<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-23694
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Heartland Wireless Communications, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
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Delaware 73-1435149
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
200 Chisholm Place, Suite 200, Plano, Texas 75075
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(Address of Principal Executive Offices) (Zip Code)
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Registrant's Telephone Number, Including Area Code (214) 423-9494
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903 N. Bowser, Suite 140, Richardson, Texas 75081
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Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report.
Indicate by check X 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Shares Outstanding
Class as of August 12, 1996
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Common Stock, $.001 par value 19,541,520
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
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JUNE 30, DECEMBER 31,
1996 1995
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(UNAUDITED)
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ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 38,025 $ 23,143
Restricted assets - investment in debt securities . . . . . . . . . 14,380 12,324
Subscriber receivables, net of allowance for doubtful accounts of
$652 in 1996 and $961 in 1995 . . . . . . . . . . . . . . . . 5,456 2,544
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . 2,449 1,583
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . -- 2,200
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . 60,310 41,794
-------- --------
Investments in affiliates, at equity . . . . . . . . . . . . . . . . . . 91,897 14,077
Systems and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 102,673 60,649
License and leased license investment, net of accumulated amortization of
$2,780 in 1996 and $1,095 in 1995 . . . . . . . . . . . . . . . . . 132,927 60,421
Excess of cost over fair value of net assets acquired, net of accumulated
amortization of $960 in 1996 and $283 in 1995 . . . . . . . . . . . 38,570 4,411
Restricted assets - investment in debt securities . . . . . . . . . . . . -- 6,415
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,940 17,638
-------- --------
$438,317 $205,405
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,066 $ 6,863
Accrued expenses and other liabilities . . . . . . . . . . . . . . 7,820 3,345
Current portion of long-term debt . . . . . . . . . . . . . . . . . 801 765
-------- --------
Total current liabilities . . . . . . . . . . . . . . . 11,687 10,973
-------- --------
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . 175,202 140,887
Deferred income taxes and other long-term liabilities . . . . . . . . . . 33,561 1,628
Minority interests in subsidiaries . . . . . . . . . . . . . . . . . . . 239 229
Stockholders' equity:
Common stock, $.001 par value; authorized 50,000,000 shares, issued
19,540,222 shares in 1996 and 12,611,131 shares in 1995 . . . . . 20 13
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 256,019 71,165
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . (38,137) (19,490)
Treasury stock, 10,252 shares in 1996, at cost . . . . . . . . . . (274) ---
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . 217,628 51,688
-------- --------
Commitments and contingencies $438,317 $205,405
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 3
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
1996 1995 1996 1995
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(UNAUDITED) (UNAUDITED)
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Revenues . . . . . . . . . . . . . . . . $ 13,801 $ 2,995 $ 23,313 $ 5,116
-------- --------- --------- -------
Operating expenses:
Systems operations . . . . . . . . 5,026 904 8,448 1,568
Selling, general and administrative. 8,316 2,613 14,261 4,653
Depreciation and amortization . . . 6,103 1,146 9,657 1,987
-------- --------- --------- -------
Total operating expenses . . . . 19,445 4,663 32,366 8,208
-------- --------- --------- -------
Operating loss . . . . . . . . . (5,644) (1,668) (9,053) (3,092)
-------- --------- --------- -------
Other income (expense):
Interest income . . . . . . . . . . 778 875 1,486 1,010
Interest expense . . . . . . . . . (5,028) (3,466) (9,720) (4,392)
Equity in losses of affiliates . . (4,321) --- (6,722) (129)
Other income, net . . . . . . . . . 460 18 460 12
-------- --------- --------- -------
Total other income (expense) . . (8,111) (2,573) (14,496) (3,499)
-------- --------- --------- -------
Loss before income taxes . . . . (13,755) (4,241) (23,549) (6,591)
Income tax benefit . . . . . . . . . . . 3,351 (5) 4,902 864
-------- --------- --------- -------
Net loss . . . . . . . . $(10,404) $ (4,246) $(18,647) $(5,727)
======== ========= ======== =======
Net loss per common share . . . . . . . . $ (.54) $ (.37) $ (1.07) $ (.51)
======== ========= ======== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 4
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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SIX MONTHS ENDED
JUNE 30,
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1996 1995
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(UNAUDITED)
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Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $(18,647) $(5,727)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 9,657 1,987
Deferred income tax benefit . . . . . . . . . . . . . . . . (4,902) (864)
Debt accretion and debt issuance cost amortization . . . . 2,556 1,820
Equity in losses of affiliates . . . . . . . . . . . . . . 6,722 129
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (125)
Changes in assets and liabilities, net of acquisitions:
Subscriber receivables . . . . . . . . . . . . . . . . (2,917) (825)
Prepaid expenses and other . . . . . . . . . . . . . . 101 (714)
Accounts payable, accrued expenses and other liabilities (4,572) 485
-------- --------
Net cash used in operating activities . . . . . . . (11,993) (3,834)
-------- --------
Cash flows from investing activities:
Investment in affiliate . . . . . . . . . . . . . . . . . . . --- (5,426)
Distributions from affiliate . . . . . . . . . . . . . . . . 58,872 ---
Proceeds from assets held for sale . . . . . . . . . . . . . 16,705 2,786
Purchases of systems and equipment . . . . . . . . . . . . . (32,554) (13,725)
Expenditures for license and lease license investment . . . . (2,951) (1,439)
Purchases of debt securities . . . . . . . . . . . . . . . . (2,170) (24,120)
Acquisitions, net of cash acquired . . . . . . . . . . . . . (14,300) (10,250)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- (2,250)
-------- --------
Net cash provided by (used in) investing activities 23,602 (54,424)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt . . . . . . . . . . . . . . . . 16,350 95,800
Payments on long-term debt . . . . . . . . . . . . . . . . . (11,125) ---
Payment of debt issuance costs . . . . . . . . . . . . . . . (603) (4,709)
Proceeds from short-term borrowings and notes payable . . . . --- 3,070
Payments on short-term borrowings and notes payable . . . . . (1,485) (3,043)
Proceeds from issuance of warrants . . . . . . . . . . . . . --- 4,200
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 58
-------- --------
Net cash provided by financing activities . . . . . 3,273 95,376
-------- --------
Net increase in cash and cash equivalents . . . . . . . . . . . . . 14,882 37,118
Cash and cash equivalents at beginning of period . . . . . . . . . 23,143 11,986
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . $ 38,025 $ 49,104
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 5
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
(1) General
(a) Description of Business
Heartland Wireless Communications, Inc. (the "Company")
develops, owns and operates wireless cable television systems.
The Company holds wireless cable channel rights primarily in
small to mid-size markets located in the central United
States. The Company had systems in operation in 44 markets at
June 30, 1996. Systems in other markets are currently under
construction and development by the Company.
(b) Principles of Consolidation
The consolidated condensed financial statements include the
accounts of the Company and its majority- owned subsidiaries.
Significant intercompany balances and transactions between the
entities have been eliminated in consolidation.
(c) Interim Financial Information
In the opinion of management, the accompanying unaudited
consolidated condensed financial information of the Company
contains all adjustments, consisting only of those of a
recurring nature, necessary to present fairly the Company's
financial position as of June 30, 1996, the results of
operations for the three and six months ended June 30, 1996
and 1995 and cash flows for the six months ended June 30, 1996
and 1995. These results are not necessarily indicative of the
results to be expected for the full fiscal year. The
accompanying financial statements are for interim periods and
should be read in conjunction with the audited consolidated
financial statements of the Company for the year ended
December 31, 1995, included in the Company's Annual Report to
Stockholders for the year ended December 31, 1995.
(d) Net Loss Per Common Share
Net loss per common share is based on the net loss applicable
to the weighted average number of common shares outstanding of
approximately 19,400,000 and 11,424,000 for the three-month
periods ended June 30, 1996 and 1995, respectively, and
17,376,000 and 11,295,000 in the six-month periods ended June
30, 1996 and 1995.
Shares issuable upon exercise or conversion of outstanding
convertible debt, stock options and warrants are antidilutive
and have been excluded from the calculation. Fully-diluted
loss per common share is not presented as it would not
materially differ from primary loss per common share.
(e) Accounting Changes
In the third quarter of 1995, the Company changed, effective
January 1, 1995, its method of accounting for the direct costs
and installation fees related to subscriber installations to
achieve a better matching of its revenues and expenses. The
Company has revised its results of operations for the three
and six months ended June 30, 1995 to reflect such accounting
change.
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<PAGE> 6
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Unaudited) (Continued)
(2) CableMaxx, AWS and Technivision Acquisitions
Effective February 23, 1996, the Company, directly or through one or
more subsidiaries, acquired all the assets and liabilities and
succeeded to the businesses of American Wireless Systems, Inc. ("AWS")
and CableMaxx, Inc. ("CableMaxx") and acquired substantially all of
the assets and certain of the liabilities and succeeded to all of the
businesses of Fort Worth Wireless Cable T.V. Associates (the "FTW
Partnership"), Wireless Cable TV Associates #38 (the "Minneapolis
Partnership") and Three Sixty Corp. ("TSC"), the successor to
Technivision, Inc. ("Technivision") (the aforementioned five
transactions collectively referred to herein as the "CableMaxx, AWS
and Technivision Acquisitions"). The CableMaxx, AWS and Technivision
Acquisitions are discussed below:
The AWS Merger. In connection with the merger of a subsidiary of the
Company with and into AWS, the Company issued approximately 1,310,000
shares of the Company's Common Stock having an aggregate value of
approximately $35.0 million. The assets previously held by AWS
included minority interests in the wireless cable television systems
in Minneapolis, Minnesota and Fort Worth, Texas (the remaining
interests being held by the FTW Partnership and Minneapolis
Partnership, respectively) and certain additional rights and
properties held in connection with wireless cable television markets
located in Dallas, Texas, Los Angeles, California and Memphis,
Tennessee.
The FTW Transaction. In connection with the Company's acquisition of
substantially all of the assets of the FTW Partnership, the Company
issued approximately 580,000 shares of the Company's Common Stock
having an aggregate value of approximately $15.5 million. The primary
asset of the FTW Partnership consisted of an approximate 80.0%
interest in a joint venture that owned and operated the wireless cable
television system in Fort Worth, Texas.
The Minneapolis Transaction. In connection with the Company's
acquisition of substantially all of the assets of the Minneapolis
Partnership, the Company issued approximately 810,000 shares of the
Company's Common Stock having an aggregate value of approximately
$21.7 million. The primary asset of the Minneapolis Partnership
consisted of an approximate 75.0% interest in a limited liability
company that owned and operated the wireless cable television system
in Minneapolis, Minnesota.
The CableMaxx Merger. In connection with the merger of a subsidiary
of the Company with and into CableMaxx, the Company issued
approximately 2,880,000 shares of the Company's Common Stock having an
aggregate value of approximately $77.0 million. The assets previously
held by CableMaxx included certain rights and properties held in
connection with certain wireless cable television markets throughout
Texas and in Salt Lake City, Utah.
The TSC Transaction. In connection with the Company's acquisition of
certain assets of TSC, the Company issued approximately 1,180,000
shares of the Company's Common Stock having an aggregate value of
approximately $31.5 million. The assets previously held by TSC
included certain rights and properties held in connection with
wireless cable television markets in El Paso, Texas, Corpus Christi,
Texas and Dayton, Ohio.
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<PAGE> 7
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Unaudited) (Continued)
The CableMaxx, AWS and Technivision Acquisitions were accounted for as
a purchase. The aggregate purchase price of approximately $190
million has been allocated to the net assets acquired on a preliminary
basis based on management's estimates of the fair values of assets
acquired and liabilities assumed. Excess purchase price over the fair
value of net assets acquired will be amortized on a straight-line
basis over a 20-year period.
(3) CS Wireless Transaction
Effective February 23, 1996, immediately following the closing of the
CableMaxx, AWS and Technivision Acquisitions, the Company, CAI
Wireless Systems, Inc. ("CAI") and CS Wireless Systems, Inc. ("CS
Wireless") consummated the CS Wireless Participation Agreement (the
"CS Wireless Participation Agreement" or "CS Wireless Transaction")
pursuant to which the Company (or certain of its subsidiaries)
contributed or sold to CS Wireless the wireless cable assets and all
related liabilities of the following wireless cable television markets
(the "Heartland Contributed Assets"):
(1) Maysville, Missouri
(2) Sweet Springs, Missouri
(3) Grand Rapids/Moline, Michigan
(4) Bloom Center/Napoleon, Indiana
(5) Dallas, Texas
(6) Fort Worth, Texas
(7) San Antonio, Texas
(8) Dayton, Ohio
(9) Salt Lake City, Utah
(10) Minneapolis, Minnesota
Simultaneously with the contribution and sale of the Heartland
Contributed Assets to CS Wireless, CAI (or certain of its subsidiaries)
contributed to CS Wireless (directly or by contribution of stock of
subsidiaries) the wireless cable television assets associated with the
following markets (the "CAI Contributed Assets"):
(1) Stockton/Modesto, California
(2) Bakersfield, California
(3) Cleveland, Ohio
(4) Charlotte, North Carolina
In connection with the CS Wireless Transaction, the Company (or its
contributing subsidiaries) received (i) shares of CS Wireless common
stock (the "CS Wireless Common Stock") constituting approximately 40.0%
of the outstanding shares of CS Wireless Common Stock (35.4% following
dilution for certain additional stock issuances), (ii) approximately
$28.3 million in cash paid at closing, (iii) a promissory note in the
principal sum of $25.0 million payable on or before nine months from
the closing and secured by proceeds of a contemplated issuance by CS
Wireless of senior discount notes (which note has been prepaid) and
(iv) a promissory note in the sum of $15.0 million payable 10 years
from closing and prepayable from asset sales and certain other events.
CAI and the Company are in the process of completing certain
post-closing net working capital calculations. Components of such
calculations include the relative accounts payable, accounts
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<PAGE> 8
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Unaudited) (Continued)
receivable and related working capital assets of the contributed
systems, the number of granted channels represented and actually
contributed to CS Wireless for each market, payments related to the
increase or decrease in the number of subscribers in each contributed
system from the number of subscribers stated in the CS Wireless
Participation Agreement and related factors. Following the completion
of these calculations, payments will be made to or by the parties,
depending upon such calculations. Any such payments will result in an
increase or decrease to the Company's investment in affiliates.
(4) Other Acquisitions and Divestitures
On January 16, 1996, the Company acquired an operating wireless cable
television system in Champaign, Illinois for approximately $2.1 million
in cash (the "Champaign Acquisition").
On January 16, 1996, the Company sold two non-operating wireless cable
markets for approximately $2.2 million in cash.
On April 26, 1996, the Company acquired a minority interest in one of
the Company's subsidiaries for 48,000 unregistered shares of the
Company's Common Stock.
On May 6, 1996, the Company consummated the sale of the Memphis and
Flippin, Tennessee wireless cable markets to TruVision Wireless, Inc.
("TruVision") for approximately $5.4 million in cash. Upon
consummation of the sale of the Memphis and Flippin, Tennessee markets
to TruVision, TruVision dismissed a lawsuit against the Company and AWS
without prejudice and each party entered into a settlement agreement
and release.
On June 21, 1996, the Company sold the wireless cable channel rights in
Los Angeles, California for $8.95 million in cash at closing and
$750,000 in notes and deferred payments. The notes and deferred
payments are payable on or before January 31, 1997.
On June 28, 1996, the Company acquired operating wireless cable systems
in George West and Falfurrias/Kingsville, Texas for $350,000 in cash
and 126,601 unregistered shares of the Company's Common Stock.
Summarized below is the unaudited pro forma information for the six
months ended June 30, 1996 and 1995 as if the CableMaxx, AWS and
Technivision Acquisitions, the CS Wireless Transaction, the Champaign
Acquisition, the Falfurrias and George West acquisitions and the
Company's investment in Wireless One, Inc. had been consummated as of
the beginning of 1996 and 1995. The pro forma information does not
purport to represent what the Company's results of operations actually
would have been had such transactions or events occurred on the dates
specified, or to project the Company's results of operations for any
future period.
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<PAGE> 9
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Unaudited) (Continued)
<TABLE>
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SIX MONTHS ENDED
JUNE 30
1996 1995
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(UNAUDITED)
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Revenues $26,069 $12,537
Net loss (21,734) (16,697)
Net loss per common share (1.11) (0.86)
</TABLE>
(5) BTA Auction
On November 13, 1995, the Federal Communications Commission (the
"FCC") commenced auctions for the award of initial commercial wireless
cable licenses for "Basic Trading Areas" or "BTAs" (as defined by Rand
McNally) which concluded on March 28, 1996 (the "BTA Auction"). The
Company was the winning bidder in 93 BTAs at a total cost of
approximately $19.8 million. Under the terms of the BTA Auction, the
Company remitted a $1.0 million deposit at the commencement of the BTA
Auction and subsequently has remitted 20% of the total committed
amount (less the $1.0 million deposit), or approximately $3.0 million.
The remaining 80% of the committed amount, or approximately $15.8
million, will be paid over a 10-year period commencing in the fourth
quarter of 1996. The Company will be required to make quarterly
interest-only payments for the first two years and quarterly payments
of principal and interest over the remaining eight years. The
interest rate related to this installment plan is equal to the 10-year
U.S. Treasury rate at the time of the BTA authorization plus 2.5%.
Pursuant to the CS Wireless Transaction, CS Wireless will reimburse
the Company for all amounts paid in the BTA Auction relating to 12
BTAs awarded to the Company at a total cost of approximately $5.3
million. As of August 12, 1996, CS Wireless had reimbursed the
Company approximately $1.1 million, representing all amounts paid by
the Company in connection with the award of the 12 BTA. The net
result of the Company's acquisition of 93 BTAs in the BTA Auction and
the CS Wireless reimbursement, is that the Company acquired 81 BTAs in
the BTA Auction for a net cost of approximately $14.5 million.
(6) Subsequent Events
On July 17, 1996, a subsidiary of the Company consummated the sale of
wireless cable channel rights in Adairsville, Powers Crossroads and
Rutledge, Georgia to CS Wireless for total consideration of
approximately $7.2 million in cash.
On July 10, 1996, the Company and American Telecasting, Inc. ("ATI")
entered into an Agreement for Exchange of Assets ("Exchange
Agreement") in which the Company and ATI agreed to exchange certain
wireless cable channel rights and related assets in South Dakota,
Florida, Michigan and Illinois. Consummation of this exchange is
expected to occur by September 10, 1996; however, the Exchange
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<PAGE> 10
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Unaudited) (Continued)
Agreement is subject to customary closing conditions including,
without limitation, satisfactory due diligence review by the Company
of the ATI assets involved in the exchange. No assurance can be given
that such conditions will be satisfied.
(7) Contingencies
The Company is a party to legal proceedings incidental to its business
which, in the opinion of management, are not expected to have a
material adverse effect on the Company's consolidated financial
position or operating results.
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<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion and analysis should be read in conjunction with the
consolidated condensed financial statements and notes thereto of Heartland
Wireless Communications, Inc.
RESULTS OF OPERATIONS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1996
COMPARED TO THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1995
Management believes that period-to-period comparisons of the Company's
consolidated financial results to date are not necessarily meaningful and
should not be relied upon as an indication of future performance due to the
Company's historically high growth rate, system launches and acquisitions
during the periods presented.
Revenues. The Company's revenues consist of monthly fees paid by subscribers
for basic programming, premium programming and equipment rental and, to a
lesser extent, sales of receive-site equipment and towers to certain
subscribers and service income. The Company's revenues for the second quarter
of 1996 were $13.8 million, compared to $3.0 million for the second quarter of
1995, an increase of 360%. Revenues for the six months ended June 30, 1996
were $23.3 million, versus $5.1 million for the comparable prior-year period,
an increase of 357%. The increase in revenues for the second quarter and six
months ended June 30, 1996 over the comparable prior-year periods was primarily
due to average subscribers increasing from 34,500 and 30,200 subscribers for
the second quarter and six months ended June 30, 1995 to 153,100 and 132,100
subscribers for the second quarter and six months ended June 30, 1996. Average
monthly revenues per subscriber were $29.53 and $29.09 for the second quarter
and six months ended June 30, 1996, compared to $28.43 and $28.28 for the
comparable prior-year periods. The increase in average monthly revenues per
subscriber between the second quarter and six months ended June 30, 1996 and
the comparable prior-year periods was primarily due to increased premium
channel penetration. At June 30, 1996, the Company had 167,430 subscribers
versus 43,500 subscribers at June 30, 1995 and 142,190 subscribers at March 31,
1996. Approximately 78% of the subscriber increase from March 31, 1996 to June
30, 1996 was attributable to same-system growth during the period (net
subscriber additions in the Company's systems in operation at March 31, 1996),
16% was attributable to three new systems launched during the period and 6% was
attributable to two operating systems acquired during the period. The Company
had 44 systems in operation at June 30, 1996 compared to 21 systems in
operation at June 30, 1995. On June 28, 1996, the Company acquired the George
West and Falfurrias/Kingsville, Texas operating systems. These acquisitions
did not contribute materially to revenues during the second quarter of 1996.
During the first quarter of 1996, the Company acquired the Champaign, Illinois
and the Austin, Corpus Christi, Temple/Killeen and Waco, Texas operating
systems, which contributed $5.7 million to revenues for the six months ended
June 30, 1996.
Systems Operations. Systems operations include programming costs, channel
lease payments, transmitter site and tower rentals, cost of program guides and
certain repairs and maintenance expenditures. Programming costs (with the
exception of minimum payments), cost of program guides and channel lease
payments (with the exception of certain fixed payments) are variable expenses
which increase as the number of subscribers increase. Systems operations
expense was $5.0 million for the second quarter of 1996, versus $0.9 million
for the second quarter of 1995. For the six months ended June 30, 1996,
systems operations expense was $8.4 million, compared to $1.6 million for the
comparable prior-year period. As a percentage of revenues, systems operations
expense was 36% for the second quarter and six months ended June 30, 1996
compared to 30% and 31% for the second quarter and six months ended June 30,
1995. The increase in systems operations expense as a percentage of revenues
over the periods presented was due to increased programming costs and increased
channel lease expense.
Selling, General and Administrative. The Company has experienced increasing
selling, general and administrative expenses ("SG&A") since its inception as a
result of its increasing wireless cable activities and associated
administrative costs, including costs related to opening and maintaining
additional offices, additional accounting and
- 11 -
<PAGE> 12
support costs and additional compensation expense. SG&A was $8.3 million and
$14.3 million for the second quarter and six months ended June 30, 1996,
compared to $2.6 million and $4.7 million for the comparable prior-year
periods. The increases in SG&A during the periods presented are principally due
to an increase in the Company's corporate and executive staff to support the
Company's overall growth, including acquisitions and the development of new
markets, increased advertising costs to support the Company's subscriber growth
and, to a lesser extent, increased costs associated with property and casualty
insurance, group health insurance and property taxes.
Depreciation and Amortization. Depreciation and amortization expense includes
depreciation of systems and equipment and amortization of license and leased
license investment and the excess of cost over fair value of net assets
acquired. Depreciation and amortization expense was $6.1 million for the
second quarter of 1996, compared to $1.1 million for the second quarter of
1995. Depreciation and amortization expense was $9.7 million for the six
months ended June 30, 1996, versus $2.0 million for the comparable prior-year
period. The increase in depreciation and amortization expense during the
periods presented was due to additional systems and equipment in connection
with the launch of 16 systems (net of systems launched and subsequently
disposed) from June 30, 1995 to June 30, 1996 and increased amortization
expense on license and leased license investment of systems in operation and
excess of cost over fair value of net assets acquired related to the
acquisition of wireless cable channel rights, the acquisition of minority
interests in certain subsidiaries of the Company and the acquisition of the
businesses of CableMaxx, Inc. and American Wireless Systems, Inc., together
with substantially all of the assets of Fort Worth Wireless Cable T.V.
Associates, Wireless Cable TV Associates #38 and certain of the wireless cable
television assets of Three Sixty Corp., formerly Technivision, Inc.
(collectively the "CableMaxx, AWS and Technivision Acquisitions") during
February 1996.
