<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to
--------------- ---------
Commission file number 1-10959
STANDARD PACIFIC CORP.
(Exact name of registrant as specified in its charter)
Delaware 33-0475989
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1565 W. MacArthur Blvd., Costa Mesa, CA 92626
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (714) 668-4300
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 [_].
APPLICABLE ONLY TO CORPORATE ISSUERS
Registrant's shares of common stock outstanding at November 10, 1999: 29,493,980
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
The consolidated condensed financial statements included herein have been
prepared by Standard Pacific Corp. (the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information normally included in the financial statements prepared in
accordance with generally accepted accounting principles has been omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. The
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
-1-
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Homebuilding:
Revenues $ 297,089 $ 194,130
Cost of sales 244,204 158,290
---------- ----------
Gross margin 52,885 35,840
---------- ----------
Selling, general and administrative expenses 24,592 15,475
Income from unconsolidated joint ventures 264 50
Interest expense 501 316
Amortization of excess of cost over net assets acquired 495 328
Other income (expense) (2) 47
---------- ----------
Homebuilding pretax income 27,559 19,818
---------- ----------
Financial Services:
Revenues 500 309
Income from unconsolidated joint venture 175 -
Other income 43 -
Expenses 798 478
---------- ----------
Financial services pretax income (loss) (80) (169)
---------- ----------
Income from continuing operations before income taxes and
extraordinary charge 27,479 19,649
Provision for income taxes (11,298) (8,137)
---------- ----------
Income from continuing operations before extraordinary charge 16,181 11,512
Income (loss) from discontinued operation, net of income
taxes of $26 in 1998 - (36)
Extraordinary charge from early extinguishment of debt, net
of income taxes of $753 in 1998 - (1,106)
---------- ----------
Net Income $ 16,181 $ 10,370
========== ==========
Basic Net Income Per Share:
Income per share from continuing operations $ 0.55 $ 0.39
Income (loss) per share from discontinued operation - (0.00)
Extraordinary charge from early extinguishment of debt - (0.04)
---------- ----------
Net Income Per Share $ 0.55 $ 0.35
========== ==========
Weighted average common shares outstanding 29,642,671 29,767,204
========== ==========
Diluted Net Income Per Share:
Income per share from continuing operations $ 0.54 $ 0.38
Income (loss) per share from discontinued operation - (0.00)
Extraordinary charge from early extinguishment of debt - (0.04)
---------- ----------
Net Income Per Share $ 0.54 $ 0.34
========== ==========
Weighted average common and diluted shares outstanding 29,813,430 30,108,783
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed statements.
-2-
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Homebuilding:
Revenues $ 820,748 $ 444,182
Cost of sales 674,889 361,470
---------- ----------
Gross margin 145,859 82,712
---------- ----------
Selling, general and administrative expenses 69,927 37,339
Income from unconsolidated joint ventures 5,148 1,725
Interest expense 1,027 904
Amortization of excess of cost over net assets acquired 1,484 817
Other income 84 163
---------- ----------
Homebuilding pretax income 78,653 45,540
---------- ----------
Financial Services:
Revenues 1,616 925
Income from unconsolidated joint venture 575 -
Other income 43 -
Expenses 2,253 1,150
---------- ----------
Financial services pretax income (loss) (19) (225)
---------- ----------
Income from continuing operations before income taxes and
extraordinary charge 78,634 45,315
Provision for income taxes (32,343) (18,790)
---------- ----------
Income from continuing operations before extraordinary charge 46,291 26,525
Income (loss) from discontinued operation, net of income
taxes of $114 and $71, respectively (159) (143)
Gain on disposal of discontinued operation, net of income
taxes of $(425) in 1999 618 -
Extraordinary charge from early extinguishment of debt,
net of income taxes of $904 in 1998 - (1,328)
---------- ----------
Net Income $ 46,750 $ 25,054
========== ==========
Basic Net Income Per Share:
Income per share from continuing operations $ 1.56 $ 0.89
Income (loss) per share from discontinued operation (0.01) (0.01)
Gain on disposal of discontinued operation 0.02 -
Extraordinary charge from early extinguishment of debt - (0.04)
---------- ----------
Net Income Per Share $ 1.57 $ 0.84
========== ==========
Weighted average common shares outstanding 29,648,808 29,730,912
========== ==========
Diluted Net Income Per Share:
Income per share from continuing operations $ 1.55 $ 0.88
Income (loss) per share from discontinued operation (0.01) (0.01)
Gain on disposal of discontinued operation 0.02 -
Extraordinary charge from early extinguishment of debt - (0.04)
---------- ----------
Net Income Per Share $ 1.56 $ 0.83
========== ==========
Weighted average common and diluted shares outstanding 29,880,122 30,065,401
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed statements.
-3-
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Homebuilding:
Cash and equivalents $ 3,652 $ 13,413
Other notes and accounts receivable, net 9,488 25,279
Mortgage notes receivable and accrued interest 4,646 5,061
Inventories 770,454 713,446
Investments in and advances to unconsolidated joint ventures 44,921 38,405
Property and equipment, net 3,395 3,512
Deferred income taxes 12,651 10,784
Other assets 6,130 8,210
Excess of cost over net assets acquired, net 15,809 17,293
------------- ------------
871,146 835,403
------------- ------------
Financial Services:
Cash and equivalents 138 1,651
Mortgage loans held for sale 10,348 19,341
Other assets 1,434 1,920
------------- ------------
11,920 22,912
------------- ------------
Net assets of discontinued operation - 8,047
------------- ------------
Total Assets $ 883,066 $ 866,362
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable $ 33,827 $ 22,015
Accrued liabilities 64,397 63,777
Revolving credit facility 110,700 204,900
Trust deed notes payable 3,569 21,187
Senior notes payable 298,820 218,382
------------- ------------
511,313 530,261
------------- ------------
Financial Services:
Accounts payable and accrued liabilities 364 596
Mortgage warehouse line of credit 4,390 10,826
------------- ------------
4,754 11,422
------------- ------------
Stockholders' Equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
none issued - -
Common stock, $.01 par value; 100,000,000 shares
authorized; 29,634,580 and 29,629,480 shares outstanding,
respectively 296 296
Paid-in capital 283,614 283,598
Retained earnings 83,089 40,785
------------- ------------
Total stockholders' equity 366,999 324,679
------------- ------------
Total Liabilities and Stockholders' Equity $ 883,066 $ 866,362
============= ============
The accompanying notes are an integral part of these consolidated condensed balance sheets.
</TABLE>
-4-
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 46,750 $ 25,054
Adjustments to reconcile net income to net cash provided by
(used in) operating activities of continuing operations:
Loss from discontinued operation 159 143
Gain on disposal of discontinued operation (618) -
Extraordinary charge from early extinguishment of debt - 1,328
Depreciation and amortization 913 355
Amortization of excess of cost over net assets acquired 1,484 817
Changes in cash and equivalents due to:
Receivables and accrued interest 25,199 (2,121)
Inventories (56,932) (163,630)
Deferred income taxes (1,867) 1,804
Other assets 2,567 1,086
Accounts payable 11,812 6,588
Accrued liabilities 1,914 9,220
-------- ---------
Net cash provided by (used in) operating activities of
continuing operations 31,381 (119,356)
-------- ---------
Cash Flows From Investing Activities:
Net cash paid for acquisition - (58,635)
Net additions to property and equipment (796) (1,130)
Net distributions from (investments in) unconsolidated joint
ventures (6,516) (4,076)
Proceeds from the sale of discontinued operations 8,798 1,087
-------- ---------
Net cash provided by (used in) investing activities 1,486 (62,754)
-------- ---------
Cash Flows From Financing Activities:
Net proceeds from (payments on) revolving credit facility (94,200) 159,750
Net proceeds from (payments on) mortgage warehouse line of
credit (6,436) -
Net proceeds from the issuance of senior notes payable 98,250 97,571
Principal payments on senior notes and trust deed notes payable (37,256) (72,776)
Dividends paid (4,447) (3,567)
Repurchase of common shares (267) -
Proceeds from the exercise of stock options 215 764
-------- ---------
Net cash provided by (used in) financing activities (44,141) 181,742
-------- ---------
Net change in cash from discontinued operation (38,130) (4,653)
-------- ---------
Net increase (decrease) in cash and equivalents (49,404) (5,021)
Cash and equivalents at beginning of period 53,194 53,337
-------- ---------
Cash and equivalents at end of period $ 3,790 $ 48,316
======== =========
Summary of Cash Balances:
Continuing operations $ 3,790 $ 8,013
Discontinued operation - 40,303
-------- ---------
$ 3,790 $ 48,316
======== =========
The accompanying notes are an integral part of these consolidated condensed statements.
</TABLE>
-5-
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
1999 1998
----------- ----------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest - continuing operations $ 22,087 $ 17,821
Income taxes 41,629 12,460
Supplemental Disclosure of Noncash Activities:
Trust deed note receivable issued in connection with the sale
of land $ - $ 10,253
Land acquisitions financed by purchase money trust deeds - 1,161
Expenses capitalized in connection with the issuance of the 8%
senior notes due 2008 - 1,750
Expenses capitalized in connection with the issuance of the
8 1/2% senior notes due 2009 1,750 -
Income tax benefit credited in connection with shares of common
stock issued pursuant to stock options exercised 68 609
The accompanying notes are an integral part of these consolidated condensed statements.
</TABLE>
-6-
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. Basis of Presentation
---------------------
In the opinion of management, the financial statements reflect all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position as of September 30, 1999 and December 31,
1998, and the results of operations and cash flows for the periods presented.
2. Capitalization of Interest
--------------------------
The following is a summary of interest capitalized and expensed related to
inventories for the nine-month and three-month periods ended September 30, 1999
and 1998.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Total interest incurred during the period $ 26,490 $ 19,719 $ 9,137 $ 7,165
Less: Interest capitalized as a cost of real
estate under development 25,463 18,815 8,636 6,849
-------- -------- -------- --------
Interest expensed $ 1,027 $ 904 $ 501 $ 316
======== ======== ======== ========
Interest previously capitalized as a cost of
real estate under development, included in
cost of sales $ 19,133 $ 15,330 $ 6,540 $ 5,866
======== ======== ======== ========
Capitalized interest in ending inventories $ 21,485 $ 17,197
======== ========
</TABLE>
3. Statement of Cash Flows
-----------------------
Cash flows from the discontinued operation have been presented as a
separate line item in the accompanying consolidated statements of cash flows.
The net change in cash for the discontinued operation presented in the
statements of cash flows for the nine-month period ended September 30, 1999
reflects the net change in the cash balance resulting from the Company's sale of
its savings and loan subsidiary in May 1999.
4. Recent Accounting Pronouncement
-------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). Under the provisions of FAS 133, the Company
will be required to recognize all derivatives as either assets or liabilities in
the statements of financial position and measure these instruments at fair
value. The Company is required to adopt FAS 133 effective January 1, 2001.
Currently, the Company does not have any instruments that would qualify as
derivatives under FAS 133. Accordingly, the Company does not believe that FAS
133 would have a material impact on its financial position or results of
operations at this time.
-7-
<PAGE>
5. Reclassifications
-----------------
Certain reclassifications have been made to the 1998 financial statements
to conform with current period presentation.
6. Net Income Per Share
--------------------
The Company computes net income per share in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings per Share" (FAS 128). This
statement requires the presentation of both basic and diluted net income per
share for financial statement purposes. Basic net income per share is computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding. Diluted net income per share includes the
effect of the potential shares outstanding, including dilutive stock options
using the treasury stock method. The table set forth below reconciles the
components of the basic net income per share calculation to diluted net income
per share.
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
---------------------------------------------------------------------------------
1999 1998
-------------------------------------- --------------------------------------
Income Shares EPS Income Shares EPS
--------- ---------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
Basic Net Income Per Share:
Income available to common
stockholders before discontinued
operation and extraordinary
charge $16,181 29,642,671 $0.55 $ 11,512 29,767,204 $0.39
Effect of dilutive stock options - 170,759 - 341,579
--------- ---------- --------- ----------
Diluted net income per share from
continuing operations and before
extraordinary charge $16,181 29,813,430 $0.54 $ 11,512 30,108,783 $0.38
====================================== =====================================
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------------------------------------------------
1999 1998
-------------------------------------- -------------------------------------
Income Shares EPS Income Shares EPS
--------- ---------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
Basic Net Income Per Share:
Income available to common
stockholders before
discontinued operation and
extraordinary charge $46,291 29,648,808 $1.56 $26,525 29,730,912 $0.89
Effect of dilutive stock options - 231,314 - 334,489
--------- ---------- --------- ----------
Diluted net income per share from
continuing operations and before
extraordinary charge $46,291 29,880,122 $1.55 $26,525 30,065,401 $0.88
====================================== =====================================
</TABLE>
-8-
<PAGE>
7. Discontinued Operations
-----------------------
In May 1997, the Company's Board of Directors adopted a plan of disposition
(the "Plan") for the Company's savings and loan subsidiary ("Savings").
Pursuant to the Plan, the Company sold substantially all of Savings' mortgage
loan portfolio in June 1997. The proceeds from the sale of the mortgages were
used to pay off substantially all of the outstanding balances of Federal Home
Loan Bank advances with the remaining amount temporarily invested until the
savings deposits were sold along with Savings' remaining assets. The gain
generated from the sale of this mortgage loan portfolio, net of related
expenses, was not material. In August 1998, the Company entered into a
definitive agreement to sell the remainder of Savings' business, including
Savings' charter, which closed on May 31, 1999. An after-tax net gain of
$618,000, or $.02 per diluted share, has been reflected in the accompanying
consolidated condensed statements of income. Proceeds from the sale of Savings
were approximately $8.8 million before transaction and other related costs.
Savings has been accounted for as a discontinued operation and the results of
its operations and net assets have been segregated in the accompanying
consolidated condensed financial statements.
Interest income from the discontinued operation totaled approximately
$1,256,000 and $2,543,000 for the nine-month periods ended September 30, 1999
and 1998, respectively, and $844,000 for the three-month period ended September
30, 1998.
The components of net assets of the discontinued operation included in the
accompanying consolidated condensed balance sheets as of September 30, 1999 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
(Dollars in thousands)
Assets:
<S> <C> <C>
Cash and equivalents $ - $ 38,130
Investment securities available for sale - 15,649
Accrued interest receivable - 244
Property and equipment, net - 62
Deferred income taxes - 274
Investment in FHLB stock - 8,971
Other assets - 73
------------------- -------------------
Total assets-discontinued operation $ - $ 63,403
------------------- -------------------
Liabilities:
Savings accounts $ - $ 53,878
Accounts payable and accrued liabilities - 1,478
------------------- -------------------
Total liabilities-discontinued operation - 55,356
------------------- -------------------
Net assets of discontinued operation $ - $ 8,047
=================== ===================
</TABLE>
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, the terms "we," "us" and "our" refer
to Standard Pacific Corp. and its subsidiaries.
Results of Operations
<TABLE>
<CAPTION>
Selected Financial Information
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------- ---------------------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Homebuilding:
Revenues $820,748 $444,182 $297,089 $194,130
Cost of sales 674,889 361,470 244,204 158,290
------------ ----------- ----------- -----------
Gross margin 145,859 82,712 52,885 35,840
------------ ----------- ----------- -----------
Gross margin percentage 17.8% 18.6% 17.8% 18.5%
------------ ----------- ----------- -----------
Selling, general and administrative expenses 69,927 37,339 24,592 15,475
Income from unconsolidated joint ventures 5,148 1,725 264 50
Interest expense 1,027 904 501 316
Amortization of excess of cost over net assets acquired 1,484 817 495 328
Other income (expense) 84 163 (2) 47
------------ ----------- ----------- -----------
Homebuilding pretax income 78,653 45,540 27,559 19,818
------------ ----------- ----------- -----------
Financial Services:
Revenues 1,616 925 500 309
Income from unconsolidated joint venture 575 - 175 -
Other income 43 - 43 -
Expenses 2,253 1,150 798 478
------------ ----------- ----------- -----------
Financial services pretax income (loss) (19) (225) (80) (169)
------------ ----------- ----------- -----------
Income from continuing operations before income taxes and
extraordinary charge $ 78,634 $ 45,315 $ 27,479 $ 19,649
============ =========== =========== ===========
<CAPTION>
Operating Data
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------- ---------------------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
New Homes Delivered:
Southern California 780 649 307 304
Northern California 710 330 258 128
------------ ----------- ----------- -----------
Total California 1,490 979 565 432
------------ ----------- ----------- -----------
Dallas/Austin 242 214 86 79
Houston 93 123 20 48
------------ ----------- ----------- -----------
Total Texas 335 337 106 127
------------ ----------- ----------- -----------
Arizona 617 37 201 37
------------ ----------- ----------- -----------
Consolidated total 2,442 1,353 872 596
Unconsolidated joint ventures (California) - 35 - 1
------------ ----------- ----------- -----------
Total 2,442 1,388 872 597
============ =========== =========== ===========
Average Selling Price:
California deliveries (excluding joint ventures) $428,931 $368,203 $420,621 $368,207
Texas deliveries $233,341 $215,016 $242,243 $215,157
Arizona deliveries $162,802 $179,611 $161,265 $179,611
Combined (excluding joint ventures) $334,859 $324,891 $339,155 $323,886
Combined (including joint ventures) $334,859 $325,013 $339,155 $323,962
</TABLE>
-10-
<PAGE>
Operating Data - Continued
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net New Orders:
Southern California 964 1,103 323 242
Northern California 777 455 224 152
------------ ---------- ---------- ---------
Total California 1,741 1,558 547 394
------------ ---------- ---------- ---------
Dallas/Austin 296 246 87 70
Houston 75 127 20 31
------------ ---------- ---------- ---------
Total Texas 371 373 107 101
------------ ---------- ---------- ---------
Arizona 578 46 177 46
------------ ---------- ---------- ---------
Consolidated total 2,690 1,977 831 541
Unconsolidated joint ventures (California) 25 10 25 2
------------ ---------- ---------- ---------
Total 2,715 1,987 856 543
============ ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
As of September 30,
-------------------------
1999 1998
------------ ---------
<S> <C> <C>
Backlog (in units):
Southern California 561 724
Northern California 314 276
------------ ---------
Total California 875 1,000
------------ ---------
Dallas/Austin 141 98
Houston 13 56
------------ ---------
Total Texas 154 154
------------ ---------
Arizona 329 400
------------ ---------
Consolidated total 1,358 1,554
Unconsolidated joint ventures (California) 25 2
------------ ---------
Total backlog 1,383 1,556
============ =========
Backlog at Quarter End (estimated dollar
value in thousands) $ 472,103 $ 500,937
============ =========
Average Selling Communities during Quarter:
Southern California 22 18
Northern California 16 14
Texas 18 18
Arizona 12 3
Unconsolidated joint ventures (California) 2 1
------------ ---------
Total 70 54
============ =========
Building Sites Owned or Controlled:
California 9,084 8,981
Texas 2,317 2,010
Arizona 4,146 2,243
------------ ---------
Total 15,547 13,234
============ =========
</TABLE>
-11-
<PAGE>
Income from continuing operations for the quarter ended September 30, 1999
increased 41 percent to $16,181,000, or $0.54 per diluted share, compared to
$11,512,000, or $0.38 per diluted share for the year earlier period. For the
nine-month period ended September 30, 1999, income from continuing operations
increased 75 percent to $46,291,000, or $1.55 per diluted share, from
$26,525,000, or $0.88 per diluted share for the same period in 1998.
Net income for the 1999 third quarter including the discontinued operation
increased 56 percent to $16,181,000, or $0.54 per diluted share, compared to
$10,370,000, or $0.34 per diluted share in the 1998 third quarter. Net income
for the nine months ended September 30, 1999 including the discontinued
operation increased 87 percent to $46,750,000, or $1.56 per diluted share,
versus $25,054,000, or $0.83 per diluted share for the year earlier period. The
discontinued operation reflects our former savings and loan subsidiary, which
was sold during the 1999 second quarter for an after tax gain of $618,000, or
$0.02 per diluted share. The extraordinary charge reflects an after tax loss of
$1.1 million and $1.3 million for the three month and nine month periods ended
September 30, 1998, respectively, from the early extinguishment of debt relating
to the repurchase of our 10 1/2% Senior Notes due in 2000.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
for the 1999 third quarter increased 25 percent to $35.1 million, compared to
$28.2 million for the same period in 1998. EBITDA for the nine months ended
September 30, 1999 totaled $102.4 million, a 57 percent increase over the year
earlier period.
Homebuilding
Homebuilding revenues increased 53 percent in the 1999 third quarter to
$297.1 million from $194.1 million in the year earlier period. The revenue
increase was largely attributable to a 46 percent rise in deliveries (excluding
joint ventures) to 872 new homes coupled with a 4.7 percent increase in the
average home selling price to $339,000. In California, we delivered 565 homes
during the 1999 third quarter, up 31 percent over the prior year. Deliveries in
southern California were in line with the strong levels achieved in the 1998
third quarter, while deliveries from our northern California operations were up
102 percent over the year earlier period. Our Arizona operation delivered 201
new homes in the third quarter compared to 37 homes in its first month of
operations last year.
During the quarter the average home selling price in California increased
14 percent to $421,000. The higher California home prices reflect both the
delivery of larger more expensive homes, particularly in southern California,
and general price appreciation from the strong housing demand in the state. The
average home prices in Arizona and Texas were $161,000 and $242,000,
respectively, for the 1999 third quarter.
Homebuilding revenues for the nine months ended September 30, 1999 were up
85 percent to $820.7 million from $444.2 million in the same period last year.
The increase in revenues was due to an 80 percent jump in new home deliveries to
2,442 homes combined with a 3.1 percent higher average home price.
The homebuilding gross margin percentage for the 1999 third quarter was
down 70 basis points to 17.8 percent from 18.5 percent in the 1998 third
quarter. This decline reflects the greater distribution of deliveries from our
Arizona operation, which generates lower margins than in California. In
addition, our California operations were modestly impacted by higher land and
labor costs, which reflect the state's strong housing market.
-12-
<PAGE>
Selling, general and administrative expenses as a percentage of revenues
for the three-month and nine-month periods ended September 30, 1999 were 8.3
percent and 8.5 percent, respectively, compared to 8.0 percent and 8.4 percent,
respectively, for the same periods in 1998. The increases in SG&A as a
percentage of revenues is primarily the result of higher selling costs incurred
in 1999 related to the increased number of new community openings this year
versus the prior year.
Income generated from unconsolidated joint ventures for the nine-month
period ended September 30, 1999 was $5.2 million compared to $1.7 million last
year. The 1999 income primarily represents profits generated from lot sales
from the Talega land development joint venture in south Orange County. In the
fourth quarter of this year, we are expecting to begin deliveries from our 500
home joint venture community in Fullerton, California.
Amortization of excess of cost over net assets acquired for the 1999
periods shown reflects both the 1997 northern California acquisition, as well as
the 1998 third quarter Arizona acquisition. The amortization expense for the
1998 periods shown reflects the northern California acquisition but only one
month of amortization for the Arizona acquisition.
Net new home orders for the 1999 third quarter were up 58 percent over the
1998 third quarter to a record 856 new homes on a 30 percent increase in the
average community count. Orders were up 43 percent in southern California on a
26 percent increase in active selling communities, up 47 percent in northern
California on a 14 percent increase in active selling communities and up 6
percent in Texas on a comparable community count. Our Arizona operation
generated 177 net new orders from 12 selling communities during the 1999 third
quarter compared to 46 net new orders last year during its first month of
operation. Net new home orders for the nine months ended September 30, 1999
totaled 2,715 compared to 1,987 for the same period during 1998, a 37 percent
increase.
Our backlog of presold homes at September 30, 1999 stood at 1,383 homes,
with an estimated sales value of approximately $472.1 million, down 6 percent
from the 1998 third quarter backlog value. The higher backlog level last year
was attributed, in part, to adverse weather conditions in early 1998 in
California which delayed home closings in the second and third quarters of 1998.
For the first nine months of 1999 we opened 37 new home communities. In
addition, we are planning to open approximately 60 new communities over the next
twelve months. New openings, coupled with the strong backlog at September
30, 1999, should position the Company to exceed $1 billion in revenues for 1999.
Additionally, if housing demand remains healthy, we should be in a strong
position to increase unit deliveries in 2000.
Financial Services
For the 1999 third quarter, revenue from our new financial services
subsidiary increased 62 percent over the year earlier period due to an increase
in the number of mortgage loans closed. The rise in operating expenses reflects
the increase in overhead from establishing our mortgage banking operations in
the various California markets in which we have homebuilding operations.
The financial services joint venture income reflects the operating results
of our mortgage banking venture with Wells Fargo Bank in Arizona and Texas.
-13-
<PAGE>
Liquidity and Capital Resources
Our homebuilding operations' principal uses of cash have been for operating
expenses, land acquisitions, construction expenditures, market expansion,
principal and interest payments on debt, share repurchases and dividends to our
shareholders. Cash requirements have been provided from internally generated
funds and outside borrowings, including a bank revolving credit facility and
public note offerings. Our mortgage banking subsidiary uses cash from internal
funds and a mortgage warehouse credit facility to fund its mortgage lending
operations. Based on our current business plan and our desire to carefully
manage our leverage, we believe that these sources of cash are sufficient to
finance our current working capital requirements and other needs.
