<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
/ / TRANSITION REPORT PURSUANT SECTION 13 OR 15 (d)
OF SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ______to_________
---------------------------------
Commission File Number 333-13287
EARTHSHELL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0322379
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 MIRAMONTE DRIVE, SANTA BARBARA, CALIFORNIA 93109
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (805) 897-2294
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes /X/ No / /
The number of shares outstanding of the registrant's common stock as of August
12, 1998 was 100,045,166.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
EARTHSHELL CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
<S> <C>
a) Balance Sheets
as of June 30, 1998 (unaudited) and December 31, 1997. . . . . . 1
b) Statements of Operations
for the Three and Six Months Ended June 30, 1998 and 1997
(unaudited) and for the period from November 1, 1992 (inception)
through June 30, 1998 (unaudited). . . . . . . . . . . . . . . . 2
a) Statement of Stockholders' Equity
for the Six Months Ended June 30, 1998 (unaudited) . . . . . . . 3
d) Statements of Cash Flows
for the Six Months Ended June 30, 1998 and 1997 (unaudited)
and for the period from November 1, 1992 (inception)
through June 30, 1998 (unaudited). . . . . . . . . . . . . . . . 4
e) Notes to Financial Statements (unaudited). . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . .10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 15
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
</TABLE>
<PAGE>
EARTHSHELL CORPORATION
(A Development Stage Enterprise)
BALANCE SHEETS
June 30, 1998 (Unaudited) and December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $124,791,235 $ 8,437
Restricted cash 3,500,000
Short-term investments 4,998,698
Prepaid insurance 234,011 9,248
Other assets 222,437 19,288
------------ ------------
Total current assets 133,746,381 36,973
PROPERTY AND EQUIPMENT, Net 16,570,271 3,741,129
------------ ------------
TOTAL $150,316,652 $ 3,778,102
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Note payable to majority stockholder $ 32,060,887
Notes payable to banks $ 25,916 11,843,855
Accrued interest to majority stockholder 636,068
Payable to majority stockholder 800,167 622,090
Accounts payable and accrued expenses 7,561,212 3,182,534
------------ ------------
Total current liabilities 8,387,295 48,345,434
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.01 par value, 10,000,000 shares
authorized; 9,170,000 Series A shares designated;
6,988,850 and 1,213,846 Series A shares issued and
outstanding as of December 31, 1997 and June 30, 1998, respectively 12,138 69,888
Additional paid-in preferred capital 24,403,113 24,403,113
Common stock, $.01 par value, 200,000,000 shares
authorized, 82,530,000 and 98,831,320 issued and
outstanding as of December 31, 1997 and June 30, 1998, respectively 988,313 825,300
Additional paid-in common capital 200,587,693 4,355,352
Deficit accumulated during the development stage (84,061,900) (74,220,985)
------------ ------------
Total stockholders' equity (deficit) 141,929,357 (44,567,332)
------------ ------------
TOTAL $150,316,652 $ 3,778,102
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
1
<PAGE>
EARTHSHELL CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended June 30, 1998 and 1997
For the Six Months Ended June 30, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months For the Six Months Inception
Ended June 30, Ended June 30, through
------------------------- ------------------------- June 30,
1998 1997 1998 1997 1998
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
EXPENSES:
Related party research and development $2,044,706 $1,955,957 $3,804,372 $3,876,177 $41,528,484
Other research and development 3,653,482 303,177 4,303,897 417,553 8,979,893
Related party general and adminstrative expenses 16,800 16,800 33,600 33,600 1,835,200
Other general and administrative expenses 1,629,551 462,377 2,133,197 849,026 17,610,571
Depreciation and amortization 194,000 124,876 388,125 237,465 2,647,502
Related party patent expenses 26,712 100,107 85,101 480,373 7,285,708
---------- ---------- ---------- ---------- -----------
Total expenses 7,565,251 2,963,294 10,748,292 5,894,194 79,887,358
INTEREST (INCOME)/EXPENSE:
Interest income (1,893,383) (19) (1,943,493) (35) (2,438,832)
Related party interest expense 512,279 651,587 955,433 4,770,731
Other interest expense 565 300,942 383,729 616,418 1,837,843
---------- ---------- ---------- ---------- -----------
LOSS BEFORE INCOME TAXES 5,672,433 3,776,496 9,840,115 7,466,010 84,057,100
INCOME TAXES 800 800 4,800
---------- ---------- ---------- ---------- -----------
NET LOSS $5,672,433 $3,776,496 $9,840,915 $7,466,810 $84,061,900
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
BASIC AND DILUTED LOSS PER COMMON SHARE $0.06 $0.05 $0.11 $0.09
WEIGHTED AVERAGE NUMBER OF SHARES USED IN
COMPUTING LOSS PER COMMON SHARE 98,831,320 82,530,000 91,325,981 82,530,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
2
<PAGE>
EARTHSHELL CORPORATION
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
Convertible Deficit
Preferred Stock Additional Additional Accumulated
Series A Paid-In Common Stock Paid-In during
-------------------- Preferred ------------------- Common Development
Shares Amount Capital Shares Amount Capital Stage Total
----------- ------- ----------- ---------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 6,988,850 $69,888 $24,403,113 82,530,000 $825,300 $4,355,352 ($74,220,985) ($44,567,332)
Conversion of preferred stock
to common stock (5,775,004) (57,750) 5,775,004 57,750
Issuance of common stock 10,526,316 105,263 196,232,341 196,337,604
Net loss (9,840,915) (9,840,915)
----------- ------- ----------- ---------- -------- ------------ ------------ ------------
BALANCE, JUNE 30, 1998 1,213,846 $12,138 $24,403,113 98,831,320 $988,313 $200,587,693 ($84,061,900) $141,929,357
----------- ------- ----------- ---------- -------- ------------ ------------ ------------
----------- ------- ----------- ---------- -------- ------------ ------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
EARTHSHELL CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30, 1998 and 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Inception
Ended June 30, through
------------------------ June 30,
1998 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(9,840,915) $(7,466,810) $(84,061,900)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 388,125 237,465 2,647,502
Issuance of stock options to director and consultant 3,096,761
Issuance of stock options to officer 205,225 650,000
Amortization of debt issue costs 271,277
Loss on sale or disposal of property and equipment 65,639
Net loss on sale of investments 32,496
Accretion of discounts on investments (410,084)
Changes in operating assets and liabilities:
Prepaid expenses and other assets (427,912) 21,588 (456,448)
Accounts payable and accrued expenses 4,378,678 (77,497) 7,561,211
Accrued interest on note payable to majority stockholder (636,068) 81,138
Payable to majority stockholder 178,077 4,375,980 25,654,259
------------ ----------- ------------
Net cash used in operating activities (5,960,015) (2,622,911) (44,949,287)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (4,998,698) (41,916,952)
Proceeds from sales and redemptions of investments 37,295,842
Proceeds from sale of property and equipment 297,670
Purchase of property and equipment (13,217,266) (45,851) (20,452,816)
------------ ----------- ------------
Net cash used in investing activities (18,215,964) (45,851) (24,776,256)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable to stockholders 1,450,000 885,000 14,270,000
Proceeds from drawings on line of credit with bank 2,150,000 1,890,000 14,000,000
Proceeds from issuance of common stock 221,052,636 221,062,636
Common stock issuance costs (14,989,831) (14,989,831)
Preferred stock dividends paid (9,725,201) (9,725,201)
Proceeds from issuance of preferred stock 25,675,000
Preferred stock issuance costs (1,201,999)
Repayment of notes payable (47,478,827) (51,073,827)
------------ ----------- ------------
Net cash provided by financing activities 152,458,777 2,775,000 198,016,778
------------ ----------- ------------
INCREASE IN CASH AND CASH EQUIVALENTS 128,282,798 106,238 128,291,235
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,437 21,179
------------ ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $128,291,235 $ 127,417 $128,291,235
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
EARTHSHELL CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30, 1998 and 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Inception
Ended June 30, through
-------------------------- June 30,
1998 1997 1998
----------- --------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid for:
Income taxes $ 800 $ 800 $ 4,800
Interest $ 1,721,509 $ 411,193 $3,027,198
Non-cash transactions:
Warrants issued with debt $ 306,168
Transfer of property from EKI $ 28,745
Conversion of preferred stock to common stock $57,750 $ 57,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
- ------------------------------------------------------------------------------
1. PRESENTATION OF FINANCIAL INFORMATION
The foregoing financial information is unaudited and has been prepared from
the books and records of EarthShell Corporation (the "Company"). In the
opinion of management, the financial information reflects all adjustments
necessary for a fair presentation of the financial condition, results of
operations and its cash flows in conformity with generally accepted
accounting principles. All such adjustments were of a normal recurring
nature for interim financial reporting.
Certain information and footnote disclosures which were included in
the Company's financial statements for the year ended December 31,
1997 have been condensed or omitted from this report. The
information included in this Form 10-Q should be read in
conjunction with Management's Discussion and Analysis and financial
statements and notes thereto for the year ended December 31, 1997
included in the Company's Prospectus dated March 23, 1998.
In addition, all references in the financial statements to number of shares
outstanding and per share amounts of the Company's common and preferred
stock have been restated to reflect a 262-for-one stock split (see Note 9).
Certain reclassifications have been made to the 1997 financial
statements to conform to 1998 classifications.
Basic and diluted loss per common share is calculated based on
weighted average shares outstanding of 98,831,320 and 91,325,981
for the three and six months ended June 30, 1998, respectively, and
82,530,000 for the three and six months ended June 30, 1997,
respectively. Basic and diluted are the same because common stock
equivalents are considered anti-dilutive.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash, funds invested in money
market mutual funds and cash invested temporarily in various
instruments with maturities of three months or less at the time of
purchase. The carrying value of cash equivalents approximates fair
value. The money market mutual fund deposits have an investment
objective to provide high current income to the extent consistent
with the preservation of capital and the maintenance of liquidity.
At March 30, 1998, a certificate of deposit for $3,500,000 was
opened as collateral on the letter of credit related to the
Company's obligation under a letter agreement between EKI and the
Company relating to a patent purchase agreement between EKI and a
third party as discussed in Note 7 and was classified as restricted
cash on the balance sheet.
3. SHORT-TERM INVESTMENTS
Investments are accounted for in accordance with Statement of
Financial Accounting Standards No. 115 and are classified as
available for sale. This standard requires that certain debt and
equity securities be adjusted to market value at the end of each
accounting period. Unrealized gains and losses are charged or
credited to a separate component of stockholders' equity. At June
30, 1998, the market value of short-term investments approximates
cost.
6
<PAGE>
EARTHSHELL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
JUNE 30, 1998
- ------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
For the three months ended June 30, 1998 and 1997, the Company paid
or accrued $2,044,706 and $1,955,957, respectively, and for the six
months ended June 30, 1998 and 1997, the Company paid or accrued
$3,804,372 and $3,876,177, respectively, for services performed
under the Amended and Restated Technical Services and Sublease
Agreement effective October 1, 1997, and $16,800 and $33,600 in
sublease payments for each of the respective three month and six
month periods to the Company's majority stockholder, E. Khashoggi
Industries, LLC ("EKI").
Under the Amended and Restated Agreement for Allocation of Patent
Costs ("Patent Cost Allocation Agreement") effective October 1,
1997, patent related legal fees of $26,712 and $100,107 were paid
to or on behalf of EKI for the three months ended June 30, 1998 and
1997, respectively, and $85,101 and $480,373 for the six months
ended June 30, 1998 and 1997, respectively.
The Company repaid the total indebtedness to its majority
stockholder through March 27, 1998 of $36,630,548, which includes
$32,875,887 in promissory notes, $1,287,654 in accrued interest,
and $2,467,007 in accounts payable.
5. PROPERTY AND EQUIPMENT
At June 30, 1998, property and equipment consist of the following:
<TABLE>
<S> <C>
Commercial Manufacturing Equipment: Construction in progress
Sweetheart Cup Company - lines 1-3 9,657,145
Sweetheart Cup Company - future lines 1,575,426
Product Development Center:
Equipment 4,110,970
Construction in progress 1,867,256
Leasehold Improvements 433,560
Office Equipment & Furniture 179,515
Less: accumulated depreciation (1,253,601)
-----------
Property and equipment - net $16,570,271
-----------
-----------
</TABLE>
6. NOTE PAYABLE TO BANK
On March 27, 1998, the Company repaid the $14,000,000 Imperial Bank line of
credit.
7
<PAGE>
EARTHSHELL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
JUNE 30, 1998
- -------------------------------------------------------------------------------
7. COMMITMENTS
The Company has committed to capital expenditures for the Sweetheart
installation of $9,918,618 in addition to the construction in progress of
$11,232,571 (see Note 5). The Company has also committed to capital
expenditures of $947,360 related to other equipment being purchased,
primarily for the Santa Barbara product development center.
Effective July 1, 1998, the Company entered into operating leases for
development facilities and office space in California and Maryland,
respectively, which expire over the next eight years. Both leases provide
the Company with options to renew the leases for five years subject to
certain conditions.
Future minimum lease payments required under leases as of June 30, 1998
were as follows:
<TABLE>
<S> <C>
1998 $ 401,498
1999 807,029
2000 811,062
2001 764,695
2002 751,928
Thereafter 1,058,064
------------
Total $ 4,594,276
------------
------------
</TABLE>
On February 16, 1998, EKI entered into certain agreements with an
equipment manufacturer providing for the purchase by EKI of certain
technology applicable to starch-based disposable packaging. EKI
licenses such technology to the Company on a royalty-free basis
pursuant to the Amended and Restated License Agreement dated
February 28, 1995. In connection with the purchase, and pursuant
to the terms of the Patent Cost Allocation Agreement, the Company
agreed to pay the seller of the technology $3,500,000 on or about
December 31, 2003, which obligation is secured by a letter of
credit.
The Company's obligation will be reduced by 5% of the purchase
price of any equipment purchased by EKI, the Company or its
licensees or joint venture partners from the seller of the
technology. In addition, the Company is required to pay $3,000,000
over the five year period commencing January 1, 2004, if EKI, the
Company or the Company's licensees or joint venture partners have
not purchased, by December 31, 2003, at least $35,000,000 of
equipment from the seller of the technology and EKI, the Company or
the Company's licensees or joint venture partners make active use
of the purchased technology. EKI has agreed to indemnify the
Company to the extent the Company is required to pay any portion of
this $3,000,000 obligation solely as a result of EKI's or its
licensees' active use of such patents and related technology (other
than use by the Company or its sublicensees).
8. COMMON STOCK OFFERING
Pursuant to the Company's prospectus dated March 23, 1998, on March
27, 1998, the Company issued an additional 10,526,316 shares of its
common stock in a public offering that resulted in
8
<PAGE>
EARTHSHELL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
JUNE 30, 1998
- -------------------------------------------------------------------------------
proceeds of $205,712,061 after deducting underwriting discounts and
commissions and offering expenses.
9. STOCK SPLIT
On March 23, 1998, the Company declared a 262-for-one stock split
of its common stock. Common stock and additional paid-in capital
have been restated to reflect this split. The par value of the
common stock remained unchanged at $.01 per share. In accounting
for the stock split, the Company recorded an increase in common
stock of $822,150, with a corresponding reduction in capital in
excess of par value. The number of shares issued and outstanding at
December 31, 1997, after giving effect to the split, was 82,530,000
(315,000 shares were issued and outstanding before the stock split
and common stock offering).
10. CUMULATIVE CONVERTIBLE PREFERRED STOCK
To facilitate the sale by stockholders of Series A preferred stock in the
initial public offering of common stock, 3,993,404 shares of the 6,988,850
shares of outstanding Series A preferred stock were converted to 3,993,404
shares of common stock, on a post-split basis. A portion of the converted
shares were sold in the initial public offering by stockholders.
The other 2,995,446 shares of Series A preferred stock remained
convertible to common stock after the initial public offering. In
the Company's Prospectus dated March 23, 1998, the Company
disclosed its intent to redeem all Series A preferred stock shortly
following the initial public offering. In anticipation of the
preferred stock redemption, on April 15, 1998, the Board of
Directors declared a cash dividend to preferred stockholders of
$1.40 per share based on the dividend rate of 8% per annum on the
liquidation preference of the shares. The total dividends paid
were $9,725,201. By notice dated May 13, 1998 and effective July
14, 1998, the Company called for redemption, the remaining
2,995,446 shares of Series A preferred stock, of which 1,781,600
shares were converted to common stock as of June 30, 1998.
Subsequent to June 30, 1998, the remaining 1,213,846 shares were
converted. As of July 13, 1998, all outstanding shares of Series A
preferred stock had been converted to common stock.
11. SUBSEQUENT EVENT
On August 6, 1998, the Board of Directors declared a cash dividend
to former preferred stockholders based on the 8% per annum dividend
rate pursuant to the Certificate of Designation, Preferences
Relative, Participating, Optional and Other Special Rights for
Series A Cumulative Senior Convertible Preferred Stock, which
provides for dividends to accrue until the time of conversion,
together with interest thereon at the rate of 8% per annum from the
date of conversion until the date of payment. Total dividends and
interest accrued on August 6, 1998 in respect of such obligation
amounted to $208,604.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company was organized in November 1992 as a Delaware corporation and
remains a development stage enterprise. The Company's principal stockholder,
EKI, has been involved since July 1985 in the development of various new
material technologies including the ALI-ITE composite material. The Company
was formed to develop, license and commercialize food service disposables
made of the ALI-ITE composite material ("EarthShell Products"). The Company
has an exclusive, worldwide, royalty-free license from EKI to use certain
technology for this purpose. The Company intends to license or joint venture
with existing manufacturers of food service disposables for the manufacture
and distribution of EarthShell Products. The Company expects to derive
revenues primarily from license royalties, income from joint ventures and
lease payments from equipment leased to manufacturers of EarthShell Products.
DEVELOPMENT OF FIRST COMMERCIAL MANUFACTURING FACILITY
One of the Company's licensees, Sweetheart Cup Company Inc. ("Sweetheart"),
has secured a contract with Perseco (McDonald's primary packaging purchasing
agent), to supply over a three-year period McDonald's Corporation's US
restaurants with a minimum of 1.8 billion Big Mac sandwich containers made
from the EarthShell material. To support this initial commercial EarthShell
application, EarthShell has agreed with Sweetheart to provide manufacturing
equipment to Sweetheart with adequate capacity to fulfill the
Perseco/McDonald's order.
In cooperation with Sweetheart, the Company has engaged The Food Group
("TFG"), a division of CH2M Hill, to provide detailed engineering,
procurement and construction management services relating to the installation
of three commercial sandwich container production lines at Sweetheart's
Owings Mills, Maryland facility. These lines have been designed to enable
Sweetheart to produce Big Mac sandwich containers in sufficient quantities to
fulfill Sweetheart's supply agreement with Perseco. The development of this
facility has been the Company's major focus since the Perseco supply
agreement relating to Big Mac sandwich containers was secured by Sweetheart
in October 1997.
As this is EarthShell's first commercial implementation of its technology,
management has intentionally over-scoped certain construction design elements
of these first lines to reduce startup risks and ensure reliable operations.
Additionally, incremental computerized monitoring systems have been
incorporated to provide detailed measuring of all aspects of production so as
to facilitate improvements to the technology and enhance value-engineering
opportunities to reduce the cost of future lines. The information generated
by these systems will provide the foundation for the development of
standardized, modular designs in future installations. Therefore, as
anticipated, the Company has incurred and will incur one-time costs on this
initial commercial production facility that will not be required in future
sites.
Originally, four production lines were planned for the Sweetheart facility.
However, by reconfiguring the manufacturing equipment, the number of lines
has been reduced from four to three. Based on vendor trials of the actual
commercial machinery components of the first manufacturing line, the Company
believes that the throughput of the first three commercial lines will meet or
exceed the throughput specified by the original four line design.
The Company has expended approximately $15.0 million on a year-to-date basis
on the Sweetheart installation. Approximately $9.7 million relates to process
equipment installed or deposits on equipment in-transit to the site related
to the first three lines and $1.6 million relates to future lines at
Sweetheart. Approximately $3.7 million reflects engineering and design costs
including costs related to this being the initial commercial implementation
of the technology.
10
<PAGE>
OTHER CUSTOMERS AND LICENSEES
Based on discussions with Sweetheart, the Company is confident that an
agreement will be concluded with Sweetheart to build an additional 4 or 5
lines at the Owings Mills site. In anticipation of this next agreement,
approximately $1.6 million incurred to date on the Sweetheart installation
relate to purchase of capital equipment attributable to this future
capacity.
In addition to discussions underway at Sweetheart, the Company is engaged in
discussions with additional converters for the creation of new licensing or
joint venture agreements to further commercialize its technology. The
Company is also engaged in discussions with potential EarthShell end users
and product distributors. Based on these discussions, the Company has
initiated engineering design work for the next commercial installations which
will manufacture a broadened commercial product set. The current project at
Sweetheart will allow EarthShell management to validate production economics,
which in turn will allow the Company to be strategically selective in its
targeting of improved arrangements related to licensees, distribution
channels and end users.
While it is not the Company's policy to disclose the specific nature of
on-going negotiations, management is confident that announcements it will
make over the next few months as to the outcome of these discussions will
further validate customer demand and converter commitment.
TRANSITION ACTIVITIES IN PREPARATION FOR MANUFACTURING RAMP-UP
The Company is transitioning from being a development stage company primarily
engaged in product development to a company engaged in licensing and
supporting the commercial implementation of its technology. Concurrent with
the development of the first commercial EarthShell production facility and in
response to market demand, the Company is planning and preparing for rapid
growth.
In line with this, during the second quarter, the Company hired several
senior executives to expand core competencies and fill critical on-going
positions: William F. McLaughlin, President and Chief Operating Officer;
William F. Spengler, Senior Vice President of Corporate Development and
Business Development, and Vincent J. Truant, Vice President of Marketing,
Sales and Public Relations. Subsequent to the end of the second quarter, the
Company also hired Michael M. Hagerty as Vice President and Chief Technology
Officer. These hirings reflect the Company's intensified efforts to build a
highly experienced management team to assure maximum creation of value to its
stockholders. It is anticipated that approximately 15 additional employees
will be hired during the third and fourth quarters of this year in the areas
of manufacturing project management, marketing and finance.
To better address and service the geographical concentration of the Company's
initial and anticipated commercial activities and to minimize projected
operating costs, the Company's corporate headquarters is being relocated to
Baltimore, Maryland. Accordingly, the Company has entered into a long-term
lease agreement for office space in downtown Baltimore where the Company's
senior management team will be located. Research and development activities,
which will continue to be heavily supported by the EKI technical staff, will
remain in the Santa Barbara, California area where an expansion of
EarthShell's product development center is underway.
The Company has engaged the Boston Consulting Group to support its continuing
strategic business planning efforts. The Company is seeking to refine its
execution strategy, and management believes the Boston Consulting Group is
uniquely positioned to provide support in this process, which is expected to
conclude during the third quarter.
11
<PAGE>
COMPARISON OF THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998, TO THE THREE
MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenditures for the development of EarthShell Products increased $3.4
million from $2.3 million to $5.7 million for the three months ended June 30,
1997 compared to the three months ended June 30, 1998, and increased $3.8
million from $4.3 million to $8.1 million for the six months ended June 30,
1997 compared to the six months ended June 30, 1998. The increase in both
periods was anticipated as part of the Company's commercialization activities
and was due primarily to $3.7 million in design and engineering fees related
to the development of the Company's first commercial manufacturing line. The
Company was billed by EKI for research and development services totaling $2.0
million for each of the three months ended June 30, 1997 and 1998,
respectively, and $3.9 million for the six months ended June 30, 1997 and
$3.8 million for the six months ended June 30, 1998.
OTHER GENERAL AND ADMINISTRATIVE EXPENSES. Other general and administrative
expenses increased $1.2 million from $462,000 to $1.6 million for the three
months ended June 30, 1997 compared to the three months ended June 30, 1998,
and increased $1.3 million from $849,000 to $2.1 million for the six months
ended June 30, 1997 compared to the six months ended June 30, 1998.
The increase in both periods was a result of the beginning of
commercialization activities and was due primarily to planned executive
staffing additions in the second quarter of 1998 which resulted in increased
salaries of $582,000 and signing bonuses of $65,000 paid to certain
individuals.
The Company also engaged the Boston Consulting Group in support of its
continuing strategic business planning efforts. During the second quarter of
1998, $350,000 in fees had been accrued related to this engagement. In
addition, the Company's Directors and Officers insurance policy was updated
to reflect its new public company status including higher limits of
liabilities. Accordingly, the premium for such coverage increased from
$92,000 to $351,000. During the first six months of 1998, $137,000 of the
annual premiums were amortized.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
increased $69,000 from $125,000 to $194,000 for the three months ended June
30, 1997 compared to the three months ended June 30, 1998, and increased
$151,000 from $237,000 to $388,000 for the six months ended June 30, 1997
compared to the six months ended June 30, 1998. The increase in depreciation
expense was primarily the result of the addition of pilot manufacturing
equipment to the Company's Santa Barbara product development center.
As the commercial manufacturing equipment being installed at Sweetheart is
placed in service, it is anticipated that depreciation and amortization will
increase significantly.
RELATED PARTY PATENT EXPENSES. Legal fees reimbursed to EKI under the
Amended and Restated Agreement for Allocation of Patent Costs with EKI
decreased $73,000 from $100,000 to $27,000 for the three months ended June
30, 1997 compared to the three months ended June 30, 1998, and decreased
$395,000 from $480,000 to $85,000 for the six months ended June 30, 1997
compared to the six months ended June 30, 1998. The decrease was primarily a
result of filing fewer new patent applications than one year ago.
INTEREST INCOME. Interest income of $1.9 million for the three and six
months ended June 30, 1998 reflects investment earnings on the net proceeds
of $205.7 million from the initial public offering completed at the end of
March 1998. The Company's investment policy requires that the proceeds from
the IPO be invested in investment grade money market instruments with
maturities less than one year.
12
<PAGE>
INTEREST EXPENSE. Interest expense decreased $812,000 from $813,000 to $565
for the three months ended June 30, 1997 compared to the three months ended
June 30, 1998, and decreased $537,000 from $1.6 million to $1.0 million for
the six months ended June 30, 1997 compared to the six months ended June 30,
1998. Following the initial public offering in March 1998, substantially all
of the outstanding debt was repaid. As a result, interest expense was
minimal in the second quarter of 1998.
The Company's financial condition and the results of its operations are
subject to a number of factors that are set forth in the prospectus filed
with the Company's Registration Statement on Form S-1 (Commission File No.
333-13287; effective March 23, 1998) (the "Prospectus"). The foregoing
discussion of results of operations as well as the following discussion of
liquidity and capital resources contain forward-looking statements. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the risk factors set forth in the Prospectus.
LIQUIDITY AND CAPITAL RESOURCES AT JUNE 30, 1998
Pursuant to the Company's prospectus dated March 23, 1998, on March 27, 1998,
the Company issued 10.5 million shares of its common stock in a public
offering that resulted in proceeds of $205.7 million, net of issuance costs.
A portion of the proceeds was used to repay indebtedness to the majority
stockholder of $36.6 million and bank debt of $14.0 million. The remaining
proceeds are reflected in cash and cash equivalents of $124.8 million as of
June 30, 1998, and is presently contemplated to be used to: (i) facilitate
the development of manufacturing capacity for the Company's products by
engineering, developing and constructing manufacturing lines for lease to
licensees or contribution to joint ventures; (ii) expand the EarthShell
product development center; (iii) launch an initial public relations
campaign; (iv) secure additional patent protection for the Company's licensed
technology; and (v) for general corporate purposes, including the employment
of additional personnel, the continued design and development of EarthShell
Products (including developing or acquiring technology to expand EarthShell's
product offerings) and anticipated operating losses. During the remainder of
1998, the Company expects to incur operating expenses significantly in excess
of amounts incurred in prior periods based on the Company's operating plans
as discussed in Results of Operations above.
Net cash used in operations was $6.0 million and $2.6 million for the six
months ended June 30, 1998 and 1997, respectively. Net cash used in
investing activities was $18.2 million and $46,000, for the six months ended
June 30, 1998 and 1997, respectively. In addition to the repayment of
indebtedness, the Company used the public offering proceeds to repay
outstanding payables and purchase equipment to facilitate the development of
manufacturing capacity for EarthShell Products.
Subsequent to December 31, 1997 and prior to the public offering, the Company
borrowed an additional $1.5 million and $2.2 million from its majority
stockholder and its credit line bank, respectively. These additional
borrowings were repaid on March 27, 1998.
The Company anticipates that it will borrow from third-party lenders a
portion of the funds required to purchase manufacturing equipment and
construct manufacturing lines for its licensee and joint venture partners.
The Company believes that the remaining proceeds from the public offering
together with such third-party financing will be sufficient to meet its
foreseeable working capital requirements through at least the next 12 months.
The Company has no commitments for any additional financing, and there can be
no assurance that any such commitments can be obtained on favorable terms, if
at all. If the Company is unable to obtain additional financing as needed
after demonstrating the commercial viability of its manufacturing equipment,
the Company may be required to reduce the scope of its anticipated
manufacturing ramp-up and products introduction, which could have an adverse
effect on the Company's business, financial condition and results of
operations.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
CHANGES IN SECURITIES -
Effective March 27, 1998, the number of authorized common shares increased
from 1,000,000 to 200,000,000 and the number of authorized preferred shares
increased from 100,000 to 10,000,000. On that day, the Company issued an
additional 10,526,316 shares of its common stock in a public offering that
resulted in proceeds of $205,712,061, net of issuance costs. In addition,
the Company declared a 262-for-one stock split of its common stock.
Furthermore, in connection with the Company's public offering of common
stock, selling stockholders sold 2,673,684 shares of common stock. After
giving effect to the split, 3,993,404 shares of Series A Preferred Stock were
converted to common stock to allow for the sale of stock by preferred
stockholders. The Company did not receive any proceeds from the sale of
common stock by the selling stockholders.
In the Company's Prospectus dated March 23, 1998, the Company disclosed its
intent to redeem all Series A convertible preferred stock shortly following
the initial public offering. By notice dated May 13, 1998, the Company
called for redemption, effective July 14, 1998, of the remaining 2,995,446
shares of Series A preferred stock of which 1,781,600 shares were converted
to common stock as of June 30, 1998. Subsequent to June 30, 1998, the
remaining 1,213,846 shares were converted. As of July 13, 1998, all
outstanding shares of Series A Preferred Stock had been converted to common
stock.
All stockholders who were not selling stockholders in the Company's initial
public offering (other than one stockholder who owns 262 shares of common
stock), including all officers, directors or affiliates, entered into
agreements with the underwriters of the offering, in which such stockholders
agreed, subject to certain exceptions, not to sell or otherwise dispose of
any shares of Common Stock for a period of 180 days from March 23, 1998 (the
date of the prospectus) without the prior written consent of Salomon Brothers
Inc., an affiliate of Smith Barney Inc. This 180 day period expires on
September 20, 1998, at which time (i) non-selling stockholders holding
7,384,732 shares of common stock may sell shares free of any restrictions
under such agreements and free of any resale limitations under Rule 144 and
(ii) affiliates of the company holding 73,464,800 shares of common stock,
73,398,252 shares of which are held by E. Khashoggi Industries, LLC or its
affiliates, may sell such shares free of any restrictions under such
agreements, but subject to the resale limitations set forth in Rule 144. The
Company is unable to estimate the number of shares that may be sold by such
stockholders after September 20, 1998 or the effect, if any, that sales of
shares by such stockholders will have on the market price of the common stock
prevailing from time to time. Sales of substantial amounts of shares of
common stock by such stockholders could adversely effect prevailing market
prices.
USE OF PROCEEDS -
As part of the Company's initial public offering, the Company issued
10,526,316 shares of its common stock, $.01 par value (the "IPO Shares"), on
March 27, 1998. The offering terminated on April 23, 1998 upon the
underwriters' election not to exercise their overallotment option. The IPO
Shares were issued in a registered offering pursuant to a Registration
Statement on Form S-1 (Commission File No. 333-13287; effective March 23,
1998) through a syndicate of underwriters, the representatives of which were
Salomon Smith Barney Inc. and Credit Suisse First Boston Corporation. The
IPO Shares were offered and sold by the underwriters at an initial public
offering price of $21.00 per share, resulting in aggregate offering proceeds
of $221,052,636.
14
<PAGE>
The Company incurred expenses in connection with this offering as follows:
<TABLE>
<S> <C>
Underwriting discounts and commissions $13,815,790
Other expenses 1,524,785
-----------
Total expenses $15,340,575
-----------
-----------
</TABLE>
None of the above expenses was paid either directly or indirectly to
directors, officers, general partners of the Company or its associates, or to
persons owning more than 10% of any class of equity security of the Company
or to affiliates of the Company.
Through June 30, 1998, the Company has applied $81,633,276 of the
$205,712,061 in net offering proceeds as follows:
<TABLE>
<S> <C>
Repayment of indebtedness owed to principal stockholder $36,630,548
Repayment of indebtedness owed to bank 14,000,000
Repayment of past due legal fees 1,152,796
Demonstration and prototype facility 2,411,905
Payment of cash dividend to preferred stockholders 9,725,201
Deposits on manufacturing equipment 11,206,719
Engineering costs related to Sweetheart facility 1,567,374
Working capital and general corporate purposes 4,938,733
-----------
Total proceeds applied $81,633,276
-----------
-----------
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
<TABLE>
<S> <C>
10.1 Employment Agreement dated March 23, 1998 by and between the Company
and William F. McLaughlin
10.2 Employment Agreement dated April 15, 1998 by and between the Company
and Vincent J. Truant
10.3 Employment Agreement dated March 23, 1998 by and between the Company
and William F. Spengler
10.4 Employment Agreement dated July 22, 1998 by and between the Company
and Michael M. Hagerty
10.5 Lease Agreement dated June 4, 1998 by and between the Company and
Baltimore Center Associates Limited Partnership
10.6 Lease Agreement dated May 1, 1998 by and between the Company and ORIX
SBAP Goleta Venture, a general partnership
10.7 Design, Procurement and Construction Management Services Agreement
dated May 13, 1998 by and among the Company, Sweetheart Cup Company
Inc., CH2M Hill Industrial Design Corporation, and IDC Construction
Management, Inc.
27.1 Financial Data Schedule (filed only electronically with the SEC)
99.1 Press Release issued July 9, 1998
</TABLE>
(B) Reports on Form 8-K
No reports on Form 8-K were filed by EarthShell during the quarter ended
June 30, 1998
Items 1, 3, 4 and 5 are not applicable and have been omitted.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EarthShell Corporation
Date: AUGUST 13, 1998 By:
--------------------------------
Scott Houston
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
AND DULY AUTHORIZED OFFICER)
16
<PAGE>
EMPLOYMENT AGREEMENT
BETWEEN
EARTHSHELL CORPORATION
AND
WILLIAM F. MCLAUGHLIN
This Employment Agreement (the "Agreement") is entered into as of
March 23, 1998 (the "Effective Date") by and between EarthShell Corporation,
a Delaware corporation with its principal office located in Santa Barbara,
California (the "Company"), and William F. McLaughlin, an individual
("Executive").
AGREEMENT
1. SERVICES PROVIDED TO THE COMPANY. Commencing as of April 13,
1998 ("Start Date"), Executive shall be employed by the Company as its President
and Chief Operating Officer and Executive agrees to such employment. During the
term of this Agreement, Employee shall devote all of his regular working hours
to the business and welfare of the Company and its subsidiaries. Executive,
however, may spend a reasonable amount of time with respect to charitable and
civic activities (including serving on the board of directors of charitable
organizations) and may make personal investments or conduct private business
affairs to the extent that such activities do not materially interfere with the
services required under this Agreement.
2. COMPENSATION TO EXECUTIVE.
(a) BASE SALARY. During the term of this Agreement, the Company
shall pay to Executive a base salary in the amount of $450,000 per annum,
payable in accordance with the normal payment pattern of the Company, not to be
less frequently than monthly. The Base Salary shall commence to accrue on the
Start Date.
(b) STOCK OPTIONS. Pursuant to the Company's 1995 Stock
Incentive Plan (the "Plan"), on the Effective Date, the Company shall grant to
Executive options to acquire 200,000 shares of the Company's common stock (based
on a 262 for one stock split) at an exercise price equal to the price per share
at which the Company's common stock is first sold to the public in its initial
public offering. Such options shall vest at the rate of 25% on each anniversary
of the Effective Date. All options shall become fully vested on the fourth
anniversary of the Effective Date.
(c) ADDITIONAL COMPENSATION. Executive may also be entitled to
receive (i) an annual bonus, the amount of which shall be determined by the
Compensation Committee (the "Compensation Committee") of the Company's Board of
Directors (the "Board"), in its sole discretion, and (ii) options or other
rights to acquire the Company's common stock pursuant to the Plan, under such
terms and conditions as are determined by the Stock Option Committee (the
"Option Committee") of the Board in its sole discretion. In making such
<PAGE>
determinations, the Compensation Committee and Option Committee shall consider,
among other things, the annual financial results of the Company, meeting
critical milestones in the business plan and Executive's contributions thereto.
3. EMPLOYEE BENEFITS. The Company shall provide to Executive each
of the following benefits:
(a) BUSINESS EXPENSES. The Company shall pay or reimburse
Executive for all reasonable out-of-pocket expenses incurred by Executive in
the course of providing his services hereunder and which are consistent with
the Company's expense reimbursement guidelines or policies. Such
reimbursement shall be made by the Company within thirty (30) days after
receipt of a statement therefor from Executive setting forth in reasonable
detail the expenses for which reimbursement is requested, accompanied by
reasonable documentation evidencing such expenses.
(b) INSURANCE COVERAGE AND BENEFITS. Beginning on the Start
Date, the Company shall provide Executive, at the Company's expense, coverage
under the major medical, hospitalization, disability and other insurance
programs maintained by the Company for its officers generally, or if none is
made for its officers generally, its employees generally, including any
benefit plans that are provided by the Company subsequent to the Date of this
Agreement. In addition, Executive shall receive on the Start Date all other
Company-provided benefits, including sick pay benefits, that are, from time
to time, made available by the Company to its officers generally or, if not
made to its officers generally, its employees generally. Executive shall be
entitled to four weeks paid vacation each year.
4. TERMINATION. Executive's employment hereunder may be terminated
upon thirty (30) days written notice by Executive or the Company, provided that
if Company terminates Executive's employment for other than cause, Executive
shall be entitled to severance pay equal to 100% of his annual base salary.
Notwithstanding the foregoing, Executive shall not be entitled to any severance
payment if his employment shall be terminated for cause. Cause means the
occurrence of any of the following events: (i) willful and continued failure (to
include such failure due to (a) death or (b) disability for a consecutive period
of ninety (90) days or more) by the Executive to substantially perform his
duties with the Company; provided, however, that the Executive must be notified
by the Company or any such failure to perform his duties and shall have thirty
(30) days from the date of such notice to cure such failure; (ii) any act by the
Executive of fraud, misappropriation, dishonesty, embezzlement or similar
conduct against the Company; or (iii) indictment or conviction of the Executive
for a felony or any other crime involving moral turpitude.
5. CONFIDENTIAL AND PROPRIETARY INFORMATION. Executive agrees to
execute and deliver to the Company its standard non-disclosure agreement with
respect to the Company's confidential and proprietary information. Such
agreement shall be effective as of the Effective Date.
2
<PAGE>
6. GENERAL PROVISIONS.
(a) NOTICES. Any notice to be given pursuant to this
Agreement shall be in writing and, in the absence of receipted hand delivery,
shall be deemed duly given when mailed, if the same shall be sent by
certified or registered mail, return receipt requested, or by a nationally
recognized overnight courier, and the mailing date shall be deemed the date
from which all time periods pertaining to a date of notice shall run.
Notices shall be addressed to the parties at the following addresses:
If to the Company, to: EarthShell Corporation
800 Miramonte Drive
Santa Barbara, California 93109
Attention: Chairman of the Board
If to Executive, to: William F. McLaughlin
12333 Michaelsford Road
Hunt Valley, Maryland 21030
(b) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the Company and any successors whether
by merger, consolidation, transfer of substantially all assets or similar
transaction, and it shall be binding upon and shall inure to the benefit of
Executive and his heirs and legal representatives. This Agreement is
personal to Executive and shall not be assignable by Executive.
(c) WAIVER OF BREACH. The waiver by the Company or Executive
of a breach of any provision of this Agreement by the other shall not operate
or be construed as a waiver of any subsequent breach by the other.
(d) ENTIRE AGREEMENT/AMENDMENT. This Agreement shall
constitute the entire agreement between the parties hereto with respect to
the subject matter hereof, and shall supersede all previous oral and written
and all contemporaneous oral negotiations, commitments, agreements and
understandings relating hereto. Any amendment to this Agreement shall be
effective only if it is in writing and signed by the parties to this
Agreement.
(e) APPLICABLE LAW. The validity of this Agreement and the
interpretation and performance of all of its terms shall be construed and
enforced in accordance with the laws of the State of California without
reference to choice or conflict of law principles.
