessment district; any taxes resulting from a reassessment of the
Building occasioned by any cause whatsoever, including, without limitation, any
reassessment resulting from a conveyance of Landlord's interest in the Land,
Building or Common Areas (whether or not such transfer occurs before or after
the Commencement Date), or by the determination by a court that any law,
regulation, statute, or constitutional provision purporting to limit tax
increases is invalid in whole or in part; any non-progressive tax on or measured
with respect to gross receipts from the rental of space in the Building; any
user fees or charges assessed for any government services which were provided
without cost prior to the imposition of Proposition 13; any assessment, tax,
fee, charge or levy for any transportation plan, fund or system within the
general geographic area of the Building; and, any expenses of Landlord in
contesting any of the foregoing or the assessed valuation of the Land, Building
or Common Areas. Notwithstanding the foregoing, the definition of "Property
Taxes" excludes any net income, franchise, capital stock, estate or inheritance
taxes.
Page 3 of 22
<PAGE> 7
4.3 As soon as practical after the beginning of each Comparison Year,
Landlord shall provide Tenant with Landlord's estimate of Property Taxes and Tax
Rent for the Comparison Year. During the Comparison Year, Tenant shall pay
Landlord's estimated Tax Rent in equal monthly installments on the first day of
each month. If the estimated Tax Rent for the Comparison Year is not determined
until after the beginning of the Comparison Year, then Tenant shall continue to
pay the monthly installments for the prior Comparison Year, if any, and shall
retroactively pay any underpayment of estimated Tax Rent payable for the period
from the beginning of the Comparison Year until the estimate was provided. As
soon as practical after the end of the Base Year, Landlord shall determine the
Property Taxes incurred in the Base Year and shall deliver to Tenant a written
statement setting forth the same. As soon as practical after the end of each
Comparison Year, Landlord shall determine the Property Taxes incurred in the
Comparison Year and shall deliver to Tenant a written statement setting forth
the same and a calculation of the Tax Rent allocable to Tenant. If Tenant has
underpaid its Tax Rent for the Comparison Year, then Tenant shall pay to
Landlord the full amount of such deficiency as Additional Rent. If Tenant has
overpaid its Tax Rent for the Comparison Year, then Landlord shall either credit
the overpayment toward Tenant's next installment(s) of Total Monthly Rent or, if
this Lease has terminated and Tenant is not in default, refund the overpayment
to Tenant within thirty (30) days of determination.
4.4 If the value of the improvements in the Premises (regardless of
whether such improvements were installed or paid for by Landlord or Tenant, or
have been affixed to the real property to become a part thereof) exceed the
value of improvements generally prevailing in other leased premises in the
Building, then Tenant shall pay to Landlord as Additional Rent all Property
Taxes levied on such excess value. If the records of the County Assessor are
available and sufficiently detailed to serve as a basis for determining such
excess value, then such records shall be binding on Landlord and Tenant;
otherwise, the actual cost of construction shall be determinative.
4.5 Tenant shall directly pay the taxing authority any tax levied
against the personal property or trade fixtures of Tenant in or about the
Premises. If Tenant fails to pay such tax before delinquency, then Landlord may
pay such tax on behalf of Tenant, and the amount paid shall constitute
Additional Rent due Landlord.
4.6 The calculation and payment of Tax Rent is separate, distinct and
shall not be affected by the calculation and payment of either Basic Monthly
Rent, Operating Expense Rent or Capital Expense Rent. Any item of cost or
expense included as Property Taxes shall not be included as either Operating
Expenses or Capital Expenses.
ARTICLE 5 - OPERATING EXPENSE RENT [SEE ADDENDUM]
5.1 For each Comparison Year, Tenant shall pay to Landlord "Operating
Expense Rent", which shall be the Proportional Share of the amount, if any, by
which the aggregate annual Operating Expenses for the Comparison Year exceeds
the Operating Expenses for the Base Year. Operating Expense Rent is payable in
the manner set forth in Article 5.4. If this Lease terminates on a day other
than the last day of the Comparison Year, then Operating Expense Rent for the
Comparison Year shall be prorated.
5.2 "Operating Expenses" is defined for purposes of this Lease as all
costs and expenses, calculated as if the Building were one hundred percent
(100%) occupied and all services were provided to the entire Building, which
Landlord or Landlord's managing agent has incurred or will incur (without offset
for any revenue derived from any source whatsoever) in the operation,
maintenance, repair, improvement, management and administration of the Land,
Building and Common Areas, plus a management fee not to exceed five percent (5%)
of gross Building and Common Areas revenue.
5.3 "Operating Expenses" includes, without limitation, costs and
expenses for: all wages, salaries, benefits, payroll taxes, other similar
government charges and other direct costs of personnel rendering services to the
Building, whether or not situated in the Building, including, without
limitation, Building managers and their assistants and supervisors, clerical,
accounting, and technical services personnel; utility charges and surcharges;
janitorial, mechanical, security, landscaping, elevator, waste disposal, alarm
maintenance and other Building services; parking facility operation, maintenance
and management; labor; lighting; fire/life safety systems; intra-Building
telephone network cabling; air-conditioning; heating; ventilating; water and
sewage charges; supplies; materials; tools; equipment; uniforms; operation,
maintenance and repair of systems and facilities; structural and non-structural
repair; business licenses or similar licenses or taxes; insurance premiums,
deductibles and related charges, whether required pursuant to this Lease or by
any lienholder or encumbrancer; professional fees and other expenses; and the
expenses of maintaining a Building management office, with rent imputed at
Landlord's scheduled rate for the building containing the office.
Page 4 of 22
<PAGE> 8
5.4 As soon as practical after the beginning of each Comparison Year,
Landlord shall provide Tenant with Landlord's estimate of Operating Expenses and
Operating Expense Rent for the Comparison Year. During the Comparison Year,
Tenant shall pay Landlord's estimated Operating Expense Rent in equal monthly
installments on the first day of each month. If the estimated Operating Expense
Rent for the Comparison Year is not determined until after the beginning of the
Comparison Year, then Tenant shall continue to pay the monthly installments for
the prior Comparison Year, if any, and shall retroactively pay any underpayment
of estimated Operating Expense Rent payable for the period from the beginning of
the Comparison Year until the estimate was provided. As soon as practical after
the end of the Base Year, Landlord shall determine the Operating Expenses
incurred in the Base Year and shall deliver to Tenant a written statement
setting forth the same. As soon as practical after the end of each Comparison
Year, Landlord shall determine the Operating Expenses incurred in the Comparison
Year and shall deliver to Tenant a written statement setting forth the same and
a calculation of the Operating Expense Rent allocable to Tenant. If Tenant has
underpaid its Operating Expense Rent for the Comparison Year, then Tenant shall
pay to Landlord the full amount of such deficiency as Additional Rent. If Tenant
has overpaid its Operating Expense Rent for the Comparison Year, then Landlord
shall either credit the overpayment toward Tenant's next installment(s) of Total
Monthly Rent or, if this Lease has terminated and Tenant is not in default,
refund the overpayment to Tenant within thirty (30) days of determination.
5.5 The calculation and payment of Operating Expense Rent is separate,
distinct and shall not be affected by the calculation and payment of either
Basic Monthly Rent, Tax Rent or Capital Expense Rent. Any item of cost or
expense included as Operating Expenses shall not be included as either Property
Taxes or Capital Expenses.
ARTICLE 6 - CAPITAL EXPENSE RENT [SEE ADDENDUM]
6.1 During the Term, Tenant shall pay to Landlord "Capital Expense
Rent", which shall be the Proportional Share of any Capital Expenses incurred in
the calendar year, or which Landlord has in its discretion elected to amortize
in the calendar year. Capital Expense Rent is payable in the manner set forth in
Article 6.3. If this Lease commences or terminates on a day other than the first
or last day of a calendar year, Capital Expense Rent for the year shall be
prorated.
6.2 "Capital Expenses" is defined for purposes of this Lease as all
costs and expenses which Landlord or Landlord's managing agent has incurred or
will incur (without offset for any revenue derived from any source whatsoever,
excepting the salvage value of any asset being removed or replaced to facilitate
the improvement, modification or addition to the Land, Building, Common Areas
and/or the machinery, equipment, and facilities related thereto) in the making
or installation of capital improvements, modifications or additions to the Land,
Building, Common Areas and/or the machinery, equipment and facilities related
thereto, either:
(a) Required by directive of an insurer or a government,
quasi-government or regulatory agency or authority
pursuant to either (i) a law or statute enacted after
the execution of this Lease, or (ii) an interpretation
of an existing law or statute, which interpretation is
promulgated after the execution of this Lease;
(b) Made with the intent and reasonable expectation of
reducing Operating Expenses; or
(c) Deemed reasonably necessary by Landlord to maintain the
quality, integrity and/or character of the Land,
Building, Common Areas and/or the machinery, equipment
and facilities related thereto.
6.3 As soon as practical after the beginning of each calendar year (or
the Term, as the case may be), Landlord shall provide Tenant with Landlord's
estimate of the Capital Expenses and Capital Expense Rent for the calendar year.
During the calendar year, Tenant shall pay Landlord's estimated Capital Expense
Rent in equal monthly installments on the first day of each month. If the
estimated Capital Expense Rent for the calendar year is not determined until
after the beginning of the calendar year, then Tenant shall continue to pay the
monthly installments for the prior calendar year, if any, and shall
retroactively pay any underpayment of estimated Capital Expense Rent payable for
the period from the beginning of the calendar year until the estimate was
provided. As soon as practical after the end of each calendar year, Landlord
shall determine the Capital Expenses incurred, allocated or amortized in the
calendar year and shall deliver to Tenant a written statement setting forth the
same and a calculation of the Capital Expense Rent allocable to Tenant. If
Tenant has underpaid its Capital Expense Rent for the calendar year, then Tenant
shall pay to Landlord the full amount of such deficiency as Additional Rent. If
Tenant has overpaid its Capital Expense Rent for the calendar year, then
Landlord shall either credit the overpayment toward Tenant's next installment(s)
of Total Monthly Rent or, if this Lease has terminated and Tenant is not in
default, refund the overpayment to Tenant within thirty (30) days of
determination.
6.4 The calculation and payment of Capital Expense Rent is separate,
distinct and shall not be affected by the calculation and payment of either
Basic Monthly Rent, Tax Rent or Operating Expense Rent. Any item of cost or
expense included as Capital Expenses shall not be included as either Property
Taxes or Operating Expenses.
Page 5 of 22
<PAGE> 9
ARTICLE 7 - SECURITY DEPOSIT
7.1 On or before execution of this Lease, Tenant shall deposit with
Landlord the Initial Security Deposit. The Initial Security Deposit and any
other sums deposited with Landlord pursuant to this Article (collectively
"Security Deposit") shall be held by Landlord as security for the faithful
performance by Tenant of all of the terms, covenants and conditions of this
Lease to be kept or performed by Tenant. From time to time during the Term,
Tenant shall deposit additional sums with Landlord so that the total Security
Deposit held by Landlord is not less than Tenant's then current Total Monthly
Rent. Landlord shall not be required to segregate the Security Deposit from its
general funds, refund any Security Deposit except as provided in Article 7.3, or
pay Tenant any interest thereon.
7.2 If Tenant defaults on any obligation hereunder, Landlord may (but
shall not be required to) use, apply or retain all or any part of the Security
Deposit for the payment of rent or any other sum in default, or to compensate
Landlord for any loss or damage which Landlord has suffered or may suffer due to
Tenant's default. Tenant shall, upon demand, restore any Security Deposit so
used, applied or retained to the amount held by Landlord immediately prior
thereto.
7.3 If Tenant has fully and faithfully performed every provision of this
Lease to be performed by Tenant, then, within sixty (60) days of the later of
the termination of this Lease or delivery of possession of the Premises to
Landlord, Landlord shall return to Tenant (or, at Landlord's option, the last
assignee of Tenant hereunder) any Security Deposit which has not been so used,
applied or retained. Notwithstanding the foregoing, Landlord may retain all or a
portion of the Security Deposit to secure any remaining obligations of Tenant
hereunder (including, without limitation, Tenant's obligations pursuant to
Articles 4, 5 and 6, which Tenant acknowledges cannot be fully ascertained until
as soon as practical after the end of the calendar year). Tenant waives
application of the provisions of California Civil Code section 1950.7 in respect
hereto.
7.4 If Landlord transfers, assigns or conveys its interest in the
Premises, then Landlord shall be discharged from any liability for the return of
Tenant's Security Deposit, provided Landlord transfers all Security Deposit
which has not been used, applied or retained to Landlord's successor in
interest.
ARTICLE 8 - USE
8.1 Tenant agrees that the Permitted Use is a material provision of this
Lease. Tenant shall use the Premises solely for the Permitted Use and shall not
use or permit the Premises to be used for any other purpose without the prior
written consent of Landlord. Any consent by Landlord to a change of use by
Tenant shall not be deemed a waiver of Landlord's right to withhold its consent
to any subsequent proposed change of use.
8.2 Tenant shall, at Tenant's sole cost and expense, comply with all
certificates, rules, directives, orders and regulations of any public authority
(including Federal, State, County and Municipal authorities) which concern
either the Premises or Tenant's use or occupancy thereof. Tenant shall not use
or occupy the Building, Common Areas or Premises in violation of any law,
certificate of occupancy, or covenant, condition or restriction and shall
discontinue the violating use upon Landlord's demand.
8.3 Tenant shall not knowingly do or permit to be done anything which
will invalidate or increase the cost of any insurance policy covering the Land,
Building, Common Areas, or equipment, property and facilities therein. Tenant
shall comply with all rules, orders, regulations and requirements of any
insurance fire rating bureau or any other organization performing a similar
function. Tenant shall, upon Landlord's demand, reimburse Landlord for any
additional insurance premium which may be incurred due to Tenant's failure to
comply with this Lease.
8.4 Tenant shall not do or permit to be done anything which will
constitute a nuisance, or obstruct, injure, annoy or interfere with the rights
of other tenants or occupants of the Building. The Premises shall not be used
for any lodging, sleeping, improper, immoral, unlawful or objectionable purpose.
Tenant shall not commit waste.
ARTICLE 9 - UTILITIES AND SERVICES
9.1 Landlord shall provide Tenant with:
(a) Twenty-four (24) hour access to the Premises, including
automated elevator service;
(b) Electric current for reasonable quantities of standard
fluorescent lighting and receptacles; and water for
lavatory and drinking purposes;
(c) Heat, ventilation, or air conditioning as may be
required for the comfortable use and occupation of the
Premises during Business Hours;
(d) Reasonable access and use of Landlord's intra-Building
telephone network cabling;
Page 6 of 22
<PAGE> 10
(e) Janitorial services five (5) days a week, excluding
holidays; and
(f) Security services to the extent and during such times as
are determined by Landlord.
9.2 Notwithstanding the provisions of Article 9.1, Landlord may, subject
to the provisions of Articles 13.1 and 13.2: restrict access to the Premises
while making any repairs, alterations or improvements to the Premises, Common
Areas or Building; make reasonable nondiscriminatory changes to the access,
utilities and services Landlord is obligated to provide hereunder; make such
changes in the access, utilities and services Landlord is obligated to provide
hereunder as may be reasonable and necessary to comply with any government
restriction, requirement or standard relating thereto; or prevent access, or
curtail utilities or services to the Land, Building, Common Areas or Premises
during any invasion, mob, riot, public excitement or other circumstances
rendering such action advisable, in Landlord's reasonable opinion.
9.3 If Tenant either:
(a) Requires or uses more utilities or services than
generally used by other tenants in the Building;
(b) Requires utilities or services that are not generally
provided to the Building during non-Business Hours; or
(c) Has special water, electric, cooling or ventilation
needs due to concentration of personnel, or the use of
office equipment, devices or machines which consume
power or generate heat in excess of a personal computer
or electric office typewriter (which may include,
without limitation, communications equipment, main-frame
or mini-computers, or photocopiers);
then Tenant shall pay, as Additional Rent, the charge for such use, as
determined by Landlord. Landlord may further require Tenant, at Tenant's sole
cost and expense, to install separate circuitry, cabling or meters to
accommodate and/or measure Tenant's demand.
9.4 Except as expressly provided elsewhere in this Lease, Landlord shall
not be liable for any loss or damage to Tenant or Tenant's employees, or their
respective property or business, and Tenant shall not be entitled to any
abatement or reduction of rent as a result of Landlord's failure to provide
access, utilities or services that Landlord is required to provide hereunder,
when such failure is due to any cause beyond Landlord's reasonable control
(including, without limitation, accident, breakage, repairs, shortage of
materials or supplies, strike, lockout, boycott, labor dispute, fire,
earthquake, acts of God, rioting, insurrection, war, government action, and acts
of public enemy).
ARTICLE 10 - PARKING LICENSE [SEE ADDENDUM]
10.1 Tenant shall have a revocable license to park, in common with other
tenants, up to Tenant's Parking Allotment of automobiles in the parking
facilities of the Building, subject to the following:
(a) Tenant shall pay Landlord or Landlord's agent, the
regularly scheduled parking rates at such time and in
such manner as Landlord or Landlord's agent may, from
time to time, establish for tenants of the Building;
(b) Tenant shall not be in default under any Term or
condition of this Lease;
(c) Tenant shall abide by any rules and regulations for use
of the parking facilities that Landlord or Landlord's
agent establishes from time to time, and otherwise use
the parking facility in a safe and lawful manner;
(d) Tenant and Tenant's employees, contractors and invitees
may be required to use attended or tandem parking;
(e) No bailment shall be created hereunder or by any use of
the parking facility;
(f) Tenant and Tenant's agents, servants, employees,
successors or assigns each hereby releases Landlord and
Landlord's agents, servants, employees and independent
contractors from all claims for loss or damage
(including, without limitation, vandalism and theft)
arising out of or related to use of the parking
facility; and
Page 7 of 22
<PAGE> 11
(g) Tenant shall have this revocable license, only, and no
estate shall be conveyed to Tenant under this Article.
