U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
(Amendment No. 1)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission file number: 0-21214
ORTHOLOGIC CORP.
(Exact name of registrant as specified in its charter)
Delaware 86-0585310
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2850 South 36th Street, Suite 16, Phoenix, Arizona 85034
(Address of principal executive offices)
Issuer's telephone number: (602) 437-5520
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
None N/A
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0005 per share;
Rights to purchase 1/100 of a share of Series A Preferred Stock
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(Title of Class)
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 report(s)), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10- K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing bid price of the registrant's Common
Stock as reported on the Nasdaq National Market on February 21, 1997 was
approximately $146,117,400. Shares of Common Stock held by each officer and
director and by each person who owns 10% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily conclusive.
The number of outstanding shares of the registrant's Common Stock on
February 21, 1997 was 25,031,846.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 1996 are incorporated by reference in Part II
hereof and portions of the Registrant's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 16, 1997 are incorporated by reference in Part
III hereof.
<PAGE>
Orthologic Corp., a Delaware Corporation (the "Company"), hereby amends
certain exhibits to its Report on Form 10-K for the year ended December 31, 1996
as set forth below:
Part II
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Item 8. Financial Statements and Supplementary Data
The information on pages 16 through 27 of the Company's Annual Report
to stockholders for the year ended December 31, 1996 ("Annual Report") is
incorporated herein by reference.
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
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1. Financial Statements
The following financial statements of OrthoLogic Corp. and Independent
Auditors' Report are incorporated by reference from pages 16 through 27
of the Annual Report:
Balance Sheets - December 31, 1996 and 1995.
Statements of Operations - Each of the three years in the period
ended December 31, 1996.
Statements of Stockholders' Equity - Each of the three years in the
period ended December 31, 1996.
Statements of Cash Flows - Each of the three years in the period
ended December 31, 1996.
Notes to Financial Statements
2. Financial Statement Schedules
Schedules have been omitted because they are not applicable or are not
required or the information required to be set forth therein is included in
the Financial Statements or notes thereto.
1
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3. Exhibits and Management Contracts, and Compensatory Plans and
Arrangements
All management contracts and compensatory plans and arrangements are
identified by footnote after the Exhibit Descriptions on the attached
Exhibit Index.
(b) Reports on Form 8-K.
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On September 13, 1996, the Company filed a current report on Form 8-K dated
August 30, 1996, to report in Item 2 the consummation of its acquisition of
the capital stock of Sutter Corporation. The Form 8-K was amended on
November 14, 1996 to include the following financial statements:
-- Unaudited Pro-Forma Balance Sheet as of June 30, 1996.
-- Unaudited Pro-Forma Statement of Income for the six-month
period ended June 30, 1996
-- Unaudited Pro-Forma Consolidated Statement of Operations
for the year ended December 31, 1995.
-- Audited financial statements of Sutter Corporation for the
years ended December 31, 1995, 1994 and 1993 and
independent auditor's report.
-- Unaudited balance sheet of Sutter Corporation as of June
30, 1996.
-- Unaudited statements of income of Sutter for the six-month
periods ended June 30, 1996 and 1995.
(c) Exhibits
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See the Exhibit Index immediately following the signature page of this
report, which Index is incorporated herein by reference.
(d) Financial Statements and Schedules
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See Item 14(a)(1) and (2) above.
2
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this amended
report to be signed on its behalf by the undersigned, thereunto duly authorized.
ORTHOLOGIC CORP.
Date: April 24 , 1997 By /s/ Allan M. Weinstein
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Allan M. Weinstein
Chief Executive Officer
S-1
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ORTHOLOGIC CORP.
EXHIBIT INDEX TO REPORT ON FORM 10-K/A (Amendment No. 1)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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Exhibit Previously Filed
No. Description Incorporated by Reference To: Filed Herewith
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2.1 Stock Purchase Agreement dated Exhibit 2.1 to the Company's Current
August 30, 1996 by and among the Report on Form 8-K filed on
Company, Sutter Corporation and September 13, 1996
Smith Laboratories, Inc.
2.2 Purchase and Sale Agreement dated as Exhibit 2.1 to the Company's
Current of December 30, 1996 by and among Report on Form 8-K filed
on March the Company and Toronto Medical 18, 1997 ("March 1997 8-K")
Corp., an Ontario corporation
2.3 Amendment to Purchase and Sale Exhibit 2.2 to March 1997 8-K
Agreement dated as of January 13,
1997 by and among the Company and
Toronto Medical Corp., an Ontario
corporation
2.4 Second Amendment to Purchase and Exhibit 2.3 to March 1997 8-K
Sale Agreement dated as of March 1,
1997 by and among the Company and
Toronto Medical Corp., an Ontario
corporation
2.5 Assignment of Purchase and Sale Exhibit 2.4 to March 1997 8-K
Agreement dated as of March 1, 1997
by and among the Company, Toronto
Medical Orthopaedics Ltd., a Canada
corporation and Toronto Medical
Corp., an Ontario corporation
2.6 Asset Purchase Agreement dated March Exhibit 2.1 to the Company's Current
12, 1997 by and among the Company, Report on Form 8-K filed on March
Danninger Medical Technology, Inc., a 27, 1997
Delaware corporation, and Danninger
Healthcare, Inc., an Ohio corporation
3.1 Composite Certificate of Incorporation Exhibit 3.1 to Company's Form 10-Q
of the Company, as amended for the quarter ended March 31, 1996
(File No. 0-21214)
3.2 Bylaws of the Company Exhibit 3.4 to Company's
Amendment No. 2 to Registration
Statement on Form S-1 (No. 33-
47569) filed with the SEC on January
25, 1993 ("January 1993 S-1")
4.1 Articles 5, 9 and 11 of Amended Form Exhibit 3.2 to January 1993 S-1
of Amendment to Certificate of
Incorporation of the Company
4.2 Articles II and III.2(c)(ii) of Bylaws of Exhibit 3.4 to January 1993 S-1
the Company
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EX-1
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Exhibit Previously Filed
No. Description Incorporated by Reference To: Filed Herewith
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4.3 Specimen Common Stock Certificate Exhibit 4.1 to January 1993 S-1
4.4 Stock Option Plan of the Company, as Incorporated by reference to Exhibit
amended and approved by stockholders 99.1 to the Company's Registration
(1) Statement on Form S-8 (No. 333-
09785) filed with the SEC on August
8, 1996
4.5 Stock Purchase Warrant, dated August Exhibit 4.6 to the Company's Form
18, 1993, issued to CyberLogic, Inc. 10-K for the fiscal year ended
December 31, 1994 ("1994 10-K")
4.6 Stock Purchase Warrant, dated Exhibit 4.6 to Company's
September 20, 1995, issued to Registration Statement on Form S-1
Registered Consulting Group, Inc. (No. 33-97438) filed with the SEC on
September 27, 1995 ("1995 S-1")
4.7 Stock Purchase Warrant, dated October
15, 1996, issued to Registered X
Consulting Group, Inc.
4.8 Rights Agreement dated as of March 4, Exhibit 4.1 to the Company's
1997 between the Company and Bank Registration Statement on Form 8-A
of New York, and Exhibits A, B and C filed with the SEC on March 6, 1997
thereto
10.1 License Agreement dated September 3, Exhibit 10.6 to January 1993 S-1
1987 between the Company and Life
Resonances, Inc.
10.2 Invention, Confidential Information and Exhibit 10.7 to January 1993 S-1
Non-Competition Agreement dated
September 18, 1987 between the
Company and Weinstein
10.3 Lease between the Company and Exhibit 10.8 to January 1993 S-1
MeraBank dated January 26, 1989
10.4 First Amendment to Lease, dated Exhibit 10.8.1 to January 1993 S-1
March 15, 1989 between the Company
and MeraBank
10.5 Second Amendment to Lease, dated Exhibit 10.8.2 to January 1993 S-1
September 17, 1990 between the
Company and MeraBank
10.6 Third Amendment to Lease, dated Exhibit 10.8.3 to January 1993 S-1
November 4, 1991 between the
Company and Cook Inlet Region,
Incorporated
10.7 Fourth Amendment to Lease, dated Exhibit 10.9 to the Company's Form
March 24, 1992 between the Company 10-Q for the quarter ended September
and Cook Inlet Region, Incorporated 30, 1994, File No. 0-21214
("September 30, 1994 10-Q")
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EX-2
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Exhibit Previously Filed
No. Description Incorporated by Reference To: Filed Herewith
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10.8 Fifth Amendment to Lease, dated Exhibit 10.10 to the Company's
September 14, 1993 between the September 30, 1994 10-Q
Company and Cook Inlet Region,
Incorporated
10.9 Invention, Confidential Information and Exhibit 10.11 to January 1993 S-1
Non-Competition Agreement dated
January 10, 1989 between the Company
and Frank P. Magee
10.10 Addendum to Lease between the Exhibit 10.8.1 to the Registration
Company and Cook Inlet Region, Inc. Statement on Form S-3 (No. 333-
commencing April 1, 1996 3082) filed with the SEC on April 2,
1996 ("April 1996 S-3")
10.11 1995 Officer Bonus Plan(1) Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the
year ended December 31, 1995
("1995 10-K")
10.12 1996 Officer Bonus Plan(1) Exhibit 10.11 to 1995 10-K
10.13 1997 Officer Bonus Plan(1) X
10.14 Form of Indemnification Agreement* Exhibit 10.16 to January 1993 S-1
10.15 License Agreement dated December 2, Exhibit 10.22 to January 1993 S-1
1992 between Orthotic Limited
Partnership and Company
10.16 Consulting Agreement dated May 1, Exhibit 10.11 to the Company's
1990 between Augustus A. White III September 30, 1994 Form 10-Q
and the Company(1)
10.17 Letter of employment dated March 5, Exhibit 10.29 to the Company's Form
1993 between the Company and David 10-K for the year ended December
E. Derminio(1) 31, 1992, File No.
0-21214
10.18 Amendment to Employment Agreement Exhibit 10.18 to 1995 10-K
between the Company and David E.
Derminio dated July 12, 1995(1)
10.19 Loan Modification Agreement dated Exhibit 10.22 to 1995 S-1
March 23, 1995 between Company and
Silicon Valley Bank
10.20 Employment Agreement dated Exhibit 10.9 to January 1993 S-1
December 17, 1992 between Allan M.
Weinstein and the Company(1)
10.21 Renewal of Employment Agreement of Exhibit 10.22.1 to 1994 10-K
Allan M. Weinstein dated March 28,
1995(1)
10.22 Employment Agreement dated Exhibit 10.10 to January 1993 S-1
December 17, 1992 between Frank P.
Magee and the Company(1)
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EX-3
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Exhibit Previously Filed
No. Description Incorporated by Reference To: Filed Herewith
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10.23 Renewal of Employment Agreement of Exhibit 10.23 to 1994 10-K
Frank P. Magee dated March 28,
1995(1)
10.24 Employment Agreement dated Exhibit 10.24 to 1995 10-K
February 27, 1992 between Allen R.
Dunaway and the Company(1)
10.25 Amendment to Employment Agreement Exhibit 10.25 to 1995 10-K
between the Company and Allen R.
Dunaway dated February 14, 1996(1)
10.26 Underwriting Agreement between the Exhibit 1.1 to 1995 S-1
Company and Volpe, Welty & Co. and
Dain Bosworth, Inc., as Representa
tives of the Underwriters
10.27 Underwriting Agreement between the Exhibit 1.1 to April 1996 S-3
Company and Volpe, Welty &
Company Hambrecht & Quist and Dain
Bosworth, Inc., as Representatives of
the Underwriters
10.28 Maturity Modification Letter dated Exhibit 10.21 to April 1996 S-3
March 29, 1996, by Silicon Valley
Bank
10.29 Employment Agreement dated March Exhibit 10.28 to April 1996 S-3
28, 1996 between the Company and
Nicholas A. Skaff(1)
10.30 Employment Agreement dated July 1, Exhibit 10.5 to Company's Quarterly
1996 between the Company and Report on Form 10-Q for the quarter
George A. Oram, Jr.(1) ended June 30, 1996
10.34 Lease made March 1997 between X
Toronto Medical Corp. and Toronto
Medical Orthopaedics Ltd.
10.35 Lease dated September 4, 1991 by and X
between Greystone Realty Corporation
and Sutter Corporation
10.36 Lease dated February 10, 1988 X
between MIC Four Points and Sutter
Biomedical, Inc.
10.37 First Addendum to Lease dated X
February 15, 1988 by and between
MIC Four Points and Sutter
Biomedical, Inc.
10.38 October 7, 1988 Second Addendum to X
Lease dated February 10, 1988 between
MIC Four Points and Sutter
Biomedical, Inc.
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EX-4
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Exhibit Previously Filed
No. Description Incorporated by Reference To: Filed Herewith
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10.39 Severance Agreement effective February X
18, 1997 by and between George A.
Oram, Jr. and the Company (1)
10.40 Promissory Note dated November 15, X
1996 made by George A. Oram, Jr. in
favor of the Company (1)
11.1 Statement of Computation of Net X
Income (Loss) per Weighted Average
Number of Common and Common Equivalent
Shares Outstanding
13.1 Portions of 1996 Annual Report to X
Stockholders
21.1 Subsidiaries of Registrant X
23.1 Consent of Deloitte & Touche LLP X
27 Financial Data Schedule X
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(1) Management contract or compensatory plan or arrangement
* The Company has entered into a separate indemnification agreement with
each of its current direct and executive officers that differ only in
party names and dates. Pursuant to the instructions accompanying Item
601 of Regulation S-K, the Company has filed the form of such
indemnification agreement.
EX-5
STANDARD OFFICE LEASE--NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Lease Provisions ("Basic Lease Provisions")
1.1 Parties: This Lease, dated, for reference purposes only. September
4 1991 is made by and between Greystone Realty Corporation (herein called
"Lessor") and Sutter Corporation, a California Corporation doing business under
the name of Sutter Corporation (herein called "Lessee").
1.2 Premises: Suite Number(s) 9465-A 1 floors, consisting of
approximately 18,766 square feet, more or less, as defined in paragraph 2 and as
shown on Exhibit "A" hereto (the "Premises").
1.3 Building: Commonly described as being located at 9465 Farnham
Street in the City of San Diego County of San Diego State of California as more
particularly described in Exhibit A hereto, and as defined in paragraph 2.
1.4 Use: Production of medical products, research and development,
and/or other uses permitted under zoning regulations subject to paragraph 6.
1.5 Term: Eighty-One (81) Months commencing December 1, 1991
(Commencement Date"), and ending August 31, 1998 as defined in paragraph 3.
1.6 Base Rent: See Addendum per month, payable on the 1st day of each
month per paragraph 4.1.
1.7 Intentionally Omitted
1.8 Rent Paid Upon Execution: Seven Thousand Seven Hundred and No/100
Dollars ($7,700.00) for base rent for month one (1) of this lease .
1.9 Security Deposit: -0- .
1.10 Lessee's Share of Operating Expenses: 36.5% as defined in
paragraph 4.2.
2. Premises, Parking and Common Areas.
2.1 Premises. The Premises are a portion of an office building project
herein sometimes referred to as the "Building" identified in paragraph 1.3 of
the Basic Lease Provisions. "Building" shall include adjacent parking structures
used in connection therewith. The Premises, the Building, the Common Areas, the
land upon which the same are located, along with all other buildings and
improvements thereon or thereunder, are herein collectively referred to as the
"Office Building Project." Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, the real property referred to in the Basic Lease Provisions, paragraph
1.2, as the "Premises," including rights to the Common Areas as hereinafter
specified.
2.2 Vehicle Parking. So long as Lessee is not in default, and subject
to the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to use 66 parking spaces in the Office
Building Project. (See Addendum for Reserved Parking)
2.2.1 If Lessee commits, permits or allows any of the
prohibited activities described in the Lease or the rules then in effect, then
Lessor shall have the right, without notice, in addition to such other rights
and remedies that it may have, to remove or tow away the vehicle involved and
charge the cost to Lessee, which cost shall be immediately payable upon demand
by Lessor.
2.2.2 The monthly parking rate per parking space will be $ -0-
per month at the commencement of the term of this Lease, and is subject to
change upon five (5) days prior written notice to Lessee. Monthly parking fees
shall be payable one month in advance prior to the first day of each calendar
month.
2.3 Common Areas--Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project 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 Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 Common Areas--Rules and Regulations. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. 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
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project.
2.5 Common Areas--Changes. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Building interior and exterior and
Common Areas, including, without limitation, changes in the location, size,
shape, number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(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 and improvements outside the
boundaries of the Office Building Project to be a part of the Common Areas,
provided that such other land and improvements have a reasonable and functional
relationship to the Office Building Project;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Office Building Project
as Lessor may, in the exercise of sound business judgment deem to be
appropriate.
3. Term.
3.1 Term. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof, but in such case,
Lessee shall not be obligated to pay rent or perform any other obligation of
Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined, provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee. Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder provided, however,
that as to Lessee's obligations, Lessee first reimburses Lessor for all costs
incurred for Non-Standard Improvements and, as to Lessor's obligations, Lessor
shall return any money previously deposited by Lessee (less any offsets due
Lessor for Non-Standard Improvement, and provided further, that if such written
notice by Lessee is not received by Lessor within said ten (10) day period,
Lessee's right to cancel this Lease hereunder shall terminate and
be of no further force or effect.
3.2.1 Possession Tendered--Defined. Possession of the Premises
shall be deemed tendered to Lessee ("Tender of Possession") when (1) the
improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises, (3)
Lessee has reasonable access to the Premises, and (4) ten (10) days shall have
expired following advance written notice to Lessee of the occurrence of the
matters described in (1), (2), and (3), above of this paragraph 3.2.1.
3.2.2 Delays Caused by Lessee. There shall be no abatement of
rent, and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee, its
agents, employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the Lease term
is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of Possession
(as defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. Rent.
4.1 Base Rent. Subject to adjustment as hereinafter provided in
paragraph 4.3, and except as may be otherwise expressly provided in this Lease,
Lessee shall pay to Lessor the Base Rent for the Premises set forth in paragraph
1.6 of the Basic Lease Provisions, without offset or deduction. Lessee shall pay
Lessor upon execution hereof the advance Base Rent described in paragraph 1.8 of
the Basic Lease Provisions. Rent for any period during the term hereof which is
for less than one month shall be prorated based upon the actual number of days
of the calendar month involved. Rent shall be payable in lawful money of the
United States to Lessor at the address stated herein or to such other persons or
at such other places as Lessor may designate in writing.
4.2 Operating Expenses. See Paragraph 51. Lessee shall pay to Lessor
during the term hereof, in addition to the Base Rent, Lessee's Share, as
hereinafter defined, of all Operating Expenses, as hereinafter defined, during
each calendar year of the term of this Lease, in accordance with the following
provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease,
as the percentage set forth in paragraph 1.10 of the Basic Lease Provisions,
which percentage has been determined by dividing the approximate square footage
of the Premises by the total approximate square footage of the rentable space
contained in the Office Building Project. It is understood and agreed that the
square footage figures set forth in the Basic Lease Provisions are
approximations which Lessor and Lessee agree are reasonable and shall not be
subject to revision except in connection with an actual change in the size of
the Premises or a change in the space available for lease in the Office Building
Project.
(b) "Operating Expenses" is defined, for purposes of this
Lease, to include all costs, if any, incurred by Lessor in the exercise of its
reasonable discretion for:
(i) The operation, repair, maintenance, and
replacement, in neat, clean, safe, good order and condition, of the Office
Building Project, including but not limited to, the following:
(aa) The Common Areas, including their
surfaces, coverings decorative items, carpets, drapes and window coverings, and
including parking areas, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, stairways, parkways, driveways, landscaped areas, striping,
bumpers, irrigation systems, Common Area lighting facilities, building exteriors
and roofs, fences and gates;
(bb) All heating, air conditioning, plumbing,
electrical systems, life safety equipment, telecommunication and other equipment
used in common by, or for the benefit of, lessees or occupants of the Office
Building Project, including elevators and escalators, tenant directories, fire
detection systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security
services;
(iii) Any other service to be provided by Lessor that
is elsewhere in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and
property insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid
by Lessor under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and
other publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits
and costs, materials, supplies and tools, used in maintaining and/or cleaning
the Office Building Project and accounting and a management fee attributable to
the operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated
by any governmental agency and any repairs or removals necessitated thereby
amortized over its useful life according to Federal income tax regulations or
guidelines for depreciation thereof (including interest on the unamortized
balance as is then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that
have a useful life for depreciation purposes according to Federal income tax
guidelines of five (5) years or less, as amortized over such life.
(c) Operating Expenses shall not include the costs of
replacements of equipment or improvements that have a useful life for Federal
income tax purposes in excess of five (5) years unless it is of the type
described in paragraph 4.2(b)(viii), in which case their cost shall be included
as above provided.
(d) Operating Expenses shall not include any expenses paid by
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other tenant, or by insurance proceeds.
(e) Lessee's Share of Operating Expenses shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Operating Expenses and the same shall be payable monthly or quarterly, as Lessor
shall designate during each calendar year of the Lease term, on the same day as
the Base Rent is due hereunder in the event that Lessee pays Lessor's estimate
of Lessee's Share of Operating Expenses as aforesaid. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Operating
Expenses incurred during the preceding year. If Lessee's payments under this
paragraph 4.2(e) during said preceding calendar year exceed Lessee's Share as
indicated on said statement, Lessee shall be entitled to credit the amount of
such overpayment against Lessee's Share of Operating Expenses next falling due.
If Lessee's payments under this paragraph during said preceding calendar 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 Lessee of said statement.
5. Intentionally deleted
6. Use.
6.1 Use. The Premises shall be used and occupied only for the purpose
set forth in paragraph 1.4 of the Basic Lease Provisions or any other use which
is reasonably comparable to that use and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of record,
or any applicable building code, regulation or ordinance in effect on such Lease
term Commencement Date. In the event it is determined that this warranty has
been violated, then it shall be the obligation of the Lessor, after written
notice from Lessee, to promptly, at Lessor's able cost and expense, rectify any
such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in effect
or which may hereafter come into effect, whether or not they reflect a change in
policy from that now existing during the term or any part of the term hereof,
relating in any manner to the Premises and the occupation and use by Lessee of
the Premises. Lessee shall conduct its business in a lawful manner and shall not
use or permit the use of the Premises or the Common Areas in any manner that
will tend to create waste or a nuisance or shall tend to disturb other occupants
of the Office Building Project.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean
condition on the Lease Commencement Date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, and heating system in the Premises shall be in good operating
condition. In the event that it is determined that this warranty has been
violated, then it shall be the obligation of Lessor, after receipt of written
notice from Lessee setting forth with specificity the nature of the violation,
to promptly, at Lessor's sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises and the Office Building Project in their condition existing
as of the Lease Commencement Date or the date that Lessee takes possession of
the Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Lessor shall keep the Office Building
Project, including the Premises, exterior walls, roof, and common areas, and the
equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards except as provided in paragraph 9.5 there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the Premises
in good condition and repair, Lessee shall be responsible for payment of the
cost thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices by
Lessee. Lessee shall repair any damage to the Premises occasioned by the
installation or removal of Lessee's trade fixtures, alterations, furnishings and
equipment. Except as otherwise stated in this Lease, Lessee shall leave the air
lines, power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall panelling,
ceilings and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent,
make any alterations, improvements, additions, Utility Installations or repairs
in, on or about the Premises, or the Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and
wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing and telephone and telecommunication wiring
and equipment. At the expiration of the term, Lessor may require the removal of
any or all of said alterations, improvements, additions or Utility
Installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Lessee's expense. Should Lessor permit
Lessee to make its own alterations, improvements, additions, or Utility
Installations, Lessee shall use only such contractor as has been expressly
approved by Lessor, and Lessor may require Lessee to provide Lessor, at Lessee's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, or use a contractor not
expressly approved by Lessor, Lessor may, at any time during the term of this
Lease, require that Lessee remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent to Lessee's making
such alteration, improvement, addition or Utility Installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from the
applicable governmental agencies, furnishing a copy thereof to Lessor prior to
the commencement of the work and the compliance by Lessee with all conditions of
said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days'
notice prior to the commencement of any work in the Premises by Lessee, and
Lessor shall have the right to post notices of non-responsibility in or on the
Premises or the Building as provided by law. If Lessee shall, in good faith,
contest the validity of any such lien, claim or demand, then lessee shall at its
sole expense defend itself and Lessor against the same and shall pay and satisfy
any such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys fees and costs in participating in such action
if Lessor shall decide it is to Lessor's best interest to do so.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which made be made to the Premises by Lessee, including but
not limited to, floor coverings, panelings, doors, drapes, built- ins, moldings,
sound attenuation, and lighting and telephone or communication systems, conduit,
wiring and outlets, shall be made and done in a good and workmanlike manner and
of good and sufficient quality and materials and shall be the property of Lessor
and remain upon and be surrendered with the Premises at the expiration of the
Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Provided Lessee is not in default, notwithstanding the provisions of this
paragraph 7.3(e), Lessee's personal property and equipment, other than that
which is affixed to the Premises so that it cannot be removed without material
damage to the Premises of the Building, and other than Utility Installations
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. Insurance; Indemnity.
