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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1996
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission File Number: 0-23490
--------------------------------------------
VIVUS, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-3136179
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification Number)
545 MIDDLEFIELD ROAD, SUITE 200 MENLO PARK, CA 94025
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(Address of Principal Executive Offices) (Zip Code)
(415) 325-5511
- ------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code
N/A
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At October 22, 1996, 16,189,507 shares of common stock were outstanding.
Exhibit index on page 30
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VIVUS, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------- --------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,284 $ 973
Available-for-sale securities 56,638 21,136
Interest and other receivables 1,222 449
Prepaid expenses and other 310 141
--------- --------
Total current assets 68,454 22,699
Property, net 5,270 3,888
Available-for-sale securities, non-current 28,420 17,415
Other -- 47
--------- --------
Total Assets $ 102,144 $ 44,049
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 244 $ 353
Accrued and other liabilities 3,614 2,515
--------- --------
Total current liabilities 3,858 2,868
--------- --------
Stockholders' equity:
Preferred stock; no par value; shares authorized -
5,000,000 at September 30, 1996 and
December 31, 1995; shares outstanding - none
at September 30, 1996 and December 31, 1995 -- --
Common stock; $.001 par value; shares authorized -
30,000,000 at September 30, 1996 and
December 31, 1995; shares outstanding -
September 30, 1996, 16,184,007;
December 31, 1995, 13,475,570 16 13
Paid in capital 155,686 91,472
Unrealized gain (loss) on securities (13) 114
Deferred compensation (459) (791)
Accumulated deficit (56,944) (49,627)
--------- --------
Total stockholders' equity 98,286 41,181
--------- --------
Total Liabilities and Stockholders' Equity $ 102,144 $ 44,049
========= ========
</TABLE>
See accompanying notes to financial statements.
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VIVUS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1991
(INCEPTION) THREE MONTHS ENDED NINE MONTHS ENDED
THROUGH SEPTEMBER 30, SEPTEMBER 30,
SEPTEMBER 30, ----------------------- ------------------------
1996 1996 1995 1996 1995
------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue $ 20,000 $10,000 $ -- $20,000 $ --
Operating expenses:
Research and development 68,492 5,462 4,592 23,007 15,808
General and administrative 15,776 3,118 1,009 6,501 2,935
-------- ------- ------- ------- --------
Total operating expenses 84,268 8,580 5,601 29,508 18,743
-------- ------- ------- ------- --------
Income (loss) from operations (64,268) 1,420 (5,601) (9,508) (18,743)
Interest income 7,324 1,242 728 2,191 2,000
-------- ------- ------- ------- --------
Net income (loss) $(56,944) $ 2,662 $(4,873) $(7,317) $(16,743)
======== ======= ======= ======= ========
Net income (loss) per common and
equivalent share $ 0.15 $ (0.35) $ (0.49) $ (1.26)
======= ======= ======= ========
Shares used in the computation of
net income (loss) per share 17,818 14,015 14,901 13,289
======= ======= ======= ========
</TABLE>
3
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VIVUS, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1991
(INCEPTION) Nine Months Ended
THROUGH SEPTEMBER 30,
SEPTEMBER 30, ------------------------------
1996 1996 1995
-------------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (56,944) $ (7,317) $ (16,743)
Adjustments to reconcile net loss
to net cash useds for operating
activities:
Depreciation and amortization 1,868 719 483
Amortization of deferred compensation 1,317 332 333
Issuance of common stock for patent rights 6,683 5,821 -
Issuance of preferred stock for services 150 - -
Changes in assets and liabilities:
Interest and other receivables (1,222) (773) (233)
Prepaid expenses and other (310) (169) (45)
Accounts payable 244 (109) (280)
Accrued and other liabilities 3,614 1,099 527
------- ------- --------
Net cash used for operating activities (44,600) (397) (15,958)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property purchases (7,136) (2,101) (2,730)
Securities purchases (400,487) (99,350) (70,227)
Proceeds from sale/maturity of securities 315,416 52,716 66,639
Other assets - 47 (17)
------- ------- --------
Net cash used for investing activities (92,207) (48,688) (6,335)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of preferred stock 34,252 - -
Sale of common stock 111,492 57,428 22,377
Exercise of common stock options 1,022 864 61
Purchase of common stock through employee
stock purchase plan 326 104 80
Repurchase of common stock (1) - -
------- ------- --------
Net cash provided by financing activities 147,091 58,396 22,518
------- ------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,284 9,311 225
CASH AND CASH EQUIVALENTS:
Beginning of period - 973 2,037
------- ------- --------
End of period $10,284 $10,284 $2,262
======= ======= ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Deferred compensation recorded relating to
stock option grants $ 1,774 $ - $ -
Unrealized gain (loss) on securities (13) (127) 566
</TABLE>
See accompanying notes to financial statements.
4
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VIVUS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10 of Regulations S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine month
periods ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995.
2. PROVISION FOR INCOME TAXES
The Company expects to incur a loss for the year ended December 31, 1996;
therefore, no provision for income taxes has been recorded for the three months
ended September 30, 1996.
3. NET INCOME (LOSS) PER SHARE
For the three months ended September 30, 1996, net income per common and
equivalent share is based on the weighted average number of common and
equivalent shares outstanding during the period, including outstanding options
and warrants. Such options and warrants are excluded from the net loss per
common and equivalent shares in the other periods presented because they are
antidilutive.
Net loss per common and equivalent share is based on the weighted average
number of common and equivalent shares outstanding during the period. Pursuant
to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
equivalent shares include all common shares issued and options and warrants to
purchase shares of common stock granted by the Company at a price less than the
initial public offering price during the period January 1, 1993 through the
initial public offering date (using the treasury stock method for options and
warrants and based on the public offering price of $14.00 per share) as if they
were outstanding for all periods. Options granted by the Company prior to
January 1, 1993 have been excluded in the calculation of common and common
equivalent shares outstanding since they would serve to reduce the net loss per
share.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
4. DELAWARE REINCORPORATION
The Company was incorporated on April 16, 1991 in California and
reincorporated in Delaware on May 24, 1996. The classification of the capital
accounts reflects the effect of the reincorporation for all periods presented.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DESCRIPTION OF BUSINESS
Since its inception in April 1991, VIVUS, Inc. (the "Company"), a
development stage company, has focused on the design and development of products
for the treatment of erectile dysfunction. The Company has devoted substantially
all its efforts to research and development conducted on its behalf and through
collaboration with clinical institutions. The Company's primary product, MUSE(R)
(alprostadil), has moved from preclinical development to regulatory application
phase over the last three years. In October 1996, the Company received an
approvable letter from the Food and Drug Administration (FDA) for MUSE
(alprostadil). The Company expects to begin marketing the product in the United
States following final FDA marketing clearance, which is subject to standard
final labeling requirements and agreement that the Company's manufacturing
facility, methods and controls comply with FDA requirements. In addition, the
Company submitted applications for approval of MUSE (alprostadil) in the United
Kingdom and Sweden. These applications will be subject to rigorous approval
processes, and there can be no assurance such approval will be granted in a
timely manner, if at all.
The Company has generated a cumulative net loss of $56,944,000 for the
period from its inception through September 30, 1996. The ability of the Company
to successfully manufacture, obtain final FDA marketing clearance, and market
MUSE (alprostadil) is dependent on many factors. The Company is subject to a
number of risks including the regulatory approval of its product, its ability to
scale-up its manufacturing capabilities and secure adequate supply of raw
materials, its ability to successfully market, distribute and sell its product,
and intense competition. Accordingly, there can be no assurance of the Company's
future success.
Spending increased from 1993 through the period ended September 30, 1996
largely as a result of expanded operational activities related to the Company's
Phase II and III clinical trials, preparing the MUSE (alprostadil) New Drug
Application ("NDA") for submission to the FDA and expansion of its manufacturing
capabilities. Spending levels will continue to increase during 1996 as the
Company further develops its commercial manufacturing, marketing and sales
capabilities, and begins commercial production.
In May 1996, the Company issued 200,000 shares of common stock to Alza in
order for the Company to maintain exclusive rights to certain patents and patent
applications beyond 1998. In connection with this issuance, the Company recorded
a charge of approximately $5,800,000 to the consolidated statement of
operations.
To date, the Company has received no revenue from product sales. In May
1996, the Company completed a marketing agreement with Astra AB ("Astra") to
purchase the Company's products for resale in Europe, South America, Central
America, Australia and New
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Zealand. As consideration for execution of the marketing agreement, Astra paid
the Company $10 million in June 1996. In September 1996, the Company received a
$10 million milestone payment from Astra upon filing an application for
marketing authorization for MUSE (alprostadil) in the United Kingdom. The
Company will be paid up to an additional $10 million in the event it achieves
certain milestones. The Company does not anticipate significant revenue from
operations for at least two years. The Company does not have any experience in
manufacturing or selling MUSE (alprostadil) in commercial quantities. Whether
the Company can successfully manage the transition to a large scale commercial
enterprise will depend upon the successful further development of its
manufacturing capability and its distribution network and attainment of domestic
and foreign regulatory approvals for MUSE (alprostadil) and other potential
products. Failure to make such a transition successfully would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company anticipates that it will continue to incur losses over at
least the next twelve months as it expands its operations, prepares for the
anticipated commercial introduction of MUSE (alprostadil) and expands its
research and development activities with regard to other products. To achieve
profitability, the Company must obtain the necessary regulatory approvals and
successfully manufacture, introduce and market MUSE (alprostadil). The time
required to reach profitability is highly uncertain and there can be no
assurance that the Company will be able to obtain profitability on a sustained
basis, if at all.
The Company currently relies on a single therapeutic approach to treat
erectile dysfunction, the transurethral system for erection. The Company
recently completed Phase III clinical trials and submitted an NDA to the FDA for
its anticipated first product, MUSE (alprostadil). While the Company received an
approvable letter from the FDA, there can be no assurance that the FDA will
grant final approval on a timely basis, if at all, or if granted, that such
approval will not contain significant limitations in the form of warnings,
precautions or contraindications with respect to condition of use. Failure to
obtain approval of the Company's NDA for MUSE (alprostadil) on a timely basis,
if at all, or if granted, the failure to successfully commercialize MUSE
(alprostadil) would have a material adverse effect on the Company.
In April 1994, the Company successfully completed an initial public
offering of 2,473,000 shares of common stock, with net proceeds to the Company
of $31,578,000.
The Company completed a secondary public offering of 1,800,000 shares of
common stock in April 1995. Of the total number of shares offered, 1,670,000
shares were sold by the Company and 130,000 shares were sold by a current
stockholder. Net proceeds to the Company were $22,483,000.
The Company completed a third public offering of 2,000,000 shares of
common stock in June 1996. Net proceeds to the Company were approximately
$49,800,000. In July 1996, the underwriters for this offering exercised their
option to purchase an additional
8
<PAGE> 9
300,000 shares to cover over-allotments. The Company received approximately
$7,500,000 in net proceeds for these shares.
The first, third, fifth, sixth and seventh paragraphs of this
Description of Business section contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1993, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the factors set forth in the above mentioned paragraphs and the
factors set forth in the Risk Factors section of this quarterly report.
RESULTS OF OPERATIONS
Three months Ended September 30, 1996 and 1995, and Nine Months Ended
September 30, 1996 and 1995
No revenues from product sales have been recorded from inception to
September 30, 1996. As consideration for execution of the Astra marketing
agreement, Astra paid the Company $10 million in June 1996. In September 1996,
the Company received a $10 million milestone payment from Astra AB upon filing
an application for marketing authorization for MUSE (alprostadil) in the United
Kingdom. The Company recorded these receipts as milestone revenue in the
consolidated statement of operations.
For the three months ended September 30, 1996, research and development
expenses were $5,462,000 compared with $4,592,000 for the three months ended
September 30, 1995, an increase of 19%. The increase was a result of higher
pre-launch manufacturing and quality assurance expenses, partially offset by
lower clinical costs resulting from the completion of the Phase II and III
clinical trials in 1995.
For the nine months ended September 30, 1996, research and development
expenses were $23,007,000 compared with $15,808,000 for the nine months ended
September 30, 1995, an increase of 46%. The increase was due primarily to the
Company issuing 200,000 shares of common stock to Alza in May 1996 in order for
the Company to maintain exclusive rights to certain patents and patent
applications beyond 1998. In connection with this issuance, the Company recorded
a charge of approximately $5,900,000 to the consolidated statement of
operations. The increase was also a result of higher pre-launch manufacturing
and quality assurance expenses. These were partially offset by lower clinical
costs resulting from the completion of the Phase II and III clinical trials in
1995.
General and administrative expenses for the three months ended September
30, 1996 were $3,118,000 compared with $1,009,000 for the three months ended
September 30, 1995, an increase of 209%. The increase primarily resulted from
higher marketing expenses and the costs associated with additional personnel to
support the growth of the Company's operations.
9
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General and administrative expenses for the nine months ended September
30, 1996 were $6,501,000 compared with $2,935,000 for the nine months ended
September 30, 1995, an increase of 122%. The increase resulted primarily from
higher marketing and legal expenses, as well as the costs associated with hiring
additional personnel to support the growth of the Company's operations.
Spending levels will continue to increase during 1996 as the Company
further develops its commercial manufacturing, marketing and sales capabilities,
and begins commercial production.
Interest income for the three months ended September 30, 1996 was
$1,242,000 compared with $728,000 for the three months ended September 30, 1995.
Interest income for the nine months ended September 30, 1996 was $2,191,000
compared with $2,000,000 for the nine months ended September 30, 1995. The
increases were primarily the result of higher average invested cash balances.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed operations primarily from the
sale of preferred and common stock. Through September 30, 1996, VIVUS has raised
$147,091,000 from financing activities. Cash, cash equivalents and securities
available-for-sale totaled $95,342,000 at September 30, 1996 compared with
$39,524,000 at December 31, 1995. The Company maintains its current excess cash
balances in a variety of interest bearing investment-grade financial investments
such as U.S. government securities, corporate debt and certificates of deposit.
Principal preservation, liquidity and safety are the primary investment
objectives.
Cash used in operations in the nine months ended September 30, 1996 was
$397,000 compared with $15,958,000 in the nine months ended September 30, 1995.
The decreased use of cash was primarily due to a net loss of $7,317,000,
partially offset by the $5,821,000 non-cash charge to operations related to the
issuance of 200,000 shares of stock to Alza, in the nine months ended September
30, 1996 compared with a net loss of $16,743,000 for the same period in 1995.
Cash used for operations is expected to increase in 1996 as the Company further
develops its commercial manufacturing, marketing and sales capabilities, and
begins commercial production.
Prepaid and other current assets at September 30, 1996 were $1,532,000
compared with $590,000 at December 31, 1995, an increase of $942,000. This
increase resulted primarily from an increase in interest receivables related to
the Company's investment portfolio and prepaid insurance.
Current liabilities were $3,858,000 at September 30, 1996 compared with
$2,868,000 at December 31, 1995. This increase was primarily due to an increase
in expenditures in 1996.
Capital expenditures in the nine months ended September 30, 1996 were
$2,101,000 compared with $2,730,000 for the same period ended September 30,
1995. Capital expenditures during the period in 1996 and 1995 consisted
primarily of manufacturing and quality
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control equipment. Capital expenditures were higher in 1995 due to the
construction of the Company's dedicated manufacturing and testing space within
the Paco Pharmaceutical Services, Inc. ("Paco") facility in Lakewood, New
Jersey. Major capital expenditures over the next two years are likely to
increase as they are expected to include a Company-owned manufacturing facility,
expansion of its current facility in the United States and establishing a
research and quality control laboratory.
In 1995, the Company implemented an international product distribution
strategy for VIVUS products. Implementation included the transfer of
international product marketing rights to VIVUS International Limited in a
taxable transaction. The transfer of rights and related allocation of research
and development costs resulted in the current utilization of $29,467,000 of the
Company's net operating loss carryforward.
The Company expects to incur substantial additional costs, including
expenses related to its marketing and sales organization, a second manufacturing
plant and expansion of the Company's existing plant, new product preclinical and
clinical costs, ongoing research and development activities, and general
corporate purposes. The Company anticipates that its existing capital resources
will be sufficient to support the Company's operations through commercial
introduction of MUSE (alprostadil) in the United States and Europe, but may not
be sufficient for the introduction of any additional future products. While the
Company received an approvable letter from the FDA for MUSE (alprostadil) in
October 1996, the Company cannot begin marketing the product in the United
States until it has received final FDA marketing clearance, which is subject to
final standard labeling requirements and agreement that the Company's
manufacturing facility, methods, and controls comply with FDA requirements.
Accordingly, the Company anticipates that it may be required to issue additional
equity or debt securities and may use other financing sources including, but not
limited to, corporate alliances and lease financings to fund the future
development and possible commercial launch of its products. The sale of
additional equity securities can be expected to result in additional dilution to
the Company's stockholders. There can be no assurance that such funds will be
available on terms satisfactory to the Company, or at all. Failure to obtain
adequate funding could cause a delay or cessation of the Company's product
development and marketing efforts and would have a material adverse effect upon
the Company's business, financial condition and results of operations. The
Company's working capital and additional funding requirements will depend upon
numerous factors, including: (i) the ability to obtain and timing and costs of
obtaining regulatory approvals; (ii) the level of resources that the Company
devotes to sales and marketing capabilities; (iii) the level of resources that
the Company devotes to expanding manufacturing capacity; (iv) the activities of
competitors; (v) the progress of the Company's research and development
programs; (vi) the timing and results of preclinical testing and clinical
trials; and (vii) technological advances.
11
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The second, fifth, and seventh paragraphs of this Liquidity and Capital
Resources section contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1993, as amended, and Section 21E of the
Securities and Exchange Act of 1934, as amended. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the factors set forth in this Liquidity and Capital Resources section, the Risk
Factors section and the Description of Business section. The discussion of those
factors is incorporated herein by this reference as if said discussion was fully
set forth at this point.
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RISK FACTORS
This quarterly report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ from
those set forth in such forward-looking statements as a result of certain
factors, including those set forth in this Risk Factors section.
DEPENDENCE ON THE COMPANY'S TRANSURETHRAL SYSTEM FOR ERECTION
The Company currently relies upon a single therapeutic approach to treat
erectile dysfunction, its transurethral system for erection. No assurance can be
given that the Company's therapeutic approach, or its proposed pharmacologic
formulations, will be shown to be safe and effective or ultimately be approved
by appropriate regulatory agencies. Certain side effects have been found to
occur with the use of MUSE (alprostadil). Mild to moderate transient
penile/perineal pain was suffered by 21% to 42% of patients (depending on
dosage) treated with MUSE (alprostadil) in the Company's Phase II/III Dose
Ranging study. Moderate to severe (i.e., syncope) decreases in blood pressure
was experienced by 1% to 4% of patients (depending on dosage) treated with MUSE
(alprostadil) in such study. The existence of side effects or dissatisfaction
with product results may impact a patient's decision to use or continue to use,
or a physician's decision to recommend, MUSE (alprostadil) as a therapy for the
treatment of erectile dysfunction thereby affecting the commercial viability of
MUSE (alprostadil). The Company has never commercially introduced a product and
no assurance can be given that any of the transurethral products will be
successfully introduced. In addition, technological changes or medical
advancements could diminish or eliminate the commercial viability of the
Company's products. As a result of the Company's single therapeutic approach and
its current focus on MUSE (alprostadil), the failure to obtain final FDA
marketing clearance, or approval in other countries, for MUSE (alprostadil) on a
timely basis, if at all, or to successfully commercialize such product would
have an adverse effect on the Company and could threaten the Company's ability
to continue as a viable entity.
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GOVERNMENT REGULATION AND UNCERTAINTY OF PRODUCT APPROVALS
The Company's research, preclinical development, clinical trials,
manufacturing and marketing of its products are subject to extensive regulation
by numerous governmental authorities in the United States and other countries.
Clinical trials, manufacturing and marketing of the Company's products will be
subject to the rigorous testing and approval processes of the FDA and equivalent
foreign regulatory agencies. The process of obtaining FDA and other required
regulatory approvals is lengthy and expensive. The time required for FDA
approvals is uncertain, and typically takes a number of years, depending on the
type, complexity and novelty of the product. Since the Company's products
involve transurethral delivery, a new therapeutic approach, regulatory approvals
may be obtained more slowly than for products produced using more conventional
delivery systems. The Company completed pivotal clinical trials in 1995 and
submitted an NDA for its anticipated first product, MUSE (alprostadil), to the
FDA in March 1996. In October 1996, the Company received an approvable letter
from the Food and Drug Administration (FDA) for MUSE (alprostadil). Final FDA
marketing clearance is subject to agency clearance of standard final labeling
requirements and agreement that the Company's manufacturing facility, methods
and controls comply with FDA requirements. In addition, the Company submitted
applications for approval of MUSE (alprostadil) in the United Kingdom and
Sweden. These applications will be subject to rigorous approval processes. There
can be no assurance that final FDA marketing clearance, or approval in other
countries, will be granted on a timely basis, if at all, or if granted, that
such approval will not contain significant limitations in the form of warnings,
precautions or contraindications with respect to condition of use. Any delay in
obtaining, or failure to obtain, such approval would adversely affect the
Company's ability to generate product revenue.
The Company's clinical trials for future products will seek safety data
as well as efficacy data and will require substantial time and significant
funding. There is no assurance that clinical trials related to future products
will be completed successfully within any specified time period, if at all.
Furthermore, the FDA may suspend clinical trials at any time if it is believed
that the subjects participating in such trials are being exposed to unacceptable
health risks. There can be no assurance that FDA or other regulatory approvals
for any products developed by the Company will be granted on a timely basis, if
at all, or if granted, that such approval will not contain significant
limitations in the form of warnings, precautions or contraindications with
respect to conditions of use. Any delay in obtaining, or failure to obtain, such
approvals would adversely affect the Company's ability to generate product
revenue. Failure to comply with the applicable regulatory requirements can,
among other things, result in fines, suspensions of regulatory approvals,
product recalls, operating restrictions and criminal prosecution. In addition,
the marketing and manufacturing of pharmaceutical products are subject to
continuing FDA review, and later discovery of previously unknown problems with a
product, manufacturer or
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facility may result in the FDA requiring further clinical research or
restrictions on the product or the manufacturer, including withdrawal of the
product from the market. The restriction, suspension or revocation of regulatory
approvals or any other failure to comply with regulatory requirements would have
a material adverse effect on the Company's business, financial condition and
results of operations.
The Company obtains the necessary raw materials and components for the
manufacture of MUSE (alprostadil) from third parties. The Company currently
contracts with contract manufacturing organizations that are required to comply
with strict standards established by the Company. Contract manufacturers are
required by the Federal Food, Drug, and Cosmetic Act, as amended, and by FDA
regulations to follow Good Manufacturing Practices ("GMP"). The Company is
required to identify its suppliers to the FDA and is dependent upon its contract
manufacturers and its suppliers to comply with the Company's specifications and,
as required, GMP or similar standards imposed by foreign regulators. There can
be no assurance that the FDA, or a state, local or foreign regulator will not
take action against a contract manufacturer or supplier found to be violating
applicable regulations. Such an action could have a material adverse effect on
the Company's business, financial condition and results of operations.
LIMITED MANUFACTURING EXPERIENCE AND DEPENDENCE ON SOLE CONTRACT MANUFACTURER
The Company has only limited experience in manufacturing MUSE
(alprostadil) and has not yet manufactured it in commercial quantities. As a
result, the Company has no experience manufacturing its product in volumes
necessary for the Company to achieve significant commercial sales, and there can
be no assurance that reliable high volume manufacturing can be achieved at
commercially reasonable cost. If the Company encounters any manufacturing
difficulties, including problems involving production yields, quality control
and assurance, supplies of components or raw materials or shortages of qualified
personnel, it could have a material adverse effect on the Company's business,
financial condition and results of operations.
The formulation, filling, packaging and testing of MUSE (alprostadil) is
performed by Paco Pharmaceutical Services, Inc. ("Paco"), a wholly owned
subsidiary of The West Company, at its facility in Lakewood, New Jersey. In June
1995, the Company completed construction of its approximately 6,000 square feet
of dedicated manufacturing and testing space within Paco's facility. The Company
will be required to expand its manufacturing and testing space at Paco or to
find additional facilities, if FDA marketing clearance is obtained and MUSE
(alprostadil) is successfully introduced. The Company also intends to establish
a Company owned and operated manufacturing facility. Until the Company develops
an in-house manufacturing capability or is able to identify and qualify
alternative contract manufacturers, it will be entirely dependent upon Paco for
the manufacture of its products.
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<PAGE> 16
As part of the approval process for the Company's NDA, Paco will be subject to
audit by the FDA as part of its GMP inspection. There can be no assurance that
the facility will receive the necessary GMP approval. There can be no assurance
that the Company's reliance on Paco or others for the manufacture of its
products will not result in problems with product supply, and there can be no
assurance that the Company will be able to establish a second manufacturing
facility or expand its existing facility at Paco. Interruptions in the
availability of products could delay or prevent the development and commercial
marketing of MUSE (alprostadil) and other potential products and would have a
material adverse effect on the Company's business, financial condition and
results of operations.
LIMITED SALES AND MARKETING EXPERIENCE
The Company has no experience in the sale, marketing and distribution of
pharmaceutical products. If required approvals are received, the Company intends
to market and sell its products initially through a direct sales force in the
United States. In order to market its products directly, the Company must
develop a sales force with proper technical expertise. There can be no assurance
that the Company will be able to build a sales force or that the Company's
domestic sales and marketing efforts will be successful.
In February 1996, the Company entered into a distribution agreement with
a wholly owned subsidiary of Cardinal Health, Inc. ("Cardinal"). Under this
agreement, Cardinal will warehouse the Company's finished goods, take customer
orders, pick, pack and ship its product, invoice customers and collect related
receivables. The Company will also have access to Cardinal's information systems
that support these functions. As a result of this distribution agreement with
Cardinal, the Company is heavily dependent on Cardinal's efforts to fulfill
orders and warehouse its products effectively. There can be no assurance such
efforts will be successful.
In May 1996, the Company completed a marketing agreement with Astra AB
("Astra") to purchase the Company's products for resale in Europe, South
America, Central America, Australia and New Zealand. As consideration for
execution of the marketing agreement, Astra paid the Company $10 million in June
1996. In September 1996, the Company received a $10 million milestone payment
from Astra upon filing an application for marketing authorization for MUSE
(alprostadil) in the United Kingdom. The Company will be paid up to an
additional $10 million in the event it achieves certain milestones. The Company
does not anticipate significant revenue from operations for at least two years.
The marketing agreement does not have minimum purchase commitments, and Astra
may take up to twelve months to introduce a product in a given country following
regulatory approval in such country. As a result of this marketing agreement
with Astra, the Company is dependent on Astra's efforts to market, distribute
and sell the Company's products
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<PAGE> 17
effectively in the above mentioned markets. There can be no assurance that such
efforts will be successful.
In July 1996, the Company entered into a distribution agreement with
Alternate Site Distributors, Inc. ("ASD"), a subsidiary of Bergen Brunswig
Corporation. ASD will provide "direct-to-physician" distribution, telemarketing
and customer service capabilities in support of the U.S. marketing and sales
efforts. Pursuant to the terms of this agreement, ASD will develop a customer
service organization to respond to all VIVUS sales representative and physician
inquiries. A central feature of this customer service will be a dedicated Vivus
owned 1-800 number with an automated response menu covering various options. As
a result of this distribution agreement with ASD, the Company is dependent on
ASD's efforts to distribute, telemarket, and provide customer service
effectively. There can be no assurance that such efforts will be successful.
The Company intends to market and sell its products in other foreign
markets through distribution, co-promotion or license agreements with corporate
partners. To the extent that the Company enters into distribution, co-promotion
or license agreements for the sale of its products, the Company will be
dependent upon the efforts of third parties. These third parties may have other
commitments, and there can be no assurance that they will commit the necessary
resources to effectively market, distribute and sell the Company's product.
INTENSE COMPETITION
Competition in the pharmaceutical and medical products industries is
intense and is characterized by extensive research efforts and rapid
technological progress. Certain treatments for erectile dysfunction exist, such
as needle injection therapy, vacuum constriction devices, penile implants and
oral medications, and the manufacturers of these products will continue to
improve these therapies. In July 1995, the FDA approved the use of alprostadil
in The Upjohn Company's needle injection therapy product for erectile
dysfunction. Previously, Upjohn had obtained approval in a number of European
countries. Additional competitive therapies under development include an oral
medication by Pfizer, Inc., which is currently in Phase III clinical trials.
Other large pharmaceutical companies are also actively engaged in the
development of therapies for the treatment of erectile dysfunction. These
companies have substantially greater research and development capabilities as
well as substantially greater marketing, financial and human resources than the
Company. In addition, these companies have significantly greater experience than
the Company in undertaking preclinical testing, human clinical trials and other
regulatory approval procedures. There are also small companies, academic
institutions, governmental agencies and other research organizations that are
conducting research in the area of erectile dysfunction. For instance, Zonagen,
Inc. and Pentech Pharmaceutical, Inc. have oral medications under development.
These entities may also market commercial products either on their own or
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<PAGE> 18
through collaborative efforts. The Company's competitors may develop
technologies and products that are available for sale prior to the Company's
products or that are more effective than those being developed by the Company.
Such developments would render the Company's products less competitive or
possibly obsolete. If the Company is permitted to commence commercial sales of
products, it will also be competing with respect to marketing capabilities and
manufacturing efficiency, areas in which it has limited experience.
PROPRIETARY RIGHTS AND RISK OF LITIGATION
The Company's success will depend, in large part, on the strength of its
current and future patent position relating to the transurethral delivery of
pharmacologic agents for the treatment of erectile dysfunction. The Company's
patent position, like that of other pharmaceutical companies, is highly
uncertain and involves complex legal and factual questions. Claims made under
patent applications may be denied or significantly narrowed and issued patents
may not provide significant commercial protection to the Company. The Company
could incur substantial costs in proceedings before the United States Patent
Office, including interference proceedings. These proceedings could also result
in adverse decisions as to the priority of the Company's licensed or assigned
inventions. There is no assurance that the Company's patents will not be
challenged or designed around by others. The Company is aware of a patent
application involving the transurethral application of prostaglandin E2. The
corresponding application in Europe has been abandoned. Failure of the Company's
licensed patents to block issuance of such patent could have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that the Company's products do not or will not
infringe on the patent or proprietary rights of others. A patent opposition to
the Company's exclusively licensed European patents has been filed with the
European Patent Office. The Company is vigorously defending the patents, however
an adverse decision could affect the Company's ability, based on its patent
rights, to limit potential competition in Europe. The Company may be required to
obtain additional licenses to the patents, patent applications or other
proprietary rights of others. There can be no assurance that any such licenses
would be made available on terms acceptable to the Company, if at all. If the
Company does not obtain such licenses, it could encounter delays in product
introductions while it attempts to design around such patents, or the
development, manufacture or sale of products requiring such licenses could be
precluded. The Company believes there will continue to be significant litigation
in the pharmaceutical industry regarding patent and other intellectual property
rights.