(f) SEVERABILITY. Any provision of this Agreement that is
deemed invalid, illegal or unenforceable in any jurisdiction shall, as to
that jurisdiction and subject to this paragraph, be ineffective to the extent
of such invalidity, illegality or unenforceability, without affecting in any
way the remaining provisions hereof in such jurisdiction or rendering that or
any other provision of this Agreement invalid, illegal or unenforceable in
any other jurisdiction. If any covenant should be deemed invalid, illegal or
unenforceable because its scope is considered
3
<PAGE>
excessive, such covenant shall be modified so that the scope of the covenant
is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
EARTHSHELL CORPORATION,
a Delaware corporation
By:
----------------------------------
Title:
-------------------------------
WILLIAM F. McLAUGHLIN
-------------------------------------
i:nt:agree:empl/mclaughlin
<PAGE>
EMPLOYMENT AGREEMENT
BETWEEN
EARTHSHELL CORPORATION
AND
VINCENT J. TRUANT
This Employment Agreement (the "Agreement") is entered into as of April
15, 1998 (the "Effective Date") by and between EarthShell Corporation, a
Delaware corporation with its principal office located in Santa Barbara,
California (the "Company"), and Vincent J. Truant, an individual
("Executive").
AGREEMENT
1. SERVICES PROVIDED TO THE COMPANY. Commencing as of May 1, 1998
("Start Date"), Executive shall be employed by the Company as its Vice
President of Marketing and Sales, and Executive agrees to such employment.
During the term of this Agreement, Employee shall devote all of his regular
working hours to the business and welfare of the Company and its
subsidiaries. Executive, however, may spend a reasonable amount of time with
respect to charitable and civic activities (including serving on the board of
directors of charitable organizations) and may make personal investments or
conduct private business affairs to the extent that such activities do not
materially interfere with the services required under this Agreement.
2. COMPENSATION TO EXECUTIVE.
(a) BASE SALARY. During the term of this Agreement, the Company
shall pay to Executive a base salary in the amount of $225,000 per annum,
payable in accordance with the normal payment pattern of the Company, not to
be less frequently than monthly. The Base Salary shall commence to accrue on
the Start Date.
(b) STOCK OPTIONS. Pursuant to the Company's 1995 Stock Incentive
Plan (the "Plan"), on the Effective Date, the Company shall grant to
Executive options to acquire 75,000 shares of the Company's common stock at
an exercise price equal to the market price per share of the Company's common
stock at the close of trading on the business day immediately preceding the
Start Date. Such options shall vest at the rate of 25% on each anniversary
of the Effective Date. All options shall become fully vested on the fourth
anniversary of the Effective Date.
(c) ADDITIONAL COMPENSATION. Executive shall receive a "signing"
bonus in the amount of $50,000 payable promptly after the Start Date.
Executive may also be entitled to receive (i) an annual bonus in an amount
equal to one year's base salary provided certain financial and other
milestones are met by the Company and Executive, as determined by Executive
and the Compensation Committee (the "Compensation Committee") of the
Company's Board of Directors (the "Board") within 60 days following the date
of this Agreement, and, in the event such milestones are not met or are
significantly exceeded, such
<PAGE>
other lesser or greater bonus as the Compensation Committee shall determine
is its sole discretion, and (ii) options or other rights to acquire the
Company's common stock pursuant to the Plan, under such terms and conditions
as are determined by the Stock Option Committee (the "Option Committee") of
the Board in its sole discretion. In making such determinations, the
Compensation Committee and Option Committee shall consider, among other
things, the annual financial results of the Company, meeting critical
milestones on the business plan and Executive's contributions thereto.
3. EMPLOYEE BENEFITS. The Company shall provide to Executive each of
the following benefits:
(a) BUSINESS EXPENSES. The Company shall pay or reimburse
Executive for all reasonable out-of-pocket expenses incurred by Executive in
the course of providing his services hereunder and which are consistent with
the Company's expense reimbursement guidelines or policies. Such
reimbursement shall be made by the Company within thirty (30) days after
receipt of a statement therefor from Executive setting forth in reasonable
detail the expenses for which reimbursement is requested, accompanied by
reasonable documentation evidencing such expenses.
(b) INSURANCE COVERAGE AND BENEFITS. Beginning on the Start Date,
the Company shall provide Executive, at the Company's expense, coverage under
the major medical, hospitalization, disability and other insurance programs
maintained by the Company for its officers generally, or if none is made for
its officers generally, its employees generally, including any benefit plans
that are provided by the Company subsequent to the date of this Agreement.
In addition, Executive shall receive on the Start Date all other
Company-provided benefits, including sick pay benefits, that are, from time
to time, made available by the Company to its officers generally or, if not
made to its officers generally, its employees generally. Executive shall be
entitled to four weeks paid vacation each year.
4. TERMINATION. Executive's employment hereunder may be terminated
upon thirty (30) days written notice by Executive or the Company, provided
that if Company terminates Executive's employment for other than cause,
Executive shall be entitled to severance pay equal to 100% of his annual base
salary. Notwithstanding the foregoing, Executive shall not be entitled to
any severance payment if his employment shall be terminated for cause. Cause
means the occurrence of any of the following events: (i) willful and
continued failure (to include such failure due to (a) death or (b) disability
for a consecutive period of ninety (90) days or more) by the Executive to
substantially perform his duties with the Company; provided, however, that
the Executive must be notified by the Company of any such failure to perform
his duties and shall have thirty (30) days from the date of such notice to
cure such failure; (ii) any act by the Executive of fraud, misappropriation,
dishonesty, embezzlement or similar conduct against the Company; or (iii)
indictment or conviction of the Executive for a felony or any other crime
involving moral turpitude.
5. CONFIDENTIAL AND PROPRIETARY INFORMATION. Executive agrees to
execute and deliver to the Company its standard non-disclosure agreement with
respect to the Company's
2
<PAGE>
confidential and proprietary information. Such agreement shall be effective
as of the Effective Date.
6. GENERAL PROVISIONS.
(a) NOTICES. Any notice to be given pursuant to this Agreement
shall be in writing and, in the absence of receipted hand delivery, shall be
deemed duly given when mailed, if the same shall be sent by certified or
registered mail, return receipt requested, or by a nationally recognized
overnight courier, and the mailing date shall be deemed the date from which
all time periods pertaining to a date of notice shall run. Notices shall be
addressed to the parties at the following addresses:
If to the Company, to: EarthShell Corporation
800 Miramonte Drive
Santa Barbara, California 93109
Attention: Chairman of the Board
If to Executive, to: Vincent J. Truant
1537 Charmuth Road
Lutherville, Maryland 21093
(b) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the Company and any successors whether by
merger, consolidation, transfer of substantially all assets or similar
transaction, and it shall be binding upon and shall inure to the benefit of
Executive and his heirs and legal representatives. This Agreement is
personal to Executive and shall not be assignable by Executive.
(c) WAIVER OF BREACH. The waiver by the Company or Executive of a
breach of any provision of this Agreement or by the other shall not operate
or be construed as a waiver of any subsequent breach by the other.
(d) ENTIRE AGREEMENT/AMENDMENT. This Agreement shall constitute
the entire agreement between the parties hereto with respect to the subject
matter hereof, and shall supersede all previous oral and written and all
contemporaneous oral negotiations, commitments, agreements and understandings
relating hereto. Any amendment to this Agreement shall be effective only if
it is in writing and signed by the parties to this Agreement.
(e) APPLICABLE LAW. The validity of this Agreement and the
interpretation and performance of all of its terms shall be construed and
enforced in accordance with the laws of the State of California without
reference to choice or conflict of law principles.
(f) SEVERABILITY. Any provision of this Agreement that is deemed
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction and subject to this paragraph, be ineffective to the extent of
such invalidity, illegality or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement invalid, illegal or unenforceable in any
other jurisdiction. If
3
<PAGE>
any covenant should be deemed invalid, illegal or unenforceable because its
scope is considered excessive, such covenant shall be modified so that the
scope of the covenant is reduced only to the minimum extent necessary to
render the modified covenant valid, legal and enforceable.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
EARTHSHELL CORPORATION,
a Delaware corporation
By:
---------------------------------
Title:
------------------------------
VINCENT J. TRUANT
------------------------------------
4
<PAGE>
EMPLOYMENT AGREEMENT
BETWEEN
EARTHSHELL CORPORATION
AND
WILLIAM F. SPENGLER
This Employment Agreement (the "Agreement") is entered into as of
March 23, 1998 (the "Effective Date") by and between EarthShell Corporation,
a Delaware corporation with its principal office located in Santa Barbara,
California (the "Company"), and William F. Spengler, an individual
("Executive").
AGREEMENT
1. SERVICES PROVIDED TO THE COMPANY. Commencing as of April 13,
1998 ("Start Date"), Executive shall be employed by the Company as its Senior
Vice President, and Executive agrees to such employment. During the term of
this Agreement, Employee shall devote all of his regular working hours to the
business and welfare of the Company and its subsidiaries. Executive,
however, may spend a reasonable amount of time with respect to charitable and
civic activities (including serving on the board of directors of charitable
organizations) and may make personal investments or conduct private business
affairs to the extent that such activities do not materially interfere with
the services required under this Agreement. It is envisioned that Executive
shall eventually become the Chief Financial Officer of the Company.
2. COMPENSATION TO EXECUTIVE.
(a) BASE SALARY. During the term of this Agreement, the
Company shall pay to Executive a base salary in the amount of $360,000 per
annum, payable in accordance with the normal payment pattern of the Company,
not to be less frequently than monthly. The Base Salary shall commence to
accrue on the Start Date.
(b) STOCK OPTIONS. Pursuant to the Company's 1995 Stock
Incentive Plan (the "Plan"), on the Effective Date, the Company shall grant
to Executive options to acquire 100,000 shares of the Company's common stock
(based on a 262 for one stock split) at an exercise price equal to the price
per share at which the Company's common stock is first sold to the public in
its initial public offering. Such options shall vest at the rate of 25% on
each anniversary of the Effective Date. All options shall become fully vested
on the fourth anniversary of the Effective Date.
(c) ADDITIONAL COMPENSATION. Executive may also be entitled
to receive (i) an annual bonus in an amount equal to one year's base salary
provided certain financial and other milestones are met by the Company and
Executive, as determined by Executive and the Compensation Committee (the
"Compensation Committee") of the Company's Board of Directors (the "Board")
within 60 days following the date of this Agreement, and, in the event such
milestones are not met or are significantly exceeded, such
<PAGE>
other lesser or greater bonus as the Compensation Committee shall determine
is its sole discretion, and (ii) options or other rights to acquire the
Company's common stock pursuant to the Plan, under such terms and conditions
as are determined by the Stock Option Committee (the "Option Committee") of
the Board in its sole discretion. In making such determinations, the
Compensation Committee and Option Committee shall consider, among other
things, the annual financial results of the Company, meeting critical
milestones on the business plan and Executive's contributions thereto.
3. EMPLOYEE BENEFITS. The Company shall provide to Executive
each of the following benefits:
(a) BUSINESS EXPENSES. The Company shall pay or reimburse
Executive for all reasonable out-of-pocket expenses incurred by Executive in
the course of providing his services hereunder and which are consistent with
the Company's expense reimbursement guidelines or policies. Such
reimbursement shall be made by the Company within thirty (30) days after
receipt of a statement therefor from Executive setting forth in reasonable
detail the expenses for which reimbursement is requested, accompanied by
reasonable documentation evidencing such expenses.
(b) INSURANCE COVERAGE AND BENEFITS. Beginning on the Start
Date, the Company shall provide Executive, at the Company's expense, coverage
under the major medical, hospitalization, disability and other insurance
programs maintained by the Company for its officers generally, or if none is
made for its officers generally, its employees generally, including any
benefit plans that are provided by the Company subsequent to the date of this
Agreement. In addition, Executive shall receive on the Start Date all other
Company-provided benefits, including sick pay benefits, that are, from time
to time, made available by the Company to its officers generally or, if not
made to its officers generally, its employees generally. Executive shall be
entitled to four weeks paid vacation each year.
4. TERMINATION. Executive's employment hereunder may be
terminated upon thirty (30) days written notice by Executive or the Company,
provided that if Company terminates Executive's employment for other than
cause, Executive shall be entitled to severance pay equal to 100% of his
annual base salary. Notwithstanding the foregoing, Executive shall not be
entitled to any severance payment if his employment shall be terminated for
cause. Cause means the occurrence of any of the following events: (i)
willful and continued failure (to include such failure due to (a) death or
(b) disability for a consecutive period of ninety (90) days or more) by the
Executive to substantially perform his duties with the Company; provided,
however, that the Executive must be notified by the Company of any such
failure to perform his duties and shall have thirty (30) days from the date
of such notice to cure such failure; (ii) any act by the Executive of fraud,
misappropriation, dishonesty, embezzlement or similar conduct against the
Company; or (iii) indictment or conviction of the Executive for a felony or
any other crime involving moral turpitude.
5. CONFIDENTIAL AND PROPRIETARY INFORMATION. Executive agrees to
execute and deliver to the Company its standard non-disclosure agreement with
respect to the Company's
<PAGE>
confidential and proprietary information. Such agreement shall be effective
as of the Effective Date.
6. GENERAL PROVISIONS.
(a) NOTICES. Any notice to be given pursuant to this
Agreement shall be in writing and, in the absence of receipted hand delivery,
shall be deemed duly given when mailed, if the same shall be sent by
certified or registered mail, return receipt requested, or by a nationally
recognized overnight courier, and the mailing date shall be deemed the date
from which all time periods pertaining to a date of notice shall run.
Notices shall be addressed to the parties at the following addresses:
If to the Company, to: EarthShell Corporation
800 Miramonte Drive
Santa Barbara, California 93109
Attention: Chairman of the Board
If to Executive, to: William F. Spengler
3611 Jackson Cabin Road
Phoenix, Maryland 21131
(b) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the Company and any successors whether
by merger, consolidation, transfer of substantially all assets or similar
transaction, and it shall be binding upon and shall inure to the benefit of
Executive and his heirs and legal representatives. This Agreement is
personal to Executive and shall not be assignable by Executive.
(c) WAIVER OF BREACH. The waiver by the Company or Executive
of a breach of any provision of this Agreement by the other shall not operate
or be construed as a waiver of any subsequent breach by the other.
(d) ENTIRE AGREEMENT/AMENDMENT. This Agreement shall
constitute the entire agreement between the parties hereto with respect to
the subject matter hereof, and shall supersede all previous oral and written
and all contemporaneous oral negotiations, commitments, agreements and
understandings relating hereto. Any amendment to this Agreement shall be
effective only if it is in writing and signed by the parties to this
Agreement.
(e) APPLICABLE LAW. The validity of this Agreement and the
interpretation and performance of all of its terms shall be construed and
enforced in accordance with the laws of the State of California without
reference to choice or conflict of law principles.
(f) SEVERABILITY. Any provision of this Agreement that is
deemed invalid, illegal or unenforceable in any jurisdiction shall, as to
that jurisdiction and subject to this paragraph, be ineffective to the extent
of such invalidity, illegality or unenforceability, without affecting in any
way the remaining provisions hereof in such jurisdiction or rendering that or
any other provision of this Agreement invalid, illegal or unenforceable in
any other jurisdiction. If
<PAGE>
any covenant should be deemed invalid, illegal or unenforceable because its
scope is considered excessive, such covenant shall be modified so that the
scope of the covenant is reduced only to the minimum extent necessary to
render the modified covenant valid, legal and enforceable.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
EARTHSHELL CORPORATION,
a Delaware corporation
By:
------------------------
Title:
-----------------------
WILLIAM F. SPENGLER
-----------------------------
<PAGE>
EMPLOYMENT AGREEMENT
BETWEEN
EARTHSHELL CORPORATION
AND
MICHAEL M. HAGERTY
This Employment Agreement (the "Agreement") is entered into as of
July 22, 1998 (the "Effective Date") by and between EarthShell Corporation, a
Delaware corporation with its principal office located in Santa Barbara,
California (the "Company"), and Michael M. Hagerty, an individual
("Executive").
AGREEMENT
1. SERVICES PROVIDED TO THE COMPANY. Commencing as of July 27, 1998
("Start Date"), Executive shall be employed by the Company as Vice
President, Chief Technology Officer, and Executive agrees to such employment.
During the term of this Agreement, Employee shall devote all of his regular
working hours to the business and welfare of the Company and its
subsidiaries. Executive, however, may spend a reasonable amount of time with
respect to charitable and civic activities (including serving on the board of
directors of charitable organizations) and may make personal investments or
conduct private business affairs to the extent that such activities do not
materially interfere with the services required under this Agreement.
2. COMPENSATION TO EXECUTIVE.
(a) BASE SALARY. During the term of this Agreement, the Company
shall pay to Executive a base salary in the amount of $250,000 per annum,
with a year-end review of such amount by the Compensation Committee (the
"Compensation Committee") of the Company's Board of Directors (the "Board"),
payable in accordance with the normal payment pattern of the Company, not to
be less frequently than monthly. The Base Salary shall commence to accrue on
the Start Date.
(b) STOCK OPTIONS. Pursuant to the Company's 1995 Stock Incentive
Plan (the "Plan"), the Company shall grant to Executive options to acquire
100,000 shares of the Company's common stock at an exercise price equal to
the $21.00 price per share at which the Company's common stock first sold to
the public in its initial public offering. Such options shall vest at the
rate of 25% on each anniversary of the Effective Date. All options shall
become fully vested on the fourth anniversary of the Effective Date.
(c) ADDITIONAL COMPENSATION. Executive shall receive a relocation
bonus in the amount of $50,000 payable promptly after the Start Date.
Executive may also be entitled to receive (i) an annual bonus up to the
Executive's annual base salary (prorated for the period of service in 1998),
the amount of which shall be determined by the Compensation Committee in its
sole discretion, and (ii) options or other rights to acquire the Company's
common stock pursuant to the Plan, under such terms and conditions as are
determined by the
<PAGE>
Stock Option Committee (the "Option Committee") of the Board in its sole
discretion. In making such determinations, the Compensation Committee and
Option Committee shall consider, among other things, the annual financial
results of the Company, meeting critical milestones on the business plan and
Executive's contributions thereto.
3. EMPLOYEE BENEFITS. The Company shall provide to Executive each of
the following benefits:
(a) BUSINESS EXPENSES. The Company shall pay or reimburse
Executive for all reasonable out-of-pocket expenses incurred by Executive
in the course of providing his services hereunder and which are consistent
with the Company's expense reimbursement guidelines or policies. Such
reimbursement shall be made by the Company within thirty (30) days after
receipt of a statement therefor from Executive setting forth in reasonable
detail the expenses for which reimbursement is requested, accompanied by
reasonable documentation evidencing such expenses.
(b) INSURANCE COVERAGE AND BENEFITS. Beginning on the Start Date,
the Company shall provide Executive, at the Company's expense, coverage under
the major medical, hospitalization, disability and other insurance programs
maintained by the Company for its officers generally, or if none is made for
its officers generally, its employees generally, including any benefit plans
that are provided by the Company subsequent to the date of this Agreement.
In addition, Executive shall receive on the Start Date all other
Company-provided benefits, including 401(k) participation and sick pay
benefits, that are, from time to time, made available by the Company to its
officers generally or, if not made to its officers generally, its employees
generally. Executive shall be entitled to four weeks paid vacation each year.
(c) RELOCATION EXPENSES. Executive shall be employed at the
Company's offices in Baltimore, Maryland. Executive shall be reimbursed for
all reasonable out-of-pocket moving and transportation expenses incurred by
Executive in moving his family, household and personal possessions to
Baltimore, Maryland, including transportation costs and travel expenses, and
all closing costs incurred by Executive in connection with (i) selling his
current residence (including brokerage fees not to exceed 6% of the selling
price of the residence) and (ii) purchasing a new residence in the Baltimore
area. Executive's spouse shall be permitted to take two trips to Baltimore at
Company expense for the purpose of locating a new residence in the Baltimore
area. The foregoing amounts to be reimbursed or paid to Executive pursuant to
this Section 3(c) shall be "grossed-up" to the extent necessary to cover any
taxes imposed on Executive by reason of the reimbursement of the costs and
expenses described above in this Section 3(c). In addition to the foregoing
(and to the relocation bonus provided in Section 2(c) above), the Company
shall pay to Executive an amount equal to one month's base salary under
Section 2(a) hereof to cover costs and expenses incurred by Executive and his
family in connection with relocating to Baltimore other than those that are
specifically reimbursable in accordance with the foregoing provisions of
this Section 3(c).
(d) TEMPORARY HOUSING. During the period from the Start Date
through October 31, 1998, the Company shall provide Executive, at Company's
expense, with
2
<PAGE>
temporary housing in the form of hotel or other appropriate temporary
accommodations in the Baltimore area.
4. TERMINATION. Executive's employment hereunder may be terminated
upon thirty (30) days written notice by Executive or the Company, provided
that if Company terminates Executive's employment for other than cause,
Executive shall be entitled to severance pay equal to 100% of his annual base
salary. Notwithstanding the foregoing, Executive shall not be entitled to any
severance payment if his employment shall be terminated for cause. Cause
means the occurrence of any of the following events: (i) willful and
continued failure (to include such failure due to (a) death or (b) disability
for a consecutive period of ninety (90) days or more) by the Executive to
substantially perform his duties with the Company; provided, however, that
the Executive must be notified by the Company of any such failure to perform
his duties and shall have thirty (30) days from the date of such notice to
cure such failure; (ii) any act by the Executive of fraud, misappropriation,
dishonesty, embezzlement or similar conduct against the Company; or (iii)
indictment or conviction of the Executive for a felony or any other crime
involving moral turpitude.
5. CONFIDENTIAL AND PROPRIETARY INFORMATION. Executive agrees to
execute and deliver to the Company its standard non-disclosure agreement with
respect to the Company's confidential and proprietary information. Such
agreement shall be effective as of the Effective Date.
6. GENERAL PROVISIONS.
(a) NOTICES. Any notice to be given pursuant to this Agreement
shall be in writing and, in the absence of receipted hand delivery, shall be
deemed duly given when mailed, if the same shall be sent by certified or
registered mail, return receipt requested, or by a nationally recognized
overnight courier, and the mailing date shall be deemed the date from which
all time periods pertaining to a date of notice shall run. Notices shall be
addressed to the parties at the following addresses:
If to the Company, to: EarthShell Corporation
800 Miramonte Drive
Santa Barbara, California 93109
Attention: Chairman of the Board
If to Executive, to: Michael M. Hagerty
148 Crystal Lane
Aurora, OH 44202
(b) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the Company and any successors whether by
merger, consolidation, transfer of substantially all assets or similar
transaction, and it shall be binding upon and shall inure to the benefit of
Executive and his heirs and legal representatives. This Agreement is personal
to Executive and shall not be assignable by Executive.
3
<PAGE>
(c) WAIVER OF BREACH. The waiver by the Company or Executive of a
breach of any provision of this Agreement by the other shall not operate or
be construed as a waiver of any subsequent breach by the other.
(d) ENTIRE AGREEMENT/AMENDMENT. This Agreement shall constitute
the entire agreement between the parties hereto with respect to the subject
matter hereof, and shall supersede all previous oral and written and all
contemporaneous oral negotiations, commitments, agreements and understandings
relating hereto. Any amendment to this Agreement shall be effective only if
it is in writing and signed by the parties to this Agreement.
(e) APPLICABLE LAW. The validity of this Agreement and the
interpretation and performance of all of its terms shall be construed and
enforced in accordance with the laws of the State of California without
reference to choice or conflict of law principles.
(f) SEVERABILITY. Any provision of this Agreement that is deemed
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction and subject to this paragraph, be ineffective to the extent of
such invalidity, illegality or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement invalid, illegal or unenforceable in any
other jurisdiction. If any covenant should be deemed invalid, illegal or
unenforceable because its scope is considered excessive, such covenant shall
be modified so that the scope of the covenant is reduced only to the minimum
extent necessary to render the modified covenant valid, legal and enforceable.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
EARTHSHELL CORPORATION,
a Delaware corporation
By:
-------------------------------
Title:
----------------------------
MICHAEL M. HAGERTY
-----------------------------------
4
<PAGE>
MARYLAND FULL-SERVICE OFFICE LEASE
HARBORPLACE TOWER
by and between
BALTIMORE CENTER ASSOCIATES LIMITED PARTNERSHIP, Landlord
by ROUSE OFFICE MANAGEMENT, INC. Managing Agent,
and
EARTHSHELL CORPORATION, Tenant
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
1. SUMMARY OF TERMS ......................................... 1
2. DEFINITIONS .............................................. 3
3. LEASED PREMISES: MEASUREMENT ............................. 4
4. TERM AND COMMENCEMENT OF TERM ............................ 4
4.1 TERM ................................................ 4
4.2. READY FOR OCCUPANCY ................................. 5
4.3. OPTION TO RENEW ..................................... 5
5. TENANT IMPROVEMENTS AND ACCEPTANCE OF PREMISES............ 6
5.1. TENANT IMPROVEMENTS ................................. 6
5.2. ACCEPTANCE OF PREMISES .............................. 6
6. RENT ..................................................... 7
6.1. ANNUAL BASIC RENT ................................... 7
6.2. INTENTIONALLY OMITTED ............................... 7
6.3. ADDITIONAL RENT ..................................... 7
6.4. ADVANCE RENT AND SECURITY DEPOSIT ................... 7
6.5. LATE CHARGE ......................................... 8
7. OPERATING COST ESCALATIONS ............................... 8
7.1. DEFINITIONS ......................................... 8
7.2. PAYMENT OF OPERATING COST ESCALATION ................ 13
8. USE, CARE AND REPAIR OF PREMISES BY TENANT ............... 14
8.1. PERMITTED USES ...................................... 14
8.2. CARE OF PREMISES .................................... 14
8.3. HAZARDOUS SUBSTANCES ................................ 15
8.4. COMPLIANCE WITH LAWS ................................ 16
9. RULES AND REGULATIONS .................................... 16
10. COMMON AREA .............................................. 16
10.1. DEFINITION OF COMMON AREA .......................... 16
10.2. USE OF COMMON AREA ................................. 16
10.3. ALTERATIONS TO THE COMMON AREA ..................... 17
10.4. MAINTENANCE ........................................ 17
11. SERVICES AND UTILITIES ................................... 17
12. ELECTRIC CURRENT ......................................... 18
13. LOSS, DAMAGE AND INJURY .................................. 19
14. REPAIRS BY LANDLORD ...................................... 19
15. ALTERATIONS, TITLE AND PERSONAL PROPERTY ................. 20
15.1. ALTERATIONS ........................................ 20
15.2. TITLE .............................................. 21
15.3. TENANT'S PERSONAL PROPERTY ......................... 21
16. INSURANCE ................................................ 21
-i-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
16.1. TENANT'S INSURANCE ................................ 21
16.2. TENANT'S FAILURE TO INSURE ........................ 21
16.3. COMPLIANCE WITH POLICIES .......................... 22
16.4. WAIVER OF RIGHT OF RECOVERY ....................... 23
16.5. LANDLORD'S INSURANCE .............................. 23
17. DAMAGE AND DESTRUCTION ................................. 23
17.1. LANDLORD'S OBLIGATION TO REPAIR AND RECONSTRUCT.... 23
17.2. TERMINATION OF LEASE............................... 24
17.3. DEMOLITION OF THE BUILDING ........................ 24
17.4. INSURANCE PROCEEDS ................................ 24
18. CONDEMNATION ........................................... 24
18.1 TERMINATION ....................................... 24
18.2 RIGHTS TO AWARD.................................... 25
19. BANKRUPTCY ............................................. 26
19.1. EVENT OF BANKRUPTCY ............................... 25
19.2. ASSUMPTION BY TRUSTEE ............................. 26
19.3 TENANT'S GUARANTOR'S BANKRUPTCY ................... 26
20. DEFAULT PROVISIONS AND REMEDIES ........................ 26
20.1. EVENTS OF DEFAULT ................................. 26
20.2. REMEDIES .......................................... 27
20.3. DAMAGES............................................ 28
20.4. NO WAIVER.......................................... 29
20.5. REMEDIES NOT EXCLUSIVE ............................ 29
20.6. PERSISTENT FAILURE TO PAY RENT .................... 30
21. INTENTIONALLY DELETED .................................. 30
22. INDEMNITY .............................................. 30
23. LIMITATION ON LANDLORD LIABILITY ....................... 30
24. LANDLORD OBLIGATIONS ................................... 31
25. ASSIGNMENT AND SUBLETTING .............................. 31
25.1. PROHIBITED WITHOUT LANDLORD'S CONSENT ............. 31
25.2. STOCK TRANSFER .................................... 32
25.3. RENTS FROM TRANSFER ............................... 32
25.4 PROCEDURE FOR OBTAINING LANDLORD'S CONSENT......... 32
26. HOLDING OVER ........................................... 33
27. SUBORDINATION AND ATTORNMENT ........................... 33
28. ESTOPPEL CERTIFICATES .................................. 34
29. PEACEFUL AND QUIET POSSESSION .......................... 34
30. LANDLORD'S ACCESS TO PREMISES .......................... 35
31. RELOCATION ............................................. 35
32. BROKERS, COMMISSIONS, ETC .............................. 35
33. RECORDATION ............................................ 35
34. MISCELLANEOUS .......................................... 36
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
34.1. SEPARABILITY ...................................... 36
34.2. APPLICABLE LAW .................................... 36
34.3. AUTHORITY ......................................... 36
34.4. NO DISCRIMINATION ................................. 36
34.5. INTEGRATION OF AGREEMENTS ......................... 36
34.6. THIRD PARTY BENEFICIARY ........................... 37
34.7. CAPTIONS: GENDER .................................. 37
34.8. SUCCESSORS AND ASSIGNS ............................ 37
34.9. WAIVER OF JURY TRIAL .............................. 37
34.10. JOINT AND SEVERAL LIABILITY ....................... 37
34.11. NOTICES ........................................... 37
34.12. EFFECTIVE DATE OF THIS LEASE ...................... 37
34.13. MECHANICS' LIENS................................... 37
34.14. WAIVER OF RIGHT OF REDEMPTION ..................... 38
34.15. CITY'S OR MORTGAGEE'S PERFORMANCE.................. 38
34.16. CITY'S OR MORTGAGEE'S LIABILITY ................... 38
34.17. SCHEDULES ......................................... 38
34.18. TIME OF ESSENCE ................................... 38
34.19. AMENDMENT ......................................... 38
34.20. PARKING ........................................... 38
</TABLE>
SCHEDULES
- ---------
A - Plat showing location of the Premises
B - Plans and Specifications for Tenant Improvements
C - Rules and Regulations
D - Intentionally Omitted
-iii-
<PAGE>
MARYLAND FULL-SERVICE OFFICE LEASE
HARBORPLACE TOWER
THIS LEASE is made and entered into as of by and between
BALTIMORE CENTER ASSOCIATES LIMITED PARTNERSHIP, a Maryland limited
partnership ("Landlord") by ROUSE OFFICE MANAGEMENT, INC. Managing Agent. and
EARTHSHELL CORPORATION, a Delaware corporation ("Tenant").
In consideration of the rents hereinafter reserved and the agreements
hereinafter set forth. Landlord and Tenant mutually agree as follows:
1. SUMMARY OF TERMS.
The following is a summary of the principal terms of the Lease. Any
capitalized term set forth below shall,for the purposes of this Lease, have
the meaning ascribed to it in this Section 1.
A. DESCRIPTION OF PREMISES
(1) BUILDING: The building known as Harborplace Tower, formerly
known as Legg Mason Tower and located at 111 S. Calvert Street, Baltimore,
Maryland 21202.
(2) BUSINESS COMMUNITY: not applicable.
(3) PREMISES: Approximately 8,066 square feet of Rental Area on the
nineteenth floor of the Building as shown on SCHEDULE A.
B. RENT
(1) ANNUAL BASIC RENT:
<TABLE>
<CAPTION>
Term Annual Basic Rent Monthly Installment
---- ----------------- -------------------
<S> <C> <C>
Rental Year 1: $209,715.96 $17,476.33
Rental Years 2-3: $217,782.00 $18,148.50
Rental Years 4-5: $225,848.04 $18,820.67
Rental Year 6: $233,913.96 $19,492.83
Rental Year 7: $241,980.00 $20,165.00
Rental Year 8: $250,046.04 $20,837.17
</TABLE>
-1-
<PAGE>
(2) ADVANCE RENT: Seventeen Thousand Four Hundred Seventy-six
Dollars and Thirty-three Cents ($17,476.33) representing the installment of
Annual Basic Rent for the first leasehold month of the Term.
(3) SECURITY DEPOSIT: Seventeen Thousand Four Hundred Seventy-six
Dollars and Thirty-three Cents ($17,476.33) to be held by Landlord as provided
in Section 6.4
C. ADJUSTMENT.
(1) BASE OPERATING COSTS: The Base Operating Costs for the Premises
shall be the Operating Costs for the Operating Year which commences January 1,
1998, multiplied by Tenant's Fractional Share.
(2) ADJUSTMENT PERIOD CONSUMER PRICE INDEX. Intentionally omitted.
D. TERM
(1) TERM: Eight (8) years, subject to Section 4.
(2) LEASE COMMENCEMENT DATE: August 1, 1998, subject to Section 4.
(3) TERMINATION DATE: July 31, 2006, subject to Section 4.
E. NOTICE AND PAYMENT
(1) Tenant Notice Address:
Earthshell Corporation
111 S. Calvert Street
Baltimore, Maryland 21202
with a copy to:
General Counsel
Earthshell Corporation
800 Miramonte Drive
Santa Barbara, California 93109
(2) Landlord Notice Address:
Rouse Office Management, Inc.
300 East Lombard Street
Baltimore, Maryland 21202-3211
with a copy to:
Rouse Office Management, Inc.
c/o The Rouse Company
10275 Little Pautxent Pkwy
Columbia, Maryland 21044
Attention: General Counsel
-2-
<PAGE>
(3) Landlord Payment Address:
Rouse Office Management, Inc.
P.O. Box 64078
Columbia, Maryland 21264-4078
F. BROKER
Colliers Pinkard
100 Light Street, Suite 1400
Baltimore, Maryland 21202
Attn: David Downey
2. DEFINITIONS.
For purposes of this Lease, the Schedules attached and made a part hereof
and all agreements supplemental to this Lease, the following terms shall have
the respective meanings as set forth in the following Section, subsection,
paragraph and Schedule references:
<TABLE>
<CAPTION>
Reference
<S> <C>
Additional Rent............................................................6.3
Advance Rent...........................................................1.B.(2)
Alterations...............................................................15.1
Annual Basic Rent......................................................1.B.(1)
Bankruptcy Code...........................................................19.1
Base Operating Cost....................................................1.C.(2)
Building...............................................................1.A.(1)
BOMA Standard..............................................................3.1
Casualty..................................................................17.1
Common Area...............................................................10.1
Default Rate...............................................................6.5
Event of Default..........................................................20.1
Event of Tenant's Bankruptcy..............................................19.1
Fractional Share...........................................................7.1
Insolvency Laws...........................................................19.1
Landlord Notice Address...................................................1.E.
Landlord Payment Address..................................................1.E.
Lease Commencement Date................................................1.D.(2)
Mortgage....................................................................27
Mortgagee...................................................................27
Operating Costs............................................................7.1
Operating Costs Statement..................................................7.2
Operating Year.............................................................7.1
Plans and Specifications...................................................5.1
Premises...............................................................1.A.(3)
-3-
<PAGE>
Prevailing Market Rate-(Renewal Term)......................................4.3
Property...................................................................7.1
Public Areas........................................................Schedule C
Ready for Occupancy........................................................4.2
Renewal Term...............................................................4.3
Rental Area..................................................................3
Rental Year................................................................6.1
Rules and Regulations........................................................9
Security Deposit.......................................................1.B.(3)
Tenant Allowance...........................................................5.1
Tenant Improvements........................................................5.1
Tenant Notice Address.....................................................1.E.
Tenant's Share of Increased Operating Costs................................7.2
Tenant's Personal Property................................................15.3
Term.......................................................................4.1
Termination Date.......................................................1.D.(3)
Transfer....................................................................25
</TABLE>
3. LEASED PREMISES: MEASUREMENT.
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord,
the Premises as shown on the plan attached hereto as SCHEDULE A, together
with the right to use, in common with others, the Common Area. The rental
area of the Premises ("Rental Area") has been computed in accordance with the
Standard Method for Measuring Floor Area In Office Buildings, BOMA, American
National Standard. 1981 ("BOMA Standard").
4. TERM AND COMMENCEMENT OF TERM.
4.1. TERM. The term of this Lease (the "Term") shall commence on the Lease
Commencement Date: provided, however, that if the Premises are not Ready for
Occupancy as of such Lease Commencement Date for any reason, except for
delays caused solely by Tenant, then the Lease Commencement Date shall be
delayed until the earlier of:
a. the date on which Tenant shall take possession of all or any portion
of the Premises, provided that such possession shall be only with the written
approval of Landlord; or
b. the date the Premises are Ready for Occupancy;
and, if necessary, the Termination Date shall be adjusted to effect the total
number of years in the Term, as set forth in subsection 1.D. plus the part of
the month, if any, from the adjusted Lease. Commencement Date to the first
full month of the Term.
If the Premises are Ready for Occupancy prior to the Lease Commencement
Date, the Term shall commence on the date the Premises are Ready for
Occupancy, and if necessary, the Termination Date shall be adjusted to effect
the total number of years in the Term, as set forth in subsection 1.D. plus
the part of the month, if any, from the adjusted Lease C commencement Date to
the first full month of the Term.
-4-
<PAGE>
In the event the Premises are not Ready for Occupancy by the Lease
Commencement Date, as initially set forth above, because of a delay caused
solely by Tenant, then said Lease Commencement Date shall not be delayed and
Tenant's obligations shall commence as of said date, notwithstanding the
status of construction.
The Term shall be for the period of time specified in Section 1.D.(1)
plus the part of the month, if any, from the Lease Commencement Date to the
first day of the first full calendar month in the Term, unless earlier
terminated pursuant to any other provision of this Lease or pursuant to law.
At Landlord's request, Tenant shall promptly enter into one or more
supplementary written agreements, in such form as Landlord shall reasonably
prescribe, specifying the Lease Commencement Date and the Termination Date.
4.2. READY FOR OCCUPANCY. For purposes hereof, the Premises shall be
deemed conclusively ready for occupancy ("Ready for Occupancy") upon the
completion of the following conditions:
a. Landlord has substantially completed its work on the Tenant's
Improvements except for incomplete items that are minor or non-substantial
details of construction, mechanical adjustments, or finishing touches; and
b. Landlord shall have received any governmental approvals which are
necessary in order for Tenant to occupy the Premises without material
interference to Tenant conducting its ordinary business activities, unless
Tenant's acts or omissions have caused such approvals to be denied, in which
case Tenant shall be deemed to have waived this condition 4.2.b.
4.3. OPTION TO RENEW. Provided Tenant is in possession of the Premises
and is not then in default of any term, covenant or condition of this Lease
beyond any applicable notice and cure period, Tenant shall have the option to
renew the Term of this Lease for one (1) additional period of five (5) years
("Renewal Term") to commence immediately upon the expiration of the initial
Term, upon the same terms, convenants and conditions as contained in this
Lease, except that (i) the Annual Basic Rent during said Renewal Term shall
be at the "Prevailing Market Rate" and (ii) there shall be no further option
to renew except as specifically provided herein and (iii) Landlord shall not
be obligated to construct, pay for or grant an allowance with respect to
tenant improvements unless otherwise specifically provided for in this Lease
or negotiated at the time Tenant exercises such option. "Prevailing Market
Rate" shall mean the current market rental rate for the Premises as
determined by Landlord or for similar space in comparable first-class office
buildings in the Inner Harbor/Pratt Street area, but shall not be more than
the rate at which Landlord would offer such space or space of approximately
the same size and location to a third party in a bona fide arm's length
transaction.
In order to exercise the option granted herein, Tenant shall notify
Landlord, in writing, not less then twelve (12) months prior to the
expiration of the initial Term, that it is considering exercising its option
to renew the Term. On receipt of such notice, Landlord will, in writing, not
later than thirty (30) days after receipt of the notice from Tenant, quote to
Tenant what the new Annual Basic Rent will be for the ensuing Renewal Term.
Tenant shall then notify Landlord, in writing, not later than fifteen (15)
days after notice received of such Annual Basic Rent, as to whether or not it
will exercise the option herein granted and if no such notice of exercise of
the option is received, the option shall be deemed waived. In the event
Tenant exercises the option, Landlord and Tenant shall execute a modification
to this Lease acknowledging such renewal and setting forth the new Annual
Basic Rent.
-5-
<PAGE>
The option shall be void if, at the time of exercise of such option.
Tenant is not in possession of the Premises (unless Landlord has consented to
a subletting of the Premises or an assignment of this Lease) or is in default
under this Lease or if Tenant fails to deliver the requisite notice thereof
within the time period specified above. The option granted herein shall not
be severed from this Lease, separately sold, assigned or transferred.
