<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-19171
ICOS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 91-1463450
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22021 - 20th Avenue S.E., Bothell, WA 98021
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(425) 485-1900
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at October 31, 1997
----- ---------------------------------
Common Stock, $0.01 par value 39,843,336
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ICOS CORPORATION
----------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations for the three months ended September 30,
1997 and 1996, the nine months ended September 30, 1997 and 1996 and the
period from September 21, 1989 (incorporation) through September 30, 1997 1
Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996 2
Consolidated Statements of Stockholders' Equity for the period from
September 21, 1989 (incorporation) through September 30, 1997 3
Consolidated Statements of Cash Flows for the nine months ended September 30,
1997 and 1996, and the period from September 21, 1989 (incorporation) through
September 30, 1997 5
Notes to Consolidated Financial Statements 6
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results
of Operations 8
PART II. Other Information
ITEM 1: Legal Proceedings *
ITEM 2: Changes in Securities *
ITEM 3: Defaults Upon Senior Securities *
ITEM 4: Submission of Matters to a Vote of Security Holders *
ITEM 5: Other Information *
ITEM 6: Exhibits and Reports on Form 8-K 14
SIGNATURE 15
EXHIBITS 16
</TABLE>
* No information provided due to inapplicability of item.
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(This page left blank intentionally.)
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ICOS CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Period from
Three months ended Nine months ended September 21, 1989
September 30, September 30, (incorporation)
--------------------------- ---------------------------- through September 30,
1997 1996 1997 1996 1997
----------- ----------- ----------- ------------ --------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Collaborative research and development $ 6,462,240 $ 500,000 $15,522,211 $ 1,500,000 $ 21,022,211
License of technology - - 8,500,000 - 8,500,000
Research grants - - - - 1,451,409
----------- ----------- ----------- ------------ -------------
Total revenues 6,462,240 500,000 24,022,211 1,500,000 30,973,620
Operating expenses:
Research and development 10,795,751 7,739,905 29,767,173 21,539,823 145,470,194
General and administrative 628,351 564,290 1,926,301 1,925,428 19,879,162
----------- ----------- ----------- ------------ -------------
Total operating expenses 11,424,102 8,304,195 31,693,474 23,465,251 165,349,356
----------- ----------- ----------- ------------ -------------
Operating loss (4,961,862) (7,804,195) (7,671,263) (21,965,251) (134,375,736)
----------- ----------- ----------- ------------ -------------
Other income (expense):
Investment income 588,730 716,387 1,588,484 1,415,146 18,876,961
Interest expense - - - - (887,899)
Other, net - (1,103) (7,808) 111 (114,153)
----------- ----------- ----------- ------------ -------------
588,730 715,284 1,580,676 1,415,257 17,874,909
----------- ----------- ----------- ------------ -------------
Net loss $(4,373,132) $(7,088,911) $(6,090,587) $(20,549,994) $(116,500,827)
=========== =========== =========== ============ =============
Net loss per common share $ (0.11) $ (0.18) $ (0.15) $ (0.57)
=========== =========== =========== ============
Weighted average common shares outstanding 39,587,213 39,280,122 39,521,694 35,929,570
</TABLE>
Form 10-Q See accompanying notes to financial statements. Page 1
<PAGE>
ICOS CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
1997 December 31,
(unaudited) 1996
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,627,346 $ 2,159,008
Investment securities available for sale, at market value 19,614,478 39,511,820
Interest receivable 225,251 149,404
Receivables under collaborative arrangements 7,217,489 --
Nontrade receivables 152,105 92,969
Prepaid expenses 347,525 599,752
------------- -------------
Total Current Assets 32,184,194 42,512,953
Property and equipment at cost:
Land 2,309,979 2,309,979
Buildings 2,801,535 --
Leasehold improvements 13,823,401 13,659,272
Furniture and equipment 14,786,534 13,631,566
------------- -------------
33,721,449 29,600,817
Less accumulated depreciation and amortization 16,900,540 13,997,511
------------- -------------
16,820,909 15,603,306
------------- -------------
Construction in progress 1,095,169 23,600
------------- -------------
Net property and equipment 17,916,078 15,626,906
------------- -------------
Loan receivable from related party 7,340,750 --
Other assets 269,207 65,318
------------- -------------
7,609,957 65,318
------------- -------------
$ 57,710,229 $ 58,205,177
============= =============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,617,618 $ 1,183,623
Accrued payroll and benefits 883,318 649,562
Other accrued expenses 957,860 1,104,711
------------- -------------
Total Current Liabilities 4,458,796 2,937,896
Stockholders' equity:
Preferred stock, $.01 par value authorized 2,000,000 shares;
none issued -- --
Common stock, $.01 par value. Authorized 100,000,000 shares;
issued and outstanding, 39,637,621 at September 30, 1997
and 39,417,753 at December 31, 1996 396,376 394,176
Additional paid-in capital 169,358,222 165,273,055
Net unrealized gain (loss) on investment securities
available for sale (2,338) 10,290
Deficit accumulated during the development stage (116,500,827) (110,410,240)
------------- -------------
Total Stockholders' Equity 53,251,433 55,267,281
------------- -------------
$ 57,710,229 $ 58,205,177
============= =============
</TABLE>
Form 10-Q See accompanying notes to financial statements. Page 2
<PAGE>
ICOS Corporation
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net unrealized Deficit
Additional Restricted gain (loss) accumulated Total
Common paid-in Common on securities during the stockholders'
Stock capital Stock available for sale development stage equity
---------- ---------- ----------- ------------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of 5,515,000 shares of Common
Stock at $.02 per share $ 55,150 $ 55,150 $ - $ - $ - $ 110,300
Net loss for the period from inception
through December 31, 1989 - - - - (359,952) (359,952)
--------- ---------- ---------- -------- --------- ------------
Balances at December 31, 1989 55,150 55,150 - - (359,952) (249,652)
Issuance of 455,000 shares of Common
Stock at $.02 per share 4,550 4,550 - - - 9,100
Issuance of 10,752,222 shares of Common
Stock at $3.00 per share, net of
issuance costs of $2,513,166 107,522 29,635,979 - - - 29,743,501
Issuance of 300,000 shares of Common
Stock at $3.00 per share in
payment of note to stockholders 3,000 897,000 - - - 900,000
Repurchase of 60,000 shares of Common
Stock at $.02 per share (600) (600) - - - (1,200)
Net loss for the year ended
December 31, 1990 - - - - (2,775,090) (2,775,090)
------- ---------- ---------- -------- ----------- ------------
Balances at December 31, 1990 169,622 30,592,079 - - (3,135,042) 27,626,659
Issuance of 4,500,000 shares of Common
Stock at $8.00 per share, net of
issuance costs of $3,230,856 45,000 32,724,144 - - - 32,769,144
Repurchase of 74,000 shares of Common
Stock at $.02 per share (740) (740) - - - (1,480)
Issuance of 135,000 shares of Common
Stock, of which 75,000 shares are
restricted, to Cold Spring Harbor
Laboratories pursuant to a
collaboration agreement, at fair
market value of $18.50 per share 1,350 2,496,150 (1,387,500) - - 1,110,000
Vesting of 3,750 shares of restricted
Common Stock - - 69,375 - - 69,375
Issuance of 18,885 shares of Common
Stock from exercise of options at
$3.00 per share 189 56,466 - - - 56,655
Issuance of 86,772 shares of Common
Stock from exercise of warrants at
$3.00 per share 868 259,448 - - - 260,316
Compensation related to options granted - 12,599 - - - 12,599
Net loss for the year ended
December 31, 1991 - - - - (6,412,786) (6,412,786)
-------- ---------- ---------- -------- ----------- ----------
Balances at December 31, 1991 216,289 66,140,146 (1,318,125) - (9,547,828) 55,490,482
Issuance of 3,000,000 shares of Common
Stock at $9.00 per share, net of
issuance costs of $1,780,436 30,000 25,189,564 - - - 25,219,564
Retirement of 299,561 shares of Common
Stock at $8.00 per share (2,996) (2,394,226) - - - (2,397,222)
Vesting of 15,000 shares of restricted
Common Stock - - 277,500 - - 277,500
Issuance of 800,012 shares of Common
Stock from exercise of options at
$3.00 per share 8,000 2,392,035 - - - 2,400,035
Issuance of 106,800 shares of Common
Stock from exercise of warrants at
$3.00 per share 1,068 319,333 - - - 320,401
Compensation related to options granted - 30,235 - - - 30,235
Net loss for the year ended
December 31, 1992 - - - - (8,312,128) (8,312,128)
-------- ---------- ---------- -------- ----------- -----------
Balances at December 31, 1992 252,361 91,677,087 (1,040,625) - (17,859,956) 73,028,867
Repurchase of 12,500 shares of Common
Stock at $.02 per share (125) (215) - - - (340)
Vesting of 15,000 shares of restricted
Common Stock - - 277,500 - - 277,500
Issuance of 4,998 shares of Common Stock
from exercise of options at prices
ranging from $3.00 to $8.00 per share 50 17,765 - - - 17,815
</TABLE>
Form 10-Q See accompanying notes to financial statements. Page 3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Issuance of 59,650 shares of
Common Stock from exercise of
warrants at $3.00 per share 596 178,354 - - - 178,950
Issuance of 326,838 shares of
Common Stock from exercise of
warrants in exchange for Common
Stock at prices ranging from
$5.25 to $6.10 per share 3,269 (3,269) - - - -
Compensation related to options
granted - 30,235 - - - 30,235
Net loss for the year ended
December 31, 1993 - - - - (17,937,930) (17,937,930)
-------- ------------ --------- --------- ------------- ------------
Balances at December 31, 1993 256,151 91,899,957 (763,125) - (35,797,886) 55,595,097
Issuance of 6,425,000 shares of
Common Stock at $3.625 per
share, net of issuance costs
of $500,072 64,250 22,726,303 - - - 22,790,553
Vesting of 15,000 shares of
restricted Common Stock - - 277,500 - - 277,500
Issuance of 12,998 shares of Common
Stock from exercise of options at
prices ranging from $3.00 to
$8.00 per share 129 43,550 - - - 43,679
Compensation related to options
granted - 30,235 - - - 30,235
Net unrealized loss on investment
securities available for sale - - - (968,920) - (968,920)
Net loss for the year ended
December 31, 1994 - - - - (22,748,200) (22,748,200)
-------- ------------ --------- --------- ------------- ------------
Balances at December 31, 1994 320,530 114,700,045 (485,625) (968,920) (58,546,086) 55,019,944
Issuance costs related to sale of
Common Stock in 1994 - (56,567) - - - (56,567)
Vesting of 15,000 shares of
restricted Common Stock - - 277,500 - - 277,500
Issuance of 166,019 shares of
Common Stock from exercise of
options at prices ranging from
$4.00 to $7.625 per share 1,660 504,145 - - - 505,805
Issuance of 5,250 shares of Common
Stock from exercise of warrants
at $3.00 per share 53 15,480 - - - 15,533
Issuance of 9,225 shares of Common
Stock from exercise of warrants
in exchange for Common Stock at
prices ranging from $4.95 to
$5.13 per share 92 (92) - - - -
Net unrealized gain on investment
securities available for sale - - - 898,733 - 898,733
Net loss for the year ended
December 31, 1995 - - - - (23,368,590) (23,368,590)
-------- ------------ --------- --------- ------------- ------------
Balances at December 31, 1995 322,335 115,163,011 (208,125) (70,187) (81,914,676) 33,292,358
Issuance of 6,900,000 shares of
Common Stock at $7.625 per
share, net of issuance costs
of $3,506,485 69,000 49,037,015 - - - 49,106,015
Vesting of 11,250 shares of
restricted Common Stock - - 208,125 - - 208,125
Issuance of 284,145 shares of
Common Stock from exercise of
options at prices ranging from
$3.00 to $8.00 per share 2,841 1,073,029 - - - 1,075,870
Net unrealized gain on investment
securities available for sale - - - 80,477 - 80,477
Net loss for the year ended
December 31, 1996 - - - - (28,495,564) (28,495,564)
-------- ------------ --------- --------- ------------- ------------
Balances at December 31, 1996 394,176 165,273,055 - 10,290 (110,410,240) 55,267,281
Issuance of 219,868 shares of
Common Stock from exercise of
options at prices ranging from
$3.00 to $8.609 per share 2,199 835,333 - - - 837,532
Value of warrants issued to Limited
Partners of ICOS Clinical
Partners, L.P. - 3,249,835 - - - 3,249,835
Net unrealized loss on investment
securities available for sale - - - (12,628) - (12,628)
Net loss for the nine months ended
September 30, 1997 - - - - (6,090,587) (6,090,587)
-------- ------------ --------- --------- ------------- ------------
Balances at September 30, 1997 $396,376 $169,358,222 $ - ($2,338) ($116,500,827) $ 53,251,433
======== ============ ========= ========= ============= ============
</TABLE>
FORM 10-Q See accompanying notes to financial statements. Page 4
<PAGE>
ICOS CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Period from
September 21,
1989
Nine Months Ended (incorporation)
September 30, through
------------------------------ September 30,
1997 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (6,090,587) $(20,549,994) $(116,500,827)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,903,029 2,439,382 16,900,540
Amortization of deferred rent - - (475,000)
Amortization of investment premiums/discounts 497,764 75,260 1,180,460
Loss (gain) on sale of investment securities (14,283) 19,359 (1,387,189)
Amortization of restricted stock - 208,125 1,387,500
Compensation related to stock options granted - - 103,304
Common Stock issued in payment of research and development costs - - 1,110,000
Change in operating assets and liabilities:
Deferred research and development revenue - (500,000) -
Interest receivable (75,847) (381,468) (225,251)
Receivables under collaborative arrangements (6,367,414) - (6,367,414)
Nontrade receivables (59,136) (4,186) (152,105)
Prepaid expenses 252,227 282,004 (347,525)
Accounts payable 472,694 (1,104,674) 1,656,317
Accrued payroll, benefits and other expenses 86,905 (312,550) 1,841,178
------------ ------------ -------------
Net cash used in operating activities (8,394,648) (19,828,742) (101,276,012)
------------ ------------ -------------
Cash flows from investing activities:
Purchases of investment securities (26,397,496) (31,402,797) (437,067,086)
Maturities of investment securities 25,971,520 5,000,000 118,879,295
Sales of investment securities 19,827,209 4,967,351 298,777,705
Acquisitions of property and equipment (4,230,900) (3,253,494) (30,266,116)
Loan receivable from related party (7,340,750) - (7,340,750)
(Increase) decrease in other assets (203,889) 113,647 (269,207)
------------ ------------ -------------
Net cash provided by (used in) investing activities 7,625,694 (24,575,293) (57,286,159)
------------ ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of Common Stock - 49,072,833 159,691,609
Proceeds from exercise of options and warrants 837,532 998,789 3,315,459
Recognition of value of warrants issued 2,399,760 - 2,399,760
Principal payments on obligations under capital lease - (44,633) (3,589,201)
Proceeds from note payable to stockholders - - 900,000
Deferred rent payment received - - 475,000
Common Stock retired - - (3,110)
------------ ------------ -------------
Net cash provided by financing activities 3,237,292 50,026,989 163,189,517
------------ ------------ -------------
Net increase in cash and cash equivalents 2,468,338 5,622,954 4,627,346
Cash and cash equivalents at beginning of period 2,159,008 4,256,366 -
------------ ------------ -------------
Cash and cash equivalents at end of period $ 4,627,346 $ 9,879,320 $ 4,627,346
============ ============ =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ - $ 364 $ 959,102
Supplemental disclosure of noncash financing and investing activities:
Assets acquired under capital lease obligations - - 3,589,201
Acquisition of property and equipment financed through
accounts payable 961,301 - 961,301
Exercise of stock options funded by retirement of previously
issued Common Stock - - 2,397,132
Receivable related to recognition of value of warrants issued 850,075 - 850,075
Common stock issued in payment of note payable to stockholders - - 900,000
============ ============ =============
</TABLE>
Form 10-Q See accompanying notes to financial statements. Page 5
<PAGE>
ICOS CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 (Unaudited) and December 31, 1996
1. Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
The information contained herein has been prepared in accordance with
instructions for Form 10-Q. In the opinion of management of ICOS Corporation
("ICOS" or the "Company"), the information reflects all adjustments necessary to
make the results of operations for the interim period a fair statement of such
operations. All such adjustments are of a normal recurring nature. Interim
results are not necessarily indicative of results for a full year. For a
presentation including all disclosures required by generally accepted accounting
principles, these financial statements should be read in conjunction with the
audited financial statements for the year ended December 31, 1996, included in
the Company's Annual Report on Form 10-K.
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, ICOS Development Corporation. All significant
intercompany transactions and balances have been eliminated.
2. Research and Development Arrangements
-------------------------------------
Suncos
The Company owns a 50% interest in Suncos Corporation ("Suncos"), a
corporation formed for the development and commercialization of rPAF-AH.
Pursuant to the terms of agreements entered into with Suncos, the Company
conducts certain research and development activities on behalf of Suncos and is
paid for such services at a negotiated rate. For the three months and nine
months ended September 30, 1997, the Company recognized research and development
revenue of $3.1 million and $7.9 million, respectively. In forming Suncos, the
Company granted a license for the rPAF-AH technology to Suncos, and Suntory
Limited of Japan made an initial capital contribution of $30 million. Both
parties have committed to jointly fund all development activities
Form 10-Q Page 6
<PAGE>
and expenses of Suncos once the initial capital contribution of $30 million from
Suntory has been used. At September 30, 1997, the Company's basis in Suncos was
zero.
ICOS Clinical Partners, L.P.
On August 15, 1997, ICOS Clinical Partners, L.P. (the "Partnership"), an
affiliate of the Company, completed the sale to private investors of interests
in the Partnership. Proceeds from the offering will be used by the Partnership
to fund continued development of product candidates by the Company pursuant to
the terms of a product development agreement based on three compounds: Hu23F2G,
rPAF-AH and ICM3.
The sale will result in proceeds to the Partnership of approximately
$87.5 million (including $64.1 million resulting from an initial sale that
closed in June 1997), with approximately $26.2 million paid to the Partnership
at closing and the balance to be paid in installments over a three-year period.
In connection with the final closing, the Company issued warrants to purchase an
aggregate of 2,008,600 shares of the Company's Common Stock. The warrants are
exercisable from October 1, 1998 through May 31, 2002, at an exercise price of
$10.35 per share. The exercise price represents a 25% premium over recent
market prices for the Company's Common Stock. In connection with the initial
closing on June 5, 1997, the Company issued warrants to purchase an aggregate of
5,539,800 shares of the Company's Common Stock at an exercise price of $9.13 per
share. In accordance with the Partnership Agreement, the Company will issue in
June 1999, subject to certain requirements, warrants to purchase an aggregate of
up to 7,548,400 shares of the Company's Common Stock to the holders of interests
in the Partnership. Such additional warrants, if issued, will be exercisable
from July 31, 1999 through June 30, 2004, at an exercise price to be determined
at the time of issuance of such warrants, which is expected to reflect a 25%
premium over the then-prevailing market prices for the Company's Common Stock.
For the three months ended September 30, 1997, the Company recognized
revenue of $2.9 million from the Partnership and for the nine months ended
September 30, 1997, the Company recognized revenue of $14.6 million from the
Partnership, including a one-time payment for an exclusive license to certain
technology.
The Company has loaned the Partnership an aggregate of $7.3 million to fund
certain initial expenditures of the Partnership that consist primarily of
organizational expenses, selling commissions, financial advisory fees and other
fees. The loan is full recourse to the Partnership, bears interest at the prime
rate plus one quarter of one percent (0.25%) and matures on June 1, 2000.
Form 10-Q Page 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Risks and Uncertainties
- -----------------------
This discussion contains forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected. The Company's future cash requirements and
expense levels will depend on many factors, including continued scientific
progress in its research and development programs; the results of research and
development, preclinical studies and clinical trials; acquisitions of products
or technology, if any; relationships with corporate collaborators; competing
technological and market developments; the time and costs involved in filing,
prosecuting and enforcing patent claims; the time and costs of manufacturing
scale-up and commercialization activities; and other factors. Reference is made
to the Company's Annual Report on Form 10-K for more detailed description of
such factors. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date of this report or to reflect the occurrence of
unanticipated events.
Overview
The Company is developing and commercializing proprietary pharmaceuticals
for the treatment of inflammatory diseases and other serious medical conditions
by understanding the underlying mechanisms and identifying the molecular
entities involved.