Operating Loss. The Company generated operating losses of $5.6 million and
$9.1 million for the second quarter and six months ended June 30, 1996,
compared to $1.7 million and $3.1 million for the comparable prior-year
periods. Consolidated earnings before interest, taxes, depreciation and
amortization ("EBITDA") was positive $0.5 million for the second quarter of
1996, versus negative $0.5 for the second quarter of 1995. Consolidated EBITDA
for the six months ended June 30, 1996 was $0.6 million, compared to negative
$1.1 million for six months ended June 30, 1995. System- level EBITDA
(earnings before interest, taxes, depreciation and amortization and corporate
general and administrative expense) was $3.4 million for the second quarter of
1996, compared to $1.3 million for the second quarter of 1995, an increase of
162%. System-level EBITDA for the six months ended June 30, 1996 was $5.9
million, versus $1.9 million for the comparable prior-year period, an increase
of 211%. The increase in system-level EBITDA during the second quarter of 1996
was principally due to the Company having 32 EBITDA-positive systems for the
second quarter of 1996, versus 14 EBITDA-positive systems for the second
quarter of 1995. The increase in system-level EBITDA for the six months ended
June 30, 1996 was primarily due to the Company having 30 EBITDA-positive
systems for the six months ended June 30, 1996, compared to 12 EBITDA-positive
systems for the comparable prior-year period. The increase in consolidated
EBITDA over the periods presented was primarily attributable to the
aforementioned increases in system-level EBITDA, partially offset by increases
in SG&A. The increase in the Company's operating loss during the periods
presented was primarily due to increased depreciation and amortization expense
and SG&A, partially offset by increases in revenues.
Interest Income. Interest income was $0.8 million and $1.5 million for the
second quarter and six months ended June 30, 1996, versus $0.9 million and $1.0
million for the comparable prior-year periods. Interest income was higher
during the second quarter of 1995, as compared to the second quarter of 1996,
due to higher average cash equivalents subsequent to the sale of 13% Senior
Notes due 2003 during April 1995. The increased interest income for the six
months ended June 30, 1996 was due to higher average cash equivalents,
resulting from $58.9 million of cash received from CS Wireless Systems, Inc.
("CS Wireless") in connection with the Company's contribution of wireless cable
assets to CS Wireless in February 1996.
- 12 -
<PAGE> 13
Interest Expense. The Company incurred interest expense of $5.0 million during
the second quarter of 1996, compared to $3.5 million during the second quarter
of 1995. Interest expense was $9.7 million for the six months ended June 30,
1996, versus $4.4 million for the comparable prior-year period. Interest
expense for the second quarter and six months ended June 30, 1996 included
non-cash interest of $1.0 million and $2.1 million, related to interest on the
Company's 9% Convertible Subordinated Discount Notes. Interest expense for the
second quarter and six months ended June 30, 1995 included non-cash interest of
$0.9 million and $1.8 million, related to interest on the Company's 9%
Convertible Subordinated Discount Notes.
Equity in Losses of Affiliates. The Company had equity in losses of affiliates
of $4.3 million for the second quarter of 1996. For the six months ended June
30, 1996, the Company had equity in losses of affiliates of $6.7 million,
versus $0.1 million for the comparable prior-year period. Equity in losses of
affiliates for the second quarter and six months ended June 30, 1996 represent
losses from Wireless One, Inc., in which the Company's holds an approximate 20%
interest, and CS Wireless, in which the Company holds an approximate 35%
interest. The Company acquired its equity interest in CS Wireless on February
23, 1996. Equity in losses of affiliates for the six months ended June 30,
1995 represent losses from RuralVision Joint Venture in which the Company had a
50% interest. The Company ceased to be a joint venturer in RuralVision Joint
Venture during May 1995.
Other Income (Expense). Other income (expense) is comprised of gain on the
sale of assets and other non-operating income, offset by minority interests in
the net earnings of subsidiaries, dividends on preferred stock of certain
subsidiaries and other non-operating expenses. The Company had other income of
$0.5 million during the second quarter and six months ended June 30, 1996,
representing the gain on the sale of the Flippin, Tennessee market. The
Company did not incur a material amount of other income during the second
quarter and six months ended June 30, 1995.
Income Tax Benefit. The Company recognized income tax benefits related to the
Company's net losses for the second quarter and six months ended June 30, 1996
of $3.4 million and $4.9 million, versus $0.9 million for the six months ended
June 30, 1995. The Company recognizes income tax benefits to the extent of
future reversals of existing taxable temporary differences.
Net Loss. The Company has recorded net losses since inception. The Company
incurred net losses of $10.4 million, or $0.54 per share, during the second
quarter of 1996 and $4.2 million, or $0.37 per share, during the second quarter
of 1995. For the six months ended June 30, 1996, the Company incurred net
losses of $18.6 million, or $1.21 per share, compared to $5.7 million, or $0.51
per share, for the comparable prior-year period. Although the Company's total
revenues and EBITDA significantly increased during the second quarter and six
months ended June 30, 1996, due to increased SG&A, increased depreciation and
amortization expense, increased equity in losses of affiliates and increased
interest expense, the Company's net losses increased during the periods. The
Company expects to continue to incur net losses throughout 1996 and beyond.
LIQUIDITY AND CAPITAL RESOURCES
The wireless cable television business is a capital intensive business. Since
inception, the Company has expended funds to lease or otherwise acquire channel
rights in various markets and systems in operation, to construct operating
systems and to finance initial system operating losses. To date, the primary
sources of capital for the Company have been from the sale of the Company's
Common Stock, debt financings and the sale of wireless cable channel rights
that are not part of the Company's strategic plan. The Company intends to
expand its 44 existing systems, continue to launch additional wireless cable
systems and lease or otherwise acquire channel rights in various markets.
The Company estimates that a launch of a wireless cable system in a typical
market (assuming an initial programming package of 12 channels) will involve
the initial expenditure of approximately $0.7 million to $0.9 million for
wireless
- 13 -
<PAGE> 14
cable system transmission equipment and tower construction and incremental
installation costs of approximately $395 to $435 per subscriber for equipment,
labor, overhead charges and direct commission. Other launch costs include the
cost of securing adequate space for marketing and warehouse facilities, as well
as costs related to employees. As a result of these costs, operating losses
are likely to be incurred by a system during the start-up period. Subsequent
additions of transmission equipment to enhance the channel offering of the
system will approximate $0.4 million, but may vary depending upon the power of
the transmission equipment.
Net cash used in operating activities during the six months ended June 30, 1996
was $12.0 million versus $3.8 million during the six months ended June 30,
1995. The increase in cash consumed by operations for the six months ended
June 30, 1996 was primarily due to increased systems operations expense, SG&A
and interest expense. These uses of cash were partially offset by a 357%
increase in revenues for the six months ended June 30, 1996 as compared to the
comparable prior-year period.
Net cash provided by investing activities was $23.6 million during the six
months ended June 30, 1996, versus net cash used in investing activities of
$54.4 million during the six months ended June 30, 1995. Cash used in
investing activities principally relates to the construction of additional
operating systems, the acquisition and installation of subscriber receive-site
equipment, the upgrade of transmission equipment in certain markets and the
acquisition of certain wireless cable channel rights, partially offset by the
sale of wireless cable channel rights that are not part of the Company's
strategic plan. In addition, cash used in investing activities includes
purchases and sales of debt securities which represent proceeds from the sale
of 13% Senior Notes due 2003 and 13% Series C Senior Notes due 2003 placed in
escrow for the semi-annual payment of interest. During the six months ended
June 30, 1996, cash provided by investing activities also included the receipt
of approximately $58.9 million in cash from CS Wireless in connection with the
Company's contribution of wireless cable assets to CS Wireless and the sale of
wireless cable channel rights that are not part of the Company's strategic
plan, in which the Company received approximately $16.7 million in cash. These
sources of cash were partially offset by Company's acquisition of the
Champaign, Illinois operating system, payments related to the Federal
Communications Commission's "Basic Trading Area" auction and out-of-pocket
expenses related to the CableMaxx, AWS and Technivision Acquisitions. During
the six months ended June 30, 1995, cash used in investing activities also
included the Company's investments in RuralVision Joint Venture, the
acquisition of the Lubbock, Texas operating system and the acquisition of the
Tulsa, Oklahoma market. These uses of cash were partially offset by the sale
of wireless cable channel rights in five markets.
Net cash provided by financing activities was $3.3 million for the six months
ended June 30, 1996, versus net cash provided by financing activities totaling
$95.4 million for the six months ended June 30, 1995. Cash provided by
financing activities during the six months ended June 30, 1996 primarily
represents the net proceeds from the Company's sale of 13% Series C Senior
Notes due 2003, partially offset by payments on long-term debt assumed in the
CableMaxx, AWS and Technivision Acquisitions. Cash provided by financing
activities during the six months ended June 30, 1995 principally represents the
net proceeds from the sale of 13% Senior Notes due 2003.
Due to the above-discussed factors, at June 30, 1996, the Company had $38.0
million of cash-on-hand, compared to $23.1 million at December 31, 1995. On
July 17, 1996, the Company consummated the sale of three wireless cable markets
surrounding Atlanta, Georgia for approximately $7.2 million in cash, which was
partially offset by approximately $1.5 million in payments made in July 1996
related to the Federal Communications Commission's "Basic Trading Area"
auction. Under its current plans, the Company expects that it will incur
capital expenditures of approximately $35 million during the remainder of 1996
for system construction, development, launch and expansion activities. The
Company currently expects to launch an aggregate of approximately 10 to 15
systems during the remainder of 1996. Notwithstanding potential acquisitions,
the Company does not anticipate any other material capital requirements during
1996 and the Company believes that its cash-on-hand and cash flow from
operations will be adequate to fund its operations through the end of 1996.
- 14 -
<PAGE> 15
The Company expects to continue to incur significant capital expenditures in
1997 and beyond in connection with its system construction, development, launch
and expansion activities. These activities may be financed in whole or in part
directly by the Company and/or by its existing or future subsidiaries, through
debt or equity financings, joint ventures or other arrangements. As in the
past, the Company may also finance its system construction, development, launch
and expansion activities or the acquisition of additional markets through the
sale and/or exchange of its existing portfolio of wireless cable channel
rights. Although the Company believes that cash provided by operating
activities, the sale of wireless cable channel rights that are not a part of
the Company's current strategic plan and proceeds from additional public or
private debt or equity offerings will be sufficient for the Company to complete
its planned system construction, development, launch and expansion activities
in 1997 and beyond, there can be no assurance that the Company will achieve
positive cash flow from operations, that the Company will consummate the sale
of certain wireless cable channel rights or that sufficient debt or equity
financing will be available on satisfactory terms and conditions, if at all.
Failure to obtain such additional funds could adversely affect the growth and
cash flow of the Company.
FUTURE OPERATING RESULTS; FORWARD LOOKING STATEMENTS
The Company's future revenues and profitability are difficult to predict due to
a variety of risks and uncertainties, including (i) business conditions and
growth in the Company's existing markets, (ii) the successful launch of systems
in new markets, (iii) the Company's existing indebtedness and the need for
additional financing to fund subscriber growth and system development, (iv)
government regulation, including Federal Communications Commission regulations,
(v) the Company's dependence on channel leases, (vi) the successful integration
of future acquisitions and (vii) numerous competitive factors, including
alternative methods of distributing and receiving television transmissions.
The Company expects to continue its subscriber growth and launch additional
systems. Increases in revenues and subscribers are anticipated for the
remainder of 1996; however, the rate of increase cannot be estimated with
precision or certainty. Heartland believes that SG&A and depreciation and
amortization expense will continue to increase to support overall growth.
Because of the foregoing uncertainties affecting the Company's future operating
results, past performance should not be considered to be a reliable indicator
of future performance, and investors should not use historical trends to
anticipate results or trends in future periods. In addition, the Company's
participation in a highly dynamic industry often results in significant
volatility in the price of the Company's Common Stock.
In addition to the matters noted above, certain other statements made in this
report are forward looking. Such statements are based on an assessment of a
variety of factors, contingencies and uncertainties deemed relevant by
management, including technological changes, competitive products and services,
management issues as well as those matters discussed specifically elsewhere
herein. As a result, the actual results realized by the Company could differ
materially from the statements made herein. Readers of this report are
cautioned not to place undue reliance on the forward looking statements made in
this report.
- 15 -
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Part II, Item 1 of the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 filed with the Securities and
Exchange Commission for a discussion of certain legal proceedings involving the
Company's wholly-owned subsidiary American Wireless Systems, Inc. ("AWS") and
certain current and former directors, officers and principals of AWS.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company ("Annual Meeting") was held
on May 2, 1996. Each of the following persons, who constituted all of the
Company's nominees for director, were elected at the Annual Meeting to serve on
the Board of Directors of the Company:
<TABLE>
<CAPTION>
Votes Votes Broker
For Against Abstained Non-Votes
---------- ------- --------- ---------
<S> <C> <C> <C> <C>
J.R. Holland, Jr. 15,706,634 -0- 132,803 -0-
L. Allen Wheeler 15,706,634 -0- 132,803 -0-
David E. Webb 15,706,634 -0- 132,803 -0-
Alvin H Lane, Jr. 15,706,634 -0- 132,803 -0-
Dennis M. O'Rourke 15,706,634 -0- 132,803 -0-
John A. Sprague 15,706,634 -0- 132,803 -0-
Wes W. Watkins 15,706,634 -0- 132,803 -0-
</TABLE>
At the Annual Meeting, the stockholders also voted to approve certain
amendments to the Company's 1994 Employee Stock Option Plan to, among other
things, increase the number of shares of Common Stock subject to issuance
thereunder from 950,000 shares to 1,950,000 shares:
<TABLE>
<CAPTION>
Votes Votes Broker
For Against Abstained Non-Votes
---------- ---------- --------- ---------
<S> <C> <C> <C>
12,200,698 2,035,487 76,175 1,527,077
</TABLE>
At the Annual Meeting, the stockholders also voted to ratify the selection of
KPMG Peat Marwick LLP as independent auditors for the Company for the fiscal
year ending December 31, 1996:
<TABLE>
<CAPTION>
Votes Votes Broker
For Against Abstained Non-Votes
--------- -------- --------- ---------
<S> <C> <C> <C>
15,792,671 17,988 28,778 -0-
</TABLE>
- 16 -
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*10.1 Office Lease dated April 10, 1996 between Merit Office Portfolio
Limited Partnership and Heartland Wireless Communications, Inc.
*10.2 Sublease Agreement dated June 14, 1996 between Heartland Wireless
Communications, Inc. and CS Wireless Systems, Inc.
* 27 Financial Data Schedule
- ---------------------
*Filed herewith.
(b) Reports on Form 8-K
On July 1, 1996 the Company filed a Current Report on Form 8-K dated July 1,
1996 (the "July 1, 1996 Current Report") which updated certain pro forma
financial information contained in that certain Current Report on Form 8-K
dated February 23, 1996 filed by the Company on March 11, 1996. The July 1,
1996 Current Report contained the following pro forma financial information:
Heartland Wireless Communications, Inc.
Unaudited Pro Forma Condensed
Consolidated Statement of Operations
Three Months Ended March 31, 1996
In addition, the July 1, 1996 Current Report listed a change of address and
telephone number for the Company from 903 N. Bowser, Richardson, Texas 75081,
(214) 479-9244 to 200 Chisholm Place, Suite 200, Plano, Texas 75075, (214)
423-9494.
- 17 -
<PAGE> 18
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.
Dated: August 13, 1996 HEARTLAND WIRELESS COMMUNICATIONS, INC.
By /s/ John R. Bailey
-----------------------------------------------
John R. Bailey
Senior Vice President-Finance, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
- 18 -
<PAGE> 19
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
*10.1 Office Lease dated April 10, 1996 between Merit Office Portfolio Limited Partnership and Heartland
Wireless Communications, Inc.
*10.2 Sublease Agreement dated June 14, 1996 between Heartland Wireless Communications, Inc. and CS Wireless
Systems, Inc.
* 27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
OFFICE LEASE
200 CHISHOLM PLACE OFFICE BUILDING
THIS LEASE is entered into by and between Landlord and Tenant effective this
10th day of April, 1996.
SECTION 1. TERMS AND DEFINITIONS
The following terms as used herein shall have the meanings as set forth below:
A. "Landlord" means MERIT OFFICE PORTFOLIO LIMITED PARTNERSHIP
and its successors and assigns.
B. "Tenant" means HEARTLAND WIRELESS COMMUNICATIONS, INC.
C. "Building" means the building in which the Premises are
located, which Building has approximately 49,497 square feet of
Rentable Area and is located at 200 Chisholm Place, in the City of
Plano, Texas.
D. "Project" means the Building and related Common Areas (defined
below), located in the City of Plano, Texas, which Project is legally
described on Exhibit A.
E. "Premises" means the second floor of the Building, containing
approximately 24,103 square feet of Rentable Area, the exact Rentable
Area in the Premises and the Building to be evidenced by the
certificate of Landlord's architect upon the completion of the
reconstruction of the shell of the Building, and the layout of which
is more particularly shown on Exhibit B which shall be attached hereto
and incorporated herein by this reference as if originally attached
hereto upon the finalization of the space plan and approval by
Landlord and Tenant. Upon the Lease Commencement Date, the Premises
shall be known as Suite 200. The architect's certificate shall
certify the Rentable and Usable Area within the Premises and the
Building. If Tenant wants to contest any statement in the certificate
it must give written notice to Landlord within ten (10) business days
after receipt of the certificate.
F. "Term" means eighty four (84) full calendar months.
G. "Lease Commencement Date" means the date of Substantial
Completion of Landlord's Work as determined in accordance with
Subsection III.B.; provided, however, to confirm the actual Lease
Commencement Date, Landlord and Tenant shall execute and attach hereto
as a new Exhibit E a Confirmation of Lease Dates, in form of that
attached hereto as Exhibit E, which shall specify such Lease
Commencement Date.
H. "Expiration Date" means the last day of the 84th full calendar
month after the Lease Commencement Date, the specific date of which
shall be confirmed in the execution and attachment of the Confirmation
of Lease Dates as provided in Section I.G. above, unless the Term is
earlier terminated or extended as provided herein in Section III.E.
and Section III.F.
I. "Monthly Rental" means an amount equal to $ 16.00 per square
foot of Rentable Area contained in the Premises, subject to
adjustments as set forth in Section IV. B. below.
J. "Base Operating Expense" means the actual amount of Common
Operating Costs (as defined in Section V below) for calendar year 1997.
K. "Security Deposit" means an amount equal to one (1)
installment of Monthly Rental.
1
<PAGE> 2
L. "Construction Allowance" means $17.00 per square foot of
Rentable Area in the Premises.
M. "Permitted Use" means general office use.
N. "Broker" means Arledge/Power Real Estate Group.
0. "Landlord's Address for Notice" means 12700 Preston Road,
Suite 230, Dallas, Texas 75230.
P. "Tenant's Address for Notice" means 903 N. Bowser, Suite 140,
Richardson, Texas 75081, Attn: John Bailey, until Tenant has occupied
the Premises, then it shall be the address of the Premises.
Q. "Rentable Area" means as calculated pursuant to the American
National Standard sponsored by the Building Owners and Managers
Association ("BOMA Standards").
SECTION II. PROPERTY LEASED
A. PREMISES Upon and subject to the terms, covenants and conditions hereinafter
set forth, Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises.
B. COMMON AREAS Tenant shall have the right, for the benefit of Tenant and its
employees, suppliers, shippers, customers and invitees, to the non-exclusive
use of all of the Common Areas as hereinafter defined.
C. MINOR VARIATIONS IN AREA The area of the Premises as determined in
accordance with Section 1. E. is agreed to be the area of the Premises
regardless of minor variations resulting from reconstruction of the Building
and/or tenant improvements.
D. RIGHT OF FIRST REFUSAL Tenant shall have the right to lease (i) the northern
section of the first floor in the east wing of the Building, and (ii) office
space contained in the 400 Chisholm Building (herein so called) (collectively
such additional space is hereinafter referred to as the "Expansion Space")
according to the terms and conditions set forth below. As the Expansion Space
becomes available after the expiration of the lease term first expiring after
the Lease Commencement Date, Landlord shall not enter into a lease of such
space except upon compliance with the following procedure:
1. NOTICE TO TENANT At any time the Expansion Space or portion
thereof becomes available for lease, and Landlord has agreed to a
proposal which it will accept (the "Proposal") for the leasing of the
Expansion Space or any portion thereof, Landlord shall give written
notice to Tenant of such fact and, within two (2) business days after
such notice, will also provide to Tenant a proposed copy of any
amendment or new lease to be signed by Tenant to effect such addition.
The amendment or the new lease, as appropriate, shall only amend the
particular lease paragraphs or provisions which are affected, such
as, Premises description, Monthly Rental, Tenant's Proportionate
Share, parking and construction; provided, however, if buildout or
other payments by Landlord as set forth in the Proposal are amortized
over a term longer than the remainder of Term as contained herein,
Tenant may elect to reduce such payments to that which could be
amortized over the remaining Term of this Lease at the same amortizing
rate or keep the same amount as in the Proposal but cause it to be
amortized only over the remainder of the Term hereof. For example, if
the Proposal called for a $50,000 payment to be amortized over a 5
year period, if only 4 years remains in the Term hereof, Tenant may
elect to receive $10,000 and it shall be amortized at the same
$40,000 rate over 4 years, or it may elect to receive $50,000, and
such amount will be amortized at a higher amount over the 4 year term.
Such notice shall set out the square footage and a summary of the
terms
2
<PAGE> 3
contained in the Proposal (including, without limitation, the Rentable
area, the rent per square foot, the construction allowance and any
rent or other concessions).
2. ELECTION BY TENANT Tenant shall have a period of seven (7)
business days after receipt of such notice from Landlord within which
to give Landlord notice of Tenant's election to lease such space. If
Tenant does not elect to lease such space within such time period,
Landlord may lease such space to a third party on no more favorable
terms as contained within the Proposal, provided, however, Tenant
shall have a new Right of First Refusal with respect to such space if
the space again becomes available during the Term of this Lease. To
the extent there is a modification of the Proposal's financial terms
or any other material terms of the Proposal, prior to any leasing,
Landlord shall again reoffer the space to Tenant on such revised terms
and Tenant shall have three (3) business days to elect whether or not
it shall take such space on such revised terms.
3. AMENDMENT TO LEASE If Tenant elects to lease such space, (or
in the case of space within the 400 Chisholm Building, a new lease or
an amendment thereto), Tenant shall have five (5) business days after
the election, to execute and return the amendment or new lease, as
appropriate, to Landlord. If the amendment or the new lease, as
appropriate, is not executed and returned to Landlord within such time
period, the Tenant shall be deemed to have executed the amendment or
lease, as appropriate.
4. TERMS OF LEASE AMENDMENT The rental rate for such additional
space shall be the rate provided for in the Proposal. The lease term
for such additional space shall commence on the date such space is
available for occupancy by Tenant, provided Tenant does not
unreasonably delay such occupancy, and such term shall continue until
the later to occur of the expiration of the Term of the Lease or two
(2) years after the date of such amendment or new lease. The lease
terms and conditions for such additional space shall be the same as
for the original Premises except for amendments or new lease described
above; however, a termination under Subsection III.E. shall not act to
terminate the Tenant's obligations for the Expansion Space unless
Tenant has leased such space for at least two (2) years.
5. SUBJECT TO OUTSTANDING COMMITMENTS The Right of First Refusal
granted herein as to the 400 Chisholm Building shall be subject to the
renewal options, expansion options, and/or preferential rights to
lease, if any, held by the then current Tenant, if any, of such
additional space or portion thereof, but any new tenants in the 400
Chisholm Building shall take subject to Tenant's rights as set forth
herein.
6. TRANSFER OF 400 CHISHOLM BUILDING Notwithstanding anything to
the contrary, the Right of First Refusal shall terminate as to the 400
Chisholm Building if it is sold or transferred to a party not
affiliated with Landlord unless the same or an affiliated party also
acquires or has previously acquired the Building. Landlord covenants
and agrees that it shall provide written notice of Tenant's rights
with respect to such building to the transferee (a copy of such notice
shall be sent to Tenant) if the right has not been terminated, and if
Tenant, at any time, reasonably feels that proper notice has not been
delivered, Tenant may record a memorandum of its Right of First
Refusal in the appropriate deed records of Collin County, Texas.
