<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended SEPTEMBER 30, 1998 or
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
COMMISSION FILE NUMBER 1-10981
SBS TECHNOLOGIES, INC.
New Mexico 85-0359415
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2400 Louisiana Blvd. NE
AFC Building 5, Suite 600
Albuquerque, New Mexico 87110
(505) 875-0600
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 and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
----- ------
As of October 31, 1998, the Registrant had 5,838,725 shares of its common
stock outstanding.
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets September 30, 1998 June 30, 1998
- -------- ------------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,421,742 22,874,754
Receivables, net (note 2) 18,464,771 13,118,717
Inventories (note 3) 15,657,006 10,661,211
Deferred income taxes 1,494,362 1,600,000
Prepaid expenses 332,961 288,350
Other current assets 132,662 335,694
------------ ------------
Total current assets 44,503,504 48,878,726
------------ ------------
Property and equipment, at cost 7,610,505 6,776,965
Less accumulated depreciation 2,270,305 2,316,689
------------ ------------
Net property and equipment 5,340,200 4,460,276
------------ ------------
Intangible assets, net 30,435,389 16,694,154
Deferred income taxes 4,078,358 4,230,000
Other assets 49,790 52,031
------------ ------------
Total assets $84,407,241 74,315,187
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Current installments of long-term debt $ -- 3,000,000
Notes payable to related parties 3,298,830 --
Accounts payable 3,398,393 2,062,373
Accrued representative commissions 387,165 236,228
Accrued salaries 2,847,426 1,996,431
Accrued compensated absences 859,357 743,944
Income taxes 1,846,007 901,909
Other current liabilities 1,777,207 1,110,315
------------ ------------
Total current liabilities 14,414,385 10,051,200
------------ ------------
Total liabilities 14,414,385 10,051,200
------------ ------------
Minority Interest 399,437 --
Stockholders' equity:
Common stock, no par value; 100,000,000 shares authorized,
5,838,725 issued and outstanding at September 30, 1998
5,678,200 issued and outstanding at June 30, 1998 50,031,213 47,778,033
Common stock warrants 38,454 70,118
Accumulated other comprehensive income 430,733 --
Retained earnings 19,093,019 16,415,836
------------ ------------
Total stockholders' equity 69,593,419 64,263,987
------------ ------------
Total liabilities and stockholders' equity $84,407,241 74,315,187
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 2
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
Sales $24,552,873 16,362,509
Cost of sales 9,647,440 6,999,721
------------- ----------
Gross Profit 14,905,433 9,362,788
Selling, general and administrative expense 5,785,167 3,456,777
Research and development expense 3,156,585 1,782,883
Acquired in-process research and
development charge 527,514 --
Amortization of intangible assets 820,046 449,771
------------- ----------
Operating income 4,616,121 3,673,357
------------- ----------
Interest income 120,138 284,674
Interest expense (7,266) (46,613)
------------- ----------
112,872 238,061
------------- ----------
Income before income taxes and minority interest 4,728,993 3,911,418
Income taxes 1,816,129 1,584,000
------------ ----------
Income before minority interest 2,912,864 2,327,418
Minority interest 235,681 --
------------- ----------
Net income $ 2,677,183 2,327,418
------------- ----------
------------- ----------
Net income per common share $ 0.46 0.43
------------- ----------
------------- ----------
Net income per common share - assuming dilution $ 0.43 0.39
------------- ----------
------------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 3
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated Total
Common Common Other stock-
stock stock Retained Comprehensive Comprehensive holders'
Shares Amount warrants earnings Income Income equity
----------- ----------- -------- ----------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 5,678,200 $47,778,033 $ 70,118 $16,415,836 $ -- $ -- $64,263,987
Exercise of stock options
and warrants 136,525 1,143,302 (31,664) -- -- -- 1,111,638
Stock issued for business acquisition 24,000 713,878 -- -- -- -- 713,878
Income tax benefit from stock
options exercised -- 396,000 -- -- -- -- 396,000
Comprehensive income
Net income -- -- -- 2,677,183 2,677,183 -- 2,677,183
Other comprehensive income, net of tax
Foreign currency translation
adjustment, net of deferred income
taxes of $405,642 -- -- -- -- 430,733 430,733 430,733
----------
Comprehensive income $3,107,916
----------
----------
Balance at September 30, 1998 5,838,725 $50,031,213 $ 38,454 $19,093,019 $ 430,733 $69,593,419
---------- ----------- -------- ----------- ---------- -----------
---------- ----------- -------- ----------- ---------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 4
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1998 1997
---------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,677,183 2,327,418
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 348,791 193,320
Amortization of intangible assets 820,046 449,771
Bad debt expense 77,156 130,853
Deferred income taxes (254,000) 80,000
(Gain) loss on disposition of assets 27,472 (4,871)
Imputed interest -- 45,937
Acquired in-process research and development charge 527,514 --
Minority interest 235,681 --
Changes in assets and liabilities, Net of effects of acquisitions:
Receivables 106,569 (340,080)
Inventories (1,383,146) (631,732)
Prepaids and other assets 268,512 (82,546)
Accounts payable (33,826) 423,066
Accrued representative commissions 150,937 (26,539)
Accrued salaries (1,002,706) (894,601)
Accrued compensated absences 30,026 (2,445)
Income taxes (987,879) 396,872
Other current liabilities (145,689) (43,215)
----------- --------
Net adjustments (1,214,542) (306,210)
----------- --------
Net cash provided by operating activities 1,462,641 2,021,208
----------- --------
Cash flows from investing activities:
Cash received from sale of assets 201 50,000
Business acquisitions, net of cash acquired (note 5) (13,807,524) --
Acquisition of property and equipment (686,638) (762,560)
----------- --------
Net cash used by investing activities (14,493,961) (712,560)
----------- --------
Cash flows from financing activities:
Payments on long-term borrowings and capital leases (3,000,000) (1,013,316)
Proceeds from exercise of stock options and warrants 1,111,638 565,473
Income tax benefit of stock options exercised 396,000 --
----------- --------
Net cash used by financing activities (1,492,362) (447,843)
----------- --------
</TABLE>
(Continued)
Page 5
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended September 30,
-----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Effect of exchange rate changes on cash 70,670 --
Net change in cash and cash equivalents (14,523,682) 860,805
Cash and cash equivalents at beginning of period 22,874,754 21,661,671
----------- ----------
Cash and cash equivalents at end of period $ 8,421,742 22,522,476
----------- ----------
----------- ----------
Supplemental disclosure of cash flow information:
Interest paid $ 7,266 676
Income taxes paid 2,408,008 1,126,000
Noncash financing and investing activities:
Accrued acquisition costs $ 740,202 --
Stock issued for acquisition 713,878 --
Summary of assets, liabilities, and equity
acquired through acquisition:
Cash and cash equivalents $ 531,475 --
Receivables 5,314,703 --
Inventories 3,378,652 --
Deferred income taxes (105,638) --
Prepaid expenses and other current assets 102,512 --
Goodwill 12,717,782 --
Covenant not to compete 200,000 --
Property and equipment 556,258 --
Note payable - related party (2,865,603) --
Accounts payable (851,903) --
Accrued salaries (1,753,948) --
Accrued compensated absences (82,225) --
Income taxes (1,888,522) --
Other current liabilities (771,363) --
Minority interest (143,181) --
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 6
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
- -------------------------------------------------------------------------------
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies as set forth in SBS Technologies, Inc.'s (the
"Company") Annual Report on Form 10-K dated September 25, 1998 have been
adhered to in preparing the accompanying interim consolidated financial
statements. These statements are unaudited but include all adjustments,
consisting of normal recurring adjustments, that the Company considers
necessary for a fair presentation of the financial position, results of
operations, and cash flows for such interim period. Results for an
interim period are not necessarily indicative of results for a full year.
2) RECEIVABLES, NET
Receivables, net consisted of the following:
<TABLE>
<CAPTION>
September 30, 1998 June 30, 1998
------------------ ----------------
<S> <C> <C>
Accounts receivable $ 19,086,941 13,408,656
Less: allowance for doubtful accounts (622,170) (289,939)
------------ -------------
$ 18,464,771 13,118,717
------------ -------------
------------ -------------
</TABLE>
3) INVENTORIES
Inventories are valued at standard cost, which approximates weighted
average cost, does not exceed market and consists of the following:
<TABLE>
<CAPTION>
September 30, 1998 June 30, 1998
------------------ ----------------
<S> <C> <C>
Raw materials $ 7,514,258 4,970,267
Work in process 4,633,473 3,709,312
Finished goods 3,509,275 1,981,632
----------- ----------
$ 15,657,006 10,661,211
----------- ----------
----------- ----------
</TABLE>
4) EARNINGS PER SHARE
Effective with the quarter ended December 31, 1997, the Company adopted
SFAS No. 128, "Earnings Per Share." In accordance with SFAS No. 128, all
previously reported earnings (loss) per share amounts have been restated
to comply with SFAS No. 128. Net income per common share is based on
weighted average shares outstanding. Net income per common share -
assuming dilution includes the dilutive effects of potential common
shares outstanding during the period.
A reconciliation of the numerator and denominator of the per share and
per share - assuming dilution calculation follows:
Page 7
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
-------------------------------------------------------------------------------------
1998 1997
------------------------------------------ ----------------------------------------
Income Shares Per-Share Loss Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE
Net Income $2,677,183 5,811,420 $0 46 $2,327,418 5,470,917 $0.43
----- -----
----- -----
EFFECT OF DILUTIVE SECURITIES
Dilutive options and warrants 424,306 499,271
----------------------- ------------------------
NET INCOME PER COMMON SHARE
-ASSUMING DILUTION
Net Income $2,677,183 6,235,726 $0 .43 $2,327,418 5,970,188 $0.39
------ -----
------ -----
</TABLE>
For the three months ended September 30, 1998 and 1997, options to
purchase 463,267 and 319,828 shares of common stock, respectively,
were outstanding but were not included in the computation of net
income per common share assuming dilution because the options'
exercise price was greater than the average market price of the common
shares.
5) BUSINESS ACQUISITIONS
On August 12, 1998 The Company completed the purchase of VI Computer
("VI"). Based in Encinitas, California, VI designs, manufactures, and
markets CPU boards based on the Motorola PowerPC processor for
computer applications that utilize VME and CompactPCI bus standards.
The Company acquired all of the outstanding capital stock of VI for a
total purchase price of $5.3 million. Of the $5.3 million, $5.0
million was paid in cash to the sellers at closing, and $.2 million
was paid in cash to the sellers on October 13, 1998, upon finalizing
the closing balance sheet. The remainder represents acquisition costs
associated with the purchase. The acquisition was accounted for using
the purchase method of accounting and goodwill is being amortized over
10 years. The financial results of VI have been included in the
Company's Consolidated Financial Statements from August 12, 1998.
On July 1, 1998, the Company acquired through its newly formed
subsidiary, SBS Technologies Holding GmbH, a 50.1% interest in OR
Industrial Computers GmbH ("OR"). Based in Augsburg, Germany, OR designs,
manufactures, and markets CPU boards utilized in a wide range of embedded
computer applications. As part of the acquisition, the Company acquired,
through its newly formed subsidiary, SBS Technologies Holding GmbH, a
50.2% interest in ORTEC Electronic Assembly GmbH ("ORTEC"), a Mindelheim,
Germany based related company which manufactures OR's commercial products
and electronic products for other customers. The Company also acquired,
through its wholly-owned subsidiary, SBS Embedded Computers, Inc., based
in Raleigh, North Carolina, a 100% interest in OR Computers, Inc., based
in Fairfax, Virginia, which is the U.S. marketing support organization
for the OR product line. In addition, the Company and the shareholders of
both OR and ORTEC entered into exclusive option agreements whereby the
Company may acquire the remaining shares of both companies on February
28, 1999. The purchase price, excluding transaction costs, for the
majority interest in the two companies based in Germany and 100% of OR
Computers Inc. was DM 17.5 million, approximately $9.7 million, paid in
cash and common stock at closing. Acquisition costs associated with the
purchase were approximately $0.8 million. The purchase price for the
remaining interest in the two companies based in Germany is DM 17.2
million, approximately $10.3 million based on the exchange rate on
September 30, 1998. The acquisition was accounted for using the purchase
method of accounting and goodwill is being amortized over 10 years. In
connection with the acquisition, the Company recorded a $0.5 million
earnings charge, based on an assessment by the Company, in conjunction
with an independent valuation firm, of purchased technology of OR. The
Page 8
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Continued)
- --------------------------------------------------------------------------------
assessment determined that $0.5 million of OR's purchase price
represented technology that does not meet the accounting definitions of
"completed technology," and thus should be charged to earnings under
generally accepted accounting principles. The financial results of OR,
ORTEC, and OR Computers, Inc. have been included in the Company's
Consolidated Financial Statements from July 1, 1998.
On November 24, 1997, the Company completed the purchase of Micro
Alliance, Inc. ("Micro Alliance"), a privately held San Diego, California
county-based manufacturer of industrial computer enclosures and systems.
Micro Alliance specializes in the design and manufacture of
special-purpose PC-compatible computer systems offering a variety of CPU
boards and system enclosures, including rack mount, desktop and mobile
systems. Most systems contain passive backplanes that allow the addition
of up to 20 ISA and PCI cards. These systems are often customized to meet
the needs of particular OEM applications. The Company acquired all of the
outstanding capital stock of Micro Alliance for a total purchase price of
$5.8 million. Of the $5.8 million, $5.7 million was paid in cash and the
remainder represents acquisition costs associated with the purchase. The
acquisition was accounted for using the purchase method of accounting and
goodwill is being amortized over 10 years. The financial results of Micro
Alliance have been included in the Company's Consolidated Financial
Statements from November 24, 1997.
Had the acquisitions of Micro Alliance, OR, ORTEC, OR Computers Inc.
and VI taken place on July 1, 1997, pro forma revenues, net income, net
income per common share and net income per common share - assuming
dilution for the quarter ended September 30, 1998 would have been
$25.1 million, $2.6 million, $0.45 and $0.42, respectively. Pro forma
revenues, net income, net income per common share and net income per
common share - assuming dilution for the quarter ended September 30,
1997 would have been $21.0 million, $1.8 million, $0.33 and $0.31,
respectively. The pro forma information is presented for informational
purposes only and is not necessarily indicative of the results of
operations that actually would have been achieved had the acquisitions
been consummated as of that time, nor is it intended to be a projection
of future results.
Page 9
<PAGE>
SBS TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO. INFORMATION DISCUSSED HEREIN
MAY INCLUDE FORWARD-LOOKING STATEMENTS REGARDING FUTURE EVENTS OR THE FUTURE
FINANCIAL PERFORMANCE OF THE COMPANY, AND ARE SUBJECT TO A NUMBER OF RISKS AND
OTHER FACTORS WHICH COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTAINED IN ANY FORWARD LOOKING STATEMENTS. AMONG SUCH FACTORS ARE:
GENERAL BUSINESS AND ECONOMIC CONDITIONS; CUSTOMER ACCEPTANCE OF AND DEMAND FOR
THE COMPANY'S PRODUCTS; THE COMPANY'S OVERALL ABILITY TO DESIGN, TEST, AND
INTRODUCE NEW PRODUCTS ON A TIMELY BASIS; THE NATURE OF THE MARKETS ADDRESSED BY
THE COMPANY'S PRODUCTS; AND OTHER RISK FACTORS LISTED FROM TIME TO TIME IN
DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION.
RECENT ACQUISITIONS
On August 12, 1998, the Company completed the purchase of VI. Based in
Encinitas, California, VI designs, manufactures, and markets CPU boards based
on the Motorola PowerPC processor for computer applications that utilize VME
and CompactPCI bus standards. The Company acquired all of the outstanding
capital stock of VI for a total purchase price of $5.3 million. Of the $5.3
million, $5.0 million was paid in cash to the sellers at closing, and $.2
million was paid in cash to the sellers on October 13, 1998, upon finalizing
the closing balance sheet. The remainder represents acquisition costs
associated with the purchase. The acquisition was accounted for using the
purchase method of accounting, and goodwill is being amortized over 10 years.
The financial results of VI have been included in the Company's Consolidated
Financial Statements from August 12, 1998.
On July 1, 1998, the Company acquired through its newly formed subsidiary,
SBS Technologies Holding GmbH, a 50.1% interest in OR. Based in Augsburg,
Germany, OR designs, manufactures, and markets CPU boards utilized in a wide
range of embedded computer applications. As part of the acquisition, the
Company acquired, through its newly formed subsidiary, SBS Technologies
Holding GmbH, a 50.2% interest in ORTEC, a Mindelheim, Germany based related
company which manufactures OR's commercial products and electronic products
for other customers. The Company also acquired, through its wholly-owned
subsidiary, SBS Embedded Computers, Inc., based in Raleigh, North Carolina, a
100% interest in OR Computers, Inc., based in Fairfax, Virginia, which is the
U.S. marketing support organization for the OR product line. In addition, the
Company and the shareholders of both OR and ORTEC entered into exclusive
option agreements whereby the Company may acquire the remaining shares of
both companies on February 28, 1999. The purchase price, excluding
transaction costs, for the majority interest in the two companies based in
Germany and 100% of OR Computers Inc. was DM 17.5 million, approximately $9.7
million, paid in cash and common stock at closing. Acquisition costs
associated with the purchase were approximately $0.8 million. The purchase
price for the remaining interest in the two companies based in Germany is DM
17.2 million, approximately $10.3 million based on the exchange rate on
September 30, 1998. The acquisition was accounted for using the purchase
method of accounting and goodwill is being amortized over 10 years. In
connection with the acquisition, the Company recorded a $0.5 million earnings
charge, based on an assessment by the Company, in conjunction with an
independent valuation firm, of purchased technology of OR. The assessment
determined that $0.5 million of OR's purchase price represented technology
that does not meet the accounting definitions of "completed technology," and
thus should be charged to earnings under generally accepted accounting
principles. The financial results of OR, ORTEC, and OR Computers, Inc. have
been included in the Company's Consolidated Financial Statements from July 1,
1998.
On November 24, 1997, the Company completed the purchase of Micro Alliance, a
privately held San Diego, California county-based manufacturer of industrial
computer enclosures and systems. Micro Alliance specializes in the design and
manufacture of special-purpose PC-compatible computer systems offering a variety
of CPU boards and system enclosures,
Page 10
<PAGE>
SBS TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
including rack mount, desktop and mobile systems. Most systems contain passive
backplanes that allow the addition of up to 20 ISA and PCI cards. These systems
are often customized to meet the needs of particular OEM applications. Under the
terms of the purchase agreement dated November 24, 1997 (the "Agreement") among
the Company, Micro Alliance, a California corporation, and Jeffery Huston,
Edward Larson, and Sherrin W. Larson (together "Shareholders"), the Company
acquired all of the outstanding capital stock of Micro Alliance for a total
purchase price of $5.8 million. Of this total purchase price, $250,000 in cash
was placed in a joint escrow account until the earlier of resolution of certain
tax issues or the end of any applicable statute of limitations. The financial
results of Micro Alliance have been included in the Company's Consolidated
Financial Statements from November 24, 1997. Goodwill is being amortized over a
ten-year period.
Had the acquisitions of Micro Alliance, OR, ORTEC, OR Computers Inc. and VI
taken place on July 1, 1997, pro forma revenues, net income, net income per
common share and net income per common share - assuming dilution for the
quarter ended September 30, 1998 would have been $25.1 million, $2.6 million,
$0.45 and $0.42, respectively. Pro forma revenues, net income, net income per
common share and net income per common share - assuming dilution for the
quarter ended September 30, 1997 would have been $21.0 million, $1.8 million,
$0.33 and $0.31, respectively. The pro forma information is presented for
informational purposes only and is not necessarily indicative of the results
of operations that would have been achieved had the acquisitions been
consummated as of that time, nor is it intended to be a projection of future
results.
RESULTS OF OPERATIONS
SALES. For the three-month period ended September 30, 1998, sales increased
50.0%, or $8.2 million, from $16.4 million for the three month period ended
September 30, 1997, to $24.6 million. Of this 50.0% increase, sales
contributed by VI, which was acquired on August 12, 1998, comprised 14.0%,
sales contributed by OR, ORTEC, and OR Computers Inc., which were acquired on
July 1, 1998, comprised 17.7%, sales contributed by Micro Alliance, which was
acquired on November 24, 1997, comprised 6.3%, and 12.0% was attributable to
the Company's other product lines. During the three month period ended
September 30, 1998, prices for the Company's products remained firm, and unit
shipments increased across all product lines, with the exception of the
Company's CPU product line, which declined compared to the three month period
ended September 30, 1997. Historically, less than 5% of the Company's sales
were direct sales to Asian based customers. The Company experienced minimal
direct effect on its operations due to the current Asian currency and
economic crisis. Management believes that any future direct effect on the
Company from the Asian currency and economic crisis will remain minimal;
however, it is difficult for the Company to predict any indirect effect
derived from sales to U.S. based customers whose products are sold into Asia.
GROSS PROFIT. For the three-month period ended September 30, 1998, gross
profit increased 58.5%, or $5.5 million, from $9.4 million for the thee-month
period ended September 30, 1997, to $14.9 million. Of this 58.5%, 37.2% is
due to the acquisitions of VI, OR, ORTEC, OR Computers Inc. and Micro
Alliance, and 21.3% is due to increased sales volume in the Company's other
product areas. For the three-month period ended September 30, 1998, gross
profit as a percentage of sales increased to 60.7% from 57.2% for the
three-month period ended September 30, 1997. This increase was primarily due
to increased sales volume over fixed costs, material cost improvements and a
higher percentage of sales of the Company's Telemetry and Avionics Interface
products, which generally yield higher margins than the Company's CPU,
General Purpose I/O, and Bus Interface products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. For the three-month period ended
September 30, 1998, selling, general and administrative (SG&A) expense increased
65.7%, or $2.3 million, from $3.5 million for the three-month period ended
September 30, 1997, to $5.8 million. Of this 65.7% increase, 28.6% results from
the added expenditures due to the acquisitions of VI, OR, ORTEC, OR Computers
Inc. and Micro Alliance, and 37.1% is due to additional salaried sales personnel
as the Company transitioned from an independent sales force to a direct sales
force, and additional administrative staffing and
Page 11
<PAGE>
SBS TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1998
(Continued)
- --------------------------------------------------------------------------------
promotional costs commensurate with the growth of the Company. For the
same reasons, for the three-month period ended September 30, 1998, SG&A
expense as a percentage of sales increased to 23.6% from 21.1% in the
three-month period ended September 30, 1997.
RESEARCH AND DEVELOPMENT EXPENSE. For the three-month period ended September
30, 1998, research and development expense (R&D) increased 77.8%, or $1.4
million, from $1.8 million for the three-month period ended September 30,
1997, to $3.2 million. Of this 77.8% increase, 33.3% results from the added
expenditures due to the acquisitions of VI, OR and Micro Alliance and 44.5%
is due to increased investment in new products in the Company's other product
areas. For the same reasons, for the three-month period ended September 30,
1998, R&D expense as a percentage of sales increased to 12.9% from 10.9% in
the three-month period ended September 30, 1997.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE. For the three-month
period ended September 30, 1998, in connection with the acquisition of OR
completed on July 1, 1998, the Company recorded a $.5 million earnings charge
based on an assessment by the Company, in conjunction with an independent
valuation firm, of purchased technology of OR. The assessment determined that
$.5 million of OR's purchase price represented technology that does not meet
the accounting definitions of completed technology, and thus should be
charged to earnings under generally accepted accounting principles.