In August 1999, we amended our unsecured revolving credit facility with our
bank group to, among other things, increase the commitment to $450 million,
extend the maturity date one year to July 31, 2003 and revise certain financial
and other covenants. At September 30, 1999 we had borrowings of $110.7 million
outstanding under this facility.
To fund mortgage loans through our financial services subsidiary, we have
in place a revolving mortgage warehouse credit facility with a bank. To
facilitate the anticipated growth within our financial services subsidiary, the
commitment was increased from $15 million to $40 million in May 1999. Mortgage
loans are generally held for a short period of time and are typically sold to
investors within approximately 30 days following funding. Borrowings, which are
LIBOR based, are secured by the related mortgage loans held for sale. The
facility, which has a maturity date of May 31, 2000, also contains certain
financial covenants.
On September 30, 1998, we repurchased and retired approximately $31.5
million of our 10 1/2% Senior Notes in connection with a tender offer and
consent solicitation, leaving a balance of approximately $19.6 million
outstanding. On March 1, 1999, the balance of these notes was repaid through
the annual sinking fund payment provision of the indenture.
In October 1998, the Securities and Exchange Commission declared effective
our $300 million universal shelf registration statement on Form S-3. The
universal shelf registration statement permits the issuance of common stock,
preferred stock, debt securities and warrants. We currently have $200 million
available under the universal shelf.
In April 1999, a portion of the universal shelf was used to issue $100
million of 8 1/2% Senior Notes which mature April 1, 2009 (the "8 1/2% Senior
Notes"). The 8 1/2% Senior Notes, which were issued at par, are unsecured
obligations and rank equally with our other existing senior unsecured
indebtedness. The 8 1/2% Senior Notes contain restrictive covenants which,
among other things, impose certain limitations on our ability to (1) incur
additional indebtedness, (2) create liens, (3) make restricted payments, as
defined, and (4) sell assets. In addition, upon a change in control, as
defined, we are required to make an offer to purchase these senior notes. The 8
1/2% Senior Notes are redeemable at our option, in whole or in part, at any time
after April 1, 2004 at 104.25 percent of par, with the call price reducing
ratably to par on April 1, 2007. Net proceeds after underwriting expenses were
approximately $98.3 million and were used to repay a portion of the balance
outstanding under our revolving credit facility.
From time to time, purchase money mortgage financing is used to finance
land acquisitions. At September 30, 1999, approximately $3.6 million was
outstanding under trust deed notes payable, a decrease of $17.6 million from
December 31, 1998.
-14-
<PAGE>
Additionally, as a form of off balance sheet financing and for other
strategic purposes, joint venture structures are used on selected projects.
This type of structure, which typically obtains secured construction and
development financing, minimizes the use of funds from our revolving credit
facility and other corporate financing sources. We plan to continue using these
types of arrangements to finance the development of properties as opportunities
arise.
During the nine months ended September 30, 1999, 29,000 shares of common
stock were issued pursuant to the exercise of stock options for aggregate
proceeds of approximately $215,000.
During the nine months ended September 30, 1999, we repurchased 23,900
shares of common stock pursuant to the previously announced common stock
repurchase program. In October 1999, our Board of Directors increased the
aggregate stock repurchase limit under the buyback plan from $20 million to $25
million. Since the inception of the stock repurchase program through November
10, 1999, we have repurchased approximately 1.6 million shares of common stock
for approximately $11.5 million, leaving a balance of approximately $13.5
million available for future share repurchases.
During the nine-month period ended September 30, 1999, $4.4 million in
dividends were paid to our stockholders. Common stock dividends are paid at the
discretion of the Board of Directors and are dependent upon various factors,
including earnings, cash flows, capital requirements and operating and financial
conditions, including our overall level of leverage. Additionally, our
revolving credit facility and public notes impose restrictions on the amount of
dividends we may be able to pay. On October 26, 1999, the Board of Directors
declared a quarterly cash dividend of $.05 per share of common stock. The
dividend will be payable on November 23, 1999 to shareholders of record on
November 9, 1999.
We have no material commitments or off balance sheet financing arrangements
that under current market conditions are expected to materially affect our
future liquidity.
Year 2000 Issue
The "Year 2000 issue" is a general term used to describe the problems which
may arise from the inability of systems to properly recognize a year that begins
with "20" instead of the familiar "19." If not corrected, many computer
applications could fail or miscalculate the data being processed.
We utilize a number of computer information systems in conjunction with our
homebuilding and mortgage banking operations. All of our homebuilding
operations are on computer software applications that are year 2000 compliant.
Our mortgage banking subsidiary, Family Lending Services, Inc., utilizes a
service bureau for its application systems. This service bureau has advised us
that its systems are year 2000 compliant. The financial institution partner in
our mortgage banking joint venture has advised us that both its and the joint
venture's computer information systems are year 2000 compliant.
During 1998, we upgraded our hardware, including but not limited to,
procuring a new AS400 mid-range computer, installing a Company-wide computer
area network, and making numerous upgrades to various personal computer
operating systems. As a result, we believe that all of our critical computer
hardware, including personal computer operating systems and peripheral
equipment, is also year 2000 compliant. In addition, we believe that all of our
non-critical computer hardware and peripheral equipment is substantially year
2000 compliant.
-15-
<PAGE>
We have evaluated all other significant non-information technology internal
office systems and believe that they are substantially year 2000 compliant.
We have substantially completed our survey of significant vendors,
subcontractors, suppliers and financial institutions to assess their state of
readiness for the year 2000. Third parties significant to our operations
include our bank group, escrow and title companies, subcontractors and
suppliers, and a third-party payroll service. While the results of the survey
are being considered in developing our contingency plan, survey responses are
inherently insufficient to enable us to fully determine the extent to which the
Year 2000 issue will affect these or other third parties, such as governmental
agencies on which we are dependent for zoning, building permits and related
matters or, consequently, our business.
We have developed our contingency plan based upon the substantial
completion of the assessment, renovation and testing phases of our overall year
2000 plan. The contingency plan includes the following:
. pre-established backup internal and external data and voice lines;
. dedication of internal technical resources for certain hardware and
software repairs and fixes;
. use of vendors of critical hardware and software for replacement
equipment, emergency service and repairs;
. use of alternative vendors and subcontractors that are year 2000
compliant; and
. conversion to manual processing of critical functions such as purchasing,
vendor payments, financial statement preparation and loan processing.
The contingency plan will be further refined through the end of the year as
additional facts and information become available, particularly with respect to
third parties.
We completed certain systems conversions and network upgrades as part of
our normal course of business as there was a need to upgrade the existing
information systems irrespective of the Year 2000 issue. Including the cost of
these conversions and upgrades, we estimate that we have expended approximately
$1.4 million on addressing Year 2000 issues to date and we do not anticipate
incurring any significant additional costs with respect to the Year 2000 issue.
At present, we do not believe the Year 2000 issue will have a material
adverse effect on our business operations or financial performance. There can
be no assurance, however, that the Year 2000 issue will not adversely affect us.
Also, we could be materially impacted by widespread economic or financial market
disruptions as a result of year 2000 failure in other parties, industries or
countries.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks related to fluctuations in interest rates on
our mortgage loans receivable and bank debt. Currently, we do not utilize
interest rate swaps, forwards or option contracts on financial instruments.
There have been no material changes in our market risk exposure since
December 31, 1998. Please see our Annual Report on Form 10-K for the year ended
December 31, 1998 for further discussion related to our market risk exposure.
-16-
<PAGE>
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, which represent our expectations or
beliefs concerning future events, including, but not limited to, statements
regarding:
. our backlog of homes and their estimated sales value;
. planned new home community openings;
. our prospects for continued growth in unit volume in 2000;
. our expected revenues for 1999;
. the sufficiency of our cash provided by internally generated funds and
outside borrowings;
. our planned continued use of joint ventures as a financing structure;
. expected deliveries from our joint venture community in Fullerton;
. the likely effect on our future liquidity of our existing material
commitments and off-balance-sheet financing arrangements;
. our year 2000 compliance and the expected impact of the Year 2000 issue on
our business operations and financial performance;
. the expected impact of adoption of FAS 133 on our financial
position and results of operations; and
. our exposure to market risks, including fluctuations in interest rates.
We caution that these statements are further qualified by important factors
that could cause actual results to differ materially from those in the forward-
looking statements, including, without limitation, the following:
. changes in local and general economic and market conditions, including
consumer confidence;
. changes in interest rates and the availability of construction and mortgage
financing;
. changes in costs and availability of material, supplies and labor;
. the cyclical and competitive nature of homebuilding;
. the availability of debt and equity capital;
. changes in the availability of suitable undeveloped land at reasonable
prices;
. governmental regulation;
. adverse weather conditions and natural disasters; and
. adverse consequences of the Year 2000 issue.
Results actually achieved thus may differ materially from expected results
included in these and any other forward-looking statements contained herein.
Please see our Annual Report on Form 10-K for the year ended December 31, 1998
for a further discussion of these and other risks and uncertainties applicable
to our business.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STANDARD PACIFIC CORP.
(Registrant)
Dated: November 12, 1999 By: /s/ Arthur E. Svendsen
-------------------------------
Arthur E. Svendsen
Chairman of the Board and
Chief Executive Officer
Dated: November 12, 1999 By: /s/ Andrew H. Parnes
-------------------------------
Andrew H. Parnes
Vice President - Finance,
Treasurer and Chief
Financial Officer
-18-
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal proceedings
None
Item 2. Change in Securities
None
Item 3. Default upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Industrial Lease between The Irvine Company and
Standard Pacific Corp.
27. Financial Data Schedule.
(b) Current Reports on Form 8-K
None
-19-
<PAGE>
EXHIBIT 10.1
INDUSTRIAL LEASE
----------------
(Single Tenant; Net)
THIS LEASE is made as of the ___________ day of _______________________ ,
19__, by and between IRVINE TECHNOLOGY PARTNERS III, a California general
partnership, hereafter called "Landlord," and STANDARD PACIFIC CORP., a Delaware
corporation, hereinafter called "Tenant."
ARTICLE I. BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions" shall mean and
refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.
1. Premises: The Premises are more particularly described in Section 2.1.
Address of Building: 15326 Alton Parkway, Irvine, CA 92618
2. Project Description (if applicable): Alton/Technology
3. Use of Premises: General office, mortgage banking office and design
center.
4. Estimated Commencement Date: March 1, 2000
5. Lease Term: One Hundred Twenty (120) months, plus such additional days as
may be required to cause this Lease to terminate on the final day of the
calendar month.
6. Basic Rent: Forty Four Thousand Six Hundred Ninety-One Dollars
($44,691.00) per month, based on $1.37 per rentable square foot.
Basic Rent is subject to adjustment as follows:
Commencing twenty-four (24) months following the Commencement Date, the
Basic Rent shall be Forty Seven Thousand Nine Hundred Fifty-Three Dollars
($47,953.00) per month, based on $1.47 per rentable square foot.
Commencing forty-eight (48) months following the Commencement Date, the
Basic Rent shall be Fifty One Thousand Two Hundred Fifteen Dollars
($51,215.00) per month, based on $1.57 per rentable square foot.
Commencing seventy-two (72) months following the Commencement Date, the
Basic Rent shall be Fifty Four Thousand Four Hundred Seventy-Seven Dollars
($54,477.00) per month, based on $1.67 per rentable square foot.
Commencing ninety-six (96) months following the Commencement Date, the
Basic Rent shall be Fifty Seven Thousand Seven Hundred Thirty-Nine Dollars
($57,739.00) per month, based on $1.77 per rentable square foot.
7. Guarantor(s): None
8. Floor Area of Premises: approximately 32,621 rentable square feet
9. Security Deposit: None
10. Broker(s): None
11. Additional Insureds: Insignia\ESG of California, Inc.
12. Address for Payments and Notices:
<PAGE>
LANDLORD TENANT
INSIGNIA\ESG OF CALIFORNIA, INC. STANDARD PACIFIC CORP.
1 Ada, Suite 270 15326 Alton Parkway
Irvine, CA 92618 Irvine, CA 92618
with a copy of notices to:
IRVINE INDUSTRIAL COMPANY
P.O. Box 6370
Newport Beach, CA 92658-6370
Attn: Vice President, Industrial Operations
13. Tenant's Liability Insurance Requirement: $2,000,000.00
14. Vehicle Parking Spaces: One Hundred Thirty (130) on an unassigned and
unreserved basis, except that upon Tenant's request, Landlord shall
designate ten (10) of said spaces (in a location in close proximity to the
Building's main entry) which shall be marked "visitor".
<PAGE>
ARTICLE II. PREMISES
SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant leases
from Landlord the premises shown in Exhibit A (the "Premises"), including the
---------
building identified in Item 1 of the Basic Lease Provisions (which together with
the underlying real property, is called the "Building"), and containing
approximately the floor area set forth in Item 8 of the Basic Lease Provisions.
The Premises is a portion of the project shown in Exhibit Y (the "Project").
---------
SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that neither
Landlord nor any representative of Landlord has made any representation or
warranty with respect to the Premises or the Building or the suitability or
fitness of either for any purpose, including without limitation any
representations or warranties regarding zoning or other land use matters, and
that neither Landlord nor any representative of Landlord has made any
representations or warranties regarding (i) what other tenants or uses may be
permitted or intended in the Building and the Project, or (ii) any exclusivity
of use by Tenant with respect to its permitted use of the Premises as set forth
in Item 3 of the Basic Lease Provisions. Tenant further acknowledges that
neither Landlord nor any representative of Landlord has agreed to undertake any
alterations or additions or construct any improvements to the Premises except as
expressly provided in this Lease. The taking of possession or use of the
Premises by Tenant for any purpose other than early entry in accordance with the
Work Letter shall conclusively establish that the Premises and the Building were
in satisfactory condition and in conformity with the provisions of this Lease in
all respects, except for (i) those matters which Tenant shall have brought to
Landlord's attention on a written punch list, which list shall be limited to any
items required to be accomplished by Landlord under the Work Letter attached as
Exhibit X, and shall be delivered to Landlord within thirty (30) days after the
- ---------
term ("Term") of this Lease commences as provided in Article III below, and (ii)
Landlord's other obligations contained in this Lease, including without
limitation, the responsibilities contained in Section 2.4 hereof. Nothing
contained in this Section shall affect the commencement of the Term or the
obligation of Tenant to pay rent. Landlord shall diligently complete all punch
list items of which it is notified as provided above.
SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any name
selected by Landlord from time to time for the Building and/or the Project as
any part of Tenant's corporate or trade name. Landlord shall have the right to
change the name, address, number or designation of the Building or Project
without liability to Tenant.
SECTION 2.4. LANDLORD'S RESPONSIBILITIES.
(a) Landlord shall correct, repair or replace, at Landlord's sole cost and
expense and not as a Building Cost, any non-compliance of the Building exterior,
the Tenant Improvements and the Common Areas with all applicable building
permits and codes in effect as of the Commencement Date, including without
limitation, the provisions of Title III of the Americans With Disabilities Act
("ADA") in effect as of the Commencement Date. Said costs of compliance shall
be Landlord's sole cost and not a Building Cost. Landlord shall correct, repair
or replace any non-compliance of the Building exterior, the Tenant Improvements
and the Common Areas with any revisions or amendments to the ADA in effect after
the Commencement Date, provided that the amortized cost of such repairs or
replacements (amortized over the useful life thereof using a market cost of
funds reasonably determined by Landlord) shall be included as Building Costs
payable by Tenant. All other ADA compliance issues which pertain to the
Premises, including without limitation, in connection with Tenant's construction
of any alterations or other improvements in the Premises (and any resulting ADA
compliance requirements in the Common Areas) and the operation of Tenant's
business and employment practices in the Premises, shall be the responsibility
of Tenant at its sole cost and expense. The repairs, corrections or
replacements required of Landlord or of Tenant under the foregoing provisions of
this Section 2.4(a) shall be made promptly following notice of non-compliance
from any applicable governmental agency.
(b) Landlord warrants to Tenant: (i) that the roof, plumbing, fire
sprinkler system, lighting, heating, ventilation and air conditioning systems
and electrical systems serving the Premises and the Tenant Improvements (except
for punch list items) shall be in good operating condition on the Commencement
Date, and shall be free from defects in workmanship or materials during the
initial twelve (12) months of the Term, and (ii) that the Building shall be free
of latent defects in the construction thereof during the initial twelve (12)
months of the Term. In the event Tenant notifies Landlord of a non-compliance
with such warranty on or before the expiration of the sixth (6th) month of the
Term, then Landlord shall promptly rectify any noncompliance at Landlord's sole
cost and not as a Building Cost. Further, in connection with the construction
of the Tenant Improvements pursuant to the Work Letter, Landlord shall obtain
customary warranties and guaranties from the contractor(s) performing such work
and/or the manufacturers of equipment installed therein, but shall be under no
obligation to incur additional expense in order to obtain or extend such
warranties. If Tenant is required to make repairs to any component of the
Premises or any of its systems not covered by the Landlord's warranty contained
in this Section 2.4(b) but for which Landlord has obtained a contractor's or
manufacturer's warranty, then Landlord shall, upon request by Tenant, use its
good faith efforts to pursue its rights under any such warranties for the
benefit of Tenant. Tenant's acceptance of the Premises shall be subject to the
foregoing and to the provisions of this Lease regarding delivery of possession
and completion by Landlord of all punch-list items.
(c) Landlord shall, during the initial 120-month Term of this Lease,
correct, repair or replace, at Landlord's sole cost and not as a Building Cost,
any failure of the roof, foundations, footings and load-bearing walls of the
Building. The foregoing obligation, however, shall not apply to the extent any
such failure is caused by the negligence or improper use of such structural
components by Tenant, its employees, agents, contractors, licensees or invitees,
in which case Tenant shall be responsible for the reasonable costs of such
corrections, repairs and/or replacements. The corrections, repairs or
replacements required of Landlord or of Tenant in the preceding sentences of
this Section 2.4(c) shall be made promptly following notice from the other
party.
<PAGE>
ARTICLE III. TERM
SECTION 3.1. GENERAL. The Term shall be for the period shown in Item 5 of
the Basic Lease Provisions. Subject to the provisions of Section 3.2 below, the
Term shall commence ("Commencement Date") on the earlier of (a) the date upon
which all relevant governmental authorities have approved the Tenant
Improvements in accordance with applicable building codes, as evidenced by the
issuance of a temporary or final certificate of occupancy from the City of
Irvine for the Premises (but in no event earlier than the Estimated
Commencement Date), or (b) the date Tenant acquires possession or commences use
of the Premises for any purpose other than Tenant's right of early entry
pursuant to the provisions of Article I.H of the Work Letter attached hereto.
Within ten (10) days after possession of the Premises is tendered to Tenant, the
parties shall memorialize on a form provided by Landlord the actual Commencement
Date and the expiration date ("Expiration Date") of this Lease. Tenant's
failure to execute that form shall not affect the validity of Landlord's
determination of those dates.
SECTION 3.2. DELAY IN POSSESSION. If Landlord, for any reason whatsoever,
cannot deliver possession of the Premises to Tenant on or before the Estimated
Commencement Date, this Lease shall not be void or voidable nor shall Landlord
be liable to Tenant for any resulting loss or damage. However, Tenant shall not
be liable for any rent and the Commencement Date shall not occur until Landlord
delivers possession of the Premises and the Premises are in fact available for
Tenant's occupancy with any Tenant Improvements that have been approved as per
Section 3.1(a) above, except that if Landlord's failure to so deliver possession
on the Estimated Commencement Date is attributable to any action or inaction by
Tenant (including without limitation any Tenant Delay described in the Work
Letter, if any, attached to this Lease), then the Commencement Date shall not be
advanced to the date on which possession of the Premises is tendered to Tenant,
and Landlord shall be entitled to full performance by Tenant (including the
payment of rent) from the date Landlord would have been able to deliver the
Premises to Tenant but for Tenant's delay(s).
SECTION 3.3. RIGHT TO EXTEND THIS LEASE. Provided that Tenant is not in
default of any monetary covenant of this Lease (including without limitation the
obligation to pay Basic Rent and/or Operating Expenses) or of any material non-
monetary Lease covenant following written notice to Tenant and the expiration of
the applicable cure period either at the time of exercise of the extension right
granted herein or at the time of the commencement of such extension, and
provided further that Tenant (and/or a "Tenant Affiliate" as defined in Section
9.4 of this Lease) is occupying at least fifty percent (50%) of the floor area
of the Premises and has not assigned its interest in this Lease except to a
Tenant Affiliate, then Tenant may extend the Term for two (2) successive periods
of sixty (60) months each. Tenant shall separately exercise its right to extend
the Term by and only by delivering to Landlord, not less than nine (9) months or
more than fifteen (15) months prior to the expiration date of the original or
extended Term, as the case may be, Tenant's irrevocable written notice of its
commitment to extend (the "Commitment Notice"). The Basic Rent payable under
the Lease during any extension of the Term shall be determined as provided in
the following provisions.
If Landlord and Tenant have not by then been able to agree upon the Basic
Rent for an extension of the Term, then within one hundred twenty (120) and
ninety (90) days prior to the expiration date of the original or extended Term,
as the case may be, Landlord shall notify Tenant in writing of the Basic Rent
that would reflect the prevailing market rental rate for each 60-month renewal
of comparable space in the Irvine Spectrum (together with any increases thereof
during the extension period) as of the commencement of the extension period
("Landlord's Determination"). Should Tenant disagree with the Landlord's
Determination, then Tenant shall, not later than twenty (20) days thereafter,
notify Landlord in writing of Tenant's determination of those rental terms
("Tenant's Determination"). Within ten (10) days following delivery of the
Tenant's Determination, the parties shall attempt to agree on an appraiser to
determine the fair market rental. If the parties are unable to agree in that
time, then each party shall designate an appraiser within ten (10) days
thereafter. Should either party fail to so designate an appraiser within that
time, then the appraiser designated by the other party shall determine the fair
market rental. Should each of the parties timely designate an appraiser, then
the two appraisers so designated shall appoint a third appraiser who shall,
acting alone, determine the fair market rental for the Premises. If the
appraisers are unable to agree upon the appointment of the third appraiser
within ten (10) days following the designation of the second of said appraisers,
then the third appraiser shall be appointed by JAMS upon the application of
either party. Any appraiser designated hereunder shall have an MAI
certification with not less than five (5) years experience in the valuation of
commercial industrial buildings in Orange County, California.
Within thirty (30) days following the selection of the appraiser and such
appraiser's receipt of the Landlord's Determination and the Tenant's
Determination, the appraiser shall determine whether the rental rate determined
by Landlord or by Tenant more accurately reflects the fair market rental rate
for the applicable 60-month extension of the Lease, as reasonably extrapolated
to the commencement of the extension period. Accordingly, either the Landlord's
Determination or the Tenant's Determination shall be selected by the appraiser
as the fair market rental rate for the extension period. In making such
determination, the appraiser shall consider rental comparables for similarly
improved space within the Irvine Spectrum with appropriate adjustment for
location, quality of project, tenant improvements and other relevant factors
such as tenant improvements allowances for renewals of existing tenancies, but
the appraiser shall not attribute any factor for brokerage commissions in making
its determination of the fair market rental rate. At any time before the
decision of the appraiser is rendered, either party may, by written notice to
the other party, accept the rental terms submitted by the other party, in which
event such terms shall be deemed adopted as the agreed fair market rental. The
fees of the appraiser(s) shall be borne entirely by the party whose
determination of the fair market rental rate was not accepted by the appraiser.
Within twenty (20) days after the determination of the fair market rental,
Landlord shall prepare an appropriate amendment to this Lease for the extension
period, and Tenant shall execute and return same to Landlord within twenty
<PAGE>
(20) days. Should the fair market rental not be established by the commencement
of the extension period, then Tenant shall continue paying rent at the rate in
effect during the last month of the initial Term, and a lump sum adjustment
shall be made promptly upon the determination of such new rental.
If Tenant fails to timely exercise either of its rights granted in this
Section 3.3 to extend the Term, then such applicable right to extend the Term
(and any subsequent right to extend the Term) shall be thereupon automatically
extinguished, and the Lease shall automatically terminate as of the expiration
date of the Term, without any extension and without any liability to Landlord.
Any attempt to assign or transfer any right or interest created by this Section
3.3 other than to a "Tenant Affiliate", shall be void from its inception.
Tenant shall have no other right to extend the Term beyond the two successive
sixty (60) month extension periods created by this Section 3.3. Unless agreed
to in a writing signed by Landlord and Tenant, any extension of the Term,
whether created by an amendment to this Lease or by a holdover of the Premises
by Tenant, or otherwise, shall be deemed a part of, and not in addition to, any
duly exercised extension period permitted by this Section 3.3.
ARTICLE IV. RENT AND OPERATING EXPENSES
SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset, Basic Rent for the Premises
in the total amount shown (including subsequent adjustments, if any) in Item 6
of the Basic Lease Provisions. Any rental adjustment shown in Item 6 shall be
deemed to occur on the specified monthly anniversary of the Commencement Date,
whether or not that date occurs at the end of a calendar month. The rent shall
be due and payable in advance commencing on the Commencement Date (as prorated
for any partial month) and continuing thereafter on the first day of each
successive calendar month of the Term. No demand, notice or invoice shall be
required for the payment of Basic Rent. An installment of rent in the amount of
one (1) full month's Basic Rent at the initial rate specified in Item 6 of the
Basic Lease Provisions shall be delivered to Landlord concurrently with Tenant's
execution of this Lease and shall be applied against the Basic Rent first due
hereunder.