7. TERMINATION The Right of First Refusal granted herein shall
terminate automatically and without notice if there is an uncured
Event of Default or if Tenant has given the Termination Notice (as
defined below) or if Tenant has vacated the Premises for a period of
sixty (60) consecutive days. This Right of First Refusal shall not be
exercised by any assignee (other than a Permitted Assignee, as
hereafter defined) or sublessee of Tenant.
SECTION III. COMMENCEMENT AND TERMINATION OF TERM
AND POSSESSION OF PREMISES
A. LEASE COMMENCEMENT DATE The Term of the Lease shall commence on the Lease
Commencement Date (as extended only pursuant to Section III. C. below, if
applicable), and shall continue, subject to earlier termination as provided
herein, until the Expiration Date.
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B. COMPLETION OF TENANT IMPROVEMENTS AND POSSESSION OF PREMISES Upon execution
of this Lease by the parties, Landlord shall proceed to complete the tenant
improvements in the Premises described as "Landlord's Work" in the
"Construction Work Letter" attached hereto and incorporated herein as Exhibit
C. At the time that Landlord believes that such work has been completed in
substantial accordance with the plans, specifications and the Construction Work
Letter, it shall notify Tenant thereof and Landlord, Tenant and Landlord's
architect and contractor shall walk through and inspect the improvements. Other
than for so called "punch-list" items that do not unreasonably interfere with
occupancy, the Premises shall be considered substantially completed if they
substantially conform to the approved construction drawings and are capable of
being occupied for their intended purpose ("Substantial Completion"). If the
Premises is not substantially completed, Landlord shall continue the work until
it again notifies Tenant of its belief that substantial completion has occurred
and the inspections shall again proceed. This procedure shall continue until
substantial completion occurs, at which time, subject to Landlord's agreement
to diligently continue to fix the punch-list matters, Tenant may take
possession of the Premises. During the final thirty (30) days of the build-out
prior to Substantial Completion, Tenant shall have the right to enter the
Premises to perform pre-move-in work necessary to accommodate its occupancy.
Tenant shall use its best efforts not to interfere with the work being carried
on by Landlord's contractor; Tenants entry into the Premises shall be subject
to all of the terms and conditions of this Lease (other than the payment of
rents). Other than Tenant's trade fixtures, if any, all tenant improvements
constructed in the Premises, whether by Landlord or by (or on behalf of) Tenant
and whether at Landlord's or
C. TERMINATION FOR LACK OF SUBSTANTIAL COMPLETION. If Substantial Completion
has not been achieved by July 15, 1996, Tenant has the option (a) to require
Landlord to continue to work on the Premises until Substantial Completion is
achieved and Tenant shall receive four (4) days of abatement of the Monthly
Rental for each day of Landlord Delay beyond July 15, 1996 (cumulative of
prior Landlord Delays), or (b) to terminate this Lease and obtain reimbursement
from Landlord for all out-of-pocket expenses incurred with respect to the
negotiation of the Lease and the build-out of the Premises as well as all other
actual damages. For purposes hereof "Landlord Delays" are all delays other than
"Tenant Delays" and "Force Majeure Delays". "Tenant Delays" are delays
identified by Landlord as such within fifteen (15) days of their occurrence
(they are waived if not so identified) which are caused by Tenant such as, but
not limited to, delays in submitting documents required for construction of the
tenant finish in the Premises, delays in change orders initiated by Tenant for
matters other than those necessary to correct errors or deficiencies in the
construction documents, delays directly attributable to the nonavailability or
long lead procurement time for materials or equipment required by Tenant for
the build-out of the Premises, delays directly attributable to interference by
Tenant or Tenant's representatives with the construction of the improvements in
the Premises. "Force Majeure Delays" are those delays which are identified by
Landlord within fifteen (15) days of their occurrence (they are waived if not
so identified) and which are directly caused by delays due to strikes, acts of
God, or other causes not within the reasonable control of the Landlord or
Landlord's contractor, but shall not include weather related delays, delays in
equipment, material or personnel related to the build-out of the shell
(including HVAC and elevator) of the Building.
D. ACCEPTANCE AND SUITABILITY During the thirty (30) day period following the
Lease Commencement Date, Tenant may provide Landlord with one or more
"punch-lists" which set forth any itemization of any known corrective work to
be performed by Landlord with respect to the Landlord's Work as set forth in
the Construction Work Letter; provided, however, that Tenant's obligation to
pay Monthly Rental as provided below shall not be affected thereby. Subject to
such "punch-lists", upon Tenant's occupancy of the Premises Tenant agrees that
it accepts the Premises as being suitable for its use other than with respect
to defects which are not reasonably discoverable by Tenant. Tenant acknowledges
that neither Landlord, nor any agent, employee or servant of Landlord, has made
any representation with respect to the Premises or the Project, or with respect
to the suitability of them to the conduct
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of Tenant's business, nor has Landlord agreed to undertake any modifications,
alterations, or improvements of the Premises or Project, except as specifically
provided in this Lease.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EXCEPT AS SET FORTH HEREIN,
LANDLORD HEREBY DISCLAIMS, AND TENANT WAIVES THE BENEFIT OF, ANY AND ALL
IMPLIED WARRANTIES, INCLUDING IMPLIED WARRANTIES OF TENANTABILITY, FITNESS OR
SUITABILITY FOR PURPOSE, OR THAT THE BUILDING OR THE IMPROVEMENTS IN THE
PREMISES HAVE BEEN CONSTRUCTED IN A GOOD AND WORKMANLIKE MANNER.
E. EARLY TERMINATION Subject to its potential continuing obligations under
Subsection 11.D. hereof, Effective at the end of the 60th full calendar month
of the Term (the "Early Termination Date", which date shall be confirmed in the
Confirmation of Lease Dates), Tenant shall be entitled to terminate this Lease
effective as of the Early Termination Date. The following conditions (the
"Termination Conditions") shall apply to such termination right:
1. Tenant shall have given prior written notice (the
"Termination Notice") of Tenant's termination at least one
hundred eighty (180) days before the Early Termination Date
and an uncured Event of Default shall not be outstanding as of
the date of such notice; provided, that Landlord shall use its
reasonable, good faith efforts to remind Tenant not more than
one (1) year in advance of the Early Termination Date that
such election is nearing, but Landlord's failure to provide
such notification shall not release Tenant from its timely
notice requirements;
2. If, as of the Early Termination Date, an Event of
Default by Tenant is then outstanding, Tenant's exercise of
its right to terminate shall be rescinded and this Lease shall
continue in full force and effect.
3. Tenant shall pay to Landlord on or before the Early
Termination Date an amount equal to all Unrecouped Costs
(defined below) which have not been amortized and paid through
the Monthly Rent up to and including the 60th month incurred
by Landlord in connection with this Lease; and
4. Tenant shall pay to Landlord an amount equal to one
month of Monthly Rent which otherwise would have been due on
the first day of the 61st month.
The failure of Tenant to meet any of the Termination Conditions shall be deemed
as an irrevocable waiver of any termination rights of Tenant. Such termination
rights shall not be assignable to any assignee (except to a Permitted Assignee)
or sublessee. For purposes hereof, the term "Unrecouped Costs" shall mean the
unamortized portion (principal only) of the hard costs of construction of the
Tenant's improvements in the Premises (the Construction Allowance, other than
the cost of Space Plans and Construction Documents as defined in Exhibit C) and
that portion of commissions paid to the Broker which related to the last two
(2) years of the original Term. Amortization shall be deemed to have occurred
as equal payments of principal over the original term of the Lease, plus
interest at 10% per annum.
F. RENEWAL OPTIONS At the end of the original Term of this Lease, Tenant, but
not any assignee (except for a Permitted Assignee) or subtenant of Tenant,
shall have the right to renew this Lease for one (1) additional five (5) year
term. The renewal of this Lease shall be in accordance with the terms and
conditions set forth below. If an uncured Event of Default is outstanding as of
the date of Tenant's giving its notice hereunder or at the expiration of the
initial Term, Tenant cannot exercise its right to renew this Lease. The terms
of this Lease during such renewal period shall continue, including adjustments
to Monthly Rental pursuant to Section V, with the following exceptions:
1. Monthly Rental shall be based on ninety percent (90%)
of the base monthly rental (exclusive of operating cost
pass-throughs) as reasonably determined by the Landlord (the
"Market Rate") for similar buildings in the area.
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2. Base Operating Expense shall be calculated on actual
expenses for the year in which the Lease Term is renewed.
3. If Tenant desires to renew this Lease, Tenant will
notify Landlord in writing of its intention to renew no later
than one hundred eighty (180) days prior the expiration date of
the original Term (the "Applicable Term"); provided, that
Landlord shall use its reasonable, good faith efforts to remind
Tenant not more than one (1) year in advance of the Expiration
Date that such election is nearing but Landlord's failure to
provide such notification shall not release Tenant from its
timely notice requirement. After Tenant's notification,
Landlord shall, within the next ten (10) business days provide
Tenant with a copy of the proposed renewal agreement and shall
notify Tenant in writing of the proposed renewal rate. Tenant
shall, within the next ten (10) business days, notify Landlord
in writing of its acceptance or rejection of the proposed rate
and amendment (together with a notice by Tenant of its
reasonable determination of the Market Rate in case of Tenant's
rejection of Landlord's determination). If Landlord and Tenant
are unable to agree upon the renewal rate, then the parties
shall promptly appoint a mutually agreeable independent third
party, commercial real estate broker, knowledgeable in the
leasing of commercial real estate properties in the Plano area,
to determine the Market Rate. Once determined by the third
party, the term of this Lease shall be extended based upon the
rental rate established by such third party, however, such rate
shall not be greater than Landlord's determination nor less
than Tenant's determination of the Market Rate. If Landlord and
Tenant are unable to agree on a mutually acceptable broker,
each of Landlord and Tenant shall select a commercial real
estate broker who shall then meet and name a third commercial
real estate broker with the same requirements as the original
broker. This third broker shall establish the Market Rate.
4. If Tenant elects to renew the Lease, Landlord shall
submit a finalized lease amendment to Tenant (substantially in
the form already tendered to Tenant) within five (5) business
days of Landlord's receipt of the option notice. Tenant shall
have five (5) days after receipt of such amendment to execute
and return same to Landlord; provided that if Tenant fails to
return a signed amendment to Landlord, it shall be deemed to
have executed the amendment tendered by Landlord. If Tenant
falls to execute and return such amendment, the renewal option
shall terminate automatically, and without further notice. The
amendment shall only amend the particular lease paragraphs or
provisions which are affected, such as Monthly Rental and
commencement and termination dates.
SECTION IV. RENT
Commencing on the Lease Commencement Date (subject, however, to any
modifications or adjustments specified hereinbelow), Tenant shall pay to
Landlord, Rental during the entire Term in equal monthly installments (the
"Monthly Rental") in the amount established in accordance with Section I.I,
which sum shall be payable by Tenant on or before the first business day of
each month, in advance, at the address specified for Landlord in Section I.O.
above, or such other place as Landlord shall designate, without any prior
demand therefor and without any abatement, deduction or setoff whatsoever,
except as specifically set forth in this Lease. If the Lease Commencement Date
should occur on a day other than the first day of a calendar month, or the
Expiration Date should occur on a day other than the last day of a calendar
month, then the rental for such fractional month shall be prorated based on a
daily basis based upon a thirty (30) day calendar month. To the extent that any
portion of the Construction Allowance is unused by Tenant, the remaining funds
in such allowance shall be divided evenly over the next twelve (12) months of
Monthly Rent and used to reduce the Monthly Rent payment.
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SECTION V. REIMBURSEMENT OF COMMON EXPENSES
A. DEFINITIONS:
1. "Common Areas" means the Building's interior
common area, and all exterior areas, and space for the common or joint
use and benefit of the tenants, their employees, agents, servants,
suppliers, customers and other invitees, including, by way of
illustration, but not limitation, retaining walls, fences, landscaped
areas, parks, curbs, sidewalks, private roads, patios, and parking
areas for the Chisholm Place Complex (those common parking areas and
associated landscaping and lighting serving the Building, the 400
Chisholm Building and the building currently housing the Sony
Theatre), all within the area defined in the site plan attached hereto
as Exhibit "F".
2. "Taxes" shall mean all real property taxes,
personal property taxes, improvement bonds, and other charges and
assessments which are levied or assessed upon or with respect to the
Building and the land on which the Building is located and any
improvements, fixtures and equipment and all other property of
Landlord, real or personal, located in the Building and used
exclusively in connection with the operation of the Building and the
land on which the Building is located, including any increase in such
taxes, whether resulting from a reassessment of the value of the land
or the Building or for any other reason, imposed by any governmental
authority, and any tax which shall be levied or assessed in addition to
or in lieu of such real or personal property taxes, any license fees,
but shall not include any federal or state income tax, or any
franchise, capital stock, estate, inheritance, succession, transfer and
excess profit taxes imposed upon Landlord.
3. "Common Operating Costs" shall mean the
aggregate of all actual, out-of-pocket costs and expenses payable by
Landlord in connection with the operation and maintenance of the
Premises, Building and Common Areas, including, but not limited to:
(a) the cost of landscaping, repaving, resurfacing,
repairing, replacing, painting, lighting, cleaning,
removing trash and similar items with respect to the
Common Areas amortized, as appropriate, over the life
of the improvement which is appropriately
characterized as a capital improvement; (b) the total
cost of compensation and benefits of on-site personnel
and, to the extent their time is allocated to the
Chisholm Place Complex, off-site personnel to
implement the services referenced herein, but only to
the extent that the numbers of personnel and the
salary levels of such personnel are comparable with
similar buildings in the north Piano market; (c) all
Taxes; (d) the cost of insurance obtained by Landlord
pursuant to Section XIV. below; (e) the cost of trash
disposal service (less recycling income); (f) the cost
of operating, repairing and maintaining life, safety
systems, including, without limitation, sprinkler
systems (but not to include the cost of installing any
sprinkler system nor the cost of false alarms); (g)
the cost of monitoring services within the common
parking areas of the land on which the Building is
located, including, without limitation, any monitoring
or control devices used by Landlord in regulating such
parking areas (installation of which can only be with
Tenant's prior written consent such consent not to be
unreasonably withheld) but Tenant shall not be
required to pay for such installations on other parts
of the Common Areas; (h) the cost of water,
electricity, gas and any other utilities (but Landlord
covenants that it shall not pass through any
disproportionate utility costs from a large user and
such billings shall not be included in the calculation
of Common Operating Costs); (i) legal, accounting and
consulting fees and expenses for the operation of the
Building; (i) energy allocation, energy use
surcharges, or environmental charges; (k) municipal
inspection fees or charges; (1) the amount (but not in
excess of a market fee) charged by any management firm
contracted by Landlord to provide any or all of the
foregoing services;
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but excluding therefrom:
(i) payments to the holder of any lien against
the Building; (ii) expenses of leasing space in the
Building; (iii) alterations for other tenants; (iv)
non-arms-length or non-market payments; (v)
depreciation; (vi) costs of repairs and replacements
paid for by insurance, by the tenant or by other
third parties; (vii) legal expenses in lease or
collection matters; (viii) costs of compliance with
hazardous waste and environmental laws; (ix) costs
incurred for the benefit of a specific tenant; (x)
losses due to uncollected rent or bad debts; (xi)
costs related to structural repairs or replacements;
(xii) costs to correct construction defects; (xiii)
repair or other work necessitated by fire, casualty
or condemnation; and (xiv) fines due to Landlord's
violation of applicable laws, rules, statutes,
ordinances or regulations.
The computation of Common Operating Costs shall be made in accordance
with generally accepted accounting principles. In the event during all
or any portion of any calendar year the Building is not at least
ninety-five percent (95%) rented and occupied, Landlord may elect (and,
with respect to determining the Base Operating Expense, shall elect) to
make an appropriate adjustment to the Common Operating Costs for such
year, employing sound accounting and management principles, to
determine the Common Operating Costs that would have been paid or
incurred by Landlord had the Building been ninety-five percent (95%)
rented and occupied and the amount so determined shall be deemed to
have been the Common Operating Costs for such year.
4. "Tenant's Proportionate Share" means the
quotient obtained by dividing the Rentable Area within the Premises by
the Rentable Area of the Building for those matters specifically
related to the Building and means the quotient obtained by dividing the
Rentable Area of the Premises by the Rentable Area of the buildings
within the Chisholm Place Complex for those matters dealing with Common
Areas other than that contained within any building in the Chisholm
Place Complex.
B. REIMBURSEMENT By no later than December 1 of each year, Landlord shall
deliver to Tenant a reasonable estimate of the anticipated Common Operating
Costs for the forthcoming calendar year. Tenant shall pay to Landlord, as
additional rental, commencing on January 1, 1998, and continuing on the first
business day of each calendar month thereafter, an amount equal to one-twelfth
(1/12th) of the product obtained by multiplying (1) the difference between
the then estimated Common Operating Costs minus the Base Operating Expense,
times (2) Tenant's Proportionate Share; provided, however, that such amount
shall not be less than zero dollars ($0). The estimated monthly charge for
Tenant's Proportionate Share may be adjusted periodically by Landlord during
the calendar year on the basis of Landlord's reasonably anticipated costs;
provided, however, if it appears that too much is being collected by Landlord
with respect to the anticipated costs, Landlord shall adjust the amount payable
by Tenant to reduce it to a more appropriate level. The cost (amortized over
the useful life), without interest, of any major expenditure by Landlord (e.g.
resurfacing of parking areas, painting buildings, refurbishing landscaping or
walkways and similar items) during the year which was not included in
determining the estimated Common Operating Costs, may be billed separately to
Tenant according to Tenant's Proportionate Share, but Tenant shall not be
required to pay more than its share of the monthly amortizing installment. If
the full amount has not been amortized at the expiration or termination of this
Lease, no further payments therefore are due by Tenant.
C. REBATE OR ADDITIONAL CHARGES By no later than March 15 of each year,
Landlord shall furnish to Tenant a statement showing the total Common Operating
Costs and Tenant's Proportionate Share of the Common Operating Costs for the
calendar year just ended. If the amount of estimated Common Operating Costs
paid by Tenant for any year during the Term exceeds the actual Common Operating
Costs for such year, such excess shall be paid to Tenant within thirty (30)
days after delivery of such statement (acceptance of such funds by Tenant
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shall not waive its right to timely dispute the calculation). If the estimated
Common Operating Costs for such year were less than the actual Common Operating
Costs for such year, then Tenant shall pay to Landlord, within thirty (30) days
of Tenant's receipt of Landlord's statement, as additional rent, Tenant's
Proportionate Share of the amount by which the actual Common Operating Costs
exceeds the estimated Common Operating Costs. In the event the Term of this
Lease expires, or this Lease is otherwise terminated, Landlord shall compute
the credit or deficiency up to the date the Lease expired or was terminated and
may apply any credit due Tenant to any outstanding amounts due by Tenant
hereunder at that time. If Tenant disputes any portion of the calculation, it
may, within six (6) months after the date of the statement, commence and
diligently pursue the audit of Landlord's books and records in order to verify
the accuracy of any part or the make-up of any part of the calculation. If the
audit discloses that Tenant's Proportionate Share of the Common Operating Costs
was over or understated by more than five percent (5%), Landlord shall
reimburse Tenant for the cost of the audit within ten (10) days and, based upon
such audit, Landlord shall refund additional sums to Tenant, or Tenant shall
make additional payments to Landlord.
D. CONTROL OF COMMON AREAS Landlord shall have the sole and exclusive control
of the Common Areas, as well as the right to make changes to the Common Areas.
Landlord's rights shall include, but not be limited to, the right to (a)
restrain the use of the Common Areas by unauthorized persons, (b) utilize from
time to time any portion of the Common Areas for promotional and related
matters which do not detract from the business atmosphere of the Building or
unreasonably interfere with the conduct of Tenant's business, (c) temporarily
close any portion of the Common Areas for repairs, improvements or alterations,
and (d) change the shape and size of the Common Areas or change the location of
improvements within the Common Areas, including, without limitation, parking
areas, roadways and curb cuts; provided, that Landlord shall not allow parking
adjacent to the curb directly in front of the Building.
SECTION VI. SECURITY DEPOSIT
Upon Tenant's occupancy of the Premises, Tenant shall deposit with Landlord the
Security Deposit, and it shall be held for Landlord as security for the
performance by Tenant of all terms, covenants and conditions of this Lease. It
is expressly understood and agreed that such deposit is not an advance rental
deposit or a measure of Landlord's damages in case of Tenant's default. If
Tenant defaults with respect to any provision of this Lease, including, but not
limited to, the provisions relating to the payment of rent or the obligation to
repair and maintain the Premises or to perform any other term, covenant or
condition contained herein, Landlord may (but shall not be required to),
without prejudice to any other remedy provided herein or provided by law and
without notice to Tenant, use the Security Deposit, or any portion of it, to
cure the default or to compensate Landlord for all damages sustained by
Landlord resulting from Tenant's default. Tenant shall, within thirty (30) days
after demand, pay to Landlord a sum equivalent to the portion of the Security
Deposit so expended or applied by Landlord as provided in this paragraph so as
to maintain the Security Deposit in the sum initially deposited with Landlord.
Although the Security Deposit shall be deemed the property of Landlord, if an
Event of Default is not outstanding as to Tenant's obligations under the
Lease, Landlord shall return the Security Deposit to Tenant after Tenant
complies with any post expiration or termination obligations. Landlord shall
not be required to keep the Security Deposit separate from its general funds
and Landlord, not Tenant, shall be entitled to all interest, if any, accruing
on any such deposit. Upon any sale or transfer of its interest in the
Building, Landlord shall transfer the Security Deposit to its successor in
interest and thereupon, and, upon the successor's assumption of the terms and
conditions of the Lease, Landlord shall be released from any liability or
obligation with respect thereto.
SECTION VII. TENANT'S TAXES
Subject to Tenant's right to contest the imposition or amount thereof in good
faith but only so long as no lien is placed on the Premises, or the Building,
or other assets of Landlord, Tenant shall be liable for any tax (now or
hereafter imposed by any governmental entity) applicable to or measured by or
on the rents or any other charges payable by Tenant hereunder, including, (but
not limited to) any gross income tax, gross receipts tax or excise
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tax with respect to the receipt of such rent or Tenant's income as well as
other charges for the possession, operation, use or occupancy of the Premises,
but not including any net income, franchise, capital stock, estate or
inheritance taxes of the Landlord. If any such tax is required to be paid to
the governmental taxing entity directly by Landlord, then Landlord shall pay
the amount due and, within thirty (30) days after demand, shall be fully
reimbursed by Tenant for such payment. Tenant shall also be liable for all
taxes levied against the leasehold held by Tenant or against any personal
property, leasehold improvements, additions, alterations and fixtures placed by
or for Tenant in, on or about the Premises, Building and Project or constructed
by Landlord for Tenant in the Premises; and if any such taxes are levied
against Landlord or Landlord's property, or if the assessed value of such
property is increased (whether by special assessment or otherwise) by the
inclusion therein of value placed on such leasehold, personal property,
leasehold improvements, additions, alterations and fixtures, and such increase
is specifically itemized by the taxing authority, and Landlord pays any such
taxes (which Landlord shall have the right to do regardless of the validity
thereon, Tenant, within thirty (30) days after demand, shall fully reimburse
Landlord for the taxes so paid by Landlord or for the proportion of such taxes
resulting from such increase in any assessment.
SECTION VIII. USE OF PREMISES
A. PERMITTED USES Tenant shall use the Premises and Common Areas solely for the
Permitted Use specified in subsection I.M. above, and for no other use
(Landlord also covenants and agrees that it shall not lease any other portion
of the Building other than for general office use). Tenant shall, at its own
cost and expense, obtain any and all licenses and permits necessary for any
such use. Tenant shall not do or permit anything to be done in or about the
Premises and Common Areas which will unreasonably obstruct or interfere with
the rights of other tenants or occupants of the Project or injure or
unreasonably annoy them or use or allow the Premises to be used for any immoral
or unlawful purpose (although such allegation shall be subject to being
contested in good faith by Tenant), nor shall Tenant cause, maintain or permit
any nuisance in, on or about the Premises and Common Areas. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises and Common
Areas. Tenant shall not do or permit anything to be done in or about the
Premises and Common Areas which may render the insurance thereon void or
increase the insurance risk thereon. If an increase in any fire and extended
coverage insurance premiums paid by Landlord for the Building and Project is
caused by Tenant's use and occupancy of the Premises, then Tenant shall pay as
additional rental the amount of such increase to Landlord.