A former consultant to the Company has claimed that he is the inventor of
certain technology disclosed in two of the Company's patents. The former
consultant further claims that the Company defrauded him by allegedly failing to
inform him that it intended to use and patent this technology and by failing to
compensate him
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<PAGE> 19
for the technology in the manner allegedly promised. On May 28, 1996, the
Company filed a complaint for declaratory judgment against the former consultant
in the United States District Court for the Northern District of California,
which seeks a declaration from the court that the former consultant is not an
inventor of any of the technology disclosed in the patent. On July 17, 1996, the
former consultant filed a lawsuit which seeks to have two of the Company's
patents declared invalid on the grounds that they fail to list him as an
inventor. On September 16, 1996, the Court dismissed the consultant's lawsuit,
and ordered the consultant to refile his claims or counterclaims to the action
initiated by the Company on May 28, 1996. The consultant filed his counterclaim
on September 26, 1996. In a separate matter, on April 10, 1996, the licensors in
an agreement by which the Company acquired a patent license filed a lawsuit in a
Texas State court that alleges that they were defrauded in connection with the
renegotiation of the license agreement between the Company and the licensors. On
May 8, 1996, the action was removed to the United States District Court for the
Western District of Texas. In addition to monetary damages, the licensors seek
to return to the terms of the original license agreement. The Company has
conducted a review of the circumstances surrounding these two matters and
believes that the allegations are without merit. Although the Company believes
that it should prevail, the uncertainties inherent in litigation prevent the
Company from giving any assurances about the outcome of such litigation.
The Company also relies on trade secrets and other unpatented proprietary
technology. No assurance can be given that the Company can meaningfully protect
its rights in such unpatented proprietary technology or that others will not
independently develop substantially equivalent proprietary products and
processes or otherwise gain access to the Company's proprietary technology. The
Company seeks to protect its trade secrets and proprietary know-how, in part,
with confidentiality agreements with employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors. In
addition, protracted and costly litigation may be necessary to enforce and
determine the scope and validity of the Company's proprietary rights.
DEPENDENCE ON DUAL SOURCE OF SUPPLY
To date, the Company has obtained its supply of alprostadil from two
sources. The first is Spolana Chemical Works AS ("Spolana") pursuant to a supply
agreement that expires at the end of 1996. In January 1996, the Company
completed a long-term alprostadil supply agreement with CHINOIN Pharmaceutical
and Chemical Works Co., Ltd. ("Chinoin"). Chinoin is the Hungarian subsidiary of
the French pharmaceutical company Sanofi Winthrop. The Company's sources of
supply will be subject to GMP requirements of the FDA. There can be no assurance
FDA approval will be
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<PAGE> 20
received. Alprostadil, a generic drug, is extremely difficult to manufacture and
is only available to the Company from a limited number of other suppliers, none
of which currently produce it in commercial quantities. While the Company is
seeking additional sources, there can be no assurance that it will be able to
identify and qualify such sources. The Company is required to identify its
suppliers to the FDA and the FDA may require additional clinical trials or other
studies prior to accepting a new supplier. Unless the Company secures and
qualifies additional sources of alprostadil, it will be entirely dependent upon
Spolana and Chinoin for the delivery of alprostadil. If interruptions in the
supply of alprostadil were to occur for any reason, including a decision by
Spolana and/or Chinoin to discontinue manufacturing, political unrest, labor
disputes or a failure of Spolana and/or Chinoin to follow regulatory guidelines,
the development and commercial marketing of MUSE (alprostadil) and other
potential products could be delayed or prevented. An interruption in the
Company's supply of alprostadil would have a material adverse effect on the
Company's business, financial condition and results of operations.
HISTORY OF LOSSES AND LIMITED OPERATING HISTORY
The Company is a development stage company with a limited operating
history. The Company has not generated any product revenue since its inception
in April 1991. As consideration for execution of the Astra marketing agreement,
Astra paid the Company $10 million in June 1996. In September 1996, the Company
received a $10 million milestone payment from Astra upon filing an application
for marketing authorization for MUSE (alprostadil) in the United Kingdom. The
Company recorded these receipts as milestone revenue in the consolidated
statement of operations. At September 30, 1996, the Company had an accumulated
deficit of approximately $56.9 million. The Company's losses will increase
significantly over the next twelve months as it incurs expenses related to its
marketing and sales organization, constructing a second manufacturing plant, and
expanding the Company's existing plant, preclinical and clinical assessment of
potential new products and ongoing research and development activities. To
achieve profitability, the Company must successfully obtain required regulatory
approvals, manufacture, introduce and market the MUSE (alprostadil) product. The
time required to reach profitability is highly uncertain and there is no
assurance that the Company will be able to achieve profitability on a sustained
basis, if at all.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FINANCING
The Company expects to incur substantial additional costs, including
expenses related to its marketing and sales organization, a second manufacturing
plant and expansion of the Company's existing plant, new product preclinical and
clinical costs, ongoing research and development activities, and general
corporate purposes. The Company anticipates that its existing capital resources
will be sufficient to support the Company's operations
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<PAGE> 21
through commercial introduction of MUSE (alprostadil) in the United States and
Europe but may not be sufficient for the introduction of any additional future
products. While the Company received an approvable letter from the FDA for MUSE
(alprostadil) in October 1996, the Company cannot begin marketing the product in
the United States until it has received final FDA marketing clearance, which is
subject to final standard labeling requirements and agreement that the Company's
manufacturing facility, methods, and controls comply with FDA requirements.
Accordingly, the Company anticipates that it may be required to issue additional
equity or debt securities and may use other financing sources including, but not
limited to, corporate alliances and lease financings to fund the future
development and possible commercial launch of its products. The sale of
additional equity securities can be expected to result in additional dilution to
the Company's stockholders. There can be no assurance that such funds will be
available on terms satisfactory to the Company, or al all. Failure to obtain
adequate funding could cause a delay or cessation of the Company's product
development and marketing efforts and would have a material adverse effect upon
the Company's business, financial condition and results of operations. The
Company's working capital and additional funding requirements will depend upon
numerous factors, including: (i) the ability to obtain and timing and costs of
obtaining regulatory approvals; (ii) the level of resources that the Company
devotes to sales and marketing capabilities; (iii) the level of resources that
the Company devotes to expanding manufacturing capacity; (iv) the activities of
competitors; (v) the progress of the Company's research and development
programs; (vi) the timing and results of preclinical testing and clinical
trials; and (vii) technological advances.
DEPENDENCE ON KEY PERSONNEL
The Company's progress to date has been highly dependent upon the skills
of a limited number of key management personnel. To reach its future business
objectives, the Company will need to hire numerous other qualified personnel in
the areas of sales, manufacturing, clinical trial management and preclinical
testing. There can be no assurance that the Company will be able to hire such
personnel, as the Company must compete with other companies, academic
institutions, government entities and other agencies. The loss of any of the
Company's key personnel or the failure to attract or retain necessary new
employees could have an adverse effect on the Company's research, product
development and business operations.
RISKS RELATING TO INTERNATIONAL OPERATIONS
In the event the Company receives necessary foreign regulatory approvals,
the Company plans to market its products internationally. Changes in overseas
economic conditions, currency exchange rates, foreign tax laws or tariffs or
other trade regulations could have a material adverse effect on the Company's
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<PAGE> 22
business, financial condition and results of operations. The anticipated
international nature of the Company's business is also expected to subject it
and its representatives, agents and distributors to laws and regulations of the
foreign jurisdictions in which they operate or the Company's products are sold.
The regulation of drug therapies in a number of such jurisdictions, particularly
in the European Union, continues to develop, and there can be no assurance that
new laws or regulations will not have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the laws
of certain foreign countries do not protect the Company's intellectual property
rights to the same extent as do the laws of the United States.
PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE
The use of the Company's products in clinical trials may expose the
Company to product liability claims and possible adverse publicity. These risks
also exist with respect to the Company's products, if any, that receive
regulatory approval for commercial sale. The Company currently maintains
insurance coverage for the clinical use of its products, but does not have
insurance coverage for the commercial sale of its products. There can be no
assurance that the Company will be able to obtain product liability insurance.
There can be no assurance that the Company's present or future insurance will
provide adequate coverage or be available at a reasonable cost or that product
liability claims would not adversely affect the business or financial condition
of the Company.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT
In the United States and elsewhere, sales of pharmaceutical products
currently are dependent, in part, on the availability of reimbursement to the
consumer from third party payors, such as government and private insurance
plans. Third party payors are increasingly challenging the prices charged for
medical products and services. If the Company succeeds in bringing one or more
products to the market, there can be no assurance that these products will be
considered cost effective and that reimbursement to the consumer will be
available or sufficient to allow the Company to sell its products on a
competitive basis.
UNCERTAINTY AND POSSIBLE NEGATIVE EFFECTS OF HEALTHCARE REFORM
The healthcare industry is undergoing fundamental changes that are the
result of political, economic and regulatory influences. The levels of revenue
and profitability of pharmaceutical companies may be affected by the continuing
efforts of governmental and third party payors to contain or reduce healthcare
costs through various means. Reforms that have been and may be considered
include mandated basic healthcare benefits, controls on healthcare spending
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<PAGE> 23
through limitations on the increase in private health insurance premiums and
Medicare and Medicaid spending, the creation of large insurance purchasing
groups and fundamental changes to the healthcare delivery system. Due to
uncertainties regarding the outcome of healthcare reform initiatives and their
enactment and implementation, the Company cannot predict which, if any, of the
reform proposals will be adopted or the effect such adoption may have on the
Company. There can be no assurance that future healthcare legislation or other
changes in the administration or interpretation of government healthcare or
third-party reimbursement programs will not have a material adverse effect on
the Company. Healthcare reform is also under consideration in some other
countries.
CONTROL BY EXISTING STOCKHOLDERS
As of September 30, 1996, the Company's officers, directors and principal
stockholders, and certain of their affiliates, beneficially owned approximately
11% of the Company's outstanding Common Stock. Such concentration of ownership
may have the effect of delaying, defining or preventing a change in control of
the Company. Additionally, these stockholders will have significant influence
over the election of directors of the Company. This concentration of ownership
may allow significant influence and control over Board decisions and corporate
actions.
POTENTIAL VOLATILITY OF STOCK PRICE
The stock market has recently experienced significant price and volume
fluctuations unrelated to the operating performance of particular companies. In
addition, the market price of the Company's Common Stock, like the securities of
other therapeutic companies without approved products, has been highly volatile
and is likely to continue to be so. Factors such as variations in the Company's
financial results, comments by security analysts, the Company's ability to scale
up its manufacturing capability to commercial levels, the Company's ability to
successfully sell its product in the United States and Europe, any loss of key
management, the results of the Company's clinical trials or those of its
competition, adverse regulatory actions or decisions, announcements of
technological innovations or new products by the Company or its competition,
changing governmental regulations and developments with respect to FDA
submissions, patents or other proprietary rights, product or patent litigation
or public concern as to the safety of products developed by the Company, may
have a significant effect on the market price of the Company's Common Stock.
ANTI-TAKEOVER EFFECT OF SHAREHOLDER RIGHTS PLAN AND CERTAIN CHARTER AND BYLAW
PROVISIONS
In February 1996, the Company's Board of Directors authorized its
reincorporation in the State of Delaware (the
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<PAGE> 24
"Reincorporation") and adopted a Shareholder Rights Plan. The Shareholder Rights
Plan provides for a dividend distribution of one Preferred Shares Purchase Right
(a "Right") on each outstanding share of the Company's Common Stock. Each Right
entitles stockholders to buy 1/1000th of a share of VIVUS Series A Participating
Preferred Stock at an exercise price of $100.00. The Rights will become
exercisable following the tenth day after a person or group announces
acquisition of 20% or more of the Company's Common Stock, or announces
commencement of a tender offer, the consummation of which would result in
ownership by the person or group of 20% or more of the Company's Common Stock.
The Company will be entitled to redeem the Rights at $0.01 per Right at any time
on or before the tenth day following acquisition by a person or group of 20% of
more of the Company's Common Stock. The Company's reincorporation into the State
of Delaware was approved by its stockholders and effective in May 1996.
The Shareholder Rights Plan and certain provisions of the Company's
Certificate of Incorporation and Bylaws, as adopted in connection with the
reincorporation, may have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire,
control of the Company. The Company's Certificate of Incorporation allows the
Company to issue Preferred Stock without any vote or further action by the
stockholders, and certain provisions of the Company's Certificate of
Incorporation and Bylaws eliminate the right of stockholders to act by written
consent without a meeting, specify procedures for director nominations by
stockholders and submission of other proposals for consideration at stockholder
meetings, and eliminate cumulative voting in the election of directors. Certain
provisions of Delaware law could also delay or make more difficult a merger,
tender offer or proxy contest involving the Company, including Section 203,
which prohibits a Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years unless certain
conditions are met. The Shareholder Rights Plan, the possible issuance of
Preferred Stock, the procedures required for director nominations and
stockholder proposals and Delaware law could have the effect of delaying,
deferring or preventing a change in control of the Company, including without
limitation, discouraging a proxy contest or making more difficult the
acquisition of a substantial block of the Company's Common Stock. These
provisions could also limit the price that investors might be willing to pay in
the future for shares of the Company's Common Stock.
ABSENCE OF DIVIDENDS
The Company has never paid dividends on its Common Stock and will not pay
dividends in the foreseeable future.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
A former consultant to the Company has claimed that he is the inventor
of certain technology disclosed in two of the Company's patents. The former
consultant further claims that the Company defrauded him by allegedly failing to
inform him that it intended to use and patent this technology and by failing to
compensate him for the technology in the manner allegedly promised. On May 28,
1996, the Company filed a complaint for declaratory judgment against the former
consultant in the United States District Court for the Northern District of
California, which seeks a declaration from the court that the former consultant
is not an inventor of any of the technology disclosed in the patent. On July 17,
1996, the former consultant filed a lawsuit which seeks to have two of the
Company's patents declared invalid on the grounds that they fail to list him as
an inventor. On September 16, 1996, the Court dismissed the consultant's
lawsuit, and ordered the consultant to refile his claims or counterclaims to the
action initiated by the Company on May 28, 1996. The consultant filed his
counterclaim on September 26, 1996. In a separate matter, on April 10, 1996, the
licensors in an agreement by which the Company acquired a patent license filed a
lawsuit in a Texas State court that alleges that they were defrauded in
connection with the renegotiation of the license agreement between the Company
and the licensors. On May 8, 1996, the action was removed to the United States
District Court for the Western District of Texas. In addition to monetary
damages, the licensors seek to return to the terms of the original license
agreement. The Company has conducted a review of the circumstances surrounding
these two matters and believes that the allegations are without merit. Although
the Company believes that it should prevail, the uncertainties inherent in
litigation prevent the Company from giving any assurances about the outcome of
such litigation.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits (in accordance with Item 601 of Regulation S-K)
** 3.1 Articles of Incorporation, as amended
* 3.2 Bylaws of the Registrant
* 4.1 Specimen Common Stock Certificate of the Registrant
* 4.2 Registration Rights as amended
** 4.3 Form of Agreement Not to Sell by and between the
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Registrant and certain shareholders and option holders
* 4.4 Form of Preferred Stock Purchase Warrant issued by the Registrant
to Invemed Associates, Inc., Frazier Investment Securities, L.P.,
and Cristina H. Kepner
# 4.5 Amended and Restated Preferred Shares Rights Agreement, dated as
of June 18, 1996 by and between Vivus, Inc. and First Interstate
Bank of California, including the Certificate of Determination,
the form of Rights Certificate and the Summary of Rights attached
thereto as Exhibits A, B, and C, respectively.
*+10.1 Assignment Agreement by and between Alza Corporation and the
Registrant dated December 31, 1993
*+10.2 Memorandum of Understanding by and between Ortho Pharmaceutical
Corporation and the Registrant dated February 25, 1992
*10.3 Assignment Agreement by and between Ortho Pharmaceutical
Corporation and the Registrant dated June 9, 1992
*+10.4 License Agreement by and between Gene A. Voss, M.D., Allen C.
Eichler, M.D., and the Registrant dated December 28, 1992
*+10.5A License Agreement by and between Ortho Pharmaceutical Corporation
and Kjell Holmquist AB dated June 23, 1989
*+10.5B Amendment by and between Kjell Holmquist AB and the Registrant
dated July 3, 1992
*10.5C Amendment by and between Kjell Holmquist AB and the Registrant
dated April 22, 1992
*+10.5D Stock Purchase Agreement by and between Kjell Holmquist AB and
the Registrant dated April 22, 1992
*+10.6A License Agreement by and between Amsu, Ltd., and Ortho
Pharmaceutical Corporation dated June 23, 1989
*+10.6B Amendment by and between Amsu, Ltd., and the Registrant dated
July 3, 1992
*10.6C Amendment by and between Amsu, Ltd., and the Registrant dated
April 22, 1992
*+10.6D Stock Purchase Agreement by and between Amsu, Ltd., and the
Registrant dated July 10, 1992
*10.7 Supply Agreement by and between Paco Pharmaceutical Services,
Inc., and the Registrant dated November 10, 1993
*+10.8 Agreement by and among Pharmatech, Inc., Spolana Chemical Works
AS, and the Registrant dated June 23, 1993
*10.9 Master Services Agreement by and between the Registrant and
Teknekron Pharmaceutical Systems dated August 9, 1993
*10.10 Lease by and between McCandless-Triad and the Registrant dated
November 23, 1992, as amended
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***10.11 Form of Indemnification Agreements by and among the Registrant
and the Directors and Officers of the Registrant
**10.12 1991 Incentive Stock Plan and Form of Agreement, as amended
*10.13 1994 Director Option Plan and Form of Agreement
*10.14 Form of 1994 Employee Stock Purchase Plan and Form of
Subscription Agreement
*10.15 Stock Restriction Agreement between the Company and Virgil A.
Place, M.D. dated November 7, 1991
*10.16 Stock Purchase Agreement between the Company and Leland F. Wilson
dated June 26, 1991, as amended
*10.17 Letter Agreement between the Registrant and Leland F. Wilson
dated June 14, 1991 concerning severance pay
*10.18 Letter Agreement between the Registrant and Paul Doherty dated
January 26, 1994 concerning severance pay
**10.19 Guaranteed Maximum Price Contract by and between the Registrant
and Marshall Contractors, Inc. dated January 27, 1995
**10.20 Sub-lease by and among the Registrant, Argonaut Technologies,
Inc., ESCAgenetics Corp. and Tanklage Construction Co. dated
March 13, 1995
****+10.21 Distribution Services Agreement between the Registrant and
Synergy Logistics, Inc. (a wholly- owned subsidiary of Cardinal
Health, Inc.) dated February 9, 1996
****+10.22 Manufacturing Agreement between the Registrant and CHINOIN
Pharmaceutical and Chemical Works Co., Ltd. dated December 20,
1995
+10.23 Distribution and Services Agreement between the Registrant and
Alternate Site Distributors, Inc. dated July 17, 1996
*****+10.24 Distribution Agreement made as of May 29, 1996 between the
Registrant and Astra AB
10.25 Menlo McCandless Office Lease made as of August 30, 1996 by and
between Registrant and McCandless - Triad
10.26 Sublease Agreement made as of August 22, 1996 by and between
Registrant and Plant Research Technologies
11.1 Computation of net loss per share
27.1 Financial Data Schedule
- -----
* Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Registration Statement on Form S-1 No. 33-75698.
** Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Registration Statement on Form S-1 No. 33-90390.
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<PAGE> 28
*** Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Form 8-B filed with the Commission on June 24, 1996
**** Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Quarterly Report on Form 10Q for the quarter ended March 31,
1996.
***** Incorporated by reference to the same numbered exhibit filed with the
Registrant's Current Report on Form 8-K/A filed with the Commission on
June 21, 1996.
# Incorporated by reference to exhibit 99.1 filed with the Registrants
Amendment No. 1 to Form 8-A filed with the Commission on June 24, 1996.
+ Confidential treatment granted.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIVUS, Inc.
Date: November 13, 1996 /s/ DAVID C. YNTEMA
----------------- -------------------------------
David C. Yntema
Chief Financial Officer
/s/ LELAND F. WILSON
-------------------------------
Leland F. Wilson
President and Chief
Executive Officer
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VIVUS, INC.
INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
10.23 Distribution and Services Agreement between the Registrant and
Alternate Site Distributors, Inc. dated July 17, 1996
10.25 Menlo McCandless Office Lease made as of August 30, 1996 by and
between Registrant and McCandless - Triad
10.26 Sublease Agreement made as of August 22, 1996 by and between
Registrant and Plant Research Technologies
11.1 Computation of net income (loss) per share
27.1 Financial Data Schedule
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EXHIBIT 10.23
DISTRIBUTION AND SERVICES AGREEMENT
This Agreement is made July 17, 1996, between VIVUS, Inc., a California
corporation ("VIVUS") and Alternate Site Distributors, Inc., a California
corporation ("ASD").
Background Information
A. VIVUS is, among other things, in the business of manufacturing,
selling, and distributing pharmaceutical and therapeutic products in the United
States.
B. ASD is, among other things, in the business of purchasing
pharmaceutical products for resale to alternate care markets, including to
physician offices, and in the business of providing telemarketing to physicians
and providing customer service to physicians and manufacturer's sales
representatives.
C. VIVUS desires to engage ASD (as limited pursuant to the terms of
Section 2 below), for various services relating to its Products (as such term is
defined in Appendix A attached hereto) including its first advanced
pharmacological and therapeutic product and application system for the treatment
of erectile dysfunction known as MUSE(R) (aplprostadil) ("MUSE") as (1) its
primary agent on a non-exclusive basis for distribution and reporting of all
samples (as such term is defined in Appendix A attached hereto) which VIVUS
shall provide in its sole discretion for distribution in the United States, (2)
its primary agent on a non-exclusive basis for storage, distribution and
reporting of all promotional and literature marketing materials developed by
VIVUS for the Products which VIVUS shall provide in its sole discretion for
distribution in the United States, (3) its primary telemarketing agent on a
non-exclusive basis in the United States, and (4) an agent for servicing 1-800
customer service line(s) to be accessed by U.S. physicians and VIVUS's U.S.
sales representatives for the Products. VIVUS also desires to identify ASD to it
called on physician practices in the United States for Products as a
competitively priced, full service physician supplier for VIVUS's trade
pharmaceutical products listed in Exhibit A, and such other products that may be
added to Exhibit A by VIVUS and ASD from time to time. All services to be
performed by ASD are described in this Agreement, and are to be performed upon
the terms and conditions set forth in this Agreement.
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Statement of Agreement
VIVUS and ASD (the "Parties") hereby acknowledge the accuracy of the
above background information and agree as follows:
1. Definitions. Except as otherwise provided in this Agreement,
capitalized terms used herein shall have the respective meanings assigned
thereto in Appendix A for all purposes hereof (all definitions shall be equally
applicable to both singular and plural forms of the terms defined.)
2. Appointment. (a) Upon the terms and conditions described in this
Agreement, VIVUS hereby appoints ASD: (i) as its primary agent on a
non-exclusive basis for distribution of Samples to physicians as selected and
approved by VIVUS in the United States, (ii) as its primary agent on a
non-exclusive basis for storage of Marketing Materials for the Products and
distribution, at VIVUS's direction, to physicians in the United States and to
VIVUS's U.S. sales representatives, (iii) as its primary telemarketing agent on
a non-exclusive basis for outbound telemarketing for the Products at VIVUS's
direction to physician practices in the United States, (iv) an agent for
servicing a dedicated VIVUS U.S. customer service operation including VIVUS
owned 1-800 inbound telephone service line(s) to be accessed by U.S. physicians
and VIVUS's U.S. sales representatives. ASD will be a purchaser of Products for
resale to physicians in the United States. VIVUS will identify ASD as a
competitively priced, physician supply alternative for Products and a full
service supply alternative for other physician product and supply needs. This
identification of ASD as a supplier will be provided by VIVUS so long as ASD
represents a competitive, full service (as described in this Section 2) supply
source for the Products. Notwithstanding the foregoing, VIVUS may elect to
appoint other specialty distributors as qualified VIVUS customers for the
purchase of Products for resale to physician practices.
(b) The Services shall be performed in accordance with the following
agreed upon terms and conditions and in accordance with the implementation
timing prescribed in this Agreement and as developed by the joint project team
formed by the Parties. The services described in clause (i), (ii), (iii), and
(iv)of Subparagraph 2(a) above are hereinafter referred to collectively as the
"Services". ASD agrees to use it best efforts to provide the Services and
undertake its other obligations under this Agreement.
(c) Samples. VIVUS will supply Samples at no charge to ASD as
determined by a forecast developed by VIVUS based on a thirty (30) calendar
days' forecasted utilization rate. ASD will warehouse and inventory Samples at
ASD's current distribution
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facility located at 1851 Monetary Lane, Carrollton, TX until its planned
distribution facility to be located in Louisville, KY is opened and fully
operational (the "ASD Facility"). Should ASD begin warehousing operations for
VIVUS at the Carrollton facility, the specific timing of such relocation to the
Louisville facility will be mutually agreed upon by the Parties, with the
objective of minimizing disruption of the Services. ASD shall visually inspect
each shipment of the Samples for external container or package damage or loss in
transit (based upon records provided to ASD from VIVUS) and notify VIVUS when
damage or loss has occurred promptly following discovery by ASD of such damage
or loss. ASD will store all Samples in full compliance with VIVUS's storage and
handling specifications, which are attached hereto as Exhibit B to this
Agreement. Such requirements may be supplemented or amended from time to time by
VIVUS with prior reasonable notice to ASD and ASD's prior approval.
(d) VIVUS shall pay all costs and expenses of delivery for the Samples
to the ASD Facility. VIVUS shall retain title to all Sample inventory until the
Samples are received by physicians selected to receive such Samples, at which
time title shall rest in the party to which the Samples are shipped.
(e) Sample orders will be directed to ASD from VIVUS sales
representatives via telephone, fax, or electronic media and from VIVUS-selected
physicians contacted by ASD, at the direction of VIVUS, through outbound
telemarketing or via mail, e.g. VIVUS developed Business Reply Cards. ASD will
ship Samples after receiving any order that complies with the Requirement(s) of
Law. Standard Operating Procedures ("SOPs") will be developed by ASD and
approved by VIVUS relative to inventory storage and tracking, inventory
handling, inventory variances, disposition of rejected or expired Samples, order
acceptance, fulfillment, and reporting.
(f) ASD will assemble Sample orders on a daily basis rotating inventory
on a First to Expire, First Out ("FEFO") basis. Sample orders will be shipped
via next day air in compliance with SOPs and product handling requirements as
set forth in the attached Exhibit B, to be received by the recipient within 48
hours of a lawful Sample order being received by ASD that complies with
applicable SOPs. ASD will provide proof of delivery or freight claims processing
in the event of lost or damaged shipments.
(g) ASD will provide inventory tracking through its information systems
and will comply with all lot traceability, FEFO rotation, expired product
disposition, and recalls. However, all costs and expenses incurred by ASD
involving product recalls and disposition of Products or Samples because of a
lapse or pending lapse of its expiration date will be for the exclusive account
of VIVUS and billed by ASD as such costs and expenses are incurred. Additional
systems reporting in both electronic and
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<PAGE> 4
hard-copy format will be developed by the Parties and will include, among other
reports, territory activity tracking for both sampling and sales and any
reporting necessary, access to ASD's information systems, however, such access
shall be pursuant to procedures set forth, from time to time, in writing by ASD,
and ASD's internal SOPs for financial and compliance reporting. ASD will provide
VIVUS validation prior to commencement of Sample storage and fulfillment. ASD
will provide VIVUS, on an ongoing basis, remote access, pursuant to procedures
set forth, from time to time, in writing by ASD, into its information systems
for review of VIVUS records and activity.
(h) Marketing Materials. VIVUS will ship all Marketing Materials at no
charge to ASD for storage at the ASD Facility. VIVUS will provide ASD with
sufficient notice of each quantity of Marketing Materials shipped to ASD. Under
normal operating conditions, ASD shall visually inspect each external package of
the Marketing Materials for external damage or loss in transit and notify VIVUS
when damage or loss has occurred promptly following discovery by ASD of such
damage or loss. ASD will store Marketing Materials in compliance with VIVUS's
storage and handling specifications. Such requirements may be supplemented or
amended from time to time by VIVUS with reasonable prior notice to ASD and its
prior approval, which approval shall not be unreasonably withheld.
(i) VIVUS shall pay all costs and expenses of delivering the Marketing
Materials to the ASD Facility. For those Marketing Materials directed to
physicians, VIVUS shall retain title to Marketing Materials inventory until the
Marketing Materials are shipped at VIVUS's direction, at which time title shall
rest in the party to which the Marketing Materials are shipped.
(j) Marketing Materials orders will be directed to ASD by VIVUS sales
representatives or other authorized VIVUS marketing personnel via telephone,
fax, or electronic media. The bulk of the Marketing Materials will be
distributed to VIVUS sales representatives in individualized monthly shipments.
Other Marketing Materials will be shipped to physicians upon request by VIVUS or
by the physicians contacted by ASD, at VIVUS's direction, through outbound
telemarketing. Periodic special shipments will be made to supply convention
requirements or other special marketing needs as specified by VIVUS. SOPs will
be developed by ASD and approved by VIVUS relative to storage, fulfillment and
reporting of Marketing Materials.
(k) VIVUS will provide ASD order fulfillment timing requirements and
all reporting requirements. ASD will ship Marketing Materials utilizing ground
transportation, unless otherwise directed by VIVUS. ASD will establish a
separate manifest system for shipment of Marketing Materials. ASD will
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<PAGE> 5
perform proof of delivery or freight claims processing in the event of lost or
damaged shipments of Marketing Materials.
(l) ASD will provide systems reporting including, among others,
inventory tracking and territory activity tracking in a form as agreed to
between VIVUS and ASD.
(m) Telemarketing. ASD will provide, at VIVUS's direction, outbound
telemarketing services for Products: (i) to build pre-launch awareness and
facilitate sales representative access to physicians upon Product Launch, (ii)
to physician practices not called on by VIVUS's U.S. sales representatives, (a
listing of such physicians to be provided in writing by VIVUS to ASD), (iii) to
physicians in vacant VIVUS sales territories, (a list of such vacant territories
and physicians within such territories to be provided in writing by VIVUS to
ASD), (iv) to develop and at least semi-annually refresh physician profiles, and
(v) to conduct market research. In the course of telemarketing activities, ASD
will accept physician orders for Products provided the physician meets the
customer criteria established by ASD.
(n) VIVUS will identify physicians to be telephoned by ASD and the
frequency of such telephone calls, and develop the telescrip messages to which
ASD will deliver regarding the Products. SOPs will be developed by ASD and
approved by VIVUS. ASD will organize the telemarketing staff so that each
telemarketing service representative ("TSR") has primary responsibility for
specific VIVUS territories and physicians.
(o) ASD will provide a telemarketing software system to manage it
telemarketing activities and to be linked with its customer service system.
Systems reports will be developed by the Parties and will include, among others,
activity reports for each physician and sales territory detailing the
telemarketing calls and the resulting activities including Samples, Marketing
Materials and Products shipped.
(p) Customer Service. ASD will develop a customer service organization
to respond to all VIVUS sales representative and physician inquiries regarding
the Products. A central feature of this customer service is a dedicated, VIVUS
owned 1-800 number(s) with an automated response menu covering various options
for inbound calls from physicians and VIVUS sales representatives. Call options
will include, Marketing Materials ordering, Products ordering from ASD, sample
inquiries, information requests, and options for other VIVUS services, not
provided by ASD. Technical questions will be referred to VIVUS for response.
VIVUS will provide ASD, at no cost or expense to ASD, a dedicated Customer
Service line, and related telephone service which will be
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<PAGE> 6
operated by ASD from 7:00 a.m. to 7:00 p.m., Central Standard Time.
(q) Orders for Products to be shipped by ASD shall be accepted by ASD
by phone, mail, or fax. SOPs will be developed by ASD and approved by VIVUS.