The Company's strategy is to identify therapeutic targets through an
understanding of inflammation at the molecular level. The Company is
developing pharmaceutical products that address important cellular and
molecular mechanisms in three separate, yet interrelated, areas of the
inflammatory process: directed cell movement, the inhibition of
proinflammatory mediators and intracellular signal transduction. Each of
these different mechanisms may provide broad opportunities in the treatment
of chronic diseases that have inflammatory components, such as multiple
sclerosis, and in the treatment of acute inflammatory conditions, such as
those associated with acute respiratory distress syndrome, hemorrhagic shock and
Form 10-Q Page 8
<PAGE>
myocardial infarction. In addition, the Company's other programs have yielded
additional approaches that may be useful in treating cardiovascular diseases
and cancer. The Company believes that its discoveries will allow it to develop
novel therapeutics that are more selective in their activities than existing
drugs.
Financial results for the third quarter and first nine months of 1997
reflect planned increases in operating expenses necessary for advancing multiple
product candidates through the therapeutic product development process.
Development activities include product development, process development and the
establishment and management of clinical trials. The Company expects increased
clinical, regulatory, process development and product development activites over
the remainder of the year and in future periods.
The Company has a deficit accumulated during the development stage from
September 21, 1989 (incorporation) through September 30, 1997 of $116.5 million.
The Company's results of operations may vary significantly from quarter to
quarter and will depend, among other factors, on the timing of certain expenses
and payments received from certain collaborations, joint ventures and other
business relationships, as well as the progress of the Company's own research
and development efforts, timing of clinical trials and the regulatory process.
The Company expects increased expenditures over the next several quarters as it
continues to expand the size and number of clinical trials of its product
candidates, continues to expand preclinical research and development activities
in support of additional potential products, and initiates clinical trials of
those product candidates deemed most promising.
Revenues
Revenues for the quarter ended September 30, 1997 totaled $6.5 million and
consisted of (i) $2.9 million from ICOS Clinical Partners, L.P. (the
"Partnership"), (ii) $3.1 million in cost reimbursement revenue from Suncos
Corporation ("Suncos"), the Company's joint venture with Suntory Limited of
Japan ("Suntory"), and (iii) $0.5 million received under the Company's research
and development agreement with Abbott Laboratories. Revenue for the third
quarter of 1996 totaled $0.5 million, and consisted entirely of payments
received under the Company's agreement with Abbott Laboratories.
Revenues for the nine months ended September 30, 1997 totaled $24.0 million
and consisted of (i) $14.6 million from the Partnership including a one-time
payment for an exclusive license granted by the Company to the Partnership with
respect to certain technology, (ii) $7.9 million in cost reimbursement revenues
from Suncos, and (iii) $1.5 million received under the Company's research and
development agreement with Abbott Laboratories. Revenue for the first nine
months of 1996 totaled $1.5 million, and consisted entirely of payments received
under the Company's agreement with Abbott Laboratories.
Form 10-Q Page 9
<PAGE>
Operating Expenses
Total operating expenses for the quarter ended September 30, 1997 increased
to $11.4 million from $8.3 million for the quarter ended September 30, 1996.
Total operating expenses for the first nine months of 1997 increased to $31.7
million from $23.5 million for the first nine months of 1996.
Research and development expenses for the third quarter of 1997 increased
to $10.8 million from $7.7 million for the third quarter of 1996. For the nine
months ended September 30, 1997, research and development expenses increased to
$29.8 million from $21.5 million for the nine months ended September 30, 1996.
The increase in research and development expenses was due primarily to increased
costs associated with product development efforts and the continuation and
expansion of clinical trials for Hu23F2G, rPAF-AH and ICM3.
General and administrative expenses for both the third quarter of 1997 and
1996 totaled $0.6 million. For both the first nine months of 1997 and 1996,
general and administrative expenses totaled $1.9 million.
Other Income and Expense
Other income primarily represents investment income earned on the Company's
investment securities. Investment income for the third quarter of 1997
decreased to $588,730 compared to $716,387 for the third quarter of 1996 as a
result of lower average cash and investment balances in the third quarter of
1997 compared to the third quarter of 1996. Investment income for the nine
months ended September 30, 1997 increased to $1.6 million from $1.4 million
for the nine months ended September 30, 1996 as a result of higher average
yields on the Company's investments in cash, cash equivalents and investment
securities and the recognition of interest from the Company's loan to the
Partnership.
Net Income/Loss
For the quarter ended September 30, 1997, the Company's net loss decreased
to $4.4 million or $0.11 per share from $7.1 million or $0.18 per share for the
quarter ended September 30, 1996. The net loss for the nine months ended
September 30, 1997 decreased to $6.1 million or $0.15 per share from $20.5
million or $0.57 per share for the nine months ended September 30, 1996. The
decreases in net loss are primarily the result of revenues from Suncos and the
Partnership, which were partially offset by increased operating expenses during
the same time periods.
Form 10-Q Page 10
<PAGE>
Liquidity & Capital Resources
The Company has financed its operations since inception through private and
public sales of Common Stock, investment income, revenue from research
collaborations, license payments and grants and capital lease obligations.
On August 15, 1997, the Partnership completed the sale to private investors
of interests in the Partnership. Proceeds from the offering will be used by the
Partnership to fund continued development by the Company of product candidates
based on three compounds: Hu23F2G; r-PAF-AH; and ICM3, pursuant to the terms of
a product development agreement. The product candidates were licensed by the
Partnership from the Company in connection with the sale of the Partnership
units.
The sale will result in proceeds to the Partnership of approximately
$87.5 million (including $64.1 million resulting from an initial sale that
closed in June 1997), with approximately $26.2 million paid to the Partnership
on closing and the balance to be paid in installments over a three-year period.
In connection with the offering of Partnership units, the Company issued
warrants to purchase an aggregate of 7,548,400 shares of the Company's Common
Stock.
During the third quarter of 1997, the Company loaned the Partnership $1.8
million (for an aggregate loan of $7.3 million) to fund certain initial
expenditures of the Partnership that consisted primarily of organizational
expenses, selling commissions and financial advisory and other fees. Interest
is payable on June 1, 1998, June 1, 1999 and at maturity on June 1, 2000.
At September 30, 1997, the Company had $24.5 million in cash and cash
equivalents, investment securities, and interest receivable, a decrease of $17.4
million from December 31, 1996. This decrease is primarily attributable to
increased costs associated with clinical trials for Hu23F2G, r-PAH-AH and ICM3,
increased production of materials to support these and future clinical trials,
regulatory submissions and expansion of the Company's other research and
development programs. These increased costs were partially offset by increased
revenues from Suncos and the Partnership.
In the third quarter of 1997, the Company exercised the purchase option in
one of its building leases and purchased the building for $2.8 million. For the
nine months ended September 30, 1997, the Company spent $1.4 million for the
purchase of capital equipment and leasehold improvements to support research and
development activities. In addition, the Company has incurred costs of
approximately $1.0 million for construction of additional laboratory space. The
construction of the additional laboratory space was completed in October 1997 at
an approximate cost of $1.3 million. To support its ongoing and future research
and product development efforts over the next several years, the Company will
need to purchase additional capital equipment and lease or purchase additional
laboratory and administrative facilities.
Form 10-Q Page 11
<PAGE>
The Company anticipates that its operating expenses will continue to
increase during the fourth quarter of 1997 and subsequent years as it adds the
personnel and facilities associated with advancing several potential product
candidates through development and clinical trials. Foreseeable incremental
costs may include, but are not limited to, those associated with the Company's
own product development, preclinical studies and clinical trials, patent filings
and administrative activities. The Company may also incur costs and make
capital contributions under its joint venture agreement with Suntory related to
its obligations to develop rPAF-AH. Under provisions of the development
agreement with Suncos, the Company will be reimbursed for certain of these
costs, however, there can be no assurance that all such costs will be
reimbursed. The Company may also incur costs associated with the development of
Hu23F2G, rPAF-AH and ICM3 pursuant to the terms of the Partnership Agreement.
The Company intends to use its financial resources for ongoing and future
clinical trials of certain of its current product candidates including Hu23F2G,
rPAF-AH, ICM3, and IC351, expansion of preclinical research and development
activities for additional potential product candidates and the initiation of
clinical trials for those product candidates deemed most promising, expansion
of the Company's facilities and general corporate purposes.
The Company anticipates that its existing cash, including interest income
from cash investments and payments from Abbott, Suncos and the Partnership, will
be adequate to satisfy its capital requirements through 1998.
The Company has been successful in negotiating collaborations and joint
development agreements with other parties where the work and strategies of the
other parties complement those of the Company. In some instances, these
relationships may involve commitments by the Company to fund some or all of
certain development programs. Although corporate collaborations and joint
ventures have provided cost reimbursement revenue to the Company in the past,
there can be no assurance that such funds will be available to the Company in
the future. The Company intends to expand its operations and hire the
additional personnel deemed necessary to continue development of its current
portfolio of product candidates in clinical trials, as well as continuing
discovery and preclinical research to identify additional potential drug
candidates. The Company anticipates that expansion of these activities will
increase operating expenses in future quarters. Further, incremental
expenditures will be required for additional laboratory, production and office
facilities to accommodate activities and the personnel associated with this
increased development activity. As such, the Company will need to raise
substantial additional funds to conduct its research and development activities,
preclinical studies and clinical trials necessary to bring its
Form 10-Q Page 12
<PAGE>
product candidates to market and to establish marketing capabilities if and when
a product candidate is ready for commercialization.
Additional capital resources will be required to fund the Company's
operations at least through commercialization of its first product. As such,
the Company will need to raise substantial additional capital for its
operations. There can be no assurance that additional funds will be available
as needed or on terms that are acceptable to the Company. Insufficient funding
will require the Company to delay, scale-back or eliminate some or all of its
research and development activities, planned clinical trials and administrative
programs.
The amounts and timing of operating expenditures will depend on the
progress of ongoing research and development of the Company's potential
products, as well as the activities of corporate collaborators and joint venture
partners related to collaborative research and development activities, the Food
and Drug Administration regulatory process and other factors, many of which are
beyond the Company's control.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (Statement 128).
This statement establishes standards for the computation, presentation, and
disclosure of earnings per share (EPS), replacing the presentation of currently
required Primary EPS with a presentation of Basic EPS. It also requires dual
presentation of Basic EPS and Diluted EPS on the face of the income statement
for entities with complex capital structures. Basic EPS, unlike Primary EPS,
excludes all dilution while Diluted EPS, like the current Fully Diluted EPS,
reflects the potential dilution that could occur from the exercise or conversion
of securities into Common Stock or from other contracts to issue Common Stock.
Statement 128 is effective for financial statements for periods ending after
December 15, 1997, including interim periods, and earlier application is not
permitted. When adopted, the Company will be required to restate its EPS data
for all prior periods presented. The Company does not expect the impact of the
adoption of this statement to be material to previously reported EPS amounts.
Form 10-Q Page 13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) See Exhibit Index
(b) Current Report on Form 8-K Dated August 26, 1997
Form 10-Q Page 14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ICOS CORPORATION
Date: November 14, 1997 By: /S/ GEORGE B. RATHMANN
------------------ -----------------------
George B. Rathmann
Chairman of the Board of Directors,
Chief Executive Officer and President
Date: November 14, 1997 By: /S/ HOWARD S. MENDELSOHN
------------------ ------------------------
Howard S. Mendelsohn
Chief Accounting Officer
Form 10-Q Page 15
<PAGE>
Index to Exhibits
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <S> <C>
10.1 Industrial Real Estate Lease dated January 1, 1997 between WRC
Properties, Inc. and ICOS Corporation #
10.2 Industrial Real Estate Lease dated May 20, 1997 between Benaroya
Capital Company, L.L.C. and ICOS Corporation #
10.3 Industrial Real Estate Lease Renewal and Amendment Agreement dated
August 5, 1997 between WRC Properties, Inc. and ICOS Corporation #
27.1 Financial Data Schedule #
</TABLE>
___________________________________
# Filed with this document
Form 10-Q Page 16
<PAGE>
EXHIBIT 10.1
INDUSTRIAL REAL ESTATE LEASE
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the
Lease referred to in this Article One explain and define the Basic Terms and are
to be read in conjunction with the Basic Terms.
Section 1.01. Date of Lease: December 20, 1996
Section 1.02. Landlord: WRC Properties, Inc., a Delaware corporation
Address of Landlord: 730 Third Ave. New York, New York 10017
with a copy to Koll Management Services, 4343 Von Karman Avenue, Newport Beach,
CA 92660, Facsimile: (714) 833-3755; or to such other place as Landlord may from
time to time designate by notice to Tenant (for notices, see Section 13.07)
Section 1.03. Tenant: ICOS Corporation, a Delaware corporation (for
notices, see Section 13.07)
Address of Tenant: 22021 20th Avenue S.E., Bothell, WA 98011
Section 1.04. Property: (Include street address, approximate square
footage and description)
22025 20th Avenue S.E., Bothell, WA 98021, more specifically described on
Exhibit A hereto and comprising approximately 15,985 Rentable Square Feet.
Section 1.05. Lease Term: Eighty-Five (85) months commencing on January
10, 1997 (the "Commencement Date") and ending on the eighty-fifth (85th) monthly
anniversary of the Commencement Date.
Section 1.06. Permitted Uses: (See Section 5.01) General office,
manufacturing and research and development of medical products, and others as
permitted by code.
Section 1.07. Tenant's Guarantor: [Intentionally omitted].
Section 1.08. Landlord's Representative: (See Article Fourteen) Koll
Management Services, Inc.
Section 1.09. Tenant's Broker: None
Section 1.10. Commission Payable to Landlord's Broker: Not Applicable
Section 1.11. Initial Security Deposit: [Intentionally Omitted]
Section 1.12. Vehicle Parking Spaces Allocated to Tenant: (See Multi-
Tenant Facility Lease Rider, if attached) Forty-Eight (48)
Section 1.13. Rent and Other Charges Payable by Tenant:
(a) BASE RENT: Months 1-36 - $16,624 per month; Months 37-60 - $18,063 per
month; Months 61-85 - $19,182 per month.
(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section 4.02);
(ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section 4.04);
(iv) Common Area Charges (See Section 4.05 or Multi-Tenant Facility Lease Rider,
if attached); (v) Impounds for Insurance Premiums and Property Taxes (See
Section 4.08); (vi) Maintenance, Repairs and Alterations (See Article Six).
1
<PAGE>
Section 1.14. Riders: The following Riders are attached to and made a part of
this Lease: Rider 1: Multi-Tenant Facility Lease; Rider 2: Renewal; Rider 3:
Emissions, Storage, Use and Disposal of Waste.
ARTICLE TWO: LEASE TERM
Section 2.01. Lease of Property for Lease Term. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 1.05 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
Commencement Date shall be the date specified in Section 1.05 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.02. Delay in Commencement. This Lease shall be for a term
("Lease Term") beginning on the Commencement Date and ending on the Expiration
Date, unless extended or sooner terminated in accordance with the terms of this
Lease. Tenant shall be entitled to use the Premises prior to the Commencement
Date, provided that all provisions of this Lease, other than those relating to
payment of Base Monthly Rent and Additional Rent, shall become effective upon
the date that Tenant or its officers, agents, employees or contractors is first
present on the Premises, whether for inspection, construction, installation or
other purposes.
Section 2.03. Early Occupancy. [Intentionally Omitted].
Section 2.04. Holding Over. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages incurred by Landlord
from any delay by Tenant in vacating the Property. If Tenant does not vacate
the Property upon the expiration or earlier termination of the Lease and
Landlord thereafter accepts rent from Tenant, Tenant's occupancy of the Property
shall be a "month-to-month" tenancy, subject to all of the terms of this Lease
applicable to a month-to-month tenancy, except that the Base Rent then in effect
shall be increased by fifty percent (50%).
ARTICLE THREE: BASE RENT
Section 3.01. Time and Manner of Payment. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph
1.13(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
Section 3.02. Cost of Living Increases. [Intentionally Omitted]
Section 3.03. Security Deposit Increases. [Intentionally Omitted]
Section 3.04. Termination; Advance Payments. Upon termination of this
Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation)
or any other termination not resulting from Tenant's default, and after Tenant
has vacated the Property in the manner required by this Lease, a pro rata
adjustment shall be made concerning advance rent, any other advance payments
made by Tenant to Landlord, and accrued real property taxes.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
2
<PAGE>
Section 4.01. Additional Rent. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
all Additional Rent shall be paid with the next monthly installment of Base
Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.02. Real Property Taxes.
(a) Payment of Taxes. Landlord is billed for real property taxes on the
Property. Landlord will invoice Tenant for real property taxes due and payable
on the Property during the Lease Term. If the Lease Term includes a partial tax
period, the real property taxes shall be prorated for such partial period.
Subject to Section 4.08 below, Tenant shall pay the amount of such real property
tax invoices to Landlord within fifteen (15) days after Tenant's receipt of the
invoice.
(b) Definition of Real Property Tax. "Real property tax" means: (i) any
fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment pro rata installments, penalty or tax imposed by any
taxing authority against the Property or land upon which the Property is
located; (ii) any tax on the Landlord's right to receive, or the receipt of,
rent or income from the Property or against Landlord's business of leasing the
Property; (iii) any tax or charge for fire protection, streets, sidewalks, road
maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction or based upon a
re-assessment of the Property due to a change in ownership or transfer of all or
part of Landlord's interest in the Property; and (v) any charge or fee replacing
any tax previously included within the definition of real property tax. "Real
property tax" does not, however, include Landlord's federal or state income,
franchise, inheritance or estate taxes.
(c) Joint Assessment. If the Property is not separately assessed Tenant's
share of the real property tax payable by Tenant under Paragraph 4.02(a) shall
be determined from the assessor's worksheets or other reasonably available
information. Landlord shall make a reasonable determination of Tenant's pro rata
share of such real property tax and Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the Property.
(ii) If any of Tenant's personal property is taxed with the Property,
Tenant shall pay Landlord the taxes for the personal property within fifteen
(15) days after Tenant receives a written statement from Landlord for such
personal property taxes.
(e) Tenant's Right to Contest Taxes. Tenant may attempt to have the
assessed valuation of the Property reduced or-may initiate proceedings to
contest the real property taxes. If required by law, Landlord shall join in the
proceedings brought by Tenant. However, Tenant shall pay all costs of the
proceedings, including any costs or fees incurred by Landlord. Upon the final
determination of any proceeding or contest, Tenant shall immediately pay the
real property taxes due, together with all costs, charges, interest and
penalties incidental to the proceedings. If Tenant does not pay the real
property taxes when due and contests such taxes, Tenant shall not be in default
under this Lease for nonpayment of such taxes if Tenant deposits funds with
Landlord or opens an interest-bearing account reasonably acceptable to Landlord
in the joint names of Landlord and Tenant. The amount of such deposit shall be
sufficient to pay the real property taxes plus a reasonable estimate of the
interest, costs, charges and penalties which may accrue if Tenant's action is
unsuccessful, less any applicable tax impounds previously paid by Tenant to
Landlord. The deposit shall be applied to the real property taxes due, as
determined at such proceedings. The real property taxes shall be paid under
protest from such deposit if such payment under protest is necessary to prevent
the Property from being sold under a "tax sale" or similar enforcement
proceeding.
Section 4.03. Utilities. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property,
3
<PAGE>
Landlord shall make a reasonable determination of Tenant's pro rata share of the
cost of such utilities and services and Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
Section 4.04. Insurance Premiums.
(a) Liability Insurance. During the Lease Term, Tenant shall maintain a
policy of comprehensive public liability insurance at Tenant's expense, insuring
Landlord and its management contractor against liability arising out of the
ownership, use, occupancy or maintenance of the Property. The initial amount of
such insurance shall be at least $2,500,000. However, the amount of such
insurance shall not limit Tenant's liability nor relieve Tenant of any
obligation hereunder. The policy shall contain cross-liability endorsements, if
applicable, and shall insure Tenant's performance of the indemnity provisions of
Paragraphs 5.04(a), (b) and (e). Tenant shall, at Tenant's expense, maintain
such other liability insurance as Tenant deems necessary to protect Tenant.
Tenant shall name Landlord and its management contractor as an additional
insured and provide copies upon renewal, or at least once annually.
(b) Hazard and Rental Income Insurance. During the Lease Term, Landlord
shall maintain policies of fire and extended coverage or "all risk" insurance
covering the loss of or damage to the building of which the Property is a part,
covering loss of or damage to the Property in the full amount of its replacement
value. Such policies shall provide protection against all perils included within
the classification of fire, extended coverage, vandalism, malicious mischief,
special extended perils (all risk), sprinkler leakage, earthquake sprinkler
leakage, and Inflation Guard endorsement, and any other perils (except flood and
earthquake, unless required by any lender holding a security interest in the
Property) which Landlord deems necessary. Landlord may obtain insurance coverage
for Tenant's fixtures, equipment or building improvements installed by Tenant in
or on the Property. Tenant shall, at Tenant's expense, maintain such primary or
additional insurance on its fixtures, equipment and building improvements as
Tenant deems necessary to protect its interest. During the Lease Term, Landlord
shall also maintain a rental income insurance policy at Tenant's expense, with
loss payable to Landlord in an amount equal to one year's Base Rent, estimated
real property taxes and insurance premiums. Tenant shall not do or permit to be
done anything which invalidates any such insurance policies.