SECTION 4.2. OPERATING EXPENSES.
(a) Tenant shall pay to Landlord, as additional rent, "Building Costs"
and "Property Taxes," as those terms are defined below, incurred by Landlord in
the operation of the Building and Project. For convenience of reference,
Property Taxes and Building Costs shall be referred to collectively as
"Operating Expenses".
(b) Commencing prior to the start of the first full "Expense Recovery
Period" (as defined below) of the Lease, and prior to the start of each full or
partial Expense Recovery Period thereafter, Landlord shall give Tenant a written
estimate of the amount of Operating Expenses for the Expense Recovery Period.
Tenant shall pay the estimated amounts to Landlord in equal monthly
installments, in advance, with Basic Rent. If Landlord has not furnished its
written estimate for any Expense Recovery Period by the time set forth above,
Tenant shall continue to pay cost reimbursements at the rates established for
the prior Expense Recovery Period, if any; provided that when the new estimate
is delivered to Tenant, Tenant shall, at the next monthly payment date, pay any
accrued cost reimbursements based upon the new estimate. For purposes hereof,
"Expense Recovery Period" shall mean every twelve month period during the Term
(or portion thereof for the first and last lease years) commencing July 1 and
ending June 30.
(c) Within one hundred twenty (120) days after the end of each Expense
Recovery Period, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual or prorated Operating Expenses incurred by Landlord
during the period, and the parties shall within thirty (30) days thereafter make
any payment or allowance necessary to adjust Tenant's estimated payments, if
any, to Tenant's actual owed amounts as shown by the annual statement. Any
delay or failure by Landlord in delivering any statement hereunder shall not
constitute a waiver of Landlord's right to require Tenant to pay Operating
Expenses pursuant hereto. Any amount due Tenant shall be credited against
installments next coming due under this Section 4.2, and any deficiency shall be
paid by Tenant together with the next installment. If Tenant has not made
estimated payments during the Expense Recovery Period, any amount owing by
Tenant pursuant to subsection (a) above shall be paid to Landlord in accordance
with Article XVI. Should Tenant fail to object in writing to Landlord's
determination of actual Operating Expenses within twelve (12) months following
delivery of Landlord's expense statement, Landlord's determination of actual
Operating Expenses for the applicable Expense Recovery Period shall be
conclusive and binding on the parties and any future claims to the contrary
shall be barred.
Landlord agrees that it will maintain complete and accurate
records of all costs, expenses and disbursements paid or incurred by Landlord,
its employees, agents and/or contractors, with respect to the Operating Expenses
in accordance with generally accepted accounting principles, consistently
applied. Such records shall be kept until one (1) year after the end of the
Term, as it may be extended. Landlord shall provide in reasonable detail the
calculation of Operating Expenses. Provided Tenant is not then in default of any
monetary covenant of this Lease (including, without limitation, the obligation
to pay Basic Rent and/or Operating Expenses) or of any material non-monetary
covenant following written notice and the expiration of the applicable cure
period, Tenant shall have the right to cause a trained accountant to audit the
Operating Expenses. In no event, however, shall such accountant be compensated
by Tenant on a "contingency" basis, or on any other basis tied to the results of
said audit. Tenant shall give notice to Landlord of Tenant's intent to audit, if
at all, within twelve (12) months after Tenant's receipt of Landlord's expense
statement which sets forth Landlord's actual Operating Expenses. Such audit
shall be conducted at a mutually agreeable time during normal business hours at
the office of Landlord or its management agent where the records are maintained.
If Tenant's audit determines that actual Operating Expenses have been overstated
by more than four percent (4%), then subject to Landlord's right to review
and/or contest the audit results, Landlord shall reimburse Tenant for the
reasonable out-of-pocket costs of such audit. Tenant's rent shall be
appropriately adjusted to reflect the reimbursement
<PAGE>
to Tenant of any overstatement in Operating Expenses. In the event of a dispute
between Landlord and Tenant regarding the results of such audit, either party
may elect to submit the matter for binding arbitration with JAMS/ENDISPUTE or
its successor in Orange County, California.
All of the information obtained by Tenant and/or its auditor in
connection with such audit, as well as any compromise, settlement, or adjustment
reached between Landlord and Tenant as a result thereof, shall be held in strict
confidence and, except as may be required by law or pursuant to litigation and
except for inadvertent disclosures despite Tenant's reasonable efforts to keep
the disclosed information confidential, shall not be disclosed to any third
party, directly or indirectly, by Tenant or its auditor or any of their
officers, agents or employees. Landlord may require Tenant's auditor to execute
a separate confidentiality agreement affirming the foregoing as a condition
precedent to any audit. In the event of a violation of this confidentiality
covenant in connection with any audit, then in addition to any other legal or
equitable remedy available to Landlord, Tenant shall have no further audit
rights under this Lease.
(d) Even though the Lease has terminated and the Tenant has vacated
the Premises, when the final determination is made of Operating Expenses for the
Expense Recovery Period in which the Lease terminates, Tenant shall upon notice
pay the entire increase due over the estimated expenses paid. Conversely, any
overpayment made in the event expenses decrease shall be rebated by Landlord to
Tenant.
(e) If, at any time during any Expense Recovery Period, any one or
more of the Operating Expenses are increased to a rate(s) or amount(s) in excess
of the rate(s) or amount(s) used in calculating the estimated expenses for the
year, then the estimate of Operating Expenses shall be increased for the month
in which such rate(s) or amount(s) becomes effective and for all succeeding
months by an amount equal to the increase. Landlord shall give Tenant written
notice of the amount or estimated amount of the increase, the month in which the
increase will become effective, and the month for which the payments are due.
Tenant shall pay the increase to Landlord as a part of Tenant's monthly payments
of estimated expenses as provided in paragraph (b) above, commencing with the
month in which effective.
(f) The term "Building Costs" shall include all expenses of operation
and maintenance of the Building and of the Building's proportionate share of the
Common Areas (determined as the rentable square footage of the Building divided
by the rentable square footage of all space in the Project), to the extent such
expenses are not billed to and paid directly by Tenant, and shall include the
following charges by way of illustration but not limitation: water and sewer
charges; insurance premiums or reasonable premium equivalents should Landlord
elect to self-insure any risk that Landlord is authorized to insure hereunder;
license, permit, and inspection fees; heat; light; power; air conditioning;
supplies; materials; equipment; tools; the cost of any environmental, insurance,
tax or other consultant utilized by Landlord in connection with the Building
and/or Project; establishment of reasonable reserves for replacements and/or
repair of the Building and/or Common Area improvements (if applicable),
equipment and supplies (provided that Building Costs shall not include both
reserves and amortized payments for the same items for concurrent time periods);
costs incurred in connection with compliance of any laws or changes in laws
applicable to the Building or the Project (provided that, except for laws or
changes in laws that pertain particularly to Tenant or to Tenant's particular
use of the Premises [which shall be the sole responsibility of Tenant at its
cost], to the extent such laws or change in laws require expenditures of a
"capital" nature [as determined by generally accepted accounting principles,
consistently applied], then such "capital" expenditure shall be amortized [using
a market cost of funds as reasonably determined by Landlord] over the useful
life of such asset and only the amortized cost thereof shall be includable in
Building Costs during the remaining Term of the Lease); the cost of any capital
investments (other than tenant improvements for specific tenants), after
application of any previously established reserves for such capital investments,
to the extent of the amortized amount thereof over the useful life of such
capital investments calculated at a market cost of funds, all as determined by
Landlord in accordance with generally accepted accounting principles,
consistently applied, for each such year of useful life during the Term; costs
associated with the maintenance, repair and replacement of any intraBuilding
and/or intraProject telecommunications cable or conduit; labor; reasonably
allocated wages and salaries, fringe benefits, and payroll taxes for
administrative and other personnel directly applicable to the Building and/or
Project, including both Landlord's personnel and outside personnel; any expense
incurred pursuant to Sections 6.1, 6.2, 6.4, 7.2, and 10.2; and a reasonable and
commercially competitive overhead/management fee for the professional operation
of the Building and Project. Notwithstanding anything to the contrary contained
herein, the amount of such overhead/management fee to be charged to Tenant shall
be determined by multiplying the actual fee charged (which from time to time may
be with respect to the entire Project, a portion of the Project only, the
Building only, or the Project together with other properties owned by Landlord
and/or its affiliates) by a fraction, the numerator of which is the floor area
of the Premises (as set forth in Item No. 8 of the Basic Lease Provisions) and
the denominator of which is the total square footage of space charged with such
fee actually leased to tenants (including Tenant). It is understood that
Building Costs shall include competitive charges for direct services provided by
any subsidiary or division of Landlord.
Notwithstanding the provisions of this Section 4.2 to the
contrary, Operating Expenses shall not include any cost or expense identified as
the responsibility of Landlord and not an Operating Expense or a Building Cost
by the express terms of this Lease, and shall not include any of the following:
(i) Leasing commissions, attorneys' fees, costs, disbursements and other
expenses incurred by Landlord or its agents in connection with
negotiations for leases with tenants, other occupants or prospective
tenants or other occupants of the Project, or in connection with
disputes with and/or enforcement of any lease with tenants, other
occupants, or prospective tenants or other occupants of the Project;
(ii) "Tenant allowances", "tenant concessions", work letter payments, and
other costs or expenses (including permit, license and inspection
fees) incurred in completing,
<PAGE>
fixturizing, furnishing, renovating or otherwise improving,
decorating or redecorating space for tenants or other occupants of
the Project, or vacant, leasable space in the Project, including
space planning/interior design fees for same;
(iii) Depreciation;
(iv) Services, items and benefits for which Tenant or any other tenant
or occupant of the Project specifically reimburses Landlord or for
which Tenant or any other tenant or occupant of the Project pays
third persons, or services, items or benefits which are made
available to other tenants of the Project and not made available to
Tenant;
(v) Costs or expenses (including fines, penalties and legal fees)
incurred due to the violation by Landlord of any terms and
conditions of this Lease, that would not have incurred but for such
violation by Landlord;
(vi) Penalties for late payment of any Operating Expenses by Landlord,
including, without limitation, with respect to taxes, equipment
leases, etc.;
(vii) Payments in respect of overhead and/or profit to any subsidiary or
affiliate of Landlord, as a result of a non-competitive selection
process, for services (other than the management fee) on or to the
Project, or for goods, supplies or other materials, to the extent
that the costs of such services, goods, supplies or materials
exceed the costs that would have been paid if the services, goods,
supplies or materials had been provided by parties unaffiliated
with Landlord, of similar skill, competence and experience, on a
competitive basis;
(viii) Payments of principal, finance charges or interest on debt or
amortization on any deed of trust or other debt encumbering the
Project, and rental payments (or increases in same) under any
ground or underlying lease or leases encumbering the Project
(except to the extent the same may be made to pay or reimburse, or
may be measured by Property Taxes);
(ix) Except for a management fee which is reasonable and commercially
competitive for similar projects in the Irvine Spectrum area, costs
of Landlord's general overhead and general administrative expenses
(individual, partnership or corporate, as the case may be) and
wages, salaries and other compensation and benefits (as well as
adjustments thereto) of all employees and personnel of Landlord
above the level of manager for the Project;
(x) Advertising and promotional expenses;
(xi) Costs or expenses for the acquisition of sculpture, paintings or
other works of art, but not the reasonable expenses of maintaining,
repairing and insuring same;
(xii) Costs for which Landlord is actually reimbursed by an insurance
carrier or other sources;
(xiii) Contributions to political or charitable organizations;
(xiv) Costs incurred in removing the property of former tenants and/or
other occupants of the Project;
(xv) Costs or fees relating to the defense of Landlord's title to or
interest in the Building and/or the Project, or any part thereof;
and
(xvi) Costs of cleaning, remediation, removal, disposal, neutralization
or other treatment of Hazardous Materials, except to the extent
Tenant is responsible therein pursuant to the provisions of Section
5.3.
(g) The term "Property Taxes" as used herein shall include the
following: (i) all real estate taxes or personal property taxes, as such
property taxes may be reassessed from time to time; and (ii) other taxes,
charges and assessments which are levied with respect to this Lease or to the
Building and/or the Project, and any improvements, fixtures and equipment and
other property of Landlord located in the Building and/or the Project, except
that general net income and franchise taxes imposed against Landlord shall be
excluded; and (iii) all assessments and fees for public improvements, services,
and facilities and impacts thereon, including without limitation arising out of
any Community Facilities Districts, "Mello Roos" districts, similar assessment
districts, and any traffic impact mitigation assessments or fees; (iv) any tax,
surcharge or assessment which shall be levied in addition to or in lieu of real
estate or personal property taxes, other than taxes covered by Article VIII; and
(v) costs and expenses incurred in contesting the amount or validity of any
Property Tax by appropriate proceedings. Notwithstanding the foregoing, Tenant
shall not be responsible for any increase in Property Taxes resulting from a
change in ownership of the Project or the Building, which change in ownership
shall occur prior to the Commencement Date of this Lease.
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<PAGE>
(h) If Tenant reasonably believes that the amount of any real
property tax is improper for any reason, Tenant may notify Landlord in writing
of Tenant's desire that such real property taxes be contested or challenged by
Landlord with the applicable taxing authority. Tenant shall indicate the basis
for Tenant's contention that such taxes are improper in Tenant's notice to
Landlord. Upon receipt of any such request from Tenant, Landlord shall promptly
meet with Tenant to discuss whether or not it is appropriate, in Landlord's sole
and absolute discretion, to initiate a challenge or contest of such taxes or to
take no action with respect thereto. Landlord agrees that if Landlord is
pursuing tax contests for other buildings within the Project, Landlord will also
pursue such a contest for the Building if so requested by Tenant.
SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of
this Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9
of the Basic Lease Provisions, to be held by Landlord as security for the full
and faithful performance of Tenant's obligations under this Lease (the "Security
Deposit"). Subject to the last sentence of this Section, the Security Deposit
shall be understood and agreed to be the property of Landlord upon Landlord's
receipt thereof, and may be utilized by Landlord in its discretion towards the
payment of all prepaid expenses by Landlord for which Tenant would be required
to reimburse Landlord under this Lease, including without limitation brokerage
commissions and Tenant Improvement costs. Upon any default by Tenant, including
specifically Tenant's failure to pay rent or to abide by its obligations under
Sections 7.1 and 15.3 below, whether or not Landlord is informed of or has
knowledge of the default, the Security Deposit shall be deemed to be
automatically and immediately applied, without waiver of any rights Landlord may
have under this Lease or at law or in equity as a result of the default, as a
setoff for full or partial compensation for that default. If any portion of the
Security Deposit is applied after a default by Tenant, Tenant shall within five
(5) days after written demand by Landlord deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its original amount.
Landlord shall not be required to keep this Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on the Security
Deposit. If Tenant fully performs its obligations under this Lease, the
Security Deposit or any balance thereof shall be returned to Tenant (or, at
Landlord's option, to the last assignee of Tenant's interest in this Lease)
after the expiration of the Term, provided that Landlord may retain the Security
Deposit to the extent and until such time as all amounts due from Tenant in
accordance with this Lease have been determined and paid in full.
ARTICLE V. USES
SECTION 5.1. USE. Tenant shall use the Premises only for the purposes
stated in Item 3 of the Basic Lease Provisions, all in accordance with
applicable laws and restrictions and pursuant to approvals to be obtained by
Tenant from all relevant and required governmental agencies and authorities.
The parties agree that any contrary use shall be deemed to cause material and
irreparable harm to Landlord and shall entitle Landlord to injunctive relief in
addition to any other available remedy. Tenant, at its expense, shall procure,
maintain and make available for Landlord's inspection throughout the Term, all
governmental approvals, licenses and permits required for the proper and lawful
conduct of Tenant's permitted use of the Premises. Tenant shall not do or
knowingly permit anything to be done in or about the Premises which will in any
way interfere with the rights of other occupants of the Building or the Project,
or use or allow the Premises to be used for any unlawful purpose, nor shall
Tenant permit any nuisance or commit any waste in the Premises or the Project.
Tenant shall not do or knowingly permit to be done anything which will
invalidate or increase the cost of any insurance policy(ies) covering the
Building, the Project and/or their contents, and shall comply with all
applicable insurance underwriters rules and the requirements of the Pacific Fire
Rating Bureau or any other organization performing a similar function. Except
to the extent that Landlord is expressly responsible therefor under the terms of
this Lease, Tenant shall comply at its expense with all present and future laws,
ordinances, restrictions, regulations, orders, rules and requirements of all
governmental authorities that pertain to Tenant or its use of the Premises,
including without limitation all federal and state occupational health and
safety requirements, whether or not Tenant's compliance will necessitate
expenditures or interfere with its use and enjoyment of the Premises.
Notwithstanding the foregoing, to the extent that construction or rehabilitation
is required in connection with the foregoing compliance, Landlord shall perform
such construction or rehabilitation and the costs thereof, subject to the
limitations on capital investments contained in Section 4.2(g), shall be
considered as part of "Building Costs" (except to the extent that such
compliance results from Tenant's use of the Premises that is unique to Tenant
and different than a typical tenant of "flex tech" space [including, without
limitation, ADA compliance by Tenant in connection with its business and
employment practices in the Premises], in which event Tenant shall perform all
required construction and/or rehabilitation at its sole cost and expense).
Except to the extent that Landlord is expressly responsible therefor under the
terms of this Lease, Tenant shall comply at its expense with: (i) all present
covenants, conditions, easements or restrictions now affecting or encumbering
the Building and/or Project, including without limitation the payment by Tenant
of any periodic or special dues or assessments charged against the Premises or
Tenant which may be allocated to the Premises or Tenant in accordance with the
provisions thereof, and (ii) with any amendments or modifications to such
present covenants, conditions, easements or restrictions, or future covenants,
conditions, easements or restrictions, which do not materially increase Tenant's
obligations or materially decrease Tenant's rights hereunder. Tenant shall
promptly upon demand reimburse Landlord for any additional insurance premium
charged by reason of Tenant's failure to comply with the provisions of this
Section, and shall indemnify Landlord from any liability and/or expense
resulting from Tenant's noncompliance. Notwithstanding anything to the contrary
contained in this Section 5.1, in the event Tenant's obligation for compliance
with all future and present laws, ordinances, restrictions, regulations, orders,
rules and requirements of all governmental authorities, and with all present and
future covenants, conditions, easements or restrictions now or hereafter
affecting or encumbering the Building and/or the Project, results in a "capital"
improvement on Tenant's part (or Tenant's being obligated to reimburse Landlord
for a "capital" improvement), Tenant shall only be responsible for the amortized
cost of such "capital" improvement (amortized at a market cost of funds as
reasonably determined by Landlord) over the useful life of said improvement
during the Term except in the event each obligation for capital improvement is
required due to Tenant's particular use of the Premises (in which case Tenants
shall be fully responsible for the entire cost and installation of each
"capital" investment).
<PAGE>
SECTION 5.2 SIGNS. Provided Tenant and/or a "Tenant Affiliate" continues
to occupy at least fifty percent (50%) of the floor area of the Premises and has
not assigned its interest in this Lease except to a Tenant Affiliate, then
Tenant shall have the exclusive right to erect and maintain two (2) exterior
"building-top" signs on the Building as described on EXHIBIT F attached hereto.
---------
Except as provided in the foregoing or as otherwise approved in writing by
Landlord, in its sole discretion, Tenant shall have no right to place, erect or
maintain any signs, displays or other advertising materials on or about the
Premises, the Building or the Project that are visible from the exterior of the
Building. Except as provided in the first sentence of this Section 5.2, the
size, design, graphics, material, style, color and other physical aspects of any
permitted sign shall be subject to Landlord's written approval prior to
installation (which approval may be withheld in Landlord's sole discretion), any
covenants, conditions or restrictions encumbering the Premises, Landlord's
signage program for the Project, as in effect from time to time and approved by
the City in which the Premises are located ("Signage Criteria"), and any
applicable municipal or other governmental permits and approvals. Tenant
acknowledges having received and reviewed a copy of the current Signage Criteria
for the Project. Tenant shall be responsible for the cost of any permitted sign,
including the fabrication, installation, maintenance and removal thereof. If
Tenant fails to maintain its sign, or if Tenant fails to remove same upon
termination of this Lease and repair any damage caused by such removal, Landlord
may do so at Tenant's expense. Tenant's exterior signage rights described in
this Section 5.2 may be assigned in connection with an assignment of the Lease,
provided that Landlord shall have the right of prior approval that such signage
continues to comply with the Sign Criteria and the other revisions of this
Section 5.2, and provided further that any name or graphics proposed for such
exterior signage will not materially devalue the Project in Landlord's sole and
absolute discretion.
SECTION 5.3 HAZARDOUS MATERIALS.
(a) For purposes of this Lease, the term "Hazardous Materials"
includes (i) any "hazardous materials" as defined in Section 25501(n) of the
California Health and Safety Code, (ii) any other substance or matter which
results in liability to any person or entity from exposure to such substance or
matter under any statutory or common law theory, and (iii) any substance or
matter which is in excess of permitted levels set forth in any federal,
California or local law or regulation pertaining to any hazardous or toxic
substance, material or waste.
(b) Tenant shall not cause or permit any Hazardous Materials to be
brought upon, stored, used, generated, released or disposed of on, under, from
or about the Premises (including without limitation the soil and groundwater
thereunder) without the prior written consent of Landlord. Notwithstanding the
foregoing, Tenant shall have the right, without obtaining prior written consent
of Landlord, to utilize within the Premises standard office products that may
contain Hazardous Materials (such as photocopy toner, "White Out", and the
like), provided however, that (i) Tenant shall maintain such products in their
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original retail packaging, shall follow all instructions on such packaging with
respect to the storage, use and disposal of such products, and shall otherwise
comply with all applicable laws with respect to such products, and (ii) all of
the other terms and provisions of this Section 5.3 shall apply with respect to
Tenant's storage, use and disposal of all such products. Landlord may, in its
sole discretion, place such conditions as Landlord deems appropriate with
respect to any such Hazardous Materials, and may further require that Tenant
demonstrate that any such Hazardous Materials are necessary or useful to
Tenant's business and will be generated, stored, used and disposed of in a
manner that complies with all applicable laws and regulations pertaining thereto
and with good business practices. Tenant understands that Landlord may utilize
an environmental consultant to assist in determining conditions of approval in
connection with the storage, generation, release, disposal or use of Hazardous
Materials by Tenant on or about the Premises, and/or to conduct periodic
inspections of the storage, generation, use, release and/or disposal of such
Hazardous Materials by Tenant on and from the Premises, and Tenant agrees that
any costs incurred by Landlord in connection therewith shall be reimbursed by
Tenant to Landlord as additional rent hereunder upon demand; however, Tenant
shall have no obligation to reimburse Landlord for any costs incurred in
connection with any environmental consultant retained by Landlord pursuant to
this Section unless Tenant shall be in default under this Section 5.3 and such
costs are covered by Tenant's indemnity contained in this Section 5.3.
(c) Prior to the execution of this Lease, Tenant shall complete,
execute and deliver to Landlord an Environmental Questionnaire and Disclosure
Statement (the "Environmental Questionnaire") in the form of Exhibit B attached
---------
hereto. The completed Environmental Questionnaire shall be deemed incorporated
into this Lease for all purposes, and Landlord shall be entitled to rely fully
on the information contained therein. On each anniversary of the Commencement
Date until the expiration or sooner termination of this Lease, Tenant shall
disclose to Landlord in writing the names and amounts of all Hazardous Materials
which were stored, generated, used, released and/or disposed of on, under or
about the Premises for the twelve-month period prior thereto, and which Tenant
desires to store, generate, use, release and/or dispose of on, under or about
the Premises for the succeeding twelve-month period. In addition, to the extent
Tenant is permitted to utilize Hazardous Materials upon the Premises, Tenant
shall promptly provide Landlord with complete and legible copies of all the
following environmental documents relating thereto: reports filed pursuant to
any self-reporting requirements; permit applications, permits, monitoring
reports, workplace exposure and community exposure warnings or notices and all
other reports, disclosures, plans or documents (even those which may be
characterized as confidential) relating to water discharges, air pollution,
waste generation or disposal, and underground storage tanks for Hazardous
Materials; orders, reports, notices, listings and correspondence (even those
which may be considered confidential) of or concerning the release,
investigation of, compliance, cleanup, remedial and corrective actions, and
abatement of Hazardous Materials; and all complaints, pleadings and other legal
documents filed by or against Tenant related to Tenant's use, handling, storage,
release and/or disposal of Hazardous Materials.