8.1 Liability Insurance--Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than $1,000,000.00 per occurrence of bodily injury and
property damage combined or in a greater amount as reasonably determined by
Lessor and shall insure Lessee with Lessor as an additional Insured against
liability arising out of the use, occupancy or maintenance of the Premises.
Compliance with the above requirement shall not, however, limit the liability of
Lessee hereunder.
8.2 Liability Insurance--Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 Property Insurance--Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease for the benefit of
Lessee, replacement cost fire and extended coverage insurance, with vandalism
and malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance--Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of insurance covering loss or damage to
the Office Building Project improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Lessee shall
pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it was immediate prior to the commencement of
the term of this Lease if the increase is specified by Lessor's insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of
liability insurance policies required under paragraph 8.1 certificates
evidencing the existence and amounts of such insurance within seven (7) days
after the Commencement Date of this Lease. No such policy shall be cancelable or
subject to reduction of coverage or other modification except after thirty (30)
days prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with renewals thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees or invitees and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged
or destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is less than fifty percent (50%) of the then Replacement
Cost of the Building.
(c) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent (50%) or more of the then Replacement
Cost of the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction"
shall mean if the Office Building Project Buildings are damaged or destroyed to
the extent that the cost of repair is fifty percent (50%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damage occurring, excluding all
improvements made by lessees, other than those installed by Lessor at Lessee's
expense.
9.2 Premises Damage; Premises Building Partial Damage.
(a) Insured Loss. Subject to the provisions of paragraphs 9.4
and 9.5. If at any time during the term of this Lease there is damage which is
an Insured Loss and which falls into the classification of either Premises
Damage or Premises Building Partial Damage, then Lessor shall, as soon as
reasonably possible and to the extent the required materials and labor are
readily available through usual commercial channels, at Lessor's expense, repair
such damage (but not Lessee's fixtures, equipment or tenant improvements
originally paid for by Lessee) to its condition existing at the time of the
damage, and this Lease shall continue in full force and effect.
(b) Uninsured Loss. Subject to the provisions of paragraphs
9.4 and 9.5. If at any time during the term of this Lease there is damage which
is not an Insured Loss and which falls within the classification of Premises
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from making any substantial use of the
Premises, Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence of
such damage, in which event this Lease shall terminate as of the date of the
occurrence of such damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5. If at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classification of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b). If at any time during the
last twelve (12) months of the term of this Lease there is substantial damage to
the Premises, Lessor may at Lessor's option cancel and terminate this lease as
of the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within thirty (30) days after the date of occurrence
of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than twenty (20) days after the
occurrence of an Insured Loss falling within the classification of Premises
Damage during the last twelve (12) months of the term of this Lease. If Lessee
duly exercises such option during said twenty (20) day period, Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's option terminate
and cancel this Lease as of the expiration of said twenty (20) day period by
giving written notice to Lessee of Lessor's election to do so within ten (10)
days after the expiration of said twenty (20) day period, notwithstanding any
term or provision in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Building or
Premises pursuant to the provisions of this paragraph 9, and any part of the
Premises are not usable (including loss of use due to loss of access or
essential services), the rent payable hereunder (including Lessee's Share of
Operating Expenses) for the period during which such damage, repair or
restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to the
extent the operation and profitability of Lessee's business as operated from the
Premises is adversely affected. Except for said abatement of rent, if any,
Lessee shall have no claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises or the Building under the provisions of this paragraph 9 and shall not
commence such repair or restoration within ninety (90) days after such
occurrence, or if Lessor shall not complete the restoration and repair within
six (6) months after such occurrence, Lessee may at Lessee's option cancel and
terminate this Lease by giving Lessor written notice of Lessee's election to do
so at any time prior to the commencement or completion, respectively, of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with
any such restoration and repair, including but not limited to the approval
and/or execution of plans and specifications required.
9.6 Termination--Advance Payments. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee as much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the real property tax, as
defined in paragraph 10.3 applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
to estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's porion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
11. Utilities.
11.1 Services Provided by Lessor. Lessor shall provide heating,
ventilation, air conditioning, and as reasonably required, reasonable amounts of
electricity for normal lighting and office machines, water for reasonable and
normal drinking and lavatory use.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 Intentionally omitted
11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power or suffer or permit any act that causes extra burden upon the utilities
or services, including but not limited to security services, over standard
office usage for the Office Building Project. Lessor shall require Lessee to
reimburse Lessor for any excess expenses or costs that may arise out of a breach
of this subparagraph by Lessee. Lessor may, in its sole discretion, install at
Lessee's expense supplemental equipment and/or separate metering applicable to
Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor
shall not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease and the Premises
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating (a) if Lessee is a corporation, more than
twenty-five percent (25%) of the voting stock of such corporation, or (b) if
Lessee is a partnership, more than twenty-five percent (25%) of the profit and
loss participation in such partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls or controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or
subletting shall release Lessee of Lessee's obligations hereunder or after the
primary liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expenses, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a waiver
or estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms or conditions of this paragraph 12 of this Lease.
(d) If Lessee's obligations under this Lease have been
guaranteed by third parties, then an assignment or sublease, and Lessor's
consent thereto, shall not be effective unless said guarantors give their
written consent to such sublease and the terms thereof.
(e) The consent by 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
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable on the Lease or sublease and without obtaining
their consent and such action shall not relieve such persons from liability
under this Lease or said sublease; provided, however, such persons shall not be
responsible to the extent any such amendment or modification enlarges or
increases the obligations of the Lessee or sublessee under this Lease or such
sublease.
(f) In the event of any default under this Lease, lessor may
proceed directly against Lessee, any guarantors or any one else responsible for
the performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting
of the Premises by Lessee shall not constitute an acknowledgement that no
default then exists under this Lease of the obligations to be performed by
Lessee nor shall such consent be deemed a waiver of any then existing default,
except as may be otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement
relied upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.
12.4 Additional Terms and Conditions Applicable to Subletting.
Regardless of Lessor's consent, the following terms and conditions shall apply
to any subletting by Lessee of all or any part of the Premises and shall be
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 heretofore
or hereafter made by Lessee, and Lessor may collect such rent and income and
apply same toward Lessee's obligations under this Lease; provided, however, that
until a default shall occur in the performance of Lessee's obligations under
this Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective
unless and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublease as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublessee shall, by reason
of entering into a sublease under this Lease, be deemed, for the benefit of
Lessor, to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by Lessee other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease to which
Lessor has expressly consented in writing.
(c) In the event Lessee shall default in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to atone to Lessor, in which
event Lessor shall undertake the obligations of Lessee under such sublease from
the time of the exercise of said option to the termination of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to Lessee or for any other prior defaults of
Lessee under such sublease.
(d) No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has
consented, Lessor agrees to deliver a copy of any notice of default by Lessee to
the sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys, architects, engineers or other
consultants' fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee.
Vacation of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions
or provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment
or subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of real or any
other payment required to be made by Lessee hereunder as and when due, where
such failure shall continue for a period of three (3) days of written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee other than those referenced in subparagraphs (b) and (c) above, where
such failure shall continue for a period of thirty (30) days after written
notice thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law, such
thirty (30) day notice shall constitute the sole and exclusive notice required
to be given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement of
general assignment for the benefit of creditors; (ii) Lessee becoming a "debtor"
as defined in 11 U.S.C. 101 or any successor statute thereto (unless in the case
of a petition filed against Lessee, the same is dismissed within sixty (60)
days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given
to Lessor by Lessee, or its successor in interest or by any guarantor of
Lessee's obligation hereunder was materially false.
13.2 Remedies. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default.
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such thirty (30) day period and
thereafter diligently pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any installment
of Base Rent, Operating Expenses, or any other sum due from Lessee shall not be
received by Lessor or Lessor's designee within ten (10) days after such amount
shall be due, then, without any requirement for notice to Lessee, Lessee shall
pay to Lessor a late charge equal to 6% of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office
Building Project 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;
provided that if so much of the Premises or the Office Building Project are
taken by such condemnation as would substantially and adversely affect the
operation and profitability of Lessee's business conducted from the Premises,
Lessee shall have the option, to be exercised only in writing within thirty (30)
days after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within thirty (30) days after the condemning
authority shall have taken possession), to terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent and Lessee's Share of Operating Expenses shall be reduced in the proportion
that the floor area of the Premises taken bears to the total floor area of the
Premises. Common Areas taken shall be excluded from the Common Areas usable by
Lessee and no reduction of rent shall occur with respect thereto or by reason
thereof. Lessor shall have the option in its sole discretion to terminate this
Lease as of the taking of possession by the condemning authority, by giving
written notice to Lessee of such election within thirty (30) days after receipt
of notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the Premises or
the Office Building Project under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options in the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
15. Broker's Fee.
(a) The brokers involved in this transaction are SCHER-VOIT Commercial
Brokerage Company, Inc. as "listing broker" and CB Commercial Brokerage Company
as "cooperating broker," licensed real estate broker(s). A "cooperating broker"
is defined as any broker other than the listing broker entitled to a share of
any commission arising under this Lease. Upon execution of this Lease by both
parties, Lessor shall pay to said brokers jointly, or in such separate shares as
they may mutually designate in writing, a fee as set forth in a separate
agreement between Lessor and said broker(s), or in the event there is no
separate agreement between Lessor and said broker(s), the sum of $ Per Agreement
for brokerage services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or (ii) if Lessee acquires any rights
to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest, or (v) if the Base
Rent is increased whether by agreement or operation of an escalation clause
contained herein, then as to any of said transactions or rent increases, Lessor
shall pay said broker(s) a fee in accordance with the schedule of said broker(s)
in effect at the time of execution of this Lease. Said fee shall be paid at the
time such increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's 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 listing and cooperating broker
shall be a third party beneficiary of the provisions of this paragraph 15 to the
extent of their interest in any commission arising under this Lease and may
enforce that right directly against Lessor; provided, however, that all brokers
having a right to any part of such total commission shall be a necessary party
to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker, or finder (other
than the person(s), if any, whose names are set forth in paragraph 15(a) above),
in connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or 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.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Office
Building Project, or any part thereof, Lessee hereby agrees to deliver to any
lender or purchaser designated by Lessor such financial statements of Lessee as
may be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15. In the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction shall in no way affect the
validity of any other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law or judgments from the date due. Payment of such
interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges incurred
by Lessee nor on any amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations
to be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense and any other expenses payable by Lessee hereunder shall be deemed to be
rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23. Notices. Any notice required or permitted to be given hereunder shall
be in writing and may be given by personal delivery or by certified or
registered mail, and shall be deemed sufficiently given if delivered or
addressed to Lessee or to Lessor at the address noted below or adjacent to the
signature of respective parties, as the case may be. Mailed notices shall be
deemed given upon actual receipt at the address required, or forty-eight (48)
hours following deposit in the mail, postage prepaid, whichever first occurs.
Either party may by notice to the other specify a different address for notice
purposes except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for notice purposes. A copy of all
notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be two hundred percent (200%) of the rent payable immediately preceding
the termination date of this Lease, and all Options, if any, granted under the
terms of this Lease shall be deemed terminated and be of no further effect
during said month to month tenancy.
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. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted
hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation or security now or hereafter placed
upon the Office Building Project and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Lessee's right to quiet possession of the Premises shall not be disturbed if
Lessee is not in default and so long as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease and any Options granted hereby prior to the lien
of its mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease or such Options are
dated prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. Attorneys' Fees.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 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 in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all
other costs and expenses incurred in the preparation and service of notices of
default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such default.
32. Lessor's Access.
32.1 Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same, performing
any services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be
without abatement of rent, nor shall Lessor have any liability to Lessee for the
same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forcible or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. Signs. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's party to be observed and performed hereunder. Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions to this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. Options.
39.1 Definitions. As used in this paragraph the word "option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options:
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) and continuing
until the obligation is paid, or (iii) in the event that Lessor has given to
Lessee three or more notices of default under paragraph 13.1(c) or paragraph
13.1(d), whether or not the defaults are cured, during the twelve (12) month
period of time immediately prior to the time that Lessee attempts to exercise
the subject Option, (iv) if Lessee has committed any non-curable breach,
including without limitation those described in paragraph 13.1(b), or is
otherwise in default of any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option. If, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessee fails to commence to cure a default specified in paragraph 13.1(d) within
thirty (30) days after the date that Lessor gives notice to Lessee of such
default and/or Lessee fails thereafter to diligently prosecute said cure to
completion, (iii) Lessor gives to Lessee three or more notices of default under
paragraph 13.1(c), or paragraph 13.1(d), whether or not the defaults are cured,
or (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants and conditions of this Lease.
40. Security Measures--Lessor's Reservations.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
form providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address, or title of the Office
Building Project or building in which the Premises are located upon not less
than ninety (90) days prior written notice;
(b) To, at Lessee's expense, provide and install Building
standard graphics on the door of the Premises and such portions of the Common
Areas as Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any
business as long as such exclusive does not conflict with any rights expressly
given herein;
(d) To place such signs, notices or displays as Lessor
reasonably deems necessary or advisable upon the roof, exterior of the buildings
or the Office Building Project or on pole signs in the Common Areas.
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the
Building or the Office Building Project or their name(s) in connection with
Lessee's business;
(b) Suffer or permit anyone, except in emergency, to go upon
the roof the Building.
41. Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
42.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. Performance Under Protest. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. 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.
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee and each individual executing this Lease on behalf of such
entity, represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or
Addenda of this Lease and the typewritten or handwritten provisions, if any,
shall be controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Lessor Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications
to this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Parties. If more than one person or entity is named as either or Lessee
herein, except as otherwise expressly provided herein, the obligations of the
Lessor or Lessee herein shall be the joint and several responsibility of all
persons or entities named herein as such Lessor or Lessee, respectively.
48. Work Letter. This Lease is supplemented by that certain Work Letter of
even date executed by Lessor and Lessee attached hereto as Exhibit C and
incorporated herein by this reference.
49. Attachments. Attached hereto are the following documents which
constitute a part of this Lease:
Addendum to Lease; Paragraphs 50 through 58 Rules & Regulations
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL, NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF
THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
LESSOR LESSEE
Greystone Realty Corporation, as Agent for Sutter Corporation, a California
New York Life Insurance Company Corporation
By By
---------------------------------------- ------------------------------
Charles Lauckhardt Tim Wollaeger
Its Senior Asset Manager Its President
--------------------------------------- -----------------------------
By By
---------------------------------------- ------------------------------
Its Its
---------------------------------------- ------------------------------
Executed at Executed at
on on
---------------------------------------- ------------------------------
Address Address
----------------------------------- -------------------------
<PAGE>
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
Dated: September 4, 1991
By and Between: Sutter Corporation, a California Corporation (Lessee), and
Greystone Realty Corporation, as Agent for New York Life
Insurance Company (Lessor)
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways, and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the Office
Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles, or other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
Premises or Office Building Project.
9. Lessee shall not suffer or permit anything in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out
of the building only with the Lessor's knowledge and consent, and subject to
such reasonable limitations, techniques, and timing as may be designated by
Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work
to be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays and on other days between the hours of P.M. and A.M.
of the following day. If Lessee uses the Premises during such periods, Lessee
shall be responsible for securely locking any doors it may have opened for
entry.
13. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost of replacing any keys that are lost.
14. No window coverings or shades shall be installed or used by Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars
or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other
than as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines upon
the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking,
or food preparation.
20. Lessee shall comply with all safety, fire protection, and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicles."
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of
Lessor and be returned to Lessor by the holder thereof upon termination of the
holder's parking privileges. Lessee will pay such replacement charge as is
reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws, and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces
from floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances, and
regulations.
6. Users of the parking area will obey all posted signs and park only in
the areas designated for whole parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons, or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licenses may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees,
agents, and invitees comply with the applicable parking rules, regulations,
laws, and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations as it may deem necessary
for the proper operation of the parking lot.
12. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
<PAGE>
EXHIBIT "E"
COMMENCEMENT DATE MEMORANDUM
Sutter Corporation
9465 Farnham Street
San Diego, CA 92123
Dear Tenant:
This is to give you notice, pursuant to Section 3 of that certain Lease
Agreement (the "Lease"), dated September 4, 1991, between New York Life
Insurance Company, a New York Corporation, as Lessor, and Sutter Corporation ,
as Lessee, that all conditions of Paragraph 3.2.1 of the Lease have been met as
of the date hereof and thus, the "Commencement Date" pursuant to Section 3 of
the Lease is February 10, 1992, and the ending date is November 9, 1998.
NEW YORK LIFE INSURANCE COMPANY,
a New York Corporation
By: Greystone Realty Corporation, for
New York Life Insurance Company
By:
------------------------------------------
Name: Greg Colchin
-------------------------------
Title: Asset Manager
-------------------------------
By: Sutter Corporation, a California Corporation
By:
------------------------------------------
Name: Timothy J. Wollaeger
-------------------------------
Title: President
-------------------------------
Page 1 of 1
<PAGE>
ADDENDUM TO THAT CERTAIN LEASE
DATED SEPTEMBER 4, 1991, BY AND BETWEEN
SUTTER CORPORATION, A CALIFORNIA CORPORATION (LESSEE)
AND
GREYSTONE REALTY CORPORATION, AS AGENT FOR NEW
YORK LIFE INSURANCE COMPANY (LESSOR)
50. Rental Schedule: Lessee shall pay the following base rent fee per month:
Months Base Monthly Rent
------ -----------------
1* $7,700.00 Triple Net
13-20 $7,700.00 Triple Net
21-24 $10,321.30 Triple Net
25-36 $10,696.62 Triple Net
37-48 $11,295.60 Triple Net
49-60 $11,364.92 Triple Net
61-72 $12,010.24 Triple Net
73-81 $12,573.22 Triple Net
* Months two (2) through twelve (12) shall be free of Base Rent.
51. Operating Expenses. In months one (1) through twenty-four (24) of this lease
term, the Operating Expenses (as defined in Paragraph 4.2) shall be limited to a
maximum of $.19 per square foot per month. This monthly per square foot expense
shall be paid by Lessee based on 14,000 square feet for months one (1) through
ten (10) of this lease term and on the entire 18,766 square feet for the
remainder of the term. Beginning in the twenty- fifth (25th) month except for
uncontrollable expenses (taxes, insurance and utilities), Lessor agrees to limit
the Operating Expenses to an annual increase of four percent (4%) per year over
the previous year, of the actual cost, whichever is less.
52. Tenant Improvement Allowance. Landlord agrees to spend up to a total of
$281,490.00 ($15.00 per square foot of leased space) to improve the entire
premises prior to the lease Commencement Date in accordance with plans and
specifications (tenant improvements) to be mutually agreed upon by both parties.
This allowance shall be in addition to the Premise's existing restrooms and HVAC
system, each of which the Landlord shall warrant is in good working order as of
the commencement date of the lease. Additionally, Landlord agrees to pay for the
cost of all space planning and construction documents up to a maximum of
$14,074.50 ($.75 per square foot). Any additional costs per said work shall be
attributable to the tenant improvement allowance stated above.
53. Signage. Tenant at Tenant's sole cost, shall be granted signage on the
building, including two (2) large signs, one (1) at the north side of the
building and one (1) at the south side of the building. Landlord reserves the
right to review and approve or disapprove said signage. Said signage shall be
compatible with Futura Business Park's signage criteria. In addition, Landlord,
at Landlord's sole cost, agrees to provide a monument sign, at the entrance to
the project, with no more than four (4) Tenants listed, and Sutter Corporation
shall be granted priority signage.
<PAGE>
ADDENDUM TO THAT CERTAIN LEASE
DATED SEPTEMBER 4, 1991, BY AND BETWEEN
SUTTER CORPORATION, A CALIFORNIA CORPORATION (LESSEE)
AND
GREYSTONE REALTY CORPORATION, AS AGENT FOR NEW
YORK LIFE INSURANCE COMPANY (LESSOR)
54. Option to Expand. Tenant shall be given the option to expand anytime during
the first forty-eight (48) months of this lease, into an additional 10,000
square feet of contiguous space in the Office Project under the following terms
and conditions:
A. The term shall be shortened approximately to make it co-terminus with
the original lease,
B. The Rental rate for the expansion space shall be $.59 per square foot
per month, net of operating expenses (additional rent) for the entire term.
C. Should Tenant exercise this expansion right within the first thirty-six
(36) months, the amount of the Tenant Improvement Allowance provided by Landlord
shall be $15.00 per square foot. Should the Tenant exercise this option to
expand after the thirty-sixth (36th) month the Tenant Improvement Allowance
provided by the Landlord will be calculated at follows: $15.00 per square foot
times the number of months remaining on the expansion term divided by 81 months.
Furthermore, Landlord shall have the obligation of notifying Tenant
when the last 10,000 square foot of contiguous space is being encroached on by
an additional tenant. Such notice shall be given when the Landlord has mutually
agreed upon preparatory terms and conditions for a least (Letter of Agreement)
for all or a portion of the last remaining 10,000 square feet. Upon Tenant
receiving written notice of said encroachment, Tenant shall have five (5)
business days to notify Landlord in willing of its desire to exercise this
Option to Expand. Should Tenant not elect to exercise its option on the 10,000
square feet at that time, Landlord shall have the right to consummate a lease
with that prospective Tenant and Sutter Corporation shall have an option to
expand under the same terms and conditions as listed above on the remaining
portion of that 10,000 square feet. This same process shall take place in the
remaining portion of that 10,000 square feet of space until the Tenant exercises
its option, the balance of that space is leased, or the end of the forth-eighth
(48th) month of this lease expires, at which time this option to expand will
expire.
55. Right of First Refusal. Tenant shall be granted the right of first refusal
on all available space between month sixty (60) and eighty-one (81) of this
lease. Landlord shall be obligated to notify Tenant of any prospective Tenants
in which Landlord has mutually agreed upon preparatory terms and conditions
(Letter of Agreement) for any space available during this period. This excludes
all options to renew rights by existing Tenants. Upon written notice by Landlord
to Tenant of these terms and conditions, Tenant has five (5) business days to
accept these terms and conditions in writing to Landlord. This Right of First
Refusal shall expire upon the earlier of: (1) the eighty-first (81st) month of
this lease or, (2) upon Tenant's exercising this right of first refusal on
combined square footage of 5,000 square feet or more.
<PAGE>
ADDENDUM TO THAT CERTAIN LEASE
DATED SEPTEMBER 4, 1991, BY AND BETWEEN
SUTTER CORPORATION, A CALIFORNIA CORPORATION (LESSEE)
AND
GREYSTONE REALTY CORPORATION, AS AGENT FOR NEW
YORK LIFE INSURANCE COMPANY (LESSOR)
56. Landlord's Warranties: To the best of its knowledge, Landlord warrants, in
accordance with California State warranty requirements, that as of the execution
of the lease, the roof does not leak and that it, along with all structural
elements of the Building, are sound and are in good state of repair. If, on the
commencement date of the lease, the roof leaks or the building otherwise
requires repairs, Landlord will repair such leaks and make such repairs at
Landlord's sole expense. Furthermore, to the best of its knowledge, Landlord
shall warrant that the systems within the Building, prior to the addition of
Tenant Improvements, including electrical, heating, air conditioning, water and
sewers are in good working order and adequate for the service of the entire
building. If on the commencement date of the lease, it is determined that the
systems within the Building are not in good working order or not sufficient to
service the building, Landlord, and Landlord's sole expense will correct the
situation.
57. Parking: Lessee shall receive twenty-two (22) reserved parking spaces along
the north and south side of the premises to be mutually agreed upon by Lessee
and Lessor. In addition, Lessee shall be entitled to forty-four (44) additional
unreserved parking spaces.
58. Trash Enclosure: Tenant and Landlord agree that the reasonable cost of
improving the existing trash enclosure, or constructing an additional enclosure,
will be split on a 50% / 50% basis.
59. Option to Extend:
A. Lessor hereby grants to Lessee the option to extend the term of this
lease for two (2) 5-year periods commencing when the prior term expires upon
each and all of the following terms and conditions.
I. Lessee gives to Lessor, and Lessor actually receives, on a date
which is prior to the date that the option period would commence (if exercised)
by at least six (6) and not more than nine (9) months, a written notice of the
exercise of the option to extend this lease for said additional term, time being
of the essence. If said notification of the exercise of said option is not so
given and received, this option shall automatically expire.
II. The provisions of Paragraph 39, including the provision relating to
default of Lessee set forth in Paragraph 39.4 of this lease are conditions of
this option.
III. All of the terms and conditions of this lease except where
specifically modified by this option shall apply.
<PAGE>
ADDENDUM TO THAT CERTAIN LEASE
DATED SEPTEMBER 4, 1991, BY AND BETWEEN
SUTTER CORPORATION, A CALIFORNIA CORPORATION (LESSEE)
AND
GREYSTONE REALTY CORPORATION, AS AGENT FOR NEW
YORK LIFE INSURANCE COMPANY (LESSOR)
IV. The monthly rent for each month of the option period shall be
calculated as follows:
a. For the first 5-year option, the base monthly rental shall begin
at $.69 per square foot and escalate on each anniversary date at a rate of four
percent (4%).
b. For the second 5-year option period, the base monthly rent shall
be at the then prevailing market rate for similar properties in the area. All
the other terms, within the lease shall remain the same.