(r) Customer Service representatives will have primary responsibility
for a geographic set of VIVUS sales territories and the physicians within those
geographic territories. A database of VIVUS sales representatives and physicians
will be established by ASD including sales representatives and physician
profiles, physician mapping to sales territories, and relating all activities,
namely Samples, Marketing Materials and Products. This database shall be linked
with the telemarketing software. In establishing the physician profiles, ASD
will utilize profile data provided by VIVUS as well as access current physician
profiles maintained by[*].
(s) A component of the customer services provided by ASD, in
conjunction with [*], is the development of a[*] program for VIVUS targeted
physician customers, including the development of a[*]. Any orders of Products
received by [*] will be accepted by [*] and coordinated for shipment with ASD,
conversely, any orders for [*] products and services received by ASD will be
accepted by ASD and coordinated with [*].
(t) During the first four (4) months immediately following Product
Launch, ASD will provide on a weekly basis, and thereafter on a monthly basis,
electronic and hard-copy reports to VIVUS related to, among others, customer
service activities, physician orders, sales by VIVUS sales territory, nature and
frequency of physician inquiries.
(u) Staffing for Services. ASD will recruit and staff the following
positions to provide the Services:
(i) VIVUS Project Manager -- ASD will recruit applicants for
the ASD Facility for a dedicated VIVUS Project Manager. VIVUS will participate
in the interview process and provide input to the ASD selection decision. VIVUS
will also provide training relative to Products, Samples, Marketing Materials,
and Services to be provided. ASD will have primary responsibility for training.
The hiring date will be mutually agreed upon by the parties and is expected to
commence employment no later than July 31, 1996.
(ii) Customer Service Representatives ("CSRs") -- ASD will
recruit[*] CSRS for the ASD Facility. VIVUS will
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participate in the interview process and provide input to the ASD selection
decisions. VIVUS will provide training for the CSRs relative to Products,
Samples, and Marketing Materials. ASD will have primary responsibility for
Customer Service training. The hiring date will be mutually agreed upon by the
Parties and is expected to be approximately[*] prior to Product Launch.
(iii) Telephone Service Representatives ("TSRs") -- ASD will
recruit[*] dedicated TSRs for the ASD Facility for the Products. VIVUS will
participate in the interview process and provide input to the ASD selection
decisions. VIVUS will provide training of TSRs relative to Products, Samples,
Marketing Materials, and telescrips. ASD will have primary responsibility for
telemarketing training. The hiring date will be mutually agreed upon by the
Parties and is expected to be[*] prior to Product Launch.
Warehouse Supervisor: -- ASD will recruit and select one warehouse
employee who will be knowledgeable about the SOPs relating to the storage and
handling of all Products, Samples, and Marketing Materials. The hiring date will
be mutually agreed upon by the Parties and is expected to be approximately [*]
prior to Product Launch.
3. Targeted Physician Supplier. (a) ASD will purchase Products from
VIVUS for resale to physicians. ASD will develop physician marketing materials
relative to its [*] and its [*] services provided in conjunction with [*]. VIVUS
will identify ASD on selected physician marketing materials as its targeted
physician supplier provided that ASD represents a competitive, full service
supply source for the Products. VIVUS will also communicate the [*], full
service capabilities of ASD and [*] by delivering the[*] developed by ASD and
[*] to its called on physicians provided that ASD represents a competitive, full
service supply source for the Products. ASD shall provide VIVUS notice of ASD
price changes on Products and special discount offers on Products at least [*]
prior to the effective date.
(b) ASD will purchase and take title to Products and will maintain an
adequate amount of inventory. ASD will establish the criteria for physicians to
whom it sells and will offer, based upon credit availability for such
physicians, VISA/Master Card as a payment option. Returns will be accepted and
processed according to VIVUS's returned goods policy published for specialty
distributors and which is attached hereto as Exhibit C.
(c) VIVUS may enter into contracts with certain physician practices
that meet volume and other specifications to be defined by VIVUS ("Key Account
Contracts"). Should Key Account Contract customers wish to enter into a prime
vendor arrangement, VIVUS will first offer ASD the opportunity to act as the Key
Account
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Contract's prime vendor. ASD will accept such prime vendor status with such Key
Account Contract customer provided, VIVUS's Key Account Contract customer meets
ASD's requirements to qualify as a new ASD customer. ASD may elect to act as the
Key Account Contract prime vendor for Products and invoice such customer at
VIVUS's Key Account Contract price. Key Account Contracts utilizing ASD as its
prime vendor will be advised by VIVUS to order from ASD in economic shipping
quantities (i.e. shelf cartons or case packs). [*] ASD will submit to VIVUS a
monthly or more frequent electronic report of all sales to Key Account
Contracts. The report shall include at least the following information as to
each sale made to a Key Account Contract:
(i) Key Account Contract Name and DEA number
(ii) VIVUS's contract number
(iii) ASD's invoice number and date
(iv) Product NDC
(v) Units shipped or returned
(vi) ASD's unit cost
(vii) VIVUS's Key Account Contract price
(viii) [*]
(ix) Extended chargeback amount
(x) Total chargeback amount
(d) Upon receipt and approval of ASD's reports submitted, VIVUS shall
issue a credit memo to ASD in the amount of the difference between [*]. VIVUS
will pay such invoiced amounts within [*] from the date of invoice.
4. Performance Criteria. (a) The Parties will mutually agree in writing
upon performance measurements and reporting criteria for each of the Service
categories and for servicing of Products ordered. Subject to the terms of this
Agreement, ASD will use its best efforts to meet such applicable performance
criteria.
(b) To enhance the value of the Services, the Parties shall
cause their respective representatives to meet routinely for performance review
and strategic planning purposes.
5. Fees. As compensation for the Services, VIVUS shall pay ASD, when
due, without notice, demand, counterclaim, setoff, deduction, diminution or
reduction, the fees described below (the "Fees"):
(a) [*]Fees -- Based on [*] Product Launch, VIVUS will
reimburse ASD for the [*] costs incurred at the rate of[*] per [*]for the VIVUS
Project Manager which is expected to be hired up to [*] Product Launch and a
rate of [*] per [*] for additional staffing (one warehouse person, [*] CSRS and
[*] TSRs) expected to be hired [*] Product Launch. Should the timing of hiring
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<PAGE> 9
decisions or the level of staffing requirements change, the [*] fee will be
prorated accordingly; and
(b) Monthly Service Fees -- Monthly service fees accruing as
of the date of this Agreement at[*] rate of [*]; and additional staffing may be
added at the discretion of VIVUS at the fully loaded rates of[*] for each
additional TSR and [*] for each additional CSR);
(c) Samples -- A monthly fee (as compensation for all services
related to Samples) at the rate of [*] per [*]. This fee is all inclusive,
including outbound shipping materials and freight; and
(d) Marketing Materials -- Reimbursement for actual shipping
charges for Marketing Materials shipped [*]; and
(e) Custom Reporting --[*] fee of [*] for any custom reporting
requested by VIVUS to be developed in accordance with SOP's developed by these
Parties. In the event of custom reporting, ASD will provide an estimate of
projected costs to VIVUS prior to the commencement of any work. Upon approval by
VIVUS, work will commence.
6. Fees, expenses and other charges will be billed and
paid according to the following schedule:
(a) [*] Fees incurred up to [*] will be billed before [*] and
all other [*] Fees will be billed on Product Launch, all such [*] Fees will be
due and paid by VIVUS within [*] from date of invoice.
(b) All other Fees will be pre-billed by ASD on the fifteenth
(15th) of the month preceding the Services rendered and VIVUS will pay such fees
within [*] from date of invoice.
(c) Samples Fees will be billed by ASD on the fifteenth (15th)
calendar day of the month for the Samples orders shipped during the preceding
month. VIVUS will pay the Sample Fees within [*] from date of invoice.
(d) All other fees, expenses, costs and charges payable by
VIVUS to ASD not specifically referenced in Section 6 of this Agreement will be
due and payable [*] from the date ASD bills VIVUS.
(e) Any amounts payable by VIVUS pursuant to this Agreement
and not paid when due will be assessed interest (to the extent not prohibited by
applicable law) at the rate of 18% per annum from the date such amount is due
until paid (or at such lesser rate as may be the maximum permitted by applicable
law),
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in each case computed on the basis of a 360-day year of twelve 30-day months.
All Fee amounts will be reviewed by these parties upon the third anniversary of
this Agreement for the purposes of adjusting such Fees to reflect increases in
costs and expenses incurred or expected to be incurred by ASD.
7. Products Pricing and Terms. In addition to the fees provided in
Section 6 above, and in consideration of the full value of the Services provided
by ASD, VIVUS will sell Products to ASD at [*] its list price to Specialty
Distributors. Introductory payment terms (defined as payment terms during the
first six months of Product sales) will be [*] from date of VIVUS's invoice.
Thereafter, VIVUS may elect to change payment terms to [*] from date of VIVUS's
invoice. All other sales terms and conditions will be governed by the VIVUS's
terms and conditions set forth by VIVUS to the specialty distributor class of
trade as set forth in the attached Exhibit D.
8. Term and Termination. (a) The initial term of the agreement (the
"Initial Term") shall begin on the date of the agreement and continue until the
second anniversary of the Product Launch, unless or until terminated sooner
pursuant to the other provisions of this Section. After the Initial Term, this
Agreement shall renew automatically for successive renewal terms of one year
each unless notice of termination is given by any Party at least one hundred and
twenty (120) days prior to the end of the term then in effect, in which case
this Agreement shall terminate at the end of that term. Any reference in this
Agreement to the "term of this Agreement" shall include the initial term and any
such renewal terms.
(b) Either Party shall have the right to terminate this Agreement with
or without cause upon one hundred and twenty (120) days prior written notice. In
the event either party gives written notice of its intent to terminate this
Agreement, VIVUS shall pay ASD, all amounts due and payable ASD and accrued up
to and including the date selected for termination of this Agreement. Any
payments to be made on a monthly basis shall be prorated on the basis of a
30-day month for any fractional portion of a calendar month included in the term
of this Agreement at its commencement or termination.
(c) Either party may terminate this Agreement immediately upon written
notice in the event of: (i) the commencement of a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
either party of its debts under any bankruptcy, insolvency, corporation or other
similar law now or hereafter in effect; or (ii) either party's making a general
assignment for the benefit of creditors, or either party's becoming insolvent,
or either party taking any corporate action to authorize any of the foregoing.
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(d) All accrued payment obligations of the parties under this
Agreement, Sections 9 through 15, inclusive and Sections 17 through 23,
inclusive, of this Agreement shall survive the termination of this Agreement,
and, except as provided elsewhere in this Agreement, no termination of this
Agreement shall affect any obligations or liabilities arising, or based upon
acts or omissions occurring, prior to the date of such termination.
(e) Upon termination of this Agreement, ASD shall return, at VIVUS's
sole cost and expense, all Samples, Marketing Materials, VIVUS records (apart
from ASD records), and other VIVUS owned materials which ASD has in its
possession.
9. Audits. VIVUS shall have the right during normal business hours
(i.e. 8:00 a.m. to 5:00 p.m. local time) at no more than once during any
calendar quarter, upon reasonable prior notice, to: (a) review and audit ASD's
records related to the Services provided, (b) conduct, together with
representatives of ASD, an inventory of the Samples and Marketing Materials at
the ASD Facility, and (c) conduct, together with representatives of ASD, a
facility audit. Should material issues be discovered during such audits which
necessitate ongoing corrective action by ASD or ongoing follow-up action by
VIVUS (including the initiation of additional audits on a more frequent basis
regarding such area(s) of concern) to ensure ASD's compliance with such
corrective action, all such reasonable and directly related expenses will be the
responsibility of ASD.
10. Compliance With Laws. During the term of this Agreement, each party
shall conduct its activities in connection with this Agreement in compliance
with all applicable laws. Specifically, ASD shall comply with all applicable
Requirements of Law related to the storage, handling and distribution of
Samples, and only the cGMP guidelines as set forth in Section 211.142(b),
Section 211.150, Section 211.196 and the Section 211.204, except that ASD shall
have no obligation to perform tests or conduct investigations, all of which will
be the responsibility of VIVUS, of Part 211 (also known as 21 Code of Federal
Regulations, Chapter 1, as such Guidelines and Requirements of Law are
applicable to ASD's activities, and VIVUS shall comply with all applicable
Requirements of Law related to the importation, manufacture, distribution,
labeling, storage, sale and handling of the Products and Samples.
(b) VIVUS agrees and does hereby represent and warrant to ASD
during the term of this Agreement that (1) all Samples and Products, and each
shipment of each, or other delivery now and hereafter made by VIVUS to or on the
order of ASD will not be, at the time of shipment or delivery, adulterated,
misbranded or otherwise prohibited within the meaning of the Act or within the
meaning of any applicable state or municipal law and (2) such
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Samples and Product is not, at the time of shipment or delivery to ASD,
merchandise which may not be introduced or delivered for introduction into
interstate commerce under the provisions of Sections 404 or 405 of the Act, and
(3) all such Samples and Products will be the subject of a duly approved NDA and
may be legally transported or sold under applicable Requirements of Law and
VIVUS guarantees that only those chemicals or sprays, and the amounts of such
chemicals or sprays, approved by Governmental Authority, have been used in any
of the Samples and Products, and (4) all Samples and Products have been duly
approved by all Governmental Authority for commercial sale and shipment within
the United States.
11. Corporate Authority. During the term of this Agreement, each party
continually represents and warrants to the other that: (a) it has full power and
authority to enter into this Agreement and perform and observe all obligations
and conditions to be performed or observed by it under this Agreement without
any restriction by any other agreement or otherwise, (b) the execution, delivery
and performance of this Agreement has been duly authorized by all necessary
corporate action of that Party,(c) this Agreement constitutes the legal, valid
and binding obligation of that Party, (d) no approvals, consents, orders or
authorizations of or designation, registration, declaration or filing with any
Governmental Authority (within, as a part of. or constituting the United States
of America) is required for the sale and distribution of the Samples or the
Products, (e) there is no action, proceeding, or investigation pending or, so
far as each party knows, threatened, which questions the validity of this
Agreement, the patents and licenses related to and for the Samples or the
Products, any actions taken or to be taken pursuant to this Agreement, and (f)
the Samples and the Products, or any part thereof, has been materially adversely
affected in any way as a result of any legislative or regulatory change, or any
revocation of license or right to manufacture, distribute, handle, store, sell
or market any of the Samples or the Products. EXCEPT FOR ANY EXPRESSED
REPRESENTATIONS, WARRANTIES, OR COVENANTS SET FORTH IN THIS AGREEMENT, VIVUS
MAKES NO OTHER WARRANTIES WITH RESPECT TO THE PRODUCTS, EXPRESS, IMPLIED,
STATUTORY OR COMMUNICATION WITH VIVUS, AND VIVUS SPECIFICALLY DISCLAIMS ANY
IMPLIED WARRANTY OF NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
12. Taxes. VIVUS shall pay when due all Taxes, excluding any personal
property tax associated with ASD's equipment used in connection with the
Services, and other taxes or similar charges now or hereafter imposed upon or as
a result of the Samples and/or the Marketing Materials, none of which have been
included in the fees payable to ASD under this Agreement. ASD shall maintain its
records for use by VIVUS to complete and file returns relating to such Taxes.
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13. Trademarks/Data. Neither Party shall have the right to use the name
of the other Party or the other Party's trademarks, service marks, logos, other
similar marks or data and information in any manner except with the prior
written approval of that Party. Data and information which shall be deemed to
belong to VIVUS will be the data and information related to the Products,
Samples and Marketing Materials. Data and information which shall be deemed to
belong to ASD shall be the data and information related to all goods, products
and services offered and sold by ASD (and not described in Exhibit A or Section
2 above) and all data and information relating to any of ASD's customers and
their respective profiles.
14. Confidentiality. (a) Each Party acknowledges that as a result of
this Agreement, that each Party shall learn Confidential Information of the
other Party. Neither Party shall disclose any Confidential Information of the
other Party to any person or entity, or use, or permit any person or entity to
use, any of such confidential information, excepting only: (a) disclosures on a
confidential basis to and use by the directors, officers, employees, and agents
of that Party, or its affiliates, who have a reasonable need to know such
information in connection with that Party's performance of this Agreement, and
(b) disclosures which are required by law, or legal process, as reasonably
determined by that Party or its legal counsel, or are made on a confidential
basis to that Party's attorneys, accountants, and other professional advisors in
connection with matters relating to this Agreement. The specific material terms
of this Agreement shall be deemed to be Confidential Information of each Party.
(b) The obligation of confidentiality hereunder shall survive the
termination of this Agreement for a period of three (3) years.
(c) Upon termination of this Agreement (for any reason) each Party
shall promptly: (i) return to the other Party or destroy all documentation and
other materials (including copies of original documentation or other materials)
containing any Confidential Information of the other Party; or (ii) certify to
the other Party, pursuant to a certificate in form and substance reasonably
satisfactory to the other Party, as to the destruction of all such documentation
and other materials.
15. Indemnification. (a) Each Party shall indemnify and hold harmless
the other and their respective Related Parties from and against all claims,
liabilities, losses, damages, costs and expenses (including without limitation
reasonable attorneys' fees) arising directly or indirectly out of any act or
omission of that Party or any failure of that Party to perform and observe fully
all obligations and conditions to be performed or observed
13
<PAGE> 14
by that Party pursuant to this Agreement or any breach of any warranty made by
that Party in this Agreement. Further, VIVUS does hereby protect, indemnify and
hold harmless ASD and its related parties from and against all claims,
liabilities, losses, damages, costs and expenses (including without limitation,
attorneys' fees and expenses) imposed upon or incurred by or asserted against
ASD and/or its Related Parties related to or arising from (1) any claim of
patent or copyright infringement and (2) any loss of or damage to property,
accident, injury to or death of a person or persons occurring or arising from
the storage, handling, use, non-use, demonstration, consumption, ingestion,
digestion, manufacture, production and assembly, of the Samples and the Products
and their transportation to ASD, excepting only for claims arising out of the
negligence of ASD or its employees. Further, ASD does hereby agree to protect,
indemnify and hold harmless VIVUS and its related parties from and against all
claims, liabilities, losses, damages, costs and expenses (including without
limitation, attorneys' fees and expenses) imposed upon or incurred by or
asserted against VIVUS and/or its Related Parties related to or arising from any
loss of or damage to property, accident, injury to or death of a person or
persons occurring or arising from the negligence of ASD (or its employees) and
the failure of ASD to substantially comply with written and mutually approved
SOP's and VIVUS directives, excepting here from, any act, negligence or omission
of VIVUS or its Related Parties. NOTWITHSTANDING THE FOREGOING OR ANY OTHER
PROVISION TO THE CONTRARY CONTAINED IN THIS AGREEMENT, NEITHER PARTY SHALL BE
LIABLE TO THE OTHER PARTY FOR ANY LOST PROFITS, CONSEQUENTIAL, INCIDENTAL,
INDIRECT, SPECIAL, OR OTHER SIMILAR DAMAGES ARISING OUT OF OR IN CONNECTION WITH
A BREACH OF THIS AGREEMENT OR ANY EXPENSES, CHARGES, COSTS OR LIABILITIES,
WHETHER FORESEEN OR UNFORESEEN, ARISING FROM OR RELATED TO THE ACT OF
TERMINATING THIS AGREEMENT.
(b) The obligations and liabilities of VIVUS or ASD with respect to ASD
Indemnified Claims or VIVUS Indemnified Claims, respectively, (collectively, the
"Indemnified Claims"), resulting from the assertion of liability by third
parties (each, a "Third Party Claim") shall be subject to the following terms
and conditions:
(i) The party claiming indemnification (the "Indemnified
Person") shall give prompt written notice to the other party of any Third Party
Claim which may give rise to a Third Party Claim against the other party (the
"Indemnifying Person"), stating the nature and basis of said Third Party Claim
and the amount thereof to the extent known. Each Notice of Claim shall be
accompanied by copies of all relevant documentation with respect to such Third
Party Claim, including, without limitation, any summons, complaint or other
pleading which may have been served or written demand or other document or
instrument.
14
<PAGE> 15
(ii) If the Indemnifying Person shall acknowledge in a writing
delivered to the Indemnified Persons that the Indemnifying Person shall be
obligated under the terms of its indemnity hereunder in connection with such
Third Party Claim, then the Indemnifying Person shall have the right to assume
the defense of any Third Party Claim at its own expense and by its own counsel
(reasonably satisfactory to the Indemnified Persons); provided, however, that
the Indemnifying Person shall not have the right to assume the defense of any
Third Party Claim, notwithstanding the giving of such written acknowledgment, if
(aa) such Third Party Claim seeks an injunction, restraining order, declaratory
relief or other nonmonetary relief and, if decided adversely, such Third Party
Claim could have a material adverse effect on the financial condition,
properties, assets, liabilities, business, operations or prospects of any of the
Indemnified Persons or (bb) the named parties to any such action or proceeding
(including any impleaded parties) include both the Indemnified Persons and the
Indemnifying Person and the former shall have been advised by counsel that there
are one or more legal or equitable defenses available to them which are
different from or additional to those available to the Indemnifying Person, and,
in the reasonable opinion of the Indemnified Persons, counsel for the
Indemnifying Person could not adequately represent the interests of the
Indemnified Persons because such interests could be in conflict with those of
the Indemnifying Person (any Third Party Claim of the type referred to in (aa)
or (bb) being a "Nonassumable Claim").
(iii) If, in accordance with the provisions of the preceding
subparagraph (ii), the Indemnifying Person shall assume the defense of a Third
Party Claim (other than a Nonassumable Claim), the Indemnifying Person shall not
be responsible for any legal or other defense costs subsequently incurred by the
Indemnified Persons in connection with the defense thereof. If the Indemnifying
Person does not exercise its right to assume the defense of such a Third Party
Claim by giving the written acknowledgment referred to in subparagraph (ii)
above or may not assume such defense pursuant to such subparagraph (ii) above,
then the Indemnified Persons may assume such defense and the costs, expenses and
reasonable attorneys' fees incurred shall continue to constitute Losses
hereunder.
(iv) Anything contained herein to the contrary
notwithstanding, neither the Indemnifying Person nor the Indemnified Persons
shall admit any liability with respect to, or settle, compromise or discharge,
any Third Party Claim without the written consent of the other, which consent
shall not be unreasonably withheld. In addition, each of the Indemnifying Person
and the Indemnified Persons shall cooperate and act in a reasonable and good
faith manner to minimize Losses relating to any Third Party Claim.
15
<PAGE> 16
(v) The foregoing indemnities shall not extend to any claims
arising out of one or more of: (aa) the incorrectness of any representation or
warranty made by Indemnified Person pursuant to this Agreement; (bb) the failure
by such Indemnified Person to perform or observe any agreement or covenant made
by it in this Agreement; or (cc) the willful misconduct or gross negligence of
such Indemnified Person.
16. Insurance. During the term of this Agreement: (a) each party will
maintain product liability and commercial general liability insurance having a
limit of not less than $1 million, pursuant to one or more insurance policies
with reputable insurance carriers; and (b) VIVUS shall maintain property damage
insurance for the Samples and Marketing Materials located at the ASD Facility or
in transit to or from the ASD Facility. Each party shall designate the other
party as an "additional insured" under all insurance policies referenced in this
paragraph. Prior to the Product Launch and the commencement of Services, each
party shall deliver to the other certificates evidencing such insurance. Neither
party shall cause or permit such insurance to be canceled or modified to
materially reduce its scope or limits of coverage during the term of this
Agreement. Except for any losses resulting from the negligence or intentional
misconduct of ASD (in which case ASD shall be liable for any damage or loss),
VIVUS shall bear all risk of loss or damage with respect to Samples or Marketing
Materials, whether located at the ASD Facility or otherwise. ASD shall bear all
risk of loss or damage with respect to Products purchased by ASD once said
Products are in ASD's possession.
17. Notices. Any notice or other communication required or desired to
be given to any Party under this Agreement shall be in writing and shall be
deemed given when: (a) deposited in the United States mail, first-class postage
prepaid, and addressed to that Party at the address for such Party set forth at
the end of this Agreement; (b) delivered to an express delivery service for
delivery to that Party at that address; or (c) sent by facsimile transmission,
with electronic confirmation, to that Party at its facsimile numbers set forth
at the end of this Agreement. Any Party may change its address or facsimile
number for notices under this Agreement by giving the other Party notice of such
change.
18. Arbitration. Subject to Section 19, below, any and all
disagreements or controversies arising out of or with respect to this Agreement
may, upon mutual agreement, be settled by binding arbitration to be held, and
the award made, in a county located in California, pursuant to the
then-applicable rules of the American Arbitration Association (to the extend not
inconsistent with this Agreement). Each Party shall bear the costs and expenses
of preparing and presenting its case at the arbitration.
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<PAGE> 17
All other costs and expenses of arbitration shall be borne by the Parties as
determined in the Arbitration.
19. Remedies. With respect to the provisions of Section 14 of this
Agreement, each Party acknowledges that in the event of any violation by that
Party of any of the provisions of Section 14 of this Agreement, the other Party
may suffer irreparable harm and its remedies at law may be inadequate.
Accordingly, in the event of any violation or attempted violation of any such
provisions of Section 14 by either Party, the other Party shall be entitled to
petition for a temporary restraining order, temporary and permanent injunctions,
specific performance, and other equitable relief. The rights and remedies of
each Party under this Agreement shall be cumulative and in addition to any other
rights or remedies available to such Party, whether under any other agreement,
at law, or in equity.
20. Governing Law. All questions concerning the validity or meaning of
this Agreement or relating to the rights and obligations of the Parties with
respect to performance under this Agreement shall be construed and resolved
under the laws of the State of California excluding the body of law relating to
conflicts of laws.
21. Severability. The intention of the Parties is to comply fully with
all laws and public policies, and this Agreement shall be construed consistently
with all laws and public policies to the extend possible. If and to the extent
that any court of competent jurisdiction determines that it is impossible to
construe any provision of this Agreement consistently with any law or public
policy and consequently holds that provision to be invalid, such holding shall
in no way affect the validity of the other provisions of this Agreement, which
shall remain in full force and effect.
22. Non-waiver. No failure by either Party to insist upon strict
compliance with any term of this Agreement, to exercise any option, to enforce
any right, or to seek any remedy upon any default of the other Party shall
affect, or constitute a waiver of, the first Party's right to insist upon strict
compliance, to exercise that option, to enforce that right, or to seek that
remedy with respect to that default or any prior, contemporaneous, or subsequent
default. No custom or practice of the Parties at variance with any provision of
this Agreement shall affect, or constitute a waiver of, that Party's right to
demand strict compliance with all provisions of this Agreement.
23. Force Majeure. If the performance of any part of this Agreement by
either Party shall be affected for any length of time by fire or other casualty,
government restrictions, war, riots, strikes or labor disputes, lock out,
transportation
17
<PAGE> 18
delays, electronic disruptions, telecommunication failures, and acts of God, or
any other causes which are beyond the control of the Parties (financial
inability excepted), such Party shall not be responsible for delay or failure of
performance of this Agreement for such length of time, provided, however, that
the obligation of one Party to pay amounts due to any other Party shall not be
subject to the provisions of this Section.
24. Captions. The captions of the various sections of this Agreement
are not part of the context of this Agreement, and are only labels to assist in
locating those sections, and shall be ignored in construing this Agreement.
25. Genders and Numbers. Where permitted by the context, each pronoun
in this Agreement includes the same pronoun in the other genders or numbers and
each noun used in this Agreement includes the same noun in other genders.
26. Complete Agreement. This Agreement contains the entire agreement
between the Parties and supersedes all prior or contemporaneous discussions,
negotiations, representations, warranties, or agreements relating to the subject
matter of this Agreement. No changes to this Agreement shall be made or be
binding on either Party unless made in writing and signed by both Parties. All
schedules, Exhibits, Appendixes referred to in this Agreement are incorporated
herein and made a part hereof as fully as if set forth herein.
27. Successors. Except as set forth in this Section, neither Party
shall have the right to assign this Agreement or any of such Party's rights or
obligations under this Agreement without the prior written consent of the other
Party, which consent shall not be unreasonably withheld. After providing written
notice to ASD, VIVUS may assign this Agreement to a party that succeeds to all
or substantially all of VIVUS's business or assets relating to this Agreement
whether by sale, merger, operation of law or otherwise.
28. Approvals. When this Agreement requires the approval of one or both
of the parties to this Agreement, each and every such approval sought will not
be unreasonably withheld by the party required to provide its approval.
29. Relationship of the Parties. The relationship of the Parties is and
shall be that of independent contractors. This Agreement does not establish or
create a partnership or joint venture among the Parties.
30. Interpretation. The parties have jointly negotiated this Agreement
and, thus, neither this Agreement nor any provision hereof shall be interpreted
for or against any party on
18
<PAGE> 19
the basis the party or the party's attorney drafted the Agreement or the
provision at issue.
19
<PAGE> 20
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by and against the respective successors and assigns of the Parties.
VIVUS, INC. ALTERNATE SITE DISTRIBUTORS,
INC.
By: /s/ LELAND F. WILSON By: /s/ STEVEN H. COLLIS
---------------------- ---------------------------
Leland F. Wilson Steven H. Collis
President and CEO VP and General Manager
Address and facsimile number: Address and facsimile number:
545 Middlefield Road, 2340 Trinity Mills Road,
Suite 200 Suite 250
Menlo Park, CA 94025 Carrollton, TX 75006
Attn: President Attn: General Manager
Facsimile (415) 325-5546 Facsimile (214) 416-4848
20
<PAGE> 21
APPENDIX A
"Act" means the Federal Food, Drug and Cosmetic Act, Title 21, United States
Code, as amended, and the regulations thereunder.
"Agreement" means this Distribution and Services Agreement dated _________,
1996, by and between VIVUS, Inc., a California Corporation, and Alternate Site
Distributors, Inc., a California Corporation, as may be amended from time to
time pursuant to the terms providing for such amendments.
"cGMP" shall have the meaning of current good manufacturing practices and
guidelines as published by the Federal Food & Drug Administration.
"Confidential Information" shall mean information, data considered confidential
by the party owning such information, whether visual, oral or in written form,
but does not include (1) information which is or becomes public without the
fault or participation of the other party to this Agreement or which is
responsive to legal process or obligation, (2) any information lawfully in the
receiving party's possession prior to the date the receiving party receives the
disclosing party's information, or (3) any information which either party
receives from a third party who rightfully possesses and discloses such
information.
"Drug" shall have the meaning as set forth in Section 321(g)(1) of the Act.
"Governmental Authority" shall mean any nation or government, any state or other
political subdivision thereof, or any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Marketing Materials" shall mean brochures, booklets, letters and pamphlets
intended to encourage the purchase and/or disbursing of the Products.
"MUSE" shall mean VIVUS's first products and application systems for the
treatment of erectile dysfunction.
"NDA" means a New Drug Application as defined in and contemplated by the Act.
"Person" or "Persons" means any corporation, natural person, firm, joint
venture, partnership, trust, unincorporated organization, government or any
department or agency of any government.
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<PAGE> 22
"Pre-Launch" shall mean that period of time between the date of the Agreement
and the date of Product Launch.
"Product Launch" shall mean the date selected by VIVUS after VIVUS obtains FDA
approval of the Products and upon which ASD is notified by VIVUS that MUSE may
be lawfully available for commercial sale and shipment.
"Product" or "Products" means the pharmaceutical and other products that are a
part of, or added to from time to time, to Exhibit A attached hereto and which
are intended for commercial sale.
"Related Parties" mean the successors, subsidiaries, parent corporations,
affiliates, Directors, employees, agents, representatives, related entities and
assigns of any Person.
"Requirement(s) of Law" means any law (including, without limitation, consumer
law), treaty, rule or regulation or a final and binding determination of an
arbitrator or a determination of a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Sample" or "Samples" means a product (as opposed to the term "Product(s)")
which is not intended to be sold and is labeled as such and is given free of
charge to promote sales.