If Tenant violates any of the terms and conditions of this Article, or fails to
use the parking facility in accordance with the terms of this Article and this
Lease, then Landlord may revoke this license to the extent that Landlord deems
reasonable and necessary, without liability to Tenant. Tenant's license shall
otherwise be revoked and terminate concurrently with the termination of this
Lease.
ARTICLE 11 - REPAIRS
11.1 Except as provided in Article 11.2, Tenant shall, at Tenant's sole
cost and expense, keep the Leasehold Improvements in good condition and repair.
Tenant shall exclusively use Landlord or Landlord's approved contractors for all
work related to the Mechanical Systems or intra-Building telephone network
cabling which are a part of the Leasehold Improvements.
11.2 Landlord shall repair and maintain all parts of the Land, Building
or Common Areas which do not constitute the Leasehold Improvements.
Notwithstanding the foregoing, if any such maintenance or repair is caused in
part or in whole by the negligence or willful misconduct of Tenant, its agents,
servants, employees, licensees or invitees, then Tenant shall directly reimburse
Landlord (as Additional Rent) the reasonable cost for such maintenance and
repairs. If Landlord reasonably believes damage to the Land, Building or Common
Areas is being caused by Tenant, its agents, servants, employees, licensees or
invitees (whether an isolated incident or a continuous course of conduct, and
whether by an individual or group), then upon receipt of written notice from
Landlord, Tenant shall take reasonable action to prevent any additional or
future damage and Tenant's failure to do so shall be a material breach of this
Lease.
ARTICLE 12 - CONDITION OF PREMISES
12.1 Subject to any provisions of this Lease concerning the making of
Leasehold Improvements in the Premises (if any), by taking possession of the
Premises hereunder, Tenant accepts the Premises as being in good order,
condition and repair (excepting only latent defects and items noted on a
punch-list executed by both Landlord and Tenant prior to occupancy), and
otherwise as is, where is and with all faults. Except as may be expressly set
forth in this Lease, Tenant acknowledges that neither Landlord, nor any
employee, agent or contractor of Landlord has made any representation or
warranty concerning the Land, Building, Common Areas or Premises, or the
suitability of either for the conduct of Tenant's business.
12.2 Upon the expiration of the Term or earlier termination of this
Lease, Tenant shall relinquish possession of the Premises to Landlord inclusive
of all Leasehold Improvements and Alterations (unless Landlord has either
permitted removal of the same in writing, or required removal of an Alteration
as a condition of making such Alteration) and otherwise in the same condition as
received, ordinary wear and tear excepted, free of all trash and rubbish, and in
broom clean condition. Landlord may dispose of any personal property remaining
in the Premises in accordance with California Civil Code section 1980, et seq.,
and shall be entitled to recover all costs and expenses provided therein,
including Landlord's reasonable attorneys' fees and costs.
ARTICLE 13 - ENTRY BY LANDLORD
13.1 Provided Landlord uses commercially reasonable efforts to minimize
interference with Tenant's business and advises Tenant an appropriate period in
advance of same, Landlord shall have the right to enter the Premises to inspect
the Premises, show the Premises to prospective purchasers or tenants, and make
alterations, improvements or repairs (including construction required by the
character of the work). No advance notice shall be required for Landlord to
supply janitorial services or to post legal notices.
13.2 Notwithstanding the provisions of Article 13.1, Landlord shall be
entitled to enter the Premises without advising Tenant in advance or making the
required effort to minimize interference with Tenant's business when Tenant is
in default of this Lease, or in an "Emergency" (which shall be any circumstance
which may threaten or endanger the Building, or health or property of Landlord,
other tenants, occupants or the general public, or result in a liability or loss
to Landlord).
13.3 Landlord shall at all times have a key with which to unlock all of
the doors in and to the Premises, excepting Tenant's vaults and safes. If Tenant
changes locks on any doors without Landlord's prior written consent, Landlord
shall have the right to enter the Premises, change, remove and/or replace such
locks, repair any damage and restore the Premises, and charge Tenant as
Additional Rent all expenses incurred in accomplishing the foregoing.
13.4 Except as expressly provided elsewhere in this Lease, there shall
be no abatement of rent and no liability of Landlord by reason of any injury to,
or interference with Tenant's business arising from any entry performed by
Landlord in a good faith attempt to comply with the terms of this Article. Any
such good faith entry shall not constitute an eviction, or a forcible or
unlawful entry or detainer of the Premises.
Page 8 of 22
<PAGE> 12
ARTICLE 14 - ALTERATIONS & RENOVATIONS
14.1 All alterations, additions, decorations or improvements made by or
on behalf of Tenant in or to the Premises except Tenant Improvements
("Alterations"), shall require Landlord's prior written consent. Tenant shall
give Landlord ten (10) days' prior written notice of Tenant's desire to make
Alterations. Landlord may impose any reasonable condition upon issuing
Landlord's consent (including, without limitation: requiring Tenant to remove
Alterations at the end of the Term and restore the Premises to the condition
prior to Alterations having been made [reasonable wear and tear excepted];
obtaining the consent of any mortgagee, encumbrancer, lender or ground lessee;
providing Landlord with working drawings, as-built CAD drawings, specifications,
and estimated costs; providing Landlord with verification of all required
permits or approvals; and, obtaining a lien and completion bond).
14.2 Tenant shall use Landlord's designated contractors for all
Alterations affecting basic Building mechanical, electrical, plumbing, fire/life
safety, intra-Building telephone network cabling, heating, ventilation and
air-conditioning systems; and, shall otherwise use licensed, qualified
contractors and subcontractors which shall carry course of construction,
products liability, completed operations, worker's compensation and public
liability insurance in amounts satisfactory to Landlord, naming Landlord as an
additional insured. Alterations shall be performed at the times and in the
manner specified by Landlord, and shall not interfere with access or use of the
Common Areas or other premises. Alterations shall be performed in full
compliance with all laws, rules and/or directives of any government or
regulatory agency or authority; and, if any such government or regulatory agency
or authority requires any improvements, modifications, additions or alterations
to any part of the Base Building, as a result of the Alterations, then the same
shall be made by Tenant at Tenant's sole cost and expense.
14.3 All permanent improvements to the Premises, Leasehold Improvements
and Alterations (including, without limitation, floor and wall coverings,
blinds, drapes, cabinets, shelving, doors, locks, paneling and the like) which
Landlord has not required Tenant to remove at the end of the Term shall become
the property of Landlord upon the termination of this Lease and shall be
relinquished with the Premises.
14.4 Landlord may require Tenant to immediately remove any Alterations
not made in accordance with this Article, and restore the Premises to the
condition immediately prior to the Alterations' having been made (reasonable
wear and tear excepted). If Tenant either fails to immediately remove
Alterations not made in accordance with this Article after Landlord's demand, or
fails at the end of the Term to remove Alterations which Landlord required to be
removed at the end of the Term as a condition of issuing Landlord's consent to
the making of such Alterations, then Landlord may perform such removal and
restore the Premises, at Tenant's sole cost and expense, to the condition
immediately prior to the Alterations having been made (reasonable wear and tear
excepted).
14.5 All Alterations, removal of Alterations and restoration of the
Premises which Landlord is reasonably required to perform or supervise are
subject to Landlord's charge, as Additional Rent, for all costs and expenses of
such performance and supervision (including, without limitation, review of plans
or work by Landlord's architect, engineer or other consultant), plus a
supervision fee payable to Landlord in the amount of fifteen percent (15%) of
the cost of such work.
14.6 During the Term, Landlord may renovate, improve, alter, or modify
the Building, Common Areas, Premises or Leasehold Improvements ("Renovations"),
although nothing herein shall be construed to obligate Landlord to make such
Renovations, except as expressly set forth in this Lease. In connection with any
Renovations, Landlord may erect scaffolding or other necessary structures, limit
or eliminate access to portions of the Building, Common Areas or Premises, or
perform work which may create noise, dust or debris. Tenant hereby agrees that,
except as expressly provided in this Lease (in particular, Article 22), such
Renovations shall in no way constitute a constructive eviction of Tenant nor
entitle Tenant to any abatement of rent, and Landlord shall have no
responsibility or for any reason be liable to Tenant for any direct or indirect
injury to or interference with Tenant's business arising from the Renovations,
nor shall Tenant be entitled to any compensation or damages from Landlord for
loss of the use of the whole or any part of the Premises or of Tenant's personal
property or improvements resulting from the Renovations, or for any
inconvenience or annoyance occasioned by the Renovations.
Page 9 of 22
<PAGE> 13
ARTICLE 15 - HAZARDOUS MATERIALS
15.1 Tenant shall neither create, bring into nor store in the Building,
Common Areas or Premises any hazardous waste or hazardous materials (defined as
any substance, material, emission, discharge or waste defined as "hazardous",
"toxic", or a "pollutant" or "contaminant" under any local, state or federal
government law, statute, code, order or regulation for the protection of health,
safety or the environment). Tenant shall comply with all laws, regulations,
recommendations or orders promulgated by any government, quasi-government or
regulatory agency or authority, or the manufacturer of hazardous waste or
materials with regard to maintenance of records, and its handling, storage and
disposal. Upon Landlord's request, Tenant shall supply Landlord with a copy of
any record or certificates required to be maintained by Tenant concerning
hazardous materials or waste.
ARTICLE 16 - LIENS
16.1 Tenant shall keep the Land, Building and Premises free from any
liens resulting from work performed, materials furnished or obligations incurred
by, or on behalf of Tenant. Tenant shall promptly discharge any such lien by
bond or otherwise. If Tenant fails to promptly discharge any such lien after
Landlord's demand, then Landlord may discharge the lien and charge Tenant as
Additional Rent all costs and expenses reasonably incurred by Landlord to do so,
including attorneys' fees and costs.
ARTICLE 17 - BROKERS
17.1 Tenant warrants that no broker, agent, finder, person or entity,
other than Procuring Broker, was instrumental in negotiating or consummating
this Lease, or might be entitled to a commission or compensation in connection
with the execution of this Lease. Tenant shall indemnify and hold Landlord
harmless from any claim, damages, costs and expenses, including attorneys' fees
and costs, resulting from any claim that may be asserted against Landlord by any
broker, agent, finder, person or entity other than Procuring Broker which is not
disclosed by Tenant to Landlord in writing prior to entering into this Lease, or
who claims a right to compensation through Tenant.
ARTICLE 18 - INSURANCE
18.1 Throughout the Term, Landlord shall provide, maintain and keep in
force:
(a) Commercial general liability insurance for personal
injury, bodily injury (including death), and property
damage, with limits of not less than Five Million
Dollars ($5,000,000.00) for any one accident or
occurrence, which limits may be satisfied by Landlord by
the maintenance of a blanket policy (or policies),
including excess or umbrella policies, meeting or
exceeding such amount;
(b) All risk insurance or fire insurance (with standard
extended coverage endorsement perils, leakage from fire
protection devices and water damage) covering the full
replacement cost of the Building, Common Areas and all
fixed improvements therein, except those fixtures,
furnishings, Leasehold Improvements, equipment and other
property which Tenant is required to insure pursuant to
Article 18.2, subparagraphs (b), (c), (d) and (e);
(c) Insurance for loss of rental income or insurable gross
profits covering such perils set forth in subparagraph
(b) in such amounts as Landlord prudently elects to
maintain;
(d) Boiler and machinery insurance in such amounts as
Landlord prudently elects to maintain; and
(e) Such other insurance (including earthquake or other
change in condition) as Landlord elects, in its sole
discretion, to obtain.
Each policy of insurance provided or maintained by Landlord hereunder may
contain such deductibles, uninsured gaps, exclusions or such other terms and
conditions as Landlord prudently determines to be commercially reasonable and
sufficient, provided such terms are generally available at a commercially
reasonable price in the area in which the Building is located.
Page 10 of 22
<PAGE> 14
18.2 Throughout the Term, Tenant shall provide, maintain and keep in
force:
(a) Commercial general liability insurance for personal and
bodily injury, including death and property damage, with
respect to Tenant's use and occupancy of the Premises,
Common Areas and Building, and the business carried on
by Tenant therein, with limits of not less than Two
Million Dollars ($2,000,000.00) for any one accident or
occurrence, with Landlord named as an additional
insured, containing cross-liability and severability of
interests clauses, and on an occurrence (and not claims
made) form;
(b) All risk or fire insurance (with standard extended
coverage endorsement perils, theft, vandalism,
explosion, falling plaster, steam, gas, electricity,
water, rain, elements of nature, water damage or
dampness, and leakage from any part of the Building or
Land [including fire protection devices, pipes,
appliances and other plumbing]) covering the full
replacement cost of the Leasehold Improvements and
Tenant's fixtures, furnishings, equipment, inventory,
stock-in-trade;
(c) Insurance covering those items set forth in subparagraph
(b) against loss or damage due to earthquake (or change
in condition);
(d) Insurance for loss of income or insurable gross profits
covering such perils set forth in subparagraphs (b) and
(c), in such amounts as Tenant prudently determines is
commercially reasonable and sufficient; and
(e) Any insurance which may be required pursuant to any
local, state or federal government law, statute or
regulation (including, without limitation, workers'
compensation insurance).
Notwithstanding the foregoing, Tenant may elect to self-insure the coverage
required pursuant to subparagraphs (c) and (d), above; however, Tenant's
election to self-insure such coverage shall not impair the waivers of
subrogation and recovery set forth in Article 18.4, below. Notwithstanding the
above, Landlord may reasonably and prudently change the insurance requirements
set forth herein (including, without limitation, requiring additional coverage
or types of insurance), provided that insurance to meet such changed
requirements is generally available at a commercially reasonable price in the
area in which the Building is located.
18.3 On or before Tenant's use or occupancy of the Premises for any
purpose and from time to time during the Term, Tenant shall provide Landlord
with copies of such policies, certificates or other proof necessary for Landlord
to verify that the required insurance coverage has been obtained, is in full
force and effect and that the premiums have been paid thereon. All policies
shall contain an undertaking by the insurer to notify Landlord (and any
mortgagees or ground lessors designated by Landlord) in writing not less than
thirty (30) days prior to any material change, reduction, cancellation or other
termination of coverage required hereunder. Replacement policies or certificates
shall be furnished to Landlord not less than thirty (30) days prior to the
expiration of any such policy or policies. Landlord's failure to request
evidence of coverage shall not constitute a waiver of any of Landlord's rights
hereunder or Tenant's obligation to so insure.
18.4 Insurance to be provided and maintained by either party pursuant to
Article 18.1, subparagraphs (b), (c) and (d) (and [e], to the extent of
earthquake and other change of condition insurance), and Article 18.2,
subparagraphs (b), (c) and (d) shall include a clause or endorsement whereby the
insurer waives its right of subrogation against the other party; and Landlord
and Tenant each waive any rights of recovery against the other for injury or
loss due to hazards required to be covered by insurance which is required to
contain such a waiver of subrogation, to the extent of the injury or loss
required to be covered thereby.
ARTICLE 19 - INDEMNIFICATION
19.1 Subject to the waivers of subrogation and liability set forth in
Article 18.4, Tenant shall indemnify and hold Landlord harmless from and against
any and all liability, loss, claims, demands, damages or expenses, including
attorneys' fees, whether for personal injury, theft, property damage or
otherwise, due to or arising from:
(a) Any accident, act or omission (whether or not related to
Tenant's use of the Premises or conduct of business
therein) occurring in, or originating or emanating from
the Premises, except to the extent caused by the
negligence or willful misconduct, or breach or
non-performance described in Article 19.2, subparagraph
(b) or (c);
(b) The negligence or willful misconduct of Tenant, its
servants, employees, agents, contractors, invitees,
concessionaires or licensees, or those over whom Tenant
would normally be expected to exercise control, whether
in or about the Land, Building, Common Areas, Premises,
or parking facility; or
(c) Tenant's breach or non-performance of any provision of
this Lease.
If any action or proceeding is brought against Landlord by reason of any such
claim, Tenant, upon notice from the Landlord, shall defend the same at Tenant's
expense by counsel reasonably satisfactory to Landlord.
Page 11 of 22
<PAGE> 15
19.2 Subject to the waivers of subrogation and liability set forth in
Article 18.4, Landlord shall indemnify and hold Tenant harmless from and against
any and all liability, loss, claims, demands, damages or expenses, including
attorneys' fees, whether for personal injury, theft, property damage or
otherwise, due to or arising from:
(a) Any accident, act or omission in or about the Land,
Building, and Common Areas, except to the extent caused
by any accident, act or omission, negligence or willful
misconduct, or breach or non-performance described in
Article 19.1, subparagraphs (a) through (c);
(b) The negligence or willful misconduct of Landlord, its
servants, employees, agents, contractors, invitees,
concessionaires or licensees, or those over whom
Landlord would normally be expected to exercise control,
whether in or about the Land, Building, Common Areas,
Premises, or parking facility; or
(c) Landlord's breach or non-performance of any provision of
this Lease.