(c) Payment of Premiums; Insurance Policies. Subject to Section 4.05 and
any Multi-Tenant Facility Lease Rider attached to this Lease, Tenant shall pay
all premiums for the insurance policies covering the Property described in
Paragraphs 4.04(a) and (b) within fifteen (15) days or the due period, whichever
is longer, after receipt by Tenant of a copy of the premium statement or other
evidence of the amount due. If the insurance policies maintained by Landlord
cover improvements or real property other than the Property, Landlord shall also
deliver to Tenant a statement of the amount of the premiums applicable to the
Property showing, in reasonable detail, how such amount was computed. If the
Lease Term expires before the expiration of the insurance policy period,
Tenant's liability for insurance premiums shall be prorated on an annual basis.
All insurance shall be maintained with companies holding a 'General
Policyholder's Rating" of B+ or better, as set forth in the most current issue
of "Best's Insurance Guide." Tenant shall be liable for the payment of any
deductible amount under Landlord's insurance policies.
Section 4.05. Multiple Tenant Buildings; Rules and Regulations. If the
Property is part of a larger building or group of buildings, Tenant shall pay
monthly, in advance, its pro rata share of common area maintenance and repair
costs as reasonably determined by Landlord. Tenant shall also comply with
Landlord's rules and regulations respecting the management, care and safety of
the common areas of such buildings and grounds, including parking areas,
landscaped areas, walkways, hallways and other facilities provided for the
common use and convenience of other occupants. Notice of such rules and
regulations will be posted or given to Tenant. Tenant shall pay for any
increase in the property insurance premiums for such buildings caused by
Tenant's acts, omissions, use or occupancy of the Property.
Section 4.06. Late Charges. Tenant's failure to pay rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does not receive any rent payment within ten
(10) days after it becomes due, Tenant shall pay
4
<PAGE>
Landlord a late charge equal to fifteen percent (15%) per annum compounded
daily, but in no event less than two percent (2%) of the overdue amount. The
parties agree that such late charge represents a fair and reasonable estimate of
the costs Landlord will incur by reason of such late payment.
Section 4.07. Interest on Past Due Obligations. Any amount owed by Tenant
to Landlord which is not paid within ten (10) days after it becomes due shall
bear interest at the rate of twelve percent (12%) per annum from the due date of
such amount. However, interest shall not be payable on late charges to be paid
by Tenant under this Lease. The payment of interest on such amounts shall not
excuse or cure any default by Tenant under this Lease. If the interest rate
specified in this Lease is higher than the rate permitted by law, the interest
rate is hereby decreased to the maximum legal interest rate permitted by law.
Section 4.08. Payment of Insurance Premiums and Real Property Taxes.
Tenant shall pay Landlord as Common Area Costs pursuant to Rider 1 a sum equal
to one-twelfth (1/12) of the annual real property taxes and/or insurance
premiums payable by Tenant under this Lease, provided that Landlord and Tenant
may agree in writing to semi-annual payments of taxes 30 days prior to the date
such taxes are due to the applicable governmental entity. The amount of real
property taxes and insurance premiums when unknown shall be reasonably estimated
by Landlord.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. Permitted Uses. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.
Section 5.02. Manner of Use. Tenant shall not cause or permit the Property
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
tenants of the development of which the Property is part, or which constitutes a
nuisance or waste. Tenant shall obtain and pay for all permits, required for
Tenant's occupancy of the Property and shall promptly take all substantial and
non-substantial actions necessary to comply with all applicable statutes,
ordinances, rules, regulations, orders and requirements regulating the use by
Tenant of the Property, including the Occupational Safety and Health Act.
Section 5.03. Signs and Auctions. Tenant shall not place any signs on the
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
Section 5.04. Indemnity.
(a) Indemnification. Tenant shall indemnify Landlord against and hold
Landlord harmless from any and all costs, claims or liability arising from: (a)
Tenant's use of the Property; (b) the conduct of Tenant's business or anything
else done or permitted by Tenant to be done in or about the Property; (c) any
breach or default in the performance of Tenant's obligations under this Lease;
(d) any misrepresentation or breach of warranty by Tenant under this Lease or
(e) other acts or omissions of Tenant. Tenant shall defend Landlord against any
such cost, claim or liability at Tenant's expense with counsel reasonably
acceptable to Landlord, or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs incurred by Landlord in connection with any
such claim. As a material part of the consideration to Landlord, Tenant hereby
assumes all risk of damage to property or injury to persons in or about the
Property arising from any cause, and Tenant hereby waives all claims in respect
thereof against Landlord, except for any claim for actual damage to person or
property (excluding claims for consequential damages such as lost profits)
arising out of Landlord's negligence or willful misconduct. Tenant agrees that
the foregoing indemnity specifically covers actions brought by its own
employees. This indemnity with respect to acts or omissions during the term of
this Lease shall survive termination or expiration of this Lease. The foregoing
indemnity is specifically and expressly intended to, constitute a waiver of
Tenant's immunity under Washington's Industrial Insurance Act, RCW Title 51, to
the extent necessary to provide Landlord with a full and complete indemnity from
claims made by Tenant and its employees, to the extent of their negligence.
Tenant shall promptly notify Landlord of casualties or accidents occurring in or
about the Property. LANDLORD AND TENANT
5
<PAGE>
ACKNOWLEDGE THAT THE INDEMNIFICATION PROVISIONS OF THIS SECTION WERE
SPECIFICALLY NEGOTIATED AND AGREED UPON BY THEM.
(b) Modification of Indemnities. In compliance with RCW 4.24.115 as in
effect on the date of this Lease, all provisions of this Lease pursuant to which
Landlord or Tenant (the 'Indemnitor") agrees to indemnify the other (the
'Indemnitee') against liability for damages arising out of bodily injury to
Persons or damage to property relative to the construction, alteration, repair,
addition to, subtraction from, improvement to, or maintenance of, any building,
road, or other structure, project, development, or improvement attached to real
estate, including the Property and the Project, (i) shall not apply to damages
caused by or resulting from the sole negligence of the Indemnitee, its agents or
employees, and (ii) to the extent caused by or resulting from the concurrent
negligence of (a) the Indemnitee or the Indemnitee's agents or employees, and
(b) the Indemnitor or the Indemnitor's agents or employees, shall apply only to
the extent of the Indemnitor's negligence; PROVIDED, HOWEVER, the limitations on
indemnity set forth in this Section shall automatically and without further act
by either Landlord or Tenant be deemed amended so as to remove any of the
restrictions contained in this Section no longer required by then applicable
law.
Section 5.05. Landlord's Access. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties, or for any other purpose Landlord deems
necessary. Landlord shall give Tenant prior notice of such entry, except in the
case of an emergency. Landlord may place customary "For Sale" or "For Lease"
signs on the Property. Tenant shall provide Landlord with Tenant's Emergency
Procedure Manual as adopted by Tenant from time to time. In all instances,
including in cases of emergency, Landlord shall use reasonable best efforts to
comply with the Emergency Procedure Manual in entering any area designated by
Tenant as "restricted" for health or safety reasons.
Section 5.06. Quiet Possession. If Tenant pays the rent and complies with
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. Existing Conditions. Except as set forth in any rider
requiring Landlord to perform work on the Property prior to the Commencement
Date, Tenant accepts the Property in its condition as of the execution of the
Lease, subject to all recorded matters, laws, ordinances, and governmental
regulations and orders. Tenant acknowledges that neither Landlord nor any agent
of Landlord has made any representation as to the condition of the Property or
the suitability of the Property for Tenant's intended use.
Section 6.02. Exemption of Landlord from Liability. Landlord shall not be
liable for any damage or injury to the person, business (or any loss of income
therefrom), goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from: (a) fire, steam,
electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures or any other cause; (c) conditions arising in or about the
Property or upon other portions of any building of which the Property is a part
or from other sources or places; or (d) any act or omission of any other tenant
of any building of which the Property is a part. Landlord shall not be liable
for any such damage or injury even though the cause of or the means of repairing
such damage or injury are not accessible to Tenant. The provisions of this
Section 6.02 shall not, however, exempt Landlord from liability for actual
damage to person or property (excluding claims for consequential damages such as
lost profits) arising out of Landlord's negligence or willful misconduct.
Section 6.03. Tenant's Obligations.
(a) Tenant shall keep the Property (including all structural,
nonstructural, interior, exterior, and landscaped areas, portions, systems and
equipment) in good order, condition and repair during the Lease Term. Tenant
shall promptly replace any portion of the Property or system or equipment in the
Property
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which cannot be fully repaired, regardless of whether the benefit of such
replacement extends beyond the Lease Term. Tenant shall also maintain a
preventive maintenance contract providing for the regular inspection and
maintenance of the heating and air conditioning system by a licensed heating and
air conditioning contractor. However, in the event of Tenant's default, Landlord
shall have the right, upon written notice to Tenant, to undertake the
responsibility for preventive maintenance of the heating and air conditioning
system, at Tenant's expense. Any extraordinary repairs of structural components
would be negotiated in good faith between both parties. It is the intention of
Landlord and Tenant that, at all times during the Lease Term, Tenant shall
maintain the Property in an attractive, first-class and fully operative
condition.
(b) All of Tenant's obligations to maintain and repair shall be
accomplished at Tenant's sole expense. If Tenant fails to maintain and repair
the Property, Landlord may, on ten (10) days' prior notice (except that no
notice shall be required in case of emergency) enter the Property and perform
such repair and maintenance on behalf of Tenant. In such case, Tenant shall
reimburse Landlord for all costs so incurred immediately upon demand.
Section 6.04. Landlord's Obligations. Subject to the provisions of
Article Seven (Damage or Destruction) and Article Eight (Condemnation), Landlord
shall have absolutely no responsibility to repair, maintain or replace any
portion of the Property at any time. Tenant waives the benefit of any present or
future law which might give Tenant the right to repair the Property at
Landlord's expense or to terminate the Lease due to the condition of the
Property.
Section 6.05. Alterations, Additions and Improvements.
(a) Tenant shall not make any alterations, additions or improvements to
the Property without Landlord's prior written consent, except for non-structural
alterations which do not exceed Twenty Five Thousand Dollars ($25,000) per
project in cost cumulatively over the Lease Term and which are not visible from
the outside of any building of which the Property is part. Landlord may require
Tenant to provide demolition and/or lien and completion bonds in form and amount
satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, or improvements constructed in violation of this Paragraph 6.05(a)
upon Landlord's written request. All alterations, additions, and improvements
will be accomplished in a good and workmanlike manner, in conformity with all
applicable laws and regulations, and by a contractor approved by Landlord. Upon
completion of any such work, Tenant shall provide Landlord with 'as built'
plans, copies of all construction contracts, and proof of payment for all labor
and materials, as may be reasonably available.
(b) Tenant shall pay when due all claims for labor and material furnished
to the Property. Tenant shall give Landlord at least ten (10) days' prior
written notice of the commencement of any work on the Property. Landlord may
elect to record and post notices of non-responsibility on the Property.
Section 6.06. Condition upon Termination. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear, fire or other
casualty that Tenant was not otherwise obligated to remedy under any provision
of this Lease and damage resulting from condemnation. However, Tenant shall not
be obligated to repair any damage which Landlord is required to repair under
Article Seven (Damage or Destruction). Prior to making any alteration, addition
or improvement costing more than $1,000, Tenant shall notify Landlord of
Tenant's intent to take such action and, within ten (10) business days following
such notification (or, if Landlord's consent is required pursuant to Section
6.05(a), then on or before the date such consent is given), Landlord may notify
Tenant that such action is permitted only subject to Tenant's agreement to
remove such addition, alteration or improvement prior to termination of the
Lease and to restore the Property to its prior condition, all at Tenant's
expense. All alterations, additions and improvements which Landlord has not
required Tenant to remove shall become Landlord's property and shall be
surrendered to Landlord upon the termination of the Lease, except that Tenant
may remove any of Tenant's trade fixtures, machinery and equipment not paid for
by Landlord. The term 'Tenant's trade fixtures, machinery and equipment' shall
include but not be limited to casework (including shelves, gas valve outlets and
mounted electrical raceway), deionized water system (including tanks, filters
pumps and UV light), emergency generator and switch gear, gas safety control
system and fume hoods (free-standing and mounted), and integrated audio visual
system.
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Tenant shall repair, at Tenant's expense, any damage to the Property caused by
the removal of any such machinery or equipment. In no event, however, shall
Tenant remove any of the following materials or equipment without Landlord's
prior written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. Partial Damage to Property. Tenant shall notify Landlord in
writing immediately upon the occurrence of any damage to the Property. If the
Property is damaged and (i) it can, in Landlord's reasonable estimation, be
restored within twelve (12) months after the date of damage (including both
restoration of core and shell and restoration of any Tenant Improvements that
are Tenant's responsibility under this Article Seven) and (ii) the damage is
covered by the insurance policies that Landlord maintains or is required to
maintain under Paragraph 4.04(b), then: (i) Landlord shall restore the office
and warehouse portions of the Property to the then-existing building standard
finish levels (as that term is used in the leasing industry) for office and
warehouse space in WRC Canyon Park Business Center buildings, and restore the
laboratory space to core finish ready for tenant improvements, with utility stub
outs comparable to those existing prior to the damage; and (ii) to the extent
Tenant's insurance plus its deductible is insufficient to restore Tenant's
improvements, furniture, fixtures and equipment, then Landlord shall restore
Tenant's improvements, furniture, fixtures and equipment to the extent of
insurance proceeds received by Landlord specifically for damage to such
improvements, furniture, fixtures and equipment under insurance maintained by
Landlord pursuant to Section 4.04(b). Tenant shall be solely responsible for
restoring any damage to Tenant's improvements, furniture fixtures, and
equipment, including any upgrades to building standard and laboratory
improvements, to the extent they are not restored by Landlord under this Article
Seven. In all cases in which Landlord is restoring the Property under this
Article Seven, if the damage was due to an act or omission of Tenant, Tenant
shall pay the difference between the actual cost of repair and any insurance
proceeds received by Landlord. If the damage to the Property is such as to
require Landlord otherwise to restore the Property, but occurs at such time as
to leave, in Landlord's reasonable estimation, less than twelve (12) months
remaining in the Lease Term following completion of all restoration, Landlord
may elect to terminate this Lease as of the date the damage occurred. In such
event, Landlord shall not be obligated to repair or restore the Property.
Landlord shall notify Tenant of its election within thirty (30) days after
receipt of notice of the occurrence of the damage, and Tenant shall have fifteen
(15) days after such notification to exercise any rights Tenant may have to
Renewal Options under this Lease so as to remove this ground for termination of
the Lease (in which event, the termination shall be deemed rescinded).
Section 7.02. Total or Substantial Destruction. If the Property is damaged
and (i) it can not, in Landlord's reasonable estimation, be restored within
twelve (12) months after the date of damage (including both restoration of core
and shell and restoration of any Tenant Improvements that are Tenant's
responsibility under this Article Seven), or (ii) the damage is not within the
types of damage covered by the insurance policies that Landlord maintains or is
required to maintain under Paragraph 4.04(b), then Landlord may elect either to
restore or to terminate this Lease as of the date the destruction occurred.
Landlord shall notify Tenant of such election within thirty (30) days after the
occurrence of total or substantial destruction. If Landlord elects to terminate
this Lease pursuant to this Section 7.02, Tenant may elect to continue this
Lease in full force and effect, in which case Tenant shall repair any damage to
the Property and any building in which the Property is located. Tenant shall pay
the cost of such repairs, except that, upon satisfactory completion of such
repairs, Landlord shall deliver to Tenant any insurance proceeds received by
Landlord for the damage repaired by Tenant. Tenant shall give Landlord written
notice of such election within thirty (30) days after receiving Landlord's
termination notice.
Section 7.03. Temporary Reduction of Rent. If fifty percent (50%) or more
of the Property are so damaged as to become unusable and cannot, in Landlord's
reasonable estimation, be repaired within six (6) months of the date Landlord is
notified of the damage (which estimate of restoration time shall be given by
Landlord to Tenant within thirty (30) days of Tenant notifying Landlord of the
damage), then Tenant may terminate this Lease on thirty (30) days notice to
Landlord. If the Property is destroyed or damaged and Landlord or Tenant repairs
or restores the Property pursuant to the provisions of this Article Seven, any
rent
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payable during the period of such damage, repair and/or restoration shall be
reduced according to the proportion of the Building that is unusable for its
intended purpose. However, the reduction shall not exceed the sum of one year's
payment of Base Rent, insurance premiums and real property taxes. Except for
such possible reduction in Base Rent, insurance premiums and real property
taxes, Tenant shall not be entitled to any compensation, reduction, or
reimbursement from Landlord as a result of any damage, destruction, repair, or
restoration of or to the Property.
Section 7.04. Waiver. Tenant waives the protection of any statute, code
or judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial destruction of the leased property. Tenant agrees that
the provisions of Article Seven above shall govern the rights and obligations of
Landlord and Tenant in the event of any substantial or total destruction to the
Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
takes possession). If neither Landlord nor Tenant terminates this Lease, this
Lease shall remain in effect as to the portion of the Property not taken, except
that the Base Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or beneficiary
under a deed of trust encumbering the Property, the amount of its interest in
the Property; (b) second, to Tenant, only the amount of any award specifically
designated for loss of or damage to Tenant Improvements paid for by Tenant or
Tenant's trade fixtures or removable personal property; and (c) third, to
Landlord, the remainder of such award, whether as compensation for reduction in
the value of the leasehold, the taking of the fee, or otherwise. If this Lease
is not terminated, Landlord shall repair any damage to the Property caused by
the Condemnation, except that Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. Landlord's Consent Required. No portion of the Property or
of Tenant's interest in this Lease may be acquired by any other person or
entity, (a "Transferee") whether by assignment, mortgage, sublease, transfer,
operation of law, or act of Tenant, without Landlord's prior written consent,
except as provided in Section 9.02 below. Landlord shall grant or withhold its
consent as provided in Section 9.04 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of this Lease.
If Tenant is a partnership, any cumulative transfer of more than 20% of the
partnership interests shall require Landlord's consent.
Section 9.02. Tenant Affiliate. Tenant may assign this Lease or sublease
the Property, without Landlord's consent, to any corporation or other entity
which controls, is controlled by or is under common control with Tenant, or to
any corporation or other entity resulting from the merger of or consolidation
with Tenant or to any corporation or entity controlled by any of the foregoing
(collectively "Tenant's Affiliate"). In such case, any Tenant's Affiliate shall
assume in writing all of Tenant's obligations under this Lease. As used herein,
"controlled by" means owned 51% or more by the controlling entity.
Section 9.03. No Release of Tenant. No transfer permitted by this Article
Nine, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other
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person is not a waiver of any provision of this Article Nine. Consent to one
transfer is not a consent to any subsequent transfer. If Tenant's transferee
defaults under this Lease, Landlord may proceed directly against Tenant without
pursuing remedies against the transferee. Landlord may consent to subsequent
assignments or modifications of this Lease by Tenant's transferee, without
notifying Tenant or obtaining its consent. Such action shall not relieve
Tenant's liability under this Lease.
Section 9.04. Landlord's Election. Tenant's request for consent to any
transfer described in Section 9.01 above shall be accompanied by a written
statement setting forth the details of the proposed transfer, including the
name, business, business history and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g., the term of and
rent and security deposit payable under any assignment or sublease), and any
other information Landlord deems relevant. Landlord shall have the right (a) to
withhold consent, or (b) to grant consent. Tenant recognizes and acknowledges
Landlord's paramount interest in adhering to its standards for quality, type and
financial and business stability of tenants. Landlord's consent pursuant to this
Section 9.04 may be withheld if, in Landlord's reasonable discretion, the
proposed transferee fails to meet Landlord's standards for quality, type, and
financial and business stability of tenants for space of this size and quality.
Landlord's election hereunder shall not be unreasonably delayed. If Landlord
refuses consent to a transfer requested by Tenant, and Tenant wishes to contest
such refusal, the issue shall be decided before a single arbitrator of the
American Arbitration Association under the Expedited Rules for Arbitration then
in effect. The non-prevailing party shall pay the arbitrator's fee and the
prevailing party shall recover its attorneys' fees and costs as part of the
award.