5. TENANT IMPROVEMENTS AND ACCEPTANCE OF PREMISES
5.1. TENANT IMPROVEMENTS. Prior to the Lease Commencement Date, Landlord
shall, in a good and workmanlike manner and with building-standard materials,
make improvements to the Premises ("Tenant Improvements") in accordance with
plans and specifications ("Plans and Specifications") to be prepared by
Landlord and approved in writing by Tenant, which approval shall not be
unreasonably withheld. In connection therewith, Landlord will prepare a
budget for Tenant's review and approval. Once the Plans and Specifications
are acceptable to both parties, it is agreed that same shall be attached
hereto and become a part of this Lease, being identified as SCHEDULE B.
Except as otherwise specifically provided in this Lease, Landlord shall not
be responsible for performing or paying for the moving or installation of
telephone and computer systems, wiring or cabling, or the acquisition, moving
or installation of Tenant's furnishings, fixtures and equipment in the
Premises; provided, however, to the extent the Tenant Allowance (hereinafter
defined) is not fully utilized to pay for the cost of the Tenant
Improvements, up to Eight Thousand Sixty-Six Dollars ($8,066.00) may be
applied to Tenant's moving and cabling expenses provided Tenant submits to
Landlord invoices evidencing such cabling and/or moving expenses. Landlord
agrees to bear the cost of the Tenant Improvements in an amount not to exceed
Two Hundred One Thousand Six Hundred Fifty Dollars and No Cents
($201,650.00)("Tenant Allowance"), which amount includes demolition costs,
Landlord's construction management fee and any other costs (exclusive of
Common Area and corridor costs) required to improve the Premises from its
current "as-is" condition. Tenant covenants and agrees to pay to Landlord, as
Additional Rent, all costs and expenses incurred by Landlord in performing
the Tenant Improvements in excess of the Tenant Allowance and to make such
payment within thirty (30) days after receipt of a reasonably detailed
invoice for same from Landlord. Except as otherwise provided in this Section
5.1., any excess of the Tenant Allowance over the total cost of constructing
the Tenants Improvement shall belong solely to Landlord.
Any other initial improvements to the Premises not shown on the Plans
and Specifications are subject to Landlord's prior written approval, which
approval shall not be unreasonably withheld or delayed, and such improvements
shall be performed by Landlord, and the cost thereof shall be paid by Tenant
to Landlord within thirty (30) days following receipt of an invoice for same
from Landlord. Any amounts payable by Tenant hereunder shall include
Landlord's standard construction management fee computed on the total cost of
construction (currently 13.5%), including but not limited to the cost of
developing, preparing and modifying construction drawings.
5.2. ACCEPTANCE OF PREMISES. Prior to occupancy, Landlord and Tenant
shall conduct a joint inspection of the Premises during which they shall
develop a mutually agreeable punchlist of items to be completed by Landlord.
Tenant may amend such punchlist up to thirty (30) days after Tenant takes
possession of the Premises. Tenant's occupancy of the Premises shall be
deemed to constitute acceptance of the Premises and acknowledgment by Tenant
that Landlord has fully complied with its obligations hereunder to construct
and deliver the Premises to Tenant, except for the punchlist items, which
shall be completed by Landlord within a reasonable time thereafter and except
for latent defects, the existence of which Tenant gives Landlord notice
within one (1) year following Tenant's opening for business in the Premises.
After first notifying Tenant by telephone, Landlord shall have the right to
enter the Premises to complete or repair any such punchlist items and entry
by Landlord, its agents,
-6-
<PAGE>
employees or contractors for such purpose shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any
abatement or diminution of rent or relieve Tenant of any of its obligations
under this Lease, or impose any liability upon Landlord or its agents,
employees or contractors. Landlord shall use its reasonable efforts to
minimize any disruption to Tenant's business activities and normal use of the
Premises.
If the Lease Commencement Date has not occurred within ninety (90) days
following the date set forth in Section 1.D.(2), subject to the provisions of
Section 24 and except for delays caused solely by Tenant, Tenant may elect to
terminate this Lease by giving written notice of such intent to Landlord
within fifteen (15) days after said ninety-day period. Upon any termination
as aforesaid, this Lease shall be of no further force and effect, and,
following the return to Tenant of the Advance Rent and Security Deposit, if
any, neither party shall be liable to the other for damages of any type
whatsoever on account of such termination.
6. RENT.
6.1. ANNUAL BASIC RENT. Tenant shall pay to Landlord during each Rental
Year of the Term fixed rent equal to the Annual Basic Rent as set forth in
Section 1.B.(1). Annual Basic Rent shall be payable in advance on the first
day of each month of the Term in equal monthly installments, without notice,
demand, abatement (except as otherwise specifically provided in this Lease),
deduction or set-off. If the Term of this Lease shall commence on a day other
than the first day of a month, the first payment shall include any prorated
Annual Basic Rent for the period from the Lease Commencement Date to the
first day of the first full calendar month of the Term.
"Rental Year" shall mean each successive twelve (12) calendar month
period occurring during the Term of this Lease, or portion of such a period,
with the first Rental Year commencing as of the Lease Commencement Date and
ending on the last day of the twelfth full calendar month thereafter and the
last Rental Year ending on the Termination Date. For any Rental Year of less
or more than twelve full months, Annual Basic Rent and Tenant's Increased
Share of Operating Costs shall be adjusted accordingly. All Annual Basic Rent
and Additional Rent shall be paid to Landlord at the Landlord Payment Address.
6.2. INTENTIONALLY OMITTED.
6.3. ADDITIONAL RENT. Tenant shall pay to Landlord as additional rent
("Additional Rent") all other sums of money which shall become due and
payable hereunder, including but not limited to the payment of Tenant's
Share of Increased Operating Costs. Unless a date for payment is otherwise
specified herein, all Additional Rent shall be due and payable within thirty
(30) days of invoicing by Landlord.
6.4. ADVANCE RENT AND SECURITY DEPOSIT.
A. ADVANCE RENT. Tenant shall, upon execution of this Lease, pay to
Landlord an amount equal to the Advance Rent which shall be held by Landlord
as security for the performance by Tenant of all of its obligations occurring
prior to the Lease Commencement Date. If Tenant shall default in the
performance of such obligations, Landlord may retain the Advance Rent as an
offset against any actual damages thereby incurred by Landlord provided that
the retention of such Advance Rent shall not preclude Landlord from pursuing
any other remedy which it might have against Tenant. If no default shall
occur by Tenant then the Advance Rent shall be applied against the
installment of Annual Basic Rent payable for the month identified in Section
1.B.(2).
-7-
<PAGE>
B. SECURITY DEPOSIT. Tenant shall, upon execution of this Lease, deposit
with Landlord the Security Deposit to assure Tenant's performance of all
terms, provisions and conditions of this Lease. Landlord shall have the
right, but not the obligation, at any time, to apply the Security Deposit to
cure any breach by Tenant under this Lease and, in that event, Tenant shall,
within fifteen (15) days after request therefor, pay Landlord any amount
necessary to restore the Security Deposit to its original amount. To the
extent permitted by law, Landlord shall be entitled to the full use of the
Security Deposit and shall not be required either to keep the Security
Deposit in a separate account or to pay interest on account thereof. Any
portion of the Security Deposit which is not utilized by Landlord for any
purpose permitted under this Lease shall be returned to Tenant within sixty
(60) days after the end of the Term provided Tenant has performed all of the
obligations imposed upon Tenant pursuant to this Lease.
6.5. LATE CHARGE. If Tenant fails to make any payment of Annual Basic
Rent, Additional Rent, or other sums required to be paid hereunder on or
before the date when payment is due, Tenant shall pay to Landlord, as
Additional Rent, a late charge to cover extra administrative costs and loss
of use of funds equal to (a) six percent (6%) of the amount due for the first
month or portion thereof that such amount is past due plus (b) interest on
the amount remaining unpaid thereafter at the rate of eighteen percent (18%)
per annum or six percent (6%) above the prime rate charged by Citibank, N.A.,
as of the due date of such amount, whichever rate is the greater; provided,
however, that should such late charge at any time violate any applicable law,
the late charge shall be reduced to the highest rate permitted by law (the
foregoing rate being herein referred to as the "Default Rate"). Landlord's
acceptance of any rent after it has become due and payable shall not excuse
any delays with respect to future rental payments or constitute a waiver of
any of Landlord's rights under this Lease.
Notwithstanding the above, the late charge set forth above shall be
waived up to two (2) times in any twelve (12) month period, provided that
Tenant pays the above described sums within five (5) days after the date due.
7. OPERATING COST ESCALATIONS.
7.1. DEFINITIONS. For purposes of this Lease, the following definitions
shall apply:
a. "Operating Year" means each respective calendar year or part
thereof during the Term of this Lease or any renewal thereof, or at the
option of Landlord, any other twelve month period or part thereof designated
by Landlord during the Term of this Lease or any renewal thereof.
b. "Property" means the Building, the Office Parcel upon which the
Building is situated, as shown and described on the subdivision Plan of the
Gallery at Harborplace, and recorded among the Land Records of Baltimore
City, Maryland in Plat Folder S.E.B. No. 3074, recorded February 13, 1986,
and also such additional facilities in subsequent years as may be determined
by Landlord to be reasonably necessary or desirable for the management,
maintenance or operation of the Building.
c. "Operating Costs" means all expenses and costs (but not specific
costs which are allocated or separately billed to and paid by specific
tenants) of every kind and nature which Landlord shall pay or become
obligated to pay because of or in connection with owning, operating,
managing, painting, repairing, insuring and cleaning the Property, including,
but not limited to, the following:
-8-
<PAGE>
(i) cost of all supplies and materials used, and labor charges
incurred, in the operation, maintenance, decoration, repairing and cleaning
of the Property, including janitorial service for all floor area leased to
tenants;
(ii) cost of all equipment purchased or rented which is utilized in
the performance of Landlord's obligations hereunder, and the cost of
maintenance and operation of any such equipment, but any equipment not
exclusively engaged in the operation, maintenance, security and management of
the Property shall be apportioned as deemed reasonably appropriate by
Landlord;
(iii) cost of all maintenance and service agreements for the
Property and the equipment therein, including, without limitation, alarm
service, security service, window cleaning, and elevator maintenance;
(iv) accounting costs, including the cost of audits by certified
public accountants, outside legal and engineering fees and expenses incurred
in connection with the operation and management of the Property.
(v) wages, salaries and related expenses including the costs of all
on-site and off-site agents or employees engaged in the operation,
maintenance, security and management of the Property; provided, however, the
wages, salaries and related expenses of any agents or employees not
exclusively engaged in the operation, maintenance, security and management of
the Property shall be apportioned as deemed reasonably appropriate by
Landlord;
(vi) cost of all insurance coverage for the Property from time to
time maintained by Landlord, including but not limited to the costs of
premiums for insurance with respect to personal injury, bodily injury,
including death, property damage, business interruption, workmen's
compensation insurance covering personnel and such other insurance as
Landlord shall deem reasonably necessary, which insurance Landlord may
maintain under policies covering other properties owned by Landlord in which
event the premium shall be reasonably allocated;
(vii) cost of repairs, replacements and general maintenance to the
Property, including without limitation the mechanical, electrical and
heating, ventilating and air-conditioning equipment and/or systems (excluding
alterations attributable solely to tenants, capital improvements unless they
are included under c(xi), and repairs and general maintenance paid by proceeds
of insurance or by tenants or other third parties);
(viii) any and all Common Area maintenance, repair or redecoration
(including repainting) and exterior and interior landscaping, and all charges
assessed against the Property pursuant to the Construction, Operation and
Reciprocal Easement Agreement ("COREA") by and among Landlord, Gallery Hotel
Limited Partnership, Baltimore Center Garage Limited Partnership and the
Mayor and City Council of Baltimore dated February 13, 1986, and recorded
among the Land Records of Baltimore City, in Liber No. 792, Folio 465, as
amended, or pursuant to any laws, rules or regulations of any Federal, state
or city authority.
(ix) cost of removal of trash, rubbish, garbage and other refuse
from the Property as well as removal of ice and snow from the sidewalks on or
adjacent to the Property;
(x) all charges for electricity, gas, water, sewerage service,
heating, ventilation and air-conditioning and other utilities furnished to
the Property (including legal, architectural and engineering fees incurred
in connection therewith);
-9-
<PAGE>
(xi) amortization of capital improvements made to the Building
after the year of substantial completion of the Building, which improvements
were undertaken by Landlord with the reasonable expectation that the same
would result in more efficient operation of the Building or are made by
Landlord pursuant to any governmental law, regulation or action not
applicable to the Building at commencement of construction of the Building;
provided that the cost of each such capital improvement, together with any
reasonable financing charges incurred in connection therewith, shall be
amortized over the useful life thereof and only that portion attributable to
each Operating Year shall be included herein for such Operating Year;
(xii) a management fee for the operation and management of the
Property which is currently three and one-half percent (3.5%) of the gross
revenues of the Property, which management will not be increased to exceed a
commercially reasonable management fee charged for comparable buildings in
the central business district of Baltimore offering comparable services;
(xiii) costs and expenses incurred in order to comply with covenants
and conditions contained in liens, encumbrances and other manners of public
record affecting the Property; and
(xiv) all real estate taxes, assessments (special or otherwise),
levies, ad valorem charges, benefit charges, water and sewer rents, rates and
charges, privilege permits and any other governmental liens, impositions or
charges of a similar or dissimilar nature, and any payments in lieu of such
charges, regardless of whether any such items shall be extraordinary or
ordinary, general or special, foreseen or unforeseen, levied, assessed, or
imposed on or with respect to all or any part of the Property or upon the
rent due and payable hereunder by any governmental authority (all of the
aforesaid being hereinafter referred to as "Taxes"); provided, however, that
if at any time during the Term or any extension thereof the method of
taxation prevailing at the commencement of the Term shall be altered or
eliminated so as to cause the whole or any part of the above items which
would otherwise be included in Taxes to be replaced by a levy, assessment or
imposition, which is (A) a tax assessment, levy, imposition or charge based
on the rents received from the Property whether or not wholly or partially a
capital levy or otherwise, or (B) a tax, assessment, levy, imposition or
charge measured by or based in whole or in part upon all or any portion of
the Property and imposed on Landlord, or (C) a license fee measured by the
rent payable by Tenant to Landlord, or (D) any other tax, levy, imposition,
charge or license fee, however described or imposed, then such levy,
assessment or imposition shall be included in Taxes; provided, however, in no
event shall Tenant be required to pay any inheritance, estate, succession,
income, profits or franchise taxes unless they are in lieu of or in
substitution for any of the above items which would otherwise be included in
Taxes (Within a reasonable time after receipt of Tenant's written request,
Landlord shall furnish copies of paid real estate tax bills to Tenant
evidencing the payment of such bills);
Any of the foregoing costs which under generally accepted
accounting principles would be considered capital expenditures shall be
amortized in accordance with generally accepted accounting principles.
Notwithstanding the above, Operating Costs shall not include:
(a) payments of principal, interest, points and fees on any
mortgages, deeds of trust or other financing instruments relating to the
financing of the Property:
(b) leasing commissions or brokerage fees:
-10-
<PAGE>
(c) costs associated with preparing: improving or altering space
for any leasing or releasing of any space within the Building;
(d) any increase in real estate taxes based on a re-assessment of
the Property resulting from the sale of the Property;
(e) any ground lease rental;
(f) costs of capital improvements and equipment, except for those
(i) required by laws enacted on or after the date hereof (amortized over the
useful life of the improvement and/or equipment), together with interest at
the actual interest rate incurred by Landlord in connection with such capital
improvements, and (ii) acquired to reduce Operating Expenses amortized over
the useful life of the improvement to equal the amount of Operating Expenses
to be saved in each calendar year throughout the Term (as determined at the
time Landlord elected to proceed with the capital improvement or acquisition
of the capital equipment to reduce Operating Expenses), together with
interest at the actual interest rate incurred by Landlord;
(g) rentals for items (except when needed in connection with normal
repairs and maintenance of permanent systems) which if purchased, rather than
rented, would constitute a capital improvement which is specifically excluded
in Subsection (f) above (excluding, however, equipment not affixed to the
Building which is used in providing janitorial or similar services);
(h) costs incurred by Landlord for the repair of damage to the
Building, to the extent that Landlord is reimbursed by insurance proceeds;
(i) costs, including permit, license and inspection costs, incurred
with respect to the installation of tenant improvements in the Building or
incurred in renovating or otherwise improving, decorating, painting or
redecorating vacant leasable space for tenants or other occupants of leasable
premises in the Building;
(j) depreciation, amortization and interest payments, except as
provided herein and except on materials, tools, supplies and vendor-type
equipment purchased by Landlord to enable Landlord to supply services
Landlord might otherwise contract for with a third party where such
depreciation, amortization and interest payments would otherwise have been
included in the charge for such third party's services, all as determined in
accordance with generally accepted accounting principles, consistently
applied, and when depreciation or amortization is permitted or required, the
item shall be amortized over its reasonably anticipated useful life;
(k) marketing costs, including leasing commissions, attorney's fees
in connection with the negotiation and preparation of letters, deal memos,
letters of intent, leases, subleases and/or assignments, space planning
costs, and other costs and expenses incurred in connection with lease,
sublease and/or assignment negotiations and transaction with present or
prospective tenants or other occupants of the Building;
(l) costs incurred by Landlord for alterations which are considered
capital improvements, and replacements under generally accepted accounting
principles, consistently applied, except as permitted in (f) and (g) above;
-11-
<PAGE>
(m) costs of a capital nature, including costs of a capital nature
relating to "Year 2000" costs, including without limitation, capital
improvements, capital repairs, capital equipment and capital tools, all as
determined in accordance with generally accepted accounting principles,
consistently applied, excepted as permitted in (f) and (g) above;
(n) costs incurred by Landlord due to a violation by any other
tenant of the terms and conditions of any lease;
(o) any amounts paid by Landlord for, materials, labor or
equipment shall be limited to the amounts which would have been paid for the
aforesaid, based upon their procurement from an unaffiliated party in an arms
length transaction;
(p) Landlord's general corporate overhead and corporate general
and administrative expenses, to the extent such overhead and expenses exceeds
the management fee;
(q) any compensation paid to clerks, attendants or other persons,
rendering services on behalf of Landlord in commercial concessions operated
by Landlord, or any compensation paid to attendants working in a parking
garage in the Building or any other parking facility operated by Landlord;
(r) except for making repairs or keeping permanent systems in
operation while repairs are being made, rentals and other related expenses
incurred in leasing air conditioning systems, elevators or other equipment
ordinarily considered to be of a capital nature, except equipment not affixed
to the Building which is used in providing janitorial or similar services:
(s) All items and services for which Tenant or any other tenant
in the Building reimburses Landlord (other than through Tenant's Percentage
Share of Operating Expenses), or which Landlord provides selectively to one
or more tenants (other than Tenant) without reimbursement:
(t) Advertising of a non-employment nature and promotional
expenditures, and procurement costs of signs in or on the Building
identifying the owner of the Building;
(u) Electric power costs for which any tenant directly contracts
with the local public service company;
(v) Tax penalties incurred as a result of Landlord's negligence,
inability or unwillingness to make payments when due;
(w) Costs arising from the negligence or fault of Landlord or its
agents, or any vendors, contractors, or providers of materials or services
selected, hired or engaged by Landlord or its agents including, without
limitation, in connection with the selection of building materials;
(x) Costs incurred in curing a violation of environmental laws
regarding the storage, use or disposal of hazardous materials or substances
(as defined by applicable laws) in effect in or about the Building or
Property including, without limitation, hazardous substances in the ground
water or soil, unless such violation of environmental laws are caused by
Tenant;
(y) Costs arising from Landlord's charitable or political
contributions;
(z) Costs arising from latent defects in the base, shell or core
of the Building;
-12-
<PAGE>
(aa) Costs for procuring sculpture, paintings or other objects of
art;
(bb) attorney fees, costs, and disbursements (including
settlements) and other expenses incurred in connection with proposals,
negotiations, or disputes with other tenants or occupants or prospective
tenants or other occupants, or associated with the enforcement of any leases
or the defense of Landlord's title to or interest in the Premises, the
Building or its appurtenances, or any part thereof.
Landlord further agrees that since one of the purposes of Operating
Expenses and the increase in Operating Costs provision is to allow the
Landlord to require the Tenant to pay for the costs attributable to its
Premises, Landlord agrees that (i) Landlord will not collect or be entitled
to collect Operating Costs from all of its tenants in an amount which is in
excess of 100% of the Operating Costs actually paid by Landlord in connection
with the operation of the Building.
For any Operating Year during which less than ninety-five percent
(95%) of the Rental Area of the Building is occupied, the calculation of
that portion of Operating Costs which vary with occupancy shall be adjusted
to equal the Operating Costs which Landlord projects would have been incurred
had the Building been ninety-five percent occupied during such Operating Year.
d. "Fractional Share" shall mean a fraction, the numerator of which
is the Rental Area of the Premises and the denominator of which is the Rental
Area of the Building (currently 265, 168 square feet). For the purposes of
this subparagraph, the Rental Area of the Building shall mean the sum of the
Rental Area on all floors of the building as determined by Landlord in
accordance with the measurement method set forth in Section 3.
7.2. PAYMENT OF OPERATING COST ESCALATION. For each Operating Year,
commencing January 1, 1999, Tenant shall pay to Landlord, in the manner
provided herein, Tenant's share of increased operating costs which shall be
computed by multiplying the Operating Costs for the Operating Year by
Tenant's Fractional Share and subtracting the Base Operating Costs from the
result obtained ("Tenant's Share of Increased Operating Costs") but in no
event less than the Base Operating Costs; provided, however, that for the
Operating Years during which the Term begins and ends, Tenant's Share of
Increased Operating Costs shall be prorated based upon the actual number of
days Tenant occupied, or could have occupied, the premises during each such
Operating Year.
Tenant's Share of Increased Operating Costs shall be paid, in
advance, without notice, demand, abatement (except as otherwise specifically
provided in this Lease), deduction or set-off, on the first day of each
calendar month during the Term, said monthly amounts to be determined on the
basis of reasonable estimates prepared by Landlord on an annual basis and
delivered to Tenant prior to the commencement of each Operating Year.
Landlord shall provide Tenant with reasonably detailed documentation to
support Landlord's estimates. If, however, Landlord fails to furnish any such
estimate prior to the commencement of an Operating Year, then (a) until the
first day of the month following the month in which such estimate is
furnished to Tenant, Tenant shall pay to Landlord on the first day of each
month an amount equal to the monthly sum payable by Tenant to Landlord under
this subsection 7.2 in respect of the last month of the preceding Operating
Year; (b) promptly after such estimate is furnished to Tenant, Landlord shall
give notice to Tenant whether the installments of Tenant's Share of Increased
Operating Costs paid by Tenant for the current Operating Year have resulted
in a deficiency or overpayment compared to payments which would have been
paid under such estimate, and Tenant, within ten (10) business days after
receipt of such estimate, shall pay any deficiency to Landlord and any
overpayment shall be credited against future payments required by Tenant
under such estimate; and (c) on the first day of the month following the
month in which such estimate is furnished to Tenant and monthly thereafter
throughout the remainder of the Operating Year, Tenant shall pay to Landlord
the
-13-
<PAGE>
monthly payment shown on such estimate. Landlord may at any time or from time
to time furnish to Tenant a revised estimate of Tenant's Share of Increased
Operating Costs for such Operating Year with a written explanation of the
reason for such revised estimates, and in such case, Tenant's monthly
payments shall be adjusted and paid or credited, as the case may be,
substantially in the same manner as provided in the preceding sentence.
Within a reasonable time after the end of each Operating Year, Landlord
shall determine actual Operating Costs for such Operating Year and shall
provide to Tenant an "Operating Costs Statement" setting forth in reasonable
detail the actual Tenant's Share of Increased Operating Costs for such
Operating Year. Within thirty (30) days after delivery of the Operating Costs
Statement, Tenant shall pay Landlord any deficiency between the amount shown
as Tenant's Share of Increased Operating Costs in the Operating Costs
Statement and the total of the estimated payments made by Tenant during the
Operating Year. In the event of overpayment, such amount shall be credited
against future payments required on account of Tenant's Share of Increased
Operating Costs, or if the Term has expired, Landlord shall refund to Tenant
the amount of any overpayment.
Each Operating Costs Statement provided by Landlord shall be conclusive
and binding upon Tenant unless within ninety (90) days after receipt thereof,
Tenant notifies Landlord that it disputes the correctness thereof, specifying
those respects in which it claims the Operating Costs Statement to be
incorrect. Unless promptly resolved by the parties, such dispute shall be
determined by arbitration in accordance with the then prevailing rules of the
American Arbitration Association. If the arbitration proceedings result in a
determination that the Operating Costs Statement contained an aggregate
discrepancy of less than five percent (5%), Tenant shall bear all costs in
connection with such arbitration. If the arbitration proceedings result in a
determination that the Operating Costs Statement contained an aggregate
discrepancy of greater than five percent (5%), Landlord shall bear all costs
in connection with such arbitration. Pending determination of the dispute,
Tenant shall pay any amounts due from Tenant in accordance with the Operating
Costs Statement, but such payment shall be without prejudice to Tenant's
claims. Tenant, for a period of ninety (90) days after delivery of the
Operating Costs Statement in each Operating Year and upon at least ten (10)
days written notice to Landlord, shall have reasonable access during normal
business hours to the books and records of Landlord relating to Operating
Costs for the purpose of verifying the Operating Costs Statement, which shall
be in accordance with generally accepted accounting principles consistently
applied, Tenant shall bear all costs relating to such inspection. Tenant
shall reimburse Landlord for any cost for photocopying that it desires.
8. USE CARE AND REPAIR OF PREMISES BY TENANT.
8.1. PERMITTED USES. Tenant shall use and occupy the Premises solely for
general office purposes in accordance with applicable zoning regulations and
for no other purpose. Tenant shall not do anything or permit anything to be
done in or on the Premises, or bring or keep anything therein which will,
in any way, materially obstruct, injure, annoy or interfere with the rights
of Landlord or other tenants, or subject Landlord to any liability for injury
to persons or damage to property, or interfere with the good order of the
Building, or conflict with the laws, rules or regulations of any Federal,
state or city authority.
8.2. CARE OF PREMISES. Tenant shall, at its sole expense, keep the
Premises and the improvements and appurtenances therein in good order and
condition consistent with the operation of a first-class office building, and
at the expiration of the Term, or at the sooner termination of this Lease as
herein provided, delivery up the same broom clean and in as good order and
condition as at the beginning of the Term, ordinary wear and tear and damage
by fire or other casualty excepted. Tenant, at its sole
-14-
<PAGE>
expense, shall promptly replace damaged or broken doors and glass (excluding
exterior plate glass windows) in and about the interior of the Premises and
shall be responsible for the repair and maintenance of all special or custom
Tenant Improvements and Alterations, including, without limitation, the
repair and replacement of appliances and equipment installed specifically for
Tenant such as refrigerators, disposals, computer room air conditioning,
sinks and special plumbing, special light fixtures and bulbs for those
fixtures, non-standard outlets and plug-in strips, and special cabinetry.
Consistent with the provisions of Section 22 and subject to and except for
ordinary wear and tear, Tenant shall pay for all property damage sustained by
other tenants or occupants of the Building, due to any waste, misuse or
neglect by Tenant of the Premises and any fixtures and appurtenances related
thereto or due to any breach of this Lease by Tenant, its employees, agents,
representatives or invitees. Tenant shall not place a load upon any floor
that exceeds either the floor load per square foot that such floor was
designed to carry or which is allowed by any laws, rules, building codes or
regulations of any Federal, state or city authority promulgated subsequent to
the date hereof. Business machines and mechanical equipment in the Premises
shall be placed and maintained by Tenant, at tenant's sole expense, in such
manner as shall be sufficient, in Landlord's reasonable judgement, to prevent
the vibration and noise therefrom from being a nuisance to Landlord and the
other tenants.
8.3. HAZARDOUS SUBSTANCES. For purposes of this provision, "Hazardous
Substances" shall mean any hazardous or toxic substance, material or waste,
now or hereafter defined or regulated under the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 ET SEQ.), the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. Section
9601 ET SEQ.), the Clean Water Act (33 U.S.C. Section 1251 ET SEQ.), the
Clean Air Act (42 U.S.C. Section 7401 ET SEQ.), and the Toxic Substances
Control Act (15 U.S.C. Section 2601 ET SEQ.), and all similar federal, state
and local statutes, laws, rules and regulations in connection with
environmental conditions, health and safety, including without limitation,
asbestos and petroleum products (collectively, "Environmental Laws"). Tenant
convenants and agrees that it will not use or allow the Premises to be used
for the storage, use, treatment or disposal of any Hazardous Substance,
without Landlord's prior written consent. Notwithstanding the foregoing,
Landlord's prior written consent shall not be required with respect to
Tenant's use, storage or sale of certain supplies or products, which might
contain or might be considered a Hazardous Substance, in the normal course of
Tenant's business in accordance with the specific use permitted by this
Lease, provided, however, that Tenant shall (i) comply with all other
provisions of this Section; (ii) notify Landlord in writing from time to time
of the identity and approximate quantity of such Hazardous Substance; and
(iii) keep each such Hazardous Substance on the Premsies in quantities as
small as reasonably practicable, but in no event large enough to activate
reporting requirements under any Environmental Law. Tenant, at Tenant's sole
cost and expense shall promptly contain and remediate any release of a
Hazardous Substance on the Property to the extent such release arises
directly from the actions of Tenant, its agents, servants and employees.
Tenant shall indemnify, reimburse and hold harmless Landlord, its
partners and affiliates agents from and against any damages, claims,
judgments, fines, penalties, costs, liabilities (including sums paid in
settlement of claims) or loss including reasonable attorneys' fees,
reasonable consultants' fees, and reasonable expert fees incurred by any of
them to the extent resulting from Tenant's use, handling, generation,
treatment, storage, disposal, other management or release of any Hazardous
Substance at or from the Premises or the Property, whether or not Tenant has
acted negligently with respect to such Hazardous Substance. This indemnity
shall survive the expiration or earlier termination of this Lease.
Landlord warrants and represents to Tenant that to Landlord's
actual knowledge, there are no Hazardous Substances in violation of any
Environmental Laws in the Property of which the Premises are a part.
-15-
<PAGE>
8.4. COMPLIANCE WITH LAWS.
Tenant, at its sole cost and expense, shall conform to and comply
with and shall cause the Premises to conform to and comply with all federal,
state, county, municipal and other governmental statues, laws, rules, orders,
regulations, and ordinances applicable to Tenant or resulting from Tenant's
use or occupancy of the Premises or the Property or any part thereof. If
there is a change in any governmental statute, law, rule, order, regulation
or ordinance affecting the Premises which requires the making of a change to
any structural element in the Premises, Landlord shall be responsible for and
bear the cost of any such change.
Landlord warrants and represents to Tenant that, as of the Lease
Commencement Date, Landlord is in the process of implementing a compliance
plan for the Property, which is intended to comply substantially with the
requirements of The Americans With Disabilities Act of 1990, and Landlord
will proceed to execute such plan throughout the Term, subject to the
provisions of Sections 7 and 15.1 of this Lease.
9. RULES AND REGULATIONS.
Tenant and it agents and invitees shall abide by and observe the
rules and regulations attached hereto as SCHEDULE C for the operation and
maintenance of the Building or any new rules and regulations which may from
time to time be issued by Landlord ("Rules and Regulations"), provided that
any new rules or regulations are not inconsistent with common practice or
usage in comparable office buildings in Baltimore City and the provisions of
this Lease. Nothing in this Lease shall be interpreted to impose upon
Landlord any duty or obligation to enforce any such rules and regulations
against any other tenant in the Building, and Landlord shall not be liable to
Tenant for any violation of these rules and regulations by any other tenant
or its agents or invitees.
All rules and regulations promulgated by Landlord shall be
reasonable, shall not materially alter the terms of this Lease and any
enforcement shall be uniform with respect to all tenants' use and occupancy
of the Building and Common Area.
Tenant hereby acknowledges and confirms for Landlord that Tenant
has heretofore received a copy of the COREA, to which the Project is subject
and to which this Lease is subordinate, setting forth the various easements
among the various users of the components of the Project and the allocation
of operating costs among such components, and Tenant agrees to be bound by
the COREA.
10. COMMON AREA.
10.1. DEFINITION OF COMMON AREA. As used herein, "Common Area" means
those areas and facilities which may be furnished by Landlord on or near the
Property, as designated by Landlord from time to time, intended for the
general common use and benefit of all tenants of the Building and their
agents, representatives, licenses, employees and invitees, including, without
limitation, any and all stairs, landings, roofs, utility and mechanical rooms
and equipment, service closets, corridors, elevators, lobbies, lavatories and
other public areas of the Building and all parking areas, access roads,
pedestrian walkways, plazas and landscaped areas.
10.2. USE OF COMMON AREA. Tenant shall have the non-exclusive right to
use the Common Area in common with Landlord, other tenants in the Building,
and others entitled to the use thereof, subject to such reasonable rules and
regulations governing the use of the Common Area as Landlord may
-16-
<PAGE>
from time to time prescribe and subject to such easements therein as Landlord
may from time to time grant to others. Tenant shall not obstruct in any
material way any portion of the Common Area or in any way interfere with the
rights of other persons entitled to use the Common Area and shall not,
without the prior written consent of Landlord, use the Common Area in any
manner, directly or indirectly, for the location or display of any
merchandise or property belonging to Tenant or for the location of signs
relating to Tenant's operations in the Premises. The Common Area shall at all
times be subject to the exclusive control and management of Landlord.
10.3. ALTERATIONS TO THE COMMON AREA. Landlord reserves the right at any
time and from time to time (i) to change or alter the location, layout,
nature or arrangement of the Common Area or any portion thereof, including
but not limited to the arrangement and/or location of entrances, passageways,
doors, corridors, stairs, lavatories, elevators, parking areas, and other
public areas of the building, and (ii) to construct additional improvements
on the Property and make alterations thereof or additions thereto and build
additional stories on or in any such buildings or build adjoining same;
provided, however, that no such change or alteration shall deprive Tenant of
reasonable access to the Premises or reduce the Rental Area of the Premises,
unless such reduction is required by Federal, State or local laws or
regulations, in which event, a reduction in the Premises shall be permitted
with a commensurate reduction in rent and Tenant's Share of Increased
Operating Costs. Landlord shall have the right to close temporarily all or
any portion of the Common Area to such extent as may, in the reasonable
opinion of Landlord, be necessary to prevent a dedication thereof to the
public, provided that Tenant is not thereby denied reasonable access to, or
use of, the Premises, or for repairs, replacements or maintenance to the
Common Area, provided such repairs, replacements or maintenance are performed
expeditiously and in such a manner as not to deprive Tenant of reasonable
access to, or use of, the Premises.
10.4. MAINTENANCE. Landlord covnenants to keep, maintain, manage and
operate the Common Area in a manner consistent with the operation of a first
class office building and to keep the sidewalks and driveways, if any,
constituting a portion of the Common Area clean and reasonably clear of snow
and ice. Landlord reserves the right of access to the Common Area through the
Premises for the purposes of operation, decoration, cleaning, maintenance,
safety, security, alterations and repairs.
11. SERVICES AND UTILITIES.
So long as Tenant is not in an Event of Default under this Lease,
Landlord shall provide the following facilities and services to Tenant, the
cost of such facilities and services to be included in Landlord's Operating
Costs (except as otherwise provided herein):
a. At least one elevator (if the building contains an elevator)
subject to call at all times, including Sundays and holidays. The holidays
observed by Landlord are New Year's Day, President's Day, Memorial Day
observed, Independence Day, Labor Day, Thanksgiving, and Christmas.
b. During "normal business hours" as hereinafter defined, central
heating and air conditioning during the seasons of the year when these
services are normally and usually furnished, and within the temperature
ranges and in such amounts normally or usually furnished in comparable
first-class office buildings in the immediate vicinity. For the purposes of
this paragraph b, the term "normal business hours" shall mean the periods
from 8:00 a.m. until 6:00 p.m. on business days and from 8:00 a.m. until
12:00 p.m. on Saturdays. Landlord shall provide the aforesaid services at
other times, at Tenant's expense, provided Tenant gives Landlord notice by
1:00 p.m. on weekdays for after-hour service on the next weekday, by 1:00
p.m. the day before a holiday for service on a holiday, and by 1:00 p.m. on
Friday for after-hour service on Saturday or service on Sunday. Such
after-hour, holiday or special
-17-
<PAGE>
weekend service shall be charged to Tenant at rates to be calculated by
Landlord based on Landlord's costs, which rates shall be given to Tenant on
request. As of the Lease Commencement Date, the rate is Sixty-Five Dollars
($65.00) per hour. Landlord reserves the right to adjust, from time to time,
the rate at which such services shall be provided corresponding to
adjustments in Landlord's costs. Tenant shall pay for such service, as
Additional Rent, promptly upon receipt of an invoice with respect thereto.
c. Reasonable amounts of electric current for lighting and normal
and customary items of office equipment (subject to the provisions of Section
12 below). Landlord warrants that the cost to Tenant for electrical energy
used in the Premises will not be greater than the cost would be to Tenant if
the energy was supplied directly to Tenant by a public utility or public
authority in the area in which the Property is located, but in no event, will
such cost be more than the cost to Landlord to provide such service.
d. Cleaning in Landlord's standard manner, consistent with other
first-class office buildings.
e. Replacement of light tubes or bulbs for building standard
lighting fixtures. All light tube or bulb replacements for special
non-standard lighting fixtures shall be furnished and installed by Landlord
at Tenant's expense.
f. Rest room facilities and necessary lavatory supplies, including
hot and cold running water at the points of supply, as provided for general
use of all tenants in the Building and routine maintenance, painting, and
electric lighting service for all public areas of the Building in such manner
as Landlord deems reasonable.
Except as provided in this Lease, any failure by Landlord to
furnish the foregoing services, resulting from circumstances beyond
Landlord's reasonable control or from interruption of such services due to
repairs or maintenance, shall not render Landlord liable in any respect for
damages to either person or property, nor be construed as an eviction of
Tenant, nor cause an abatement of rent hereunder, nor relieve Tenant from any
of its obligations hereunder. If any public utility or governmental body
shall require Landlord or Tenant to restrict the consumption of any utility
or reduce any service for the Premises or the Building, Landlord and Tenant
shall comply with such requirements, whether or not the utilities and
services referred to in this Section 11 are thereby reduced or otherwise
affected, without any liability on the part of Landlord to Tenant or any
other person or any reduction or otherwise affected without any liability on
the part of Landlord to Tenant or any other person or any reduction or
adjustment in rent payable hereunder. Landlord and its agents shall be
permitted reasonable access to the Premises for the purpose of installing and
servicing systems within the Premises deemed reasonably necessary by Landlord
to provide the services and utilities referred to in this Section 11 to
Tenant and other tenants in the Building. In the event any failure to supply
services continues uninterrupted for a period of greater than seven (7)
consecutive calendar days and thereby renders the Premises wholly or
partially untenantable, the rent shall be abated to the extent of such
untenantability.
Landlord reserves the right to charge Tenant the reasonable cost,
based on usage, of the removal of all trash and the reasonable cost of
water/sewerage or electric service to the extent Tenant's trash disposal,
water/sewerage and/or electrical usage exceeds, in Landlord's reasonable
opinion, normal usage for an office renant.
12. ELECTRIC CURRENT.
Landlord and its agents shall be permitted reasonable access to the
Premises for the purpose of installing and servicing systems within the
Premises reasonably deemed necessary by Landlord to provide the services and
utilities referred to in this Section 12 to Tenant and other tenants in the
Building.
-18-
<PAGE>
Tenant covenants that, unless permitted pursuant to the terms of this
section 12, it shall not use more than four (4) watts of electrical energy
per square foot of Rental Area within the Premises ("Base Current"). Landlord
shall be under no obligation to furnish electrical energy other than the Base
Current, and Tenant shall not install or use on the Premises any electrical
equipment, appliance or machine, for example, word processing or data
processing equipment, requiring more electrical energy than the Base Current,
unless the installation and use of such additional electrical equipment,
appliance, or machine has been approved by Landlord pursuant to terms and
conditions set forth in a separate agreement, which approval may be
conditioned upon the payment by Tenant, as Additional Rent, of the cost of
the additional electrical energy and modifications to the Building's
electrical system required for the operation of such electrical equipment,
appliance, or machine.
13. LOSS, DAMAGE AND INJURY.
To the maximum extent permitted by law, Tenant shall occupy and use the
Premises, the Building and the Common Area at Tenant's own risk. Consistent
with the provisions of Section 16.4, Tenant's Personal Property and personal
items of those claiming by, through or under Tenant, located in or on the
Premises or the Building, shall be and remain at the sole risk of Tenant or
such other person.