AMORTIZATION OF INTANGIBLE ASSETS. For the three-month period ended September
30, 1998, amortization of intangible assets increased 82.2%, or $370,000,
from $450,000 for the three-month period ended September 30, 1997, to
$820,000. This increase was the result of the amortization of goodwill
associated with the acquisitions of VI, OR, ORTEC, and Micro Alliance.
INTEREST INCOME. For the three-month period ended September 30, 1998,
interest income decreased 57.9%, or $165,000, from $285,000 for the
three-month period ended September 30, 1997, to $120,000. This decrease is
due to the decrease in cash resulting from the $3.0 million final payment to
the former owners of Bit 3 on July 1, 1998, the $8.8 million payment (net of
cash received) for the acquisitions of OR, ORTEC, and OR Computers Inc. and
the $5.0 million payment for the acquisition of VI.
INTEREST EXPENSE. For the three-month period ended September 30, 1998,
interest expense decreased 85.1%, or $40,000, from $47,000 for the
three-month period ended September 30, 1997, to $7,000. This decrease is
attributable to the elimination of the imputed interest associated with the
remaining notes payable to the former owners of Bit 3 which was completely
paid down on July 1, 1998.
INCOME TAXES. For the three-month period ended September 30, 1998 and the
three-month period ended September 30, 1997, income taxes represented an
effective income tax rate of 38.4% and 40.0%, respectively. The decrease in
the effective income tax rate is due to U.S. tax planning strategies
implemented by the Company, including a research and experimental tax credit,
offset by income taxes associated with German consolidated operations
calculated at an effective rate of 50.8%.
EARNINGS PER SHARE. For the three-month period ended September 30, 1998, net
income per common share was $0.46 compared to $0.43 for the three-month
period ended September 30, 1997. For the three-month period ended September
30, 1998, net income per common share excluding the charge to earnings
associated with the acquisition of OR, net of income taxes, would have been
$0.51. For the three-month period ended September 30, 1998, net income per
common share-assuming dilution was $0.43 compared to $0.39 for the
three-month period ended September 30, 1997. For the three-month period ended
September 30, 1998, net income per common share-assuming dilution excluding
the charge to earnings, net of income taxes, would have been $0.47.
Page 12
<PAGE>
SBS TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1998
(Continued)
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Company uses a combination of the sale of equity securities, internally
generated funds, and bank borrowings to finance its acquisitions, working
capital requirements, capital expenditures, and operations.
Cash totaled $8.4 million at September 30, 1998, a decrease of $14.5 million
from June 30, 1998. This decrease is a result of the acquisitions of VI, OR,
ORTEC, and OR Computers Inc., for $13.8 million, net of cash acquired and
accrued acquisition costs, $.7 million for the purchase of property and
equipment, and $3.0 million for the final payments to the former owners of
Bit 3, offset by cash flow from operations of $1.5 million, and $1.1 million
received from the exercise of stock options and warrants. The Company's
growth during the three-month period ended September 30, 1998 caused the
Company to increase accounts receivable and inventories. Liabilities were in
line with the current level of business. The exercise of stock options
related to Company stock option plans reduced the Company's tax liability.
The Company is currently negotiating a $15.0 million credit facility with
NationsBank N.A. Management believes that financial resources, including its
internally generated funds, and debt capacity will be sufficient to finance
the Company's current operations and capital expenditures, excluding
acquisitions, for the next twelve months.
For the three-month period ended September 30, 1998, there was no significant
impact from inflation or changing prices on the Company's sales or income
from operations.
YEAR 2000 ISSUE
DESCRIPTION OF THE ISSUE. The Y2K issue refers to the inability of certain
date-sensitive computer chips, software, and systems to recognize a two-digit
date field as belonging to the 21st century. Mistaking "00" for 1900 or any
other incorrect year could result in a system failure or miscalculations
causing disruptions to operations, including manufacturing, a temporary
inability to process transactions, or send invoices, or engage in other
normal business activities. This is a significant issue for most, if not all
companies, with far reaching implications, some of which cannot be
anticipated or predicted with any degree of certainty. The Y2K issue may
create unforeseen risks to the Company from its internal computer systems as
well as from computer systems of third parties with which it deals. Failures
of the Company's and/or third parties' computer systems could have a material
adverse impact on the Company's ability to conduct its business.
YEAR 2000 TASK FORCE. The Company assembled, in April 1998, an internal task
force, chaired by the CEO and comprised of senior managers throughout the
Company, to review its products, business and engineering applications and
suppliers and develop contingency plans for Y2K readiness to be completed by
the end of calendar 1999. The goal of the task force is to minimize the
effect that Y2K issues will have on the Company and its customers. The CEO of
the Company updates the Board of Directors on its Y2K readiness at each
scheduled Board Meeting.
INTERNAL BUSINESS AND ENGINEERING SYSTEMS. The task force is currently
reviewing all internal business and engineering computer systems to ensure
that such systems either will be Y2K ready, or will be modified or replaced
by Y2K ready systems. The Company has already been assured that its business
information system, installed in 1998 and utilized at most of its locations,
is Y2K ready as long as the Company adheres to the supplier's Y2K readiness
guidelines. The Company plans to simulate and test, in a Y2K environment, its
business information systems to verify its Y2K readiness by the middle of
calendar 1999. All other internal engineering development applications and
systems are planned to be modified if necessary, by the middle of calendar
1999.
Page 13
<PAGE>
SBS TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1998
(Continued)
- --------------------------------------------------------------------------------
SUPPLIERS. The major suppliers to the Company are component parts
distributors and contract manufacturers. Often the Company sources its
products and manufacturing services from multiple, competing vendors. The
Company is conducting reviews of its key suppliers to ensure Y2K readiness of
as many vendors as possible and has initiated communication with all of its
key suppliers to determine to what extent the Company may be vulnerable due
to their failure to be Y2K ready. This communication, including site visits
by Company personnel, will be ongoing throughout calendar 1999. There can be
no assurance that the systems of other companies on which the Company relies
will be Y2K ready on a timely basis and will not have an adverse effect on
the operations of the Company. In the instances where the Company is unable
to determine that its vendors have taken appropriate steps to minimize
disruption due to non-Y2K readiness, the Company will consider contingency
plans, including moving to currently identified alternate sources, or
developing new alternate sources.
PRODUCTS. The Company also has a program to assess the capability of its
existing and legacy products to handle the year 2000. In addition, all
products under development are also being reviewed to ensure Y2K readiness
prior to release. Certain of the Company's computer processor board level
products and integrated computer systems utilize computer chips that include
built in operating systems ("BIOS") allowing the computer to initialize and
load software. For many users, software is provided by sources other than the
Company. As with the typical PC computer, the assessment of whether a
complete system will operate correctly may depend on the BIOS capability and
software. To the extent that older BIOS or software are not Y2K ready, they
may need to be upgraded or replaced.
COSTS. The Company expects the cost of its Y2K assessment, including both
incremental spending and reallocated resources, will not be material. The
current assessment does not include potential costs related to any customer
or other claims or the cost of internal software and hardware replaced in the
normal course of business. This assessment is subject to change. Since there
is no uniform definition of "Y2K readiness" and since all customer situations
cannot be anticipated, particularly those involving third party products, the
Company may see claims as a result of the Y2K transition. Such claims, if
successful, could have a material adverse impact on future results.
CUSTOMERS. Because the Company has no customer which comprises more than 5%
of its sales, the Company believes that the effect of a failure of any single
customer to continue to purchase goods and services from the Company due to
non-Y2K readiness will not be material to the operations of the Company. As
the Company sells its products and services to many hundreds of customers,
the Company cannot assure that some of the Company's customers will not
become Y2K ready, and in the aggregate, have a material effect on the
Company's operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's liquid investment is cash invested either in money market
accounts or in overnight repurchase agreements. The Company's debt as of
September 30, 1998 and June 30,1998 was at a fixed interest rate maturing
within one year. As a result, the Company believes that the market risk
arising from its holdings of financial instruments is minimal.
In conjunction with the acquisitions of OR and ORTEC in July 1998, the
Company entered into an option agreement to acquire the remaining interests
in OR and ORTEC for DM 17.2 million. Accordingly, the Company is subject to
potentially adverse movements in the foreign currency exchange rates. As of
November 1998, the Company has not entered into any foreign exchange forward
contracts to reduce its exposure to changes in the foreign currency exchange
rate on the purchase option.
Page 14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults by the Company upon its 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 (exhibit reference numbers refer to Item 601 of Regulation
S-K)
03.i (1) Articles of Incorporation, as amended.
03.ii (1) Bylaws, as amended.
4.1 (1) Rights Agreement dated as of September 15, 1997 between SBS
Technologies, Inc. and First Security Bank, National
Association, as Rights Agent, which includes the form of
Right Certificate as Exhibit A and the Summary of Rights to
Purchase Common Shares as Exhibit B.2
10.af (1) Purchase Agreement dated July 1, 1998 between SBS
Technologies, Inc. and OR Industrial Computers GmbH, et al
10.ag (1) Purchase Agreement dated August 12, 1998 between SBS
Technologies, Inc. and Themis Computer and the minority
shareholders of VI Computer
10.ah (1) Standard Industrial Lease Between Carlsbad Business
Park, LLC, (a California Limited Liability Company), and
SBS Technologies Inc. dated September 10, 1998.
27. (1) Financial Data Schedule
(b) Reports on Form 8-K - On July 15 and September 14, 1998, the Company
filed Form 8-K and 8-K/A, respectively, relating to the acquisitions
of OR Industrial Computers GmbH, ORTEC Electronic Assembly GmbH and OR
Computers, Inc.
(1) See Exhibit Index on Page 17
Page 15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SBS TECHNOLOGIES, INC.
Date: November 13, 1998 /s/ Christopher J. Amenson
------------------------------------
Chairman and Chief Executive Officer
Date: November 13, 1998 /s/ James E. Dixon, Jr.
------------------------------------------
Vice President of Finance & Administration
Page 16
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Method of Filing
- -------------- --------------------------------------- ----------------
<S> <C> <C>
03.i (1) Articles of Incorporation, as amended. --
03.ii (2) Bylaws, as amended. --
4.1 (3) Rights Agreement dated as of September 15, 1997
between SBS Technologies, Inc. and First Security Bank,
National Association, as Rights Agent, which includes
the form of Right Certificate as Exhibit A and the Summary
of Rights to Purchase Common Shares as Exhibit B.2 --
10.af (4) Purchase Agreement dated July 1, 1998 between SBS
Technologies, Inc. and OR Industrial Computers GmbH, et al --
10.ag (4) Purchase Agreement dated August 12, 1998 between SBS
Technologies, Inc. and Themis Computer and the
minority shareholders of VI Computer --
10.ah Standard Industrial Lease Between Carlsbad Business Park, LLC,
(a California Limited Liability Company), and SBS Technologies
Inc. dated September 10, 1998. Filed herewith electronically
27. Financial Data Schedule Filed herewith electronically
</TABLE>
(1) Incorporated by reference to Exhibit 3.i, of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1997.
(2) Incorporated by reference to Exhibit 3.ii, of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995.
(3) Incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K filed
September 23, 1997.
(4) Incorporated by reference to Exhibits 10.af and 10.ag of the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1998.
Page 17
<PAGE>
STANDARD INDUSTRIAL LEASE
[Single Tenant - Triple Net]
BETWEEN
CARLSBAD BUSINESS PARK, LLC
(LANDLORD)
AND
SBS TECHNOLOGIES, INC.
(TENANT)
<PAGE>
STANDARD INDUSTRIAL LEASE
[SINGLE TENANT - TRIPLE NET]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. BASIC LEASE TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. POSSESSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6. SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7. COVENANTS, CONDITIONS AND RESTRICTIONS. . . . . . . . . . . . . . . . . . 6
8. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
10. BROKERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
11. SURRENDER; HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . 8
12. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
13. ALTERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
14. REPAIRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
15. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
16. ENTRY BY LANDLORD. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
17. UTILITIES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . .13
18. ASSUMPTION OF RISK AND INDEMNIFICATION . . . . . . . . . . . . . . . . .14
19. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
20. DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . .17
21. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
22. DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . .20
23. LANDLORD'S DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . .22
24. ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . . . . . . . . . . . .23
25. SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
26. ESTOPPEL CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . .26
</TABLE>
i
<PAGE>
STANDARD INDUSTRIAL LEASE
[SINGLE TENANT - TRIPLE NET]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
27. EASEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
28. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .26
29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS. . . .26
30. DEFINITION OF LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . .26
31. WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
32. QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
33. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
34. SIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
35. LIMITATION ON LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .28
36. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
37. EXECUTION OF LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . .29
</TABLE>
EXHIBITS:
- ---------
A-I Legal Description of Premises
A-II Site Plan
B Work Letter Agreement
C Notice of Lease Term Dates
D Estoppel Certificate
ii
<PAGE>
STANDARD INDUSTRIAL LEASE
[SINGLE TENANT - TRIPLE NET]
This STANDARD INDUSTRIAL LEASE ("Lease") is entered into as of
the 10th day of September, 1998, by and between CARLSBAD BUSINESS PARK, LLC,
a California limited liability company ("Landlord"), and SBS TECHNOLOGIES,
INC., a New Mexico corporation ("Tenant").
1. BASIC LEASE TERMS. For purposes of this Lease, the
following terms have the following definitions and meanings:
(a) LANDLORD'S ADDRESS:
CARLSBAD BUSINESS PARK, LLC
4275 Executive Square, Suite 240
La Jolla, CA 92037
Attention: Anthony Badeaux
or such other place as Landlord may from time to time designate
by notice to Tenant.
(b) TENANT'S ADDRESS:
SBS Technologies, Inc.
2400 Louisiana NE, Suite 600
Albuquerque, New Mexico 87110
Attention: James E. Dixon
(c) PREMISES: That certain real property commonly known
as Parcel 2 of the Spectrum development located in the Carlsbad Research
Center, including the land and the building in the process of being
constructed thereon (the "Building"), which Building contains approximately
75,160 rentable square feet. The Premises are located at 5781 Van Allen Way
and are more particularly described on EXHIBIT "A-I" and generally depicted
on EXHIBIT "A-II," attached hereto.
(d) TERM: Seven (7) Lease Years, plus one (1) option to
extend the Term for three (3) additional years.
(e) COMMENCEMENT DATE: The date on which the Term of
this Lease will commence as determined in accordance with the provisions of
EXHIBIT "B" attached hereto.
(f) EXPIRATION DATE: The date which is seven Lease
Years after the Commencement Date plus any partial month in which the
Commencement Date occurs.
(g) MONTHLY BASE RENT: $60,880.00, subject to annual
increase on each Adjustment Date based on the increase in the CPI provided
that each such annual increase shall not exceed five percent (5%) nor be less
than three percent (3%), as more particularly set forth in Paragraph 5(b)
below.
(h) SECURITY DEPOSIT: $60,880.00.
(i) PERMITTED USE: All legally permissible office,
manufacturing, assembly, distribution and related uses for light assembly of
electronic components and software development; subject, however, to (a) any
limitations set forth in the CC&R's (as defined below), and (b) Tenant's
ability to change its use within the Permitted Sublease Space (as defined
below).
(j) BROKERS:
Landlord Broker -- CB Richard Ellis, Inc.
(Lannie R. Allee)
<PAGE>
Tenant Broker - Business Real Estate Brokerage Company
(Kent A. Moore)
(k) INTEREST RATE: Shall mean three percent (3%) in excess
of the prime lending or reference rate of Wells Fargo Bank N.A. or any successor
bank in effect on the twenty-fifth (25th) day of the calendar month immediately
prior to the event giving rise to the Interest Rate imposition; provided,
however, the Interest Rate will in no event exceed the maximum interest rate
permitted to be charged by applicable law.
(l) TENANT IMPROVEMENT ALLOWANCE: $1,127,400.00.
(m) EXHIBITS: A through D, inclusive, which Exhibits are
attached to this Lease and incorporated herein by this reference.
This Paragraph 1 represents a summary of the basic terms and
definitions of this Lease. In the event of any inconsistency between the
terms contained in this Paragraph 1 and any specific provision of this Lease,
the terms of the more specific provision shall prevail.
2. PREMISES.
(a) PREMISES. Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord the Premises to be improved with the
"Landlord's Work" and "Tenant Improvements" described in the Work Letter
Agreement, a copy of which is attached hereto as Exhibit "B" ("Work Letter
Agreement"). Landlord and Tenant hereby stipulate that the rentable square
footage of the Premises shall be deemed to equal the square footage set forth
in Paragraph 1(c) above and such square footage shall not be subject to
confirmation nor adjustment.
(b) MUTUAL COVENANTS. Landlord and Tenant agree that
the letting and hiring of the Premises is upon and subject to the terms,
covenants and conditions contained in this Lease and each party covenants as
a material part of the consideration for this Lease to keep and perform their
respective obligations under this Lease.
3. TERM.
(a) INITIAL TERM. The term of this Lease ("Term") will
be for the period designated in Subparagraph 1(d), commencing on the
Commencement Date set forth in Paragraph 1(e), and ending on the Expiration
Date set forth in Paragraph 1(f), subject to extension as provided in
Paragraph 3(b) below. Notwithstanding the foregoing, if the Commencement Date
falls on any day other than the first day of a calendar month then the Term
of this Lease will be measured from the first day of the month following the
month in which the Commencement Date occurs. Each consecutive twelve (12)
month period of the Term of this Lease, commencing on the Commencement Date,
will be referred to herein as a "Lease Year". Promptly after the
Commencement Date, Landlord will deliver to Tenant the Notice of Lease Term
Dates in the form attached hereto as EXHIBIT "C", which Notice will confirm,
among other things, the Commencement Date and the date upon which the Term of
this Lease shall end. The Notice will be binding upon Tenant unless Tenant
objects to the Notice in writing within fifteen (15) days of Tenant's receipt
of the Notice.
(b) OPTION TO EXTEND. Tenant shall have one (1) option
(the "Extension Option") to extend the Term, as to not less than the entire
Premises, for a period (the "Option Period") of three (3) years, commencing upon
the date the Term would otherwise expire, upon the same terms and conditions
previously applicable, except that (i) the Monthly Base Rent as of the
commencement of the Option Period and thereafter during the Option Period will
be adjusted as provided below, (ii) Tenant shall have no further extension
options, and (iii) Tenant shall have no right to receive any Tenant Improvement
Allowance. The Extension Option may be validly exercised only by written notice
to Landlord from Tenant not earlier than twelve (12) months and not later than
nine (9) months prior to commencement of the Option Period. The Extension
Option may be validly exercised only if Tenant is not then or at any time
thereafter until the commencement of the Option Period in default under this
Lease. If Tenant does not exercise the Extension Option during the exercise
period set forth above in strict accordance with the provisions hereof, the
Extension Option shall forever terminate and be of no further force and effect.
The Extension Option is personal to Tenant, may not be exercised by an person or
entity
-2-
<PAGE>
other than the original Tenant hereunder and shall become null and void if
Tenant assigns or sublets its interest in the entire Premises.
(c) MONTHLY BASE RENT DURING OPTION PERIOD. The Monthly
Base Rent beginning with the first day of the Option Period shall equal
ninety-five percent (95%) of the "fair market rate" for comparable space in
comparable buildings in the Carlsbad, California, area ("Fair Market Rate").
For purposes hereof, "Fair Market Rate" shall mean the base rent payable to a
willing landlord by a willing tenant having a similar financial
responsibility, credit rating and capitalization as Tenant then has, for like
and comparable premises, improved with tenant improvements of like and
comparable quality to those then existing in the Premises, in like and
comparable buildings located in Carlsbad, California, area; provided, however
that in determining the Fair Market Rate, rental inducements and concessions
then being offered only to prospective new (nonrenewal) tenants, and
brokerage commissions payable by Landlord shall be disregarded. If then
market during three-year option terms for comparable space in comparable
buildings in Carlsbad, California, Fair Market Rate shall be increased during
the Option Period pursuant to such then normal and customary market
increases; provided, however, in no event shall the initial Fair Market Rent
and any subsequent Fair Market Rate be less than the Monthly Base Rent
payable during the period immediately preceding such adjustment. Following
Tenant's valid exercise of the Extension Option, Landlord and Tenant shall
commence negotiations for a period of fifteen (15) days to determine whether
Landlord and Tenant can reach mutual agreement as to the Fair Market Rate.
If the parties are unable to reach an agreement within such period of time as
to the Fair Market Rate, then either party (the "First Party") may at any
time prior to reaching such agreement, give notice to the other party (the
"Second Party") that an appraisal of the Premises is required for purposes of
determining the Fair Market Rate. Such notice shall designate an appraiser
(the "First Appraiser"). In the event that such appraisal is required,
Landlord and Tenant shall each prepare a determination of such party's
estimate of the appropriate Fair Market Rent and each party's determination
shall be submitted to arbitration as provided below. Within ten (10)
business days after the service of the notice referred to above, the Second
Party shall give written notice to the First Party designating a second
appraiser (the "Second Appraiser"). If the Second Appraiser is not so
designated within the time above specified, then the First Appraiser shall
select the Second Appraiser within ten (10) business days after the Second
Party's failure to appoint. The First Appraiser and the Second Appraiser so
designated or appointed shall themselves appoint a third appraiser (the
"Third Appraiser"). If the First Appraiser and the Second Appraiser shall be
unable to agree upon such appointment within five (5) business days after the
appointment of the Second Appraiser, then the Third Appraiser shall be
selected by Landlord and Tenant. If Landlord and Tenant are unable to agree
upon the Third Appraiser within ten (10) business days thereafter, either the
First Party or the Second Party may apply to the Superior Court for the
County in which the Building is located to appoint the Third Appraiser.
Landlord and Tenant shall each pay the cost of their own appraiser and shall
share equally the cost of the Third Appraiser (and, if necessary, court costs
to appoint such appraiser). Any appraiser designated to serve in accordance
with the provisions of this Lease shall be disinterested and shall be an MAI
appraiser and professionally qualified to appraise the Premises with at least
ten (10) years experience in appraising similar properties in the geographic
area of the Premises. The three (3) arbitrators shall within thirty (30)
days of the appointment of the Third Appraiser reach a decision as to whether
the parties shall use Landlord's or Tenant's submitted Fair Market Rate and
shall notify Landlord and Tenant thereof. The determination of such
arbitrators shall be limited solely to the issue of whether Landlord's or
Tenant's submitted Fair Market Rate for the Premises is closest to the actual
Fair Market Rate for the Premises as determined by the arbitrators, taking
into account the requirements above. The decision of the majority of the
three arbitrators shall be binding upon Landlord and Tenant. Any appraisals
to be provided pursuant to this Lease shall be submitted to Landlord and
Tenant within ten (10) business days after the last of the three appraisers
has been selected. After reaching a decision, the appraisers shall give
written notice of such decision to the parties.
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4. POSSESSION.
(a) DELIVERY OF POSSESSION. Landlord agrees to
construct the Landlord's Work and deliver possession of the Premises to
Tenant in accordance with the terms of the Work Letter Agreement.