Section 9.05. No Merger. No merger shall result from Tenant's sublease of
the Property under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord thereunder.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. Covenants and Conditions. Tenant's performance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.02. Defaults. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Property and fails to reoccupy within five (5)
days of notice from Landlord, or if Tenant's vacation of the Property results in
the cancellation of any insurance described in Section 4.04;
(b) If Tenant fails to pay rent or any other charge required to be paid by
Tenant, as and when due; provided that Landlord shall not exercise any of its
rights under this Article Ten until Landlord has given Tenant notice of such
default and Tenant has failed to pay such rent or other charge within ten (10)
days of the effective date of such notice;
(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from
Landlord; provided that if more than thirty (30) days are required to complete
such performance, Tenant shall not be in default if Tenant commences such
performance within the thirty (30) day period and thereafter diligently pursues
its completion. However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of this Lease. The
notice required by this Paragraph is intended to satisfy any and all notice
requirements imposed by law on Landlord and is not in addition to any such
requirement .
(d) (i) If Tenant makes a general assignment or general arrangement for
the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or
for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease
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and possession is not restored to Tenant within thirty (30) days; or (iv) if
substantially all of Tenant's assets located at the Property or of Tenant's
interest in this Lease is subjected to attachment, execution or other judicial
seizure which is not discharged within thirty (30) days. If a court of competent
jurisdiction determines that any of the acts described in this subparagraph (d)
is not a default under this Lease, and a trustee is appointed to take possession
(or if Tenant remains a debtor in possession) and such trustee or Tenant
transfers Tenant's interest hereunder, then Landlord shall receive, as
Additional Rent, the difference between the rent (or any other consideration)
paid in connection with such assignment or sublease and the rent payable by
Tenant hereunder.
Section 10.03. Remedies. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including (i) the worth at the time of the award of the unpaid
Base Rent, Additional Rent and other charges which had been earned at the time
of the termination; (ii) the worth at the time of the award of the amount by
which the unpaid Base Rent, Additional Rent and other charges which would have
been earned after termination until the time of the award exceeds the amount of
such rental loss that Tenant proves could have been reasonably avoided; (iii)
the worth at the time of the award of the amount by which the unpaid Base Rent,
Additional Rent and other charges which would have been paid for the balance of
the term after the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; and (iv) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under the Lease or which in the
ordinary course of things would be likely to result therefrom, including, but
not limited to, any costs or expenses incurred by Landlord in maintaining or
preserving the Property after such default, the cost of recovering possession of
the Property, expenses of reletting, including necessary renovation or
alteration of the Property, Landlord's reasonable attorneys' fees incurred in
connection therewith, and any real estate commission paid or payable. As used in
subparts and (ii) above, the "worth at the time of the award" is computed by
allowing interest on unpaid amounts at the rate of fifteen percent (15%) per
annum, or such lesser amount as may then be the maximum lawful rate. As used in
subpart (iii) above, the "worth at the time of the award" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of the award, plus 1%. If Tenant shall have abandoned the
Property, Landlord shall have the option of (i) retaking possession of the
Property and recovering from Tenant the amount specified in this Paragraph
10.03(a), or (ii) proceeding under Paragraph 10.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant shall have abandoned the Property. in
such event, Landlord shall be entitled to enforce all of Landlord'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 Landlord under
the laws or Judicial decisions of the state in which the Property is located.
Section 10.04. Cumulative Remedies. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. Subordination. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded, provided, however, that the ground lessor under such
ground lease or the beneficiary or mortgagee under such deed of trust or
mortgage shall enter into a non-disturbance agreement with Tenant in
commercially reasonable form acknowledging that Tenant's rights under this Lease
shall not be interfered
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with or disturbed, and that Tenant's leasehold estate shall not be foreclosed,
so long as Tenant is not in default under the terms of this Lease after the
expiration of any applicable grace period. If any ground lessor, beneficiary or
mortgagee elects to have this Lease prior to the lien of its ground lease, deed
of trust or mortgage and gives written notice thereof to Tenant, this Lease
shall be deemed prior to such ground lease, deed of trust or mortgage whether
this Lease is dated prior or subsequent to the date of said ground lease, deed
of trust or mortgage or the date of recording thereof.
Section 11.02. Attornment. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.03. Signing of Documents. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. Such subordination and attornment
documents may contain such provisions as are customarily required by any ground
lessor, beneficiary under a deed of trust or mortgagee.
Section 11.04. Estoppel Certificates.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been cancelled
or terminated; (iii) that the last date of payment of the Base Rent and other
charges and the time period covered by such payment; (iv) that Landlord is not
in default under this Lease (or, if Landlord is claimed to be in default,
stating why); and (v) such other matters as may be reasonably required by
Landlord or the holder of a mortgage, deed of trust or lien to which the
Property is or becomes subject and which relate to the status of this Lease
and/or claims of Tenant against Landlord. Tenant shall deliver such statement to
Landlord within twenty (20) days after Landlord's request. Any such statement by
Tenant may be given by Landlord to any prospective purchaser or encumbrancer of
the Property. Such purchaser or encumbrancer may rely conclusively upon such
statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such
twenty (20) day period, Landlord, and any prospective purchaser or encumbrancer,
may conclusively presume and rely upon the following facts: (i) that the terms
and provisions of this Lease have not been changed except as otherwise
represented by Landlord; (ii) that this Lease has not been cancelled or
terminated except as otherwise represented by Landlord; (iii) that not more than
one month's Base Rent or other charges have been paid in advance; and (iv) that
Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts. In any event, none of the
Tenant's rights under this Lease shall be affected.
Section 11.05. Tenant's Financial Condition. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as are normally produced by Tenant and as are reasonably required by
Landlord to verify the net worth of Tenant, or any assignee, subtenant, or
guarantor of Tenant. In addition, Tenant shall deliver to any lender designated
by Landlord any financial statements required by such lender to facilitate the
financing or refinancing of the Property. Tenant represents and warrants to
Landlord that each such financial statement is a true and accurate statement as
of the date of such statement. All financial statements shall be confidential
and shall be used only for the purposes set forth herein.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. Legal Proceedings. If either party breaches this Lease or
defaults in its obligations to the other, it shall reimburse the other, upon
demand, for any costs or expenses incurred by the non-breaching party in
connection with any breach or default under this Lease, whether or not suit is
commenced or
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judgment entered. Such costs shall include legal fees and costs incurred for the
negotiation of a settlement, enforcement of rights or otherwise. Furthermore, if
any action for breach of or to enforce the provisions of this Lease is
commenced, the court in such action shall award to the party in whose favor a
judgment is entered, a reasonable sum as attorneys' fees and costs. Such
attorneys' fees and costs shall be paid by the losing party in such action. Each
party (the "Indemnitor") shall also indemnify the other party (the "Indemnitee")
against all costs, expenses, demands and liabilities incurred by the Indemnitee
in defense of any action or claim arising out of the actions of the Indemnitor
and not caused in whole or in part by the wrongful actions or inactions of the
Indemnitee.
Section 12.02. Landlord's Consent. Tenant shall pay Landlord's reasonable
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article Nine (not to exceed $2,000.00) (Assignment and
Subletting), or in connection with any other act which Tenant proposes to do and
which requires Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. Non-Discrimination. Tenant promises, and it is a condition
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. Waiver of Subrogation. Landlord and Tenant each hereby
waive and release any and all rights of recovery against the other, or against
the officers, employees, agents or representatives of the other, for loss of or
damage to its property or the property of others under its control, if such loss
or damage is covered by any insurance policy in force (whether or not described
in this Lease) or required to be maintained under this Lease at the time of such
loss or damage. Upon obtaining the policies of insurance described herein,
Landlord and Tenant shall give notice to the insurance carrier or carriers of
the foregoing mutual waiver of subrogation.
Section 13.03. Landlord's Liability; Certain Duties.
(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is obligated
to perform the obligations of Landlord under this Lease only during the time
such Landlord owns such interest or title. Any Landlord who transfers its title
or interest is relieved of all liability with respect to the obligations of
Landlord under this Lease to be performed on or after the date of transfer to a
successor who assumes the obligations of Landlord under this Lease. However,
each Landlord shall deliver to its transferee all funds previously paid by
Tenant if such funds have not yet been applied under the terms of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to perform
any of its obligations under this Lease to Landlord and to any ground lessor,
mortgagee or beneficiary under any deed of trust encumbering the Property whose
name and address have been furnished to Tenant in writing. Landlord shall not be
in default under this Lease unless Landlord (or such ground lessor, mortgagee or
beneficiary) fails to cure such non-performance within thirty (30) days after
receipt of Tenant's notice. However, if such non-performance reasonably requires
more than thirty (30) days to cure, Landlord shall not be in default if such
cure is commenced within such thirty (30) day period and thereafter diligently
pursued to completion.
(c) [Intentionally omitted]
Section 13.04. Severability. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.05. Interpretation. The captions of the Articles or Sections of
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required
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by the context of this Lease, the singular shall include the plural and the
plural shall include the singular. The masculine, feminine and neuter genders
shall each include the other. In any provision relating to the conduct, acts or
omissions of Tenant, the term "Tenant" shall include Tenant's agents, employees,
contractors, invitees, successors or others using the Property with Tenant's
expressed or implied permission.
Section 13.06. Incorporation of Prior Agreements; Modifications. This
Lease is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.07. Notices. Any demand, request or notice which either party
hereto desires or may be required to make or deliver to the other shall be in
writing and shall be deemed delivered when personally delivered, or when
delivered by private courier service (such as Federal Express), when received by
facsimile at the facsimile number shown below, or three (3) days after being
deposited in the United States mail, in registered or certified form, return
receipt requested, addressed as follows:
To Landlord: WRC Properties, Inc.
730 - Third Avenue
New York, NY 10017
Attn: Mr. James Garofalo
With a copy to: Koll Management Services, Inc.
22118 20th Ave. S.E. # 138
Bothell, WA 98021
Telephone: 526-0345
Facsimile: 487-2126
To Tenant: ICOS Corporation
22021 - 20th Avenue S.E.
Bothell, WA 98011
Attn: Executive V.P. for Operations
Telephone: 465-1900
Facsimile: 485-1911
or to such other address and person as either party may communicate to the other
by like written notice.
Section 13.08. Waivers. All waivers must be in writing and signed by the
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.09. No Recordation. Tenant shall not record this Lease without
prior written consent from Landlord.
Section 13.10. Binding Effect; Choice of Law. This Lease binds any party
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.11. Corporate Authority; Partnership Authority. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. If requested by Landlord, then ninety (90) days after this Lease
is signed, Tenant shall deliver to Landlord evidence of such authority
reasonably acceptable to Landlord. If Tenant is a partnership, each person
signing this Lease for Tenant represents and warrants that he is a general
partner of
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the partnership, that he has full authority to sign for the partnership and that
this Lease binds the partnership and all general partners of the partnership.
Tenant shall give written notice to Landlord of any general partner's withdrawal
or addition. within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a copy of Tenant's recorded statement of partnership or
certificate of limited partnership.
Section 13.12. Joint and Several Liability. All parties signing this
Lease as Tenant shall be jointly and severally liable for all obligations of
Tenant.
Section 13.13. Force Majeure. If Landlord or Tenant cannot perform any of
its non-monetary obligations due to events beyond that party's control, the time
provided for performing such obligations shall be extended by a period of time
equal to the duration of such events. Events beyond Landlord's or Tenant's
control include, but are not limited to, acts of God, war, civil commotion,
labor disputes, strikes, fire, flood or other casualty, shortages of labor or
material, government regulation or restriction and weather conditions.
Section 13.14. Execution of Lease. This Lease may be executed in
counterparts, and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. The delivery of this Lease by
Landlord to Tenant shall not be deemed to be an offer and shall not be binding
upon either party until executed and delivered by both parties.
ARTICLE FOURTEEN: BROKERS
Section 14.01. Tenant represents and warrants to Landlord that the
representatives/brokers named in Section 1.08 above are the only agents,
brokers, finders or other parties with whom Tenant has dealt who are or may be
entitled to any commission or fee with respect to this Lease or the Property.
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialed all Riders which
are attached to or incorporated by reference in this Lease.
ARTICLE FIFTEEN: TENANT IMPROVEMENT ALLOWANCE
Landlord shall make up to Twenty Thousand Dollars ($20,000) (the "Tenant
Improvement Allowance") available to Tenant to reimburse Tenant for actual out-
of-pocket costs paid to third parties for designing and constructing tenant
improvements to the Premises pursuant to plans reasonably approved by Landlord
and otherwise subject to the provisions of Section 14. Landlord shall pay the
Tenant Improvement Allowance within thirty (30) days of invoice submitted after
the improvements have been inspected and accepted by Tenant (less minor punch
list items). The Tenant Improvement Allowance shall be available on a one-time
basis for improvements constructed concurrently with Tenant's initial occupancy
of the Premises.
Signed on February 6 , 1997.
------------- --
"LANDLORD"
WRC PROPERTIES, INC.,
a Delaware corporation
By: /S/ James Garofalo
--------------------------
Its: Assistant Secretary
-------------------------
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Signed on January 7 , 1997 .
-------------------- --
"TENANT"
ICOS Corporation, a Washington
corporation
By: Gary Wilcox
---------------------------
Its: Executive Vice President/Operations
--------------------------
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
I certify that I know or have satisfactory evidence that the person
appearing before me and making this acknowledgement is the person whose true
signature appears on this document.
On this day of 1996 before me personally appeared James Garofalo to be
----
known to be the Assistant Secretary of WRC Properties, Inc., the corporation
that executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of such party for the uses
and purposes mentioned in the instrument.
Dated this 6 day of February , 1997 .
------- ----------------------- -----
/S/ N. Denise Spoering
--------------------------------
(Signature)
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<PAGE>
N. Denise Spoering
-----------------------------------
(Print Name)
Notary Public, in and for the State
of Washington, residing at
--------
My Commission Expires 07/31/98
----------
STATE OF )
) ss.
COUNTY OF Snohomish )
I certify that I know or have satisfactory evidence that the person appearing
before me and making this acknowledgement is the person whose true signature
appears on this document.
On this 7th day of Jan. 1997 before me personally appeared Gary Wilcox to
---- -----------
be known to be the Executive Vice President/Operations of ICOS Corporation
----------------------------------- ----------------
the corporation that executed the within and foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed
of such party for the uses and purposes mentioned in the instrument.
Dated this 7th day of January , 1997 .
------- ----------------------- -----
/S/ Rene J. Gipson
-----------------------------------
(Signature)
Rene J. Gipson
-----------------------------------
(Print Name)
Notary Public, in and for the State
of Washington, residing at Bothell
-------
My Commission Expires 10/19/00
-------------
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RIDER 1: MULTI-TENANT FACILITY LEASE RIDER
This Rider is attached to and made part of that certain lease dated between
WRC Properties, Inc., a Delaware corporation, as Landlord, and ICOS Corporation,
a Delaware corporation, as Tenant, covering the Property commonly known as
22025 - 20th Ave. S.E., Bothell, WA (the "Lease"). The terms used in this Rider
shall have the same definitions as set forth in the Lease. The provisions of
this Rider shall prevail over any inconsistent or conflicting provisions of the
Lease .
A. Amendment to Section 1.04 of the Lease.
The following is hereby added at the end of Section 1.04 of the Lease:
"The Property is part of a multi-tenant industrial/commercial real property
development of Landlord described in an exhibit attached hereto and
incorporated herein by this reference (the "Project") and consisting of
approximately 93,295 Rentable Square Feet. The Project includes the land,
the buildings and all other improvements located thereon, and the common
areas described in Paragraph 4.05(a) below.
B. Amendment to Section 4.05 of the Lease.
Section 4.05 of the Lease is hereby deleted and the following is inserted
in its place:
"4.05 Common Areas; Use, Maintenance and Costs."
(a) Common Areas. As used in this Lease, 'Common Areas" shall mean all
areas within the Project which are available for the common use of tenants of
the Project and which are not leased or held for the exclusive use of Tenant or
other tenants, including, but not limited to, parking areas, driveways,
sidewalks, loading areas, access roads, corridors, landscaping and planted
areas. Landlord may from time to time change the size, location, nature and use
of any of the Common Areas, including converting Common Areas into leasable
areas, constructing additional parking facilities (including parking structures)
in the Common Areas, and increasing or decreasing Common Area land and/or
facilities. Tenant acknowledges that such activities may result in occasional
inconvenience to Tenant from time to time. Such activities and changes shall be
expressly permitted if they do not materially affect Tenant's use of the
Property.
(b) Use of Common Areas. Tenant shall have the nonexclusive right (in
common with other tenants and all others to whom Landlord has granted or may
grant such rights) to use the Common Areas for the purposes intended, subject to
such reasonable rules and regulations as Landlord may establish from time to
time. Tenant shall abide by such rules and regulations and shall use its best
efforts to cause others who use the Common Areas with Tenant's expressed or
implied permission to abide by Landlord's rules and regulations. At any time,
Landlord may close any Common Areas to perform any acts in and to the Common
Areas as, in Landlord's judgment, may be desirable to improve the Project.
Tenant shall not, at any time, interfere with the rights of Landlord, other
tenants or any other person entitled to use the Common Areas.
(c) Specific Provision re: Vehicle Parking. Tenant shall be entitled
to use the vehicle parking spaces in the Project allocated to Tenant in Section
1.12 of the Lease without paying any additional rent. Tenant's parking shall be
limited to vehicles no larger than standard size automobiles or pickup utility
vehicles. Tenant shall not cause large trucks or other large vehicles to be
parked within the Project or on the adjacent public streets. Temporary parking
of large delivery vehicles in the Project may be permitted by the rules and
regulations established by Landlord. Vehicles shall be parked only in striped
parking spaces and not in driveways, loading areas or other locations not
specifically designated for parking. If Tenant parks more vehicles in the
parking area than the number set forth in Section 1.12 of the Lease, such
conduct shall be a breach of the Lease and Tenant shall pay a reasonable daily
charge for such additional vehicle.
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(d) Maintenance of Common Areas. Landlord shall maintain the Common
Areas in good order, condition and repair and shall operate the Project, in
Landlord's sole discretion, as a first class industrial/commercial real property
development. Tenant shall pay Tenant's pro rata share (as defined below) of all
costs incurred by Landlord for the operation and maintenance of the Common
Areas. Common Area costs include, but are not limited to, costs and expenses for
the following: professional management fees paid to property managers not to
exceed a competitive rate (Koll Management Services, Inc. currently charges 2.3%
of gross rents plus an allocated portion of Koll's office overhead); gardening
and landscaping; utilities, water and sewage charges; maintenance of signs
(other than Tenant's signs); premiums for liability, property damage, fire and
other types of casualty insurance on the Common Areas and worker's compensation
insurance; all real property taxes and assessments levied on or attributable to
the Common Areas and all Common Areas improvements; all personal property taxes
levied on or attributable to personal property used in connection with the
Common Areas; straight line depreciation on personal property owned by Landlord
which is consumed in the operation or maintenance of the Common Areas; rental or
lease payments paid by Landlord for rented or leased personal property used in
the operation or maintenance of the Common Areas; fees for required licenses and
permits; repairing, resurfacing, repaving, maintaining, painting, lighting,
cleaning, refuse removal, security and similar items; reserves for roof
replacement and exterior painting and other appropriate reserves; and the common
area charges assessed by the Canyon Park Business Center Owner's Association.
Landlord may cause any or all of such services to be provided by third parties.
Common area costs shall not include depreciation or real property which forms
part of the Common Areas. Landlord may, at Landlord's election, estimate in
advance and charge to Tenant monthly as Common Area costs, all real property
taxes for which Tenant is liable under Paragraph 4.02 of the Lease, all
insurance premiums for which Tenant is liable under Paragraph 4.04 of the Lease,
and all maintenance and repair costs for which Tenant is liable under Section
6.03 of the Lease.
(e) Tenant's Share and Payment. Tenant shall pay Tenant's annual pro
rata share of all estimated Common Area costs, in advance, in monthly
installments on the first day of each month during the Lease Term (pro rated for
any fractional month). Tenant's pro rata share shall be calculated by dividing
the square foot area of the Property, as set forth in Section 1.04 of the Lease,
by the aggregate square foot area of the Project which is leased or held for
lease for the exclusive use by Tenants upon the date the computation is made.