Further consistent with Section 16.4 and except as otherwise provided in
this Lease, Tenant hereby expressly agrees that Landlord and its agents,
employees and the parties to the COREA shall not be liable or responsible for,
and Tenant does hereby save them harmless from, any damage to the property of
Tenant, or its agents, employees, licensees, invitees or contractors,
directly or indirectly caused by (a) dampness or water in any part of the
Premises or Building; (b) bursting, leaking or overflowing of water, sewer,
steam, gas or sprinkler pipes and heating or plumbing fixtures; (c) air
conditioning or heating failures; (d) interference with light, air or other
incorporeal hereditaments; (e) operations in the construction of any public
or quasi-public work; (f) theft or other crime whether violent or non-violent
in nature; (g) fire, accident or natural disorder or other casualty; (h)
latent or apparent defect or change of condition in the Premises and/or the
Building; (i) the acts or omissions of other persons in the Building; and
(j) any other source, circumstance, or cause whatsoever except for damage or
loss caused by the negligence or willful misconduct of the Landlord and not
covered by tenant's insurance as required under Section 16.1 hereof.
No representation, guaranty, assurance, or warranty is made or given by
Landlord that the communications or security systems, devices or procedures
used, if any, will be effective to prevent injury to Tenant or any other
person or damage to, or loss (by theft or otherwise) of any of Tenant's
Personal Property or of the property of any other person, and Landlord
reserves the right to discontinue or modify at any time such communications
or security systems, devices, or procedures without liability to Tenant.
14. REPAIRS BY LANDLORD.
Landlord shall keep the Premises and the Building and all machinery,
equipment, fixtures and systems of every kind attached to, or used in
connection with the operation of, the Building, including all electrical,
heating, mechanical, sanitary, sprinkler, utility, power, plumbing, cleaning,
refrigeration, ventilating, air conditioning and elevator systems and
equipment (excluding, however, lines, improvements, systems and machinery for
water, gas, steam and electricity owned and maintained by any public utility
company or governmental agency or body) in good order and repair consistent
with the operation of the Building as a first-class office building.
Landlord, at its expense (subject to reimbursement by Tenant pursuant to
Section 7), shall make all repairs and replacements necessary to
-19-
<PAGE>
comply with its obligations set forth in the immediately preceding sentence,
except for (a) repairs required to be made by Tenant pursuant to Section 8
and (b) repairs caused by the willful misconduct of Tenant, its agents,
employees, invitees and guests, which repairs shall be made by Landlord at
the cost of Tenant, and for which Tenant shall pay promptly, as Additional
Rent, upon receipt of an invoice setting forth the cost of such repairs.
There shall be no abatement in rents due and payable hereunder and no
liability on the part of Landlord by reason of any inconvenience or annoyance
arising from Landlord's making repairs, additions or improvements to the
Building in accordance with its obligations hereunder.
In an emergency, Landlord shall use all reasonable efforts to commence
the repair within twenty-four (24) hours after notification from Tenant and
shall diligently work to complete the same. In all other instances, Landlord
shall commence repairs as soon as reasonably possible after notice from
Tenant and shall diligently work to complete the same. In the event Landlord
fails to commence and diligently pursue any repairs or provide services for
which Landlord is responsible within thirty (30) days after written notice
from Tenant of the need for repair or such services. Tenant shall have the
right with notice to Landlord at the notice address to perform the repairs or
provide such services and Landlord shall reimburse Tenant for the reasonable
cost of repair or provision of services within sixty (60) days after request
therefor.
15. ALTERATIONS, TITLE AND PERSONAL PROPERTY.
15.1. ALTERATIONS. Tenant shall in no event make or permit to be made
any alteration, modification, substitution or other change of any nature to
the mechanical, electrical, plumbing, HVAC and sprinkler systems within or
serving the Premises. After completion of Tenant's Improvements within the
Premises. Tenant shall not make or permit any other improvements, alterations,
fixed decorations, substitutions or modifications, structural or otherwise,
to the Premises or the Building ("Alterations") without the prior written
approval of Landlord. Landlord shall not unreasonably withhold or delay its
consent to Alterations which do not affect the structural, mechanical,
plumbing or electrical elements or systems of the Building and which are not
visible from outside the Premises, provided such Alterations conform with the
design criteria, standards and architectural guidelines for the Building.
Landlord's approval shall include the conditions under which acceptable
Alterations may be made. Alterations shall include, but not be limited to,
the installation or modification of carpeting, walls, partitions, counters,
doors, shelves, lighting fixtures, hardware, locks, ceiling, window and wall
coverings; but shall not include the initial Tenant's Improvements placed
within the Premises pursuant to Section 5.1. All Alterations shall be based
on complete plans and specifications prepared and submitted by Tenant to
Landlord for approval, except in the instance of cosmetic changes, such as
painting and carpeting, in which case Tenant shall provide Landlord with
samples showing colors, styles, etc. All Alterations shall be made by
Landlord at Tenant's sole cost, which cost shall be approved by Tenant before
the commencement of any work by Landlord. Such costs shall be payable by
Tenant, as Additional Rent, within thirty (30) days after receipt of an
invoice for same from Landlord, which cost shall include Landlord's standard
construction management fee, which fee is currently thirteen and one-half
percent (13.5%). Tenant shall be responsible for the cost of any additional
improvements within the Premises or the Common Area required by The Americans
with Disabilities Act of 1990 as a result of Tenant's Alterations.
If Tenant makes any Alterations without the prior consent of Landlord,
then, in addition to Landlord's other remedies, Landlord may correct or
remove such Alterations and Tenant shall pay the cost thereof, as Additional
Rent, within five (5) days after written demand by Landlord.
-20-
<PAGE>
15.2. TITLE. The Tenant Improvements, all Alterations and all
equipment, machinery, furniture, furnishings, and other property or
improvements installed or located in the Premises by or on behalf of Landlord
or Tenant, other than Tenant's Personal Property, (a) shall immediately
become the property of Landlord and (b) shall remain upon and be surrendered
to Landlord with the Premises as a part thereof at the end of the Term.
Notwithstanding the foregoing, Landlord shall, upon notice to Tenant at the
time when Tenant proposes to make Alterations, elect that any Alterations be
removed at the end of the Term, and thereupon, Landlord shall at Tenant's
sole expense, cause such Alterations to be removed and restore the Premises
to its condition prior to the making of such Alterations, reasonable wear
and tear excepted. Tenant shall promptly reimburse Landlord, as Additional
Rent, for the direct and verifiable cost of such work, which reimbursement
obligation shall survive termination of the Lease.
15.3. TENANT'S PERSONAL PROPERTY. "Tenant's Personal Property" means
all equipment, machinery, trade fixtures, furniture, furnishings and/or other
property now or hereafter installed or placed in or on the Premises by and at
the sole expense of Tenant with respect to which Tenant has not been granted
any credit or allowance by Landlord and which (a) is not used, or was not
procured for use, in connection with the operation, maintenance or protection
of the Premises or the Building; (b) is removable without damage to the
Premises or the Building; and (c) is not a replacement of any property of
Landlord, whether such replacement is made at Tenant's expense or otherwise.
Notwithstanding any other provision of this Lease, Tenant's Personal
Property shall not include any Alterations or any improvements or other
property installed or placed in or on the Premises as part of Tenant's
Improvements, whether or not installed at Tenant's expense. Tenant shall
promptly pay all personal property taxes on Tenant's Personal Property, as
applicable. Any property belonging to Tenant or any other person which is
left in the Premises after the date the Lease is terminated for any reason
shall be deemed to have been abandoned. In such event, Landlord shall have
the right to declare itself the owner of such property and to dispose of it in
whatever manner Landlord considers appropriate without waiving its right to
claim from Tenant all expenses and damages caused by Tenant's failure to
remove such property, and Tenant shall not have any right to compensation or
claim against Landlord as a result.
16. INSURANCE.
16.1. TENANT'S INSURANCE. Tenant, at its expense, shall obtain and
maintain in effect as long as this Lease remains in effect and during such
other time as Tenant occupies the Premises or any part thereof insurance
policies in accordance with the following provisions.
A. COVERAGE.
(i) commercial general liability insurance policy, including
insurance against assumed or contractual liability under this Lease, with
respect to the Property, to afford protection with limits per occurrence, of
not less than Two Million Dollars ($2,000,000), combined single limit, with
respect to personal injury, bodily injury, including death, and property
damage and Four Million Dollars ($4,000,000) aggregate (occurrence form),
such insurance to provide for no deductible;
(ii) all-risk property insurance policy, including theft, written
at replacement cost value and with replacement cost endorsement, covering all
of Tenant's Personal Property in the Premises, and covering loss of income
resulting from casualty, such insurance to provide for no deductible greater
than Five Thousand Dollars ($5,000).
(iii) worker's compensation or similar insurance policy offering
statutory coverage and containing statutory limits, which policy shall also
provide Employer's Liability Coverage of not less than Five Hundred Thousand
Dollars ($500,000) per occurrence.
-21-
<PAGE>
(iv) Tenant shall require any construction contractor retained by
it to perform work on the Premises to carry and maintain, at no expense to
Landlord, during such times as contractor is working in the Premises, a
non-deductible (a) commercial general liability insurance policy, including,
but not limited to, contractor's liability coverage, contractual liability
coverage, completed operations coverage, broad form property damage
endorsement and contractor's protective liability coverage, to afford
protection with limits per person and for each occurrence, of not less than
Two Million Dollars ($2,000,000), combined single limit, and with respect to
personal injury and death and property damage, Four Million Dollars
($4,000,000) aggregate (occurrence form) and Two Million Dollars ($2,000,000)
aggregate completed operations; (b) automobile liability insurance in the
amount of One Million Dollars ($1,000,000) combined single limit for bodily
injury and property damage; (c) worker's compensation insurance or similar
insurance in form and amounts as required by law; and (d) any other insurance
reasonably required of Tenant by Landlord or any Mortgagee.
(v) Notwithstanding anything set forth above in this subsection
16.1 to the contrary, all dollar limits specified herein shall be increased
from time to time as reasonably necessary to effect economically equivalent
insurance coverage, or coverage deemed reasonably adequate in light of then
existing circumstances. In no event, however, shall such limits be changed
more frequently than once each Rental Year. Tenant shall not be subject to
such increase unless at least ninety percent (90%) of the leases for tenants
in the Property executed concurrently herewith and subsequent hereto contain
a similar provision.
B. POLICIES.
Such policies shall be maintained with companies licensed to do business
in the State where the Premises are located and in form reasonably acceptable
to Landlord and will be written as primary policy coverage and not
contributing with, or in excess of, any coverage which Landlord shall carry.
Such policies shall be provided on an occurrence form basis unless otherwise
approved by Landlord and shall include Landlord and its managing agent as
additional insured as to coverage under paragraphs 16.1.A.(i) and
16.1.A.(iv). Such policies shall also contain a waiver of subrogation
provision and a provision stating that such policy or policies shall not be
canceled, non-renewed, reduced in coverage or materially altered except after
thirty (30) day's written notice, said notice to be given in the manner
required by this Lease to Landlord, Attention: Risk Management Department. All
such policies of insurance shall be effective as of the date Tenant occupies
the Premises and shall be maintained in force at all times during the Term of
this Lease and all other times during which Tenant shall occupy the Premises.
Tenant shall deposit the policy or policies of such required insurance or
certificates thereof with Landlord prior to the Lease Commencement Date.
Tenant may maintain the required liability and all-risks property
insurance in the form of a blanket policy covering other locations of Tenant
in addition to the Premises; provided, however, that Tenant shall provide
Landlord with a certificate of insurance specifically naming the location of
the Premises, the limits of which coverage are to be at least in the amounts
set forth in Section 16.1.A.
Notwithstanding anything to the contrary contained in Section 16.1.A.,
so long as Earthshell Corporation is the Tenant under this Lease, Tenant may
carry the insurance required under Section 16.1.A. in a deductible form, so
long as the amount of the deductible does not exceed $5,000.00, and so long
as Tenant agrees not to hold Landlord, its officers, agents, contractors or
employees liable for any losses which would otherwise be covered by such
deductible. Tenant hereby expressly waives all right of recovery against
Landlord, its officers, agents, employees or contractors for damage which
would otherwise be covered by any deductible contained in Tenant's insurance
policies covering the Premises.
-22-
<PAGE>
16.2. TENANT'S FAILURE TO INSURE. If Tenant shall fail to obtain
insurance as required under this Section 16, Landlord may, but shall not be
obligated to, obtain such insurance, and in such event, Tenant shall pay, as
Additional Rent, the premium for such insurance within five (5) days after
demand by Landlord.
16.3. COMPLIANCE WITH POLICIES. Tenant shall not do or allow to be
done, or keep, or allow to be kept, anything in, upon or about the Premises
which will contravene Landlord's policies insuring against loss or damage by
fire, other casualty, or any other cause, including without limitation,
public liability, or which will prevent Landlord from procuring such policies
in companies acceptable to Landlord. If any act or failure to act by Tenant
in and about the Building and the Premises shall cause the rates with respect
to Landlord's insurance policies to be increased beyond those rates that
would normally be applicable for such limits of coverage, Tenant shall pay,
as Additional Rent, the amount of any such increases within five (5) days
after demand by Landlord.
16.4. WAIVER OF RIGHT OF RECOVERY. Except as provided in Section 8.3,
neither party, including Landlord's managing agent, shall be liable to the
other party, including Landlord's managing agent, or to any insurance company
(by way of subrogation or otherwise) insuring the other party, for any loss
or damage to any building, structure or other tangible property, or loss of
income resulting therefrom, or losses under worker's compensation laws and
benefits even though such loss or damage might have been occasioned by the
negligence of such party, its agents or employees. The provisions of this
Section 16.4 shall not limit the indemnification for liability to third
parties pursuant to Section 22.
16.5. LANDLORD'S INSURANCE. Landlord shall carry commercial general
liability insurance with regard to the Property and all-risk property
insurance on the Property, including Tenant Improvements and Alterations but
excluding Tenant's Personal Property. Landlord warrants that it maintains,
and during the Term it covenants to maintain, all-risks property insurance
covering the Building in an amount equal to at least eighty percent (80%) of
its full replacement value, or such greater percent as is necessary to
prevent the applicable of the co-insurance provisions.
Landlord shall not be obligated to repair any damage to Tenant's
Personal Property or replace the same.
17. DAMAGE AND DESTRUCTION.
17.1. LANDLORD'S OBLIGATION TO REPAIR AND RECONSTRUCT. If as the
result of fire, the elements, accident or other casualty (any of such causes
being referred to herein as a "Casualty"), the Premises shall be rendered
wholly or partially untenantable (damaged to such an extent as to preclude
Tenant's use of the Premises for the purposes originally intended), then,
subject to the provisions of Section 17.2, Landlord shall cause such damage
to be repaired, including Tenant Improvements and Alterations, and the Annual
Basic Rent and Additional Rent (but not any Additional Rent due Landlord
either by reason of Tenant's failure to perform any of its obligations
hereunder or by reason of Landlord's having provided Tenant with additional
services hereunder) shall be abated proportionately as to the portion of the
Premises rendered untenantable during the period of such untenantability.
All such repairs shall be made at the expense of Landlord, subject to the
availability of insurance proceeds and Tenant's responsibilities set forth
herein. Landlord shall not be liable for interruption to Tenant's business
or for damage to or replacement or repair of Tenant's Personal Property, all
of which replacement or repair shall be undertaken and completed by Tenant,
at Tenant's expense.
-23-
<PAGE>
If the Premises shall be damaged by Casualty, but the Premises shall
not be thereby rendered wholly or partially untenantable, Landlord shall
promptly cause such damage to be repaired and there shall be no abatement of
rent reserved hereunder.
17.2. TERMINATION OF LEASE. (A) If the Premises are (1) rendered
wholly untenantable, or (2) materially damaged as a result of any cause which
is not covered by Landlord's insurance, or (B) if the Building is damaged to
the extent of fifty percent (50%) or more of the gross leasable area thereof,
or (C) if, for reasons beyond Landlord's control or by virtue of the terms of
any financing of the Building, sufficient insurance proceeds are not
available for the reconstruction or restoration of the Building or Premises,
then, in any of such events, Landlord may elect to terminate this Lease by
giving to Tenant notice of such election within ninety (90) days after the
occurrence of such event, or after the insufficiency of such proceeds becomes
known to Landlord, whichever is applicable. If such notice is given, the
rights and obligations of the parties shall cease as of the date set forth in
such notice, and the Annual Basic Rent and Additional Rent (but not any
Additional Rent due Landlord either by reason of Tenant's failure to perform
any of its obligations hereunder or by reason of Landlord's having provided
Tenant with additional services hereunder) shall be adjusted as of the date
set forth in such notice, or, if the Premises were rendered untenantable, as of
the date of the Casualty.
Within ninety (90) days following a Casualty, Landlord shall notify
Tenant in writing of the date on which Landlord, in its best professional
judgment, estimates restoration will be substantially completed. If
restoration is expected to exceed one hundred eighty (180) days from the date
of Landlord's notice, then Tenant shall have the right to terminate this
Lease on written notice to Landlord within fifteen (15) days after receipt of
Landlord's notice.
Tenant shall have the right to terminate this Lease if the Premises are
damaged in whole or in part and are thereby rendered untenantable during the
last twelve (12) months of the Term, by giving Landlord written notice of
such termination within thirty (30) days after the date of the Casualty. If
Tenant so terminates this Lease, both parties shall be relieved of all
obligations under this Lease except those obligations occurring or accruing
before the date of such termination.
17.3. DEMOLITION OF THE BUILDING. If the Building shall be so
substantially damaged that it is reasonably necessary, in Landlord's
judgment, to demolish the Building for the purpose of reconstruction,
Landlord may demolish the same, in which event the Annual Basic Rent and
Additional Rent (but not any Additional Rent due Landlord either by reason of
Tenant's failure to perform any of its obligations hereunder or by reason of
Landlord's having provided Tenant with additional services hereunder) shall
be abated to the same extent as if the Premises were rendered wholly
untenantable by a Casualty.
17.4. INSURANCE PROCEEDS. If the Lease is not terminated pursuant to
subsection 17.2, Landlord shall, subject to the terms of any Mortgage,
disburse and apply any insurance proceeds received by Landlord to the
restoration and rebuilding of the Building in accordance with subsection 17.1
hereof. All insurance proceeds payable with respect to the Premises and the
Building shall belong to and shall be payable to Landlord. Notwithstanding
anything to the contrary, Tenant shall be entitled to receive all proceeds
payable with respect to Tenant's Personal Property.
18. CONDEMNATION.
18.1. TERMINATION. If either the entire Premises or the Building shall
be acquired or condemned by any governmental authority under its power of
eminent domain for any public or quasi-public use or purpose, this Lease
shall terminate as of the date of vesting or acquisition of title in the
condemning
-24-
<PAGE>
authority and the rents hereunder shall be abated on that date. If less than
the whole but more than thirty percent (30%) of the Rental Area of the
Premises or more than fifty percent (50%) of the total area of the Building
(even if the Premises are unaffected) of such portion of the Common Area as
shall render the Premises or the Building untenantable should be so acquired
or condemned, or if the taking materially interferes with Tenant's ability to
continue its normal business operations in substantially the same manner,
Landlord and Tenant shall each have the option to terminate this Lease by
notice given to the other within ninety (90) days of such taking. In the
event that such a notice of termination is given, this Lease shall terminate
as of the date of vesting or acquisition of title in the condemning authority
and the Annual Basic Rent and Additional Rent (but not any Additional Rent
due Landlord either by reason of Tenant's failure to perform any of its
obligations hereunder, or by reason of Landlord's having provided Tenant with
additional services hereunder) shall be adjusted as of such date. Landlord
shall make, or cause to be made, at its expense, such repairs and alterations
as may be necessary to restore the part not taken to useful condition.
If (a) neither Landlord nor Tenant shall exercise their respective
options to terminate this Lease, as hereinabove set forth, or (b) some lesser
portion of the Premises or the Building or Common Area, which does not give
rise to a right to terminate pursuant to this subsection 18.1, is taken by
the condemning authority, this Lease shall continue in force and effect, but
from and after the date of the vesting of title in the condemning authority,
the Annual Basic Rent payable hereunder during the unexpired portion of the
Term shall be reduced in proportion to the reduction in the total Rental Area
of the Premises, and any Additional Rent (but not any Additional Rent due
Landlord either by reason of Tenant's failure to perform any of its
obligations hereunder, or by reason of Landlord's having provided Tenant with
additional services hereunder) payable pursuant to the terms hereof shall be
adjusted to reflect the diminution of the Premises and/or the Building, as
the case may be.
18.2. RIGHTS TO AWARD. Tenant shall have no claim against Landlord
arising out of the taking or condemnation, or arising out of the cancellation
of this Lease as a result of any such taking or condemnation, or for any
portion of the amount that may be awarded as damages as a result of any
taking or condemnation, or for the value of any unexpired portion of the
Term, or for any property lost through condemnation, and Tenant hereby
assigns to Landlord all its right, title and interest in and to any such
award with regard to the Premises; provided, however, that Tenant may assert
any claim it may have against the condemning authority for compensation for
Tenant's Personal Property lost thereby, loss of income, and for any
relocation expenses compensable by statute and receive such awards therefor
as may be allowed in the condemnation proceedings provided that such awards
shall be made in addition to, and stated separately from, the award made for
the Building, the underlying land and the Premises. Landlord shall have no
obligation to contest any taking or condemnation.
19. BANKRUPTCY.
19.1. EVENT OF BANKRUPTCY. For purposes of this Lease, each of the
following shall be deemed an "Event of Tenant's Bankruptcy":
(a) if Tenant becomes insolvent, as defined in the Bankruptcy
code, or under the Insolvency Laws;
(b) the commencement of any action or proceeding for the
dissolution or liquidation of Tenant or for the appointment
of a receiver or trustee of the property of Tenant, whether
instituted by or against Tenant, if not bonded or discharged
within ninety (90) days of the date of the commencement of
such proceeding or action;
-25-
<PAGE>
(c) if Tenant files a voluntary petition under the Bankruptcy
Code or Insolvency Laws;
(d) if there is filed an involuntary petition against Tenant as
the subject debtor under the Bankruptcy Code or Insolvency
laws, which is not dismissed within ninety (90) days of
filing, or results in issuance of an order for relief
against the debtor; and
(e) if Tenant makes or consents to an assignment of its assets,
in whole or in part, for the benefit of creditors, or to a
common law composition of creditors.
As used herein, (i) "Bankruptcy Code" means title 11 of the United
States Code, 11 U.S.C. Section 101 et seq. as amended or any successor
statute and (ii) Insolvency Laws means the insolvency laws of any state or
territory of the United States.
19.2. ASSUMPTION BY TRUSTEE. If Tenant becomes the subject debtor in a
case pending under the Bankruptcy Code, Landlord's right to terminate this
Lease under Section 20 hereof shall be subject to the applicable rights (if
any) of the Trustee in Bankruptcy to assume or assign this Lease as then
provided for in the Bankruptcy Code. However, the Trustee in Bankruptcy must
give to Landlord and Landlord must receive proper written notice of the
Trustee's assumption or rejection of this Lease, within sixty (60) days (or
such other applicable period as is provided for in the Bankruptcy Code) after
the date of the Trustee's appointment. The failure of the Trustee to give
notice of the assumption within the period shall conclusively and irrevocably
constitute the Trustee's rejection of this Lease and waiver of any rights of
the Trustee to assume or assign this Lease. The Trustee shall not have the
right to assume or assign this Lease unless the Trustee (i) promptly and
fully cures all defaults under this Lease, (ii) promptly and fully
compensates Landlord for all monetary damages incurred as a result of such
default, and (iii) provides to Landlord adequate assurance of future
performance. In the event Tenant is unable to: (i) cure its defaults, (ii)
reimbures Landlord for its monetary damages, or (iii) pay the Rent due under
this Lease on time, then Tenant hereby agrees in advance that it has not met
its burden to provide adequate assurance of future performance, and this
Lease may be terminated by Landlord in accordance with Section 20.
19.3. TENANT'S GUARANTOR'S BANKRUPTCY. Notwithstanding any of the
other provisions of this Lease, in the event Tenant's obligations under this
Lease are guaranteed by a guarantor, and said guarantor shall voluntarily or
involuntarily come under the jurisdiction of the Bankruptcy Code, and
thereafter said guarantor or its trustee in bankruptcy, under the authority
of and pursuant to applicable provisions thereof, shall determine to assign
the guarantee obligations of said guarantor hereunder, Tenant and its said
guarantor agree that (a) said guarantor or its trustee will provide Landlord
sufficient information enabling it to independently determine whether
Landlord will incur actual and substantial detriment by reason of such
assignment, and (b) "adequate assurance of future performance" in regard to
such guarantee obligations of said guarantor, as that term is generally
defined under the Bankruptcy Code, will be provided to Landlord by said
guarantor or its trustee and its assignee as a condition of said assignment.
20. DEFAULT PROVISIONS AND REMEDIES.
20.1. EVENTS OF DEFAULT. Each of the following shall be deemed an
Event of Default by Tenant under this Lease:
-26-
<PAGE>
a. failure of Tenants to pay Annual Basic Rent, Additional Rent, or
any other sum required to be paid under the terms of this Lease, including
late charges, within ten (10) days after notice from Landlord of non-payment;
b. failure by Tenant to perform or observe any other term, covenant,
agreement or condition of this Lease, on the part of Tenant to be performed
(other than those obligations of Tenant set forth in subsection 16.2 for
which Tenant shall be entitled to receive no prior notice, and other than the
conditions set forth in paragraphs 20.1.a, c, d, e, f and g, which shall be
governed solely by the provisions set forth herein), within ten (10) days
after notice thereof from the Landlord specifying in reasonable detail the
nature of such default, unless such performance shall reasonable require a
longer period, in which case Tenant shall not be deemed in default if Tenant
commences the required performance promptly and thereafter pursues and
completes such action diligently and expeditiously;
c. the filing of a tax or mechanic's lien against any property of
Tenant which is not bonded or discharged within thirty (30) days of the date
such lien is filed;
d. abandonment of the Premises by Tenant; provided, however, that
Tenant shall not be deemed to be in default hereunder so long as Tenant shall
continue the payment of Annual Basic Rent and Additional Rent under this Lease;
e. an Event of Tenant's Bankruptcy;
f. the sale of Tenant's interest in the Premises under attachment,
execution or similar legal process; and
g. the failure of Tenant to vacate the premises upon the expiration of
the Term, or the earlier termination thereof pursuant to the other provisions
hereof.
20.2. REMEDIES. Upon the occurrence of an Event of Default, Landlord,
without notice to Tenant in any instance (except where expressly provided for
below or by applicable law) may do any one or more of the following:
(a) Sell at public or private sale all or any part of the
goods, channels, fixtures and other Tenant's Personal
Property which are or may be put into the premises during
the Term, whether exempt or not from sale under execution
or attachment and apply the proceeds of such sale, first,
to the payment of all costs and expenses of conducting the
sale or caring for or storing said property (including all
reasonable attorneys' fees), second, toward the payment of
any indebtedness, including (without limitation)
indebtedness for Annual Basic Rent, which may be or may
become due from Tenant to Landlord, and third, to pay
Tenant, on demand in writing, any surplus remaining after
all indebtedness of Tenant to Landlord has been fully paid;
(b) perform, on behalf and at the expense of Tenant, any
obligation of Tenant under this Lease which Tenant has
failed to perform and of which Landlord shall have given
Tenant notice, the cost of which performance by Landlord,
together with interest thereon at the Default Rate from the
date of such expenditure, shall be payable by Tenant to
Landlord, as Additional Rent, within fifteen (15) days
after demand.
-27-
<PAGE>
Notwithstanding the provisions of this clause (b) and
regardless of whether an Event of Default shall have
occurred, Landlord may exercise the remedy described in
clause (b) without any notice to Tenant (but with notice to
Tenant s soon as reasonably practicable under the
circumstances) if Landlord, in its good faith judgment,
believes it would be materially injured by failure to take
rapid action or if the unperformed obligation of Tenant
constitutes an emergency;
(c) elect to terminate this Lease and the tenancy created
hereby by giving notice of such election to Tenant, and
reenter the Premises, by summary proceedings or otherwise,
and remove Tenant and all other persons and property from
the Premises, and store such property in a public warehouse
or elsewhere at the cost of and without Landlord being
deemed guilty of trespass or becoming liable for any loss
or damage occasioned thereby;
(d) declare any option which Tenant may have to renew the Term
or expand the Premises to be null and void and of no
further force and effect; or
(e) exercise any other legal or equitable right or remedy which
it may have.
20.3. DAMAGES. If this Lease is terminated by Landlord pursuant to Section
20.2.(c), Tenant nevertheless shall remain liable for (a) any Annual Basic
Rent, Additional Rent, and damages which may be due or sustained prior to
such termination, and (b) all reasonable costs, fees and expenses including,
but not limited to, reasonable attorneys' fees, costs and expenses incurred by
Landlord in pursuit of its remedies hereunder or in renting the premises to
others from time to time. In addition, Landlord may recover from Tenant
additional damages to compensate Landlord for loss of rent resulting from
termination of the Lease, which, at the election of Landlord, shall be either:
(i) An amount equal to the rent which, but for termination of
this Lease, would have become due during the remainder of
the Term, less the amount of rent, if any, which Landlord
shall receive during such period from others to whom the
Premises may be rented(other than any Additional Rent
received by Landlord as a result of any failure of such
other person to perform any of its obligations to
Landlord), in which case such damages shall be computed and
payable in monthly installments, in advance, on the first
day of each calendar month following termination of the
Lease and continuing until the date on which the Term would
have expired but for such termination; and suit or action
brought to collect any such damages for any month shall not
in any manner prejudice the right of Landlord to collect
any damages for any subsequent month by a similar
proceeding; or
(ii) an amount equal to the present worth (as of the date of
such termination) of rent which, but for termination of
this Lease, would have become due
-28-
<PAGE>
during the remainder of the Term, in which case such
damages shall be payable to Landlord in one lump sum on
demand and shall bear interest at the Default Rate until
paid. For purposes of this clause (ii), "present worth"
shall be computed by discounting such amount to present
worth at a discount rate equal to one percentage point
above the discount rate then in effect at the Federal
Reserve Bank nearest to the location of the Property.
Damages shall be due and payable immdiately upon demand by Landlord
following any termination of this Lease pursuant to Section 20.2. In the
event Landlord re-leases the Premises prior to the expiration of the Term at
an Annual Basic Rent (annualized to account for any rent abatement, free rent
period or similar concession) equal to or greater than that reserved under
this Lease, Landlord shall refund to Tenant any amounts paid by Tenants
pursuant to Section 20.3. (ii) applicable to the portion of the Term
coinciding with the term of the replacement lease.
If this Lease is terminated pursuant to Section 20.2., Landlord may
re-lease the Premises or any part thereof, alone or together with other
premises, for such term(s) (which may be greater or less than the period
which otherwise would have constituted the balance of the Term) and on such
terms and conditions (which may include concessions of free rent and
alterations of the Premises) as Landlord, in its sole discretion, may
determine. The failure or refusal of Landlord to re-lease the Premises or any
part or parts thereof shall not release or affect Tenant's liability for
damages.
Notwithstanding anything to the contrary in this Section 20.3, Landlord
shall use reasonable efforts to re-lease the Premises, provided that Landlord
shall not be required to (i) use methods or procedures other than its usual
methods and procedures for finding tenants for comparable space in the
Building; (ii) lease the Premises in preference to any other space in the
Building available for lease, regardless of when such other space became
available for lease; (iii) lease the Premises at rents lower than the rate at
which Landlord would otherwise offer such space to a third party; (iv) to
make improvements to the Premises at Landlord's expense; and (v) lease the
Premises for any purpose or use other than that specifically permitted by
this Lease. Landlord shall not be liable to Tenant for Landlord's failure to
re-lease the Premises despite the exercise of reasonable efforts pursuant to
this paragraph, and no such re-leasing shall relieve Tenant of its
obligations under the terms of this Lease, including, without limitation, the
payment of rent as set forth herein.
Nothing contained in this Lease shall limit or prejudice the right of
Landlord to prove and obtain in proceedings for the termination of this Lease
by reason of bankruptcy or insolvency, an amount equal to the maximum allowed
by any statute or rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or not the amount
be greater, equal to, or less than the amount of the loss or damages referred
to above.
20.4. NO WAIVER. No act or omission by Landlord shall be deemed to be an
acceptance of surrender of the Premises or a termination of Tenant's
liabilities hereunder, unless Landlord shall execute a written release of
Tenant. Tenant's liability hereunder shall not be terminated by the execution
by Landlord of any new lease for all or any portion of the Premises or the
acceptance of rent from any assignee or subtenant.
20.5. REMEDIES NOT EXCLUSIVE. All rights and remedies of Landlord set
forth in this Lease shall be cumulative, and none shall exclude any other
right or remedy, now or hereafter allowed by or available under any statute,
ordinance, rule of court, or the common law, either at law or in equity, or
both. For the purposes of any suit brought or based hereon, this Lease shall
be construed to be a
-29-
<PAGE>
divisible contract, to the end that successive actions may be maintained on
this Lease as successive periodic sums shall mature hereunder. The failure of
Landlord to insist, in any one or more instances, upon a strict performance
of any of the covenants, terms and conditions of this Lease or to exercise
any right or option herein contained shall not be construed as a waiver or a
relinquishment for the future, of such covenant, term, condition, right or
option, but the same shall continue and remain in full force and such
covenant, term, condition, right or option, but the same shall continue and
remain in full force and effect unless the contrary is expressed by Landlord
in writing. The receipt by Landlord of rents hereunder, with knowledge of the
breach of any covenant hereof or the receipt by Landlord of less than the
full rent due hereunder, shall not be deemed a waiver of such breach or of
Landlord's right to receive the full rents hereunder, and no waiver by
Landlord of any provision hereof shall be deemed to have been made unless
expressed in writing and signed by Landlord.
20.6 PERSISTENT FAILURE TO PAY RENT. In addition to any other remedies
available to Landlord pursuant to this Lease or by law, Landlord may, at any
time throughout the Term of this Lease terminate this Lease upon Tenant's
default on three (3) separate occasions during any twelve (12) calendar month
period under subsection 20.1.a., regardless of whether or not such prior
defaults have been cured. Termination, pursuant to this subsection 20.6,
shall be effective upon Landlord's delivery to Tenant of a notice of
termination.
21. Intentionally deleted.
22. INDEMNITY.
To the maximum extent permitted by law, Tenant shall indemnify, hold
harmless and (at Landlord's option) defend Landlord, it agents, servants and
employes from and against all claims, actions, losses, costs and expenses
(including reasonable attorneys' and other professional fees), judgments,
settlement payments, and, whether or not reduced to final judgment, all
liabilities, damages, or fines paid, incurred or suffered by any third
parties to the extent arising directly or indirectly from (a) any default by
Tenant under the terms of this Lease, (b) the use or occupancy of the property
by Tenant or any person claiming through or under Tenant, and/or 9c) any acts
or omissions of Tenant or any contractor, agent, employee, invitee or
licensee of Tenant in or about the property. The foregoing indemnity is in
addition to, and not in substitution for any indemnity given by Tenants to
Landlord under Section 8.3.
To the maximum extent permitted by law, Landlord shall indemnify, hold
harmless and defend Tenant, its agents, servants and employees from and
against all claims, actions, losses, costs and expenses (including
reasonable attorneys' and other professional fees), judgments, settlement
payments, and, whether or not reduced to final judgment, all liabilities,
damages, or fines paid, incurred or suffered by any third party, including
Landlord's employees, to the extent arising directly or indirectly from (a)
any default by Landlord under the terms of this Lease, (b) the use of
occupancy of the Common Area or the Premises by Landlord or its contractors,
agents, or employees, and/or (c) any acts or omissions of Landlord or any
contractor, agent, or employee of Landlord in or about the Common Area or the
Premises.
23. LIMITATION ON LANDLORD LIABILITY.
The term "Landlord" as used in this Lease shall mean only the owner or the
Mortgagee or its trustees, as the case may be, then in possession of the
property so that in the event of any transfer by Landlord of its interest in
the Property, the Landlord in possession immediately prior to such transfer
shall be, and hereby is, entirely released and discharged from all covenants,
obligations and liabilities of
-30-
<PAGE>
actual or alleged failure, breach or default hereunder by the Landlord, and
notwithstanding anything to the contrary contained elsewhere in this Lease,
the remedies of Tenant under this Lease shall be solely and exclusively
limited to Landlord's interest in the Property, (provided that any right of
Tenant thereto shall always be subject and subordinate to the right of
Baltimore City under that certain Disposition and Development Agreement
between Landlord and the Mayor and City Council of Baltimore dated April 17,
1984, regarding Development Areas 5 and 6, Inner Harbor, and recorded among
the Land Records of Baltimore City, Maryland, in Liber SEP No. 224 at folios
124 et seq., as amended ["City Disposition Agreement"] and any Mortgagee) for
the collection of any sum of money on a judgement, or for the payment or
expenditure of any money under any decree of specific performance, injunctive
relief or other equitable relief (or other judicial process) requiring
performance by Landlord of any obligation under this Lease. No other
property or assets of Landlord, Landlord's agents, incorporators,
shareholders, officers, directors, partners, principals (disclosed or
undisclosed) or affiliates shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies.
24. LANDLORD OBLIGATIONS.
Landlord agrees to perform all of its obligations under this Lease in a
first class manner consistent with the standards applicable to similar
buildings in the vicinity of the Building. Landlord shall be excused for the
period of any delay in the performance of any of its obligations when the
delay is due to any cause or causes beyond Landlord's control which include,
without limitation, acts of God, all labor disputes, governmental regulations
or controls, civil unrest, war, adverse weather condition not reasonably
anticipated, fire or other casualty, inability to obtain any material,
services, or financing unless otherwise provided for in this Lease. Except
where specifically set forth in this Lease, there shall be no abatement,
set-off or deduction of Annual Basic Rent or Additional Rent due under this
Lease.
25. ASSIGNMENT AND SUBLETTING.
25.1. PROHIBITED WITHOUT LANDLORD'S CONSENT. Tenant agrees for itself
and its permitted successors and assigns in interest hereunder that it will
not (a) assign or otherwise transfer, mortgage or otherwise encumber this
Lease or any of its rights hereunder; (b) sublet the Premises or any part
thereof or permit the occupancy or use of the Premises or any part thereof by
any person other than Tenant; and/or (c) permit the assignment or other
transfer of this Lease or any of Tenant's rights hereunder by operation of
law (each of the events referred to in the foregoing clauses (a), (b) and (c)
being hereinafter referred to as a "Transfer"), without the prior written
consent of Landlord in each instance first obtained, which consent may be
given or withheld in Landlord's sole and absolute subjective discretion, and
any consent given shall not constitute a consent to any subsequent Transfer.
Any attempted Transfer without Landlord's consent shall be null and void and
shall not confer any rights upon any purported transferee, assignee,
mortgagee, sublessee, or occupant. No Transfer, regardless of whether
Landlord's consent has been granted or withheld, shall be deemed to release
Tenant from any of its obligations hereunder or to alter, impair or release
the obligations of any person guaranteeing the obligations of Tenant
hereunder. Tenant hereby indemnifies Landlord against liability resulting
from any claim made against Landlord by an assignee or subtenant or by any
broker claiming a commission in connection with the proposed Transfer. In
the event Landlord shall consent to a Transfer of this Lease, any option
which Tenant may have to renew the Term shall be null and void.
Notwithstanding the foregoing, Landlord shall not unreasonably withhold
or delay its consent to a sublet of all or a portion of the Premises or
assignments of this Lease by Tenant provided that: (a) the proposed
transferee has a financial capacity and net worth sufficient to fulfill the
terms of this Lease, as reasonably determined by Landlord based on financial
information about such transferee provided by Tenant or such transferee; (b)
the proposed use of the Premises by the proposed transferee
-31-
<PAGE>
is permitted by this Lease and is compatible with the operation of the
Building; (c) the proposed transferee is not an existing tenant in the
Building or was not a prospect for the Building within six (6) months prior
to the proposed Transfer; (d) an Event of Default does not then exist under
this Lease; and (e) Tenant continues to remain liable under all of the terms
and conditions of this Lease.
Provided an Event of Default does not then exist, Tenant shall have the
right to assign this Lease or sublet the Premises to a parent, subsidiary or
affiliate corporation of Tenant without the consent of Landlord. Tenant
shall deliver written notice to Landlord of any such Transfer. The foregoing
waiver of right to consent does not constitute a waiver of the right of
Landlord to consent to any transfer not specifically permitted hereby.
25.2. STOCK TRANSFER. If Tenant or any Guarantor is a privately-held
corporation, then each of the following events shall be deemed a prohibited
Transfer under this Section 25 if such event results in a change in control
of Tenant or Guarantor: any transfer of Tenant's or Guarantor's issued and
outstanding capital stock; any issuance of additional capital stock; or the
redemption of any issued and outstanding stock. If Tenant or any Guarantor
is a partnership, any Transfer of any interest in the partnership or any
other change in the composition of the partnership, which results in a change
in management of Tenant or Guarantor from the person or persons managing the
partnership as of the date hereof, shall be deemed a prohibited Transfer
under this Section 25.