(b) CONDITION OF PREMISES. Prior to the Commencement
Date and in accordance with the Work Letter Agreement, Landlord and Tenant
will jointly conduct a walk-through inspection of the Premises and will
jointly prepare a punch-list ("Punch-List") of items required to be installed
by Landlord under the Work Letter Agreement which require finishing or
correction. The Punch-List will not include any items of damage to the
Premises caused by Tenant's move-in or early entry, which damage will be
corrected or repaired by Landlord, at Tenant's expense or, at Landlord's
election, by Tenant, at Tenant's expense. Except as otherwise expressly
provided in this Lease and, other than the items specified in the Punch-List,
by taking possession of the Premises, Tenant will be deemed to have accepted
the Premises in its condition on the date of delivery of possession, subject
to all applicable zoning, municipal, county and state laws, ordinances and
regulations governing and regulating the use and occupancy by Tenant of the
Premises and to have acknowledged that the Landlord's Work has been completed
as required by the Work Letter Agreement and that there are no additional
items needing work or repair by Landlord. Landlord will cause all items in
the Punch-List to be repaired or corrected within thirty (30) days following
the preparation of the Punch-List or as soon as reasonably practicable after
the preparation of the Punch-List. Except as otherwise expressly provided in
this Lease, Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty with respect to the Premises
or any portions thereof or with respect to the suitability of same for the
conduct of Tenant's business. However, Landlord shall assign to Tenant any
applicable warranties available to Landlord for the portion of the Premises
Tenant is responsible for during the Term of the Lease, subject to the
reassignment or reservation of Landlord's rights to enforce such warranties
upon the expiration or termination of the Lease. To the extent reasonably
necessary, Tenant may seek enforcement of such warranties in the name of
Landlord, provided that any costs, expenses, or liabilities incurred by
Landlord arising or relating to such enforcement by Tenant shall be paid and
satisfied by Tenant. At the request and expense of Tenant, Landlord shall
assist and cooperate with Tenant's efforts to enforce the assigned warranties.
5. RENT.
(a) INITIAL MONTHLY BASE RENT. Tenant agrees to pay for
the Premises the Monthly Base Rent set forth in Paragraph 1(g) above, subject
to adjustment as hereinafter provided, which Monthly Base Rent shall be
payable in advance on the first day of each calendar month during the Term
without prior notice or demand, except that Tenant agrees to pay the Monthly
Base Rent for the first month of the Term directly to Landlord concurrently
with Tenant's delivery of the executed Lease to Landlord. If the Term of
this Lease commences or ends on a day other than the first day of a calendar
month, then the rent for such period will be prorated in the proportion that
the number of days this Lease is in effect during such period bears to the
number of days in such month. All rent must be paid to Landlord, without any
deduction or offset, in lawful money of the United States of America, at the
address designated by Landlord or to such other person or at such other place
as Landlord may from time to time designate in writing.
(b) ADJUSTMENT OF MONTHLY BASE RENT. The Monthly Base
Rent payable under this Lease shall be adjusted as follows: Beginning with
the first anniversary of the first day of the first full calendar month
following the Commencement Date, and upon each subsequent anniversary of such
date during the initial Term, the Monthly Base Rent shall be increased based
on the Consumer Price Index For All Urban Consumers, "All Items, (CPI-U)
(1982-84=100) for Los Angeles - Anaheim - Riverside, published by the United
States Department of Labor - Bureau of Labor Statistics (the "CPI") as
provided below:
(i) Increases in the Monthly Base Rent shall be calculated at
the end of each "Calculation Period" (as defined below) and Monthly Base Rent
shall be increased (and such increases in Monthly Base Rent shall become
effective) on each "Adjustment Date." The first day of the first month
immediately following the expiration of each Calculation Period shall be
referred to as an "Adjustment Date."
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(ii) As used in the Lease, "Calculation Period" shall mean
(i) the twelve (12) month period commencing with the first anniversary of the
first day of the first full calendar month following the Commencement Date
and (ii) each subsequent twelve (12) month period during the initial Term. At
the end of each Calculation Period, the increase in the CPI shall be
calculated. The CPI increase shall be computed by comparing the "Beginning
CPI" to the "Ending CPI" (as those terms are defined below), and calculating,
on a percentage basis, changes between the Beginning CPI and the Ending CPI.
(iii) The term "Beginning CPI" shall mean and refer to the
CPI as of the date which is two (2) months prior to the commencement of each
Calculation Period, and the "Ending CPI" shall mean the CPI as of the date
which is two (2) months prior to the last month of each Calculation Period.
The percentage CPI increase during each Calculation Period shall be used to
determine the increase in Monthly Base Rent as of each Adjustment Date.
(iv) The Monthly Base Rent to become effective on each
Adjustment Date in question shall be equal to the Monthly Base Rent of the
immediately preceding Calculation Period, plus an amount equal to the
increase in the CPI during such Calculation Period (expressed as a fraction)
times the Monthly Base Rent in effect during such Calculation Period.
However, notwithstanding the above, in the event the CPI increases more than
five percent (5%) during such Calculation Period, the CPI shall be deemed to
have increased five percent (5%) during such Calculation Period. In the event
the CPI increases less than three percent (3%) during any Calculation Period,
the CPI shall be deemed to have increased three percent (3%) during such
Calculation Period.
(v) Landlord shall provide Tenant with written notice of
each annual adjustment to the Monthly Base Rent ("Base Adjustment Notice")
and the Beginning CPI and Ending CPI used as the basis for such adjustment as
soon as reasonably practicable after Landlord's calculation of such amounts.
In the event Tenant has not received the Rent Adjustment Notice prior to the
applicable Adjustment Date, Tenant shall continue to pay on the first day of
each month the most recent applicable Monthly Base Rent amount until such
time as Tenant receives such Rent Adjustment Notice, at which time the amount
reflected in the Rent Adjustment Notice shall be the Monthly Base Rent amount
due and payable under the Lease, retroactive to and including the applicable
Adjustment Date. Within fifteen (15) days of receipt of such Rent Adjustment
Notice, Tenant shall pay to Landlord any difference between the Monthly Base
Rent amount actually paid to Landlord beginning on and after the applicable
Adjustment Date and the amount reflected in the applicable Rent Adjustment
Notice for each Monthly Base Rent payment that has become due on and after
the applicable Adjustment Date.
(vi) If any index is calculated from a base different from
the base period 1982-84 = 100, such index shall be converted to a base period
of 1982-84 = 100 by use of a conversion factor supplied by the Bureau of
Labor Statistics. If the CPI is discontinued or replaced during the Term of
the Lease, such other governmental Cost of Living Index or computation which
replaced the CPI shall be used in order to obtain substantially the same
result as would be obtained if the CPI had not been discontinued or replaced.
(vii) The Monthly Base Rent during the Option Period shall
be adjusted as provided in Paragraph 3(c) above.
(c) ADDITIONAL RENT. All amounts and charges to be paid by
Tenant hereunder, including, without limitation, real property taxes,
insurance and repairs, will be considered additional rent for purposes of
this Lease, and the word "rent" as used in this Lease will include all such
additional rent unless the context specifically or clearly implies that only
Monthly Base Rent is intended.
(d) LATE PAYMENTS. Late payments of Monthly Base Rent
and/or any item of additional rent will be subject to interest and a late
charge as provided in Paragraph 22(f) below.
(e) TRIPLE NET LEASE. This Lease is what is commonly
called a "Net, Net, Net Lease", it being understood that, except as otherwise
expressly provided herein, the Landlord shall receive all rent free and clear
of any and all other impositions, taxes, liens, charges or expenses of any
nature whatsoever in connection with the ownership and operation of the
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Premises. In addition to Monthly Base Rent, Tenant shall pay to the parties
respectively entitled thereto, or satisfy directly, all impositions,
insurance premiums, operating charges, maintenance charges, construction
costs (other than for the initial construction of the Landlord's Work), and
any other charges (including, without limitation, those arising under the
CC&R's), costs, obligations, liabilities, requirements, and expenses which
arise with regard to the Premises or may be contemplated under any provisions
of the Lease during the Term, except as otherwise expressly provided in this
Lease. Notwithstanding the foregoing, in no event shall any management fee
payable to Landlord exceed two percent (2%) of Monthly Base Rent then payable
under this Lease. All of such charges, costs, obligations, liabilities,
requirements, and expenses shall constitute additional rent, and upon the
failure of Tenant to pay or satisfy any of such costs, charges, obligations,
liabilities, requirements, or expenses, Landlord shall have the same rights
and remedies as otherwise provided in the Lease for the failure of Tenant to
pay rent. It is the intention of the parties, that, except as otherwise
expressly provided herein, the Lease shall not be terminable for any reason
by the Tenant, and that Tenant shall in no event be entitled to any
abatement, offset, deduction, or reduction of rent payable under the Lease.
Tenant's sole recourse to resolve a dispute under the Lease shall be to a
court of law and, except as otherwise expressly provided herein, Tenant shall
have no right to offset any damages of claims against any payments due
Landlord. Any present or of future law to the contrary shall not alter this
agreement of the parties.
6. SECURITY DEPOSIT. Concurrently with Tenant's
execution of this Lease, Tenant will deposit with Landlord the Security
Deposit designated in Subparagraph 1(h). The Security Deposit will be held
by Landlord as security for the full and faithful performance by Tenant of
all of the terms, covenants, and conditions of this Lease to be kept and
performed by Tenant during the Term hereof. If Tenant fully and faithfully
performs its obligations under this Lease, including, without limitation,
surrendering the Premises upon the expiration or sooner termination of this
Lease in compliance with Subparagraph 11(a) below, the Security Deposit will
be returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest hereunder) within thirty (30) days following the expiration
of the Lease Term or sooner as required under applicable law, provided that
Landlord may retain the Security Deposit until such time as any outstanding
rent or additional rent amount has been determined and paid in full. The
Security Deposit is not, and may not be construed by Tenant to constitute,
rent for the last month or any portion thereof. If Tenant defaults with
respect to any provisions of this Lease including, but not limited to, the
provisions relating to the payment of rent or additional rent, Landlord may
(but will not be required to) use, apply or retain all or any part of the
Security Deposit for the payment of any rent or any other sum in default, or
for the payment of any other amount which Landlord may spend or become
obligated to spend by reason of Tenant's default or to compensate Landlord
for any loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of the Security Deposit is so used or applied,
Tenant agrees, within ten (10) days after Landlord's written demand therefor,
to deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount and Tenant's failure to do so shall constitute
a default under this Lease. Landlord is not required to keep Tenant's
Security Deposit separate from its general funds, and Tenant is not entitled
to interest on such Security Deposit. Should Landlord sell its interest in
the Premises during the Term hereof and deposit with the purchaser thereof
the then unappropriated Security Deposit funds, Landlord will be discharged
from any further liability with respect to such Security Deposit.
7. COVENANTS, CONDITIONS AND RESTRICTIONS. Tenant
acknowledges and agrees that the Lease and all of Tenants' rights and
obligations under the Lease shall be subject to the terms of the Third
Amended and Restated Declaration of Covenants, Conditions and Restrictions
recorded on June 29, 1988 in the Official Records of San Diego County, as
amended by that certain Declaration of Annexation recorded December 8, 1992
copies of which have previously been provided to Tenant (collectively,
"CC&R's"). Tenant covenants to comply with all terms, conditions, and
provisions of the CC&R's (as they may be further amended from time to time)
including, without limitation, all maintenance and use requirements,
restrictions, and prohibitions. Tenant also covenants: (i) to pay directly,
or reimburse Landlord at its option, for all charges, costs and assessments
(including, without limitation, maintenance assessments, and all other
assessments, assessments required under the CC&R's) imposed on the Premises
(or its owner or occupant) pursuant to the CC&R's, and (ii)
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to satisfy and comply with all other terms, conditions, liabilities,
responsibilities, and obligations as they relate to the Premises under the
CC&R's.
8. USE.
(a) TENANT'S USE OF THE PREMISES. The Premises shall be
used solely for the use or uses set forth in Subparagraph 1(i) only, and
Tenant will not use or permit the Premises to be used for any other purpose,
subject to Tenant's expanded use rights with respect to the Permitted
Sublease Space as more particularly set forth in Paragraph 24(k) below.
(b) COMPLIANCE. At Tenant's sole cost and expense,
Tenant agrees to procure, maintain and hold available for Landlord's
inspection, all governmental licenses and permits required for the proper and
lawful conduct of Tenant's business from the Premises, if any. Tenant agrees
not to use, alter or occupy the Premises or allow the Premises to be used,
altered or occupied in violation of, and Tenant, at its sole cost and
expense, agrees to use and occupy the Premises and cause the Premises to be
used and occupied in compliance with: (i) any and all laws, statutes, zoning
restrictions, ordinances, rules, regulations, orders and rulings now or
hereafter in force (collectively, "Applicable Laws") and any reasonable
requirements of any insurer, insurance authority or duly constituted public
authority having jurisdiction over the Premises now or hereafter in force,
(ii) the requirements of the Board of Fire Underwriters and any other similar
body, (iii) the Certificate of Occupancy issued for the Building, and (iv)
any recorded covenants, conditions and restrictions and similar regulatory
agreements, if any, which affect the use, occupation or alteration of the
Premises, including, but not limited to, the CC&R's. Tenant agrees not to do
or permit anything to be done in or about the Premises which will in any
manner materially obstruct or interfere with the rights of other tenants or
occupants of the Carlsbad Research Center development of which the Premises
are a part (the "Development"), or injure or unreasonably annoy them, or use
or allow the Premises to be used for any unlawful or unreasonably
objectionable purpose. Tenant agrees not to cause, maintain or permit any
nuisance or waste in, on, under or about the Premises.
(c) HAZARDOUS MATERIALS. Except as provided below,
Tenant agrees not to cause or permit any Hazardous Materials to be brought
upon, stored, used, handled, generated, released or disposed of on, in, under
or about the Premises, the Building, the Development or any portion thereof
by Tenant, its agents, employees, subtenants, assignees, licensees,
contractors or invitees (collectively, "Tenant's Parties"), without the prior
written consent of Landlord, which consent Landlord may withhold in its sole
and absolute discretion. Upon the expiration or earlier termination of this
Lease, Tenant agrees to promptly remove from the Premises, at its sole cost
and expense, any and all Hazardous Materials, including any equipment or
systems containing Hazardous Materials which are installed, brought upon,
stored, used, generated or released upon, in, under or about the Premises,
the Building, the Development or any portion thereof by Tenant or any of
Tenant's Parties. To the fullest extent permitted by law, Tenant agrees to
promptly indemnify, protect, defend and hold harmless Landlord and Landlord's
partners, officers, directors, employees, agents, successors and assigns
(collectively, "Landlord Indemnified Parties") from and against any and all
claims, damages, judgments, suits, causes of action, losses, liabilities,
penalties, fines, expenses and costs (including, without limitation,
clean-up, removal, remediation and restoration costs, sums paid in settlement
of claims, attorneys' fees, consultant fees and expert fees and court costs)
which arise or result from the presence of Hazardous Materials on, in, under
or about the Premises, the Building or any other portion of the Development
and which are caused or permitted by Tenant or any of Tenant's Parties.
Tenant agrees to promptly notify Landlord of any release of Hazardous
Materials at the Premises, which Tenant becomes aware of during the Term of
this Lease, whether caused by Tenant or any other persons or entities. In
the event of any release of Hazardous Materials caused or permitted by Tenant
or any of Tenant's Parties, Landlord shall have the right, but not the
obligation, to cause Tenant to immediately take all steps Landlord deems
necessary or appropriate to remediate such release and prevent any similar
future release to the reasonable satisfaction of Landlord and Landlord's
mortgagee(s). As used in this Lease, the term "Hazardous Materials" shall
mean and include any hazardous or toxic materials, substances or wastes as
now or hereafter designated under any law, statute, ordinance, rule,
regulation, order or ruling of any agency of the State, the United States
Government or any local governmental authority, including, without
limitation, asbestos, petroleum, petroleum hydrocarbons and petroleum based
products, urea formaldehyde
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foam insulation, polychlorinated biphenyls ("PCBs"), and Freon and other
chlorofluorocarbons. Notwithstanding the foregoing, Tenant may, without
Landlord's prior consent, but in compliance with all Applicable Laws, use any
ordinary and customary materials reasonably required to be used by Tenant in
the normal course of Tenant's use of the Premises as permitted hereunder
provided that Tenant's handling, storage, use and disposal procedures are in
compliance with all Applicable Laws and the CC&R's and so long as each such
use does not expose the Premises or neighboring property to any meaningful
risk of contamination or damage or expose Landlord to any liability therefor.
Landlord shall have the right upon the expiration or earlier termination of
the Term of this Lease, to cause, at Landlord's cost (except as provided
below), a duly qualified and licensed environmental consultant to conduct an
environmental audit of the Premises. The identity of the consultant and the
scope and detail of the audit shall be subject to Landlord's reasonable
discretion. If the audit recommends additional testing, then Tenant shall
conduct such tests at its expense. If the audit and/or tests reveal the
presence of Hazardous Materials at, on or under the Premises attributable to
Tenant's activities at the Premises, then Tenant shall reimburse Landlord for
the cost of such audit and shall remediate and mitigate the same, at its
expense, as necessary to obtain a final "no further action" letter (or
equivalent) from all governmental agencies having jurisdiction. In addition,
if at any time during the Term Tenant is required to file reports or
manifests concerning its use of Hazardous Materials at the Premises or
concerning Hazardous Materials contamination or remediation, then Tenant
shall concurrently provide Landlord with a copy of the same. Landlord
represents and warrants that, as of the Date of this Lease, to Landlord's
actual knowledge, except as disclosed in writing to Tenant , there are no
Hazardous Materials located on the Premises. For purposes of this Lease,
"Landlord's actual knowledge" means the actual knowledge of Charles Abdi
and/or Anthony C. Badeaux, without duty of investigation. The provisions of
this paragraph 7(c) will survive the expiration or earlier termination of
this Lease. The provisions of this Subparagraph 8(c) will survive the
expiration or earlier termination of this Lease.
9. NOTICES. Any notice required or permitted to be
given hereunder must be in writing and may be given by personal delivery
(including delivery by overnight courier or an express mailing service) or by
mail, if sent by registered or certified mail. Notices to Tenant and
Landlord shall be sufficient if delivered to Tenant and Landlord at each such
party's address designated in Subparagraphs 1(a) and 1(b). Either party may
specify a different address for notice purposes by written notice to the
other, except that the Landlord may in any event use the Premises as Tenant's
address for notice purposes.
10. BROKERS. Each party represents and warrants to the
other, that, to its knowledge, no broker, agent or finder other than the
Brokers listed in Subparagraph 1(j) (a) negotiated or was instrumental in
negotiating or consummating this Lease on its behalf, and (b) is or might be
entitled to a commission or compensation in connection with this Lease.
Landlord and Tenant each agree to promptly indemnify, protect, defend and
hold harmless the other from and against any and all claims, damages,
judgments, suits, causes of action, losses, liabilities, penalties, fines,
expenses and costs (including attorneys' fees and court costs) resulting from
any breach by the indemnifying party of the foregoing representation,
including, without limitation, any claims that may be asserted by any broker,
agent or finder undisclosed by the indemnifying party. The foregoing mutual
indemnity shall survive the expiration or earlier termination of this Lease.
11. SURRENDER; HOLDING OVER.
(a) SURRENDER. The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation thereof, shall not constitute a
merger, and shall, at the option of Landlord, operate as an assignment to
Landlord of any or all subleases or subtenancies. Upon the expiration or
earlier termination of this Lease, Tenant agrees to peaceably surrender the
Premises to Landlord broom clean and in a state of good order, repair and
condition, ordinary wear and tear and casualty damage (if this Lease is
terminated as a result thereof pursuant to Paragraph 20) excepted, but in any
event with all carpeted areas cleaned, the plumbing, heating, ventilation and
air conditioning systems in good working order and all floor areas cleaned
and waxed or sealed, together with all of Tenant's personal property and
Alterations (as defined in Paragraph 13) removed from the Premises to the
extent required under Paragraph 13 and all damage caused by such removal
repaired as required by Paragraph 13. At least ninety (90) days prior to the
date
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Tenant is to actually surrender the Premises to Landlord, Tenant agrees to
give Landlord notice of the exact date Tenant will surrender the Premises so
that Landlord and Tenant can schedule a walk-through of the Premises to
review the condition of the Premises and identify the Alterations and
personal property which are to remain upon the Premises and which items
Tenant is to remove as well as any repairs Tenant is to make upon surrender
of the Premises as required by this Lease. During such ninety (90) day
period, Landlord may, at its option, and at Landlord's sole cost and expense,
retain the services of one or more inspectors or consultants to inspect the
Premises and all equipment and fixtures located therein to determine if they
are in the condition required for proper surrender by Tenant. If any such
inspections disclose any deficiencies in the condition of the Premises,
Tenant will promptly cause the same to be corrected in a good and workmanlike
manner at Tenant's sole cost and expense prior to the surrender date. The
delivery of keys to any employee of Landlord or to Landlord's agent or any
employee thereof alone will not be sufficient to constitute a termination of
this Lease or a surrender of the Premises.
(b) HOLDING OVER. Tenant will not be permitted to hold
over possession of the Premises after the expiration or earlier termination
of the Term without the express written consent of Landlord, which consent
Landlord may withhold in its sole and absolute discretion. If Tenant holds
over after the expiration or earlier termination of the Term, Landlord may,
at its option, treat Tenant as a tenant at sufferance only, and such
continued occupancy by Tenant shall be subject to all of the terms, covenants
and conditions of this Lease, so far as applicable, except that the Monthly
Base Rent for any such holdover period shall be equal to one hundred twenty
percent (120%) of the Monthly Base Rent in effect under this Lease
immediately prior to such holdover, prorated on a daily basis. Acceptance by
Landlord of rent after such expiration or earlier termination will not result
in a renewal of this Lease. The foregoing provisions of this Paragraph 11
are in addition to and do not affect Landlord's right of re-entry or any
rights of Landlord under this Lease or as otherwise provided by law. If
Tenant fails to surrender the Premises upon the expiration of this Lease in
accordance with the terms of this Paragraph 11 despite demand to do so by
Landlord, Tenant agrees to promptly indemnify, protect, defend and hold
Landlord harmless from all claims, damages, judgments, suits, causes of
action, losses, liabilities, penalties, fines, expenses and costs (including
attorneys' fees and costs), including, without limitation, costs and expenses
incurred by Landlord in returning the Premises to the condition in which
Tenant was to surrender it and claims made by any succeeding tenant founded
on or resulting from Tenant's failure to surrender the Premises. The
provisions of this Subparagraph 11(b) will survive the expiration or earlier
termination of this Lease.
12. TAXES.
(a) PAYMENT OF TAXES. Tenant agrees to pay all Real
Property Taxes, as defined in Paragraph 12(b) below, applicable to the
Premises during the Term of this Lease. All such payments shall be made at
least thirty (30) days prior to the delinquency date of such payment. Tenant
agrees to promptly furnish Landlord with satisfactory evidence that such Real
Property Taxes have been paid. If any such Real Property Taxes paid by Tenant
shall cover any period of time prior to or after the expiration of the Term
thereof, Tenant's share of such Real Property Taxes is to be equitably
prorated to cover only the period of time within the tax fiscal year during
which this Lease shall be in effect, and Landlord will promptly reimburse
Tenant to the extent required. If Tenant fails to pay any such Real Property
Taxes, Landlord will have the right to pay the same, in which case Tenant
will repay such amount to Landlord with Tenant's next rent installment
together with interest at the rate at the Interest Rate.