LESSEE: SUTTER CORPORATION, A CALIFORNIA CORPORATION
By: Date:
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Tom Wollaeger, President
LESSOR: GREYSTONE REALTY CORPORATION,
AS AGENT FOR NEW YORK LIFE INSURANCE COMPANY
By: Date:
-------------------------------------------- -------------
Charles Lauckhardt, Senior Asset Manager
FOUR POINTS BUSINESS PARK
MIC Four Points, as Landlord
and
SUTTER BIOMEDICAL INC. , as Tenant
--------------------------
2-10-88
--------------
Date of Lease
<PAGE>
BASIC LEASE INFORMATION
Four Points Business Park
1. Lease Date: February 10 , 1988 .
-------------------------- ---
2. Landlord: MIC FOUR POINTS, a California limited partnership
3. Address of Landlord: c/o McLachlan Investment Company
9868 Scranton Road, Suite 120
San Diego, California 92121
4. Tenant: SUTTER BIOMEDICAL INC.
5. Address of Tenant: 9425 Chesapeake Drive
San Diego, California 92123
6. Contact: Charles Cashion Telephone: 569-4941
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7. Section 1.1 Building: 9425 Chesapeake Drive
--------------------------------
Floor(s): N/A
--------------------------------
Suite No(s): N/A
-----------------------------
8. Section 1.3 Parking Spaces: 82
--------------------------
9. Section 1.4 Rentable Area of Premises: 26,970 Total Square Feet
---------
10. Section 2.1 Term Commencement Date: Aug. 1, 1988
-----------------------
Term Expiration Date: Sept. 30, 1998
-------------------------
Term: 10 years
----------------------
11. Section 3.1 Basic Rent (per month): $ See Addendum
----------------------
12. Section 4.1 Building's Share (of Common Expenses: 55 %
for R&D Park) ---------
13. Section 4.1.2 Tenant's Share (of Taxes and Operating
Expenses 100%
for building)----------- %
14. Section 6.1 Use: Office / R&D
---------------------------
15. Section 29 Security Deposit: $ 26,970
-------------------
16. Section 31 Broker: Glenn Karp
-------------------------
Grubb & Ellis
-------------------------
-------------------------
-------------------------
The foregoing Basic Lease Information is hereby incorporated into and
made a part of this Lease. Each reference in this Lease to any of the Basic
Lease Information shall mean the respective information hereinabove set forth
and shall be construed to incorporate all of the terms provided under the
particular Lease section pertaining to such information. In the event of any
conflict between any Basic Lease Information and the Lease, the latter shall
control.
LANDLORD TENANT
-------- ------
MIC FOUR POINTS, SUTTER BIOMEDICAL,
a California limited partnership a California Corporation
By: Signature Illegible By: /s/ Charles T. Cashion
---------------------------- --------------------------
Its: Its: President
------------------------- ----------------------
By: By:
---------------------------- --------------------------
Its: Its:
------------------------- ----------------------
<PAGE>
FOUR POINTS BUSINESS PARK
INDUSTRIAL LEASE
THIS LEASE is entered into as of February 10, 1988 , by and between MIC
FOUR POINTS, a California limited partnership , ("Landlord"), and SUTTER
BIOMEDICAL INC. ("Tenant"). In consideration of the mutual covenants and
agreements set forth herein, Landlord and Tenant agree as follows:
1. Premises.
1.1 Upon and subject to the terms, covenants, and conditions
hereinafter set forth, Landlord hereby leases to Tenant and Tenant hereby hires
from Landlord the premises described in the Basic Lease Information, located in
that certain Building specified in the Basic Lease Information as the Building,
included in the business park commonly known as Four Points Business Park, City
of San Diego, County of San Diego, State of California, and more particularly
described in Exhibit "A" attached hereto (herein called the "Park"), such
Premises comprising the area substantially as shown on the floor plan or plans
that have been signed by Landlord and Tenant and that are attached hereto as
Exhibit "B." The land is leased by Landlord pursuant to a ground lease (the
"Ground Lease") dated September 12, 1985 with R.E. Hazard Contracting Co., a
California corporation, as "lessor." The party possessing the rights of the
"lessor" under the Ground Lease shall hereinafter be referred to as the "Owner."
The Premises are leased and shall be used and occupied subject to all terms and
conditions of the Ground Lease, any and all existing restrictive covenants,
encumbrances, conditions, rights, covenants, easements, restrictions and
rights-of-way of record, and other matters of record, if any, applicable zoning
and building laws, regulations and codes, and such matters as may be disclosed
by inspection or survey. For purposes of this Lease, the phrase "Adjoining
Buildings" shall mean all commercial and office buildings and related
improvements now or hereafter located in the Park, except for the Building.
1.2 Tenant shall have the right, for the benefit of Tenant and
its employees, suppliers, shippers, customers and invitees, to the non-exclusive
use of all areas and facilities outside the Premises and within the exterior
boundary line of the Park that are provided and designated by Landlord from time
to time for the general non-exclusive use of Landlord, Tenant, and the other
tenants of the Park and their respective employees, suppliers, shippers,
customers and invitees, including parking areas, loading and unloading areas,
drives, walkways, roadways, trash areas, and landscaped areas (herein called
"Common Areas").
1.3 Tenant shall have the right, for the benefit of Tenant and
its employees, customers, and invitees, to the use of the number of vehicle
parking spaces specified in the Basic Lease Information on those portions of the
Common Areas designated for parking by Landlord from time to time. Such spaces
shall be used by all tenants of the Park on an unassigned basis.
1.4 As used herein, the term "Rentable Area" shall be computed
in accordance with the schedule attached hereto as Exhibit "C."
2. Term.
2.1 The Premises are leased for a term (herein called the
"Term") to commence and end on the dates respectively specified in the Basic
Lease Information, unless the Term shall sooner terminate as hereinafter
provided. If, on or prior to the Term Commencement Date set forth in the Basic
Lease Information, Landlord fails to deliver possession of the Premises, either
(a) because Landlord's Work (as hereinafter defined in Article 5.1) shall not
have been substantially completed, or (b) because a previous occupant is holding
over, or (c) because of any other cause or reason beyond the reasonable control
of Landlord, the following provisions shall apply: (i) the Term shall not
commence on the Term Commencement Date set forth in the Basic Lease Information
but shall, instead, commence on a date fixed by Landlord in a notice to Tenant,
which notice shall state that the Premises are, or prior to the commencement
date fixed in such notice will be, substantially completed and ready for
occupancy by Tenant; provided, however, that Landlord may from time to time, by
notice to Tenant, change the commencement date fixed in a prior notice; (ii)
neither the validity of this Lease nor the obligations of Tenant under this
Lease shall be affected by such failure to deliver possession, except that the
Term shall begin as provided in clause (i) above; (iii) Tenant shall have no
claim against Landlord because of Landlord's failure to deliver possession of
the Premises on the date originally fixed therefore; and (iv) in no event shall
the expiration date of the Term be extended beyond the Term Expiration Date
specified in the Basic Lease Information.
2.2 The dates upon which the Term shall commence and terminate
pursuant to this Article 2 are herein called the "Commencement Date" and the
"Expiration Date," respectively.
2.3 Notwithstanding anything to the contrary herein contained,
in the event that the Term shall not have commenced on or before such date as
shall be one (1) year from the date specified in the Basic Lease Information,
then this Lease shall be automatically terminated without any further act of
either party hereto and both parties hereto shall be released from all
obligations hereunder.
3. Rent: Additional Charges.
3.1 Tenant shall pay to Landlord during the Term the Basic Rent
specified in the Basic Lease Information subject to adjustments as provided in
Section 3.5 below, which sum shall be payable by Tenant in equal consecutive
monthly installments on or before the first day of each month, in advance, at
the address specified for Landlord in the Basic Lease Information or such other
place as Landlord shall designate, without any prior demand therefore and
without any deduction or setoff whatsoever. If the Term Commencement Date should
occur on a day other than the last day of a calendar month, then the rent for
such fractional month shall be prorated on a daily basis based upon a 30-day
calendar month.
3.2 Tenant shall pay to Landlord all charges and other amounts
whatsoever as provided in this Lease (herein called "Additional Charges")
including, without limitation, any increase in the Basic Rent resulting from the
provisions of Article 4. All such amounts and charges shall be payable to
Landlord at the place where the Basic Rent is payable. Landlord shall have the
same remedies for a default in the payment of Additional Charges as for a
default in the payment of Basic Rent.
2 Initials CTC DRB
<PAGE>
3.3 Any installment of Basic Rent or any other monies due under
this Lease not paid within seven days of the date when due shall bear interest,
to the extent enforceable by law, at the rate not exceeding the higher of (i) 5%
per annum, or (ii) % per annum plus the rate prevailing on the 25th day of the
month preceding the date of execution of this Lease established by the Federal
Reserve Bank of San Francisco on advances to member banks under Section 13 or
13(a) of the Federal Reserve Act as in effect as of that date from the date due
and payable until the same shall have been fully paid, but the payment of such
interest shall not excuse or cure any default by Tenant under this Lease.
3.4 Tenant hereby acknowledges that the late payment by Tenant
to Landlord of Basic Rent or any other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent, or any other sum due from Tenant, shall
not be received by Landlord or Landlord's designated agent within seven days
after such amount shall be due, Tenant shall pay to Landlord, in addition to the
interest provided above, a late charge equal to five percent (5%) of such
overdue amount. The parties agree that such late charge represents a fair and
reasonable estimate of the costs Landlord will incur by reason of late payment
by Tenant. Acceptance of such late charge by Landlord shall in no way constitute
a waiver of Tenant's default with respect to such overdue amount nor prevent
Landlord from exercising any other right or remedy of Landlord resulting from
such late payment.
4. Additional Charges for Taxes and Operating Expenses.
4.1 For purposes of this Article 4, the following terms shall
have the meanings hereinafter set forth:
4.1.1. "Computation Year" shall mean each 12 consecutive
month period commencing January 1 of each year during the Term, provided that
Landlord, upon notice to Tenant, may change the Computation Year from time to
time to any other 12 consecutive month period and, in the event of any such
change, Tenant's Share or excess Taxes (as hereinafter defined) shall be
equitably adjusted for the Computation Years involved in any such change.
4.1.2. "Tenant's Share" shall mean the percentage figure
so specified in the Basic Lease Information. Tenant's Share has been computed by
dividing the square footage of the Premises by the total square footage of the
Building and, in the event that either the square footage of the Premises or the
total square footage of the Building is changed, Tenant's Share will be
appropriately adjusted, and, as to the Computation Year in which such change
occurs, for purposes of this Section 4, Tenant's Share shall be determined on
the basis of the number of days during such Computation Year at each such
percentage.
4.1.3. "Operating Expenses" for the Computation Year is
defined as the sum of (i) all "Building Common Expenses" (defined below)
incurred for that Computation Year plus (ii) that percentage of "Land Common
Expenses" (defined below) for that Computation Year which is equal to the
Building's Share, as set forth in the Basic Lease Information.
4.1.4. "Building Common Expenses" for the Computation
Year is defined as all "Common Expenses" (defined below) incurred for that
Computation Year which the Landlord reasonably determines to pertain exclusively
to the Building.
4.1.5. "Land Common Expenses" for the Computation Year is
defined as all Common Expenses incurred for that Computation Year except for
Common Expenses which the Landlord reasonably determines pertain exclusively to
a single Building located in the Park.
4.1.6. "Taxes" shall mean the Building's Share, as set
forth in the Basic Lease Information, of all taxes, assessments and charges
levied upon or with respect to the Park or any personal property of Landlord
used in the operation thereof or Landlord's interest in the Park or such
personal property. Taxes shall include, without limitation, all general real
property taxes and general and special assessments, charges, fees or assessments
for transit, housing, police, fire or other governmental services or purported
benefits to the Park, service payments in lieu of taxes, and any tax, fee or
excise on the act of entering into this Lease or any other lease of space in the
Park, or on the use of occupancy of the Park or any part thereof, or on the rent
payable under any lease or in connection with the business or renting space in
the Park that are now or hereafter levied or assessed against Landlord by the
United States of America, the State of California, or any political subdivision,
public corporation, district or other political or public entity, and shall also
include any other tax, fee or other excise, however described, that may be
levied or assessed as a substitute for or as an addition to, as a whole or in
part, any
3 Initials CTC DRB
<PAGE>
Taxes, whether or not now customary or in the contemplation of the parties on
the date of this Lease. Taxes do not include franchise, transfer, inheritance or
capital stock taxes or income taxes measured by the net income of Landlord from
all sources unless, due to a change in the method of taxation, any of such taxes
is levied or assessed against Landlord as a substitute for or as an addition to,
as a whole or in part, any other tax that would otherwise constitute a tax.
Taxes shall also include reasonable legal fees, costs, and disbursements
incurred in connection with proceedings to contest, determine or reduce Taxes.
4.1.7. "Common Expenses" shall include all direct costs
of the operation and maintenance of the Building, the Adjoining Buildings, the
Park, Common Areas, and parking areas, including without limitation the
following: costs of (1) utilities, (2) supplies, (3) insurance (including public
liability, property damage and fire) and extended coverage insurance for the
full replacement cost as required by Landlord or its lenders, (4) services of
independent contractors, (5) compensation (including employment taxes and fringe
benefits) of all persons who perform duties connected with the operation,
maintenance, repair or overhaul of the Building, Adjoining Buildings, Park,
Common Areas and parking areas, and equipment, improvements and facilities,
including without limitation engineers, janitors, painters, floor waxers, window
washers, security and parking personnel and gardeners, (6) management of the
Building, Adjoining Buildings, Park, Common Area and parking areas, whether
managed by Landlord or an independent contractor (including, without limitation,
an amount equal to the fair market value of any on-site manager's office), (7)
rental expenses for (or a reasonable depreciation allowance on) personal
property used in the maintenance, operation or repair of the Building, Adjoining
Buildings, Park, Common Areas and parking areas, (8) the maintenance and repairs
described in Paragraph 7 hereof, and (9) any other costs or expenses incurred by
Landlord under this Lease and not otherwise reimbursed by tenants of the
Building, Adjoining Buildings, Park, Common Areas and parking areas. Common
Expenses shall also include the costs of any capital improvements made to the
Building, Adjoining Buildings, Park, Common Areas, and parking areas by Landlord
that reduce other Common Expenses, or that are required under any governmental
law or regulation, such costs to be amortized over such reasonable period as
Landlord shall determine at an interest rate the greater of ten percent (10%)
per annum or the interest rate paid by Landlord on funds borrowed for the
purpose of constructing such capital improvements. Common Expenses shall not
include depreciation on the Building or the Adjoining Buildings or equipment
therein, interest, executive salaries, advertising or real estate broker's
commissions. Common Expenses shall be adjusted to reflect a ninety-five percent
(95%) occupancy of the Building and the Adjoining Buildings during any period in
which the Building and the Adjoining Buildings are not on the average at least
ninety-five percent (95%) occupied. Management fees included in "Common
Expenses" are charged at a rate of 5.5% for net leases and 4.5% for gross
leases, and these percentages shall be considered a cap for that share of the
total that the Tenant shares.
4.2 Tenant shall pay to Landlord as Additional Charges 1/12th of
Tenant's Share of the Taxes for each Computation Year, on or before the first
day of each month during such Computation Year, in advance, in an amount
estimated by Landlord and billed by Landlord to Tenant; provided that Landlord
shall have the right initially to determine monthly estimates and to revise such
estimates from time to time. With reasonable promptness after Landlord has
received the tax bills for any Computation Year, Landlord shall furnish Tenant
with a statement (herein called "Landlord's Tax Statement") setting forth the
amount of Taxes for such Computation Year and Tenant's Share of such Taxes. If
the actual Taxes for such Computation Year exceed the estimated Taxes paid by
Tenant for such Computation Year, Tenant shall pay to Landlord the difference
between the amount paid by Tenant and the actual Taxes within 15 days after the
receipt of Landlord's Tax Statement and, if the total amount paid by Tenant for
any such Computation Year shall exceed the actual Taxes for such Computation
Year, such excess shall be credited against the next installments of Taxes due
from Tenant to Landlord hereunder.
4.3 Tenant shall pay to Landlord as Additional Charges 1/12th of
Tenant's share of the Operating Expenses for each Computation Year, on or before
the first day of each month of such Computation Year, in advance, in an amount
estimated by Landlord and billed by Landlord to Tenant; provided that Landlord
shall have the right initially to determine monthly estimates and to revise such
estimates from time to time. With reasonable promptness after the expiration of
each Computation Year, Landlord shall furnish Tenant with a statement "herein
called "Landlord's Expense Statement") setting forth in reasonable detail the
Operating Expenses for such Computation Year and Tenant's Share of such
Operating Expenses. If the actual Operating Expenses for such Computation Year
exceed the estimated Operating Expenses paid by Tenant for such Computation
Year, Tenant shall pay to Landlord the difference between the amount paid by
Tenant and the actual Operating Expense within 15 days after the receipt of
Landlord's Expense Statement and, if the total amount paid by Tenant for any
such Computation Year shall exceed the actual Operating Expenses for such
Computation Year, such excess shall be credited against the next installments of
the estimated Operating Expenses due from Tenant to Landlord hereunder.
4.4 If the Commencement Date shall occur on a date other than
the first day of a Computation Year, Tenant's Share of Taxes and Operating
Expenses for the Computation Year in which the Commencement Date occurs shall be
in the proportion that the number of days from and including the Commencement
Date to and including the last day of the Computation Year in which the
Commencement Date occurs bears to 365. Similarly, if the Expiration Date shall
occur on a date other than the last day of a Computation Year, Tenant's Share of
Taxes and Operating Expenses for the Computation Year in which the Expiration
Date occurs shall be in the proportion that the number of days from and
including the first day of the Computation Year in which the Expiration Date
occurs to and including the Expiration Date bears to 365. Notwithstanding the
foregoing, Landlord may, pending the determination of the amount of Taxes and
Operating Expenses for such partial Computation Year, furnish Tenant with
statements of estimated Taxes, estimated Operating Expenses, and Tenant's Share
of each thereof for such partial Computation Year. Within 15 days after receipt
of such estimated statements Tenant shall remit to Landlord, as Additional
Charges, the amount of Tenant's Share of such Taxes and Operating Expenses.
After such Taxes and Operating Expenses have been finally determined and
Landlord's Tax Statement and Landlord's Expense Statement have been furnished to
Tenant pursuant to Sections 4.2 and 4.3 hereof, respectively, and if there shall
have been an underpayment of Tenant's Share of Taxes or Operating Expenses,
Tenant shall remit the amount of such underpayment to Landlord within 15 days
after receipt of such statements and if there shall have been an overpayment,
Landlord shall remit the amounts of any such overpayment to Tenant within 15
days after the issuance of such statements.
5. Construction of Building, Premises and Common Areas.
5.1 Prior to the Commencement Date, Landlord will construct the
Building and the Premises and perform the work and make the installations in the
Premises substantially as set forth in Exhibit "D" attached hereto (such work
and installations being herein called "Landlord's Work"). Landlord's obligation
to perform Landlord's Work shall not require Landlord to incur overtime costs
and expenses and shall be subject to unavoidable delays due to acts of God,
governmental restrictions, strikes, labor disturbances, shortages of material
and supplies, and due to any other cause or event beyond Landlord's reasonable
control. Landlord shall, when construction progress so permits, notify Tenant in
advance of the approximate date on which Landlord's Work will be substantially
completed in
3 Initials CTC DRB
<PAGE>
accordance with Exhibit "D" and will notify Tenant when Landlord's Work is in
fact completed, which latter notice will constitute delivery of possession of
the Premises to Tenant. If any dispute shall arise as to whether the Premises
are substantially completed and ready for Tenant's occupancy, a certificate
furnished by Landlord's architect certifying the date of substantial completion
shall be conclusive of the fact and date and shall be binding upon Landlord and
Tenant. It is understood and agreed by Tenant that any minor changes from any
plans or from said Exhibit "D" that may be necessary during construction of the
Park, the Building, the Common Areas or the Premises shall not affect or change
this Lease or invalidate same. It is agreed that by occupying the Premises as a
tenant, Tenant formally accepts same and acknowledges that the Premises are in
the condition called for hereunder. Failure of Landlord to deliver possession of
the Premises within the time and in the condition provided for in this Lease
will not give rise to any claims for damages by Tenant against Landlord or
Landlord's contractor.
5.2 The manner in which the Common Areas are maintained and
operated and the expenditures therefore shall be at the sole discretion of
Landlord, and the use of such areas and facilities shall be subject to such
rules and regulations as Landlord shall make from time to time. Landlord shall
not be responsible for the nonperformance of any such rules and regulations by
any other tenant or occupant of the Park.
5.3 The purpose of attached Exhibit "B" is only to show the
approximate location of the Premises in the Building, and such exhibit is not
meant to constitute an agreement as to the construction of the Premises, the
Rentable Area thereof, or the specific location of the Common Areas or the
elements hereof or of the accessways to the Premises or the Park. Landlord
hereby reserves the right, at any time and from time to time, to (i) make
alterations in or additions to the Park and 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,
landscaped areas and walkways, as such changes shall alter or affect the basic
configuration and access to Tenant's building without Tenant's prior written
approval, except for those changes that are required by Landlord to comply with
any laws or ordinances. (ii) close temporatrily any of the Common Areas for
maintenance purposes as long as reasonable access to the Premises remains
available, (iii) designate property outside the Park to be part of the Common
Areas, (iv) add additional buildings and improvements to the Park and Common
Areas and (v) use the Common Areas while engaged in making alterations in or
additions or repairs to the Park.
6. Conduct of Business by Tenant.
6.1 Tenant shall use and occupy the Premises during the Term of
this Lease solely for the use specified in the Basic Lease Information and for
no other use or uses without the prior written consent of Landlord.
6.2 Tenant shall not use or occupy or permit the use or
occupancy of the Premises or any part thereof for any use other than the use
specifically set forth in Section 6.1, or in any manner that, in Landlord's
judgment, would adversely affect or interfere with (i) any services required to
be furnished by Landlord to Tenant or to any other tenant or occupant of the
Park, (ii) the proper and economical rendition of any such service of (iii) the
use or enjoyment of any part of the Park by any other tenant or occupant.
6.3 The parking spaces to be provided to Tenant pursuant to
Section 1.3 shall be used for parking only by vehicles no larger than full-sized
passenger automobiles or pickup trucks. Tenant shall not permit or allow any
vehicles that belong to or are controlled by Tenant or Tenant's employees,
suppliers, shippers, customers or invitees to be loaded or parked in areas other
than those designated by Landlord for such activities. If tenant permits or
allows any of the prohibited activities described in this Section 6.3, Landlord
shall have the right, in addition to all other rights and remedies that it may
have under this Lease, to remove or tow away the vehicle involved without prior
notice to Tenant, and the cost thereof shall be paid by Tenant to Landlord as
Additional Charges within five days after delivery to Tenant of bills therefore.
6.4 Tenant shall not store any property in the Common Areas
without the prior written consent of Landlord. In the event that any
unauthorized storage shall occur, Landlord shall have the right, in addition to
all other rights and remedies that Landlord may have under this Lease, to remove
the property without prior notice to Tenant, and the cost thereof shall be paid
by Tenant to Landlord within five days after delivery to Tenant of bills
therefore.
6.5 Tenant shall not do anything or permit anything to be done
in or about the Premises that shall (i) invalidate or be in conflict with the
provisions of any fire or other insurance policies covering the Building or the
Park or any property located therein, (ii) result in a refusal by fire insurance
companies of good standing to insure the Building or the Park or any such
property in amounts reasonably satisfactory to Landlord, (iii) subject Landlord
to any liability or responsibility for injury to any person or property by
reason of any business operation being conducted in or about the Premises or
(iv) cause any increase in the fire insurance rates applicable to the Building
or property located therein at the beginning of the Term or at any time
thereafter. Tenant, at Tenant's expense, shall comply with all rules, orders,
regulations and requirements of the American Insurance Association (formerly the
National Board of Fire Underwriters) and of any similar body that shall
hereafter perform the function of such Association.
7. Alterations and Tenant's Property.
7.1 Tenant shall make no structural alterations at any time nor
any installations, additions, or improvements (collectively "Alterations") which
exceed three thousand dollars ($3,000.00) in or to the premises without
Landlords prior written consent, which shall not be unreasonably withheld. All
Alterations shall be done at Tenant's expense at such times and in such manner
as Landlord may designate and only by such contractors or mechanics as are
approved by Landlord, and such approval shall not be unreasonably withheld.
7.2 All appurtenances, fixtures, improvements, additions and
other property attached to or installed in the Premises whether by the Landlord
or by or on behalf of Tenant, and whether at Landlord's expense or Tenant's
expense, or at the joint expense of the Landlord and Tenant, shall be and remain
the property of Landlord. Any furnishings and personal property installed in the
Premises that are removable without material damage to the Building or the
Premises, whether the property of Tenant or leased by Tenant, are herein
sometimes called "Tenant's Property." Any replacements of any property of
Landlord, whether made at Tenant's expense or otherwise, shall be and remain the
property of Landlord.