B. COMPLIANCE WITH LAWS Tenant shall not use the Premises, Building, Project or
Common Areas in any way (or permit or suffer anything to be done in or about
the same) which will conflict with any law, statute, ordinance or governmental
rule or regulation or any covenant, condition or restriction (whether or not of
public record) affecting the Premises, Project or Building, now in force or
which may hereafter be enacted or promulgated including, but not limited to,
the provisions of any city or county zoning codes regulating the use thereof;
provided, however, Tenant's actions shall not be deemed in violation of any
private covenant, condition or restriction unless Tenant has received written
notice of such covenant, condition or restriction and a reasonable time, not
exceeding that provided in the notice received by Landlord, in which to modify
its operations. Tenant shall, at its sole cost and expense (subject, again, to
its right to contest in good faith the imposition but only so long as no lien
is placed on the Premises, or the Building, or other assets of Landlord),
promptly comply with (a) all laws, statutes, ordinances, and governmental
rules and regulations, now in force or which may hereafter be in force which
affect Tenant's operations--Tenant not being required to comply with those
matters affecting the Building or Common Area in general, all of which shall be
at Landlord's expense, and (b) all requirements, now in force or which may
hereafter be in force, of any board of fire underwriters or other similar body
now or hereafter constituted relating to or affecting Tenant's use or occupancy
of the Premises, rather than the use or occupancy of the Building in general,
which shall be the responsibility of Landlord (but subject to reimbursement by
Tenant as specifically provided herein). The final, non-appealed judgment of
any court of competent jurisdiction or the admission in writing by Tenant in
any action against Tenant, whether Landlord be a party thereto or not, that
Tenant has violated any law, statute, ordinance, governmental rule or
regulation or any requirement, covenant, condition
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or restriction shall be conclusive of the fact as between Landlord and Tenant.
Tenant agrees to fully indemnify Landlord against any damages arising as a
result of a breach of the provisions of this Subsection VIII. B. by Tenant, and
against all actual costs, expenses, fines or other charges arising therefrom,
including, without limitation, reasonable attorneys' fees and related costs
incurred by Landlord in connection therewith, which indemnity shall survive the
expiration or earlier termination of this Lease for the statue of limitations
applicable to such event.
C. HAZARDOUS MATERIAL Tenant shall not cause or permit any Hazardous Material
(as defined below) to be brought upon, kept, or used in or about the Premises,
Building or Project by Tenant, its agents, employees, contractors, or invitees,
without the prior written consent of Landlord (which Landlord shall not
unreasonably withhold as long as Tenant demonstrates to Landlord's reasonable
satisfaction that such Hazardous Material is necessary or useful to Tenant's
business and will be used, kept, stored and disposed of in a manner that
complies with all laws regulating any such Hazardous Material so brought upon or
used or kept in or about the Premises, Building and Project). If Tenant breaches
the obligations stated in the preceding sentence, or if the presence of
Hazardous Material on the Premises, Building or Project caused by Tenant or by
any subtenant, agent, employee, contractor or invitee results in contamination
of the Premises, the Building or the Project, then Tenant shall indemnify,
defend and hold Landlord harmless from any and all claims, judgments, damages,
penalties, fines, costs, liabilities, or losses (including, without limitation,
diminution in value of the Premises, the Building or the Project, damages for
the loss or restriction on use of rentable or usable space or of any amenity of
the Premises, the Building or the Project, and sums paid in settlement of
claims, reasonable attorneys' fees, consultant fees and expert fees) which arise
during or after the Lease Term as a result of such contamination. This
indemnification of Landlord by Tenant includes, without limitation, actual,
out-of-pocket costs incurred in connection with any investigation of site
conditions or any cleanup, remedial, removal or restoration work required by any
federal, state, or local governmental agency or political subdivision. Without
limiting the foregoing, if the presence of any Hazardous Material in, on or
about the Premises, Building or Project caused by Tenant or by any subtenant,
agent, employee, contractor or invitee results in any contamination of the
Premises, the Building or the Project, Tenant shall promptly take all actions at
its sole expense as are necessary to return the Premises, the Building or the
Project to the condition existing prior to the introduction of any such
Hazardous Material thereto; provided that Landlord's approval of such actions
shall first be obtained, which approval shall not be unreasonably withheld so
long as such actions would not potentially have any material adverse long-term
or short-term effect on the Premises, Building or Project or exposes Landlord to
any liability therefor and such actions are undertaken in accordance with all
applicable laws, rules and regulations and accepted industry practices.
"Hazardous Material" is used in this Subsection VIII.C in its broadest sense and
shall mean any petroleum based products, pesticides, paints and solvents,
polychlorinated biphenyl, lead, cyanide, DDT, acids, ammonium compounds and
other chemical products and any substance or material defined or designated as
hazardous or toxic substance, or other similar term, by any federal, state or
local environmental statute, regulation, or ordinance affecting the Premises,
Building or Project presently in effect or that may be promulgated in the
future, as such statutes, regulations and ordinances may be amended from time to
time, including but not limited to the following statutes: Resource Conservation
and Recovery Act of 1976, 42 U.S.C. @ 6901 et seq.; Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, 40 U.S.C. @ 1801 et seq.;
Clean Air Act, 42 U.S.C. @ 7401-7626; Water Pollution Control Act (Clean Water
Act of 1977), 33 U.S.C. @ 1251 et seq.; Insecticide, Fungicide, and Rodenticide
Act (Pesticide Act of 1987), 7 U.S.C. @ 135 et seq.; Toxic Substances Control
Act, 15 U.S.C. @ 2601 et seq.; Safe Drinking Water Act, 42 U.S.C. @ 300(f) et
seq.; National Environmental Policy Act (NEPA) 42 U.S.C. @ 4321 et seq.; and
Refuse Act of 1899, 33 U.S.C. @ 407 et seq., but it does not include those
Hazardous Materials in quantities which are not in violation of the respective
laws and which are used in the ordinary course of general office use.
D. LANDLORD'S RULES AND REGULATIONS Tenant shall, and Tenant agrees to use its
good faith efforts to cause its agents, servants, employees, invitees, and
licensees to observe and comply
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fully and faithfully with the rules and regulations attached hereto as Exhibit
D or such reasonable rules and regulations which may hereafter be adopted by
Landlord (the "Rules") for the care, protection, cleanliness, and operation of
the Premises, Building and Project, and any reasonable modifications or
additions to the Rules adopted by Landlord which do not adversely change any
material portion of the terms and conditions of this Lease. Landlord shall seek
to enforce the Rules and Regulations in a uniform manner, but Landlord shall
not be responsible to Tenant for failure of any other tenant or occupant of the
Building or Project to observe or comply with any of the Rules.
SECTION IX. SERVICE AND UTILITIES
A. STANDARD BUILDING SERVICES AND REIMBURSEMENT BY TENANT Landlord agrees to
furnish to the Premises, between the hours of 7:00 a.m. and 7:00 p.m. on Monday
through Friday and between 8:00 a.m. and 1:00 p.m. on Saturday (legal holidays
excepted), heat and air conditioning (hereinafter "HVAC") which HVAC Landlord
shall use all good faith efforts to maintain balanced within the Premises,
elevator service, water, and electricity and janitorial service, required in
Landlord's reasonable judgment for the comfortable use and occupation of the
Premises for general office purposes and at a level which is usual and
customary in similar office buildings in the area where the Project is located,
all of which shall be subject to the Rules of the Building as well as any
governmental requirements or standards relating to, among other things, energy
conservation. The cost of such utilities and services is included in Tenant's
Base Operating Expense. Tenant shall be required to pay to Landlord, as
additional rent, $30.00 per hour per floor for HVAC usage beyond the above
schedule of hours provided (however, such hourly rate is to be divided evenly
between the number of zones on the floor and Tenant shall be charged for zones
activated); if Tenant, subsequent to its initial occupancy, requires additional
cooling or electrical capacity, it shall notify Landlord thereof and after
installation of the system (which shall be at Tenant's expense), appropriate
adjustments shall be made in the Base Operating Expense and the after hours
charge. The hourly charge may be reviewed annually in January of each year and
adjusted to more accurately reflect the cost of providing the after-hours
service; however, the hourly charge shall not be increased by more than ten
percent (10%) in any year without the express, written consent of Tenant,
except with respect to pass-through costs related to matters which are not
controllable by Landlord or Landlord's agents, such as, but not limited to, the
cost of electricity.
B. LIMITATION ON LANDLORD'S OBLIGATIONS Landlord shall not be in breach of its
obligations under this Section unless Landlord fails to provide the services,
make any repairs or perform maintenance which it is obligated to provide or
perform hereunder and such failure persists for thirty (30) days [except in the
event of an emergency when such time period is reduced to two (2) days] after
written notice of a need for such services, repairs or maintenance is given to
Landlord by Tenant. Landlord shall not be liable for and Tenant shall not be
entitled to any abatement or reduction of rent by reason of Landlord's failure
to furnish any of the foregoing when such failure is caused by accidents,
breakage, repairs, strikes, brownouts, blackouts, lockouts or other labor
disturbances or labor disputes of any character, or by any other cause, similar
or dissimilar, beyond the reasonable control of Landlord, nor shall such
failure under such circumstances be construed as a constructive or actual
eviction of Tenant; provided, however, if Tenant is unable to reasonably
conduct its business within the Premises for a period of two (2) consecutive
calendar days after the commencement of any interruption or Landlord's failure
to make the repair or perform the maintenance after notice from Tenant, as its
sole remedy, if the cause is not the result of Landlord's default, abate all
rent for the unusable portion of the Premises until that portion is again
usable by Tenant. If the abatement period extends beyond thirty (30)
consecutive calendar days Tenant may as its sole remedy, if the cause is not
the result of Landlord's default, by providing written notice to Landlord,
terminate this Lease. If such interruptions or failures are caused by
Landlord's default, Tenant retains all remedies against Landlord, including
abatement and termination as set forth herein. Except in the case of Landlord's
negligence or misconduct, Landlord shall not be liable under any circumstances
for loss or injury to property or business, however occurring, through or in
connection with or incidental to Landlord's failure to furnish any of said
service or utilities.
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C. EXCESS SERVICE Tenant shall not, without the written consent of Landlord,
such consent not to be unreasonably withheld or delayed, use any apparatus or
device on the Premises which, together with other apparatus or devices, uses
more than the engineered utility load for the Premises. The excess cost for
such utility shall be established by an estimate made by a utility company or
independent engineer hired by Landlord at Tenant's expense and Tenant shall pay
such excess costs each month with the Monthly Rental.
D. SECURITY SERVICES In addition to any security devices, monitors or services
which Tenant has placed within the Premises, (through which Tenant shall provide
a method of access to Landlord, its agents and contractors), certain security
measures (both by electronic equipment and personnel) may be provided by
Landlord in connection with the Building and Common Areas. However, Tenant
hereby acknowledges that such security is intended to be only for the benefit of
the Landlord in protecting its property from fire, theft, vandalism and similar
perils and while certain incidental benefits may accrue to the Tenant therefrom,
such security is not for the purpose of protecting either the property of Tenant
or the safety of its officers, employees, servants or invitees. By providing
such security, Landlord assumes no obligation to Tenant and shall have no
liability arising therefrom.
SECTION X. MAINTENANCE AND REPAIRS
A. LANDLORD'S OBLIGATIONS Except for special or non-standard systems and
equipment installed for Tenant's exclusive use, Landlord shall keep in good
condition and repair, at Landlord's cost and expense (subject to reimbursement
by Tenant of its pro rata share of such cost and expense, pursuant to Section
V. above), HVAC, plumbing, electrical and mechanical systems which service the
Premises as well as other areas within the Building together with other Common
Area improvements. At Landlord's sole cost and expense, it shall keep in good
condition and repair, the foundations, exterior walls, structural condition of
interior bearing walls, window glass, plate glass, lobby doors, and roof of the
Premises and Building. Except if the other tenant defaults therein and repairs
are necessary to maintain the health, safety, welfare and tenantability of the
Building, Landlord shall not be required to make any repairs that are the
obligation of any other tenant or occupant within the Building or Project.
Landlord shall not be required to make any repairs for damage caused by any
intentional act or omission of Tenant or any person claiming through or under
Tenant or any of Tenant's employees, agents, contractors and invitees, in which
event Tenant shall repair such damage at its sole cost and expense but Landlord
shall make repairs for damage caused by Tenant's negligent acts to the extent
it receives insurance proceeds therefor with Tenant paying any deductible of
$25,000 or less. Landlord shall not be liable for and there shall be no
abatement of rent with respect to, any injury to or interference with Tenant's
business arising from any repair, maintenance, alteration or improvement in and
to any portion of the Project, Building or the Premises so long as (a) Landlord
uses its reasonable efforts to minimize the disruption with Tenant's business,
and (b) more than seventy percent (70%) is usable for the conducting of
Tenant's business. If Landlord fails to commence any required repairs within
thirty (30) days (or in the case of an emergency, within two (2) days) after
written notice thereof from Tenant or thereafter fails to diligently continue
with such repairs, Tenant may cause such repairs to be made at Landlord's
expense or at its own expense which, if unpaid by Landlord within ten (10)
days after demand, may be offset against Monthly Rents next coming due.
B. TENANT'S OBLIGATIONS Tenant shall, at its sole cost and expense, make all
repairs and replacements as and when Landlord reasonably deems necessary to
preserve in good working order and condition the Premises and every part
thereof, including, without limitation, plumbing within the Premises, special
or supplementary HVAC, electrical and lighting systems located within the
Premises and installed for the exclusive use of the Premises and all other
non-standard utility facilities and systems exclusively serving the Premises,
and all fixtures, interior walls, interior surfaces of exterior walls,
ceilings, interior windows, doors, cabinets, carpeting and other floor
coverings located within the Premises. Except to the extent that Landlord has
waived its rights of subrogation against Tenant, Tenant shall, at its sole cost
and expense, make all repairs to the Premises, Building and Project which are
required, in the
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reasonable opinion of Landlord, as a result of any misuse, neglect, negligent
or intentional act or omission committed by Tenant or by any employee, agent,
contractor or invitee of Tenant.
C. LANDLORD'S RIGHT TO MAKE REPAIRS In the event that Tenant falls to maintain
the Premises, Building and Project in good order, condition and repair as
required by this Lease, then, following written notification to Tenant, and
Tenant's failure to diligently commence to cure such matter within thirty (30)
days (or in the case of an emergency, within two (2) days) after written notice
thereof from Landlord or thereafter fails to diligently continue with such
repairs, Landlord shall have the right, but not the obligation, to enter the
Premises and to do such acts and expend such funds at the expense of Tenant as
are required to place the Premises, Building and Project in good order,
condition and repair. Any reasonable, out-of-pocket amount so expended by
Landlord shall be paid by Tenant within thirty (30) days after demand. Except
for negligence of Landlord or Landlord's employees or contractors, Landlord
shall have no liability to Tenant for any loss or damage that may accrue to
Tenant's merchandise, fixtures, equipment, furniture or other property or for
any inconvenience or interference with the use of the Premises by Tenant
resulting from Landlord's performance of such maintenance or repair work.
D. CONDITION OF PREMISES UPON SURRENDER Except as otherwise provided in
Sections XVIII. and XIX. below, Tenant shall, upon the expiration or earlier
termination of the Term, surrender the Premises to Landlord in the same
condition as on the date Tenant took possession, broom clean, reasonable wear
and tear and loss by casualty excepted. All appurtenances, fixtures,
improvements, additions and other property attached to or installed in the
Premises whether by Landlord or by or on behalf of Tenant, and whether at
Landlord's expense or Tenant's expense, shall be and remain the property of
Landlord. Any furnishings and personal property of Tenant located in the
Premises, whether the property of Tenant or leased by Tenant (including the
fixtures, improvements and other items agreed, in writing, by Landlord to belong
to the Tenant as provided in the preceding sentence), shall be and remain the
property of Tenant and shall be removed by Tenant at Tenant's sole cost and
expense at the expiration of the Term. Tenant shall promptly repair any damage
to the Premises or the Building resulting from such removal. Any of Tenant's
property not removed from the Premises within ten (10) days after the
expiration of the Term shall, at Landlord's option, either become the property
of Landlord or may be removed by Landlord and Tenant shall pay to Landlord the
cost of such removal within ten (10) days after delivery of a bill therefor.
Any damage to the Premises, including any structural damage, resulting from
Tenant's use or from the removal of Tenant's fixtures, furnishings and
equipment shall be repaired by Tenant at Tenant's expense.
SECTION XI. ENTRY BY LANDLORD
Landlord reserves and shall have the right to enter the Premises at reasonable
times upon providing at least 24 hours prior oral notice to Tenant (except in
the case of an emergency) to inspect the same to determine whether Tenant is
complying with its obligations hereunder; to exhibit the Premises, upon
reasonable notice to Tenant, to prospective purchasers, mortgagees or, during
the last six (6) months of the Term, tenants; to post notices of
nonresponsibility; and, so long as Landlord does not unreasonably interfere
with the conduct of Tenant's business, to alter, improve or repair the Premises
and any portion of the Building and Project, without abatement of rent, and may
for that purpose erect scaffolding and other necessary structures that are
reasonably required by the character of the work to be performed by Landlord.
Tenant hereby waives any claim for damages for any injury or inconvenience to
or interference with Tenant's business, any loss of occupancy or quiet
enjoyment of the Premises, and any other loss occasioned thereby. For each of
the aforesaid purposes, Landlord shall at all times have and retain a key and
other means of access through security devices with which to unlock all of the
doors in, upon and about the Premises, excluding Tenant's vaults and safes,
and Landlord shall have the right to use any and all means which Landlord may
deem proper to open such doors in the event of an emergency. Any entry to the
Premises or portions thereof obtained by Landlord by any of said means, or
otherwise, shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a
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detainer of, the Premises, or an eviction, actual or constructive, of Tenant
from the Premises, or any portion thereof.
SECTION XII. ALTERATIONS, ADDITIONS AND TRADE FIXTURES
Tenant shall not make any alterations, additions or improvements to the
structure of the Building or the Premises or the roof of the Building or which
exceed $5,000 and are made to or are related to the Premises (hereafter
"Alterations"), without Landlord's prior written consent. In order to obtain
Landlord's consent, which consent shall not be unreasonably withheld, Tenant
shall submit such information as Landlord may reasonably require, including,
without limitation, (i) plans and specifications, if appropriate, (ii) permits
and licenses, (iii) evidence of insurance coverage in such types and amounts
and from such insurers as Landlord deems satisfactory, and (iv) the proposed
contractors. All Alterations or other improvements to the Premises shall be
done in a good workmanlike manner by qualified and licensed contractors or
mechanics. In no event shall any Alterations affect the structure of the
Building or its exterior appearance without Landlord's prior written consent.
All Alterations made by or for Tenant (other than Tenant's moveable trade
fixtures), shall, unless Landlord expressly agrees otherwise in writing, at
termination become the property of Landlord, without compensation to Tenant,
but Landlord has no obligation to repair, maintain or insure those Alterations.
Carpeting, shelving and cabinetry are considered improvements of the Premises
and not movable trade fixtures, regardless of how or where affixed. No
Alterations will be removed by Tenant from the Premises either during or at the
expiration or earlier termination of the Term, and they shall be surrendered as
a part of the Premises. Tenant may request at the time of submission to
Landlord of Tenant's information in connection with a proposed Alteration, that
Landlord designate which Tenant improvements resulting from the Alteration are
subject to removal at the end of the Term. In the absence of such a request, at
Landlord's discretion, Alterations are subject to removal in accordance with
the provisions of this Lease. Tenant shall indemnify, defend against and keep
Landlord free and harmless from all liability, loss, damage, cost, attorneys'
fees and any other expense incurred on account of claims by any person
performing work or furnishing materials or supplies for Tenant or any persons
claiming under Tenant. Landlord shall have the right at all times to post on
the Premises any notices permitted or required by law, or that Landlord shall
deem proper, for the protection of Landlord, the Premises, the Building and the
Project, and any other party having an interest therein, from mechanics' and
materialmen's liens. Tenant shall give to Landlord written notice of the
commencement of any construction in or on the Premises prior to its anticipated
date. Prior to the commencement of any construction of Alterations, Landlord
shall be furnished certificates of insurance, naming Landlord as an additional
insured, evidencing that each contractor performing work has insurance
reasonably acceptable to Landlord including but not limited to general
liability insurance in amount reasonably required by Landlord.
SECTION XIII. MECHANIC'S LIENS
Tenant shall keep the Premises, the Building and the Project free from any
liens arising out of any work performed, material furnished or obligation
incurred by or for Tenant. In the event that Tenant shall not, within thirty
(30) days following the imposition of any such lien, cause the same to be
released of record by payment or posting of a proper bond, Landlord shall have,
in addition to all other remedies provided herein and by law, the right, but
not the obligation, to cause such lien to be released by such means as Landlord
deems proper, including payment of the claim giving rise to such lien. All such
paid and all expenses incurred by Landlord in connection therewith shall be due
and payable to Landlord by Tenant within thirty (30) days after demand.
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SECTION XIV. INSURANCE AND WAIVER OF SUBROGATION
A. TENANT During the Term hereof, Tenant shall keep in full force and effect
the following insurance and shall provide appropriate insurance certificates to
Landlord prior to the Lease Commencement Date and annually thereafter before
the expiration of each policy:
1. Commercial general liability insurance for the benefit of
Tenant and Landlord as named insured, with a limit of not less than
One Million Dollars ($1,000,000.00) combined single limit per
occurrence, against claims for personal injury liability including,
without limitation, bodily injury, death or property damage liability
and covering (i) the business(es) operated by Tenant and by any
subtenant of Tenant on the Premises, (ii) operations of independent
contractors engaged by Tenant for construction on or about the
Premises, and (iii) contractual liability; and
2. Fire, extended coverage, and vandalism and malicious mischief
insurance, insuring the personal property, furniture, furnishings and
fixtures belonging to Tenant located on the Premises for not less than
one hundred percent (100%) of the actual replacement value thereof.
Each insurance policy obtained by Tenant pursuant to this Lease shall contain a
clause that the insurer will provide Landlord with at least ten (10) days
prior written notice of any material change, non-renewal or cancellation of the
policy. The required coverages shall be identified in a Standard Accord
Certificate of Insurance showing Tenant as an insured, Landlord and, if
requested, Landlord's mortgagee as additional insureds, and detailing the
coverages of Tenant's insurance program. The liability limits of the above
described insurance policies shall in no matter limit the liability of Tenant
under the terms of Section XV. below. If Tenant fails to maintain and secure
the insurance coverage required under this Section XIV., then Landlord shall
have, in addition to all other remedies provided herein and by law, the right,
but not the obligation, to procure and maintain such insurance, the cost of
which shall be due and payable to Landlord by Tenant on demand.
B. LANDLORD During the Term hereof, Landlord shall keep in full force and
effect the following insurance:
1. Fire, extended coverage and vandalism and malicious mischief
insurance insuring the Building, in an amount not less than 80% (or
such greater percentage as may be required by law) of the full
replacement cost thereof; and
2. Commercial general liability insurance for the benefit of
Landlord and Tenant as named insured, with a limit of not less than
One Million Dollars ($ 1,000,000.00) combined single limit per
occurrence, against claims for personal injury liability including,
without limitation, bodily injury, death or property damage liability
and covering (i) operations of independent contractors engaged by
Landlord, and (ii) contractual liability.
All insurance policies shall be issued in the names of Landlord and Landlord's
lender, and any other party reasonably designated by Landlord as an additional
insured, as their interests appear and shall be evidenced by a Standard Accord
Certificate of Insurance issued to Tenant. The insurance policies shall provide
that any proceeds shall be made payable to Landlord, or to the holders of
mortgages or deeds of trust encumbering Landlord's interest in the Premises,
Building, and Project, or to any other party reasonably designated by Landlord
as an additional insured, as their interests shall appear. All insurance
premiums for Landlord's insurance shall be included in Common Operating Costs,
as described in Section V. above.