When Tenant takes possession of the Property, and at the commencement of each
subsequent calendar year, Landlord shall estimate Tenant's Share of Common Area
Costs. Landlord may adjust such estimates at any time and from time to time
based upon Landlord's experience and reasonable anticipation of costs. If
Landlord anticipates that year-end Common Area costs will exceed estimated costs
by 5% or greater, Landlord shall make a mid-year adjustment of Common Area
charges within a reasonable period of time after determining that such increased
charges will be incurred. Such adjustments shall be effective as of the next
rent payment date after notice to Tenant. Within ninety (90) days after the end
of each calendar year of the Lease Term, Landlord shall deliver to Tenant a
statement prepared in accordance with generally accepted accounting principles
setting forth, in reasonable detail, the actual Common Area costs paid or
incurred by Landlord during the preceding calendar year and Tenant's pro rata
share. Upon request, Landlord shall provide Tenant with reasonable supporting
documentation showing payment of Common Area costs. Upon receipt of such
statement, there shall be an adjustment between Landlord and Tenant with payment
to or credit given by Landlord (as the case may be) (with refund to Tenant if
applicable for adjustments after the end of the Lease Term) so that Landlord
shall receive the entire amount of Tenant's share of such costs and expenses for
such period. Any changes in the Common Area costs and/or the aggregate area
leased or held for lease for the exclusive use of all tenants of the Project
during the Lease Term shall be effective on the first day of the month after
such change occurs.
(f) Notwithstanding anything to the contrary in this Rider 1, so long
as Tenant and any subtenant(s) of Tenant that may be approved by Landlord is or
are the sole occupants of both buildings comprising the Project, then (i) Tenant
shall be entitled to restrict entry into the interior Common Areas of the
buildings by the public and (ii) Tenant shall be entitled to take over routine
maintenance of the interior Common Areas from Landlord. In such case, Tenant
shall maintain the interior Common Areas to the same extent as Landlord would
have otherwise have been obligated to maintain them and Tenant shall insure the
interior Common Areas as though they were part of the Property. Landlord shall
remain obligated to conduct any capital repairs or replacement of the interior
Common Areas. In the event Tenant assumes control over the routine maintenance
of the interior Common Areas, Tenant's Base Rent shall not be increased, and
Tenant's share of Common Area Costs shall be computed to reflect the costs that
Landlord no longer incurs with
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<PAGE>
respect to those areas. Landlord agrees that the provisions of this Subsection
(f) shall be applicable on a building-by-building basis within the Project (i.e.
to either building if Tenant occupies all of that building) if, but only if, the
control and accounting provisions of this Subsection (f) would not thereby
result in Landlord receiving less than full reimbursement for the Common Area
Costs properly chargeable to the Project (i.e. if separately allocating Common
Area Costs on one building would not result in Landlord's underrecovery of
Common Area Costs from Tenant's co-tenant in the other building). Landlord shall
use commercially reasonable efforts to allow application of this Subsection (f)
on a building-by-building basis.
(g) The Project consists of approximately 93,259 Rentable Square Feet.
Some Common Area Costs may be incurred by Landlord based on a larger parcel
(which is usually the Canyon Park Business Center), as in the case of insurance
and management fees. In such cases, the Common Area Costs incurred based on the
larger parcel shall be allocated between the Project and the larger parcel based
on the ratio that the rentable square feet of the Project bears to the rentable
square feet in the larger parcel, provided only that Landlord may specially
allocate individual expenses between the Project and the larger parcel where and
in the manner necessary, in Landlord's reasonable discretion, to accurately
reflect the actual consumption of the expense or service.
C. Amendment to Article Six of Lease
Sections 6.03 and 6.04 of the Lease are hereby deleted and the following
inserted in their place:
"Section 6.03 Landlord's Obligations.
(a) Except as provided in Article Seven (Damage and Destruction) and
Article Eight (Condemnation), Landlord shall keep the following in good order,
condition and repair: the foundations, except where altered by Tenant; exterior
walls and roof of the Property, except where penetrated by Tenant's equipment.
Landlord shall review the condition of the roof annually to determine whether in
Landlord's reasonable discretion a roof replacement reserve should be
established. However, Landlord shall not be obliged to maintain or repair
windows, doors, plate glass or the interior surfaces of exterior walls. Landlord
shall have no obligation to make repairs under this Section 6.03 until a
reasonable time after receipt of written notice from Tenant for the need for
such repairs.
(b) If the Lease to which this Rider is attached is an SIR NET LEASE
or any other form of net lease, Tenant shall pay or reimburse Landlord for all
costs incurred by Landlord under Section 6.03(a) above.
Section 6.04 Tenant's Obligations.
(a) Except as provided in Section 6.03, Article Seven (Damage or
Destruction) and Article Eight (Condemnation), Tenant shall keep all portions of
the Property (including structural (see paragraph 6.03), nonstructural,
interior, exterior and landscaped areas, portions, systems and equipment) in
good order, condition and repair. If any portion of the Property or any system
or equipment in the Property which Tenant is obligated to repair cannot be fully
repaired, Tenant shall promptly replace such portion of or system or equipment
in the Property, regardless of whether the benefit of such replacement extends
beyond the Lease Term. Tenant shall maintain a preventative maintenance contract
providing for the regular inspection and maintenance of the heating and air
conditioning system by a licensed heating and air conditioning contractor,
unless such equipment is maintained by Landlord pursuant to Section 6.03 above.
Except as provided in Sections 4.04 and 13.02, if any part of the Property or
the Project is damaged by any act or omission of Tenant, Tenant shall pay
Landlord the cost of repairing or replacing such damaged property, whether or
not Landlord would otherwise be obligated to pay the cost of maintaining or
repairing such property. It is the intention of Landlord and Tenant that, at all
times during the Lease Term, Tenant shall maintain the portions of the Property,
which it is obligated to maintain, in an attractive, first-class and fully
operating condition.
(b) All of Tenant's obligations under this Section 6.04 shall be
accomplished at Tenant's sole expense. If Tenant fails to maintain or repair the
Property as required by this Section 6.04, Landlord may, upon ten (10) days'
prior notice to Tenant (except that no notice shall be required in the case of
an
20
<PAGE>
emergency), enter the Property and perform such maintenance or repair on behalf
of Tenant. In such case, Tenant shall reimburse Landlord for all costs incurred
in performing such maintenance or repair immediately upon demand.
Attach site plan of Project as an exhibit. Cross-hatch the Property leased
on such exhibit or attach a separate exhibit showing the Property leased.
21
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RIDER 2: OPTION TO RENEW/RIGHT OF FIRST
OPPORTUNITY
This Rider is attached to and made part of that certain lease dated between
WRC Properties, Inc., a Delaware corporation, as Landlord, and ICOS Corporation,
a Delaware corporation, as Tenant, covering the Property commonly known as
22025 - 20th Ave. S.E., Bothell, WA (the "Lease"). The terms used in this Rider
shall have the same definitions as set forth in the Lease. The provisions of
this Rider shall prevail over any inconsistent or conflicting provisions of the
Lease.
OPTION TO RENEW
Tenant is granted the right to extend the term of this Lease beyond the
expiration date of the initial term for one (1) successive term of forty-eight
(48) months (the "Extension Term"). Tenant may not exercise its Extension
Rights if it is then in default beyond any applicable cure period or if it has
ever been in default beyond any applicable cure period more than two (2) times
in any twelve (12) month period. Tenant may exercise its Extension Right by
delivering written notice thereof to Landlord not later than twelve (12) months
prior to the expiration of the initial term. In the Extended Term, all terms
and conditions of this Lease shall apply except (i) the Base Monthly Rent for
the first twenty-four (24) months of the Extended Term ninety-five percent (95%)
of the then prevailing market rate for a similar lease and term for similarly
situated and improved space in the Bothell-Woodinville High-Tech Industrial
Market (the market rent being referred to herein as the "Fair Market Rent" and
the 95% adjusted number being referred to herein as the "Extension Term Adjusted
Rent"), provided that in no event shall the Extension Term Adjusted Rent be less
than the Base Monthly Rent for the last month of immediately preceding term, and
(ii) at the beginning of the twenty-fifth (25th) month of the Extended Term,
Base Rent for the balance of the Extended Term shall be adjusted based upon the
increase in the Consumer Price Index, all Urban Consumers, for the
Seattle/Tacoma SMSA, published by the United States Department of Labor, Bureau
of Labor Statistics ("Index") which is in effect on the first day of the
Extended Term ("Beginning Index"). The corresponding index ("Extension Index")
which is in effect on the first day of the twenty-fifty (25th) month of the
Extended Term shall be used as a comparison in determining the amount of the
Base Rent Increase. In calculating the CPI increase, the Base Monthly Rent
shall be increased to equal the product achieved by multiplying the Base Monthly
Rent due with respect to that first paying month of the initial term by a
fraction, the numerator of which is the Extension Index and the denominator of
which is the Beginning Index. If the method of computing the Index is changed
from that in effect when the Beginning Index was established, then the Beginning
Index and all Extension Indexes shall be converted in accordance with the
conversion factor published by the United States Department of Labor, Bureau of
Labor Statistics. If during the Term, the Index is (a) discontinued or (b)
revised without such a Conversion Factor being so published, such other
government index or computation with which it is replaced shall be used in order
to obtain substantially the same result as would be obtained if the Index had
not been discontinued or revised.
Extension Rights shall apply to all of the Property then under lease to
Tenant. Tenant's Extension Right is personal and may not be exercised by any
assignee or sublessee other than an affiliate of Tenant or a successor by merger
or consolidation.
If Landlord and Tenant are not able to agree on the Fair Market Rent
component of the Extension Term Adjusted Rent within thirty days after Tenant's
notice of election to renew, then such Fair Market Rent shall be determined by
arbitration (which shall be governed by applicable state law on arbitrations) as
follows. Landlord and Tenant shall each select an appraiser with at least ten
years experience in the office/high-tech industrial market in the eastside area.
If the two appraisers are unable to agree within ten days after their selection,
they shall select a similarly qualified third appraiser (the "Neutral
Appraiser"). If the three appraisers are unable to agree unanimously on Fair
Market Rent within fourteen (14) days after appointment of the Neutral
Appraiser, the issue shall be resolved by the three appraisers in accordance
with the following procedure. The appraiser selected by each of the parties
shall state in writing his determination of the Fair Market Rent supported by
the reasons therefor with counterpart copies to each party. The appraisers shall
arrange for a simultaneous exchange of such proposed resolutions. The role of
the Neutral Appraiser shall be to select which of the two proposed resolutions
most closely approximates his determination of Fair Market Rent. The Neutral
Appraiser shall have no right to propose a middle ground or any modification of
either of the two proposed resolutions. The resolution he chooses as most
closely
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<PAGE>
approximating his determination shall constitute the decision of the appraisers
and be final and binding upon the parties. Each party shall bear the cost of its
own appraiser, and the non-prevailing party shall pay the costs of the Neutral
Appraiser.
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RIDER NO. 3
EMISSIONS, STORAGE, USE AND
DISPOSAL OF WASTE
1. Compliance With Law
Notwithstanding any other provision in this Lease to the contrary, Tenant
shall comply with all applicable laws, statutes, ordinances, regulations, rules
and other governmental requirements in complying with its obligations under this
Lease, and in particular, those relating to the storage, use and disposal of
hazardous or toxic matter ("Environmental Laws").
2. Emissions
Tenant shall not violate any Environmental Law concerning emissions.
Specifically, but not by way of limitation, Tenant shall not:
(a) Violate any Environmental Law regarding vehicle emissions;
(b) Discharge, emit or permit to be discharged or emitted, in
violation of any Environmental Law, any liquid, solid or gaseous matter, or any
combination thereof, into the atmosphere, the ground or any body of water;
(c) Produce, or permit to be produced, in violation of any
Environmental Law, any intense glare, light or heat;
(d) Create, or permit to be created, in violation of any Environmental
Law, any sound pressure level which will interfere with the quiet enjoyment of
any real property outside the Property, or which will create a nuisance or
violate any governmental law, rule, regulation or requirement;
(e) Create, or permit to be created, in violation of any Environmental
Law, any ground vibration that is discernible outside the Property; or
(f) Transmit, receive or permit to be transmitted or received, in
violation of any Environmental Law, any electromagnetic, microwave or other
radiation.
3. Storage and Use
3.1 Storage
Subject to the uses permitted and prohibited to Tenant under this
Lease, Tenant shall comply with all Environmental Laws concerning storage of
hazardous or toxic substances or wastes. Specifically, but not by way of
limitation, where required by Environmental Laws, Tenant shall store in
appropriate leak-proof containers all solid, liquid or gaseous matter, or any
combination thereof, which matter, if discharged or emitted into the atmosphere,
the ground or any body of water, does or may violate any Environmental Law.
3.2 Use
In addition, Tenant shall not use, store or permit to remain on the
Property any solid, liquid or gaseous matter which is, or may become,
radioactive except in compliance with Environmental Laws.
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4. Disposal of Waste
4.1 Refuse Disposal
Tenant shall not keep any trash, garbage, waste or other refuse on the
Property except in sanitary containers and shall regularly and frequently remove
same from the Property. Tenant shall keep all incinerators, containers or other
equipment used for storage or disposal of such materials in a clean and sanitary
condition.
4.2 Sewage Disposal
Tenant shall properly dispose of all sanitary sewage and shall not use
the sewage disposal system (a) for the disposal of anything except sanitary
sewage or (b) for disposal of materials in excess of the lesser of the amount
(i) reasonably contemplated by the uses permitted under this Lease or (ii)
permitted by any governmental entity. Tenant shall keep the sewage disposal
system free of all obstructions and in good operating condition.
4.3 Disposal of Other Waste
Tenant shall properly dispose of all other waste or other matter
delivered to, stored upon, located upon or within, used on or removed from the
Property in compliance with Environmental Laws.
5. Information
Upon request, but no more frequently than quarterly, Tenant shall provide
Landlord with copies of all reports regarding hazardous or toxic materials in
the Property that Tenant has provided to any governmental agency in the previous
quarter. In the event of any accident, spill or other incident involving
hazardous or toxic matter that Tenant is required to report to any governmental
agency, Tenant shall report the same to Landlord as promptly as is practicable
under the circumstances and supply Landlord with copies of all information and
reports provided to any governmental agency. All information described herein
shall be provided to Landlord regardless of any claim by Tenant that it is
confidential or privileged, provided that Landlord shall not publish or disclose
the information to any third party.
6. Indemnification
Tenant shall defend, indemnify and hold Landlord harmless from any loss,
claim, liability or expense, including attorneys' fees and costs, arising out of
or in connection with its failure to observe or comply with the provisions of
this Lease.
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EXHIBIT 10.2
INDUSTRIAL LEASE
THIS LEASE AGREEMENT made this 20th day of May, 1997, by and BETWEEN BENAROYA
CAPITAL COMPANY, L.L.C., a Washington limited liability corporation (the
"Lessor") and ICOS CORPORATION (the "Lessee").
1. PREMISES. Lessor does hereby lease to Lessee those certain premises, to
wit: approximately 13,158 square feet of space in the Building located at
2222 220th Street SE in Bothell, Washington as outlined on Exhibit A
attached hereto (hereinafter called "Premises") The Building is hereafter
sometimes referred to as the "Project". In addition, the Lessee has the
right, in common with other tenants in the Project and subject to the Rules
and Regulations, to use of the Common Areas including the parking areas.
See Legal Description attached as Exhibit B which Exhibit is incorporated
herein by reference.
2. TERM. This Lease shall be for a term of Five (5) years commencing May 22,
1997 (the "Commencement Date") and terminating May 21, 2002.
3. RENT. Lessee covenants and agrees to pay Lessor at 1001 Fourth Avenue,
Suite 4700, Seattle, WA 98154, or to such other party or at such other
place as Lessor may hereafter designate, monthly rent in advance without
offset or deduction, on or before the first (1st) day of each month of the
Lease term in the amounts as follows:
Months: Base Rent:
------ ---------
1 through 36 $7,895.00 per month
37 through 60 $8,606.00 per month
4. SECURITY DEPOSIT. Lessee has deposited with Lessor on the date hereof
Eight Thousand Six Hundred and Six and No/100 dollars ($8,606.00). Said
sum shall be held by Lessor as security for the faithful performance by
Lessee of all the terms, covenants and conditions of this Lease to be kept
and performed by Lessee during the entire Term hereof. If Lessee defaults
with respect to any provision of this Lease, including, but not limited to,
the provisions relating to the payment of Minimum Rent, Percentage Rent,
Adjustments or other charges or sums due under this Lease, Lessor may (but
shall not be required to) use, apply or retain all or any part of the
security deposit for the payment of any Minimum Rent, Percentage Rent,
Adjustments or other charges or sums due under this Lease or any sum in
default, or for the payment of any amount which Lessor may spend or become
obligated to spend by reason of Lessee's default, or to compensate Lessor
for any other loss, damage, cost or expense (including attorneys' fees)
which Lessor may suffer or incur by reason of Lessee's default. If any
portion of said security deposit is so used or applied, Lessee shall,
within five (5) days after written demand therefor, deposit a certified or
cashier's check with Lessor in an amount sufficient to restore the security
deposit to its original amount and Lessee's failure to do so shall be a
default under this Lease. Lessor shall not be required to keep the
security deposit separate from its general funds and Lessee shall not be
entitled to interest on such deposit. If Lessee shall fully and faithfully
perform every provision of this Lease to be performed by it, the security
deposit or any balance thereof after deduction hereunder by Lessor shall be
returned to Lessee (or, at Lessor's option, to the last assignee of
Lessee's interest hereunder) within thirty (30) days following expiration
of the Lease Term; provided, that in the event this Lease shall be
terminated upon the default of the Lessee, the security deposit shall be
retained by Lessor and all of Lessee's interest therein shall terminate and
the security deposit will be applied against the damages suffered by Lessor
by reason of the Lessee's default. In the event of termination of Lessor's
interest in this Lease, Lessor shall transfer said deposit to Lessor's
successor in interest.
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5. USE. Lessee shall use the Premises for the purposes of office, laboratory,
process development and related support services (including light
manufacturing and storage related to the foregoing) and for no other
purposes, without prior written consent of Lessor, and shall comply with
all governmental laws, ordinances, regulations, orders and directives and
insurance requirements applicable to Lessee's use of the Premises. Lessee
shall not occupy or use or permit any portion of the Premises to be
occupied or used in such a manner or for any purpose which would increase
the cost of insurance coverage upon the Premises, the building or the
contents thereof.
6. RULES AND REGULATIONS. Lessee agrees to comply with any Rules and
Regulations attached hereto, as well as such other reasonable rules and
regulations as may from time to time be adopted by Lessor for the
management, good order and safety of common areas, the building and its
Lessee(s). Lessee shall be responsible for the compliance with such rules
and regulations by its employees, agents and invitees. Lessor's failure to
enforce any of such rules and regulations against Lessee or any other
Lessee shall not be deemed to be a waiver of same. Lessor agrees to
enforce the Rules and Regulations equitably among all tenants of the
Project.
7. MAINTENANCE. Lessee agrees by taking possession that the Premises are in
tenantable and good condition. Lessee shall at its expense and at all
times keep, maintain, repair and replace the Premises, including but not
limited to storefronts, exterior doors and windows, Lessee division walls
and mechanical, electrical, sprinkler and other utility systems, together
with connections to utility distribution systems, in good condition, repair
and order and in accordance with applicable laws, ordinances, rules,
regulations and requirements of government authorities and insurance rating
bureaus. Lessee agrees to maintain a preventative maintenance contract
providing for the regular inspection and maintenance of the heating and air
conditioning systems with a licensed mechanical contractor and containing
terms and specifications acceptable to Lessor. Lessee shall further keep
the Premises and adjoining common areas in a neat, clean, safe and sanitary
condition; protect water, drain, gas and other pipes to prevent freezing or
clogging and repair all leaks and damage caused thereby; replace all glass
and panels in windows and doors of the Premises which become cracked,
broken or damaged; and remove ice and snow from entries and common areas
immediately adjacent to the Premises. After reasonable notice from Lessee,
Lessor shall repair the roof, exterior walls (excluding storefronts, doors
and windows), foundations and common areas and facilities, if any, and the
cost thereof shall be shared as provided in Section 9 hereof.
8. UTILITIES AND FEES. Lessee agrees to pay promptly when due all charges for
light, heat, water, sewer, garbage, fire protection and other utilities and
services to the Premises, and all license fees and other governmental
charges levied on Lessee's property and the operation of Lessee's business
on the Premises. Lessor shall not be liable for any injury or damages
suffered as a result of the interruption of utilities or services by fire,
or other casualty, strike, riot, vandalism, the making of necessary repairs
or improvements, or other causes beyond Lessor's control.
9. MONTHLY OPERATING EXPENSE ADJUSTMENTS. Lessee shall pay as additional
monthly rent its prorata share of all expenses incurred by Lessor for
operation of the Project during the term or any extension hereof, as
follows:
a) Real Estate taxes and assessments, including any assessments levied by
the Owner's Association.
b) Usual and necessary costs of operation, maintenance and repair as
determined by standard accounting practice, including without
limitation, all utilities and services not metered or charged
directly to Lessee, insurance, painting, upkeep and repair of
building exterior, roofing, parking, landscaping, and all common
areas and facilities. If any portion of the Property, or any
system or equipment is replaced by Lessor, and if the useful life
of such replaced item extends beyond the term of this Lease (as
such term may be extended by the exercise of any options), the
cost of such replacement will be prorated over its useful life
and Lessee will be responsible only for that portion of the cost
which is applicable to the lease term (as extended).