If any action or proceeding is brought against Tenant by reason of any such
claim, then Landlord, upon notice from Tenant, shall defend the same at
Landlord's expense by counsel reasonably satisfactory to Tenant.
ARTICLE 20 - DAMAGE OR DESTRUCTION
20.1 If the Leasehold Improvements are damaged or destroyed by any
cause, then Tenant shall, at Tenant's sole cost and expense, promptly repair,
replace and restore the Leasehold Improvements to at least the condition
existing prior to the damage (reasonable wear and tear excepted) during which
time this Lease shall remain in full force and effect, subject to Article 22.
20.2 If any portion of the Land, Building or Common Areas (excepting the
Leasehold Improvements) reasonably necessary for Tenant's access, use or
occupancy of the Premises is damaged or destroyed by any cause, then:
(a) Within thirty (30) days after the event of damage or
destruction, Landlord shall assess the damage, determine
how long repairs will take and promptly thereafter
provide Tenant with written notice of the same (however,
if more than thirty (30) days are reasonably required to
so assess the damage and determine the length of time
for repair, then Landlord shall not be in default
hereunder if Landlord commences such assessment and
determinations within said thirty (30) day period and
otherwise diligently proceeds with such assessment and
determinations, and promptly provides Tenant with
written notice of the same).
(b) If the event such damage or destruction either:
(i) Is uninsured by Landlord (and not required to be
insured by Landlord pursuant to Article 18.1),
or
(ii) Cannot, in Landlord's reasonable opinion, be
repaired within one hundred eighty (180) days
after the occurrence of such damage or
destruction,
then Landlord may terminate this Lease upon at least
thirty (30) days' prior written notice to Tenant, the
Lease to remain in full force and effect through the
specified termination date, subject to Article 22;
otherwise, Landlord shall proceed with repairs during
which time this Lease shall remain in full force and
effect, subject to Articles 20.3 and 22.
20.3 Notwithstanding anything to the contrary contained herein, Landlord
shall have no obligation to repair or restore damage or destruction described
under Article 20.2 when it occurs during the last twelve (12) months of the
Term; however, if Landlord so elects not to repair or restore and the damage or
destruction either:
(a) Substantially adversely affects Tenant's use of all or a
material part of the Premises, or
(b) Prevents Tenant's reasonable access to the Premises,
then, in addition to Tenant's rights under Article 22, Tenant shall have the
right to terminate this Lease upon at least thirty (30) days' prior written
notice to Landlord, which notice shall be given within fifteen (15) days after
receipt of Landlord's election not to repair or restore.
20.4 If the damage or destruction is insured (or required to be insured
or self-insured) by Tenant pursuant to Article 18.2 and either Landlord or
Tenant elect to terminate this Lease pursuant to Article 20.2(b), 20.3 or 22,
then Tenant shall assign to Landlord its right to receive the benefits under
such insurance for the repair and restoration of the Leasehold Improvements, and
directly pay Landlord any deductible under such policy (and any other uninsured
amounts). If the damage or destruction is uninsured (and not required to be
insured or self-insured) by Tenant pursuant to Article 18.2 and either Landlord
or Tenant elect to terminate this Lease pursuant to Article 20.2(b), 20.3 or 22,
then Tenant shall pay to Landlord the lesser of:
Page 12 of 22
<PAGE> 16
(a) The cost of repairing the damage or destruction of the
Leasehold Improvements; or
(b) The unamortized value of the Leasehold Improvements on
the effective date of termination (assuming the value of
the Leasehold Improvements in the Premises at the
inception of the Lease was amortized over the term, with
interest at the rate set forth in Article 35.11, in
equal monthly installments).
20.5 Tenant hereby waives the application of California Civil Code
sections 1932(2) and 1933(4), to the extent contrary to the provisions of
Articles 20 and 22 of this Lease.
ARTICLE 21 - EMINENT DOMAIN
21.1 If all or any portion of the Land, Building, Common Areas or
Premises is taken for any public or quasi-public purpose by any lawful power or
authority by exercise of the right of appropriation, condemnation or eminent
domain (or sold in lieu of such taking), then:
(a) If such taking or sale substantially interferes with
Tenant's use and occupancy of the Premises, then this
Lease shall terminate on the date of surrender or sale
to said authority; or
(b) If such taking or sale does not substantially interfere
with Tenant's use and occupancy of the Premises, then
Landlord may either terminate this Lease or restore the
Premises to substantially the same condition prior to
such partial taking, and Tenant's Total Monthly Rent
shall be abated with respect to that portion of the
Premises rendered unusable for the conduct of Tenant's
business therein as a result of the taking or sale, for
the period of time that such portion is so rendered
unusable.
21.2 Tenant shall not assert any claim for the taking of any interest in
this Lease, the Land, Building, Common Areas or Premises and Landlord shall be
entitled to receive the entire amount of any award without deduction or offset
for any estate or interest of Tenant; however, Tenant shall be entitled to bring
a separate action for relocation expenses, and damages to Tenant's personal
property, trade fixtures and goodwill. Tenant hereby waives the application of
California Code of Civil Procedure section 1265.130.
ARTICLE 22 - INTERRUPTION OF USE
22.1 If either use of the Premises is substantially adversely affected
or reasonable access to the Premises is prevented as a result of:
(a) An event of damage or destruction as described in
Articles 20.1 and 20.2, excepting only damage or
destruction caused by the gross negligence or willful
misconduct of Tenant;
(b) A Taking (as defined in Article 21);
(c) The failure of Landlord to repair or maintain the
Building or Common Areas to the extent required pursuant
to Article 11;
(d) The failure of Landlord to provide utilities or services
which Landlord is obligated to provide pursuant to
Article 9 (provided that such failure is not caused by
the public utility providing service to the Building);
or
(e) Renovations (as defined in Article 14);
then, such event shall constitute an "Interruption" hereunder.
22.2 If an Interruption occurs and continues for a period of at least
five (5) consecutive business days, then Tenant's Total Monthly Rent shall be
abated from the sixth (6th) business day until use of the Premises is no longer
so substantially and adversely affected and reasonable access to the Premises
exists, provided, however, that:
(a) Any abatement of rent hereunder shall be prorated to
reflect that portion of the Premises that is actually
rendered unusable for the conduct of business therein
for the period of time such portion is so rendered
unusable, and shall not be afforded Tenant to the extent
that Tenant uses the Premises for the conduct of
business therein;
Page 13 of 22
<PAGE> 17
(b) No abatement of rent hereunder shall be afforded Tenant
for any period of time which Tenant has not complied
with its obligations under Article 20.1, provided that
abatement of rent is solely available under the
provisions of Article 20.1; and
(c) Notwithstanding the Permitted Use, no abatement of rent
shall result from any inability of Tenant to use the
Premises because of Tenant's unique use of the Premises
as other than general administrative offices.
Such period to which Tenant shall be entitled to abatement of Total Monthly Rent
hereunder shall constitute the "Interruption Period." Landlord shall advise
Tenant of Landlord's reasonable estimate of the Interruption Period (based upon
taking commercially reasonable action in response to such Interruption), as soon
as reasonably practicable or as otherwise required under this Lease.
22.3 In addition to Tenant's rights under Article 22.2, if the
Interruption Period is reasonably estimated by Landlord to continue for a period
exceeding one hundred eighty (180) days, then Tenant may, within fifteen (15)
days after receipt of Landlord's estimate, elect to terminate the Lease upon
thirty (30) days' prior written notice. Notwithstanding the foregoing, this
Lease shall not be terminated if Landlord elects to take such additional action
not otherwise required under this Lease within said thirty (30) day period which
will result in the restoration of Tenant's reasonable access to, and use of the
Premises within said one hundred eighty (180) day period. If Tenant does not
elect to terminate this Lease within such fifteen (15) day period, Landlord
shall not be liable to Tenant and Tenant will not be entitled to terminate this
Lease if such repairs and restoration are not in fact completed within the
estimated Interruption Period, provided that the Interruption Period was
reasonably estimated by Landlord and Landlord diligently commenced and pursues
such repairs and restoration to completion.
ARTICLE 23 - SUBORDINATION, NONDISTURBANCE AND ATTORNMENT
23.1 Subject to the provisions of Article 23.2, this Lease shall be
subject and subordinate to all present and future ground or underlying leases of
the Building or Project and to the lien of any mortgage, trust deed or other
encumbrances now or hereafter in force against the Building or Project or any
part thereof, and to any and all renewals, modifications, consolidations,
replacements, substitutions and extensions thereof, as if the mortgage, trust
deed or other encumbrance and all of its renewals, modifications,
consolidations, replacements, substitutions and extensions had been executed,
delivered and recorded prior to execution of this Lease.
23.2 In the event of the termination of any ground lease or underlying
lease, or the foreclosure of any mortgage, trust deed or other encumbrance, or
upon a transfer or conveyance in lieu of such foreclosure, then so long as the
Lease is then in full force and effect and Tenant is not in default under any of
the terms, covenants or conditions of the Lease, Tenant agrees to attorn to and
accept any such successor owner as lessor under the Lease and to be bound by and
perform all of the obligations imposed by the Lease, and successor owner will
not disturb the possession of Tenant and will be bound by and perform all of the
obligations of Landlord, except that successor owner will not be liable for: any
act, omission or default of Landlord, or be subject to any claims, offsets,
defenses, credits or deductions which Tenant might have against Landlord; any
rent, additional rent or other sum Tenant paid to Landlord more than one (1)
month in advance, or by any security deposit, cleaning deposit or other prepaid
charge Tenant paid to Landlord and not held by or paid over to successor owner;
any conflict between the provisions of the Lease and any other lease affecting
the Building or Project; or, constructing or completing any improvements to the
Premises, Building or Project required under this Lease, whether prior to or
during the Term, or in connection with any renewal, extension or expansion
hereof.
23.3 Tenant shall, within five (5) business days after receipt of
Landlord's written request, execute such further instruments or assurances as
Landlord may reasonably deem necessary to evidence or confirm the subordination,
nondisturbance and attornment pursuant to this Article. Tenant waives the
provisions of any current or future statute, rule or law contrary to the
provisions of this Article which may give Tenant any right or election to
terminate or otherwise adversely affect this Lease and the obligations of the
Tenant hereunder in the event of any the foreclosure of any mortgage, trust deed
or other encumbrance, or upon a transfer or conveyance in lieu of such
foreclosure.
ARTICLE 24 - OFFSET STATEMENT
24.1 Upon Landlord's request, Tenant shall execute, acknowledge and
deliver to Landlord a statement in writing setting forth Tenant's certification
of the following: that this Lease is unmodified (or, if modified, the nature of
such modification) and is in full force and effect; the extent to which rental
or other charges have been prepaid; and that Landlord, to Tenant's knowledge,
has not failed to cure any default of Landlord of this Lease (or specifying such
uncured defaults, if any are claimed). Tenant's failure or refusal to execute
and deliver such a statement within ten (10) days after receipt of Landlord's
request shall be conclusive upon Tenant that: this Lease is in full force and
effect, without modification (except as may be represented by Landlord); except
as provided in this Lease, not more than one month of rent has been paid in
advance, and not more than one month of security deposit is being held by
Landlord; and, there are no uncured defaults of Landlord. Tenant acknowledges
that such statement may be relied upon by a prospective purchaser or
encumbrancer of all or any portion of the Land, Building or Premises.
Page 14 of 22
<PAGE> 18
ARTICLE 25 - BUILDING PLANNING [DELETED]
ARTICLE 26 - ASSIGNMENT AND SUBLETTING
26.1 Unless Tenant has obtained the prior written consent of Landlord
(which may only be denied by Landlord upon a commercially reasonable ground),
Tenant shall not pledge, sell, transfer, hypothecate, encumber or assign this
Lease or Tenant's interest therein, sublet all or any part of the Premises, or
permit occupancy or the conduct of business in any or all of the Premises by
anyone other than Tenant. Any assignment, sublease, sale, mortgage, pledge,
encumbrance or transfer by Tenant or such other party made in contravention of
this Article shall be void and of no force or effect.
26.2 If Tenant proposes to assign this Lease or to sublet all or any
portion of the Premises, then Tenant shall give Landlord written notice of
Tenant's intent to so assign or sublet at least thirty (30) days' prior to the
proposed effective date of the assignment or sublease. The notice shall include,
with respect to each proposed assignee or subtenant: name and address; terms and
conditions of the proposed assignment or sublease; a detailed statement of facts
about the nature of the proposed use of the Premises and the proposed assignee's
or subtenant's business experience; a balance sheet showing financial condition
as of a date within ninety (90) days prior to the date of the notice; statements
of income, profit and loss for the last two (2) complete fiscal years; bank and
credit references; and, such other and further information as Landlord may
reasonably require.
26.3 If Tenant proposes to assign this Lease or sublet substantially all
of the Premises for substantially all of the remaining Term of this Lease to a
party other than Tenant's Affiliate, then during the thirty (30) day period
immediately following Landlord's receipt of Tenant's notice pursuant to Article
26.1, Landlord shall have the right to terminate this Lease in its entirety,
after which Tenant shall have no further obligation to Landlord under this
Lease, except for matters occurring or obligations arising prior to the
effective date of termination. Landlord shall exercise Landlord's right to
terminate by giving Tenant written notice of same, such notice to specify the
effective date of termination (which shall be the later of either: the effective
date of the assignment or sublease proposed by Tenant; or a date specified by
Landlord which is no less than thirty (30) days, but no more than sixty (60)
days after Tenant's receipt of Landlord's notice to terminate). Landlord
reserves the right, after electing to terminate as provided herein, to acquire
the Premises for its own use, or enter into a Lease with another tenant or the
proposed assignee or subtenant on such terms and conditions as in Landlord's
sole discretion, without Tenant being entitled to any portion of the profit
which Landlord may realize as a result of such termination and reletting.
26.4 If Landlord does not exercise its termination right set forth in
Article 26.3, then Landlord shall, within such thirty (30) day period following
receipt of Tenant's notice pursuant to Article 26.2, notify Tenant that Landlord
either grants or denies its consent for Tenant to proceed to assign or sublet on
the terms and conditions contained in Tenant's notice. Landlord's failure to
timely exercise its termination rights pursuant to Article 26.3 or timely deny
consent shall be deemed approval to assign or sublet on the terms and conditions
contained in Tenant's notice, but only to the extent that the represented terms
and conditions do not conflict with the terms and conditions of this Lease.
Landlord may deny consent to assign or sublet upon any commercially reasonable
ground, including, but not limited to, the following:
(a) The proposed assignee or subtenant is an existing Tenant
of Landlord in the Building or any other Building owned
or managed by Landlord in the Los Angeles/Orange County
Metropolitan Area, or has negotiated with Landlord
concerning the leasing of Premises from Landlord within
the prior one hundred twenty (120) days;
(b) The financial strength of the proposed assignee or
subtenant, in Landlord's opinion, is insufficient to
enable it to meet its proposed financial obligations;
(c) If Tenant is to relocate, the financial strength of
Tenant after the proposed assignment or sublease and
relocation would be insufficient to enable it to meet
its financial obligations under this Lease;
(d) The proposed use, or reputation or character of the
proposed assignee or subtenant is not in keeping with
the nature of the Building or may adversely affect the
operation, insurability, or reputation of the Building;
(e) The proposed use of the Premises is materially different
than the Permitted Use; or
(f) The proposed use of the Premises conflicts with any
other existing agreements between Landlord and other
tenants concerning the Land, Building, Common Areas or
Premises;
(g) {Deleted}.
If Landlord denies consent to assign or sublet, Tenant waives the right to
terminate this Lease pursuant to California Civil Code section 1995.310(b).
Page 15 of 22
<PAGE> 19
26.5 Fifty percent (50%) of any consideration, including rents, received
by or on behalf of Tenant from such assignment or sublease in excess of Total
Monthly Rent shall be payable to Landlord upon receipt by Tenant as Additional
Rent. Notwithstanding the foregoing, Tenant shall be entitled to recapture from
any such excess consideration Tenant's costs and expenses for brokerage
commissions, advertising to sublet or assign and shared services (including,
without limitation, expenses of a shared receptionist, library, telephone
system, photocopier, or other similar office expense).
26.6 Any allowances, concessions, rights to acquire additional Premises,
rights to extend or renew, options, parking discounts or any other similar
concessions or consideration set forth in this Lease and any addenda or
amendments thereto are expressly understood to be solely for the benefit of the
original Tenant and shall be null, void and of no force or effect as of the
effective date of any assignment or subletting; however, this shall not be
deemed to retroactively nullify or void any allowances, concessions, rights or
options actually disbursed, made or exercised prior to such effective date.
26.7 Any advertisement, publicity or other public solicitation of any
assignment or subletting of the Premises shall require Landlord's prior written
approval.
26.8 Any permitted assignment or subletting of the Premises shall not
act to release Tenant or any subsequent assignor or sublessor from any liability
under this Lease, and Tenant shall cause any assignee to execute an agreement
with Landlord upon a form furnished by Landlord binding the assignee or
sublessee to all the terms of this Lease without relieving Tenant of any
liability hereunder. As security for Tenant's obligations under this Lease,
Tenant assigns to Landlord the right to collect all rent resulting from any
assignment or sublease of the Premises in the event of Tenant's default; and
Landlord (as assignee and attorney-in-fact for Tenant, or as a receiver for
Tenant appointed on Landlord's application, may upon written notice to Tenant
and subtenant or assignee, thereafter collect and apply such rent toward the
satisfaction of Tenant's obligations under this Lease. Tenant shall pay a
reasonable processing fee to Landlord for each assignment or sublease submitted
to Landlord, not to exceed Five Hundred Dollars ($500.00).