"SEC" means the Securities and Exchange Commission.
"Taxes" shall mean any and all liabilities, losses, expenses, and costs of any
kind whatsoever that are, or are in the nature of taxes, fees, or other
governmental charges, including interest, penalties, fines and additions to tax
imposed by any Federal, state or local government or taxing authority in the
United States on or with respect to: (a) the Agreement or any related agreements
or any future amendment, supplement, waiver, or consent requested by VIVUS or
any required by the Agreement with respect to the execution, delivery or
performance of any thereof, or the issuance, acquisition or subsequent transfer
thereof, (b) any interest in the Samples or the Marketing Materials, or any part
thereof, (c) the return, acquisition, transfer of title, storage, removal,
replacement, substitution, purchase, acceptance, possession, rejection,
ownership, delivery, non-delivery, use, operation, sale, abandonment,
redelivery or other disposition of any interest in the Samples or the Marketing
Materials or any part thereof; (d) the receipts or earnings arising from any
interest in the Samples or the Marketing Materials or any part thereof; (e) any
payment made pursuant to this Agreement or to any of the Samples or the
Marketing Materials; or (f) otherwise as a result of or by reason of the
22
<PAGE> 23
transactions contemplated by this Agreement, excluding, however; taxes imposed
upon ASD that are based upon or measured by gross or net income and any
franchise Taxes of ASD or any personal property taxes for Products owned by ASD.
23
<PAGE> 24
EXHIBIT A
List of Products
MUSE alprostadil product line
24
<PAGE> 25
EXHIBIT B
VIVUS'S STANDARD OPERATING PROCEDURES
FOR HANDLING AND SHIPPING
SAMPLES
Pursuant to Sections 2(c) and 2(f) of the Distribution and Services
Agreement, Vivus is currently in the process of developing operating procedures
for handling and shipping samples.
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<PAGE> 26
EXHIBIT C
VIVUS RETURNED GOODS POLICY
Pursuant to Section 3(b) of the Distribution and Services Agreement, Vivus
is currently in the process of developing returned goods policy.
26
<PAGE> 27
EXHIBIT D
VIVUS TERMS AND CONDITIONS
FOR SPECIALTY DISTRIBUTOR CLASS
OF TRADE
Pursuant to Section 7 of the Distribution and Services Agreement, Vivus is
currently in the process of developing terms and conditions for specialty
distributor class of trade.
27
<PAGE> 1
McCANDLESS - TRIAD
AND
VIVUS, INC.
LEASE
<PAGE> 2
SUMMARY OF LEASE
MCCANDLESS - TRIAD
<TABLE>
<C> <C>
1. DATE OF LEASE:
2. LANDLORD: McCandless - Triad
3945 Freedom, Circle, Suite 640
Santa Clara, California 95054
3. TENANT: Vivus, Inc.,
a Delaware corporation
4. PREMISES: 535 Middlefield Read, Suite 230
Menlo Park, California
5. SQUARE FEET: 1,809 square feet
6. PERMITTED USER General office purposes
7. TERM: Three (3) years
(a) SCHEDULED COMMENCEMENT DATE: September 12, 1996
(b) SCHEDULED EXPIRATION DATE: September 11, 1999
5. RENT:
(a) BASIC RENT: $3,798.50 per month
(b) ADJUSTMENTS TO BASIC RENT: None
(c) TENANT'S ESTIMATED SHARE OF
DIRECT EXPENSES: $1,175.85 per month
9. SECURITY DEPOSIT: $4,974.75
10. PARKING SPACES PROVIDED: Seven (7) spaces
11. OTHER IMPORTANT PROVISIONS: Cross Default
</TABLE>
THIS SUMMARY OF LEASE IS INTENDED TO SUMMARIZE CERTAIN KEY PROVISIONS IN THE
ATTACHED LEASE. IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE
PROVISIONS OF THIS SUMMARY AND THE LEASE, THE PROVISIONS OF THE LEASE SHALL
GOVERN.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- --------------------------------------------------------------------------------
<S> <C>
1. USE
2. TERM
3. POSSESSION
4. MONTHLY RENT
S. ADJUSTMENT OF BASIC RENT AND DIRECT EXPENSES
6. RESTRICTION ON USE
7. COMPLIANCE WITH LAWS
8. ALTERATIONS
9. REPAIR AND MAINTENANCE
10. LIENS
11. INSURANCE
12. UTILITIES AND SERVICE
13. TAXES AND OTHER CHARGES
14. ENTRY BY LANDLORD
15. COMMON AREA; PARKING
16. DAMAGE BY FIRE; CASUALTY
17. INDEMNIFICATION
18. ASSIGNMENT AND SUBLETTING
19. DEFAULT
20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
21. EMINENT DOMAIN
22. NOTICE AND COVENANT TO SURRENDER
23. TENANT'S QUITCLAIM
24. HOLDING OVER
25. SUBORDINATION
26. CERTIFICATE OF ESTOPPEL
27. SALE BY LANDLORD
28. ATTORNMENT TO LENDER OR THIRD PARTY
29. DEFAULT BY LANDLORD
30. CONSTRUCTION CHANGES
31. MEASUREMENT OF PREMISES
32. ATTORNEY FEES
33. SURRENDER
34. WAIVER
35. EASEMENTS; AIRSPACE RIGHTS
36. RULES AND REGULATIONS
37. NOTICES
38. NAME
39. GOVERNING LAW; SEVERABILITY
40. DEFINITIONS
41. TIME
42. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE
43. ENTIRE AGREEMENT
44. CORPORATE AUTHORITY
45. RECORDING
46. REAL ESTATE BROKERS
47. EXHIBITS AND ATTACHMENTS
48. ENVIRONMENTAL MATTERS
49. SIGNAGE
50. SUBMISSION OF LEASE
51. PREMISES TAKEN AS IS
52. ADDITIONAL RENT
53. CROSS DEFAULT
</TABLE>
<PAGE> 4
MENLO McCANDLESS
OFFICE LEASE
THIS LEASE is made this 30th day of August 1996,
by and between McCANDLESS-TRIAD, a California general partnership
("Landlord"), and VIVUS, INC., a Delaware corporation ("Tenant").
W I T N E S S E T H :
Landlord leases to Tenant and Tenant leases from Landlord those certain
premises outlined in red on Exhibit A (the "Premises") commonly known as 535
Middlefield Road, Suite 230, Menlo Park, California, which Landlord and Tenant
hereby agree consists of approximately one thousand eight hundred nine (1,809)
square feet in Menlo McCandless Office Center (the "Project"). As used herein
the term Project shall mean and include all of the land shown on Exhibit B and
all the buildings, improvements, fixtures and equipment now or hereafter
situated on said land.
Tenant covenants, as a material part of the consideration of this
lease, to perform and observe each and all of the terms, covenants and
conditions set forth below, and this lease is made upon the condition of such
performance and observance.
1. USE
Subject to the restrictions contained in Paragraph 6,
Tenant shall use the Premises for general office purposes and shall not use or
permit the Premises to be used for any other purpose.
2. TERM
The term shall be for three (3) years (unless sooner
terminated as hereinafter provided) and shall commence on September 12, 1996
and end on September 11, 1999.
3. POSSESSION
(a) If Landlord for any reason cannot deliver possession of
the Premises to Tenant by the scheduled commencement date set forth in paragraph
2, this lease shall not be void or voidable, Landlord shall not be liable to
Tenant for any loss or damage on account thereof and Tenant shall not be liable
for rent until Landlord delivers possession of the Premises to Tenant. If the
term commences on a date other than specified in paragraph 2 above,
1
<PAGE> 5
then the parties shall immediately execute an amendment to this lease stating
the actual date of commencement and the revised expiration date. The expiration
date of the term shall be extended by the same number of days that Tenant's
possession of the Premises was delayed from that set forth in paragraph 2.
(b) Tenant's inability or failure to take possession of the
Premises when delivery is tendered by Landlord shall not delay the commencement
of the term of this lease or Tenant's obligation to pay rent. Tenant
acknowledges that Landlord shall incur significant expenses upon the execution
of this lease, even if Tenant never takes possession of the Premises, including
without limitation brokerage commissions and fees, legal fees and other
professional fees. Tenant acknowledges that all of said expenses shall be
included in measuring Landlord's damages should Tenant breach the terms of this
lease.
4. MONTHLY RENT
(a) Basic Rent. Tenant shall pay to Landlord as basic rent for
the Premises, in advance and subject to adjustment as provided in paragraph 5,
the sum of Three Thousand Seven-Hundred Ninety-Eight and 90/100 Dollars
($3,798.90) on or before-the-first day of the first full calendar month of the
term and on the first day of each and every successive calendar month. Basic
rent for any partial month shall be payable in advance and shall be prorated at
the rate of 1/30th of the monthly basic rent per day.
(b) Direct Expenses. In addition to the above basic rent and
as additional rent, Tenant shall pay to Landlord, subject to adjustment and
reconciliation as provided in paragraph 5(b) of this lease, the sum of One
Thousand One Hundred Seventy-Five and 85/100 Dollars ($1,175.85) on or before
the first day of the first full calendar month of the term and on the first day
of each and every successive calendar month, said sum representing Tenant's
estimated payment of its proportionate share of direct expenses as provided for
in paragraph 5(b) of this lease. Payment for direct expenses for any partial
month shall be payable in advance and shall be prorated at the rate of 1/30th of
the monthly payment for direct expenses per day.
(c) Manner and Place of Payment. All payments of basic rent
and direct expenses shall be paid to Landlord, without deduction or offset, in
lawful money of the United States of America, at the office of Landlord at 3945
Freedom Circle, Suite 640, Santa Clara, California 95054, or to such other
person or place as Landlord may from time to time designate in writing.
(d) First Month's Rent. Concurrently with Tenant's execution
of this lease, Tenant shall deposit with Landlord the sum Four Thousand Nine
Hundred Seventy-Four and 75/100 Dollars ($4,974.75) to be applied against the
basic rent and direct expenses for the first lease month of the term.
2
<PAGE> 6
(e) Security Deposit. Concurrently with Tenant's execution of
this lease, Tenant shall deposit with Landlord the sum of Four Thousand Nine
Hundred Seventy-Four and 75/100 Dollars ($4,974.75), which sum shall be held by
Landlord as a security deposit for the faithful performance by Tenant of all of
the terms, covenants and conditions of this lease to be kept and performed by
Tenant. If Tenant defaults with respect to any provision of this lease,
including but not limited to the provisions relating to the payment of basic
rent and direct expenses, Landlord may (but shall not be required to) use, apply
or retain all or any part of this security deposit for the payment of any amount
which Landlord may spend by reason of Tenant's default or to compensate Landlord
for any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said deposit is so used, Tenant shall, within ten
(10) days after written demand therefor, deposit cash with Landlord in the
amount sufficient to restore the security deposit to its original amount;
Tenant's failure to do so shall be a material breach of this lease. Landlord
shall not be required to keep this security deposit separate from its general
funds and Tenant shall not be entitled to interest on such deposit. If Tenant is
not in default at the expiration or termination of this lease, the security
deposit or any balance thereof shall be returned to Tenant after Tenant has
vacated the Premises. In the event of termination of Landlord's interest in this
lease, Landlord shall transfer said deposit to Landlord's successor in interest,
and Tenant agrees that Landlord shall thereupon be released from liability for
the return of such deposit or any accounting therefor.
5. ADJUSTMENT OF BASIC RENT AND DIRECT EXPENSES
(a) Adjustments to Basic Rent. The basic rent provided for in
paragraph 4(a) shall be adjusted periodically and the monthly basic rent for
each period shall be as set forth below:
There shall be no adjustments to basic rent during the initial
three (3) year lease term.
(b) Adjustments to Direct Expenses. Tenant's proportionate
share of direct expenses shall be one and ninety-five one hundredths percent
(1.95%) of all direct expenses as defined below.
Tenant shall be required to pay to Landlord, as additional
rent in accordance with paragraph 4(b) of this lease, Tenant's proportionate
share of direct expenses for each calendar year (or portion thereof) during the
term of this lease. Tenant's estimated share of the monthly direct expenses
payable by Tenant during the calendar year in which the term commences is set
forth in paragraph 4(b) of this lease. A written estimate of Tenant's monthly
share of direct expenses for each succeeding calendar year
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shall be delivered to Tenant prior to the commencement of each such succeeding
calendar year (or as soon as practicable thereafter). Tenant shall pay to
Landlord in accordance with paragraph 4(b) of this lease its monthly share of
direct expenses as estimated by Landlord. Landlord reserves the right to revise
such written estimate during a calendar year if Landlord's actual or projected
direct expenses shows an increase or decrease in excess of ten percent (10%)
from that of an earlier written estimate delivered to Tenant, and if Landlord
elects to revise the earlier estimate, Landlord shall deliver the revised
estimate to Tenant, together with an explanation of the reasons therefor, and
Tenant shall revise its payments accordingly. Statements of the actual direct
expenses for the calendar year in which the term commences and for each
succeeding calendar year (herein called "statement of actual direct expenses")
shall be delivered to Tenant within one hundred twenty (120) days following the
expiration of each such calendar year (or as soon as practicable thereafter). If
the statement of actual direct expenses for any such calendar year shows that
Tenant's proportionate share of actual direct expenses for the year is in excess
of the aggregate amount Tenant has paid as direct expenses for that calendar
year, Tenant shall pay such excess to Landlord within ten (10) days after
receipt of the statement of actual direct expenses. If Tenant fails to pay such
excess amount due within said ten (10) day period, Tenant shall pay an
additional ten percent (10%) of the amount due as a penalty. In the event that
any statement of actual direct expenses shall show that Tenant has paid
Landlord an aggregate amount in excess of the actual direct expenses for the
preceding calendar year and Tenant is not in default in the performance or
observance of any of the terms, covenants or conditions of this lease at the
time such statement of actual direct expenses is delivered, Landlord shall, at
its option, promptly either refund such excess to Tenant or credit the amount
thereof to the monthly direct expenses next becoming due from Tenant. The
respective obligations of Landlord and Tenant under this paragraph shall survive
the expiration or other termination of this lease.
As used in this lease, "direct expenses" shall include, but
not be limited to, (i) real property taxes, assessments, and other costs
identified as direct expenses in paragraph 13; (ii) insurance premiums and other
costs identified as direct expenses in paragraph 11; (iii) the cost of all
utilities and services including water, gas and sewer charges, electricity, heat
air conditioning, refuse collection, and janitorial services identified as
direct expenses in paragraph 12; (iv) the costs of operating and maintaining the
Common Area identified as direct expenses in paragraph 15, including, but not
limited to, the landscaping, elevators, parking lots, paving, sidewalks,
showers, and security and exterminator services; (v) the costs and expenses of
maintaining and repairing the Project identified as direct expenses in paragraph
9, including, but not limited to, mechanical, electrical, plumbing and sewage
systems, windows, glazing, gutters, downspouts, heating and ventilating and air
conditioning systems,
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walls, floorcoverings, roofs, structural elements, exterior walls and the cost
of maintenance contracts and supplies, materials, equipment and tools used in
connection therewith; (vi) the cost of certain alterations identified as direct
expenses in paragraph 8; (vii) amortization of such capital improvements having
a useful life greater than one year as Landlord may have installed for the
purpose of reducing operating costs and/or to comply with all laws, rules and
regulations of federal, state, county, municipal and other governmental
authorities now or hereinafter in effect (Tenant's share of such capital
improvement shall equal Tenant's proportionate share of the fraction of the cost
of such capital improvement equal to the remaining term of the lease over the
useful life of such capital improvement); (viii) wages, salaries, employee
benefits (including union benefits) and related expenses of all on-site and
off-site personnel engaged in the operation, management and maintenance of the
Project (or the building in which the Premises are located) and payroll taxes
applicable thereto and all costs incurred to maintain a management office in or
near the Premises (including, without limitation, rental payments therefor or
the reasonable rental value of the space so occupied); (ix) supplies, materials,
equipment and tools used or required in connection with the operation and
maintenance of the Project; (x) licenses, permits and inspection fees; (xi) a
reasonable reserve for repairs and replacement of equipment used in the
maintenance and operation of the Project; (xii) all other operating costs
incurred by Landlord in maintaining and operating the Project; and (xiii) a
management cost recovery as determined by Landlord equal to five percent (5%)
of the sum of the basic rent and the aggregate of all other direct expenses for
the Project as compensation for Landlord's accounting, administrative and
processing services.
6. RESTRICTION ON USE
Tenant shall not do or permit to be done in or about the
Premises or the Project, nor bring or keep or permit to be brought or kept in or
about the Premises or Project, anything which is prohibited by or will in any
way increase the existing rate of, or otherwise affect, fire or any other
insurance covering the Project or any part thereof, or any of its contents, or
will cause a cancellation of any insurance covering the Project or any part
thereof, or any of its contents. Tenant shall not do or permit to be done
anything in or about the Premises or the Project which will constitute waste or
which will in any way obstruct or interfere with the rights of other tenants or
occupants of the Project or injure or annoy them, or use or allow the Premises
to be used for any unlawful purpose, nor shall Tenant cause, maintain or permit
any nuisance in or about the Premises or the Project. No loudspeaker or other
device, system or apparatus which can be heard outside the Premises shall be
used in or at the Premises without the prior written consent of Landlord. Tenant
shall not use the Premises for sleeping, washing clothes, cooking or in any
manner that will cause or emit any objectionable odor, noise or light into the
adjoining premises or Common Area. Tenant shall not do
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anything on the Premises that will cause damage to the Project and Tenant shall
not overload the floor capacity of the Premises or the Project. No machinery,
apparatus or other appliance shall be used or operated in or on the Premises
that will in any manner injure, vibrate or shake the Premises. Landlord shall be
the sole judge of whether such odor, noise, light or vibration is
such as to violate the provisions of this paragraph. No waste materials or
refuse shall be dumped upon or permitted to remain upon any part of the Premises
or the Project except in trash containers placed inside exterior enclosures
designated for that purpose by Landlord, or where otherwise designated by
Landlord; and no toxic or hazardous materials shall be disposed of through the
plumbing or sewage system. No materials, supplies, equipment, finished products
or semi-finished products, raw materials or articles of any nature shall be
stored or permitted to remain outside of the building proper. No retail sales
shall be made on the Premises.
7. COMPLIANCE WITH LAWS
Tenant shall, in connection with its use and occupation
of the Premises, at its sole cost and expense, promptly observe and comply with
(i) all laws, statutes, ordinances and governmental rules, regulations and
requirements of federal, state, county, municipal and other governmental
authorities, now or hereafter in effect, which shall impose any duty upon
Landlord or Tenant with respect to the use, occupancy or alteration of the
Premises, (ii) with the requirements of any board of fire underwriters or other
similar body now or hereafter constituted and (iii) with any direction or
occupancy certificate issued pursuant to law by any public authority; provided,
however, that no such failure shall be deemed a breach of these provisions if
Tenant, immediately upon notification, commences to remedy or rectify said
failure. The judgment of any court of competent jurisdiction or the admission of
Tenant in any action against Tenant (whether or not Landlord is a party thereto)
that Tenant has violated any such law, statute, ordinance or governmental rule,
regulation, requirement, direction or provision, shall be conclusive of that
fact as between Landlord and Tenant. This lease shall remain in full force and
effect notwithstanding any loss of use or other effect on Tenant's enjoyment of
the Premises by reason of any governmental laws, statutes, ordinances, rules,
regulations and requirements now or hereafter in effect.
8. ALTERATIONS
Tenant shall not make or suffer to be made any alteration,
addition or improvement to or of the Premises or any part thereof (collectively
referred to herein as "alterations") without (i) the prior written consent of
Landlord, which consent shall not be unreasonably withheld, (ii) a valid
building permit issued by the appropriate governmental authority and (iii)
otherwise complying with all applicable laws, regulations and requirements of
governmental agencies having jurisdiction and with
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the rules, regulations and requirements of any board of fire underwriters or
similar body. Landlord's consent to any requested alteration shall not create on
the part of Landlord or cause Landlord to incur any responsibility or liability
for such alteration's compliance with all laws, rules and regulations of
federal, state, county, municipal and other governmental authorities. Any
alteration made by Tenant (excluding moveable furniture and trade fixtures not
attached to the Premises) shall at once become a part of the Premises and belong
to Landlord. Without limiting the foregoing, all heating, lighting, electrical
(including all wiring, conduit, outlets, drops, buss ducts, main and subpanels),
air conditioning, partitioning, drapery, window covering and carpet
installations made by Tenant, regardless of how attached to the Premises,
together with all other alterations that have become an integral part of the
Project in which the Premises are a part, shall upon installation be and become
part of the Premises and belong to Landlord and shall not be deemed trade
fixtures. All such alterations shall remain upon and be surrendered with the
Premises at the termination of the lease.
If Landlord consents to the making of any alteration by
Tenant, the same shall be made by Tenant at its sole risk, cost and expense
and only after Landlord's written approval of any contractor or person selected
by Tenant for that purpose, and the same shall be made at such time and in such
manner as Landlord may from time to time designate. Tenant shall, if required by
Landlord, secure at Tenant's costs a completion and lien indemnity bond for such
work. Upon the expiration or sooner termination of the term, Landlord may, at
its sole option,, require Tenant, at Tenant's sole cost and expense, to promptly
both remove any such alteration made by Tenant and designated by Landlord to be
removed and repair any damage to the Premises caused by such removal. Any
moveable furniture and equipment or trade fixtures remaining on the Premises at
the expiration or other termination of the term shall become the property of the
Landlord unless promptly removed by Tenant.
If during the term any alteration, addition or change of the
Premises is required by law, regulation, ordinance or order of any public
authority, Tenant, at its sole cost and expense, shall promptly make the same.
If during the term any alterations, additions or changes to the Common Area or
to the Project in which the Premises is located is required by law, regulation,
ordinance or order of any public or quasi-public authority, and it is
impractical, in Landlord's judgment, for the affected tenants to individually
make such alterations, additions or changes, Landlord shall make such
alterations, additions or changes and the cost thereof shall be a direct expense
and Tenant shall pay its percentage share of such cost to Landlord as provided
in paragraphs 4 and 5.
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9. REPAIR AND MAINTENANCE
Subject to paragraph 16, Landlord shall maintain and keep
in good repair the Common Area and the mechanical, electrical, plumbing and
sewage systems, windows, window frames, plate glass glazing, elevators, gutters
and downspouts, the roof, exterior walls, structural elements and the heating,
ventilating and air conditioning systems (excepting special air conditioning of
Tenant's computer room(s) as set forth below) of the Premises and the Project;
provided, however, that Landlord shall not be required to perform repairs made
necessary by the negligence or abuse of such improvements or property by Tenant
or its employees, agents, subtenants or permitees. The cost of all maintenance
and repairs made by Landlord pursuant to this paragraph 9, including without
limitation maintenance contracts and supplies, materials, equipment and tools
used in such repairs and maintenance, shall be direct expenses and Tenant shall
pay its percentage share of such costs to Landlord as provided in paragraphs 4
and 5.
By entry hereunder Tenant accepts the Premises as being in
good and sanitary order, condition and repair. Subject to paragraphs 16 and 21,
and excepting repairs and maintenance required by this paragraph 9 to be made by
Landlord, Tenant at its cost shall keep the Premises and every part thereof in
good and sanitary order, condition and repair, and Tenant shall be solely
responsible for the cost and maintenance of, and electricity supplied to, any
special air conditioning for Tenant's computer facilities. Further, Tenant shall
repair (or, at the option of Landlord, reimburse Landlord if Landlord elects to
repair) damage to improvements or other property located on or about the Project
where such repairs are made necessary by the negligence of or abuse of such
improvement or other property by Tenant or its employees, agents, subtenants or
permitees. Tenant waives all rights and benefits under California Civil Code
Sections 1932(l), 1941, and 1942 and under any similar law, statute or ordinance
now or hereafter in effect.
10. LIENS
Tenant shall keep the Premises and the Project free from any
liens arising out of any work performed, materials furnished or obligations
incurred by Tenant, its agents, employees or contractors. Upon Tenant's receipt
of a preliminary twenty (20) day notice filed by a claimant pursuant to
California Civil Code Section 3097, Tenant shall immediately provide Landlord
with a copy of such notice. Should any lien be recorded against the Project,
Tenant shall give immediate notice of such lien to Landlord. In the event that
Tenant shall not, within ten (10) days following the imposition of such lien,
cause the same to be released of record, Landlord shall have, in addition to all
other remedies provided herein and by law, the right, but no obligation, to
cause the same to be released by such means as it shall deem proper, including
payment of the claim giving rise to such lien. All sums paid by
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Landlord for such purpose, and all expenses (including attorney's fees)
incurred by it in connection therewith, shall be payable to Landlord by Tenant
on demand with interest at the rate of twelve percent (12%) per annum or the
maximum rate permitted by law, whichever is less. Landlord shall have the
right at all times to post and keep posted on the Premises any notices
permitted or required by law, or which Landlord shall deem proper for the
protection of Landlord, the Premises and the Project and any other party
having an interest therein, from mechanics' and materialmen's liens and
like liens. Tenant shall give Landlord at least fifteen (15) days' prior
written notice of the date of commencement of any construction on the Premises
in order to permit the posting of such notices. In the event Tenant is
required to post an improvement bond with a public agency in connection with
any work performed by Tenant on or to the Premises, Tenant shall include
Landlord as an additional obligee.
11. INSURANCE
Tenant, at its sole cost and expense, shall keep in force
during the term (i) commercial general liability and property damage insurance
with a combined single limit of at least $2,000,000 per occurrence insuring
against personal or bodily injury to or death of persons occurring in, on or
about the Premises or Project and any and all liability of the insureds with
respect to the Premises or arising out of Tenant's maintenance, use or
occupancy of the Premises and all areas appurtenant thereto, (ii) direct
physical loss-special insurance covering the leasehold improvements in the
Premises and all of Tenant's equipment, trade fixtures, appliances, furniture,
furnishings, and personal property from time to time located in, on or about
the Premises, with coverage in the amount of the full replacement cost
thereof, and (iii) Worker's Compensation Insurance as required by law,
together with employer's liability coverage with a limit of not less than
$1,000,000 for bodily injury for each accident and for bodily injury by
disease for each employee. Tenant's commercial general liability and property
damage insurance and Tenant's Workers Compensation Insurance shall be endorsed
to provide that said insurance shall not be cancelled or reduced except upon
at least thirty (30) days prior written notice to Landlord. Further, Tenant's
commercial general liability and property damage insurance shall be primary
and shall be endorsed to provide that Landlord and McCandless Management
Corporation, and their respective partners, officers, directors and employees
and such other persons or entities as directed from time to time by Landlord
shall be named as additional insureds for all liability using ISO Bureau Form
CG20111185 (or a successor form) or such other endorsement form reasonably
acceptable to Landlord; shall contain a severability of interest clause and a
cross-liability endorsement; shall be endorsed to provide that the limits and
aggregates apply per location using ISO Bureau Form CG25041185 (or a successor
form) or such other endorsement form reasonably acceptable to Landlord; and
shall be issued by an insurance company admitted to transact
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business in the State of California and rated A+VIII or better in Best's
Insurance Reports (or successor report). The deductibles for all insurance
required to be maintained by Tenant hereunder shall be satisfactory to Landlord.
The commercial general liability insurance carried by Tenant shall specifically
insure the performance by Tenant of the indemnification provisions set forth in
paragraph 17 of this lease provided, however, nothing contained in this
paragraph 11 shall be construed to limit the liability of Tenant under the
indemnification provisions set forth in said paragraph 17. If Landlord or any
of the additional insureds named on any of Tenant's insurance, have other
insurance which is applicable to the covered loss on a contributing, excess or
contingent basis, the amount of the Tenant's insurance company's liability under
the policy of insurance maintained by Tenant shall not be reduced by the
existence of such other insurance. Any insurance carried by Landlord or any of
the additional insureds named on Tenant's insurance policies shall be excess and
non-contributing with the insurance so provided by Tenant.
Tenant shall, prior to the commencement of the term and at
least thirty (30) days prior to any renewal date of any insurance policy
required to be maintained by Tenant pursuant to this paragraph, provide
Landlord with a completed Certificate of Insurance, using a form acceptable in
Landlord's reasonable judgment, attaching thereto copies of all endorsements
required to be provided by Tenant under this lease. Tenant agrees to increase
the coverage or otherwise comply with changes in connection with said commercial
general liability, property damage, direct physical loss and Worker's
Compensation Insurance as Landlord or Landlord's lender may from time to time
require.
Landlord shall obtain and keep in force a policy or policies
of insurance covering loss or damage to the Premises and Project, in the amount
of the full replacement value thereof, providing protection against those perils
included within the classification of "all risk" insurance, with increased cost
of reconstruction and contingent liability (including demolition), plus a policy
of rental income insurance in the amount of one hundred percent (100%) of twelve
(12) months' rent (including sums paid as additional rent) and such other
insurance as Landlord or Landlord's lender may from time to time require.
Landlord may, but shall not be obligated to, obtain flood and/or earthquake
insurance. Landlord shall have no liability to Tenant if Landlord elects not to
obtain flood and/or earthquake insurance. The cost of all such insurance
purchased by Landlord, plus any charges for deferred payment of premiums and the
amount of any deductible incurred upon any covered loss within the Project,
shall be direct expenses and Tenant shall pay to Landlord its percentage share
of such costs as provided in paragraphs 4 (b) and 5 (b). If the cost of
insurance is increased due to Tenant's use of the Premises, then Tenant shall
pay to Landlord upon demand the full cost of such increase.
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Landlord and Tenant hereby mutually waive any and all rights
of recovery against one another for real or personal property loss or damage
occurring to the Premises or the Project, or any part thereof, or to any
personal property therein, from perils insured against under fire and extended
insurance and any other property insurance policies existing for the benefit of
the respective parties so long as such insurance permits waiver of liability and
contains a waiver of subrogation without additional premiums.
If Tenant does not take out and maintain insurance as required
pursuant to this paragraph 11, Landlord may, but shall not be obligated to, take
out the necessary insurance and pay the premium therefor, and Tenant shall repay
to Landlord promptly on demand, as additional rent, the amount so paid. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
additional rent, any and all reasonable expenses (including attorney fees) and
damages which Landlord may sustain by reason of the failure of Tenant to obtain
and maintain such insurance, it being expressly declared that the expenses and
damages of Landlord shall not be limited to the amount of the premiums thereon.
12. UTILITIES AND SERVICE
Landlord shall furnish to the Premises and to the
Project, during reasonable hours of generally recognized business days, to be
determined by Landlord, and subject to the rules and regulations of the Project,
reasonable quantities of water, gas and electricity suitable for the intended
use of the Premises and the Project, heat and air conditioning required in
Landlord's judgment for the comfortable use and occupation of the Premises and
the Project, refuse collection and janitorial services. Tenant agrees that at
all times it will cooperate fully with Landlord and abide by all regulations and
requirements that Landlord may prescribe for the proper functioning and
protection of the heating, ventilating and air conditioning systems. The cost of
all utilities and services furnished by Landlord to the Premises and to the
Project pursuant to this paragraph 12 shall be direct expenses and Tenant shall
pay its percentage share of such costs to Landlord as provided in paragraphs 4
and 5.
Landlord shall not be liable for, and Tenant shall not be
entitled to any abatement or reduction of rent by reason of, Landlord's failure
to furnish any of the foregoing services when such failure is caused by
accident, breakage, repairs, strikes, lockouts or other labor disturbances or
labor disputes of any character, governmental moratoriums, regulations or other
governmental actions, or by any other cause, similar or dissimilar, beyond the
reasonable control of Landlord. In addition Tenant shall not be relieved from
the performance of any covenant or agreement in this lease because of any such
failure, and no eviction of Tenant shall result from such failure.