(b) DEFINITION OF "REAL PROPERTY TAXES". As used
herein, the term "Real Property Taxes" shall include any form of real estate
tax or assessment, general, special, ordinary or extraordinary, and any
license fee, rental tax, parking surcharge, improvement bond or bonds, levy
or tax (other than inheritance, personal income or estate taxes) imposed on
or with respect to the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or
any school, agricultural, sanitary, fire, street, drainage or other
improvement district thereof, as against any legal or equitable interest of
Landlord in the Premises or in the real property of which the Premises are a
part, as against Landlord's right to rent or other income therefrom, and as
against Landlord's business of leasing the Premises. The term "Real Property
Taxes" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or
charge herein above included within the definition of "Real Property Tax," or
(ii) the nature of which was hereinabove included
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within the definition of "Real Property Tax," or (iii) which is imposed as a
result of a transfer, either partial or total, of Landlord's interest in the
Premises or which is added to a tax or charge hereinbefore included within
the definition of real property tax by reason of such transfer, or (iv) which
is imposed by reason of this transaction, any modifications or changes
hereto, or any transfers hereof; or (v) which is measured by or reasonably
attributable to the cost or value of Tenant's equipment, fixtures or other
property located on the Premises or Tenant's leasehold improvements made in
or to the Premises, regardless of whether title to such improvements shall be
in Landlord or Tenant; or (vi) upon or measured by the rent payable
hereunder; or (vii) upon or with respect to the possession, leasing,
operation, maintenance, management, repair, use or occupancy of the Premises
or any portion thereof; or (viii) the Assessment Districts described below.
Tenant acknowledges that Landlord has disclosed the existence
of (i) a Mello-Roos community facilities district - the City of Carlsbad,
Community Facilities District No. 1 (the "Special Facilities District") -
which community facilities district has or will result in a levy of special
taxes and/or assessments against the Premises in accordance with the rights
of the community facilities district to levy such special taxes and/or
assessments, (ii) College Boulevard Assessment District 85-2, (iii) Carlsbad
Street Lighting and Landscape District No. 1, (iv) a special assessment
formed for the purpose of financing and/or acquiring certain public
improvements benefiting the Premises and other property located within the
Carlsbad area called City of Carlsbad Assessment District No. 95-1, and (v)
all other bonds, assessment districts, and facilities districts affecting the
Premises , ( (i) through (v), collectively, "Assessment Districts"). Tenant
acknowledges and agrees that all taxes, assessments, charges, fees, special
or regular, arising from or under the Assessment Districts are included
within the "Real Property Taxes" which shall be Tenant's responsibility to
fully pay and satisfy.
(c) JOINT ASSESSMENT. If the Premises are not
separately assessed, Tenant's liability shall be an equitable proportion of
the Real Property Taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined by Landlord from
the respective valuations assigned in the assessor's work sheets or such
other information as may be reasonable available. Landlord's reasonable
determination thereof shall be conclusive and binding upon Tenant.
(d) PERSONAL PROPERTY TAXES. Tenant agrees to pay prior
to delinquency all taxes assessed against and levied upon trade fixtures,
furnishings, equipment and all other personal property of Tenant contained in
the Premises or elsewhere. When possible, Tenant will cause said trade
fixtures, furnishings, equipment and all other personal property to be
assessed and billed separately from the real property of Landlord. If any of
Tenant's personal property is assessed with Landlord's real property, Tenant
shall pay Landlord the taxes attributable to Tenant within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Tenant's property.
13. ALTERATIONS. After installation of the initial Tenant
Improvements for the Premises pursuant to the Work Letter Agreement attached
to this Lease, Tenant may, at its sole cost and expense, make alterations,
additions, improvements, and decorations to the Premises (collectively,
"Alterations") subject to and only upon the following terms and conditions:
(a) PROHIBITED ALTERATIONS. Tenant shall not make any
Alterations without Landlord's prior written consent (which shall not be
unreasonably withheld or delayed) under any of the following circumstances:
(i) the cost of such Alterations when added to the costs of all other
Alterations made during that calendar year of the Lease Term exceed
Twenty-Five Thousand Dollars ($25,000), or (ii) such Alterations affect the
structure of the bearing walls or the roof, or Building Systems or facilities
serving the Premises, such as plumbing, heating, air conditioning,
ventilating, electrical or lighting facilities, boilers, fired or unfired
pressure vessels, fire sprinkler and/or standpipe and hose or other fire
hydrants operating at the Premises; or (iii) such Alterations will be visible
from outside the Premises ((i) through (iii) collectively, "Consent Required
Alterations"). For purposes of calculating the above $25,000 limit, the cost
of paint,
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carpet, wall coverings, floor coverings and other decorative items shall not
be included in the calculation.
(b) LANDLORD'S APPROVAL. Before proceeding with any
Consent Required Alterations Tenant must first obtain Landlord's written
approval of the plans, specifications and working drawings for such
Alterations, which approval Landlord will not unreasonably withhold or delay.
Landlord shall have fifteen (15) business days in which to approve or
reasonably disapprove any such plans, specifications, and/or working drawings
for such Alterations (in which case Landlord shall describe in detail to
Tenant the items giving rise to such disapproval). If Landlord fails to so
respond in writing within such fifteen (15) business day period, Tenant may
so notify Landlord in writing, and Landlord's failure to respond within one
business day after such notice from Tenant shall be deemed to constitute
Landlord's approval thereof. Landlord's approval of plans, specifications
and/or working drawings for Alterations will not create any responsibility or
liability on the part of Landlord for their completeness, design sufficiency,
or compliance with applicable permits, laws, rules and regulations of
governmental agencies or authorities.
(c) CONTRACTORS. Alterations may be made or installed
only by contractors and subcontractors which have been approved by Landlord,
which approval Landlord will not unreasonably withhold or delay; provided,
however, Landlord reserves the right to require that Landlord's contractor be
given an opportunity to bid for any Alteration work. Before proceeding with
any Alterations, Tenant agrees to provide Landlord with fifteen (15) days'
prior written notice and Tenant's contractors must obtain and maintain, on
behalf of Tenant and at Tenant's sole cost and expense: (i) all necessary
governmental permits and approvals for the commencement and completion of
such Alterations and (ii) if reasonably requested by Landlord, a completion
and lien indemnity bond, or other surety, reasonably satisfactory to Landlord
for such Alterations. Throughout the performance of any Alterations, Tenant
agrees to obtain, or cause its contractors to obtain, workers compensation
insurance and general liability insurance in compliance with the provisions
of Paragraph 19 of this Lease.
(d) MANNER OF PERFORMANCE. All Alterations must be
performed: (i) substantially in accordance with the approved plans,
specifications and working drawings (to the extent such approval is required
above); (ii) in a lien-free and first-class and workmanlike manner; (iii) in
compliance with all applicable permits, laws, statutes, ordinances, rules,
regulations, orders and rulings now or hereafter in effect and imposed by any
governmental agencies and authorities which assert jurisdiction; and (iv) in
such a manner so as not to materially interfere with the occupancy of any
other tenant in the Development, nor impose any additional expense upon
Landlord.
(e) OWNERSHIP. The Tenant Improvements and all
Alterations will become the property of Landlord and will remain upon and be
surrendered with the Premises at the end of the Term of this Lease; provided,
however, Landlord may, by written notice delivered to Tenant concurrently
with Landlord's approval of the final working drawings for any Alterations,
identify those Alterations which Landlord will require Tenant to remove at
the expiration or earlier termination of this Lease. Landlord may also
require Tenant to remove Alterations which Landlord did not have the
opportunity to approve as provided in this Paragraph 13. If Landlord
requires Tenant to remove any Alterations, Tenant, at its sole cost and
expense, agrees to remove the identified Alterations on or before the
expiration or earlier termination of this Lease and repair any damage to the
Premises caused by such removal (or, at Landlord's option, Tenant agrees to
pay to Landlord all of Landlord's costs of such removal and repair).
(f) PLAN REVIEW. Tenant agrees to pay Landlord, as
additional rent, the reasonable costs of professional services and costs for
general conditions of Landlord's third party consultants if utilized by
Landlord (but not Landlord's "in-house" personnel) for review of all plans,
specifications and working drawings for any Alterations, within ten (10)
business days after Tenant's receipt of invoices either from Landlord or such
consultants.
(g) PERSONAL PROPERTY. All articles of personal
property owned by Tenant or installed by Tenant at its expense in the
Premises (including Tenant's business and trade fixtures, furniture, movable
partitions and equipment [such as telephones, copy machines, computer
terminals, refrigerators and facsimile machines]) will be and remain the
property of Tenant, and
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must be removed by Tenant from the Premises, at Tenant's sole cost and
expense, on or before the expiration or earlier termination of this Lease.
Tenant agrees to repair any damage caused by such removal at its cost on or
before the expiration or earlier termination of this Lease.
(h) REMOVAL OF ALTERATIONS. If Tenant fails to remove
by the expiration or earlier termination of this Lease all of its personal
property, or any Alterations identified by Landlord for removal, Landlord may
(without liability to Tenant for loss thereof) treat such personal property
and/or Alterations as abandoned and, at Tenant's sole cost and expense, and
in addition to Landlord's other rights and remedies under this Lease, at law
or in equity: (i) remove and store such items; and/or (ii) upon ten (10)
days' prior notice to Tenant, sell, discard or otherwise dispose of all or
any such items at private or public sale for such price as Landlord may
obtain or by other commercially reasonable means. Tenant shall be liable for
all costs of disposition of Tenant's abandoned property and Landlord shall
have no liability to Tenant with respect to any such abandoned property.
Landlord agrees to apply the proceeds of any sale of any such property to any
amounts due to Landlord under this Lease from Tenant (including Landlord's
attorneys' fees and other costs incurred in the removal, storage and/or sale
of such items), with any remainder to be paid to Tenant.
14. REPAIRS.
(a) TENANT'S OBLIGATIONS. Except as provided in
Paragraph 14(c) below, Tenant agrees to keep in good order, condition and
repair the Premises and every part thereof, structural and non-structural,
(whether or not such portion of the Premises requiring repair, or the means
of repairing the same are reasonable or readily accessible to Tenant, and
whether or not the need for such repairs occurs as a result of Tenant's use,
any prior use, the elements, the age or the quality of construction of such
portion of the Premises) including, without limiting the generality of the
foregoing, all plumbing, heating, ventilation, air conditioning, electrical,
lighting facilities and equipment within the Premises, fixtures, walls
(interior and exterior (except as provided in Paragraph 14(c), below)),
foundations, ceilings, roof (except as provided in Paragraph 14(c) below),
floors, windows, doors, plate glass and skylights located within the
Premises, and all landscaping (Tenant agrees to procure and maintain, at
Tenant's sole cost and expense, a landscaping maintenance contract reasonably
acceptable to Landlord), driveways, parking lots, fences and signs located on
the Premises and sidewalks and parkways adjacent to the Premises. Landlord,
at Tenant's sole cost and expense, shall arrange for inspection of the roof,
mechanical, and electrical portions of the Premises annually. Tenant shall
pay for the costs of such inspections and arrange for the correction of any
defects found, including implementation of a preventative maintenance program
for the roof. Tenant shall maintain, at Tenant's sole cost and expense,
maintenance contracts for the heating, ventilating and air conditioning
systems and the roof of the Building with qualified maintenance companies
reasonably acceptable to Landlord; provided, however, such maintenance
contracts shall be of the type and scope carried for similar new buildings in
the Carlsbad, California area. Tenant shall not be required to maintain the
aforementioned maintenance contracts in the event Tenant provides evidence to
Landlord of a maintenance program acceptable to Landlord in its sole but
reasonable discretion. Tenant agrees to cause any mechanics' liens or other
liens arising as a result of work performed by Tenant or at Tenant's
direction to be eliminated as provided in Paragraph 15 below.
(b) TENANT'S FAILURE TO REPAIR. If Tenant refuses or
neglects to repair and maintain the Premises properly as required hereunder
to the reasonable satisfaction of Landlord, Landlord, at any time following
thirty (30) days from the date on which Landlord makes a written demand on
Tenant to effect such repair and maintenance, may enter upon the Premises and
make such repairs and/or maintenance, and upon completion thereof, Tenant
agrees to pay to Landlord, as additional rent, Landlord's costs for making
such repairs plus an amount not to exceed ten percent (10%) of such costs for
overhead, within ten (10) days of receipt from Landlord of a written itemized
bill therefor. Any amounts not reimbursed by Tenant within such ten (10) day
period will bear interest at the Interest Rate until paid by Tenant.
(c) LANDLORD'S OBLIGATIONS. Notwithstanding anything to
the contrary contained in Subparagraph 14(a), Landlord shall be responsible
for maintaining, at Landlord's sole cost and expense, only (i) the structural
condition of the roof and (ii) the structural condition of the bearing walls
of the Premises. Notwithstanding anything to the contrary in this Paragraph,
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Landlord shall not be obligated to paint any surfaces or maintain, repair, or
replace windows, doors, or plate glass of the Premises. Landlord shall also
not be responsible for any repairs to, maintenance to or replacement of any
items if required by reason of negligent act or omission or willful
misconduct of Tenant or any of the Tenant Parties. Except as provided in
Paragraph 4 above, this Paragraph 14(c) above, the obligations of Landlord
under Paragraph 20 relating to damage or destruction of the Premises, or
under Paragraph 21 relating to eminent domain, it is intended by the parties
that Landlord have no obligation of any kind whatsoever, (i) to repair or
maintain the Premises or any portion thereof, whether structural or
non-structural, or any equipment therein, all of which obligations are
intended to be Tenant's obligations, or (ii) to pay any other cost or expense
whatsoever directly or indirectly relating to the ownership, management,
lease, operation or use of the Premises. Tenant waives the right to make
repairs at Landlord's expense under any law, statute, ordinance, rule,
regulation, order or ruling (including, without limitation, to the extent the
Premises are located in California, the provisions of California Civil Code
Sections 1941 and 1942 and any successor statutes or laws of a similar
nature).
15. LIENS. Tenant agrees not to permit any mechanic's,
materialmen's or other liens to be filed against all or any part of the
Premises or the Development, nor against Tenant's leasehold interest in the
Premises, by reason of or in connection with any repairs, alterations,
improvements or other work contracted for or undertaken by Tenant or any
other act or omission of Tenant or Tenant's agents, employees, contractors,
licensees or invitees. Similarly, Landlord agrees not to permit any
mechanic's, materialmen's or other liens to be filed against Tenant's
property by reason of or in connection with any repairs, alterations,
improvements or other work contracted for or undertaken by Landlord or other
acts or omissions of Landlord or Landlord's agents, employees, contractors,
licensees or invitees. At Landlord's request, Tenant agrees to provide
Landlord with enforceable, conditional and final lien releases (or other
evidence reasonably requested by Landlord to demonstrate protection from
liens) from all persons furnishing labor and/or materials at the Premises.
Landlord will have the right at all reasonable times to post on the Premises
and record any notices of non-responsibility which it deems necessary for
protection from such liens. If any such liens are filed, Tenant will, at its
sole cost, promptly cause such liens to be released of record or bonded so
that it no longer affects title to the Premises or the Development. If
Tenant fails to cause any such liens to be so released or bonded within ten
(10) days after filing thereof, such failure will be deemed a material breach
by Tenant under this Lease without the benefit of any additional notice or
cure period described in Paragraph 22 below, and Landlord may, without
waiving its rights and remedies based on such breach, and without releasing
Tenant from any of its obligations, cause such liens to be released by any
means it shall deem proper, including payment in satisfaction of the claims
giving rise to such liens. Tenant agrees to pay to Landlord within ten (10)
days after receipt of invoice from Landlord, any sum paid by Landlord to
remove such liens, together with interest at the Interest Rate from the date
of such payment by Landlord.
16. ENTRY BY LANDLORD. Landlord and its employees and agents
will at all reasonable times have the right, upon 24 hours prior notice
(except in the case of an emergency or Tenant's default), to enter the
Premises to inspect the same, to show the Premises to prospective purchasers
or tenants, to post notices of nonresponsibility, and/or to repair the
Premises as permitted or required by this Lease. In exercising such entry
rights, Landlord will endeavor to minimize, as reasonably practicable, the
interference with Tenant's business. Landlord may, in order to carry out such
purposes, erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed. Landlord will at all
times have and retain a key with which to unlock all doors in the Premises,
excluding Tenant's vaults and safes and other high security areas reasonably
designated in writing to Landlord. Landlord will have the right to use any
and all means which Landlord may reasonably deem proper to open said doors in
an emergency in order to obtain entry to the Premises. Any entry to the
Premises obtained by Landlord by any of said means, or otherwise, will not be
construed or deemed to be a forcible or unlawful entry into the Premises, or
an eviction of Tenant from the Premises. Landlord will not be liable to
Tenant for any damages or losses for any entry by Landlord.
17. UTILITIES AND SERVICES. Tenant agrees to contract
directly for and to pay for all water, gas, heat, light, power, telephone,
waste removal, sewer and other utilities
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and services supplied to the Premises, together with any taxes thereon. If
any such services are not separately metered to Tenant, Tenant agrees to pay
a reasonable proportion to be determined by Landlord of all charges jointly
metered with other Premises. Landlord will not be liable to Tenant for any
failure to furnish any of the foregoing utilities and services if such
failure is caused by all or any of the following: (i) accident, breakage or
repairs; (ii) strikes, lockouts or other labor disturbance or labor dispute
of any character; (iii) governmental regulation, moratorium or other
governmental action or inaction enacted after the date of this Lease; (iv)
inability despite the exercise of reasonable diligence to obtain electricity,
water or fuel; or (v) any other cause beyond Landlord's reasonable control.
In addition, in the event of any stoppage or interruption of services or
utilities, Tenant shall not be entitled to any abatement or reduction of rent
(except as expressly provided in Subparagraphs 20(f) or 21(b) if such failure
results from a damage or taking described therein), no eviction of Tenant
will result from such failure and Tenant will not be relieved from the
performance of any covenant or agreement in this Lease because of such
failure.
18. ASSUMPTION OF RISK AND INDEMNIFICATION.
(a) ASSUMPTION OF RISK. Tenant, as a material part of
the consideration to Landlord, hereby agrees that neither Landlord nor any
Landlord Indemnified Parties (as defined in Subparagraph 8(c) above) will be
liable to Tenant for, and Tenant expressly assumes the risk of and waives any
and all claims it may have against Landlord or any Landlord Indemnified
Parties with respect to, (i) any and all damage to property or injury to
persons in, upon or about the Premises or the Development, (ii) any such
damage caused by other tenants or persons in or about the Premises, or caused
by quasi-public work, (iii) any damage to property entrusted to employees of
Tenant, (iv) any loss of or damage to property by theft or otherwise, or (v)
any injury or damage to persons or property resulting from any casualty,
explosion, falling plaster or other masonry or glass, steam, gas,
electricity, water or rain which may leak from any part of the Building or
from the pipes, appliances or plumbing works therein or from the roof, street
or subsurface or from any other place, or resulting from dampness, except to
the extent any of the foregoing are caused by the gross negligence or
intentional acts of Landlord or any Landlord Indemnified Parties.
Notwithstanding anything to the contrary contained in this Lease, neither
Landlord nor any Landlord Indemnified Parties will be liable for
consequential damages arising out of any loss of the use of the Premises or
any equipment or facilities therein by Tenant or any Tenant Parties. Tenant
agrees to give prompt notice to Landlord in case of fire or accidents in the
Premises, or of defects therein or in the fixtures or equipment.
(b) INDEMNIFICATION. Except to the extent caused by the
negligence or willful misconduct of Landlord, Tenant will be liable for, and
agrees, to the maximum extent permissible under applicable law, to promptly
indemnify, protect, defend and hold harmless Landlord and Landlord
Indemnified Parties, from and against, any and all claims, damages,
judgments, suits, causes of action, losses, liabilities, penalties, fines,
expenses and costs, including attorneys' fees and court costs (collectively,
"Indemnified Claims"), arising or resulting from (i) any act or omission of
Tenant or any Tenant Parties (as defined in Subparagraph 8(c) above); (ii)
the use of the Premises and conduct of Tenant's business by Tenant or any
Tenant Parties, or any other activity, work or thing done, permitted or
suffered by Tenant or any Tenant Parties, in or about the Premises or
elsewhere within the Development; and/or (iii) any default by Tenant of any
obligations on Tenant's part to be performed under the terms of this Lease.
In case any action or proceeding is brought against Landlord or any Landlord
Indemnified Parties by reason of any such Indemnified Claims, Tenant, upon
notice from Landlord, agrees to promptly defend the same at Tenant's sole
cost and expense by counsel approved in writing by Landlord, which approval
Landlord will not unreasonably withhold.
(c) SURVIVAL; NO RELEASE OF INSURERS. Tenant's
indemnification obligations under Subparagraph 18(b) will survive the
expiration or earlier termination of this Lease. Tenant's covenants,
agreements and indemnification obligation in Subparagraphs 18(a) and 18(b)
above, are not intended to and will not relieve any insurance carrier of its
obligations under policies required to be carried by Tenant pursuant to the
provisions of this Lease.
19. INSURANCE.
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(a) PAYMENT FOR INSURANCE. Tenant shall reimburse
Landlord for the cost of all insurance procured by Landlord under this
Paragraph 19. Premiums for policy periods commencing prior to or extending
beyond the Lease Term shall be prorated to correspond to the Lease Term.
Payment shall be made by Tenant to Landlord within fifteen (15) days
following receipt of an invoice for any amount due. Landlord may, from time
to time, adjust the insurance to be maintained pursuant to this Paragraph 19
as necessary to respond to changes in market conditions or the requirements
of Landlord's lenders.
(b) LIABILITY INSURANCE. Tenant shall obtain and
keep in force during the Term of this Lease a Commercial General Liability
policy of insurance protecting Tenant and, as additional insureds, Landlord
and its partners and members, Lenders (as defined in Subparagraph 19(c)(i)
below) against claims for bodily injury, personal injury and property damage
based upon, involving or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall be on an occurrence basis providing single limit coverage in
an amount not less than $5,000,000 per occurrence with an "Additional
Insured-Manager or Lessors of Premises" Endorsement and contain the
"Amendment of the Pollution Exclusion" for damage caused by heat, smoke or
fumes from a hostile fire. The policy shall not contain any intra-insured
exclusions as between insured persons or organizations, but shall include
coverage for liability assumed under this Lease as an "insured contract" for
the performance of Tenant's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Tenant shall
not, however, limit the liability of Tenant nor relieve Tenant of any
obligation hereunder. All insurance to be carried by Tenant shall be primary
to and not contributory with any similar insurance carried by Landlord, whose
insurance shall be considered excess insurance only.
(c) PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND
RENTAL VALUE.
(i) BUILDING AND IMPROVEMENTS. Landlord shall
obtain and keep in force during the Term of this Lease a policy or policies
in the name of Landlord, with loss payable to Landlord and to the holders of
any mortgages, deeds of trust or ground leases on the Premises ("Lender(s)"),
insuring loss or damage to the Premises. The amount of such insurance shall
be equal to the full replacement cost of the Premises, as the same shall
exist from time to time, or the amount required by Lenders, but in no event
more than the commercially reasonable and available insurable value thereof
if, by reason of the unique nature or age of the improvements involved, such
latter amount is less than full replacement cost. However, Alterations shall
be insured by Tenant under Paragraph 19(d) rather than by Landlord. If the
coverage is available and commercially appropriate, such policy or policies
shall insure against all risks of direct physical loss or damage (including
at Landlord's option the perils of flood and/or earthquake), including
coverage for any additional costs resulting from debris removal and
reasonable amounts of coverage for the enforcement of any ordinance or law
regulating the reconstruction or replacement of any undamaged sections of the
Premises required to be demolished or removed by reason of the enforcement of
any building, zoning, safety or land use laws as the result of a covered
cause of loss. Said policy or policies shall also contain an agreed
valuation provision in lieu of any coinsurance clause, waiver of subrogation,
and inflation guard protection causing an increase in the annual property
insurance coverage amount by a factor of not less than the adjusted U.S.