(d) Landlord and its agents shall have the right, but not the
obligation, to inspect, sample and/or monitor the Premises and/or the soil or
groundwater thereunder at any time to determine whether Tenant is complying with
the terms of this Section 5.3, and in connection therewith Tenant shall provide
Landlord with full access to all relevant facilities, records and personnel. If
Tenant is not in compliance with any of the provisions of this Section 5.3, or
in the event of a release of any Hazardous Material on, under or about the
Premises caused or permitted by Tenant,
<PAGE>
its agents, employees, contractors, licensees or invitees, Landlord and its
agents shall have the right, but not the obligation, without limitation upon any
of Landlord's other rights and remedies under this Lease, to immediately enter
upon the Premises without notice and to discharge Tenant's obligations under
this Section 5.3 at Tenant's expense, including without limitation the taking of
emergency or long-term remedial action. Landlord and its agents shall endeavor
to minimize interference with Tenant's business in connection therewith, but
shall not be liable for any such interference. In addition, Landlord, at
Tenant's expense, shall have the right, but not the obligation, to join and
participate in any legal proceedings or actions initiated in connection with any
claims arising out of the storage, generation, use, release and/or disposal by
Tenant or its agents, employees, contractors, licensees or invitees of Hazardous
Materials on, under, from or about the Premises.
(e) If the presence of any Hazardous Materials on, under, from or
about the Premises or the Project caused or permitted by Tenant or its agents,
employees, contractors, licensees or invitees results in (i) injury to any
person, (ii) injury to or any contamination of the Premises or the Project, or
(iii) injury to or contamination of any real or personal property wherever
situated, Tenant, at its expense, shall promptly take all actions necessary to
return the Premises and the Project and any other affected real or personal
property owned by Landlord to the condition existing prior to the introduction
of such Hazardous Materials and to remedy or repair any such injury or
contamination, including without limitation, any cleanup, remediation, removal,
disposal, neutralization or other treatment of any such Hazardous Materials.
Notwithstanding the foregoing, Tenant shall not, without Landlord's prior
written consent, take any remedial action in response to the presence of any
Hazardous Materials on, under or about the Premises or the Project or any other
affected real or personal property owned by Landlord or enter into any similar
agreement, consent, decree or other compromise with any governmental agency with
respect to any Hazardous Materials claims; provided however, Landlord's prior
written consent shall not be necessary in the event that the presence of
Hazardous Materials on, under or about the Premises or the Project or any other
affected real or personal property owned by Landlord (i) imposes an immediate
threat to the health, safety or welfare of any individual or (ii) is of such a
nature that an immediate remedial response is necessary and it is not possible
to obtain Landlord's consent before taking such action. To the fullest extent
permitted by law, Tenant shall indemnify, hold harmless, protect and defend
(with attorneys acceptable to Landlord) Landlord and any successors to all or
any portion of Landlord's interest in the Premises and the Project and any other
real or personal property owned by Landlord from and against any and all
liabilities, losses, damages, diminution in value, judgments, fines, demands,
claims, recoveries, deficiencies, costs and expenses (including without
limitation attorneys' fees, court costs and other professional expenses),
whether foreseeable or unforeseeable, arising directly or indirectly out of the
use, generation, storage, treatment, release, on- or off-site disposal or
transportation of Hazardous Materials on, into, from, under or about the
Premises, the Building and the Project and any other real or personal property
owned by Landlord caused or permitted by Tenant, its agents, employees,
contractors, licensees or invitees, specifically including without limitation
the cost of any required or necessary repair, restoration, cleanup or
detoxification of the Premises, the Building and the Project and any other real
or personal property owned by Landlord, and the preparation of any closure or
other required plans, whether or not such action is required or necessary during
the Term or after the expiration of this Lease. If Landlord at any time
discovers that Tenant or its agents, employees, contractors, licensees or
invitees may have caused or permitted the release of a Hazardous Material on,
under, from or about the Premises or the Project or any other real or personal
property owned by Landlord, Tenant shall, at Landlord's request, immediately
prepare and submit to Landlord a comprehensive plan, subject to Landlord's
approval, specifying the actions to be taken by Tenant to return the Premises or
the Project or any other real or personal property owned by Landlord to the
condition existing prior to the introduction of such Hazardous Materials. Upon
Landlord's approval of such cleanup plan, Tenant shall, at its expense, and
without limitation of any rights and remedies of Landlord under this Lease or at
law or in equity, immediately implement such plan and proceed to cleanup such
Hazardous Materials in accordance with all applicable laws and as required by
such plan and this Lease. The provisions of this subsection (e) shall expressly
survive the expiration or sooner termination of this Lease.
(f) Landlord hereby discloses to Tenant, and Tenant hereby
acknowledges, certain facts relating to Hazardous Materials at the Project known
by Landlord to exist as of the date of this Lease, as more particularly
described in EXHIBIT C attached hereto. Tenant shall have no liability or
---------
responsibility with respect to the Hazardous Materials facts described in
EXHIBIT C, nor with respect to any Hazardous Materials which were not caused or
- ---------
permitted by Tenant, its agents, employees, contractors, licensees or invitees.
Landlord shall take responsibility, at its sole cost and expense, for any
governmentally-ordered clean-up, remediation, removal, disposal, neutralization
or other treatment of Hazardous Materials conditions described in this Section
5.3(f). The foregoing obligation on the part of Landlord shall include the
reasonable costs (including, without limitation, reasonable attorney's fees) of
defending Tenant (with attorneys reasonably acceptable to Tenant) from and
against any legal action or proceeding instituted by any governmental agency in
connection with such clean-up, remediation, removal, disposal, neutralization or
other treatment of such conditions, provided that Tenant promptly tenders such
defense to Landlord. Tenant agrees to notify its agents, employees,
contractors, licensees, and invitees of any exposure or potential exposure to
Hazardous Materials at the Premises that Landlord brings to Tenant's attention.
(g) If the release of any Hazardous Materials on, under, from or about
the Premises or the Project caused by Landlord, its authorized agents or
employees, results in (i) injury to any person, or (ii) injury to or any
contamination of the Premises or the Project at levels which require clean-up or
remediation under applicable laws, Landlord, at its expense (which shall not be
included in Operating Expenses), shall promptly take all actions necessary to
return the Premises and the Project to the condition existing prior to the
introduction of such Hazardous Materials, or to such condition as is
satisfactory to all governmental agencies asserting jurisdiction, and to remedy
or repair any such injury or contamination, including, without limitation, any
clean-up, remediation, removal, disposal, neutralization or other treatment of
any such Hazardous Materials.
(h) If the release of Hazardous Materials caused by Landlord, its
authorized agents or employees, renders the Premises untenantable in whole or in
part or results in Tenant being required to vacate the Premises in whole or in
part pursuant to an order or requirement of any governmental agency or
authority, then the Basic Rent, Operating
<PAGE>
Expenses, insurance premiums, and other charges, if any, payable by Tenant
hereunder for the period during which the Premises (or a portion thereof) remain
so impaired shall be abated in proportion to the degree to which Tenant's use of
the Premises is impaired and for the period of such impairment. If the period of
such impairment shall exceed two hundred seventy (270) days, Tenant shall have
the right to terminate this Lease upon written notice to Landlord given within
ten (10) days following the passage of such two hundred seventy (270) day
period. Tenant's termination of the Lease pursuant to this Section 5.3(h) shall
be effective as of the date of such notice.
(i) In the event of any foreclosure of a mortgage or deed of trust
encumbering the Building and/or the Project, the obligations on the part of
Landlord contained in Sections 5.3(f) and (g) above shall be personal to
Landlord and shall not be binding on nor inure against any lender acquiring the
Building and/or the Project by foreclosure of its mortgage or deed of trust or
deed in lieu of foreclosure, or any successor in interest to such lender.
(j) Except as disclosed in Section 5.3(f) above (and/or as may
otherwise be disclosed to Tenant in writing), Landlord represents that, to
"Landlord's knowledge" (as hereinafter defined), there are no Hazardous
Materials in or about the Premises which are in violation of any applicable
federal, state or local law, ordinance or regulation. As used herein,
"Landlord's knowledge" shall mean the actual knowledge, without duty of inquiry
or investigation, of the current employees of Landlord responsible for Hazardous
Materials compliance matters.
ARTICLE VI. COMMON AREAS; SERVICES
SECTION 6.1. UTILITIES AND SERVICES. Tenant shall be responsible for and
shall pay promptly, directly to the appropriate supplier, all charges for water,
gas, electricity, sewer, heat, light, power, telephone, refuse pickup,
janitorial service, interior landscape maintenance and all other utilities,
materials and services furnished directly to Tenant or the Premises or used by
Tenant in, on or about the Premises during the Term, together with any taxes
thereon. Landlord shall not be liable for damages or otherwise for any failure
or interruption of any utility or other service furnished to the Premises, and
no such failure or interruption shall be deemed an eviction or entitle Tenant to
terminate this Lease or withhold or abate any rent due hereunder. Landlord
shall at all reasonable times have free access to all electrical and mechanical
installations of Landlord.
Notwithstanding the foregoing, if as a result of the actions of
Landlord, its authorized agents or employees, for more than three (3)
consecutive business days following written notice to Landlord there is no HVAC
or electricity services to all or a portion of the Premises, or such an
interruption of other essential utilities and building services, such as fire
protection or water, so that all or a portion of the Premises cannot be used by
Tenant, then Basic Rent (or an equitable portion of such Basic Rent to the
extent that less than all of the Premises are affected) shall thereafter be
abated until the Premises are again usable by Tenant; provided, however, that if
Landlord is diligently pursuing the repair of such utilities or services and
Landlord provides substitute services reasonably suitable for Tenant's purposes,
as for example, bringing in portable air-conditioning equipment, then there
shall not be an abatement of Basic Rent. Any disputes concerning the foregoing
shall be submitted to and resolved by JAMS arbitration pursuant to Section 22.7
of this Lease. The foregoing provisions shall not apply in case of damage to,
or destruction of, the Premises, which shall be governed by the provisions of
Article XI of the Lease.
SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the Term,
Landlord shall operate all Common Areas within the Project. The term "Common
Areas" shall mean all areas which are not held for exclusive use by persons
entitled to occupy space, and all other appurtenant areas and improvements
provided by Landlord for the common use of Landlord and tenants and their
respective employees and invitees, including without limitation parking areas
and structures, driveways, sidewalks, landscaped and planted areas, hallways and
interior stairwells not located within the premises of any tenant, common
electrical rooms and roof access entries, common entrances and lobbies,
elevators, and restrooms not located within the premises of any tenant.
SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the Premises
shall include the use of the Common Areas in common with Landlord and with all
others for whose convenience and use the Common Areas may be provided by
Landlord, subject, however, to compliance with all rules and regulations as are
prescribed from time to time by Landlord in a reasonable and non-discriminatory
manner. Landlord shall operate, repair and maintain the Common Areas in a
first-class manner comparable to other "flex tech" projects owned by Landlord in
the Irvine Spectrum area, as Landlord may determine to be appropriate. All
reasonable costs incurred by Landlord for the maintenance and operation of the
Common Areas shall be included in Building Costs unless excluded under Section
4.2 or unless any particular cost incurred can be charged to a specific tenant
of the Project. Landlord shall at all times during the Term have exclusive
control of the Common Areas, and may restrain any use or occupancy, except as
authorized by Landlord's rules and regulations or as otherwise expressly
provided in this Lease. Tenant shall keep the Common Areas clear of any
obstruction or unauthorized use related to Tenant's operations. Except as
otherwise expressly provided in this Lease, nothing in this Lease shall be
deemed to impose liability upon Landlord for any damage to or loss of the
property of, or for any injury to, Tenant, its invitees or employees. Landlord
may temporarily close any portion of the Common Areas for repairs, remodeling
and/or alterations, to prevent a public dedication or the accrual of
prescriptive rights, or for any other reason deemed sufficient by Landlord,
without liability to Landlord. Tenant shall not be required to comply with any
rules and regulations for the Project other than those attached to this Lease
unless such rules and regulations are commercially reasonable and
nondiscriminatory in content and application. Landlord's exclusive control,
operation, maintenance and repair of the Common Area shall be subject to
Tenant's parking rights contained in Section 6.4 below and to all other
limitations contained in this Lease. Landlord agrees that any temporary closure
of any portion of the Common Areas shall not unreasonably interfere with
Tenant's intended use of the Premises, nor its reasonable access to or parking
for the Premises.
<PAGE>
SECTION 6.4. PARKING. Tenant shall be entitled to the number of vehicle
parking spaces set forth in Item 14 of the Basic Lease Provisions, which spaces
shall be unreserved and unassigned except as provided in said Item 14, on those
portions of the Common Areas designated by Landlord for parking. Tenant shall
not use more parking spaces than such number. All parking spaces shall be used
only for parking by vehicles no larger than full size passenger automobiles
(including limousines) or pickup trucks. Tenant shall not permit or allow any
vehicles that belong to or are controlled by Tenant or Tenant's employees,
suppliers, shippers, customers or invitees to be loaded, unloaded or parked in
areas other than those designated by Landlord for such activities. If Tenant
permits or allows any of the prohibited activities described above, then
Landlord shall have the right, without notice, in addition to such other rights
and remedies that Landlord may have, to remove or tow away the vehicle involved
and charge the costs to Tenant. Parking within the Common Areas shall be
limited to striped parking stalls, and no parking shall be permitted in any
driveways, access ways or in any area which would prohibit or impede the free
flow of traffic within the Common Areas. There shall be no overnight parking of
any vehicles of any kind unless otherwise authorized by Landlord, and vehicles
which have been abandoned or parked in violation of the terms hereof may be
towed away at the owner's expense. Nothing contained in this Lease shall be
deemed to create liability upon Landlord for any damage to motor vehicles of
visitors or employees, for any loss of property from within those motor
vehicles, or for any injury to Tenant, its visitors or employees, unless
ultimately determined to be caused by the sole active negligence or willful
misconduct of Landlord, its agents, servants and employees. Landlord shall have
the right to establish, and from time to time amend, and to enforce against all
users all reasonable rules and regulations (including the designation of areas
for employee parking) that Landlord may deem necessary and advisable for the
proper and efficient operation and maintenance of parking within the Common
Areas. Landlord shall have the right to construct, maintain and operate
lighting facilities within the parking areas; to restrict parking by tenants,
their officers, agents and employees to employee parking areas; and, subject to
the limitations on changes and/or additions to the Common Areas contained in
Section 6.5 below, to do and perform such other acts in and to the parking
areas and improvements therein as, in the use of good business judgment,
Landlord shall determine to be advisable. After the expiration of the initial
120-month Term of this Lease, Landlord shall have the right to enforce parking
charges (by operation of meters or otherwise) if Landlord is then generally
enforcing parking charges within its industrial "flex tech" lease portfolio in
the Irvine Spectrum. Any person using the parking area shall observe all
directional signs and arrows and any posted speed limits. In no event shall
Tenant interfere with the use and enjoyment of the parking area by other tenants
of the Project or their employees or invitees. Parking areas shall be used only
for parking vehicles. Washing, waxing, cleaning or servicing of vehicles, or
the storage of vehicles for 24-hour periods, is prohibited unless otherwise
authorized by Landlord. Tenant shall be liable for any damage to the parking
areas caused by Tenant or Tenant's employees, suppliers, shippers, customers or
invitees, including without limitation damage from excess oil leakage. Tenant
shall have no right to install any fixtures, equipment or personal property in
the parking areas.
SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the
right to make alterations or additions to the Project, or to the attendant
fixtures, equipment and Common Areas. Landlord may at any time relocate or
remove any of the various buildings (other than the Building), parking areas,
and other Common Areas, and may add buildings and areas to the Project from time
to time. No change shall entitle Tenant to any abatement of rent or other claim
against Landlord, provided that the change does not deprive Tenant of reasonable
access to or use of the Premises. Notwithstanding the foregoing, no change by
Landlord to the Common Areas (including, without limitation, to the parking
areas) shall: (i) materially impair access to and from the Premises from the
parking areas, (ii) reduce the number or size of Tenant's parking spaces granted
under this Lease, or (iii) otherwise unreasonably interfere with Tenant's access
to and use of the Premises, the parking areas and the Common Areas adjacent to
the Building in any material manner without Tenant's prior written consent,
which shall not be unreasonably withheld.
ARTICLE VII. MAINTAINING THE PREMISES
SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole expense
shall make all repairs necessary to keep the Premises in the condition as
existed on the Commencement Date (or on any later date that the improvements may
have been installed), excepting ordinary wear and tear, including without
limitation the electrical and mechanical systems, any air conditioning,
ventilating or heating equipment which serves the Premises, all walls, glass,
windows, doors, door closures, hardware, fixtures, electrical, plumbing, fire
extinguisher equipment and other equipment; provided, however, Tenant shall have
no obligation to repair, maintain or replace the roof, foundations, footings,
structural systems, exterior glass, sky lights, sky light seals, window seals
and vents, electrical, plumbing, sewer and other utility lines outside the
Premises, landscaping, walkways, fencing, parking areas, exterior lighting or
exterior surfaces of exterior walls of the Building, and washing of exterior
windows, all of which obligations shall be the sole responsibility of Landlord
as provided in and subject to the terms of Section 7.2 below. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Tenant. As part
of its maintenance obligations hereunder, Tenant shall, at Landlord's request,
provide Landlord with copies of all maintenance schedules, reports and notices
prepared by, for or on behalf of Tenant. Tenant shall obtain preventive
maintenance contracts from a licensed heating and air conditioning contractor to
provide for regular inspection and maintenance of the heating, ventilating and
air conditioning systems servicing the Premises, all subject to Landlord's
approval. All repairs shall be at least equal in quality to the original work,
shall be made only by a licensed contractor approved in writing in advance by
Landlord and shall be made only at the time or times approved by Landlord. Any
contractor utilized by Tenant shall be subject to Landlord's standard
requirements for contractors, as modified from time to time. The burden of
proof shall be with Landlord to prove that any repairs or maintenance performed
on behalf of Tenant by Landlord-approved contractors shall be inadequate.
Landlord shall have the right at all times to inspect Tenant's maintenance of
all equipment (including without limitation air conditioning, ventilating and
heating equipment), and may impose reasonable restrictions and requirements with
respect to repairs, as provided in Section 7.3, and the provisions of Section
7.4 shall apply to all repairs. Alternatively, Landlord may elect to make any
repair or maintenance required hereunder on behalf of Tenant and at Tenant's
expense, and Tenant shall promptly reimburse Landlord for all costs incurred
upon submission of an invoice.
<PAGE>
SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR. Subject to Section 7.1
and Article XI, Landlord shall provide service, maintenance and repair with
respect to the roof, foundations, and footings of the Building, all landscaping,
walkways, parking areas, Common Areas, exterior lighting, the exterior surfaces
of the exterior walls of the Building and all other portions of the exterior of
the Building and the Common Areas, all exterior glass, sky lights, sky light
seals, window seals and vents of the Building, electrical plumbing, sewer and
other utility lines outside the Premises, landscaping, walkways, fencing,
parking areas, and washing of exterior windows, and the structural, electrical
and mechanical systems of the Building and all Common Area improvements within
the Project, except that, subject to the waiver of subrogation contained in
Section 10.5 below, Tenant at its expense shall make all repairs which Landlord
deems reasonably necessary as a result of the negligent act or omission of
Tenant, its agents, employees, invitees, subtenants or contractors. Landlord
shall have the right to employ or designate any reputable person or firm,
including any employee or agent of Landlord or any of Landlord's affiliates or
divisions, to perform any service, repair or maintenance function. Landlord
need not make any other improvements or repairs except as specifically required
under this Lease, and nothing contained in this Section shall limit Landlord's
right to reimbursement from Tenant for maintenance, repair costs and replacement
costs as provided elsewhere in this Lease. Tenant understands that it shall not
make repairs at Landlord's expense or by rental offset. Tenant further
understands that Landlord shall not be required to make any repairs to the roof,
foundations, footings or structural, electrical or mechanical systems, unless
and until Tenant has notified Landlord in writing of the need for such repair
and Landlord shall have a reasonable period of time thereafter to commence and
complete said repair, if warranted. Subject only to Landlord's obligations
expressly contained in this Lease, all costs of any maintenance and repairs on
the part of Landlord provided hereunder shall be considered part of Building
Costs.
SECTION 7.3. ALTERATIONS. Tenant shall make no alterations, additions or
improvements to the Premises without the prior written consent of Landlord,
which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, Tenant may make such alterations, additions or improvements to the
Premises costing up to One Hundred Thousand Dollars ($100,000.00) for each
calendar year of the Term (on a non-cumulative basis) without Landlord's
consent, provided, however, that any alterations, additions or improvements
which change the basic floor plan of the Premises, which change the structural
or mechanical systems of the Premises, shall require Landlord's prior written
consent, which shall not be unreasonably withheld. Notwithstanding anything to
the contrary contained in either of the foregoing sentences, however, no
alterations, additions or improvements to the Premises shall: (i) affect the
exterior of the Building or outside areas (or be visible from adjoining sites),
or (ii) affect or penetrate any of the structural portions of the Building,
including but not limited to the roof, or (iii) interfere in any manner with the
proper functioning of or Landlord's access to any mechanical, electrical,
plumbing or HVAC systems, facilities or equipment located in or serving the
Building. Landlord may impose, as a condition to its consent, any requirements
that Landlord in its discretion may deem reasonable or desirable, including but
not limited to a requirement that all work be covered by a lien and completion
bond satisfactory to Landlord and requirements as to the manner, time, and
contractor for performance of the work. Tenant shall obtain all required
permits for the work and shall perform the work in compliance with all
applicable laws, regulations and ordinances, all covenants, conditions and
restrictions affecting the Project, and the Rules and Regulations (hereafter
defined). Tenant understands and agrees that Landlord shall be entitled to a
supervision fee in the amount of three percent (3%) of the cost of any
alterations, additions or improvements work which requires Landlord's consent
thereto. If any governmental entity requires, as a condition to any proposed
alterations, additions or improvements to the Premises by Tenant, that
improvements be made to the Common Areas, and if Landlord consents to such
improvements to the Common Areas, then Tenant shall, at Tenant's sole expense,
make such required improvements to the Common Areas in such manner, utilizing
such materials, and with such contractors (including, if required by Landlord,
Landlord's contractors) as Landlord may reasonably require. Under no
circumstances shall Tenant make any improvement which incorporates any Hazardous
Materials, including without limitation asbestos-containing construction
materials into the Premises. Any request for Landlord's consent shall be made
in writing and shall contain architectural plans describing the work in detail
reasonably satisfactory to Landlord. Unless Landlord otherwise agrees in
writing, all alterations, additions or improvements affixed to the Premises
(excluding moveable trade fixtures and furniture) shall become the property of
Landlord and shall be surrendered with the Premises at the end of the Term,
except that Landlord may, as provided in the next succeeding paragraph of this
Section 7.3, require Tenant to remove by the Expiration Date, or sooner
termination date of this Lease, all or any alterations, decorations, fixtures,
additions, improvements and the like installed either by Tenant or by Landlord
at Tenant's request and to repair any damage to the Premises arising from that
removal. Except as otherwise provided in this Lease or in any Exhibit to this
Lease, should Landlord make any alteration or improvement to the Premises for
Tenant, Landlord shall be entitled to prompt reimbursement from Tenant for all
costs incurred.
As of the Expiration Date or earlier termination of the Term, Landlord
shall have the right to require Tenant to remove any alterations, additions or
improvements made subsequent to the Commencement Date, whether or not Landlord's
consent therefor was required. Notwithstanding the foregoing, if at the time of
requesting Landlord's consent for any such alterations, improvements or
additions, Tenant shall request in writing whether or not Landlord shall require
such alterations, improvements or additions to be removed as of the Expiration
Date or earlier termination of this Lease, then Landlord's right to require
Tenant to remove such alterations, improvements or additions shall be exercised,
if at all, at the time of Landlord's approval thereof. Landlord and Tenant
agree that Tenant shall have the right, upon expiration or termination of this
Lease, to remove any and all phone systems, furniture, fixtures and other
personal property which are not permanently affixed to the Premises or which may
be removed without significant change to the Premises (including floor
coverings, draperies, and/or removable shelves) that are installed in the
Premises at Tenant's sole expense; provided, however, that Tenant shall, at its
sole cost, repair any damage caused by such removal, reasonable wear and tear
excepted.
SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free from
any liens arising out of any work performed, materials furnished, or obligations
incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly
cause any such lien to be released by posting a bond in accordance with
California Civil Code Section
<PAGE>
3143 or any successor statute. In the event that Tenant shall not, within thirty
(30) days following the imposition of any lien, cause the lien to be released of
record by payment or posting of a proper bond, Landlord shall have, in addition
to all other available remedies, the right to cause the lien to be released by
any means it deems proper, including payment of or defense against the claim
giving rise to the lien. All expenses so incurred by Landlord, including
Landlord's attorneys' fees, and any consequential or other damages incurred by
Landlord arising out of such lien, shall be reimbursed by Tenant promptly
following Landlord's demand, together with interest from the date of payment by
Landlord at the maximum rate permitted by law until paid. Tenant shall give
Landlord no less than twenty (20) days' prior notice in writing before
commencing construction of any kind on the Premises so that Landlord may post
and maintain notices of nonresponsibility on the Premises.
SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable
times, upon not less than 24 hours' written or oral notice (except in
emergencies, when no notice shall be required) have the right to enter the
Premises to inspect them, to supply services in accordance with this Lease, to
protect the interests of Landlord in the Premises, and to submit the Premises to
prospective or actual purchasers or encumbrance holders (or, during the last one
hundred and eighty (180) days of the Term or when an uncured Tenant default
exists, to prospective tenants), all without being deemed to have caused an
eviction of Tenant and without abatement of rent except as provided elsewhere in
this Lease. Landlord shall have the right, if desired, to retain a key which
unlocks all of the doors in the Premises, excluding Tenant's vaults and safes,
and Landlord shall have the right to use any and all means which Landlord may
deem proper to open the doors in an emergency in order to obtain entry to the
Premises, and any entry to the Premises obtained by Landlord shall not under any
circumstances be deemed to be a forcible or unlawful entry into, or a detainer
of, the Premises, or any eviction of Tenant from the Premises.
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY
Tenant shall be liable for and shall pay, at least ten (10) days before
delinquency, all taxes and assessments levied against all personal property of
Tenant located in the Premises, and against any alterations, additions or like
improvements made to the Premises by or on behalf of Tenant. When possible
Tenant shall cause its personal property, alterations to be assessed and billed
separately from the real property of which the Premises form a part. If any
taxes on Tenant's personal property, and/or alterations are levied against
Landlord or Landlord's property and if Landlord pays the same, or if the
assessed value of Landlord's property is increased by the inclusion of a value
placed upon the personal property, and/or alterations of Tenant and if Landlord
pays the taxes based upon the increased assessment, Tenant shall pay to Landlord
the taxes so levied against Landlord or the proportion of the taxes resulting
from the increase in the assessment. In calculating what portion of any tax
bill which is assessed against Landlord separately, or Landlord and Tenant
jointly, is attributable to alterations and personal property, Landlord's
reasonable determination shall be conclusive.
ARTICLE IX. ASSIGNMENT AND SUBLETTING
SECTION 9.1. RIGHTS OF PARTIES.
(a) Notwithstanding any provision of this Lease to the contrary,
Tenant will not, either voluntarily or by operation of law, assign, sublet,
encumber, or otherwise transfer all or any part of Tenant's interest in this
lease, or permit the Premises to be occupied by anyone other than Tenant,
without Landlord's prior written consent, which consent shall not unreasonably
be withheld in accordance with the provisions of Section 9.1.(b). No assignment
(whether voluntary, involuntary or by operation of law) and no subletting shall
be valid or effective without Landlord's prior written consent and, at
Landlord's election, any such assignment or subletting or attempted assignment
or subletting shall constitute a material default of this Lease. Landlord shall
not be deemed to have given its consent to any assignment or subletting by any
other course of action, including its acceptance of any name for listing in the
Building directory. To the extent not prohibited by provisions of the
Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"),
including Section 365(f)(1), Tenant on behalf of itself and its creditors,
administrators and assigns waives the applicability of Section 365(e) of the
Bankruptcy Code unless the proposed assignee of the Trustee for the estate of
the bankrupt meets Landlord's standard for consent as set forth in Section
9.1(b) of this Lease. If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, any and all monies or other
considerations to be delivered in connection with the assignment shall be
delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to
have assumed all of the obligations arising under this Lease on and after the
date of the assignment, and shall upon demand execute and deliver to Landlord
an instrument confirming that assumption.
(b) If Tenant desires to transfer an interest in this Lease, it shall
first notify Landlord of its desire and shall submit in writing to Landlord:
(i) the name and address of the proposed transferee; (ii) the nature of any
proposed subtenant's or assignee's business to be carried on in the Premises;
(iii) the terms and provisions of any proposed sublease or assignment, including
a copy of the proposed assignment or sublease form; (iv) evidence of insurance
of the proposed assignee or subtenant complying with the requirements of Exhibit
-------
D hereto; (v) a completed Environmental Questionnaire from the proposed assignee
- -
or subtenant; and (vi) any other information requested by Landlord and
reasonably related to the transfer. Except as provided in Subsection (e) of
this Section, Landlord shall not unreasonably withhold its consent, provided:
(1) the use of the Premises will be consistent with the provisions of this Lease
and with Landlord's commitment to other tenants of the Project; (2) at
Landlord's election, insurance requirements shall be brought into conformity
with Landlord's then current leasing practice; (3) any proposed subtenant or
assignee
<PAGE>
demonstrates that it is financially responsible by submission to Landlord of all
reasonable information as Landlord may request concerning the proposed subtenant
or assignee, including, but not limited to, a balance sheet of the proposed
subtenant or assignee as of a date within ninety (90) days of the request for
Landlord's consent and statements of income or profit and loss of the proposed
subtenant or assignee for the two-year period preceding the request for
Landlord's consent; (4) any proposed subtenant or assignee demonstrates to
Landlord's reasonable satisfaction a record of successful experience in
business; (5) the proposed assignee or subtenant is not a prospect with whom
Landlord is actively negotiating to become a tenant at the Project; and (6) the
proposed transfer will not impose additional burdens or adverse tax effects on
Landlord. Tenant's exterior signage rights are personal to Tenant and may not be
assigned or transferred to any assignee of this Lease or subtenant of the
Premises.
If Landlord consents to the proposed transfer, Tenant may within
ninety (90) days after the date of the consent effect the transfer upon the
terms described in the information furnished to Landlord; provided that any
material change in the terms shall be subject to Landlord's consent as set forth
in this Section. Landlord shall approve or disapprove any requested transfer
within fifteen (15) business days following receipt of Tenant's written request,
the information set forth above, and the fee set forth below.
(c) Notwithstanding the provisions of Subsection (b) above, in lieu of
consenting to a proposed assignment or subletting of any portion of the Premises
in excess of fifty percent (50%) of the floor area of the Premises (in the
aggregate), Landlord may elect to (i) sublease the Premises (or the portion
proposed to be subleased), or take an assignment of Tenant's interest in this
Lease, upon the same terms as offered to the proposed subtenant or assignee
(excluding terms relating to the purchase of personal property, the use of
Tenant's name or the continuation of Tenant's business), or (ii) terminate this
Lease as to the portion of the Premises proposed to be subleased or assigned
with a proportionate abatement in the rent payable under this Lease, effective
on the date that the proposed sublease or assignment would have become
effective. Landlord may thereafter, at its option, assign or re-let any space
so recaptured to any third party, including without limitation the proposed
transferee of Tenant.
(d) Tenant agrees that fifty percent (50%) of any amounts paid by the
assignee or subtenant, however described, in excess of (i) the Basic Rent and
Operating Costs payable by Tenant hereunder, or in the case of a sublease of a
portion of the Premises, in excess of the Basic Rent and Operating Costs
reasonably allocable to such portion, plus (ii) Tenant's direct out-of-pocket
costs which Tenant certifies to Landlord have been paid to provide occupancy
related services to such assignee or subtenant of a nature commonly provided by
landlords of similar space, including without limitation, the costs of brokerage
commissions and subtenant refurbishing and rental concessions, shall be the
property of Landlord and such amounts shall be payable directly to Landlord by
the assignee or subtenant or, at Landlord's option, by Tenant. At Landlord's
request, a written agreement shall be entered into by and among Tenant, Landlord
and the proposed assignee or subtenant confirming the requirements of this
subsection.
(e) Tenant shall pay to Landlord a fee of Five Hundred Dollars
($500.00) if and when any transfer hereunder is requested by Tenant. Such fee
is hereby acknowledged as a reasonable amount to reimburse Landlord for all of
its costs of review and evaluation of a proposed assignee/sublessee, and
Landlord shall not be obligated to commence such review and evaluation unless
and until such fee is paid.
SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with
the consent of Landlord, shall relieve Tenant of its obligation to pay rent and
to perform all its other obligations under this Lease. Moreover, Tenant shall
indemnify and hold Landlord harmless, as provided in Section 10.3, for any act
or omission by an assignee or subtenant. Each assignee, other than Landlord,
shall be deemed to assume all obligations of Tenant under this Lease and shall
be liable jointly and severally with Tenant for the payment of all rent, and for
the due performance of all of Tenant's obligations, under this Lease. No
transfer shall be binding on Landlord unless any document memorializing the
transfer is delivered to Landlord and both the assignee/subtenant and Tenant
deliver to Landlord an executed consent to transfer instrument prepared by
Landlord and consistent with the requirements of this Article. The acceptance
by Landlord of any payment due under this Lease from any other person shall not
be deemed to be a waiver by Landlord of any provision of this Lease or to be a
consent to any transfer. Consent by Landlord to one or more transfers shall not
operate as a waiver or estoppel to the future enforcement by Landlord of its
rights under this Lease.
SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be deemed included in each sublease:
(a) Each and every provision contained in this Lease (other than with
respect to the payment of rent hereunder) is incorporated by reference into and
made a part of such sublease, with "Landlord" hereunder meaning the sublandlord
therein and "Tenant" hereunder meaning the subtenant therein.
(b) Tenant hereby irrevocably assigns to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the Premises,
and Landlord may collect such rent and income and apply same toward Tenant's
obligations under this Lease; provided, however, that until a default occurs in
the performance of Tenant's obligations under this Lease, Tenant shall have the
right to receive and collect the sublease rentals. Landlord shall not, by
reason of this assignment or the collection of sublease rentals, be deemed
liable to the subtenant for the performance of any of Tenant's obligations under
the sublease. Tenant hereby irrevocably authorizes and directs any subtenant,
upon receipt of a written notice from Landlord stating that an uncured default
exists in the performance of Tenant's obligations under this Lease, to pay to
Landlord all sums then and thereafter due under the sublease. Tenant agrees
that the subtenant may rely on that notice without any duty of further inquiry
and notwithstanding any notice or claim by Tenant to the contrary. Tenant shall
have no right or claim against the subtenant or Landlord for any rentals so paid
to Landlord.
(c) In the event of the termination of this Lease, Landlord may, at
its sole option, take over Tenant's entire interest in any sublease and, upon
notice from Landlord, the subtenant shall attorn to Landlord. In no
<PAGE>
event, however, shall Landlord be liable for any previous act or omission by
Tenant under the sublease or for the return of any advance rental payments or
deposits under the sublease that have not been actually delivered to Landlord,
nor shall Landlord be bound by any sublease modification executed without
Landlord's consent or for any advance rental payment by the subtenant in excess
of one month's rent. The general provisions of this Lease, including without
limitation those pertaining to insurance and indemnification, shall be deemed
incorporated by reference into the sublease despite the termination of this
Lease.
SECTION 9.4. CERTAIN TRANSFERS. The sale of all or substantially all of
Tenant's assets (other than bulk sales in the ordinary course of business) or,
if Tenant is a corporation that, under the then current guidelines published by
the Commissioner of Corporations of the State of California, is not deemed a
public corporation, or is an unincorporated association, or a partnership, the
transfer, assignment or hypothecation of any stock or interest in such
corporation, association, or partnership in the aggregate of twenty-five percent
(25%) shall be deemed an assignment within the meaning and provisions of this
Article. Notwithstanding the foregoing, Landlord's consent shall not be
required for the assignment of this Lease or the sublease of all or any portion
of the Premises to any person or entity which controls, is controlled by or is
under common control with Tenant, or to any corporation or other entity into or
with which Tenant may be merged or consolidated, or to any person or entity
which purchases all or substantially all of the assets of Tenant (collectively,
a "Tenant Affiliate" herein), subject, however, to Tenant's compliance with the
following: (i) Tenant shall give Landlord written notice of the assignment or
sublease to a Tenant Affiliate together with a copy of the documentation of such
assignment or sublease, and (ii) in the case of the merger or consolidation
described above, the net worth of the successor entity after such merger or
consolidation shall be at least equal to the net worth of Tenant immediately
prior to the date of such merger or consolidation, and Tenant shall present
Landlord with evidence of such net worth prior to such merger or consolidation.
In the event of an assignment or sublease by Tenant to a Tenant Affiliate, the
terms and requirements of this Article shall apply with respect to such
assignment, except for the provisions of Section 9.1 which shall not apply.
ARTICLE X. INSURANCE AND INDEMNITY
SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
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Evidence of that insurance must be delivered to Landlord prior to the
Commencement Date.
SECTION 10.2. LANDLORD'S INSURANCE. Landlord shall provide the following
types of insurance, with or without deductible and in amounts and coverages as
may be determined by Landlord in its sole discretion: "all risk" property
insurance, subject to standard exclusions (such as, but not limited to,
earthquake and flood exclusions), covering the full replacement cost of the
Building (the "All-Risk Policy"). In addition, Landlord may, at its election,
obtain insurance for such other risks as Landlord or its mortgagees may from
time to time deem appropriate, including without limitation, coverage for
earthquake, flood and commercial general liability. Landlord shall not be
required to carry insurance of any kind on Tenant's property, including
leasehold improvements, trade fixtures, furnishings, equipment, plate glass,
signs and all other items of personal property, and shall not be obligated to
repair or replace that property should damage occur. All proceeds of insurance
maintained by Landlord upon the Building and Project shall be the property of
Landlord, whether or not Landlord is obligated to or elects to make any repairs.
At Landlord's option, Landlord may self-insure all or any portion of the risks
for which Landlord elects or is required to provide insurance hereunder.
SECTION 10.3. JOINT INDEMNITY.
(a) To the fullest extent permitted by law, but subject to the express
limitations on liability contained in Section 10.5 of this Lease, Tenant shall
defend, indemnify, protect, save and hold harmless Landlord, its agents, and any
and all affiliates of Landlord, including, without limitation, any corporations
or other entities controlling, controlled by or under common control with
Landlord, from and against any and all claims, liabilities, costs or expenses
arising either before or after the Commencement Date from Tenant's use or
occupancy of the Premises, or from the conduct of its business, or from any
activity, work, or thing done, permitted or suffered by Tenant or its agents,
employees, invitees or licensees in or about the Premises, or from any
negligence or willful misconduct of Tenant or its agents, employees, visitors,
patrons, guests, invitees or licensees. In cases of alleged negligence asserted
by third parties against Landlord which arise out of, are occasioned by, or in
any way attributable to Tenant's, its agents, employees, contractors, licensees
or invitees use and occupancy of the Premises, or from the conduct of its
business or from any activity, work or thing done, permitted or suffered by
Tenant or its agents, employees, invitees or licensees on Tenant's part to be
performed under this Lease, or from any negligence or willful misconduct of
Tenant, its agents, employees, licensees or invitees, Tenant shall accept any
tender of defense for Landlord and shall, notwithstanding any allegation of
negligence or willful misconduct on the part of the Landlord (but subject to the
reimbursement provisions hereinafter provided), defend Landlord and protect and
hold Landlord harmless and pay all costs, expenses and attorneys' fees incurred
in connection with such litigation, provided that Tenant shall not be liable for
any such injury or damage, and Landlord shall reimburse Tenant for the
reasonable attorney's fees and costs for the attorney representing both parties,
all to the extent and in the proportion that such injury or damage is ultimately
determined by a court of competent jurisdiction (or in connection with any
negotiated settlement agreed to by Landlord) to be attributable to the
negligence or willful misconduct of Landlord. Upon Landlord's request, Tenant
shall at Tenant's sole cost and expense, retain a separate attorney selected by
Landlord and reasonably acceptable to Tenant to represent Landlord in any such
suit if Landlord reasonably determines that the representation of both Tenant
and Landlord by the same attorney would cause a conflict of interest; provided,
however, that to the extent and in the proportion that the injury or damage
which is the subject of the suit is ultimately determined by a court of
competent jurisdiction (or in connection with any negotiated settlement agreed
to by Landlord) to be attributable to the negligence or willful misconduct of
Landlord, Landlord shall reimburse Tenant for the reasonable legal
<PAGE>
fees and costs of the separate attorney retained by Tenant. The provisions of
this Subsection 10.3(a) shall expressly survive the expiration or sooner
termination of this Lease. Notwithstanding the provisions of the first sentence
of this paragraph, but subject to the balance of the paragraph, Tenant shall not
be required to indemnify Landlord for any claims, liabilities, costs or expenses
to the extent the same arises from or relates to the negligence or willful
misconduct on the part of Landlord, its agents, employees, contractors or
invitees.
(b) To the fullest extent permitted by law, but subject to the express
limitations on liability contained in this Lease (including, without limitation,
the provisions of Sections 10.4, 10.5 and 14.8 of this Lease), Landlord shall
defend, indemnify, protect, save and hold harmless Tenant, its agents and any
and all affiliates of Tenant, including, without limitation, any corporations,
or other entities controlling, controlled by or under common control with
Tenant, from and against any and all claims, liabilities, costs or expenses
arising either before or after the Commencement Date from the operation,
maintenance or repair of the Common Areas, the Project and/or the Building by
Landlord or its employees or authorized agents. In cases of alleged negligence
asserted by third parties against Tenant which arise out of, are occasioned by,
or in any way attributable to the maintenance or repair of the Common Areas, the
Project or the Building by Landlord or its authorized agents or employees,
Landlord shall accept any tender of defense for Tenant and shall,
notwithstanding any allegation of negligence or willful misconduct on the part
of Tenant (but subject to the reimbursement provisions hereinafter provided),
defend Tenant and protect and hold Tenant harmless and pay all cost, expense and
attorneys' fees incurred in connection with such litigation, provided that
Landlord shall not be liable for any such injury or damage, and Tenant shall
reimburse Landlord for the reasonable attorney's fees and costs for the attorney
representing both parties, all to the extent and in the proportion that such
injury or damage is ultimately determined by a court of competent jurisdiction
(or in connection with any negotiated settlement agreed to by Tenant) to be
attributable to the negligence or willful misconduct of Tenant. Upon Tenant's
request, Landlord shall at Landlord's sole cost and expense, retain a separate
attorney selected by Tenant and reasonably acceptable to Landlord to represent
Tenant in any such suit if Tenant reasonably determines that the representation
of both Tenant and Landlord by the same attorney would cause conflict of
interest; provided, however, that to the extent and the proportion that the
injury or damage which is the subject of the suit is ultimately determined by a
court of competent jurisdiction (or in connection with any negotiated settlement
agreed to by Tenant) to be attributable to the negligence or willful misconduct
or Tenant, Tenant shall reimburse Landlord for the reasonable legal fees and
costs of the separate attorney retained by Landlord. The provisions of this
Subsection 10.3(b) shall expressly survive the expiration or sooner termination
of this Lease. Notwithstanding the provisions of the first sentence of this
paragraph, but subject to the balance of the paragraph, Landlord shall not be
required to indemnify Tenant for any claims, liabilities, costs or expenses to
the extent the same arises from or relates to the negligence or willful
misconduct on the part of Tenant, its agents, employees, contractors or
invitees.
SECTION 10.4. LANDLORD'S NONLIABILITY. Subject to the express indemnity
obligations contained in Section 10.3(b) of this Lease, Landlord shall not be
liable to Tenant, its employees, agents and invitees, and Tenant hereby waives
all claims against Landlord for loss of or damage to any property or personal
injury, or any other loss, cost, damage, injury or liability whatsoever
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak or flow from or into any part of the Premises or from the
breakage, leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, electrical works or other fixtures in
the Building, whether the damage or injury results from conditions arising in
the Premises or in other portions of the Building. It is understood that any
such condition may require the temporary evacuation or closure of all or a
portion of the Building. Notwithstanding any provision of this Lease to the
contrary, including, without limitation, the provisions of Section 10.3(b) of
this Lease, Landlord shall in no event be liable to Tenant, its employees,
agents, and invitees, and Tenant hereby waives all claims against Landlord, for
loss or interruption of Tenant's business or income (including, without
limitation, any consequential damages and lost profit or opportunity costs), or
any other loss, cost, damage, injury or liability resulting from, but not
limited to, Acts of God (except with respect to restoration obligations pursuant
to Article XI below), acts of civil disobedience or insurrection, acts or
omissions (criminal or otherwise) of any third parties (other than Landlord's
employees or authorized agents), including without limitation, any other tenants
within the Project or their agents, employees, contractors, guests or invitees.
Except as provided in Sections 6.1, 11.1 and 12.1 below, there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business (including without limitation consequential
damages and lost profit or opportunity costs) arising from the making of any
repairs, alterations or improvements to any portion of the Building, including
repairs to the Premises, nor shall any related activity by Landlord constitute
an actual or constructive eviction; provided, however, that in making repairs,
alterations or improvements, Landlord shall interfere as little as reasonably
practicable with the conduct of Tenant's business in the Premises. Neither
Landlord nor its agents shall be liable for interference with light or other
similar intangible interests. Tenant shall immediately notify Landlord in case
of fire or accident in the Premises, the Building or the Project and of defects
in any improvements or equipment.
SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waives all rights of recovery against the other and the other's agents on
account of loss and damage occasioned to the property of such waiving party to
the extent only that such loss or damage is or would be covered under any "all
risk" property insurance policies required by this Article X (including, without
limitation, the All Risk Policy carried by Landlord, whether or not Landlord
chooses to self-insure such coverage); provided however, that (i) the foregoing
waiver shall not apply to the extent of Tenant's obligations to pay deductibles
under any such policies and this Lease, and (ii) if any loss is due to the
negligent act or omission or willful misconduct of Tenant or its agents,
employees, contractors, guests or invitees, Tenant's liability insurance shall
be primary and shall cover all losses and damages prior to any other insurance
hereunder. By this waiver it is the intent of the parties that neither Landlord
nor Tenant shall be liable to any insurance company (by way of subrogation or
otherwise) insuring the other party for any loss or damage insured against under
any "all-risk" property insurance policies required by this Article, even though
such loss or damage might be occasioned by the negligence of such party, its
agents, employees, contractors, guests or invitees. The provisions of this
Section shall not limit the indemnification provisions elsewhere contained in
this Lease.
<PAGE>
ARTICLE XI. DAMAGE OR DESTRUCTION
SECTION 11.1. RESTORATION.
(a) If the Building is damaged, Landlord shall repair that damage as
soon as reasonably possible, at its expense, unless: (i) Landlord reasonably
determines that the cost of repair is not covered by Landlord's All Risk Policy
(or, if Landlord has chosen to self-insure, would not have been covered by a
standard policy of "all risk" fire insurance) plus such additional amounts
Tenant elects, at its option, to contribute, excluding however the deductible
(for which Tenant shall be responsible for Tenant's proportionate share not to
exceed One Hundred Thousand Dollars [$100,000.00] in the aggregate); (ii)
Landlord reasonably determines that the Premises cannot, with reasonable
diligence, be fully repaired by Landlord (or cannot be safely repaired because
of the presence of hazardous factors, including without limitation Hazardous
Materials, earthquake faults, and other similar dangers) within two hundred
seventy (270) days after the date of the damage; (iii) a monetary event of
default by Tenant has occurred and is continuing at the time of such damage; or
(iv) the damage occurs during the final twelve (12) months of the Term. Should
Landlord elect not to repair the damage for one of the preceding reasons,
Landlord shall so notify Tenant in writing within sixty (60) days after the
damage occurs and this Lease shall terminate as of the date of that notice.
(b) Unless Landlord elects to terminate this Lease in accordance with
subsection (a) above, this Lease shall continue in effect for the remainder of
the Term; provided that so long as Tenant is not in default under this Lease, if
the damage is so extensive that Landlord reasonably determines that the Premises
cannot, with reasonable diligence, be repaired by Landlord (or cannot be safely
repaired because of the presence of hazardous factors, earthquake faults, and
other similar dangers) so as to allow Tenant's substantial use and enjoyment of
the Premises within two hundred seventy (270) days after the date of damage,
then Tenant may elect to terminate this Lease by written notice to Landlord
within the sixty (60) day period stated in subsection (a).
(c) Commencing on the date of any damage to the Building, and ending
on the sooner of the date the damage is repaired or the date this Lease is
terminated, the rental to be paid under this Lease shall be abated in the same
proportion that the floor area of the Building that is rendered unusable by the
damage from time to time bears to the total floor area of the Building. Any
such abatement shall be conditioned upon Tenant's then carrying the required
business interruption insurance as described in EXHIBIT D.
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(d) Notwithstanding the provisions of subsections (a), (b) and (c) of
this Section, but subject to the provisions of Section 10.5 above, the cost of
any repairs shall be borne by Tenant, and Tenant shall not be entitled to rental
abatement or termination rights, if the damage is due to the fault or neglect of
Tenant or its employees, subtenants, invitees or representatives. In addition,
the provisions of this Section shall not be deemed to require Landlord to repair
any improvements or fixtures that Tenant is obligated to repair or insure
pursuant to any other provision of this Lease.
(e) Tenant shall fully cooperate with Landlord in removing Tenant's
personal property and any related debris from the Premises to facilitate all
inspections of the Premises and the making of any repairs. Notwithstanding
anything to the contrary contained in this Lease, if Landlord in good faith
believes there is a risk of injury to persons or damage to property from entry
into the Building or Premises following any damage or destruction thereto,
Landlord may restrict entry into the Building or the Premises by Tenant, its
employees, agents and contractors in a non-discriminatory manner, without being
deemed to have violated Tenant's rights of quiet enjoyment to, or made an
unlawful detainer of, or evicted Tenant from, the Premises. Upon request,
Landlord shall consult with Tenant to determine if there are safe methods of
entry into the Building or the Premises solely in order to allow Tenant to
retrieve files, data in computers, and necessary inventory, subject however to
all indemnities and waivers of liability from Tenant to Landlord contained in
this Lease and any additional indemnities and waivers of liability which
Landlord may require. If damage or destruction rendering the Premises unusable
occurs during the final twelve (12) months of the Term as extended which cannot
be repaired within sixty (60) days following such damage or destruction, Tenant
shall have the option to terminate the Lease by providing Landlord written
notification of Tenant's election to terminate within thirty (30) days after the
damage occurs. For all purposes of this Section 11.1, damage to Tenant's
parking areas and access to the Premises shall be deemed damage to the Building.
SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including without limitation Section 11.1, shall govern any damage or
destruction and shall accordingly supersede any contrary statute or rule of law.
Any disputes regarding the obligations of the parties under this Article XI
shall be submitted to and resolved by JAMS arbitration pursuant to Section 22.7
of this Lease.
<PAGE>
ARTICLE XII. EMINENT DOMAIN
SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of
the Premises is taken by any lawful authority by exercise of the right of
eminent domain, or sold to prevent a taking, either Tenant or Landlord may
terminate this Lease effective as of the date possession is required to be
surrendered to the authority. In the event title to a portion of the Premises
is taken or sold in lieu of taking, and if Landlord elects to restore the
Premises in such a way as to alter the Premises materially, either party may
terminate this Lease, by written notice to the other party, effective on the
date of vesting of title. In the event neither party has elected to terminate
this Lease as provided above, then Landlord shall promptly, after receipt of a
sufficient condemnation award, proceed to restore the Premises to substantially
their condition prior to the taking, and a proportionate allowance shall be made
to Tenant for the rent corresponding to the time during which, and to the part
of the Premises of which, Tenant is deprived on account of the taking and
restoration. In addition, Tenant's share of Operating Expenses and all other
elements of this Lease which are a function of the square footage of the
Premises shall be adjusted to reflect the taking. In the event of a taking,
Landlord shall be entitled to the entire amount of the condemnation award
without deduction for any estate or interest of Tenant; provided that nothing in
this Section shall be deemed to give Landlord any interest in, or prevent Tenant
from seeking any award against the taking authority for, the taking of personal
property and fixtures belonging to Tenant or for relocation or business
interruption expenses recoverable from the taking authority.
SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises shall
terminate this Lease or give Tenant any right to abatement of rent, and any
award specifically attributable to a temporary taking of the Premises shall
belong entirely to Tenant. A temporary taking shall be deemed to be a taking of
the use or occupancy of the Premises for a period of not to exceed ninety (90)
days.
SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a
taking of the parking area such that Landlord can no longer provide sufficient
parking to comply with this Lease, Landlord may substitute reasonably equivalent
parking in a location reasonably close to the Building; provided that if
Landlord fails to make that substitution within ninety (90) days following the
taking and if the taking materially impairs Tenant's use and enjoyment of the
Premises, Tenant may, at its option, terminate this Lease by written notice to
Landlord. If this Lease is not so terminated by Tenant, there shall be no
abatement of rent and this Lease shall continue in effect. Any dispute
regarding the substitution of parking spaces under this Section 12.3 shall be
submitted to and resolved by JAMS arbitration pursuant to Section 22.7 of this
Lease.
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS
SECTION 13.1. SUBORDINATION. At the option of Landlord, this Lease shall
be either superior or subordinate to all ground or underlying leases, mortgages
and deeds of trust, if any, which may hereafter affect the Premises, and to all
renewals, modifications, consolidations, replacements and extensions thereof;
provided, that so long as Tenant is not in default under this Lease, this Lease
shall not be terminated or Tenant's quiet enjoyment of the Premises disturbed in
the event of termination of any such ground or underlying lease, or the
foreclosure of any such mortgage or deed of trust, to which Tenant has
subordinated this Lease pursuant to this Section. Any such subordination
instrument presented for Tenant's signature shall contain nondisturbance
provisions for Tenant's benefit substantially in accordance with the provisions
for Tenant's benefit set forth in this Section. In the event of a termination
or foreclosure, Tenant shall become a tenant of and attorn to the successor-in-
interest to Landlord upon the same terms and conditions as are contained in this
Lease, and shall execute any instrument reasonably required by Landlord's
successor for that purpose. Tenant shall also, upon written request of
Landlord, execute and deliver all instruments as may be required from time to
time to subordinate the rights of Tenant under this Lease to any ground or
underlying lease or to the lien of any mortgage or deed of trust (provided that
such instruments include the nondisturbance and attornment provisions set forth
above), or, if requested by Landlord, to subordinate, in whole or in part, any
ground or underlying lease or the lien of any mortgage or deed of trust to this
Lease.
SECTION 13.2. ESTOPPEL CERTIFICATE.
(a) Tenant shall, at any time upon not less than ten (10) business
days prior written notice from Landlord, execute, acknowledge and deliver to
Landlord, in any form that Landlord may reasonably require, a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of the modification and certifying
that this Lease, as modified, is in full force and effect) and the dates to
which the rental, additional rent and other charges have been paid in advance,
if any, and (ii) acknowledging that, to Tenant's knowledge, there are no uncured
defaults on the part of Landlord, or specifying each default if any are claimed,
and (iii) setting forth all further information that Landlord may reasonably
require. Tenant's statement may be relied upon by any prospective purchaser or
encumbrancer of the Premises.
(b) Notwithstanding any other rights and remedies of Landlord,
Tenant's failure to deliver any estoppel statement within the provided time
shall be conclusive upon Tenant that (i) this Lease is in full force and effect,
without modification except as may be represented by Landlord, (ii) there are no
uncured defaults in Landlord's performance, and (iii) not more than one month's
rental has been paid in advance.
SECTION 13.3 FINANCIALS.
<PAGE>
(a) Tenant shall deliver to Landlord, prior to the execution of this
Lease and thereafter at any time upon Landlord's request, Tenant's current
financial statements, certified true, accurate and complete by the chief
financial officer of Tenant, including a balance sheet and profit and loss
statement for the most recent prior year (collectively, the "Statements"), which
Statements shall accurately and completely reflect the financial condition of
Tenant. Landlord agrees that it will keep the Statements confidential, except
that Landlord shall have the right to deliver the same to any proposed purchaser
or encumbrancer of the Premises provided that Landlord shall require that any
proposed purchaser, and shall request that any proposed encumbrancer, keep the
Statements confidential.
(b) Tenant acknowledges that Landlord is relying on the Statements in
its determination to enter into this Lease, and Tenant represents to Landlord,
which representation shall be deemed made on the date of this Lease and again on
the Commencement Date, that no material change in the financial condition of
Tenant, as reflected in the Statements, has occurred since the date Tenant
delivered the Statements to Landlord. The Statements are represented and
warranted by Tenant to be correct and to accurately and fully reflect Tenant's
true financial condition as of the date of submission by any Statements to
Landlord.
ARTICLE XIV. DEFAULTS AND REMEDIES
SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of
default set forth in this Lease, the occurrence of any one or more of the
following events shall constitute a "default" by Tenant:
(a) The failure by Tenant to make any payment of rent or additional
rent required to be made by Tenant, as and when due, where the failure continues
for a period of ten (10) days after written notice from Landlord to Tenant;
provided, however, that any such notice shall be in lieu of, and not in addition
to, any notice required under California Code of Civil Procedure Section 1161
and 1161(a) as amended. For purposes of these default and remedies provisions,
the term "additional rent" shall be deemed to include all amounts of any type
whatsoever other than Basic Rent to be paid by Tenant pursuant to the terms of
this Lease.
(b) Assignment, sublease, encumbrance or other transfer of the Lease
by Tenant, either voluntarily or by operation of law, whether by judgment,
execution, transfer by intestacy or testacy, or other means, without the prior
written consent of Landlord.
(c) The discovery by Landlord that any financial statement provided by
Tenant, or by any affiliate, successor or guarantor of Tenant, was materially
false.
(d) The failure of Tenant to timely and fully provide any
subordination agreement, estoppel certificate or financial statements in
accordance with the requirements of Article XIII where such failure continues
for a period of five (5) days after written notice from Landlord to Tenant.
(e) The failure or inability by Tenant to observe or perform any of
the express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in any other subsection of this
Section, where the failure continues for a period of sixty (60) days after
written notice from Landlord to Tenant or such shorter period as is specified in
any other provision of this Lease; provided, however, that any such notice shall
be in lieu of, and not in addition to, any notice required under California Code
of Civil Procedure Section 1161 and 1161(a) as amended. However, if the nature
of the failure is such that more than sixty (60) days are reasonably required
for its cure, then Tenant shall not be deemed to be in default if Tenant
commences the cure within thirty (30) days, and thereafter diligently pursues
the cure to completion.
(f) (i) The making by Tenant of any general assignment for the benefit
of creditors; (ii) the filing by or against Tenant of a petition to have Tenant
adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within sixty (60) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within sixty (60) days; (iv) the attachment, execution or
other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where the seizure is not
discharged within sixty (60) days; or (v) Tenant's convening of a meeting of its
creditors for the purpose of effecting a moratorium upon or composition of its
debts. Landlord shall not be deemed to have knowledge of any event described in
this subsection unless notification in writing is received by Landlord, nor
shall there be any presumption attributable to Landlord of Tenant's insolvency.
In the event that any provision of this subsection is contrary to applicable
law, the provision shall be of no force or effect.
SECTION 14.2. LANDLORD'S REMEDIES.
(a) In the event of any default by Tenant, or in the event of the
abandonment of the Premises by Tenant, then in addition to any other remedies
available to Landlord, Landlord may exercise the following remedies:
(i) Landlord may terminate Tenant's right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. Such
termination shall not affect any accrued obligations of Tenant under this Lease.
Upon termination, Landlord shall have the right to reenter the Premises and
remove all persons and property. Landlord shall also be entitled to recover
from Tenant:
<PAGE>
(1) The worth at the time of award of the unpaid rent and
additional rent which had been earned at the time of termination;
(2) The worth at the time of award of the amount by which the
unpaid rent and additional rent which would have been earned after termination
until the time of award exceeds the amount of such loss that Tenant proves could
have been reasonably avoided;
(3) The worth at the time of award of the amount by which the
unpaid rent and additional rent for the balance of the Term after the time of
award exceeds the amount of such loss that Tenant proves could be reasonably
avoided;
(4) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result from Tenant's default, including, but not limited to, the cost of
recovering possession of the Premises, refurbishment of the Premises, marketing
costs, commissions and other expenses of reletting, including necessary repair,
the unamortized portion of any tenant improvements and brokerage commissions
funded by Landlord in connection with this Lease, reasonable attorneys' fees,
and any other reasonable costs; and
(5) At Landlord's election, all other amounts in addition to or in
lieu of the foregoing as may be permitted by law. The term "rent" as used in
this Lease shall be deemed to mean the Basic Rent and all other sums required to
be paid by Tenant to Landlord pursuant to the terms of this Lease. Any sum,
other than Basic Rent, shall be computed on the basis of the average monthly
amount accruing during the twenty-four (24) month period immediately prior to
default, except that if it becomes necessary to compute such rental before the
twenty-four (24) month period has occurred, then the computation shall be on the
basis of the average monthly amount during the shorter period. As used in
subparagraphs (1) and (2) above, the "worth at the time of award" shall be
computed by allowing interest at the rate of ten percent (10%) per annum. As
used in subparagraph (3) above, the "worth at the time of award" shall be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).
(ii) Landlord may elect not to terminate Tenant's right to
possession of the Premises, in which event Landlord may continue to enforce all
of its rights and remedies under this Lease, including the right to collect all
rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet
the Premises, or the appointment of a receiver to protect the Landlord's
interests under this Lease, shall not constitute a termination of the Tenant's
right to possession of the Premises. In the event that Landlord elects to avail
itself of the remedy provided by this subsection (ii), Landlord shall not
unreasonably withhold its consent to an assignment or subletting of the Premises
subject to the reasonable standards for Landlord's consent as are contained in
this Lease.
(b) The various rights and remedies reserved to Landlord in this Lease or
otherwise shall be cumulative and, except as otherwise provided by California
law, Landlord may pursue any or all of its rights and remedies at the same time.
(c) No delay or omission of Landlord to exercise any right or remedy shall
be construed as a waiver of the right or remedy or of any default by Tenant. The
acceptance by Landlord of rent shall not be a (i) waiver of any preceding breach
or default by Tenant of any provision of this Lease, other than the failure of
Tenant to pay the particular rent accepted, regardless of Landlord's knowledge
of the preceding breach or default at the time of acceptance of rent, or (ii) a
waiver of Landlord's right to exercise any remedy available to Landlord by
virtue of the breach or default. The acceptance of any payment from a debtor in
possession, a trustee, a receiver or any other person acting on behalf of Tenant
or Tenant's estate shall not waive or cure a default under Section 14.1. No
payment by Tenant or receipt by Landlord of a lesser amount than the rent
required by this Lease shall be deemed to be other than a partial payment on
account of the earliest due stipulated rent, nor shall any endorsement or
statement on any check or letter be deemed an accord and satisfaction and
Landlord shall accept the check or payment without prejudice to Landlord's right
to recover the balance of the rent or pursue any other remedy available to it.
No act or thing done by Landlord or Landlord's agents during the Term shall be
deemed an acceptance of a surrender of the Premises, and no agreement to accept
a surrender shall be valid unless in writing and signed by Landlord. No employee
of Landlord or of Landlord's agents shall have any power to accept the keys to
the Premises prior to the termination of this Lease, and the delivery of the
keys to any employee shall not operate as a termination of the Lease or a
surrender of the Premises.
SECTION 14.3. LATE PAYMENTS.
(a) Any rent due under this Lease that is not received by Landlord within
ten (10) days of the date when due shall bear interest at the maximum rate
permitted by law from the date due until fully paid. The payment of interest
shall not cure any default by Tenant under this Lease. In addition, Tenant
acknowledges that the late payment by Tenant to Landlord of rent will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult and impracticable to ascertain. Those costs
may include, but are not limited to, administrative, processing and accounting
charges, and late charges which may be imposed on Landlord by the terms of any
ground lease, mortgage or trust deed covering the Premises. Accordingly, if any
rent due from Tenant shall not be received by Landlord or Landlord's designee
within ten (10) days after the date due, then Tenant shall pay to Landlord, in
addition to the interest provided above, a late charge in a sum equal to the
greater of five percent (5%) of the amount overdue or Two Hundred Fifty Dollars
($250.00) for each delinquent payment. Acceptance of a late charge by Landlord
shall not constitute a waiver of Tenant's default with respect to the overdue
amount, nor shall it prevent Landlord from exercising any of its other rights
and remedies.
<PAGE>
(b) Following any third (3rd) installment of rent that is not paid
within ten (10) days following notice of nonpayment from Landlord, Landlord
shall have the option (i) to require that beginning with the first payment of
rent next due, rent shall no longer be paid in monthly installments but shall be
payable quarterly three (3) months in advance and/or (ii) to require that Tenant
increase the amount, if any, of the Security Deposit by one hundred percent
(100%). Should Tenant deliver to Landlord, at any time during the Term, two (2)
or more insufficient checks, the Landlord may require that all monies then and
thereafter due from Tenant be paid to Landlord by cashier's check.
SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements
to be performed by Tenant under this Lease shall be performed at Tenant's sole
cost and expense and without any abatement of rent or right of set-off. If
Tenant fails to pay any sum of money, other than rent, or fails to perform any
other act on its part to be performed under this Lease, and the failure
continues beyond any applicable grace period set forth herein, then in addition
to any other available remedies, Landlord may, at its election make the payment
or perform the other act on Tenant's part. Landlord's election to make the
payment or perform the act on Tenant's part shall not give rise to any
responsibility of Landlord to continue making the same or similar payments or
performing the same or similar acts. Tenant shall, promptly upon demand by
Landlord, reimburse Landlord for all sums paid by Landlord and all necessary
incidental costs, together with interest at the maximum rate permitted by law
from the date of the payment by Landlord. Landlord shall have the same rights
and remedies if Tenant fails to pay those amounts as Landlord would have in the
event of a default by Tenant in the payment of rent.
SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in
default in the performance of any obligation under this Lease unless and until
it has failed to perform the obligation within thirty (30) days after written
notice by Tenant to Landlord specifying in reasonable detail the nature and
extent of the failure; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then Landlord shall not be deemed to be in default if it commences
performance within the thirty (30) day period and thereafter diligently pursues
the cure to completion. If Landlord shall default in the performance of any of
its obligations under the Lease, Tenant shall have the right to pursue any and
all remedies available to it as set forth in this Lease, at law, or in equity,
subject to the express limitations contained in this Lease.
SECTION 14.6. EXPENSES AND LEGAL FEES. All sums reasonably incurred by
Landlord in connection with any event of default by Tenant under this Lease or
holding over of possession by Tenant after the expiration or earlier termination
of this Lease, including without limitation all costs, expenses and actual
accountants, appraisers, attorneys and other professional fees, and any
collection agency or other collection charges, shall be due and payable by
Tenant to Landlord on demand, and shall bear interest at the rate of ten percent
(10%) per annum. Should either Landlord or Tenant bring any action in
connection with this Lease, the prevailing party shall be entitled to recover as
a part of the action its reasonable attorneys' fees, and all other costs. The
prevailing party for the purpose of this paragraph shall be determined by the
trier of the facts.
SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH ACKNOWLEDGES
THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT
TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND
KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER
(AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR
AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY
CLAIM OF INJURY OR DAMAGE.
SECTION 14.8. SATISFACTION OF JUDGMENT. The obligations of Landlord and
Tenant under this Lease do not constitute the personal obligations of the
individual partners, trustees, directors, officers or shareholders of Landlord
or Tenant, respectively. Should Tenant recover a money judgment against
Landlord, such judgment shall be satisfied only out of the proceeds of sale
received upon execution of such judgment and levied thereon against the right,
title and interest of Landlord in the Project and out of the rent or other
income from such property receivable by Landlord or out of consideration
received by Landlord from the sale or other disposition of all or any part of
Landlord's right, title or interest in the Project, and no action for any
deficiency may be sought or obtained by Tenant.
ARTICLE XV. END OF TERM
SECTION 15.1. HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term, and any holding over by Tenant after the
expiration shall not constitute a renewal or extension of this Lease, or give
Tenant any rights under this Lease, except when in writing signed by both
parties. If Tenant holds over for any period after the expiration (or earlier
termination) of the Term without the prior written consent of Landlord, such
possession shall constitute a tenancy at sufferance only; such holding over with
the prior written consent of Landlord shall constitute a month-to-month tenancy
commencing on the first (1st) day following the termination of this Lease. In
either of such events, possession shall be subject to all of the terms of this
Lease, except that the monthly Basic Rent shall be the greater of (a) one
hundred fifty percent (150%) for the first three (3) months of such holdover
period, and thereafter two hundred percent (200%), of the Basic Rent for the
month immediately preceding the date of termination or (b) the then currently
scheduled Basic Rent for comparable space in the Project. If Tenant fails to
surrender the Premises upon the expiration of this Lease despite Landlord's
written demand to do so (which demand shall include notice to Tenant of a
succeeding tenant and the need for Tenant's immediate surrender), Tenant shall
indemnify and hold Landlord harmless from all loss or liability, including
without limitation, any claims made by any succeeding tenant relating to such
failure to surrender. Acceptance by Landlord of rent after the termination
shall not constitute a consent
<PAGE>
to a holdover or result in a renewal of this Lease. The foregoing provisions of
this Section are in addition to and do not affect Landlord's right of re-entry
or any other rights of Landlord under this Lease or at law.
SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender of
this Lease by Tenant, or a mutual termination of this Lease, shall terminate any
or all existing subleases unless Landlord, at its option, elects in writing to
treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.
SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall quit
and surrender possession of the Premises to Landlord in as good order, condition
and repair as when received or as hereafter may be improved by Landlord or
Tenant, reasonable wear and tear and repairs which are Landlord's obligation
excepted, and shall, without expense to Landlord, remove or cause to be removed
from the Premises all personal property and debris, except for any items that
Landlord may by written authorization allow to remain. Tenant shall repair all
damage to the Premises resulting from such removal, which repair shall include
the patching and filling of holes (other than holes resulting from the hanging
of pictures or other items of decoration, which Tenant shall not be obligated to
patch and fill) and repair of structural damage, provided that Landlord may
instead elect to repair any structural damage at Tenant's expense. If Tenant
shall fail to comply with the provisions of this Section within ten (10) days
after written notice to Tenant, Landlord may effect the removal and/or make any
repairs, and the cost to Landlord shall be additional rent payable by Tenant
upon demand. If Tenant fails to remove Tenant's personal property from the
Premises upon the expiration of the Term, Landlord may remove, store, dispose of
and/or retain such personal property, at Landlord's option, in accordance with
then applicable laws, all at the expense of Tenant. If requested by Landlord,
Tenant shall execute, acknowledge and deliver to Landlord an instrument in
writing releasing and quitclaiming to Landlord all right, title and interest of
Tenant in the Premises.
ARTICLE XVI. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid, without deduction or
offset, in lawful money of the United States to Landlord at its address set
forth in Item 12 of the Basic Lease Provisions, or at any other place as
Landlord may designate in writing. Unless this Lease expressly provides
otherwise, as for example in the payment of rent pursuant to Section 4.1, all
payments shall be due and payable within five (5) days after demand. All
payments requiring proration shall be prorated on the basis of a thirty (30) day
month and a three hundred sixty (360) day year. Any notice, election, demand,
consent, approval or other communication to be given or other document to be
delivered by either party to the other may be delivered in person or by courier
or overnight delivery service to the other party, or may be deposited in the
United States mail, duly registered or certified, postage prepaid, return
receipt requested, and addressed to the other party at the address set forth in
Item 12 of the Basic Lease Provisions, or if to Tenant, at that address or, from
and after the Commencement Date, at the Premises (whether or not Tenant has
departed from, abandoned or vacated the Premises), or may be delivered by
telegram, telex or telecopy, provided that receipt thereof is telephonically
confirmed. Either party may, by written notice to the other, served in the
manner provided in this Article, designate a different address. If any notice
or other document is sent by mail, it shall be deemed served or delivered on the
date actually received or refused as indicated on the return receipt. If more
than one person or entity is named as Tenant under this Lease, service of any
notice upon any one of them shall be deemed as service upon all of them.
ARTICLE XVII. RULES AND REGULATIONS
Tenant agrees to observe faithfully and comply strictly with the Rules and
Regulations, attached as Exhibit E, and any reasonable and nondiscriminatory
---------
amendments, modifications and/or additions (that do not materially increase
Tenant's obligations or materially decrease Tenant's rights hereunder) as may be
adopted and published by written notice to tenants by Landlord for the safety,
care, security, good order, or cleanliness of the Premises, and Project and
Common Areas (if applicable). Landlord shall not be liable to Tenant for any
violation of the Rules and Regulations or the breach of any covenant or
condition in any lease by any other tenant or such tenant's agents, employees,
contractors, quests or invitees. One or more waivers by Landlord of any breach
of the Rules and Regulations by Tenant or by any other tenant(s) shall not be a
waiver of any subsequent breach of that rule or any other. Tenant's failure to
keep and observe the Rules and Regulations shall constitute a default under this
Lease. In the case of any conflict between the Rules and Regulations and this
Lease, this Lease shall be controlling.
<PAGE>
ARTICLE XVIII. BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Each party warrants to the other party that it has had no dealings with
any other real estate broker or agent in connection with the negotiation of this
Lease (except for Leland Bruce of The Staubach Company ["Tenant's Consultant"],
with whom Tenant has consulted and for whom Tenant alone shall be responsible
for any compensation owed, if any), and each party agrees to indemnify and hold
the other party harmless from any cost, expense or liability (including
reasonable attorneys' fees) for any compensation, commissions or charges claimed
by any other real estate broker or agent employed or claiming to represent or to
have been employed by the indemnifying party in connection with the negotiation
of this Lease. Not by way of limitation of the foregoing, Tenant's obligations
contained in the foregoing shall include the obligation to indemnify and hold
Landlord harmless for any claims for compensation, commissions or charges by
Tenant's Consultant in connection with this Lease. Nothing contained in this
Article XVIII shall confer any beneficial rights to Tenant's Consultant or any
other third party. The foregoing obligations contained in this Article XVIII
shall survive the termination of this Lease. If Tenant fails to take possession
of the Premises or if this Lease otherwise terminates prior to the Expiration
Date as the result of failure of performance by Tenant, Landlord shall be
entitled to recover from Tenant the unamortized portion of any brokerage
commission funded by Landlord in addition to any other damages to which Landlord
may be entitled.
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer of Landlord's interest in the Premises, the
transferor shall be automatically relieved of all obligations on the part of
Landlord accruing under this Lease from and after the date of the transfer,
provided that (i) any funds held by the transferor in which Tenant has an
interest shall be turned over, subject to that interest, to the transferee and
Tenant is notified of the transfer as required by law, and (ii) any such
transferee shall assume, in writing, all non-accrued obligations of Landlord
under this Lease. Notwithstanding the foregoing, no holder of a mortgage and/or
deed of trust to which this Lease is or may be subordinate, and no landlord
under a so-called sale-leaseback, shall be responsible in connection with the
Security Deposit, unless the mortgagee or holder of the deed of trust or the
landlord actually receives the Security Deposit. It is intended that the
covenants and obligations contained in this Lease on the part of Landlord shall,
subject to the foregoing, be binding on Landlord, its successors and assigns,
only during and in respect to their respective successive periods of ownership.
ARTICLE XX. INTERPRETATION
SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.
SECTION 20.2. HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.
SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Tenant, the obligations imposed upon each shall be joint and
several and the act of or notice from, or notice or refund to, or the signature
of, any one or more of them shall be binding on all of them with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
termination or modification of this Lease.
SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights and
liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.
SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to the
performance of every provision of this Lease.
SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.
SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material benefit
by either party or the deletion of which is consented to by the party adversely
affected, shall be held invalid or unenforceable to any extent, the remainder of
this Lease shall not be affected and each term and provision of this Lease shall
be valid and enforceable to the fullest extent permitted by law.
SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES. One or more waivers by
Landlord or Tenant of any breach of any term, covenant or condition contained in
this Lease shall not be a waiver of any subsequent breach of the same or any
other term, covenant or condition. Consent to any act by one of the parties
shall not be deemed to render unnecessary the obtaining of that party's consent
to any subsequent act. No breach by Tenant of this Lease shall be deemed to
have been waived by Landlord unless the waiver is in a writing signed by
Landlord. The rights and
<PAGE>
remedies of Landlord under this Lease shall be cumulative and in addition to any
and all other rights and remedies which Landlord may have.
SECTION 20.9. INABILITY TO PERFORM. In the event that either party shall
be delayed or hindered in or prevented from the performance of any work or in
performing any act required under this Lease by reason of any cause beyond the
reasonable control of that party, then the performance of the work or the doing
of the act shall be excused for the period of the delay and the time for
performance shall be extended for a period equivalent to the period of the
delay. The provisions of this Section shall not operate to excuse Tenant from
the prompt payment of rent or from the timely performance of any other
obligation under this Lease within Tenant's reasonable control.
SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between the
parties concerning the Premises, the Building, and the Project, and all
preliminary negotiations, oral agreements, understandings and/or practices,
except those contained in this Lease, are superseded and of no further effect.
Tenant waives its rights to rely on any representations or promises made by
Landlord or others which are not contained in this Lease. No verbal agreement
or implied covenant shall be held to modify the provisions of this Lease, any
statute, law, or custom to the contrary notwithstanding.
SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of
all the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without hindrance
or interruption by Landlord or any other person claiming by or through Landlord.
SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of the
respective parties and their successors and assigns.
ARTICLE XXI. EXECUTION AND RECORDING
SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.
SECTION 21.2. CORPORATE AUTHORITY. Tenant and Landlord each represent and
warrant that each individual executing this Lease on behalf of Tenant or
Landlord, respectively, is duly authorized to execute and deliver this Lease on
behalf of Tenant or Landlord, respectively, and that this Lease is binding upon
Tenant or Landlord, respectively, in accordance with its terms.
SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of
this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact executed
and delivered this Lease to Tenant, it being intended that this Lease shall only
become effective upon execution by Landlord and delivery of a fully executed
counterpart to Tenant.
SECTION 21.4. RECORDING. Tenant shall not record this Lease without the
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for recording
purposes.
SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease shall
be effective unless in writing signed by authorized signatories of Tenant and
Landlord, or by their respective successors in interest. No actions, policies,
oral or informal arrangements, business dealings or other course of conduct by
or between the parties shall be deemed to modify this Lease in any respect.
SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or similar
reproduction of this Lease shall be deemed an original for all purposes.
SECTION 21.7. ATTACHMENTS. All exhibits, amendments, riders and addenda
attached to this Lease are hereby incorporated into and made a part of this
Lease.
ARTICLE XXII. MISCELLANEOUS
SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and
agrees that the terms of this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's relationship
with other tenants. Accordingly, Tenant agrees that it, and its officers,
directors, employees and attorneys, shall not intentionally and voluntarily
disclose the terms and conditions of this Lease to any other tenant or apparent
prospective tenant of the Project, either directly or indirectly, without the
prior written consent of Landlord, provided, however, that Tenant shall incur no
liability for disclosure of such information (i) to its officers, directors and
employees, or to accountants, attorneys, insurance agents and others in
connection with bookkeeping, accounting, tax and related financial matters (in
<PAGE>
which event, to the full extent possible, the person receiving the information
shall be informed of its confidential nature and requested to keep it
confidential), (ii) to prospective subtenants or assignees under this Lease,
(iii) in response to subpoena in litigation, (iv) as otherwise necessary in
connection with litigation or as required by law, or (v) if such information has
already become public other than through disclosure by Tenant.
SECTION 22.2. GUARANTY. As a condition to the execution of this Lease by
Landlord, the obligations, covenants and performance of the Tenant as herein
provided shall be guaranteed in writing by the Guarantor(s) listed in Item 7 of
the Basic Lease Provisions, if any, on a form of guaranty provided by Landlord.
SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Project, the lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent, provided that the modifications do
not materially increase the obligations of Tenant or materially and adversely
affect the leasehold interest created by this Lease.
SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the part
of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder or to terminate this Lease shall result in such a release
or termination unless (a) Tenant has given notice by registered or certified
mail to any beneficiary of a deed of trust or mortgage covering the Premises
whose address has been furnished to Tenant and (b) such beneficiary is afforded
a reasonable opportunity to cure the default by Landlord (which in no event
shall be less than sixty (60) days), including, if necessary to effect the cure,
time to obtain possession of the Premises by power of sale or judicial
foreclosure provided that such foreclosure remedy is diligently pursued. Tenant
agrees that each beneficiary of a deed of trust or mortgage covering the
Premises is an express third party beneficiary hereof, Tenant shall have no
right or claim for the collection of any deposit from such beneficiary or from
any purchaser at a foreclosure sale unless such beneficiary or purchaser shall
have actually received and not refunded the deposit, and Tenant shall comply
with any written directions by any beneficiary to pay rent due hereunder
directly to such beneficiary without determining whether an event of default
exists under such beneficiary's deed of trust.
SECTION 22.5. [Intentionally Deleted]
SECTION 22.6. SECURITY MEASURES. Tenant hereby acknowledges that Landlord
shall have no obligation whatsoever to provide guard service or other security
measures for the benefit of the Premises or the Project. As between Landlord
and Tenant (and without conferring any beneficial rights to any third parties),
Tenant assumes all responsibility for the protection of Tenant, its agents,
invitees and property from acts of third parties. Nothing herein contained
shall prevent Landlord, at its sole option, from providing security protection
for the Project or any part thereof, in which event the cost thereof shall be
included within the definition of Building Costs.
SECTION 22.7. JAMS. Should a dispute arise between the parties regarding
any matter which is expressly authorized by a provision hereof to submit to
arbitration, then either party may cause the dispute to be submitted to
Jams/Endispute or its successor ("JAMS") in Orange County, California for
binding arbitration before a single arbitrator. However, each party reserves
the right to seek any equitable remedy by judicial action. No arbitration
election by either party pursuant to this subsection shall be effective if made
later than thirty (30) days following service of a judicial summons and
complaint by or upon such party concerning the dispute. The arbitration shall
be conducted in accordance with the rules of practice and procedure of JAMS and
otherwise pursuant to the California Arbitration Act (Code of Civil Procedure
Sections 1280 et seq.). Notwithstanding the foregoing, the arbitrator is
specifically directed to limit discovery to that which is essential to the
effective prosecution or defense of the action. The arbitrator shall apportion
the costs of the arbitration, together with the attorneys fees of the parties,
in the manner deemed equitable by the arbitrator, it being the intention of the
parties that the prevailing party ordinarily be entitled to recover its
reasonable costs and fees. Judgment upon any award rendered by the arbitrator
may be entered by any court having jurisdiction.
LANDLORD: TENANT:
IRVINE TECHNOLOGY PARTNERS III, STANDARD PACIFIC CORP.
a California general partnership a Delaware corporation
By: THE IRVINE COMPANY
Its General Partner
By: By:/s/ STEPHEN J. SCARBOROUGH
---------------------------------- ----------------------------
Robert E. Williams, Jr., President Name: Stephen J. Scarborough
Irvine Industrial Company, -----------------------
a division of The Irvine Company Title: President
----------------------
By: By: /s/ CLAY A HALVORSEN
----------------------------------- -----------------------------
Nancy E. Trujillo Name: Clay A. Halvorsen
Assistant Secretary -----------------------
Title: Vice President,
General Counsel &
Secretary
----------------------
<PAGE>
INDEX TO INDUSTRIAL LEASE
(Single Tenant; Net)
ARTICLE I. BASIC LEASE PROVISIONS
ARTICLE II. PREMISES
Section 2.1 Leased Premises
Section 2.2 Acceptance of Premises
Section 2.3 Building Name and Address
Section 2.4 Landlord's Responsibilities
ARTICLE III. TERM
Section 3.1 General
Section 3.2 Delay in Possession
Section 3.3 Right to Extend this Lease
ARTICLE IV. RENT AND OPERATING EXPENSES
Section 4.1 Basic Rent
Section 4.2 Operating Expenses
Section 4.3 Security Deposit
ARTICLE V. USES
Section 5.1 Use
Section 5.2 Signs
Section 5.3 Hazardous Materials
ARTICLE VI. COMMON AREAS; SERVICES
Section 6.1 Utilities and Services
Section 6.2 Operation and Maintenance of Common Areas
Section 6.3 Use of Common Areas
Section 6.4 Parking
Section 6.5 Changes and Additions by Landlord
ARTICLE VII. MAINTAINING THE PREMISES
Section 7.1 Tenant's Maintenance and Repair
Section 7.2 Landlord's Maintenance and Repair
Section 7.3 Alterations
Section 7.4 Mechanic's Liens
Section 7.5 Entry and Inspection
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY
ARTICLE IX. ASSIGNMENT AND SUBLETTING
Section 9.1 Rights of Parties
Section 9.2 Effect of Transfer
Section 9.3 Sublease Requirements
Section 9.4 Certain Transfers
ARTICLE X. INSURANCE AND INDEMNITY
Section 10.1 Tenant's Insurance
Section 10.2 Landlord's Insurance
Section 10.3 Joint Indemnity
Section 10.4 Landlord's Nonliability
Section 10.5 Waiver of Subrogation
ARTICLE XI. DAMAGE OR DESTRUCTION
Section 11.1 Restoration
Section 11.2 Lease Governs
ARTICLE XII. EMINENT DOMAIN
Section 12.1 Total or Partial Taking
Section 12.2 Temporary Taking
Section 12.3 Taking of Parking Area
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIAL
Section 13.1 Subordination
Section 13.2 Estoppel Certificate
Section 13.3 Financials
(i)
<PAGE>
ARTICLE XIV. DEFAULTS AND REMEDIES
Section 14.1 Tenant's Defaults
Section 14.2 Landlord's Remedies
Section 14.3 Late Payments
Section 14.4 Right of Landlord to Perform
Section 14.5 Default by Landlord
Section 14.6 Expenses and Legal Fees
Section 14.7 Waiver of Jury Trial
Section 14.8 Satisfaction of Judgment
ARTICLE XV. END OF TERM
Section 15.1 Holding Over
Section 15.2 Merger on Termination
Section 15.3 Surrender of Premises; Removal of Property
ARTICLE XVI. PAYMENTS AND NOTICES
ARTICLE XVII. RULES AND REGULATIONS
ARTICLE XVIII. BROKER'S COMMISSION
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
ARTICLE XX. INTERPRETATION
Section 20.1 Gender and Number
Section 20.2 Headings
Section 20.3 Joint and Several Liability
Section 20.4 Successors
Section 20.5 Time of Essence
Section 20.6 Controlling Law
Section 20.7 Severability
Section 20.8 Waiver and Cumulative Remedies
Section 20.9 Inability to Perform
Section 20.10 Entire Agreement
Section 20.11 Quiet Enjoyment
Section 20.12 Survival
ARTICLE XXI. EXECUTION AND RECORDING
Section 21.1 Counterparts
Section 21.2 Corporate and Partnership Authority
Section 21.3 Execution of Lease; No Option or Offer
Section 21.4 Recording
Section 21.5 Amendments
Section 21.6 Executed Copy
Section 21.7 Attachments
ARTICLE XXII. MISCELLANEOUS
Section 22.1 Nondisclosure of Lease Terms
Section 22.2 Guaranty
Section 22.3 Changes Requested by Lender
Section 22.4 Mortgagee Protection
Section 22.5 [Intentional Deleted]
Section 22.6 Security Measures
Section 22.7 JAMS
EXHIBITS
Exhibit A Description of the Premises
Exhibit B Environmental Questionnaire
Exhibit C Landlord's Disclosures
Exhibit D Insurance Requirements
Exhibit E Rules and Regulations
Exhibit F Approved Signage Graphics
Exhibit X Work Letter
Exhibit Y Project Site Plan
(ii)
<PAGE>
INDUSTRIAL LEASE
(Single Tenant; Net)
BETWEEN
THE IRVINE COMPANY
AND
STANDARD PACIFIC CORP.
<PAGE>
EXHIBIT B
---------
THE IRVINE COMPANY - INVESTMENT PROPERTIES GROUP
HAZARDOUS MATERIAL SURVEY FORM
The purpose of this form is to obtain information regarding the use of
hazardous substances on Investment Properties Group ("IPG") property.
Prospective tenants and contractors should answer the questions in light of
their proposed activities on the premises. Existing tenants and contractors
should answer the questions as they relate to ongoing activities on the premises
and should update any information previously submitted.
If additional space is needed to answer the questions, you may attach
separate sheets of paper to this form. When completed, the form should be sent
to the following address:
INSIGNIA/ESG OF CALIFORNIA, INC.
1 Ada, Suite 270
Irvine, CA 92618
Your cooperation in this matter is appreciated. If you have any questions,
please call your property manager at (714) 753-4744 for assistance.
1. GENERAL INFORMATION
-------------------
Name of Responding Company: _______________________________________________
Check all that apply: Tenant ( ) Contractor ( )
Prospective ( ) Existing ( )
Mailing Address: __________________________________________________________
Contact Person & Title: ___________________________________________________
Telephone Number: ( ) -
-----------------------------
Current TIC Tenant(s):
----------------------
Address of Lease Premises: ________________________________________________
Length of Lease or Contract Term: _________________________________________
Prospective TIC Tenant(s):
--------------------------
Address of Proposed Lease Premises: _______________________________________
Address of Current Operations: ____________________________________________
Describe the proposed operations to take place on the property, including
principal products manufactured or services to be conducted. Existing
tenants and contractors should describe any proposed changes to ongoing
operations. _______________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
2. HAZARDOUS MATERIALS. For the purposes of this Survey Form, the term
-------------------
"hazardous material" means any raw material, product or agent considered
hazardous under any state or federal law. The term does not include wastes
which are intended to be discarded.
2.1 Will any hazardous materials be used or stored on site?
Chemical Products Yes ( ) No ( )
Biological Hazards/
Infectious Wastes Yes ( ) No ( )
Radioactive Materials Yes ( ) No ( )
Petroleum Products Yes ( ) No ( )
2.2 List any hazardous materials to be used or stored, the quantities that
will be on-site at any given time, and the location and method of
storage (e.g., bottles in storage closet on the
1
<PAGE>
premises).
Location and Method
-------------------
Hazardous Materials of Storage Quantity
------------------- ---------- --------
___________________ ___________________ __________________
___________________ ___________________ __________________
___________________ ___________________ __________________
___________________ ___________________ __________________
2.3 Is any underground storage of hazardous materials proposed or
currently conducted on the premises? Yes ( ) No ( )
If yes, describe the materials to be stored, and the size and
construction of the tank. Attach copies of any permits obtained for
the underground storage of such substances. _________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
3. HAZARDOUS WASTE. For the purposes of this Survey Form, the term "hazardous
---------------
waste" means any waste (including biological, infectious or radioactive
waste) considered hazardous under any state or federal law, and which is
intended to be discarded.
3.1 List any hazardous waste generated or to be generated on the premises,
and indicate the quantity generated on a monthly basis.
Location and Method
-------------------
of Storage Prior to
-------------------
Hazardous Materials Disposal Quantity
------------------- -------- --------
___________________ ___________________ __________________
___________________ ___________________ __________________
___________________ ___________________ __________________
___________________ ___________________ __________________
3.2 Describe the method(s) of disposal (including recycling) for each
waste. Indicate where and how often disposal will take place.
Location of Disposal
--------------------
Hazardous Materials Site Disposal Method
------------------- ---- ---------------
___________________ ___________________ __________________
___________________ ___________________ __________________
___________________ ___________________ __________________
___________________ ___________________ __________________
3.3 Is any treatment or processing of hazardous, infections or radioactive
wastes currently conducted or proposed to be conducted on the premise?
Yes ( ) No ( )
If yes, please describe any existing or proposed treatment methods.
______________________________________________________________________
______________________________________________________________________
3.4 Attach copies of any hazardous waste permits or licenses issued to
your company with respect to its operations on the premises.
4. SPILLS
------
4.1 During the past year, have any spills or releases of hazardous
materials occurred on the
2
<PAGE>
premises? Yes ( ) No ( )
If so, please describe the spill and attach the results of any testing
conducted to determine the extent of such spills. ____________________
______________________________________________________________________
______________________________________________________________________
4.2 Were any agencies notified in connection with such spills?
Yes ( ) No ( )
If so, attach copies of any spill reports or other correspondence with
regulatory agencies.
4.3 Were any clean-up actions undertaken in connection with the spills?
Yes ( ) No ( )
If so, briefly describe the actions taken. Attach copies of any
clearance letters obtained from any regulatory agencies involved and
the results of any final soil or groundwater sampling done upon
completion of the clean-up work. _____________________________________
______________________________________________________________________
______________________________________________________________________
5. WASTEWATER TREATMENT/DISCHARGE
------------------------------
5.1 Do you discharge industrial wastewater to:
__________ storm drain? __________ sewer?
__________
__________ surface water? __________ no industrial discharge
__________
5.2 Is your industrial wastewater treated before discharge?
Yes ( ) No ( )
If yes, describe the type of treatment conducted. ____________________
______________________________________________________________________
5.3 Attach copies of any wastewater discharge permits issued to your
company with respect to its operations on the premises.
6. AIR DISCHARGES
--------------
6.1 Do you have any air filtration systems or stacks that discharge into
the air?
Yes ( ) No ( )
6.2 Do you operate any equipment that require air emissions permits?
Yes ( ) No ( )
6.3 Attach copies of any air discharge permits pertaining to these
operations.
7. HAZARDOUS MATERIALS DISCLOSURES
-------------------------------
7.1 Does your company handle an aggregate of at least 500 pounds, 55
gallons or 200 cubic feet of hazardous material at any given time?
Yes ( ) No ( )
7.2 Has your company prepared a Hazardous Materials Disclosure - Chemical
Inventory and Business Emergency Plan or similar disclosure document
pursuant to state or county requirements? Yes ( ) No ( )
If so, attach a copy.
7.3 Are any of the chemicals used in your operations regulated under
Proposition 65?
If so, describe the procedures followed to comply with these
requirements. _______________________________________________________
_____________________________________________________________________
_____________________________________________________________________
7.4 Is your company subject to OSHA Hazard Communication Standard
Requirements?
Yes ( ) No ( )
If so, describe the procedures followed to comply with these
requirements. _______________________________________________________
_____________________________________________________________________
3
<PAGE>
_____________________________________________________________________
_____________________________________________________________________
8. ANIMAL TESTING
--------------
8.1 Does your company bring or intend to bring live animals onto the
premises for research or development purposes? Yes ( ) No ( )
If so, describe the activity. _______________________________________
_____________________________________________________________________
_____________________________________________________________________
8.2 Does your company bring or intend to bring animal body parts or bodily
fluids onto the premises for research or development purposes?
Yes ( ) No ( )
If so, describe the activity. _______________________________________
_____________________________________________________________________
_____________________________________________________________________
9. ENFORCEMENT ACTIONS, COMPLAINTS
-------------------------------
9.1 Has your company ever been subject to any agency enforcement actions,
administrative orders, lawsuits, or consent orders/decrees regarding
environmental compliance or health and safety? Yes ( ) No ( )
If so, describe the actions and any continuing obligations imposed as
a result of these actions. __________________________________________
_____________________________________________________________________
_____________________________________________________________________
9.2 Has your company ever received any request for information, notice of
violation or demand letter, complaint, or inquiry regarding
environmental compliance or health and safety? Yes ( ) No ( )
9.3 Has an environmental audit ever been conducted which concerned
operations or activities on premises occupied by you? Yes ( )
No ( )
9.4 If you answered "yes" to any questions in this section, describe the
environmental action or complaint and any continuing compliance
obligation imposed as a result of the same. _________________________
_____________________________________________________________________
_____________________________________________________________________
___________________________
___________________________
By: _______________________
Name: _________________
Title: ________________
Date: _________________
4
<PAGE>
EXHIBIT C
---------
LANDLORD'S DISCLOSURES
SPECTRUM
The capitalized terms used and not otherwise defined in this Exhibit shall
have the same definitions as set forth in the Lease. The provisions of this
Exhibit shall supersede any inconsistent or conflicting provisions of the Lease.
1. Landlord has been informed that the El Toro Marine Corps Air Station
(MCAS) has been listed as a Federal Superfund site as a result of chemical
releases occurring over many years of occupancy. Various chemicals including
jet fuel, motor oil and solvents have been discharged in several areas
throughout the MCAS site. A regional study conducted by the Orange County Water
District has estimated that groundwaters beneath more than 2,900 acres have been
impacted by Trichloroethlene (TCE), an industrial solvent. There is a potential
that this substance may have migrated into the ground water underlying the
Premises. The U.S. Environmental Protection Agency, the Santa Ana Region
Quality Control Board, and the Orange County Health Care Agency are overseeing
the investigation/cleanup of this contamination. To the Landlord's current
actual knowledge, the ground water in this area is used for irrigation purposes
only, and there is no practical impediment to the use or occupancy of the
Premises due to the El Toro discharges
<PAGE>
EXHIBIT D
---------
TENANT'S INSURANCE
The following standards for Tenant's insurance shall be in effect at the
Building. Landlord reserves the right to adopt reasonable nondiscriminatory
modifications and additions to those standards. Tenant agrees to obtain and
present evidence to Landlord that it has fully complied with the insurance
requirements.
1. Tenant shall, at its sole cost and expense, commencing on the date
Tenant is given access to the Premises for any purpose and during the entire
Term, procure, pay for and keep in full force and effect: (i) commercial
general liability insurance with respect to the Premises and the operations of
or on behalf of Tenant in, on or about the Premises, including but not limited
to personal injury, owned and nonowned automobile, blanket contractual,
independent contractors, broad form property damage (with an exception to any
pollution exclusion with respect to damage arising out of heat, smoke or fumes
from a hostile fire), fire and water legal liability, products liability (if a
product is sold from the Premises), liquor law liability (if alcoholic beverages
are sold, served or consumed within the Premises), and severability of interest,
which policy(ies) shall be written on an "occurrence" basis and for not less
than the amount set forth in Item 13 of the Basic Lease Provisions, with a
combined single limit (with a $50,000 minimum limit on fire legal liability) per
occurrence for bodily injury, death, and property damage liability, and subject
to such increases in amounts as Landlord may reasonably determine from time to
time; (ii) workers' compensation insurance coverage as required by law, together
with employers' liability insurance; (iii) with respect to improvements,
alterations, and the like required or permitted to be made by Tenant under this
Lease, builder's all-risk insurance, in an amount equal to the replacement cost
of the work; (iv) insurance against fire, vandalism, malicious mischief and such
other additional perils as may be included in a standard "all risk" form in
general use in the county in which the Premises are situated, insuring Tenant's
leasehold improvements, trade fixtures, furnishings, equipment and items of
personal property of Tenant located in the Premises, in an amount equal to not
less than ninety percent (90%) of their actual replacement cost (with
replacement cost endorsement); and (v) business interruption insurance in
amounts satisfactory to cover one (1) year of loss. In no event shall the
limits of any policy be considered as limiting the liability of Tenant under
this Lease.
2. In the event Landlord consents to Tenant's use, generation or storage
of Hazardous Materials on, under or about the Premises pursuant to Section 5.3
of this Lease, Landlord shall have the continuing right to require Tenant, at
Tenant's sole cost and expense (provided the same is available for purchase upon
commercially reasonable terms), to purchase insurance specified and approved by
Landlord, with coverage not less than Five Million Dollars ($5,000,000.00),
insuring (i) any Hazardous Materials shall be removed from the Premises, (ii)
the Premises shall be restored to a clean, healthy, safe and sanitary condition,
and (iii) any liability of Tenant, Landlord and Landlord's officers, directors,
shareholders, agents, employees and representatives, arising from such Hazardous
Materials.
3. The policies of insurance required to be carried by Tenant pursuant to
this Exhibit D may contain a maximum deductible or self-insured retention of up
---------
to, but not exceeding, One Million Dollars ($1,000,000.00) per occurrence. Such
maximum deductible or self-insured retention may be increased to an amount
greater than One Million Dollars ($1,000,000.00) with Landlord's prior written
consent, which consent shall not be unreasonably withheld. Tenant shall be
solely responsible for the payment of all deductibles.