26.9 Unless Tenant is a corporation whose stock is traded through a
recognized United States exchange, any of the following shall be deemed to be a
voluntary assignment requiring Landlord's consent: a change in business status
or organization, dissolution, merger, consolidation or other reorganization of
Tenant (either voluntarily or pursuant to any provision of the Bankruptcy Act);
the sale or other transfer of a controlling share of the voting capital stock of
Tenant; or, the sale of fifty-one percent (51%) or more of the interests of
Tenant. However, if Tenant is a corporation whose stock is traded through a
recognized United States exchange, then, provided Tenant is not in default
hereunder, Tenant may assign this Lease or sublet the Premises to a corporation
into or with which Tenant is merged or consolidated, or to which all or
substantially all of Tenant's assets are transferred, or to any corporation or
other entity which controls or is controlled by the Tenant or is under common
control or affiliated with the Tenant. Tenant shall notify Landlord of any such
assignment or sublease in accordance with Article 34 of this Lease and
concurrently provide Landlord with the same financial information as required in
Article 26.2 with respect to any proposed assignee or sublessee.
26.10 Notwithstanding anything to the contrary contained in Article 26
of this Lease, and provided Tenant is not in default of this Lease with all
applicable notices having been given and cure periods having expired, Tenant may
assign this Lease or sublet the Premises without Landlord's prior consent to
"Tenant's Affiliate" defined as: to a corporation into or with which Tenant is
merged or consolidated; to a corporation into which all or substantially all of
Tenant's assets are transferred; to any corporation or other entity which
controls or is controlled by Tenant; or, to a corporation controlled by Tenant's
parent corporation to the same extent as Tenant is controlled by such parent
corporation. Tenant shall, nevertheless, notify Landlord of any such assignment
or sublease in accordance with Article 34 of this Lease and provide Landlord
with the same information regarding the assignee or transferee required by
Article 26.2, herein.
ARTICLE 27 - BANKRUPTCY AND INVOLUNTARY ASSIGNMENT
27.1 Any of the following acts or occurrences with respect to either
Tenant or any guarantor of this Lease shall constitute an involuntary
assignment: filing a petition under Chapter 7, 10, 11 or any other provision of
the Bankruptcy Act now or hereafter in effect; making an assignment for the
benefit of creditors; being adjudicated bankrupt in involuntary bankruptcy
proceedings, unless the judgment is vacated within sixty (60) days from entry;
becoming insolvent (reflected by either a written admission of inability to meet
current obligations, actual inability to meet current obligations, or
liabilities exceeding assets); appointment of a receiver or trustee for any
property, unless the appointment is set aside or vacated within sixty (60) days
after entry; attachment or execution upon any property (including, without
limitation, this Lease) unless the attachment or execution is removed within
sixty (60) days after levy; or transfer or assignment of this Lease by operation
of law (including, without limitation, transfer by will or intestacy).
27.2 An involuntary assignment shall constitute a default by Tenant and
Landlord shall have the right to terminate this Lease. This Lease shall not be
treated as an asset of Tenant and neither Tenant nor any person claiming through
or under Tenant (or by virtue of any statute or order of any court) shall be
entitled to possession of the Premises, which shall be forthwith surrendered to
Landlord. Landlord shall be entitled to recover damages at least in the amounts
set forth in Article 31 of this Lease; however, nothing herein shall limit or
prejudice the right of Landlord to seek any other damages allowed by any
applicable statute or rule of law.
Page 16 of 22
<PAGE> 20
ARTICLE 28 - FINANCIAL STATEMENTS
28.1 If Tenant is in default of this Lease, or Landlord is proposing to
convey, finance or refinance Landlord's interest in the Land, Building or Common
Areas, then Landlord shall have the right to require Tenant to furnish Landlord
with financial statements prepared by a Certified Public Accountant according to
generally recognized accounting principles showing Tenant's financial condition
as of a date not more than ninety (90) days prior to submission to Landlord.
ARTICLE 29 - HOLDING OVER
29.1 Tenant shall not hold over after the expiration of the Term or
earlier termination of this Lease without the prior written consent of Landlord
(which shall not be subject to Article 35.1). Tenant agrees that Tenant's
failure to surrender possession of the Premises at the end of the Term can and
will cause actual damage to Landlord which is impracticable or extremely
difficult to ascertain (including, without limitation, lost opportunities to
lease the Premises, increase in the cost of improvements, lost rent and
liability for Landlord's inability to deliver timely possession of the Premises
to another tenant). Therefore, if Tenant holds over after the Term without the
prior written consent of Landlord, then Tenant shall become a Tenant at
sufferance only and shall continue to perform each and every term, condition and
covenant of this Lease during any such period of holding over; except that, in
lieu of damages to which Landlord may be entitled hereunder, Landlord may elect
to have Tenant pay Landlord liquidated damages in an amount equal to one hundred
fifty percent (150%) of the Total Monthly Rent payable by Tenant to Landlord in
the last complete month of the Term, for each month or portion thereof which
Tenant so holds over.
29.2 {Deleted}.
29.3 The foregoing provisions of this Article are in addition to any
other rights of Landlord hereunder, or as otherwise provided by law, including,
without limitation, the right to bring an action for unlawful detainer.
Landlord's acceptance of rent after expiration or earlier termination of this
Lease, or during any such period of holding over shall not be construed as a
renewal or extension of this Lease. Notwithstanding anything to the contrary
contained in this Lease, Tenant shall not be entitled to any parking discounts
or specified modes of parking during any such period of holding over.
ARTICLE 30 - DEFAULTS
30.1 The occurrence of any one or more of the following events shall
constitute a default of this Lease by Tenant:
(a) Tenant's failure to pay when due any Basic Monthly Rent,
Tax Rent, Operating Expense Rent, Capital Expense Rent,
Additional Rent or any other payment due Landlord under
this Lease where such failure continues for a period of
five (5) days after receipt of written notice from
Landlord setting forth such failure;
(b) Any default set forth in Article 27 of this Lease; or
(c) Tenant's failure to observe or perform any express or
implied covenant or provision of this Lease, other than
those specified in subparagraphs (a) and (b), above,
within ten (10) days after receipt of notice from
Landlord; however, if more than ten (10) days are
reasonably required to so observe or perform, then
Tenant shall not be in default so long as Tenant
commences observance or performance within said ten (10)
day period and diligently prosecutes same to completion.
30.2 Any notice of default Landlord is required to give Tenant hereunder
and any notice Landlord may be required to give pursuant to California Code of
Civil Procedure section 1161, et seq. (or any similar law now or hereafter in
effect) may be satisfied by a single notice inclusive of the requirements of
both this Article and statutory law.
30.3 Landlord shall be in default of this Lease if Landlord fails to
observe or perform any material covenant or provision of this Lease that
Landlord is required to so observe or perform within fifteen (15) days after
receipt of written notice from Tenant to Landlord specifying the nature of such
failure; however, if more than fifteen (15) days are reasonably required to so
observe or perform, then Landlord shall not be in default so long as Landlord
commences observance or performance within said fifteen (15) day period and
diligently prosecutes same to completion. In no event shall Tenant have the
right to terminate this Lease as a result of Landlord's default, and Tenant's
remedies shall be limited to damages and/or an injunction. Tenant acknowledges
that the Premises do not constitute a "Dwelling Unit" or "Dwelling" as the term
is used in California Civil Code section 1940, et seq. Tenant waives any right
to make repairs at Landlord's expense pursuant to California Civil Code section
1942 or any similar law, statute or ordinance.
Page 17 of 22
<PAGE> 21
ARTICLE 31 - REMEDIES
31.1 If Tenant is in default of this Lease, then Landlord may avail
itself of any remedies under law, Landlord's election of any particular remedy
to be at Landlord's sole discretion, without obligation under Article 35.1.
Landlord may elect to avail itself of the remedy described in California Civil
Code section 1951.4, in which case this Lease shall continue in full force and
effect after Tenant's breach and abandonment, and notwithstanding anything to
the contrary contained in Article 26, Tenant shall thereafter have the right to
sublet or assign this Lease subject only to reasonable limitations. If Landlord
does not elect to avail itself of the remedy described in California Civil Code
section 1951.4 and Tenant either breaches this Lease and abandons the Premises
before the end of the Term, or Tenant's right to possession is terminated by the
Landlord because of a breach of this Lease, then this Lease shall terminate, and
Landlord shall recover from Tenant the following:
(a) The worth at the time of award of the unpaid rent which
had been earned at time of termination;
(b) The worth at the time of award of the amount by which
the unpaid rent which would have been earned after
termination until the time of award exceeds the amount
of such rental loss that Tenant proves could have been
reasonably avoided;
(c) The worth at the time of award of the amount by which
the unpaid rent for the balance of the Term after the
time of award exceeds the amount of such rental loss
that Tenant proves could be reasonably avoided; and
(d) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure
to perform Tenant's obligations under this Lease, or
which in the ordinary course of things would be likely
to result therefrom (including, without limitation, any
costs of obtaining mitigating rental income, such as
excused rent, brokerage commissions, Tenant
improvements, parking concessions, lease takeovers, cash
payments, advertising, moving costs or any other cost or
Tenant concession related to the re-leasing of the
Premises upon the default of Tenant).
The "worth at the time of award" of the amounts referred to in subparagraphs (a)
and (b), above, shall be computed by allowing interest at the rate specified in
Article 35.11 of this Lease, compounded monthly; and the "worth at the time of
award" of the amounts referred to in subparagraph (c), above, shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award, plus one percent (1%).
31.2 Tenant waives any equity of redemption and any right to relief from
forfeiture as provided by California Code of Civil Procedure section 1179 (or
any other similar applicable statute, regulation or law now or hereafter in
effect).
31.3 Any liability for damages, breach or nonperformance by Landlord, or
arising out of the subject matter of or the relationship created by, this Lease,
will be collectible only out of Landlord's interest in the Building and no
personal liability is assumed by or will at any time be asserted against
Landlord, its parent and affiliated corporations, its and their partners,
venturers, directors, officers, agents, servants and employees, or any of its or
their successors or assigns; all such liability, if any, being expressly waived
and released by Tenant.
ARTICLE 32 - ATTORNEYS' FEES
32.1 In any action brought by either Landlord or Tenant against the
other to enforce or interpret any provision of this Lease (including any claim
in a bankruptcy or an assignment for the benefit of creditors), the prevailing
party shall recover from the other party all reasonable costs and attorneys'
fees of such action (including those incurred either prior to such action in the
proposed resolution or contemplation of such action, in a prior unlawful
detainer action rendered moot by Tenant's vacancy, in the maintenance or
enforcement of any judgment resulting from said action, or in the appeal from
any such judgment), whether such costs were incurred or services were performed
by in-house or outside counsel.
Page 18 of 22
<PAGE> 22
ARTICLE 33 - WAIVER OF JURY TRIAL
33.1 Landlord and Tenant each hereby waive their respective rights to
trial by jury of any cause of action, claim, counterclaim or cross-complaint in
any action, proceeding and/or hearing brought by either Landlord against Tenant,
or Tenant against Landlord, as to any matter whatsoever arising out of or in any
way connected with this Lease, the relationship of Landlord and Tenant, Tenant's
use or occupancy of the Premises, any claim of injury or damage, or the
enforcement of any remedy under any law, statue, or regulation, emergency or
otherwise, now or hereafter in effect. Notwithstanding the foregoing, Landlord
and Tenant agree that this waiver shall not be effective where the legal effect
of such waiver would be to invalidate in whole or in part, or to limit or impair
in any manner any policy of insurance in force for the benefit of Landlord or
Tenant or to limit or impair any rights, remedies or coverage afforded
thereunder.
ARTICLE 34 - NOTICES [SEE ADDENDUM]
34.1 Notice shall be given to Tenant at the Premises. Notice shall be
given to Landlord at 15760 Ventura Boulevard, Suite 500, Encino, California
91436-3095. Either party may, by written notice to the other, specify a
different address for notice purposes.
34.2 In order to prevent disputes concerning the giving of notice, if
any provision of this Lease (or addenda or amendments thereto) requires "notice"
to be given, for either party to "notify" the other, or otherwise refers to
"notification", then such notice shall be made in writing and be given by either
personal delivery, certified mail or a nationally recognized overnight courier
service, in each case delivery to be evidenced by a signed receipt therefor.
Notice may also be given by facsimile transmission, provided the party to whom
the transmission is addressed acknowledges actual, legible receipt by executing
a copy of the transmission (or a receipt for same) and returning a copy of same
to the sender, by facsimile transmission or otherwise. Notices shall be deemed
effective at the time of delivery, as confirmed by said signed receipts. If
either party fails or refuses to accept delivery by certified mail or overnight
courier service, or refuses to execute a receipt evidencing delivery, then
notice may be given by first-class mail and shall be deemed effective two (2)
business days after mailing.
34.3 The term "notice" shall not include any bills, invoices, rent
statements or statement of any other charges or sums due from Tenant to
Landlord, or any notice required or permitted to be given pursuant to any law or
statute.
ARTICLE 35 - GENERAL PROVISIONS
35.1 Reasonableness. Except as may be otherwise specifically provided in
this Lease, wheresoever and whenever Landlord's or Tenant's discretion or
consent is required under this Lease, Landlord and Tenant agree that such
discretion will be reasonably exercised and that such consent will not be
unreasonably withheld or delayed.
35.2 Rules and Regulations. Tenant shall faithfully observe and comply
with the Rules and Regulations attached hereto as Exhibit "C", and all
reasonable and nondiscriminatory modifications or additions thereto made by
Landlord from time to time.
35.3 Conflict of Laws. This Lease shall be governed by and construed
under the laws of the State of California.
35.4 Venue. Any lawsuit brought by Tenant against Landlord shall be
filed in a court of competent jurisdiction for the county in which the Building
is located.
35.5 Identification of Tenant. The term "Tenant" as used in this Lease
shall mean and include each person or entity that executes this Lease as Tenant,
who shall be jointly and severally liable for the keeping, observing and
performing of all of the terms, covenants, conditions, provisions and agreements
of this Lease to be kept, observed and performed by Tenant. Notice from or to
any single person or entity executing this Lease as Tenant shall be deemed to be
effective notice from or to each and every person or entity executing this Lease
as Tenant, with the same force or effect as if each such person or entity had so
given or received such notice. Any act or signature by any single person or
entity executing this Lease as Tenant concerning this tenancy or Lease
(including, without limitation, any renewal, extension, expiration, termination
or modification of this Lease) shall be binding upon each person or entity
executing this Lease as Tenant with the same force and effect as if each person
or entity had so acted or signed. Any refund to any single person or entity
executing this Lease as Tenant shall be deemed to be a refund to each person or
entity executing this Lease as Tenant, as if each such refund had been
collectively made to all such persons or entities.
35.6 Successors and Assigns. Except as otherwise provided in this Lease,
each covenant, condition and provision of this Lease shall be binding upon and
shall inure to the benefit of the parties hereto, their respective heirs,
personal representatives, successors and permissible assigns.
Page 19 of 22
<PAGE> 23
35.7 Relinquishment of Possession. The voluntary or involuntary
relinquishment of possession of the Premises by Tenant to Landlord, or a mutual
cancellation of this Lease by both Tenant and Landlord, shall at the option of
Landlord operate as an assignment to Landlord of any or all subleases or
subtenancies and no merger shall be effected.
35.8 Performance by Tenant. If Tenant fails to perform any act to be
performed by Tenant hereunder other than payment of money to Landlord and such
failure continues for ten (10) days after Tenant's receipt of notice thereof
from Landlord, Landlord may, without waiving or releasing Tenant from any
obligation, perform any such act and all costs incurred by Landlord, together
with interest thereon at the rate specified in Article 35.11 of this Lease from
the date of such payment by Landlord, shall be payable by Tenant to Landlord.
35.9 Definition of Landlord. The term "Landlord" as used in this Lease
shall be limited to mean and include only the owner at the time in question of
the fee or leasehold interest under a ground lease of the Land. If Landlord
transfers, assigns or otherwise conveys any such title or leasehold, Landlord
shall be automatically freed and relieved of all liability with respect to the
performance of any covenants or obligations in this Lease to be performed from
and after the date of such transfer, assignment or conveyance, except as may be
provided in Article 7.3.
35.10 Waiver. The waiver by Landlord of any breach of any term, covenant
or condition of this Lease shall neither be deemed a waiver of any concurrent or
subsequent breach of the same or any other term, covenant or condition of this
Lease, nor shall any custom or practice which may develop between the parties in
the administration of the terms hereof be deemed a waiver of, or in any way
affect the right of Landlord to require strict performance by Tenant. The
acceptance of rent or any sum hereunder by Landlord shall not be deemed to be a
waiver of any breach by Tenant of any term, covenant or condition of this Lease
other than the failure of Tenant to pay such rent or sum, regardless of
Landlord's knowledge of such breach at the time of acceptance.
35.11 Interest. Wheresoever required in this Lease, and in lieu of the
legal rate to be used in the computation of any interest owed Landlord in any
judgment or award of the court, interest shall be compounded monthly and charged
at a rate equal to the higher of:
(a) Ten percent (10%) per annum; or
(b) Five percent (5%) per annum, plus the rate established
by the Federal Reserve Bank of San Francisco on advances
to member banks under Sections 13 and 13(a) of the
Federal Reserve Act (as now in effect, or hereafter from
time to time amended or, if there is no such single
terminable rate of advances, the closest counterpart of
such rate as shall be designated by the Superintendent
of Banks of the State of California, unless some other
person or agency is delegated such authority by the
legislature) which is prevailing on the twenty-fifth
(25th) day of the month preceding the "Accrual Date".