7.3 Any of Tenant's Property remaining on the Premises at the
expiration of the Term shall be removed by Tenant at Tenant's cost and expense
and Tenant shall, at its cost and expense, repair any damage to the premises in
excess of Two Thousand Dollars ($2,000.00) or any damage to the Building caused
by such removal. Any of Tenant's Property not removed from the Premises prior to
the expiration of the Term shall, at Landlord's option, become the property of
Landlord, or Landlord may remove such Tenant's Property and Tenant shall pay to
Landlord Landlord's costs of removal within ten days after delivery of a bill
therefore.
8. Landlord's Repairs.
Except for damage or wear and tear resulting from the omission,
negligence or willful misconduct of Tenant or any person claiming through or
under Tenant, or any of Tenant's employees, suppliers, shippers,
5 Initials CTC DRB
<PAGE>
customers or invitees, Landlord shall keep in good condition and repair the
foundations, exterior walls, structural condition of interior bearing walls, and
roof of the Premises, as well as the parking lots, walkways, driveways,
landscaping, fences, signs, and utility installations of the Common Areas.
Landlord shall not, however, be obligated to paint he exterior or interior
surface of exterior walls, nor shall Landlord be required to maintain, repair or
replace windows, doors or plate glass of the Premises. Landlord shall not be
liable for, and except as provided in Article 16 hereof there shall be no
abatement of Rent with respect to, any injury to or interference with Tenant's
business arising from any repair, maintenance, alteration, or improvement in or
to (i) any portion of the Park or the Building including the Premises, or (ii)
the fixtures, appurtenances, and equipment therein. Tenant hereby waives and
releases its right to make repairs at Landlord's expense under Sections 1941 and
1942 of the California Civil Code or under any similar law, statute or ordinance
now or hereafter in effect.
9. Tenant's Repairs.
9.1 Subject to the provisions of Article 8, Tenant, at Tenant's
cost and expense, shall make all repairs and replacements, structural and
otherwise, as and when Landlord deems necessary to preserve in good working
order and condition, the Premises and every part thereof including, without
limitation, all plumbing, heating, ventilating, and air conditioning systems,
electrical and lighting facilities and equipment with in the Premises, fixtures,
interior walls, interior surfaces of exterior walls, ceilings, windows, doors,
plate glass and skylights located within the Premises. At Landlord's option,
either Tenant shall procure and maintain, at Tenant's expense, a ventilating and
air conditioning system maintenance contract satisfactory to Landlord, or
Landlord shall procure and maintain a ventilating and air conditioning system
maintenance contract. If Landlord elects to procure and maintain the ventilating
and air conditioning system maintenance contract, Tenant shall pay to Landlord
from time to time, within 15 days after deliver of a statement therefore, the
cost of such contract.
9.2 All repairs and replacements made by or on behalf of Tenant
or any person claiming through or under Tenant shall be made and performed (i)
at Tenant's cost and expense and at such time and in such manner as Landlord may
designate, (ii) by contractors or mechanics approved by Landlord, (iii) so that
same shall be at least equal in quality, value and utility to the original work
or installation and (iv) in accordance with the rules and regulations for the
Park adopted by Landlord from time to time and in accordance with all applicable
laws and regulations of governmental authorities having jurisdiction over the
Premises.
10. Abandonment. Tenant shall not vacate or abandon the Premises at any
time during the term of this Lease, and if Tenant shall abandon, vacate or
surrender the Premises or be dispossessed by process of law or otherwise, any
personal property belonging to Tenant and left on the Premises shall be deemed
to be abandoned, at the option of Landlord, except such property as may be
mortgaged to or otherwise subject to a security interest in favor of Landlord.
11. Liens. Tenant shall keep the Premises free from any liens arising
out of any work performed, materials furnished, or obligations by or for Tenant
or any person or entity claiming through or under Tenant. In the event that
Tenant shall not, within ten days following the imposition of any such lien,
cause the same to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other remedies provided herein and by
law, the right but not the obligation to cause such lien to be released by such
means as it shall deem proper, including payment of the claim giving rise to
such lien. All such sums paid by Landlord and all expenses incurred by it in
connection therewith, shall be considered Additional Charges and shall be
payable by Tenant to Landlord on demand. Landlord shall have the right at all
times to post and keep posted on the Premises, the Building, and any other party
having an interest therein, from mechanics' and materialmens' liens and Tenant
shall give to Landlord at least five business days' prior notice of commencement
of any construction on the Premises.
12. Assignment and Subletting.
12.1 Tenant shall not directly or indirectly, voluntarily or by
operation of law, sell, assign, encumber, pledge, or otherwise transfer or
hypothecate all or any part of the Premises or Tenant's leasehold estate
hereunder (collectively, "Assignment"), or permit the Premises to be occupied by
anyone other than Tenant or sublet the Premises (collectively, "Sublease") or
any portion thereof without Landlord's prior written consent in each instance,
which consent shall not be unreasonably withheld.
12.2 If Tenant desires at any time to enter into an Assignment
of this Lease or a Sublease of the Premises or any portion thereof, it shall
first give written notice to Landlord of its desire to do so, which notice shall
contain (i) the name of the proposed assignee, subtenant or occupant, (ii) the
nature of the proposed assignee's subtenant's or occupant's business to be
carried on in the Premises, (iii) the terms and provisions of the proposed
Assignment or Sublease, and (iv) such financial information as Landlord may
reasonably request concerning the proposed assignee, subtenant or occupant.
Tenant shall reimburse Landlord for Landlord's reasonable attorneys fees
incurred in connection with the processing and documentation of any requested
Assignment of this Lease or Sublease of the Premises. Any notice by Tenant to
Landlord pursuant to this Section 12.2 of a proposed assignment or sublease
shall be accompanied by a payment of $500 as a non-refundable fee to compensate
Landlord for its time and the processing of Tenant's request for Landlord's
consent.
12.3 At any time within 10 days after Landlord's receipt of any
notice specified in Section 12.2, Landlord may, by written notice to Tenant,
elect to (a) take an Assignment of Tenant's leasehold estate specified in
Tenant's notice hereunder, or any portion thereof, (b) terminate this Lease as
to the portion (including all) of the premises that is specified in Tenant's
notice, with a proportionate abatement in the Rent, (c) consent to the Sublease
of Assignment, or (d) disapprove the Sublease or Assignment. In the event
Landlord elects to Sublease or take an Assignment from Tenant as described in
Subsection (a) above, the rent payable by Landlord shall be in the lower of that
set forth in Tenant's notice or the Rent payable by Tenant under this Lease at
the time of the Assignment or Sublease). In the event Landlord elects any of the
options set forth in Subsections (a) or (b) above, with respect to a portion of
the Premises, (i) Tenant shall at all times provide reasonable and appropriate
access to such portion of the Premises and use of any common facilities and (ii)
Landlord shall have the right to use such portion of the Premises for any legal
purpose in its sole discretion and the right to further assign or sublease the
portion of the Premises subject to Landlord's election without the consent of
Tenant. If Landlord consent to the Sublease or Assignment within said 60-day
period, Tenant may thereafter, within 90 days after Landlord's consent but not
later than the expiration of said 90 days, enter into such Assignment or
Sublease of the Premises or portion thereof upon the terms and conditions set
forth in the notice furnished by Tenant to Landlord pursuant to Section 12.2.
12.4 No consent by Landlord to any Assignment or Sublease by
Tenant shall relieve Tenant of any obligation to the performed by Tenant under
this Lease whether arising before or after the Assignment or Sublease. The
consent by Landlord to any Assignment or Sublease shall not relieve Tenant of
the obligation to obtain Landlord's
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prior written consent to any other Assignment or Sublease. Any Assignment or
Sublease that is not in compliance with Article 12 shall be void and, at the
option of Landlord, shall constitute a material default by Tenant under this
Lease. The acceptance of Rent or Additional Charges by Landlord from a proposed
assignee or sublessee shall not constitute the consent by Landlord to such
Assignment or Sublease.
12.5 Any sale or other transfer, including transfer by
consolidation, merger or reorganization, of a majority of the voting stock of
Tenant, if Tenant is a corporation, or any sale or other transfer of a majority
of the partnership interest in Tenant, if Tenant is a partnership, shall be an
Assignment for purposes of this Article 12. As used in this Section 12.5, the
Term "Tenant" shall also mean any entity that has guaranteed Tenant's
obligations under this Lease, and the prohibition hereof shall be applicable to
any sales or transfers of the stock or partnership interest of said guarantor.
12.6 Each assignee, sublessee or other transferee other than
Landlord shall assume, as provided in this Section 12.6, all obligations of
Tenant under this Lease and shall be and remain liable jointly and severally
with Tenant for the payment of Rent and Additional Charges and for the
performance of all of the terms, covenants, conditions and agreements herein
contained on Tenant's part to be performed for the Term; provided, however, that
the assignee, sublessee or other transferee shall be liable to Landlord for rent
only in the amount set forth in the Assignment or Sublease. No Assignment shall
be binding on Landlord unless the assignee or Tenant shall deliver to Landlord a
counterpart of the Assignment and an instrument in recordable form that contains
a covenant of assumption by the assignee satisfactory in substance and form to
Landlord consistent with the requirements of this Section 12.6, but the failure
or refusal of the assignee to execute such instrument of assumption shall not
release or discharge the assignee from its liability as set forth above.
12.7 Landlord and Tenant acknowledge that the foregoing
provisions concerning assignment and subletting, including without limitation
Landlord's right to withhold its consent to any proposed assignment or sublease
(i) are critical to Landlord's determination to enter into this Lease, and (ii)
have been included in this Lease as a result of specific negotiation between the
Landlord and Tenant.
13. Compliance with Laws. Tenant, at Tenant's cost and expense, shall
comply with all laws, orders and regulations of federal, state, county, and
municipal authorities and with all directions, pursuant to law, of all public
officers, that shall impose any duty upon Landlord or Tenant with respect to the
Premises or the use or occupancy thereof, except that Tenant shall
not be required to make any structural alterations in order to comply unless
such Alterations shall be necessitated or occasioned, as a whole or in part, by
the act, omission, or negligence of Tenant or any person claiming through or
under Tenant or any of their employees, supplies, shippers, customers, or
invitees, or by the use of occupancy or manner of use or occupancy of the
Premises by Tenant or any such person. Any work or installation made or
performed by or on behalf of Tenant or any person claiming through or under
Tenant pursuant to the provisions of this Article 13 shall be made in conformity
with, and subject to the provisions of, Section 9.2.
14. Subordination and Attornment.
14.1 At Landlord's option, this Lease shall be subordinated to
any ground lease, mortgage, deed of trust or any other hypothecation for
security now or hereafter placed upon the Land, the Building, the Premises, or
any part thereof, and to any and all advances made on the security thereof and
to all renewals, modifications, consolidations, replacements, and extensions
thereof. Notwithstanding such subordination, Tenant's right to quiet possession
of the Premises shall not be disturbed if Tenant is not in default and so long
as Tenant shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. In
the event of (i) the termination of any ground lease upon the Land, or (ii) any
foreclosure, transfer in lieu of foreclosure or exercise of power of sale under
any mortgage or deed of trust upon the Land, and on each such event Tenant
shall, at the request of the party acquiring the interests of Landlord under
this Lease following such event, attorn to such party and recognize such party
as the Landlord under this Lease. If any mortgagee, trustee or ground lessor
shall elect to have this Lease prior to the lien of its mortgage, deed of trust
or ground lease, and shall give written notice thereof to Tenant, this Lease
shall be deemed prior to such mortgage, deed of trust or ground lease, whether
this Lease is dated prior or subsequent to the date of said mortgage, deed of
trust or ground lease or the date of recording thereof.
14.2 Tenant agrees to execute any documents required to
effectuate an attornment or a subordination, or to make this Lease prior to the
lien of any mortgage, deed of trust or ground lease, as the case may be, in
accordance with the provisions of Section 14.1 above. Tenant's failure to
execute such documents within ten (10) days after written demand shall
constitute a material default by Tenant hereunder and without further notice to
Tenant or, at Landlord's option, Landlord shall execute such document on behalf
of Tenant as Tenant's attorney-in-fact and in Tenant's name, place and stead to
execute such documents in accordance with this Section 14.2.
15. Inability to Perform. If, by reason of the occurrence of any of the
unavoidable delay specified in Section 5.1, Landlord is unable to furnish or is
delayed in furnishing any utility or service required to be furnished by
Landlord under the provisions of this Lease or of any collateral instrument, or
is unable to perform or make or is delayed in performing or making any
installations, repairs, alterations, additions or improvements, whether required
to be performed or made under this Lease or under any collateral instrument, or
is unable to fulfill or is delayed in fulfilling any of Landlord's other
obligations under this Lease or any collateral instrument, no such inability or
delay shall constitute an actual or constructive eviction, as a whole or in
part, or entitle Tenant to any abatement of diminution of Rent or Additional
Charges, or relieve Tenant from any of its obligations under this Lease, or
impose any liability upon Landlord or its agents by reason of inconvenience or
annoyance to Tenant or by reason of injury to or interruption of Tenant's
business, or otherwise. Tenant hereby waives and releases its right to terminate
this Lease under Section 1932 (1) of the California Civil Code or under any
similar law, statute or ordinance now or hereafter in effect.
16. Destruction.
16.1 If the Premises shall be damaged by fire or other casualty
insured against by Landlord's fire and extended coverage insurance policy
covering the Building, and if Tenant shall give prompt notice to Landlord of
such damage, Landlord, at Landlord's expense, shall repair such damage;
provided, however, that Landlord shall have no obligation to repair any damage
to or to replace Tenant's property, Alterations, or any other property or
effects of Tenant. Except as otherwise provided in this Article 16, if the
entire Premises shall be rendered untenantable by reason of any such damage,
Rent and Additional Charges shall abate for the period from the date of such
damage to the date when such damage to the Premises shall have been repaired,
and if only a part of the Premises shall be rendered untenantable, Rent and
Additional Charges shall abate for the period in the proportion that the area of
the part of the Premises so rendered untenantable bears to the total area of the
Premises; provided, however, if prior to the date when all of such damage shall
have been repaired, any part of the Premises so damaged
7 Initials CTC DRB
<PAGE>
shall be rendered tenantable or shall be used or occupied by Tenant or any
person or person claiming through or under Tenant, then the amount by which Rent
and Additional Charges shall abate shall be equitably apportioned for the period
from the date of any such use or occupancy to the date when all such damage
shall have been repaired.
16.2 Notwithstanding the provisions of Section 16.1, if, prior
to or during the Term, (1) the Premises shall be totally damaged or rendered
wholly untenantable by fire or other casualty, and if Landlord shall decide not
to restore the Premises, or (ii) the Building shall be so damaged by fire or
other casualty that, in Landlord's opinion, substantial alteration, demolition
or reconstruction of the Building shall be required (whether or not the Premises
shall have been damaged or rendered untenantable), then, in any of such events,
Landlord at Landlord's option, may give to Tenant within 90 days after such fire
or other casualty 30 days' notice of termination of this Lease and, in the event
such notice is given, this Lease and the Term shall terminate upon the
expiration of such 30 days with the same effect as if the date of expiration of
such 30 days were the Expiration Date; and Rent and Additional Charges shall be
apportioned as of such date, and any prepaid portion of Rent or Additional
Charges for any period after such date shall be refunded by Landlord to Tenant.
16.3 Landlord and Tenant shall each obtain from their respective
insurers under all policies of fire, theft, public liability, workers'
compensation and other insurance maintained by either of them at any time during
the Term insuring or covering the Building, the Park or any portion thereof or
operations therein, a waiver of all rights of subrogation that the insurer of
one party might otherwise, if at all, have against the other party, and Landlord
and Tenant shall each indemnify and defend the other party against and hold the
other party harmless from any and all loss, cost, damage, liability or expense,
including reasonable attorneys fees, resulting from the failure to obtain such
waiver.
16.4 Except to the extent expressly provided in Section 16.3,
nothing contained in this Lease shall relieve Tenant of any liability to
Landlord or to its insurance carriers that Tenant may have under law or under
the provisions of this Lease in connection with any damage to the Premises of
the Building by fire or other casualty.
16.5 Notwithstanding the provisions of Section 16.1, if any such
damage is due to the fault or neglect of Tenant, any person claiming through or
under Tenant or any of their employees, suppliers, shippers, customers or
invitees, then there shall be no abatement of Rent or Additional Charges by
reason of such damage, unless Landlord is reimbursed for such abatement of Rent
or Additional Charges pursuant to any rental insurance policies that Landlord
may, in its sole discretion, elect to carry.
16.6 The provisions of this Lease, including this Article 16,
constitute an express agreement between Landlord and Tenant with respect to any
and all damages to, or destruction of, all or any part of the Premises, the
Building or any other portion of the Park and any statute or regulation of the
State of California including, without limitation, Sections 1932 (2) and 1933(4)
of the California Civil Code with respect to any rights or obligations
concerning damage or destruction in the absence of an express agreement between
the parties and any similar statute or regulation now or hereafter in effect
shall have no application to this Lease or to any damage to or destruction of
all or any part of the Premises, the Building or any other portion of the Park.
17. Eminent Domain.
17.1 If all of the Premises is condemned or taken in any manner
for public or quasi-public use including, but not limited to, a conveyance or
assignment in lieu of a condemnation or other taking, this Lease shall
automatically terminate as of the earlier of the date of the vesting of title or
the date of dispossession of Tenant as a result of such condemnation or other
taking. If a part of the Premises is so condemned or taken, this Lease shall
automatically terminate as to the portion of the Premises so taken as of the
earlier of the date of the vesting of the title or the date of dispossession of
Tenant as a result of such condemnation or taking. If such portion of the
Building or Park is condemned or otherwise taken so as to require, in the
opinion of Landlord, a substantial alteration or reconstruction of the remaining
portions thereof, this Lease may be terminated by Landlord as of the earlier of
the date of the vesting of title or the date of dispossession of Tenant as a
result of such condemnation or taking by written notice to Tenant within 60 days
following notice to Landlord of the date on which said vesting or dispossession
will occur. If such portion of the Premises is taken so as to render the
remaining portion untenantable and unusable by Tenant, this Lease may be
terminated by Tenant as of the earlier of the date of the vesting of title or
the date of dispossession of Tenant as a result of such condemnation or taking
by written notice to Landlord within 60 days following notice to Tenant of the
date on which said vesting or dispossession will occur.
17.2 Landlord shall be entitled to the entire award in any
condemnation proceeding or other proceeding (for taking for public or
quasi-public use) including, without limitation, any award made for the value of
the leasehold estate created by this Lease. No award for any partial or entire
taking shall be apportioned and Tenant hereby assigns to Landlord any award that
may be made in such condemnation or other taking together with any and all
rights of Tenant now or hereafter arising in or to same or any part thereof;
provide,d however, that nothing contained herein shall be deemed to give
Landlord any interest in, or to require Tenant to assign to Landlord any award
made to Tenant specifically for its relocation expenses, the taking of personal
property and fixtures belonging to Tenant or the interruption of or damage of
Tenant's business.
17.3 In the event of a partial condemnation or other taking that
does not result in a termination of this Lease as to the entire Premises, the
Rent and Additional Charges shall abate in proportion to the portion of the
Premises taken by such condemnation or other taking.
17.4 If all or any portion of the Premises is condemned or
otherwise taken for public or quasi-public use for a limited period of time,
this Lease shall remain in full force and effect and Tenant shall continue to
perform terms, conditions, and covenants of this Lease; provided, however, that
Rent and Additional Charges shall abate during such limited period in proportion
to the portion of the Premises that is rendered untenantable and unusable as a
result of such condemnation or other taking. Landlord shall be entitled to
receive the entire award made in connection with any such temporary condemnation
or other taking.
18. Utilities.
18.1 Tenant shall pay for all water, gas, heat, light, power,
telephone, and other utilities and services supplied for the Premises together
with any taxes thereon. If any such services are not separately metered to the
Premises, Tenant shall pay, at Landlord's option, either Tenant's Share or a
reasonable proportion, to be determined by Landlord, of all charges jointly
metered with other premises in the Building. Landlord makes no representation
with respect to the adequacy or fitness of the air conditioning or ventilation
equipment in the Building to maintain temperatures that may be required for, or
because of, any equipment of Tenant other than normal fractional horsepower
office equipment, and Landlord shall have no liability for loss or damage in
connection therewith.
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18.2 In the event any governmental entity promulgates or revises
any statute, ordinance or building, fire or other code or imposes mandatory or
voluntary controls or guidelines on Landlord or the Park or any part thereof,
relating to the use of conservation of energy, water, gas, light or electricity,
or the reduction of automobile or other emissions, or the provision of any other
utility or service provided with respect to this Lease, or in the event Landlord
is required or elects to make alterations to the Building or any other part of
the Park in order to comply with such mandatory or voluntary controls or
guidelines, Landlord may, in its sole discretion, require Tenant to comply with
such mandatory or voluntary controls or guidlines or Landlord may, in its sole
discretion, make such alterations to the Building or any other part of the Park
related thereto. Such compliance and the making of such alterations shall in no
event entitle Tenant to any damages, relieve Tenant of the obligation to pay the
full Rent and Additional Charges reserved hereunder or constitute or be
construed as a constructive or other eviction of Tenant.
19. Default.
19.1 The failure of Tenant to perform or honor any covenant,
condition or representation made under this Lease shall constitute a default,
hereunder by Tenant upon expiration of the appropriate grace period hereinafter
provided. Tenant shall have a period of ten (10) days from the date of written
notice from Landlord within which to cure any default in te payment of Rent or
Additional Charges. Tenant shall have a period of ten days from the date of
written notice from Landlord within which to cure any other default under this
Lease; provided, however, that with respect to any default other than the
payment of Rent or Additional Charges that cannot reasonably be cured within ten
days, the default shall not e deemed to be uncured if Tenant commences to cure
within ten days from Landlord's notice and continues to prosecute diligently the
curing thereof to completion within a reasonable time.
19.2 Upon the occurrence of a default by Tenant that is not
cured by Tenant within the grace periods specified in Section 19.1 hereof,
Landlord shall have the following rights and remedies in addition to all other
rights and remedies available to Landlord at law or in equity.
19.2.1 The rights and remedies provided by California
Civil Code Section 1951.2, including but not limited to, the right to terminate
Tenant's right to possession of the Premises and to recover the worth at the
time of award of the amount by which the unpaid Rent and Additional Charges for
the balance of the Term after the time of award exceed the amount of rental loss
for the same period that Tenant proves could be reasonably avoided, as computed
pursuant to Subsection (b) of said Section 1951.2.
19.2.2 The rights and remedies provided by California
Civil Code Section 1951.4 which allows Landlord to continue this Lease in effect
and to enforce all of its rights and remedies under this Lease including the
right to recover Rent and Additional Charges as they become due, for as long as
Landlord does not terminate Tenant's right to possession; provided, however, if
Landlord elects to exercise its remedies described in this Subsection 19.2.2 and
Landlord does not terminate this Lease, and if Tenant requests Landlord's
consent to an Assignment of this Lease or a Sublease of the Premises at such
time as Tenant is in default, Landlord shall not unreasonably withhold its
consent to such Assignment or Sublease. Acts of maintenance or preservation,
efforts to relet the Premises or the appointment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not constitute a
termination of Tenant's right to possession.
19.2.3 The right to terminate this Lease by giving notice
to Tenant in accordance with applicable law.
19.2.4 The right and power, as attorney-in-fact for
Tenant, to enter the Premises and remove therefrom all persons and property, to
store such property in a public warehouse or elsewhere at the cost of and for
the account of Tenant, and to sell such property and apply the proceeds
therefrom pursuant to applicable California law. Landlord, as attorney-in-fact
for Tenant, may from time to time sublet the Premises or any part thereof for
such term or terms (which may extend beyond the Term) and at such rent and such
other terms as Landlord in its sole discretion may deem advisable, with the
right to make alterations in and repairs to the Premises. Upon each such
subletting, (i) Tenant shall be immediately liable for payment to Landlord of,
in addition to indebtedness other than Rent and Additional Charges due
hereunder, the cost of such subletting and such alterations and repairs incurred
by Landlord and the amount, if any, by which the Rent and Additional Charges for
the period of such subletting (to the extent such period does not exceed the
Term) exceed the amount to be paid as Rent and Additional Charges for the
Premises for such period or (ii) at the option of the Landlord, rents received
from such subletting shall be applied, first to payments of any costs of such
subletting and of such alterations and repairs; second, to payment of Rent and
Additional Charges due and unpaid hereunder; and the residue, if any, shall be
held by Landlord and applied in payment to Landlord within which to cure any
default in the payment of Rent or Additional Charges. Tenant shall have a period
of ten days from the date of written notice from Landlord within which to cure
any other default under this Lease; provided, however, that with respect to any
default other than the payment of Rent or Additional Charges that cannot
reasonably be cured within ten days, the default shall not be deemed to be
incurred if Tenant commences to cure within ten days from Landlord's notice and
continues to prosecute diligently the curing thereof to completion within a
reasonable time.