Department of Labor Consumer Price Index for All Urban Consumers for the city
nearest to where the Premises are located. Tenant shall be liable for any
deductible amount in the event of an Insured Loss, as defined in Paragraph 20
(a)(iii).
(ii) RENTAL VALUE. Landlord shall, in addition,
obtain and keep in force during the Term of this Lease a policy or policies
in the name of Landlord, with loss payable to Landlord and Lender(s),
insuring the loss of all rent and other charges payable by Tenant to Landlord
under this Lease for one (1) year (including all Real Estate Taxes, insurance
costs, and any scheduled rental increases). Said insurance shall provide
that in the event the Lease is terminated by reason of an insured loss, the
period of indemnity for such coverage shall be extended beyond the date of
the completion of repairs or replacement of the Premises, to provide for one
full year's loss of rental revenues from the date of any such loss. Said
insurance shall contain an agreed valuation provision in lieu of any
coinsurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, Real Estate Taxes, insurance premium
costs and other expenses, if any, otherwise payable by Tenant, for the next
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twelve (12) month period. Tenant shall be liable for any deductible amount
in the event of such loss.
(d) TENANT'S PROPERTY INSURANCE. Subject to the
requirements of Paragraph 19(e), Tenant at its cost shall either by separate
policy or, at Tenant's option, by endorsement to a policy already carried by
Tenant, maintain insurance coverage on all Tenant's personal property,
Alterations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 19(c). Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $10,000 per
occurrence (if a policy with that deductible is commercially available, and
if not then with the lowest deductible commercially available). The proceeds
from any such insurance shall be used by Tenant for the replacement of
personal property or the restoration of Alterations. Tenant shall be the
Insuring Party with respect to the insurance required by this Paragraph 19(d)
and shall provide Landlord with written evidence that such insurance is in
force.
(e) INSURANCE POLICIES. Insurance required hereunder
shall be in companies duly licensed to transact business in the state where
the Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least A-, VIII, or such other rating as may be
reasonably required by a Lender having a lien on the Premises, as set forth
in the most current issue of "Best's Insurance Guide." For the insurance
required to be carried by Tenant hereunder, Tenant shall not do or permit to
be done anything which shall invalidate the insurance policies referred to in
this Paragraph 19. Tenant shall cause to be delivered to Landlord certified
copies of policies of such insurance or certificate evidencing the existence
and amounts of such insurance with the insureds and loss payable clauses as
required by this Lease. No such policy shall be cancelable or subject to
modification except after thirty (30) days prior written notice to Landlord.
Tenant shall at least thirty (30) days prior to the expiration of such
policies, furnish Landlord with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Landlord may order such insurance and charge
the cost thereof to Tenant, which amount shall be payable by Tenant to
Landlord upon demand. Landlord shall, promptly after written request from
Tenant, provide Tenant with true and complete copies of the policies of
insurance to be carried by Landlord under Paragraph 19(c) ("Insurance
Notice") on or before the Commencement Date and at least thirty (30) days
prior to each scheduled expiration date of the policy period.
(f) WAIVER OF SUBROGATION. Without affecting any other
rights or remedies, Tenant and Landlord ("WAIVING PARTY") each hereby release
and relieve the other, and waive their entire right to recover damages
(whether in contract or in tort) against the other, for loss of or damage to
the Waiving Party's property arising out of or incident to the perils
required to be insured against under Paragraph 19. The effect of such
releases and waivers of the right to recover damages shall not be limited by
the amount of insurance carried or required, or by any deductibles applicable
hereto.
(g) EXEMPTION OF LANDLORD FROM LIABILITY. Landlord
shall not be liable for injury or damage to the person or goods, wares,
merchandise or other property of Tenant, Tenant's employees, contractors,
invitees, customers, or any other person in or about the Premises, whether
such damage or injury is caused by or results from fire, steam, electricity,
gas, water or rain, or from the breakage, leakage, obstruction or other
defects of pipes, fire sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether the said
injury or damage results from conditions arising upon the Premises or upon
other portions of the building of which the Premises are a part, or from
other sources or places, and regardless of whether the cause of such damage
or injury or the means of repairing the same is accessible or not. Landlord
shall not be liable for any damages arising from any act or neglect of any
other tenant of Landlord. Notwithstanding Landlord's negligence or breach of
this Lease, Landlord shall under no circumstances be liable for injury to
Tenant's business or for any loss of income or profit therefrom.
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20. DAMAGE OR DESTRUCTION
(a) DEFINITIONS.
(i) "PREMISES PARTIAL DAMAGE" shall mean damage or
destruction to the improvements on the Premises, other than Alterations
which do not constitute a Premises Total Destruction.
(ii) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Alterations , the repair cost of
which damage or destruction is 50% or more of the then Replacement Cost of
the Premises immediately prior to such damage or destruction, excluding
from such calculation the value of the land and Alterations.
(iii) "INSURED LOSS" shall mean damage or
destruction to improvements on the Premises, other than Alterations, which
was caused by an event required to be covered by the insurance described in
Paragraph 19(c)(i), irrespective of any deductible amounts or coverage
limits involved.
(iv) "REPLACEMENT COST" shall mean the cost to repair
or rebuild the improvements owned by Landlord at the time of the occurrence
to their condition existing immediately prior thereto, including
demolition, debris removal and upgrading required by the operation of
applicable building codes, ordinances or laws, and without deduction for
depreciation.
(b) PARTIAL DAMAGE - INSURED LOSS. If a Premises
Partial Damage that is an Insured Loss occurs, then Landlord shall, at
Landlord's expense, repair such damage (but not Tenant's trade fixtures or
Alterations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Tenant shall, at Landlord's
election, make the repair of any damage or destruction, and, in such event,
Landlord shall make the insurance proceeds available to Tenant on a
reasonable basis for that purpose. Notwithstanding the foregoing, if the
required insurance was not in force, the party responsible for maintaining
the required insurance shall promptly contribute the shortage in proceeds
(except as to the deductible which is Tenant's responsibility) as and when
required to complete said repairs. In the event of a shortage in proceeds
for any reason other than Landlord's failure to carry the required insurance,
Landlord shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Tenant
provides Landlord with the funds to cover same, or adequate assurance
thereof, within ten (10) days following receipt of written notice of such
shortage and request therefor. If Landlord receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and
this Lease shall remain in full force and effect. If Landlord does not
receive such funds or assurance within said period, Landlord may nevertheless
elect by written notice to Tenant within ten (10) days thereafter to make
such restoration and repair as is commercially reasonable with Landlord
paying any shortage in proceeds, in which case this Lease shall remain in
full force and effect. If in such case Landlord does not so elect, then this
Lease shall terminate sixty (60) days following the occurrence of the damage
or destruction. Unless otherwise agreed, Tenant shall in no event have any
right to reimbursement from Landlord for any funds contributed by Tenant to
repair any such damage or destruction. Premises Partial Damage due to an
insured flood or earthquake shall be subject to Paragraph 20(c) rather than
Paragraph 20(b), notwithstanding that there may be some insurance coverage,
but the net proceeds of any such insurance shall be made available for the
repairs if made by either party.
(c) PARTIAL DAMAGE - UNINSURED LOSS. If a Premises
Partial Damage that is not an Insured Loss occurs, unless caused by a
negligent or willful act of Tenant or any of the Tenant Parties (in which
event Tenant shall make the repairs at Tenant's expense and this Lease shall
continue in full force and effect, but subject to Landlord's rights under
Paragraph 22), Landlord may at Landlord's option, either: (i) repair such
damage as soon as reasonably possible at Landlord's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written
notice to Tenant within thirty (30) days after receipt by Landlord of
knowledge of the occurrence of such damage of Landlord's desire to terminate
this Lease as of the date sixty
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(60) days following the giving of such notice. In the event Landlord elects
to give such notice of Landlord's intention to terminate this Lease, Tenant
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Landlord of Tenant's commitment to pay for the repair
of such damage totally at Tenant's expense and without reimbursement from
Landlord. Tenant shall provide Landlord with the required funds or
satisfactory assurance thereof within thirty (30) days following Tenant's
said commitment. In such event this Lease shall continue in full force and
effect, and Landlord shall proceed to make such repairs as soon as reasonably
possible and the required funds are available. If Tenant does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Landlord's
notice of termination.
(d) TOTAL DESTRUCTION. Notwithstanding any other
provision hereof, if a Premises Total Destruction occurs (including any
destruction required by any authorized public authority), this Lease shall
terminate sixty (60) days following the date of such Premises Total
Destruction, whether or not the damage or destruction is an Insured Loss or
was caused by a negligent or willful act of Tenant. Notwithstanding the
foregoing, Tenant shall have the right to prevent such termination by giving
Landlord written notice of Tenant's commitment to pay for the cost of
repairing such Total Destruction to the extent not covered by insurance
proceeds. In such event, Tenant shall deliver written notice of Tenant's
commitment to pay for such repairs within thirty (30) days following the
occurrence of such damage and Tenant shall provide Landlord with the required
funds or satisfactory assurance thereof within thirty (30) days following
Tenant's delivery to Landlord of Tenant's commitment to pay for such repairs
in excess of insurance proceeds. In such event, this Lease shall continue in
full force and effect, and Landlord shall proceed to make such repairs as
soon as reasonably possible and the required funds are available. In the
event, however, that the damage or destruction was caused by Tenant or any of
the Tenant Parties, Landlord shall have the right to recover Landlord's
damages from Tenant except as released and waived in Paragraph 19(f).
(e) DAMAGE NEAR END OF TERM. If at any time during the
last six (6) months of the Term of this Lease there is damage for which the
cost to repair exceeds three (3) month's Monthly Base Rent, whether or not an
Insured Loss, Landlord may, at Landlord's option, terminate this Lease
effective sixty (60) days following the date of occurrence of such damage by
giving written notice to Tenant of Landlord's election to do so within thirty
(30) days after the date of occurrence of such damage.
(f) ABATEMENT OF RENT; TENANT'S REMEDIES.
(i) In the event of damage described in
Paragraphs 20(b) (Partial Damage - Insured), or 20(c) (Partial Damage -
Uninsured Loss) (to the extent not resulting in the termination of this
Lease) whether or not Landlord repairs or restores the Premises, the
Monthly Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Tenant hereunder for the period during which
such damage, its repair or the restoration continues, shall be abated in
proportion to the degree to which Tenant's use of the Premises is impaired.
Except for abatement of Base Rent, Real Property Taxes, insurance premiums,
and other charges, if any, as aforesaid, all other obligations of Tenant
hereunder shall be performed by Tenant, and Tenant shall have no claim
against Landlord for any damage suffered by reason of any such repair or
restoration.
(ii) If Landlord shall be obligated to repair or
restore the Premises under the provisions of this Paragraph 20 and shall
not commence, in a substantial and meaningful way, the repair or
restoration of the Premises within seventy-five (75) days after such
obligation shall accrue, Tenant may, at any time prior to the commencement
of such repair or restoration, give written notice to Landlord and to any
Lenders of which Tenant has actual notice of Tenant's election to terminate
this Lease on a date not less than sixty (60) days following the giving of
such notice. If Tenant gives such notice to Landlord and such Lenders and
such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified
in said notice. If Landlord or a Lender commences the repair or
restoration of the Premises within thirty (30) days after receipt of such
notice, this Lease shall continue in full force
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and effect. "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or
the beginning of the actual work on the Premises, whichever first occurs;
provided, however, that the thirty (30), sixty (60), and ninety (90) day
periods in this Paragraph 20(f)(ii) shall be extended by Force Majeure
Events as defined in Paragraph 33 below.
(g) TERMINATION-ADVANCE PAYMENTS. Upon termination of
this Lease pursuant to this Paragraph 20, an equitable adjustment shall be
made concerning advance Monthly Base Rent and any other advance payments made
by Tenant to Landlord.
(h) WAIVE STATUTES. Landlord and Tenant agree that the
terms of this Lease shall govern the effect of any damage to or destruction
of the Premises with respect to the termination of this Lease and hereby
waive the provisions of any present or future statute to the extent
inconsistent herewith.
21. EMINENT DOMAIN.
(a) SUBSTANTIAL TAKING. If the whole of the Premises or
more than ten percent (10%) of the rentable square footage of the Building or
ten percent (10%) or more of the parking spaces located on the Premises, are
taken for any public or quasi-public purpose by any lawful power or authority
by exercise of the right of appropriation, condemnation or eminent domain, or
sold to prevent such taking, and the portion taken materially, adversely and
permanently impairs Tenant's ability to conduct its permitted business on the
Premises (assuming required repairs), Tenant shall have the right to
terminate this Lease effective as of the date possession is required to be
surrendered to such authority by giving Landlord written notice of such
termination within ten (10) days after Landlord has given notice of such
taking to Tenant. In the event Tenant does not elect to terminate the Lease,
Landlord will thereafter proceed to make a functional unit of the remaining
portion of the Premises (but only to the extent Landlord receives proceeds
therefor from the condemning authority) and rent will be abated in proportion
to the rentable square footage of the Premises which Tenant is deprived of on
account of such taking; provided, however, there will be no abatement of rent
if the only area taken is that which does not have a building located
thereon, so long as parking remains adequate for Tenant to conduct its
business from the Premises, as reasonably determined by Tenant.
Notwithstanding the foregoing, if more than fifty percent (50%) of the
rentable square footage of the Building is taken, Landlord shall have the
right to terminate this Lease effective as of the date possession is required
to be surrendered to such authority by giving Tenant written notice of such
termination within thirty days after Landlord has received notice of such
taking.
(b) PARTIAL TAKING; ABATEMENT OF RENT. In the event of a
taking of a portion of the Premises which does not constitute a substantial
taking under Subparagraph 21(a) above, then, neither party will have the
right to terminate this Lease and Landlord will thereafter proceed to make a
functional unit of the remaining portion of the Premises (but only to the
extent Landlord receives proceeds therefor from the condemning authority),
and rent will be abated in proportion to the rentable area of the Premises
which Tenant is deprived of on account of such taking; provided, however,
there will be no abatement of rent if the only area taken is that which does
not have a building located thereon.
(c) CONDEMNATION AWARD. In connection with any taking of
all or any portion of the Premises, Landlord will be entitled to receive the
entire amount of any award which may be made or given in such taking or
condemnation, without deduction or apportionment for any estate or interest
of Tenant, it being expressly understood and agreed by Tenant that no portion
of any such award will be allowed or paid to Tenant for any so-called bonus
or excess value of this Lease, and such bonus or excess value will be the
sole property of Landlord. Tenant agrees not to assert any claim against
Landlord or the taking authority for any compensation because of such taking
(including any claim for bonus or excess value of this Lease); provided,
however, if any portion of the Premises is taken, Tenant will have the right
to recover from the condemning authority (but not from Landlord) any
compensation as may be separately awarded or recoverable by Tenant for the
taking of Tenant's furniture, fixtures, equipment and other personal property
within the Premises, for Tenant's relocation expenses, and for any loss of
goodwill or other damage to Tenant's business by reason of such taking.
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(d) TEMPORARY TAKING. In the event of a partial taking
of the Premises or any part thereof for temporary use, (i) this Lease will
remain unaffected thereby and rent will not abate, and (ii) Tenant will be
entitled to receive such portion or portions of any award made for such use
with respect to the period of the taking which is within the Term, provided
that if such taking remains in force at the expiration or earlier termination
of this Lease, Tenant will then pay to Landlord a sum equal to the reasonable
cost of performing Tenant's obligations under Paragraph 11 with respect to
surrender of the Premises and upon such payment Tenant will be excused from
such obligations. For purpose of this Subparagraph 21(d), a temporary taking
shall be defined as a taking for a period of ninety (90) days or less.
22. DEFAULTS AND REMEDIES.
(a) DEFAULTS. The occurrence of any one or more of the
following events will be deemed a default by Tenant:
(i) The failure by Tenant to make any payment of
rent or additional rent or any other payment required to be made by Tenant
hereunder, as and when due, where such failure continues for a period of
seven (7) days after written notice thereof from Landlord to Tenant;
provided, however, that any such notice will be in lieu of, and not in
addition to, any notice required under applicable law (including, without
limitation, to the extent the Premises are located in California, the
provisions of California Code of Civil Procedure Section 1161 regarding
unlawful detainer actions or any successor statute or law of a similar
nature).
(ii) The failure 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 Subparagraph
22(a)(i) above, where such failure continues for a period of thirty (30) days
after written notice thereof from Landlord to Tenant. The provisions of any
such notice will be in lieu of, and not in addition to, any notice required
under applicable law (including, without limitation, to the extent the
Premises are located in California, California Code of Civil Procedure
Section 1161 regarding unlawful detainer actions and any successor statute or
similar law). If the nature of Tenant's default is such that more than
thirty (30) days are reasonably required for its cure, then Tenant will not
be deemed to be in default if Tenant, with Landlord's concurrence (which
shall not be unreasonably withheld or delayed), commences such cure within
such thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
(iii) (A) The making by Tenant of any general
assignment for the benefit of creditors; (B) the filing by or against Tenant
of a petition to have Tenant adjudged a bankrupt 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
ninety (90) days); (C) the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at the Premises or
of Tenant's interest in this Lease, where possession is not restored to
Tenant within sixty (60) days; or (D) the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease where such seizure is not
discharged within sixty (60) days.
(b) LANDLORD'S REMEDIES; TERMINATION. In the event of
any default by Tenant, in addition to any other remedies available to
Landlord at law or in equity under applicable law (including, without
limitation, the remedies of Civil Code Section 1951.4 (lessor may continue
lease in effect after lessee's breach and abandonment and recover rent as it
becomes due, if lessee has the right to sublet or assign, subject only to
reasonable limitations), Landlord will have the immediate right and option to
terminate this Lease and all rights of Tenant hereunder. If Landlord elects
to terminate this Lease then, to the extent permitted under applicable law,
Landlord may recover from Tenant: (i) the worth at the time of award of any
unpaid rent which had been earned at the time of such termination; plus (ii)
the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rent loss that Tenant proves could have been reasonably
avoided; plus (iii) the worth at the time of award of the amount by which the
unpaid rent for the balance of the Term after the time of award exceeds the
amount of such rent loss that Tenant proves could be reasonably avoided; plus
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its
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obligations under this Lease or which, in the ordinary course of things,
results therefrom including, but not limited to: attorneys' fees and costs;
brokers' commissions; the costs of refurbishment, alterations, renovation and
repair of the Premises, and removal (including the repair of any damage
caused by such removal) and storage (or disposal) of Tenant's personal
property, equipment, fixtures, Alterations, the Tenant Improvements and any
other items which Tenant is required under this Lease to remove but does not
remove, as well as any Tenant Improvement Allowance or other costs or
economic concessions provided, paid, granted or incurred by Landlord pursuant
to this Lease. The unamortized value of such concessions shall be determined
by taking the total value of such concessions and multiplying such value by a
fraction, the numerator of which is the number of months of the Lease Term
not yet elapsed as of the date on which the Lease is terminated, and the
denominator of which is the total number of months of the Lease Term.
As used in Subparagraphs 22(b)(i) and (ii) above,
the "worth at the time of award" is computed by allowing interest at the
Interest Rate. As used in Subparagraph 22(b)(iii) above, the "worth at the
time of award" is computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%).
(c) LANDLORD'S REMEDIES; RE-ENTRY RIGHTS. In the event
of any default by Tenant, in addition to any other remedies available to
Landlord under this Lease, at law or in equity, Landlord will also have the
right, with or without terminating this Lease, to re-enter the Premises and
remove all persons and property from the Premises; such property may be
removed and stored in a public warehouse or elsewhere and/or disposed of at
the sole cost and expense of and for the account of Tenant in accordance with
the provisions of Subparagraph 13(h) of this Lease or any other procedures
permitted by applicable law. No re-entry or taking possession of the
Premises by Landlord pursuant to this Subparagraph 22(c) will be construed as
an election to terminate this Lease unless a written notice of such intention
is given to Tenant or unless the termination thereof is decreed by a court of
competent jurisdiction.
(d) LANDLORD'S REMEDIES; RE-LETTING. In the event of
the vacation or abandonment of the Premises by Tenant or in the event that
Landlord elects to re-enter the Premises or takes possession of the Premises
pursuant to legal proceeding or pursuant to any notice provided by law, then
if Landlord does not elect to terminate this Lease, Landlord may from time to
time, without terminating this Lease, either recover all rent as it becomes
due or relet the Premises or any part thereof on terms and conditions as
Landlord in its sole and absolute discretion may deem advisable with the
right to make alterations and repairs to the Premises in connection with such
reletting. If Landlord elects to relet the Premises, then rents received by
Landlord from such reletting will be applied: first, to the payment of any
indebtedness other than rent due hereunder from Tenant to Landlord; second,
to the payment of any cost of such reletting; third, to the payment of the
cost of any alterations and repairs to the Premises incurred in connection
with such reletting; fourth, to the payment of rent due and unpaid hereunder
and the residue, if any, will be held by Landlord and applied to payment of
future rent as the same may become due and payable hereunder. Should that
portion of such rents received from such reletting during any month, which is
applied to the payment of rent hereunder, be less than the rent payable
during that month by Tenant hereunder, then Tenant agrees to pay such
deficiency to Landlord immediately upon demand therefor by Landlord. Such
deficiency will be calculated and paid monthly.
(e) LANDLORD'S REMEDIES; PERFORMANCE FOR TENANT. All
covenants and agreements to be performed by Tenant under any of the terms of
this Lease are to be performed by Tenant at Tenant's sole cost and expense
and without any abatement of rent. If Tenant fails to pay any sum of money
owed to any party other than Landlord, for which it is liable under this
Lease, or if Tenant fails to perform any other act on its part to be
performed hereunder, and such failure continues for ten (10) days after
notice thereof by Landlord, Landlord may, without waiving or releasing Tenant
from its obligations, but shall not be obligated to, make any such payment or
perform any such other act to be made or performed by Tenant. Tenant agrees
to reimburse Landlord upon demand for all sums so paid by Landlord and all
necessary incidental costs, together with interest thereon at the Interest
Rate, from the date of such payment by Landlord until reimbursed by Tenant.
This remedy shall be in addition to any other right or remedy of Landlord set
forth in this Paragraph 22.
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(f) LATE PAYMENT. If Tenant fails to pay any
installment of rent within seven (7) days after written notice from Landlord
to Tenant that such payment is due or if Tenant fails to make any other
payment for which Tenant is obligated under this Lease within seven (7) days
after written notice from Landlord to Tenant that such payment is due, such
late amount will accrue interest at the Interest Rate and Tenant agrees to
pay Landlord as additional rent such interest on such amount from the date
such amount becomes due until such amount is paid. In addition, Tenant
agrees to pay to Landlord concurrently with such late payment amount, as
additional rent, a late charge equal to four percent (4%) of the amount due
to compensate Landlord for the extra costs Landlord will incur as a result of
such late payment. The parties agree that (i) it would be impractical and
extremely difficult to fix the actual damage Landlord will suffer in the
event of Tenant's late payment, (ii) such interest and late charge represents
a fair and reasonable estimate of the detriment that Landlord will suffer by
reason of late payment by Tenant, and (iii) the payment of interest and late
charges are distinct and separate in that the payment of interest is to
compensate Landlord for the use of Landlord's money by Tenant, while the
payment of late charges is to compensate Landlord for Landlord's processing,
administrative and other costs incurred by Landlord as a result of Tenant's
delinquent payments. Acceptance of any such interest and late charge will
not constitute a waiver of the Tenant's default with respect to the overdue
amount, or prevent Landlord from exercising any of the other rights and
remedies available to Landlord. If Tenant incurs a late charge more than
three (3) times in any period of twelve (12) months during the Lease Term,
then, notwithstanding that Tenant cures the late payments for which such late
charges are imposed, Landlord will have the right to require Tenant
thereafter to pay all installments of Monthly Base Rent quarterly in advance
throughout the remainder of the Lease Term.