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Tenant will not, without the written consent of Landlord, use
any apparatus or device in the Premises (including, without limitation,
electronic data processing machines, punch card machines or machines using
current in excess of 110 volts) which will in any way increase the amount of
electricity, water or air conditioning usually furnished or supplied to the
Premises in the Project being used as general office space, or connect with
electric current (except through existing electrical outlets in the Premises) or
with water pipes any apparatus or device for the purpose of using electric
current or water. If Tenant shall require water or electric current in excess of
that usually furnished or supplied to the Premises in the Project being used as
general office space, then Tenant shall first obtain the written consent of
Landlord, which consent shall not be unreasonably withheld, and Tenant shall pay
to Landlord promptly on demand, as additional rent, the full cost of such excess
use. Landlord may cause an electric current or water meter to be installed in
the Premises in order to measure the amount of electric current or water
consumed for any such excess use. The cost of any such meter and of the
installation, maintenance and repair thereof, and all charges for such excess
water and electric current consumed (as shown by meters and at the rates then
charged by the furnishing public utility) plus any additional expense
incurred by Landlord in keeping account of electric current or water so
consumed, shall be paid by Tenant, and Tenant agrees to pay Landlord therefor
promptly upon demand by Landlord. Whenever heat generating machines or equipment
are used in the Premises by Tenant which affect the temperature otherwise
maintained by the air conditioning system, Landlord shall have the right to
install supplementary air conditioning units in the Premises and the cost
thereof, including the cost of installation and the cost of operation and
maintenance thereof, shall be paid by Tenant to Landlord, as additional rent,
upon demand by Landlord.
13. TAXES AND OTHER CHARGES
All real estate taxes and assessments and other taxes,
fees and charges of every kind or nature, foreseen or unforeseen, which are
levied, assessed or imposed upon Landlord and/or against the Premises, building,
Common Area or Project or any part thereof by any federal, state, county,
regional, municipal or other governmental or quasi-governmental authority,
together with any increases therein whether resulting from increased rate and/or
valuation, shall be a direct expense and Tenant shall pay its percentage share
of such costs to Landlord as provided in paragraphs 4 and 5. By way of
illustration and not limitation, "other taxes, fees and charges" as used herein
include any and all taxes payable by Landlord (other than state and federal
personal or corporate income taxes measured by the net income of Landlord from
all sources, premium taxes, and Landlord's franchise, estate, inheritance and
gift taxes), whether or not now customary or within the contemplation of the
parties hereto, (i) upon, allocable to, or measured by the rent payable
hereunder, including, without
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limitation, any gross income or excise tax levied by the local, state or federal
government with respect to the receipt of such rent, (ii) upon or with respect
to the possession, leasing, operation, management, maintenance, alteration,
repair, use or occupancy by Tenant of the Premises or any part thereof, (iii)
upon or measured by the value of Tenant's personal property or leasehold
improvements located in the Premises, (iv) upon this transaction or any document
to which Tenant is a party creating or transferring an interest or estate in the
Premises, (v) upon or with respect to vehicles, parking or the number of persons
employed in or about the Project, and (vi) any tax, license, franchise fee or
other imposition upon Landlord which is otherwise measured by or based in whole
or in part upon the Project or any portion thereof. If Landlord contests any
such tax, fee or charge, the cost and expense incurred by Landlord thereby
(including, but not limited to, costs of attorneys and experts) shall also be
direct expenses and Tenant shall pay its percentage share of such costs to
Landlord as provided in paragraphs 4 and 5. In the event the Premises and any
improvements installed therein by Tenant or Landlord are valued by the assessor
disproportionately higher than those of other tenants in the building or Project
or in the event alterations or improvements are made to the Premises, Tenant's
percentage share of such taxes, assessments, fees and/or charges shall be
readjusted upward accordingly and Tenant agrees to pay such readjusted share.
Such determination shall be made by Landlord from the respective valuations
assigned in the assessor's work sheet or such other information as may be
reasonably available and Landlord's determination thereof shall be conclusive.
Tenant agrees to pay, before delinquency, any and all taxes
levied or assessed during the term hereof upon Tenant's equipment, furniture,
fixtures and other personal property located in the Premises, including
carpeting and other property installed by Tenant notwithstanding that such
carpeting or other property has become a part of the Premises. If any of
Tenant's personal property shall be assessed with the Project, Tenant shall pay
to Landlord, as additional rent, the amounts attributable to Tenant's personal
property within ten (10) days after receipt of a written statement from Landlord
setting forth the amount of such taxes, assessments and public charges
attributable to Tenant's personal property.
14. ENTRY BY LANDLORD
Landlord reserves, and shall at all reasonable times
have, the right to enter the Premises (i) to inspect the Premises, (ii) to
supply services to be provided by Landlord hereunder, (iii) to show the Premises
to prospective purchasers, lenders or tenants and to put' for sale' or 'for
lease' signs thereon, (iv) to post notices required or allowed by this lease or
by law, (v) to alter, improve or repair the Premises and any portion of the
Project, and (vi) to erect scaffolding and other necessary structures in or
through the Premises or the Project where reasonably required by
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the character of the work to be performed. Landlord shall not be liable in any
manner for any inconvenience, disturbance, loss of business, nuisance or other
damage arising from Landlord's entry and acts pursuant to this paragraph 14 and
Tenant shall not be entitled to an abatement or reduction of rent if Landlord
exercises any rights reserved in this paragraph 14. For each of the foregoing
purposes, Landlord shall at all times have and retain a key with which to unlock
all of the doors in, on and about the Premises (excluding Tenant's vaults, safes
and similar areas designated in writing by Tenant in advance), and Landlord
shall have the right to use any and all means which Landlord may deem proper to
open said doors in an emergency in order to obtain entry to the Premises. Any
entry by Landlord to the Premises pursuant to this paragraph 14 shall not under
any circumstances be construed or deemed to be a forcible or unlawful entry
into or a detainer of the Premises or an eviction, actual or constructive, of
Tenant from the Premises or any portion thereof.
15. COMMON AREA; PARKING
Subject to the terms and conditions of this lease and
such rules and regulations as Landlord may from time to time prescribe, Tenant
and Tenant's employees and invitees shall, in common with other occupants of the
Project, and their respective employees and invitees and others entitled to the
use thereof, have the nonexclusive right to use those areas of the Common Area
provided and designated by Landlord for the general use and convenience of the
occupants of the Project (which areas and facilities shall include, but not be
limited to, common lobbies, corridors, restrooms and showers; telephone,
electrical, janitorial and mechanical rooms; elevators, stairwells, vertical
duct shafts; sidewalks; parking, refuse, landscape and plaza areas, roofs,
building exteriors, electrical, mechanical, plumbing and HVAC systems; and
storage areas), which areas and facilities are referred to herein as "Common
Area". This right shall terminate upon the termination of this lease.
Landlord reserves the right from time to time to make changes
in the shape, size, location, amount and extent of the Common Area. Landlord
shall also have the right at any time to change the name, number or designation
by which the Project is commonly known. Landlord further reserves the right to
promulgate such rules and regulations relating to the use of the Common Area,
and any part thereof, as Landlord may deem appropriate for the best interests of
the occupants of the Project. The rules and regulations shall be binding upon
Tenant upon delivery of a copy of them to Tenant and Tenant shall abide by them
and cooperate in their observance. Such rules and regulations may be amended by
Landlord from time to time, with or without advance notice.
Tenant shall have the nonexclusive use of seven (7) parking
spaces in the Common Area as designated from time to time by Landlord. Landlord
reserves the right at its sole option to
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assign and label parking spaces, but it is specifically agreed that Landlord is
not responsible for policing any such parking spaces. Tenant shall not at any
time park or permit the parking of Tenant's trucks or other vehicles, or the
trucks or other vehicles of others, adjacent to loading areas so as to interfere
in any way with the use of such areas; nor shall Tenant at any time park or
permit the parking of Tenant's vehicles or trucks, or the vehicles or trucks of
Tenant's suppliers or others, in any portion of the Common Area not designated
by Landlord for such use by Tenant. Tenant shall not park or permit any
inoperative vehicle or equipment to be parked on any portion of the Common Area.
Landlord shall operate, manage and maintain the Common Area.
The manner in which the Common Area shall be operated, managed and maintained
and the expenditures for such operation, management and maintenance shall be at
the sole discretion of Landlord. The cost of such maintenance, operation and
management of the Common Area, together with the costs of security and
exterminator services and salaries and employee benefits (including union
benefits) of on-site and accounting personnel engaged in such maintenance and
operations management, shall be a direct expense and Tenant shall pay to
Landlord its percentage share of such costs as provided in paragraphs 4 and 5.
16. DAMAGE BY FIRE; CASUALTY
In the event the Premises are damaged by any casualty
which is covered under an insurance policy required to be maintained by Landlord
pursuant to paragraph 11, Landlord shall be entitled to the use of all insurance
proceeds and shall repair such damage as soon as reasonably possible and this
lease shall continue in full force and effect.
In the event the Premises are damaged by any casualty not
covered under an insurance policy required to be maintained pursuant to
paragraph 11, Landlord may, at Landlord's option, either (i) repair such damage,
at Landlord's expense, as soon as reasonably possible, in which event this lease
shall continue in full force and effect, or (ii) give written notice to Tenant
within thirty (30) days after the date of the occurrence of such damages of
Landlord's intention to cancel and terminate this lease as of the date of the
occurrence of the damages; provided, however, that if such damage is caused by
an act or omission of Tenant or its agent, servants or employees, then Tenant
shall repair such damage promptly at its sole cost and expense. In the event
Landlord elects to terminate this lease pursuant hereto, Tenant shall have the
right within ten (10) days after receipt of the required notice to notify
Landlord in writing of Tenant's intention to repair such damage at Tenant's
expense, without reimbursement from Landlord, in which event this lease shall
continue in full force and effect and Tenant shall proceed to make such repairs
as soon as reasonably possible. If Tenant does not give such notice within the
ten (10) day period, this lease shall be cancelled and terminated as of the
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date of the occurrence of such damage. Under no circumstances shall Landlord be
required to repair any injury or damage to (by fire or other cause), or to make
any restoration or replacement of, any of Tenant's personal property, trade
fixtures or property leased from third parties, whether or not the same is
attached to the Premises.
If the Premises are totally destroyed during the term from any
cause (including any destruction required by any authorized public authority),
whether or not covered by the insurance required under paragraph 11, this lease
shall automatically terminate as of the date of such total destruction;
provided, however, that if the Premises can reasonably and lawfully be repaired
or restored within twelve (12) months of the date of destruction to
substantially the condition existing prior to such destruction and if the
proceeds of the insurance payable to the Landlord by reason of such destruction
are sufficient to pay the cost of such repair or restoration, then the said
insurance proceeds shall be so applied, Landlord shall promptly repair and
restore the Premises and this lease shall continue, without interruption, in
full force and effect. If the Premises are totally destroyed during the last
twelve (12) months of the term, Landlord may at Landlord's option cancel and
terminate this lease as of the date of occurrence of such damage by giving
written notice to Tenant of Landlord's election to do so within thirty (30) days
after the occurrence of such damage.
Notwithstanding anything contained in this paragraph 16 to the
contrary, in the event thirty percent (30%) or more of the total square footage
of the Premises is rendered untenantable by fire or other casualty not resulting
from Tenant's, its agents, servants, employees, contractors or invitees acts or
omissions and Landlord does not repair and restore such damaged portion of the
Premises to a tenantable condition within sixty (60) days after the date of the
occurrence of such damage, then Tenant may, at Tenant's option, give written
notice to Landlord within the first thirty (30) days after such sixty (60) day
period of Tenant's election to terminate this lease effective as of the sixtieth
(60th) day after the date of occurrence of such damage. If Tenant does not give
written notice to Landlord of Tenant's election to terminate this lease within
such thirty (30) day period, this lease shall remain in full force and effect
and Tenant's right to terminate this lease pursuant to the foregoing sentence
shall lapse and be of no further force or effect.
If the Premises are partially or totally destroyed or damaged
and Landlord or Tenant repair them pursuant to this lease, the rent payable
hereunder for the period during which such damage and repair continues shall be
abated only in proportion to the square footage of the Premises rendered
untenantable to Tenant by such damage or destruction. Tenant shall have no claim
against Landlord for any damage, loss or expense suffered by reason of any such
damage, destruction, repair or restoration. The parties waive
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the provisions of California Civil Code Sections 1932(2) and 1933(4) (which
provisions permit the termination of a lease upon destruction of the leased
premises) , and hereby agree that the provisions of this paragraph 16 shall
govern in the event of such destruction.
17. INDEMNIFICATION
Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises or the Project by
or from any cause whatsoever except the failure of Landlord to perform its
obligations under this lease where such failure has persisted for an
unreasonable period of time after notice of such failure. Without limiting the
foregoing, Landlord shall not be liable to Tenant for any injury to or death of
any person or damages to or destruction of property by reason of, or arising
from, any latent defect in the Premises or Project or the act or negligence of
any other tenant of the Project. Tenant shall immediately notify Landlord of any
defect in the Premises or Project.
Except as to injury to persons or damage to property the
principal cause of which is the failure by Landlord to observe any of the terms
and conditions of this lease, Tenant shall hold Landlord harmless from and
indemnify and defend Landlord against any claim, liability, loss, damage or
expense (including attorney fees) arising out of any injury to or death of any
person or damage to or destruction of property occurring in, on or about the
Premises from any cause whatsoever or on account of the use, condition,
occupational safety or occupancy of the Premises. Tenant shall further hold
Landlord harmless from and indemnify and defend Landlord against any claim,
liability, loss, damage or expense (including attorney fees) arising (i) from
Tenant's use of the Premises or from the conduct of its business or from any
activity or work done, permitted or suffered by Tenant or its agents or
employees in or about the Premises or Project, (ii) out of the failure of Tenant
to observe or comply with Tenant's obligation to observe and comply with laws or
other requirements as set forth in paragraph 7, (iii) by reason of Tenant's use,
handling, storage, or disposal of toxic or hazardous materials or waste, (iv) by
reason of any labor or service performed for, or materials used by or furnished
to, Tenant or any contractor engaged by Tenant with respect to the Premises, or
(v) from any other act, neglect, fault or omission of Tenant or its agents or
employees.
The provisions of this paragraph 17 shall survive the
expiration or earlier termination of this lease.
18. ASSIGNMENT AND SUBLETTING
Tenant shall not voluntarily assign, encumber or otherwise
transfer its interest in this lease or in the Premises,
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or sublease all or any part of the Premises, or allow any other person or entity
to occupy or use all or any part of the Premises, without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld,
and otherwise complying with the requirements of this paragraph 18. Any
assignment, encumbrance or sublease without Landlord's consent, shall constitute
a default.
If Tenant desires to sublet or assign all or any portion of
the Premises, Tenant shall give Landlord written notice thereof, specifying the
projected commencement date of the proposed sublet or assignment (which date
shall be not less than thirty (30) days or more than ninety (90) days after the
date of Landlord's receipt of such notice), the portions of the Premises
proposed to be sublet or assigned, the terms and conditions of the proposed
assignment or sublease (including the rent to be paid by the proposed assignee
or subtenant) and the name, address and telephone number of the proposed
assignee or subtenant. Tenant shall further provide Landlord with such other
information concerning the proposed assignee or subtenant as requested by
Landlord. For a period of thirty (30) days after Landlord's receipt of Tenant's
written notice, Landlord shall have the option, exercisable by delivering
written notice to Tenant, to terminate this lease as of the date specified in
Landlord's written notice to Tenant, which date shall not be less than thirty
(30) days nor more than ninety (90) days after the date of Landlord's written
notice to Tenant. If Landlord exercises its option to terminate this lease as
provided in the foregoing sentence, Landlord may, if it so elects, enter into a
new lease for the Premises or any portion thereof with the proposed assignee or
subtenant or any other third party on such terms as Landlord and such proposed
assignee or subtenant or other third party may agree; in such event, Tenant
shall not be entitled to any portion of the profit, if any, which Landlord may
realize on account of such termination and reletting.
If Landlord does not elect to terminate this lease as provided
hereinabove in this paragraph 18 and if Landlord consents in writing to the
proposed assignment or sublet, Tenant shall be free to assign or sublet all or a
portion of the Premises subject to the following conditions: (i) any sublease
shall be on the same terms set forth in the notice given to Landlord; (ii) no
sublease shall be valid and no subtenant shall take possession of the sublet
premises until an executed counterpart of such sublease has been delivered to
Landlord; (iii) no subtenant shall have a further right to sublet; (iv) any sums
or other economic consideration received by Tenant as a result of such
assignment or sublet (except rental or other payments received which are
attributable to the amortization over the term of this lease of the cost of
leasehold improvements constructed for such assignees or subtenant, and
brokerage fees) whether denominated rentals or otherwise, which exceed, in the
aggregate, the total sums which Tenant is obligated to pay Landlord under this
lease (prorated to reflect obligations allocable to that portion of the Premises
subject to such sublease), shall be payable to Landlord as additional rent under
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this lease without affecting or reducing any other obligation of Tenant
hereunder; (v) no sublet or assignment shall release Tenant of Tenant's
obligation or alter the primary liability of Tenant to pay the rent and to
perform all other obligations to be performed by Tenant hereunder; and (vi) any
assignee or subtenant must expressly agree to assume and perform all of the
covenants and conditions of Tenant under this lease. Tenant shall pay to
Landlord promptly upon demand, as additional rent, Landlord's actual attorneys'
fees and other costs incurred for reviewing, processing or documenting any
requested assignment or sublease, whether or not Landlord's consent is granted.
Tenant shall not be entitled to assign this lease or sublease all or any part of
the Premises (and any attempt to do so shall be voidable by Landlord) during any
period in which Tenant is in default under this lease.
If Tenant is a partnership, a withdrawal or change, voluntary
or involuntary or by operation of law, of any general partner or the dissolution
of the partnership shall be deemed an assignment of this lease subject to all
the conditions of this paragraph 18. If Tenant is a corporation, any
dissolution, merger, consolidation or other reorganization of Tenant, or the
sale or other transfer of a controlling percentage of the capital stock of
Tenant, or the sale of more than fifty percent (50%) of the value of Tenant's
assets, shall be an assignment of this lease subject to all the conditions of
this paragraph 18. The term "controlling percentage" means the ownership of, and
the right to vote, stock possessing more than 50% of the total combined voting
power of all classes of Tenant's capital stock issued, outstanding and entitled
to vote. This paragraph 18 shall not apply if Tenant is a corporation the stock
of which is traded through an exchange.
The acceptance of rent by Landlord from any other person shall
not be deemed to be a waiver by Landlord of any provision hereof. Consent to one
assignment or sublet shall not be deemed consent to any subsequent assignment or
sublet. In the event of default by any assignee of Tenant or any successor of
Tenant in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
such assignee or successor. Landlord may consent to subsequent assignments or
sublets of this lease or amendments or modifications to this lease with
assignees of Tenant, without notifying Tenant, or any successor of Tenant, and
without obtaining its or their consent thereto and such action shall not relieve
Tenant of liability under this lease.
No interest of Tenant in this lease shall be assignable by
operation of law (including, without limitation, the transfer of this lease by
testacy or intestacy). Each of the following acts shall be considered an
involuntary assignment: (i) if Tenant is or becomes bankrupt or insolvent, makes
an assignment for the benefit of creditors or institutes a proceeding under the
Bankruptcy Act in which Tenant is the bankrupt; or, if Tenant is a partnership
or consists of more than one person or entity, if any partner of the
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partnership or other person or entity is or becomes bankrupt or insolvent, or
makes an assignment for the benefit of creditors; (ii) if a writ of attachment
or execution is levied on this lease; or (iii) if, in any proceeding or action
to which Tenant is a party, a receiver is appointed with authority to take
possession of the Premises. An involuntary assignment shall constitute a default
by Tenant and Landlord shall have the right to elect to terminate this lease, in
which case this lease shall not be treated as an asset of Tenant.
Tenant immediately and irrevocably assigns to Landlord, as
security for Tenant's obligations under this lease, all rent from any subletting
of all or a part of the Premises as permitted by this lease, and Landlord, as
assignee and as attorney-in-fact for Tenant, or a receiver of Tenant appointed
on Landlord's application, may collect such rent and apply it toward Tenant's
obligations under this lease; except that, until the occurrence of an act of
default by Tenant, Tenant shall have the right to collect such rent, subject to
promptly forwarding to Landlord any portion thereof to which Landlord is
entitled pursuant to this paragraph 18.
19. DEFAULT
The occurrence of any of the following shall constitute a
default by Tenant: (i) failure of Tenant to pay any rent or other sum payable
hereunder within three (3) days of when due; (ii) abandonment of the Premises
(Tenant's failure to occupy and conduct business in the Premises for fourteen
(14) consecutive days shall be deemed an abandonment of the Premises); or (iii)
failure of Tenant to perform any other term, covenant or condition of this
lease if the failure to perform is not cured within thirty (30) days after
notice thereof has been given to Tenant (provided that if such default cannot
reasonably be cured within thirty (30) days, Tenant shall not be in default if
Tenant commences to cure such failure to perform within the thirty (30) day
period and diligently and in good faith continues to cure the failure to
perform). The notice referred to in clause (iii) above shall specify the failure
to perform and the applicable lease provision and shall demand that Tenant
perform the provisions of this lease within the applicable period of time. No
notice shall be deemed a forfeiture or termination of this lease unless Landlord
so elects in the notice. No notice shall be required in the event of abandonment
or vacation of the Premises.
In addition to the above, the occurrence of any of the
following events shall also constitute a default by Tenant: (i) Tenant fails to
pay its debts as they become due or admits in writing its inability to pay its
debts, or makes a general assignment for the benefit of creditors (for purposes
of determining whether Tenant is not paying its debts as they become due, a debt
shall be deemed overdue upon the earliest to occur of the following: thirty (30)
days from the date a statement therefor
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has been rendered; the date on which any action or proceeding therefor is
commenced; or the date on which a formal notice of default or demand has been
sent); (ii) Tenant fails to furnish to Landlord a schedule of Tenant's aged
accounts payable within ten (10) days after Landlord's written request; (iii)
any financial statements given to Landlord by Tenant, any assignee of Tenant,
subtenant of Tenant, any guarantor of Tenant, or successor in interest of Tenant
(including, without limitation, any schedule of Tenant's aged accounts payable)
are materially false; or (iv) any financial statement or other financial
information furnished by Tenant pursuant to the provisions of this lease or at
the request of Landlord evidences that either Tenant's net worth or its net
assets are at least twenty-five percent (25%) less than the net worth or net
assets shown in either the immediately prior financial statement or the
financial statement of Tenant furnished at the time of execution of this lease,
and Tenant fails to furnish promptly to Landlord, after notice from Landlord to
Tenant, an additional security deposit in cash equivalent to the aggregate of
the basic rent and direct expenses (without regard to any rent abatement)
payable hereunder for the twelve (12) full calendar months immediately
preceding such notice. At any time during the term of this lease Landlord, at
Landlord's option, shall have the right to receive from Tenant, upon Landlord's
request, a current annual balance sheet for Landlord's review. If the balance
sheet shows a negative net worth, Landlord may terminate this lease by giving
Tenant sixty (60) days prior written notice.
In the event of a default by Tenant, then Landlord, in
addition to any other rights and remedies of Landlord at law or in equity, shall
have the right either to terminate Tenant's right to possession of the Premises
(and thereby terminate this lease) or, from time to time and without termination
of this lease, to relet the Premises or any part thereof for the account and in
the name of Tenant for such term and on such terms and conditions as Landlord in
its sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises.
Should Landlord elect to keep this lease in full force and
effect, Landlord shall have the right to enforce all of Landlord's rights and
remedies under this lease, including but not limited to the right to recover and
to relet the Premises and such other rights and remedies as Landlord may have
under California Civil Code Section 1951.4 (or a successor Code section) or any
other California statute. If Landlord relets the Premises, then Tenant shall pay
to Landlord, as soon as ascertained, the costs and expenses incurred by Landlord
in such reletting and in making alterations and repairs. Rentals received by
Landlord from such reletting shall be applied (i) to the payment of any
indebtedness due hereunder, other than basic rent and direct expenses, from
Tenant to Landlord; (ii) to the payment of the cost of any repairs necessary to
restore the Premises to good condition normal wear and tear excepted, including
the cost of alterations and the cost of storing any of Tenant's property left on
the Premises at the time
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of reletting; and (iii) to the payment of basic rent or direct expenses due and
unpaid hereunder. The residue, if any, shall be held by Landlord and applied in
payment of future rent or damages in the event of termination as the same may
become due and payable hereunder and the balance, if any at the end of the term
of this lease, shall be paid to Tenant. Should the basic rent and direct
expenses received from time to time from such reletting during any month be less
than that agreed to be paid during that month by Tenant hereunder, Tenant shall
pay such deficiency to Landlord. Such deficiency shall be calculated and paid
monthly. No such reletting of the Premises by Landlord shall be construed as an
election on its part to terminate this lease unless a notice of such intention
is given to Tenant or unless the termination hereof is decreed by a court of
competent jurisdiction. Notwithstanding any such reletting without termination,
Landlord may at any time thereafter elect to terminate this lease for such
previous breach, provided it has not been cured.
Should Landlord at any time terminate this lease for any
breach, in addition to any other remedy it may have, it shall have the immediate
right of entry and may remove all persons and property from the Premises and
shall have all the rights and remedies of a landlord provided by California
Civil Code Section 1951.2 or any successor code section. Upon such termination,
in addition to all its other rights and remedies, Landlord shall be entitled to
recover from Tenant all damages it may incur by reason of such breach, including
the cost of recovering the Premises and including (i) the worth at the time of
award of the unpaid rent which had been earned at the time of termination; (ii)
the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; (iv)
any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under this
lease or which in the ordinary course of events would be likely to result
therefrom. The "worth at the time of award" of the amounts referred to in (i)
and (ii) above is computed by allowing interest at the rate of twelve percent
(12%) per annum. The "worth at the time of award" of the amount referred to in
(iii) above shall be computed by discounting such amount at the discount rate of
the federal reserve bank of San Francisco at the time of award plus one percent
(1%). Tenant waives the provisions of Section 1179 of the California Code of
Civil Procedure (which Section allows Tenant to petition a court of competent
jurisdiction for relief against forfeiture of this lease). Property removed
from the Premises may be stored in a public or private warehouse or elsewhere at
the sole cost and expense of Tenant. In the event that Tenant shall not
immediately pay the cost of storage of such property after the same has been
stored for a period of thirty (30)
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days or more, Landlord may sell any or all thereof at a public or private sale
in such manner and at such times and places that Landlord, in its sole
discretion, may deem proper, without notice to or demand upon Tenant.
20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
Landlord, at any time after Tenant commits a default, may, but
shall not be obligated to, cure the default at Tenant's cost. If Landlord at any
time, by reason of Tenant's default, pays any sum or does any act that requires
the payment of any sum, the sum paid by Landlord shall be due immediately from
Tenant to Landlord and shall bear interest at the rate of twelve percent (12%)
per annum or the maximum rate permitted by law, whichever is less, from the date
the sum is paid by Landlord until Landlord is reimbursed by Tenant. Amounts due
Landlord hereunder shall be additional rent.
21. EMINENT DOMAIN
If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent-domain or
conveyance in lieu thereof, this lease shall terminate as to any portion of
the Premises so taken or conveyed on the date when title vests in the condemnor,
and Landlord shall be entitled to any and all payments, income, rent, award or
any interest therein whatsoever which may be paid or made in connection with
such taking or conveyance. Tenant shall have no claim against Landlord or
otherwise for the value of any unexpired term of this lease. Notwithstanding
the foregoing, Tenant shall be entitled to any compensation for depreciation to
and cost of removal of Tenant's equipment and fixtures and any compensation for
its relocation expenses necessitated by such taking, but in each case only to
the extent the condemning authority makes a separate award therefor or
specifically identifies a portion of the award as being therefor. Each party
waives the provisions of Section 1265.130 of the California Code of Civil
Procedure (which section allows either party to petition the Superior Court to
terminate this lease in the event of a partial taking of the Premises).
If any action or proceeding is commenced for such taking of
the Premises or any portion thereof or of any other space in the Project, or if
Landlord is advised in writing by any entity or body having the right or power
of condemnation of its intention to condemn the Premises or any portion thereof
or of any other space in the Project, and Landlord shall decide to discontinue
the use and operation of the Project or decide to demolish, alter or rebuild the
Project, then Landlord shall have the right to terminate this lease by giving
Tenant written notice thereof within sixty (60) days of the earlier of the date
of Landlord's receipt of such notice of intention to condemn or the commencement
of said action or proceeding. Such termination shall be effective as of the last
day of the calendar month next following the month in
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which such notice is given or the date on which title shall vest in the
condemnor, whichever occurs first.
In the event of a partial taking, or conveyance in lieu
thereof, of the Premises and fifty percent (50%) or more of the number of square
feet in the Premises are taken then Tenant may terminate this lease. Any
election by Tenant to so terminate shall be by written notice given to Landlord
within sixty (60) days from the date of such taking or conveyance and shall be
effective on the last day of the calendar month next following the month in
which such notice is given or the date on which title shall vest in the
condemnor, whichever occurs first.
If a portion of the Premises is taken by power of eminent
domain or conveyance in lieu thereof and neither Landlord nor Tenant terminates
this lease as provided above, then this lease shall continue in full force and
effect as to the part of the Premises not so taken or conveyed and all
payments of rent shall be apportioned as of the date of such taking or
conveyance so that thereafter the amounts to be paid by Tenant shall be in the
ratio that the area of the portion of the Premises not so taken bears to the
total area of the Premises prior to such taking.
22. NOTICE AND COVENANT TO SURRENDER
On the last day of the term or on the effective date of any
earlier termination, Tenant shall surrender to Landlord the Premises in its
condition existing as of the commencement of the term and, except as otherwise
provided by Landlord pursuant to the terms of paragraph 8 of this lease, all of
the improvements and alterations made to the Premises in their condition
existing as of the date of completion of construction and/or installation
(normal wear and tear excepted), with all originally painted interior walls
washed or repainted if marked or damaged, interior vinyl covered walls cleaned
and repaired or replaced if marked or damaged, all carpets shampooed and
cleaned, and all floors cleaned and waxed; all to the reasonable satisfaction of
Landlord. On or prior to the last day of the term or the effective date of any
earlier termination, Tenant shall remove all of Tenant's personal property and
trade fixtures, together with improvements or alterations that Tenant is
obligated to remove pursuant to the provisions of paragraph 8 of this lease,
from the Premises, and all such property not removed shall be deemed abandoned.
In addition, on or prior to the expiration or earlier termination of this lease,
Tenant shall remove, at Tenant's sole cost and expense, all telephone, other
communication, computer and any other cabling and wiring of any sort installed
in the space above the suspended ceiling of the Premises or anywhere else in the
Premises and shall promptly repair any damage to the suspended ceiling, lights,
light fixtures, walls and any other part of the Premises resulting from such
removal.
If the Premises are not surrendered as required in this
paragraph 22, Tenant shall indemnify Landlord against all loss,
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liability and expense (including, but not limited to, attorney fees) resulting
from the failure by Tenant in so surrendering the Premises, including, without
limitation, any claims made by any succeeding tenants. It is agreed between
Landlord and Tenant that the provisions of this paragraph 22 shall survive
termination of this lease.
23. TENANT'S QUITCLAIM
At the expiration or earlier termination of this lease,
Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days
after written demand from Landlord to Tenant, any quitclaim deed or other
document required to remove the cloud or encumbrance created by this lease from
the real property of which the Premises are a part. This obligation shall
survive said expiration or termination.