19.2.5 The right to have a receiver appointed for Tenant,
upon application by Landlord, to take possession of the Premises and to apply
any Rent collected from the Premises and to exercise all other rights and
remedies granted to Landlord as attorney-in-fact for Tenant pursuant to
Subsection 19.2.4.
20. Insolvency or Bankruptcy. The appointment of a receiver to take
possession of all or substantially all of the assets of Tenant, or an assignment
by Tenant for the benefit of creditors, or any action taken or suffered by
Tenant under any insolvency, bankruptcy, reorganization, moratorium, or other
debtor relief act or statute, whether now existing or hereafter amended or
enacted, shall at Landlord's option constitute a breach of this Lease by Tenant.
Upon the happening of any such event or at any time thereafter, this Lease shall
terminate five days after written notice of termination from Landlord to Tenant.
In no event shall this Lease be assigned or assignable by operation of law or by
voluntary or involuntary bankruptcy proceedings or otherwise, and in no event
shall this Lease or any rights or privileges hereunder be an asset of Tenant
under any bankruptcy, insolvency, reorganization of other debtor relief
proceedings.
21. Landlord's Performance of Tenant's Obligations. If Tenant shall
default in the performance of its obligations under this Lease, at any time
thereafter and without notice, may remedy such default for Tenant's account and
at Tenant's expense, without thereby waiving any other rights or remedies of
Landlord with respect to such default. Upon demand therefore from Landlord,
Tenant shall reimburse Landlord for the cost to Landlord of performing such
obligations plus interest at the maximum rate allowed by law.
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22. Indemnification.
22.1 With the sole exception of damage resulting from the
negligence or willful misconduct of the Landlord, its affiliates or agents,
Tenant agrees to indemnify Landlord against and save Landlord harmless from any
and all loss, cost, liability, damage, and expense including, without
limitation, penalties, fines, and reasonable attorney's fees, incurred in
connection with or arising from any cause whatsoever in, on, or about the
Premises including, without limiting the generality of the foregoing, (i) any
default by Tenant in the observance or performance of any of the terms,
covenants or conditions of this Lease on Tenant's part to be observed or
performed, (ii) the use or occupancy or manner of use or occupancy of the
Premises by Tenant or any person claiming through or under Tenant, (iii) the
condition of the Premises or any occurrence of happening on the Premises from
any cause whatsoever, or (iv) any act, omission or negligence of Tenant or any
person claiming through or under Tenant, or of the employees, suppliers,
shippers, customers or invitees of Tenant or any such person, in, on, or about
the Premises or Park, whether prior to, during, or after the expiration of the
Term including, without limitation, any act, omission or negligence in the
making or performing of any Alterations. Tenant further agrees to indemnify
Landlord, Landlords' agents and the lessor or lessors under all ground or
underlying leases against, and hold them harmless from any and all loss, cost,
liability, damage and expense including, without limitation, reasonable
attorneys fees, incurred in conjunction with or arising from any claims by any
persons by reason of injury to persons or damage to property occasioned by any
use, occupancy, condition, occurrence, happening, act, omission or negligence
referred to in the preceding sentence.
22.2 Landlord shall not be responsible for or liable to Tenant
for any loss or damage that may be occasioned by or through the acts or
omissions of persons occupying adjoining premises or any part of the premises
adjacent to or connected with the Premises or any part of the Park or for any
loss or damage resulting to Tenant or its property from burst, stopped or
leaking water, gas, sewer or steam pipes or for any damage to or loss of
property within the Premises from any cause whatsoever, including theft.
22.3 Except as a specifically provided to the contrary in this
Lease, Tenant shall pay to Landlord within five days after delivery by Landlord
to Tenant of bills or statement therefore; (i) sums equal to all expenditures
made and monetary obligations by Landlord including, without limitation,
expenditures made and obligations incurred for reasonable attorneys fees, in
connection with the remedying by Landlord for Tenant's account pursuant to the
provisions of Article 21, (ii) sums equal to all losses, costs, liabilities,
damages and expenses referred to in Section 22.1, (iii) sums equal to all
expenditures made and monetary obligations incurred by Landlord including,
without limitation, expenditures made and obligations incurred for reasonable
attorneys fees, in collecting or attempting to collect the Rent, any Additional
Charges or any other sum of money accruing under this Lease or in enforcing or
attempting to enforce any rights of Landlord under this Lease or pursuant to law
and (iv) all other sums of money (other than Rent) accruing from Tenant to
Landlord under the provisions of this Lease. Any sum of money (other than Rent)
accruing from Tenant to Landlord pursuant to any provision of this Lease
including, without limitation, the provisions of Exhibit "D" attached hereto,
whether prior to or after the Commencement Date, may, at Landlord's option, be
deemed Additional Charges. Tenant's obligations under this Section 22.3 shall
survive the expiration or sooner termination of the Term.
23. Insurance. Tenant shall procure, at its cost and expense, and keep
in effect during the Term, comprehensive general liability insurance including
contractual liability with a minimum limit of liability of $3,000,000 per
occurrence of bodily injury and property damage combined. Such insurance shall
name Landlord as an additional insured, shall specifically include the liability
assumed hereunder by Tenant (provided that the amount of such insurance shall
not be construed to limit the liability of Tenant hereunder), and shall provide
that it is primary insurance and not excess over or contributory with any other
valid, existing and applicable insurance in force for or on behalf of Landlord,
and shall provide that Landlord shall receive 30 days' written notice from the
insurer prior to any cancellation or change of coverage. Tenant shall deliver
policies of such insurance or certificates thereof to Landlord on or before the
Commencement Date, and thereafter at least 30 days before the expiration dates
of expiring policies; and, in the event Tenant shall fail to procure such
insurance or to deliver such policies or certificates, Landlord may, at is
option, procure same for the account of Tenant, and the cost thereof shall be
paid to Landlord as Additional Charges within five days after delivery to Tenant
of bills therefore. Tenant's compliance with the provisions of this Article 23
shall in no way limit Tenant's liability under any of the provisions of Article
22.
24. Access to Premises. Landlord reserves and shall at all times have
the right to enter the Premises at all reasonable times to (i) inspect same,
(ii) supply any service to be provided by Landlord to Tenant hereunder, (iii)
show the Premises to prospective purchasers, mortgagees or tenants, (iv) post
notices of non-responsibility and to alter, improve or repair the Premises and
any portion of the Park, without abatement of Rent or Additional Charges, and
may for that purpose erect, use, and maintain scaffolding, pipes, conduits, and
other necessary structures in and through the Premises where reasonably required
by the character of the work to be performed, provided that the entrance to the
Premises shall not be blocked thereby, and further provided that the business of
Tenant shall not be interfered with unreasonably. Tenant hereby waives any claim
for damages, for any injury or inconvenience or to interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises or any other
loss occasioned thereby. For each of the aforesaid purposes, Landlord shall at
all times have and retain a key with which to unlock all doors in, upon, and
about the Premises excluding files, vaults and safes or special security areas
(designated in advance), and Landlord shall have the right to use any and all
means that Landlord may deem necessary or proper to open said doors in an
emergency, in order to obtain entry to any portions thereof obtained by Landlord
by any of said means or otherwise 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.
25. Notices. Except as otherwise expressly provided in this Lease, any
bills, statements, notices, demands, requests or other communications given or
required to be given in writing, sent by registered or certified mail, or
delivered personally (i) to Tenant (ii) at Tenant's address set forth in the
Basic Lease Information, if sent prior to Tenant's taking possession of the
Premises, or (iii) at the Park if sent subsequent to Tenant's taking possession
of the Premises or (iv) at Landlord's option, at any place where Tenant or any
agent or employee of Tenant may be found if sent subsequent to Tenant's
vacating, deserting, abandoning, or surrendering the Premises or to Landlord at
Landlord's address set forth in the Basic Lease Information, or to such other
address as either Landlord or Tenant may designate as its new address for such
purpose by notice given to the other in accordance with the provisions of this
Article 25. Any such bill, statement, notice, demand, request, or other
communication shall be deemed to have been rendered or given two days after the
date when it shall have been mailed as provided in this Article 25 if sent by
registered or certified mail, or upon the date personal delivery is made. If
Tenant is notified of the identity and address of Landlord's mortgagee or ground
or underlying lessor, Tenant shall give to such mortgagee or ground or
underlying lessor notice of any default by Landlord under the terms of this
Lease in writing sent by registered or certified mail, and such mortgagee or
ground or underlying lessor shall be given a reasonable opportunity to cure such
default prior to Tenant's exercising any remedy available to it.
10 Initials CTC DRB
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26. No Waiver by Landlord.
26.1 No failure by Landlord to insist upon the strict
performance of any obligation of Tenant under this Lease or to exercise any
right, power, or remedy consequent upon a breach thereof, no acceptance of full
or partial Rent or Additional Charges during the continuance of any such breach,
and no acceptance of the keys to or possession of the Premises prior to the
termination of the Term by any employee of Landlord shall constitute a waiver of
any such breach or of such term, covenant, or condition or operate as a
surrender of this Lease. No payment by Tenant or receipt by Landlord of a lesser
amount than the aggregate of all Rent and Additional Charges then due under this
Lease shall be deemed to be other than on account of the first items of such
Rent and additional charges then accruing or becoming due unless Landlord elects
otherwise; and no endorsement or statement on any check, no letter accompanying
any check or other payment of Rent or Additional Charges in any such lesser
amount, and no acceptance of any such check or then such payment by Landlord
shall constitute an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of such
Rent or Additional Charges or to pursue any other legal remedy.
26.2 Neither this Lease nor any term or provision hereof may be
changed, waived, discharged, or terminated orally, and no breach thereof shall
be waived, altered, or modified except by a written instrument signed by the
party against which the enforcement of the change, waiver, discharge or
termination is sought. No waiver of any breach shall affect or alter this Lease,
but each and every term, covenant, and condition of this Lease shall continue in
full force and effect with respect to any other existing or subsequent breach
thereof.
27. Tenant's Certificates. Tenant, at any time and from time to time
upon not less than ten days' prior written notice from Landlord, will execute,
acknowledge, and deliver to Landlord and, at Landlord's request, to any
prospective purchaser, ground, or underlying lessor or mortgagee of any part of
the Park, a certificate of Tenant stating: (i) that Tenant has accepted the
Premises (or, if Tenant has not done so, that Tenant has not accepted the
Premises and specifying the reasons therefore), (ii) the Commencement and
Expiration Dates of this Lease, (iii) that this Lease is unmodified and in full
force and effect (or, if there have been modifications, that same is in full
force and effect as modified and stating the modifications), (iv) whether or not
there are then existing any defenses against the enforcement of any of the
obligations of Tenant under this Lease (and, if so, specifying same), (v)
whether or not there are then existing any defaults by Landlord in the
performance of its obligations under this Lease (and, if so, specifying same),
(vi) the dates, if any, to which the Rent and Additional Charges and other
charges under this Lease have been paid and (vii) any other information that may
reasonably be required by any of such persons. It is intended that any such
certificate of Tenant delivered pursuant to this Article 27 may be relied upon
by Landlord and any prospective purchaser, ground or underlying lessor or
mortgagee of any part of the Park.
28. Tax on Tenant's Personal Property. At least ten days prior to
delinquency, Tenant shall pay all taxes levied or assessed upon Tenant's
equipment, furniture, fixtures, and other personal property located in or about
the Premises. If the assessed value of Landlord's property is increased by the
inclusion therein of a value placed upon Tenant's equipment, furniture,
fixtures, or other personal property, Tenant shall pay to Landlord, upon written
demand, the taxes so levied against Landlord or the proportion thereof resulting
from said increase in assessment. The portion of real estate taxes payable by
Tenant pursuant to this Article 28 and by other tenants of the Park pursuant to
similar provisions in their leases shall be excluded from Taxes for purposes of
computing the Additional Charges to be paid pursuant to Article 4.
29. Security Deposit. By execution of this Lease, Landlord acknowledges
receipt of Tenant's Security Deposit for the faithful performance of all terms,
covenants and conditions of this Lease. The sum of the security deposit is
specified in the Basic Lease Information. Tenant agrees that Landlord may,
without waiving any of Landlord's other rights and remedies under this Lease
upon the occurrence of any of the events of default described in Article 19,
apply the Security Deposit to remedy any failure by Tenant to repair or maintain
the Premises or to perform any other terms, covenants, or conditions contained
herein. If Tenant has kept and performed all terms, covenants, and conditions of
this lease during the Term, Landlord will, within 30 days following the
termination hereof, return said sum to Tenant or the last permitted assignee of
Tenant's interest hereunder at the expiration of the Term. Should Landlord use
any portion of the Security Deposit to cure any default by Tenant hereunder,
Tenant shall forthwith replenish the Security Deposit to the original amount.
Landlord shall not be required to keep the Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on any such deposit.
Upon the occurrence of any of the event of default described in Article 19, the
security deposit shall become due and payable to Landlord to the extent required
to compensate Landlord for damages incurred, or to reimburse Landlord as
provided herein, in connection with any such event of default.
30. Authority. If Tenant signs as a corporation or a partnership, each
of the persons executing this Lease on behalf of Tenant does hereby covenant and
warrant that Tenant is a duly authorized and existing entity, that Tenant has
and is qualified to do business in California, that Tenant has full right and
authority to enter into this Lease and that each and every person signing on
behalf of Tenant is authorized to do so. Upon Landlord's request, Tenant shall
provide Landlord with evidence reasonably satisfactory to Landlord confirming
the foregoing covenants and warranties.
31. Broker. Landlord and Tenant represent and warrant to each other that
they have not dealt with any broker or finder in connection with this Lease or
the Premises other than the broker specified in the Basic Lease Information and
that the other party shall not be required to pay any commission whatsoever with
regard to this Lease resulting from the actions of the party making such
representation, except for the commission owing to the broker specified in the
Basic Lease Information, which shall be paid by Landlord. Landlord and Tenant
shall indemnify and defend the other party against and hold the other party
harmless from any and all losses, costs, damages, liabilities, and expenses
including, without limitation, reasonable attorneys fees, resulting from a
breach by the indemnifying party of the foregoing representation.
32. Miscellaneous.
32.1 The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. The words used in the neuter gender
include the masculine and feminine. If there is more than one Tenant, the
obligations under this Lease imposed on Tenant shall be joint and several. The
captions preceding the articles of this Lease have been inserted solely as a
matter of convenience, and such captions in no way define or limit the scope or
intent of any provision of this Lease.
32.2 The terms, covenants, and conditions contained in this
Lease shall bind and inure to the benefit of Landlord and Tenant and, except as
otherwise provided herein, their respective personal representatives and
successors and assignees; provided, however, upon the sale, assignment or
transfer by Landlord as named herein (or by any subsequent landlord) of its
interest in the Building as owner or lessee, including any transfer by operation
of law. Landlord (or subsequent landlord) shall be relieved of all subsequent
obligations or liabilities under
11 Initials CTC DRB
<PAGE>
this Lease, and all obligations subsequent to such sale, assignment, or transfer
(but not any obligations or liabilities that have accrued prior to the date of
such sale, assignment, or transfer) shall be binding upon the grantee, assignee,
or other transferee of such interests, any such grantee, assignee or transferee,
by accepting such interest, shall be deemed to have assumed such subsequent
obligations and liabilities. A lease of the entire Building to a person other
than for occupancy thereof shall be deemed a transfer within the meaning of this
Section 32.2.
32.3 If any provision of this Lease or the application thereof
to any person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected thereby, and each provision of this Lease shall be valid and
enforced to the full extent permitted by law.
32.4 This Lease shall be construed and enforced in accordance
with the laws of the State of California.
32.5 Submission of this instrument for examination or signature
by Tenant does not constitute a reservation of or an option for lease and it is
not effective as a lease or otherwise until execution and delivery by both
Landlord and Tenant.
32.6 This instrument, including the exhibits hereto which are
made a part of this Lease, contains the entire agreement between the parties,
and all prior negotiations and agreements are merged herein. Neither Landlord
nor Landlord's agents have made any representations or warranties with respect
to the Premises, the Building, the Park or this Lease except as expressly set
forth herein, and no rights, easements or licenses are or shall be acquired by
Tenant by implication or otherwise unless expressly set forth herein.
32.7 The review, approval, inspection or examination by Landlord
of any item to be reviewed, approved, inspected, or examined by Landlord under
the terms of this Lease or the exhibits attached hereto, shall not constitute
the assumption of any responsibility by Landlord for either the accuracy or
sufficiency of any such item or the quality or suitability of such item for its
intended use. Any such review, approval, inspection, or examination by Landlord
is for the sole purpose of protecting Landlord's interests in the Park and under
this Lease, and no third parties, including, without limitation, Tenant or any
person or entity claiming through or under Tenant, or the contractors, agents,
servants, employees, visitors, or licensees of Tenant or any such person or
entity, shall have any rights hereunder.
32.8 Tenant shall not place any sign upon the Premises or the
Park without Landlord's prior written consent. Under no circumstances shall
Tenant place a sign on any roof of the Park.
32.9 Tenant hereby acknowledges that Landlord shall have no
obligation whatsoever to provide guard services or other security measures for
the benefit of the Premises or the Park. Tenant assumes all responsibility for
the protection of Tenant, its employees, suppliers, shippers, customers, and
invitees and the property of Tenant and of Tenant's employees, suppliers,
shippers, customers and invitees from acts of third parties. Nothing herein
contained shall prevent Landlord, at landlord's sole option, from providing
security protection for the Park or any part thereof, in which event the cost
thereof shall be included within the definition of Common Expenses, as set forth
in Subsection 4.1.4.
32.10 Landlord reserves the right, from time to time, to grant
such assessments, rights, and dedications as Landlord deems necessary or
desirable and to cause the recordation of parcel maps and restrictions as long
as such easements, rights, dedications, maps, and restrictions do not
unreasonably interfere with the use of the Premises by Tenant. At Landlord's
request, Tenant shall join in the execution of any of the aforementioned
documents.
32.11 In the event that either Landlord or Tenant fails to
perform any of its obligations under this Lease, or in the event a dispute
arises concerning the meaning or interpretation of any provision of this Lease,
the defaulting party or the party not prevailing in such dispute, as the case
may be, shall pay any and all costs and expenses incurred by the other party in
enforcing or establishing its rights hereunder, including, without limitation,
court costs and reasonable attorneys fees.
32.12 Upon the expiration or sooner termination of the Term,
Tenant will quietly and peacefully surrender to Landlord the Premises in the
condition in which they are required to be kept as provided in Article 9.
Ordinary wear and tear and the provisions of Article 16 excepted.
32.13 Upon Tenant's paying the Rent and Additional Charges and
performing all of Tenant's obligations under this Lease, Tenant may peacefully
and quietly enjoy the Premises during the Term as against all persons or
entities lawfully claiming by or through Landlord; subject, however, to the
provisions of this Lease and to any mortgages or ground or underlying leases
referred to in Article 14.
32.14 Any holding over after the expiration of the Term with the
consent of Landlord shall be construed to be a tenancy from month-to-month at
200% of the Rent herein specified (prorated on a monthly basis), unless Landlord
shall specify a different rent in its sole discretion, together with an amount
estimated by Landlord for the monthly Additional Charges payable under this
Lease, and shall otherwise be on the terms and conditions herein specified as
far as applicable. Any holding over without Landlord's consent shall constitute
a default by Tenant and shall entitle Landlord to reenter the Premises as
provided in Article 19 hereof.
12 Initials CTC DRB
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day
and year first above written.
LANDLORD: MIC FOUR POINTS
a California Limited Partnership
By /s/ Signature Illegible
------------------------------
a
------------------------------
By
------------------------------
Its
---------------------------
TENANT: SUTTER BIOMEDICAL INC.
--------------------------------
a
------------------------------
By /s/ Signature Illegible
------------------------------
Its President
---------------------------
By
------------------------------
Its
---------------------------
13 Initials CTC DRB
<PAGE>
EXHIBIT "A"
-----------
The land referred to is situated in the State of California, County of San
Diego, and is described as follows:
Lots 43 and 44 of the Hazard Commercial Park, City of San Diego, San
Diego County, California, according to Map No. 8503, filed in the Office of the
San Diego County Recorder on February 25, 1977.
Mailing addresses of the two buildings are 9425 Chesapeake Drive and 9475
Chesapeake Drive respectively. The rentable square footage of the buildings is
21,404 and 21,452 square feet, respectively.
14 Initials CTC DRB
<PAGE>
EXHIBIT "B"
-----------
Floor Plans to be provided later.
15 Initials CTC DRB
<PAGE>
EXHIBIT "C"
-----------
RENTABLE AREA
The term "Rentable Area" as used in the Lease shall mean:
(a) As to each floor of the Building on which the entire space
rentable to tenants is or will be leased to one tenant (hereinafter referred to
as "Single Tenant Floor"). Rentable Area shall be the entire area bounded by the
inside surface of the four exterior glass walls (or the inside surface of the
permanent exterior wall where there is no glass), on such floor, including all
areas used for elevator lobbies, corridors, special stairways, or elevators,
restrooms, mechanical rooms, electrical rooms and telephone closets without
deduction for columns and other structural portions of the Building or vertical
penetrations that are included for the special use of Tenant but excluding the
area contained within the exterior walls of the Building, or vertical
penetrations that are included for the special use of Tenant but excluding the
area contained within the exterior walls of the Building stairs, fire towers,
vertical ducts, elevator shafts, flues, vents, stacks and pipe shafts.
(b) As to each floor of the Building on which space is or will be
leased to more than one tenant (hereinafter referred to as "Multi-Tenant Floor),
Rentable Area attributable to each such lease shall be the total of (i) the
entire area included within the Premises covered by such lease, being the area
bounded by the inside surface of any exterior glass walls (or the inside surface
of the permanent exterior wall where there is no glass) of the Building bounding
such Premises, the exterior of all walls separating such Premises from any
public corridors or other public areas on such floor, and the center-line of all
walls separating such Premises from other areas leased or to be leased to other
tenants on such floor, and (ii) a prorate portion of the area covered by the
elevator lobbies, corridors, restrooms, mechanical rooms, electrical rooms, and
telephone closets situated on such floors.
(c) For purposes of establishing the initial Basic Rent and Tenant's
Share (of Taxes and Common Expenses) as shown in Items 11 and 12 of the Basic
Lease Information, Rental Area of the Premises is deemed to be as set forth in
the Basic Lease Information, and Rentable Area of the Project is deemed to be
166,595 square feet.
Prior to the Commencement Date and annually at January 1, Landlord's
architect shall determine and certify in writing to Tenant and Landlord the
actual Rentable area of the Premises, the Building, and the Project,
respectively. Any percentage adjustment resulting from additions of new tenants,
additional construction within the complex shall be applied retroactively to the
effectivity of such change. At not time shall the percentage exceed the 55%
specified in this lease. Such determinations and certifications shall be
conclusive, and thereupon Tenant's Share (of Taxes and Common Expenses) and
Basic Rent shall be adjusted accordingly.
16 Initials CTC DRB
<PAGE>
EXHIBIT "D"
-----------
(Initial Improvements of the Premises)
17 Initials CTC DRB
<PAGE>
EXHIBIT "E"
-----------
FOUR POINTS INDUSTRIAL PARK
Rules and Regulations
---------------------
1. No sidewalks, entrance, passages, courts, elevators, vestibules,
stairways, corridors or halls shall be obstructed or encumbered by Tenant or
used for any purpose other than Ingress and egress to and from the Premises or
the Building and if the Premises is situated on the ground floor of the
Building, Tenant shall further, at Tenant's own expense, keep the sidewalks and
curb directly in front of the Premises clean and free from rubbish.
2. No awning or other projection shall be attached to the outside
walls or windows of the Building without the prior written consent of Landlord.
No curtains, blinds, shades, drapes or screens shall be attached to or hung in,
or used in connection with any window or door of the Premises, without the prior
written consent of Landlord. Such awnings, projections, curtains, blinds,
shades, drapes, screens and other fixtures must be of a quality, type, design,
color, material and general appearance approved by Landlord, and shall be
attached in the manner approved by Landlord. All electrical fixtures hung in
offices or spaces along the perimeter of the Premises must be fluorescent, of a
quality, type, design, bulb color, size and general appearance approved by
Landlord.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by Tenant on any part of the outside or
inside of the Premises or of the Building, without the prior written consent of
Landlord. In the event of the violation of the foregoing by Tenant, Landlord may
remove same without any liability, and may charge the expense incurred by such
removal to Tenant. Interior signs on doors and directory tablet shall be
inscribed, painted, or affixed for Tenant by Landlord at the expense of Tenant,
and shall be of a quality, quantity, type, design, color, size, style,
composition, material, location and general appearance acceptable to Landlord.
4. The sashes, sash doors, skylights, windows, and doors that reflect
or admit light or air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by Tenant, nor shall any bottles,
parcels, or other articles be placed on the window sills, or in the public
portions of the Building.
5. No showcases or other articles shall be put in front of or affixed
to any part of the exterior of the Building, nor placed in public portions
thereof without the prior written consent of Landlord.
6. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be borne by Tenant to
the extent that Tenant or Tenant's agents, servants, employees, contractors,
visitors, or licensees shall have caused the same.