25.3. RENTS FROM TRANSFER. In the event Landlord shall consent to a
Transfer of this Lease and the amount of the rents (or other compensation) to
be paid to Tenant by any such transferee is greater than the rents required
to be paid by Tenant to Landlord pursuant to this Lease or a premium is to be
paid to Tenant for an assignment of this Lease, Tenant shall pay to Landlord
fifty percent (50%) of any such excess or any such premium, as the case may
be, less (a) any improvement allowance or other economic concession (planning
allowance, moving expense, etc.), paid by Tenant to sublessee or assignee;
(b) broker's commissions; (c) reasonable attorney's fees; and (d) costs of
advertising and/or promoting the space for sublease or assignment, upon
receipt thereof by Tenant from such transferee.
25.4. PROCEDURE FOR OBTAINING LANDLORD'S CONSENT.
A. In the event that, at any time or from time to time prior to or
during the Term, Tenant desires to Transfer this Lease in whole or in part,
whether by operation of law or otherwise, Tenant shall submit to Landlord for
its consideration (a) in writing, the name and address of the proposed
subtenant or assignee, a reasonably detailed statement of the proposed
subtenant's or assignee's business and reasonably detailed financial
references and information concerning the financial condition of the proposed
subtenant or assignee, (b) a disclosure of the rents to be paid by any
subtenant in excess of the rents reserved hereunder or the premium to be paid
for the assignment, and (c) if a subletting, a description of the area of the
Premises to be sublet. Tenant agrees to pay Landlord, as Additional Rent,
all reasonable costs incurred by Landlord in connection with any actual or
proposed Transfer, including, without limitation, the costs of making
investigations as to the acceptability of a proposed subtenant or assignee
and reasonable legal costs incurred in connection with any requested consent,
but in no event more than Five Hundred Dollars ($500.00).
B. Landlord's consent to an assignment of this Lease shall be
effective upon the execution by Tenant, the assignee, and Landlord of an
assignment document prepared by Landlord in which the assignee shall agree to
assume, observe, perform, and be bound by, all of Tenant's obligations under
this Lease and Tenant shall agree to remain primarily liable for such
obligations.
-32-
<PAGE>
Any consent by Landlord to a subletting of all or a portion of the
Premises shall be deemed to have been given only upon the delivery by
Landlord to Tenant of a consent document prepared and executed by Landlord
expressly consenting to such subletting.
26. HOLDING OVER.
Tenant agrees to vacate the Premises at the end of the Term, and
Landlord shall be entitled to the benefit of all summary proceedings to
recover possession of the Premises at the end of the Term. If Tenant remains
in possession of the Premises after the expiration of the Term, such action
shall not renew this Lease by operation of law and nothing herein shall be
deemed as a consent by Landlord to Tenant's remaining in the Premises. If
Tenant fails to vacate the Premises as required, Landlord may consider Tenant
as either (a) a "Tenant-at-Will" (i.e. month-to-month tenant) liable for the
payment of rent at the then market rate as reasonably determined by Landlord
or (b) as a "Tenant-Holding Over" liable for an amount equal to the actual
damages incurred by Landlord as a result of Tenant's holding over, including,
without limitation, all incidental, prospective and consequential damages and
reasonable attorney's fees, but in no event shall such amount be less than an
amount equal to one hundred fifty percent (150%) of the Annual Basic Rent,
and Additional Rent, reserved hereunder applicable to the period of the
holdover. In either event, all other covenants of this Lease shall remain in
full force and effect.
27. SUBORDINATION AND ATTORNMENT.
This Lease is subject and subordinate to the liens of all mortgages,
deeds of trust and other security instruments now or hereafter placed upon
the Building or the Property or any portion thereof and all ground and other
underlying leases from which Landlord's interest is derived (said mortgages,
deeds of trust, other security instruments, and ground leases being
hereinafter referred to as "Mortgages" and the mortgagees, beneficiaries,
secured parties, and ground lessors thereunder from time to time being
hereinafter called "Mortgagees"), and to any and all renewals, extensions,
modifications, or refinancings thereof, without any further act of the
Tenant. If requested by Landlord, however, Tenant shall promptly execute any
certificate or other document confirming such subordination. Tenant agrees
that, if any proceedings are brought for the foreclosure of any of the
Mortgages, Tenant, if requested to do so by the purchaser at the foreclosure
sale, shall attorn to the purchaser, recognize the purchaser as the landlord
under this Lease, and make all payments required hereunder to such a new
landlord without any deduction or set-off of any kind whatsoever. Tenant
waives the provisions of any law or regulation, now or hereafter in effect,
which may give, or purport to give, Tenant any right to terminate this Lease
or to alter the obligations of Tenant hereunder in the event that any such
foreclosure or termination or other proceeding is prosecuted or completed.
Notwithstanding anything contained herein to the contrary, any
Mortgagee may at any time subordinate the lien of its Mortgages to the
operation and effect of this Lease without obtaining the Tenant's consent
thereto, by giving the Tenant written notice thereof, in which event this
Lease shall be deemed to be senior to such Mortgages without regard to the
respective dates of execution and/or recordation of such Mortgages and this
Lease and thereafter such Mortgagee shall have the same rights as to this
Lease as it would have had were this Lease executed and delivered before the
execution of such Mortgages. Upon Tenant's written request, Landlord shall
use reasonable efforts, excluding the payment of money, to obtain a
non-disturbance agreement from Landlord's Mortgagee with respect to this
Lease. Landlord agrees to submit to such Mortgagee on Tenant's behalf a
non-disturbance agreement prepared by Tenant, however, Landlord makes no
representation that its Mortgagee will execute any such agreement.
-33-
<PAGE>
Notwithstanding anything contained in the Lease to the contrary, this
Lease and Tenant's rights thereunder, shall not be subject and subordinate in
any way to any future mortgages, unless Tenant receives a non-disturbance
agreement from each future mortgagee.
If, in connection with obtaining financing for the Building, a
Mortgagee shall request reasonable modifications in this Lease as a condition
to such financing, Tenant will not unreasonably withhold, delay or defer its
consent thereto, provided that such modifications do not materially adversely
increase the obligations of Tenant hereunder, or materially adversely affect
the leasehold interest hereby created or Tenant's use and enjoyment of the
Premises, or increase the amount of Annual Basic Rent and Additional Rent
payable hereunder.
Tenant agrees that, if Baltimore City acquires title to the Building
and/or the Project, by reason of the Provisions of the City Disposition
Agreement, Tenant shall attorn to Baltimore City, recognize Baltimore City as
the Landlord under this Lease, and make all payments required hereunder to
Baltimore City without any deduction or set-off of any kind whatsoever.
Tenant waives the provisions of any law or regulation, now or hereafter in
effect, which may give, or purport to give, Tenant any right to terminate
this Lease or to alter the obligations of Tenant hereunder in the event that
any such reverter of title to Baltimore City occurs. In connection with such
attornment by Tenant to Baltimore City, the possession of Tenant of the
Premises shall not be disturbed so long as Tenant shall not be in default
under this Lease. This non-disturbance agreement shall be self-operative and
no further agreement between Baltimore City and Tenant shall be necessary to
effect same.
28. ESTOPPEL CERTIFICATES.
Tenant shall, without charge, at any time and from time-to-time, within
fifteen (15) days after receipt of written request therefor by Landlord,
execute, acknowledge and deliver to Landlord a written estoppel certificate,
in such form as may be determined by Landlord, certifying to Landlord,
Landlord's Mortgagee, any purchaser of Landlord's interest in the Building,
or any other person designated by Landlord, as of the date of such estoppel
certificate, the following, without limitation: (a) whether Tenant is in
possession of the Premises; (b) whether this Lease is in full force and
effect; (c) whether there have been any amendments to this Lease, and if so,
specifying such amendments; (d) whether, to Tenant's knowledge, there are
then existing any set-offs or defenses against the enforcement of any rights
hereunder, and if so, specifying such matters in detail; (e) the dates, if
any, to which any rent or other charges have been paid in advance and the
amount of any Security Deposit held by Landlord; (f) that Tenant has no
knowledge of any then existing defaults of Landlord under this Lease, or if
there are such defaults, specifying them in reasonable detail; (g) that
Tenant has no knowledge of any event having occurred that authorizes the
termination of this Lease by Tenant, or if such event has occurred,
specifying it in reasonable detail; and (h) the address to which notices to
Tenant under this Lease should be sent. Any such certificate may be relied
upon by the person or entity to whom it is directed or by any other person or
entity who could reasonably be expected to rely on it in the normal course of
business. The failure of Tenant to execute, acknowledge and deliver such a
certificate in accordance with this Section 28 within fifteen (15) days after
a request therefor by Landlord shall constitute an acknowledgement by Tenant,
which may be relied on by any person who would be entitled to rely upon any
such certificate, that such certificate as submitted by Landlord to Tenant is
true and correct.
29. PEACEFUL AND QUIET POSSESSION.
Tenant, if and so long as it pays all rents due hereunder and performs
and observes the other terms and covenants to be performed and kept by it as
provided in this Lease and complies with the COREA, shall have the peaceable
and quiet possession of the Premises during the Term free of any
-34-
<PAGE>
claims of Landlord or anyone lawfully claiming by, through or under Landlord,
subject, however, to the terms of this Lease and to matters of public record
existing as of the date of this Lease. This covenant shall be construed as a
covenant running with the land and shall not be construed as a personal
covenant or obligation of Landlord, except to the Landlord's interest in this
Lease and thus subject to the terms of Section 23 of this Lease.
30. LANDLORD'S ACCESS TO PREMISES
Landlord and its agents may at any reasonable time and without
incurring any liability to Tenant, other than liability arising under Section
22, enter the Premises to inspect them or to make alterations or repairs or
for any purpose which Landlord considers necessary for the repair, operation,
or maintenance of the Building; provided, however, that in the case of an
emergency, Landlord may enter the Premises at any time. Tenant shall allow
the Premises to be exhibited by Landlord (a) at any time to any
representative of a lender or to any prospective purchaser of the Building or
Landlord's interest therein or (b) within six (6) months of the end of the
Term to any persons who may be interested in leasing the Premises, provided
Landlord makes all reasonable efforts to minimize disruption of Tenant's
business operations in the Premises.
Notwithstanding the foregoing, Landlord shall use reasonable efforts
to telephone Tenant twenty-four (24) hours prior to any inspection except in
cases of emergencies. Emergencies for the purpose of this Section shall be
deemed to mean anyone or anything in the Premises. Building and/or Common
Area requiring immediate response. In any event, Tenant agrees to cooperate
when access to the Premises is requested by Landlord.
31. RELOCATION
Landlord shall have the right, one (1) time only during the Term,
upon not less than thirty (30) days written notice to Tenant, to change the
location of the Premises to another location within the Building, provided
that the new location is reasonably similar in size, utility and appearance,
is on the 18th floor or higher, and has comparable views as the Premises. If
Tenant is occupying the Premises when Landlord's exercises its rights
hereunder, Landlord, at its expense, shall remove, relocate and reinstall
Tenant's equipment (including telephones), furniture and fixtures in the new
premises and redecorate the new premises so that they will substantially
resemble the former Premises. Landlord shall also pay Tenant's cost of
reprinting stationery and business cards. On completion of the change in
location of the Premises, the parties shall execute an amendment to this
Lease which sets forth the new description of the Premises and amendments to
any other terms of this Lease, if any, required by the relocation of the
Premises. In the event Tenant is unable to conduct its business either in the
Premises or the new location during such relocation, Tenant will not be
obligated to pay any item of rental during such period.
32. BROKERS, COMMISSIONS, ETC.
Landlord and Tenant acknowledge, represent and warrant each to the
other that, except as listed in Section 1.F., no broker or real estate agent
brought about or was involved in the making of this Lease and that no
brokerage fee or commission is due to any other party as a result of the
execution of this Lease. Each of the parties hereto agrees to indemnify and
hold harmless the other against any claim by any broker, agent or finder
based upon the execution of this Lease and predicated upon a breach of the
above representation and warranty. Landlord shall pay to broker listed in
Section 1.F. pursuant to a separate brokerage agreement.
-35-
<PAGE>
33. RECORDATION.
Neither Landlord nor Tenant shall record this Lease, any amendment to
this Lease or any other memorandum of this Lease without the prior written
consent of the other party, which consent may be withheld in the sole
discretion of either party and, in the event such consent is given, the party
requesting such consent and recording shall pay all transfer taxes, recording
fees and other charge in connection with such recording. Notwithstanding the
above, Tenant covenants that if at any time the recordation of this Lease
shall be required by any valid governmental order, or if any governmental
authority having jurisdiction in the matter shall assess and be entitled to
collect transfer taxes, documentary stamp taxes, or both, on this Lease,
Tenant, upon the request of Landlord, shall execute such instruments,
including a Memorandum of this Lease, as may be necessary to record this
Lease, and shall pay all recording fees, transfer taxes and documentary stamp
taxes, payable on, or in connection with, this Lease or such recordation;
provided, however, if Landlord's Mortgagee requires such recordation, Landlord
shall pay all such recording fees, transfer taxes and documentary stamp taxes.
34. MISCELLANEOUS.
34.1. SEPARABILITY. If any term of 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 term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby, and
each term and provision of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
34.2. APPLICABLE LAW. This Lease shall be given effect and construed by
application of the laws of the state where the Property is located, and any
action or proceeding arising hereunder shall be brought in the courts of the
State where the Premises are located.
34.3. AUTHORITY. If Tenant is a corporation or partnership, the person
executing this Lease on behalf of Tenant represents and warrants that Tenant
is duly organized and validly existing; that this Lease has been authorized
by all necessary parties, is validly executed by a authorized officer or
agent of Tenant and is binding upon and enforceable against Tenant in
accordance with its terms,
The undersigned agent of Landlord represents and warrants that it is
authorized and empowered to enter into this Lease Agreement on behalf of the
Landlord.
34.4. NO DISCRIMINATION. It is Landlord's policy to comply with all
applicable state and federal laws prohibiting discrimination in employment
based on race, age, color, sex, national origin, disability, religion, or
other protected classification. It is further intended that the Building
shall be operated so that all perspective tenants thereof, and all
customers, employees, licensees and invitees of all tenants shall have equal
opportunity to obtain all the goods, services, accommodations, advantages,
facilities and privileges of the Building without discrimination because of
race, age, color, sex, national origin, disability, or religion. To that end,
Tenant shall not discriminate in the conduct and operation of its business in
the Premises against any person or group of persons because of the race, age,
color, sex, religion, national origin or other protected classification of
such person or group of persons.
34.5. INTEGRATION OF AGREEMENTS. This writing is intended by the parties
as a final expression of their agreement and is a complete and exclusive
statement of its terms, and all negotiations, considerations and
representations between the parties hereto are incorporated herein. No
course of prior dealings between the parties or their agents shall be
relevant or admissible to supplement, explain, or vary any of the terms of
this Lease. Acceptance of, or acquiescence to, a course of performance
-36-
<PAGE>
rendered under this Lease or any prior agreement between the parties or their
agents shall not be relevant or admissible to determine the meaning of any of
the terms or covenants of this Lease. Other than as specifically set forth in
this Lease, no representations, understandings or agreements have been made or
relied upon in the making of this Lease. This Lease can only be modified by a
writing signed by each of the parties hereto.
34.6. THIRD PARTY BENEFICIARY. Except as expressly provided elsewhere
in this Lease, nothing contained in this Lease shall be construed so as to
confer upon any other party the rights of a third party beneficiary.
34.7. CAPTIONS; GENDER. The captions used in this Lease are for
convenience only and do not in any way limit or amplify the terms
and provisions hereof. As used in this Lease and where the context so
requires, the singular shall be deemed to include the plural and the
masculine shall be deemed to include the feminine and neuter, and vice versa.
34.8. SUCCESSORS AND ASSIGNS. Subject to the express provisions of this
Lease to the contrary (e.g., Section 25), the terms, provisions and covenants
contained in this Lease shall apply to, inure to the benefit of, and be
binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns.
34.9. WAIVER OF JURY TRIAL. Landlord and Tenant hereby expressly waive
trial by jury in any action or proceeding or counterclaim brought by
either party hereto against the other party on any and every matter, directly
or indirectly arising out of or with respect to this Lease, including,
without limitation, the relationship of Landlord and Tenant, the use and
occupancy by Tenant of the Premises, any statutory remedy and/or claim of
injury or damage regarding this Lease.
34.10. JOINT AND SEVERAL LIABILITY. In the event that two (2) or more
persons (i.e., natural persons, corporations, partnerships, associations and
other legal entities) shall sign this Lease as Tenant, the liability of each
such party to pay all rents due hereunder and perform all the other covenants
of this Lease shall be joint and several. In the event Tenant is a general
partnership or a limited partnership with two or more general partners, the
liability of each partner, or general partner, under this Lease shall be
joint and several.
34.11. NOTICES. All notices, demands and requests required under this
Lease shall be in writing. All such notices, demands and requests shall be
deemed to have been properly given if sent by United States certified mail,
return receipt requested, postage prepaid, or hand delivered, or overnight
delivery, addressed to Landlord or Tenant, at the Landlord Notice Address and
Tenant Notice Address, respectively. Either party may designate a change of
address by written notice to the other party, in the manner set forth above.
Notice, demand and requests which shall be served by certified mail in the
manner aforesaid, shall be deemed to have been given five (5) days after
mailing. Notices sent by overnight delivery shall be deemed to have been
given the day after sending. Without intending to limit the generality of the
foregoing requirement that all notices, demands and requests be in writing,
there are certain provisions in this Lease where, for emphasis alone, such
requirement is reiterated.
34.12. EFFECTIVE DATE OF THIS LEASE. Unless otherwise expressly provided,
all terms, conditions and covenants by Tenant contained in this Lease shall
be effective as of the date first above written.
34.13. MECHANICS' LIENS. In the event that any mechanics' or
materialmen's liens shall at any time be filed against the Premises
purporting to be for work, labor, services or materials performed or
furnished to Tenant or anyone holding the Premises through or under Tenant,
Tenant shall cause the
-37-
<PAGE>
same to be discharged of record or bonded in the amount of the claim within
sixty (60) days after the filing thereof. If Tenant shall fail to cause such
lien to be discharged or bonded within sixty (60) days after the filing
thereof, then, in addition to any other right or remedy of Landlord, Landlord
may, but shall not be obligated to, discharge the same by paying the amount
claimed to be due; and the amount so paid by Landlord, and all costs and
expenses, including reasonable attorneys' fees incurred by Landlord in
procuring the discharge of such lien, shall be due and payable by Tenant to
Landlord, as Additional Rent, on the first day of the next succeeding month.
Notice is hereby given that Landlord shall not be liable for any labor or
materials furnished to Tenant upon credit and that no mechanics',
materialmen's or other liens for any such labor or materials shall attach to
or affect the estate or interest of Landlord in and to the land and
improvements of which the Premises are a part.
34.14. WAIVER RIGHT OF REDEMPTION. Tenant hereby expressly waives (to
the extent legally permissible) for itself and all persons claiming by,
through or under it, any right of redemption or right to restore the
operation of this Lease under any present or future law in the event Tenant
is dispossessed for any proper cause, or in the event Landlord shall obtain
possession of the Premises pursuant to the terms of this Lease. Tenant
understands that the Premises are leased exclusively for business, commercial
and mercantile purposes and therefore shall not be redeemable under any
provision of law.
34.15. CITY'S OR MORTGAGEE'S PERFORMANCE. If requested by any
Mortgagee and as long as Tenant has been given such Mortgagee's current
mailing address, Tenant shall give such Mortgagee written notice of any
default by Landlord under this Lease and a reasonable opportunity to cure
such default. Tenant shall accept performance of any of Landlord's
obligations hereunder by any ground lessor or mortgagee relating to the
financing of the Property and by Baltimore City under the City Disposition
Agreement.
34.16. CITY'S OR MORTGAGE'S LIABILITY. Neither Baltimore City, under
the City Disposition Agreement, nor any mortgagee or ground lessor relating
to the financing of the Property, not in possession of the Premises or the
Building, shall have any liability whatsoever hereunder.
34.17. SCHEDULES. Each writing or plat referred to herein as being
attached hereto as a schedule or exhibit is hereby made a part hereof, with
the same full force and effect as if such writing or plat were set forth in
the body of this Lease.
34.18. TIME OF ESSENCE. Time shall be of the essence of this Lease
with respect to the performance by Landlord and Tenant of their respective
obligations hereunder.
34.19. AMENDMENT. This Lease may be amended by and only by an
instrument executed and delivered by each party hereto. No amendments of
this Lease entered into by Landlord and Tenant, as aforesaid, shall impair or
otherwise affect the obligations of any guarantor of Tenant's obligations
hereunder, all of which obligations shall remain in full force and effect and
pertain equally to any such amendments, with the same full force and effect
as if the substance of such amendments was set forth in the body of this
Lease.
34.20. PARKING. During the Term, Tenant shall have the non-exclusive
right to use six (6) parking spaces in the building's parking garage at the
posted rates. Current rates are $175.00 per parking space per month. Prior
to the Commencement Date, Tenant or its employees shall enter into the
standard rental contract for each such parking space.
34.21. SATELLITE DISH AND/OR RADIO ANTENNA. Tenant shall have the
right, at its sole cost and expense and subject to prior approval by Landlord
(which approval shall not be unreasonably withheld),
-38-
<PAGE>
to install and maintain a satellite dish and/or radio antenna in an area
designated by Landlord on the roof of the Building ("Satellite Dish Area"),
provided:
(1) Installation of the satellite dish and/or radio antenna shall be
accomplished in accordance with plans and specifications which shall be
approved by Landlord prior to installation thereof (such approval not to be
unreasonably withheld or delayed) and the satellite dish and/or radio antenna
shall be grounded in accordance with Underwriters Laboratories, Inc.
requirements.
(2) Any approval of the Tenant's plans and specifications for
installation of the satellite dish and/or radio antenna or the manner or
method of the installation of the satellite dish and/or radio antenna by
Landlord shall not be construed to mean that such installation will assure
the operation of the satellite dish and/or radio antenna, but shall only
demonstrate the Landlord's determination of aesthetic acceptability of the
location of the satellite dish and/or radio antenna and the acceptability of
the installation method with respect to the integrity of the roof structure.
(3) Tenant shall make no penetration of the Building's roof during
installation or removal of the satellite dish and/or radio antenna without
the prior written consent of Landlord (which consent shall not be
unreasonably withheld or delayed). Tenant shall be responsible for the cost
of repairing all damage to Landlord's property caused by the installation,
operation, repair, or removal of the satellite dish and/or radio antenna.
Furthermore, in the event Landlord determines that the Building roof must be
repaired or resealed as a result of the installation, maintenance, repair or
removal of the satellite dish and/or radio antenna, all such repairing and/or
resealing shall be performed by Landlord's designated contractor at Tenant's
sole cost and expense.
(4) Tenant agrees that Landlord, its agent and employees shall have the
right to enter and to use the Satellite Dish Area at any time during the Term
of this Lease for the purposes of ascertaining compliance by Tenant with the
covenants of this provision or to perform any necessary repairs or
maintenance to the Satellite Dish Area.
(5) Tenants shall obtain and maintain all necessary FCC licenses, if any,
and all other governmental approvals, licenses and permits required to
operate the satellite dish and/or radio antenna, which operation shall not
interfere with the quiet enjoyment of the tenants within the Building.
(6) Tenant, for the privilege hereby given, agrees to assume all risks of
injury or death to its employees or workmen installing or maintaining the
satellite dish and/or radio antenna (by whomever employed), or any other
person from any causes whatsoever and Tenant further agrees to indemnify and
save harmless the Landlord from any and all suits, claims, demands,
liability, damages, costs or expenses in respect to any and all loss of life
or injury or damage to persons or property and from any fines and/or
citations from any local, state or federal agency, as a result of any alleged
or actual violation of any laws, rules and/or regulations of such agencies
arising out of the activities of the Tenant, its agents, servants, employees,
contractors and subcontractors upon the Property or sustained while in or
about the Property, except for any damages caused as a result of Landlord's
negligent acts or omissions.
Landlord, its agents and employees shall not be liable to Tenant for (i)
any damage to property of the Tenants either entrusted to persons employed to
provide services for or stored in or on the Satellite Dish Area, Building or
the area where the building is located ("Building Area"); or (ii) any injury
or damage to persons, to property, or to the business of the Tenant,
resulting from any latent or apparent defect or change of condition in the
Satellite Dish Area, the Building or Building Area, crime, accident, natural
disorder, electrical, mechanical, or plumbing equipment or works, water,
damage by tenants or persons in the Building, interference with the light or
other incorporeal hereditaments, operations in the
-39-
<PAGE>
construction of any public or quasi-public work, or for any other cause not
the direct and immediate result of the act or omission of Landlord.
(7) Tenant shall not assign the right granted herein or any of its
rights hereunder. Any attempted assignment shall be void and of no effect.
(8) Tenant agrees to comply with all laws, rules and regulations of
federal, state and local agencies which are now or may in the future become
applicable to Tenant while engaged in the privilege and permission. Tenant
shall also comply with all orders, rules, regulations and requirements of any
insurance company which may at any time have in force any policy of fire,
public liability, or other insurance applicable to the Property. Landlord
shall have the option to terminate Tenant's right hereunder if any violation
of this provision results in either the cancellation of any insurance on the
Property or the refusal by an insurance carrier to insure the Property.
(9) Tenant agrees that transmissions from its satellite dish and/or
radio antenna shall not cause interference with transmissions of other
persons operating communications equipment in the vicinity of the Satellite
Dish Area. Upon written notification from Landlord of such interference.
Tenant shall immediately stop operation of the satellite dish and/or radio
antenna and not resume operation until such interference is reasonably cured.
(10) Upon the natural expiration or the earlier termination of this
Lease, Tenant, at its sole cost and expense, shall remove the satellite dish
and/or radio antenna from the roof of the Building and restore the roof to
its condition prior to installing the satellite dish and/or radio antenna,
ordinary wear and tear and damage caused by casualty excepted.
(11) Tenant's right to use the Satellite Dish Area does not create
any kind of interest in the real property, Tenant shall not permit any liens
to be affixed or attached to the Property, and breach of this provision shall
constitute an act of default affording Lessor the rights hereinafter provided.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as
of the day and year first above written.
ATTEST: LANDLORD:
BALTIMORE CENTER ASSOCIATES LIMITED
PARTNERSHIP
By: ROUSE OFFICE MANAGEMENT, INC.,
Managing Agent
/s/ [illegible] By: /s/ [illegible] (SEAL)
- ----------------------------------- --------------------------------
Assistant Secretary Vice President
ATTEST: TENANT:
EARTHSHELL CORPORATION
-40-
<PAGE>
/s/ [illegible] By: /s/ [illegible] (SEAL)
- ----------------------------------- --------------------------------
Assistant Secretary of Corporation President
-41-
<PAGE>
SCHEDULE A
[FLOOR PLAN]
<PAGE>
SCHEDULE B
[PROJECT SCHEDULE]
<PAGE>
SCHEDULE C
RULES AND REGULATIONS
1. Tenant shall not obstruct or encumber the Common Area, and the
sidewalks, driveways, and other public portions of the Property (herein
"Public Areas") and such Public Areas shall not be used for any purpose other
than ingress and egress to and from its Premises. Tenant shall not permit any
of its employees, agents, licenses or invitees to congregate or loiter in any
of the Public Areas. Tenant shall not invite to, or permit to visit, its
Premises persons in such nubmers or under such conditions as may interfere
with the use and enjoyment by others of the Public Areas. Fire exits and
stairways are for emergency use only, and they shall not be used for any
other purpose. Landlord reserves the right to control, oeprate, restrict and
regulate the use of the Common Areas, public facilities, and any facilities
furnished for the common use of the tenants in such manner as it deems best
for the benefit of the tenants, including but not limited to the allocation
of elevators for delivery service, and the right to designate which Building
entrances shall be used for deliveries. No doormat of any kind whatsoever
shall be placed or left in any public hall or outside any entry door of the
Premises.
2. No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades or screens shall be
attached to, hung in, or used in connection with any window or door of its
Premises, without the consent of Landlord. Such window or door coverings must
be of a quality, type, design and color approved by Landlord and further they
must be installed in a manner approved by Landlord. In order that the
Building can and will maintain a uniform appearance to those persons outside
of the Building, each tenant occupying the perimeter areas of the Building
shall (a) use only building-standard lighting in areas where lighting is
visible from the outside of the Building and (b) use only building-standard
blinds in window areas which are visible from the outside of the Building.
3. Except as otherwise provided in the Lease, no sign, insignia,
advertisement, lettering, notice or other object shall be exhibited,
inscribed, painted or affixed by Tenant on any part of the exterior or
interior of the Premises or the Building or on doors, corridor walls, the
Building directory or in the content and location of any proposed signage.
Landlord shall have the right to prohibit any advertising or identifying sign
by Tenant which, in the sole judgment of Landlord, impairs the appearance,
reputation, or the desirability of the Building as a first-class office
building. Upon Landlord's approval, Tenant shall obtain all necessary
approvals and permits form governmental or quasi-govermental authorities in
connection with such signs. Further, approved signs shall be inscribed,
painted or affixed by Tenant, upon written notice form Landlord, Tenant shall
refrain from and discontinue such advertising or identifying sign. In the
event that Tenant does not promptly correct said violation. Landlord may
remove such signs without any liability, and may charge the expense incurred
in such removal to the Tenant violating this Rule and Tenant hereby agrees to
pay Landlord, as Additional Rent, any such expense promptly upon demand.
4. No bicycles, vehicles, animals (except seeing eye dogs), fish or
birds of any kind shall be brought into or kept in or about the Premises.
<PAGE>
10. Tenant, before closing and leaving its Premises at any time,
shall see that all lights, typewriters, copying machines and other electrical
equipment are turned off. All entrance doors in Tenant's Premises shall be
kept locked when not in use. Entrance doors shall not be left open at any
time.
11. If Tenant shall request Landlord to perform any work on the
Premises or Property, Tenant shall make such request at the management office
for the Building. Tenant shall not request employees of Landlord to perform
any work or do anything outside of their regular duties, unless under special
instructions from Landlord.
12. Canvassing, soliciting and peddling in the Building are
prohibited and Tenant shall cooperate to prevent the same.
13. Tenant shall not cause or permit any odors of cooking or other
processes, or any unusual or objectionable odors, to emanate from its
Premises which would annoy other tenants or create a public or private
nuisance. No cooking shall be done in Tenant's Premises, except for a
household microwave oven or as is expressly permitted in the Lease, or
otherwise consented to in writing by the Landlord.
14. All paneling, doors, trim or other wood products not considered
furniture shall be treated with fire-retardant materials. Before installation
of any such materials, certification of the materials' fire-retardant
characteristics shall be submitted to an approved by Landlord, and all such
materials shall be installed in a manner approved by Landlord.
15. Whenever Tenant submits any plan, agreement or other document
for the consent or approval of Landlord, Landlord may charge, on demand, a
reasonable processing fee for the review thereof, which shall include the
cost of any services of an architect, engineer or attorney employed by
Landlord to review such plan, agreement or document. Tenant hereby agrees to
pay any such processing fee to Landlord, as Additional Rent, promptly upon
demand.
16. No contract of any kind with any supplier of towels, water,
ice, toilet articles, waxing, rug shampooing, venetian blind washing,
furniture polishing, lamp servicing, cleaning of electrical fixtures, removal
of waste papers, rubbish or garbage, or any other cleaning, janitorial or
like service shall be entered into by Tenant without the prior written
consent of Landlord. Further, no vending machine of any kind shall be
installed in the Building or on or about the Property without the prior
written consent of Landlord.
Landlord shall not be responsible to Tenant for any loss of
property from its Premises however occurring, or for any damage done to the
effects of Tenant by Landlord's janitors or any of its employees, or by any
other person or any other cause. The janitor's service furnished by Landlord
does not include the beating or cleaning of carpets or rugs.
17. When electric wiring of any kind is introduced, it must be
connected as directed by Landlord, and no stringing or cutting of wires will
be allowed, except with the prior written consent of Landlord, and shall be
done only by contractors approved by Landlord. The number and locations of
telephones, telegraph instruments, electric appliances, call boxes, etc.,
shall be subject to Landlord's approval. Tenant shall not lay linoleum or
other similar floor covering so that the same shall be in direct contract
with the floor of the Premises; and if linoleum or other similar floor
covering is desired to be sued, an interlining of builder's deadening felt
shall be first affixed to the floor by a paste or other material, the use of
cement or other similar adhesive material being expressly prohibited.
<PAGE>
18. Landlord hereby reserves to itself any and all rights not
granted to Tenant hereunder, including, but not limited to, the following
rights which reserved to Landlord for its purposes in operating the Building:
(a) the exclusive right to use of the name of the Building for all
purposes, except that Tenant may use the name as its business
address and for no other purpose;
(b) the right to change the name or address of the Building,
without incurring any liability to Tenant for so doing;
(c) the right to install and maintain a sign or signs on the
exterior of the Building;
(d) the exclusive right to use or dispose of the use of the roof of
the Building;
(e) the right to limit the space on the directory of the Building
to be allotted to Tenant; and
(f) the right to grant anyone the right to conduct any particular
business or undertaking in the Building.
19. Tenant and its employees shall park their cars only in those
portions of the parking area designated by Landlord.
20. Tenant shall not permit undue accumulations of garbage, trash,
rubbish or any other refuse, and will keep such refuse in proper containers
in the interior of the Tenant's Premises or other places designated by the
Landlord.
21. Tenant shall not conduct or permit any bankruptcy sales, unless
directed by order of a court of competent jurisdiction, or any fictitious
fire or going out of business sale.
22. Landlord shall have the right to close and securely lock the
Building during generally accepted holidays and during such other times as
Landlord may, in its sole discretion, deem advisable for the security of the
Building and its tenants. Landlord shall give Tenant twenty-four (24) hours
notice before so closing and securely locking the Building except in an
emergency.
23. Landlord reserves the right to rescind, alter, waive or add any
rule or regulation at any time prescribed for the Building when Landlord deems
it necessary or desirable for the reputation, safety, character, security,
care, appearance or interests of the Building, the preservation of good order
therein, the operation or maintenance of the Building or the equipment
thereof, or the comfort of tenants or others in the Building. No rescission,
alteration, waiver or addition of any rule or regulation with respect to one
tenant shall operate as a rescission, alteration or waiver in respect of any
other tenant.
<PAGE>
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
May 1, 1998, is made by and between ORIX SBAP GOLETA VENTURE, a general
partnership, ("LESSOR") and EARTHSHELL CORPORATION, a Delaware corporation
("LESSEE") (collectively the "PARTIES," or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 500 South Fairview Avenue, located in
unincorporated area of Goleta, County of Santa Barbara, State of California,
with zip code 93117, as outlined on Exhibit A attached hereto ("PREMISES"). The
"BUILDING" is that certain building containing the Premises and generally
described as (describe, briefly, the nature of the Building): Commercial office
(approximately 54,800 westerly square feet in the Building to be under this
Lease) In addition to Lessee's rights to use and occupy the Premises as
hereinafter specified, Lessee shall have non-exclusive rights to the Common
Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall
not have any rights to the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along with all
other buildings and improvements thereon, are herein collectively referred to as
the "INDUSTRIAL CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: Lessee shall have the right to use 90 parking spaces in
the area designated on Exhibit A on a non-exclusive basis and 10 parking spaces
where shown on Exhibit A on an exclusive basis. Lessee acknowledges that the
availability of 100 spaces for Lessee is based on a preliminary site plan for
the Building and Common Area which shows a total of 370 parking spaces. In the
event that further refinements of the site plan reduce the total number of
parking spaces for the Building and Common Area, then the number of parking
spaces available to Lessee shall be reduced proportionately, but in no event
below 90 spaces.
1.3(b) TERM: This Lease shall have a term of five (5) years (the
"Original Term"). The Original Term shall commence on the "Commencement Date,"
which shall be the later of June 1, 1998 or the date that the Premises Turnover
has occurred. The term "Premises Turnover" means when Lessor has substantially
completed Lessor's Work (described in Paragraph 49 below), other than the work
of enclosing the dock area at the west end of the Building (the "Dock Work"). If
the Premises Turnover and the Commencement Date occur prior to completion of the
Dock Work, then the Base Rent payable hereunder shall be based upon the size of
the Premises without the dock area at the west end of the Building (the "Dock
Area"). Until the Commencement Date occurs, Lessee's existing month-to-month
tenancy shall continue on its present terms and conditions. If the Commencement
Date has not occurred by March 1, 1999, for any reason not caused by Lessee,
then Lessee shall have the right to terminate this Lease upon sixty (60) days
written notice to Lessor, provided that the Commencement Date has not occurred
during the sixty (60)-day notice period. This right of termination and the delay
of the Commencement Date shall be the sole remedies of Lessee for a delay in the
Commencement Date, and Lessor shall have no liability to Lessee for such delay.
The "Expiration Date" shall be the date that is five (5) years after the
Commencement Date.
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (Also see
Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $.80/sq. ft. per month ("BASE RENT"), payable on the 1st
day of each calendar month commencing
(a) RENT COMMENCEMENT. Base Rent shall commence one month
and 15 days after the Commencement Date (the "Rent Commencement Date"). If
the Rent Commencement Date is a day other than the first day of a calendar
month, then the rent payment that is due and payable on the Rent Commencement
Date will be a prorated portion of the Base Rent for a calendar month, based
on the number of days from and including the Rent Commencement Date through
and including the last day of the calendar month in which the Rent
Commencement Date occurs, based on the actual number of days in that calendar
month. The next payment of Base Rent shall be due and payable on the first
day of the first calendar month after the Rent Commencement Date (the "next
calendar month"). The Base Rent payable upon execution of this Lease, as set
forth in Paragraph 1.6(a) of this Lease, shall be applied first to the
payment of Base Rent due and payable on the Rent Commencement Date and then
to the payment of Base Rent due and payable on the first day of the next
calendar month, with Lessee to pay any amount of Base Rent remaining due
after applications of the pre-paid rent.
(b) DOCK AREA. Until completion of the Dock Work, the Base Rent
shall be calculated based on the area of the Premises excluding the Dock Area.
The estimated area of the Dock Area is 11,670 square feet. The estimated area
of the Premises excluding the Dock Area is 43,130 square feet. When Lessor
conducts its final measurement of the Premises following final placement of the
demising walls of the Premises, Lessor and Lessee shall sign a memorandum
setting forth the actual areas of the Premises, both including and excluding the
Dock Area, and the Building. (Also see Paragraph 4.)
[X] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum 53, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $.80/sq. ft. as Base Rent for the
period second half of the second month, and third month.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: __________
percent ( %) ("LESSEE'S SHARE") as determined by [ ] prorata square
footage of the Premises as compared to the total square footage of the
Building or [ ] other criteria as described in Addendum _________. Lessor
has preliminarily measured the Premises to contain approximately 54,800
square feet including the Dock Area and 43,130 square feet excluding the Dock
Area, and the Building to contain approximately 119,600 square feet. Based
on these preliminary measurements, "Lessee's Share" would be approximately
45.819% including the Dock Area and 36.062% excluding the Dock Area. Upon the
final measurements of the Premises and the Building by Lessor, as described
in Paragraph 1.5(b) above, the amount of Base Rent and Lessee's Share shall
be adjusted based on Such measurements.
1.7 SECURITY DEPOSIT: $.80/sq. ft. ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: General office or any other lawful use ("PERMITTED
USE"). (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see
Paragraph 8.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 53, and Exhibits A through ___, all of which
constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease.
2.2 CONDITION. Lessor shall deliver the premises to Lessee clean and
free of debris and in good repair and condition on the Commencement Date and
warrants to Lessee that the existing plumbing, electrical systems, fire
sprinkler system, lighting, air conditioning and heating systems and loading
doors, if any, in the Premises, other than those constructed by Lessee, shall
be in good operating condition on the Commencement Date. If a non-compliance
with said warranty exists as of the Commencement Date, Lessor shall, except
as otherwise provided in this Lease, promptly after receipt of written notice
from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense; provided
that the 30-day time limit for reporting by Lessee of defects shall not apply
to latent defects that could not be detected by Lessee with ordinary
diligence within that time limit.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants that any improvements (other than those constructed by Lessee
or at Lessee's direction) on or in the Premises which have been constructed
or installed by Lessor or with Lessor's consent or at Lessor's direction
shall comply with all applicable covenants or restrictions of record and
applicable building codes, regulations and ordinances in effect on the
Commencement Date. Lessor further warrants to Lessee that Lessor has no
knowledge of any claim having been made by any governmental agency that a
violation or violations of applicable building codes, regulations, or
ordinances exist with regard to the Premises as of the Commencement Date.