24. HOLDING OVER
Any holding over after the expiration or termination of
this lease with the written consent of Landlord shall be construed to be a
tenancy from month to month at the monthly rent, as adjusted, in effect on the
date of such expiration or termination. All provisions of this lease, except
those pertaining to the term and any option to extend, shall apply to the month
to month tenancy. The provisions of this paragraph 24 are in addition to, and do
not affect, Landlord's right of re-entry or other rights hereunder or provided
by law.
If Tenant shall retain possession of the Premises or any part
thereof without Landlord's consent following the expiration or sooner
termination of this lease for any reason, then Tenant shall pay to Landlord for
each day of such retention double the amount of the daily rental in effect
during the last month prior to the date of such expiration or termination.
Tenant shall also indemnify and hold Landlord harmless from any loss, liability
and expense (including, but not limited to, attorney's fees) resulting from
delay by Tenant in surrendering the Premises, including without limitation any
claims made by any succeeding tenant founded on such delay. Acceptance of rent
by Landlord following expiration or termination shall not constitute a renewal
of this lease, and nothing contained in this paragraph 24 shall waive Landlord's
right of re-entry or any other right. Tenant shall be only a Tenant at
sufferance, whether or not Landlord accepts any rent from Tenant, while Tenant
is holding over without Landlord's written consent.
25. SUBORDINATION
In the event Landlord's title or leasehold interest is
now or hereafter encumbered in order to secure a loan to Landlord, Tenant shall,
at the request of Landlord or the lender, execute in writing an agreement
subordinating its rights under this lease to the lien of such encumbrance, or,
if so requested, agreeing that
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the lien of lender's encumbrance shall be or remain subject and subordinate to
the rights of Tenant under this lease. Tenant hereby irrevocably appoints
Landlord the attorney in fact of Tenant to execute, deliver and record any such
instrument or instruments for and in the name and on behalf of Tenant.
Notwithstanding any such subordination, Tenant's possession under this lease
shall not be disturbed if Tenant is not in default and so long as Tenant shall
pay all amounts due hereunder and otherwise observe and perform all provisions
of this lease. In addition, if in connection with any such loan the lender shall
request reasonable modifications in the lease as a condition to such financing,
Tenant will not unreasonably withhold, delay or defer its consent thereof,
provided that such modifications do not increase the obligations of Tenant
hereunder or materially adversely affect the leasehold interest hereby created
or Tenant's rights hereunder.
26. CERTIFICATE OF ESTOPPEL
Each party shall, within five (5) calendar days after
request therefor, execute and deliver to the other party, in recordable form, a
certificate stating that the lease is unmodified and in full force and effect,
or in full force and effect as modified and stating the modifications.
The certificate shall also state the amount of the monthly rent, the date to
which monthly rent has been paid in advance, the amount of the security deposit
and/or prepaid monthly rent, and, if the request is made by Landlord, shall
include such other items as Landlord or Landlord's lender may reasonably
request. Failure to deliver such certificate within such time shall constitute
a conclusive acknowledgement by the party failing to deliver the certificate
that the lease is in full force and effect and has not been modified except as
may be represented by the party requesting the certificate. Any such
certificate requested by Landlord may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises or Project. Further,
within five (5) calendar days following written request made from time to time
by Landlord, Tenant shall furnish to Landlord current financial statements of
Tenant.
27. SALE BY LANDLORD
In the event the original Landlord hereunder, or any
successor owner of the Project or Premises, shall sell or convey the Project or
Premises, all liabilities and obligations on the part of the original Landlord,
or such successor owner, under this lease accruing thereafter shall terminate,
and thereupon all such liabilities and obligations shall be binding upon the new
owner. Tenant agrees to attorn to such new owner and to look solely to such new
owner for performance of any and all such liabilities and obligations.
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28. ATTORNMENT TO LENDER OR THIRD PARTY
In the event the interest of Landlord in the land and
buildings in which the Premises are located (whether such interest of Landlord
is a fee title interest or a leasehold interest) is encumbered by deed of trust,
and such interest is acquired by a lender or any other third party through
judicial foreclosure or by exercise of a power of sale at private trustee's
foreclosure sale, Tenant hereby agrees to release Landlord of any obligation
arising on or after any such foreclosure sale and to attorn to the purchaser at
any such foreclosure sale and to recognize such purchaser as the Landlord under
this lease.
29. DEFAULT BY LANDLORD
Landlord shall not be in default unless Landlord fails to
perform obligations required of Landlord within a reasonable time, but in no
event earlier than thirty (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering the Premises
specifying wherein Landlord has failed to perform such obligations; provided,
however, that if the nature of Landlord's obligations is such that more than
thirty (30) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.
If Landlord is in default of this lease, Tenant's sole remedy
shall be to institute suit against Landlord in a court of competent
jurisdiction, and Tenant shall have no right to offset any sums expended by
Tenant as a result of Landlord's default against future rent and other sums due
and payable pursuant to this lease. If Landlord is in default of this lease, and
as a consequence Tenant recovers a money judgment against Landlord, the judgment
shall be satisfied only out of the proceeds of sale received on execution of the
judgment and levy against the right, title and interest of Landlord in the
Project of which the Premises are a part, and out of rent or other income from
such real property receivable by Landlord or out of the consideration received
by Landlord from the sale or other disposition of all or any part of Landlord's
right, title and interest in the Project of which the Premises are a part.
Neither Landlord nor any of the partners comprising the partnership designated
as Landlord shall be personally liable for any deficiency.
30. CONSTRUCTION CHANGES
It is understood that the description of the Premises and
the location of ductwork, plumbing and other facilities therein are subject to
such changes as Landlord or Landlord's architect determines to be desirable in
the course of construction of the Premises and/or the improvements constructed
or being constructed therein, and no such changes or any changes in plans for
any other
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portions of the Project, shall affect this lease or entitle Tenant to any
reduction of rent hereunder or result in any liability of Landlord to Tenant.
31. MEASUREMENT OF PREMISES
Tenant understands and agrees that any reference to square
footage of the Premises is approximate only and includes all interior partitions
and columns, one-half of exterior walls, and one-half of the partitions
separating the Premises from the rest of the Project. Tenant waives any claim
against Landlord regarding the accuracy of any such measurement and agrees that
there shall not be any adjustment in basic rent or direct expenses or other
amounts payable hereunder by reason of inaccuracies in such measurement.
32. ATTORNEY FEES
If either party commences an action against the other
party arising out of or in connection with this lease, the prevailing party
shall be entitled to have and recover from the losing party all expenses of
litigation, including, without limitation, travel expenses, attorney fees,
expert witness fees, trial and appellate court costs, and deposition and
transcript expenses. If either party becomes a party to any litigation
concerning this lease or concerning the Premises or the Project, by reason of
any act or omission of the other party or its authorized representatives, the
party that causes the other party to become involved in the litigation shall
be liable to the other party for all expenses of litigation, including,
without limitation, travel expenses, attorney fees, expert witness fees, trial
and appellate court costs, and deposition and transcript expenses.
33. SURRENDER
The voluntary or other surrender of this lease or the
Premises by Tenant, or a mutual cancellation of this lease, shall not work a
merger, and at the option of Landlord shall either terminate all or any
existing subleases or subtenancies or operate as an assignment to Landlord of
all or any such subleases or subtenancies.
34. WAIVER
No delay or omission in the exercise of any right or remedy
of Landlord on any default by Tenant shall impair such right or remedy or be
construed as a waiver. The receipt and acceptance by Landlord of delinquent
rent or other payments shall not constitute a waiver of any other default and
acceptance of partial payments shall not be construed as a waiver of the
balance of such payment due. No act or conduct of Landlord, including, without
limitation, the acceptance of keys to the Premises, shall constitute an
acceptance of the surrender of the Premises by Tenant
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before the expiration of the term. Only a written notice from Landlord to
Tenant shall constitute acceptance of the surrender of the Premises and
accomplish a termination of this lease. Landlord's consent to or approval of any
act by Tenant requiring Landlord's consent or approval shall not be deemed to
waive or render unnecessary Landlord's consent to or approval of any subsequent
act by Tenant. Any waiver by Landlord of any default must be in writing and
shall not be a waiver of any other default concerning the same or any other
provision of this lease.
35. EASEMENTS; AIRSPACE RIGHTS
Landlord reserves the right to alter the boundaries of the
Project and grant easements and dedicate for public use portions of the Project
without Tenant's consent, provided that no such grant or dedication shall
interfere with Tenant's use of the Premises or otherwise cause Tenant to incur
cost or expense. From time to time, and upon Landlord's demand, Tenant shall
execute, acknowledge and deliver to Landlord, in accordance with Landlord's
instructions, any and all documents, instruments, maps or plats necessary to
effectuate Tenant's covenants hereunder.
This lease confers no rights either with regard to the
subsurface of or airspace above the land an which the Project is located or with
regard to airspace above the building of which the Premises are a part. Tenant
agrees that no diminution or shutting off of light or view by a structure which
is or may be erected (whether or not by Landlord) on property adjacent to the
building of which the Premises are a part or to property adjacent thereto, shall
in any way affect this lease, or entitle Tenant to any reduction of rent, or
result in any liability of Landlord to Tenant.
36. RULES AND REGULATIONS
Landlord shall have the right from time to time to promulgate
rules and regulations for the safety, care and cleanliness of the Premises, the
Project and the Common Area, or for the preservation of good order. On delivery
of a copy of such rules and regulations to Tenant, Tenant shall comply with the
rules and regulations, and a violation of any of them shall constitute a default
by Tenant under this lease. If there is a conflict between the rules and
regulations and any of the provisions of this lease, the provisions of this
lease shall prevail. Such rules and regulations may be amended by Landlord from
time to time with or without advance notice.
37. NOTICES
All notices, demands, requests, consents and other
communications which may be given or are required to be given by either party to
the other shall be in writing and shall be sufficiently made and delivered if
personally served or if sent by
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United States first class mail, postage prepaid. Prior to the commencement of
the term, all such communications shall be served or addressed to Tenant at 545
Middlefield Road, Suite 200, Menlo Park, California 94025; on or after the
commencement date all such communications from Landlord to Tenant shall be
addressed to Tenant at the Premises. All such communications by Tenant to
Landlord shall be sent to Landlord at its offices at 3945 Freedom Circle, Suite
640, Santa Clara, California 95054. Either party may change its address by
notifying the other of such change. Each such communication shall be deemed
received on the date of the personal service or mailing thereof in the manner
herein provided, as the case may be.
38. NAME
Tenant shall not use the name of the Project for any
purpose other than as the address of the business conducted by Tenant in the
Premises without the prior written consent of Landlord.
39. GOVERNING LAW; SEVERABILITY
This lease shall in all respects be governed by and
construed in accordance with the laws of the State of California. If any
provision of this lease shall be held or rendered invalid, unenforceable or
ineffective for any reason whatsoever, all other provisions hereof shall be
and remain in full force and effect.
40. DEFINITIONS
As used in this lease, the following words and phrases shall
have the following meanings:
AUTHORIZED REPRESENTATIVE: any officer, agent, employee or
independent contractor retained or employed by either party, acting within
authority given him by that party.
ENCUMBRANCE: any deed of trust, mortgage or other written
security device or agreement affecting the Premises or the Project that
constitutes security for the payment of a debt or performance of an
obligation, and the note or obligation secured by such deed of trust, mortgage
or other written security device or agreement.
LEASE MONTH: the period of time determined by reference to
the day of the month in which the term commences and continuing to one day
short of the same numbered day in the next succeeding month; e.g., the tenth
day of one month to and including the ninth day in the next succeeding month.
LENDER: the beneficiary, mortgagee or other holder of an
encumbrance, as defined above.
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LIEN: a charge imposed on the Premises by someone other than
Landlord, by which the Premises are made security for the performance of an
act. Most of the liens referred to in this lease are mechanic's liens.
MAINTENANCE: repairs, replacement, repainting and cleaning.
MONTHLY RENT: the sum of the monthly payments of basic rent
and direct expenses.
PERSON: one or more human beings, or legal entities or other
artificial persons, including, without limitation, partnerships, corporations,
trusts, estates, associations and any combination of human being and legal
entities.
PROVISION: any term, agreement, covenant, condition, clause,
qualification, restriction, reservation or other stipulation in the lease that
defines or otherwise controls, establishes or limits the performance required
or permitted by either party.
RENT: basic rent, direct expenses, additional rent, and all
other amounts payable by Tenant to Landlord required by this lease or arising by
subsequent actions of the parties made pursuant to this lease.
Words used in any gender include other genders. If there be more than
one Tenant, the obligations of Tenant hereunder are joint and several. All
provisions whether covenants or conditions, on the part of Tenant shall be
deemed to be both covenants and conditions. The paragraph headings are for
convenience of reference only and shall have no effect upon the construction or
interpretation of any provision hereof.
41. TIME
Time is of the essence of this lease and of each and all of
its provisions.
42. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE
Any amount due from Tenant to Landlord hereunder which is not
paid when due shall bear interest at the rate of ten percent (10%) per annum
from when due until paid, unless otherwise specifically provided herein, but the
payment of such interest shall not excuse or cure any default by Tenant under
this lease. In addition, Tenant acknowledges that late payment by Tenant to
Landlord of basic rent or direct expenses or of any other amount due Landlord
from Tenant, will cause Landlord to incur costs not contemplated by this lease,
the exact amount of such costs being extremely difficult and impractical to fix.
Such costs include, without limitation, processing and accounting charges, and
late
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charges that may be imposed on Landlord, e.g., by the terms of any encumbrance
and note secured by any encumbrance covering the Premises. Therefore, if any
such payment due from Tenant is not received by Landlord when due, Tenant shall
pay to Landlord an additional sum of five percent (5%) of the overdue payment as
a late charge. The parties agree that this late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of late
payment by Tenant. Acceptance of any late charge shall not constitute a waiver
of Tenant's default with respect to the overdue amount, nor prevent Landlord
from exercising any of the other rights and remedies available to Landlord. No
notice to Tenant of failure to pay shall be required prior to the imposition of
such interest and/or late charge, and any notice period provided for in
paragraph 20 shall not affect the imposition of such interest and/or late
charge. Any interest and late charge imposed pursuant to this paragraph shall be
and constitute additional rent payable by Tenant to Landlord.
43. ENTIRE AGREEMENT
This lease, including any exhibits and attachments,
constitutes the entire agreement between Landlord and Tenant relative to the
Premises and this lease and the exhibits and attachments may be altered, amended
or revoked only by an instrument in writing signed by both Landlord and Tenant.
Landlord and Tenant agree hereby that all prior or contemporaneous oral
agreements between and among themselves or their agents or representatives
relative to the leasing of the Premises are merged in or revoked by this lease.
44. CORPORATE AUTHORITY
If Tenant is a corporation, each individual executing
this lease on behalf of the corporation represents and warrants that he is duly
authorized to execute and deliver this lease on behalf of the corporation in
accordance with a duly adopted resolution of the Board of Directors of said
corporation and that this lease is binding upon said corporation in accordance
with its terms. If Tenant is a corporation, Tenant shall deliver to Landlord,
within ten (10) days of the execution of this lease, a copy of the resolution of
the Board of Directors of Tenant authorizing the execution of this lease and
naming the officers that are authorized to execute this lease on behalf of
Tenant, which copy shall be certified by Tenant's president or secretary as
correct and in full force and effect.
45. RECORDING
Neither Landlord nor Tenant shall record this lease or a short
form memorandum hereof without the consent of the other.
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46. REAL ESTATE BROKERS
Each party represents and warrants to the other party
that it has not had dealings in any manner with any real estate broker, finder
or other person with respect to the Premises and the negotiation and execution
of this lease. Each party shall indemnify and hold harmless the other party from
all damage, loss, liability and expense (including attorneys' fees and related
costs) arising out of or resulting from any claims for commissions or fees that
may or have been asserted against the other party by any broker, finder or other
person with whom Tenant or Landlord has or purportedly has dealt with in
connection with the Premises and the negotiation and execution of this lease.
Landlord and Tenant agree that Landlord shall not be obligated to pay any broker
leasing commissions, consulting fees, finder fees or any other fees or
commissions arising out of or relating to any extended term of this lease or to
any expansion or relocation of the Premises at any time.
47. EXHIBITS AND ATTACHMENTS
All exhibits and attachments to this lease are a part
hereof.
48. ENVIRONMENTAL MATTERS
A. Tenant's Covenants Regarding Hazardous Materials.
(1) HAZARDOUS MATERIALS HANDLING. Tenant, its
agents, invitees, employees, contractors, sublessees, assigns and/or successors
shall not use, store, dispose, release or otherwise cause to be present or
permit the use, storage, disposal, release or presence of Hazardous Materials
(as defined below) on or about the Premises or Project. As used herein
"Hazardous Materials" shall mean any petroleum or petroleum by-products,
flammable explosives, asbestos, urea formaldehyde, radioactive materials or
waste and any "hazardous substance", "hazardous waste", "hazardous materials",
"toxic substance" or "toxic waste" as those terms are defined under the
provisions of the California Health and Safety Code and/or the provisions of the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
Section 9601 et seq.), as amended by the Superfund Amendments and
Reauthorization Act of 1986 (42 U.S.C. Section 9601 et seq.), or any other
hazardous or toxic substance, material or waste which is or becomes regulated by
any local governmental authority, the State of California or any agency thereof,
or the United States Government or any agency thereof.
(2) NOTICES. Tenant shall immediately notify Landlord
in writing of: (i) any enforcement, cleanup, removal or other governmental or
regulatory action instituted, completed or threatened pursuant to any law,
regulation or ordinance relating to the industrial hygiene, environmental
protection or the use,
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analysis, generation, manufacture, storage, presence, disposal or transportation
of any Hazardous Materials (collectively "Hazardous Materials Laws"); (ii) any
claim made or threatened by any person against Tenant, the Premises, Project or
buildings within the Project relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from or claimed to result from any
Hazardous Materials; and (iii) any reports made to any environmental agency
arising out of or in connection with any Hazardous Materials in, on or removed
from the Premises, Project or buildings within the Project, including any
complaints, notices, warnings, reports or asserted violations in connection
therewith. Tenant shall also supply to Landlord as promptly as possible, and in
any event within five (5) business days after Tenant first receives or sends the
same, with copies of all claims, reports, complaints, notices, warnings or
asserted violations relating in any way to the Premises, Project or buildings
within the Project or Tenant's use thereof. Tenant shall promptly deliver to
Landlord copies of hazardous waste manifests reflecting the legal and proper
disposal of all Hazardous Materials removed from the Premises.
B. INDEMNIFICATION OF LANDLORD. Tenant shall indemnify, defend
(by counsel acceptable to Landlord), protect, and hold Landlord, and each of
Landlord's partners, employees, agents, attorneys, successors and assigns, free
and harmless from and against any and all claims, liabilities, penalties,
forfeitures, losses or expenses (including attorneys' fees) for death of or
injury to any person or damage to any property whatsoever (including water
tables and atmosphere), arising from or caused in whole or in part, directly or
indirectly, by (i) the presence in, on, under or about the Premises, Project or
buildings within the Project or discharge in or from the Premises, Project or
buildings within the Project of any Hazardous Materials or Tenant's use,
analysis, storage, transportation, disposal, release, threatened release,
discharge or generation of Hazardous Materials to, in, on, under, about or from
the Premises, Project or buildings within the Project, or (ii) Tenants failure
to comply with any Hazardous Materials Laws whether knowingly, unknowingly,
intentionally or unintentionally. Tenant's obligations hereunder shall include,
without limitation, and whether foreseeable or unforeseeable, all costs of any
required or necessary repair, cleanup or detoxification or decontamination of
the Premises, Project or buildings within the Project, and the preparation and
implementation of any closure, remedial action or other required plans in
connection therewith. In addition, Tenant shall reimburse Landlord for (i)
losses in or reductions to rental income resulting from Tenant's use, storage or
disposal of Hazardous Materials, (ii) all costs of refitting or other
alterations to the Premises, Project or buildings within the Project required as
a result of Tenant's use, storage, or disposal of Hazardous Materials including,
without limitation, alterations required to accommodate an alternate use of the
Premises, Project or buildings within the Project, and (iii) any diminution in
the fair market value of the Premises, Project or buildings within the Project
caused by
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Tenant's use, storage, or disposal of Hazardous Materials. For purposes of this
paragraph 48, any acts or omissions of Tenant, or by employees, agents,
assignees, contractors or subcontractors of Tenant or others acting for or on
behalf of Tenant (whether or not they are negligent, intentional, willful or
unlawful) shall be strictly attributable to Tenant.
C. SURVIVAL. The provisions of this paragraph 48 shall survive
the expiration or earlier termination of the term of this lease.
49. SIGNAGE
Tenant shall not, without obtaining the prior written consent
of Landlord, install or attach any sign or advertising material on any part of
the outside of the Premises, or on any part of the inside of the Premises which
is visible from the outside of the Premises, or in the halls, lobbies, windows
or elevators of the building in which the Premises are located or on or about
any other portion of the Common Area or Project. If Landlord consents to the
installation of any sign or other advertising material, the location, size,
design, color and other physical aspects-thereof shall be subject to Landlord's
prior written approval and shall be in accordance with any sign program
applicable to the Project. In addition to any other requirements of this
paragraph 49, the installation of any sign or other advertising material by or
for Tenant must comply with all applicable laws, statutes, requirements, rules,
ordinances and any C.C. & R.'s or other similar requirements. With respect to
any permitted sign installed by or for Tenant, Tenant shall maintain such sign
or other advertising material in good condition and repair and shall remove such
sign or other advertising material on the expiration or earlier termination of
the term of this lease. The cost of any permitted sign or advertising material
and all costs associated with the installation, maintenance and removal thereof
shall be paid for solely by Tenant. If Tenant fails to properly maintain or
remove any permitted sign or other advertising material, Landlord may do so at
Tenant's expense. Any cost incurred by Landlord in connection with such
maintenance or removal shall be deemed additional rent and shall be paid by
Tenant to Landlord within ten (10) days following notice from Landlord. Landlord
may remove any unpermitted sign or advertising material without notice to Tenant
and the cost of such removal shall be additional rent and shall be paid by
Tenant within ten (10) days following notice from Landlord. Landlord shall not
be liable to Tenant for any damage, loss or expense resulting from Landlord's
removal of any sign or advertising material in accordance with this paragraph
49. The provisions of this paragraph 49 shall survive the expiration or earlier
termination of this lease.
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50. SUBMISSION OF LEASE
The submission of this lease to Tenant for examination or
signature by Tenant is not an offer to lease the Premises to Tenant, nor an
agreement by Landlord to reserve the Premises for Tenant. Landlord will not be
bound to Tenant until this lease has been duly executed and delivered by both
Landlord and Tenant.
51. PREMISES TAKEN AS IS
Tenant is leasing the Premises from Landlord "AS IS" in
its condition existing as of the date hereof. Landlord shall have no
obligation to alter or improve the Premises except that Landlord shall, at
Landlord's cost, clean the carpet and paint the interior walls of the Premises
(building standard materials).
52. ADDITIONAL RENT
All costs, charges, fees, penalties interest and any
other payments (including Tenant's reimbursement to Landlord of costs incurred
by Landlord) which Tenant is required to make to Landlord pursuant to the
terms and conditions of this lease and any amendments to this lease shall be
and constitute additional rent payable by Tenant to Landlord when due as
specified in this lease and any amendments to this lease.
54. CROSS DEFAULT
Tenant currently leases from Landlord certain premises
located at 545 Middlefield Road, Suites 160, 180, 200 and 250, Menlo Park,
California, pursuant to that certain Office Lease dated November 23, 1992, as
amended by that certain First Amendment to Lease dated October 25, 1993, that
certain Second Amendment to Lease dated June 22, 1995, that certain Third
Amendment to Lease dated December 19, 1995, that certain Assignment,
Assumption and Consent Agreement dated June 17, 1996, and that certain Fourth
Amendment to Lease to be executed concurrently herewith (the "Building 545
Lease") . Any default under this lease shall constitute a default under the
Building 545 Lease, and any default under the Building 545 Lease shall
constitute a default under this lease. As such, this provision supplements
paragraph 19 of this lease and amends the Building 545 Lease.
[SIGNATURES AN NEXT PAGE]
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IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered
this lease on the date first above written.
Landlord: Tenant:
McCANDLESS - TRIAD, a VIVUS, INC.,
California general partnership a California corporation
By: /s/ Birk S. McCandless By: /s/ David C. Yntema
---------------------- -----------------------------
Birk S. McCandless, as
Trustee under the Birk
S. McCandless and Mary Name: David C. Yntema
McCandless Inter Vivos ----------------------------
Trust Agreement Dated
February 17, 1982, Title: VP, Finance & CFO
General Partner
----------------------------
Date:
---------------------- Date: August 30, 1996
(Date) ----------------------------
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
Date:
----------------------------
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[MCCANDLESS TRIAD MAP EXHIBIT A]
<PAGE> 42
[MAP EXHIBIT B]
<PAGE> 43
EXHIBIT C
MENLO McCANDLESS BUSINESS CENTER
MASTER SIGN PROGRAM
1. Property Signs:
A. Two (2) large Project Directories
B. Building Directories
- One (1) directory located at 525 Middlefield Road
side of building.
- One (1) directory located under staircase between 535
and 545 Middlefield Road buildings. Both buildings
share one (1) directory.
C. Suite door signs
II. Color codes:
A. All Suite door signs are the same ivory background with rust
color lettering (building standard).
B. Project Directory and Building Directory strips are white with
black vinyl lettering.
111. Costs:
A. Landlord, at Landlord's expense, shall supply the frame for
the suite door sign. All other purchases are at Tenant's
expense:
Small Building Directory Strip 20.00
Large Building Directory Strips 88.71 (Two strips)
Suite Door Signs
One (1) line (16 characters) 63.50
Two (2) lines 78.50
Please contact the Management Office at (415) 326-0524 to provide specific
signage information and coordination.
<PAGE> 1
August 28, 1996
Mr. David C. Yntema
Vice President & CFO
Vivus, Inc.
545 Middlefield Road, Suite 200
Menlo Park, CA 94025
RE: Equipment Lease
Dear David:
This letter sets forth our understanding of the terms upon which
Vivus, Inc. will lease from Plant Research Technologies, Inc. certain equipment,
fixtures and improvements (collectively, the "Leased Equipment") which are
located in, on or about that certain premises located at 525 Del Rey Avenue,
Units C & D, Sunnyvale, which premises are being subleased by Vivus, Inc. from
Plant Research Technologies, Inc. pursuant to a sublease to be entered into
concurrently with this letter (the "Sublease").
1. Inventory. Promptly upon execution of the Sublease,
representatives from Plant Research Technologies, Inc. and Vivus, Inc. will
agree that the Leased Equipment shall remain on the leased premises and be
leased by Vivus, Inc. during the term of the Sublease. The Leased Equipment will
include Plant Research Technologies, Inc.'s laboratory benches, two (2) fume
hoods, DI water system compressor, plumbing and other mechanical improvements.
2. Rent. Commencing on the date rent commences under the Sublease,
Vivus, Inc. shall pay to Plant Research Technologies, Inc. as separate rent for
the Leased Equipment the sum of $0.75 per square foot of leased premises per
month. Such rent totaling Four Thousand Six Hundred Seventy-One Dollars
($4,671.00)shall be paid in advance on the first day of each calendar month
during the term of the Sublease without deduction or offset.
3. Security Deposit. Concurrently with delivery of Plant Research
Technologies, Inc.'s signature on a copy of this letter as indicated below,
Vivus, Inc. shall deliver to Plant Research Technologies, Inc. a security
deposit in the amount of Four
<PAGE> 2
Mr. David C. Yntema
August 28, 1996
Page 2 of 2
Thousand Six Hundred Seventy-One Dollars ($4,671.00) (the "Security Deposit") as
security for the full and faithful performance of Vivus, Inc.'s obligations
under this letter agreement. In the event of a default of Vivus, Inc.'s
obligation to make rental payments for the Leased Equipment, Plant Research
Technologies, Inc. may apply all or part of the Security Deposit to such
defaulted payment. In such event, Vivus, Inc. shall on demand restore the
Security Deposit to its original amount. Upon expiration or earlier termination
of the Sublease, the Security Deposit shall be returned to Vivus, Inc., reduced
by such amounts as may be required by Plant Research Technologies, Inc. to
remedy defaults on the part of Vivus, Inc. in the payment of rent or defaults in
Vivus, Inc.'s obligations to maintain and repair the Leased Equipment. Any
portion of the Security Deposit not so required shall be paid over to Vivus,
Inc. after the expiration or earlier termination of the Sublease.
4. Repair and Maintenance. During the term of the Sublease, Vivus,
Inc. shall be responsible at its sole cost and expense for the maintenance and
repair (but not replacement) of the Leased Equipment.
If the foregoing accurately sets forth your understanding of the
terms of Vivus, Inc.'s lease of the Leased Equipment, please so indicate by
signing and dating the enclosed copy of this letter and returning it to me.
Sincerely,
/s/ B. A. Burke
- ---------------
Basil A. Burke, PhD.
President
Plant Research Technologies, Inc.
AGREED AND ACCEPTED:
Sublessee: Vivus, Inc.
/s/ David C. Yntema Date: 8/28/96
- ----------------------------------- ----------------------------------
David C. Yntema
Vice President & Chief Financial Officer
<PAGE> 3
C O R N I S H & C A R E Y C O M M E R C I A L
[CORNISH & CAREY LOGO]
O N C O R I N T E R N A T I O N A L
S U B L E A S E
Sublandlord: Plant Research Subject Property: 525 Del Rey Avenue,
Technologies, Inc. Units C & D,
Sunnyvale, CA
Subtenant: Vivus, Inc. Date: August 28,1996
1. PARTIES:
This Sublease is made and entered into as of August 28, 1996, by and between
Plant Research Technologies, Inc.("Sublandlord"), and Vivus, Inc. ("Subtenant"),
under the Master Lease dated July 29, 1994, between Harris Family Trust, as
"Lessor" and Sublandlord under this Sublease as "Lessee." A copy of the Master
Lease is attached hereto as Exhibit A and incorporated herein by this reference.
2. PROVISIONS CONSTITUTING SUBLEASE:
2.1 This Sublease is subject to all of the terms and conditions of the
Master Lease. Subtenant hereby assumes and agrees to perform all of the
obligations of "Lessee" under the Master Lease to the extent said
obligations apply to the Subleased Premises and Subtenant's use of the
Common Areas, except as specifically set forth herein. Sublandlord hereby
agrees to cause Lessor under the Master Lease to perform all of the
obligations of Lessor thereunder to the extent said obligations apply to
the Subleased Premises and Subtenant's use of the Common Areas. Subtenant
shall not commit or permit to be committed on the Subleased Premises or
on any other portion of the Project any act or omission which violates
any term or condition of the Master Lease. Except to the extent waived or
consented to in writing by the other party or parties hereto who are
affected thereby, neither of the parties hereto will, by renegotiation of
the Master Lease, assignment, subletting, default or any other voluntary
action, avoid or seek to avoid the observance or performance of the terms
to be observed or performed hereunder by such party, but will at all times
in good faith assist in carrying out all the terms of this Sublease and in
taking all such action as may be necessary or appropriate to protect the
rights of the other party or parties hereto who are affected thereby
against impairment. Nothing contained in this Section 2.1 or elsewhere in
this Sublease shall prevent or prohibit Sublandlord (a) from exercising
its right to terminate the Master Lease pursuant to the terms thereof or
(b) from assigning its interest in this Sublease.