7. Tenant shall not make, paint, drill into or in any way deface any
part of the Premises or the Building. No boring, cutting, or stringing of wires
shall be permitted, except with the prior written consent of Landlord, and as
Landlord may direct.
8. No animal or bird or any kind shall be brought into or kept in or
about demised premises of the Building.
9. Prior to leaving the Premises for the day, Tenant shall draw or
lower window coverings and extinguish all lights.
10. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of the Building or
neighboring buildings or premises or those having business with them. Tenant
shall not throw anything out of the doors, windows or skylights or down the
passageways.
11. Neither Tenant nor any of Tenant's agents, servants, employees,
contractors, visitors or licensees shall at any time bring or keep upon the
Premises any inflammable, combustible or explosive fluid, chemical, or
substance.
12. No additional locks, bolts, or mail slots of any kind shall be
placed upon any of the doors or windows by Tenant, nor shall any change be made
in existing locks or the mechanism thereof. Tenant must, upon the termination of
the tenancy, restore to Landlord all keys of stores, offices, and toilet rooms,
either furnished to, or otherwise procured by Tenant, and in the event of the
loss of any keys so furnished, Tenant shall pay to Landlord the cost thereof.
13. All removals, or the carrying in or out of any safes, or heavy
equipment of any description must take place during the hours which Landlord or
its agent may determine from time to time, Landlord reserves the right to
prescribe the weight and position of all safes, which must be placed upon two
inch thick plank strips to distribute the weight. The move of safes or heavy
equipment of any kind must be made upon previous notice at the Superintendent of
the Building and in a manner and at times proscribed by him, and the persons
employed by Tenant for such work are subject to Landlord's prior approval.
Landlord reserves th right to inspect all safes to be brought into the Building
and to exclude from the Building all safes which violate any of these Rules and
Regulations or the lease of which these Rules and Regulations are a part.
14. Tenant shall not occupy or permit any portion of the Premises to be
occupied as an office that is not generally consistent with the character and
nature of all other tenancies in the Building, or is (a) for an employment
agency, a public stenographer or typist, a labor union office, a physician's or
dentist's office, a dance or music studio, a school, a beauty salon or barber
shop, the business of photographic or multilith or multigraph reproductions or
offset printing (not precluding using any part of the Premises for photographic,
multilith or multigraph reproductions solely in connection with Tenant's own
business and/or activities), a restaurant or bar, an establishment for the sale
of confectionery or soda or beverages or sandwiches or ice cream or baked goods,
an establishment for the preparation or dispensing or consumption of food or
beverages (of any kind) in any manner whatsoever, or as a news or cigar stand,
or as a radio or television or recording studio, theatre or exhibition hall, for
manufacturing, for the storage of merchandise or for the sale of merchandise,
goods, or property of any kind at auction, or for lodging, sleeping or for any
immoral purpose, or for any business which would tend to generate a large amount
of foot traffic in or about the Building or the land upon which it was located,
or any of the areas used in the operation of the Building, including but not
limited to any use (i) for a banking, trust company, depository, guarantee, or
safe deposit business, (ii) as a savings bank, or as a savings and loan
association, or as a loan company, (iii) for the sale of travelers checks, money
orders, drafts, foreign exchange or letters of credit or for the receipt of
money for transmission, (iv) as a stock broker's dealer's office or for the
underwriting of securities, or (v) a government office or foreign embassy or
consulate, or (vi) a tourist or travel bureau, or (b) use which conflicts with
any so-called
18 Initials CTC DRB
<PAGE>
"exclusive" then in favor of, or is for any use the same as that stated in any
percentage lease to, another tenant of the Building or the Park, or (c) a use
which would be prohibited by any other portion of this Lease (including but not
limited to any Rules or Regulations than in effect) or in violation of law.
Tenant shall not engage or pay any employees on the Premises, except those
actually working for Tenant on the Premises nor shall Tenant advertise for
laborers giving an address at the Premises.
15. Tenant shall not purchase spring water, towels, janitorial or
maintenance or other like service from any company or persons not approved by
Landlord. Landlord shall approve a sufficient number of sources of such services
to provide Tenant with a reasonable selection, but only in such instances and to
such extent as Landlord in its judgment shall consider consistent with security
and proper operation of the Building.
16. Landlord shall have the right to prohibit any advertising or
business conducted by Tenant referring to the Building or the Park which, in
Landlord's opinion tends to impair the reputation of the Building or its
desirability as a first class building for offices, or the Park, and upon notice
from Landlord, Tenant shall refrain from or discontinue such advertising.
17. Landlord reserves the right to exclude from the Building between the
hours of 6:00 P.M. and 8:00 A.M. on all days, and at all hours on Saturdays,
Sundays and legal holidays, all persons who do not present a pass to the
Building issued by Landlord. Landlord may furnish passes to Tenant so that
Tenant may validate and issue same. Tenant shall safeguard said passes and shall
be responsible for all acts of persons in or about the Building who possess a
pass issued to Tenant.
18. Tenant's contractors shall, while in the Building or elsewhere in
the Park, be subject o and under the control and direction of the Superintendent
of the Building (but not as agent or servant of said Superintendent or of
Landlord).
19. If the Premises is or becomes infested with vermin as a result of
the use or misuse or neglect of Demised Premises by Tenant, its agents,
servants, employees, contractors, visitors or licensees, Tenant shall forthwith
at Tenant's expense cause the same to be exterminated from time to time to the
satisfaction of Landlord and shall employ such licensed exterminators as shall
be approved in writing in advance by Landlord.
20. The requirements of Tenant will be attended to only upon application
at the office of the Building. Building personnel shall not perform any work or
do anything outside of their regular duties, unless under special instructions
from the office of the Landlord.
21. Canvassing, soliciting and peddling in the Building or in the Park
are prohibited and Tenant shall cooperate to prevent the same.
22. No water cooler, air conditioning unit or system or other apparatus
shall be installed or used by Tenant without the written consent of Landlord.
23. There shall not be used in any space, or in the public halls, plaza
areas or lobbies of the Building, or elsewhere in the Park, either by Tenant or
by jobbers or others, in the delivery or receipt of merchandise, any hand trucks
or dollies, except those equipped with rubber tires and side guards.
24. Tenant, Tenant's agents, servants, employees, contractors, licensees
or visitors shall not park any vehicles in any driveways, service entrances, or
areas posted "No Parking."
25. Tenant shall install and maintain, at Tenant's sole cost and
expense, an adequate visibly marked (at all times properly operational) fire
extinguisher next to any duplicating or photocopying machine or similar heat
producing equipment, which may or may not contain combustible material, in the
Premises.
26. Tenant shall keep its window coverings closed during any period of
the day when the sun is shining directly on the windows of the Premises.
27. Tenant shall not use the name of the Building for any purpose other
than as the address of the business to be conducted by Tenant in the Premises,
nor shall Tenant use any picture of the Building in its advertising, stationary
or any other manner without the prior written permission of the Landlord.
Landlord expressly reserves the right at any time to change said name without in
any manner being liable to Tenant therefore.
19 Initials CTC DRB
FIRST ADDENDUM TO LEASE DATED 2/15/88
By and Between
MIC FOUR POINTS, A CALIFORNIA, LIMITED PARTNERSHIP
and
SUTTER BIOMEDICAL, INC.
This Addendum amends the above-described Lease as follows:
1. RENTABLE AREA OF PREMISES: The building equals 26,950 gross square
feet. However, the rent schedule in Paragraph 2 below shall apply to a
total square feet as detailed in the following:
Months Square Feet
------ -----------
(for rental rate to be applied to)
1-24 $23,950.00
25-120 $26,950.00
The schedule above details the square footage to be used in calculating
rent regardless of actual square footage occupied by Tenant. These
square footages are to be adjusted after final space plan is completed.
Square footage to be calculated based on BOMA methods for entire
building users. For months 1-24, square footage shall be 3,000 square
feet less than the adjusted final square footage.
2. RENT: The basic rent as defined in Section 3.1 of the Basic Lease
Information and Paragraph 3 of the lease shall be as follows (subject
to adjustment of final square footage):
Months Rate/Sq. Ft. Monthly Rent
------ ------------ ------------
1-6 $ .30 $ 7,185.00
7-24 $1.00 $23,950.00
25-60 $1.00 $26,950.00
61-96 $1.17 $31,531.50
97-120 $1.29 $34,765.50
The Rent for months 7-12 shall accrue and not be due and payable until
the 60th month of the Lease term except as otherwise provided as
follows: on the first day of the 60th month Landlord will waive the
accrued rent referred to above provided that there has been no prior
termination of this Lease and the Tenant is not then in default
hereunder.
The parties intend for the Term of this Lease to expire on the last day
of a full calendar month. Accordingly, if the Commencement Date is
other than on the first day of a full calendar month, thereby causing
Paragraph 2.1 to indicate an expiration date other than the last day of
a full calendar month, then the Term of this Lease shall be extended
until the last day of the full calendar month within which the
expiration date otherwise indicated by Paragraph 2.1 falls, and the
actual expiration date of the Term of this lease (the "Expiration
Date") shall be the last day of such full calendar month.
* For the purposes of the above detail, month number 1 shall be
defined as the first full calendar month during the Term of the Lease.
Any rent payable for a partial month before the first full calendar
month will be determined on a pro rate basis at the rate of $.83 per
square foot.
3. TERM: The Lease shall commence on August 1, 1988, except where Landlord
is responsible for delay of completion. A delay of completion by
Landlord shall be deemed to have occurred for every day greater than 98
days that elapses between the date permit is issued and the date
Certificate of Occupancy is received. Should such delay of completion
occur, the Lease Commencement Date shall be extended from August 1,
1988 by the number of days of said delay of completion.
Initials CTC DRB
<PAGE>
FIRST ADDENDUM TO LEASE
PAGE TWO
4. TENANT IMPROVEMENT ALLOWANCE: The Landlord shall enter into a
guaranteed maximum price contract with Snyder Langston to construct the
tenant improvements per the plan specifications and working drawings
that will be mutually approved by Landlord and Tenant. Landlord shall
contribute up to, but not to exceed, $18.00 a square foot (per BOMA)
towards tenant improvement work. All costs associated with the tenant
improvements in excess of this sum shall be amortized and paid to
Landlord by Tenant at an interest rate of 12% per annum. The first two
dollars ($2.00) of tenant improvement work in excess of $18.00 per
square foot shall be amortized over the 120 months of the Lease Term.
All tenant improvement work in excess of $20 per square foot shall be
amortized over the first 60 months of the Lease Term. Such amortization
shall be added to the monthly rent and be due and payable under the
same schedule and penalties as those which apply to rent.
Should the tenant improvement work cost less than $18.00 per square
foot, Landlord shall pay to Tenant a share of the savings equal to
one-half of all savings. Landlord shall pay 50% of this share before
September 1, 1988 and the remainder before November 1, 1988.
5. Intentionally Omitted
6. OPTION TO PURCHASE: So long as Tenant is not in default hereunder,
Tenant is granted an Option to Purchase 9425 Chesapeake Drive and the
associated parcel upon which it is located at the time of such purchase
subject to completed and recorded parcelization of the property as
presented on page 6 of this First Addendum to Lease. The agreed upon
price for the building and property is $145 per gross square foot of
building, payable on close of the escrow provided herein. Tenant shall
notify Landlord of such exercise on or before, May 1, 1990 (the
"Notice"). Within three (3) business days after the giving of said
Notice, an escrow shall be opened at Chicago Title Company in San
Diego, California, or such other title insurance company as may then be
designated by Landlord and reasonably acceptable to Tenant. Escrow
shall be deemed open when the title company holds executed escrow
instructions, from both Landlord and Tenant. Concurrent with the
opening of escrow, Tenant shall deposit $55,000.00 cash or an
irrevocable letter of credit in form and from a financial institution
reasonably acceptable to Lessor in escrow to be applied to the purchase
price, said amount shall be deposited in an interest bearing account,
by the title company and all interest, earned thereon shall be held in
escrow and credited to Tenant.
Escrow shall close on a date to be specified by Landlord within one of
the following periods: (a) on or after May 15, 1991, but prior to
September 15, 1991; or (b) on or after September 15, 1991 but prior to
September 15, 1992. Such notice of the closing date shall be given to
Tenant and the title company by December 15, 1990.
Initials CTC DRB
<PAGE>
FIRST ADDENDUM TO LEASE
PAGE THREE
Landlord shall convey the premises to Tenant free and clear of all
monetary encumbrances other than those placed on the premises by Tenant
and current taxes and assessments. Landlord shall provide Tenant with a
CLTA policy of title insurance upon close of escrow. Escrow expenses
shall be allocated among Landlord and Tenant in accordance with the
chosen title company's standard procedures for similar type
transactions in San Diego County, California. Total price of property
shall be paid to Landlord in cash. Close of escrow shall be deemed to
occur on the date the grant deed from Landlord to Tenant is recorded in
the office of the San Diego County Recorder.
If Tenant fails to complete the purchase of the premises after giving
the Notice the Parties agree that Seller (Landlord) shall be entitled
to the sum of $50,000.00 as liquidated damages, which sum the parties
agree is a reasonable sum considering all of the circumstances existing
on the date of the Lease, including the relationship of the sum to the
range of harm to Seller that reasonably could be anticipated and the
anticipation that proof of actual damages would be costly or
inconvenient. In placing their initials at the places provided, each
party specifically confirms the accuracy of the statements made above
and the fact that each party was represented by counsel who explained
the consequences of this liquidated damages provision at the time this
Lease was made.
Landlord Tenant
Initials here: DRB Initial here: CT
Should Landlord wish to arrange for the sale of the premises by means
of a tax-deferred exchange with one or more third parties, Tenant
agrees to cooperate in completing said exchange provided that it incurs
no expense or liability in addition to that it would have incurred had
the transaction been completed as an outright sale to Tenant.
In addition, Tenant acknowledged Landlord's right to set up CC&R's and
appropriate easements which would govern over the entire Project, this
building inclusive.
If escrow fails to close due to Lessor's fault, Tenant shall have all
deposits made by it into escrow, and all interest earned thereon,
returned to it in full.
7. SALE OF PROPERTY OR TRANSFER OF TITLE: Notwithstanding any provisions
of Article 4 of the Lease to the contrary, the term "Taxes" shall not
include any increase in real property taxes attributable solely to a
transfer in title to the Building during the term of the Lease to a
party other than the Tenant (a "Non-Tenant Transfer"). The foregoing
shall not be construed so as to exclude from the definition of "Taxes"
any increases in real property taxes allocable to the Building as a
result of a reappraisal for any reason other than a Non-Tenant
Transfer.
8. FIRST RIGHT TO PURCHASE: Effective May 1, 1990, during the Term of the
Lease, Tenant has a one time Right of First Refusal to purchase the
building. If there shall be an immediate prospect to purchase the
building, Landlord shall give Tenant written notice thereof specifying
the terms of such a sale. On receipt of such notice, and provided
Tenant has not committed an act of default under this lease, Tenant
shall have the option of purchasing the building at the terms offered
by the Prospect. Tenant's Right of First Refusal shall be exercised by
written notice from Tenant to Landlord, given within five (5) business
days after receipt of notice from the Landlord. The failure of the
Tenant to exercise this option in the time period specified shall be
conclusively deemed a Waiver of Tenants's First Right to Purchase for
the remainder of the Lease Term.
Initials CTC DRB
<PAGE>
FIRST ADDENDUM TO LEASE
PAGE FOUR
9. ASSIGNMENTS: Not withstanding the provisions of Section 12.3 of the
Lease, Landlord hereby grants to Tenant the right to assign this Lease
or to subject the Premises in whole or in part to any entity controlled
by; controlling or under common ownership with Tenant so long as: (i)
Tenant provides Landlord with prior written notice of the identity and
notice address of such assignee or subtenant and, (ii) such assignee or
subtenant complies with the use provisions set forth in Section 6 of
this Lease.
10. DESTRUCTION: In the event that the damage as referred to in Section 16
of the Lease renders the building untenantable, Landlord shall inform
Tenant within 60 days of Landlord's intent to repair the damage or not.
If that repair or reconstruction is not concluded within a period of
one hundred eighty (180) days from date of damage, the Lease may be
terminated by Tenant without penalty.
11. SECURITY DEPOSIT: Landlord shall refund to Tenant any balance of the
security deposit in excess of twenty thousand dollars ($20,000) at the
conclusion of the third year of the Lease, provided the Tenant is not
currently and never has previously been in default of the Lease.
12. FIRST RIGHT OF REFUSAL: Landlord grants solely to Sutter Biomedical,
Inc., while it is the Tenant, the Right of First Refusal on any vacant,
second generation space in the adjacent building, 9475 Chesapeake
Drive, during the Term of the Lease. Sutter Biomedical, Inc. shall
respond in writing to Landlord within five (5) business days after
receipt of a written proposal from the Landlord offering the vacant
second generation space.
13. SIGNAGE: Landlord shall provide Tenant with exclusive signage rights on
the Building commonly known as 9425 Chesapeake Drive. The
specifications of such signage shall include: a) letters shall be no
more than two (2) feet in height, b) the signage will incorporate the
company name logo including the underline characteristic, c) the
signage will conform to the Sutter Biomedical, Inc. corporate blue
color, d) signage shall be permitted on the north and east sides of the
building, e) illumination of the sign shall be permitted, and the
consideration of back lighting shall not be excluded, and f) signage
shall be located on the Building at the location to be specified by
Tenant. In addition, Landlord shall provide Tenant with shared rights
on the monument sign in front of 9425 Chesapeake Drive. The name Sutter
Biomedical, Inc. and the name Smith Laboratories, Inc. Shall receive
preferential display at the top of any listing placed upon the monument
sign. Said monument signage shall be located at a location to be
designated and mutually agreed to by Landlord and Tenant and all Tenant
signage shall be constructed and installed at Tenant's expense in
accordance with plans and specifications to be approved by Landlord.
14. MISCELLANEOUS: Except as expressly provided hereinabove, all other
terms and conditions of the Lease shall apply herein and remain in full
force and effect. In the event of any conflict between the terms of
this Addendum and those of the Lease, the terms of this Addendum will
be deemed to have superseded those of the Lease and exclusively will
govern the matter in question.
Initials CTC DRB
<PAGE>
FIRST ADDENDUM TO LEASE
PAGE FIVE
IN WITNESS WHEREOF, this Addendum to Lease is duly executed as of the day and
year first hereinabove written.
LANDLORD TENANT
MIC FOUR POINTS, SUTTER BIOMEDICAL, INC.
a California limited partnership
By: /s/ D. Ron Beal By: /s/ Charles T. Cashion
----------------------------- --------------------------
By its Managing General Partner President
March 31, 1988 March 25, 1988
- ------------------------------- ----------------------------
Date Date
<PAGE>
[PARCEL DIAGRAM]
SECOND ADDENDUM TO LEASE DATED 2/10/88
between
MIC FOUR POINTS, A CALIFORNIA PARTNERSHIP
and
SUTTER BIOMEDICAL, INC.
This Second Addendum to Lease is made and entered into this 7th day of October,
1988 by and between MIC Four Points ("Landlord") and Sutter Biomedical, Inc.
("Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated February 10,
1988 ("The Lease") as amended by the First Addendum to Lease dated February 10,
1988 under the terms of which Landlord leased to Tenant and Tenant leased from
Landlord, that certain real property located at 9425 Chesapeake Drive, San
Diego, California ("Demised Premises").
WHEREAS, Landlord and Tenant wish to increase the total space leased by the
Tenant, adjust the Commencement Date of the Lease, lengthen the Term of the
Lease by two months and increase the Tenant Improvement Allowance to be provided
by the Landlord to the Tenant.
NOW THEREFORE, the parties mutually agree to amend the Lease as follows:
1. RENTABLE AREA OF PREMISES: The building equals 28,032 gross square feet
and such shall be used in calculating rent throughout the term of the
Lease.
2. RENT: The basic rent as defined in Section 3.1 of the Basic Lease
Information and Paragraph 3 of the lease shall be as follows:
Months Rate/Sq. Ft. Monthly Rent
------ ------------ ------------
1-60* $1.00 $28,032.00
61-100 $1.17 $32,797.44
101-124 $1.29 $36,161.28
* For the purposes of the above detail, month number 1 shall be
defined as the first full calendar month during the Term of the Lease.
Any rent payable for a partial month before the first full calendar
month will be determined on a pro rate basis at the rate of $.83 per
square foot.
The rent for months 1 through 12 (12 in total), shall accrue
and not be due and payable until the 60th month of the Lease term
except as otherwise provided as follows: on the first day of the 60th
month Landlord will save the accrued rent referenced to above provided
that there has been no prior termination of this Lease and the Tenant
is not then in default hereunder. All operating expenses shall be due
and payable for every month are never abated.
The parties intend for the Term of this Lease to expire on the
last day of a full calendar month. Accordingly, if the Commencement
Date is other than on the first day of a full calendar month, thereby
causing Paragraph 2.1 to indicate an expiration date other than the
last day of a full calendar month, then the Term of this Lease shall be
extended until the last day of the full calendar month within which the
expiration date otherwise indicated by Paragraph 2.1 falls, and the
actual expiration date of the Term of this lease (the "Expiration
Date") shall be the last day of such full calendar month.
Initials CTC DRB
<PAGE>
Addendum #2
to Lease Dated 2/10/88
Page Two
3. TERM: The Term of the Lease shall be ten (10) years. The Lease shall
commence on October 1, 1988, except where Landlord is responsible for
delay of completion. A delay of completion by Landlord shall be deemed
to have occurred for every day greater than 105 days that elapses
between the date permit for Tenant Improvements is issued and given to
Landlord and the date Certificate of Occupancy is received. Should such
delay of completion occur, the Lease Commencement Date shall be
extended from October 1, 1988 by the number o days of said delay of
completion, and Tenant shall be credited for rent paid for periods
which are subsequently outside of the Lease term.
4. TENANT IMPROVEMENTS: The Landlord shall pay for Tenant Improvements up
to Eight Hundred Five Thousand and 00/100 Dollars ($805,000.00). Any
expenses above and beyond this incurred by Landlord for Tenant
Improvements shall be reimbursed by Tenant to Landlord within thirty
(30) days of receipt of invoice.
Tenant shall reimburse Landlord Three Hundred Thirty-Six Thousand Three
Hundred Eighty- Four and 00/100 Dollars ($336,384.00) in twelve (12)
equal monthly payments for above standard Tenant Improvements. Each
payment shall be due at the beginning of the month, commencing October
1, 1988. Each payment shall be $28,032.00. Should the actual total
Tenant Improvements be less than Eight Hundred Five Thousand and 00/100
Dollars ($805,000.00), the final month's reimbursement payment shall be
reduced by an amount equal to the difference between the actual total
Tenant Improvements and $805,000.00.
5. MISCELLANEOUS: Except as expressly provided hereinabove, all other
terms and conditions of the Lease shall apply herein and remain in full
force and effect. In the event of any conflict between the terms of
this Addendum to Lease and those of the Lease the First Addendum to
Lease, the terms of this Addendum will be deemed to have superseded
those of the Lease and the First Addendum to Lease and exclusively will
govern the matter in question.
IN WITNESS WHEREOF, this Addendum to Lease is duly executed as of the day and
year first hereinabove written.
LANDLORD TENANT
MIC FOUR POINTS, SUTTER BIOMEDICAL, INC.
a California limited partnership
/s/ D. Ron Beal /s/ Charles T. Cashion
- -------------------------------- -----------------------------
By: By: President
October 13, 1988 October 7, 1988
- -------------------------------- -----------------------------
Date Date
SPECIAL NOTES REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including projections of
results of operations and financial condition, statements of future economic
performance, and general or specific statements of future expectations and
beliefs. The matters covered by such forward-looking statements are subject to
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to differ materially
from those contemplated or implied by such forward-looking statements. Important
factors which may cause actual results to differ include, but are not limited
to, the following matters, which are discussed in more detail in the Company's
Form 10-K for the 1996 fiscal year:
(i) The Company's lack of experience with respect to newly acquired technologies
and product lines, such as CPM products, may reduce the Company's ability to
exploit the opportunities potentially offered by the acquisitions discussed in
this report;
(ii) Potential difficulties in integrating the operations of newly acquired
companies may impact negatively on the Company's ability to realize benefits
from the acquisitions. As noted herein the Company plans to close certain
facilities and consolidate operations within certain projected time frames.
These plans include the termination or relocation of certain personnel. No
assurance can be given that the present timetable for consolidation or closures
will not be delayed or that the termination and relocation of personnel will not
result in additional, unanticipated costs. The consolidation and coordination of
the Company's personnel and operations may prove to be more costly or difficult
than anticipated, resulting in the diversion of management resources and adverse
effects on the operating results of the Company. Moreover, in part as a
potential result of personnel and policy changes, there can be no assurance that
customers of the Company and any acquired entity will continue their historic
buying patterns;
(iii) The Company recently changed from selling its products primarily through
independent dealers to selling primarily through a direct sales force. Although
the Company believes that in the long run this will be an effective strategy,
presently identifiable risks include: (a) the Company's management is
inexperienced in dealing with such a large number of direct salespeople, and
procedures that worked with a small direct sales force and motivated them may
not be transferable to a larger force; (b) the Company recently hired a
substantial number of new salespeople with little or no experience selling the
Company's products; new salespeople typically face a learning curve and not all
new salespeople will be successful; (c) for those salespeople who were hired
from dealerships and thus had experience selling the Company's products, the
fact that they are no longer selling products made by other manufacturers as
part of their sales calls may reduce their access to doctors; and (d) territory
expansion and realignment means a larger number of salespeople will be calling
on physicians with whom they have not established a professional relationship.