C. WAIVER OF SUBROGATION Each party hereto waives any and every claim which
arises or may arise in its favor and against the other party hereto, or anyone
claiming through or under
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them, by way of subrogation or otherwise, during the Term, for any and all loss
of, or damage to, any of its property (whether or not such loss or damage is
caused by the fault or negligence of the other party or anyone for whom said
other party may be responsible), which loss or damage is covered by fire and
extended coverage insurance policies. Said waivers shall be in addition to, and
not in limitation of, any other waiver or release contained in this Lease. If
necessary, each party agrees to provide immediate written notice to their
respective insurer(s) of this waiver.
SECTION XV. INDEMNITY
A. TENANT'S INDEMNITY Tenant shall indemnify, defend and save Landlord
and its partners, officers, directors, employees and agents harmless from all
death, bodily injury, loss, claims or actual damage to any person or property
(other than for a claim that can be covered by the standard form of "broad
form" property policies, with vandalism and malicious mischief endorsements)
arising out of any breach by Tenant of an express warranty or representation
contained in this Lease or the failure of Tenant to comply with any term or
provisions of this Lease or caused by the negligence or intentional torts of
Tenant, its agents, employees contractors or invitees ("Tenant's Acts"), except
to the extent caused by the negligence or intentional torts of the Landlord,
its agents, employees contractors or invitees ("Landlord's Acts"). If death,
bodily injury, loss, claims, or actual damage to any person or property is the
result of Landlord's Acts and Tenant's Acts jointly, Tenant's indemnity set
forth in this Subsection is in proportion to its allocable share of the joint
negligence or intentional tort.
B. LANDLORD'S INDEMNITY Landlord shall indemnify, defend and save Tenant and
its partners, officers, directors, employees and agents harmless from all
death, bodily injury, loss, claims or actual damage to any person or property
arising (other than for a claim that can be covered by the standard form of
"broad form" property policies, with vandalism and malicious mischief
endorsements) out of any breach by Landlord of an express warranty or
representation contained in this Lease or the failure of Landlord to comply
with any term or provisions of this Lease or caused by Landlord's Acts, except
to the extent caused by Tenant's Acts. If death, bodily injury, loss, claims,
or actual damage to any person or property is the result of Tenant's Acts and
Landlord's Acts jointly, Landlord's indemnity set forth in this Subsection is
in proportion to its allocable share of the joint negligence or intentional
tort.
C. SURVIVAL The provisions of this Section shall survive the expiration or
termination of this Lease.
SECTION XVI. ASSIGNMENT AND SUBLETTING BY TENANT
A. Except as hereinafter provided, Tenant shall not directly or indirectly,
voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise
transfer or hypothecate all or any part of the Premises or Tenant's leasehold
estate hereunder (collectively "Assignment"), or permit the Premises to be
occupied by anyone other than Tenant or sublet the Premises ("Sublease") or any
portion thereof without Landlord's prior written consent in each instance
subject to the terms and conditions contained in this Section XVI.
B. If Tenant desires at any time to enter into an Assignment or a Sublease of
the Premises or any portion thereof, Tenant shall provide the following to
Landlord:
1. The name of the proposed assignee, sub-tenant or occupant;
2. The nature of the proposed assignee's, subtenant's or
occupant's business to be carried on in the Premises;
3. The terms and provisions of the proposed Assignment or
Sublease; and
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4. The last two (2) years of audited (if available) financial
statements and the most recent year-to-date unaudited balance sheet
and income statement of the proposed assignee, subtenant or occupant.
C. Except with respect to an Assignment in Sublease pursuant to Subsection
XVI.F. below, At any time within ten (10) business days after Landlord's
receipt of the information specified in Subsection XVI. B., above, Landlord may
by written notice to Tenant elect either to (a) consent to the proposed
Assignment or Sublease, or (b) refuse to consent to the proposed Assignment or
Sublease and provide a specific reason therefor. Landlord and Tenant agree (by
way of example and without limitation) that it shall be reasonable for Landlord
to withhold its consent if any of the following situations exist:
1. The proposed transferee's use of the Premises
conflicts with the Permitted Use under this Lease;
2. With respect to an Assignment, the proposed assignee,
in Landlord's reasonable business judgment, lacks sufficient
business reputation, or experience to perform its obligations
under this Lease;
3. An uncured Event of Default by Tenant is continuing;
or
4. The proposed transferee's financial condition with
respect to any Assignment is less favorable than Tenant's
financial condition as of the date of this Lease.
D. If Landlord consents to the Sublease or Assignment within said ten (10)
business day period, Tenant may enter into such Assignment or Sublease of the
Premises or portion thereof, but only upon the terms and conditions set forth
in the notice furnished by Tenant to Landlord pursuant to Subsection XVI. B.
above. Under a Sublease by Tenant to a non-Afflliated entity, all rents
received by Tenant after payment of Tenant's reasonable out-of-pocket costs
with respect to such Sublease shall be payable to Landlord as additional rent
within ten (10) days after receipt.
E. While Tenant remains liable to Landlord for performance of all of its terms
and conditions under this Lease as to any Sublease, a consent by Landlord to an
Assignment by Tenant, or an Assignment to a Permitted Assignee, shall release
Tenant of any obligation to be performed by Tenant under this Lease which
accrues after the date of such Assignment. The consent by Landlord to any
Assignment or Sublease shall not relieve Tenant of the obligation to obtain
Landlord's express written consent to any other Assignment or Sublease. Any
Assignment or Sublease that is not in compliance with this Section XVI. shall
be void and, at the option of Landlord, shall constitute a material default by
Tenant under this Lease. The acceptance of rent or payment of any other
monetary obligation by Landlord from a proposed assignee or sublessee shall not
constitute the consent by Landlord to such Assignment or Sublease.
F. If no Event of Default is then outstanding and so long as the proposed
assignees financial condition is not less favorable than Tenant's condition as
of the date of the Lease, Tenant may, without the prior written consent of
Landlord, sublet the Premises or any part thereof to an Affiliate (hereinafter
defined), or assign this Lease to an Affiliate or permit occupancy of any
portion of the Premises by an Affiliate. The term "Affiliate" shall mean (i)
any entity which, directly or indirectly, Controls (hereinafter defined) or is
Controlled by, or is under common Control with Tenant, (ii) any entity not less
than ten percent (10%) of whose outstanding voting stock or controlling
beneficial interest shall, at the time be owned directly or indirectly by
Tenant, or (iii) the surviving entity after a merger of Tenant into it. For
purposes of this Section XVI(F), "Control" shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such entity whether through the ownership of voting securities,
beneficial interests, or by contract or otherwise. The entity to which a
transfer and assignment is made in accordance with this Subsection shall be
deemed to be a "Permitted Assignee". Tenant shall not have the right to
sublease or assign to an Affiliate Company if such Affiliates use of the
Premises shall violate the Permitted Use as allowed in this Lease.
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G. Each assignee, other than Landlord, shall assume, as provided in this
Subsection XVI. G., all obligations of Tenant under this Lease and shall be and
remain liable jointly and severally with Tenant for the payment of Monthly
Rental and all other monetary obligations hereunder, and for the performance of
all the terms, covenants, conditions and agreements herein contained on
Tenant's part to be performed for the Term; provided, however, that the
assignee shall be liable to Landlord for rent only in the amount set forth in
the Assignment. No Assignment shall be binding on Landlord unless the assignee
or Tenant shall deliver to Landlord a counterpart of the Assignment and an
instrument that contains a covenant of assumption by the assignee reasonably
satisfactory in substance and form to Landlord, consistent with the
requirements of this Subsection XVI. G., but the failure or refusal of the
assignee to execute such instrument of assumption shall not release or
discharge the assignee from its liability as set forth above.
H. If this Lease is assigned to any person or entity pursuant to the provisions
of the Bankruptcy Code, 11 U.S.C. Section 101 et. seq., (the "Bankruptcy
Code"), any and all monies or other consideration payable or otherwise to be
delivered in connection with such assignment shall be paid or delivered to
Landlord, shall be and remain the exclusive property of Landlord and shall not
constitute property of Tenant or of the estate of Tenant within the meaning of
the Bankruptcy Code. Any and all monies or other considerations constituting
Landlord's property under the preceding sentence not paid or delivered to
Landlord shall be held in trust for the benefit of Landlord and be promptly
paid or delivered to Landlord.
I. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed, without further act or
deed, to have assumed all of the obligations arising under this Lease on and
after the date of such assignment. Any such assignee shall upon demand execute
and deliver to Landlord an instrument confirming such assumption.
SECTION XVII. TRANSFER OF LANDLORD'S INTEREST
In the event Landlord shall sell or otherwise convey its title to the Building
to a party which assumes and agrees to perform the respective duties and
obligations of Landlord under this Lease, after the effective date of such sale
or conveyance, Landlord shall have no further liability under this Lease to
Tenant except as to matters of liability which have accrued and are unsatisfied
as of the date of sale or conveyance, and Tenant shall seek performance solely
from Landlord's purchaser or successor in title. In connection with such sale
or transfer, Landlord shall notify Tenant of any such assignment of its
interest under this Lease. Tenant shall be under no obligation to pay rent or
other sums to be paid by Tenant under this Lease to any successor Landlord
until Tenant receives written notice setting forth the name of the successor
Landlord and the address at which such payments shall be made. Nothing
contained herein shall be deemed to relieve Tenant from its liability to pay
such rent and other sums to the selling or transferring Landlord prior to the
receipt of such notice.
SECTION XVIII. DAMAGE AND DESTRUCTION
A. CASUALTY DAMAGE In the event the Premises or the Building, or any portion
thereof, is damaged or destroyed by any casualty, Landlord shall notify Tenant
thereof within thirty (30) days after the date of the casualty of the
anticipated period of repair and restoration.
1. If the period of repair and restoration is less than sixty
(60) days after the date of the casualty regardless of whether it
affects Tenant's ability to reasonably conduct business within the
Premises, Landlord shall promptly rebuild, repair and restore the
damaged portion thereof to substantially its condition immediately
prior to the damage or destruction, including, without limitation, the
same net rentable floor area.
2. If the period of repair and restoration is equal to or more
than sixty (60) days, but Tenant's ability to reasonably conduct
business within the Premises is not affected because of the casualty
or because of the repair or restoration, Landlord shall proceed
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with the repair and restoration of the damaged area and this Lease
shall continue in full force and effect unless the Landlord's
mortgagee does not make the insurance proceeds from such casualty
available for such purpose in which case this lease shall terminate.
3. If the period of repair and restoration is equal to or more
than sixty (60) days, and Tenant's ability to reasonably conduct
business within the Premises is adversely affected because of the
casualty or because of the repair or restoration, Tenant can terminate
this Lease as of the date of the casualty by providing written notice
of such termination within ten (10) days after being notified by
Landlord of the duration of the repair and restoration work. If Tenant
fails to terminate this Lease in accordance with this provision,
Landlord shall proceed with the repair and restoration of the damaged
area and this Lease shall continue in full force and effect unless
Landlord's mortgagee does not make the insurance proceeds from such
casualty available for such purposes in which case this Lease shall
terminate.
4. If Landlord falls to provide Tenant with notification of the
duration of the repair and restoration, then the period of repair and
restoration shall be deemed to be longer than sixty (60) days and
actions shall be taken accordingly. Notwithstanding any of the
foregoing, Landlord shall have no obligation to repair any damage to,
or to replace any of, Tenant's personal property, furnishings,
fixtures, equipment or other such property or effects of Tenant.
B. ABATEMENT OF RENT There shall be an abatement of rent by reason of damage to
or destruction of the Premises or the Building, or any portion thereof, to the
extent that the floor area of the Premises cannot be reasonably used by Tenant
for conduct of its business, in which event all rent payments shall abate
proportionately, commencing as of the date of the damage to or destruction of
the Premises or Building. Tenant's right to terminate this Lease in the event
of any damage or destruction to the Premises or Building, is governed by the
terms of this Section XVIII., and therefore Tenant hereby expressly waives the
provisions of any and all laws, whether now or hereafter in force, and whether
created by ordinance, statute, judicial decision, administrative rules or
regulations, or otherwise, that would cause this Lease to be terminated, or
give Tenant a right to terminate this Lease, upon any damage to or destruction
of the Premises or Building that occurs.
SECTION XIX. CONDEMNATION
A. TOTAL OR PARTIAL TAKING If (a) all or substantially all of the Premises, is
condemned or taken in any manner for public or quasi-public use, including but
not limited to, a conveyance or assignment in lieu of the condemnation or
taking, or (b) if less than all or substantially all of the Premises is
condemned or taken in any manner for public or quasi-public use, including but
not limited to, a conveyance or assignment in lieu of the condemnation or
taking, but the remainder of the Premises is not sufficient for Tenant to
properly and efficiently conduct its business, then this Lease shall
automatically terminate as of the earlier of the date on which actual physical
possession is taken by the condemnor or the date of dispossession of Tenant as
a result of such condemnation or other taking. If less than all or
substantially all of the Premises is so condemned or taken and the remainder is
such that Tenant can properly and efficiently conduct its business, this Lease
shall automatically terminate only as to the portion of the Premises so taken
as of the earlier of the date on which actual physical possession is taken by
the condemnor or the date of dispossession of Tenant as a result of such
condemnation or taking. If such portion of the Building is condemned or
otherwise taken so as to require, in the opinion of Landlord, a substantial
alteration or reconstruction of the remaining portions thereof, this Lease may
be terminated by Landlord, as of the date on which actual physical possession
is taken by the condemnor or dispossession of Tenant as a result of such
condemnation or taking, by written notice to Tenant within sixty (60) days
following notice to Landlord of the date on which such physical possession is
taken or dispossession will occur.
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B. AWARD Landlord and Tenant shall each be entitled to seek their respective
awards from the condemning authority, but no request for awards shall cover the
same interest. For purposes hereof, Tenant may seek an award made for the loss
of the value of the leasehold estate created by this Lease and on account of
damages to Tenant's business by reason of the condemnation and for or on
account of any cost or loss to which Tenant might be put in removing Tenant's
merchandise, furniture and other personal property, fixtures, and equipment or
for the interruption of or damage to Tenant's business.
C. ABATEMENT IN RENT In the event of a partial condemnation or other taking
that does not result in a termination of this Lease as to the entire Premises
pursuant to this Section XIX., the rent and all other charges shall abate in
proportion to the portion of the Premises taken by such condemnation or other
taking. If this Lease is terminated, in whole or in part, pursuant to any of
the provisions of this Section XIX., all rentals and other charges payable by
Tenant to Landlord hereunder and attributable to the Premises taken shall be
paid up to the date upon which actual physical possession shall be taken by the
condemnor. Landlord shall be entitled to retain all of the Security Deposit
until such time as this Lease is terminated as to all of the Premises.
D. TEMPORARY TAKING If all or any portion of the Premises is condemned or
otherwise taken for public or quasi-public use for a limited period of time
[less than thirty (30) days], this Lease shall remain in full force and effect
and Tenant shall continue to perform all terms, conditions and covenants of
this Lease; provided, however, the rent and all other charges payable by Tenant
to Landlord hereunder shall abate during such limited period in proportion to
the portion of the Premises that is rendered untenable and unusable as a result
of such condemnation or other taking. Landlord shall be entitled to receive the
entire award made in connection with any such temporary condemnation or other
taking.
SECTION XX. DEFAULT
A. TENANT'S DEFAULT The failure by Tenant to perform any one or more of the
following obligations shall constitute a default hereunder by Tenant and its
failure to be cured within the applicable curative period shall constitute an
Event of Default hereunder by Tenant:
1. If Tenant fails to pay any rent or other charges
required to be paid by Tenant under this Lease and such
failure continues for ten (I0) days after written notice
that such payment is late; provided, however, no further
written notice shall be required for the remainder of the
respective calendar year and an Event of Default shall occur
if Landlord has provided Tenant with three (3) such default
notices during such calendar year and thereafter Tenant has
not paid rent or other charges ten (I0) days after the due
date;
2. If there is an involuntarily transfer of Tenant's
interest in this Lease in violation of this Lease which is not
corrected within sixty (60) days after the date of the
transfer, or if there is a voluntary transfer (attempted or
actual) of Tenant's interest in this Lease in violation of
this Lease, without Landlord's prior written consent;
3. If Tenant files a voluntary petition for relief or if
a petition against Tenant in a proceeding under the Federal
Bankruptcy Laws or other insolvency laws is filed and not
withdrawn or dismissed within sixty (60) days thereafter, or
if under the provisions of any law providing for
reorganization or winding up of corporations, any court of
competent jurisdiction assumes jurisdiction, custody or
control of Tenant or any substantial part of the Premises or
any of Tenant's personal property located at the Premises and
such jurisdiction, custody or control remains in force
unrelinquished, unstayed or unterminated for a period of sixty
(60) days;
4. If in any proceeding or action in which Tenant is a
party, a trustee, a receiver, agent or custodian is appointed
to take charge of the Premises or any of Tenant's personal
property located at the Premises (or has the authority to do
so) for the
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purpose of enforcing a lien against the Premises or Tenant's personal
property and Tenant has not within thirty (30) days after the
appointment, obtained an order either enjoining the actions of such
person or terminating such person's rights to act;
5. If Tenant falls to discharge any lien placed upon the
Premises, the Building or the Project, as described in Section XIII.
above, within thirty (30) days after the imposition of such lien; and
6. If Tenant falls to promptly and fully perform any other
covenant, condition or agreement contained in this Lease (other than
subparagraphs (1) through (5) above) and such failure continues for
thirty (30) days after written notice thereof from Landlord to Tenant;
provided, if such failure cannot be cured within such thirty (30) day
period and Tenant has commenced and diligently pursued such cure with
the thirty (30) period, such cure period shall be extended for a
reasonable period of time so long as Tenant is diligently pursuing
such cure.
B. REMEDIES Upon the occurrence of a default by Tenant that is not cured by
Tenant within any applicable grace period specified above, Landlord shall have
the following rights and remedies in addition to all other rights and remedies
available to Landlord at law or in equity, which shall be cumulative and
non-exclusive:
1. The right to declare this Lease and the term of this Lease
terminated; re-enter the Premises and the improvements located
thereon, with or without process of law; to eject all parties in
possession thereof therefrom; repossess and enjoy the Premises
together with all said improvements; and to recover from Tenant all of
the following:
a. The worth at the time of award of the unpaid rent
which had been earned at the time of termination;
b. The worth at the time of award of the amount by which
the unpaid rent for the balance of the Term after the time of
award exceeds the amount of rental loss that Tenant proves
could be reasonably avoided; and
c. Any other actual amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's
failure to perform its obligations under this Lease,
including, but not limited to, any reasonable attorneys' fees,
broker's commissions or finder's fees (not only in connection
with the reletting of the Premises, but also that portion of
any leasing commission paid by Landlord in connection with
this Lease which is applicable to that portion of the Lease
Term which is unexpired as of the date on which this Lease is
terminated); removal (including the repair of any damage
caused by such removal) and storage (or disposal) of Tenant's
personal property, equipment, fixtures, and anything else that
Tenant is required (under this Lease) to remove but does not
remove; and any other costs and expenses, incurred by Landlord
in regaining possession of and reletting (or attempting to
relet) the Premises.
2. The right to continue this Lease in effect and to enforce all
of Landlord's rights and remedies under this Lease, including the
right to recover rent and any other additional monetary charges as
they become due, for as long as Landlord does not terminate Tenant's
right to possession. Acts of maintenance or preservation, efforts to
relet the Premises or the appointment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not
constitute a termination of Tenant's right to possession.
3. The right to re-enter the Premises with or without process of
law; to eject all parties in possession thereof therefrom; and without
terminating this Lease, at any time and from time to time, but without
obligation to do so, to relet the Premises and the improvements
located therein or any part or parts of any thereof for the account of
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Tenant, or otherwise, and to receive and collect the rents therefor,
and apply the same (i) first to the payment of such costs and expenses
as Landlord may have paid, assumed or incurred: (a) in recovering
possession of the Premises and said improvements, including reasonable
attorneys' fees, and costs; (b) reasonable expenses for placing the
Premises and said improvements in good order and condition, for
decorating and preparing the Premises for reletting; (c) all other
reasonable costs and expenses, including leasing and subleasing
commissions, and charges paid, assumed or incurred by Landlord in or
upon reletting the Premises and said improvements, or in fulfillment
of the covenants of Tenant under this Lease; and (ii) then to the
payment of Monthly Rental, Tenant's Proportionate Share of Common
Operating Costs, and other monetary obligations due and unpaid
hereunder. Any such reletting may be for the remainder of the term of
this Lease or for a longer or shorter period. Landlord may execute any
lease or sublease made pursuant to the terms of this subparagraph
either in its own name or in the name of Tenant as its agent, as
Landlord may see fit, but no such lease or sublease shall increase
Tenant's liability hereunder. The tenant(s) or subtenant(s) thereunder
shall be under no obligation whatsoever with regard to the application
by Landlord of any rent collected by Landlord from such tenant or
subtenant to any and all sums due and owing or which may become due
and owing under the provisions of this Lease, nor shall Tenant have
any right or authority whatever to collect any rent whatever from such
tenant(s) or subtenant(s). If Tenant has been credited with any rent
received by such reletting and such rent shall not be promptly paid to
Landlord by the tenant(s) or subtenant(s), or if such rentals received
from reletting during any month are less than those to be paid during
that month by Tenant hereunder, Tenant shall pay any such deficiency
to Landlord. Such deficiency shall be calculated and paid monthly. For
all purposes set forth in this subsection, Landlord is hereby
irrevocably appointed as agent for Tenant. No taking possession of the
Premises by Landlord shall be construed as Landlord's acceptance of a
surrender of the Premises by Tenant or an election of Landlord's part
to terminate this Lease unless written notice of such intention is
given to Tenant. Notwithstanding any such subletting without
termination, Landlord may at any time thereafter elect to terminate
this Lease for such previous breach.
4. The right to have a receiver appointed for Tenant, upon
application by Landlord, to take possession of the Premises and to
apply any rental collected from the Premises and to exercise all other
rights and remedies granted to Landlord pursuant to this
Subsection XX. D.
SECTION XXI. LATE PAYMENTS/INTEREST AND LATE CHARGES
A. INTEREST Any amount due from Tenant to Landlord which is not paid when due
shall bear interest at twelve percent (12%) per annum from the date such
payment is due until paid, except that amounts spent by Landlord on behalf of
Tenant shall bear interest at such rate from the date of disbursement by
Landlord which Tenant agrees is to compensate Landlord for Tenant's use of
Landlord's money after it is due.
B. LATE CHARGES Tenant hereby acknowledges that in addition to lost interest,
the late payment by Tenant to Landlord of rent or any other sums due hereunder
will cause Landlord to incur other costs not contemplated in this Lease, the
exact amount of which will be extremely difficult and impracticable to
ascertain. Such other costs include, but are not limited to, processing,
administrative and accounting costs. Accordingly, after the second late
installment of rent in any calendar year, if any further installment of rent or
any additional rent or other sum due from Tenant during such year shall not be
paid by Tenant when such amount shall be due (without regard to the grace
period granted in Section XX.A. (2) above), Tenant shall pay to Landlord, as
additional rent hereunder, a late charge equal to three percent (3%) of such
overdue amount. The parties hereby agree that (i) such late charge represents a
fair and reasonable estimate of the costs Landlord will incur in processing
such delinquent payment by Tenant, (ii) such late charge shall be paid to
Landlord as liquidated damages for each delinquent payment, and (iii) the
payment of the late charge is to compensate Landlord for
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the additional administrative expense incurred by Landlord in handling and
processing delinquent payments.
C. NO WAIVER Neither assessment nor acceptance of interest or late charges by
Landlord shall constitute a waiver of Tenant's default with respect to such
overdue amount, nor prevent Landlord from exercising any of its other rights
and remedies under this Lease. Nothing contained in this Section shall be
deemed to condone, authorize, sanction or grant to Tenant an option for the
late payment of rent, additional rent or other sums due hereunder, and Tenant
shall be deemed in default with regard to any such payments should the same not
be made by the date on which they are due.