The "Accrual Date" shall be defined as follows: for purposes of Article 30, as
the initial date of default; for purposes of Article 6, the date of final
payment by Landlord for the Capital Expense; and for all other purposes, the
date of execution of this Lease. Tenant hereby agrees that the use of such
interest rate herein shall not be deemed to be interest upon a loan or
forbearance of money, for goods or things in action for use primarily for
personal, family or household purposes within the meaning of the California
Constitution, Article 15, section 1.
35.12 Terms, Headings and Print. The words "Landlord" and "Tenant" as
used herein shall include the plural as well as the singular. Words used in any
gender include other genders. The article headings are not a part of this Lease,
and such headings and any use of boldface, italics or underlining are for
convenience only, and shall have no effect upon the construction or
interpretation of this Lease.
35.13 Time. Time is of the essence with respect to the performance of
every provision of this Lease in which time of performance is a factor.
35.14 Entire Agreement. This Lease contains the entire agreement of the
parties hereto with respect to any matter covered or mentioned in this Lease and
no prior agreement or understanding, oral or written, expressed or implied,
pertaining to any such matter shall be effective for any purpose. No provision
of this Lease may be amended or added to except by an agreement in writing
executed by both Landlord and Tenant or their respective successors in interest.
The parties acknowledge that all prior agreements, representations and
negotiations concerning the subject matter of this Lease, or collateral thereto,
are deemed superseded by the execution of this Lease to the extent they are not
incorporated herein and that this agreement shall be deemed to be integrated.
35.15 Severability. Any provision of this Lease which proves to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provisions hereof, and such other provisions shall remain in full force and
effect.
Page 20 of 22
<PAGE> 24
35.16 Recording. Tenant shall not record this Lease or a short form
memorandum thereof without the written consent of Landlord. Any recording
without Landlord's written consent shall be a material breach of this Lease.
35.17 Plats, Riders and Clauses. Any addenda, clauses, plats, riders and
provisions executed by both Landlord and Tenant which are inserted in, endorsed
on or affixed to this Lease are a part hereof. If there is any variation or
discrepancy between duplicate original documents held by Landlord and Tenant,
then the duplicate original held by Landlord shall be deemed controlling.
35.18 Building Name. Tenant shall not use the name of the Building for
any purpose other than as the address of the business to be conducted by Tenant
in the Premises. Landlord shall have the right, without liability to Tenant for
any damage or injury, whatsoever, to change the name or street address of the
Building.
35.19 Quiet Possession. Except as otherwise provided in this Lease,
Tenant, upon paying the rents reserved hereunder and observing and performing
all of the covenants, conditions and provisions on Tenant's part to be observed
and performed hereunder, shall have quiet possession of the Premises for the
entire Term.
35.20 Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive and, wherever possible, each remedy shall be cumulative with
all other remedies.
35.21 Examination and Delivery of Lease. Submission of this instrument
for examination or signature by Tenant does not constitute a reservation of, or
option to Lease and is not effective as a Lease or otherwise, or a binding legal
instrument until execution and delivery by all parties. Prior to such execution
and delivery, this Lease shall neither be legally binding nor effective.
35.22 Confidentiality. Tenant agrees to keep the terms of this Lease
confidential and shall not disclose same to any other person not a party hereto
without the prior written consent of Landlord; however, Tenant may disclose the
terms hereof to Tenant's accountants, attorneys, managing employees, and others
in privity with Tenant to the extent reasonably necessary for Tenant's business
purposes. Tenant agrees that a breach of this Article will cause irreparable
injury to Landlord and Landlord shall be entitled, together with all other
remedies in law or equity available to Landlord, to injunctive relief to
restrain such breach.
35.23 Agreed Figures. All figures set forth in this Lease represent
negotiated sums and percentages and are conclusive as between Landlord and
Tenant.
Page 21 of 22
<PAGE> 25
35.24 Measurement of Premises. The usable area of the Premises has been
measured consistent with the American National Standard Institute Publication
ANSI Z65.1 - 1996 ("BOMA"). The rentable area of the Premises and Building
include a factor for those Common Areas on the floor containing the Premises and
an additional factor for those Common Areas which generally serve rentable areas
of the Building (such as the Ground Floor Lobby), and exclude those areas
designated exclusively as storage space. If Landlord elects to remeasure the
Premises, Common Areas, Building or any portion thereof, or the use of any
portion of the Building is modified so as to affect the gross rentable square
footage of the Building, then Landlord may upon written notice to Tenant revise
the Proportional Share to reflect the results of any such survey or
modification, provided that such remeasurement is consistent with the method of
measurement and calculation of rentable area set forth herein.
WHEREUPON, THE PARTIES HERETO HAVE EXECUTED THIS LEASE
ON THE DATES INDICATED
RAINBOW TECHNOLOGIES, INC.
Date: By:
----------------------------- ---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
STEVENS CREEK ASSOCIATES
DBA TRIZECHAHN LANDMARK SQUARE MANAGEMENT
BY TRIZECHAHN CENTERS, INC.
Date: By:
----------------------------- ---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
Page 22 of 22
<PAGE> 26
ADDENDUM NO. 1
This Addendum dated November 24, 1999, is made a part of and is
attached to that certain Lease dated November 24, 1999, between Stevens Creek
Associates, a California general partnership, dba TrizecHahn Landmark Square
Management ("Landlord"), and Rainbow Technologies, Inc., a Delaware corporation,
dba Systematic Systems Integration ("Tenant"), concerning Suite 2000 located at
111 West Ocean Boulevard, Long Beach, California.
- --------------------------------------------------------------------------------
ARTICLE 36 - TENANT IMPROVEMENTS
36.1 Landlord shall provide Tenant with a "Construction Allowance" in
the amount of Three Hundred Thousand Nine Hundred Ninety-Two Dollars
($300,992.00), such amount to be applied toward construction of permanent
improvements (including cabling) in the Premises ("Tenant Improvements") in
accordance with the Work Letter attached hereto as Exhibit "E".
36.2 Notwithstanding anything to the contrary contained herein or in the
Work Letter, Tenant may use a portion of the Construction Allowance not to
exceed One Hundred Twelve Thousand Eight Hundred Seventy-Two Dollars
($112,872.00) to reimburse Tenant for the purchase of fixtures, furnishings and
equipment for the Premises (the "FF&E"), and a portion of the Construction
Allowance not to exceed Twenty-Eight Thousand Two Hundred Eighteen Dollars
($28,218.00) to reimburse Tenant for the costs of moving Tenant's fixtures,
furnishings and equipment to the Premises by qualified licensed and insured
movers (the "Moving Expenses"). Landlord shall have no obligation to reimburse
Tenant for FF&E or Moving Expenses unless and until Landlord, in Landlord's sole
discretion, is satisfied that there is or will be Construction Allowance
remaining after the completion of all Tenant's Work and payment of those Work
Costs other than FF&E and Moving Expenses that may result in a lien upon the
Land and Building. Landlord shall not be obligated to reimburse Tenant for FF&E
unless and until the FF&E subject to the reimbursement request is delivered and
installed in the Premises and functioning to Tenant's satisfaction. Landlord
shall not be obligated to reimburse Tenant for Moving Expenses unless and until
the moving activities included in the Moving Expenses subject to the
reimbursement request have been performed to Tenant's reasonable satisfaction.
Any reimbursement of FF&E or Moving Expenses shall be subject to offset by
Landlord for the reasonable costs of repairing any damage to the Building and
Common Areas caused by the subcontractors performing the work subject to the
request for reimbursement.
ARTICLE 37 - OPTION TO RENEW
37.1 Tenant shall have the option to renew this Lease for an additional
term of sixty (60) months (the "Renewal Term"), upon the following terms and
conditions:
(a) Tenant shall not at the time of exercising this Option
be in material monetary default (with all applicable
notices having been given and cure periods having
expired without Tenant having cured such material
default) under any of the terms, covenants, conditions,
provisions or agreements of this Lease.
(b) Such re-leasing shall be upon the same terms, covenants,
conditions, provisions and agreements as in this Lease,
except that:
(i) Tenant's Basic Monthly Rent shall be an amount
determined by multiplying the rentable area of
the Premises by the "Fair Market Rate" (as
defined in Article 37.3).
(ii) Tenant's Base Year shall be amended to be the
calendar year 2005.
(iii) Tenant shall continue in the Premises in its "as
is" condition.
(c) Tenant shall exercise this option to renew this Lease by
notifying Landlord of the same in writing on or before
May 31, 2004, or this option shall be null, void and of
no force or effect.
Page 1 of 9
<PAGE> 27
(d) Within ten (10) business days after Landlord's receipt
of Tenant's notice of exercise of this Option, Landlord
shall propose to Tenant the Fair Market Rate for the
Renewal Term (based upon the definition in Article
37.3).
(e) Landlord and Tenant shall thereafter continue to
negotiate Fair Market Rate in good faith until the
earlier of the agreement of the parties or November 30,
2004 (the "Outside Agreement Date").
(f) If the parties have not reached agreement on Fair Market
Rate by the Outside Agreement Date, then the last such
proposal for the Fair Market Rate submitted by each
party to the other prior to the Outside Agreement Date
shall be submitted to arbitration in accordance with
Article 37.2.
37.2 If arbitration is required pursuant to Article 37.1, then the
parties shall proceed as follows:
(a) Each arbitrator appointed hereunder shall be a licensed
real estate professional who shall have been active over
the five (5) year period immediately prior to the date
of such appointment in the leasing of first-class
commercial high-rise office properties in the Market
Area (defined in Article 37.3, below), and who does not
then represent or act on behalf of either of the
parties.
(b) If Landlord and Tenant cannot agree to a single
arbitrator within ten (10) business days after the
Outside Agreement Date, then Landlord and Tenant shall
each appoint one (1) arbitrator within such ten (10)
business day period; however, if one (1) party fails to
timely appoint an arbitrator, and further fails to
appoint an arbitrator within two (2) business days after
receipt of written notice of such failure from the other
party, then the determination shall be made by the sole
appointed arbitrator.
(c) If a sole arbitrator is not agreed upon or deemed
selected, then the two (2) qualified arbitrators so
appointed shall, within ten (10) business days
thereafter, appoint a third (3rd) arbitrator having the
same minimum required qualifications; however, if the
two (2) arbitrators fail to agree upon and appoint a
third (3rd) arbitrator, then the identity of the third
(3rd) arbitrator shall be submitted to arbitration under
the provisions of the American Arbitration Association,
but subject to such arbitrator having the foregoing
qualifications.
(d) The determination of the arbitrator(s) shall be limited
solely to the issue of whether Landlord's or Tenant's
submitted Fair Market Rate is closer to the actual Fair
Market Rate for such space. The arbitrator(s) shall have
no authority to issue any decision other than the
selection of either Landlord's or Tenant's submitted
Fair Market Rate.
(e) A majority of the arbitrator(s) shall, within thirty
(30) days after the appointment of the last arbitrator,
reach a decision consistent with subparagraph (d),
above, and shall notify Landlord and Tenant thereof. The
decision of the arbitrator(s) shall be binding upon both
Landlord and Tenant.
(f) The losing party shall be responsible for paying all
reasonable fees of the arbitrator(s) hereunder.
37.3 For purposes of this Lease, the term "Fair Market Rate" shall mean
a single Basic Monthly Rent per rentable square foot (such rate to amortize over
the term any mid-term increases or indexing, and excused rent to reach a single
effective rate payable in each month of the term) that a landlord has accepted
in current transactions from new or renewing non-equity tenants (not affiliated
with Landlord) of comparable credit-worthiness, for a comparable amount of
improved space, for a comparable use for a comparable term with a commencement
date within six (6) months of the commencement of the renewal term ("Comparable
Transactions"). If there are at least two (2) Comparable Transactions in the
Building, then the Fair Market Rate shall be determined considering only those
Comparable Transactions in the Building. If there are not at least two (2) such
Comparable Transactions in the Building, then such determination shall be made
further considering what comparable landlords of comparable buildings (which
shall each be of a comparable size, class and age in the Downtown Long Beach
area fronting on Ocean Boulevard [the "Market Area"], and with comparable
vacancy) have accepted in Comparable Transactions. Although determination of
Fair Market Rent shall be limited to determination of the Basic Monthly Rent per
rentable square foot, in comparison of Comparable Transactions appropriate
consideration shall be given to differences in the method of measuring the area
of the premises, the ratio of rentable to usable square area, whether rent is
based upon usable or rentable area, and the type of escalation clause (e.g.,
whether increases in additional rent are determined on a net or gross basis and,
if gross, whether such increases are determined according to a base year or a
base dollar amount expense stop); the extent to which the premises have been or
are obligated to be improved; whether or not a brokerage commission was payable;
and, any other customary concession granted the tenant in the Comparable
Transaction.
Page 2 of 9
<PAGE> 28
ARTICLE 38 - SIGNS
38.1 Full Floor Signage. Effective upon the Commencement Date for Suite
2000A, Tenant shall be entitled to the sign rights set forth therein.
Notwithstanding anything to the contrary contained in Article 23, Tenant shall
have the right to install signs in Premises visible from, but not within, the
elevator lobby on the Twentieth (20th) Floor, identifying Tenant by Tenant's
name and/or logo. Tenant may design and construct the Premises (incorporating
such improvements as may be required by any fire/life safety codes applicable to
the Premises and elevator lobby at Tenant's sole cost and expense, for which
Tenant may use the Construction Allowance) so that the doors from the elevator
lobby to the Premises may remain open for the conduct of normal business.
38.2 Monument Signage. Effective upon the Commencement Date for Suite
2000A, Tenant shall have the non-exclusive right to place Tenant's name on one
(1) insert on each of the two (2) sides of either the existing monument sign at
the Ocean Boulevard entrance to the Building or any additional monument sign
that may be installed by Landlord along the Ocean Boulevard frontage of the
Building (the "Sign") upon the following terms and conditions:
(a) Tenant's rights hereunder shall be subject to all rights
granted to other tenants in the Building existing as of
the execution of this Amendment (the "Prior Rights");
and, shall be further subject to space on the Sign
becoming available, unencumbered by any Prior Rights.
Landlord shall not be obligated to reduce the size of
any inserts or increase the number of inserts which the
Sign can accommodate to create an opportunity for Tenant
to install Tenant's name on the Sign. Tenant is advised
that there are, as of the execution of this Lease,
rights to the Sign superior to those granted herein to
Tenant.
(b) Tenant's right to install and maintain Tenant's inserts
on the Sign is subject to:
(i) Tenant not being in default of this Lease, with
all applicable notices having been given and
cure periods having expired; and
(ii) The occupancy for the conduct of business by
Tenant and affiliates of Tenant of not less than
eighteen thousand eight hundred twelve rentable
square feet (18,812 RSF) of the Premises (e.g.,
the entire Twentieth (20th) Floor).
If at the time that Tenant's sign rights accrue, Tenant
fails to satisfy any requirement hereunder, then this
Article 38.2 shall be deemed deleted and of no further
force or effect. If at any time after installation of
the Sign, Tenant fails to satisfy either of the above
requirements, and continues to do so for a period of
thirty (30) days, then Landlord by notice to Tenant may
require Tenant to remove the Sign in accordance with
subparagraph (j), below, and shall thereafter forfeit
all rights to replace such Sign for the remainder of the
Term (as may be extended).
(c) The cost to fabricate, construct, install, repair and
maintain Tenant's inserts on the Sign shall be borne
solely by Tenant, and Tenant shall keep Tenant's inserts
on the Sign in good order, condition and repair. If
Tenant changes Tenant's legal name, then Tenant shall
promptly replace the inserts on the Sign with correct
inserts, at Tenant's sole cost and expense. Landlord may
determine, in Landlord's sole discretion, in which slot
Tenant's inserts shall be placed.
(d) Tenant's inserts on the Sign shall have the same
dimensions as those other inserts on the Sign, and
materials used to construct Tenant's inserts shall be of
the same composition as the existing inserts on the
Sign.
(e) Tenant shall secure Landlord's prior written approval as
to the design, size, color, construction and other
aesthetic aspects of Tenant's inserts on the Sign.
(f) Prior to installation or any modification of Tenant's
inserts on the Sign, Tenant or Tenant's contractors
shall obtain all required plans, permits and government
approvals which may be required.
(g) Tenant shall indemnify and defend Landlord in regards to
the installation and maintenance of Tenant's inserts on
the Sign to the same extent as with respect to the
Premises.
(h) Tenant shall insure Tenant's inserts on the Sign to the
same extent as Tenant is obligated to insure Tenant's
personal property in the Premises.
(i) Landlord reserves the right to erect such other signs in
the Common Areas, the real property upon which the
Building is situated, the parking facilities, and
otherwise upon the interior and exterior of the Building
as Landlord in its sole discretion deems appropriate,
and any such installation shall not serve to increase
Tenant's rights hereunder.
Page 3 of 9
<PAGE> 29
(f) At the end of the Term (or as may be required pursuant
to subparagraph [b], above) Tenant shall, at Tenant's
sole cost and expense, remove the Sign and repair and
restore the area of the monument in which the Sign
panels were located to their original or blank
condition.
(g) The rights under this Article 38 are personal to Tenant
or any affiliate of Tenant defined in Article 26.10, and
may not be sublet or assigned to any other entity.