There can be no assurance that the Company's efforts to expand the internal
sales force and to increase its productivity will produce positive effects on
sales or profits;
(iv) As discussed herein, the Company intends to pursue sales in international
markets. The Company, however, has had little experience in such markets.
Expanded efforts at pursuing new markets necessarily involves expenditures to
develop such markets and there can be no assurance that the results of those
efforts will be profitable;
(v) There can be no assurance that the Company's estimates concerning what it
has defined as the "Orthocare market" are accurate, or that changes in that
market will not cause the nature and extent of that market to deviate materially
from the Company's expectations;
11
<PAGE>
SPECIAL NOTES REGARDING FORWARD-LOOKING STATEMENTS, CONTINUED
(vi) To the extent that the Company presently enjoys perceived technological
advantages over competitors, technological innovation by present or future
competitors may erode the Company's position in the market. For example, prior
to the acquisitions discussed herein, the Company's historic sales have been
derived almost exclusively from the OrthoLogic 1000, and there is a possibility
that competitors may develop new treatments or improve existing treatments that
could be used in place of the OrthoLogic 1000. The same observation is true with
respect to the Company's CPM and fixation products. To sustain long-term growth,
the Company must develop and introduce new products and expand applications of
existing products; however, there can be no assurance that the Company will be
able to do so or that the market will accept any such new products or
applications;
(vii) The Company operates in a highly regulated environment and cannot predict
the actions of regulatory authorities. The action or non-action of regulatory
authorities may impede the development and introduction of new products and new
applications for existing products, and may have temporary or permanent effects
on the Company's marketing of its existing or planned products. As noted herein,
the Company has entered into an agreement with Mitsubishi Chemical Corporation
and will collaborate in attempting to obtain approval by Japan's national health
insurance for reimbursement for the use of the OrthoLogic 1000. However, there
can be no assurance that the Company will actually receive such approval;
(viii) There can be no assurance that the influence of managed care will
continue to grow either in the United States or abroad, or that any such growth
will result in greater acceptance or sales of the Company's products. In
particular, there can be no assurance that existing or future decision makers
and third party payors within the medical community will be receptive to the use
of the Company's products or replace or supplement existing or future
treatments. Moreover, the transition to managed care and the increasing
consolidation underway in the managed care industry may concentrate economic
power among buyers of the Company's products, which concentration could
foreseeably adversely affect the price third party payors are willing to pay,
and thus adversely affect the Company's margins; and
(ix) Although the Company believes that existing litigation initiated against
the Company is without merit and the Company intends to defend such litigation
vigorously, an adverse outcome of such litigation could have a material adverse
effect on the Company's business, financial condition and results of operations.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
OrthoLogic was founded in July 1987, and the Company was engaged
primarily in the commercialization of the Company's proprietary BioLogic
technology in order to develop products that stimulate the healing of bone
fractures and spinal fusions. On August 30, 1996 OrthoLogic acquired Sutter
Corporation ("Sutter") for $24.5 million in cash. Sutter develops, manufactures,
and markets orthopaedic rehabilitation products (primarily continuous passive
motion ("CPM") devices) and services. As discussed in Note 15 to the
consolidated financial statements the Company's completed two additional CPM
related acquisitions in March 1997. Management is in the process of preparing a
formal restructuring plan related to consolidating and integrating all of its
CPM related facilities, operations and personnel. The Company plans to reduce
the number of facilities from six to two during the second and third quarter of
1997. All CPM device manufacturing will be in Canada and the ancillary servicing
and administrative functions will be consolidated into a Phoenix, Arizona
location. Once the restructuring plan is completed and costs related to these
activities can be estimated, they will be reflected as additional acquisition
costs in the allocation of purchase price.
Fracture Healing
In March 1994, the Company received approval of its Premarket Approval
Application ("PMA") from the U.S. Food and Drug Administration (the "FDA") and
commenced marketing its OrthoLogic 1000 Bone Growth Stimulator for the treatment
of nonunion fractures.
In 1993, the Company commenced clinical trials for the SpinaLogic 1000,
an application of the BioLogic technology as an adjunct to spinal fusion
surgery. Also during 1993, the Company commenced sales of its first commercial
product, the OrthoFrame External Fixator. Additionally, in cooperation with the
Mayo Clinic in Rochester, Minnesota, the Company developed the OrthoFrame/Mayo
Wrist Fixator and commenced sales of this product during the first quarter of
1994. The Orthopaedic Department of the Mayo Clinic will also provide ongoing
clinical input on future product design enhancements.
Prior to the second quarter of 1996 the Company marketed its products
primarily through a network of independent orthopaedic specialty dealers. During
the second quarter of 1996 the Company commenced conversion of the primary
marketing channel to a direct sales force. The Company paid approximately $10.8
million to former independent dealers for the return of territory rights,
covenants-not-to-compete, and the right to hire former independent dealer sales
representatives as Company employees. At December 31, 1996 the fracture healing
direct sales force had 82 sales representatives and 2 remaining independent
dealers.
The Company's OrthoLogic 1000 is sold to patients upon receipt of a
written prescription. The Company submits a bill to the patient's insurance
carrier (third party payor) for reimbursement. All bills for the OrthoLogic 1000
are submitted to third party payors at the product's list price. The Company's
OrthoFrame products are used in conjunction with surgical procedures and are
sold to hospitals.
The Company recognizes revenue at the time of product shipment.
OrthoFrame products are shipped based upon receipt of purchase orders from
hospitals, which are billed at the time of shipment. Each OrthoLogic 1000 is
shipped based upon receipt of a physician's prescription. Therefore, the Company
operates with no backlog.
Orthopaedic Rehabilitation
The primary product in orthopaedic rehabilitation is the direct rental
of continuous passive motion devices to patients in the home, hospital, and
outpatient surgical facilities. In addition to CPM rentals the Company also
markets bracing and cryotherapy products.
The Company maintains a fleet of CPM's which are rented to patients
upon receipt of a written prescription. The Company recognizes CPM revenue daily
during the period of prescribed usage. A bill is sent to the patient's insurance
carrier (third party payor) for reimbursement. At December 31, 1996 the
orthopaedic rehabilitation direct sales force had 87 sales representatives.
Other
OrthoLogic reported net income of $2.5 million during 1996, however,
the Company, as of December 31, 1996, had a deficit of $16.9 million.
At December 31, 1996, the Company had incurred approximately $12.0
million in net operating loss carryforwards for federal income tax purposes. The
Company's ability to utilize its net operating loss carryforwards may be subject
to annual limitations in future periods pursuant to the "change in ownership
rules" under Section 382 of the Internal Revenue Code of 1986, as amended.
Future operating results will depend on numerous factors including, but
not limited to demand for the Company's products, the timing, cost and
acceptance of product introductions and enhancements made by the Company or
others, levels of third party payment, alternative treatments which currently
exist or may be introduced in the future, practice patterns, competitive
conditions in the industry, general economic conditions and other factors
influencing the orthopaedic market in the United States or other countries in
which the Company operates in or expands into. In addition, efforts to reform
the health care system in the United States and contain health care expenditures
could adversely affect the Company's revenues and results of operations.
Furthermore, the Company's medical devices are subject to regulation by the FDA.
The FDA has the power to affect the Company's sales and marketing of its
devices. The Company cannot determine the effect such trends will have on its
operations, if any.
Results of Operations
Years Ended December 31, 1994, 1995 and 1996.
Revenues. OrthoLogic's revenue increased 196% from $5.0 million in 1994
to $14.7 million in 1995. The increase in revenue was due primarily to increases
in OrthoLogic 1000 sales which received FDA approval in March 1994. OrthoLogic's
revenue increased from $14.7 million in 1995 to $41.9 million in 1996, an
increase of 185%. The increase in revenue is primarily attributable to higher
sales levels of the OrthoLogic 1000 and revenues from Sutter for four months.
However, sales of the OrthoLogic 1000 decreased in the second half of
1996, compared to the first half of 1996, primarily due to low productivity of
the Company's sales people associated with transition to a direct sales force.
13
<PAGE>
Gross Profit. Gross profit increased from $3.6 million in 1994 to $11.6
million in 1995, an increase of 219%. Gross profit increased 189% from $11.6
million in 1995 to $33.6 million in 1996. Gross profit as a percentage of sales
increased from 73.5% in 1994 to 79.1% in 1995 and to 81.6% in 1996.
The gross profit percentage has improved over time primarily as a
result of the absorption of fixed manufacturing costs over a higher volume of
manufactured product.
Selling, General and Administrative Expenses ("SG&A"). SG&A expenses
increased 101% from $5.6 million in 1994 to $11.3 million in 1995 and 182% to
$31.9 million in 1996. The increase from 1994 to 1995 was attributable to higher
personnel costs and other costs which relate directly to higher sales levels of
the OrthoLogic 1000, such as commissions to sales agents, allowance for bad
debts and royalties. Personnel costs also increased due to a higher number of
personnel in several areas, including direct sales representatives, regional
sales managers, product managers, customer service, third party payor, billing
and collections and reimbursement specialists. The increase from 1995 to 1996 is
due in part to the variable costs (commissions, bad debts, and royalties)
associated with the increased revenue. The fixed component of SG&A also
increased due to additional personnel at all levels for senior management, human
resources, marketing, accounting and management information systems, and other
infrastructure required to support the growing revenue volume, sales
representatives added as a result of the transition to a direct sales force and
incremental SG&A expenses from Sutter for four months. In addition, legal costs
incurred defending the Company against lawsuits and amortization of intangibles
arising from the acquisition of Sutter and costs from the conversion to a direct
sales force combined to increase SG&A by $1.3 million.
SG&A costs are expected to increase in 1997 due to a full year of the
current personnel, Sutter SG&A and the asset acquisitions, discussed in Note 15,
of Toronto Medical Corp. and Danninger Medical Technology, Inc.; however, the
future levels of SG&A are dependent upon many factors, including commissions,
royalties, bad debt and personnel levels.
Research and Development Expenses. Research and development expenses
for 1994 were $2.8 million. The expenses were attributable to research efforts
and developmental activities for the OrthoFrame, the OrthoLogic 1000 and the
OrthoFrame/Mayo Wrist Fixator. Research and development expenses decreased 23.5%
from $2.8 million in 1994 to $2.1 million in 1995 and increased to $2.2 million
in 1996. During the year ended December 31, 1994, the Company experienced
nonrecurring development costs associated with the OrthoLogic 1000 and the
OrthoFrame/Mayo Wrist Fixator, which were not incurred in 1995 and 1996.
Other Income. Grant revenue increased 758.8% from $25,000 in 1994 to
$215,000 in 1995 and decreased 14.9% to $183,000 in 1996. Grant revenue will
fluctuate from year to year depending on the number and dollar level of grant
awards. The total number of grants awarded in 1994, 1995 and 1996 were 0, 3, and
2, respectively. The grants are not awarded based on calendar years. Interest
income increased 9.9% from $278,000 in 1994 to $305,000 in 1995 and increased
831% to $2,841,000 in 1996. The fluctuations were caused by different amounts of
cash and short-term investments and varying interest rates. The Company
completed additional public offerings in October 1995 and April 1996 which
provided net proceeds of approximately $17.6 million and $74.0 million,
respectively.
Net Income. Net income during 1996 is comprised of an operating loss of
$485,000 which is offset by other income of $3.0 million, consisting primarily
of interest income of $2.8 million.
Liquidity and Capital Resources
The Company has financed its operations through the public and private
sales of equity securities and product sales. From inception through December
31, 1996, the Company has raised $118.8 million in net proceeds from equity
financings.
At December 31, 1996, the Company had cash and cash equivalents of
$13.5 million and short-term investments of $35.3 million. Working capital
increased 218.8% from $23.5 million at December 31, 1995 to $75.0 million at
December 31, 1996. This increase is primarily the result of the Company's public
offering which provided net proceeds of approximately $74.0 million.
Net cash used by operations decreased 14.8% from $5.6 million in 1994
to $4.8 million in 1995. The decrease is attributable to the decrease in net
loss from $4.5 million in 1994 to $1.4 million in 1995 and was partially offset
by an increase in accounts receivable and inventory. Net cash used by operations
increased 44.6% from $4.8 million in 1995 to $6.9 million in 1996. This increase
was due primarily to increases in accounts receivable and inventory of $4.7
million and $2.3 million, respectively, offset by increases in net income and
depreciation and amortization of $3.9 million and $1.6 million, respectively.
The Company anticipates that the cash generated from product sales and
rentals and current cash balances will be sufficient to meet the Company's
capital requirements for the foreseeable future. There can be no assurance,
however, that the Company will not require additional financing in the future.
If the Company were required to obtain additional financing in the future, there
can be no assurance that such sources of capital will be available on terms
favorable to the Company, if at all.
Accounts receivable increased from $6.5 million at December 31, 1995 to
$26.9 million at December 31, 1996. This increase is due primarily to the
acquisition of Sutter, increased sales of fracture healing products and an
increased collection cycle experienced during the Company's growth.
As discussed in greater detail in Note 13 the Company has been named as
a defendant in certain lawsuits. Management believes that the allegations are
without merit and will vigorously defend them. No costs related to the potential
outcome of these actions have been accrued.
The Company plans to relocate its corporate offices in the fourth
quarter of 1997. No lease has been signed related to this move.
14
<PAGE>
Selected Financial Data
The selected financial data for each of the five years in the period ended
December 31, 1996 are derived from audited financial statements of the Company.
The selected financial data is qualified in its entirety by and should be read
in conjunction with the Financial Statements and related Notes thereto and other
financial information appearing elsewhere herein and the discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." As discussed in Note 2 of the footnotes the Company completed an
aquisition in August 1996.
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS DATA:
Net revenue $ 41,884 $ 14,678 $ 4,953 $ 326 $ --
Cost of revenue 8,299 3,065 1,314 161 --
Operating expenses:
Selling, general
and administrative 31,901 11,304 5,611 1,113 944
Research and development 2,169 2,132 2,787 2,769 1,992
--------- --------- --------- --------- ---------
Total operating expenses 34,070 13,436 8,398 3,882 2,936
--------- --------- --------- --------- ---------
Operating loss (485) (1,823) (4,760) (3,717) (2,936)
Other income (expense) 3,023 471 288 393 (50)
--------- --------- --------- --------- ---------
Net income (loss) $ 2,538 $ (1,352) $ (4,472) $ (3,324) $ (2,986)
========= ========= ========= ========= =========
Net income (loss) per share (1) $ 0.11 $ (0.09) $ (0.33) $ (0.26) $ (0.39)
========= ========= ========= ========= =========
Weighted average
shares outstanding (1) 24,144 15,549 13,791 13,090 7,662
========= ========= ========= ========= =========
December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands)
BALANCE SHEET DATA:
Working capital $ 74,985 $ 23,518 $ 4,968 $ 9,553 $ 1,559
Total assets 113,026 27,490 7,576 10,949 2,730
Long-term debt, less
current maturities -- -- -- 20 125
Stockholders` equity 101,927 24,437 6,052 10,214 1,884
</TABLE>
(1) Based on weighted average common share equivalents outstanding, giving
retroactive effect to the conversion of outstanding Preferred Stock into Common
Stock and a stock split. See Notes to Financial Statements.
Stockholder Information
Market information. The Company's Common Stock commenced trading on the Nasdaq
National Market on January 28, 1993 under the symbol "OLGC." The bid price
information as adjusted for a 2 for 1 stock split effected as a stock dividend
in June 1996, included herein is derived from the Nasdaq Monthly Statistical
Report, represents quotations by dealers, may not reflect applicable markups,
markdowns or commissions, and does not necessarily represent actual
transactions.
1996 1995
---- ----
High Low High Low
---- --- ---- ---
First Quarter $13.656 $7-1/8 $2.813 $1-11/16
Second Quarter 26-1/4 9-7/8 3 2
Third Quarter 16-3/8 7-1/8 5.563 2-5/16
Fourth Quarter 11-3/8 5-5/8 7-7/8 4-1/16
As of March 7, 1997, there were 25,031,846 shares outstanding of the Common
Stock of the Company held by approximately 279 stockholders of record.
Dividends. The Company has never paid a cash dividend on its common stock. The
Board of Directors currently anticipates that all of the Company's earnings, if
any, will be retained for use in its business and does not intend to pay any
cash dividends on its Common Stock in the foreseeable future.
15
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,493,853 $ 8,830,514
Short-term investments (Note 6) 35,306,989 9,149,360
Accounts receivable, less allowance for doubtful
accounts of $8,595,000 and $1,480,000 26,856,144 6,488,203
Inventories, net (Note 7) 6,551,382 1,829,865
Prepaids and other current assets 1,194,679 273,237
Deferred taxes (Note 9) 2,401,000 --
------------- -------------
Total current assets 85,804,047 26,571,179
------------- -------------
FURNITURE, RENTAL FLEET AND
EQUIPMENT, net (Note 8) 9,082,003 695,932
DEPOSITS AND OTHER ASSETS (Note 11) 93,112 97,748
NOTE RECEIVABLE - Officer (Note 11) 200,000 125,000
GOODWILL, net (Note 2) 7,757,981 --
DEALER INTANGIBLES, net (Note 3) 10,088,559 --
------------- -------------
TOTAL $ 113,025,702 $ 27,489,859
============= =============
December 31,
------------
1996 1995
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,041,943 $ 1,053,323
Accrued bonuses and compensation 3,443,988 1,199,909
Deferred credits 2,738,779 --
Accrued royalties 556,495 333,213
Accrued expenses 2,037,634 466,802
------------- -------------
Total current liabilities 10,818,839 3,053,247
------------- -------------
DEFERRED RENT & CAPITAL LEASE 279,929 --
COMMITMENTS (Notes 4, 11, 12)
STOCKHOLDERS' EQUITY
Preferred stock, $.0005 par value; 2,000,000
share authorized, none issued
Common stock, $.0005 par value; 40,000,000
shares authorized; 25,022,346 and 19,251,728
shares issued 12,510 9,626
Additional paid-in capital 118,832,040 43,882,991
Deficit (16,917,616) (19,456,005)
------------- -------------
Total stockholders' equity 101,926,934 24,436,612
------------- -------------
TOTAL $ 113,025,702 $ 27,489,859
============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Net sales $ 31,031,451 $ 14,678,362 $ 4,952,963
Net rentals 10,852,788 -- --
------------ ------------ ------------
Total revenues 41,884,239 14,678,362 4,952,963
------------ ------------ ------------
COST OF REVENUES:
Cost of goods sold 5,714,510 3,065,451 1,314,328
Cost of rentals 2,584,530 -- --
------------ ------------ ------------
Total cost of revenues 8,299,040 3,065,451 1,314,328
------------ ------------ ------------
GROSS PROFIT 33,585,199 11,612,911 3,638,635
------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 31,900,966 11,303,624 5,611,281
Research and development 2,169,090 2,132,441 2,786,929
------------ ------------ ------------
Total operating expenses 34,070,056 13,436,065 8,398,210
------------ ------------ ------------
OPERATING LOSS (484,857) (1,823,154) (4,759,575)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Grant revenue 182,658 214,704 25,000
Interest income 2,840,588 305,243 277,721
Interest expense -- (48,438) (14,693)
------------ ------------ ------------
Total other income (expense) 3,023,246 471,509 288,028
------------ ------------ ------------
NET INCOME (LOSS) $ 2,538,389 $ (1,351,645) $ (4,471,547)
============ ============ ============
NET INCOME (LOSS) PER WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING (Note 1) $ 0.11 $ (0.09) $ (0.33)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING (Note 1) 24,143,763 15,548,856 13,791,158
========== ========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17
<PAGE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- ------------ ----------
Shares Amount Shares Amount Paid-in Capital Deficit Total
------ ------ ------ ------ --------------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 - - 6,779,191 $ 3,390 $ 23,843,247 $ (13,632,813) $ 10,213,824
Exercise of common options at prices ranging from
$.10 to $4.50 per share (Note 10) - - 141,900 71 61,303 -- 61,374
Stock option compensation (Note 10) - - -- -- 73,571 -- 73,571
Exercise of common stock warrant (Note 10) - - 50,000 25 174,975 -- 175,000
Net loss - - -- -- -- (4,471,547) (4,471,547)
---- ----- ---------- -------- ------------- ------------- -------------
Balance, December 31, 1994 - - 6,971,091 3,486 24,153,096 (18,104,360) 6,052,222
Sale of common stock (Note 10) - - 2,512,199 1,256 19,564,379 -- 19,565,635
Exercise of common options at prices ranging from
$.325 to $5.75 per share (Note 10) - - 141,300 70 85,875 -- 85,945
Stock option compensation (Note 10) - - -- -- 84,455 -- 84,455
Exercise of common stock warrant (Note 10) - - 1,274 1 (1) -- --
Net loss - - -- -- -- (1,351,645) (1,351,645)
---- ----- ---------- -------- ------------- ------------- -------------
Balance, December 31, 1995 - - 9,625,864 4,813 43,887,804 (19,456,005) 24,436,612
Sale of common stock (Note 10) - - 2,530,000 1,265 73,949,643 -- 73,950,908
Exercise of common options at prices ranging from
$.325 to $14.625 per share (Note 10) - - 324,318 162 852,051 -- 852,213
Exercise of common stock warrant (Note 10) - - 10,241 5 (5) -- --
Stock option compensation (Note 10) - - -- -- 64,307 -- 64,307
Two for one stock split (Note 10) - - 12,490,423 6,245 (6,245) -- --
Exercise of common options at prices ranging from
$1.844 to $7.313 per share (Note 10) - - 41,500 20 84,485 -- 84,505
Net income - - -- -- -- 2,538,389 2,538,389
---- ----- ---------- -------- ------------- ------------- -------------
Balance, December 31, 1996 - - 25,022,346 $ 12,510 $ 118,832,040 $ (16,917,616) $ 101,926,934
==== ===== ========== ======== ============= ============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 2,538,389 $ (1,351,645) $ (4,471,547)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 1,926,056 301,567 289,853
Change in operating assets and liabilities:
Accounts receivable (9,062,119) (4,407,128) (1,973,263)
Inventories (3,171,448) (860,449) (474,118)
Prepaids and other current assets (819,623) (97,969) 43,422
Deposits and other assets 4,636 (1,866) 5,567
Accounts payable (708,136) 582,228 366,657
Accrued bonuses and compensation 39,561 59,828 248,572
Accrued royalties 223,282 220,043 108,681
Accrued expenses 2,114,567 771,859 239,156
------------ ------------ ------------
Net cash used in operating activities (6,914,835) (4,783,532) (5,617,020)
------------ ------------ ------------
INVESTING ACTIVITIES:
Expenditures for furniture and
equipment, net (1,389,309) (133,818) (699,190)
Intangibles from dealer transactions (10,752,116) -- --
Officer note receivable, net (75,000) -- --
Purchase of Sutter Corporation, net of
cash acquired (24,907,442) -- --
(Purchase) sale of short-term investments (26,157,629) (9,149,360) 6,523,432
------------ ------------ ------------
Net cash (used) provided in
investing activities (63,281,496) (9,283,178) 5,824,242
------------ ------------ ------------
Years Ended December 31,
1996 1995 1994
---- ---- ----
FINANCING ACTIVITIES:
Payments under long-term debt and
capital lease obligations (27,956) (19,706) (101,374)
Proceeds from issuance of common stock 74,887,626 19,651,580 236,374
------------ ------------ ------------
Net cash provided by
financing activities 74,859,670 19,631,874 135,000
------------ ------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 4,663,339 5,565,164 342,222
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 8,830,514 3,265,350 2,923,128
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 13,493,853 $ 8,830,514 $ 3,265,350
============ ============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:
The Company purchased all of the capital stock of Sutter Corporation and
incurred certain costs related to this acquisition for a total purchase price of
$25,047,000. In connection with this acquisition, liabilities were assumed as
follows:
<TABLE>
<S> <C> <C> <C>
Fair value of assets acquired $ 31,516,000
Cash paid and cost related to the
acquisition of capital stock (25,047,000)
------------
Liabilities assumed $ 6,469,000
============
Stock option compensation $ 64,307 $ 84,455 $ 73,571
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION-
Cash paid during the year for interest $ 0 $ 48,438 $ 14,693
============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19
<PAGE>
Notes To Consolidated Financial Statements
For The Years Ended December 31, 1996, 1995 and 1994
1. Summary of Significant
Accounting Policies
Organization - OrthoLogic, Corp. (formerly IatroMed, Inc.) was
incorporated on July 30, 1987 (date of inception) and commenced operations in
September 1987. On August 30, 1996 OrthoLogic, Corp. acquired all of the
outstanding capital stock of Sutter Corporation ("Sutter") which became a
wholly-owned subsidiary of OrthoLogic (collectively the "Company" or
"OrthoLogic").