SECTION XXII. LIEN FOR RENT
Landlord hereby waives and relinquishes all rights to claim a lien on any of
Tenant's property, equipment, furnishing, fixtures, machinery and any other
non-exempt article--this specifically includes a waiver of any statutory lien
rights in such items.
SECTION XXIII. HOLDING OVER
Any holding over by Tenant in the possession of the Premises, or any portion
thereof, after the expiration of the Term, with the consent of Landlord, shall
be construed to be a tenancy from month to month at one hundred thirty-eight
percent (138%) of the Monthly Rental herein specified for the last month in
the Term (prorated on a monthly basis) unless Landlord shall specify a lesser
amount for rent in its sole discretion, together with an amount estimated by
Landlord for the Tenant's Proportionate Share of the monthly Common Operating
Costs payable under this Lease, and shall otherwise be on the terms and
conditions herein specified as far as applicable. Any holding over without
Landlord's consent shall constitute a default by Tenant and shall entitle
Landlord to pursue all remedies provided in Section XX.
SECTION XXIV. ATTORNEYS' FEES
In the event of litigation concerning the interpretation or enforcement of this
Lease, the prevailing party shall be entitled to recover from the losing party
its reasonable attorney's fees, court costs, and expenses, whether at the trial
or appellate level.
SECTION XXV. SUBORDINATION
A. PRIORITY This Lease is first and prior to any mortgage, deed of trust or
other lien against all or part of the Building except for the existing lien in
favor of Bank of America (the "Existing Lien"). Notwithstanding the foregoing,
however, Tenant shall agree to subordinate its rights under this Lease to any
future first lien on the Building and to execute a recordable instrument
evidencing such subordination in substantially the form attached hereto as
Exhibit "G".
B. PRIORITY WITH EXISTING LIEN Landlord covenants and agrees that it shall use
its best efforts to obtain from the holder of the Existing Lien a
subordination, attornment and non-disturbance agreement meeting the criteria
set forth in Subsection XXV.A. within five (5) days from the date of this
Lease. If Landlord is unable to obtain such agreement, or the holder is
unwilling to provide such agreement, or if the agreement obtained is not
reasonably acceptable to Tenant, Tenant may, by providing notice to Landlord,
terminate this Lease and Landlord shall reimburse Tenant for all out-of-pocket
expenses incurred by Tenant in negotiating this Lease and preparing for the
build-out of the Premises.
SECTION XXVI. ESTOPPEL CERTIFICATE
Tenant, at any time and from time to time upon not less than ten (10) days
prior written notice from Landlord, agrees to execute and deliver to Landlord a
statement (a) certifying that this Lease is unmodified and in full force and
effect, or, if modified, stating the nature of such
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modification and certifying that this Lease, as so modified, is in full force
and effect and the date to which the rent and other charges are paid in
advance, if any; (b) acknowledging that there are not, to Tenant's knowledge,
any uncured defaults on the part of Landlord hereunder, or specifying such
defaults if they are claimed evidencing the status of this Lease; and (c)
containing such other reasonable information as Landlord requests and to which
Tenant consents. Tenant's failure to deliver an estoppel certificate within
such time shall be conclusive upon Tenant that (i) this Lease is in full force
and effect without modification except as may be represented by Landlord, (ii)
to Tenant's knowledge there are no uncured defaults in Landlord's performance,
and (iii) no rent has been paid in advance except as set forth in this Lease.
In the event that Landlord requests more than two (2) certificates in any
twelve (12) month period, Landlord shall reimburse Tenant for all
out-of-pocket costs incurred by Tenant in reviewing the certificate and
obtaining the required information.
SECTION XXVII. PARKING
Landlord agrees to maintain or cause to be maintained an automobile parking
area and to maintain and operate, or cause to be maintained and operated, said
automobile parking area during the Term of this Lease for the benefit and use
of the customers, service suppliers, other invitees and employees of Tenant.
Whenever the words "automobile" or "parking area" are used in this Lease, it
is intended that the same shall include, whether in a surface parking area or a
parking structure, the automobile parking stalls, driveways, loading docks,
truck areas, service drives, entrances and exits and sidewalks, landscaped
areas, pedestrian passageways in conjunction therewith and other areas designed
for parking. Landlord shall keep said automobile parking area in a neat, clean
and orderly condition, lighted and landscaped, and shall repair any damage to
the facilities thereof, the cost of which shall be included in Common Operating
Costs as defined in Section V., above. Nothing contained herein shall be deemed
to impose liability upon Landlord for personal injury or theft, for damage to
any motor vehicle, or for loss of property from within any motor vehicle, which
is suffered by Tenant or any of its employees, customers, service suppliers or
other invitees in connection with their use of said automobile parking area.
Landlord shall also have the right to establish such reasonable rules and
regulations as may be deemed desirable, at Landlord's sole discretion, for the
proper and efficient operation and maintenance of said automobile parking area,
and in connection therewith, Landlord may charge users (but not Tenant, or its
employees, agents, contractors or invitees) for the ability to park on the
surface parking area without Tenant's specific, prior written consent. Such
rules and regulations may include, without limitation, (i) restrictions in the
hours during which the automobile parking area shall be open for use, and (ii)
the establishment of charges for parking therein on a reserved basis, by
tenants of the Building and Project as well as by their employees, customers
and service suppliers (other than with respect to Tenant and Tenant's employees
or the employees of an entity related to a Permitted Transfer). Landlord shall
at all times during the Term hereof have the sole and exclusive control of the
automobile parking area, and may at any time during the Term hereof exclude and
restrain any person from use or occupancy thereof; excepting, however, Tenant
and employees, customers, service suppliers and other invitees of Tenant and of
other tenants in the Building and Project who make use of said area in
accordance with any rules and regulations established by Landlord from time to
time with respect thereto. Subject to the allocation of reserved parking for
the benefit of Tenant, the rights of Tenant and its employees, customers,
service suppliers and invitees referred to in this Section XXVII. shall at all
times be subject to (i) the rights of Landlord and other tenants in the
Building and Project to use the same in common with Tenant and its employees,
customers, service suppliers and invitees, and (ii) the availability of parking
spaces in said automobile parking area. Notwithstanding Landlord's exclusive
control and obligations to provide a parking area, Landlord is not responsible
or liable for any damage to any automobiles or persons in the parking area. In
addition to and notwithstanding the foregoing, Landlord shall provide Tenant,
without additional cost and except as provided below, not less than one (1)
parking space per 200 square feet of Rentable Area contained in the Premises on
a non-exclusive basis with other tenants and their employees and invitees
within the Chisholm Place Complex (i.e., the Building, the 400 Chisholm Place
Building, the Sony Theatre tract, the Advantage Auto Leasing Tract, and the
parking lot tract located to the northeast of the Building) and Landlord
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shall provide on the land on which the Building is located not less than the
number of parking spaces required by applicable code for the Building. Out of
the parking spaces provided in the preceding sentence, Landlord shall provide
for Tenant's exclusive use, without additional cost, fifteen (15) marked
reserved parking spaces in the location identified on the site plan attached to
this Lease, or such other area which is approved by Tenant.
SECTION XXVIII. SIGNS/NAME OF BUILDING
Except for directory signage near the entrance to the Building which shall be
supplied by Landlord at Landlord's sole cost and expense (such signage naming
all officers of Tenant and key areas of Tenant's operation, all as approved by
Tenant), Tenant shall not have the right to place, construct, or maintain on or
about the Premises, Building or Project, or in any interior portions of the
Premises that may be visible from the exterior of the Building or Common Areas,
any signs, names, insignia, trademark, advertising placard, descriptive
material or any other similar item ("Other Signs") without Landlord's prior
written consent, which consent may be withheld in Landlord's sole discretion.
Notwithstanding the foregoing:
1. Tenant shall be entitled to erect and maintain at Tenant's
sole cost and expense, signage attached to the exterior of the
Building ("Exterior Sign"), provided the location, design, color,
lighting, materials and all aspects of the Exterior Sign shall be
subject to (i) the prior written consent of Landlord, which shall not
be unreasonably withheld, (ii) compliance with all applicable codes,
laws and ordinances, (iii) the maintenance of the Exterior Sign at all
times at the sole expense of Tenant in a working, first-class
condition, and (iv) removal of the Exterior Sign and the repair of any
damage caused by the installation of such removal by Tenant within
fifteen (15) days after the Expiration Date, reasonable wear and
tear and loss by casualty excepted; and
2. So long as an uncured Event of Default has not occurred and is
continuing, Tenant shall be entitled to utilize signage on any
monument sign ("Monument Sign") which is hereafter erected by Landlord
for the advertising of the Chisholm Place Complex and not dedicated to
one, larger tenant, provided all aspects of the Tenant's signage
thereon shall be subject to its compatibility with the other signage
thereon and the portion of the sign identifying Tenant is at Tenant's
expense.
In the event Landlord consents to Tenant placing an Other Sign on or about the
Premises, Building or Project, any such Other Sign shall be subject to
Landlord's approval of the color, size, style and location of such Other Sign,
and shall conform to any current or future sign criteria established by
Landlord for the Building or Project. If Landlord enacts a sign criteria or
revises an existing sign criteria after Tenant has erected an Other Sign to
which Landlord has granted its consent, Tenant agrees, at Landlord's expense,
subject to Landlord's prior approval of the cost thereof, to make the necessary
changes to its Other Sign in order to conform the Other Sign to Landlord's sign
criteria, as enacted or revised, provided that such changes shall be limited to
the color, size, style and location of Tenant's Other Sign, that Tenant shall
not be required to change the content of its Other Sign and that if the Other
Sign is a corporate logo or other type of identifier, any change shall be only
upon Tenant's prior consent. Landlord reserves the right at any time it deems
necessary or appropriate to (a) place Signs at any location on the Building and
Project as it deems necessary and (b) change the name, address or designation
of the Building and Project, but the direct and indirect cost thereof to
Tenant shall be reimbursed by Landlord within ten (10) days after demand.
SECTION XXIX. QUIET ENJOYMENT
Upon payment by Tenant of the rents herein provided, and upon the observance
and performance of all the covenants, terms and conditions on Tenant's part to
be observed and performed, Tenant shall peaceably and quietly hold and enjoy
the Premises for the term hereby demised without hindrance or interruption by
Landlord or any other person or persons lawfully or equitably claiming by,
through or under Landlord, subject, nevertheless, to the terms and conditions
of this Lease.
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for Notice or to Landlord at Landlord's Address for Notice, as set forth in
Sections I.O. and N., respectively, above and shall be personally served or
given by pre-paid Certified U.S. Mail or "overnight" delivery service, in which
event it shall be deemed to have been given when delivered as evidenced by a
certified return receipt. If more than one Tenant is named under this Lease,
service of any notice upon any one of said Tenants shall be deemed as service
upon all of such Tenants. The parties hereto and their respective heirs,
successors, legal representatives, and assigns may from time to time change
their respective addresses by giving at least fifteen (15) days' written
notice to the other party, delivered in compliance with this Section XXXI.
SECTION XXXII. NOTICE AND CURE TO LANDLORD AND MORTGAGEE
On any act or omission by Landlord which might give, or which Tenant claims or
intends to claim gives Tenant the right to damages from Landlord or the right
to set-off rents or the right to terminate this Lease, Tenant shall not sue for
damages, off-set or attempt to terminate unless it has given written notice of
the act or omission to Landlord and to the holder(s) (if Landlord has provided
written notice of their address for notice) of the indebtedness or other
obligations secured by any first lien mortgage or deed of trust affecting the
Premises, and the time for remedying the act or omission has elapsed (or such
longer period of time if there has been diligent effort with respect to the
cure thereof and if it is unable to reasonably be cured within such period)
following the giving of the notice, during which time Landlord and the
lienholder(s), or either of them, their agents or employees, may enter upon the
Premises and do therein whatever is necessary to remedy the act or omission,
but taking care not to unreasonably disrupt the normal operation of Tenant's
business. During the period after the giving of notice and during the remedying
of the act or omission, the rentals payable by Tenant shall not be abated and
apportioned except to the extent that the Premises are untenantable.
SECTION XXXIII. LIMITATION ON LANDLORD'S LIABILITY, RELEASE OF
DIRECTORS, OFFICERS AND PARTNERS OF LANDLORD
Tenant agrees that in the event Tenant shall have any claim against Landlord
under this Lease arising out of the subject matter of this Lease, except for
matters covered by Landlord's insurance, Tenant's sole recourse shall be
against the Landlord's interest in the Project or the net proceeds of any sale
of the Project, for the satisfaction of any claim, judgment or decree requiring
the payment of money by Landlord based upon any default hereunder, and no other
property or assets of Landlord, its successors or assigns, shall be subject to
the levy, execution, or other enforcement procedure for the satisfaction of any
such claim, judgment, injunction or decree. Unless caused by Landlord's
negligence or misconduct or its default under this Lease, Landlord shall not be
liable or responsible to Tenant for any loss or damage to any property or
person occasioned by theft, fire, act of God, public enemy, injunction, riot,
strike, insurrection, war, court order, requisition, or order of governmental
body or authority, or for any damage or inconvenience that may arise through
repair or alteration of any part of the Project, the Building or the Premises,
or a failure to make any such repairs.
SECTION XXXIV. GENERAL
A. PARAGRAPH HEADINGS The paragraph headings used in this Lease are for the
purposes of convenience only. They shall not be construed to limit or to extend
the meaning of any part of this Lease.
B. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS This Lease contains all
agreements of Landlord and Tenant with respect to any matter mentioned, or
dealt with, herein. No prior agreement or understanding pertaining to any such
matter shall be binding upon Landlord. Any amendments to or modifications of
this Lease shall be in writing, signed by the parties hereto, and neither
Landlord nor Tenant shall be liable for any oral or implied agreements.
LANDLORD HAS NOT MADE, AND TENANT MAY NOT RELY ON, ANY REPRESENTATIONS OR
WARRANTIES WITH REGARD TO THE BUILDING, PREMISES OR OTHERWISE, EXPRESSED OR
IMPLIED EXCEPT AS STATED IN THIS LEASE. IN
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SECTION XXXIV. GENERAL
A. PARAGRAPH HEADINGS The paragraph headings used in this Lease are for the
purposes of convenience only. They shall not be construed to limit or to extend
the meaning of any part of this Lease.
B. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS This Lease contains all
agreements of Landlord and Tenant with respect to any matter mentioned, or
dealt with, herein. No prior agreement or understanding pertaining to any such
matter shall be binding upon Landlord. Any amendments to or modifications of
this Lease shall be in writing, signed by the parties hereto, and neither
Landlord nor Tenant shall be liable for any oral or implied agreements.
LANDLORD HAS NOT MADE, AND TENANT MAY NOT RELY ON, ANY REPRESENTATIONS OR
WARRANTIES WITH REGARD TO THE BUILDING, PREMISES OR OTHERWISE, EXPRESSED OR
IMPLIED EXCEPT AS STATED IN THIS LEASE. IN PARTICULAR, LANDLORD HAS NOT
AUTHORIZED ANY AGENT OR BROKER TO MAKE A REPRESENTATION OR WARRANTY
INCONSISTENT WITH THE TERMS OF THIS LEASE AND TENANT MAY NOT RELY ON ANY SUCH
INCONSISTENT REPRESENTATION OR WARRANTY.
C. WAIVER Any waiver by any party of any breach of any term, covenant, or
condition contained in this Lease shall not be deemed to be a waiver of such
term, covenant, or condition or of any subsequent breach of the same or of any
other term, covenant, or condition contained in this Lease. Landlord's or
Tenant's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of the other party's consent to, or approval of, any
subsequent act by Landlord or Tenant. The acceptance of rent or other sums
payable hereunder by Landlord, and the acceptance of any reimbursements by
Tenant, shall not be a waiver of any preceding breach of any provision hereof
by the other party, other than failure of Tenant to pay the particular rent or
other sum so accepted, regardless of the accepting party's knowledge of such
preceding breach at the time of acceptance of such rent, or sum equivalent to
rent.
D. TIME OF ESSENCE Time is of the essence in the performance of each provision
of this Lease.
E. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for lease,
and it is not effective as a lease or otherwise until execution by and
delivery to both Landlord and Tenant.
F. SEVERABILITY If any term or provision of this Lease or the application
thereof to any person or circumstances 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 be enforced to the fullest extent
permitted by law.
G. SURRENDER OF LEASE NOT MERGER Neither the voluntary or other surrender of
the Lease by Tenant nor the mutual cancellation thereof shall cause a merger of
the titles of Landlord and Tenant, but such surrender or cancellation shall, at
the option of Landlord, either terminate all or any existing subleases or
operate as an assignment to Landlord of any such subleases.
H. CORPORATE AUTHORITY If Tenant is a corporation, each individual executing
this Lease on behalf of Tenant represents and warrants (1) that he is duly
authorized to execute and deliver this Lease on behalf of Tenant in accordance
with a duly adopted resolution of the Board of Directors of Tenant in
accordance with the By-laws of Tenant and (2) that this Lease is binding upon
and enforceable by Landlord against Tenant in accordance with its terms. If
Tenant is a corporation, Tenant shall, within thirty (30) days after execution
of this Lease, deliver to Landlord a certified copy of a resolution of its
Board of Directors authorizing or ratifying the execution of this Lease.
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I. GOVERNING LAW This Lease and the rights and obligations of the parties
hereto shall be interpreted, construed and enforced in accordance with the
local laws of the State in which the Project is located.
J. FORCE MAJEURE If the performance by Landlord or Tenant of any provision of
this Lease (other than the payment of monetary obligations hereunder by Tenant)
is delayed or prevented by any act of God, strike, lockout, shortage of
material or labor, restriction by any governmental authority, civil riot,
flood, and any other cause not within the control of Landlord or Tenant,
respectively, then the period for the performance of the provision shall be
automatically extended for the same time as the period of delay or
hindrance--but the party seeking to use this provision shall provide written
notice thereof to the other party during the period of such delay or hindrance.
K. USE OF LANGUAGE Words of gender used in this Lease include any other gender,
and words in the singular include the plural, unless the context otherwise
requires.
L. SUCCESSORS The terms, conditions and covenants contained in the Lease inure
to the benefit of and are binding on, the parties hereto and their respective
successors in interest, assigns and legal representatives, except as otherwise
herein expressly provided. All rights, privileges, immunities and duties of
Landlord under this Lease, including without limitation, notices required or
permitted to be delivered by Landlord to Tenant hereunder, may, at Landlord's
option, be exercised or performed by Landlord's agent or attorney.
M. NO REDUCTION OF RENTAL If Landlord is required by governmental authority to
reduce energy consumption or impose a parking or similar charge with respect to
the Premises, Building or Project, to restrict the hours of operation of, limit
access to, or reduce parking spaces available at the Building, or take other
limiting actions, then Tenant is not entitled to abatement or reduction of rent
or to terminate this Lease unless the Premises is not reasonably usable for the
purposes intended.
N. NO PARTNERSHIP Notwithstanding anything in this Lease to the contrary,
Landlord is not, and under no circumstances shall it be considered to be, a
partner of Tenant, or engaged in a joint venture with Tenant.
O. ADDITIONAL RENT. For purposes hereof, all monetary obligations due from
Tenant to Landlord shall be deemed to be additional rent.
P. ROOF ANTENNA. Contemporaneously with the execution of this Lease, Landlord
and Tenant shall enter into a revocable license agreement which authorizes
Tenant's use of the roof of the Building for the placement of a dish or antenna
system for use in Tenant's business. Among other things, the license shall be
subject to the following limitations:
1. The license terminates upon an uncured Event of
Default in this Lease;
2. The license terminates upon the termination or
expiration of this Lease;
3. The dish or antenna system cannot weigh more than 100
lbs. except with Landlord's prior consent, such consent not to
be unreasonably withheld;
4. If the color and material of the dish or antenna are
not of a standard finish, they must be approved by Landlord,
such consent not to be unreasonably withheld;
5. All roof penetrations must be approved in advance by
Landlord, such approval not to be unreasonably withheld; and
6. Upon termination of the license, Tenant shall remove all
improvements associated with the dish or antenna and repair
any damage to the roof caused thereby.
Q. RECAPTURE. In the event Tenant vacates and does not occupy the Premises for
more than sixty (60) consecutive days and such vacation and non-occupancy is
not due to casualty, condemnation, repair, remodeling, service interruption or
other cause beyond Tenant's control, then Landlord shall have the right to
notify Tenant of its intent to terminate this Lease and if Tenant, within
fifteen (15) business days after receipt of such notice, falls to re-occupy
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the Premises, or any substantial part thereof, Landlord can terminate this
Lease upon notice thereof to Tenant and Tenant shall be released from all
obligations under this Lease accruing after the date of such termination.
SECTION XXXV. LANDLORD'S REPRESENTATIONS AND COVENANTS
A. REPRESENTATIONS AND WARRANTIES To induce Tenant to enter into this
Lease, Landlord hereby represents and warrants that:
1. Landlord has entered into a construction contract (the
"Construction Contract") for the full and complete rebuilding of the
Building shelf according to applicable codes as well as to all
requirements of the Americans With Disabilities Act and the Texas
Architectural Barriers Act.
2. To the best of Landlord's knowledge (a) no party is in default
under the Construction Contract beyond any curative periods, (b) the
reconstruction of the Building is both on-time and within budget, (c)
the shell of the Building is currently scheduled to be completed by
not later than June 15, 1996.
3. The parking common to all portions of the Chisholm Place
complex is adequate to provide the office buildings with a 1:200
parking ratio (exclusive of the needs of the Sony Theatre).
4. To Landlord's knowledge:
a. The Building or other improvements within the
Chisholm Place complex are in compliance with all laws, rules and
regulations dealing with Hazardous Materials;
b. The Building contains no Hazardous Materials in
quantities violating applicable laws, rules or regulations;
c. There are no underground storage tanks within the
land on which the Building is situated;
d. No portion of the Building lies within a 100-year
flood plain or flood prone area.
B. COVENANTS During the Term of this Lease, Landlord covenants and agrees
that it shall not lease any portion of the Building to a user, nor shall it
allow a sublease or assignment of any portion of the Building to a user whose
use of its Premises or any part of the Building or the Common Area, shall
create, whether directly or indirectly, a nuisance in, on or about the Building
or the Premises.
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SECTION XXXV. EXECUTION
This Lease may be executed in several duplicate counterparts, each of which
shall be deemed an original of this Lease for all purposes.
"LANDLORD"
MERIT OFFICE PORTFOLIO LIMITED PARTNERSHIP
By: Merit Texas Properties, Inc., General Partner
By: /s/ DENNIS McDANIEL
------------------------------------------------
Name: Dennis McDaniel
----------------------------------------------
Title: President
---------------------------------------------
"TENANT"
HEARTLAND WIRELESS COMMUNICATIONS, INC.