ARTICLE 39 - RIGHT TO AUDIT
39.1 Tenant shall have a right to audit Landlord's determination of Tax
Rent, Operating Expense Rent and Capital Expense Rent and the respective
Property Taxes, Operating Expenses and Capital Expenses upon which the same were
based (collectively, "Escalations"), upon the following terms and conditions:
(a) Tenant shall not be in material monetary default of this
Lease (including, but not limited to payment of any
charges to be reviewed hereunder) at the time notice of
audit is given by Tenant, or at any other time prior to
completion of the audit.
(b) Any audit shall be limited to those annual
determinations of actual Escalations that Landlord is
required to make pursuant to Articles 4, 5 and 6, and
shall not include a right to audit Landlord's estimates
of Escalations that Landlord is required to make
thereunder.
(c) Each audit shall be limited to the Escalations for not
more than two (2) consecutive Comparison Years of the
Term and, in the case of the first audit performed, the
Base Year. No Escalations for any Comparison Year or the
Base Year may be audited more than once. For any
Comparison Year, Tenant shall notify Landlord that it is
exercising its right to audit Escalations for such
Comparison Year not later than a date two (2) years
after Tenant's receipt of Landlord's statement
reconciling the Escalations for such Comparison Year.
With respect to each Comparison Year, if Tenant fails to
give timely notice of exercise of Tenant's rights (or
such notice is not effective because of Tenant's default
pursuant to subparagraph [a], above), then Tenant shall
be deemed to have accepted Landlord's statement of such
Escalations and be deemed to have waived any claim with
respect to such Escalations, except as such claim may
arise from the fraud or other intentional tort on the
part of Landlord.
(d) The audit shall take place at Landlord's regional
offices within the Los Angeles Metropolitan area or, at
Landlord's option, the Building, at a time mutually
convenient to Landlord and Tenant (but not later than
sixty [60] days after receipt of Tenant's notice to
audit). Except as Landlord may consent in writing, and
provided Landlord has fully cooperated with Tenant's
auditors to supply requested information on a prompt
bases, the audit shall be completed within ten (10)
consecutive business days after commencement.
(e) The audit may be accomplished by either Tenant's own
employees with accounting experience reasonably
sufficient to conduct such review, or a nationally or
regionally recognized public accounting firm mutually
acceptable to Landlord and Tenant that is not
compensated on a contingency or bonus basis. Under no
circumstances shall Landlord be required to consent to
an accounting firm which is also a tenant of Landlord in
the Building.
(f) If it is determined that Tenant overpaid Escalations,
Landlord shall repay to Tenant the amount of the
overpayment to the extent that Landlord does not dispute
the results of such audit. If the audit determines that
Tenant underpaid Escalations, then Tenant shall promptly
pay to Landlord the amount of any such underpayment.
(g) If the audit is performed by a nationally or regionally
recognized public accounting firm, and it is determined
that the total Property Taxes, Operating Expense and
Capital Expenses subject to audit (as opposed to the
resulting calculations of Tax Rent, Operating Expense
Rent and Capital Expense Rent) were overstated by
Landlord by more than five percent (5%), then Landlord
shall reimburse Tenant for all actual and reasonable
expenses incurred to such firm in auditing the same.
Page 4 of 9
<PAGE> 30
(h) Tenant agrees to keep all information acquired, as a
result of Tenant's exercise of its rights, hereunder,
confidential and shall not disclose same to any other
person not a party hereto without the prior written
consent of Landlord; however, Tenant may disclose the
terms hereof to the mutually agreed upon auditor,
Tenant's accountants, attorneys, managing employees,
assignees, sublessees, other persons and entities as may
be required pursuant to legal process or other legal
requirements, and others in privity with Tenant only to
the extent reasonably necessary for Tenant to exercise
its rights hereunder. Any accounting firm hired by
Tenant to perform the audit shall likewise agree in
writing to the foregoing as a condition of Landlord
consenting to the employment of such firm or such firm
being provided access to Landlord's records.
(i) If Tenant fails to notify Landlord of Tenant's exercise
of Tenant's right to audit (or subsequently perform such
audit) within the time periods specified herein, then
Tenant shall be deemed to have accepted as correct
Landlord's statement of Escalations and shall waive any
and all claims in regard to the same; however, nothing
herein shall be deemed a waiver of any claim for fraud
or other intentional tort on the part of Landlord.
39.2 The submittal of all matters to arbitration in accordance with the
terms and conditions of this Article 39.2 shall be the sole and exclusive
method, means and procedure to resolve any and all claims, disputes or
disagreements arising in regard to any dispute by Landlord pursuant to Article
39.1(f), Landlord's election pursuant to Article 6 to amortize certain items of
Capital Expenses (including, without limitation, the determination of useful
life or payback period by Landlord) or the extent to which costs incurred by
Landlord shall be included as an item of Capital Expenses, as follows:
(a) The parties hereby irrevocably waive any and all rights
to the contrary and shall at all times conduct
themselves in strict, full, complete and timely
accordance with the terms and conditions of this Article
39.2 and all attempts to circumvent this Article 39.2
shall be absolutely null and void and of no force or
effect whatsoever.
(b) Any payment to Landlord can be made "under protest,"
which shall occur when such payment is accompanied by a
good faith notice stating the reasons that the party has
elected to make a payment under protest. Such protest
will be deemed waived unless the subject matter
identified in the protest is submitted to arbitration as
set forth in this Article 39.2.
(c) Any dispute to be arbitrated pursuant to the provisions
of this Article 39.2 shall be determined by binding
arbitration before a retired judge of the Superior Court
of the State of California (the "Arbitrator") under the
auspices of Judicial Arbitration & Mediation Services,
Inc. ("JAMS"), or any other similar arbitration or
mediation service to which the parties may agree,
subject to the following:
(i) Such arbitration shall be initiated by the
parties, or either of them, within ten (10) days
after either party sends Notice (the
"Arbitration Notice") of a demand to arbitrate
to the other party and to JAMS. The Arbitration
Notice shall contain a description of the
subject matter of the arbitration, the dispute
with respect thereto, the amount involved, if
any, and the remedy or determination sought.
(ii) The parties may agree on a retired judge from
the JAMS panel. If they are unable to promptly
agree, JAMS will provide a list of three
available judges and each party may strike one.
The remaining judge (or if there are two, the
one selected by JAMS) will serve as the
Arbitrator. In the event that JAMS shall no
longer exist or if JAMS fails or refuses to
accept submission of such dispute and the
parties cannot agree on another similar service,
then the dispute shall be resolved by binding
arbitration before the American Arbitration
Association ("AAA") under the AAA's commercial
arbitration rules then in effect.
(iii) The Arbitrator shall schedule a pre-hearing
conference to resolve procedural matters,
arrange for the exchange of information, obtain
stipulations, and narrow the issues. The parties
will submit proposed discovery schedules to the
Arbitrator at the pre-hearing conference. The
scope and duration of discovery will be within
the sole discretion of the Arbitrator. The
Arbitrator shall have the discretion to order a
pre-hearing exchange of information by the
parties, including, without limitation,
production of requested documents, exchange of
summaries of testimony of proposed witnesses,
and examination by deposition of parties and
third-party witnesses. This discretion shall be
exercised in favor of discovery reasonable under
the circumstances.
(iv) The arbitration shall be conducted in the County
of Los Angeles, California. Any party may be
represented by counsel or other authorized
representative.
Page 5 of 9
<PAGE> 31
(v) In rendering a decision(s), the Arbitrator shall
determine the rights and obligations of the
parties according to the substantive and
procedural laws of the State of California and
the terms and conditions of this Lease. The
Arbitrator's decision shall be based on the
evidence introduced at the hearing, including
all logical and reasonable inferences therefrom.
(vi) The Arbitrator may make any determination,
and/or grant any remedy or relief (an
"Arbitration Award") that is just and equitable.
The decision must be based on, and accompanied
by, a written statement of decision explaining
the factual and legal basis for the decision as
to each of the principal controverted issues.
(vii) The decision shall be conclusive and binding,
and it may thereafter be confirmed as a judgment
by the Superior Court of the State of
California, subject only to challenge on the
grounds set forth in the California Code of
Civil Procedure Section 1286.2. The validity and
enforceability of the Arbitrator's decision is
to be determined exclusively by the California
courts pursuant to the terms and conditions of
this Lease.
(viii) The Arbitrator shall award costs, including
without limitation attorneys' fees, and expert
and witness costs, to the prevailing party as
defined in California Code of Civil Procedure
Section 1032 ("Prevailing Party"), if any, as
determined by the Arbitrator in his or her
discretion. The Arbitrator's fees and costs
shall be paid by the non-prevailing party as
determined by the Arbitrator in his or her
discretion.
(d) This Article 39.2 shall not apply to any claims by
Tenant that are primarily founded upon matters of fraud,
willful misconduct, bad faith or any other allegation of
an intentional tortious act.
ADDENDUM TO ARTICLE 5 - OPERATING EXPENSE RENT
5.6 Notwithstanding the provisions of Article 5, Operating Expenses, as
defined therein, shall not include expenses or costs incurred for the following:
(a) Repairs or other work occasioned by fire or other
casualty to the extent of actual insurance proceeds
received by Landlord (however, any deductibles under
such policy shall be included in Operating Expenses);
(b) Leasing commissions, attorneys' fees, costs and
disbursements and other expenses incurred in connection
with negotiations or disputes with tenants, other
occupants or prospective tenants or prospective tenants
or occupants;
(c) Renovating, decorating, painting, redecorating or making
leasehold improvements to the interior of the existing
or prospective premises of other tenants, or storage
space, in the Building, but not excluding costs and
expenses of such work in the Common Areas of the
Building;
(d) Services to tenants for which Landlord is reimbursed by
tenants under the leases with such tenants (excepting
fees for parking);
(e) Depreciation, interest on any mortgage, and rent under
any ground lease;
(f) Violations of this Lease by Landlord and violations by
other tenants of provisions of their leases (however, if
such violation results in an insured loss, then any
deductibles under such policy shall be included in
Operating Expenses);
(g) Insurance deductibles to the extent that the same exceed
an aggregate of Fifty Thousand Dollars in a calendar
year;
(h) Without waiving Landlord's right to include the same in
Capital Expenses to the extent permitted pursuant to
Article 6, any costs or expenses required to be
capitalized according to generally accepted accounting
principles applicable to, and generally recognized by
the commercial office real estate industry; and
(i) Earthquake insurance, unless earthquake insurance was
included in the Base Year.
5.7 If any facilities, services or utilities used in connection with the
Building are provided from another building owned or operated by Landlord (or an
affiliate of Landlord), or vice versa, the costs incurred by Landlord in
connection therewith shall be equitably pro rated and allocated to Operating
Expenses by Landlord on an reasonable basis.
Page 6 of 9
<PAGE> 32
ADDENDUM TO ARTICLE 6 - CAPITAL EXPENSE RENT
6.5 Notwithstanding anything to the contrary contained in Article 6, for
purposes of this Lease, only, Capital Expenses shall be subject to the following
provisions:
(a) Each item of Capital Expenses defined in subparagraph
(a) or (c) of Article 6.2 incurred during any calendar
year in which all or any part of the Term occurs and
costing in excess of Fifty Thousand Dollars ($50,000.00)
shall be amortized with interest as provided in Article
35.11, in equal installments, over its "Useful Life"
(defined below), and only those installments accruing
during any calendar year in which all or any part of the
Term occurs shall be included in Capital Expenses for
such calendar year; and
(b) Each item of Capital Expenses defined in subparagraph
(b) of Article 6.2 incurred during any calendar year in
which all or any part of the Term occurs shall not
exceed the savings in Operating Expenses reasonably
projected by Landlord to result and actually resulting
therefrom (as reasonably determined by Landlord after
consultation with experts experienced in the applicable
improvement and calculation of savings therefrom)
discounted to present value at the rate specified in
Article 35.11, and such lesser amount shall be amortized
with interest as provided in Article 35.11, in equal
installments, over the payback period for such Capital
Expense (as reasonably projected by Landlord), and only
those installments accruing during any calendar year in
which all or any part of the Term occurs shall be
included in Capital Expenses for such calendar year.
The term "Useful Life" for purposes of this Article 6, shall mean and refer to
that period of time which the subject capital improvement, modification or
addition will be productive and/or useful, without replacement, for the purpose
required and intended at the time of installation, assuming that such capital
improvement, modification or addition is repaired and maintained as provided in
this Lease and will be subject to the elements of nature or any other condition
beyond the reasonable control of Landlord (including further governmental action
which renders the improvement, modification or addition obsolete).
6.6 Notwithstanding anything to the contrary contained in Article 6,
Capital Expenses shall exclude any item of costs incurred by Landlord in the
making or installation of capital improvements, modifications or additions to
the Land, Building, Common Areas and/or the machinery, equipment and facilities
related thereto and arising in connection with renovating, decorating, painting,
redecorating or making leasehold improvements to the premises of existing or
prospective tenants, or to storage space, in the Building, excepting costs and
expenses of such work in those portions of the Common Areas of the Building (a)
that are available for use by Tenant (and do not duplicate facilities on the
Twentieth [20th] Floor of the Building), and (b) which otherwise directly
benefit Tenant by maintaining or enhancing the health or safety of occupants of
the Premises or facilitating access between the Premises and the Common Areas.
6.7 Notwithstanding anything to the contrary contained herein, that
portion of Capital Expense Rent attributable to Capital Expenses defined
pursuant to subparagraph (c) of Article 6.2 shall not in any calendar year
during the Term exceed a sum determined by multiplying the rentable square
footage of the Premises by 20/100 Dollars ($0.20).
ADDENDUM TO ARTICLE 10 - PARKING LICENSE
10.2 Notwithstanding anything to the contrary contained herein:
(a) Effective from the Commencement Date for Suite 2000A
through March 31, 2000, Tenant shall purchase not less
than ten (10) parking passes entitling Tenant to park in
the Building's parking facility in either the unreserved
or reserved mode (parking in the reserved mode to be
subject to availability), at the scheduled rates for
parking in such mode in effect from time to time; and
Page 7 of 9
<PAGE> 33
(b) Effective April 1, 2000, and continuing for the
remainder of the Term (as may be extended or renewed),
Tenant shall purchase not less than seventy-three (73)
parking passes entitling Tenant to park in the
Building's parking facility in either the unreserved or
reserved mode (parking in the reserved mode to be
subject to availability), at the scheduled rates for
parking in such mode in effect from time to time.
Any parking purchased by Tenant's Affiliate occupying the Premises shall be
included in determining whether Tenant has fulfilled its requirement hereunder.
The foregoing obligation is referred to herein as the "Minimum Parking
Requirement".
10.3 Tenant's rights and obligations to satisfy the Minimum Parking
Requirement may not be assigned, sublet, licensed or otherwise transferred to
any third party (other than Tenant's Affiliate), except as follows:
(a) Tenant's rights and obligations to satisfy the Minimum
Parking Requirement may be transferred by Tenant to
Tenant's assignee in conjunction with an assignment of
this Lease approved by Landlord in accordance with
Article 26; and
(b) Tenant may purchase such parking on behalf of any
approved subtenant of Tenant and be reimbursed for the
same by such subtenant, provided that:
(i) Any such reimbursement shall be at cost, without
profit, markup or administrative charge; and
(ii) Tenant may not purchase parking or seek
reimbursement from any such subtenant for any
portion of the Minimum Parking Requirement that
exceeds each such subtenant's share of the
Premises (based upon the rentable area of such
portion of the Premises exclusively granted and
occupied by such subtenant). For example, if
after April 1, 2000, a subtenant exclusively
subleases and occupies nine thousand three
hundred rentable square feet (9,300 RSF) of the
Premises, then Tenant may not purchase and seek
reimbursement from such subtenant for more than
49.43% of the Minimum Parking Requirement, or
thirty-six (36) passes; and, if such subtenant
requires passes in addition to such amount, then
such subtenant must purchase the same directly
from Landlord, on a month-to-month basis,
subject to availability.
10.4 Notwithstanding anything to the contrary contained herein, Tenant
or Tenant's Affiliate may purchase such additional parking at the scheduled
rates for parking in such mode in effect from time to time in such amounts and
modes as Landlord may reasonably determine a month-to-month basis.
Page 8 of 9
<PAGE> 34
ADDENDUM TO ARTICLE 34 - NOTICES
34.4 Landlord shall send additional notice to:
Rainbow Technologies, Inc.
50 Technology Drive
Irvine, California 92618
Attention: Laurie Casey
REAFFIRMATION OF LEASE
Except as expressly amended hereby, the parties hereby reaffirm
all of the terms, conditions, provisions, covenants, and agreements of this
Lease and same shall remain unchanged and in full force and effect.
WHEREUPON, THE PARTIES HERETO HAVE EXECUTED THIS ADDENDUM
ON THE DATES INDICATED
RAINBOW TECHNOLOGIES, INC.
Date: By:
----------------------------- ---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
STEVENS CREEK ASSOCIATES
DBA TRIZECHAHN LANDMARK SQUARE MANAGEMENT
BY TRIZECHAHN CENTERS, INC.
Date: By:
----------------------------- ---------------------------------
Title:
------------------------------
By:
---------------------------------
Title:
------------------------------
Page 9 of 9
<PAGE> 35
EXHIBIT "A" - LOCATION PLAN
Page 1 of 1
<PAGE> 36
EXHIBIT "B" - LEGAL DESCRIPTION
The real property commonly known as 111 West Ocean Boulevard, Long Beach,
California, and more particularly described as:
That real property constituting Lot 1-20, Block 110 in the City of Long Beach,
County of Los Angeles, State of California as shown on the Los Angeles County
Tract Number Townsite of Long Beach, recorded in Book 19, Pages 91-96 in the
Office of the County Recorder of said County.