(g) LANDLORD'S SECURITY INTEREST. Tenant hereby grants
to Landlord a lien and security interest on all property of Tenant now or
hereafter placed in or upon the Premises including, but not limited to, all
fixtures, machinery, equipment, furnishings and other articles of personal
property, and all proceeds of the sale or other disposition of such property
(collectively, the "Collateral") to secure the payment of all rent to be paid
by Tenant pursuant to this Lease. Such lien and security interest shall be
in addition to any landlord's lien provided by law but shall be subordinate
to any first lien in favor of Tenant's lender with respect to any such
Collateral so long as Landlord is provided with a commercially reasonable
subordination agreement with respect to such Collateral. This Lease shall
constitute a security agreement under the Commercial Code of the State so
that Landlord shall have and may enforce a security interest in the
Collateral. Tenant agrees to execute as debtor and deliver such financing
statement or statements and any further documents as Landlord may now or
hereafter reasonably request to protect such security interest pursuant to
such code. Landlord may also at any time file a copy of this Lease as a
financing statement. Landlord, as secured party, shall be entitled to all
rights and remedies afforded as secured party under such code, which rights
and remedies shall be in addition to Landlord's liens and rights provided by
law or by the other terms and provisions of this Lease.
(h) RIGHTS AND REMEDIES CUMULATIVE. All rights, options
and remedies of Landlord contained in this Lease will be construed and held
to be cumulative, and no one of them will be exclusive of the other, and
Landlord shall have the right to pursue any one or all of such remedies or
any other remedy or relief which may be provided by law or in equity, whether
or not stated in this Lease. Nothing in this Paragraph 22 will be deemed to
limit or otherwise affect Tenant's indemnification of Landlord pursuant to
any provision of this Lease.
23. LANDLORD'S DEFAULT. Landlord will not be in default in
the performance of any obligation required to be performed by Landlord under
this Lease unless Landlord fails to perform such obligation within thirty
(30) days after the receipt of written notice from Tenant specifying in
detail Landlord's failure to perform; provided however, that if the nature of
Landlord's obligation is such that more than thirty (30) days are required
for performance, then Landlord will not be deemed in default if it commences
such performance within such thirty (30) day period and thereafter diligently
pursues the same to completion. Upon any default by Landlord, Tenant may
exercise any of its rights provided at law or in equity, subject to the
limitations set forth in this Lease (including, but not limited to, the
limitations on liability set forth in Paragraph 35 of this Lease). In the
event that Landlord is in default (as described hereinabove) of its Paragraph
14(c) maintenance obligations, and such breach
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materially impairs Tenant's use of the Premises, Tenant may upon an
additional ten (10) day notice to Landlord, perform such maintenance
obligations and in such event Landlord shall reimburse Tenant for its
reasonable third-party costs incurred for performance of such maintenance
obligations, together with interest thereon at the Interest Rate. In no
event shall Tenant have the right to terminate this Lease as a result of
Landlord's default, and Tenant's remedies shall be limited to monetary
damages and/or specific performance; provided, however, in no event shall
Landlord be liable under any circumstances for any consequential damages
incurred by Tenant including, without limitation, any injury to, or
interference with, Tenant's business (including any loss of profits) arising
in connection with this Lease. Nothing herein contained shall be interpreted
to mean Tenant is excused from paying rent due hereunder as a result of any
default by Landlord.
24. ASSIGNMENT AND SUBLETTING.
(a) RESTRICTION ON TRANSFER. Except as expressly
provided in this Paragraph 24, Tenant will not, either voluntarily or by
operation of law, assign or encumber this Lease or any interest herein or
sublet the Premises or any part thereof, or permit the use or occupancy of
the Premises by any party other than Tenant (any such assignment,
encumbrance, sublease or the like will sometimes be referred to as a
"Transfer"), without the prior written consent of Landlord, which consent
Landlord will not unreasonably withhold or delay.
(b) CORPORATE AND PARTNERSHIP TRANSFERS. For purposes
of this Paragraph 24, if Tenant is a corporation, partnership or other
entity, any transfer, assignment, encumbrance or hypothecation of fifty
percent (50%) or more (individually or in the aggregate) of any stock or
other ownership interest in such entity, and/or any transfer, assignment,
hypothecation or encumbrance of any controlling ownership or voting interest
in such entity, will be deemed a Transfer and will be subject to all of the
restrictions and provisions contained in this Paragraph 24. Notwithstanding
the foregoing, the immediately preceding sentence will not apply to any
transfers of stock of Tenant if Tenant is a publicly-held corporation and
such stock is transferred publicly over a recognized security exchange or
over-the-counter market.
(c) PERMITTED CONTROLLED TRANSFERS. Notwithstanding the
provisions of this Paragraph 24 to the contrary, Tenant may assign this Lease
or sublet the Premises or any portion thereof ("Permitted Transfer"), without
Landlord's consent and without extending any sublease termination option to
Landlord, to any parent, subsidiary or affiliate corporation which controls,
is controlled by or is under common control with Tenant, or to any
corporation resulting from a merger or consolidation with Tenant, or to any
person or entity which acquires all the assets of Tenant's business as a
going concern, provided that: (i) at least thirty (30) days prior to such
assignment or sublease, Tenant delivers to Landlord the financial statements
and other financial and background information of the assignee or subtenant
described in Subparagraph 24(d) below; (ii) if an assignment, the assignee
assumes, in full, the obligations of Tenant under this Lease (or if a
sublease, the subtenant of a portion of the Premises or Term assumes, in
full, the obligations of Tenant with respect to such portion); (iii) the
financial net worth of the assignee or subtenant as of the time of the
proposed assignment or sublease equals or exceeds that of Tenant as of the
date of execution of this Lease; (iv) except in the case of a merger in which
Tenant is not the surviving entity, Tenant remains fully liable under this
Lease; and (v) the use of the Premises under Paragraph 8 remains unchanged.
(d) TRANSFER NOTICE. If Tenant desires to effect a
Transfer (other than a Permitted Transfer), then at least thirty (30) days
prior to the date when Tenant desires the Transfer to be effective (the
"Transfer Date"), Tenant agrees to give Landlord a notice (the "Transfer
Notice"), stating the name, address and business of the proposed assignee,
subtenant or other transferee (sometimes referred to hereinafter as
"Transferee"), reasonable information (including references) concerning the
character, ownership, and financial condition of the proposed Transferee, the
Transfer Date, any ownership or commercial relationship between Tenant and
the proposed Transferee, and the consideration and all other material terms
and conditions of the proposed Transfer, all in such detail as Landlord may
reasonably require. If Landlord reasonably requests additional detail, the
Transfer Notice will not be deemed to have been received until Landlord
receives such additional detail, and Landlord may withhold consent to any
Transfer until such information is provided to it.
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(e) LANDLORD'S OPTIONS. Within fifteen (15) days of
Landlord's receipt of any Transfer Notice, and any additional information
requested by Landlord concerning the proposed Transferee's financial
responsibility, Landlord will elect to do one of the following: (i) consent
to the proposed Transfer; or (ii) refuse such consent, which refusal shall be
on reasonable grounds including, without limitation, those set forth in
Subparagraph 24(f) below, or (iii) terminate this Lease as to all or such
portion of the Premises which is proposed to be sublet or assigned and
recapture all or such portion of the Premises for reletting by Landlord.
(f) REASONABLE DISAPPROVAL. Landlord and Tenant hereby
acknowledge that Landlord's disapproval of any proposed Transfer pursuant to
Subparagraph 24(e) will be deemed reasonably withheld if based upon any
reasonable factor, including, without limitation, any or all of the following
factors: (i) the portion of the Premises to be sublet or assigned is
irregular in shape with inadequate means of ingress and egress; (ii) the use
of the Premises by the Transferee is not permitted by the use provisions in
Paragraph 8 hereof, or otherwise poses a risk of increased liability to
Landlord; (iii) the Transferee does not have the financial capability to
fulfill the obligations imposed by the Transfer and this Lease, or (iv) the
Transferee poses a business or other economic risk which Landlord reasonably
deems unacceptable.
(g) ADDITIONAL CONDITIONS. A condition to Landlord's
consent to any Transfer of this Lease will be the delivery to Landlord of a
true copy of the fully executed instrument of assignment, sublease, transfer
or hypothecation, and, in the case of an assignment, the delivery to Landlord
of an agreement executed by the Transferee in form and substance reasonably
satisfactory to Landlord, whereby the Transferee assumes and agrees to be
bound by all of the terms and provisions of this Lease and to perform all of
the obligations of Tenant hereunder. As a condition for granting its consent
to any assignment or sublease, Landlord may require that the assignee or
subtenant remit directly to Landlord on a monthly basis, all monies due to
Tenant by said assignee or subtenant. As a condition to Landlord's consent
to any sublease, such sublease must provide that it is subject and
subordinate to this Lease and to all mortgages; that Landlord may enforce the
provisions of the sublease, including collection of rent; that in the event
of termination of this Lease for any reason, including without limitation a
voluntary surrender by Tenant, or in the event of any reentry or repossession
of the Premises by Landlord, Landlord may, at its option, either (i)
terminate the sublease, or (ii) take over all of the right, title and
interest of Tenant, as sublandlord, under such sublease, in which case such
subtenant will attorn to Landlord, but that nevertheless Landlord will not
(1) be liable for any previous act or omission of Tenant under such sublease,
(2) be subject to any defense or offset previously accrued in favor of the
subtenant against Tenant, or (3) be bound by any previous modification of any
sublease made without Landlord's written consent, or by any previous
prepayment by subtenant of more than one month's rent.
(h) EXCESS RENT. If Landlord consents to any assignment
of this Lease, Tenant agrees to pay to Landlord, as additional rent, fifty
percent (50%) of all sums and other consideration payable to and for the
benefit of Tenant by the assignee on account of the assignment, to the extent
that such consideration is in excess of rent payable by Tenant under this
Lease as and when such sums and other consideration are due and payable by
the assignee to or for the benefit of Tenant (or, if Landlord so requires,
and without any release of Tenant's liability for the same, Tenant agrees to
instruct the assignee to pay such sums and other consideration directly to
Landlord). If for any sublease, Tenant receives rent or other consideration,
either initially or over the term of the sublease, in excess of the rent
fairly allocable to the portion of the Premises which is subleased based on
square footage, Tenant agrees to pay to Landlord as additional rent fifty
percent (50%) of the excess of each such payment of rent or other
consideration received by Tenant promptly after its receipt. In calculating
excess rent or other consideration which may be payable to Landlord under
this paragraph, Tenant will be entitled to deduct commercially reasonable
third party brokerage commissions and attorneys' fees and other amounts
reasonably and actually expended by Tenant in connection with such assignment
or subletting if reasonably acceptable written evidence of such expenditures
is provided to Landlord. For purposes of calculating any such excess rent
all such concessions shall be amortized on a straight-line basis over the
relevant term.
(i) NO RELEASE. No Transfer will release Tenant of
Tenant's obligations under this Lease or alter the primary liability of Tenant
to pay the rent and to perform all other
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obligations to be performed by Tenant hereunder. Landlord may require that
any Transferee remit directly to Landlord on a monthly basis, all monies due
Tenant by said Transferee. However, the acceptance of rent by Landlord from
any other person will not be deemed to be a waiver by Landlord of any
provision hereof. Consent by Landlord to one Transfer will not be deemed
consent to any subsequent Transfer. In the event of default by any
Transferee of Tenant or any successor of Tenant in the performance of any of
the terms hereof, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against such Transferee or successor.
Landlord may consent to subsequent assignments of this Lease or sublettings
or amendments or modifications to this Lease with assignees of Tenant,
without notifying Tenant, or any successor of Tenant, and without obtaining
its or their consent thereto and any such actions will not relieve Tenant of
liability under this Lease.
(j) ADMINISTRATIVE AND ATTORNEYS' FEES. If Tenant
effects a Transfer or requests the consent of Landlord to any Transfer
(whether or not such Transfer is consummated), then, upon demand, Tenant
agrees to pay Landlord any reasonable attorneys' and paralegal fees incurred
by Landlord in connection with such Transfer or request for consent (whether
attributable to Landlord's in-house attorneys or paralegals or otherwise) not
to exceed One Hundred Dollars ($100.00) for each one thousand (1,000)
rentable square feet of area contained within the Premises or portion thereof
to be assigned or sublet. Acceptance of the reimbursement of Landlord's
attorneys' and paralegal fees will in no event obligate Landlord to consent
to any proposed Transfer.
(k) TENANT'S LIMITED PERMITTED SUBLEASING RIGHTS.
Notwithstanding anything to the contrary contained in this Lease, Landlord
agrees that Tenant shall initially have the right to sublet up to a maximum
of 25,000 square feet of the Premises for a term not exceeding 18 months from
the Commencement Date ("Permitted Sublease Space"). Landlord agrees that
Tenant shall not be required to obtain Landlord's consent with respect to
such sublease of the Permitted Sublease Space except with respect to any
sublease wherein the proposed sublessee desires to use such space for a use
other than is permitted under the CC&Rs for the Project. Landlord further
agrees that Tenant shall be entitled to retain any excess rent Tenant
receives in connection with such Permitted Sublease Space (but only with
respect to any such permitted sublease space entered into consistent with the
foregoing limitations, including that the term not extend beyond 18 months
from the Commencement Date). In addition, Landlord agrees that Landlord
shall have no right to exercise its remedy set forth in Paragraph 24(e)(3) in
connection with a sublease properly entered into with respect to the
Permitted Sublease Space, nor shall Landlord require the payment or
reimbursement of any fees or other costs in connection with the review and
approval of any such sublease, including, but not limited to, the fees
described in Paragraph 24(j) of this Lease.
25. SUBORDINATION. Without the necessity of any additional
document being executed by Tenant for the purpose of effecting a
subordination, and at the election of Landlord or any mortgagee or
beneficiary with a deed of trust encumbering the Premises, or any lessor of a
ground or underlying lease with respect to the Premises, this Lease will be
subject and subordinate at all times to: (i) all ground leases or underlying
leases which may now exist or hereafter be executed affecting the Premises;
and (ii) the lien of any mortgage or deed of trust which may now exist or
hereafter be executed for which the Premises, or Landlord's interest and
estate in any of said items, is specified as security, subject to Tenant's
receipt of a commercially reasonable nondisturbance agreement as more
particularly provided below. Notwithstanding the foregoing, Landlord
reserves the right to subordinate any such ground leases or underlying leases
or any such liens to this Lease. If any such ground lease or underlying
lease terminates for any reason or any such mortgage or deed of trust is
foreclosed or a conveyance in lieu of foreclosure is made for any reason, at
the election of Landlord's successor in interest, Tenant agrees to attorn to
and become the tenant of such successor in which event Tenant's right to
possession of the Premises will not be disturbed as long as Tenant is not in
default under this Lease. Tenant hereby waives its rights under any law
which gives or purports to give Tenant any right to terminate or otherwise
adversely affect this Lease and the obligations of Tenant hereunder in the
event of any such foreclosure proceeding or sale. Tenant covenants and
agrees to execute and deliver, upon demand by Landlord and in the form
reasonably required by Landlord, any additional documents evidencing the
priority or subordination of this Lease and Tenant's attornment agreement
with respect to any such ground lease or underlying leases or the lien of
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any such mortgage or deed of trust; provided, however, any such agreement
subordinating this Lease to such lease, mortgage or deed of trust shall
contain a commercially reasonable nondisturbance provision. If Tenant fails
to sign and return any such documents within ten (10) days of receipt, Tenant
will be in default hereunder.
26. ESTOPPEL CERTIFICATE. Within ten (10) days following any
written request which Landlord may make from time to time, Tenant agrees to
execute and deliver to Landlord a statement, in a form substantially similar
to the form of EXHIBIT "D" attached hereto or as may reasonably be required
by Landlord's lender, certifying: (i) the date of commencement of this
Lease; (ii) the fact that this Lease is unmodified and in full force and
effect (or, if there have been modifications, that this Lease is in full
force and effect, and stating the date and nature of such modifications);
(iii) the date to which the rent and other sums payable under this Lease have
been paid; (iv) that there are no current defaults under this Lease by either
Landlord or Tenant except as specified in Tenant's statement; and (v) such
other matters reasonably requested by Landlord. Landlord and Tenant intend
that any statement delivered pursuant to this Paragraph 26 may be relied upon
by any mortgagee, beneficiary, purchaser or prospective purchaser of the
Premises or any interest therein. Tenant's failure to deliver such statement
within such time will be conclusive upon Tenant (i) that this Lease is in
full force and effect, without modification except as may be represented by
Landlord, (ii) that there are no uncured defaults in Landlord's performance,
and (iii) that not more than one (1) month's rent has been paid in advance.
Without limiting the foregoing, if Tenant fails to deliver any such statement
within such ten (10) day period, Landlord may deliver to Tenant an additional
request for such statement and Tenant's failure to deliver such statement to
Landlord within ten (10) days after delivery of such additional request will
constitute a default under this Lease. Tenant agrees to indemnify and
protect Landlord from and against any and all claims, damages, losses,
liabilities and expenses (including attorneys' fees and costs) attributable
to any failure by Tenant to timely deliver any such estoppel certificate to
Landlord as required by this Paragraph 26.
27. EASEMENTS. Landlord reserves to itself the right, from
time to time, to grant such easements, rights and dedications that Landlord
deems necessary or desirable, and to cause the recordation of parcel maps and
restrictions, so long as such easements, rights, dedications, maps and
restrictions do not materially interfere with the use of the Premises by
Tenant. Tenant shall sign any of the aforementioned documents upon request of
Landlord and failure to do so shall constitute a material breach of this
Lease.
28. FINANCIAL STATEMENTS. Prior to the execution of this
Lease by Landlord and at any time during the Term of this Lease upon ten (10)
days prior written notice from Landlord, Tenant agrees to provide Landlord
with a current financial statement for Tenant and financial statements for
the two (2) years prior to the current financial statement year for Tenant.
Such statements are to be prepared in accordance with generally accepted
accounting principles and shall be audited by an independent certified public
accountant.
29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND
LESSORS. If, in connection with Landlord's obtaining or entering into any
financing or ground lease affecting the Premises, the lender or ground lessor
requests modifications to this Lease, Tenant, within ten (10) days after
request therefor, agrees to execute an amendment to this Lease incorporating
such modifications, provided such modifications are reasonable and do not
materially increase the obligations of Tenant under this Lease or adversely
affect the leasehold estate created by this Lease. In the event of any
default on the part of Landlord, Tenant will give notice by registered or
certified mail to any beneficiary of a deed of trust or mortgage covering the
Premises or ground lessor of Landlord whose address has been furnished to
Tenant, and Tenant agrees to offer such beneficiary, mortgagee or ground
lessor a reasonable opportunity to cure the default (including with respect
to any such beneficiary or mortgagee, time to obtain possession of the
Premises, subject to this Lease and Tenant's rights hereunder, by power of
sale or a judicial foreclosure, if such should prove necessary to effect a
cure).
30. DEFINITION OF LANDLORD. The term "Landlord," as used in
this Lease, so far as covenants or obligations on the part of Landlord are
concerned, means and includes only the owner or owners, at the time in
question, of the fee title of the Premises
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or the lessees under any ground lease, if any. In the event of any transfer,
assignment or other conveyance or transfers of any such title (other than a
transfer for security purposes only), Landlord herein named (and in case of
any subsequent transfers or conveyances, the then grantor) will be
automatically relieved from and after the date of such transfer, assignment
or conveyance of all liability as respects the performance of any covenants
or obligations on the part of Landlord contained in this Lease thereafter to
be performed, so long as the transferee assumes in writing all such covenants
and obligations of Landlord arising after the date of such transfer.
Landlord and Landlord's transferees and assignees have the absolute right to
transfer all or any portion of their respective title and interest in the
Premises, the Building, the Development and/or this Lease without the consent
of Tenant, and such transfer or subsequent transfer will not be deemed a
violation on Landlord's part of any of the terms and conditions of this Lease.
31. WAIVER. The waiver by either party of any breach of any
term, covenant or condition herein contained will not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition herein contained, nor will any custom or practice which may develop
between the parties in the administration of the terms hereof be deemed a
waiver of or in any way affect the right of either party to insist upon
performance in strict accordance with said terms. The subsequent acceptance
of rent or any other payment hereunder by Landlord will not be deemed to be a
waiver of any preceding breach by Tenant of any term, covenant or condition
of this Lease, other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent. No acceptance by Landlord of a lesser sum
than the basic rent and additional rent or other sum then due will be deemed
to be other than on account of the earliest installment of such rent or other
amount due, nor will any endorsement or statement on any check or any letter
accompanying any check be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such installment or other amount or pursue any other remedy
provided in this Lease. The consent or approval of Landlord to or of any act
by Tenant requiring Landlord's consent or approval will not be deemed to
waive or render unnecessary Landlord's consent or approval to or of any
subsequent similar acts by Tenant.
32. QUIET ENJOYMENT. Landlord covenants and agrees with
Tenant that upon Tenant paying the rent required under this Lease and paying
all other charges and performing all of the covenants and provisions on
Tenant's part to be observed and performed under this Lease, Tenant may
peaceably and quietly have, hold and enjoy the Premises in accordance with
this Lease.
33. FORCE MAJEURE. If either Landlord or Tenant is delayed,
hindered in or prevented from the performance of any act required under this
Lease by reason of strikes, lock-outs, labor troubles, inability to procure
standard materials, failure of power, restrictive governmental laws,
regulations or orders or governmental action or inaction (including failure,
refusal or delay in issuing permits, approvals and/or authorizations which is
not the result of the action or inaction of the party claiming such delay),
riots, civil unrest or insurrection, war, fire, earthquake, flood or other
natural disaster, unusual and unforeseeable delay which results from an
interruption of any public utilities (E.G., electricity, gas, water,
telephone) or other unusual and unforeseeable delay not within the reasonable
control of the party delayed in performing work or doing acts required under
the provisions of this Lease, then performance of such act will be excused
for the period of the delay and the period for the performance of any such
act will be extended for a period equivalent to the period of such delay.
The provisions of this Paragraph 33 will not operate to excuse Tenant from
prompt payment of rent or any other payments required under the provisions of
this Lease or delay the Commencement Date.
34. SIGNS. Landlord agrees that Tenant shall have the right
to install and maintain Tenant's identification sign(s) on the Building and
Premises in accordance with this Paragraph 34 at Tenant's sole cost and
expense. The size, design, color and other physical aspects of any and all
permitted sign(s) will be subject to (i) Landlord's written approval prior to
installation, which approval shall not be unreasonably withheld or delayed by
Landlord, (ii) any covenants, conditions or restrictions governing the
Premises, including the CC&R's, and (iii) any applicable municipal or
governmental permits and approvals. Tenant will be solely responsible for
all costs for installation, maintenance, repair and removal of any Tenant
identification sign(s).