Said warranties shall not apply to any Alterations or Utility Installations
(defined in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises
do not comply with said warranties, Lessor shall, except as otherwise
provided in this Lease, promptly after receipt of written notice from Lessee
given within six (6) months following the Commencement Date and setting forth
with specificity the nature and extent of such non-compliance, take such
action, at Lessor's expense, as may be reasonable or appropriate to rectify
the non-compliance. Lessor makes no warranty that the Permitted Use in
Paragraph 1.8 is permitted for the Premises under Applicable Laws (as defined
in Paragraph 2.4). See Addendum PARA 50. The six-month limit on reporting by
Lessee of breaches of the warranties in this Paragraph shall not apply to
latent defects that could not be detected by Lessee with ordinary diligence
within that time limit.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Broker(s) to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and
fire sprinkler systems, security, environmental aspects, seismic and
earthquake requirements, and compliance with the Americans with Disabilities
Act and applicable zoning, municipal, county, state and federal laws,
ordinances and regulations and any covenants or restrictions of record
(collectively, "APPLICABLE LAWS") and the present and future suitability of
the Premises for Lessee's intended use; (b) that Lessee has made such
investigation as it deems necessary with reference to such matters, is
satisfied with reference thereto, and assumes all responsibility therefore as
the same relate to Lessee's occupancy of the Premises and/or the terms of
this Lease; and (c) that neither Lessor, nor any of Lessor's agents, has made
any oral or written representations or warranties with respect to said
matters other than as set forth in this Lease. This acceptance of the
Premises by Lessee described in Paragraph 2.4 does not extend to or cover
Lessor's Work, as described in Paragraph 49, which will be commenced and
completed after the date of this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. Because Lessee was the prior
occupant of the Premises prior to the time that Lessor became the owner of
the Building, if Lessee had knowledge, prior to execution of this Lease, of a
condition in the Premises that would be a breach of the warranties of Lessor
in Paragraph 2, Lessee failed to report the condition to Lessor prior to
execution of this Lease, and Lessor had no knowledge of that condition prior
to execution of this Lease, then such condition shall not be deemed a breach
of Lessor's warranties in this Paragraph 2. Also, no condition of the
Premises shall be a breach of the warranties in this Paragraph 2 if repair or
correction of such condition was the responsibility of Lessee under its prior
lease of the Premises.
INITIALS: RH
-------
WJM
-------
<PAGE>
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles, passenger vans or pick-up trucks, herein called
"PERMITTED SIZE VEHICLES." Vehicles other than Permitted Size Vehicles shall be
parked and loaded or unloaded as directed by Lessor in the Rules and Regulations
(as defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "COMMON AREAS" is defined as
all areas and facilities outside the Premises and within the exterior
boundary line of the Industrial Center and interior utility raceways within
the Premises that are provided and designated by the Lessor from time to time
for the general non-exclusive use of Lessor, Lessee and other lessees of the
Industrial Center and their respective employees, suppliers, shippers,
customers, contractors and invitees, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and
regulations or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur, then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time,
to establish, modify, amend and enforce reasonable Rules and Regulations with
respect thereto in accordance with Paragraph 40. Lessee agrees to abide by
and conform to all such Rules and Regulations, and to cause its employees,
suppliers, shippers, customers, contractors and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other lessees of the Industrial Center.
Any Rules and Regulations established by Lessor pursuant to this Paragraph
(a) shall be established, implemented, applied and enforced by Lessor in a
good-faith, non-discriminatory matter and (b) shall not unreasonably
interfere with Lessee's operations on the Premises, provided such operations
are a Permitted Use, comply with law and otherwise comply with the provisions
of this Lease.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgement, deem to be
appropriate.
However, the exercise by Lessor of its rights under this
Paragraph may not unreasonably interfere with Lessee's operations on the
Premises, provided such operations are a Permitted Use, comply with law and
otherwise comply with the provisions of this Lease.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.3 DELAY IN POSSESSION. DELAY IN COMMENCEMENT DATE. Lessee
currently is in possession of the Premises under a month-to-month tenancy as
a holding over after expiration of its previous lease. In the event that the
Commencement Date does not occur by June 1, 1998, then the provisions of
Paragraph 1.3(b) shall govern, and Lessee shall continue to lease and occupy
the Premises under its month-to-month tenancy.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor
during the term hereof, in addition to the Base Rent, Lessee's Share (as
specified in Paragraph 1.6(b)) of all Common Area Operating Expenses, as
hereinafter defined, during each calendar year of the term of this Lease, in
accordance with the following provisions: Lessee shall not pay Lessee's Share
of Common Area Operating Expenses for the first one month and 15 days of the
term, from the Commencement Date until the Rent Commencement Date. Lessee's
liability for Common Area Operating Expenses during the calendar year in
which the Rent Commencement Date occurs shall be calculated by multiplying
the total Common Area Operating Expenses for that calendar year by a
fraction, the numerator of which is the number of days remaining in the
calendar year as of the Rent Commencement Date and the denominator of which
is 365.
(a) "COMMON AREA OPERATING EXPENSES" are defined, for
purposes of this Lease, as all costs incurred by Lessor relating to the
ownership and operation of the Industrial Center, including, but not limited to,
the following:
(i) The operation, repair and maintenance, in neat,
clean, good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of
Common Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2)
to be paid by Lessor for the Building and the Common Areas under Paragraph
[cut off] hereof.
(vi) The cost of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
4.2(a) "COMMON AREA OPERATING EXPENSES." Notwithstanding anything to the
contrary in the foregoing, the following terms shall specifically be excluded
from the definition of Common Area Operating Expenses:
(i) costs incurred by Lessor with respect to goods and services,
including utilities sold or supplied to lessees and occupants of the Building,
to the extent that Lessor is entitled to reimbursement for such costs, except
through rental adjustments (or escalation) collected from lessees in the
Building and Lessee;
(ii) costs incurred by Lessor for the repair of damage to the
Building to the extent that Lessor is reimbursed by insurance proceeds;
(iii) capital costs incurred with respect to the installation of
tenant improvements for new lessees in the Building or incurred in renovating or
otherwise improving, decorating, painting or redecorating space leased by or
available for leasing to lessees or other occupants of the Building;
(iv) leasing commissions, attorneys' fees and other costs and
expenses incurred in connection with negotiations or disputes with present or
prospective lessees or other occupants of the Building;
(v) costs in connection with services or other benefits which are
not available to Lessee or for which Lessee is charged directly (except through
rental adjustments or escalations) to another tenant or occupant of the
Building;
(vi) costs incurred by Lessor in enforcing other leases of space of
the Building;
(vii) advertising and promotional expenditures primarily directed
toward leasing tenant space in the Building;
(viii) ground lessee payments, and interest, points and fees on debt
or amortization on or for any mortgage or mortgages encumbering the Building, or
any part thereof, and all principal, escrow deposits and other sums paid on or
in respect to any indebtedness (whether or not secured by a mortgage lien) and
on any equity participations of any lender or lessor, and all costs incurred in
connection with any financing, refinancing or syndication of the Building, or
any part thereof; and
(ix) costs of goods, services or other products obtained by Lessor
from an affiliate of Lessor, to the extent that such costs exceed the fair
market value of such goods, services or products when obtained from unrelated
third parties.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center. Common Area Operating Expenses or Real
Property Taxes attributable entirely to another building pursuant to this
Paragraph shall not be considered Common Area Operating Expenses.
(c) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation
upon Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to
provide the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within thirty (30) 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 Common Area Operating Expenses and the same shall be payable
monthly or quarterly, as Lessor shall designate, during each 12-month period of
the Lease term, on the same day as the Base Rent is due hereunder. Lessor shall
deliver to Lessee within sixty (60) days after the expiration of each calendar
year a reasonably detailed statement showing Lessee's Share of the actual Common
Area Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such
over-
INITIALS: RH
-------
WJM
-------
-2-
<PAGE>
payment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within thirty (30)
days after delivery by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security
for Lessee's faithful performance of Lessee's obligations under this Lease.
If Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all
or any portion of said Security Deposit, Lessee shall within thirty (30) days
after written request therefore deposit monies with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease. Any
time the Base Rent increases during the term of this Lease, Lessee shall,
upon written request from Lessor, deposit additional monies with Lessor as an
addition to the Security Deposit so that the total amount of the Security
Deposit shall at all times bear the same proportion to the then current Base
Rent as the initial Security Deposit bears to the initial Base Rent set forth
in Paragraph 1.5. Lessor shall not be required to keep all or any part of the
Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay
its consent to any written request by Lessee, Lessee's assignees or subtenants,
and by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for a modification of said Permitted Use, so long as the same will
not impair the structural integrity of the Improvements on the Premises or in
the Building or the mechanical or electrical systems therein, does not conflict
with uses by other lessees, is not significantly more burdensome to the Premises
or the Building and the improvements thereon, and is otherwise permissible
pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor
shall within five (5) business days after such request give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to
be on the Premises, is either: (i) potentially injurious to the public
health, safety or welfare, the environment, or the Premises; (ii) regulated
or monitored by any governmental authority; or (iii) a basis for potential
liability of Lessor to any governmental agency or third party under any
applicable statute or common law theory. Hazardous Substance shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any
products or by-products thereof. Lessee shall not engage in any activity in
or about the Premises which constitutes a Reportable Use (as hereinafter
defined) of Hazardous Substances without the express prior written consent of
Lessor and compliance in a timely manner (at Lessee's sole cost and expense)
with all Applicable Requirements (as defined in Paragraph 6.3). "REPORTABLE
USE" shall mean (i) the installation or use of any above or below ground
storage tank, (ii) the generation, possession, storage, use, transportation,
or disposal of a Hazardous Substance that requires a permit from, or with
respect to which a report, notice, registration or business plan is required
to be filed with, any governmental authority, and (iii) the presence in, on
or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or
occupying the Premises or neighboring properties. Notwithstanding the
foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary
and customary materials reasonably required to be used by Lessee in the
normal course of the Permitted Use, so long as such use is not a Reportable
Use and does not expose the Premises or neighboring properties to any
meaningful risk of contamination or damage or expose Lessor to any liability
therefor. In addition, Lessor may (but without any obligation to do so)
condition its consent to any Reportable Use of any Hazardous Substance by
Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in
its reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefor, including but not limited to the installation (and, at
Lessor's option, removal on or before Lease expiration or earlier
termination) of reasonably necessary protective modifications to the Premises
(such as concrete encasements) and/or the deposit of an additional Security
Deposit under Paragraph 5 hereof. Lessee warrants and represents to
Lessor that Exhibit B attached to this Lease and incorporated by this reference
lists the Hazardous Substances (other than reasonable amounts of commonly used
cleaning chemicals and compounds) and Reportable Uses currently utilized by
Lessee in its operations on the Premises. Lessor consents to the use by Lessee
on the Premises of the Reportable Uses and Hazardous Substances listed in
Exhibit B, in accordance with Lessee's present practices and procedures,
provided that such use complies with all Applicable Requirements.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously
consented to by Lessor, Lessee shall immediately give Lessor written notice
thereof, together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding
given to, or received from, any governmental authority or private party
concerning the presence, spill, release, discharge of, or exposure to, such
Hazardous Substance including but not limited to all such documents as may be
involved in any Reportable Use involving the Premises. Lessee shall not cause
or permit any Hazardous Substance to be spilled or released in, on, under or
about the Premises (including, without limitation, through the plumbing or
sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any,
and the Premises, harmless from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees resulting from any Hazardous Substance
brought onto the Premises by or for Lessee or by anyone under Lessee's
control. Lessee's obligations under this Paragraph 6.2(c) shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
Investigation (including consultants' and attorneys' fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances, unless specifically so
agreed by Lessor in writing at the time of such agreement. See Insert.
(d) LESSOR INDEMNIFICATION. Lessor agrees that, as between
Lessor and Lessee, Lessor shall be responsible for any Hazardous Substances
existing in the Building or Common Areas as of the Commencement Date, except
for Hazardous Substances resulting from the actions of Lessee, its employees,
contractors and agents. Lessor represents and warrants to Lessee that as of
the date hereof to Lessor's actual knowledge, there are no Hazardous
Substances located in or under the Building or Common Area, except as may be
described in the various environmental reports described below, copies of
which have been supplied to Lessee. Lessor agrees to indemnify and hold
harmless Lessee from any loss, cost or expense incurred by Lessee as a result
of a breach of the foregoing representation and warranty by Lessor. Said
Environmental Reports are:
A. Report title "Plaza de Goleta/Airport Plaza, South Fairview
Avenue, Goleta, California" dated August 13, 1992 prepared by Dames & Moore as
Job No. 25050-01-042.
B. Report titled "Additional Investigations, Plaza de
Goleta/Airport Plaza, South Fairview Avenue, Goleta, California" dated January
28, 1993 prepared by Dames & Moore as Job No. 25050-001-042.
C. Report titled "Asbestos Survey Report, Plaza de Goleta/Airport
Plaza, Goleta, California" dated March 1, 1993 prepared by Masek Consulting
Services, Inc. for Dames & Moor.
D. Report title "Additional Subsurface Environmental
Investigation" conducted as Airport Plaza, South Fairview Avenue, Goleta,
California dated October 14, 1993 prepared by RESNA Industries Inc. as Job No.
23101801.
E. Letter dated December 21, 1993 from Ross Grayson to Jerry
Beaver regarding Plaza de Goleta/Airport Plaza.
F. Report titled "Additional Subsurface Environmental
Investigation" conducted at Airport Plaza, South Fairview Avenue, Goleta,
California dated February 1, 1994 prepared by RESNA Industrial, Inc. as Job No.
231018.01.
G. Report titled "Additional Subsurface Environmental
Investigation" at 500 South Fairview Avenue, Airport Plaza, Goleta, California
dated April 12, 1995 prepared by Ground Zero Analysis, Inc. as Job No. 019.
H. Letter dated November 20, 1995 from Ground Zero Analysis, Inc.
to Richard Aleshire with the CA Regional Water Quality Control Board regarding
Fourth Quarter 1995 ground water monitoring and sampling report.
I. Report titled "Soils Investigation - US Post Office, Goleta,
California" dated August 1996 prepared by Dan Giffen.
J. Report title "Remedial Investigation and Alternatives" dated
October 1996 prepared by Dan Giffen and Clayton Environmental Consultants.
K. Letter date May 13, 1997 from Harding Lawson Associates to Tom
H. Clarke of Ropers, Majeski, Cohn & Bentley, Inc. regarding results of
geophysical investigation, underground storage tank areas, former U.S. Post
Office Complex, Goleta, California.
L. Phase I Environmental Site Assessment Update, dated December
19, 1998, prepared for ORIX Real Estate Equities, Inc. by ENSR.
6.2(d) RENT ABATEMENT. In the event that a release of Hazardous Substances
occurs on the Premises, in the Building or on the real property on which the
Premises are situated, which is not caused in whole or in part by Lessee or any
of Lessee's employees, agents, contractors or business invitees, and as a result
of the Release or in order to remedy the Release, Lessee must vacate all or part
of the Premises, then the provisions of Section 9.6(a) shall apply, but Lessee
shall not have the right to terminate this Lease.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION: COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("LENDERS") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the
condition of the Premises and for verifying compliance by Lessee with this
Lease and all Applicable Requirements (as defined in Paragraph 6.3), and
Lessor shall be entitled to employ experts and/or consultants therewith to
advise Lessor with respect to Lessee's activities, including but not limited
to Lessee's installation, operation, use, monitoring, maintenance, or removal
of any Hazardous Substance on or from the Premises. The costs and expenses of
any such inspections shall be paid by the party requesting same, unless a
Default or Breach of this Lease by Lessee or a violation of Applicable
Requirements or a contamination, caused or materially contributed to by
Lessee, is found to exist or to be imminent, or unless the inspection is
requested or ordered by a governmental authority as the result of any such
existing or imminent violation or contamination. In such case, Lessee shall
upon request reimburse Lessor or Lessor's Lender, as the case may be, for the
costs and expenses of such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition),
2.3 (Compliance with Covenants, Restrictions and Building Code), 7.2
(Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation),
Lessee shall, at Lessee's sole cost and expense and at all times, keep the
Premises and every part thereof in good order, condition and repair (whether
or not such portion of the Premises requiring repair, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use,
any prior use by Lessee the elements or the age of such portion of the
Premises), including, without limiting the generality of the foregoing, all
equipment or facilities specifically serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire hose connections if within
the Premises, fixtures, interior walls, interior surfaces of exterior walls,
ceilings, floors, windows, doors, plate glass, and skylights, but excluding
any items which are the responsibility of Lessor pursuant to Paragraph 7.2
below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep
the Premises and all improvements thereon or a part thereof in good order,
condition and state of repair. Notwithstanding anything to the contrary in
Paragraph 7.1(a), if Paragraph 7.1(a) would require Lessee to replace HVAC,
electrical or plumbing equipment that would constitute capital improvements
under generally accepted accounting principles, and the useful life of the new
improvements would extend beyond the end of the term of this Lease, based on
United States Internal Revenue Code depreciation schedules, then Lessee shall
only be responsible for that portion of the cost of the equipment equal to the
portion of the useful life of the improvements that falls within the term of
this Lease, and Lessor shall pay the balance of the cost of such equipment.
(b) Lessee shall, at Lessee's sole cost and expense, procure
and maintain a contract, with copies to Lessor, in customary form and
substance for and with a contractor specializing and experienced in the
inspection, maintenance and service of the heating, air conditioning and
ventilation system for the Premises.
(c) If Lessee fails to perform Lessee's obligations under
this Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days'
prior written notice to Lessee (except in the case of an emergency, in which
case no notice shall be required), perform such obligations on Lessee's
behalf, and put the Premises in good order, condition and repair, in
accordance with Paragraph 13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to
reimbursement pursuant to Paragraph 4.2 (if a Common Area Operating Expense)
shall keep in good order, condition and repair the foundations, exterior
walls, structural condition of interior bearing walls, exterior roof, fire
sprinkler and/or standpipe and hose (if located in the Common Areas) or other
automatic fire extinguishing system including fire alarm and/or smoke
INITIALS: RH
-------
WJM
-------
-3-
<PAGE>
detection systems and equipment, fire hydrants, parking lots, walkways,
parkways, driveways, landscaping, fences, signs and utility systems serving the
Common Areas and all parts thereof, as well as providing the services for which
there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall
not be obligated to paint the exterior or interior surfaces of exterior walls
nor shall Lessor be obligated to maintain, repair or replace windows, doors or
plate glass of the Premises. Lessee expressly waives the benefit of any statute
now or hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning
equipment, plumbing, and fencing in, on or about the Premises. The term
"TRADE FIXTURES" shall mean Lessee's machinery and equipment which can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises which are
provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY
INSTALLATIONS" are defined as Alterations and/or Utility Installations made
by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).
Lessee shall not make nor cause to be made any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior
written consent. Lessee may, however, make non-structural Utility
Installations to the interior of the Premises (excluding the roof) without
Lessor's consent but upon notice to Lessor, so long as they are not visible
from the outside of the Premises, do not involve puncturing, relocating or
removing the roof or any existing walls, or changing or interfering with the
fire sprinkler or fire detection systems and the cumulative cost thereof
during the term of this Lease as extended does not exceed $2,500.00.
Notwithstanding anything to the contrary in Paragraph 7.3 or other provisions
of this Lease, Lessee may, without the prior written consent of Lessor,
alter, modify, relocate, remove and replace air lines, secondary electrical
lines, secondary HVAC lines, secondary plumbing (such as outlet pipes, sinks,
faucets and plumbing fixtures) and lighting fixtures, provided that Tenant
replaces any removed items with replacements of equal or better quality.
Lessee shall perform any work for which Lessor's consent is not required in
full compliance with the other provisions of Paragraphs 7.3(b) and (c).
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so), condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in
an amount equal to one and one-half times the amount of such contested lien
claim or demand, indemnifying Lessor against liability for the same, as required
by law for the holding of the Premises free from the effect of such lien or
claim. In addition, Lessor may require Lessee to pay Lessor's attorneys' fees
and costs in participating in such action if Lessor shall decide it is to its
best interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter
provided in this Paragraph 7.4, all Alterations and Utility Installations
made to the Premises by Lessee shall be ther property of and owned by Lesee,
but considered a part of the Premises. Lessor may, at any time and at its
option, elect in writing to Lessee to be the owner of all or any specified
part of the Lessee-Owned Alterations and Utility Installations. Unless
otherwise instructed per Subparagraph 7.4(b) hereof, all Lessee-Owned
Alterations and Utility Installations shall, at the expiration or earlier
termination of this Lease, become the property of Lessor and remain upon the
Premises and be surrendered with the Premises by Lessee. Lessor may only
elect to become the owner of all or any part of the Lessee-Owned Alterations
and Utility Installations, either during the term of this Lease or upon
expiration or termination of the Lease term, if Lessor gives Lessee written
notice of its election to own such improvements at the time that Lessor
consents to such improvements pursuant to Paragraph 7.3 above.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease,
notwithstanding that their installation may have been consented to by Lessor.
Lessor may require the removal at any time of all or any part of any
Alterations or Utility Installations made without the required consent of
Lessor. Lessor may only require the removal of Lessee-Owned Alterations and
Utility Installations installed with the prior consent of Lessor if Lessor
gives Lessee notice of its election to require such removal at the time it
consents to the installation of such improvements. However, Lessor may waive
its right to require such removal at the termination or expiration of the
Lease.
(c) SURRENDER/RESTORATION. Lessee shall surrender the
Premises by the end of the last day of the Lease term or any earlier
termination date, clean and free of debris and in good operating order,
condition and state of repair, ordinary wear and tear excepted. Ordinary wear
and tear shall not include any damage or deterioration that would have been
prevented by good maintenance practice or by Lessee performing all of its
obligations under this Lease. Except as otherwise agreed or specified herein,
the Premises, as surrendered, shall include the Alterations and Utility
Installations. The obligation of Lessee shall include the repair of any
damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Lessee-Owned Alterations and
Utility Installations, as well as the removal of any storage tank installed
by or for Lessee, and the removal, replacement, or remediation of any soil,
material or ground water contaminated by Lessee, all as may then be required
by Applicable Requirements and/or good practice. Lessee's Trade Fixtures
shall remain the property of Lessee and shall be removed by Lessee subject to
its obligation to repair and restore the Premises per this Lease.
Notwithstanding the preceding provisions of Paragraph 7.4(c), Lessee shall
have no obligation to repair or restore damage caused by Lessor or any of
Lessor's employees, agents or contractors.
(d) LESSOR'S WAIVER. Notwithstanding anything to the contrary
set forth in this Paragraph 7.4 or any other provision of this Lease, any and
all personal property and fixtures owned by Lessee and used by Lessee in the
operation of its business, whether or not such property constitutes Lessee's
trade fixtures shall be and shall remain the property of Lessee, may be
encumbered by Lessee, and, at the Lessee's option, may be removed by Lessee (or
its designees, nominees, successors or assigns) upon, or within thirty days
after, the expiration of the term of this Lease; provided that Lessee repairs
any damage to the Premises, the Building or the Common Areas occasioned by such
removal. Without limiting the generality of the foregoing, Lessor agrees to
execute any "lessor's waiver" which may be requested by a lender of Lessee, in
which Lessor shall, without limiting the generality of the foregoing, waive its
rights with respect to such property, and shall grant such rights to Lessee's
lender as Lessee's lender may reasonably require with respect to the maintenance
and removal of such property.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
pro-rated to coincide with the corresponding Commencement Date or Expiration
Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less that $3,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "INSURED CONTRACT"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance. Said policy or policies shall also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by a
Lender, as set forth in the most current issue of "Best's Insurance Guide."
Lessee shall not do or permit to be done anything which shall invalidate the
insurance policies referred to in
INITIALS: RH
-------
WJM
-------
-4-
<PAGE>
this Paragraph 8. Lessee shall cause to be delivered to Lessor, within seven
(7) days after the earlier of the Early Possession Date or the Commencement
Date, certified copies of, or certificates evidencing the existence and
amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty
(30) days' prior written notice to Lessor. Lessee shall at least thirty (30)
days prior to the expiration of such policies, furnish Lessor with evidence
of renewals or "insurance binders" evidencing renewal thereof, or Lessor may
order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of
express warranties, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor,
partners and Lenders, from and against any and all claims, loss of rents
and/or damages, costs, liens, judgments, penalties, loss of permits,
attorneys' and consultants' fees, expenses and/or liabilities arising out of,
involving, or in connection with, the occupancy of the Premises by Lessee,
the conduct of Lessee's business, any act, omission or neglect of Lessee, its
agents, contractors, employees or invitees, and out of any Default or Breach
by Lessee in the performance in a timely manner of any obligation on Lessee's
part to be performed under this Lease. The foregoing shall include, but not
be limited to, the defense or pursuit of any claim or any action or
proceeding involved therein, and whether or not (in the case of claims made
against Lessor) litigated and/or reduced to judgment. In case any action or
proceeding be brought against Lessor by reason of any of the foregoing
matters, Lessee upon notice from Lessor shall defend the same at 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.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or
any other person in or about the Premises, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or
from the breakage, leakage, obstruction or other defects of pipes, fire
sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said injury or damage results from
conditions arising upon the Premises or upon other portions of the Building
of which the Premises are a part, from other sources or places, and
regardless of whether the cause of such damage or injury or the means of
repairing the same is accessible or not. Lessor shall not be liable for any
damages arising from any act or neglect of any other lessee of Lessor nor
from the failure by Lessor to enforce the provisions of any other lease in
the Industrial Center. Notwithstanding Lessor's negligence or breach of this
Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom. Nothing in Paragraph
8.8 shall be deemed to release or exempt Lessor from liability for the gross
negligence or reckless or intentional misconduct of Lessor or its employees
and agents. This Paragraph shall not be interpreted, however, to expand the
liability of Lessor for the acts or omissions of its agents and employees
beyond the ordinary scope of that liability under California case law and
statute.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than
fifty percent (50%) of the then Replacement Cost (as defined in Paragraph
9.1(d)) of the Premises (excluding Lessee-Owned Alterations and Utility
Installations and Trade Fixtures) immediately prior to such damage or
destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building) of the
Building shall, at the option of Lessor, be deemed to be Premises Total
Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial
Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's
expense, repair such damage (but not Lessee's Trade Fixtures or Lessee-Owned
Alterations and Utility Installations) as soon as reasonably possible and
this Lease shall continue in full force and effect. In the event, however,
that there is a shortage of insurance proceeds and such shortage is due to
the fact that, by reason of the unique nature of the improvements in the
Premises, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or
adequate assurance thereof, within ten (10) days following receipt of written
notice of such shortage and request therefor. If Lessor receives said funds
or adequate assurance thereof within said ten (10) day period, Lessor shall
complete them as soon as reasonably possible and this Lease shall remain in
full force and effect. If Lessor does not receive such funds or assurance
within said period, Lessor may nevertheless elect by written notice to Lessee
within ten (10) days thereafter to make such restoration and repair as is
commercially reasonable with Lessor paying any shortage in proceeds, in which
case this Lease shall remain in full force and effect. If Lessor does not
receive such funds or assurance within such ten (10) day period, and if
Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right
to reimbursement from Lessor for any funds contributed by Lessee to repair
any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net
proceeds of any such insurance shall be made available for the repairs if
made by either party. If, in the reasonable judgment of a qualified, licensed
contractor, the Premises cannot be completely restored within one hundred
eighty days (180) days after the occurrence of the damage or destruction,
then Lessee may elect to terminate the Lease within thirty (30) days after
the event of damage or destruction. If such damage or destruction is not
repaired within one hundred eighty (180) days after the occurrence of the
damage or destruction, then Lessee may terminate this Lease upon sixty (60)
days written notice to Lessor, provided that the restoration of the Premises
is not completed within the sixty (60)-day notice period.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful
act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense and this Lease shall continue in full force and effect), Lessor may
at Lessor's option, either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in
full force and effect, or (ii) give written notice to Lessee within thirty
(30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60)
days following the date of such notice. In the event Lessor elects to give
such notice of Lessor's intention to terminate this Lease, Lessee shall have
the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the repair of such
damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following such commitment from Lessee. In
such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such repairs as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
If, in the reasonable judgment of a qualified, licensed contractor, the
Premises cannot be completely restored within one hundred eighty days (180)
days after the occurrence of the damage or destruction, then Lessee may elect
to terminate the Lease within thirty (30) days after the event of damage or
destruction. If such damage or destruction is not repaired within one hundred
eighty (180) days after the occurrence of the damage or destruction, then
Lessee may terminate this Lease upon sixty (60) days written notice to
Lessor, provided that the restoration of the Premises is not completed within
the sixty (60)-day notice period.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if Premises Total Destruction occurs (including any destruction required by
any authorized public authority), this Lease shall terminate upon the date of
such Premises Total Destruction, whether or not the damage or destruction is
an Insured Loss or was caused by a negligent or willful act of Lessee. In the
event, however, that the damage or destruction was caused by Lessee, Lessor
shall have the right to recover Lessor's damages from Lessee except as
released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within thirty (30) days after the date of
occurrence of such damage. Provided, however, if Lessee at that time has an
exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by (a) exercising such option, and (b)
providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten (10) days after Lessee's receipt of Lessor's written
notice purporting to terminate this Lease, or (ii) the day prior to the date
upon which such option expires. If Lessee duly exercises such option during
such period and provides Lessor with funds (or adequate assurance thereof) to
cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense
repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
and provide such funds or assurance during such period, then this Lease shall
terminate as of the date set forth in the first sentence of this Paragraph
9.5. If at any time during the last six (6) months of the term of this Lease
the Premises are damaged to an extent that would require Lessee to
discontinue its business operations on the Premises for thirty (30) days or
more, Lessee shall have the right to terminate this Lease by written notice
to Lessor given within ten (10) days after the occurrence of the damage.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continues, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired, but not in excess
of proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "COMMENCE" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
(c) If Lessor shall be obligated to repair or restore the
Premises under the Premises under the provisions of this Paragraph 9
(excluding a Hazardous Substance Condition or other release of Hazardous
Substances), and Lessor does not complete the repairs or restoration within
one hundred eighty (180) days after the occurrence of the damage or
destruction, then Lessee may terminate this Lease upon sixty (60) days
written notice to Lessor, provided that the restoration of the Premises is
not completed within the sixty (60)-day notice period.
(d) For purposes of Paragraph 9(a) and Paragraph 9.7, Lessee is
only to be deemed "legally responsible" for a Hazardous Condition if the
Hazardous Condition was caused in whole or in part by Lessee or any of its
employees, agents, contractors, or business invitees. Nothing in this
Paragraph shall be deemed to release any claim of liability that Lessor may
have against Lessee under Applicable Requirements (as defined in Paragraph
6.3).
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
INITIALS: RH
-------
WJM
-------
-5-
<PAGE>
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense,
in which event this Lease shall continue in full force and effect, or (ii) if
the estimated cost to investigate and remediate such condition exceeds twelve
(12) times the then monthly Base Rent or $100,000 whichever is greater, give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such Hazardous Substance Condition of Lessor's
desire to terminate this Lease as of the date sixty (60) days following the
date of such notice. In the event Lessor elects to give such notice of
Lessor's intention to terminate this Lease, Lessee shall have the right
within ten (10) days after the receipt of such notice to give written notice
to Lessor of Lessee's commitment to pay for the excess costs of (a)
investigation and remediation of such Hazardous Substance Condition to the
extent required by Applicable Requirements, over (b) an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater. Lessee shall provide Lessor with the funds required of Lessee or
satisfactory assurance thereof within thirty (30) days following said
commitment by Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds
or assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises and the Building with respect to the termination of this Lease and
hereby waive the provisions of any present or future statute to the extent it
is inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION. As used herein, the term, "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
franchise, personal income or estate taxes [collectively, "EXCLUDED TAXES"])
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or
any school, agricultural, sanitary, fire, street, drainage, or other
improvement district thereof, levied against any legal or equitable interest
of Lessor in the Industrial Center or any portion thereof, Lessor's right to
rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "REAL PROPERTY TAXES" shall also include any tax, fee,
levy, assessment or charge, or any increase therein (other than Excluded
Taxes), imposed by reason of events occurring, or changes in Applicable Law
taking effect, during the term of this Lease, including but not limited to a
change in the ownership of the Industrial Center or in the improvements
thereon, the execution of this Lease, or any modification, amendment or
transfer thereof, and whether or not contemplated by the Parties. In
calculating Real Property Taxes for any calendar year, the Real Property
Taxes for any real estate tax year shall be included in the calculation of
Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within
thirty (30) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, trash
removal, telephone, security, gas and cleaning of the Premises, together with
any taxes thereon. If any such utilities or services are not separately
metered to the Premises or separately billed to the Premises, Lessee shall
pay to Lessor a reasonable proportion to be determined by Lessor of all such
charges jointly metered or billed with other premises in the Building, in the
manner and within the time periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose. Notwithstanding anything to
the contrary in Paragraphs 12.1(a) or (b), Lessor's consent shall not be
required for Lessee to make an initial public offering of its stock, and, at
any time when Lessee is a publicly held corporation, neither a merger or
acquisition of Lessee, nor the sale of its stock, shall require the consent
of Lessor, even though the merger or acquisition or sale of stock may involve
a change of control or transfer of more than twenty-five percent (25%) of the
voting control of Lessee.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1, or a
non-curable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unconsented to assignment or subletting as a
non-curable Breach, Lessor shall have the right to either: (i) terminate this
Lease, or (ii) upon thirty (30) days' written notice ("LESSOR'S NOTICE"),
increase the monthly Base Rent for the Premises to the greater of the then
fair market rental value of the Premises, as reasonably determined by Lessor,
or one hundred ten percent (110%) of the Base Rent then in effect. Pending
determination of the new fair market rental value, if disputed by Lessee,
Lessee shall pay the amount set forth in Lessor's Notice, with any
overpayment credited against the next installment(s) of Base Rent coming due,
and any underpayment for the period retroactively to the effective date of
the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or
any deduction for depreciation or obsolescence, and considering the Premises
at its highest and best use and in good condition) or one hundred ten percent
(110%) of the price previously in effect, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index
applicable to the time of such adjustment, and (iii) any fixed rental
adjustments scheduled during the remainder of the Lease term shall be
increased in the same ratio as the new rental bears to the Base Rent in
effect immediately prior to the adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not
limited to the intended use and/or required modification of the Premises, if
any, together with a non-refundable deposit of $1,000 or ten percent (10%) of
the monthly Base Rent applicable to the portion of the Premises which is the
subject of the proposed assignment or sublease, whichever is greater, as
reasonable consideration for Lessor's considering and processing the request
for consent. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be
deemed, for the benefit of Lessor, to have assumed and agreed to conform and
comply with each and every term, covenant, condition and obligation herein to
be observed or performed by Lessee during the term of said assignment or
sublease, other than such obligations as are contrary to or inconsistent with
provisions of an assignment or sublease to which Lessor has specifically
consented in writing.
INITIALS: RH
-------
WJM
-------
-6-
<PAGE>
(g) The occurrence of a transaction described in Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment schedule of
the rent payable under this Lease be adjusted to what is then the market value
and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all
or a portion of the Premises heretofore or hereafter made by Lessee, and
Lessor may collect such rent and income and apply same toward Lessee's
obligations under this Lease; provided, however, that until a Breach (as
defined in Paragraph 13.1) shall occur in the performance of Lessee's
obligations under this Lease, Lessee may, except as otherwise provided in
this Lease, receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of the foregoing provision or any
other assignment of such sublease to Lessor, nor by any 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 Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents and other charges
due and to become due under the sublease. Sublessee shall rely upon any such
statement and request from Lessor and shall pay such rents and other charges
to Lessor without any obligation or right to inquire as to whether such
Breach exists and notwithstanding any notice from or claim from Lessee to the
contrary. Lessee shall have no right or claim against such sublessee, or,
until the Breach has been cured, against Lessor, for any such rents and other
charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of
such sublease; provided, however, Lessor shall not be liable for any prepaid
rents or security deposit paid by such sublessee to such sublessor or for any
other prior defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's prior
written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to by made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of thirty (30) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40
hereof that are to be observed, complied with or performed by Lessee, other
than those described in Subparagraphs 13.1(a), (b) or (c), above, where such
Default continues for a period of thirty (30) days after written notice
thereof by or on behalf of Lessor to Lessee; provided, however, that if the
nature of Lessee's Default is such that more than thirty (30) days are
reasonably required for its cure, then it shall not be deemed to be a Breach
of this Lease by Lessee if Lessee commences such cure within said thirty
(30) day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code
Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within sixty (60) days;
(iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within
thirty (30) days; or (iv) the attachment, execution or other judicial seizure
of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not discharged within
thirty (30) days; provided, however, in the event that any provision of this
Subparagraph 13.1(e) is contrary to any applicable law, such provision shall
be of no force or effect, and shall not affect the validity of the remaining
provisions.
(f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within thirty (30) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not by honored by the bank upon which it is drawn,
Lessor, at its own option, may require all future payments to be made under
this Lease by Lessee to be made only by cashier's check. In event of a Breach
of this Lease by Lessee (as defined in Paragraph 13.1), with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate 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: (i)
the worth at the time of the award of the unpaid rent which had been earned
at the time of termination: (ii) the worth at the time of award of the amount
by which the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that the Lessee
proves could have been reasonably avoided; (iii) the worth at the time of
award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount such rental loss that the Lessee
proves could be reasonably avoided; and (iv) any other amount necessary to
compensate Lessor for all the detriment proximately caused by the Lessee's
failure to perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom, including but not
limited to the cost of recovering possession of the Premises, expenses of
reletting, including necessary renovation and alteration of the Premises,
reasonable attorneys' fees, and that portion of any leasing commission paid
by Lessor in connection with Lease applicable to the unexpired term of this
Lease. The worth at the time of award of the amount referred to in provision
(iii) of the immediately preceding sentence shall be computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco
or the Federal Reserve Bank District in which the Premises are located at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
cased by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph 13.2. If termination of this
Lease is obtained through the provisional remedy of unlawful detainer, Lessor
shall have the right to recover in such proceeding the unpaid rent and
damages as are recoverable therein, or Lessor may reserve the right to
recover all or any part thereof in a separate suit for such rent and/or
damages. If a notice and grace period required under Subparagraph 13.1(b), (c)
or (d) was not previously given, a notice to pay rent or quit, or to perform
or quit, as the case may be, given to Lessee under any statute authorizing
the forfeiture of leases for unlawful detainer shall also constitute the
applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of
the two (2) such grace periods shall constitute both an unlawful detainer and
a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after
Lessee's Breach and recover the rent as it becomes due, provided Lessee has
the right to sublet or assign, subject only to reasonable limitations. Lessor
and Lessee agree that the limitations on assignment and subletting in this
Lease are reasonable. Acts of maintenance or preservation, efforts to relet
the Premises or the appointment of a receiver to protect the Lessor's
interest under this Lease, shall not constitute a termination of the Lessee's
right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
INITIALS: RH
------
WJM
------
-7-
<PAGE>
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee or Lessor
from liability under any indemnity provisions of this lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's occupancy
of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for
the giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of
which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS"
shall be deemed conditioned upon Lessee's full and faithful performance of
all of the terms, covenants and conditions of this Lease to be performed or
observed by Lessee during the term hereof as the same may be extended. Upon
the occurrence of a Breach (as defined in Paragraph 13.1) of this Lease by
Lessee, any such Inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other
charge, bonus, inducement or consideration theretofore abated, given or paid
by Lessor under such an Inducement Provision shall be immediately due and
payable by Lessee to Lessor, and recoverable by Lessor, as additional rent
due under this Lease, notwithstanding any subsequent cure of said Breach by
Lessee. The acceptance by Lessor of rent or the cure of the Breach which
initiated the operation of this Paragraph 13.3 shall not be deemed a waiver
by Lessor of the provisions of this Paragraph 13.3 unless specifically so
stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering
the Premises. Accordingly, if any installment of rent or other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to by performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If so much of the Premises
is taken by condemnation as will prevent Lessee, in its reasonable judgment,
from conducting its business operations on the Premises in the manner
contemplated as of the Commencement Date, Lessee may, at Lessee's option to be
exercised in writing within ten (10) days after Lessor shall have given
Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to
the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises
taken bears to the total rentable floor area of the Premises. No reduction of
Base Rent shall occur if the condemnation does not apply to any portion of
the Premises. Any award for the taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution of value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that
Lessee shall be entitled to any compensation, separately awarded to Lessee
for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In
the event that this Lease is not terminated by reason of such condemnation,
Lessor shall to the extent of its net severance damages received, over and
above Lessee's Share of the legal and other expenses incurred by Lessor in
the condemnation matter, repair any damage to the Premises caused by such
condemnation authority. In the event that Base Rent is reduced
proportionately pursuant to this Paragraph, Lessee's Share shall be adjusted
accordingly, based on the ratio of the remaining area of the Premises to the
remaining area of the Building.
If the net severance damages received by Lessor are insufficient to
repair any damages to the Premises caused by the condemning authority, then
Lessor may elect to terminate this Lease rather than restore the Premises, on
thirty (30)-days prior written notice to Lessee, unless Lessee, within the
thirty (30)-day notice period, notifies Lessor that it will bear the cost of
the restoration in excess of the net severance damages, and pays such excess
cost to Lessor within thirty (30) days thereafter.