Page 1 of 1
<PAGE> 37
EXHIBIT "C" - RULES AND REGULATIONS
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 egress. The sashes, sash doors, skylights, windows, and
doors that reflect or admit light and air into halls, passageways or other
public places in the Building shall not be covered or obstructed by Tenant, nor
shall any bottles, parcels or other items be placed on the windowsills. Tenant
shall not throw anything out of doors, windows or skylights or down the
passageways.
2. No awnings or other projection shall be attached to the outside walls
of the Building. No sign, advertisement or notice shall be exhibited, painted or
affixed by Tenant on any part of the Premises or the Building without the prior
written consent of the Landlord. Tenant shall not place any radio or television
antenna on the roof or on any part of the inside or the outside of the Building,
other than the inside of the Premises, without the prior written consent of the
Landlord.
3. No curtains, blinds, shades or screens shall be attached to or hung
in, or used in connection with, any window or door of the Premises other than
Landlord's approved window coverings. Neither the interior nor exterior of any
windows shall be coated or otherwise sun-screened without the express written
consent of Landlord. All electric ceiling fixtures hung in offices or spaces
along the perimeter of the Buildings must be fluorescent, of a quality type,
design and bulb color approved by Landlord. Tenant shall keep all window
coverings closed when the Building air conditioning, heating and ventilation
systems are in operation, and Landlord shall not be responsible for variance in
room temperatures caused by Tenant's failure to comply with this Rule.
4. Signs on doors which are in the Common Areas or visible from the
Common Areas, and directory tablets or listings in the lobby or other Common
Areas of the Building are: (a) provided exclusively for the display of a single
business name for Tenant, only, and Landlord reserves the right to exclude any
other names therefrom, (b) shall be inscribed, painted or affixed for Tenant by
the Landlord at the expense of Tenant, and (c) shall be of a number, size, color
and style prescribed by Landlord. All doors opening onto public corridors shall
be kept closed, except when in use for ingress and egress. Tenant shall be
entitled to directory listing in the lobby directory in the amount of one (1)
strip for each one thousand rentable square feet (1,000 RSF) of Premises.
5. 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.
6. Tenant shall not mark, paint, bore or drill into, or in any way
deface any part of the Premises or the Building, or string any wires.
7. The laying of linoleum or other similar floor coverings shall be
permitted only with the prior written consent of the Landlord and as the
Landlord may direct. Tenant shall place particle boards or plastic chair mats
under all desk or secretarial chairs. Said mats shall be provided and maintained
at Tenant's cost and expense.
8. No bicycles or vehicles of any kind shall be brought into, stored or
kept in or about the Premises. There shall not be used in any space, or in the
Common Areas of the Building, either by Tenant or others, any hand trucks except
those equipped with rubber tires and rubber side guards or such other material
handling equipment as Landlord may approve.
9. No birds, pets or animals of any kind shall be brought into or kept
in or about the Premises.
10. No cooking shall be done or permitted by Tenant on the Premises,
except that the preparation of coffee, tea, hot chocolate and similar items for
Tenant and its employees shall be permitted, provided the power requirement does
not exceed that amount which can be provided by a 30 amp circuit. Tenant shall
not cause or permit any unusual or objectionable odors to be produced or
permeate the Premises or the Building. No vending or similar machines shall be
installed, maintained or operated upon the Premises without the written consent
of Landlord.
11. 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 or Tenant's use of the Premises as set
forth in this Lease. Tenant shall not occupy or permit any portion of its
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 or manicure shop, or as an employment bureau.
12. Tenant shall neither use the Premises as a location to pay employees
working outside the Premises, nor advertise for laborers giving an address at
the Premises.
13. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purposes.
Page 1 of 3
<PAGE> 38
14. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of the Building, or
neighboring buildings or Premises, or those having business with them, whether
by the use of any musical instrument, radio, phonograph, unusual noise, or any
other way. Tenant shall not operate or permit to be operated any musical or
sound producing instrument or device inside or outside the Premises which may be
heard outside the Premises, or operate any electrical device from which may
emanate electrical waves which may interfere with or impair radio or television
broadcasting or reception from or in the Building or elsewhere, without the
Landlord prior written consent.
15. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by Tenant, nor shall any changes be made in existing locks
or the mechanism thereof. Tenant must, upon the termination of its tenancy,
restore to the Landlord all keys of stores, offices, and toilet rooms, either
furnished to, or otherwise procured by Tenant. If Tenant loses any keys, then
Tenant shall pay to the Landlord the cost of replacing the keys or changing
locks, if Landlord deems it necessary.
16. All moving of safes, freight, furniture, or bulky matter of any
description requiring the use of the Building's elevators must take place
between the hours of 9:00 - 11:30 a.m. and 1:30 - 4:15 p.m. Monday through
Friday (exclusive of holidays). The moving of safes, other fixtures, equipment
or bulky matter of any kind must be made upon previous notice to the management
of the Building and under its supervision, and the persons employed by Tenant
for such work must be acceptable to the Landlord. If additional expenses are
incurred by Landlord by reason of moving Tenant's safes, other fixtures,
equipment or bulky matter of any kind, such expenses shall be borne by Tenant.
The scheduling of moves of Tenant's furniture and equipment into or out of the
Building is subject to the reasonable discretion of Landlord. The person
employed to move such equipment in or out of the Building must be acceptable to
Landlord. Landlord will not be responsible for loss of, or damage to any such
equipment or other property from any cause, and all damage done to the Building
by maintaining or moving such equipment or other property shall be repaired at
the expense of Tenant.
17. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects shall, if considered necessary by
Landlord, stand on such platforms as determined by Landlord to be necessary to
properly distribute the weight. Business machines and mechanical equipment
belonging to Tenant, which cause noise or vibration that may be transmitted to
the structure of the Building, or to any space therein, to such a degree as to
be objectionable to Landlord, or to any tenants in the Building, shall be placed
and maintained by Tenant, at Tenant's expense, on vibration eliminators or other
devices sufficient to eliminate noise or vibration. The Landlord reserves the
right to inspect all safes, freight or other bulky items to be brought into the
Building and to exclude from the Building all safes, freight or bulky items
which violate any of these Rules and Regulations or this Lease.
18. Tenant shall not purchase janitorial, maintenance or other like
services from any company or persons not approved by the Landlord, so long as
the company or persons approved by Landlord provide such services at a
reasonable cost. Any persons employed by Tenant to do janitorial work, shall,
while in the Building and outside of the Premises, be subject to and under the
control and direction of the management of the Building (but not as an agent or
servant of the Landlord), and Tenant shall be responsible for all acts of such
persons. No such person shall be allowed in the Building between 6:00 p.m. and
8:00 a.m. on Mondays through Fridays and at all hours on Saturdays, Sundays and
legal holidays.
19. Landlord shall have the right to prohibit any advertising by Tenant
which, in Landlord's opinion, tends to impair the reputation of the Building or
its desirability as an office Building and, upon written notice from Landlord,
Tenant shall refrain from or discontinue such advertising.
20. The Landlord reserves the right to exclude from the Building on
Mondays through Fridays between the hours of 6:00 p.m. and 8:00 a.m. and at all
hours on Saturdays, Sundays and legal holidays all persons who have not received
clearance as a result of a written request from Tenant or who do not present a
pass to the Building signed by the Landlord. The Landlord will furnish passes
or, at Landlord's option, clearances to persons for whom Tenant requests the
same in writing. Landlord shall not be liable for damages caused by any error
with regard to any person's admission to or exclusion from the Building.
21. The requirements of Tenant will be attended to only upon appropriate
application to the office of the Building by an authorized individual. Employees
of Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord.
22. Canvassing, soliciting and peddling in the Building are prohibited
and Tenant shall cooperate to prevent the same.
Page 2 of 3
<PAGE> 39
23. No air conditioning unit or other similar apparatus shall be
installed or used by Tenant without the written consent of Landlord. Tenant
shall not connect any apparatus, device, conduit or pipe to the Building's
chilled or hot water supply lines or to the air conditioning system. Tenant's
use of electric current shall never exceed the electrical capacity of the floor
or Building or cause such capacity to be exceeded. Tenant shall close and lock
the doors of its Premises and entirely shut off all water faucets or other water
apparatus, and electricity, gas or air outlets before Tenant and its employees
leave the Premises. Tenant shall be responsible for any damage or injuries
sustained by other tenants or occupants of the Building or by Landlord for
noncompliance with this Rule.
24. All electric wiring and electrical outlets and connections of every
kind shall be introduced and connected only by Landlord, and no boring or
cutting for wires shall be allowed except with the prior written consent of the
Landlord. The location of telephones, call boxes and other office equipment
affixed to the Premises shall be subject to the prior written approval of
Landlord. Neither Tenant nor Tenant's servants, employees, agents, visitors,
licensees or contractors shall, at any time, enter the mechanical installations
or facilities of the Building or adjust, tamper with, touch or otherwise in any
manner affect said installation or facilities.
25. Landlord reserves the right to exclude or expel from the Building
and the Premises any person who, in the judgment of Landlord, is intoxicated or
under the influence of liquor or drugs, or who acts in violation of these Rules
and Regulations.
26. Tenant shall comply with all rules and regulations applicable to the
parking garage established from time to time by the Landlord or Landlord's
parking garage operator.
27. Tenant shall store all its trash and garbage within its Premises.
Tenant shall not place in any trash box or receptacle any material which cannot
be disposed of in the ordinary and customary manner of trash and garbage
disposal. Tenant shall be solely responsible for the disposition of any
hazardous or infectious waste brought onto or generated by Tenant in the
Premises. All garbage and refuse disposal shall be made in accordance with
directions issued from time to time by Landlord.
28. The word "Tenant" as used herein shall include any subtenant.
Page 3 of 3
<PAGE> 40
EXHIBIT "D" - WORK LETTER
This Work Letter is attached to and made a part of the Lease
executed concurrently herewith by and between the Landlord and Tenant. Except as
otherwise provided herein, all capitalized terms not otherwise defined herein
shall have the same meaning as provided in the Lease.
- --------------------------------------------------------------------------------
SECTION 1 - CONSTRUCTION REPRESENTATIVES
1.1 With respect to matters covered by this Work Letter, Landlord shall
be represented by either the Director of Construction or Senior Project Manager
of the Construction Department of Western U.S. Division of TrizecHahn Office
Properties Inc. ("Landlord's Representative"), subject to certain limitations in
such representation set forth herein.
1.2 With respect to matters covered by this Work Letter, Tenant shall
designate an individual to be Tenant's representative ("Tenant's
Representative").
1.3 All inquiries, requests, instructions, authorizations and other
communications with respect to the matters covered by this Work Letter shall be
made between Landlord's Representative and Tenant's Representative; including
any inquiries, requests, instructions or authorizations to any employee,
contractor or agent of the other. Either party may change its respective
representative by giving written notice to the other.
SECTION 2 - LANDLORD'S AND TENANT'S WORK
2.1 Tenant shall acquire the Premises in its "as is" condition,
inclusive of all defects, imperfections, mars, stains, blemishes and flaws in
the existing Leasehold Improvements, and Landlord shall not be required to
perform any improvements or corrections to the Premises, except and unless
specifically set forth in Schedule 1, attached hereto ("Landlord's Work").
Landlord's Work, if any, shall be performed in a good and workmanlike manner,
and otherwise in accordance with the provisions of this Work Letter.
2.2 All work shown on the Construction Drawings or otherwise required as
a condition of obtaining permits, approvals and certificates from governing
authorities necessary for construction of the work and Tenant's use and
occupancy of the Premises, excepting only that specifically set forth as
Landlord's Work (if any), shall be performed and constructed by Tenant
("Tenant's Work") in accordance with the provisions of this Work Letter and the
Lease. Tenant's Work shall be performed, constructed, installed, inspected and
supervised in a good and workmanlike manner, and otherwise in accordance with
the provisions of this Work Letter. All Tenant's Work shall conform to the
Construction Drawings and any approved modifications thereto.
SECTION 3 - PERFORMANCE SCHEDULE AND DELAYS
3.1 All Work to be performed pursuant to this Work Letter (including,
without limitation, preparation, review and revision of Space Plans and Working
Drawings, bidding, obtaining permits, Landlord's Work and Tenant's Work) shall
be proceed and be performed in accordance with the "Construction Schedule"
attached hereto as Schedule 2.
3.2 "Tenant Delay" is defined as any delay in the performance of
Landlord's Work or Tenant's Work caused by Tenant's (or its employee's,
contractor's or agent's) act or failure to act, including without limitation:
failure to complete any item on the Construction Schedule for which Tenant is
responsible, on or before the date specified therein; changes to Space Plans or
Construction Drawings after submission to Landlord for Landlord's approval;
specification of a material, finish or installation which is unavailable or
requires a lead time substantially exceeding that of comparable products;
failure to cooperate with Landlord or government authorities having jurisdiction
over Tenant's Work; failure to timely make payments required hereunder.
Notwithstanding the foregoing, Tenant Delay shall be excused to the extent
caused by or aggravated by Landlord Delay or Force Majeure Delay.
3.3 "Landlord Delay" is defined as any delay in the performance of
Landlord's Work or Tenant's Work caused by Landlord's (or its employee's,
contractor's or agent's) act or failure to act, including without limitation:
failure to complete any item on the Construction Schedule for which Landlord is
responsible, on or before the date specified therein; misrepresentation of the
accuracy of base building plans furnished to Tenant; changes to the Space Plans
or Construction Drawings after issuing Landlord's approval of the same; failure
to provide access to Tenant or Tenant's contractor as required herein; failure
to cooperate with Tenant or government authorities having jurisdiction over
Tenant's Work; failure to timely make payments required hereunder.
Notwithstanding the foregoing, Landlord Delay shall be excused to the extent
caused by or aggravated by Tenant Delay or Force Majeure Delay.
Page 1 of 7
<PAGE> 41
3.4 "Force Majeure Delay" is defined as any delay in the performance of
Landlord's Work or Tenant's Work resulting from an occurrence beyond the
reasonable control of either Landlord or Tenant (or their respective employees,
contractors or agents), including (without limitation): an act of God or the
elements of nature; fire or other casualty; war, riot, insurrection, or public
disturbance; a black-out or other interruption of utility service from the
provider to the Building; a strike or other labor disturbance (except to the
extent caused by an illegal act of Landlord); changes in government codes or
regulations (or the interpretation of same); the unavailability of government
permits or approvals within the time customarily available; or a general
shortage of materials or supplies.
3.5 A claim for delay for the failure of a party to timely complete any
item on the Construction Schedule for which the party is responsible shall be
presumed and established without any requirement of written notice; however, in
all other cases (including the claim that the failure to adhere to the
Construction Schedule was a result of delay of the other party or Force Majeure
Delay), the party claiming delay shall promptly notify the other party in
writing of such claim and the nature of the delay within five (5) business days
of discovery of the delay, or the delay shall not be deemed effective until the
fifth (5th) business day prior to the date such notice is given.
SECTION 4 - PLANS AND PERMITS FOR TENANT'S WORK
4.1 Tenant shall prepare plans showing the architectural design of the
Premises, including storefront elevations (with colored renderings), proposed
signage, partition layout, location of receptacles, location of major trade
fixtures, reflective ceiling plans ("Space Plans"). Tenant shall submit the
Space Plans to Landlord for review and approval. Landlord shall review and
approve/disapprove of the Space Plans within five (5) business days of receipt.
If Landlord disapproves of any portion of the Space Plans, Landlord shall advise
Tenant of the same and the reason therefor, and Tenant shall revise the Space
Plans accordingly and resubmit the same to Landlord for review and approval.
Landlord shall review and approve/disapprove of revised Space Plans within three
(3) business days of receipt. Review, revision and resubmission shall continue
until the Space Plans are fully approved by Landlord. Any revisions or
supplements to the Space Plans after initial approval by Landlord (and before
initial submittal to Landlord of the Construction Drawings) shall be subject to
Landlord's review and approval/disapproval in the same manner as provided herein
with respect to resubmissions.
4.2 After the Space Plans are fully approved by Landlord, Tenant shall
prepare complete architectural plans, drawings and specifications, and
engineered mechanical, structural and electrical working drawings in a form and
in such detail as is reasonably necessary to accurately construct Tenant's Work
("Construction Drawings") in accordance with code; including, without
limitation, layout, finish and decorative work (including carpeting and other
floor coverings), any proposed improvement affecting the base Building
structural, mechanical, electrical, intra-Building telephone network cabling,
plumbing, fire/life safety, heating, ventilation and air conditioning systems,
exhaust systems, and any item will require installation of conduit, plumbing or
other improvements within Common Areas or other premises. Landlord shall review
and approve/disapprove of the Construction Drawings within ten (10) business
days of receipt. If Landlord disapproves of any portion of the Construction
Drawings, Landlord shall advise Tenant of the same and the reason therefor, and
Tenant shall revise the Construction Drawings accordingly and resubmit the same
to Landlord for review and approval. Landlord shall review and
approve/disapprove of revised Construction Drawings within three (3) business
days of receipt. Review, revision and resubmission shall continue until the
Construction Drawings are fully approved by Landlord. Any revisions or
supplements to the Construction Drawings after initial approval by Landlord
shall be subject to Landlord's review and approval/disapproval in the same
manner as provided herein with respect to resubmissions.