2.2 All of the terms and conditions contained in the Master Lease are
incorporated herein, except as specifically provided below, and the terms
and conditions specifically set forth in this Sublease, shall constitute
the complete terms and conditions of this Sublease, except the following
paragraphs of the Master Lease which shall solely be the obligation of
Sublandlord: 1.3, 1.5, 1.7, 1.10, 49, 50, 51, 53, 54.
3. SUBLEASED PREMISES AND RENT:
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S U B L E A S E
3.1 Subleased Premises:
Sublandlord leases to Subtenant and Subtenant leases from Sublandlord the
Subleased Premises upon all of the terms, covenants and conditions
contained in this Sublease. The Subleased Premises consist of
approximately six thousand two hundred twenty-eight (6,228)+/- square
feet, located at 525 Del Rev Avenue, Units C & D, Sunnyvale. See attached
Exhibit B.
3.2 Rent:
Subtenant shall pay to Sublandlord as Rent for the Subleased Premises the
rental schedule as follows per month, without deductions, offset, prior
notice or demand.
<TABLE>
<CAPTION>
Months/Dates Square Feet Rental Rate/Amount Due/Month
------------ ----------- ----------------------------
<S> <C> <C>
09/15/96 - 08/31/97 6,228 $0.90/square feet/month, Gross ($5,605.20)
09/01/97 - 08/31/98 6,228 $0.95/square feet/month, Gross ($5,916.60)
09/01/98 - 08/31/99 6,228 $1.00/square feet/month, Gross ($6,228.00)
</TABLE>
Rent shall be payable by Subtenant to Sublandlord in consecutive monthly
installments on or before the first day of each calendar month during the
Sublease Term. If the Sublease commencement date or the termination date
of the Sublease occurs on a date other than the first day or the last day,
respectively, of a calendar month, then the Rent for such partial month
shall be prorated and the prorated Rent shall be payable on the Sublease
commencement date or on the first day of the calendar month in which the
Sublease termination date occurs, respectively.
3.3 Security Deposit:
In addition to the Rent specified above, Subtenant shall pay to
Sublandlord an equivalent of the last month's rent as a non-interest
bearing Security Deposit. In the event Subtenant has performed all of the
terms and conditions of this Sublease during the term hereof, Sublandlord
shall return to Subtenant, within ten days after Subtenant has vacated the
Subleased Premises, the Security Deposit less any sums due and owing to
Sublandlord.
4. RIGHTS OF ACCESS AND USE:
4.1 Use:
Subtenant shall use the Subleased Premises for those purposes permitted in
the Master Lease, including laboratory research and development, and
manufacturing unless Sublandlord and Master Landlord consent in writing to
other uses prior to the commencement thereof.
5. SUBLEASE TERM:
5.1 Sublease Term:
The Sublease Term shall be for the period commencing on September 15,
1996, and continuing
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S U B L E A S E
through August 31, 1999. In no event shall the Sublease Term extend beyond
the Term of the Master Lease.
5.2 Inability to Deliver Possession:
In the event Sublandlord is unable to deliver possession of the Subleased
Premises at the commencement of the term, Sublandlord shall not be liable
for any damage caused thereby, nor shall this Sublease be void or voidable
but Subtenant shall not be liable for Rent until such time as Sublandlord
offers to deliver possession of the Subleased Premises to Subtenant, but
the term hereof shall not be extended by such delay. If Subtenant, with
Sublandlord's consent, takes possession prior to commencement of the term,
Subtenant shall do so subject to all the covenants and conditions hereof
and shall pay Rent for the period ending with the commencement of the term
at the same rental as that prescribed for the first month of the term
prorated at the rate of 1/30th thereof per day. In the event Sublandlord
has been unable to deliver possession of the Subleased Premises within 30
days from the commencement date, Subtenant, at Subtenant's option, may
terminate this Sublease.
6. IMPROVEMENTS TO PREMISES
Sublandlord, at Sublandlord's sole cost and expense shall warrant that all
electrical, HVAC, and plumbing shall be in working order for a period of thirty
(30) days after occupancy. Laboratory equipment including benches, vented fume
hoods, DI water system and existing utility services shall remain in place.
Subtenant will assume space in an otherwise "as is" condition.
If Subtenant, at any time or times during the term of this Sublease, shall
desire to make any alterations, or improvements on the Premises, or any part or
parts thereof, the same shall be constructed without cost or expense to
Sublandlord, in accordance with the requirements of all laws, ordinances, codes,
orders, rules, and regulations of all governmental authorities having
jurisdiction over the Premises. In particular, Subtenant shall have the right to
modify the building interiors, provided Subtenant has requested in writing and
received written approval from Sublandlord. Such approval shall not be
unreasonably withheld. Should any modifications require a building permit, such
work shall be done by a licensed contractor. Any additions or improvements to
the Premises, except Subtenant's fume hoods, benches, shelving, and equipment,
shall become a part of the Premises upon termination of this Sublease and be
surrendered to Sublandlord. Subtenant shall have the obligation to restore the
Premises to their original condition on occupancy when the Sublease expires or
terminates. Premises shall be returned to Sublandlord in "clean" condition.
7. OPERATING EXPENSES
Subtenant shall be responsible for their pro-rata share of the common area
maintenance expenses to the Premises and be responsible for all utilities and
interior maintenance to the Premises. Subtenant is responsible for their
personal liability insurance for the coverage amounts required in the Master
Lease. Sublandlord and Landlord shall be named as additionally insured.
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S U B L E A S E
8. AIR CONDITIONING MAINTENANCE
Subtenant shall maintain an HVAC service contract and be responsible for
periodic maintenance costs.
9. NOTICES:
All notices, demands, consents and approvals which may or are required to be
given by either party to the other hereunder shall be given in the manner
provided in the Master Lease, at the addresses shown on the signature page
hereof. Sublandlord shall notify Subtenant of any Event of Default under the
Master Lease, or of any other event of which Sublandlord has actual knowledge
which will impair Subtenant's ability to conduct its normal business at the
Subleased Premises, as soon as reasonably practicable following Sublandlord's
receipt of notice from the Landlord of an Event of Default or actual knowledge
of such impairment. If Sublandlord elects to terminate the Master Lease,
Sublandlord shall so notify Subtenant by giving at least 30 days notice prior to
the effective date of such termination.
10. BROKER FEE:
Upon execution of the Sublease, Sublandlord shall pay Cornish & Carey
Commercial, a licensed real estate broker, fees set forth in a separate
agreement between Sublandlord and Broker for brokerage services rendered by
Broker to Sublandlord in this transaction.
11. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT:
Subtenant shall be responsible for the installation and cost of any and all
improvements, alterations or other work required on or to the Subleased Premises
or to any other portion of the property and/or building of which the Subleased
Premises are a part, required or reasonably necessary because of: (1)
Subtenant's use of the Subleased Premises or any portion thereof; (2) the use by
a subtenant by reason of assignment or sublease; or (3) both, including any
improvements, alterations or other work required under the Americans With
Disabilities Act of 1990. Compliance with the provisions of this Section 8 shall
be a condition of Sublandlord granting its consent to any assignment or Sublease
of all or a portion of this Sublease and the Subleased Premises described in
this Sublease.
12. COMPLIANCE WITH NONDISCRIMINATION REGULATIONS:
It is understood that it is illegal for Sublandlord to refuse to display or
sublease the Subleased Premises, or to assign, surrender or sell the Master
Lease, to any person because of race, color, religion, national origin, sex,
sexual orientation, marital status or disability.
13. HAZARDOUS MATERIALS INDEMNIFICATION:
Sublandlord and Subtenant as Corporations, shall indemnify, defend and hold each
other, its agents, employees and lenders, harmless from and against any and all
losses, costs, claims, damages, liabilities and causes of action including
attorney's fees and costs and consultants' fees arising out of or in any way
connected with any Hazardous Substance located on the Premises as of
Commencement Date or any subsequent presence of Hazardous Substances on or about
the Premises, including the soils and groundwaters thereof, not caused or
permitted by each other. These obligations under this provision shall survive
the expiration or early termination of the Sublease.
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S U B L E A S E
14. SUBTENANT'S RESPONSIBILITY AT THE CONCLUSION OF SUBLEASE:
Promptly upon the expiration or sooner termination of this Lease, Subtenant
shall represent to Sublandlord in writing that (i) Subtenant has made a diligent
effort to determine whether any Hazardous Materials are on, under or about the
Premises as a result of any acts or omissions of Subtenant or Subtenant's agents
and (ii) no such Hazardous Materials exist on, under or about the Premises other
than as specifically identified to Sublandlord by Subtenant in writing. If
Subtenant discloses the existence of Hazardous Materials on, under or about the
Premises, or if Sublandlord at any time discovers that Subtenant or Subtenant
Agents caused or permitted the release of a Hazardous Material on, under, from
about the Premises, Subtenant shall, at Sublandlord's request, immediately
prepare and submit to Sublandlord within thirty (30) days after such request a
comprehensive plan, subject to Sublandlord's approval, specifying the action to
be taken by Subtenant to return the Premises to the condition existing prior to
the introduction of such Hazardous Materials. Upon Sublandlord's approval of
such clean up plan, Subtenant shall, at Subtenant's sole cost and expense,
without limitation on any rights and remedies of Sublandlord under this Sublease
or at law or in equity, immediately implement such plan and proceed to clean up
such Hazardous Materials in accordance with all Applicable Laws and as required
by such plan and this Lease. Subtenant shall be required to complete a proper
Premises closure plan consistent with all rules and regulations required by the
State's and local governing authorities.
Subtenant shall not be responsible for any Hazardous Materials contamination of
the Premises occurring prior to the Commencement Date and not otherwise caused
by the acts or omissions of Subtenant or Subtenant's Agents.
15. TOXIC CONTAMINATION DISCLOSURE:
Sublandlord and Subtenant each acknowledge that they have been advised that
numerous federal, state, and/or local laws, ordinances and regulations ("Laws")
affect the existence and removal, storage, disposal, leakage of and
contamination by materials designated as hazardous or toxic ("Toxics"). Many
materials, some utilized in everyday business activities and property
maintenance, are designated as hazardous or toxic.
Some of the Laws require that Toxics be removed or cleaned up by landowners,
future landowners or former landowners without regard to whether the party
required to pay for "clean up" caused the contamination, owned the property at
the time the contamination occurred or even knew about the contamination. Some
items, such as asbestos or PCBs, which were legal when installed, now are
classified as Toxics, and are subject to removal requirements. Civil lawsuits
for damages resulting from Toxics may be filed by third parties in certain
circumstances.
Sublandlord and Subtenant each acknowledge that Broker has no specific expertise
with respect to environmental assessment or physical condition of the Subleased
Premises, including, but not limited to, matters relating to: (i) problems which
may be posed by the presence or disposal of hazardous or toxic substances on or
from the Subleased Premises, (ii) problems which may be posed by the Subleased
Premises being within the Special Studies Zone as designated under the
Alquist-Priolo Special Studies
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[CORNISH & CAREY LOGO]
S U B L E A S E
Zone Act (Earthquake Zones), Section 2621-2630, inclusive of California Public
Resources Code, and (iii) problems which may be posed by the Subleased Premises
being within a HUD Flood Zone as set forth in the U.S. Department of Housing
and Urban Development 'Special Flood Zone Area Maps," as applicable.
Sublandlord and Subtenant each acknowledge that Broker has not made an
independent investigation or determination of the physical or environmental
condition of the Subleased Premises, including, but not limited to, the
existence or nonexistence of any underground tanks, sumps, piping, toxic or
hazardous substances on the Subleased Premises. Subtenant agrees that it will
rely solely upon its own investigation and/or the investigation of professionals
retained by it or Sublandlord, and neither Sublandlord nor Subtenant shall rely
upon Broker to determine the physical and environmental condition of the
Subleased Premises or to determine whether, to what extent or in what manner,
such condition must be disclosed to potential sublessees, assignees, purchasers
or other interested parties.
16. RENT ABATEMENT AND DAMAGES TO PERSONAL PROPERTY:
In the event Sublandlord, pursuant to the terms of the Master Lease, is entitled
to and receives rent abatement, then to the extent such rent abatement affects
the subleased premises, Subtenant shall be entitled to rent abatement in an
amount that the net rentable area of the subleased premises bears to the total
net rentable area of the Master Lease, and only to the extent any such abatement
applies to the sublease term. In addition, any amounts paid or credited to
Sublandlord under the terms of the Master Lease for damage to personal property
shall be credited to Subtenant, subject to the same limitations set forth above.
Sublandlord: PLANT RESEARCH TECHNOLOGIES, INC.
2050 Fortune Avenue
San Jose, CA 95131
By: /s/ B.A. Burke Date: 8/28/96
------------------------------- -------------------------------
Basil A. Burke, PhD., President
Subtenant: VIVUS, INC.
545 Middlefield Road, Suite 200
Menlo Park, CA 95024
By: /s/ David C. Yntema Date: 8/28/96
------------------------------- -------------------------------
David Yntema, CFO
NOTICE TO SUBLANDLORD AND SUBTENANT: CORNISH & CAREY COMMERCIAL, IS NOT
AUTHORIZED TO GIVE LEGAL OR TAX ADVICE; NOTHING CONTAINED IN THIS SUBLEASE OR
ANY DISCUSSIONS BETWEEN CORNISH & CAREY AND SUBLANDLORD AND SUBTENANT SHALL BE
DEEMED TO BE A REPRESENTATION OR RECOMMENDATION BY CORNISH & CAREY COMMERCIAL,
OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
DOCUMENT OR ANY
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S U B L E A S E
TRANSACTION RELATING THERETO. ALL PARTIES ARE ENCOURAGED TO CONSULT WITH THEIR
INDEPENDENT FINANCIAL CONSULTANTS AND/OR ATTORNEYS REGARDING THE TRANSACTION
CONTEMPLATED BY THIS PROPOSAL.
Exhibit A Master Lease
Exhibit B Facility Plan
MASTER LANDLORD CONSENT
The undersigned, Lessor under the Master Lease attached as Attachment I, hereby
consents to the subletting of the Subleased Premises described herein on the
terms and conditions contained in this Sublease. This Consent shall apply only
to this Sublease and shall not be deemed to be a consent to any other Sublease.
Landlord: HARRIS FAMILY TRUST
By: [Signature Illegible] Date: 9-3-96
-------------------------------- --------------------------------
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FACILITY MAP
Plant Research Technologies, Inc.
525 Del Rey Avenue, Unit C, Sunnyvale, CA 94086
January 1, 1996
[MAP OF FACILITY]
<PAGE> 11
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -- GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes
only, July 29, 1994, is made by and between Harris Family Trust ("Lessor") and
Plant Research Technologies Inc., a California Corporation ("Lessee"),
(collectively the "Parties," or individually a "Party").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 525 Del Rey/Units C & D, located in the
City of Sunnyvale, County of Santa Clara, State of California, with zip code
94086, as outlined on Exhibit A attached hereto ("Premises"). The "Building" is
that certain building containing the Premises and generally described as
(describe briefly the nature of the Building): Approximately 6,228 square feet
of light industrial/office/R&D space of a larger building. In addition to
Lessee's rights to use and occupy the Premises as hereinafter specified,
Lessee shall have non-exclusive rights to the Common Areas (as defined in
Paragraph 2.7 below) as hereinafter specified, but shall not have any rights
to the roof, exterior walls or utility raceways of the Building or to any
other buildings in the Industrial Center. The Premises, the Building, the
Common Areas, the land upon which they are located, along with all other
buildings and improvements thereon, are herein collectively referred to as the
"Industrial Center." (Also see Paragraph 2.)
1.2(b) PARKING: 21 unreserved vehicle parking spaces ("Unreserved
Parking Spaces"); and none reserved vehicle parking spaces ("Reserved Parking
Spaces"). (Also see Paragraph 2.6.)
1.3 TERM: 5 years and 0 months ("Original Term") commencing
September 1, 1994 ("Commencement Date") and ending August 31, 1999 ("Expiration
Date"). (Also see Paragraph 3.)
1.4 EARLY POSSESSION: August 15, 1994 ("Early Possession Date").
(Also see Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $4,484.16 per month ("Base Rent"), payable on the
1st day of each month commencing September 1994 (Also see Paragraph 4.)
[X] If this box is checked, this Lease provides for the Base Rent to be
adjusted per paragraph 51 attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $4,484.16 as Base Rent for the
period September 1, 1994.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: Twenty Eight
percent (28%) ("Lessee's Share") as determined by
[X] prorata square footage of the Premises as compared to the total square
footage of the Building or [ ] other criteria as described in Addendum ______.
1.7 SECURITY DEPOSIT: $5,293.80 ("Security Deposit"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: Sales, Laboratory Research and Development for
the agriculture, chemical and pharmaceutical, industries and legally related
uses.
("Permitted Use") (Also see Paragraph 6.)
- --------------------------------
1.9 INSURING PARTY. Lessor in the "Insuring Party." (Also see
Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[X] Tom Sweeney-Wayne Mascia Associates represents Lessor exclusively
("Lessor's Broker");
[X] Mike Filice-Wayne Mascia Associates represents Lessee exclusively
("Lessee's Broker"); or
[X] Wayne Mascia Associates represents both Lessor and Lessee ("Dual
Agency"). (Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is
no separate written agreement between Lessor and said Broker(s), the sum of
$15,821.80 for brokerage services rendered by said Broker(s) in connection with
this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are
to be guaranteed by Basil Burke, Ph.D and Scott Korney ("Guarantor"). (Also see
Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or
Addenda consisting of Paragraphs 49 through 54, and Exhibits 0 through 1, all
of which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean
and free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, electrical systems, fire sprinkler system, lightning, air
conditioning and heating systems and loading doors, if any. In the Premises,
other than those constructed by Lessee, shall be in good operating condition on
the Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specifically the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation of
Lessee at Lessee's sole cost and expenses.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants that any improvements (other than those constructed by Lessee
or at Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility installments (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be
reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises
under Applicable Laws (as defined in Paragraph 2.4)
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that
it has been advised by the Broker(s) to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and fire
sprinkler systems, security, environmental aspects, seismic and earthquake
requirements, and compliance with the Americans with Disabilities Act and
applicable zoning, municipal, county, state and federal laws, ordinances and
regulations and any covenants or restrictions of record (collectively,
"Applicable Laws") and the present and future suitability of the Premises for
Lessee's intended use; (b) that Lessee has made such investigation as it deems
necessary with reference to such matters, is satisfied with reference thereto,
and assumes all responsibility therefor as the same relate to Lessee's
occupancy of the Premises and/or the terms of this Lease; and (c) that neither
Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to said matters other than as set
forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor
in this Paragraph 2 shall be of no force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any non-compliance of the Premises with said warranties.
Initials: BAB, PH
-----------
NH
-----------
MULTI-GROSS
(C) American Industrial Real Estate Association 1993
<PAGE> 12
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted
Size Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) Issued by Lessor. (Also see paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong
to or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited
activities described in this Paragraph 2.6, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease,
provide the parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "Common Areas" is defined
as all areas and facilities outside the Premises and within the exterior
boundary line of the Industrial Center and interior utility raceways within the
Premises that are provided and designated by the Lessor from time to time for
the general non-exclusive use of Lessor, Lessee and other lessees of the
Industrial Center and their respective employees, suppliers, shippers,
customers, contractors and invitees, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee,
for the benefit of Lessee an its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers,and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and
regulations or restrictions governing the use of the Industrial Center. Under
no circumstances shall the right herein granted to use the Common Areas be
deemed to include the right to store any property, temporarily or
permanently, in the Common Areas. Any such storage shall be permitted only by
the prior written consent of Lessor or Lessor's designated agent, which consent
may be revoked at anytime. In the event that any unauthorized storage shall
occur then Lessor shall have the right, without notice, in addition to such
other rights an remedies that it may have, to remove the property and charge
the cost to Lessee, which cost shall be immediately payable upon demand by
Lessor.
2.9 COMMON AREA - RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from time to time, to establish,
modify, amend and enforce reasonable Rules and Regulations with respect thereto
in accordance with Paragraph 40. Lessee agrees to abide by and conform to all
such Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not
be responsible to Lessee for the non-compliance with said rules and regulations
by other lessees of the Industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in
Lessor's sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the
Common Areas;
(e) To use the Common Areas while engaged in making
additional improvements, repairs or alternatives to the Industrial Center, or
any portion thereof; and
(f) To do and perform such other acts and make such
other changes in, to or with respect to the Common Areas and Industrial Center
as Lessor may, in the exercise of sound business judgment, deem to be
appropriate.
3. TERM.
3.1 TERM. The commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If any Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after
the Early Possession Date but prior to the Commencement Date, the obligations to
pay Base Rent shall be abated for the period of such early occupance. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the Insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date. If one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure effect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within (10) days after the
end of said sixty (60) day period, cancel this Lease, in which event the parties
shall be discharged from all obligations hereunder; provided further, however,
that if such written notice of Lessee is not received by Lessor within said ten
(10) day period, Lessee's right to cancel this Lease thereunder shall terminate
and be of no further force or effect. Except as may be otherwise provided, and
regardless of when the Original Term actually commences. If possession is not
tendered to Lessee when required by this Lease and Lessee does not terminate
this Lease, as aforesaid, the period free of the obligation to pay Base Rent if
any, that Lessee would otherwise have enjoyed shall run from the date of
delivery of possession and continue for a period equal to the period during
which the Lessee would have otherwise enjoyed under the terms hereof, but minus
any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or
charges, as the same may be adjusted from time to time, to Lessor in lawful
money of the United States, without offset or deduction on or before the day
on which it is due under the terms of this Lease. Base Rent and all other rent
and charges for any period during the term hereof which is for less than one
full month shall be prorated based upon the actual number of days of the month
involved. Payment of Base Rent and other charges shall be made to Lessor at the
address stated herein or to such other persons or at such other addresses as
Lessor may from time to time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor
during the term hereof, in addition to the Base Rent, Lessee's Share (as
specified in Paragraph 1.6(b)) of all Common Area Operation Expenses, as
hereinafter defined, during each calendar year of the term of this Lease. In
accordance with the following provisions:
(a) "Common Area Operation Expenses" are defined, for
purposes of this Lease, as all costs incurred by Lessor relating to the
ownership and operations of the Industrial Center, including, but not limited
to, the following:
(i) The operation, repair and maintenance, in neat,
clean, good order and condition, of the following:
(aa) The Common Areas, including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant
directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and
telephone to service the Common Areas.
(iii) Trash disposal, property management and
security services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair
of Common Areas.
(v) Any increase above the Base Real Property Taxes
as defined in Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in
Paragraph 8.1).
(vii) The cost of Insurance carried by Lessor with
respect to the Common Areas.
(viii) Any deductible portion of any insured loss
concerning the Building or the Common Areas.
(ix) Any other services to be provided by Lessor
that are stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property
Taxes that are specifically attributable to the Building or to any other
building in the Industrial Center or to the operation, repair and maintenance
thereof, shall be allocated entirely to the Building or to such other
building. However, any Common Area Operating Expenses and Real Property
Taxes that are not specifically attributable to the Building or to any other
building or to the operation, repair and maintenance thereof, shall be
equitably allocated by Lessor to all buildings in the Industrial Center.
(c) The Inclusion of the Improvements, facilities and
services set forth in Subparagraph 4.2(a) shall not be deemed to impose an
obligation upon Lessor to either have said improvements or facilities or to
provide these services unless the Industrial Center already has the same,
Lessor already provides the services, or Lessor has agreed elsewhere in this
Lease to provide the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall
be payable by Lessee within ten (10) days after a reasonably detailed statement
of actual expenses is presented to Lessee by Lessor. At Lessors option,
however, an amount may be estimated by Lessor from time to time of Lessee's
Share of annual Common Area Operating Expenses and the same shall be payable
monthly or quarterly, as Lessor shall designate, during each 12-month period of
the Lease term, on the same day as the Base Rent is due hereunder. Lessor shall
deliver to Lessee within sixty (60) days after the expiration of each calendar
year a reasonably detailed statement showing Lessee's Share of the actual Common
Area Operating Expenses incurred during the preceding year. If Lessee's payments
under the Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessor shall be credited the amount of such over-
<PAGE> 13
payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security
for Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may
use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or
any portion of said Security Deposit, Lessee shall within ten (10) days after
written request therefore deposit monies with Lessor sufficient to restore said
Security Deposit to the full amount required by this Lease. Any time the Base
Rent increases during the term of this Lease, Lessee shall, upon written request
from Lessor, deposit additional monies with Lessor as an addition to the
Security Deposit so that the total amount of the Security Deposit shall at all
times bear the same proportion to the then current Base Rent as the initial
Security Deposit bears to the initial Base Rent set forth in Paragraph 1.5.
Lessor shall not be required to keep all or any part of the Security Deposit
separate from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises,
return to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest herein), that portion of the Security Deposit not used or
applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any monies to
be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use
or permit the use of the Premises in a manner that is unlawful, creates waste
or a nuisance, or that disturbs owners and/or occupants of, or causes damage to
the Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay
its consent to any written request by Lessee, Lessee's assignees or subtenants,
and by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for a modification of said Permitted Use, so long as the same will
not impair the structural integrity of the improvements on the Premises or in
the Building or the mechanical or electrical systems therein, does not conflict
with uses by other lessees, is not significantly more burdensome to the
Premises or the Building and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days after such request give a
written notification of same, which notice shall include an explanation of
Lessor's reasonable objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous
Substances" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to be
on the Premises, is either; (i) potentially injurious to the public health,
safety or welfare, the environment, or the Premises; (ii) regulated or
monitored by any governmental authority; or (iii) a basis for potential
liability of Lessor to any governmental agency or third party under any
applicable statute or common law theory. Hazardous Substance shall include, but
not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products
or by-products thereof. Lessee shall not engage in any activity in or about the
Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Requirements (as defined in Paragraph 6.3). "Reportable Use" shall
mean (i) the installation or use of any above or below ground storage tank,
(ii) the generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority, and (iii) the presence in, on or about the Premises of
a Hazardous Substance with respect to which any Applicable Laws require that a
notice be given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but upon notice to Lessor and in compliance with all Applicable
Requirements, use any ordinary and customary materials reasonably required to
be used by Lessee in the normal course of the Permitted Use, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor
to any liability therefor. In addition, Lessor may (but without any obligation
to do so) condition its consent to any Reportable Use of any Hazardous
Substance by Lessee upon Lessee's giving Lessor such additional assurances as
Lessor, in its reasonable discretion, deems necessary to protect itself, the
public, the Premises and the environment against damage, contamination or
injury and/or liability therefor, including but not limited to the installation
(and, at Lessor's option, removal on or before Lease expiration or earlier
termination) of reasonably necessary protective modifications to the Premises
(such as concrete encasements) and/or the deposit of an additional Security
Deposit under Paragraph 5 hereof.
(b) Duty to inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application,
permit, business plan, license, claim, action or proceeding given to, or
received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous
Substance including but not limited to all such documents as may be involved in
any Reportable Use Involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) Indemnification. Leases shall indemnity, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees arising out of or involving any Hazardous
Substance brought onto the Premises by or for Lessee or by anyone under
Lessee's control. Lessee's obligations under this Paragraph 6.2(c) shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessees, and the
cost of investigation (including consultants' and attorneys' fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with
all "Applicable Requirements," which term is used in this Lease to mean all
laws, rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations or Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil
and groundwater conditions, and (iii) the use, generation, manufacture,
production, installation, maintenance, removal, transportation, storage, spill,
or release of any Hazardous Substance), now in effect or which may hereafter
come into effect. Lessee shall, within five (5) days after receipt of Lessor's
written request, provide Lessor with copies of all documents and information,
including but not limited to permits, registrations, manifests, applications,
reports and certificates, evidencing Lessee's compliance with any Applicable
Requirements specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable
Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("Lenders") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to
advise Lessor with respect to Lessee's activities, including but not limited to
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a Default
or Breach of this Lease by Lessee or a violation of Applicable Requirements or
a contamination, caused or materially contributed to by Lessee, is found to
exist or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation). Lessee shall,
at Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion
of the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the
generality of the foregoing, all equipment or facilities specifically serving
the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire hose connections if within the Premises, fixtures, interior walls,
interior surfaces of exterior walls, ceilings, floors, windows, doors, plate
glass, and skylights, but excluding any items which are the responsibility of
Lessor pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in good
order, condition and repair, shall exercise and perform good maintenance
practices. Lessee's obligations shall include restorations, replacements or
renewals when necessary to keep the Premises and all improvements thereon or a
part thereof in good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expenses, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 8
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection
<PAGE> 14
systems and equipment, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing the services for which there
is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not
be obligated to paint the exterior or interior surfaces of exterior walls nor
shall Lessor be obligated to maintain, repair or replace windows, doors or
plate glass of the Premises. Lessee expressly waives the benefit of any statute
now or hereafter in effect which would otherwise afford Lessee the right to
make repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility
Installations" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning
equipment, plumbing, and fencing in, on or about the Premises. The term "Trade
Fixtures" shall mean Lessee's machinery and equipment which can be removed
without doing material damage to the Premises. The term "Alterations" shall
mean any modification of the improvements on the Premises which are provided by
Lessor under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined
as Alterations and/or Utility Installations made by Lessee that are not yet
owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause
to be made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the Interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the
cumulative cost thereof during the term of this Lease as extended does not
exceed $2,500.00.
(b) Consent. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall
be presented to Lessor in written form with detailed plans. All consents given
by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities; (ii) the furnishing of
copies of such permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to commencement of the
work thereon; and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and be in
compliance with all Applicable Requirements. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessor may, (But without obligation to do so) condition its consent
to any requested Alteration or Utility Installation that costs $2,500.00 or
more upon Lessee's providing Lessor with a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such Alteration or
Utility Installation.
(c) Lien Protection. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in
an amount equal to one and one-half times the amount of such contested lien
claim or demand, indemnifying Lessor against liability for the same, as
required by law for the holding of the Premises free from the effect of such
lien or claim. In addition, Lessor may require Lessee to pay Lessor's
attorneys' fees and costs in participating in such action if Lessor shall
decide it is to its best interest to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter provided
in this Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by Lessee shall be the property of and owned by Lessee, but considered
a part of the Premises. Lessor may, at any time and at its option, elect in
writing to Lessee to be the owner of all or any specified part of the
Lessee-Owned Alterations and Utility Installations. Unless otherwise instructed
per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their Installation may have been consented to by Lessor. Lessor may
require the removal at any time of all or any part of any Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises
by the end of the last day of the Lease term or any earlier termination date,
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. Ordinary wear and tear shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Lessee-Owned Alterations and Utility Installations, as well as
the removal of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or ground water contaminated
by Lessee, all as may then be required by Applicable Requirements and/or good
practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall
be removed by Lessee subject to its obligation to repair and restore the
Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) As used herein, the term "Insurance Cost Increase" is
defined as any increase in the actual cost of the insurance applicable to the
Building and required to be carried by Lessor pursuant to Paragraphs 8.2(b),
8.3(a) and 8.3(b), ("Required Insurance"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. "Insurance Cost Increase"
shall include, but not be limited to, requirements of the holder of a mortgage
or deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The Term "Insurance Cost Increase"
shall not, however, include any premium increases resulting from the nature of
the occupancy of any other lessee of the Building. If the parties insert a
dollar amount in Paragraph 1.9, such amount shall be considered the "Base
Premium." If a dollar amount has not been inserted in Paragraph 1.9 and if the
Building has been previously occupied during the twelve (12) month period
immediately preceding the Commencement Date, the "Base Premium" shall be the
annual premium applicable to such twelve (12) month period. If the Building was
not fully occupied during such twelve (12) month period, the "Base Premium"
shall be the lowest annual premium reasonably obtainable for the Required
Insurance as of the Commencement Date, assuming the most nominal use possible
of the Building. In no event, however, shall Lessee be responsible for any
portion of the premium cost attributable to liability insurance coverage in
excess of $1,000,000 procured under Paragraph 6.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee, Lessor and any Lender(s) whose names have been
provided to Lessee in writing (as additional insureds) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such Insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
endorsement and contain the "Amendment of the Pollution Exclusion" endorsement
for damage caused by heat, smoke or fumes from a hostile fire. The policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as carried by Lessee shall not, however, limit the liability of Lessee
nor relieve Lessee of any obligation hereunder. All insurance to be carried by
Lessee shall be primary to and not contributory with any similar insurance
carried by Lessor, whose insurance shall be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be
named as an additional insured therein.