By: /s/ JOHN R. BAILEY
------------------------------------------------
Name: John R. Bailey
----------------------------------------------
Title: CFO
---------------------------------------------
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EXHIBIT A
BEING a tract of land situated in the J.M. Salmons Survey, and the Joseph
Klepper Survey, Abstracts 814 and 213 respectively, and also being all of Lot
2, Block A, Chisholm Place Addition No. 1, an addition to the City of Plano,
Texas, recorded at Cabinet I, Page 510, Map Records, Collin County, Texas
(MRCCT), and being more particularly described as follows:
BEGINNING at a 1 inch iron rod found in the circular curve in the South line of
Chisholm Place (an 80 foot ROW), and being the northeast corner of said Lot 2
and the northwest corner of Lot 1, Block A of the aforementioned addition;
THENCE departing said south line, and jointly with the easterly line of said
Lot 2 and the common line of said Lot 1, the following bearings and distances;
South 09 degrees 28 minutes 04 seconds West, 40 feet, an "x" found for
corner; North 80 degrees 32 minutes 22 seconds West, 9.99 feet, an "x"
found for corner; South 09 degrees 27 minutes 37 seconds West, 166.98
feet, an "x" found for corner, same being the northwest corner of Lot
1, Block A, of The Woodard Addition, an addition to the City of Plano,
recorded at Cabinet I, Page 13, MRCCT;
THENCE South 00 degrees 00 minutes 00 seconds East, with the common line of
said Lot 1, a distance of 155.74 feet to a 1 inch iron rod found for corner,
and being the northwest corner of Lot 2, Block A, of said Woodard Addition;
THENCE South 49 degrees 33 minutes 56 seconds West, with the common line of
said Lot 2, Woodard Addition, a distance of 304.83 feet to a 1/2 inch iron rod
found for corner;
THENCE South 69 degrees 29 minutes 50 seconds West, passing an iron rod at
32.79 feet for the most westerly northwest corner of said Lot 2 and also being
the northeast corner of an un-platted tract of land belonging to Elva Gant,
Trustee, in all, a distance of 46.32 feet to a 1/2 inch iron rod found for
corner;
THENCE North 00 degrees 00 minutes 00 seconds East, with the common line of Lot
5, Block A of the aforementioned Chisholm Place Addition No. 1, passing at
114.09 feet, a 1 inch iron rod for the northeast corner of said Lot 5, and also
being the southeast corner of Lot 3 of said addition, in all, a distance of
253.65 feet to a 1 inch iron rod found for the northeast corner of said Lot 3;
THENCE South 89 degrees 59 minutes 59 seconds West, with the common line of
said Lot 3, a distance of 66.20 feet to a 1 inch iron rod found for corner;
THENCE North 00 degrees 00 minutes 00 seconds West, continuing with said common
line, passing at 121.04 feet, an "x" for the northeast corner of said Lot 3 and
the southeast corner of Lot 4, Block A of said addition, in all a distance of
258.23 feet to a 1/2 inch iron rod found for corner in the southwest corner of
Lot 6, Block A of said addition;
THENCE South 89 degrees 59 minutes 59 seconds East, with the common line of
said Lot 6, a distance of 219.31 feet to an "x" found for corner;
THENCE North 09 degrees 27 minutes 38 seconds East, continuing with said common
line of said Lot 6, a distance of 102.59 feet to a 1 inch iron rod found for
corner in a circular curve to the left and the south line of Chisholm Place (an
80 foot ROW), said
<PAGE> 33
EXHIBIT "B"
LAYOUT OF THE PREMISES
TO BE ATTACHED UPON FINALIZATION AND APPROVAL OF THE SPACE PLANS FOR THE
PREMISES.
<PAGE> 34
EXHIBIT "C"
CONSTRUCTION WORK LETTER
This Exhibit "C" is attached to the annexed and foregoing Office Lease (the
"Lease") by and between the Landlord and the Tenant named below pursuant to
Section III. B. of the Lease.
ARTICLE I
PARTIES
Section 1.1 Landlord. Merit Office Portfolio Limited Partnership
Section 1.2 Tenant. Heartland Wireless Communications, Inc.
Section 1.3 Review. As of the date hereof and subject to the change at any time
and from time to time without notice, Landlord's review will be performed by
the following: Landlord or Merit Texas Properties, Inc. (hereinafter referred
to as "Landlord's Representative").
ARTICLE II
LANDLORD'S WORK
Section 2.1 Landlord's Work. Landlord shall construct and provide the Finished
Ceiling, and all improvements and equipment above it, building standard window
dressings, and the Premises in accordance with the Approved Construction
Documents (defined below). All other work shall be Tenant's Work.
Notwithstanding any stated timeframes, neither Landlord nor Tenant shall be in
default hereunder if it has used its best efforts to meet or beat said dates,
but such limitation is independent of whether or not such a delay is a Landlord
or a Tenant Delay.
ARTICLE III
TENANT'S PLANS AND SPECIFICATIONS: COMPLETION OF WORK
Section 3.1 Tenant's Space Plans. On or before 6:00 p.m. Wednesday, April 10,
1996, Landlord shall submit to Tenant, for Tenant's approval, a complete space
plan design for the layout, improvements and finish of the Premises (the "Space
Plans") prepared by Landlord's architect (the "Architect"). By no later than
5:00 p.m. on Friday, April 12, 1996, Tenant shall deliver a written notice to
Landlord: (a) approving the Space Plans; or (b) specifying a list of changes
reasonably required by Tenant. To the extent that Landlord agrees with such
changes, Landlord shall cause the Architect to incorporate the required changes
within 3 days after delivery of Tenant's notice; to the extent Landlord
disagrees with such changes, Tenant, Landlord and Architect shall meet within 2
business days after Tenant's notice and, in good faith, attempt to resolve all
areas of conflict. The approval process shall continue until the Space Plans
are approved by both parties (the "Approved Space Plans"), with all sides using
their best efforts to have such Approved Space Plans finished by Wednesday,
April 17, 1996.
Section 3.2 Construction Documents. Based upon the Approved Space Plans,
Landlord shall submit to Tenant no later than 14 days after Approved Space
Plans are prepared, complete and accurate plans and specifications (the
"Construction Documents") prepared by the Architect and describing and showing
the leasehold improvements (including MEP, HVAC systems, reflected ceiling
plans including light fixtures and sprinkler heads, electrical outlets,
telephone outlets, doors, wall finishes, and floor coverings) in sufficient
detail to permit their actual construction. If the Architect provides
preliminary documents to Landlord from time to time, Landlord shall cooperate
in reviewing such documents and providing Tenant and Architect with any
comments thereto. The Architect shall deliver a complete set of Construction
Documents to Tenant, Landlord and the general contractor that will build-out
the Premises. Within 3 business days after receipt of the Construction
Documents from the Architect, Landlord, Tenant and the general contractor shall
either (a) approve the Construction Documents by written notice to Landlord, or
(b) deliver to Architect a written
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list of any changes reasonably required. To the extent that such changes are
approved, the Architect shall incorporate the required changes within 3
business days after delivery of notice of such changes; to the extent there is
disagreement with such changes, Tenant, Landlord, Architect and the general
contractor shall meet within 2 business days after the notice detailing such
changes and, in good faith, attempt to resolve all areas of conflict. The
approval process shall continue until the Construction Documents are approved
by all parties (the "Approved Construction Documents").
Section 3.3 Price Quote. Within 5 business days after the delivery to the
general contractor of the Approved Construction Documents, it shall prepare
price quotes for the cost of all work covered by the Approved Construction
Documents (the quote shall be itemized and shall distinguish between costs for
the Finished Ceiling (hereafter defined) and above, and costs related to work
below the Finished Ceiling based upon Substantial completion dates of June 15,
1996, June 22, 1996 and June 29, 1996. A copy of such quotes shall be delivered
to Tenant, Landlord and Architect. If Tenant objects to the quotes within 2
business days after its receipt, Landlord, Tenant, Architect and the general
contractor shall meet to resolve Tenant's objections. All parties will work in
good faith to resolve the Tenant's objections. Once the Tenant's objections are
resolved or if the Approved Construction Documents are modified to resolve
Tenant's objections, Tenant shall notify Landlord and general contractor of the
date by which Substantial Completion must be achieved and in doing so it shall
select the appropriate quote; thereafter, general contractor shall proceed with
construction of the Premises in accordance with the Approved Construction
Documents, as may have been amended, and the respective price quote.
Section 3.4 Changes. After completion of the Approved Construction Documents,
Tenant may make changes in the Approved Construction Documents only if Tenant
signs a change order requesting the change, and then, only if Landlord approves
the change, such approval not to be unreasonably withheld or delayed; any
change order shall detail the additional cost or the savings.
Section 3.5 Completion and Acceptance of Premises. Pursuant to the Approved
Construction Documents, general contractor shall diligently work toward the
completion of the Landlord's Work, as reflected in the Approved Construction
Documents, with a goal of substantially completing such work on or before the
date of substantial completion as set forth in the selected price quote. During
the construction process and prior to the Lease Commencement Date (as defined
in the Lease), Tenant may enter the Premises under all the terms and conditions
of the Lease (without paying rent or the commencing the Term) for the purpose
of performing Tenant's Work and installing Tenant's cable, fixtures and
equipment in the Premises, and any such entry shall not discharge Landlord from
completing Landlord's Work as expeditiously as reasonably practicable;
Landlord, however, shall not be liable or responsible for any loss or damage to
Tenant's fixtures, equipment and other property. Landlord shall not be
responsible for the repair of any damage to Landlord's Work in the Premises
caused by Tenant or any agent or employee of Tenant.
Section 3.6 Completion of Landlord's Work. Landlord agrees that it will use its
best efforts to cause Landlord's Work as to the Premises to be completed on or
before the selected date of Substantial Completion.
ARTICLE IV
CONSTRUCTION ALLOWANCE
Section 4.1 Amount of Allowances. Landlord shall pay for the completion of
Landlord's Work; all costs related to "Building Improvement Costs" (as
hereinafter defined) shall be the sole responsibility of the Landlord, all work
required pursuant to the Approved Construction Documents within the Premises
and "below the Finished Ceiling" shall be subject to a construction allowance
(the "Allowance"), in an amount equal to $17.00 per square foot of Rentable
Area in the Premises. In addition to the Allowance, Landlord shall pay for
costs and expenses of the Space Plans, the Approved Space Plans, the
Construction Documents, the
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Approved Construction Documents, modifications to any such plans or documents,
the construction management fee, all actual and expenses of the space planner,
Architect, engineers, contractors and the construction manager. Any unused
portion of the Allowance shall be distributed in accordance with the provisions
of the Lease.
Section 4.2 Building Improvement Costs. The phrase "Building Improvement Costs"
as used herein, shall not include:
(a) Any brokerage or finder's fee or similar fee;
(b) Any sum which is paid pursuant to a liability
incurred prior to the date of the Lease;
(c) Any item of moveable trade fixtures, furniture or
office equipment, as described in Article IX of the
Lease;
(d) Any costs above the "Finished Ceiling" which, for
purposes hereof means:
- installed building standard ceiling grid and
tiles
- installed and connected building standard
light fixtures (1 fixture per 65 usable
square feet) and properly located with
respect to the planned walls or half-walls
- installed and fully balanced primary and
secondary HVAC with appropriate ducting
- installed primary and secondary electrical
distribution including all distribution
panels, breaker boxes and meters
- installed and operational sprinkler heads (as
well as any required relocation of heads)
- installed building standard window
coverings/mini blinds on exterior windows
- installed corridor, demising and restroom
wall studs in place with drywall up, finished
on both sides and insulated for multi-tenant
floors
- all columns finished, taped and bedded
- surfaces beneath or above exterior windows
are "furred" out, drywalled, taped and bedded
- fully finished men' and women's restrooms to
building standard finish
Section 4.3 Payment of Excess Costs by Tenant. Within thirty (30) days after
receipt of an invoice from Landlord, with appropriate back-up, relating to the
Landlord's Work "below the Finished Ceiling", to the extent such costs exceed
the Allowance, Tenant shall pay to Landlord the amount of such excess.
Section 4.4 Title to Improvements. All improvements constructed by Landlord at
the Premises (excepting only removable trade fixtures, furniture and office
equipment installed by Tenant) shall, immediately upon such construction,
become and remain the property of Landlord, and Tenant shall have no right,
title or interest therein, except only as Tenant under the provisions of the
Lease. The aforesaid improvements are not intended as any nature of rent or
compensation to Landlord.
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EXHIBIT "D"
RULES AND REGULATIONS
ATTACHED TO AND MADE A PART OF THE LEASE
The following Rules and Regulations shall be in effect at the Building.
Landlord reserves the right to adopt reasonable modifications and additions
hereto but not without the consent of the Tenant if the modification or
addition changes any material terms of the Lease. In the case of any conflict
between these regulations and the Lease, the Lease shall be controlling.
1. Except with the prior written consent of Landlord, no tenant shall
conduct any retail sales in or from the Premises, or any business other than
that specifically provided for in the Lease.
2. Landlord reserves the right to prohibit personal goods and services
vendors from access to the Building except upon such reasonable terms and
conditions, including but not limited to the payment of a reasonable fee and
provision for insurance coverage, as are related to the safety, care and
cleanliness of the Building, the preservation of good order thereon, and the
relief of any financial or other burden on Landlord occasioned by the presence
of such vendors or the sale by them of personal goods or services to a tenant
or its employees. If reasonably necessary for the accomplishment of these
purposes, Landlord may exclude a particular vendor entirely or limit the number
of vendors who may be present at any one time in the Building. The term
"personal goods or services vendors" means persons who periodically enter the
Building of which the Premises are a part for the purpose of selling goods or
services to a tenant, other than goods or services which are used by a tenant
only for the purpose of conducting its business on the Premises. "Personal
goods or services" include, but are not limited to, drinking water and other
beverages, food, barbering services, and shoeshining services.
3. The sidewalks, halls, passages, elevators and stairways shall not be
obstructed by any tenant or used by it for any purpose other than for ingress
to and egress from their respective Premises. The halls, passages, entrances,
elevators, stairways, balconies and roof are not for the use of the general
public, and Landlord shall in all cases retain the right to control and prevent
access thereto of all persons whose presence in the judgment of Landlord shall
be prejudicial to the safety, character, reputation and interests of the
Building and its tenants, provided that nothing herein contained shall be
construed to prevent such access to persons with whom Tenant normally deals
only for the purpose of conducting its business on the Premises (such as
clients, customers, office suppliers and equipment vendors, and the like)
unless such persons are engaged in illegal activities. No tenant and no
employees of any tenant shall go upon the roof of the Building without the
written consent of Landlord except to install, remove and repair the Tenant's
antenna or dish.
4. The sashes, sash doors, windows, glass lights, and any lights or
skylights that reflect or admit light into the halls or other places of the
Building shall not be covered or obstructed. The toilet rooms, water and wash
closets and other water apparatus shall not be used for any purpose other than
that for which they were constructed, and no foreign substance of any kind
whatsoever shall be thrown therein, and the expense of any breakage, stoppage
or damage, resulting from the violation of this rule shall be borne by the
tenant who, or whose clerks, agents, employees, or visitors, shall have caused
it.
5. No sign, advertisement or notice visible from the exterior of the
Premises or Building shall be inscribed, painted or affixed by Tenant on any
part of the Building or the Premises without the prior written consent of
Landlord. If Landlord shall have given such consent at any time, whether
before or after the execution of this Lease, such consent shall in no way
operate as a waiver or release of any of the provisions hereof or of this
Lease, and shall be deemed to relate only to the particular sign, advertisement
or notice so consented to by Landlord and shall not be construed as dispensing
with the necessity of obtaining the specific written consent of Landlord with
respect to each and every such sign, advertisement or notice other than the
particular sign, advertisement or notice, as the case may be, so consented to
by Landlord.
<PAGE> 38
6. In order to maintain the outward professional appearance of the
Building, all window coverings to be installed at the Premises shall be subject
to Landlord's prior approval, such approval not to be unreasonably withheld. If
Landlord, by a notice in writing to Tenant, shall object to any curtain, blind,
shade or screen attached to, or hung in, or used in connection with, any window
or door of the Premises, such use of such curtain, blind, shade or screen shall
be forthwith discontinued by Tenant. No awnings shall be permitted on any part
of the Premises.
7. Tenant shall not do or permit anything to be done in the Premises, or
bring or keep anything therein, which shall in any way increase the rate of
fire insurance on the Building, or on the property kept therein, or obstruct or
interfere with the rights of other tenants, or in any way injure or annoy them;
or conflict with the regulations of the Fire Department or the fire laws, or
with any insurance policy upon the Building, or any part thereof, or with any
rules and ordinances established by the Board of Health or other governmental
authority.
8. No safes or other objects larger or heavier than the freight elevators
of the Building are limited to carry shall be brought into or installed in the
Premises. Landlord shall have the power to prescribe the weight, method of
installation and position of such safes or other objects. The moving of safes
shall occur only between such hours as may be designated by, and only upon
previous notice to, the manager of the Building, and the persons employed to
move safes in or out of the Building must be acceptable to Landlord. No
freight, furniture or bulky matter of any description shall be received into
the Building or carried into the elevators except during hours and in a manner
approved by Landlord.
9. Landlord shall clean the Premises as provided in the Lease, and except
with the written consent of Landlord, no person or persons other than those
approved by Landlord will be permitted to enter the Building for such purpose,
but Tenant shall not cause unnecessary labor by reason of Tenant's carelessness
and indifference in the preservation of good order and cleanliness.
10. No tenant shall sweep or throw or permit to be swept or thrown from
the Premises any dirt or other substance into any of the corridors or halls or
elevators, or out of the doors or windows or stairways of the Building, and
Tenant shall not use, keep or permit to be used or kept any foul or noxious gas
or substance in the Premises, or permit or suffer the Premises to be occupied
or used in a manner offensive or objectionable to Landlord or other occupants
of the Building by reason of noise, odors and/or vibrations, or interfere in
any way with other tenants or those having business therein, nor shall any
animals or birds be kept in or about the Building. Smoking or carrying lighted
cigars or cigarettes in the elevators of the Building is prohibited.
11. No cooking shall be done or permitted by Tenant on the Premises other
than with microwave ovens, nor shall the Building be used for lodging.
12. Tenant shall not use or keep in the Building any kerosene, gasoline,
or inflammable fluid or any other illuminating material, or use any method of
heating other than that supplied by Landlord.
13. If Tenant desires telephone or telegraph connections, Landlord will
direct electricians as to where and how the wires are to be introduced. No
boring or cutting for wires or other otherwise shall be made without directions
from Landlord.
14. Each tenant, upon the termination of its tenancy, shall deliver to
Landlord all the keys of offices, rooms and toilet rooms which shall have been
furnished such tenant or which such tenant shall have had made, and in the
event of loss of any keys so furnished, shall pay Landlord therefor.
15. No Tenant shall lay linoleum or other similar floor covering so that
the same shall be affixed to the floor of the Premises in any manner except by
a paste, or other material which
<PAGE> 39
may easily be removed with water, the use of cement or other similar adhesive
materials being expressly prohibited. The method of affixing any such linoleum
or other similar floor covering to the floor, as well as the method of affixing
carpets or rugs to the Premises shall be subject to approval by Landlord. The
expense of repairing any damage resulting from a violation of this rule shall
be borne by Tenant by whom, or by those agents, clerks, employees or visitors,
the damage shall have been caused.
16. No furniture, bulky packages or merchandise will be received in the
Building or carried up or down in the elevators, except between such hours and
in such elevators as shall be designated by Landlord.
17. On Sundays and legal holidays, and on other days between the hours of
6:00 p.m. and 7:00 a.m. access to the Building or to the halls, corridors,
elevators or stairways in the Building, or to the Premises may be refused
unless the person seeking access is known to the building watchman, if any, in
charge and has a pass or is properly identified. Landlord shall in no case be
liable for damages for the admission to or exclusion from the Building of any
person whom Landlord has the right to exclude under Rule 3 above. In case of
invasion, mob, riot, public excitement, or other commotion, Landlord reserves
the right but shall not be obligated to prevent access to the Building during
the continuance of the same by closing the doors or otherwise, for the safety
of the tenants and protection of property in the Building.
18. Tenant shall see that the windows and doors of the Premises are closed
and securely locked before leaving the Building and Tenant shall exercise care
and caution that all water faucets or water apparatus in the restrooms serving
the Premises are entirely shut off before Tenant or Tenant's employees leave
the Building, and that all electricity, gas or air shall likewise be carefully
shut off, so as to prevent waste or damage, and for any default or carelessness
Tenant shall make good all injuries sustained by other tenants or occupants of
the Building or Landlord.
19. Tenant shall not alter any lock or install a new or additional lock or
any bolt on any door of the Premises without prior written consent of Landlord.
If Landlord shall give its consent, Tenant shall in each case furnish Landlord
with a key for any such lock.
20. No bicycle, or shopping cart, or other vehicle or any animal (other
than a guide animal) shall be brought into the Premises or the halls,
corridors, elevators or any part of the Building by Tenant.
21. Landlord shall have the right to prohibit the use of the name of the
Building or Project or any other publicity by Tenant which in Landlord's
opinion tends to impair the reputation of the Building or Project or their
desirability for other tenants, and upon written notice from Landlord, Tenant
will refrain from or discontinue such publicity.
<PAGE> 40
EXHIBIT "E"
CONFIRMATION OF LEASE DATES
In connection with that certain Office Lease dated ___________________________
between Merit Office Portfolio Limited Partnership, as Landlord, and
___________________________, as Tenant concerning the Premises located at
_________________________________, Landlord and Tenant hereby agree as follows:
1. The Lease Commencement Date stated in Section I.G. of the Office Lease
is confirmed to be ______________________19__.
2. The Expiration Date stated in Section I.H. is confirmed to be
_____________________, 19__ .
3. The Early Termination Date stated in Section III.E. of the Office
Lease is confirmed to be __________________________, 19__ and the date by
which Tenant must have provided notice of its election to terminate the Office
Lease on the Early Termination Date is ________________________, 19___.
4. To Tenant's knowledge, Landlord has satisfactorily complied with all
requirements and conditions precedent to the commencement of the Term as
specified in the Office Lease.
5. Tenant has or shall commence paying Monthly Rental pursuant to the
Office Lease on ______________________, 19___.
Dated effective this ______ day of ______________, 199____.
"LANDLORD"
MERIT OFFICE PORTFOLIO LIMITED PARTNERSHIP
By: Merit Texas Properties, Inc., General Partner
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
"TENANT"
<PAGE> 41
EXHIBIT "F"
[MAP SHOWING LOCATION OF OFFICE]
<PAGE> 42
EXHIBIT "G"
SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this
"Agreement"), made this _________ day of _______ 1996 by, between and among
Merit Office Portfolio Limited Partnership ("Landlord"), Tenant defined below)
and Bank of America Texas, N.A. ("Lender").
WHEREAS, there exists a certain Lease by and between Landlord and Heartland
Wireless Communications, Inc. as "Tenant" for a 7 year term which will commence
on approximately June 15, 1996, and will terminate on approximately June 30,
2003 unless terminated or extended as provided therein (the "Lease") demising
premises which will be commonly referred to as Suite 200 (the "Leased
Premises") containing approximately 24,103 rentable square feet of the building
commonly referred to as 200 Chisholm Place Office Building, Piano, Texas (the
"Project"); and
WHEREAS, Lender has made a loan to Landlord (the "Loan") which Loan is secured
by a deed of trust or mortgage on certain real property, including the Leased
Premises (the "Mortgage"), an assignment of Landlord's interest in all leases,
rents, profits and contracts for such property (the "Assignment of Leases") and
other documents executed or to be executed in connection therewith; and
WHEREAS, Tenant has requested that Lender agree not to disturb Tenant's
possessory rights in the Leased Premises if Lender should foreclose its
Mortgage provided that Tenant is not in default under the Lease and further
provided that Tenant attorns to Lender or the purchaser at any foreclosure sale
or to any party who takes a deed in lieu of foreclosure; and
WHEREAS, Lender is willing so to agree on the terms and conditions hereafter
provided.
NOW THEREFORE, in consideration of the mutual promises herein contained, to
induce Lender to make the Loan and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Landlord, Tenant
and Lender covenant and agree as follows:
1. Subject to paragraph 3 below, the Lease and Tenant's leasehold
estate created thereby, including all rights under the Lease, shall be and are
completely and unconditionally subject and subordinate to the lien of the
Mortgage and to all the terms, conditions and provisions thereof, to all
advances made or to be made thereunder, to any renewals, extensions,
modifications or replacements thereof, and to any subsequent mortgage with
which the Mortgage may be spread and/or consolidated.
2. Tenant agrees that it will attorn to and recognize any purchaser at a
foreclosure sale under the Mortgage, any person or entity who acquires the real
property of which the Leased Premises form a part by deed in lieu of
foreclosure, and the successors and assigns of such purchaser, as its Landlord
for the unexpired balance (and any extensions, if
1
<PAGE> 43
exercised) of the term of the Lease upon the same terms and conditions set
forth in the Lease. This attornment shall be effective and self-operative
without the execution of any further documents or instruments.
3. In the event that it should become necessary to foreclose the
Mortgage,Lender will not disturb Tenant's possession under the Lease so long as
an Event of Default by tenant has not occurred and is continuing under any of
the terms, covenants, or conditions of the Lease.