4. All policies of insurance required to be carried by Tenant pursuant to
this Exhibit D shall be written by responsible insurance companies authorized to
---------
do business in the State of California and with a Best's rating of not less than
"A" subject to final acceptance and approval by Landlord. Any insurance
required of Tenant may be furnished by Tenant under any blanket policy carried
by it or under a separate policy, so long as (i) the Premises are specifically
covered (by rider, endorsement or otherwise), (ii) the limits of the policy are
applicable on a "per location" basis to the Premises and provide for restoration
of the aggregate limits, and (iii) the policy otherwise complies with the
provisions of this Exhibit D. A true and exact copy of each paid up policy
---------
evidencing the insurance (appropriately authenticated by the insurer) or a
certificate of insurance, certifying that the policy has been issued, provides
the coverage required by this Exhibit D and contains the required provisions,
---------
shall be delivered to Landlord prior to the date Tenant is given the right of
possession of the Premises. Proper evidence of the renewal of any insurance
coverage shall also be delivered to Landlord not less than thirty (30) days
prior to the expiration of the coverage. Landlord may at any time, and from
time to time, inspect and/or copy any and all insurance policies required by
this Lease.
5. Each policy evidencing insurance required to be carried by Tenant
pursuant to this Exhibit D shall contain the following provisions and/or clauses
---------
satisfactory to Landlord: (i) a provision that the policy and the coverage
provided shall be primary and that any coverage carried by Landlord shall be
noncontributory with respect to any policies carried by Tenant except as to
workers' compensation insurance; (ii) a provision including Landlord, the
Additional Insureds identified in Item 11 of the Basic Lease Provisions, and any
other parties in interest designated by Landlord as an additional insured for
the full policy limits then carried by Tenant under the policies described in
Paragraph 1 above, except as to workers' compensation insurance; (iii) a waiver
by the insurer of any right to subrogation against Landlord, its agents,
employees, contractors and representatives which arises or might arise by reason
of any payment under the policy or by reason of any act or omission of Landlord,
its agents, employees, contractors or representatives; and (iv) a provision that
the insurer will not cancel or change the coverage provided by the policy
without first giving Landlord thirty (30) days prior written notice.
1
<PAGE>
6. In the event that Tenant fails to procure, maintain and/or pay for, at
the times and for the durations specified in this Exhibit D, any insurance
---------
required by this Exhibit D, or fails to carry insurance required by any
---------
governmental authority, Landlord may at its election procure that insurance and
pay the premiums, in which event Tenant shall repay Landlord all sums paid by
Landlord, together with interest at the maximum rate permitted by law and any
related costs or expenses incurred by Landlord, within ten (10) days following
Landlord's written demand to Tenant.
<PAGE>
EXHIBIT E
---------
RULES AND REGULATIONS
This Exhibit sets forth the rules and regulations governing Tenant's
use of the Premises leased to Tenant pursuant to the terms, covenants and
conditions of the Lease to which this Exhibit is attached and therein made part
thereof. In the event of any conflict or inconsistency between this Exhibit and
the Lease, the Lease shall control.
1. Tenant shall not place anything or allow anything to be placed
near the glass of any window, door, partition or wall which may appear unsightly
from outside the Premises.
2. The walls, walkways, sidewalks, entrance passages, courts and
vestibules shall not be obstructed or used for any purpose other than ingress
and egress of pedestrian travel to and from the Premises, and shall not be used
for loitering or gathering, or to display, store or place any merchandise,
equipment or devices, or for any other purpose. The walkways, entrance
passageways, courts, vestibules and roof are not for the use of the general
public and Landlord shall in all cases retain the right to control and prevent
access thereto by all persons whose presence in the judgment of the Landlord
shall be prejudicial to the safety, character, reputation and interests of the
Building and its tenants, provided that nothing herein contained shall be
construed to prevent such access to persons with whom Tenant normally deals in
the ordinary course of Tenant's business unless such persons are engaged in
illegal activities. No tenant or employee or invitee of any tenant shall be
permitted upon the roof of the Building.
3. No awnings or other projection shall be attached to the outside
walls of the Building. No security bars or gates, curtains, blinds, shades or
screens shall be attached to or hung in, or used in connection with, any window
or door of the Premises without the prior written consent of Landlord. Neither
the interior nor exterior of any windows shall be coated or otherwise
sunscreened without the express written consent of Landlord.
4. Except for the ordinary hanging of pictures, signs, whiteboards
---------------------------------------------------------------
or other items of decoration, Tenant shall not mark, nail, paint, drill into, or
- ----------------------------
in any way deface any part of the Premises or the Building. Tenant shall not
lay linoleum, tile, carpet or other similar floor covering so that the same
shall be affixed to the floor of the Premises in any manner except as approved
by Landlord in writing. The expense of repairing any damage resulting from a
violation of this rule or removal of any floor covering shall be borne by
Tenant.
5. The toilet rooms, urinals, wash bowls and other plumbing
apparatus shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, caused it.
6. No boring or cutting for wires will be allowed without the prior
consent of Landlord.
7. The Premises shall not be used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the permitted
use of the Premises. No exterior storage shall be allowed at any time without
the prior written approval of Landlord. The Premises shall not be used for
cooking or washing clothes without the prior written consent of Landlord, or for
lodging or sleeping or for any immoral or illegal purposes.
8. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or neighboring
buildings or premises or those having business with them, whether by the use of
any musical instrument, radio, phonograph, noise, or otherwise. Tenant shall
not use, keep or permit to be used, or kept, any foul or obnoxious gas or
substance in the Premises or permit or suffer the Premises to be used or
occupied in any manner offensive or objectionable to Landlord or other occupants
of this or neighboring buildings or premises by reason of any odors, fumes or
gases.
9. No animals shall be permitted at any time within the Premises.
10. Tenant shall not use the name of the Building or the Project in
connection with or in promoting or advertising the business of Tenant, except as
Tenant's address, without the written consent of Landlord. Landlord shall have
the right to prohibit any advertising by any Tenant which, in Landlord's
reasonable opinion, tends to impair the reputation of the Project or its
desirability for its intended uses, and upon written notice from Landlord any
Tenant shall refrain from or discontinue such advertising.
11. Canvassing, soliciting, peddling, parading, picketing,
demonstrating or otherwise engaging in any conduct that unreasonably impairs the
value or use of the Premises or the Project are prohibited and each Tenant shall
cooperate to prevent the same.
12. No equipment of any type shall be placed on the Premises which in
Landlord's opinion exceeds the load limits of the floor or otherwise threatens
the soundness of the structure or improvements of the Building.
13. No air conditioning unit or other similar apparatus shall be
installed or used by any Tenant without the prior written consent of Landlord.
1
<PAGE>
14. No aerial antenna shall be erected on the roof or exterior walls
of the Premises, or on the grounds, without in each instance, the prior written
consent of Landlord. Any aerial or antenna so installed without such written
consent shall be subject to removal by Landlord at any time without prior notice
at the expense of the Tenant, and Tenant shall upon Landlord's demand pay a
removal fee to Landlord of not less than $200.00.
15. The entire Premises, including vestibules, entrances, doors,
fixtures, windows and plate glass, shall at all times be maintained in a safe,
neat and clean condition by Tenant. All trash, refuse and waste materials shall
be regularly removed from the Premises by Tenant and placed in the containers at
the locations designated by Landlord for refuse collection. All cardboard boxes
must be "broken down" prior to being placed in the trash container. All
styrofoam chips must be bagged or otherwise contained prior to placement in the
trash container, so as not to constitute a nuisance. Pallets may not be
disposed of in the trash container or enclosures. The burning of trash, refuse
or waste materials is prohibited.
16. Tenant shall use at Tenant's cost such pest extermination
contractor at such intervals as may reasonably be required to maintain the
------------------------------------------
Premises in first-class condition.
- ---------------------------------
17. All keys for the Premises shall be provided to Tenant by Landlord
and Tenant shall return to Landlord any of such keys so provided upon the
termination of the Lease. Tenant shall not change locks or install other locks
on doors of the Premises, without the prior written consent of Landlord. In the
event of loss of any keys furnished by Landlord for Tenant, Tenant shall pay to
Landlord the costs thereof.
18. No person shall enter or remain within the Project while
intoxicated or under the influence of liquor or drugs. Landlord shall have the
right to exclude or expel from the Project any person who, in the absolute
discretion of Landlord, is under the influence of liquor or drugs.
Landlord reserves the right to amend or supplement the foregoing Rules
and Regulations and to adopt and promulgate additional rules and regulations
applicable to the Premises. Notice of such rules and regulations and amendments
and supplements thereto, if any, shall be given to the Tenant.
2
<PAGE>
EXHIBIT X
WORK LETTER
DOLLAR ALLOWANCE
[SECOND GENERATION SPACE]
The Tenant Improvement work (herein "Tenant Improvements") shall consist of any
work required to complete the Premises pursuant to approved plans and
specifications. All of the Tenant Improvement work shall be performed by the TI
Contractor selected by Landlord as provided below, and in accordance with the
procedures and requirements set forth below.
I. ARCHITECTURAL AND CONSTRUCTION PROCEDURES
-----------------------------------------
A. Prior to the execution of this Lease, Tenant and Landlord have
approved both (i) a detailed space plan for the Premises prepared by
LPA, Inc., dated October 15, 1999 ("Preliminary Plan"), and (ii) an
estimate prepared by Landlord's construction manager, Insignia/Esg.,
dated October 19, 1999, of the cost for which Landlord estimates that
the Tenant Improvements will be completed (the "Preliminary Cost
Estimate").
B. Tenant acknowledges and agrees that the Preliminary Plan and
Preliminary Cost Estimate are predicated upon certain specifications
and information previously supplied by Tenant to Landlord or
Landlord's architect, including without limitation Tenant's final
selection of wall and floor finishes, complete specifications and
locations (including load and HVAC requirements) of Tenant's equipment
and details of all "Non-Standard Improvements" (as defined below) to
be installed in the Premises (collectively, "Programming
Information"). Tenant understands that final construction documents
for the Tenant Improvements shall be predicated on the Programming
Information, and accordingly that such information must be accurate
and complete.
C. The Tenant Improvements shall incorporate Landlord's building standard
materials and specifications ("Standards"). Except as specifically
approved in the Preliminary Plan and/or in the Preliminary Cost
Estimate, no deviations from the Standards ("Non-Standard
Improvements") shall be permitted except as requested by Tenant and
approved by Landlord (which approval shall not be unreasonably
withheld), provided that Landlord shall in no event be required to
approve any Non-Standard Improvement, not approved in the Preliminary
Plan and/or Preliminary Cost Estimate, if Landlord determines that
such improvement (1) is of a lesser quality than the corresponding
Standard, (2) fails to conform to applicable governmental
requirements, (3) requires Building services beyond the level normally
provided to other tenants, (4) would delay construction of the Tenant
Improvements beyond the Estimated Commencement Date and Tenant
declines to accept such delay in writing as a Tenant Delay, or (5)
would have an adverse aesthetic impact from the exterior of the
Premises. The Tenant Improvements approved in the Preliminary Plan
and/or in the Preliminary Cost Estimate, whether "Standard" or "Non-
Standard" Improvements, shall be surrendered with the Premises and
shall become the property of the Landlord at the Expiration Date or
earlier date of termination of this Lease. As of the Expiration Date
or earlier termination of this Lease, Landlord shall have the right to
require Tenant to remove any "Non-Standard Improvements" approved by
Landlord subsequent to the Preliminary Plan and/or Preliminary Cost
Estimate. Notwithstanding the foregoing provisions of the preceding
sentence, if at the time of requesting Landlord's consent for any such
subsequently-approved Non-Standard Improvements, Tenant shall request
in writing whether or not Landlord shall require such Non-Standard
Improvements to be removed as of the Expiration Date or earlier
termination of this Lease, then Landlord's right to require Tenant to
remove such Non-Standard Improvements shall be exercised, if at all,
at the time of Landlord's approval thereof.
D. Landlord's architect and engineers shall prepare and deliver to Tenant
working drawings and specifications ("Working Drawings and
Specifications") promptly following the execution of this Lease, and
Landlord shall deliver the "Final Cost Estimate" to Tenant promptly
following the completion of the competitive bid process described
below. Tenant shall have five (5) working days from the receipt
thereof to approve or disapprove the Working Drawings and
Specifications and the Final Cost Estimate. Tenant shall not
unreasonably withhold or delay its approval, and any disapproval or
requested modification shall be limited to items not contained in the
approved Preliminary Plan or Preliminary Cost Estimate. In no event
shall Tenant disapprove the Final Cost Estimate if it does not exceed
the approved Preliminary Cost Estimate. Should Tenant disapprove the
Working Drawings and Specifications and the Final Cost Estimate, such
disapproval shall be accompanied by a detailed list of revisions. Any
revision requested by Tenant and accepted by Landlord shall be
incorporated into a revised set of Working Drawings and Specifications
and Final Cost Estimate, and Tenant shall, to the extent the revision
was accurately made, approve same in
1
<PAGE>
writing within five (5) business days of receipt without further
revision. Tenant's failure to comply in a timely manner with any of
the requirements of this paragraph shall constitute a Tenant Delay.
Without limiting the rights of Landlord for Tenant Delays as set forth
herein, in the event Tenant has not approved both the Working Drawings
and Specifications and the Final Cost Estimate within sixty (60) days
following the date of this Lease, then Landlord may, at its option,
elect to terminate this Lease by written notice to Tenant. In the
event Landlord elects to effect such a termination, Tenant shall,
within ten (10) days following demand by Landlord, pay to Landlord any
costs incurred by Landlord in connection with the preparation or
review of plans, construction estimates, price quotations, drawings or
specifications under this Work Letter and for all costs incurred in
the preparation and execution of this Lease.
E. In the event that Tenant requests in writing a revision in the
approved Working Drawings and Specifications ("Change"), Landlord
shall advise Tenant by written change order as soon as is practical of
any increase in the Completion Cost and/or any Tenant Delay such
Change would cause. Tenant shall approve or disapprove such change
order in writing within two (2) working days following its receipt
from Landlord. Tenant's approval of a Change shall be accompanied by
Tenant's payment of any resulting increase in the Completion Cost.
Landlord shall have the right to decline Tenant's request for a Change
for any of the reasons set forth in Article I.C above for Landlord's
disapproval of a Non-Standard Improvement. It is understood that
Landlord shall have no obligation to interrupt or modify the Tenant
Improvement work pending Tenant's approval of a change order.
F. Notwithstanding any provision in the Lease to the contrary, if Tenant
fails to comply with any of the time periods specified in this Work
Letter, fails otherwise to approve or reasonably disapprove any
submittal within five (5) working days, fails to approve or reasonably
disapprove in writing the Working Drawings and Specifications and the
Final Cost Estimate within the time provided herein, requests any
Changes, furnishes inaccurate or erroneous specifications or other
information, or otherwise delays in any manner the completion of the
Tenant Improvements (including without limitation by specifying
materials that are not readily available) or the issuance of an
occupancy certificate (any of the foregoing being referred to in this
Lease as a "Tenant Delay"), then Tenant shall bear any resulting
additional construction cost or other expenses, and the Commencement
Date shall be deemed to have occurred for all purposes, including
Tenant's obligation to pay rent, as of the date Landlord reasonably
determines that it would have been able to deliver the Premises to
Tenant but for the collective Tenant Delays. In no event, however,
shall such date be earlier than the Estimated Commencement Date set
forth in the Basic Lease Provisions. Should Landlord determine that
the Commencement Date should be advanced in accordance with the
foregoing, it shall so notify Tenant in writing. Landlord's
determination shall be conclusive unless Tenant notifies Landlord in
writing, within five (5) working days thereafter, of Tenant's election
to contest same by arbitration with JAMS in accordance with the
provisions of Section 22.7 of the Lease. Pending the outcome of such
arbitration proceedings, Tenant shall make timely payment of all rent
due under this Lease based upon the Commencement Date set forth in the
aforesaid notice from Landlord.
G. Landlord shall submit the Working Drawings and Specifications to a
competitive bidding process involving at least three (3) licensed
general contractors. Each of said three general contractors shall
solicit bids from at least three (3) subcontractors for each major
subtrade, including each of the major "finish" subtrades (e.g.,
millwork, painting, carpeting, etc.). Such solicitation of bids for
the subtrades shall include bids from those preferred "finish"
subcontractors of Tenant approved by Landlord and listed on EXHIBIT X-
---------
1 attached hereto (the "Tenant's Finish Subcontractors"), and from
-
those preferred subcontractors of Tenant for certain of the "systems"
work, approved by Landlord for bid purposes only and listed on EXHIBIT
-------
X-2 attached hereto ("Tenant's Systems Subcontractors"). Landlord
---
shall provide copies of the bid responses to Tenant. After
adjustments for any inconsistent assumptions to reflect an "apples to
apples" comparison, Landlord shall select the lowest qualified bidder
and that bid so selected shall be referred to as the "Final Cost
Estimate". In the event Landlord selects other than the lowest bidder,
it shall do so based on commercially reasonable factors reasonably
acceptable to Tenant, provided that Landlord shall have the right to
reject any of Tenant's Systems Subcontractors from selection, even if
said Subcontractor(s) are the lowest bidder, in Landlord's sole and
absolute discretion. Upon selection of the bidder, Landlord shall
enter into a construction contract with the chosen contractor (the
"TI Contractor") for construction of the Tenant Improvements in
accordance with the approved and final Working Drawings and
Specifications (the "TI Contract"). Notwithstanding the foregoing,
Tenant shall have the right to cause Landlord to require the TI
Contractor to use a Tenant's Finish Subcontractor for a particular
finish subtrade, on the following terms and conditions: (i) Tenant
shall notify Landlord of its election to so cause a particular
Tenant's Finish Subcontractor to be so used, if at all, within three
(3) business days following notice from Landlord of the selection of
the TI Contractor and submission of the bid responses to Tenant, and
(ii) Tenant shall pay to Landlord, concurrently with the exercise of
said election, the amount (if any) by which the bid of the Tenant's
Finish
2
<PAGE>
Subcontractor exceeds the Final Cost Estimate bid of the Subcontractor
for the applicable "finish" subtrade. Tenant further agrees that any
delay caused by such Tenant's Finish Subcontractor (and/or caused by a
Tenant's Systems Subcontractor accepted by Landlord for the Tenant
Improvement work) in the timely completion of the Tenant Improvement
work shall be deemed to constitute a "Tenant Delay" for purposes of
this Work Letter.
H. Landlord shall permit Tenant and its agents to enter the Premises
prior to the Commencement Date of the Lease in order that Tenant may
perform the construction or installation of equipment, furniture,
fixtures or network and telecommunication cabling through its own
contractors, and within fourteen (14) days prior to the Commencement
Date for move-in, in a manner and upon terms and conditions and at
times satisfactory to Landlord's representative. The foregoing
license to enter the Premises prior to the Commencement Date is,
however, conditioned upon Tenant's contractors and their
subcontractors and employees working in harmony and not interfering
with the work being performed by Landlord. If at any time that entry
shall cause disharmony or interfere with the work being performed by
Landlord, this license may be withdrawn by Landlord upon twenty-four
(24) hours written notice to Tenant. That license is further
conditioned upon the compliance by Tenant's contractors with all
requirements imposed by Landlord on third party contractors and
subcontractors, including without limitation the maintenance by Tenant
and its contractors and subcontractors of workers' compensation and
public liability and property damage insurance in amounts and with
companies and on forms satisfactory to Landlord, with certificates of
such insurance being furnished to Landlord prior to proceeding with
any such entry. The entry shall be deemed to be under all of the
provisions of the Lease except as to the covenants to pay rent.
Landlord shall not be liable in any way for any injury, loss or damage
which may occur to any such work being performed by Tenant, the same
being solely at Tenant's risk. In no event shall the failure of
Tenant's contractors to complete any work in the Premises extend the
Commencement Date of this Lease beyond the date that Landlord has
completed its Tenant Improvement work and tendered the Premises to
Tenant.
I. Tenant hereby designates Scott Stowell, Telephone No. (714) 668-4377,
as its representative, agent and attorney-in-fact for the purpose of
receiving notices, approving submittals and issuing requests for
Changes, and Landlord shall be entitled to rely upon authorizations
and directives of such person(s) as if given directly by Tenant.
Tenant may amend the designation of its construction representative(s)
at any time upon delivery of written notice to Landlord.
II. COST OF TENANT IMPROVEMENTS
---------------------------
A. Landlord shall complete, or cause to be completed, the Tenant
Improvements, at the construction cost shown in the approved Final
Cost Estimate (subject to the provisions of this Work Letter), in
accordance with final Working Drawings and Specifications approved by
both Landlord and Tenant. Landlord shall pay towards the final
construction costs ("Completion Cost") as incurred a maximum of Four
Hundred Fifty Six Thousand Six Hundred Ninety-Four Dollars
($456,694.00) ("Landlord's Contribution"), and Tenant shall be fully
responsible for the remainder ("Tenant's Contribution"). If the
actual cost of completion of the Tenant Improvements is less than the
maximum amount provided for the Landlord's Contribution, such savings
shall inure to the benefit of Landlord and Tenant shall not be
entitled to any credit or payment; provided, however, that any such
underage may be applied toward the costs of the improvements to the
patio area of the Common Area, if such patio area improvements are
approved as part of the approved Preliminary Plan.
B. The Completion Cost shall include all direct costs of Landlord in
completing the Tenant Improvements, including but not limited to the
following: (i) payments made to architects, engineers, contractors,
subcontractors and other third party consultants in the performance of
the work, (ii) permit fees and other sums paid to governmental
agencies, (iii) costs of all materials incorporated into the work or
used in connection with the work, and (iv) keying and signage costs.
Tenant shall also be responsible for a construction management fee to
be paid to Landlord in the amount of three percent (3%) of that
portion of the Completion Cost that exceeds the Landlord's
Contribution, if any.
C. Prior to start of construction of the Tenant Improvements, Tenant
shall pay to Landlord in full the amount of the Tenant's Contribution
set forth in the Final Cost Estimate. If the actual Completion Cost
of the Tenant Improvements is less than the Final Cost Estimate, any
portion of the Tenant's Contribution paid by Tenant but not expended
towards the Completion Cost shall be credited to rent next due under
this Lease. If the actual Completion Cost is greater than the Final
Cost Estimate because of modifications or extras not reflected on the
approved working drawings, or because of Tenant Delays, then Tenant
shall pay to Landlord, within ten (10) days following submission of an
invoice therefor, all such additional costs, including any additional
architectural fee. If Tenant defaults in the
3
<PAGE>
payment of any sums due under this Work Letter, Landlord shall (in
addition to all other remedies) have the same rights as in the case of
Tenant's failure to pay rent under the Lease.
4
<PAGE>
EXHIBIT X-1
-----------
(TENANT'S FINISH SUBCONTRACTORS)
<TABLE>
<CAPTION>
Subtrade Subcontractor Contact
- -------- ------------- -------
<S> <C> <C>
1. Appliances General Electric Scott Curtis
(714) 397-2589
2. Cabinets Royal Cabinets Al Krueger
(909) 629-8565
3. Finish Carpentry Residential Design Services Rick Scholton
(714) 996-9800
4. Ceramic Tile Sunbelt Tile, Inc. Craig Hoskins
(714) 692-0884
5. Corian Countertops GW Surfaces Bill Gooch
(949) 707-4618
Jayar Manufacturing Jack Kotinek
(714) 521-1372
6. Flooring Residential Designs Services Rick Scholton
(714) 996-9800
7. Glass Replacement Canyon Glass Greg Kuezynski
(949) 581-7360
Eckman Glass Joe Eckman
(714) 639-4458
8. Painting R.C. Wendt Painting Janelle Wilson
(714) 960-2700
9. Railings: Orange Pacific Construction Richard Perez
Wrought Iron (714) 288-0489
</TABLE>
<PAGE>
EXHIBIT X-2
-----------
(TENANT'S SYSTEMS SUBCONTRACTORS)
<TABLE>
<CAPTION>
Subtrade Subcontractor Contact
- -------- ------------- -------
<S> <C> <C>
1. Electrical Wiring Angeloni Electric Dave Angeloni
(909) 354-9544
2. Heat/Air Conditioning Aliso Air Jeff Loftus
(949) 589-2021
3. Plumbing Plumbing Concepts Ken Meadows
(714) 666-1886
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 3,790 0
<SECURITIES> 0 0
<RECEIVABLES> 24,482 0
<ALLOWANCES> 0 0
<INVENTORY> 770,454 0
<CURRENT-ASSETS> 0<F1> 0
<PP&E> 8,293 0
<DEPRECIATION> 4,898 0
<TOTAL-ASSETS> 883,066 0
<CURRENT-LIABILITIES> 0<F1> 0
<BONDS> 298,820 0
0 0
0 0
<COMMON> 296 0
<OTHER-SE> 366,703 0
<TOTAL-LIABILITY-AND-EQUITY> 883,066 0
<SALES> 297,089 820,748
<TOTAL-REVENUES> 297,807 822,982
<CGS> 244,204 674,889
<TOTAL-COSTS> 25,621 68,516
<OTHER-EXPENSES> 2 (84)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 501 1,027
<INCOME-PRETAX> 27,479 78,634
<INCOME-TAX> 11,298 32,343
<INCOME-CONTINUING> 16,181 46,291
<DISCONTINUED> 0 459
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 16,181 46,750
<EPS-BASIC> $0.55 $1.57
<EPS-DILUTED> $0.54 $1.56
<FN>
<F1>AMOUNTS FOR CURRENT ASSETS AND CURRENT LIABILITIES ARE NOT PRESENTED HERE
AS THE BALANCE SHEET PRESENTED IS UNCLASSIFIED.
</FN>
</TABLE>