8.3 Property Insurance - Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any
Lender(s), but in no event more than the commercially reasonable and available
insurable value thereof if, by reason of the unique nature or age of the
improvements involved, such latter amount is less than full replacement cost.
Lessee-Owned Alterations and Utility Installations, Trade Fixtures and Lessee's
personal property shall be insured by Lessee pursuant to Paragraph 8.4. If the
coverage is available and commercially appropriate, Lessor's policy or policies
shall insure against all risks of direct physical loss or damage (except the
perils of flood and/or earthquake unless required by a Lender or included in
the Base Premium), including coverage for any additional costs resulting from
debris removal and reasonable amounts of coverage for the enforcement of any
ordinance or law regulating the reconstruction or replacement of any undamaged
sections of the Building, required to be demolished or removed by reason of the
enforcement of any building, zoning, safety or land use laws as the result of a
covered loss, but not including plate glass insurance. Said policy or policies
shall also contain an agreed valuation provision in lieu of any co-insurance
clause, waiver or subrogation, and inflation guard protection causing an
increase in the annual property insurance coverage amount by a factor of not
less than the adjusted U.S. Department of Labor Consumer Price Index for All
Urban Consumers for the city nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that
in the event the Lease is terminated by reason of an insured loss, the period
of indemnity for such coverage shall be extended beyond the date of the
completion of repairs or replacement of the Premises, to provide for one full
year's loss of rental revenues from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any co-insurance clause,
and the amount of coverage shall be adjusted annually to reflect the projected
rental income, Real Property Taxes, insurance premium costs and other
expenses, if any, otherwise payable, for the next 12-month period. Common Area
Operating Expenses shall include any deductible amount in the event of such
loss.
(C) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
Initials: Basil Burke
--------------------
N.H.
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MULTI-TENANT -- GROSS
(C) American Industrial Real Estate Association, 1993
<PAGE> 15
(d) Lessee's Improvements. Since Lessor is the Insuring Party, Lessor
shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph
8.3(a). Such insurance shall be full replacement cost coverage with a deductible
not to exceed $1,000 per occurrence. The proceeds from any such insurance shall
be used by Lessee of the replacement of personal property and the restoration
of trade Fixtures and Lessee-Owned Alterations and Utility Installations. Upon
request from Lessor, Lessee shall provide Lessor with written evidence that
such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be
in companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by
Lender, as set forth in the most current issue of "Best's Insurance Guide."
Lessee shall not do or permit to be done anything which shall invalidate the
insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor, within seven (7) days after the earlier of the Early
Possession Date or the Commencement Date, certified copies of, or certificates
evidencing the existence and amounts of, the insurance required under Paragraph
8.2(a) and 8.4. No such policy shall be cancellable or subject to modification
except after thirty (30) days' prior written notice to Lessor. Lessee shall at
least thirty (30) days prior to the expiration of such policies, furnish Lessor
with evidence renewals or "Insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge of the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by
the amount of insurance carried or required, or by any deductible applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or
damages, costs, liens, judgements, penalties, loss of permits, attorneys' and
consultants' fees, expenses and/or liabilities arising out of, involving, or in
connection with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a timely manner of any obligation on Lessees part to be
performed under this Lease. The foregoing shall include, but not be limited
to, the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessee upon
notice from Lessor shall defend the same at Lessees expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in
such defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said injury or damage results from conditions arising upon
the Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other lessee of Lessor nor from the failure by Lessor to enforce the
provision of any other lease in the Industrial Center. Notwithstanding Lessor's
negligence or breach of this Lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is less than fifty percent (50%)
of the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair costs of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations
and Trade Fixtures of any lessees of the Building) of the Building shall, at the
option of Lessor, be deemed to be Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence
or discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 8.2(a), in, on, or under the
Premises.
9.2 Premises Partial Damage - Insured Loss. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance
thereof, within ten (10) days following receipt of written notice of such
shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, Lessor shall complete them as
soon as reasonably possible and this Lease shall remain in full force and
effect. If Lessor does not receive such funds or assurance within said period,
Lessor may nevertheless elect by written notice to Lessee within ten (10) days
thereafter to make such restoration and repair as is commercially reasonable
with Lessor paying any shortage in proceeds, in which case this Lease shall
remain in full force and effect. If Lessor does not receive such funds or
assurance within such ten (10) day period, and if Lessor does not so elect to
restore and repair, then this Lease shall terminate sixty (60) days following
the occurrence of the damage or destruction. Unless otherwise agreed, Lessee
shall in no event have any right to reimbursement from Lessor for any funds
contributed by Lessee to repair any such damage or destruction. Premises
Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3
rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available
for the repairs if made by either Party.
9.3 Partial Damage - Uninsured loss. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect). Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at
Lessor's expense. In which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after
receipt by Lessor of knowledge of the occurrence of such damage of Lessor's
desire to terminate this Lease as of the date sixty (60) days following the
date of such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten (10)
days after the receipt of such notice to give written notice to Lessor of
Lessee's commitment to pay for the repair of such damage totally at Lessee's
expense and without reimbursement from Lessor, Lessee shall provide Lessor with
the required funds or satisfactory assurance thereof within thirty (30) days
following such commitment from Lessee. In such event this Lease shall continue
in full force and effect, and Lessor shall proceed to make such repairs as soon
as reasonably possible after the required funds are available. If Lessee does
not give such notice and provide the funds or assurance thereof within the
times specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an insured Loss or was caused by a negligent or
willful act of Lessee. In the event, however, that the damage or destruction
was caused by Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee except as released and waived in Paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve the
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the
repairs on or before the earlier of (i) the date which is ten (10) days after
Lessee's receipt of Lessor's written notice purporting to terminate this Lease,
or (ii) the day prior to the date upon which such option expires. If Lessee
duly exercises such option during such period and provides Lessor with funds
(or adequate assurance thereof) to cover any shortage in insurance proceeds,
Lessor shall, at Lessor's expense repair such damage as soon as reasonably
possible and this lease shall continue in full force and effect. If Lessee
fails to exercise such option and provide such funds or assurance during such
period, then this Lease shall terminate as of the date set forth in the first
sentences of this Paragraph 9.5
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, as
repair, remediation or restoration continues, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired, but not in excess
of proceeds from insurance required to be carried under Paragraph 8.3(b).
Except for abatement of Base Rent, Common Area Operating Expenses and other
charges. If any, as aforesaid, all other obligation of Lessee hereunder shall
be performed by Lessee, and Lessee shall have to claim against Lessor for any
damage suffered by reason of any such damage, destruction, repair, remediation
or restoration.
<PAGE> 16
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at any
time prior to the commencement of such repair or restoration, give written
notice to Lessor and to any Lenders of which Lessee has actual notice of
Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice to Lessor
and such Lenders and such repair or restoration is not commenced within thirty
(30) days after receipt of such notice, this Lease shall terminate as of the
date specified in said notice. If Lessor or a Lender commences the repair or
restoration of the Premises within thirty (30) days after the receipt of such
notice, this Lease shall continue in full force and effect. "Commence" as used
in this Paragraph 9.6 shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefor (in which case
Lessee shall make the investigation and remediation thereof required by
Applicable Requirements and this Lease shall continue in full force and effect,
but subject to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor
may at Lessor's option either (i) investigate and remediate such Hazardous
Substance Condition, if required, as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) if the estimated cost to investigate and remediate such condition exceeds
twelve (12) times the then monthly Base Rent or $100,000 whichever is greater,
give written notice to Lessee within thirty (30) days after receipt by Lessor
of knowledge of the occurrence of such Hazardous Substance Condition of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the date of such notice. In the event Lessor elects to give such notice of
Lessor's intention to terminate this Lease, Lessee shall have the right within
ten (10) days after the receipt of such notice to give written notice to Lessor
of Lessee's commitment to pay for the excess costs of (a) investigation and
remediation of such Hazardous Substance Condition to the extent required by
Applicable Requirements, over (b) an amount equal to twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater. Lessee shall provide
Lessor with the funds required of Lessee or satisfactory assurance thereof
within thirty (30) days following said commitment by Lessee. In such event this
Lease shall continue in full force and effect, and Lessor shall proceed to make
such investigation and remediation as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the required funds or assurance thereof within the time period specified above,
this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises and the Building with respect to the termination of this Lease and
hereby waive the provisions of any present or future statute to the extent it
is inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except
as otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITIONS.
(a) As used herein, the term "Real Property Taxes" shall
include any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"Real Property Taxes" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Industrial Center
or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "Base Real Property Taxes" shall
be the amount of Real Property Taxes, which are assessed against the Premises,
Building or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the
calculation of Real Property Taxes for such calendar year based upon the number
of days which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall
not include Real Property Taxes specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the
Industrial Center by other lessees or by Lessor for the exclusive enjoyment of
such other lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall,
however, pay to Lessor at the time Common Area Operating Expenses are payable
under Paragraph 4.2, the entirety of any increase in Real Property Taxes if
assessed solely by reason of Alterations, Trade Fixtures or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed,
Real Property Taxes allocated to the Building shall be an equitable proportion
of the Real Property Taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable determination
thereof, in good faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center.
When possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber (collectively,
"assign") or sublet all or any part of Lessee's Interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, refinancing, transfer, leveraged buy-out or otherwise), whether or
not a formal assignment or hypothecation of this Lease or Lessee's assets
occurs, which results or will result in a reduction of the Net Worth of Lessee,
as hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor
at the time of full execution and delivery of this Lease or at the time of
the most recent assignment to which Lessor has consented, or as it exists
immediately prior to said transaction or transactions constituting such
reduction, at whichever time said Net Worth of Lessee was or is greater,
shall be considered an assignment of this Lease by Lessee to which Lessor
may reasonably withhold its consent. "Net Worth of Lessee" for purposes of
this Lease shall be the net worth of Lessee (excluding any Guarantors)
established under generally accepted accounting principles consistently
applied.
(d) An assignment or subletting of Lessee's Interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1, or a non-curable
Breach without the necessity of any notice and grace period. If Lessor elects
to treat such unconsented to assignment or subletting as a non-curable Breach,
Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon
thirty (30) days' written notice ("Lessor's Notice"), increase the monthly Base
Rent for the Premises to the greater of the then fair market rental value of
the Premises, as reasonably determined by Lessor, or one hundred ten percent
(110%) of the Base Rent then in effect. Pending determination of the new fair
market value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation or obsolescence, and considering
the Premises at its highest and best use and in good condition) or one hundred
ten percent (110%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be adjusted
to require that the base index be determined with reference to the index
applicable to the time of such adjustment, and (iii) any fixed rental
adjustments scheduled during the remainder of the Lease term shall be increased
in the same ratio as the new rental bears to the Base Rent in effect
immediately prior to the adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent for performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
assignee or sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto without
notifying Lessee or anyone else liable under this Lease or the sublease and
without obtaining their consent, and such action shall not relieve such persons
from liability under this Lease or the sublease.
<PAGE> 17
(d) In the event of any Default or Breach of Lessee's obligation under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the proposed
assignment or sublease, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation
as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other then
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted,
as determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublease, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
direct any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Subleases shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior
defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent, Lessee's Share of Common Area
Operating Expenses, or any other monetary payment required to be made by Lessee
hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) days following written notice thereof by or on behalf of
Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements
per Paragraph 6.3, (ii) the inspection, maintenance and service contracts
required under Paragraph 7.1(b), (iii) the rescission of an unauthorized
assignment or subletting per Paragraph 12.1, (iv) a Tenancy Statement per
Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease
per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations
under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution
of any document requested under Paragraph 42 (easements), or (viii) any other
documentation or information which Lessor may reasonably require of Lessee
under the terms of this lease, where any such failure continues for a period of
ten (10) days following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, compiled with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or
on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably
required for its cure, then it shall not be deemed to be a Breach of this Lease
by Lessee if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided, however,
in the event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or
of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee or in case of an emergency, without notice), Lessor may at its
option (but without obligation to do so), perform such duty or obligation on
Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its own option, may required all future payments to be made under
this Lease by Lessee to be made only by cashier's check. In the event of a
Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Leasee's right to possession of the Premises by any
lawful means, in which case the Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably voided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alternation of the Premises, reasonable attorney's fees, and
that portion of any leasing commission paid by Lessor in connection with this
Lease applicable in the unexpired term of this Lease. The worth at the time of
award of the amount referred to in provision (m) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the
provisional remedy of unlawful detainer, Lessor shall have the right to recover
in such pro-
<PAGE> 18
ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
Subparagraph 13.1(b), (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
Subparagraph 13.1(b), (c) or (d). In such case, the applicable grace period
under the unlawful detainer status shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two (2) such grace periods shall constitute both an unlawful
detainer and a Breach of this Lease entitling Lessor to the remedies provided
for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the right to
sublet or assign, subject only to reasonable limitations. Lessor and Lessee
agree that the limitations on assignment and subletting in this Lease are
reasonable. Acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver to protect the Lessor's interest under this
Lease, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time
of such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) consecutive installments of Base Rent,
then notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breech by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor falls within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
portion of the Common Areas designated for Lessee's parking, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing within
ten (10) days after Lessor shall have given Lessee written notice of such
taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession) terminate this Lease as of
the date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the Base Rent shall be reduced in the same proportion as the rentable
floor area of the Premises taken bears to the total rentable floor area of the
Premises. No reduction of Base Rent shall occur if the condemnation does not
apply to any portion of the Premises. Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution of value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any compensation, separately awarded
to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages received,
over and above Lessee's Share of the legal and other expenses incurred by
Lessor in the condemnation matter, repair any damage to the Premises caused by
such condemnation authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise
agreed in writing, Lessor agrees that: (a) if Lessee exercises any Option (as
defined in Paragraph 39.1) granted under this Lease or any Option subsequently
granted, or (b) if Lessee acquires any rights to the Premises or other premises
in which Lessor has an interest, or (c) if Lessee remains in possession of the
Premises with the consent of Lessor after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by agreement or operation
of an escalation clause herein, then as to any of said transactions, Lessor
shall pay said Broker(s) a fee in accordance with the schedule of said
Broker(s) in effect at the time of the execution of this Lease.
15.3 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation
of law, shall be deemed to have assumed Lessor's obligation under this
Paragraph 15. Each Broker shall be an intended third party beneficiary of the
provisions of Paragraph 1.10 and of this Paragraph 15 to the extent of its
interest in any commission arising from this Lease and may enforce that right
directly against Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm
broker or finder other than as named in Paragraph 1.10(a) in connection with
the negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction, Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the Indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall
within ten (10) days after written notice from the other Party (the "Requesting
Party") execute, acknowledge and deliver to the Requesting Party a statement in
writing in a form similar to the then most current "Tenancy Statement" form
published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean
the owner or owners at the time in question of the fee title to the Premises,
in the event of a transfer of Lessor's title or interest in the Premises or in
this Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such transfer
or assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed
by the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due
at the prime rate charged by the largest state chartered bank in the state in
which the Premises are located plus four percent (4%) per annum, but not
exceeding the maximum rate allowed by law, in addition to the potential late
charge provided for in Paragraph 13.4
20. Time of Essence. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties under
this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under
the terms of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease
contains all agreements between the Parties with respect to any matter
mentioned herein, and no other prior or contemporaneous agreement or
understanding shall be effective. Lessor and Lessee each represents and
warrants to the Brokers that it has made, and is relying solely upon, its own
investigation as to the nature, quality, character and financial responsibility
of the other Party to this Lease and as to the nature, quality and character of
the Premises. Brokers have no responsibility with respect thereto or with
respect to any default or breach hereof by either Party. Each Broker shall be
an intended third party beneficiary of the provisions of this Paragraph 22.
<PAGE> 19
23. NOTICES.
23.1 Notice Requirements. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or
U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses noted
adjacent to a Party's Signature on this Lease shall be that Party's address for
delivery or mailing of notice purposes. Either Party may by written notice to
the other specify a different address for notice purposes, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for the purpose of mailing or delivering notices to Lessee. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as
Lessor may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any form,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent
or similar act by Lessee, or be construed as the basis of an estoppel to enforce
the provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any Default or Breach by
Lessee of any provision thereof. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease or recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed
or performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, dead of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor under
this Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default
pursuant to Paragraph 13.5. If any Lender shall elect to have this Lease and/or
any Option granted hereby superior to the lien of this Security Device and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act of omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from
the Lender that Lessee's possession and this Lease, including any options to
extend the arm hereof, will not be disturbed so long as Lessee is not in Breach
hereof and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) in any such proceeding, action, or appeal thereon, shall
be entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred. Lessor shall be entitled to attorneys' fees, costs and
expenses incurred in preparation and service of notices of Default and
consultation in connection therewith, whether or not a legal action is
subsequently commenced in connection with such Default or resulting Breach.
Broker(s) shall be intended third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Building, as Lessor may reasonably deem necessary. Lessor may at any time place
on or about the Premises or Building any ordinary "For Sale" signs and Lessor
may at any time during the last one hundred eighty (180) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to
advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions of
Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations). Unless otherwise expressly agreed herein, Lessor reserves all
right to the use of the roof of the Building, and the right to install
advertising signs on the Building, including the roof, which do not
unreasonably interfere with the conduct of Lessee's business: Lessor shall be
entitled to all revenues from such advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one or
all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by written
notice to the holder of any such lesser interest, shall constitute Lessor's
election to have such event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld, or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
Initials: /s/ Signature
-------------
/s/ Signature
-------------
<PAGE> 20
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a
Default of the Lessee under this Lease if any such Guarantor fails or refuses,
upon reasonable request by Lessor to give: (a) evidence of the due execution of
the guaranty called for by this Lease, including the authority of the Guarantor
(and of the party signing on Guarantor's behalf) to obligate such Guarantor on
said guaranty, and resolution of its board of directors authorizing the making
of such guaranty, together with a certificate of incumbency showing the
signatures of the persons authorized to sign on its behalf, (b) current
financial statements of Guarantor as may from time to time be requested by
Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty
is still in effect.
38. OUTLET POSSESSION. Upon payment by Lessee of the rent for the Premises
and the performances of all of the covenants, conditions and provisions on
Lessee's part to be observed and performed under this Lease, Lessee shall have
quiet possession of the Premises for the entire term hereof subject to all of
the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal
to purchase the Premises, or the right of first offer to purchase the Premises,
or the right to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor, or the right of first offer to
purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or exercised by any
person or entity other than said original Lessee while the original Lessee is
in full and actual possession of this Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease
in any manner, by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised
unless the prior Options to extend or renew this Lease have been validly
exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, (ii) during
the period of time any monetary obligation due Lessor from Lessee is unpaid
(without regard to whether notice thereof is given Lessee), or (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessor has
given to Lessee three (3) or more notices of separate Defaults under Paragraph
13.1 during the twelve (12) month period immediately preceding the exercise of
the Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of separate Defaults under
Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults
are cured, or (iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep
and observe all reasonable rules and regulations ("Rules and Regulations")
which Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants
of tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way,
utility raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such assignments,
rights of way, utility raceways, dedications, maps and restrictions do not
reasonably interfere with the use of the Premises by Lessee. Lessee agrees to
sign any documents reasonably requested by Lessor to effectuate any such
easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duty authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
49. Lessor shall complete the following items prior to August 14, 1994.
1. Steam clean carpeting.
2. Touch-up paint where needed.
3. Replace damaged and/or stained ceiling tiles and light lenses.
4. Wax floors.
5. Clean Premises throughout.
6. Replace or repair and damaged floor tiles.
7. Secure all doors which demise space from larger portion of
building.
50. HVAC and Electrical Systems. Lessor shall insure that all HVAC &
Electrical Systems are in proper working order and warranties such
items for Ninety (90) days. HVAC System ducting cleaned by a
professional HVAC company.
51. Rent Schedule. MONTHS DOLLAR PER MONTH
------ ----------------
1-12 $4,484.16
13-24 $4,671.00
25-36 $4,982.40
37-48 $5,169.24
49-60 $5,293.80
52. Lessee is granted full use of compressor area located at rear of
building throughout term of Lease.
53. Lessor hereby grants Lessee the first right of refusal to lease the
adjacent approximately 3,060 sq. ft. known as 525 Del Rey Ave., Unit E.
After it has been leased once and that current Lessee does not extend
its lease. Lessee shall have five (5) business days to exercise said
Right of Refusal once presented in writing by Lessor.
54. Lessor hereby grants to Lessee an option to extend the term of this
lease for one (1) additional five (5) year period commencing August 31,
1999 and ending July 31, 2004, provided that:
-10-
<PAGE> 21
54. Continued.
A. Lessee is not in default of any terms or conditions of this Lease
on the date this option is exercised or on the date this option
period commences;
B. Lessee shall give Lessor not less than Ninety (90) days prior
written notice of Lessee's intention to exercise this option;
C. The monthly rental rate for this option period shall be a "Fair
Market" rate to be agreed upon by Lessor and Lessee.
D. This option is not transferable.
E. Lessee's security deposit shall be increased to an amount equal to
the base monthly rate during the last month of this option period.
<PAGE> 22
[GUARANTY OF LEASE LOGO]
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
WHEREAS, HARRIS FAMILY TRUST hereinafter, referred to as "Lessor", and PLANT
RESEARCH TECHNOLOGIES INC., A CALIFORNIA CORPORATION hereinafter referred to
as "Lessee" are about to execute a document entitled "Lease" dated July 29, 1994
concerning the premises commonly known as 525 Del Rey Avenue, Units C&D,
Sunnyvale, California wherein Lessor will lease the premises to Lessee and
WHEREAS, BASIL BURKE PH.D and SCOTT KORNEY
hereinafter referred to as "Guarantors" have a financial interest in Lessee, and
WHEREAS, Lessor would not execute the Lease if Guarantors did not execute
and deliver to Lessor this Guarantee of Lease
NOW THEREFORE for and in consideration of the execution of the foregoing
Lease by Lessor and as a material inducement to Lessor to execute said Lease.
Guarantors hereby jointly severally unconditionally and irrevocably guarantee
the prompt payment by Lessee of all rentals and all other sums payable by
Lessee under said Lease and the faithful and prompt performance by Lessee of
each and every one of the terms, conditions and covenants of said Lease to be
kept and performed by Lessee
It is specifically agreed and understood that the terms of the foregoing
Lease may be altered, affected, modified or changed by agreement between Lessor
and Lessee, or by a course of conduct and said Lease may be assigned by Lessor
or any assignee of Lessor without consent or notice to Guarantors and that this
Guaranty shall thereupon and thereafter guarantee the performance of said Lease
as so changed, modified, altered or assigned
This Guaranty shall not be released, modified or affected by failure or delay
on the part of Lessor to enforce any of the rights or remedies of the Lessor
under said Lease, whether pursuant to the terms thereof or at law or in equity
No notice of default need be given to Guarantors, if being specifically
agreed and understood that the guarantee of the undersigned is a continuing
guarantee under which Lessor may proceed forthwith and immediately against
Lessee or against Guarantors following any breach or default by Lessee or for
the enforcement of any rights which Lessor may have as against Lessee pursuant
to or under the terms of the within Lease or at law or in equity.
Lessor shall have the right to proceed against Guarantors hereunder
following any breach or default by Lessee without first proceeding against
Lessee and without previous notice to or demand upon either Lessee or
Guarantors.
Guarantors hereby waive (a) notice of acceptance of this Guaranty, (b)
demand of payment, presentation and protest, (c) all right to assert or plead
any statute of limitations as to or relating to this Guaranty and the Lease,
(d) any right to require the Lessor to proceed against the Lessee or any other
Guarantor or any other person or entity liable to Lessor, (e) any right to
require Lessor to apply to any default any security deposit or other security it
may hold under the Lease, (f) any right to require Lessor to proceed under any
other remedy Lessor may have before proceeding against Guarantors, (g) any
right of subrogation.
Guarantors do hereby subrogate all existing or future indebtedness of Lessee
to Guarantors to the obligations owed to Lessor under the Lease and this
Guaranty
Any married woman who signs this Guaranty expressly agrees that recourse may
be had against her separate property for all of her obligations hereunder
The obligations of Lessee under the Lease to execute and deliver estoppel
statements and financial statements, as therein provided, shall be deemed to
also require the Guarantors hereunder to do and provide the same relative to
Guarantors
The term "Lessor" whenever hereinabove used refers to and means the Lessor in
the foregoing Lease specifically named and also any assignee of said Lessor,
whether by outright assignment or by assignment for security, and also any
successor to the interest of said Lessor or of any assignee in such Lease or any
part thereof, whether by assignment or otherwise So long as the Lessor's
interest in or to the leased premises or the rents, issues and profits
therefrom, or in, to or under said Lease, are subject to any mortgage or deed
of trust or assignment for security, no acquisition by Guarantors of the
Lessor's interest in the leased premises or under said Lease shall affect the
continuing obligation of Guarantors under this Guaranty which shall
nevertheless continue in full force and effect for the benefit of the
mortgagee, beneficiary, trustee or assignee under such mortgage, deed or trust
or assignment, of any purchase at sale by judicial foreclosure or under private
power of sale, and of the successors and assigns of any such mortgagee,
beneficiary, trustee, assignee or purchaser
The term "Lessee" whenever hereinabove used refers to and means the Lessee in
the foregoing Lease specifically named and also any assignee or sublessee of
said Lease and also any successor to the interests of said Lessee assignee or
sublessee of such Lease or any part thereof whether by assignment, sublease or
otherwise
In the event any action be brought by said Lessor against Guarantors
hereunder to enforce the obligation of Guarantor's hereunder, the unsuccessful
party in such action shall pay to the prevailing party therein a reasonable
attorney's fee which shall be fixed by the court.
If this Form has been filled in it has been prepared for submission to
your attorney for his approval. No representation or recommendation is
made by the real estate broker or its agents or employees as to the
legal sufficiency, legal effect, or tax consequences of this Form or the
transaction relating thereto.
Executed at /s/ BASIL BURKE
-------------------------------- ------------------------------
BASIL BURKE, PH.D
on /s/ SCOTT KORNEY
---------------------------------------- ------------------------------
SCOTT KORNEY
Address
------------------------------------ ------------------------------
- ------------------------------------------- "GUARANTORS"
* 1977-American Industrial Real Estate Association
All rights reserved. No part of these works may be reproduced in any form
without permission in writing
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current form. AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 So. Figueroa St. M-1, Los Angeles, CA 90071
(213) 687-8777
<PAGE> 23
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE
SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM
THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE AND ON THE DATES
SPECIFIED ABOVE THEIR RESPECTIVE SIGNATURES.
<TABLE>
<S> <C>
EXECUTED AT: San Mateo EXECUTED AT:
------------------------------ ------------------------
ON: 8-3-94 ON:
--------------------------------------- ---------------------------------
BY LESSOR: BY LESSEE:
Harris Family Trust Plant Research Technologies Inc.
- ------------------------------------------ ------------------------------------
- ------------------------------------------ ------------------------------------
BY: /s/ Norman Harris BY: /s/ B.A. Burke
--------------------------------------- ---------------------------------
NAME PRINTED: Norman Harris NAME PRINTED: Basil Burke, PH.D
----------------------------- -----------------------
TITLE: Lessor TITLE: President
------------------------------------ ------------------------------
BY: BY: /s/ Scott Korney
--------------------------------------- ---------------------------------
NAME PRINTED: NAME PRINTED: Scott Korney
----------------------------- -----------------------
TITLE: TITLE: Vice President
------------------------------------ ------------------------------
ADDRESS: 2121 S. El Camino Real, Suite 700 ADDRESS: 2020 Lundy Avenue
---------------------------------- ----------------------------
San Mateo, California 94403 San Jose, California 95131
- ------------------------------------------ ------------------------------------
TELEPHONE: (415) 578-8080 TELEPHONE: (408) 433-9815
-------------------------------- --------------------------
FACSIMILE: (415) 578-0148 FACSIMILE: (408) 452-5084
-------------------------------- --------------------------
BROKER: BROKER:
EXECUTED AT: EXECUTED AT:
------------------------------ ------------------------
ON: ON:
--------------------------------------- ---------------------------------
BY: BY:
--------------------------------------- ---------------------------------
NAME PRINTED: Tom Sweeney NAME PRINTED: Mike Filice
----------------------------- -----------------------
TITLE: Senior Sales Consultant TITLE: Senior Sales Consultant
------------------------------------ ------------------------------
ADDRESS: 3945 Freedom Circle, Suite 350 ADDRESS: 3945 Freedom Circle, Suite 350
---------------------------------- ----------------------------
Santa Clara, California 95054 Santa Clara, California 95054
- ------------------------------------------ ------------------------------------
TELEPHONE: (408) 970-9400 X 123 TELEPHONE: (408) 970-9400 X 131
-------------------------------- --------------------------
FACSIMILE: (408) 970-0648 FACSIMILE: (408) 970-0648
-------------------------------- --------------------------
</TABLE>
NOTE: THESE FORMS ARE OFTEN MODIFIED TO MEET CHANGING REQUIREMENTS OF LAW AND
NEEDS OF THE INDUSTRY. ALWAYS WRITE OR CALL TO MAKE SURE YOU ARE
UTILIZING THE MOST CURRENT FORM; AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 SO. FIGUEROA ST., M-1, LOS ANGELES, CA 90071. (213)
687-8777.
INITIALS: BAB
--------
MULTI-TENANT--GROSS
(C) AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1993 NH
-11- --------
<PAGE> 1
EXHIBIT 11.1
VIVUS, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income (Loss) ................ $ 2,662,000 $ (4,873,000) $ (7,317,000) $(16,743,000)
=========== ============ ============ ============
Weighted average common
shares outstanding ............... 16,131,578 13,440,014 14,481,014 12,714,050
Weighted average common share
options and warrants outstanding.. 1,267,368 -- -- --
Common shares, options, and
warrants granted (using the
treasury stock method
assuming an initial public
offering price of $14.00)
since January 1, 1993
included pursuant to
Securities and Exchange
Commission Rules ................. 419,552 574,889 419,552 574,889
----------- ------------ ------------ ------------
Weighted average common and
equivalent shares ................ 17,818,498 14,014,903 14,900,566 13,288,939
=========== ============ ============ ============
Net income (loss) per common
and equivalent
share ............................ $ .15 $ (.35) $ (.49) $ (1.26)
=========== ============ ============ ============
</TABLE>
31
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 10,284
<SECURITIES> 56,638
<RECEIVABLES> 1,222
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,454
<PP&E> 7,130
<DEPRECIATION> (1,860)
<TOTAL-ASSETS> 102,144
<CURRENT-LIABILITIES> 3,858
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 98,270
<TOTAL-LIABILITY-AND-EQUITY> 102,144
<SALES> 0
<TOTAL-REVENUES> 20,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 29,508
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,317)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,317)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,317)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> 0
</TABLE>