4.3 Notwithstanding anything to the contrary contained in Articles 4.1
and 4.2, Tenant shall not include in the Space Plans or Construction Drawings
any requirement which will, in Landlord's reasonable opinion:
(a) Be incompatible with the design, construction and
equipment of the Building (including floor loading
requirements);
(b) Differ in quality or quantity from the Building
standards unless said quality or quantity or exceeds the
Building standards;
(c) Impair the exterior appearance of the Building;
(d) Impair Landlord's ability to maintain, operate, alter,
modify or improve the Building Structure or Mechanical
Systems;
(e) Violate any applicable laws, ordinances and/or the rules
and regulations of any governmental authority having
jurisdiction;
(f) Violate any applicable insurance regulations, including
but not limited to any such regulation for a fire
resistive Class A Building; or
Page 2 of 7
<PAGE> 42
(g) Locate any of Tenant's fixtures, furnishings or
equipment (including, without limitation, communications
systems) in the Common Areas (including, without
limitation, telecommunications closets), and all such
fixtures, furnishings and equipment shall be located
entirely within the Premises.
If Tenant requires Landlord's consent or waiver of any of the foregoing
requirements, Tenant shall give Landlord written notice of the same, such notice
to set forth with reasonable particularity a description of the Tenant
Improvements proposed to violate the requirement, and Landlord's consent or
waiver in regard to the same may be withheld by Landlord, in Landlord's sole
discretion (and without regard to the requirements of Article 35.1 of the
Lease). Any consent or waiver of Landlord obtained hereunder shall only be valid
if obtained in writing and signed by an authorized officer of Landlord, and not
solely by Landlord's Representative.
4.4 If permits are required, Tenant shall (with Landlord's cooperation
and assistance) secure such permits and approvals as may be required from any
governmental authority having jurisdiction. If any government authority requires
alterations, modifications or supplements to the Construction Drawings, Tenant
hereby agrees to promptly make such alterations, modifications or supplements
necessary to obtain any required permits. Upon obtaining a permit and prior to
accessing the Premises to perform any work therein, Tenant shall furnish
Landlord with a complete stamped set of permitted Construction Drawings.
4.5 Upon completion of Tenant's Work, Tenant shall furnish Landlord with
a complete set of "as-built" drawings depicting all permanent improvements in
the Premises (including all Mechanical Systems), as actually constructed or
installed ("As-Built Drawings). All As-Built Drawings shall be prepared using
AutoCAD Release 12, or later, conforming to current AIA layering standards. The
conversion of any Working Drawings not so prepared to the foregoing standard
shall be a Work Cost.
4.6 Landlord's Representative's review and approval/disapproval of Space
Plan and Construction Drawings pursuant to sections 4.1 and 4.2, above, and any
cooperation and assistance of Landlord's Representative in the preparation
thereof, is solely for the protection of Landlord's interests in the Land,
Building and Premises, and should not be construed as a waiver of any of
Tenant's or the Tenant Improvements Architect's obligations hereunder to prepare
and modify the Space Plans and Construction Drawings in accordance with sections
4.3 and 4.4. The provisions of this section 4 shall apply equally to any
modifications of approved and/or permitted drawings required hereunder.
SECTION 5 - SELECTION OF CONTRACTOR TO PERFORM TENANT'S WORK
5.1 Tenant shall submit the approved Construction Drawings to
independent general contractors subject to Landlord's reasonable approval for
bidding on Tenant's Work. Landlord may require that each contractor use
Landlord's designated subcontractors for all work pertaining to the Mechanical
Systems (Landlord to provide a list of said designated subcontractors for
Mechanical Systems in response the written request of each such contractor);
however, Landlord warrants that such designated subcontractors shall timely
respond to Tenant and Tenant's contractor, cooperate with Tenant and Tenant's
contractor, perform their respective work on a timely basis, and that such
subcontractors' charges shall be reasonably competitive in the marketplace.
5.2 Tenant shall select a contractor ("Tenant's Contractor") and enter
into a written contract with Tenant's choice of contractor, providing for
payment on a progress payment basis, and otherwise on such terms and conditions
as are commercially reasonably and do not otherwise violate the terms of the
Lease and this Work Letter, to include a retention of not less than ten percent
(10%) of the total contract price ("Retention"). Landlord shall be provided a
copy of the fully executed construction contract prior to Landlord being
required to furnish any access to the Premises for the performance of any
Tenant's Work.
SECTION 6 - ACCESS TO PREMISES
6.1 Landlord shall provide Tenant's Contractor and its subcontractors
with reasonable access to the Building, Common Areas and Premises in order that
Tenant's Contractor may construct Tenant's Work in a timely manner, subject to
the following:
(a) Access shall be subject to, and coordinated with, the
activities and construction schedules of Landlord,
Landlord's Representative, any contractor engaged by
Landlord performing work in or about the Premises, and
their respective employees, agents and subcontractors.
Page 3 of 7
<PAGE> 43
(b) Tenant and Tenant's Personnel shall comply with all
reasonable rules and regulations which Landlord may,
from time-to-time, establish for the performance of
Tenant's Work or other improvements in the Building, and
shall otherwise be subject to the reasonable direction
of Landlord, Landlord's Representative or either of
their contractors; however, such direction shall not
confer on Landlord or Landlord's representative
responsibility for the timely and proper installation of
any work performed by Tenant or Tenant's Contractor, or
otherwise create an employer/employee, independent
contractor or agency relationship between said parties.
(c) If the presence and/or activities of Tenant or Tenant's
Contractor unreasonably interferes with:
(i) The work of Landlord, Landlord's Representative
or any contractor engaged by Landlord, or either
of their subcontractors or agents,
(ii) The normal operations of the Building, or
(iii) Causes labor difficulties,
then Landlord shall have the right to order Tenant
and/or Tenant's Contractor to immediately cease work and
vacate the Building, Common Areas or Premises of
personnel, equipment, materials and supplies to the
extent reasonably required to eliminate any such
interference.
(d) Tenant and Tenant's Personnel shall comply with all
applicable laws, regulations, permits and other
government approvals applicable to such entry and work
in the Premises.
(e) Prior to any access to the Premises to perform Tenant's
Work, Tenant and Tenant's Contractor shall furnish
Landlord with:
(i) Certificates or other proof reasonably required
by Landlord to establish that Tenant's
Contractor and each of its subcontractors is in
compliance with the Insurance Requirements set
forth in Schedule 3, attached hereto;
(ii) A copy of the fully executed construction
contract between Tenant and Tenant's Contractor;
(iii) A complete stamped set of permitted Construction
Drawings;
(iv) A copy of all required building permits;
(v) A complete list of subcontractors;
(vi) A copy of the contractor's license for Tenant's
Contractor; and
(vii) A copy of the construction schedule for the
completion of Tenant's Work.
SECTION 7 - WORK COSTS
7.1 As used in this Work Letter, the term "Work Costs" means:
(a) All design and engineering fees incurred in connection
with the preparation and review of the Space Plans,
Construction Drawings and the processing of the same by
governing authorities;
(b) Any reasonable fees incurred by Landlord in having
Landlord's architect and/or engineer review, test or
inspect the Space Plans, Construction Drawings or
Tenant's Work;
(c) Governmental agency plan check, permit and other fees
applicable to Tenant's Work;
(d) Increased costs to Landlord's Work (if any) caused by
changes in the approved Space Plans or approved
Construction Drawings by Tenant;
(e) The cost of any improvements, modifications, additions
or alterations to the Base Building (including base
Building structural and mechanical systems) required by
any government or regulatory agency or authority having
jurisdiction over Tenant's Work.
(f) Sales and use taxes applicable to Tenant's Work;
Page 4 of 7
<PAGE> 44
(g) Material and labor costs incurred in making Tenant's
Work;
(h) General conditions and contractor's fees;
(i) FF&E, not to exceed One Hundred Twelve Thousand Eight
Hundred Seventy-Two Dollars ($112,872.00);
(j) Moving Expenses, not to exceed Twenty-Eight Thousand Two
Hundred Eighteen Dollars ($28,218.00); and
(k) The reasonable costs of repairing any damage to and
restoring any portion of the Building or Common Areas
damaged caused by Tenant, Tenant's Contractor or any
other subcontractor, person or entity in the course of
performing Tenant's Work or in the purchase, delivery or
installation of any other materials, goods or services
for or benefiting the Premises.
(l) A Supervision Fee payable to Landlord in accordance with
Schedule 4, attached hereto.
7.2 The Construction Allowance, if any, shall be first applied toward
items (d), (k) and (i) of Work Costs, and then applied toward the payment of any
other items which are Work Costs, subject to Article 36.3. If the Work Costs are
estimated to exceed the Construction Allowance, the Construction Allowance has
been exhausted, or the period of use for the Construction Allowance has expired,
then Tenant shall pay all Work Costs on a progress payment basis, as follows. On
or before the performance of any Work, Tenant shall deposit with Landlord any
Work Costs to the extent that such Work Costs are reasonably estimated to exceed
the Construction Allowance (if any). Landlord shall retain such funds and
promptly disburse the same to Tenant's Contractor, subject to the remaining
provisions of this Section 7. Any funds deposited by Tenant with Landlord which
remain unused after completion of the Work, and which are not subject to any
claim by Landlord, Tenant's Contractor, or any subcontractor (or their
respective providers of any labor or materials used or expended in the
performance of the Work), shall be promptly returned to Tenant.
7.3 No payment of any Work Costs shall be made by either Landlord (from
the Construction Allowance, if any, or funds deposited by Tenant) or by Tenant
unless and until Landlord has received copies of Tenant-approved invoices
certifying that the work stated therein has been performed, Landlord has
independently confirmed that such work has been performed in accordance with
this Work Letter and the Lease, and Landlord has received appropriate lien
releases from Tenant's Contractor and all subcontractors and suppliers
(including a conditional lien release for any current application for payment,
accompanied by an unconditional lien release for any prior application for
payment for which payment has been made). Tenant shall endeavor to limit
payments to two (2) checks in any thirty (30) day period to Tenant's general
contractor, and a reasonable number of payments to any other direct contractors
of Tenant (including, but not limited to, engineers, designers, architects, and
telephone and computer cabling services).
7.4 If the Work Costs do not exceed the Construction Allowance, and any
Construction Allowance remains unused six (6) months after the Commencement
Date, then the unused balance of the Construction Allowance shall be forfeited.
7.5 Under no circumstances shall Landlord be required to pay any
Retention to Tenant or Tenant's Contractors unless and until Tenant or Tenant's
Contractor furnishes Landlord with:
(a) The permit card with all final inspector sign-offs
completed;
(b) A certificate of occupancy (if required by law);
(c) A copy of the recorded Notice of Completion;
(d) The As-Built Drawings;
(e) The air balance report;
(f) Any punchlist showing Tenant has approved all
corrections set forth therein;
(g) Guarantees, warrantees and operation manuals for all
Mechanical Systems or other trade fixtures installed in
the Premises;
(h) All unconditional lien releases; and
(i) An Estoppel Certificate.
Page 5 of 7
<PAGE> 45
SCHEDULE 1 - LANDLORD'S WORK
Landlord shall not be required to perform or construct any
Landlord's Work in the Premises.
- --------------------------------------------------------------------------------
SCHEDULE 2 - CONSTRUCTION SCHEDULE
Not less than ten (10) business days prior to commencing
Tenant's Work in the Premises, Tenant shall furnish to Landlord a Construction
Schedule showing all major trades for Tenant's Work and a critical path
analysis, which schedule shall be subject to Landlord's approval.
- --------------------------------------------------------------------------------
SCHEDULE 3 - INSURANCE REQUIREMENTS
The following are the standard types, amounts and forms of insurance
required under the General Subcontract Conditions. The policies of insurance
shall be in such form and shall be issued by such company or companies as may be
satisfactory to Landlord's Representative.
WORKER'S COMPENSATION INSURANCE
As required by any applicable law or regulation or statute and
to include coverage for the state in which the project is located and the states
in which any subcontractor is domiciled.
COMPREHENSIVE GENERAL LIABILITY INSURANCE
Tenant's Contractor and each subcontractor shall carry
comprehensive general liability insurance, including personal injury, owner's
and contractor's protective liability, explosion, collapse and underground
damage liability endorsement (commonly called S, C and U hazard), products,
completed operations, blanket contractual and broad form property damage
coverage, naming Landlord (and Landlord's property manager and Landlord's
Representative, if not Landlord) as additional insureds, providing primary (and
not contributing) coverage, and containing cross-liability and severability of
interest clauses, of not less than the following limits:
(a) If the total cost of the contract (or subcontract, as
applicable) is $20,000.00 or less, coverage in an amount
of not less than $1,000,000.00 combines single limit per
occurrence;
(b) If the total cost of the contract (or subcontract, as
applicable) is more than $20,000.00, but not more than
$150,000.00, coverage in an amount of not less than
$2,000,000.00 combines single limit per occurrence; and
(c) If the total cost of the contract (or subcontract, as
applicable) is $150,000.00 or more, coverage in an
amount of not less than $5,000,000.00 combines single
limit per occurrence.
Notwithstanding the foregoing, coverage required under subparagraphs (b) or (c),
above, may be satisfied by a combination of not less than $1,000,000.00 primary
coverage, plus excess insurance up to the applicable limit.
AUTOMOBILE LIABILITY INSURANCE
Tenant's Contractor and each subcontractor shall carry automobile
liability insurance, including owned, non-owned, leased and hired car coverage,
naming Landlord (and Landlord's property manager and Landlord's Representative,
if not Landlord) as additional insureds, providing primary (and not
contributing) coverage, and containing cross-liability and severability of
interest clauses, in an amount of not less than $1,000,000.00 combined single
limit per occurrence.
Page 6 of 7
<PAGE> 46
BUILDERS RISK PROPERTY INSURANCE
Unless waived in writing by Landlord, Tenant's Contractor and each
subcontractor shall carry "all risk" builders risk property insurance for the
full replacement cost of the work on a completed value basis, naming Landlord as
a loss payee, as its interest may appear, providing primary (and not
contributing) coverage, and including a waiver of all rights of subrogation
against Landlord.
GENERAL REQUIREMENTS
Prior to commencement of work Tenant's Contractor and each subcontractor
shall submit to Landlord certificates of insurance showing the required
insurance. If the coverage expires prior to completion of the work, then
Tenant's Contractor and each subcontractor shall submit replacement certificates
of insurance to Landlord prior to the expiration of such coverage. All
certificates shall provide that there will be no cancellation, material
modification or reduction of coverage without reasonable written notice to
Landlord.
- --------------------------------------------------------------------------------
SCHEDULE 4 - SUPERVISION FEES
The Supervision Fee shall be one percent (1%) of the total Work
Costs (excluding this Supervision Fee).
Page 7 of 7
<PAGE> 1
EXHIBIT 21
WHOLLY OWNED SUBSIDIARIES
FRANCE
Rainbow Technologies SARL
122, Ave. Charles de Gaulle
92522 Neuilly Sur Seine Cedex
GERMANY
Rainbow Technologies GmbH.
Lise Meitner Strasse 1
85716 Unterschleissheim
UNITED KINGDOM
Rainbow Technologies Ltd.
4 The Forum, Hanworth Lane
Chertsey, Surrey KT169JX
THE NETHERLANDS
Rainbow Technologies BV
Oliphanteweg 10
1397 Le Rotterdam
CHINA
Rainbow Information Technology Co., Ltd.
No. 4 Hua Yuan Road
Haidian District
Beijing 100088, China
AUSTRALIA
Rainbow Technologies (Australia) Pty Ltd.
Level 2, 448 St. Kilda Road
Melbourne, Victoria 3004
Australia
INDIA
Rainbow Information Technologies Pvt. Ltd.
I-83A, 3rd Floor
Lajpat Nagar-II
New Delhi 110 024
SYSTEMATICS SYSTEMS INTEGRATION
211 East Ocean Boulevard, Suite 250
Long Beach, CA 90802
MYKOTRONX, INC.
357 Van Ness Way
Suite 200
Torrance, CA 90501
<PAGE> 1
EXHIBIT 23(a)
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-60267, Form S-8 No. 33-60265 and Form S-8 No. 333-48699)
pertaining to the Assumed Options of Mykotronx, Inc., 1987 Non-qualified Stock
Option Plan, 1987 Incentive Stock Option Plan, 1990 Stock Option Plan of Rainbow
Technologies, Inc., and the Assumed Software Security, Inc. 1993 Employee Stock
Option Plan, of our report dated February 22, 2000, with respect to the
consolidated financial statements and schedule of Rainbow Technologies, Inc.,
included in this Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ ERNST & YOUNG LLP
Orange County, California
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 26,709
<SECURITIES> 1,173
<RECEIVABLES> 29,250
<ALLOWANCES> (579)
<INVENTORY> 12,033
<CURRENT-ASSETS> 78,657
<PP&E> 27,901
<DEPRECIATION> 11,145
<TOTAL-ASSETS> 130,538
<CURRENT-LIABILITIES> 29,721
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 97,878
<TOTAL-LIABILITY-AND-EQUITY> 130,538
<SALES> 121,089
<TOTAL-REVENUES> 121,089
<CGS> 64,142
<TOTAL-COSTS> 110,413
<OTHER-EXPENSES> 1,817
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (191)
<INCOME-PRETAX> 13,164
<INCOME-TAX> 5,027
<INCOME-CONTINUING> 8,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,137
<EPS-BASIC> 0.71
<EPS-DILUTED> 0.67
</TABLE>