Description of business - OrthoLogic is engaged in two primary areas of
orthopaedic healthcare primarily in the United States. The fracture healing area
is engaged in developing, manufacturing, and marketing proprietary,
technologically advanced orthopaedic devices designed to enhance the healing of
diseased, damaged or degenerated musculo-skeletal tissue. The orthopaedic
rehabilitation area is engaged in developing, manufacturing, and marketing
orthopaedic rehabilitation products and services, primarily through the direct
rental of continuous passive motion ("CPM") devices to patients in the home,
hospitals, and outpatient surgical facilities.
Principles of consolidation - The consolidated financial statements
include the accounts of OrthoLogic, Corp. since its inception and Sutter since
its acquisition on August 30, 1996. All material inter-company accounts and
transactions have been eliminated.
The following briefly describes the significant accounting policies
used in the preparation of the financial statements of the Company:
a. Inventories are stated at the lower of cost (first-in, first-out method) or
market.
b. Furniture, rental fleet and equipment are stated at cost or, in the case of
leased assets under capital leases, at the present value of future lease
payments at inception of the lease. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the various assets,
which range from three to seven years. Leasehold improvements and leased
assets under capital leases are amortized over the life of the asset or the
period of the respective lease using the straight-line method, whichever is
the shortest.
c. Grant revenue is recorded as costs are incurred in accordance with the
terms of the grant contract.
d. Research and development represent both costs incurred internally for
research and development activities, as well as costs incurred by the
Company to fund the activities of the various research groups (Note 4),
with which the Company has contracted. All research and development costs
are expensed when incurred.
e. Cash and cash equivalents consist of cash on hand and cash deposited with
financial institutions, including money market accounts, and commercial
paper purchased with an original maturity of three months or less.
f. Income (loss) per common and common equivalent share - is computed on the
weighted average number of common and common equivalent shares outstanding
during each year and includes shares issuable upon exercise of stock
options when dilutive.
g. Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.
h. Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
2. Acquisition
On August 30, 1996, OrthoLogic, Corp. acquired all of the outstanding
capital stock of Sutter for $24.5 million in cash. The acquisition was accounted
for as a purchase and, accordingly the net assets and results of operations of
Sutter have been included in these consolidated financial statements commencing
August 30, 1996. The purchase resulted in goodwill of $7.9 million which is
being amortized over 15 years. The following unaudited pro forma summary
combines the consolidated results of operations of OrthoLogic, Corp. and Sutter
as if the acquisition had occured on January 1 of that period after giving
effect to certain adjustments including amortization of the purchase price in
excess of net assets acquired, interest income, and income taxes. This pro forma
summary is not necessarily indicative of the results of operations that would
have occured if OrthoLogic, Corp. and Sutter had been combined during such
periods. Moreover, the pro forma summary is not intended to be indicative of the
results of operations to be attained in the future.
Year Ended December 31,
-----------------------
(in thousands, except per share data)
-------------------------------------
1996 1995
---- ----
Net revenues $ 65,623 $ 47,062
Income (loss) from continuing operations $ 1,487 $ (2,476)
Net income (loss) per common share $ 0.06 $ (0.16)
The Company intends to close the Sutter corporate office and manufacturing
facility as part of a restructuring (the "Restructuring Plan," see Note 15).
Events which remain to be determined include 1) which employees will be
terminated or relocated and 2) matters surrounding the closure of facilities and
relocation of servicing operations. The amount of costs to be incurred related
to these activities have not yet been estimated. Once the Restructuring Plan is
approved, the related liabilities will be reflected as additional acquisition
costs in the allocation of purchase price.
20
Notes To Consolidated Financial Statements, cont.
For The Years Ended December 31, 1996, 1995 and 1994
<PAGE>
3. Dealer Intangibles
During the second quarter of 1996 the Company initiated a plan to
convert its primary marketing channel from an independent dealer network to a
direct sales force. In connection with this conversion the Company paid
approximately $10.8 million to certain former independent dealers for the return
of territory rights, covenants-not-to-compete with varying terms, and the right
to hire former independent dealer sales representatives as Company employees.
This amount is being amortized on a straight line basis over seven years.
4. Research, Product Development and License Agreements
The Company has entered into several research contracts, product
development agreements and license agreements. These agreements relate to
products being sold, products currently under development, and ongoing
scientific research. Future commitments related to these agreements are
summarized as follows:
Year Ending December 31, Amount
------------------------ ------
1997 $ 130,000
1998 45,333
1999 1,000
---------
Total $ 176,333
=========
In addition, the Company has committed to pay royalties on the sale of
products or components of products developed under certain of these agreements.
The royalty percentages vary but generally range from 7% to 0.5% of the sales
amount for licensed products. The royalty percentage under the different
agreements decreases when either a certain sales dollar amount is reached or
royalty amount is paid. Royalty expense under these agreements totaled $621,597,
$414,408 and $180,570 in 1996, 1995 and 1994, respectively.
5. Distributor and Sales Agency Agreements
Prior to the second quarter of 1996 the Company marketed its products
primarily through a network of independent orthopaedic speciality dealers.
During the second quarter of 1996 the Company commenced conversion of the
primary marketing channel to a direct sales force. This conversion was
substantially complete by year end. In August 1996 the Company acquired Sutter
whose primary marketing channel was a direct sales force.
The Company's primary products, the OrthoLogic 1000 and CPM devices,
are prescribed by clinicians for specific patient usage. The Company sells or
rents product upon receipt of a prescription, signed by a clinician. The Company
bills the patient's insurance carrier or the patient, if they are not insured.
During 1995, one distributor obtained prescriptions for which product was
shipped and which represents approximately 12% of net sales. This same
distributor purchased other products from the Company which account for less
than 1% of net sales for this same period.
For the years ended December 31, 1996 and 1994, no distributor
accounted for over 10% of revenue.
6. Investments
The Company has implemented Statement of Financial Accounting Standards
("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity
Securities." At December 31, 1996, marketable securities were comprised of
corporate debt securities and direct obligations of the United States Government
and its agencies and were managed as part of the Company's short-term cash
management program and were classified as held-to-maturity securities. All such
securities were purchased with original maturities less than one year. Such
classification requires these securities to be reported at amortized cost.
A summary of the fair market value and unrealized gains and losses on these
securities is as follows:
December 31,
1996 1995
---- ----
Amortized Cost $ 35,306,989 $ 9,149,360
Gross unrealized gain 48,912 45,887
Gross unrealized loss (13,117) --
------------ ------------
Fair Value $ 35,342,784 $ 9,195,247
============ ============
7. Inventories
Inventories consisted of the following:
December 31,
1996 1995
---- ----
Raw materials $ 4,646,620 $ 1,156,716
Work-in-process 127,514 95,715
Finished goods 2,037,850 577,434
----------- -----------
6,811,984 1,829,865
Less allowance for obsolescence (260,602) --
----------- -----------
Total $ 6,551,382 $ 1,829,865
=========== ===========
8. Furniture, Rental Fleet and Equipment
Furniture, rental fleet and equipment consisted of the following:
21
<PAGE>
December 31,
1996 1995
---- ----
Rental fleet $ 7,366,886 $ --
Machinery and equipment 1,738,572 1,140,328
Computer equipment 1,070,534 473,994
Furniture and fixtures 825,894 175,330
Leasehold improvements 362,409 102,335
------------ ------------
11,364,295 1,891,987
Less
accumulated depreciation and amortization (2,282,292) (1,196,055)
------------ ------------
Total $ 9,082,003 $ 695,932
============ ============
9. Income Taxes
At December 31, 1996, the Company has incurred approximately $12.0
million in net operating loss carryforwards expiring from 2002 through 2011 for
federal income tax purposes. The Company issued Series B Convertible Preferred
Stock during 1988, Series C Convertible Preferred Stock during 1990 and Series D
Convertible Preferred Stock during 1992, completed its IPO in 1993 and completed
a private placement and public offerings of its common stock in 1995 and 1996.
Stock issuances, as discussed in Note 10, may cause a change in ownership under
the provisions of Internal Revenue Code Section 382; accordingly, the
utilization of the Company's net operating loss carryforwards may be subject to
annual limitations.
Management has evaluated the available evidence about future taxable income and
other possible sources of realization of deferred tax assets. The valuation
allowance reduces deferred tax assets to an amount that management believes will
more likely than not be realized. The components of deferred income taxes at
December 31 are as follows (in '000s):
1996 1995
---- ----
Allowance for bad debts $ 3,456 $ 592
Other accruals and reserves 675 25
Valuation Allowance (1,730) (617)
------- -------
Total current 2,401 0
------- -------
Net operating loss carryforwards 4,746 7,187
Difference in basis of fixed assets (606) --
Nondeductible accruals and reserves 441 197
Amortization of intangibles and other 630 (2)
Valuation Allowance (5,211) (7,382)
------- -------
Total noncurrent 0 0
------- -------
Total deferred income taxes $ 2,401 $ 0
======= =======
A reconciliation of the difference between the provision for income taxes and
income taxes at the statutory U.S. federal income tax rate is as follows for the
year ended December 31, 1996:
Income taxes at statutory rate $ 863
Net operating losses used (930)
State income taxes 200
Other (133)
-----
Net provision $ 0
=====
Prior to 1996, the Company had experienced net operating losses for all years;
therefore, there was no provision for 1995 or 1994.
22
<PAGE>
Notes To Consolidated Financial Statements, cont.
For The Years Ended December 31, 1996, 1995 and 1994
10. Stockholders' Equity
In October 1987, the stockholders adopted a Stock Option Plan (the
"Option Plan") which was amended in January 1996 to increase the number of
common shares reserved for issuance under the Option Plan to 4,000,000 shares.
Two types of options may be granted under the Option Plan: options intended to
qualify as incentive stock options under Section 442 of the Internal Revenue
Code ("Code") and other options not specifically authorized or qualified for
favorable income tax treatment by the Code. All eligible employees may receive
more than one type of option. Any director or consultant who is not an employee
of the Company shall be eligible to receive only nonqualified stock options
under the Option Plan.
In October 1989, the Board of Directors (the "Board") approved that in
the event of a takeover or merger of the Company in which 100% of the equity of
the Company is purchased, 75% of all unvested employee options will vest, with
the balance vesting equally over the ensuing 12 months, or according to the
individual's vesting schedule, whichever is earlier. If an employee or holder of
stock options loses their position as a result of or subsequent to the
acquisition, 100% of that individual's stock options will vest immediately upon
employment termination.
Options are granted at prices which are equal to the current fair value
of the Company's common stock at the date of grant. During January 1993, an
independent valuation of the fair value of the Company's common stock was
performed for 1991 and 1992. This valuation indicated that certain options
granted during 1991 and all options granted during 1992 were at prices less than
the fair value at the date of grant. The Company recorded the difference between
the fair value and the exercise price as compensation expense as the options
vested. During 1996, 1995 and 1994 approximately $12,000, $13,000 and $191,000
respectively, was recorded as compensation expense. There is no remaining future
compensation expense. The vesting period is generally related to length of
employment and all vested options lapse upon termination of employment if not
exercised within a 90-day period (or one year after such termination because of
death or disability or the date of termination if terminated for cause).
A summary of the status of the Option Plan as of December 31, 1996, 1995, and
1994, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
Weighted-Average Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------- ------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 2,356,034 $ 3.33 1,654,034 $ 1.61 1,367,300 $ 0.91
Granted 914,400 13.15 1,112,600 5.04 600,300 2.68
Exercised (700,790) 1.60 (282,600) 0.30 (283,800) 0.22
Forfeited (60,000) 6.23 (128,000) 2.42 (29,766) 2.34
---------- ---------- ---------
Outstanding at end of year 2,509,644 $ 7.31 2,356,034 $ 3.33 1,654,034 $ 1.61
========== ========== =========
Options exercisable
at year-end 613,737 774,220 656,486
========== ========== =========
Weighted-average fair value
of options granted during
the year $ 7.50 $ 2.87
========== ==========
</TABLE>
23
<PAGE>
Notes To Consolidated Financial Statements, cont.
For The Years Ended December 31, 1996, 1995 and 1994
The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------------------------- --------------------------------------
Range of Number Outstanding Weighted-Average Weighted-Average Number Exercisable Weighted-Average
Exercise Prices at 12/31/96 Remaining Contractual Life Exercise Price at 12/31/96 Exercise Price
--------------- ----------- -------------------------- -------------- ----------- --------------
<C> <C> <C> <C> <C> <C>
$ 0.16 - $ 2.25 504,944 5.46 $ 1.84 274,193 $ 1.71
2.44 - 4.78 511,400 7.45 3.06 97,734 3.05
6.50 - 6.50 16,000 11.89 6.50 0 0
6.78 - 6.78 550,000 3.95 6.78 148,959 6.78
7.31 - 17.88 927,300 8.63 12.95 92,851 12.98
--------- ---- ------- ------- ------
$ 0.16 - $17.88 2,509,644 6.75 $ 7.31 613,737 $ 4.83
--------- ---- ------- ------- ------
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its Option Plan. Accordingly, no compensation cost, other than discussed
above, has been recognized for its Option Plan. Had compensation cost been
computed based on the fair value of awards on the date of grant, utilizing the
Black-Scholes option-pricing model, consistent with the method stipulated by
Statement of Financial Accounting Standards No. 123, the Company's net earnings
and earnings per share for the years ended December 31, 1996 and 1995 would have
been reduced to the pro forma amounts indicated below, followed by the model
assumptions used:
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
Net income (loss):
As reported (in '000s) $ 2,538 $ (1,352)
Pro forma (in '000s) $ 679 $ (1,687)
Net income (loss) per weighted average number of common and common equivalent shares outstanding:
As reported $ 0.11 $ (0.09)
Pro forma $ 0.03 $ (0.11)
Black-Scholes model assumptions:
Risk-free interest rate 6.00% 6.00%
Expected volatility .6 .6
Expected term 5 years 5 years
Dividend yield 0% 0%
</TABLE>
24
<PAGE>
Notes To Consolidated Financial Statements, cont.
For The Years Ended December 31, 1996, 1995 and 1994
At December 31, 1996, options for 613,737 shares of common stock were
exercisable. The options generally expire five or ten years from the date of
grant.
At the closing of the Company's IPO on January 28, 1993 all convertible
preferred stock, totaling 4,173,002 shares, was converted into an equal amount
of common stock.
At December 31, 1996, there were 2,000,000 shares of preferred stock
authorized and none were issued and outstanding.
The former preferred stockholders and certain of their transferees now
holding their shares of common stock may require the Company, commencing April
28, 1993 and ending on July 6, 2003, on not more than two occasions, to file a
registration statement under the Securities Act with respect to at least 30% of
their shares of common stock. Stockholders holding 60% of such registerable
shares must make the registration demand. The Company must file a registration
statement with the Securities and Exchange Commission within 90 days of the
receipt of the request. The former holders of all of the shares of Series D
Preferred Stock may require the Company, on one or more occasions, to file a
registration statement under the Securities Act for all or any part of their
shares of common stock. The Company must file a registration statement within 90
days of the receipt of the request. Further, holders of common stock with
registration rights may require the Company to register all or a portion of
their shares of common stock on Form S-3, subject to certain conditions and
limitations. The Company is obligated to pay the offering expenses of each such
offering, except for the selling stockholders' pro rata portion of underwriting
discounts and commissions. During 1994, the former holders of certain shares of
Series D Preferred Stock and certain warrant holders required the Company to
register their shares of common stock. Sales of substantial amounts of the
common stock in the public market pursuant to the above registration rights
could adversely affect prevailing market prices.
In June 1992, the Company issued a warrant to purchase 100,000 shares
of common stock, at an exercise price of $1.75 per share, to the placement agent
in connection with the sale of the Series D Preferred Stock. The warrant was
exercised in August 1994.
In connection with the Company's IPO in January 1993, the Company
issued a warrant to purchase 50,000 shares of common stock, at an exercise price
of $4.20 per share, to the underwriter. In 1995 as a result of the private
placement, the exercise price was reduced to $4.055. The warrant was exercised
using a net exercise provision during 1995 and 1996.
In 1993, the Company issued a warrant to purchase 20,000 shares of
common stock, at an exercise price of $1.813 per share, to another company for
an ownership interest of that company (see Note 11). This warrant expires in
August 1998.
On February 28, 1995 the Company issued 1,000,000 shares of common
stock upon the closing of a private placement of its common stock. Gross
proceeds to the Company were $2 million. Net proceeds to the Company after
deducting costs of the offering were approximately $1.9 million. The common
stock was sold to 11 accredited investors, including Arizona Growth Partners,
L.P. which at the time held more than 5% of the Company's stock. The general
partner of an entity which is the general partner of Arizona Growth Partners,
L.P. is a member of the Company's Board of Directors. The holders of such shares
of common stock exercised their right to require the Company to register the
shares under the Securities Act, the Company so registered the shares prior to
March 1996.
In 1996, the Company issued a warrant to purchase 5,000 shares of
common stock, at an exercise price of $2.41 per share, to a consultant as
partial payment for services. This warrant expires in March 2001.
On October 31, 1995 and November 6, 1995 the Company issued a total of
4,024,398 shares of common stock upon the closings of a public offering of its
common stock. Gross proceeds to the Company were $19.1 million. Net proceeds to
the Company after deducting costs of the offering were approximately $17.6
million.
On April 30, 1996 the Company issued 5,060,000 shares of common stock
upon the closing of a public offering of its common stock. Gross proceeds to the
Company were $78.4 million. The net proceeds to the Company after deducting
costs of the offering were approximately $74.0 million. The common stock was
sold at $15.50 per share. During the first quarter of 1996 the Company amended
its Articles of Incorporation to authorize 40,000,000 shares of common stock,
$.0005 par value. In addition, the Board of Directors approved a 2 for 1 stock
split in the form of a 100 percent common share dividend which was paid on June
25, 1996, to stockholders of record as of June 4, 1996. The accompanying
financial statements and footnotes have been restated to give effect to the
split.
11. Related Parties
The Company has entered into two-year employment agreements with the
Chief Executive Officer ("CEO"), President and the Executive Vice President of
Research and Development of the Company. The employment agreements provide that
salaries and bonuses shall be determined annually by the Board of Directors. If
the Company terminates the employee's employment without cause, the employee is
entitled to a severance payment equal to twelve months' salary. In addition,
three other officers of the Company have entered into severance agreements
wherein payments equal to twelve months' salary are required upon termination of
the employee without cause.
During June 1992, the Company loaned $125,000 to its CEO. The note plus
accrued interest was paid during 1996.
25
<PAGE>
Notes To Consolidated Financial Statements, cont.
For The Years Ended December 31, 1996, 1995 and 1994
During November 1996, the Company loaned $200,000 to its former
President. The loan is unsecured and bears interest at 8%. The note is due upon
sale of the former President's Phoenix home. The Company may demand payment
after December 31, 1997.
The Company has a 5% ownership interest in a company which is providing
research services to the Company per an agreement referred to in Note 4. The
Company paid approximately $32,000 and granted a warrant for 10,000 shares of
the Company's stock (as described in Note 10) for the ownership interest. This
investment is included in deposits and other assets at December 31, 1996.
The Company has a consulting agreement with a member of the Board of
Directors. The agreement has a renewable one year term and the fee is negotiated
each year. During each of 1996, 1995 and 1994, the Company paid the member
$25,000 for services rendered under the agreement.
The Company's CEO has a minority interest in royalties paid by the
Company under a product license (see Note 4). The CEO has transferred to the
Company his rights to any royalties under this agreement as long as he is a
director or officer of the Company. The Company has received no royalties to
date under this agreement.
12. Commitments
The Company is obligated under non-cancelable operating lease
agreements for its office, manufacturing and research facilities. Rent expense
for the years ended December 31, 1996, 1995 and 1994 was $482,000, $131,000 and
$124,000, respectively. The following is a schedule of future minimum lease
payments for the years ending December 31 under non-cancelable lease agreements
with original terms in excess of one year:
Leases
------------------------------------
Capital Operating Total
------- --------- -----
1997 $ 68,672 $1,083,243 $1,151,915
1998 68,672 580,765 649,437
1999 68,672 14,122 82,794
2000 47,264 5,301 52,565
Thereafter -- -- --
---------- ---------- ----------
Total future minimum
lease payments 253,280 $1,683,431 $1,936,711
========== ==========
Less amount representing interest 39,568
----------
Present value of minimum
lease payments 213,712
Less current portion 51,207
----------
Long-term portion $ 162,505
==========
13. Litigation
During 1996 certain lawsuits were filed in the United States District
Court for the District of Arizona against the Company and certain officers and
directors alleging violations of Section 10(b) of the Securities Exchange Act of
1934, and SEC Rule 10b-5 promulgated thereunder.
Plaintiffs in these actions allege that correspondence received by the
Company from the U.S. Food and Drug Administration (the "FDA") pertaining
principally to the promotion of the Company's OrthoLogic 1000 Bone Growth
Stimulator was material and undisclosed, leading to an artificially inflated
stock price. Plaintiffs further allege that the Company's non-disclosure of the
FDA correspondence and of the alleged practices referenced in that
correspondence operated as a fraud against plaintiffs. Plaintiffs further allege
that once the FDA letter became known, a material decline in the stock price of
the Company occurred, causing damage to the plaintiffs.
In addition, the Company has been served with a substantially similiar
action filed in Arizona state court alleging state law causes of action grounded
in the same set of facts.
All plaintiffs seek class action status, unspecified compensatory
damages, fees and costs. Plaintiffs also seek extraordinary, equitable and/or
injunctive relief as permitted by law. Management believes that the allegations
are without merit and will vigorously defend them.
26
<PAGE>
Notes To Consolidated Financial Statements, cont.
For The Years Ended December 31, 1996, 1995 and 1994
In addition to the foregoing, a shareholder derivative complaint
alleging among other things, breach of fiduciary duty in connection with the
conduct alleged in the aforesaid federal and state court class actions have also
been filed in Arizona state court. By agreement between the parties, that action
has been stayed pending a decision on defendant's forthcoming motion to dismiss
those actions.
The costs associated with defending these allegations and the potential
outcome cannot be determined at this time and accordingly, no estimate for such
costs has been included in these financial statements.
14. 401(k) Plan
The Company adopted a 401(k) plan (the "Plan") for its employees on
July 1, 1993. The Company may make matching contributions to the Plan on behalf
of all Plan participants, the amount of which is determined by the Board of
Directors. The Company did not make any matching contributions to the Plan in
1996, 1995 or 1994.
15. Subsequent Events
On February 25, 1997 the Company declared a dividend distribution of
one Preferred Stock Purchase Right (the "Rights") for each outstanding share of
the Company's common stock, payable March 12, 1997 to holders of record on that
date. The Rights will expire on March 11, 2007.
Each Right will entitle shareholders to buy 1/100 of a share of Series
A Preferred Stock at an exercise price of $25.00. Initially, no separate Rights
certificates will be distributed; the Rights will trade with the Company's
common stock and will not be exercisable until the earlier of 10 business days
following the acquisition of 15% or more of the Company's common stock by a
person or group or 15 business days following the commencement of a tender offer
for 20% or more of the Company's common stock.
At the discretion of the Board of Directors of the Company, the Rights
can be redeemed at any time prior to the 10th day following the date the Rights
become exercisable. If the Rights are not redeemed by the Board, and the Company
is acquired, holders of the Rights (other than an "acquiring person") will be
entitled to purchase additional shares of common stock of either the Company or
the acquiring corporation (whichever survives) at one-half the market price.
On March 3, 1997 and March 12, 1997 the Company acquired certain assets
and assumed certain liabilities of Toronto Medical Corp. ("Toronto") and
Danninger Medical Technology, Inc. ("DMTI") for approximately $4.0 million and
$9.1 million in cash, respectively. Both acquisitions were accounted for as a
purchase, however at the date of this report the purchase price allocation had
not yet been determined and accordingly the amount of goodwill has not been
computed. Toronto and DMTI develop, manufacture and market CPM devices on a
national and international level.
Management plans to restructure the operations related to these
acquisitions during the second and third quarter of 1997 including, but not
limited to, closing and/or relocating facilities and terminating or relocating
certain employees. The Restructuring Plan will include the integration of these
acquisitions. Once the estimated costs related to these activities are
determined, they will be accrued and reflected as additional acquisition costs
in the allocation of purchase price.
Independent Auditors' Report
To the Board of Directors and Stockholders of OrthoLogic Corp.:
We have audited the accompanying consolidated balance sheets of
OrthoLogic, Corp. and its subsidiary (the "Company") as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of OrthoLogic Corp. and its
subsidiary at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
March 12, 1997
Phoenix, Arizona
27
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in the Registration Statements No.
33-79010, No. 333- 1268 and No. 333-09785 of OrthoLogic Corp. on Form S-8 and
Registration Statements No. 33- 82050 and No. 333-1558 of OrthoLogic Corp. on
Form S-3 of our report dated March 12, 1997, incorporated by reference in the
Annual Report on Form 10-K/A (Amendment No. 1) of OrthoLogic Corp. for the year
ended December 31, 1996.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
April 11, 1997