15. BROKERS' FEES. Terms relating to Brokers are in separate writing between
Lessor and Grubb & Ellis.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or action of the
indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall
within ten (10) days after written notice from the other Party (the
"REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party
a statement in writing in a form similar to the then most current "TENANCY
STATEMENT" form published by the American Industrial Real Estate Association,
plus such additional information, confirmation and/or statements as may be
reasonably requested by the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises. In
the event of a transfer of Lessor's title or interest in the Premises or in
this Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such
transfer or assignment. Except as provided in Paragraph 15.3 upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid,
the prior Lessor shall be relieved of all liability with respect to the
obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligation and/or covenants in this
Lease to be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party. Each Broker shall be an intended
third party beneficiary of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by certified or registered mail
or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses
noted adjacent to a Party's signature on this Lease shall be that Party's
address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises
shall constitute Lessee's address for the purpose of mailing or delivering
notices to Lessee. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties
at such addresses as Lessor may from time to time hereafter designate by
written notice to Lessee. A copy of all notices required or permitted to be
given to Lessee hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessee may from time to time hereafter designate
by written notice to Lessor.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. Notices
delivered by United States Express Mail or overnight courier that guarantees
next day
INITIALS: RH
------
WJM
------
-8-
<PAGE>
delivery shall be deemed given twenty-four (24) hours after delivery of the
same to the United States Postal Service or courier. If any notice is
transmitted by facsimile transmission or similar means, the same shall be
deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any Default or Breach by Lessee of any provision hereof. Any payment given
Lessor by Lessee may be accepted by Lessor on account of moneys or damages
due Lessor, notwithstanding any qualifying statements or conditions made by
Lessee in connection therewith, which such statements and/or conditions shall
be of no force or effect whatsoever unless specifically agreed to in writing
by Lessor at or before the time of deposit of such payment. No waiver by
Lessee of any breach of any term, covenant or condition hereof by Lessor,
shall be deemed a waiver of any other term, covenant or condition hereof, or
of any subsequent breach by Lessor of the same or any other term, covenant or
condition hereof. Lessee's consent to, or approval of, any such act shall not
be deemed to render unnecessary the obtaining of Lessee's consent to, or
approval of, any subsequent or similar act by Lessor, or be construed as the
basis of an estoppel to enforce the provision or provisions of this Lease
requiring such consent.
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. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to One hundred fifty
percent (150%) of the Base Rent applicable during the month immediately
preceding such expiration or earlier termination. Nothing contained herein shall
be construed as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now
or hereafter placed by Lessor upon the real property of which the Premises
are a part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor
under this Lease, but that in the event of Lessor's default with respect to
any such obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of Lessor's default
pursuant to Paragraph 13.5. If any Lender shall elect to have this Lease
and/or any Option granted hereby superior to the lien of its Security Device
and shall give written notice thereof to Lessee, this Lease and such Options
shall be deemed prior to such Security Device, notwithstanding the relative
dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not:
(i) be liable for any act or omission of any prior lessor or with respect to
events occurring prior to acquisition of ownership, (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor, or
(iii) be bound by prepayment of more than one month's rent. Lessee's duty to
attorn under this Paragraph shall be conditional upon receipt from the Lender
or other new owner of a non-disturbance agreement, providing that so long as
Lessee performs its obligations under the Lease, its possession of the
Premises under the Lease will not be disturbed.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises. As of the date of this
Lease, the Premises are subject to a first deed of trust held by ORIX Real
Estate Equities, Inc., to which the Lease is subject and subordinate. Within
thirty (30) days after the date of this Lease, Lessor agrees to offer Lessee
the opportunity to enter into an ordinary and customary, commercially
reasonable non-disturbance agreement with ORIX Real Estate Equities, Inc.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents: provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party brings an action or proceeding to enforce
the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall
be entitled to reasonable attorneys' fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term "PREVAILING PARTY"
shall include, without limitation, a Party who substantially obtains or
defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party of its claim or
defense. The attorneys' fee award shall not be computed in accordance with
any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred. Lessor shall be entitled to attorneys'
fees, costs and expenses incurred in preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal
action is subsequently commenced in connection with such Default or resulting
Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee. Lessor shall exert
its reasonable, good faith efforts to exercise its rights under this
Paragraph in a manner that will not unreasonably interfere with Lessee's
business operations on the Premises.
33. AUCTIONS. Lessee shall not conduct, not permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to
advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions
of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures
and Alterations). Unless otherwise expressly agreed herein, Lessor reserves
all rights to the use of the roof of the Building, and the right to install
advertising signs on the Building, including the roof, which do not
unreasonably interfere with the conduct of Lessee's business; Lessor shall be
entitled to all revenues from such advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to
an act by or for the other Party, such consent shall not be unreasonably
withheld or delayed. Lessor's actual reasonable costs and expenses (including
but not limited to architects', attorneys', engineers' and other consultants'
fees) incurred in the consideration of, or response to, a request by Lessee
for any Lessor consent pertaining to this Lease or the Premises, including
but not limited to consents to an assignment a subletting or the presence or
use of a Hazardous Substance, shall be paid by Lessee to Lessor upon receipt
of an invoice and supporting documentation therefor. In addition to the
deposit described in Paragraph 12.2(e), Lessor may, as a condition to
considering any such request by Lessee, require that Lessee deposit with
Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor
will incur in considering and responding to Lessee's request. Any unused
portion of said deposit shall be refunded to Lessee without interest.
Lessor's consent to any act, assignment of this Lease or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
INITIALS: RH
-------
WJM
-------
-9-
<PAGE>
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property
of Lessor; (b) the right of first refusal to lease the Premises or the right
of first offer to lease the Premises or the right of first refusal to lease
other property of Lessor or the right of first offer to lease other property
of Lessor; (c) the right to purchase the Premises, or the right of first
refusal to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessor has given to Lessee three (3) or more notices of separate Defaults
under Paragraph 13.1 during the twelve (12) month period immediately
preceding the exercise of the Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of separate Defaults under
Paragraph 13.1 during any twelve (12) month period, whether or not the
Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants
or tenants of the Building and the Industrial Center and their invitees. Any
Rules and Regulations established by Lessor pursuant to this Paragraph (a)
shall be established, implemented, applied and enforced by Lessor in a
good-faith, non-discriminatory matter and (b) shall not unreasonably
interfere with Lessee's operations on the Premises, provided such operations
are a Permitted Use, comply with law and otherwise comply with the provisions
of this Lease.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide
same. Lessee assumes all responsibility for the protection of the Premises,
Lessee, its agents and invitees and their property from the acts of third
parties; except for acts of Lessor or Lessor's agents, employees or
contractors.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way,
utility raceways, and dedications that Lessor deems necessary, and to cause
the recordation of parcel maps and restrictions, so long as such easements,
rights of way, utility raceways, dedications, maps and restrictions do
not reasonably interfere with the use of the Premises by Lessee. Lessee
agrees to sign any documents reasonably requested by Lessor to effectuate any
such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum and so much thereof as it was not legally
required to pay under the provisions of this Lease, plus interest on the
recovered amount, from the date that the payment of such amount was made
"under protest" until such amount is refunded, at the lesser interest rate of
(a) the prime rate as reported in the West Coast Edition of the Wall Street
Journal as of the date that payment was made "under protest," plus two
percent (2%), or (b) the highest interest rate permitted by law.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute
and deliver this Lease on its behalf. If Lessee or Lessor is a corporation,
trust or partnership, Lessee or Lessor shall, within thirty (30) days after
request by the other party, deliver to the other party evidence satisfactory
to the other party of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not
be deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
INITIALS: RH
------
WJM
------
-10-
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH
TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW
THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT,
AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE
SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM
THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<S> <C>
Executed at: Executed at: 800 Miramonte Dr, Santa Barbara
-------------------------------- -------------------------------
on: 4/30/98 on: 4/28/98
----------------------------------------- ----------------------------------------
BY LESSOR: BY LESSEE:
ORIX SBAP GOLETA VENTURE, EARTHSHELL CORPORATION,
a General Partnership a Delaware corporation
By: ORIX GOLETA, INC., a General Partner By: /s/ Richard K. Hulme
----------------------------------------
By: /s/ James H. Purinton Name Printed: Richard K. Hulme
------------------------------------ ------------------------------
James H. Purinton, President Title: Executive Vice President
c/o ORIX GOLETA, INC. -------------------------------------
c/o ORIX Real Estate Equities, Inc. By:
100 North Riverside Plaza, S-1400 ----------------------------------------
Chicago, Illinois 60606 Name Printed:
------------------------------
By: SANTA BARBARA AIRPORT PLAZA, L.P., Title:
General Partner -------------------------------------
Address:
By: /s/ William J. Moran, Sr. ------------------------------------
-----------------------------------
William J. Moran, Sr., President* --------------------------------------------
177 East Front Street Telephone: ( )
Covina, California 91723 -------------------------
Telephone: (626) 915-6027 Facsimile: ( )
Facsimile: (626) 332-6894 -------------------------
* Moran Properties, Inc.
General Partner of
Santa Barbara Airport Plaza, L.P. BROKER:
Executed at Covina, California
April 30, 1998 Executed at:
-------------------------------
on:
----------------------------------------
By:
----------------------------------------
Name Printed:
------------------------------
Title:
-------------------------------------
Address:
-----------------------------------
--------------------------------------------
Telephone: ( )
--------------------------
Facsimile: ( )
--------------------------
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form. AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So.
Figueroa St., M-1, Los Angeles, CA 90071, (213) 687-8777.
INITIALS: RH
-------
WJM
-------
-11-
<PAGE>
ADDENDUM TO LEASE DATED MAY 1, 1998
BETWEEN ORIX SBAP GOLETA VENTURE AS LESSOR
AND EARTHSHELL CORPORATION AS LESSEE
This Addendum to Lease (this "Addendum") is made and entered into by and
between ORIX SBAP GOLETA VENTURE ("Lessor") and EARTHSHELL CORPORATION
("Lessee"), and is dated as of the date set forth on the first page of the
Lease between Lessor and Lessee to which this Addendum is attached. The
agreements set forth herein are additional provisions of the Lease and are
intended to and shall have the same force and effect as if set forth in the
Lease. To the extent, if any, that the provisions of this Addendum are
inconsistent with the terms of this Lease, the terms and conditions of this
Addendum shall control.
49. LESSOR'S WORK:
49.1 Lessor agrees to complete the following work ("Lessor's Work")
at Lessor's sole cost and expense:
a. installation of interior demising wall;
b. repair of existing roof;
c. repair of existing HVAC system;
d. painting of exterior of Building;
e. enclosure of open dock area of west end of Building
(the "Dock Work");
f. patching, repairing, resealing and restriping paving in
parking areas; installation of landscape islands in parking lot;
g. clean-up around exterior Building;
h. inspection of electrical system and performance of any necessary
repairs in order to assure that the electrical system is in good
working order and will continue to provide the Premises with its
current power capacity, not to exceed 1600 amps;
i. testing of the fire protection system by an independent testing
agency and performance of any repairs or renovation found
necessary by the testing agency;
j. replacement of exterior doors and installation of locks, with
provision for adequate emergency exits as required by law; and
k. flood mitigation at all current exterior entrances and (at
such time as the Dock Area is enclosed) newly added external
entrances to the Dock Area, but not at other future new
exterior entrances.
49.2 Lessor shall exert its reasonable, good faith efforts toward
performing Lessor's Work in a manner that will not unreasonably interfere
with the conduct of Lessee's business operations on the Premises, but Lessee
recognizes that because it will continue to occupy the Premises during
performance of Lessor's Work, some disturbance will be nearly inevitable.
INITIALS: RH
-------
WJM
-------
-1-
<PAGE>
49.3 Lessee agrees and acknowledges that Lessor does not yet have,
and may not be able to obtain, the government permits necessary in order to
perform the Dock Work. Lessor and Lessee shall cooperate reasonably with one
another, and shall exert their reasonable, good-faith efforts toward
obtaining the necessary permits. However, the obligations of the parties
under this Lease are not contingent upon completion of the Dock Work, and
Lessee shall have no right to terminate this Lease if the Dock Work is
delayed or prevented due to inability to obtain the necessary permits. The
landscaping and dock enclosure improvements to be completed by Lessor shall
be in accordance with the finished project rendering that Lessee has provided
to Lessor.
If Lessor does not substantially complete the Dock Work within eight (8)
months after issuance of all necessary permits for the Dock Work (subject to
extension of this time period due to construction delays caused by inclement
weather, labor strikes or stoppages, materials shortages, wrongful or
negligent acts or omissions by Lessee or its employees, agents contractors or
business invitees, or other causes beyond the reasonable control of Lessor),
then Lessee shall be excused from payment of Base Rent for the entire
Premises until substantial completion of the Dock Work. Substantial
completion of the Dock Work shall mean when Lessee is entitled to lawfully
occupy the enclosed Dock Area and the Dock Work is complete except for minor
items of correction or completion that do not substantially impair Lessee's
use of the enclosed Dock Area.
49.4 In addition to Lessor's Work, Lessor shall also provide Lessee
with a $22,500 allowance for repair or replacement of lighting fixtures in
the Premises. The repair and replacement of lighting fixtures shall be
performed by Lessee, in conformance with Applicable Requirements, and at
Lessee's expense, except that Lessor shall pay the $22,500 allowance to
Lessee upon completion of the work.
50. Lessor hereby advises Lessee that:
(a) Certain portions of the Building contain ACM (floor tile) and
non-friable asbestos therein; and
(b) Certain portions of the Building are within a 100-year flood
plain.
51. Lessor and Lessee acknowledge that Lessee is currently occupying
portions of the Premises on a month-to-month basis pursuant to another Lease
(the "Existing Lease"). Upon the occurrence of the Commencement Date, the
Existing Lease shall be terminated.
52. OPTION TO EXTEND.
52.1 Subject to all of the terms and conditions set forth in this
Paragraph 52, Lessor hereby grants Lessee an option to extend the term of
this Lease (the "Option") for five (5) years (the "Extension Term"), on all
of the terms and conditions of this Lease, except that (a) the Base Rent
initially payable during the Extension Term shall be the fair market rental
value of the Premises (the "FMRV"), which shall be determined as set forth in
Paragraph 52.4 below; (b) the Base Rent for the Extension Term shall be
adjusted in the 31st month of the Extension Term, as provided for the initial
Lease term in Paragraph 53 of this Lease, with the Base Month to be the first
month of the Extension Term; and (c) after the Option, there shall be no
further options to extend the Lease term.
INITIALS: RH
-------
WJM
-------
-2-
<PAGE>
52.2 The Option shall be personal to Lessee, and may not be assigned
separately from an assignment of the entire interest of Lessee under this
Lease. Upon the termination of this Lease for any reason, the Option also
shall terminate and be of no further force or effect. The provisions of
Paragraphs 39.1 and 39.4 of this Lease shall apply to the exercise of the
Option.
52.3 Lessee may exercise the Option only by giving Lessor written
notice of its intent to exercise the Option during the 48th month of the
initial Lease term. Within 90 days after Lessee gives the notice of its
intent to exercise the Option, Lessor shall notify Lessee in writing whether
Santa Barbara Bank & Trust (or its successor or assign) ("Bank") has elected
to expand its leased premises to cover the Premises upon expiration of the
term of this Lease. If Lessor notifies Lessee within that 90-day period that
Bank has elected to so expand its leased premises, Lessee's exercise of the
Option shall have no effect, and the Option shall terminate. If Lessor does
not notify Lessee within the 90-day period that the Bank has elected to so
expand its leased premises, then the exercise of the Option by Lessee shall
be effective, subject to the provisions of Paragraphs 39.1 and 39.4 of this
Lease.
52.4 The FMRV shall be the fair market rental value of the Premises
for a five-year lease, on an as-is, where-is basis, without any tenant
improvements or tenant improvement allowance, and without an option to renew
or extend the Lease. If Lessee's exercise of the Option is effective, then by
the end of the 52nd month of the initial Lease term, i.e., not later than
eight months prior to termination of the initial Lease term, Lessor shall
notify Lessee in writing of its opinion of the FMRV. If Lessee accepts
Lessor's opinion, the FMRV shall become the Base Rent for the Extension Term.
Should Lessee disagree with Lessor's opinion of the FMRV, the parties will
endeavor to negotiate a mutually agreeable FMRV, which shall become the Base
Rent for the Extension Term. If they cannot reach agreement on the FMRV,
Lessor and Lessee shall jointly select a licensed real estate broker with at
least five years of experience in commercial leasing in the Santa Barbara
area. Lessor and Lessee shall submit to the selected broker their respective
opinions on the FMRV. The selected broker shall then reach his own conclusion
on the FMRV. Whichever opinion of the FMRV, Lessor's or Lessee's, is closest
to the FMRV as determined by the selected broker shall become the FMRV and
the Base Rent for the Extension Term.
INITIALS: RH
-------
WJM
-------
-3-
<PAGE>
53. Paragraph 53 (Rent Adjustments Addendum) attached hereto is
incorporated by this reference herein and made a part hereof.
LESSOR: LESSEE:
ORIX SBAP GOLETA VENTURE, EARTHSHELL CORPORATION,
a General Partnership a Delaware corporation
By: ORIX GOLETA, INC., a General
Partner
By: /s/ James H. Purinton By: /s/ Richard K. Hulme
------------------------------- -----------------------------
James H. Purinton, Name: Richard K. Hulme
President -----------------------
c/o ORIX GOLETA, INC. Title: Exec VP
c/o ORIX Real Estate Equities, Inc. ----------------------
100 North Riverside Plaza, S-1400
Chicago, Illinois 60606
By: SANTA BARBARA AIRPORT Executed on 4/28/98
PLAZA, L.P., General Partner ---------------------
ADDRESS:
By: /s/ William J. Moran, Sr. 800 Miramonte Dr.
--------------------------------- ---------------------------------
William J. Moran, Sr., President* Santa Barbara CA
177 East Front Street ---------------------------------
Covina, California 91723 93109
Telephone: (626) 915-6027 ---------------------------------
Facsimile: (626) 332-6894
---------------------------------
Executed on April 30, 1998
------------------------
* Moran Properties, Inc.
General Partner of
Santa Barbara Airport Plaza, L.P.
INITIALS: RH
-------
WJM
-------
-4-
<PAGE>
[LOGO]
RENT ADJUSTMENT(S)
STANDARD LEASE ADDENDUM
DATED May 1, 1998
----------------------------------------------
BY AND BETWEEN (LESSOR) ORIX SBAP GOLETA VENTURE
----------------------------
(LESSEE) EARTHSHELL CORPORATION
----------------------------
500 South Fairview Avenue
ADDRESS OF PREMISES: Santa Barbara, California
--------------------------------
Paragraph 53
A. RENT ADJUSTMENTS:
The monthly rent for each month of the adjustment period(s) specified
below shall be increased using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
/x/ I. COST OF LIVING ADJUSTMENTS(S) (COLA)
a. On (Fill in COLA Dates): the first (1st) day of the thirty-first
(31st) month of the term of the Lease, the Base Rent shall be adjusted by the
change, if any, from the Base Month specified below, in the Consumer Price
Index of the Bureau of Labor Statistics of the U.S. Department of Labor for
(select one): /x/ CPI W (Urban Wage Earners and Clerical Workers) or / / CPI U
(All Urban Consumers), for (Fill in Urban Area): Los Angeles-Anaheim-Riverside,
All Items (1982-1984 = 100), herein referred to as "CPI"
b. The monthly rent payable in accordance with paragraph A.I.a. of
this Addendum shall be calculated as follows: the Base Rent set forth in
paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the
numerator of which shall be the CPI of the calendar month two months prior to
the month(s) specified in paragraph A.I.a. above during which the adjustment
is to take effect, and the denominator of which shall be the CPI of the
calendar month which is two months prior to (select one): /x/ the first month
of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or / /
(Fill in Other "Base Month"): ________________________. The sum so calculated
shall constitute the new monthly rent hereunder, but in no event, shall any
such new monthly rent be less than the rent payable for the month immediately
preceding the rent adjustment.
c. In the event the compilation and/or publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the CPI shall be used
to make such calculation. In the event that the Parties cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
Association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitration shall be paid equally by the Parties.
Initials: Initials: RH
----------- -----------
WJM
----------- -----------
RENT ADJUSTMENT(S)
PAGE 1 OF 2
<PAGE>
B. NOTICE:
Unless specified otherwise herein, notice of any such adjustments, other
than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the
Lease.
Initials: Initials: RH
----------- -----------
WJM
----------- -----------
RENT ADJUSTMENT(S)
PAGE 2 OF 2
<PAGE>
EXHIBIT A
[MAP]
Initials: RH
-----------
WJM
-----------
<PAGE>
EXHIBIT B
LIST OF HAZARDOUS MATERIALS AND REPORTABLE USES
Acetone
Isopropyl Alcohol
Methyl Ethyl Ketone
Mineral Spirits
Miscellaneous Spray Paints
Miscellaneous Lubricating Oils
Water Based CNC coolant/Cutting Oil
Way Oil
Waste Oil
Triethylene Glycol
Polyvlnyl Alcohol
Miscellaneous Water Base Coatings
Compressed Gases
Argon
Acetylene
Oxygen
Argon CO2 Mixture
Argon Helium Mixture
Liquid Nitrogen
Initials: RH
-----------
WJM
-----------
<PAGE>
DESIGN, PROCUREMENT AND CONSTRUCTION MANAGEMENT
SERVICES AGREEMENT
THIS DESIGN, PROCUREMENT AND CONSTRUCTION MANAGEMENT SERVICES AGREEMENT (this
"Agreement") is made effective May 13, 1998 (the "Effective Date") by and among
EARTHSHELL CORPORATION, formerly known as EarthShell Container Corporation, a
Delaware corporation ("EARTHSHELL"), SWEETHEART CUP COMPANY INC., a Delaware
corporation ("SWEETHEART" and, together with EARTHSHELL, the "PROJECT OWNERS"),
CH2M HILL INDUSTRIAL DESIGN CORPORATION, an Oregon corporation ("CH2M"), and IDC
CONSTRUCTION MANAGEMENT, INC., an Oregon corporation ("IDC" and, together with
CH2M, the "IDC PARTIES").
RECITALS
A. IDC, a wholly-owned subsidiary of CH2M, provides design, procurement,
construction management, design/build, system integration, industrial
engineering, consulting and other services. IDC, through its business unit known
as THE FOOD GROUP ("TFG"), has substantial experience and expertise in the
design and installation of food processing facilities and in providing related
services to the food products industry.
B. EARTHSHELL is engaged in the business of developing and sublicensing
the production of packaging material with product applications for food service
disposables.
C. SWEETHEART manufactures and supplies foodservice disposables and owns
a manufacturing facility located at 9830 Reistertown Road in Owings Mills,
Maryland (the "Sweetheart Facility"). Pursuant to the Operating Agreement
entered into by EARTHSHELL and SWEETHEART on October 16, 1997 (the "Operating
Agreement"), SWEETHEART has agreed that a portion of the Sweetheart Facility
will serve as a production facility for hinged sandwich containers for
McDonald's Corporation that utilize packaging material sublicensed from
EARTHSHELL ("Products"). The Operating Agreement contemplates that EARTHSHELL
will install certain operating lines of equipment for manufacturing Products
("Process Equipment Lines") at the Sweetheart Facility and in connection
therewith that various modifications will be required to be made to the
Sweetheart Facility and related infrastructure (the "Project").
D. EARTHSHELL and SWEETHEART wish to engage TFG, and TFG wishes to be
engaged, (i) to provide design and construction management services relating to
the renovations to be made to the Sweetheart Facility, (ii) to assist with the
procurement and installation of the Process Equipment Lines and (iii) to provide
consulting and other services relating to the Project, all on the terms and
conditions set forth below.
NOW, THEREFORE, for good and sufficient consideration, EARTHSHELL, SWEETHEART,
IDC and CH2M (each a "PARTY" and collectively, the "PARTIES") agree as follows:
ARTICLE 1
SCOPE OF WORK
1.1 TFG agrees to furnish to EARTHSHELL and SWEETHEART on a timely basis the
design, procurement, construction management, design/build, system integration,
industrial engineering, consulting and other services required for the Project,
as more specifically set out in
1
<PAGE>
the Scope of Work attached hereto as Exhibit A and incorporated into this
Agreement (the "Scope of Work").
ARTICLE 2
TFG'S RESPONSIBILITIES
2.1 TFG shall perform and complete in accordance with the Target Contract
Schedule (as defined in Article 5.1) the services and other work contemplated by
the Scope of Work ("Work") in a professional and competent manner, with the
skill and diligence that would be expected of a world-class engineering services
firm. All employees of TFG who render services in connection with the Project
shall have appropriate training and experience for the particular Work that they
perform.
2.2 All design documents (the "Facility Design Documents") relevant to the
renovation of the Sweetheart Facility and the related infrastructure
modifications (the "Facilities Modifications") pursuant to the Scope of Work
shall be subject to review by each PROJECT OWNER. All design documents (the
"Process Equipment Design Documents") relevant to installation of Process
Equipment Lines (the "Equipment Installation") pursuant to the Scope of Work
shall be subject to review by each PROJECT OWNER. EARTHSHELL shall review and
approve or otherwise comment on the Facility Design Documents and the Process
Equipment Design Documents in accordance with the provisions of Article 3.2.
SWEETHEART hereby authorizes TFG to perform the Facilities Modifications
pursuant to the Scope of Work. Notwithstanding this authorization, TFG shall at
all times be responsible for the design of the Facilities Modifications in order
to permit the installation and operation of the Process Equipment in the manner
contemplated by this Agreement. The Parties agree and acknowledge that this
Article 2.2 does not create any warranty by TFG with respect to the Process
Equipment.
2.3 TFG shall be responsible for all construction activities, inspection,
labor, materials, tools, construction equipment and its subcontracted items for
the execution and completion of Work, and for security for on-site materials.
2.3.1 TFG shall keep the area of the Project where Work is performed
free from the accumulation of waste materials and rubbish caused by its
operations, consistent with its needs in performing Work. At the completion of
all Work, TFG shall remove its waste materials and rubbish from and around the
Project as well as its tools, construction equipment, machinery and surplus
materials.
2.3.2 TFG shall take necessary precautions for the safety of its
employees, the employees of each PROJECT OWNER and others located at or around
the Project and shall comply with all applicable provisions of federal, state
and local safety laws and regulations to prevent accidents or injury to persons
on, about or adjacent to the Project site.
2.3.3 Except to the extent otherwise provided in the Scope of Work, TFG
shall directly or through one or more subcontractors obtain and pay for all
necessary construction and construction-related permits and licenses. TFG shall
pay all governmental charges and inspection fees payable in connection with the
construction relating to Project ("Project Construction"). TFG shall pay all
temporary utility charges attributable to Project Construction. SWEETHEART
shall provide for all other utilities, and pay for all charges attributable to
such other utilities, including all extension and hook-up charges for the
Process Equipment Lines.
2
<PAGE>
2.3.4 TFG shall be directly responsible for originating and executing
all purchase orders relating to Facilities Modifications, including all
equipment being acquired as part of the Facilities Modifications. All purchase
orders for process equipment being utilized in Process Equipment Lines that is
hereafter acquired by EARTHSHELL shall be originated by TFG, but shall be
approved and executed by EARTHSHELL through its Chief Executive Officer or his
designee.
2.4 All materials and equipment provided by TFG or its subcontractors under
this Agreement will be new, unless otherwise specified in the plans and
specifications approved by the PROJECT OWNERS pursuant to the Scope of Work (the
"Approved Plans and Specifications"). TFG warrants to each PROJECT OWNER that
all TFG Work (including without limitation all equipment and materials provided
by TFG or its subcontractors) will be free from defects in design, material and
workmanship, and title; shall conform in all respects with the Scope of Work and
the Approved Plans and Specifications; shall be fit and suitable for the
purposes and under the conditions made know to TFG, and shall be of good
quality.
2.4.1 During the two (2) year period commencing on the Final Completion
of Facilities Modifications, in the case of Facilities Modifications, or the
Start of Full Commercial Production, in the case of each Process Equipment Line,
TFG, at its sole cost and expense, shall correct all Work performed by it under
this Agreement which fails to conform with the requirements of this Agreement or
which otherwise proves to be defective in any respect. TFG shall use all
reasonable efforts to correct any defective Work as soon as reasonably
practicable after either PROJECT OWNER provides TFG with notice thereof or after
TFG otherwise discovers the existence of the defect in question. TFG's
obligations under this Article 2.4.1 extend solely to the Work.
2.4.2 TFG shall obtain for the benefit of the PROJECT OWNERS all
warranties and guarantees from equipment vendors and subcontractors that are
required by the Contract Documents (as defined in Article 14.1), which
warranties shall extend for at least the period specified in Article 2.4.1
except to the extent EARTHSHELL and SWEETHEART (in the case of warranties
relating to Facilities Modifications) shall have otherwise agreed to a longer
period. Except as otherwise provided in the Scope of Work, hardware or other
equipment furnished by TFG hereunder but manufactured by others will be subject
to the manufacturer's warranty provided therewith. Extended warranties with
respect to such equipment may be purchased from manufacturers and extended to
EARTHSHELL or, in the case of equipment forming a part of the Facilities
Modifications, SWEETHEART. TFG shall be primarily responsible for handling, and
shall otherwise assist EARTHSHELL or SWEETHEART, as the case may be, with, any
equipment or facility warranty issues that arise during the life of any
equipment or facility warranty, and with equipment, facility or system
acceptance procedures, as more specifically provided in the Scope in Work.
2.5 TFG shall perform and cause its subcontractors to perform all Work in
accordance with all federal, state and local laws, codes, regulations and other
applicable standards in effect at the time of performance of the Work. TFG
represents and warrants to each PROJECT OWNER that it is authorized to do
business in the State of Maryland and is properly licensed and registered by or
with all appropriate authorities.
2.6 All designs, drawings, specifications, documents, and other work products
delivered by TFG hereunder are "Instruments of Service" for the Project, whether
or not the Project is
3
<PAGE>
completed. Instruments of Service, and all intellectual property rights
therein or related thereto, to the extent they relate primarily to Facilities
Modifications, shall become the property of SWEETHEART and, to the extent
they do not relate primarily to Facilities Modifications, shall become the
property of EARTHSHELL, in each case upon full payment for services rendered
in accordance herewith. Each PROJECT OWNER hereby releases and agrees to
indemnify, defend and hold harmless TFG and its, agents, consultants and
subconsultants from any and all claims, demands, costs, suits or actions that
result from or arise out of such PROJECT OWNER or a third party authorized by
such PROJECT OWNER using in any manner such Instruments of Service on other
projects without the prior written consent of TFG (it being agreed that such
consent shall be deemed to be given automatically in the case of any other
project on which TFG is engaged by EARTHSHELL for compensation). Except as
may be provided in any applicable agreement into which TFG hereafter may
enter with one or both of the PROJECT OWNERS, and except for Facilities
Modifications intended to accommodate up to four (4) additional Process
Equipment Lines, use by either PROJECT OWNER of any of the Instruments of
Service on any other project without the written permission of TFG shall be
at such PROJECT OWNER'S sole risk and without liability or legal expense to
TFG. If TFG and EARTHSHELL jointly participate in additional projects of the
same nature TFG's written permission will not be unreasonably withheld or
delayed.
2.7 TFG shall maintain complete Project records for a period of three (3) years
after final payment hereunder, and shall provide copies of such records to
EARTHSHELL and/or SWEETHEART upon reasonable request. If TFG intends to destroy
any such records, it shall provide reasonable advance notice to each PROJECT
OWNER so that each will have the opportunity to retain an original or copy of
such records at their own respective cost. EARTHSHELL or SWEETHEART may audit
such documents as are related to their portions of the Project at any reasonable
time up to three (3) years after final payment hereunder.
2.8 TFG shall maintain in a safe place at the Project site one record copy of
all drawings, specifications, addenda, written amendments, Change Orders, and
field orders, in good order and annotated to show changes made during
construction. These record documents together with all approved submittals will
be available at all times to each PROJECT OWNER for reference. Upon completion
of all Work, these record documents and submittals, including a reproducible set
of record drawings, will be delivered to each PROJECT OWNER.
2.9 TFG shall designate a Project Manager (the "TFG Project Manager") who shall
have decision-making authority (including authority to approve Change Orders)
and who shall be responsible for coordinating the performance of the Work with
the Owner Project Managers.
ARTICLE 3
RESPONSIBILITIES OF PROJECT OWNERS
3.1 EARTHSHELL shall pay TFG in current funds the Compensation as set out in
Article 6, when and as provided in Article 8. EARTHSHELL represents that it has
readily available sufficient and unencumbered U.S. funds for payment of its
obligations under this Agreement.
3.2 Each PROJECT OWNER shall use reasonable efforts to timely conduct all
required reviews and approvals of design, Change Orders and other documents
relating to the performance of Work; provided that SWEETHEART'S review and
approval shall be limited to layout design, composition and location of Process
Equipment and any structural alterations to the Facility. TFG shall use its
best efforts to provide each PROJECT OWNER with reasonable
4
<PAGE>
advance notice of the date on which TFG expects to deliver to such PROJECT
OWNER any designs, Change Orders or other documents relating to the
performance of Work as to which TFG will be requesting the review or approval
of such PROJECT OWNER. To that end TFG will furnish to each PROJECT OWNER on
a weekly basis, a schedule reflecting TFG's good faith best estimate, based
on all information known or reasonably available to it, of each design,
Change Order and other document relating to the performance of Work that TFG
will be requesting a review or approval of by such PROJECT OWNER. The
parties agree that, subject to TFG providing reasonable advance notice to
each PROJECT OWNER of the required review or approval in question and subject
to extraordinary circumstances such as the travel schedules of the relevant
PROJECT OWNER representatives, three business days after receipt of the
relevant document generally will be deemed to be the reasonable time period
within which each PROJECT OWNER will be expected to provide any required
review and approval pursuant to this Article 3.2. Each PROJECT OWNER agrees
and acknowledges that any failure by such PROJECT OWNER to provide any such
required review or approval within such reasonable time after receipt by such
PROJECT OWNER of the design, Change Order or other document in question may
result in delays in the progress of Work. Any such delays, to the extent
caused by any such failure by a PROJECT OWNER, shall not subject TFG to
penalties under Article 6.5.
3.3 On the Effective Date or within 30 days thereof, each PROJECT OWNER
shall designate in writing a representative (each, an "Owner Project
Manager") who shall have decision-making authority and shall be fully
acquainted with the Work. Each Owner Project Manager shall have full
authority to approve Change Orders and shall use reasonable efforts to render
decisions promptly and provide information expeditiously. Owner Project
Managers shall also coordinate decisions regarding the Work with each other.
Each PROJECT OWNER shall give directions for TFG's consultants,
subcontractors and suppliers only through TFG.
3.4 SWEETHEART shall cooperate with TFG in securing building and other
permits, licenses, inspections and approvals. SWEETHEART shall ensure that
TFG has all reasonably required access to the Sweetheart Facility to perform
the Work and meet schedules set out in this Agreement.
3.5 Each PROJECT OWNER shall provide to TFG all technical data in its
possession, including reports, maps, surveys, borings, process descriptions,
material balance sheets, P&IDs, and other information reasonably required by
TFG and relating to Work. Such information shall include EARTHSHELL's
requirements for the Project, design criteria or constraints, and copies of
design and construction details or standards that EARTHSHELL requires to be
included. SWEETHEART shall provide all necessary surveys in its possession
describing the physical characteristics, soil reports and subsurface
investigations, legal limitations, and utility locations and a legal
description for the Project site. TFG shall be responsible to make such
additional investigations as it deems necessary to perform the Scope of Work.
Unless TFG has knowledge to the contrary, TFG is entitled to rely on all of
the information provided by EARTHSHELL and/or SWEETHEART in performing Work.
SWEETHEART acknowledges that in the remodeling of existing structures,
certain decisions are made based on available documents and observations of
existing conditions. Unless specifically directed in writing by SWEETHEART,
TFG shall not perform or have performed any destructive testing or open any
concealed portions of the building to ascertain its actual condition. If
TFG's reasonable assumptions regarding such conditions are incorrect,
EARTHSHELL and SWEETHEART agree that TFG will not be held
5
<PAGE>
responsible for any additional work or costs, or schedule changes required to
correct any ensuing problems, or for any injury to persons or damage to
property based upon such assumptions.
3.6 Each of EARTHSHELL, SWEETHEART and TFG (each a "PROJECT PARTY") shall
give prompt written notice to each other PROJECT PARTY whenever such PROJECT
PARTY observes or otherwise becomes aware of any development that materially
affects the Work, or its schedule or any defect in the Work of TFG or its
subcontractors.
3.7 SWEETHEART shall provide TFG, its employees, and subcontractors present on
any job site, available safety information and requirements, including but not
limited to, material safety data sheets ("MSDS") for all known hazardous
substances not introduced by TFG, to which TFG's employees or subcontractors
might potentially become exposed.
3.7.1 Except as specifically described in the Scope of Work, TFG has
not agreed to perform any Work related to asbestos, polychlorinated biphenyl
(PCB) or other hazardous substances. SWEETHEART will be responsible for any
hazardous condition encountered at the Sweetheart Facility which was not
identified in the Contract Documents. EARTHSHELL and SWEETHEART shall not be
responsible for materials creating a hazardous condition brought to the Project
site by TFG, its subcontractors, suppliers or anyone else for whom TFG is
responsible. TFG shall not bring hazardous substances to the Project site,
unless required for purposes of carrying out the Work, with EARTHSHELL's and
SWEETHEART's permission, and in compliance with federal, state and local laws
and regulations.
3.7.2 In the event TFG encounters materials on the Project site
reasonably believed to be a hazardous substance, which has not been rendered
harmless and was not anticipated in the Scope of Work, TFG and any affected
subcontractor shall immediately (i) stop all construction in connection with
such hazardous condition and in any area affected thereby (except in an
emergency), and (ii) notify SWEETHEART (and thereafter confirm such notice in
writing). SWEETHEART shall promptly take corrective action, if any. TFG shall
not be required to resume construction in connection with such hazardous
condition or in any such affected area until after SWEETHEART has obtained any
required permits and delivered to TFG special written notice either (x)
specifying that such hazardous condition and any affected area is or has been
rendered safe for the resumption of construction, or (y) specifying any special
conditions under which such construction may be resumed safely. EARTHSHELL and
SWEETHEART shall agree to any necessary schedule changes caused by any
corrective action required by this Article 3.7.2 without penalty to TFG under
Article 6.5.
3.7.3 To the fullest extent permitted by law, SWEETHEART shall
indemnify and hold harmless TFG, its subcontractors, suppliers and the officers,
directors, employees, agents, other consultants and subcontractors of each, from
and against all claims, costs, losses and damages (including but not limited to
reasonable fees and expenses charged by engineers, architects, attorneys and
other professionals and court or arbitration or other dispute resolution costs),
arising out of or in any way connected with the presence, discharge, release, or
escape of hazardous substances of any kind by SWEETHEART at the Sweetheart
Facility, including, but not limited to asbestos, PCBs, or any solid, liquid,
gaseous, or thermal irritant or contaminant, including smoke, vapor, fumes,
chemicals, acids or alkalis, and waste; provided that (i) any such claim, cost,
loss or damage is attributable to bodily injury, sickness, disease or death, or
to damage to or destruction of tangible property (other than completed
construction services), including the loss of use resulting therefrom, and (ii)
nothing in this paragraph shall obligate
6
<PAGE>
SWEETHEART to indemnify any individual or entity from and against the
consequences of that individual's or entity's own negligence or willful
misconduct.
3.8 If TFG provides services related to life safety monitoring systems, it
is agreed that a functional acceptance test at which representatives of each
PROJECT PARTY are present shall be performed on the completed life safety
monitoring system. The objective of the functional acceptance test will be
to document the system operation and compliance with specified performance
requirements agreed to by the PROJECT PARTIES. Upon satisfactory completion
of the functional acceptance test, SWEETHEART shall accept, in writing,
responsibility for the operations and maintenance of the system. SWEETHEART
shall properly maintain the system and train its employees or contractors to
operate the system. TFG shall have no further liability or responsibility
for the system, its operation, its maintenance or the results of said
operation and maintenance.
3.9 Each PROJECT PARTY shall provide TFG with all readily available information
and assistance TFG reasonably needs to obtain necessary permits and licenses for
the Work.
3.10 Each PROJECT PARTY acknowledges that timely and complete execution of the
Work will require the full and joint cooperation of all parties, and they agree
to use reasonable efforts to expedite decisions and communications affecting the
Work.
ARTICLE 4
SUBCONTRACTS
4.1 All portions of Work which TFG does not perform with its own forces shall
be performed under written subcontracts with appropriately qualified
subcontractors.
4.2 TFG shall be responsible for the management of its subcontractors in the
performance of their portion of the Work. TFG, at a minimum, shall cause all
applicable provisions of this Agreement to be included in all subcontracts and
purchase orders with its subcontractors and suppliers at all tiers to impose on
them similar obligations and requirements as in this Agreement. TFG shall not be
responsible for any work or services provided by others not engaged by TFG or
any of its subcontractors or otherwise under the direct control of TFG.
ARTICLE 5
CONTRACT SCHEDULE
5.1 Work to be performed under this Agreement shall be managed in accordance
with the contract schedule attached as Exhibit B hereto (the "Target Contract
Schedule"), subject to any Change Orders issued in accordance with Article 7
and subject to the provisions of this Article 5. The Target Contract
Schedule will be updated from time to time as the Work progresses, with the
first updated Target Contract Schedule being contemplated to be provided by
June 26, 1998. The Work will be managed using a target date of September 26,
1998 as the Start of Full Line Debug for the first Process Equipment Line.