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c) A Management fee equal to three percent (3%) of Lessee's monthly base
rent. Lessor shall from time to time estimate and provide notice to
Lessee of its monthly expense based upon existing costs. Such monthly
estimated amount shall be paid by Lessee on or before the first day of
each month. Lessor, annually or upon termination hereof, shall compute
Lessee's actual expenses. Any overpayment shall be applied as a
credit to Lessee against future expense payments. Any deficiency
shall be paid to Lessor by Lessee within fifteen (15) days after the
date of Lessor's statement. Lessor's records showing expenditures
made for such expenses shall be available for Lessee's inspection at
any reasonable time.
10. LESSOR'S RESERVATIONS. Lessor reserves the right without liability to
Lessee: (a) at reasonable times and upon notice that is reasonable under
the circumstances (no notice being required in cases of emergency) to
inspect the Premises, and within the last nine (9) months of the Term, to
show them to prospective Lessees, and if they are vacated, to prepare them
for re-occupancy; (b) to retain at all times and to use in appropriate
instances keys to doors within and into the Premises; (c) to make repairs,
alterations, additions or improvements, whether structural or otherwise, in
or about the building, and for such purposes to enter upon the Premises and
during the continuance of any work, to close common areas and to interrupt
or temporarily suspend building services and facilities, all without
affecting any of Lessee's obligations hereunder, so long as the Premises
are reasonably accessible; and (d) generally to perform any act relating to
the safety, protection and preservation of the Premises or building.
11. POSSESSION. If Lessor does not deliver possession of the Premises at the
Commencement Date of the term of this Lease then all rent due under this
Lease shall abate one day after possession is delivered for every four days
that possession is delayed, and Lessee may give Lessor written notice of
its intention to cancel this Lease if possession is not delivered within
ninety (90) days after receipt of such notice by Lessor. Lessor shall not
be liable for any other damages caused by failure to deliver possession of
the Premises and Lessee shall not be liable for any rent until such time as
Lessor delivers possession and for any additional period for which rent is
abated pursuant to this Section 11.. A delay of possession shall not
extend the termination date. If Lessor offers possession of the Premises
or any portion thereof prior to the Commencement Date of the term of this
Lease, and if Lessee accepts such early possession, then both parties shall
be bound by all of the covenants and terms contained herein during such
period of early possession including the payment of rent which shall be
pro-rated accordingly and for the number of days of such early possession.
Subject to the payment by Lessor to Lessee in the amount of $27,921.00 at
time of delivery of possession of the Premises, Lessee will accept the
Premises "as is" with no obligation by Lessor the repair, restore, modify,
alter, or improve the Premises.
12. ASSIGNMENT AND SUBLETTING. Lessee shall not either voluntarily or by
operation of law assign, transfer, convey or encumber this Lease or any
interest under it, or sublet to occupy or use the Premises without Lessor's
prior written consent which consent shall not be unreasonably withheld or
delayed. Among the criteria to be used by Lessor in evaluating a request
for assignment or subletting will be (i) the proposed use of the Premises;
(ii) the anticipated impact, if any, on parking; (iii) the financial
capacity of the assignee/sublessee to perform the obligations under this
Lease; (iv) the compatibility of the proposed user with the remainder of
the tenants and operation of the Building. Lessor reserves the right to
recapture the Premises or applicable portion thereof in lieu of giving its
consent by notice given to Lessee within twenty (20) days after receipt of
Lessee's written request for assignment or subletting. Such recapture
shall terminate this Lease as to the applicable space effective on the
prospective date of assignment or subletting, which shall be the last day
of a calendar month and not earlier than sixty (60) days after receipt of
Lessee's request hereunder. Lessee shall have three (3) days following
receipt of notice of Lessor's election to recapture to notify Lessor of its
withdrawal of its request to assign or sublet. In the event that Lessor
shall not elect to recapture and shall thereafter give its consent, Lessee
shall pay Lessor a reasonable fee, not to exceed Five Hundred And No/100
Dollars ($500.00) to reimburse Lessor for processing costs incurred in
connection with such consent. Lessor's consent shall not release or
discharge Lessee from future liability under this Lease and shall not waive
Lessor's right to consent to any future assignment or sublease. Any
assignment or subletting without Lessor's consent shall be void and shall,
at Lessor's option, constitute a default under this Lease. A transfer by
the present majority shareholders of ownership or control of a majority of
the voting stock of a corporate Lessee shall be deemed an assignment.
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13. ALTERATIONS. After obtaining the prior written consent of Lessor, which
shall not be unreasonably withheld or delayed, Lessee may make minor
alterations, additions and improvements in said Premises (so long as such
alterations, additions or improvements are not structural in nature and not
visible from the exterior of the Premises) at its sole cost and expense.
Lessee agrees to save Lessor harmless from any damage, loss, or expense
arising therefrom and to comply with all laws, ordinances, rules and
regulations. Upon termination of this Lease, all alterations, additions
and improvements made in, to or on the Premises (including without
limitation all electrical, lighting, plumbing, heating, air conditioning,
and communications equipment and systems, doors, windows, partitions,
drapery, carpeting, shelving, counters, and physically attached fixtures
unless excluded by written agreement annexed hereto), shall remain upon and
be surrendered as a part of the Premises; provided however, upon Lessor's
request, Lessee shall remove those additions, alterations, or improvements
as may be specified by Lessor, and repair and restore the Premises to is
original condition at Lessee's sole cost and expense prior to expiration of
the Term. Lessee may accompany its request for consent with an additional
request for a determination by Lessor of its requirements with regard to
the disposition of such improvements at the expiration of the Lease.
Lessor will respond to such request along with its response to the request
for consent.
14. LIENS. Lessee shall keep the Premises free from any liens arising out of
any work performed, materials furnished, equipment supplied, or obligations
incurred by or on behalf of Lessee. No work performed, material furnished,
equipment supplied or obligations incurred by or on behalf of Lessee shall
be deemed to be for the immediate use and benefit of Lessor so that no
mechanic's lien or other lien shall be allowed against Lessor's estate in
the premises. Lessee shall provide, at Lessee's own cost, waivers of lien
signed by any party (including the Lessee) who performs work, furnishes
materials, or supplies equipment to the Premises. For any single project,
the cost of which will exceed Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00) Lessor may require, at Lessee's sole cost and expense, a lien
release and completion bond in an amount equal to either the actual
contract price or one and one-half times the estimated cost of any
improvements, additions or alterations in the Premises which Lessee desires
to make, to insure Lessor against any liability for lien and to insure
completion of the work.
15. SIGNS. All signs or symbols placed by Lessee in the windows and doors of
the Premises, or upon any exterior part of the building, shall be subject
to Lessor's prior written approval. Prior to termination of this Lease,
Lessee will remove all signs placed by it upon the Premises, and will
repair any damages caused by such removal.
16. INSURANCE.
---------
A. Lessee shall pay for and maintain, during the entire Lease Term, the
following policies of insurance:
(i) Commercial general liability insurance, including
products, completed operations coverage and auto liability
insurance covering Lessee's operations and the Premises including
but not limited to coverage for personal injuries with limits of
not less than $2,000,000 combined single limit for death,
personal injury, and property damage, per occurrence, including
Lessor as an additional insured. Such policies shall be endorsed
to provide contractual liability insurance covering all liability
assumed by Lessee under the provisions of this Lease and a copy
of said endorsement will be delivered to Lessor prior to
commencement of the Term.
(ii) Special cause of loss or "all risk" perils property
insurance upon all building improvements and alterations on the
Premises and upon Lessee's property, including but not limited to
Fire and Extended Coverage, Vandalism and Malicious Mischief, in
the amount of one hundred percent (100%) full replacement cost,
including Lessor as an additional insured, as its interests may
appear, with a loss payable clause in favor of Lessor to the
extent of Lessor's interest in property damaged, except to the
extent proceeds are required to be paid to holders of mortgages
or trust deeds.
B. Each policy provided by Lessee shall expressly provide that it shall
not be subject to cancellation or material change without at least
thirty (30) days prior written notice to the Lessor. Lessee shall
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furnish Lessor, prior to commencement of the Term, with insurance
certificates and, upon request, copies of such policies required to be
maintained hereunder.
C. Lessor shall maintain, during the entire Lease Term, "all risk" perils
property insurance upon the building, including but not limited to
earthquake, flood, fire and extended coverage, in the amount of one
hundred percent (100%) full replacement cost.
17. INDEMNITY AGAINST LIABILITY FOR LOSS OR DAMAGE
-----------------------------------------------
A. Lessee assumes all liability for and shall indemnify, hold harmless
and defend Lessor from and against all loss, damage or expense which
the Lessor may sustain or incur, and against any and all claims,
demands, suits and actions whatsoever, including expense of
investigation and litigation, on account of injury to or death of
persons, including without limitation employees of Lessor, employees
of Lessee or its affiliated companies or on account of damage to or
destruction of property, including without limitation property owned
by and property in the care, custody or control of Lessor during the
Term, due to or arising in any manner from:
(i) The acts or negligence of Lessee or any contractor,
subcontractor, or agent of Lessee or their respective employees;
(ii) The condition, use or operation of the Premises and/or materials
or substances used by Lessee or any of its contractors,
subcontractors or agents of Lessee or by their respective
employees, regardless of whether or not furnished by Lessor under
this Lease or otherwise;
(iii) Any damage or injury to persons or property arising out of
Lessee's breach or this Lease, including, but not limited to,
obligations of Lessee under Section 7, Maintenance.
B. Lessor shall have no liability to Lessee as a result of loss or damage
to Lessee's property or for death or bodily injury caused by the acts
or omissions of other tenants in the project or by third parties
(including criminal acts).
C. It is mutually understood and agreed that the assumption of
liabilities and indemnification provided for in this Section shall
survive any termination of this Lease.
D. Lessee, its agents, trustees, officers, employees, contractors and
invitees, shall not be liable to Lessor or its agents, employees,
contractors or invitees or to any third party for any damage to person
or the Premises caused by or arising from or in connection with any
act, or negligence of Lessor. Lessor agrees to indemnify, hold
harmless and defend Lessee, its agents, trustees, officers, employees,
contractors and invitees from and against any and all liability
claims, causes of action, damages, costs and expenses (including,
without limitation, attorney's fees) arising from or in connection
with any act, or neglect of Lessor or its agents, employees,
contractors or invitees; and from any breach or default under this
Lease by Lessor.
18. DAMAGE OR DESTRUCTION. If any of the Premises, or a substantial part of
the building in which the Premises are located, shall be damaged or
destroyed by fire or other insured casualty, to the extent of more than 40%
of its replacement cost and repair of the damage can not be completed
within one hundred eighty (180) days, Lessor shall have the option either
(a) to repair or rebuild within a reasonable time utilizing the insurance
proceeds to effect such repair, or (b) not to repair or rebuild, and to
cancel this Lease on thirty (30) days notice. If Lessor fails to give
Lessee written notice of its election within thirty (30) days from the date
of damage, or if the restoration of the Premises cannot be completed within
one hundred eighty (180) days from date of notice, Lessee may cancel this
Lease at its option on thirty (30) days notice. During the period of
untenantability, rent shall abate in the same ratio as the portion of the
Premises rendered untenantable bears to the whole of the Premises; provided
that if the damage is due to the fault or neglect of Lessee, there shall be
no abatement of rent.
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If the Premises or the building in which the Premises are located shall be
damaged or destroyed by fire or other insured casualty, and repair of the
damage can be completed within one hundred eighty (180) days, Lessor shall
to repair or rebuild within a reasonable time utilizing the insurance
proceeds to effect such repair.
If a substantial part of the Premises or the building in which the Premises
are located shall be damaged or destroyed by an uninsured casualty Lessor
shall have the option either (a) to repair or rebuild within a reasonable
time, or (b) not to repair or rebuild, and to cancel this Lease on thirty
(30) days notice. In the event of cancellation by Lessor as a result of an
uninsured casualty, Lessee shall have the right, within five (5) days
following Lessor's notice of cancellation, to override such cancellation by
agreeing to repair the damage at Lessee's sole cost and expense. In such
event, the Lessee shall repair or rebuild within a reasonable time
following the damage or destruction.
19. EMINENT DOMAIN. If the whole of the Premises shall be taken by any public
authority under the power of eminent domain, or purchased by the condemnor
in lieu thereof, then the term of this Lease shall cease as of the date
possession is taken by such public authority. If only part of the Premises
shall be so taken, the Lease shall terminate only as to the portion taken,
and shall continue in full force and effect as to the remainder of said
Premises, and the monthly rent shall be reduced proportionately; provided,
however, if the remainder of the Premises cannot be made tenantable for the
purposes for which Lessee has been using the Premises or if more than
twenty-five percent (25%) of the rentable square footage of the Premises
shall be so taken, then either party, by written notice to the other,
given at least thirty (30) days prior to the date that possession must be
surrendered to the public authority, may terminate this Lease effective as
of such surrender of possession. If any part of the building other than
the Premises shall be so taken so as to render in Lessor's opinion the
termination of this Lease beneficial to the remaining portion of the
building, Lessor shall have the right within sixty (60) days of said taking
to terminate this Lease upon thirty (30) days written notice to Lessee. In
the event of any taking, whether whole or partial, Lessor shall be entitled
to all awards, settlements, or compensation which may be given for the land
and buildings. Lessee shall have no claim against Lessor for the value of
any unexpired term of this Lease.
20. INSOLVENCY. If Lessee shall be declared insolvent or bankrupt, or if
Lessee's leasehold interest herein shall be levied upon or seized under
writ of any court of law, or if a trustee, receiver or assignee be
appointed for the property of Lessee, whether under operation of State or
Federal statutes, then Lessor may, at its option, immediately, without
notice (notice being expressly waived), terminate this Lease and take
possession of said Premises, without, however, terminating Lessee's
obligations under this Lease.
21. DEFAULT AND RE-ENTRY. If Lessee fails to keep or perform any of the
covenants and agreements herein contained, then the same shall constitute a
breach hereof, and if Lessee has not remedied such breach within three (3)
days after written notice thereof from Lessor if the breach is non-payment
of rent or other charges, or within ten (10) days after written notice
thereof from Lessor in the event of the breach of any other covenant,
except that if the breach cannot reasonably be cured within such ten (10)
day period, then if Lessee fails to commence to cure within such ten (10)
day period and thereafter, diligently prosecute such cure to completion,
then Lessor may, at its option, without further notice or demand:
(a) Cure such breach for the account and at the expense of Lessee and such
expense shall be deemed additional rent due on the first of the
following month; or
(b) Re-enter the Premises, remove all persons therefrom, take possession
of the Premises and remove all personal property therein at Lessee's
risk and expense and (1) terminate this Lease, or (2) without
terminating the Lease or in any way affecting the rights and remedies
of Lessor or the obligations of Lessee, re-let the whole or any part
of the Premises as agent for Lessee, upon such terms and conditions as
Lessor may deem advisable. In either event, any moneys received from
Lessee and any deposit or other amounts held by Lessor may first be
applied by Lessor to any damages suffered by Lessor as a result of
such default, including without limitation, costs and expenses
incurred on re-entry and re-letting, any unamortized tenant
improvements and commissions, cleaning, necessary repairs, restoration
and alteration, and any commissions incurred on re-letting,
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and the balance of such amounts may be applied toward payment of other
sums due to Lessor hereunder. In the event the Premises are re-let for
Lessee's account, Lessee shall pay to Lessor monthly any deficiency;
however, Lessor shall not be required to pay any excess to Lessee.
Upon termination of this Lease or of Lessee's right to possession,
Lessor has the right to recover from Lessee: (1) The worth of the
unpaid rent that had been earned at the time of such termination; (2)
The worth of the amount of the unpaid rent that would have been earned
after the date of such termination; and (3) Any other amount,
including court, attorney and collection costs, necessary to
compensate Lessor. "The Worth," as used in Section (1) is to be
allowing interest at 18% per year. "The worth" as used for Section (2)
is to be computed by discounting the amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of termination.
The above remedies of Lessor are cumulative and in addition to any
other remedies now or hereafter allowed by law or elsewhere provided
for in this Lease. Notwithstanding anything to the contrary in this
Section 21, Lessee does not waive any right it may have to require
Lessor to mitigate its damages.
22. REMOVAL OF PROPERTY. Any property of Lessee removed by Lessor in
accordance with Section 21 above may be stored by Lessor or may be
deposited on any area adjacent to the building at the sole risk and expense
of Lessee and without any further responsibility of Lessor, and Lessor may
at its sole discretion without or after removing said property, without
obligation to do so and without notice to Lessee, sell or dispose of the
same at public or private sale for the account of Lessee, in which event
the proceeds therefrom may be applied by Lessor upon any indebtedness due
from Lessee to Lessor. Lessee waives all claims for damages that may be
caused by Lessor re-entering the Premises and removing or disposing of said
property as herein provided.
23. COSTS AND ATTORNEYS' FEES. In the event either party shall commence legal
action to enforce any provision of this Lease, the court shall award to the
prevailing party all reasonable attorneys' fees and all costs incurred in
connection therewith, including fees and costs on appeal. Any action
relating to this Lease shall be brought in the County in which the Premises
are located or, at Lessor's election, in King County, Washington.
24. SUBROGATION WAIVER. Lessor and Lessee each herewith and hereby release and
relieve the other and waive its entire right of recovery against the other
for loss or damage arising out of or incident to the perils of fire,
explosion or any other perils described in the "all risk" insurance
endorsement approved for use in the state in which the Premises are
situated which occurs in, on or about the Premises, whether due to the
negligence of either party, their agents, employees or otherwise Each
party shall obtain from its respective insurer under each insurance policy
that it maintains a waiver of all rights of subrogation which the insurer
may have against the other party for claims that are released under this
Section 24.
25. HOLDING OVER. If Lessee, with the express consent of Lessor, shall hold
over after the expiration of the term of this Lease, Lessee shall remain
bound by all the covenants and agreements herein, except that (a) the
tenancy shall be from month-to-month and (b) unless otherwise agreed, the
monthly rent to be paid by Lessee shall be determined by multiplying the
monthly rent in effect immediately preceding such expiration times 150%.
If Lessee holds possession of the Demised Premises after the expiration of
the Lease without the express written consent of Lessor, Lessee shall
remain bound by all the covenants and agreements herein, except that (a)
the tenancy shall be from month-to-month and (b) the monthly rent to be
paid by Lessee shall be determined by multiplying the monthly rent in
effect immediately preceding such expiration times 200%. Any such tenancy
may be terminated as provided by Washington State law.
26. SUBORDINATION AND ATTORNMENT; MORTGAGE PROTECTION
-------------------------------------------------
A. SUBORDINATION-NOTICE TO MORTGAGEE. At the request of Lessor, Lessee
shall promptly execute, acknowledge and deliver, all instruments which
may be required to subordinate this Lease to any existing or future
mortgages, deeds of trust and/or other security documents on or
encumbering the Premises or on the leasehold interest held by Lessor,
and to any extensions, renewals, or replacements thereof, provided
that the mortgagee or beneficiary, as the case may be, shall agree to
recognize this Lease in the event of foreclosure if Lessee is not in
material default at such time.
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B. LESSEE'S CERTIFICATE. Lessee shall at any time and from time to time
upon not less than two (2) weeks prior written notice from Lessor
execute, acknowledge and deliver to Lessor a statement in writing (a)
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 rental and other charges are paid
in advance, if any; and (b) acknowledging that there are not, to
Lessee's knowledge, any uncured defaults on the part of the Lessor or
Lessee hereunder, or specifying such defaults if any are claimed; and
(c) setting forth the date of commencement of rents and expiration of
the Lease Term hereof. Any such statement may be relied upon by any
prospective purchaser on encumbrancer of all or any portion of the
Premises of which the Premises are a part.
C. MORTGAGEE PROTECTION CLAUSE. Lessee agrees to notify any mortgagee
and/or trust deed holders, by registered mail, with a copy of any
notice of default served upon the Lessor, provided that prior to such
notice Lessee has been notified in writing (by way of Notice of
Assignment of Rents and Lease, or otherwise) of the addresses of such
mortgagees and/or trust deed holders. Lessee further agrees that if
Lessor shall have failed to cure such default, then the mortgagees
and/or trust deed holders have thirty (30) days within which to cure
such default or if such default cannot be cured within that time, then
such additional times as may be necessary if within such thirty (30)
days any mortgagee and/or trust deed holder has commenced and is
diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of foreclosure proceedings
if necessary to affect such cure), in which event this Lease shall not
be terminated if such remedies are being so diligently pursued.