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If Tenant fails to remove Tenant's sign(s) upon termination of this Lease and
repair any damage caused by such removal, Landlord may do so at Tenant's sole
cost and expense. Tenant agrees to reimburse Landlord for all costs incurred
by Landlord to effect any installation, maintenance or removal on Tenant's
account, which amount will be deemed additional rent, and may include,
without limitation, all sums disbursed, incurred or deposited by Landlord
including Landlord's costs, expenses and actual attorneys' fees with interest
thereon at the Interest Rate from the date of Landlord's demand until paid by
Tenant. Any sign rights granted to Tenant under this Lease are personal to
Tenant and may not be assigned, transferred or otherwise conveyed to any
assignee or subtenant of Tenant without Landlord's prior written consent,
which consent Landlord may withhold in its sole and absolute discretion.
35. LIMITATION ON LIABILITY. In consideration of the
benefits accruing hereunder, Tenant on behalf of itself and all successors
and assigns of Tenant covenants and agrees that, in the event of any actual
or alleged failure, breach or default hereunder by Landlord: (a) Tenant's
recourse against Landlord for monetary damages will be limited to Landlord's
interest in the Premises including, subject to the prior rights of any
Mortgagee, (b) except as may be necessary to secure jurisdiction of the
partnership, no partner, officer, director, member, shareholder or manager of
Landlord shall be sued or named as a party in any suit or action and no
service of process shall be made against any partner, officer, director,
member, shareholder or manager of Landlord; (c) no partner, officer,
director, member, shareholder or manager of Landlord shall be required to
answer or otherwise plead to any service of process; (d) no judgment will be
taken against any partner, officer, director, member, shareholder or manager
of Landlord and any judgment taken against any partner, officer, director,
member, shareholder or manager of Landlord may be vacated and set aside at
any time after the fact; (e) no writ of execution will be levied against the
assets of any partner, officer, director, member, shareholder or manager of
Landlord; (f) the obligations under this Lease do not constitute personal
obligations of the individual partners, directors, officers or shareholders
of Landlord, and Tenant shall not seek recourse against the individual
partners, directors, officers or shareholders of Landlord or any of their
personal assets for satisfaction of any liability in respect to this Lease;
and (g) these covenants and agreements are enforceable both by Landlord and
also by any partner, officer, director, member, shareholder or manager of
Landlord.
36. MISCELLANEOUS.
(a) CONFLICT OF LAWS. This Lease shall be governed by
and construed solely pursuant to the laws of the State of California, without
giving effect to choice of law principles thereunder.
(b) SUCCESSORS AND ASSIGNS. Except as otherwise
provided in this Lease, all of the covenants, conditions and provisions of
this Lease shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, personal representatives,
successors and assigns.
(c) PROFESSIONAL FEES AND COSTS. If either Landlord or
Tenant should bring suit against the other with respect to this Lease, then
all costs and expenses, including without limitation, actual professional
fees and costs such as appraisers', accountants' and attorneys' fees and
costs, incurred by the party which prevails in such action, whether by final
judgment or out of court settlement, shall be paid by the other party, which
obligation on the part of the other party shall be deemed to have accrued on
the date of the commencement of such action and shall be enforceable whether
or not the action is prosecuted to judgment. As used herein, attorneys' fees
and costs shall include, without limitation, attorneys' fees, costs and
expenses incurred in connection with any (i) post-judgment motions; (ii)
contempt proceedings; (iii) garnishment, levy, and debtor and third party
examination; (iv) discovery; and (v) bankruptcy litigation.
(d) TERMS AND HEADINGS. The words "Landlord" and
"Tenant" as used herein shall include the plural as well as the singular.
Words used in any gender include other genders. The paragraph headings of
this Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
(e) TIME. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is
a factor.
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(f) PRIOR AGREEMENT; AMENDMENTS. This Lease constitutes
and is intended by the parties to be a final, complete and exclusive
statement of their entire agreement with respect to the subject matter of
this Lease. This Lease supersedes any and all prior and contemporaneous
agreements and understandings of any kind relating to the subject matter of
this Lease. There are no other agreements, understandings, representations,
warranties, or statements, either oral or in written form, concerning the
subject matter of this Lease. No alteration, modification, amendment or
interpretation of this Lease shall be binding on the parties unless contained
in a writing which is signed by both parties.
(g) SEPARABILITY. The provisions of this Lease shall be
considered separable such that if any provision or part of this Lease is ever
held to be invalid, void or illegal under any law or ruling, all remaining
provisions of this Lease shall remain in full force and effect to the maximum
extent permitted by law.
(h) RECORDING. Neither Landlord nor Tenant shall record
this Lease; provided, however, either party may, at its own expense, record a
short form memorandum of this Lease in a form reasonably approved by the
other party. Such memorandum shall not be recorded unless and until the
Commencement Date occurs.
(i) 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.
(j) NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges
and agrees that the financial 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 partners, officers, directors, employees, agents and
attorneys, shall not intentionally and voluntarily disclose the financial
terms and conditions of this Lease to any newspaper or other publication or
any other tenant or apparent prospective tenant of the Building or other
portion of the Development, or real estate agent, either directly or
indirectly, without the prior written consent of Landlord, provided, however,
that Tenant may disclose the terms to prospective subtenants or assignees
under this Lease and as may be required in reports filed with the Securities
and Exchange Commission.
(k) NON-DISCRIMINATION. Tenant acknowledges and agrees
that there shall be no discrimination against, or segregation of, any person,
group of persons, or entity on the basis of race, color, creed, religion,
age, sex, marital status, national origin, or ancestry in the leasing,
subleasing, transferring, assignment, occupancy, tenure, use, or enjoyment of
the Premises, or any portion thereof.
37. EXECUTION OF LEASE.
(a) JOINT AND SEVERAL OBLIGATIONS. If more than one
person executes this Lease as Tenant, their execution of this Lease will
constitute their covenant and agreement that (i) each of them is jointly and
severally liable for the keeping, observing and performing of all of the
terms, covenants, conditions, provisions and agreements of this Lease to be
kept, observed and performed by Tenant, and (ii) the term "Tenant" as used in
this Lease means and includes each of them jointly and severally. The act of
or notice from, or notice or refund to, or the signature of any one or more
of them, with respect to the tenancy of this Lease, including, but not
limited to, any renewal, extension, expiration, termination or modification
of this Lease, will be binding upon each and all of the persons executing
this Lease as Tenant with the same force and effect as if each and all of
them had so acted or so given or received such notice or refund or so signed.
(b) TENANT AS CORPORATION OR PARTNERSHIP. If Tenant
executes this Lease as a corporation or partnership, then Tenant and the
persons executing this Lease on behalf of Tenant represent and warrant that
such entity is duly qualified and in good standing to do business in
California and that the individuals executing this Lease on Tenant's behalf
are duly authorized to execute and deliver this Lease on its behalf, and in
the case of a corporation, in accordance
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with a duly adopted resolution of the board of directors of Tenant, a copy of
which is to be delivered to Landlord on execution hereof, if requested by
Landlord, and in accordance with the by-laws of Tenant, and, in the case of a
partnership, in accordance with the partnership agreement and the most
current amendments thereto, if any, copies of which are to be delivered to
Landlord on execution hereof, if requested by Landlord, and that this Lease
is binding upon Tenant in accordance with its terms.
(c) EXAMINATION OF LEASE. Submission of this instrument
by Landlord to Tenant for examination or signature by Tenant does not
constitute a reservation of or option for lease, and it is not effective as a
lease or otherwise until execution by and delivery to both Landlord and
Tenant.
IN WITNESS WHEREOF, the parties have caused this Lease to be
duly executed by their duly authorized representatives as of the date first
above written.
TENANT: LANDLORD:
SBS TECHNOLOGIES, INC., a New Mexico CARLSBAD BUSINESS PARK, LLC, a
corporation California limited liability company
By: THE KOLL COMPANY, a California
corporation, its Managing Member
By: /s/ James E. Dixon
------------------------------
Print Name: James E. Dixon By: /s/ Charlie Abdi
--------------------------
------------------------------ Name: Charlie Abdi
--------------------------
Title: V.P. Finance and Administration Title: Senior Vice President
------------------------------- -----------------------
By:
------------------------------
Print Name:
----------------------
Title:
---------------------------
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EXHIBIT "A-I"
LEGAL DESCRIPTION
Order No. 1175808-20
THE LAND REFERRED TO HEREIN IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF
SAN DIEGO, AND IS DESCRIBED AS FOLLOWS:
PARCEL 2 OF PARCEL MAP NO. 17971, IN THE CITY OF CARLSBAD, COUNTY OF SAN
DIEGO, STATE OF CALIFORNIA, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN
DIEGO COUNTY, DECEMBER 24, 1997 AS FILE NO. 1997-0656621 OF OFFICIAL RECORDS.
EXHIBIT "A-I"
<PAGE>
EXHIBIT "A-II"
SITE DEVELOPMENT PLAN
Map
EXHIBIT "A-II"
<PAGE>
EXHIBIT "B"
WORK LETTER AGREEMENT TO
STANDARD INDUSTRIAL LEASE
SINGLE TENANT-TRIPLE NET
BETWEEN
CARLSBAD BUSINESS PARK, LLC
AND
SBS TECHNOLOGIES, INC.
This Work Letter Agreement ("Work Letter") shall set forth the
terms and conditions relating to the construction of the Landlord's Work and
Tenant Improvements in the Premises. All references in this Work Letter to
Paragraphs of "the Lease" shall mean the relevant portions of the
above-described Lease to which this Work Letter is attached as EXHIBIT B and
of which this Work Letter forms a part. This Work Letter is incorporated by
reference into the Lease. All references in this Work Letter to Sections of
"this Work Letter" shall mean the relevant portions of the Sections of this
Work Letter. Unless otherwise defined herein, defined terms shall have the
same meaning as in the Lease.
SECTION 1
LANDLORD'S CONSTRUCTION OF LESSOR'S WORK
1.1 LANDLORD'S WORK. Landlord will complete the
construction, at its sole cost and expense, of the base and shell of the
Building (collectively, "Landlord's Work") in substantial accordance with the
plans and specifications described in "SCHEDULE 1" attached hereto (the
"Landlord's Work Plans"). Tenant hereby approves of the Landlord's Work
Plans. Landlord's Work shall specifically exclude the Tenant Improvements
described below, which Tenant Improvements shall be constructed by Tenant's
Contractor, which Contractor shall be selected pursuant to Section 4.1 below.
Notwithstanding the foregoing, the Landlord's Work shall also include the
construction of two windows on the west side of the first floor of the
Building with the exact size, location and specifications thereof to be
reasonably approved by Landlord and Tenant and reflected in a modification to
the Landlord Work Plans. Landlord hereby represents and warrants that
Landlord's Work shall be constructed (i) substantially in accordance with the
Landlord's Work Plans, (ii) in a good workmanlike manner using all new
materials, and (iii) in conformance with all applicable codes and other
state, federal, city or quasi-governmental laws, codes, ordinances and
regulations in effect as of the date Landlord obtains a building permit with
respect to the Landlord's Work.
SECTION 2
TENANT IMPROVEMENTS
2.1 TENANT IMPROVEMENT ALLOWANCE. Tenant shall be
entitled to a one-time tenant improvement allowance in the amount of One
Million One Hundred Twenty Seven Thousand Four Hundred Dollars
($1,127,400.00) (the "Tenant Improvement Allowance"), for the costs relating
to the Tenant Improvement Allowance Items more particularly described in
Section 2.2 below as they relate to construction of Tenant's improvements
(the "Tenant Improvements"). The Tenant Improvements will be constructed in
accordance with a Tenant Improvement plan created by Tenant and reasonably
approved by Landlord ("Tenant Improvement Plan"). In no event shall Landlord
be obligated to make disbursements pursuant to this Work Letter in a total
amount which exceeds the Tenant Improvement Allowance. All Tenant
Improvements for which the Tenant Improvement Allowance has been made
available shall be deemed Landlord's property under the terms of the Lease.
EXHIBIT "B"
1
<PAGE>
2.2 DISBURSEMENT OF THE TENANT IMPROVEMENT ALLOWANCE.
The Tenant Improvement Allowance shall be disbursed by Landlord only for the
following items and costs (collectively, the "Tenant Improvement Allowance
Items"):
2.2.1 Payment of the reasonable fees of the Architect
and the Engineers (as such term is defined in Section 3.1 of this Work
Letter), incurred in connection with the Tenant Improvements, and payment of
the fees incurred by, and the cost of documents and materials supplied by,
Landlord and Landlord's consultants in connection with the preparation and
review of the "Construction Drawings" as that term is defined below;
2.2.2 The payment of plan check, permit and license
fees relating to construction of the Tenant Improvements;
2.2.3 The cost of construction of the Tenant
Improvements but only to the extent such Tenant Improvements will be
permanently affixed to the Premises;
2.2.4 The cost of any changes in Landlord's Work
Plans when such changes are requested by Tenant or required by the
Construction Drawings, Final Working Drawings, Approved Working Drawings, or
Tenant Improvements (including if such changes are due to the fact that such
work is prepared on an unoccupied basis), such costs to include all direct
architectural and/or engineering fees and expenses incurred in connection
therewith;
2.2.5 The cost of any changes to the Construction
Drawings, Final Working Drawings, Approved Working Drawings, or Tenant
Improvements required by any applicable laws, codes, regulations, ordinances,
or building codes ("Code");
2.2.6 All other costs expended by Landlord in
connection with the construction of the Tenant Improvements to the extent
approved or deemed approved by Tenant or otherwise required or permitted by
this Work Letter;
2.2.7 Any costs described in subsections 2.2.1
through 2.2.6 above contained in a Change Order requested by Tenant and
approved by Landlord pursuant to Section 5.3 below.
2.3 TENANT IMPROVEMENT ALLOWANCE PAYMENTS. The Tenant
Improvement Allowance disbursements shall be made in accordance with typical
construction draw and payment procedures reasonably acceptable to Landlord
and its Lender(s) (including, without limitation, the requirement that prior
to any such payment, Landlord has sufficient lien releases for the Tenant
Improvement work).
SECTION 3
CONSTRUCTION DRAWINGS
3.1 SELECTION OF ARCHITECT/CONSTRUCTION DRAWINGS.
Tenant shall retain a licensed architect reasonably acceptable to Landlord
("Architect"), pursuant to a separate contract entered into by and between
Tenant and the Architect, to prepare the "Construction Drawings" as that term
is defined in this Section 3.1. Tenant shall retain the engineering
consultants reasonably approved by Landlord (the "Engineers") to prepare all
plans and engineering working drawings relating to the structural,
mechanical, electrical, plumbing, HVAC, life safety, and sprinkler work of
the Tenant Improvements. The plans and drawings to be prepared by the
Architect and the Engineers hereunder for the Tenant Improvements, shall be
known collectively as the "Construction Drawings." All Construction Drawings
shall comply with the drawing format and specifications as reasonably
determined by Landlord, and shall be subject to Landlord's approval, which
shall not be unreasonably withheld or delayed. Tenant and the Architect shall
verify, in the field, the dimensions and conditions as shown on the relevant
portions of the Landlord's Work Plans, and Tenant and the Architect shall be
solely responsible for the same, and Landlord shall have no responsibility in
connection therewith. Landlord's review of the Construction Drawings as set
forth in this Section 3, shall be for its sole purpose and shall not imply
Landlord's review of the same, or obligate Landlord to review the same, for
quality, design, Code compliance or other like matters. Accordingly,
notwithstanding that any Construction Drawings are reviewed by Landlord or
its space planner, architect (including, without limitation, the Architect),
engineers, and consultants,
EXHIBIT "B"
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<PAGE>
Landlord shall have no liability whatsoever in connection therewith and shall
not be responsible for any omissions or errors contained in the Construction
Drawings.
3.2 FINAL SPACE PLAN. Tenant and the Architect shall
prepare the final space plan for the Tenant Improvements in the Premises
(collectively, the "Final Space Plan") in accordance with the Tenant
Improvement Plan, which Final Space Plan shall include a layout and
designation of all offices, rooms and other partitioning, their intended use,
and equipment to be contained therein, and shall deliver three (3) complete
sets of the Final Space Plan to Landlord for Landlord's approval.
3.3 FINAL WORKING DRAWINGS. Tenant, the Architect and
the Engineers shall complete the architectural and engineering drawings for
the Premises, and the final architectural working drawings in a form which is
complete, and in accordance with the Tenant Improvement Plan, to allow
subcontractors to bid on the work and to obtain all applicable permits
(collectively, the "Final Working Drawings"), and shall deliver three (3)
complete sets of the same to Landlord for Landlord's approval.
3.4 PERMITS. The Final Working Drawings shall be
approved by Landlord (the "Approved Working Drawings"), which approval shall
not be unreasonably withheld or delayed, prior to the commencement of the
construction of the Tenant Improvements. Upon such Landlord approval, Tenant
shall immediately submit the Approved Working Drawings to the appropriate
municipal authorities for all applicable building permits necessary to allow
"Contractor," as that term is defined in SECTION 4.1 below, to commence and
fully complete the construction of the Tenant Improvements (the "Permits") in
accordance with the Approved Working Drawings and Tenant Improvement Plan
(provided, however, that the "Permits" which Tenant shall be obligated to
obtain pursuant to the terms of this Work Letter shall not include any
permits required for construction of the Landlord's Work). In connection
therewith, Tenant shall coordinate with Landlord in order to allow Landlord,
at its option, to take part in all phases of the permitting process and shall
supply Landlord, as soon as possible, with all plan check numbers and dates
of submittal. Tenant shall obtain the Permits as soon as reasonably
possible. Notwithstanding anything to the contrary set forth in this Section
3.4, Tenant hereby agrees that neither Landlord nor Landlord's consultants
shall be responsible for obtaining any building permit or certificate of
occupancy for the Premises and that the obtaining of the same shall be
Tenant's responsibility (provided, however, that the "Permits", which Tenant
shall be obligated to obtain pursuant to the terms of this Work Letter, shall
not include any permits required for construction of the Landlord's Work).
Landlord shall, in any event, cooperate with Tenant in executing permit
applications and performing other ministerial acts reasonably necessary to
enable Tenant to obtain any such permit or certificate of occupancy.
SECTION 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1 TENANT'S SELECTION OF CONTRACTORS.
4.1.1 THE CONTRACTOR. A general contractor
shall be retained by Tenant to construct the Tenant Improvements. Such
general contractor ("Contractor") shall be selected by Tenant from a list of
general contractors supplied by Landlord, and Tenant shall deliver to
Landlord notice of its selection of the Contractor upon such selection.
4.1.2 TENANT'S AGENTS. All subcontractors,
laborers, materialmen, and suppliers used by Tenant (such subcontractors,
laborers, materialmen, and suppliers, and the Contractor to be known
collectively as "Tenant's Agents") must be approved in writing by Landlord,
which approval shall not be unreasonably withheld or delayed. If Landlord
does not approve any of Tenant's proposed subcontractors, laborers,
materialmen or suppliers, Tenant shall submit other proposed subcontractors,
laborers, materialmen or suppliers for Landlord's written approval.
4.2 CONSTRUCTION OF TENANT IMPROVEMENTS BY TENANT'S
AGENTS.
4.2.1 CONSTRUCTION CONTRACT; COST BUDGET. Prior
to Tenant's execution of the
EXHIBIT "B"
3
<PAGE>
construction contract and general conditions with Contractor (the
"Contract"), Tenant shall submit the Contract to Landlord for its approval,
which approval shall not be unreasonably withheld or delayed. Prior to the
commencement of the construction of the Tenant Improvements, and after Tenant
has accepted all bids for the Tenant Improvements, Tenant shall provide
Landlord with a detailed breakdown, by trade, of the final costs to be
incurred or which have been incurred in connection with the design and
construction of the Tenant Improvements to be performed by or at the
direction of Tenant or the Contractor, which costs form a basis for the
amount of the Contract (the "Final Costs"). Prior to the commencement of
construction of the Tenant Improvements, Tenant shall supply Landlord with
cash in an amount (the "Over-Allowance Amount") equal to the difference
between the amount of the Final Costs and the amount of the Tenant
Improvement Allowance (less any portion thereof already disbursed by
Landlord, or in the process of being disbursed by Landlord, on or before the
commencement of construction of the Tenant Improvements). The Over-Allowance
Amount shall be disbursed by Landlord prior to the disbursement of any of the
then remaining portion of the Tenant Improvement Allowance, and such
disbursement shall be pursuant to the same procedure as the Tenant
Improvement Allowance. In the event that, after the Final Costs have been
delivered by Tenant to Landlord, the costs relating to the design and
construction of the Tenant Improvements shall change, any additional costs
necessary to such design and construction in excess of the Final Costs, shall
be paid by Tenant to Landlord immediately as an addition to the
Over-Allowance Amount or at Landlord's option, Tenant shall make payments for
such additional costs out of its own funds, but Tenant shall continue to
provide Landlord with the documents required pursuant to Section 2.4 of this
Tenant Work Letter, above, for Landlord's approval, prior to Tenant paying
such costs.
4.2.2 TENANT'S AGENTS.
4.2.2.1 LANDLORD'S GENERAL CONDITIONS FOR TENANT'S AGENTS
AND TENANT IMPROVEMENT WORK. Tenant's and Tenant's Agents construction of
the Tenant Improvements shall comply with the following: (i) the Tenant
Improvements shall be constructed in strict accordance with the Approved
Working Drawings; (ii) Tenant's Agents shall submit schedules of all work
relating to the Tenant's Improvements to Contractor and Contractor shall,
within five (5) business days of receipt thereof, inform Tenant's Agents of
any changes which are necessary thereto, and Tenant's Agents shall adhere to
such corrected schedule; and (iii) Tenant shall abide by all reasonable rules
made by Landlord with respect to the storage of materials, coordination of
work with the contractors of other tenants of the Development, and any other
matter in connection with this Work Letter, including, without limitation,
the construction of the Tenant Improvements.
4.2.2.2 INDEMNITY. Tenant's indemnity of Landlord as set
forth in Subparagraph 18(b) of this Lease shall also apply with respect to
any and all costs, losses, damages, injuries and liabilities related in any
way to any act or omission of Tenant or Tenant's Agents, or anyone directly
or indirectly employed by any of them, or in connection with Tenant's
non-payment of any amount arising out of the Tenant Improvements and/or
Tenant's disapproval of all or any portion of any request for payment.
4.2.2.3 REQUIREMENTS OF TENANT'S AGENTS. Each of Tenant's
Agents shall guarantee to Tenant and for the benefit of Landlord that the
portion of the Tenant Improvements for which it is responsible shall be free
from any defects in workmanship and materials for a period of not less than
one (1) year from the date of completion thereof. Each of Tenant's Agents
shall be responsible for the replacement or repair, without additional
charge, of all work done or furnished in accordance with its contract that
shall become defective within one (1) year after the later to occur of (i)
completion of the work performed by such contractor or subcontractors and
(ii) the Lease Commencement Date. The correction of such work shall include,
without additional charge, all additional expenses and damages incurred in
connection with such removal or replacement of all or any part of the Tenant
Improvements, and/or the Building and/or common areas that may be damaged or
disturbed thereby. All such warranties or guarantees as to materials or
workmanship of or with respect to the Tenant Improvements shall be contained
in the Contract or subcontract and shall be written such that guarantees or
warranties shall inure to the benefit of both Landlord and Tenant, as their
respective interests may appear, and can be directly enforced by either.