TFG agrees to provide its best efforts to manage its resources and activities
under its direct control, including activities of its subcontractors, (i) to
achieve this date and (ii) otherwise to commence and complete Work in
accordance with the Target Contract Schedule. EARTHSHELL agrees to support
this target date by authorizing, where appropriate, overtime and other
schedule acceleration techniques with TFG (it being agreed that members of
TFG's architects and engineers, irrespective of the total number of hours
worked in any given week, will not be billed at premium overtime rates or
otherwise at rates not expressly set out in the Proposal submitted by TFG to
EARTHSHELL on April 24, 1998) and its
7
<PAGE>
subcontractors and suppliers, and with the PROJECT OWNERS and its equipment
suppliers, recognizing that such efforts will have a material effect on the
cost of Work.
5.1.1 The term "day" shall mean calendar day, unless otherwise
specifically designated. Definitions for the stages of completion of the
Facilities Modification, namely "Substantial Completion" and "Final
Completion"; and the stages of completion for each Process Equipment Line,
namely, "Start of Full Line Debug" and "Start of Full Commercial Production"
are more specifically set out in Exhibit B hereto and are incorporated by
reference herein.
5.2 The date on which all Facilities Modifications are substantially
completed subject only to punchlist items, as more specifically defined in
Exhibit B, shall constitute "Substantial Completion of Facilities
Modifications" for purposes hereof.
5.3 Final completion of all Work relating to the Process Equipment Lines
will be achieved upon final acceptance by EARTHSHELL of each Process
Equipment Line at the Start of Full Commercial Production, as more
specifically defined in Exhibit B. Final completion of all Facilities
Modifications ("Final Completion of Facilities Modifications") shall be
achieved upon final acceptance of the Facilities Modifications by EARTHSHELL
and SWEETHEART, as more specifically defined in Exhibit B.
5.4 Warranties of TFG set forth in this Agreement (including the Scope of
Work) shall continue in effect during the following periods: (i) during the
two (2) year period commencing on the Final Completion of Facilities
Modifications, in the case of Facilities Modifications, or (ii) during the
two (2) year period commencing on the relevant Start of Full Commercial
Production, in the case of each Process Equipment Line (it being agreed and
understood that warranties passed through by TFG pursuant to Article 2.4.2
may extend for longer periods). The Final Completion of Facilities
Modification and the Start of Full Commercial Production of each Process
Equipment Line shall be established by certificates issued by TFG and
approved by EARTHSHELL and SWEETHEART.
5.5 Time is of the essence in the performance of Work. If TFG is delayed at
any time in the progress of Work by any act or neglect of either PROJECT
OWNER or any consultant, contractor or vendor separately employed or engaged
by either PROJECT OWNER, by changes ordered in the Work pursuant to Article
7, delay in delivery or nonperformance of equipment vendors, by adverse
weather conditions; by site conditions that could not reasonably have been
anticipated by TFG, permit delays, circumstances described in Articles 3.2,
3.5 and 3.7 of this Agreement; or by any other force majuere causes beyond
TFG's control, then the dates of each Start of Full Line Debug shall be
extended by Change Order for the period of time caused by such delay.
ARTICLE 6
COMPENSATION
6.1 EARTHSHELL shall pay TFG compensation for all Work on the following basis,
and as more specifically defined in Exhibit C hereto ("Compensation"):
a. For design and construction management fees, on a time and
materials basis, as set out in Exhibit C hereto; and
8
<PAGE>
b. For the cost of the Work defined in the Scope of Work as "Construction
Work", on a time and materials basis which shall be determined
according to the rates and other information contained or
referred to in Exhibit C hereto.
No Compensation or other consideration shall be payable by SWEETHEART in respect
of the Work (the full consideration for all Work being the Compensation payable
by EARTHSHELL as provided above in this Article 6.1).
6.2 TFG has provided EARTHSHELL, as of April 24, 1998, TFG's good faith best
estimate, based on all information known or reasonably available to it, of the
total cost of all design, procurement and construction management fees that TFG
will incur in performing and completing all Work hereunder (the "EPCM Fee
Estimate"). TFG has provided EARTHSHELL, as of about May 1, 1998, its good
faith best estimate, based on all information known or reasonably available to
it, of the construction costs of the Work (the "Construction Cost Estimate").
On or before the fifteenth day of each month during the performance of Work
hereunder, TFG shall provide a report to EARTHSHELL which shall set forth a
revised and updated EPCM Fee Estimate, and the Construction Cost Estimate, as
appropriate, that reflects TFG's then current good faith best estimates, based
on all information then known or reasonably available to it. In addition, TFG
shall promptly notify the PROJECT OWNERS in writing if for any reason TFG
determines that the most recent EPCM Fee Estimate and Construction Cost Estimate
are at material variance with TFG's then current good faith best estimates of
the relevant total costs.
6.3 The Compensation is based upon the Scope of Work, and applicable laws,
ordinances, codes, rules and regulations in effect on the Effective Date.
6.4 EARTHSHELL and TFG may enter into separate compensation arrangements for
the Work or portions of it. Nothing herein shall affect any separate
arrangements into which EARTHSHELL and SWEETHEART may enter with respect to
Compensation or other matters involving the Project and EARTHSHELL's and
SWEETHEART's respective rights and obligations hereunder; provided, however,
that any such arrangements shall not create any third party beneficiary rights
in favor of TFG.
6.5 If the Start of Full Line Debug with respect to the first Process Equipment
Line (the "First Start of Full Line Debug") has not occurred by January 21, 1999
(subject to any extension implemented through a Change Order) other than by
reason of Changes in Work or Schedule, or circumstances beyond the control of
TFG that are described in Article 5.5, then, for each day on and after
January 21, 1999 that the First Start of Full Line Debug is so delayed, TFG
shall pay (as liquidated damages) to EARTHSHELL (or, if amounts are then owing
to TFG hereunder, credit against such amounts) the sum of $20,000 per day until
the First Start of Full Line Debug has occurred; and, during the period the
foregoing $20,000 amount is payable by TFG, TFG shall not be entitled to receive
any design, procurement and construction management fees in respect of any Work
relating to the first Process Equipment Line. Notwithstanding the foregoing,
the aggregate amount payable by TFG pursuant to this Article 6.5 shall in no
event exceed thirty per cent (30%) of the total design, procurement and
construction management fees paid or to be paid to TFG for services by its staff
(excluding design subconsultants) under this Agreement in respect of the first
Process Equipment Line. No penalty will be payable hereunder to the extent any
delay is caused by any event or circumstance described in Article 5.5 or by
reason of a failure of a PROJECT OWNER to timely review or approve documents
pursuant to Article 3.2.
9
<PAGE>
ARTICLE 7
CHANGES IN WORK
7.1 EARTHSHELL and/or SWEETHEART, without invalidating this Agreement, may
order changes to the Scope of Work consisting of additions, deletions or other
revisions ("Changes in Work"); provided that (i) Changes in Work involving the
Facility Design Documents or otherwise relating primarily to the Facilities
Modifications shall be ordered by EARTHSHELL and SWEETHEART and (ii) Changes in
Work involving the Equipment Design Documents or otherwise relating primarily to
the Equipment Installation shall be ordered solely by EARTHSHELL. All Changes in
Work shall be made pursuant to written Change Orders. In the event that TFG
determines a Change in Work requires an adjustment to the Compensation and/or
the Target Contract Schedule, the Change in Work shall not be effective unless
any such adjustment shall have been agreed to in writing by each Owner Project
Manager pursuant to Change Order.
7.1.1 A "Change Order" is a written order to TFG signed by EARTHSHELL
and/or SWEETHEART or their authorized agent, issued after the execution of this
Agreement, directing a Change in Work and/or an adjustment in the Compensation
and/or an adjustment in the Target Contract Schedule.
7.2 If TFG believes that Changes in Work or other changed circumstances
warrant an extension to the Target Contract Schedule, it shall give
EARTHSHELL and SWEETHEART written notice thereof. Within a reasonable time
after EARTHSHELL and SWEETHEART receives any such notice, the PROJECT PARTIES
shall meet and discuss any extension to the Target Contract Schedule that may
be appropriate as a result of any such Changes in Work or other changed
circumstance. Under no circumstances shall TFG delay the performance of any
previously contracted Work on account of any such Changes in Work or changed
circumstances.
7.3 SWEETHEART, in the case of the Facilities Modifications, and EARTHSHELL, in
the case of the Process Equipment Installation, may order minor Changes in the
Work not involving a material amount of additional fees or expenses or an
adjustment of the Target Contract Schedule, and not inconsistent with the Scope
of Work. Such Changes in the Work shall be effected by written order.
ARTICLE 8
PAYMENTS TO AND BY TFG
8.1 TFG shall invoice EARTHSHELL and, to the extent the Facilities
Modifications are involved, shall provide copies of the invoices to SWEETHEART.
EARTHSHELL shall make payments to TFG monthly as follows:
8.1.1 At least fifteen (15) days prior to the first invoice given by
TFG hereunder, the PROJECT PARTIES shall agree to the forms and what data will
be needed to substantiate all Applications for Payment by TFG and will agree on
the form of Applications for Payment that will be utilized. TFG's Applications
for Payment shall be based on the schedule and any requirements set out in
Exhibit C.
8.1.2 On or before the fifteenth day of each month after Work has
commenced, TFG shall submit to EARTHSHELL and to SWEETHEART an Application for
Payment, in the form agreed to pursuant to Article 8.1.1, together with such
detail as EARTHSHELL may require,
10
<PAGE>
based on Work completed and materials ordered for the period ending on the
twenty-fifth (25th) day of the preceding month, less the aggregate of amounts
previously paid by EARTHSHELL.
8.1.3 Within twenty (20) days after receipt of a monthly Application
for Payment, EARTHSHELL shall pay directly to TFG a payment in respect of Work
completed (a "Progress Payment") equal to ninety per cent (90%) of the amount
shown as due in the Application for Payment, less any amount as to which
EARTHSHELL requires further substantiation or a bona fide dispute exists. Each
Application for Payment will include a retention equal to ten per cent (10%) of
the amount shown as due, which retention shall not be due and payable until the
time specified in Article 8.4. The amount of the retention that relates to
Facilities Modifications (the "Facilities Retention") and the amount of the
retention relating to all other Work (the "Equipment Retention") will be
separately accounted for. Within fifteen (15) days after its receipt of each
monthly Application for Payment, EARTHSHELL shall notify TFG in writing if all
or any part of such Application for Payment has been disapproved, with a copy to
SWEETHEART with respect to any Facilities Modifications as to which any such
disapproval relates.
8.1.4 If EARTHSHELL fails to pay any Compensation payable to TFG
hereunder, when due, TFG may, at any time, serve written notice to EARTHSHELL
and SWEETHEART, that it will stop Work within fifteen (15) days after such
notice, and after such fifteen (15) day period, stop Work until it receives
payment of the amount due. In addition, commencing at the conclusion of such
fifteen (15) day period, TFG may charge EARTHSHELL interest on any outstanding
amounts at two (2%) over prime per annum.
8.2 TFG warrants and guarantees that title to all Work, materials and equipment
to be incorporated in the Project covered by an Application for Payment, whether
then incorporated in the Project or not, will pass to EARTHSHELL, in the case of
equipment and related materials, or to SWEETHEART, in the case of fixtures and
improvements that are integrated into and form a part of the Sweetheart
Facility, free and clear of all liens, claims, security interests or
encumbrances, in each case subject to EARTHSHELL having paid to TFG the full
amount due in respect of the Work, materials and equipment in question.
8.3 No Progress Payment or any partial or entire use or occupancy of the
Project by EARTHSHELL and/or SWEETHEART shall constitute an acceptance of any
Work not in accordance with the Scope of Work and Approved Plans and
Specifications.
8.4 Final Payments of the unpaid balances of the Compensation shall be due
and payable as follows: (i), in the case of the Facilities Retention and all
other unpaid Compensation relating to Facilities Modifications, (30) thirty
days after Final Completion of Facilities Modifications; and (ii), in the
case of the Equipment Retention and all other Compensation relating to a
particular Process Equipment Line, (A) one-half of such Equipment Retention
shall be paid thirty (30) days after the Start of Full Commercial
Production-Phase 1 of such Process Equipment Line and (B) the remaining
amount of Equipment Retention and all such other Compensation shall be paid
within thirty (30) days of the earlier to occur of (I) the Start of Full
Commercial Production-Phase 2 of such Process Equipment Line or (II) the date
on which TFG shall have demonstrated to the satisfaction of EARTHSHELL that
the Start of Full Commercial Production-Phase 2 has not occurred within one
hundred and twenty (120) days after the Start of Full Commercial
Production-Phase 1 solely by reason of delays caused by any event or
circumstance described in Article 5.5; provided that in each case EARTHSHELL
shall have the right to retain the
11
<PAGE>
reasonable cost to perform and finally complete any agreed to punch list Work
items that remain to be completed on Final Payment. EARTHSHELL shall pay
such amount retained for punch list Work within fifteen (15) days after the
punch list Work items are completed or at the time of Final Payment,
whichever occurs last.
8.5 Before each Progress Payment and each Final Payment, TFG shall provide
EARTHSHELL, with a copy to SWEETHEART to the extent any Facilities
Modifications are relevant thereto, partial and final construction lien, stop
notice, and bond claim waivers and releases, from TFG and all its
subcontractors. The waivers and releases shall apply to all Work performed
through the date for which payment is to be made and may be conditioned upon
payment of the pay estimate. If EARTHSHELL makes all required payments and a
lien or stop notice is filed on the Project or Project proceeds related to
the Work, TFG at its expense shall remove the lien or stop notice from the
Project or Project proceeds, by payment or release bond, within twenty (20)
days after written demand from EARTHSHELL, and TFG shall defend and indemnify
each PROJECT PARTY, its officers, directors, agents and employees, and such
PROJECT PARTY'S lenders and other secured parties, if any, from such liens
and stop notices.
8.6 TFG shall pay its first-tier subcontractor and its other first-tier
payees performing Work, after receipt of payment from EARTHSHELL, an amount
equal to the percentage of completion allowed to TFG on account of their
Work. TFG shall require each first-tier subcontractor and other first-tier
payees to make similar payments to lower tier subcontractors and payees. If
TFG withholds such payment due to a bona fide dispute, TFG may notify
EARTHSHELL, with a copy to SWEETHEART, and EARTHSHELL shall withhold such
funds from TFG until the dispute is resolved.
ARTICLE 9
INDEMNITY, INSURANCE, WAIVER OF
SUBROGATION AND LIABILITY
9.1 TFG shall defend, indemnify and hold harmless each PROJECT OWNER from
and against all claims, damages, injuries, costs, penalties, actions, suits
and liabilities of all kinds, including without limitation attorneys' fees,
for personal injury, illness or death of any person, including TFG's
employees, and damage to or destruction of property, arising out of or
related to Work, to the extent caused by the negligent or intentional acts or
omissions of TFG, or anyone for whom TFG is legally responsible (including
without limitation any subcontractors engaged by TFG), or by breach of this
Agreement, except that in no instance shall TFG be required to indemnify
either PROJECT OWNER against such liabilities or damages caused primarily by
the negligence of such PROJECT OWNER.
9.2 Each PROJECT OWNER shall defend, indemnify and hold harmless TFG from
and against all claims, damages, injuries, costs, penalties, actions, suits
and liabilities of all kinds, including without limitation attorneys' fees,
for personal injury, illness or death of any person, including such PROJECT
OWNER's employees, and damage to property, arising out of or related to Work,
to the extent caused by the negligent or intentional acts or omissions of
such PROJECT OWNER, or anyone for whom such PROJECT OWNER is legally
responsible, or by breach of this Agreement, except that in no instance shall
such PROJECT OWNER be required to indemnify TFG against such liabilities or
damages caused primarily by the negligence of TFG or the other Project Owner.
12
<PAGE>
9.3 TFG shall purchase and maintain insurance as described below for TFG's
operations under this Agreement:
<TABLE>
<S> <C>
a. Umbrella coverage $10,000,000
b. Workers' Compensation Statutory Limits
c. Employer's liability $1,000,000
d. Commercial general liability $1,000,000 (per occurrence and aggregate)
e. Automobile liability $1,000,000 (combined single limit)
f. Professional liability $2,000,000 (per claims and aggregate)
</TABLE>
9.3.1 The insurance required by Article 9.3 shall be maintained without
interruption from date of commencement of Work until completion, except that the
Professional Liability insurance shall be maintained for at least two (2) years
following the later of the date of Final Completion of Facilities Modifications
or Start of Full Commercial Production.
9.3.2 All coverage provided by the insurance required by Article 9.3
shall be on an occurrence basis. TFG shall provide to each PROJECT OWNER
promptly after the Effective Date a certificate evidencing the coverage required
by Article 9.3 and, except in the case of professional liability insurance,
naming each PROJECT OWNER and their employees, officers, directors and agents as
an additional insured.
9.3.3 TFG shall ensure that all subcontractors engaged by it shall
purchase and maintain insurance comparable to that required by Article 9.3
above; provided that such subcontractors shall not be required to obtain
umbrella coverage in excess of $5,000,000.
9.4 TFG shall place and maintain Builder's Risk property insurance in the
amount of the cost of replacement for the entire Work, excluding tools and
equipment of TFG and subcontractors and any other property not a permanent part
of or intended to become a permanent part of the Project at the site. Such
property insurance shall be maintained, unless otherwise agreed in writing by
all persons and entities who are beneficiaries of such insurance, until no
person or entity other than EARTHSHELL or SWEETHEART, as appropriate, has an
insurable interest in the property required to be covered. This insurance shall
include the interests of EARTHSHELL or SWEETHEART, as appropriate, TFG and
subcontractors in the Work.
9.4.1 Builder's risk property insurance shall be on an "All-Risk"
policy form and shall insure against the perils of fire, and extended coverage
and physical loss or damage including, without duplication of coverage, theft,
vandalism, malicious mischief, collapse, falsework, errors and omissions,
temporary buildings and debris removal including demolition occasioned by
enforcement of any applicable legal requirements and all other risks of property
damage as to which coverage is reasonably available, with any exclusions clearly
defined in the Certificate of Insurance, and shall cover reasonable compensation
for EARTHSHELL's architect's or engineer's services and expenses required as a
result of such insured loss.
9.4.2 EARTHSHELL shall pay all costs not covered because of any
deductible under the property insurance described in Article 9.4, provided that
the amount of such deductible shall be approved by EARTHSHELL in advance.
9.4.3 Each PROJECT PARTY waives all rights against each other PROJECT
PARTY and any of their subcontractors, at any tier, and their employees and
agents, each of the other, for
13
<PAGE>
damages caused by fire or other perils to the extent covered by property
insurance obtained by TFG or other property insurance applicable to Work,
except such rights as they have to proceeds of such insurance. A waiver of
subrogation shall be effective as to a person or entity even though that
person or entity would otherwise have a duty of indemnification, contractual
or otherwise, did not pay the insurance premium directly or indirectly, and
whether or not the person or entity had an insurable interest in the property
damaged.
9.4.4 A loss insured under such property insurance shall be adjusted
with EARTHSHELL and SWEETHEART and made payable to EARTHSHELL and SWEETHEART as
trustees for the insureds, as their interests may appear. TFG shall pay
subcontractors their just shares of insurance proceeds received by TFG, and by
appropriate written agreements shall require subcontractors to make payments to
their lower-tier subcontractors in similar manner.
9.5 As to TFG's liability, if any, arising out of this Agreement for
professional negligence, EARTHSHELL, SWEETHEART, and TFG agree that, to the
extent permitted by law, the entire joint, several and individual liability of
TFG, its officers, agents, subcontractors, representatives and employees,
irrespective of the number of claims, shall in no event exceed the total amount
of engineering, procurement, construction management or other fees paid or to be
paid to TFG hereunder; provided that the foregoing limitation shall not be
applicable to any gross negligence or reckless or willful misconduct. Subject
to TFG's express obligations under Article 6.5, neither TFG nor its officers,
agents, representatives or employees shall be liable to EARTHSHELL, SWEETHEART,
their officers, representatives, subcontractors, affiliates or agents for any
indirect, special, reliance, incidental, consequential or exemplary damages
arising out of or in connection with this Agreement.
9.5.1 These limitations of liability shall apply regardless of whether
a claim is based on contract (including breach of representation or warranty),
delay, negligence (active or passive), strict tort liability or other theory of
law, but shall not apply to any claim based on gross negligence or reckless or
willful misconduct.
9.6 TFG has authority and control over its and its subcontractors' employees at
the plant site and is best able to provide for their safety. Accordingly, to
the maximum extent allowed by law, TFG will defend and indemnify EARTHSHELL and
SWEETHEART against any claims arising from injury, illness or death, including
all costs of defense of such claims, to TFG or any subcontractor employees
(current and former), their spouses (current and former), their children, or
anyone else whose claim is based upon injury, illness or death to said employees
of TFG or any of its subcontractors.
9.6.1 EARTHSHELL and SWEETHEART have authority over their respective
employees at the plant site and are best able to provide for their safety.
Accordingly, to the maximum extent allowed by law, EARTHSHELL and SWEETHEART
shall defend and indemnify TFG from claims by EARTHSHELL's and SWEETHEART's
respective employees (current and former), their spouses (current and former),
and their children, and anyone else whose claim is based on injury, illness or
death of said employees of EARTHSHELL and SWEETHEART.
9.6.2 Except as otherwise expressly provided herein, the indemnities
herein shall apply regardless of the fault or negligence of the party to be
indemnified, but shall not apply to injury, illness or death caused by the
willful misconduct or sole or gross negligence of the party to be indemnified.
14
<PAGE>
9.7 The parties waive any right that limits, voids or makes unenforceable their
respective indemnification obligations as set forth herein. If any such right
is deemed or ruled not to be subject to a waiver, the parties agree that an
amount equal to the amount which would have been needed to fully satisfy the
obligations of such other party to defend and indemnify the other party or its
partners, agents and employees, as set forth herein, will be promptly paid as
additional compensation.
9.8 The provisions in Article 9 of this Agreement shall survive the completion
or termination of this Agreement.
ARTICLE 10
TERMINATION OF THE AGREEMENT
10.1 EARTHSHELL and SWEETHEART may terminate this Agreement for any reason
effective upon thirty (30) days written notice to TFG. If the PROJECT OWNERS
so terminate, TFG shall be entitled to compensation only for Work relating to
the Equipment Installation or Facilities Modification, as the case may be,
actually performed on the Project through the fifteenth day after the notice
is delivered less all such payments already made to TFG. Termination
expenses shall include reasonable demobilization and cancellation costs
arising from such termination. Such payments by EARTHSHELL shall be TFG's
sole and exclusive remedy for EARTHSHELL's or SWEETHEART's termination for
convenience and EARTHSHELL and SWEETHEART shall have no further obligation to
TFG.
10.2 EARTHSHELL and SWEETHEART may terminate this Agreement upon written
notice to TFG, if TFG is in default of this Agreement with respect to the
Facilities Modification and TFG fails to commence to cure such default within
fifteen (15) days from delivery of the notice. In all other circumstances
any PROJECT PARTY may terminate this Agreement upon written notice to the
other two PROJECT PARTIES, if either PROJECT OWNER or TFG is in default of
any material term of this Agreement and fails to commence to cure such
default within fifteen (15) days from delivery of the notice and thereafter
diligently and continuously to proceed to cure such default.
10.2.1 If either PROJECT OWNER cancels because of TFG's default, no
further fees or expenses shall be payable to TFG hereunder after the notice of
default. Such cancellation shall not prejudice such PROJECT OWNER's right to
claim damages or to pursue any appropriate legal or equitable remedy otherwise
provided for in this Agreement or by applicable law. If TFG cancels because of
a PROJECT OWNER'S default, EARTHSHELL (on behalf of itself or SWEETHEART) shall
be obliged to pay TFG only for Work relating to the Equipment Installation or
Facilities Modification, as the case may be, actually performed on the Project
through the fifteenth day after the notice is delivered less all such payments
already made to TFG. Such payments by EARTHSHELL to TFG shall not prejudice
TFG's right to claim damages or to pursue any other appropriate remedy provided
for under this Agreement.
ARTICLE 11
CONFIDENTIALITY
11.1 EARTHSHELL, SWEETHEART and TFG will receive information from each other
in connection with this Agreement. All such information shall be treated as
confidential information unless designated otherwise. TFG shall not, without
the prior written consent of EARTHSHELL or SWEETHEART, as applicable, use
confidential information for any purposes other than the performance of Work,
nor disclose such information to any other entity except as
15
<PAGE>
required for the performance of Work and only if such third party has agreed
in writing to hold such information confidential. All EARTHSHELL or
SWEETHEART-supplied documents shall be returned by TFG at the completion of
Work or upon termination of this Agreement.
11.2 Nothing furnished to TFG which is already known to TFG at the time of
disclosure and that is not required to be treated as confidential
information, or is, or becomes generally known to the related industry and
public through no fault of TFG, shall be deemed confidential.
11.3 TFG shall have the right to take photographs of the project site during
construction and at completion of the Project, upon reasonable notice to and
prior written approval of EARTHSHELL and SWEETHEART.
11.4 Any confidential know how or other trade secrets (and any patentable or
copyrightable subject matter included therein or forming a part thereof) that
is first created or developed by TFG in the performance of Work shall be
deemed to be owned by EARTHSHELL and shall not be disclosed to any third
party or used for any purpose other than in connection with the performance
of Work hereunder.
16
<PAGE>
ARTICLE 12
NOTICES
12.1 All notices or other official correspondence relating to contractual
matters among the PROJECT PARTIES shall be made by fax transmission or U.S.
Postal Service, first-class, postage-paid mail addressed to the parties at
their respective street addresses as follows:
To: EARTHSHELL: EarthShell Corporation
800 Miramonte Drive
Santa Barbara, California 93109-1419
Attention: Simon Hodson
Facsimile: (805) 899-3517
with a copy to:
EarthShell Corporation
800 Miramonte Drive
Santa Barbara, California 93109-1419
Attention: General Counsel
Facsimile: (805) 899-3517
To: SWEETHEART Sweetheart Cup Company Inc.
10100 Reistertown Road
Owings Mills, Maryland 21117
Attention: D.E. Boyles
Facsimile: (410) 998-2718
with a copy to:
Sweetheart Cup Company Inc.
10100 Reistertown Road
Owings Mills, Maryland 21117
Attention: Vice President and General
Counsel
Facsimile: (410) 998-1313
To: IDC PARTIES: IDC
2020 S.W. Fourth Avenue
Portland, Oregon 97201
Attention: Vern Jackson
David Etchart
Facsimile: 503-423-3963
ARTICLE 13
DISPUTE RESOLUTION
17
<PAGE>
13.1 All claims, disputes and other matters in question relating to this
Agreement shall be resolved pursuant to this Article 13. Any dispute among or
between any PARTY shall be resolved, first by mediation by referring the matter
to the respective PROJECT OWNER Representative(s) and the TFG Representative;
and failing resolution, to a third party mediator, agreed to by the PROJECT
PARTIES. If the dispute cannot be resolved by mediation or the parties fail to
agree upon a mediator within thirty (30) days, then the dispute will be referred
to arbitration under the construction rules of the American Arbitration
Association, pursuant to the following procedures:
(a) Notice of the demand for arbitration shall be filed in writing with
the other party to this Agreement and with the American Arbitration
Association.
(b) Such arbitration shall be conducted by a panel of three arbitrators
appointed as follows. If the dispute involves the three PROJECT PARTIES,
then one (1) arbitrator (the "Project Party Appointee") shall be appointed by
the PROJECT OWNER(S) that are involved in the dispute, one (1) arbitrator
(the "TFG Appointee") shall be appointed by TFG and one (1) arbitrator (the
"Independent Arbitrator") shall be selected by Project Party Appointee and
the TFG Appointee. The PROJECT OWNER(S) and TFG shall each appoint their
respective Appointee within ten (10) business days after a disputed matter is
submitted to arbitration. If the Project Party Appointee and the TFG
Appointee are unable to agree upon an Independent Arbitrator within ten (10)
business days after the latter of such Appointees is appointed, then such
Independent Arbitrator shall be appointed by the American Arbitration
Association. If the dispute involves just the PROJECT OWNERS, then one (1)
arbitrator shall be appointed by EARTHSHELL (the "EARTHSHELL Appointee"), one
(1) arbitrator shall be appointed by SWEETHEART (the "SWEETHEART Appointee"),
and one (1) arbitrator shall be appointed by the PROJECT OWNERS' Appointees.
The PROJECT OWNERS shall each appoint their respective Appointee within ten
(10) business days after a disputed matter is submitted to arbitration. If
the PROJECT OWNERS' Appointees are unable to agree on an Independent
Arbitrator within ten (10) business days of their appointments, then the
Independent Arbitrator shall by appointed by the American Arbitration
Association.
(c) A determination by a majority of the panel of three arbitrators
shall be binding.
(d) Reasonable discovery shall be allowed in arbitration.
(e) The parties to the dispute shall be entitled to be represented at
the arbitration by legal counsel and shall be entitled to adduce evidence.
(f) Unless otherwise agreed by the parties to the dispute, all
arbitration proceedings shall be held in Baltimore, Maryland.
(g) Each party agrees to comply with any award made in such proceeding
that has become final and to the entry of a judgment in accordance with
applicable law in any court having jurisdiction thereof upon any award
rendered in such proceeding that has become final.
(h) The decision of the arbitrator shall be tendered within sixty (60)
days of the final submissions of the parties to the dispute in writing or in a
hearing before the arbitrators.
18
<PAGE>
(i) Each such arbitration award that has become final shall be conclusive
and binding upon the parties to the dispute and shall not be appealable.
(j) Attorneys' fees, costs and other out-of-pocket expenses may be
awarded by the arbitrators in their discretion to the Party that prevails in
any such arbitration, provided that each party to the dispute shall pay its
own expenses pending the awarding thereof to the party that prevails in any
such arbitration. The costs of the arbitration shall be allocated evenly
between or among the parties that are involved.
The foregoing agreement to arbitrate shall be specifically enforceable and
the award rendered by the arbitrators shall be final and judgment may be
entered upon it in accordance with applicable law in any court having
jurisdiction thereof. Nothing in this Article 13.1 shall limit the rights of
any of the parties to seek in any court of competent jurisdiction such
interim equitable relief as may be needed to maintain the status quo, to
prevent irreversible harm or otherwise protect the subject matter of the
arbitration until the matter shall have been finally resolved. Any such
interim relief ordered by a court shall not determine or prejudge the
substantive issues to be decided by such arbitration. In addition, if a
disputed matter is submitted to arbitration, and the arbitrators deem
themselves to be incompetent to hear any matter brought before them pursuant
to this Article 13.1, then the parties may seek relief in any court of
competent jurisdiction.
13.2 For an arbitration between the parties pursuant to the terms of this
Agreement, EARTHSHELL, SWEETHEART and TFG agree that, at TFG's option, the
parties will consolidate such arbitration with arbitration between TFG and
any of its consultants, subcontractors, suppliers, or any other party with
whom TFG may have an agreement in connection with the Project.
13.3 Unless otherwise ordered by EARTHSHELL and SWEETHEART, TFG shall continue
to proceed with Work under this Agreement, pending any dispute resolution
procedures, and EARTHSHELL shall continue to make all payments which are not in
dispute in accordance with this Agreement.
13.4 Any disputes between EARTHSHELL and SWEETHEART on any issues or between
EARTHSHELL and TFG related to separate compensation agreements shall be resolved
independently from this Agreement.
ARTICLE 14
CONTRACT DOCUMENTS
14.1 The following agreements and documents (the "Contract Documents")
comprise the entire agreement between EARTHSHELL and SWEETHEART, on the one
hand, and TFG, on the other, with respect to the Work (except as may be
otherwise specifically agreed in writing, in the event of a conflict between
two or more Contract Documents, the following order of precedence shall
govern):
A. This Agreement;
B. All Exhibits to this Agreement (Exhibits A, B and C),
C. All Change Orders authorizing Changes in Work (Scope, Schedule,
Compensation); and,
19
<PAGE>
D. Any notice to proceed, purchase order or other authorization
from EARTHSHELL or SWEETHEART.
ARTICLE 15
LIABILITY OF CH2M FOR TFG PERFORMANCE
15.1 CH2M (together with IDC) shall be jointly and severally liable for all
of the obligations of TFG under this Agreement, as they may be increased,
extended or otherwise modified from time to time after the Effective Date.
ARTICLE 16
MISCELLANEOUS PROVISIONS
16.1 Each party is an independent contractor, and no party shall be deemed
to be the agent of any other party.
16.1.1 The parties shall not subcontract nor assign this Agreement in
whole or part, for any purpose, without the written consent of the other.
16.1.2 This Agreement shall be binding upon and inure to the benefit
of EARTHSHELL, SWEETHEART, and the IDC PARTIES and their respective
successors in interest and permitted assigns. No assignment of this
Agreement shall be effective until the assignee assumes in writing the
obligations of the assigning party, and delivers such written assumption to
the other original party to this Agreement. Any attempt at assignment of
this Agreement without such written consent shall be null and void.
16.1.3 EARTHSHELL, SWEETHEART and the IDC PARTIES acknowledge that
nothing in the Agreement implies any undertaking by TFG for the benefit of,
or which may be enforced by, any third party and that TFG's obligations are
solely intended for the benefit of EARTHSHELL and SWEETHEART.
16.2 This Agreement shall be governed by the laws of the state of Maryland,
excluding conflict of law provisions. Subject to Article 13, each party shall
bear the cost of its own defense in such legal actions, including attorneys'
fees.
16.3 If at any time any provision of this Agreement is in conflict with any
law, ruling, order, rule or regulation, or is unenforceable for any reason,
then such provision shall continue in effect only to the extent that it
remains valid. If any provision of this Agreement becomes less than fully
operative, the remaining provisions of this Agreement shall nevertheless
remain in full force and effect.
16.4 This Agreement represents the entire agreement between EARTHSHELL and/or
SWEETHEART, on the one hand, and the IDC PARTIES, on the other hand, and
supersedes all prior and contemporaneous negotiations, representations and
agreements. This Agreement may be amended only by written instrument signed by
EARTHSHELL, SWEETHEART [to extent of any change which affects SWEETHEART's
rights or obligations] and TFG. Nothing herein shall affect any agreement
between SWEETHEART and EARTHSHELL.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of
the Effective Date.
EARTHSHELL CORPORATION IDC CONSTRUCTION MANAGEMENT, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
Date:____________________________ Date:____________________________
SWEETHEART CUP COMPANY INC. CH2M HILL INDUSTRIAL DESIGN
CORPORATION
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
Date:____________________________ Date:____________________________
21
<PAGE>
EXHIBIT A
TO
DESIGN, PROCUREMENT AND CONSTRUCTION MANAGEMENT
SERVICES AGREEMENT AMONG EARTHSHELL, SWEETHEART AND TFG
SCOPE OF WORK
THE PROJECT
TFG WILL PROVIDE ENGINEERING, DESIGN AND CONSTRUCTION MANAGEMENT SERVICES FOR
FACILITY MODIFICATIONS AND THREE PROCESS EQUIPMENT LINES AT THE SWEETHEART CUP
ST. THOMAS PLANT WHICH WILL MANUFACTURE 720 MILLION SANDWICH CONTAINERS
ANNUALLY, USING THE PATENTED EARTHSHELL CONTAINER TECHNOLOGY AND IN ACCORDANCE
WITH THE APPROVED MCDONALD'S SPECIFICATION.
TFG'S SERVICES ARE MORE FULLY DESCRIBED IN THE FOLLOWING SCOPE OF SERVICES.
22
<PAGE>
EXHIBIT B
TO
DESIGN, PROCUREMENT AND CONSTRUCTION MANAGEMENT
SERVICES AGREEMENT AMONG EARTHSHELL, SWEETHEART, CH2M AND IDC
TARGET CONTRACT SCHEDULE
THIS EXHIBIT CONSISTS OF TWO PARTS:
B-1 DEFINITIONS OF PROJECT MILESTONES INCORPORATED INTO THE AGREEMENT
B-2 PROJECT SCHEDULE
THIS SCHEDULE ALSO IDENTIFIES THE ORDER DATES, DELIVERY AND ASSEMBLY DATES FOR
THE PROCESS EQUIPMENT PURCHASED BY EARTHSHELL. ANY DELAYS IN MEETING SUCH
DATES WILL IMPACT OVERALL PROJECT SCHEDULE.
23
<PAGE>
EXHIBIT C
TO
DESIGN, PROCUREMENT AND CONSTRUCTION MANAGEMENT
SERVICES AGREEMENT AMONG EARTHSHELL, SWEETHEART, CH2M AND IDC
COMPENSATION
DESIGN AND CONSTRUCTION MANAGEMENT FEES
A) TFG Engineering Per Rate Table in
Proposal
B) TFG Construction Management Per Rate Table in
Proposal
C) TFG Subconsultants Cost plus 4%
D) TFG Direct Expenses Per Rate Table in
Proposal
- -------------------------------------------------------------------------------
TOTAL EPCM SERVICES: Sum of A+B+C+D
COST OF CONSTRUCTION WORK
F) CM Field Costs (trailers; permits & licenses; Actual Cost
equipment leases; builder's risk premiums; temporary
utilities; state and local taxes related to construction
equipment; storage and delivery costs, CM travel and per
diem; etc.)
G) Subcontractor Costs Actual Cost
H) Equipment Purchases (excluding production equipment) Actual Cost
I) Subtotal Sum of G+H
J) TFG Contractor Fee 5% of I
- -------------------------------------------------------------------------------
TOTAL CONSTRUCTION COST (COST PLUS FEE): SUM OF I+J
Note: The Fee Rate Tables and Reimbursable Expense Tables referred to above are
the Preferred Rates which TFG agreed to use to provide services to EARTHSHELL in
a previous Memorandum of Understanding agreement between the two parties.
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 133,289,933
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 133,746,381
<PP&E> 17,823,872
<DEPRECIATION> (1,253,601)
<TOTAL-ASSETS> 150,316,652
<CURRENT-LIABILITIES> 8,387,295
<BONDS> 0
12,138
0
<COMMON> 988,313
<OTHER-SE> 140,928,906
<TOTAL-LIABILITY-AND-EQUITY> 150,316,652
<SALES> 0
<TOTAL-REVENUES> 1,943,493
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,748,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,035,316
<INCOME-PRETAX> (9,840,115)
<INCOME-TAX> 800
<INCOME-CONTINUING> (9,840,915)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,840,915)
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
<PAGE>
COMPANY PRESS RELEASE
SOURCE: EARTHSHELL CORPORATION
EARTHSHELL CORPORATION ANNOUNCES COMPLETION OF DESIGN PHASE
FOR OWINGS MILLS PRODUCTION SITE
SANTA BARBARA, CALIF., JULY 9 /PRNewswire/ -- EarthShell Corporation
(Nasdaq:ERTH - NEWS; Nasdaq: ERTH - NEWS) announced today the completion of
the Design Phase of its project to build three production lines for
Sweetheart Cup Company to manufacture EarthShell hinged lid sandwich
containers for McDonald's Big Mac-TM- sandwiches. The Design Phase of the
project, which began last November, was completed slightly ahead of schedule.
Management remains confident in the Company's ability to stay on schedule for
timely installation and startup of the production lines to allow Sweetheart
to meet its target to begin shipping EarthShell Big Mac containers to
McDonald's restaurants on a nationwide scale in early 1999.
"The engineering and design of this first commercial EarthShell
manufacturing facility culminates more than five years of intensive research,
engineering and manufacturing development," said Bill Spengler, Senior Vice
President of Corporate Planning and Business Development. "The engineering
specifications for EarthShell's inaugural production facility are now
complete, production line components have been ordered, and some of the
manufacturing equipment is already being delivered to Sweetheart's Owings
Mills, Maryland plant site, where facility improvements have been underway
since May."
Sweetheart Cup Company is the first licensee to commercialize the EarthShell
composite material technology and has a supply agreement to produce Big Mac
sandwich containers for McDonald's Big Mac sandwiches nationwide. EarthShell
expects the first of the three Sweetheart production lines to be completed
and in operation by the end of the year, with full production capacity
on-line by the end of the first quarter of 1999.
<PAGE>
"EarthShell is working closely with Sweetheart to integrate EarthShell
products into their established marketing, manufacturing and distribution
operations," said Mr. Spengler. "We are very pleased with the tremendous
level of interest we have received from around the world in EarthShell
products. We are continuing to explore with other licensees, converters and
end users a wide array of food service applications for EarthShell."
EarthShell is a development stage company engaged in the licensing and
commercialization of a proprietary composite material for the manufacture of
disposable packaging for the food service industry, such as cups, plates,
bowls and hinged lid containers. The new EarthShell composite material is
made from commonly available raw materials including limestone, starch,
natural fibers and functional coatings and has superior functional as well as
environmental characteristics when compared to traditional raw materials used
for food service packaging, such as bleached paperboard or polystyrene.
THIS PRESS RELEASE MAY CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES OR
OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE
OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED IN THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS IN THE COMPANY'S PROSPECTUS AND OTHER
DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION.