4. In the event that Lender or any other party shall succeed to the
interest of Landlord under the Lease, or otherwise becomes entitled to and
takes possession of the Leased Premises, Lender, or any subsequent owner, shall
not be responsible for any defaults of Landlord occurring prior to the date
that Lender becomes the successor landlord and such successor landlord has
received notice and right to cure as provided in the Lease; provided Lender or
any such successor shall be liable for the obligations of Landlord arising from
and after such succession, but Tenant shall retain all rights and remedies,
including set-off, under the Lease.
5. Tenant agrees to give Lender, by registered or certified mail, a copy
of any notice Of default served upon Landlord, provided that prior to such
notice Tenant has been notified in writing (by way of notice of Assignment of
Rents and Leases or otherwise) of the address of such Lender. This Agreement
shall constitute notice to Tenant of Lender's address as set forth below.
Tenant further agrees that if Landlord shall have failed to cure such default
within the time provided for in the Lease, then Lender, if it elects to cure
such default, shall have the right to effect such cure within Landlord's cure
period provided in the Lease (but in the aggregate, not in excess of the time
allotted for Landlord's cure), in which event the Lease shall not be
terminated.
6. After notice is given to Tenant by Lender, pursuant to the Assignment
of Leases, that the rentals under the Lease should be paid to Lender, Tenant
shall pay to Lender, or in accordance with the directions of Lender, all
rentals and other monies due and to become due to Landlord under the Lease, and
Landlord hereby expressly authorizes Tenant to make such payments to Lender and
hereby releases and discharges Tenant of and from any liability to Landlord on
account of any such payments. Tenant shall not at any time pay any rent more
than one month in advance under the Lease.
7. This Agreement shall inure to the benefit of and shall be binding upon
Tenant, Landlord and Lender, and their respective heirs, personal
representatives, successors and assigns. In the event any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or enforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. This Agreement shall be governed by
and construed according to the laws of the State of Texas.
8. No modification, amendment, waiver or release of any provision of this
Agreement or any right, obligation, claim or cause of action arising hereunder
shall be valid or binding for any purpose whatsoever unless in writing and duly
executed by the party against whom
2
<PAGE> 44
the same is sought to be asserted.
9. Where under this document rights and obligations are created between
Tenant and Lender, at or subsequent to foreclosure proceedings, "Lender" shall
be deemed to include any purchaser at a foreclosure sale of trustee's sale and
any purchaser acquiring title through mortgage foreclosure proceedings.
10. Any controversy or claim arising out of or relating to this Agreement
or any agreements or instruments relating hereto or delivered in connection
herewith, including but not limited to a claim based on or arising from an
alleged tort, shall at the request of any party be determined by arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association. Judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction. The institution and maintenance of an action
for judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
11. Nothing contained in this Agreement shall in any way impair or affect
the lien created by the Mortgage.
IN WITNESS WHEREOF, the parties hereto cause this Agreement to be duly executed
the day and year first above written.
Landlord:
Merit Office Portfolio Limited Partnership
a Texas limited partnership
By: Merit Texas Properties, Inc.
General Partner
Address: -----------------------------------------
12700 Preston Road, Suite 230 Dennis R. McDaniel, President
Dallas, Texas 75230
Tenant:
Heartland Wireless Communications, Inc.
Address:
By:
--------------------------------------
Its:
-------------------------------------
3
<PAGE> 45
Lender:
Address: Bank of America Texas, N.A.
1925 W. John Carpenter Frwy.
Irving, Texas 75063
By:
--------------------------------------
Its:
-------------------------------------
4
<PAGE> 1
EXHIBIT 10.2
Sublease Agreement
Between
HEARTLAND WIRELESS COMMUNICATIONS, INC.
as Sublandlord,
and
CS WIRELESS SYSTEMS, INC.
as Subtenant
<PAGE> 2
SUBLEASE AGREEMENT
This Sublease Agreement (this SUBLEASE) is entered into as of June 14,
1996 (the DATE OF THIS SUBLEASE), by Heartland Wireless Communications, Inc., a
Delaware corporation (SUBLANDLORD), and CS Wireless Systems, Inc., a Delaware
corporation (SUBTENANT).
BACKGROUND
A. By Lease Agreement (PRIME LEASE) dated April 10, 1996, between Merit
Office Portfolio Limited Partnership (LANDLORD) and Sublandlord,
Landlord leased to Sublandlord space on the second floor (the Leased
Premises) of 200 Chisholm Place (the BUILDING) located in Plano,
Texas.
B. Sublandlord desires to sublease to Subtenant, and Subtenant desires to
sublet from Sublandlord, approximately 9,759 rentable square feet on
the second floor of the Building as shown on EXHIBIT A (the SUBLEASED
PREMISES).
1. Definitions and Basic Sublease Provisions
Some of the basic provisions and defined terms of this Sublease are as
follows:
MINIMUM RENT: One-half (1/2) of (i) all Monthly Rental, (ii)
Unrecouped Costs and (iii) all other amounts
paid by Sublandlord to Landlord under the Prime
Lease (excluding Operating Costs which are
addressed in Section 6 of this Sublease) for
the Premises and any Expansion Space during the
Term of the Prime Lease and extension thereof.
RENT: The Minimum Rent, additional Rent, and all
other amounts payable by Subtenant to
Sublandlord under this Sublease.
COMMENCEMENT DATE: Shall have the same meaning as "Lease
Commencement Date" in the Prime Lease.
EXPIRATION DATE: The next to last day of the 84th full calendar
month after the Lease Commencement Date, the
specific date of which shall be confirmed in
the execution and attachment of the
Confirmation of Lease Dates as provided in
Section I.G. of the Prime Lease, unless the
term of the Prime Lease is earlier terminated
or extended as provided in Section III.E. or
III.F. of the Prime Lease, in which case the
Expiration Date of this Sublease shall be the
day before the "Expiration Date" in the Prime
Lease.
SUBLEASE AGREEMENT Page 1
<PAGE> 3
SUBLEASE TERM: One day less than eighty-four (84) full
calendar months.
BASE YEAR FOR
OPERATING COSTS: Calendar year 1997.
PERMITTED USE: General business offices.
Addresses for notices under this Sublease:
Sublandlord: Heartland Wireless Communications, Inc.
Suite 200
200 Chisholm Place
Plano, Texas 75075
Attention: John R. Bailey
Subtenant: CS Wireless Systems, Inc.
Suite 200
200 Chisholm Place
Plano, Texas 75075
Attention: Tom Dixon
Any capitalized term not otherwise defined in this Sublease shall have the
meaning attributed to it in the Prime Lease.
2. Subleased Premises
Sublandlord, in consideration of the Rent and the obligations of
Subtenant under this Sublease, subleases the Subleased Premises to
Subtenant and Subtenant subleases the Subleased Premises from
Sublandlord, under the terms of this Sublease. Additionally, during
the term of the Sublease, Subtenant shall have the non-exclusive right
to utilize the several common areas within the Leased Premises, such
areas being the restrooms, reception area, hallways and breakroom.
3. Sublease Term
The Sublease Term begins on the Commencement Date and ends on the
Expiration Date.
4. Acceptance of Subleased Premises
(a) Subtenant accepts the Subleased Premises in its "AS IS"
condition with all faults except for defects which are not
reasonably discoverable by Subtenant.
(b) If the Subleased Premises are not in compliance with all
existing laws, codes, regulations and ordinances on the
Commencement Date, then Sublandlord agrees to repair or cause
the repair of the portions of the Subleased Premises which are
not in compliance with such laws,
SUBLEASE AGREEMENT Page 2
<PAGE> 4
codes, regulations or ordinances. If Subtenant is delayed in
opening its business as a result of the repairs required to be
performed by Sublandlord to comply with this Paragraph, then,
as Subtenant's sole remedy, the Rent shall be abated for that
period of time Subtenant is delayed in opening its business as
a result of such repairs.
5. Rent Payments
(a) The first installment of Minimum Rent is payable by Subtenant
on the Commencement Date. Subsequent installments of Minimum
Rent are payable by Subtenant in advance on the first day of
each calendar month thereafter during the Sublease Tenn.
Minimum Rent for any partial calendar month is prorated on a
per diem basis.
(b) All Rent is payable by Subtenant at the times and in the
amounts specified in this Sublease in legal tender of the
United States of America to Sublandlord at the following
address, or to any other person or at any other address as
Sublandlord may from time to time designate by notice to
Subtenant:
Heartland Wireless Communications, Inc.
Suite 200
200 Chisholm Place
Plano, Texas 75075
Attention: David Hagey
(c) Rent is payable by Subtenant without notice, demand,
abatement, deduction, or setoff except as expressly specified
in this Sublease. Subtenant's obligation to pay Rent is
independent of any obligation of Sublandlord under this
Sublease.
(d) On the Commencement Date, Subtenant shall make a one-time
payment to Sublandlord of one-half (1/2) of the Security
Deposit. Within 10 days after any return or refund of all or
part of such Security Deposit to Sublandlord, Sublandlord
shall return one-half (1/2) of such amount, if any, to
Subtenant.
6. Operating Costs
(a) The term OPERATING COSTS means "Common Operating Costs" as
defined in Subsection V.A.3. of the Prime Lease.
(b) The term EXCESS OPERATING COSTS means the amount by which the
Common Operating Costs for any calendar year after the Base
Year exceed the Common Operating Costs for the Base Year.
Sublandlord shall calculate Common Operating Costs and Excess
Operating Costs on a rentable square foot basis by dividing
the aggregate costs billed by Landlord to Sublandlord by the
total rentable area of the Leased Premises.
SUBLEASE AGREEMENT Page 3
<PAGE> 5
(c) If there are Excess Operating Costs for any calendar year,
Subtenant shall pay to Sublandlord as additional Rent an
amount equal to the product of the Excess Operating Costs (on
a rentable square foot basis) multiplied by one-half (1/2) of
the number of rentable square feet in the Leased Premises.
(d) Upon receipt from Landlord, Sublandlord shall promptly deliver
to Subtenant Sublandlord's reasonable estimate of the Excess
Operating Costs for the next calendar year. Subtenant shall
pay to Sublandlord monthly as additional Rent, in advance on
or before the first day in each succeeding calendar month, an
amount equal to one twelfth (1/12th) of the product of
one-half (1/2) of the number of rentable square feet in the
Leased Premises times Sublandlord's estimated Excess Operating
Costs for the applicable calendar year. Sublandlord may adjust
its estimate by notice to Subtenant at any time during the
applicable calendar year if actual Excess Operating Costs are
substantially different from the estimate, and thereafter
payments by Subtenant under this Paragraph adjust accordingly.
The term calendar year includes partial calendar years.
(e) Promptly after receipt from Landlord, Sublandlord shall
deliver to Subtenant a statement setting out in reasonable
detail the actual Excess Operating Costs for the prior
calendar year. If the estimated payments made by Subtenant
during the prior calendar year exceed Subtenant's share of
actual Excess Operating Costs for that year, Sublandlord shall
promptly remit the difference to Subtenant. If the estimated
payments made by Subtenant during the prior calendar year
under this Paragraph are less than Subtenant's share of the
actual Excess Operating Costs for that year, Subtenant shall
pay the amount of the difference to Sublandlord in cash within
30 days after delivery of any invoice therefor by Sublandlord
accompanied by a statement of the actual Excess Operating
Costs for that year as additional Rent.
(f) The parties acknowledge that it is their intent to equally
share all operating expenses for personnel and services at the
Leased Premises that benefit both parties. Accordingly, in
addition to the above payments by Subtenant to Sublandlord,
Subtenant agrees to reimburse Sublandlord, within 10 calendar
days after receipt of invoice, one-half (1/2) of all expenses
incurred by Sublandlord for personnel and services at the
Leased Premises that benefit both parties, including without
limitation the cost of:
(i) compensation and benefits of a receptionist(s), mailroom
personnel and other personnel whose primary function is to provide
services for the benefit of both Sublandlord and Subtenant;
(ii) telephone and voicemail system and maintenance of same
(excluding long distance and other charges related to individual
telephone calls, which shall be paid separately by the parties);
(iii) security and alarm services and system and maintenance of
same;
SUBLEASE AGREEMENT Page 4
<PAGE> 6
(iv) photocopy and facsimile machines (and associated
dedicated facsimile transmission line(s)), and other equipment and
supplies (including food and beverages) located in areas used by and
accessible to both parties;
(v) insurance obtained or maintained by Sublandlord
pursuant to Section XIV.A of the Prime Lease; and
(vi) legal, filing and permitting fees paid by Sublandlord
in connection with the Leased Premises.
7. Utilities
Landlord is paying for all water, gas, HVAC, electricity and sanitary
sewer used on or from the Subleased Premises, except to the extent
passed through as a Common Operating Cost. Subtenant shall furnish all
electric light bulbs and tubes. If any services, other than
electricity, are not separately metered to Subtenant, Subtenant shall
pay fifty percent (50%) of all charges attributable to the Leased
Premises and jointly metered with other premises. Subtenant's
obligation to pay for utility services survives the termination or
expiration of the Sublease. Sublandlord is not liable for any
interruption or failure of utility services on or to the Subleased
Premises.
8. Taxes on Subtenant's Property
Subtenant shall pay, and indemnify, defend, and hold Sublandlord
harmless against, all taxes of every kind levied or assessed against
personal property, furniture, fixtures, and other improvements placed
by or for Subtenant in the Subleased Premises.
9. Assignment and Subletting
(a) Subtenant shall have no right sublet, assign or otherwise
transfer its interest in this Sublease without Sublandlord's
prior written consent.
(b) The consent by Sublandlord to any transfer, assignment, or
subletting shall not be unreasonably withheld, conditioned or
delayed.
10. Incorporation of Prime Lease
(a) This Sublease is in all respects subject and subordinate to
the Prime Lease, and the Prime Lease is incorporated herein in
its entirety except to the extent any provisions of the Prime
Lease do not relate to the Subleased Premises or are
inapplicable, inconsistent with or are modified by the terms
of this Sublease.
(b) Except as set forth in subparagraph (a) above, Subtenant
assumes and agrees to be bound by and perform all of the
terms, conditions, covenants and obligations applicable to the
Sublandlord as tenant under the Prime Lease, and Sublandlord
shall have for the purposes
SUBLEASE AGREEMENT Page 5
<PAGE> 7
of this Sublease all of the rights, remedies and privileges of
Landlord as landlord under the Prime Lease.
11. Parking
During the Sublease Term, Subtenant shall have the non-exclusive right
to utilize up to seven (7) of Sublandlord's reserved parking spaces
and one-half (1/2) of all non-reserved parking spaces provided to
Sublandlord under the Prime Lease in the parking area(s) pertaining to
the Building.
12. Sublandlord's Representations and Warranties
Sublandlord represents and warrants to Subtenant that (a) no event of
default has occurred (nor shall an event of default occur after the
delivery of notice or passage of time) under the Prime Lease that has
not been cured as of the date of this Sublease, and (b) a true and
correct copy of the Prime Lease is attached as Exhibit "B" hereto, and
no amendments or agreements have been executed which affect the Prime
Lease other than those attached.
13. Subtenant's Indemnification of Sublandlord
Subtenant hereby indemnifies, agrees to defend and holds Sublandlord
and Sublandlord's directors, officers, employees and agents harmless
from and against any and all claims, demands, liabilities, and
expenses, including reasonable attorney's fees, arising from any
breach or default by Subtenant of this Sublease, or the negligence or
willful misconduct of Subtenant or its agents, employees, contractors
or invitees ("Subtenant's Acts") in or about the Building, except to
the extent caused by the negligence or willful misconduct of
Sublandlord or its agents, employees, contractors or invitees
("Sublandlord's Acts"). If any claim, demand, liability or expense is
the result of Sublandlord's Acts and Subtenant's Acts jointly,
Subtenant's indemnity set forth in this Section 13 is in proportion to
its allocable share of the joint negligence or willful misconduct. In
the event any action or proceeding shall be brought against
Sublandlord by reason of any such claim, Subtenant shall defend the
same at Subtenant's expense by counsel reasonably satisfactory to
Sublandlord.
14. Sublandlord's Indemnification of Subtenant
Sublandlord hereby indemnifies, agrees to defend and holds Subtenant
and Subtenant's directors, officers, employees and agents harmless
from and against any and all claims, demands, liabilities, and
expenses, including reasonable attorney's fees, arising from any
breach or default by Sublandlord of this Sublease, or caused by
Sublandlord's Acts in or about the Building except to the extent
caused by Subtenant's Acts. If any claim, demand, liability or expense
is the result of Sublandlord's Acts and Subtenant's Acts jointly,
Sublandlord's indemnity set forth in this Section 14 is in proportion
to its allocable share of the joint negligence or willful misconduct.
In the event any action or proceeding shall be brought against
Subtenant by reason of any such claim, Sublandlord shall defend the
same at Sublandlord's expense by counsel reasonably satisfactory to
Subtenant.
SUBLEASE AGREEMENT Page 6
<PAGE> 8
15. Casualty; Repairs
If all or a portion of the Subleased Premises is damaged by fire or
other casualty and the Prime Lease is not terminated by Tenant in
accordance with Section XVIII of the Prime Lease, this Sublease shall
remain in full force and effect and Rent shall not abate except to the
extent Sublandlord is entitled to an abatement of rent under the terms
of the Prime Lease. Sublandlord shall have no obligation under this
Sublease to repair, maintain or make replacements for the Subleased
Premises (collectively, "repairs"), whether or not arising out of
fire, other casualty, or in connection with the need for normal
maintenance and repair. Subtenant shall look solely to Landlord for
all repairs that Landlord is obligated to perform under the Prime
Lease. Sublandlord shall, however, use commercially reasonable efforts
(at no cost to Sublandlord) to cause Landlord to comply with its
obligations under the Prime Lease with respect to the Subleased
Premises and to provide repairs to the Subleased Premises for which
Landlord is responsible.
16. Landlord's Obligations
(a) Subtenant agrees that if Landlord fails or refuses to perform
its obligations or provide services under the Prime Lease for
reasons other than due to Sublandlord's default under the
Prime Lease, Sublandlord shall not be obligated to perform or
have liability for such obligations.
(b) Sublandlord shall cooperate with Subtenant's reasonable
requests to enforce for the benefit of Subtenant the
obligations of Landlord to Sublandlord under the Prime Lease
as those obligations relate to the Subleased Premises;
provided, that Subtenant shall reimburse Sublandlord for
one-half (1/2) of all costs and expenses (including reasonable
attorney's fees) incurred by Sublandlord in connection with
such enforcement.
17. Sublandlord's Property
All furniture and data and phone cables existing in the Subleased
Premises as of the date hereof shall be available for Subtenant's use
and enjoyment. Sublandlord makes no representations or warranties,
express or implied, regarding such items.
18. Notices
All notices, requests, approvals, and other communications required or
permitted to be delivered under this Sublease must be in writing and
are effective:
(a) on the business day sent if sent by telecopier prior to 4:00
p.m., Dallas, Texas time, and the sending telecopier generates
a written confirmation of sending;
(b) the next business day after delivery to a nationally-
recognized-overnight-courier service for prepaid
overnight delivery;
SUBLEASE AGREEMENT Page 7
<PAGE> 9
(c) if orderly delivery of the mail is not then disrupted or
threatened, in which event some method of delivery other than
the mail must be used, 3 days after being deposited in the
United States mail, certified, return receipt requested,
postage prepaid; or
(d) upon receipt if delivered personally or by any method other
than by telecopier (with written confirmation),
nationally-recognized-overnight-courier service, or mail;
in each instance addressed to Sublandlord or Subtenant, as the case
may be, at the address specified in Paragraph 1 of this Sublease, or
to any other address either party may designate by 10 days' prior
notice to the other party.
19. Default by Sublandlord
If Sublandlord fails to perform of any of Sublandlord's material
obligations under this Sublease, which failure continues for more than
thirty (30) days after Subtenant's delivery of written notice to
Sublandlord specifying such failure, or if such failure is of a nature
to require more than thirty (30) days for remedy and continues beyond
the time reasonably necessary to cure (and Sublandlord has not
undertaken procedures to cure the failure within such thirty (30) day
period and diligently pursued such efforts to complete such cure),
Subtenant may, in addition to any other remedy available at law or in
equity, at its option, (a) upon written notice, terminate this
Sublease, or (b) incur any expense necessary to perform the obligation
of Sublandlord specified in such notice and seek reimbursement
(without offset from Rent) from Sublandlord.
20. Default by Subtenant
If Subtenant fails to perform any of Subtenant's material obligations
under the Sublease, which failure continues for more than ten (10)
days after Sublandlord's delivery of written notice to Subtenant
specifying such failure, in addition to any other remedy available at
law or in equity, Sublandlord may, at its option, (a) upon written
notice, terminate this Sublease or Subtenant's right to possess the
Subleased Premises; or (b) incur any expense necessary to perform the
obligation of Subtenant specified in such notice and seek
reimbursement from Subtenant.
21. Severability
Each of the terms of this Sublease is, and must be construed to be,
separate and independent. If any of the terms of this Sublease or its
application to any person or circumstances is to any extent invalid
and unenforceable, the remainder of this Sublease, or the application
of that term to persons or circumstances other than those as to which
it is invalid or unenforceable, are not affected thereby.
22. No Representations
Sublandlord and Sublandlord's agents made no, and Subtenant waives
any, representations or promises with respect to the Subleased
Premises or the Building except as expressly set forth in this
Sublease. No rights, easements, or licenses are acquired by Subtenant
by implication or otherwise except as expressly set forth in this
Sublease.
SUBLEASE AGREEMENT Page 8
<PAGE> 10
23. Entire Agreement; Amendments
All negotiations, considerations, representations, and understandings
between Sublandlord and Subtenant with respect to this Sublease are
incorporated in this Sublease. No act or omission of any employee or
agent of Sublandlord may alter, change, or modify any of the terms of
this Sublease. No amendment or modification of this Sublease is
binding unless expressed in a written instrument executed by
Sublandlord and Subtenant.
24. Paragraph Headings
The paragraph headings in this Sublease are for convenience only and
in no way enlarge or limit the scope or meaning of the paragraphs in
this Sublease.
25. Binding Effect
All terms of this Sublease are binding upon the respective heirs,
personal representatives, successors, and, to the extent assignment is
permitted, assigns of Sublandlord and Subtenant.
26. Counterparts
This Sublease may be executed in two or more counterparts and by
facsimile signature, each of which is deemed an original and all of
which together constitute one and the same instrument.
27. Timeliness
Time is of the essence in the performance of all terms of this
Sublease. Sublandlord and Subtenant must strictly conform with all
time limits specified in this Sublease.
28. Exhibits
The following exhibits are attached to and made a part of this
Sublease: EXHIBIT A [Subleased Premises] and EXHIBIT B [Prime Lease].
This Sublease is executed in multiple originals as of the date first
above set forth.
Sublandlord:
Heartland Wireless Communications, Inc., a
Delaware corporation
By: /s/ DAVID D. HAGEY
-------------------------
Name: David D. Hagey
-----------------------
Title: Vice President
----------------------
SUBLEASE AGREEMENT Page 9
<PAGE> 11
Subtenant:
CS Wireless Systems, Inc., a Delaware
corporation
By: /s/ THOMAS W. DIXON
--------------------------
Name: Thomas W. Dixon
------------------------
Title: Senior Vice President
-----------------------
SUBLEASE AGREEMENT Page 10
<PAGE> 12
EXHIBIT A
FLOOR PLAN OF THE SUBLEASED PREMISES
<PAGE> 13
EXHIBIT B
[Attach Prime Lease]
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 38,025
<SECURITIES> 14,380
<RECEIVABLES> 5,456
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 60,310
<PP&E> 102,673
<DEPRECIATION> 0
<TOTAL-ASSETS> 438,317
<CURRENT-LIABILITIES> 11,687
<BONDS> 175,202
<COMMON> 20
0
0
<OTHER-SE> 217,608
<TOTAL-LIABILITY-AND-EQUITY> 438,317
<SALES> 13,801
<TOTAL-REVENUES> 13,801
<CGS> 0
<TOTAL-COSTS> 19,445
<OTHER-EXPENSES> 3,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,028
<INCOME-PRETAX> (13,755)
<INCOME-TAX> (3,351)
<INCOME-CONTINUING> (10,404)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,404)
<EPS-PRIMARY> (0.54)
<EPS-DILUTED> (0.54)
</TABLE>