Tenant covenants to give to Landlord any assignment or other assurances which
may be necessary to effect such right of direct enforcement.
EXHIBIT "B"
4
<PAGE>
4.2.2.4 INSURANCE REQUIREMENTS.
4.2.2.4.1 GENERAL COVERAGES. All of Tenant's Agents
shall carry worker's compensation insurance covering all of their respective
employees, and shall also carry public liability insurance, including
property damage, all with limits, in form and with companies as are required
to be carried by Tenant as set forth in Paragraph 19 of this Lease.
4.2.2.4.2 SPECIAL COVERAGES. Tenant shall carry
"Builder's All Risk" insurance in an amount approved by Landlord covering the
construction of the Tenant Improvements, and such other insurance as Landlord
may reasonably require. Such insurance shall be in amounts and shall include
such extended coverage endorsements as may be reasonably required by Landlord
including, but not limited to, the requirement that all of Tenant's Agents
shall carry Excess Liability and Products and Completed Operation Coverage
insurance, each in amounts not less than $500,000 per incident, $1,000,000 in
aggregate, and in form and with companies as are required to be carried by
Paragraph 19 of this Lease.
4.2.2.4.3 GENERAL TERMS. Certificates for all insurance
carried pursuant to this Section 4.2.2.4 shall be delivered to Landlord
before the commencement of construction of the Tenant Improvements and before
the Contractor's equipment is moved onto the site. All such policies of
insurance must contain a provision that the company writing said policy will
give Landlord thirty (30) days prior written notice of any cancellation or
lapse of the effective date or any reduction in the amounts of such
insurance. In the event that the Tenant Improvements are damaged by any
cause during the course of the construction thereof, Tenant shall immediately
repair the same at Tenant's sole cost and expense. Tenant's Agents shall
maintain all of the foregoing insurance coverage in force until the Tenant
Improvements are fully completed and accepted by Landlord, except for any
Products and Completed Operation Coverage insurance required by Landlord,
which is to be maintained for ten (10) years following completion of the work
and acceptance by Landlord and Tenant. All policies carried under this
Section 4.2.2.4 shall insure Landlord and Tenant, as their interests may
appear, as well as Contractor and Tenant's Agents. All insurance, except
Workers' Compensation, maintained by Tenant's Agents shall preclude
subrogation claims by the insurer against anyone insured thereunder. Such
insurance shall provide that it is primary insurance as respects the owner
and that any other insurance maintained by owner is excess and
noncontributing with the insurance required hereunder.
4.2.3 GOVERNMENTAL COMPLIANCE. The Tenant
Improvements shall comply in all respects with the following: (i) all
applicable codes and other state, federal, city or quasi-governmental laws,
codes, ordinances and regulations, as each may apply according to the rulings
of the controlling public official, agent or other person; (ii) applicable
standards of the American Insurance Association (formerly, the National Board
of Fire Underwriters) and the National Electrical Code; and (iii) building
material manufacturer's specifications.
4.2.4 INSPECTION BY LANDLORD. Landlord shall
have the right to inspect the Tenant Improvements at all reasonable times,
provided however, that Landlord's failure to inspect the Tenant Improvements
shall in no event constitute a waiver of any of Landlord's rights hereunder
nor shall Landlord's inspection of the Tenant Improvements constitute
Landlord's approval of the same. Should Landlord reasonably disapprove any
portion of the Tenant Improvements, Landlord shall notify Tenant in writing
of such disapproval and shall specify the items disapproved. Any defects or
deviations in, and/or disapproval by Landlord of, the Tenant Improvements
shall be rectified by Tenant at no expense to Landlord.
4.2.5 MEETINGS. Commencing upon the execution
of this Lease, Tenant shall hold weekly meetings at a reasonable time, with
the Architect and the Contractor regarding the progress of the preparation of
Construction Drawings and the construction of the Tenant Improvements, which
meetings shall be held at a location reasonably acceptable to Landlord and
Tenant, and Landlord and/or its agents shall receive prior notice of, and
shall have the right to attend, all such meetings, and, upon Landlord's
request, certain of Tenant's Agents shall attend such meetings. In addition,
minutes shall be taken at all such meetings, a copy of which minutes shall be
promptly delivered to Landlord. One such meeting each month shall include the
review of Contractor's current request for payment.
EXHIBIT "B"
5
<PAGE>
4.3 NOTICE OF COMPLETION; COPY OF RECORD SET OF PLANS.
Within ten (10) days after completion of construction of the Tenant
Improvements, Tenant shall cause a Notice of Completion to be recorded in the
office of the Recorder of the appropriate County in accordance with Section
3093 of the Civil Code of the State of California or any successor statute,
and shall furnish a copy thereof to Landlord upon such recordation. If
Tenant fails to do so, Landlord may execute and file the same on behalf of
Tenant as Tenant's agent for such purpose, at Tenant's sole cost and expense.
At the conclusion of construction, (i) Tenant shall cause the Architect and
Contractor (A) to update the Approved Working Drawings as necessary to
reflect all changes made to the Approved Working Drawings during the course
of construction, (B) to certify to the best of their knowledge that the
"record-set" of as-built drawings are true and correct, which certification
shall survive the expiration or termination of this Lease, and (C) to deliver
to Landlord two (2) sets of copies of such record set of drawings within
ninety (90) days following issuance of a certificate of occupancy for the
Premises, and (ii) Tenant shall deliver to Landlord a copy of all warranties,
guaranties, and operating manuals and information relating to the
improvements, equipment, and systems in the Premises.
SECTION 5
COMPLETION OF THE TENANT IMPROVEMENTS;
LEASE COMMENCEMENT DATE
5.1 COMMENCEMENT DATE. Except as provided below, the
Commencement Date shall be the earlier to occur of (i) the date upon which
Tenant first commences to conduct business in the Premises, or (ii) ninety
(90) days following the Access Date (as defined below); provided, however, in
no event shall the Access Date occur before November 15, 1998. Landlord
shall provide at least thirty (30) days advance written notice to Tenant
advising Tenant of the date on which Landlord reasonably expects that the
portion of Landlord's Work necessary for Tenant to fully commence
construction of the Tenant Improvements will be substantially complete (the
"Access Date"). Provided that Tenant and Tenant's Agents do not interfere
with Landlord's completion of the Landlord's Work, Landlord shall allow
Tenant access to the Building on the Access Date (and prior thereto for
purposes of allowing Tenant to inspect Landlord's Work) to commence
construction of the Tenant Improvements. Landlord shall thereafter use its
commercially reasonable efforts to substantially complete the Landlord's Work
as soon as reasonably possible and reasonably cooperate with Tenant to allow
the Tenant Improvements to be completed as soon as possible. Notwithstanding
the foregoing, the Access Date shall not be deemed to have occurred until
(i) the Building is "weather tight" with the roof structure on and
substantially complete; (ii) the sprinkler system is installed and available
to accommodate the Tenant Improvements; (iii) all interior floors are clear
of materials and debris; (iv) all Building inspection requirements with
respect to the Landlord's Work are complete to the extent necessary to allow
Tenant's Contractor to immediately commence construction of the Tenant
Improvements without material interruption, and (v) Tenant's Contractor has
adequate access, electrical power, parking and storage space to immediately
commence construction of the Tenant Improvements.
5.2 COMMENCEMENT DATE DELAYS. The Commencement Date
shall occur as provided in Section 5.1 above, provided that the Commencement
Date shall be delayed by the number of days of delay of the "substantial
completion of the Tenant Improvements," as that term is defined below in this
Section 5, in the Premises which is caused solely by a "Commencement Date
Delay." As used herein, the term "Commencement Date Delay" shall mean only
an actual delay resulting from fire, earthquake, explosion, flood, hurricane,
the elements, acts of God or the public enemy, war, invasion, insurrection,
rebellion, riots, industry-wide labor strikes or lockouts (which objectively
preclude Tenant from obtaining any source union labor or substitute materials
necessary for completing the Tenant Improvements), or governmental acts
(which do not specifically relate to the construction of the Tenant
Improvements and which objectively preclude construction of tenant
improvements in the Building by any person).
5.3 DETERMINATION OF COMMENCEMENT DATE DELAY. If Tenant
contends that a Commencement Date Delay has occurred, Tenant shall notify
Landlord in writing within ten (10) days of each of (i) the date upon which
such
EXHIBIT "B"
6
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Commencement Date Delay becomes known or should have become known to Tenant
or Tenant's Agents, and (ii) the date upon which such Commencement Date Delay
ends. Tenant's failure to deliver either or both of such notices to Landlord
within the required time period shall be deemed to be a waiver by Tenant of
the contended Commencement Date Delay to which such notices would have
related. Promptly following receipt by Landlord of the notice described in
item (ii), above, Landlord shall notify Tenant of Landlord's reasonable
determination, which determination shall be conclusive and binding on Tenant
(unless it is determined that Landlord acted unreasonably), of (A) the
aggregate period of the Commencement Date Delay, and (B) the revised
Commencement Date.
5.4 DEFINITION OF SUBSTANTIAL COMPLETION OF THE TENANT
IMPROVEMENTS. For purposes of this Section 5, "substantial completion of the
Tenant Improvements" shall mean completion of construction of the Tenant
Improvements in the Premises pursuant to the "Approved Working Drawings,"
with the exception of any punch list items, any furniture, fixtures,
work-stations, built-in furniture or equipment (even if the same requires
installation or electrification by Tenant's Agents), and any tenant
improvement finish items and materials which are selected by Tenant but which
are not available within a reasonable time (given the date of the
Commencement Date).
5.5 DELAY OF THE SUBSTANTIAL COMPLETION OF LANDLORD'S
WORK. If there shall be a delay, or there are delays, in the substantial
completion of the Landlord's Work, or in the occurrence of any of the other
conditions precedent to the Commencement Date, as a result of any of the
following (any and/or all of the following "Tenant De lay
Occurrence(s)"):
5.5.1 Tenant's failure to timely approve or
disapprove any matter requiring Tenant's approval;
5.5.2 A default by Tenant of the terms of this Work
Letter or the Lease;
5.5.3 Change Orders requested or required by Tenant
(even though such Change Orders were consented to by Landlord) to Landlord's
Work Plans;
5.5.4 Any other acts of Tenant, or Tenant's Agents,
which were not previously approved by Landlord or expressly permitted under
the Lease or Work Letter; or
5.5.5 Any acts or omissions by Tenant's Agents, that
materially adversely interfere with Landlord's ability to perform as required
under the Lease (including the Work Letter); then, notwithstanding anything
to the contrary set forth in this Lease or this Work Letter and regardless of
the actual date of the substantial completion of the Landlord's Work, the
Access Date shall be deemed to be the date the Access Date would have
occurred if no Tenant Delay Occurrence, as set forth above, had
occurred.
5.6 CHANGE ORDERS. No changes, modifications or alterations
in the Landlord's Work Plans, the Tenant Improvements, the Construction
Drawings, the Final Working Drawings, or Approved Working Drawings may be
made or required by Tenant without the prior written consent of Landlord (not
to be unreasonably withheld or delayed). Any such Change Order shall, at a
minimum, contain the amount of the Tenant Improvement Allowance, if any,
which will be expended as a result of such change, modification or
alteration. Also, such Change Order shall contain the number of days of
delay arising from such change, modification or alteration, and more
particularly, the number of days of delay arising from a Tenant Delay
Occurrence (if any). The number of days of delay arising from such change,
modification or alteration (and any Tenant Delay Occurrence) shall be
reasonably determined and agreed upon by the Contractor and Architect. If
the Contractor and Architect cannot reasonably agree upon the number of days
of delay arising from such change, modification or alteration (or the number
of days of such delay arising from a Tenant Delay Occurrence), the average of
the Contractor's and A rchitect's determinations shall be used.
SECTION 6
MISCELLANEOUS
6.1 TENANT'S REPRESENTATIVE. Tenant has designated The
Harrison Company as its initial sole representative with respect to the
matters set forth in this Work Letter, who, until further written notice to
Landlord, shall have sole authority and responsibility to act on behalf of
Tenant as
EXHIBIT "B"
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required in this Work Letter, including coordinating all inspections with
Landlord's contractor and the right to inspect Landlord's Work from time to
time so long as such representative does not interfere with the timely
completion of Landlord's Work.
6.2 LANDLORD'S REPRESENTATIVE. Landlord has designated
Anthony C. Badeaux as its sole representative with respect to the matters set
forth in this Work Letter, who, until further written notice to Tenant, shall
have sole authority and responsibility to act on behalf of Landlord as
required in this Work Letter.
6.3 TIME OF THE ESSENCE IN THIS WORK LETTER. Unless
otherwise indicated, all references herein to a "number of days" shall mean
and refer to calendar days. In all instances where Tenant is required to
approve or deliver an item, if no written notice of approval is given or the
item is not delivered within the stated time period, at Landlord's sole
option, at the end of such period, the item shall automatically be deemed
approved or delivered by Tenant and the next succeeding time period shall
commence.
6.4 TENANT'S LEASE DEFAULT. Notwithstanding any provision to
the contrary contained in the Lease, if an event of a default by Tenant as
described in the Lease, or a default by Tenant under this Work Letter, has
occurred at any time on or before the Substantial Completion, then (i) in
addition to all other rights and remedies granted to Landlord pursuant to the
Lease, Landlord shall have the right to withhold payment of all or any
portion of the Tenant Improvement Allowance and/or Landlord may cause the
Contractor to cease construction (in which case, Tenant shall be responsible
for any delay in the Substantial Completion caused by such work stoppage as
set forth in SECTION 5 of this Work Letter), and (ii) all other obligations
of Landlord under the terms of this Work Letter shall be forgiven until such
time as such default is cured pursuant to the terms of the Lease.
6.5 FACSIMILE AND COUNTERPARTS. This Work Letter shall be
effective even if signed and transmitted by facsimile and/or in counterparts.
TENANT: LANDLORD:
SBS TECHNOLOGIES, INC., a New Mexico CARLSBAD BUSINESS PARK, LLC, a
corporation California limited liability company
By: THE KOLL COMPANY, a California
By: /s/ James E. Dixon corporation, its Managing Member
----------------------------
Print Name: James E. Dixon By: /s/ Charlie Abdi
---------------------- ------------------------------
Name: Charlie Abdi
-----------------------------
Title: V.P. Finance and Administration Title: Senior Vice President
------------------------------ -----------------------------
By:
----------------------------
Print Name:
---------------------
Title:
--------------------------
EXHIBIT "B"
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SCHEDULE "1"
LANDLORD'S WORK PLANS
SHEET INDEX
TITLE
T1 TITLE SHEET
T2 GENERAL NOTES AND ACCESSIBILITY NOTES
CIVIL
C-1 TITLE SHEET
C-2-6 GRADING PLANS
C-7 EROSION CONTROL NOTES
C-8 EROSION CONTROL PLANS
LANDSCAPE
L-1 TITLE SHEET
L-2 PLANTING PLAN - BUILDING 2
L-3 PLANTING PLAN - BUILDING 2
L-4 PLANTING PLAN - BUILDING 2, PLANTING LEGEND
L-10 PLANTING PLAN
L-11 PLANTING DETAILS AND SPECIFICATIONS
L-12 IRRIGATION PLAN - BUILDING 2
L-13 IRRIGATION PLAN - BUILDING 2
L-14 IRRIGATION PLAN - BUILDING 2, IRRIGATION LEGEND
L-20 IRRIGATION PLAN
L-21 IRRIGATION DETAILS & SPECIFICATIONS
ARCHITECTURAL
A11 SITE PLAN
A12 SITE DETAILS
A13 ENGLARGED PAVING PLANS
A31 FLOOR PLAN BUILDING 2
A32 MEZZANINE PLAN BUILDING 2
A33 ROOF PLAN BUILDING 2
A43 BUILDING 2 - ELEVATIONS
A51 SOFFIT PLANS BUILDING 1 & 2
A61 WALL SECTIONS
A62 WALL SECTIONS
A71 DOOR SCHEDULES AND DETAILS
A81 DETAILS
A82 DETAILS
A83 DETAILS
A84 DETAILS
STRUCTURAL
S11 GENERAL NOTES AND TYPICAL DETAILS
S12 TYPICAL DETAILS
S27 BUILDING 2 - FOUNDATION PLAN
S28 BUILDING 2 - MEZZANINE FOUNDATION PLAN
S34 BUILDING 2 - MEZZANINE FLOOR FRAMING PLAN
S44 BUILDING 2 - ROOF FRAMING PLAN
S56 BUILDING 2 - PANEL ELEVATIONS
S57 BUILDING 2 - PANEL ELEVATIONS
S58 BUILDING 1 & 2 - ENTRY FRAMED ELEVATIONS
S61 FOUNDATION DETAILS
S62 FOUNDATION DETAILS
S71 FRAMING DETAILS
S72 FRAMING DETAILS
S73 FRAMING DETAILS
S74 FRAMING DETAILS
S76 FRAMING DETAILS
S77 FRAMING DETAILS
PLUMBING
P1 PLUMBING SITE PLAN
P2 PLUMBING FIRST FLOOR PLAN - BUILDING 2
ELECTRICAL
E-1 SITE ELECTRICAL PLAN SYMBOLS
E-5 ELECTRICAL FIRST FLOOR PLAN - BUILDING 2
E-6 METER ROOM LAYOUTS & SINGLE LINE DIAGRAM
E-7 FIXTURES SCHEDULES BUILDING 1 & 2
<PAGE>
EXHIBIT "C"
STANDARD INDUSTRIAL LEASE
[SINGLE TENANT - TRIPLE NET]
NOTICE OF LEASE TERM DATES
To: Date:
---------------------- -----------------------------
----------------------
----------------------
Re: Lease dated ________________, 19 (the "Lease"), between
__________________________, Landlord, and _____________________, Tenant,
concerning building located at _________________________________ (the
"Premises").
To Whom It May Concern:
In accordance with the subject Lease, we wish to advise and/or
confirm as follows:
1. That the Landlord's Work to be constructed by Landlord in the
Premises have been accepted by the Tenant as being substantially complete in
accordance with the subject Lease and that there is no deficiency in
construction except as may be indicated on the "Punch-List" prepared by
Landlord and Tenant, a copy of which is attached hereto.
2. That the Tenant has possession of the subject Premises and
acknowledges that under the provisions of the Lease the Commencement Date is
__________________, and the Term of the Lease will expire on _____________.
3. That in accordance with the Lease, rent commenced to accrue on
__________________.
4. If the Commencement Date of the Lease is other than the first
day of the month, the first billing will contain a pro rata adjustment. Each
billing thereafter will be for the full amount of the monthly installment as
provided for in the Lease.
5. Rent is due and payable in advance on the first day of each
and every month during the Term of the Lease. Your rent checks should be
made payable to ____________________at _______________________.
6. The number of Rentable Square Feet within the Premises is
_____ square feet.
TENANT: LANDLORD:
SBS TECHNOLOGIES, INC.., a New Mexico CARLSBAD BUSINESS PARK, LLC, a
corporation California limited liability company
By: THE KOLL COMPANY, a California
By: corporation, its Managing Member
-------------------------
Print Name: By:
-------------------- ------------------------------
Title: Name:
----------------------- ------------------------------
Title:
------------------------------
By:
--------------------------
Print Name:
-------------------
Title:
------------------------
EXHIBIT "C"
1
<PAGE>
EXHIBIT "D"
ESTOPPEL CERTIFICATE
The undersigned, _________________________________________
_________________________________("Landlord"), with a mailing address c/o
________________________________ and ___________________________ ("Tenant"),
hereby certify to __________________________________, as follows:
1. Attached hereto is a true, correct and complete copy of that
certain lease dated _____________, 19 , between Landlord and Tenant (the
"Lease"), regarding the premises located at ___________________________(the
"Premises"). The Lease is now in full force and effect and has not been
amended, modified or supplemented, except as set forth in Paragraph 4 below.
2. The Term of the Lease commenced on______________, 19_____.
3. The Term of the Lease shall expire on_____________, 19_____.
4. The Lease has: (Initial one)
(_________________) not been amended, modified, supplemented,
extended, renewed or assigned.
(_________________) been amended, modified, supplemented,
extended, renewed or assigned by the following described terms or agreements,
copies of which are attached hereto:
____________________________________________________________
____________________________________________________________
5. Tenant has accepted and is now in possession of the Premises.
6. Tenant and Landlord acknowledge that Landlord's interest in
the Lease will be assigned to ___________________________ and that no
modification, adjustment, revision or cancellation of the Lease or amendments
thereto shall be effective unless written consent of ________________________
is obtained, and that until further notice, payments under the Lease may
continue as heretofore.
7. The amount of Monthly Base Rent is $ _________________.
8. The amount of security deposits (if any) is $________________.
No other security deposits have been made except as
follows:_______________________________________________________________________
_______________________________________.
9. Tenant is paying the full lease rental which has been paid in
full as of the date hereof. No rent or other charges under the Lease have been
paid for more than thirty (30) days in advance of its due date except as
follows: ________________________________________________________
_____________________________.
10. All work required to be performed by Landlord under the Lease has
been completed except as follows:_____________________________________________
__________________________.
11. There are no defaults on the part of the Landlord or Tenant under
the Lease except as follows:_____________________________________________
__________________________.
EXHIBIT "D"
1
<PAGE>
12. Neither Landlord nor Tenant has any defense as to its
obligations under the Lease and claims no set-off or counterclaim against the
other party except as follows:_____________________________________________
__________________________.
13. Tenant has no right to any concession (rental or otherwise) or
similar compensation in connection with renting the space it occupies other than
as provided in the Lease except as follows:_____________________________________
__________________________.
14. The Premises contain ______________________________ rentable
square feet.
All provisions of the Lease and the amendments thereto (if any) referred to
above are hereby ratified.
The foregoing certification is made with the knowledge
that_________________ is about to purchase the Building from Landlord and
that ____________________________________________________ is relying upon the
representations herein made in funding such loan or in purchasing the
Building.
IN WITNESS WHEREOF, this certificate has been duly executed and
delivered by the authorized officers of the undersigned as of
_________ , 19_____.
TENANT: LANDLORD:
SBS TECHNOLOGIES, INC.., a New Mexico CARLSBAD BUSINESS PARK, LLC, a
corporation California limited liability company
By: THE KOLL COMPANY, a California
By: corporation, its Managing Member
---------------------------
Print Name: By:
-------------------- ------------------------------
Title: Name:
----------------------- ----------------------------
Title:
---------------------------
By:
----------------------------
Print Name:
--------------------
Title:
-------------------------
EXHIBIT "D"
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND IN
THE COMPANY'S 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 8,421,742
<SECURITIES> 0
<RECEIVABLES> 19,086,941
<ALLOWANCES> (622,170)
<INVENTORY> 15,657,006
<CURRENT-ASSETS> 44,503,504
<PP&E> 7,610,505
<DEPRECIATION> 2,270,305
<TOTAL-ASSETS> 84,407,241
<CURRENT-LIABILITIES> 14,414,385
<BONDS> 0
0
0
<COMMON> 50,031,213
<OTHER-SE> 19,562,206
<TOTAL-LIABILITY-AND-EQUITY> 84,407,241
<SALES> 24,552,873
<TOTAL-REVENUES> 24,552,873
<CGS> 9,647,440
<TOTAL-COSTS> 19,936,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 77,156
<INTEREST-EXPENSE> 7,266
<INCOME-PRETAX> 4,728,993
<INCOME-TAX> 1,816,129
<INCOME-CONTINUING> 4,728,993
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,677,183
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.43
</TABLE>