27. SURRENDER OF POSSESSION. Lessee shall, prior to the termination of this
Lease or of Lessee's right to possession, remove from the Premises all
personal property which Lessee is entitled to remove and those alterations,
additions, improvements or signs which may be required by Lessor to be
removed, pursuant to Sections 13 and 15 above, and shall repair or pay for
all damage to the Premises caused by such removal. All such property
remaining and every interest of Lessee in the same shall be conclusively
presumed to have been conveyed by Lessee to Lessor under this Lease as a
bill of sale, without compensation, allowance, or credit to Lessee. Lessee
shall upon termination of this Lease or of Lessee's right of possession,
deliver all keys to Lessor and peacefully quit and surrender the Premises
without notice, neat and clean, and in as good condition as when Lessee
took possession, except for reasonable wear and tear as determined by
Lessor and except for damage by casualty or condemnation.
28. LATE PAYMENT AND INTEREST. If any amount due from Lessee is not received
in the office of Lessor on or before the tenth (10th) day following the
date upon which such amount is due and payable, a late charge of five
percent (5%) of said amount shall become immediately due and payable, which
late charge Lessor and Lessee agree represents a fair and reasonable
estimate of the processing and accounting costs that Lessor will incur by
reason of such late payment. All past due amounts owing to Lessor under
this Lease, including rent, shall be assessed interest at an annual
percentage rate of eighteen percent (18%) from the date due or date of
invoice, whichever is earlier, until paid.
29. NOTICE. Any notice required to be given by either party to the other
pursuant to the provisions of this Lease or any law, present or future,
shall be in writing, and shall be deemed to have been duly given or sent if
either delivered personally or by facsimile copy or deposited in the United
States Mail, postage prepaid, registered or certified, return receipt
requested, addressed to the Lessor at the address specified for the payment
of rent under paragraph 3 of this Lease or to Lessee at the Premises or to
such other address as either party may designate to the other in writing
from time to time:
30. NO WAIVER OR COVENANTS. Time is of the essence of this Lease. Any waiver
by either party of any breach hereof by the other shall not be considered a
waiver of any future similar or other breach.
31. ENTIRE AGREEMENT. It is expressly understood and agreed by Lessor and
Lessee that there are no promises, agreements, conditions, understandings,
inducements, warranties, or representations, oral or
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written, express or implied, between them, other than as herein set forth
and that this Lease shall not be modified in any manner except by an
instrument in writing executed by the parties.
32. BINDING ON HEIRS, SUCCESSORS AND ASSIGNS. The covenants and agreements of
this Lease shall be binding upon the heirs, executors, administrators,
successors and assigns of both parties hereto, except as hereinabove
provided.
33. LESSOR'S ASSIGNMENT. It is fully understood that Lessor shall have the
full right to assign this Lease, without any notice to Lessee, thereby
relieving Lessor from all and any liabilities; provided however, that the
assignee assumes all Lessor's responsibilities as set forth in this Lease.
34. OPTION TO EXTEND. Lessor hereby grants to Lessee two successive options to
extend this Lease for additional terms of five (5) years each commencing
on the first day after the Expiration Date of the previous term. Lessee
must exercise the option to extend, if at all, by giving Lessor written
notice of such exercise not less than seven (7) months prior to the
expiration date of the then current term. Upon the exercise of the option
to extend, the term of this Lease shall be extended through the expiration
date of the Renewal Term on the same terms and conditions as contained
herein, except that there shall be no option to extend the term of this
Lease beyond the Second Renewal Term, and the Base Monthly Rent during the
Renewal Terms shall be determined pursuant to this Section.
Base Monthly Rent for each Renewal Term shall be the greater of (a) the
Base Monthly Rent scheduled for the final month of the preceding term (the
initial term or the First Renewal Term, as the case may be), or (b) the
fair market base rental value of the Premises.
Lessor and Lessee agree to be reasonable in their negotiation of rent for
the option periods. Lessor and Lessee shall have thirty (30) days after
Lessee provides Lessor of its notice to exercise its Option to Renew to set
the rent for the option period(s). If Lessor and Lessee are unable to
establish the rent for the option period(s) within the thirty (30) day
period then Lessor and Lessee shall each appoint an appraiser with not less
than ten (10) years experience in real estate appraisal in the Bellevue
real estate market, to set the rent for the option period(s). If the rents
proposed by each appraiser are within ten (10%) percent of each other, then
the rent for the option period(s) shall be the average of the two rents.
If the rents proposed by each appraiser are greater than ten (10%) percent
from each other then the two appraisers will select a third appraiser who
shall also have at least (10) years real estate appraisal experience in the
Bellevue real estate market, to set the rent for the option period(s). The
rent established by the third appraiser will be binding on Lessor and
Lessee and will be no less than the rent proposed by Lessee and no higher
than the rent proposed by Lessor. The total cost of all of the appraiser's
fees will be the responsibility of the party whose proposed rental rate is
farthest from that of the final rental rate established by the appraisers.
35. RIGHT OF FIRST OPPORTUNITY TO LEASE: At any time during the term of this
Lease, and provided that Lessee is not in default of any provisions of this
Lease, and further subject to the specific rights of existing tenants
including the Lessee within such space, if any space within the Building
in which the Premises is located is available for lease or if the Lessor
becomes aware that any such space is to become available, Lessor will
provide Lessee with notice of such availability (the "First Opportunity
Notice"). The First Opportunity Notice will contain the following
Information:
1. The description of the specific space within the Building
2. The date on which the space will become available
3. The rental rate which Lessor is willing to accept for such
space
Within one week following receipt of the First Opportunity Notice, Lessee
will notify Lessor if it chooses to exercise it's right to lease the space
identified in the notice on the terms specified. If Lessee either waives
its right or fails to notify Lessor within one week then Lessor will be
free to lease such space to any third party.
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Notwithstanding the foregoing, if the First Opportunity Notice is given to
Lessee more than ten(10) months prior to the date on which such space will
become available, Lessee will have sixty (60) days to respond to such
notice rather than the one week period specified above.
If Lessee exercises its right to lease the identified space, the lease term
for the additional space will expire on the later to occur of: (i) the
termination date of this Lease, or (ii) three (3) years following the
commencement date of the Lease for such additional space.
36. FIRST OPPORTUNITY TO PURCHASE:
-----------------------------
36.1 GRANT OF RIGHTS. Except as expressly provided in Section 36.3 below,
in the event Lessor intends to sell or to make the Building in which the
Premises are located available for purchase to third parties, Lessor shall
give Lessee written notice of this intention and of the intended offering
sale price of the Premises (the "Price Notice"). In the event Lessee
desires to purchase the Premises at the offering sale price indicated by
Lessor, Lessee shall give to Lessor a written notice of such desire (the
"Interest Notice") within seven days of receipt of the Price Notice. If no
Interest Notice is timely given by Lessee, Lessee shall have no further
rights under this Section 36 unless Lessor decides to offer the Building
for sale at a price lower than ninety-five percent (95%) of the price set
forth in the Price Notice, in which case a new Price Notice shall be given
to Lessee and seven (7) days afforded to Lessee to give an Interest Notice
stating Lessee's desire to purchase the Premises at the new price. In the
event an Interest Notice is timely given by Lessee, then Lessor and Lessee
shall negotiate during the remainder of the 30 day period following the
giving of Lessor's Price Notice in a good faith attempt to execute a
definitive purchase and sales agreement whereby Lessor would sell to Lessee
and Lessee would purchase from Lessor the Premises at the price stated in
the Price Notice. However, neither party shall have any obligation to
execute a purchase and sale agreement not acceptable to such party, in its
sole and absolute discretion. In the event the parties fail to execute a
mutually agreeable purchase and sale agreement within the 30 day period
allowed, or in the event such a purchase and sale agreement is executed but
is subsequently terminated without consummation of the sale, Lessee shall
have no further rights under this Section 36. In no event shall Lessee have
the right to assert any right to purchase the Building once Lessor has
executed a contract for the sale of the Premises to a third party as
otherwise permitted under this Section 36, even if the price under such
contract, as the same may be amended, is less than the price stated in the
applicable Price Notice or the price at which Lessor would otherwise have
an obligation to give to Lessee a new Price Notice. It is expressly agreed
that any price set forth in a Price Notice given to Lessee, and any
transaction whereby the Building is sold to Lessee, will be on the basis
that Lessor shall pay no real estate commission on account of such sale to
any broker representing Lessee. It is further acknowledged that Lessor may
offer the Premises to third parties at a price equal to or greater than the
price set forth in the price Notice, or at any price greater than ninety-
five (95%) of the price set for in the Price Notice, subject to Lessee's
rights set forth in this Section 36.
36.2 LIMITATION OF RIGHTS. Except for any second Price Notice under
Section 36.1, (a) the notification and negotiation rights allowed to Lessee
pursuant to Section 36.1 are allowed on a "one time" basis only, and (b)
Lessor shall have no obligation to re-notify Lessee of any changes in its
sales intentions or offering price, nor to re-notify Lessee of subsequent
sales efforts if Lessor does not sell the Building following the first
Price Notice.
36.3 EXCLUSIONS. The rights of Lessee under this Section 36 are limited to
notification and negotiation in anticipation of Lessor offering the
Building to purchase by unrelated third parties. There shall be no
notification or negotiation rights of Lessee in any other case whatsoever,
including but not limited to cases of (a) a conveyance by Lessor to an
affiliated party and any conveyance in connection with a merger or other
corporate transaction, (b) a conveyance by Lessor to a lender who then
holds a lien on the Premises, (c) a conveyance in connection with a
foreclosure sale, (d) a conveyance or taking in connection with a
condemnation, (e) a conveyance which is part of a financing transaction
(for example, a sale and master lease back), (f) a conveyance by any
subsequent owner of the Building other than the Lessor originally named
herein, or (g) a sale or offering in which Lessor packages the Building
with one or more other properties owned by Lessor and/or any affiliate of
Lessor for sale as a group, on the open market or
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otherwise. No conveyance of any or all of the ownership interests within
Lessor (for example, membership interests in limited liability company)
shall be deemed a conveyance or sale of the Premises.
36.4 PERSONAL NATURE OF RIGHTS. Upon any assignment of this Lease or of
any sublease of all or a part of the Premises, (except any assignment or
sublease described in Paragraph 2 of Rider Two described below) the rights
granted to Lessee pursuant to Section 36.1 shall terminate. The rights
granted to Lessee pursuant to Section 36.1 shall also terminate upon the
termination of this Lease or of Tenant's right of possession.
37. ENVIRONMENTAL. See Rider One attached and incorporated into this Lease by
this reference.
38. OTHER. See Rider Two attached and incorporated into this Lease by this
reference.
LESSOR: LESSEE:
Benaroya Capital Company, L.L.C.
/S/ Larry R. Benaroya By: /S/ Gary Wilcox
------------------------ -----------------------
By: Larry R. Benaroya
Its: Manager Its: Executive Vice President,
Operations
Date: May 20, 1997 Date: May 20, 1997
--------------------- ----------------------
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STATE OF WASHINGTON ]
] ss.
COUNTY OF KING ]
I certify that I know or have satisfactory evidence that Larry R. Benaroya
is the person who appeared before me, a Notary Public in and for the State of
Washington duly commissioned and sworn, and acknowledged that he is the Manager
of Benaroya Capital Company, L.L.C., a Washington limited liability corporation,
who executed the within and foregoing instrument, and acknowledged the
instrument to be the free and voluntary act and deed of said company for the
uses and purposes therein mentioned, and on oath stated that affiant is
authorized to execute said instrument on behalf of said company.
IN WITNESS WHEREOF I have hereunto set my hand and affixed my official seal the
day and year first above written.
/S/ Patricia Venable
---------------------------------------------
Notary Public in and for the
State of Washington
------------------------------------
residing at Bothell
---------------------------------
Commission expires 11/04/99
--------------------------
Print Name Patricia Venable
----------------------------------
STATE OF WASHINGTON ]
] ss.
COUNTY OF Snohomish ]
-----------
I certify that I know or have satisfactory evidence that Gary Wilcox is
the person who appeared before me, a Notary Public in and for the State of
Washington duly commissioned and sworn, and acknowledged that he/she is the
Executive Vice President/Operations of ICOS Corporation, a __________________,
who executed the within and foregoing instrument, and acknowledged the
instrument to be the free and voluntary act and deed of said corporation for the
uses and purposes therein mentioned, and on oath stated that affiant is
authorized to execute said instrument on behalf of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and affixed my official seal the
day and year first above written.
/S/ Rene J. Gipson
---------------------------------------------
Notary Public in and for the
State of Washington
------------------------------------
residing at Bothell
---------------------------------
Commission expires 10/19/00
--------------------------
Print Name Rene J. Gipson
----------------------------------
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RIDER ONE
EMISSIONS; STORAGE, USE AND DISPOSAL OF WASTE
a. EMISSIONS. Lessee shall not (i) discharge, emit or permit to be
discharged or emitted, any liquid, solid or gaseous matter, or any combination
thereof, into the atmosphere, the ground or any body of water, which does or may
pollute or contaminate the same, or does or may adversely affect the health or
safety of persons, or the use or enjoyment of the Premises; nor (ii) transmit,
receive or permit to be transmitted or received, any electromagnetic, microwave
or other radiation in, on or about the Premises.
b. STORAGE. If, with or without violation of this Lease, Lessee possesses
at the Premises any matter described in Section A above or any Hazardous
Substances (as defined below), Lessee shall store the same in appropriate leak
proof containers and/or areas which comply with all laws and all prudent
practices.
c. DISPOSAL OF WASTE. Lessee shall not keep any trash, garbage, waste or
other refuse on the Premises except in sanitary containers and shall regularly
and frequently remove same from the Premises. Lessee shall keep all such
containers in a clean and sanitary condition. Lessee shall properly dispose of
all sanitary sewage and shall not use the sewage system for the disposal of
anything except sanitary sewage, nor in excess of capacity. Lessee shall not
cause any obstruction in the sewage disposal system.
d. COMPLIANCE OF LAW. Notwithstanding any other provision in the Lease to
the contrary, Lessee shall comply with all Laws in complying with its
obligations under this Lease, and in particular, Laws relating to the storage,
use and disposal of Hazardous Substances (as defined below).
e. INDEMNIFICATION FOR BREACH. Lessee shall defend, indemnify and hold
Lessor, the Project and the holder of a trust deed or mortgage on the Project
harmless from any loss, claim, liability or expense, including, without
limitation, attorneys fees and costs, at trial and/or on appeal and review,
arising out of or in connection with its failure to observe or comply with the
provisions of this Rider. This indemnity shall survive the expiration or
earlier termination of the term of the Lease or the termination of Lessee's
right of possession and be fully enforceable thereafter.
f. INDEMNIFICATION REGARDING HAZARDOUS SUBSTANCES. In addition to the
indemnity obligations contained elsewhere herein, Lessee shall indemnify, defend
and hold harmless Lessor, the Premises, the Project, and the holder of a trust
deed or mortgage on the Project, from and against all claims, losses, damages,
monitoring costs, response costs, liabilities, and other costs expenses caused
by, arising out of, or in connection with, the generation, release, handling,
storage, discharge, transportation, deposit or disposal in, on, under or about
the Premises by Lessee or any of Lessee's agents of the following (collectively
referred to as "Hazardous Substances"): hazardous materials, hazardous
substances, toxic wastes, toxic substances, pollutants, petroleum products,
underground tanks, oils, pollution, asbestos, PCB's, radioactive materials, or
contaminants, as those terms are commonly used or as defined by federal, state,
and/or local law or regulation related to protection of health or the
environment as any of same may be amended from time to time, and/or by any rules
and regulations promulgated thereunder. Such damages, costs, liability and
expenses shall include such as are claimed by any regulating and/or
administering agency, any ground lessor or master lessor of the Project, the
holder of any Mortgage or Deed of Trust on the Project, and/or any successor of
the Lessor named herein. This indemnity shall include (i) claims of third
parties, including governmental agencies, for damages, fines, penalties,
response costs, monitoring costs, injunctive or other relief; (ii) the costs,
expenses or losses resulting from any injunctive relief, including preliminary
or temporary injunctive relief; (iii) the expenses, including fees of attorneys
and experts, of report the existence of Hazardous Substances to an agency of the
State of which the Premises is located or of the United States as required by
applicable laws and regulations; and (iv) any and all expenses or obligations,
including attorney's fees, incurred at, before and after any administrational
proceeding, trial, appeal and review. This indemnity shall survive the
expiration or earlier termination of the term of the Lease or the termination of
Lessee's right of possession and shall remain fully enforceable thereafter.
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g. INFORMATION. Lessee shall give prior written notice to Lessor of any
use, whether incidental or otherwise, of Hazardous Substances on the Premises,
and shall immediately deliver to Lessor a copy of any notice of any violation of
any Law with respect to such use. Lessee shall also provide to Lessor, upon
request, with any and all information regarding Hazardous Substances in the
Premises, including contemporaneous copies of all filings and reports to
governmental entities, and any other information requested by Lessor. In the
event of any accident, spill or other incident involving Hazardous Substances,
Lessee shall immediately report the same to Lessor and supply Lessor with all
information and reports with respect to the same. All information described
herein shall be provided to Lessor regardless of any claim by Lessee that it is
confidential or privileged.
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RULES AND REGULATIONS
1. Except as specifically provided in the Lease to which these Rules and
Regulations are attached, no sign, placard, picture, advertisement, name or
notice shall be installed or displayed on any part of the outside or inside of
the Building or Project without the prior written consent of Lessor. Lessor
shall have the right to remove, at Lessee's expense and without notice, any sign
installed or displayed in violation of this rule. All approved signs or
lettering on doors and walls shall be printed, painted, affixed or inscribed at
the expense of Lessee by a person approved by Lessor.
2. If Lessor objects in writing to any curtains, blinds, shades, screens
or hanging plants or other similar objects attached to or used in connection
with any window or door of the Premises, or placed on any windowsill, which is
visible from the exterior of the Premises, Lessee shall immediately discontinue
such use. Lessee shall not place anything against or near glass partitions or
doors or windows which may appear unsightly from outside the Premises.
3. Lessee shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators or stairways of the Project. The halls, passages, exits,
entrances, elevators and stairways are not open to the general public, but are
open, subject to reasonable regulations, to Lessee's business invitees. Lessor
shall in all cases retain the right to control and prevent access thereto of all
persons whose presence in the judgment of Lessor would be prejudicial to the
safety, character, reputation and interest of the Project and its Lessees;
provided that nothing herein contained shall be construed to prevent such access
to personnel with whom any Lessee normally deals in the ordinary course of its
business, unless such persons are engaged in illegal or unlawful activities. No
Lessee and no employee or invitee of any Lessee shall go upon the roof(s) of the
Project.
4. Lessor will furnish Lessee, free of charge, with two keys to each door
lock in the Premises. Lessor may make a reasonable charge for any additional
keys. Lessee shall not make or have made additional keys, and Lessee shall not
alter any lock or install a new additional lock or bolt on any door of its
Premises. Lessee, upon the termination of its tenancy, shall deliver to Lessor
the keys of all doors which have been furnished to Lessee, and in the event of
loss of any keys so furnished, shall pay Lessor therefor.
5. If Lessee requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Lessor's instructions in their
installation.
6. No equipment, materials, furniture, packages, supplies, merchandise or
other property will be received in the Building or carried in the elevators
except between such hours and in such elevators as may be designated by Lessor.
Lessee's initial move in and subsequent deliveries of bulky items, such as
furniture, safes and similar items shall, unless otherwise agreed in writing by
Lessor, be made during the hours of 6:00 p.m. to 6:00 a.m. or on Saturday or
Sunday. Deliveries during normal office hours shall be limited to normal office
supplies and other small items. No deliveries shall be made which impede or
interfere with other Lessees or the operation of the Building.
7. Lessee 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. Lessor 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
Lessor, stand on such platforms as determined by Lessor to be necessary to
properly distribute the weight, which platforms shall be provided at Lessee's
expense. Business machines and mechanical equipment belonging to Lessee which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein shall be placed and maintained by Lessee, at
Lessee's expense, on vibration eliminators, or other devices sufficient to
eliminate noise or vibration. The persons employed to move such equipment in or
out of the Building must be acceptable to Lessor. Lessor 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 Lessee.
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<PAGE>
8. Lessee shall not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Lessee shall
not use or permit to be used in the Premises any foul or noxious gas or
substance, or permit or allow the Premises to be occupied or used in manner
offensive or objectionable to Lessor or other occupants of the building by
reason of noise, odors or vibrations, nor shall Lessee bring into or keep in or
about the Premises any birds or animals.
9. Lessee shall not use any method of heating or air conditioning other
than that supplied by Lessor.
10. Lessee shall not waste electricity, water or air conditioning and
agrees to cooperate fully with Lessor to assure the most effective operation of
the Building's heating and air conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Lessee has actual notice, and
shall refrain from attempting to adjust controls. Lessee shall keep corridor
doors closed, and shall close window coverings at the end of each business day.
11. Lessor reserves the right, exercisable without notice and without
liability to Lessee, to change the name and street address of the Building.
12. Lessor reserves the right to exclude from the Building between the
hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be
established from time to time by Lessor, and on Sundays and legal holidays, any
person unless that person is known to the person or employee in charge of the
Building and has a pass or is properly identified. Lessee shall be responsible
for all persons for whom it requests passes and shall be liable to Lessor for
all acts of such persons. Lessor shall not be liable for damages for any error
with regard to the admission to or exclusion from the Building of any person.
Lessor reserves the right to prevent access to the Building in case of invasion,
mob, riot, public excitement or other commotion by closing the doors or by other
appropriate action.
13. Lessee shall entirely shut off any water faucets or other water
apparatus, and electricity, gas or air outlets before Lessee and its employees
leave the Premises. Lessee shall be responsible for any damage or injuries
sustained by other Lessees or occupants of the Building or by Lessor for
noncompliance with this rule.
14. The toilet rooms, toilets, 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 form the
violation of this rule shall be borne by the Lessee who, or whose employees or
invitees, shall have caused it.
15. Lessee shall not sell, or permit the sale at retail of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Lessee shall not make any room-to-room
solicitation of business from other Lessees in the Project. Lessee shall not
use the Premises for any business or activity other than that specifically
provided for in Lessee's Lease. Canvassing, soliciting and distribution of
handbills or any other written material, and peddling in the Project are
prohibited, and Lessee shall cooperate to prevent such activities.
16. Lessee shall not install any radio or television antenna, loudspeaker
or other devices on the roof(s) or exterior walls of the Building or Project.
Lessee shall not interfere with radio or television broadcasting or reception
from or in the Project or elsewhere.
17. Lessee shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises or any part
thereof, except in accordance with the provisions of the Lease pertaining to
alterations. Lessor reserves the right to direct electricians as to where and
how telephone and telegraph wires are to be introduced to the Premises. Lessee
shall not cut or bore holes for wires. Lessee shall not affix any floor
covering to the floor of the Premises in any manner except as approved by
Lessor. Lessee shall repair any damage resulting from noncompliance with this
rule.
18. Lessee shall not install, maintain or operate upon the Premises any
vending machines without the written consent of Lessor.
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19. Lessor reserves the right to exclude or expel from the Project any
person who, in Lessors' judgment, is intoxicated or under the influence of
liquor or drugs or who is in violation of any of the Rules and Regulations of
the Building.
20. Lessee shall store all its trash and garbage within its Premises or in
other facilities provided by Lessor. Lessee 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. All garbage and refuse disposal
shall be made in accordance with directions issued from time to time by Lessor.
21. The Premises shall not be used for the storage of merchandise held for
sale to the general public, or for lodging or for manufacturing of any kind, nor
shall the Premises be used for any improper, immoral or objectionable purpose.
No cooking shall be done or permitted on the Premises without Lessor's consent,
except that used by Lessee of Underwriters' Laboratory approved equipment for
brewing coffee, tea, hot chocolate and similar beverages or use of microwave
ovens for employee use shall be permitted, provided that such equipment and use
is in accordance with all applicable Laws.
22. Lessee shall not use in any space or in the public halls of the
Project any hand truck except those equipped with rubber ties and side guards or
such other material-handling equipment as Lessor may approve. Lessee shall not
bring any other vehicles of any kind into the Building or Project.
23. Lessee shall comply with all safety, fire protection and evacuation
procedures and regulations established by Lessor or any governmental agency.
24. Lessee assumes any and all responsibility for protecting its Premises
from theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
25. Lessee's requirements will be attended to only upon appropriate
application to the Project management office by an authorized individual.
Employees of Lessor shall not perform any work or do anything outside of their
regular duties unless under special instructions from Lessor.
26. Lessor may waive any one or more of these Rules and Regulations for
the benefit of Lessee or any other Lessee, but no such waiver by Lessor shall be
construed as a waiver of such Rules and Regulations in favor of Lessee or any
other Lessee, nor prevent Lessor from thereafter enforcing any such Rules and
Regulations against any or all of the Lessees of the Project.
27. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease.
28. Lessor reserves the right to make such other and reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for safety and
security, for care and cleanliness of the Project and for the preservation of
good order therein. Lessee agrees to abide by all such Rules and Regulations
hereinabove stated and any additional rules and regulations which are adopted.
29. Lessee shall be responsible for the observance of all of the foregoing
rules by Lessee's employees, agents, clients, customers, invitees and guests.
30. Lessee shall comply with the "No Smoking" policy in all interior areas
of the building.
17
<PAGE>
EXHIBIT A
PREMISES
(PLEASE SEE ATTACHED)
18
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION
TRACT 11D OF THAT CERTAIN SURVEY IN THE WEST HALF OF SECTION 29, TOWNSHIP 27
NORTH, RANGE 5 EAST, W.M., RECORDED DECEMBER 3, 1995, IN VOLUME 1 OF BINDING
SITE PLANS, PAGES 49 AND 50, UNDER AUDITOR'S FILE NO. 8512035006.
19
<PAGE>
RIDER TWO
1. ADDITIONAL PROVISIONS CONCERNING OPERATING EXPENSES
Notwithstanding anything to the contrary contained in the Lease, the
following items shall be excluded (or, as applicable, deducted) from the
calculation of Lessee's share (if any) of operating costs and expenses of the
Building and/or Project:
(a) The cost of repairs or other work occasioned by fire, windstorm or
other casualty or loss in excess of the insurance proceeds therefor (or, if
greater, the proceeds that would have been available had Lessor maintained the
insurance required to be maintained by Lessor pursuant to this Lease), or by the
exercise of eminent domain;
(b) Deductibles under Lessor's insurance policies in excess of $50,000.00;
(c) Costs resulting from the correction of any latent construction defects
in all or any portion of the Building or Project, or any condition with regard
to the structure and the common areas that is, as of the date of this Lease, not
in compliance with applicable laws, codes, rules or regulations;
(d) Rental concessions or lease buyouts;
(e) The costs of renovating or otherwise improving or decorating, painting
or redecorating space (exclusive of common areas) for any lessees or other
occupants of the Building or Project, including, without limitation, Lessee;
(f) Depreciation;
(g) Payments of principal, interest or other payments of any kind on any
deeds to secure debt, mortgages, ground or underlying leases, or other
hypothecations for security of all or any part of the Building or Project by
Lessor;
(h) Rents payable in connection with any ground or underlying lease of all
or any portion of the Building or Project;
(i) Lessor's general overhead and any other expense not directly related to
the Building or Project (other than the management fee referred to in paragraph
9 (c) above);
(j) All items, services and/or goods for which Lessee or any other lessee,
occupant, person or other party is obligated to reimburse Lessor or to pay third
parties;
(k) Advertising and promotional expenses with respect to leasing space in
or selling the Building or Project;
(l) Brokerage, legal and professional fees expended by Lessor in connection
with negotiating and entering into any leases and any related instruments
(including, without limitation, guaranties, surrender agreements, leasing
amendments and consents to assignment or subletting) with any lessee or other
occupant of any portion of the Building or Project, and the enforcement of any
such instruments; or which are expended or incurred by Lessor in connection with
the negotiation and entering of sale, ground lease, financing, partnership or
similar transactions pertaining to the Building, Project, or any portion
thereof, and/or to Lessor or an interest in Lessor, including without
limitation, promissory notes, security deeds, mortgages, ground or master
leases, purchase and sale agreements, options, and any and all similar and/or
related documents, instruments and agreements;
(m) Estate, inheritance, gift, franchise and income taxes of Lessor;
(n) Wages, salaries and other compensation paid to employees of the Lessor
at the Building or Project who are at or above the level of Building Manager;
20
<PAGE>
(o) All items that would be capitalized under generally accepted accounting
principles as of the date hereof except as expressly provided in Section 9 of
this Lease;
(p) The cost of defending against claims in regard to the existence or
release of hazardous substances or materials at the Building or Project and
costs of any cleanup of any such hazardous substances or materials (except with
respect to those costs for which Lessee is otherwise responsible pursuant to the
express Terms of this Lease);
(q) Costs and expenses incurred in connection with compliance with or the
contesting or settlement of any claimed violation of law or requirements of law;
(r) Interest, penalties or damages incurred by Lessor for late payment of
taxes or assessments or under any agreement to which Lessor is a party by reason
of the breach or default of Lessor:
(s) Expenses incurred in connection with relocating lessees in the Building
or Project;
(t) Amounts received by Lessor through proceeds of insurance to the extent
the proceeds are compensation for expenses which were previously included in
Building operating costs charged to lessees;
(u) Costs related to public transportation, transit or van pools, unless
required by an appropriate government or quasigovernment authority or as a
result of the activities of Lessee; and
(v) All other items for which Lessee or any other lessee, occupant or other
party compensates Lessor, so that no duplication of payments by Lessee or to
Lessor shall occur.
2. ASSIGNMENT AND SUBLETTING BY LESSEE
Lessor hereby consents to an assignment of this Lease or a subletting of
all or part of the Premises to (a) a parent of Lessee, the parent of such
parent, or a wholly owned subsidiary of Lessee, of such parent, or of the parent
of such parent and (b) any entity to whom Lessee sells all or substantially of
its assets provided that any such entity expressly assumes all Lessee's
obligations hereunder.
3. HAZARDOUS SUBSTANCES
To the best of Lessor's knowledge, after reasonable inquiry, there are no
hazardous wastes or substances in the soil or groundwater of the real property
on which the building is located and Lessor has not disposed of or approved any
disposal by any other party of any hazardous wastes or substance son or from the
Building.
4. NOTICE
Any notice required to be given to Lessee shall be sent via facsimile,
overnight express mail or U.S. mail, postage prepaid, addressed as follows:
ICOS Corporation
22021 20th Avenue SE
Bothell, Washington 98021
Attn: Facilities Manager
Fax: (206) 481-8305
Notices shall be effective upon receipt.
21
<PAGE>
EXHIBIT 10.3
This LEASE RENEWAL AND AMENDMENT AGREEMENT (this "Agreement") is made this
5th day of August, 1997 by and between WRC PROPERTIES, INC. ("Landlord") and
ICOS CORPORATION ("Tenant").
RECITALS
Landlord is the landlord and Tenant is the tenant under that certain Lease
dated for reference purposes February 6, 1992, as amended by First Amendment to
Lease dated for reference purposes August 21, 1992 (collectively, the "Premier
North Lease") for premises located at 22021 20th Avenue S.E., Bothell, WA 98011
(the "Premises"). The legal description of the land on which the Premises is
located is attached hereto as Exhibit A.
Tenant has elected to extend the term of the Premier North Lease as
provided under Rider 2 of the Premier North Lease.
Landlord and Tenant have agreed on the Base Monthly Rent for the First
Extended Term and have agreed to clarify the operative Rider 2 under the Premier
North Lease, all as more fully set forth herein.
The Premier North Lease includes 1,511 rentable square feet in the project
known as Premier South (the "1,511 RSF Space").
The parties wish to delete the 1,511 RSF Space from the Premier North Lease
and add it to that certain Lease dated December 20, 1996, between Landlord and
Tenant for space in Premier South (the "Premier South Lease") pursuant to
Amendment thereto executed simultaneous herewith, such deletion and addition to
be effective September 15, 1997.
Except as otherwise specifically defined herein all capitalized terms shall
have the meaning set forth in the Premier North Lease.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the parties hereto
agree as follows:
The Premier North Lease is hereby extended for the First Extended Term of
sixty (60) months beginning on September 15, 1997, and ending on September 14,
2002.
The Base Monthly Rent per rentable square foot of the Premises for the
First Extended Term of the Premier North Lease shall be as follows, provided
that the Base Monthly Rent for the month of January 1998 shall be zero dollars.
Months Amount
1-12 $1.29 per rsf
13-36 $1.425 per rsf
37-60 $1.55 per rsf
The operative Rider 2 under the Premier North Lease shall be that attached
hereto as Exhibit B.
Effective September 15, 1997, the 1,511 RSF Space shall be deemed deleted
from the Premises under the Premier North Lease and shall be added to the
premises under the Premier South Lease pursuant to Amendment executed
simultaneous herewith. With such deletion, the rentable square footage of the
Premises under the Premier North Lease is 50,297 square feet and all charges
under the Premier North Lease based on Tenant's pro rata square footage under
lease shall reflect that square footage.
Except as specifically provided herein the Premier North Lease is and
remains in full force and effect.
<PAGE>
LANDLORD:
WRC PROPERTIES, INC.,
a Delaware corporation
By: /S/ James Garofalo
-------------------
James Garofalo
Its: Assistant Secretary
-------------------
TENANT
ICOS Corporation,
a Washington corporation
By: /S/ Gary Wilcox
--------------------
Its: Executive Vice President, Operations
--------------------
<PAGE>
EXHIBIT B
RIDER 2: OPTION TO RENEW
This rider is attached to and made part of that certain lease dated
February 6, 1992 between WRC Properties, Inc., a Delaware corporation, as
Landlord, and ICOS Corporation, a Delaware corporation, as Tenant,
covering the Property commonly known as 22021 - 20th Ave. S.E., Bothell,
WA (the "Lease"). The terms used in this Rider shall have the same
definitions as set forth in the Lease. The provisions of this Rider
shall prevail over any inconsistent or conflicting provisions of the
Lease.
1. Tenant is granted the right to extend the term of this Lease
beyond the expiration date of the initial Lease Term for two (2)
successive periods of sixty (60) months (each an "Extended Term").
If Tenant has defaulted in its obligations under this Lease, and
failed to cure such defaults within any applicable cure period, then
Tenant's right to exend the Lease for the Extended Terms shall
automatically terminate. Tenant's right to extend the Lease for the
first Extended Term may be assigned as part of an assignment of the
Lease. Tenant's right to extend the Lease for the Second Extended
Term is personal to Tenant and may not be exercised by any subtenant
or assignee of Tenant, provided that (i) the right to extend the
Lease for the Second Extended Term may be assigned to a Tenant
Affiliate (as defined in Section 9.02 of the Lease), and (ii) if
Tenant has personally occupied the Property and performed all
obligations under the Lease for the full five (5) years of the Initial
Term, and the right to the First Extended Term has been exercised,
then the right to extend the Lease for the Second Extended Term may
be assigned as part of an assignment of the Lease. Tenant's extension
rights shall apply to all of the Property under lease to Tenant at the
time. From and after the commencement of an Extended Term, all of the
terms, covenants, and conditions of the Lease shall continue in full
force and effect as written, except that Base Rent for the Extended
Term shall be equal to ninety-five (95%) of the market rate for a
five (5) year term for comparable space on comparable terms
(e.g., comparable cost pass-throughs) in the Bothell/Woodinville
High-Tech/Office Park market adjacent to I-405 (collectively
"Fair Market Rent"), provided that in no event shall the monthly
Base Rent for an Extended Term be less than the monthly Base Rent
for the last month of the term immediately preceding the Extended
Term. Fair Market Rent shall be determined as set forth below.
2. To preserve its option to extend the Lease Term, Tenant
shall give Landlord written notice of its election to commence
extension proceedings (the "Initial Extension Election") on or
before the last day of the forty-eighth (48th) month of the first
Extended Term in the case of the Second Extended Term.
3. If Tenant makes an initial Extension Election, Landlord
shall, not later than ten (10) months before the end of the initial
Lease Term or the first Extended Term, as appropriate, provide
Tenant with a market study or rent comparison analysis prepared
by an established and experienced broker or a qualified appraiser,
setting forth an analysis of the Fair Market Rent for the Premises,
together with the underlying data on which such analysis is based.
Tenant shall have thirty (30) days after receipt of such analysis
to make a final election to exercise the Extension Opton (a "Final
Extension Election"). If Tenant makes an Initial Extension Election
and thereafter does not make Final Extension Election, the Lease
Term shall be extended by the number of days elapsing between
Tenant's Initial Extension Election and the date Tenant notifies
Landlord that it will not be exercising a Final Extension Election
(or the date on which Tenant's option to exercise a Final Extension
Election expires), all on the same terms as in effect in the last
month of the unextended term.
4. At the time Tenant makes a Final Extension Election, it
shall advise Landlord of its estimate of Fair Market Rent. If such
estimate differs from that set forth in the analysis supplied by
Landlord to Tenant, then the parties shall promptly meet to attempt
to resolve their differences. If the differences as to Fair Market
Rent are not resolved within sixty (60) days of Tenant's Final
Extension Election, then the parties shall submit the matter to
arbitration in accordance with the terms of Section 5 of this
Rider so that Fair Market Rent is determined no later than
three (3) months prior to the first day of the Extended Term.
5. If the parties are unable to reach agreement of Fair Market
Rent during the period specified in Section 4 of this Rider, then
within then (10) days thereafter either party may advise the other
in writing of the name and address of its arbitrator. The
arbitrator shall be qualified as a real estate appraiser with at
least ten (10) years experience with rental rates in Bothell/
Woodinville High-Tech/Office Park market adjacent to I-405 who
would qualify as an expert witness. Within ten (10) days after
receipt of such notice from the initiating party (the "Instigator")
designating its arbitrator, the other party (the "Recipient") shall
give notice to Instigator, specifying the name and address of the
person designated by Recipient to act as arbitrator on its behalf
who shall be similarly qualified. If Recipient fails to notify
Instigator of the appointment of its arbitrator, within or by the
time above specified, then the arbitrator appointed by Instigator
shall be the arbitrator or determine the issue. The duty of the
arbitrator(s) shall be to determine the Fair Market Rent based
solely on rental rates in Bothell/Woodinville High-Tech/Office
Park market adjacent to I-405. If the two (2) arbitrators are
so chosen the arbitrators so chosen shall meet within ten (10)
days after the second arbitrator is appointed and, if within
ten (10) days after such first meeting the two arbitrators shall
be unable to agree promptly upon a determination of Fair Market
Rent, they themselves, shall appoint a third arbitrator, who
shall be a competent and impartial person with qualifications
similar to those required of the first two arbitrators. If they
are unable to agree upon such appointment within five (5) days
after expiration of said ten (10) day period, then either party,
on behalf of both, may request appointment of such a qualified
person by the then presiding judge of King County Superior Court
acting in his/her private non-judicial capacity, and the other
party shall not raise any question as to such Judge's full power
and jurisdiction to entertain the application for and make the
appointment, and the parties agree to indemnify and hold the the
presiding judge fully and completely harmless from and against
all claims arising out of the presiding judge's appointment of
an arbitrator.
The three (3) arbitrators shall decide the dispute, if it
has not been previously resolved, by following the procedure
set forth in this Rider. The arbitrator selected by each of the
parties shall state in writing his/her determination of the Fair
Market Rent supported by the reasons therefore with counterpart
copies to each party. The arbitrators shall arrange for a
simultaneous exchange of such proposed resolutions. The role of
the third arbitrator shall be to select which of the two proposed
resolutions most closely approximates his/her determination of Fair
Market Rent. The third arbitrator shall have no right to propose a
middle ground or any modification of either of the two proposed
resolutions. The resolution he/she chooses as most closely
approximating his/her determination shall constitute the decision
of the arbitrators and be final and binding upon the parties. The
arbitrators shall attempt to decide the issue within thirty (30)
days after the appointment of the third arbitrator. Any decision
in which the arbitrator appointed by the Landlord and the
arbitrator appointed by Tenant concur shall be binding and
conclusive upon the parties. Each party shall pay the fee and
expenses of its respective arbitrator and both shall share equally
the fee and expenses of the third arbitrator, if any, and the
attorneys' fees and expenses of counsel for the respective parties
and of witnesses shall be paid by the respective party engaging
such counsel or calling such witnesses. The arbitrators shall
render their decision and award in writing with counterpart copies
to each party. The arbitrators shall have no power to modify the
provisions of this Lease. Time is of the essence in this Rider.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,627,346
<SECURITIES> 19,614,478
<RECEIVABLES> 7,594,845
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,184,194
<PP&E> 33,721,449
<DEPRECIATION> 16,900,540
<TOTAL-ASSETS> 57,710,229
<CURRENT-LIABILITIES> 4,458,796
<BONDS> 0
0
0
<COMMON> 396,376
<OTHER-SE> 52,855,057
<TOTAL-LIABILITY-AND-EQUITY> 57,710,229
<SALES> 0
<TOTAL-REVENUES> 24,022,211
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 31,693,474
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,090,587)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,090,587)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,090,587)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
