<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1997 or
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[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
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Commission file number 0-27888
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Wells Real Estate Fund VIII, L.P.
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(Exact name of registrant as specified in its charter)
Georgia 58-2126618
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3885 Holcomb Bridge Road
Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)
Registrant's telephone
number, including area code (770) 449-7800
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Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of exchange on which registered
NONE NONE
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Securities registered pursuant to Section 12 (g) of the Act:
NONE
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(Title of Class)
NONE
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Aggregate market value of the voting stock held by non-affiliates:
Not Applicable
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PART I
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ITEM 1. BUSINESS
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GENERAL
Wells Real Estate Fund VIII, L.P. (the "Partnership") is a Georgia public
limited partnership having Leo F. Wells, III and Wells Partners, L.P., a Georgia
non-public limited partnership, as General Partners. The Partnership was formed
on August 15, 1994, for the purpose of acquiring, developing, constructing,
owning, operating, improving, leasing and otherwise managing for investment
purposes income-producing commercial or industrial properties.
On January 6, 1995, the Partnership commenced a public offering of up to
$35,000,000 of limited partnership units ($10.00 per unit) pursuant to a
Registration Statement filed on Form S-11 under the Securities Act of 1933. The
Partnership commenced active operations on February 24, 1995, when it received
and accepted subscriptions for 125,000 units. The offering was terminated on
January 5, 1996, and received gross proceeds of $32,042,689 representing
subscriptions from 3,204,269 Limited Partners units, composed of two classes of
limited partnership interests, Class A and Class B limited partnership units.
The Partnership owns interests in properties through the following joint
ventures: (i) Fund VII and Fund VIII Associates, a joint venture between the
Partnership and Wells Real Estate Fund VII, L.P. (the "Fund VII - Fund VIII
Joint Venture"); (ii) Fund VI, Fund VII and Fund VIII Associates, a joint
venture among the Partnership, Wells Real Estate Fund VI, L.P., and Wells Real
Estate Fund VII, L.P. (the "Fund VI-VII-VIII Joint Venture"); and (iii) Fund
VIII and Fund IX Associates, a joint venture between the Partnership and Wells
Real Estate Fund IX, L.P. (the "Fund VIII - Fund IX Joint Venture").
As of December 31, 1997, the Partnership owned interests in the following
properties through its ownership of the foregoing joint ventures: (i) a single-
story retail/office building located in Clayton County, Georgia (the "Hannover
Center") and (ii) a two-story office building located in Gainesville, Florida
(the "CH2M Hill") which are owned by the Fund VII - Fund VIII Joint Venture;
(iii) a four-story office building located in Jacksonville, Florida (the
"BellSouth Property") and (iv) a retail shopping center located in Clemmons,
North Carolina (the "Tanglewood Commons") which are owned by the Fund VI-VII-
VIII Joint Venture; and (v) a four-story office building in Madison, Wisconsin
(the "US Cellular Building"), (vi) a one-story office building located in
Farmers Branch, Texas (the "TCI Building"), (vii) a two-story office building
located in Orange County, California (the "Matsushita Building"), and (viii) a
two-story office building located in Boulder County, Colorado (the "Cirrus Logic
Building") which are owned by the Fund VIII- Fund IX Joint Venture.
2
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EMPLOYEES
The Partnership has no direct employees. The employees of Wells Capital, Inc.,
the sole general partner of Wells Partners, L.P., a General Partner of the
Partnership, perform a full range of real estate services including leasing and
property management, accounting, asset management and investor relations for the
Partnership. See Item 11 "Compensation of General Partners and Affiliates," for
a summary of the fees paid to the General Partners and their affiliates during
the fiscal year ended December 31, 1997.
INSURANCE
Wells Management Company, Inc., an affiliate of the General Partners, carries
comprehensive liability and extended coverage with respect to all the properties
owned directly or indirectly by the Partnership. In the opinion of management
of the registrant, the properties are adequately insured.
COMPETITION
The Partnership will experience competition for tenants from owners and managers
of competing projects which may include the General Partners and their
affiliates. As a result, the Partnership may be required to provide free rent,
reduced charges for tenant improvements and other inducements, all of which may
have an adverse impact on results of operations. At the time the Partnership
elects to dispose of its properties, the Partnership will also be in competition
with sellers of similar properties to locate suitable purchasers for its
properties.
ITEM 2. PROPERTIES.
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The Partnership owns interests in eight properties through its investment in
joint ventures of which six are office buildings and two are retail buildings.
The Partnership does not have control over the operations of the joint ventures;
however, it does exercise significant influence. Accordingly, investment in
joint ventures is recorded on the equity method. As of December 31, 1997, these
properties were 90% occupied as compared to 93% occupied as of December 31, 1996
and 94% at December 31, 1995.
3
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The following table shows lease expirations during each of the next ten years
for all leases as of December 31, 1997, assuming no exercise of renewal options
or termination rights:
<TABLE>
<CAPTION>
PARTNERSHIP PERCENTAGE OF
SHARE OF TOTAL
NUMBER OF ANNUALIZED ANNUALIZED PERCENTAGE OF ANNUALIZED
YEAR OF LEASE LEASES SQUARE FEET GROSS BASE GROSS BASE TOTAL SQUARE GROSS BASE
EXPIRATION EXPIRING EXPIRING RENT (1) RENT (1) FEET EXPIRING RENT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 - - - - - -
1999 - - - - - -
2000 - - - - - -
2001 1 22,607 $ 369,852 $ 119,647 6.8% 8.6%
2002 5 29,901 389,064 183,181 8.9% 9.1%
2003 3 67,456 696,336 341,974 20.1% 16.2%
2004 1 5,600 87,120 28,183 1.7% 2.0%
2005 (2) 1 57,547 530,313 328,794 17.2% 12.4%
2006 (3) 2 75,444 1,258,635 439,006 22.5% 29.3%
2007 (4) 1 76,276 959,148 480,533 22.8% 22.4%
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14 334,831 $4,290,468 $1,921,318 100.0% 100.0%
</TABLE>
(1) Average monthly gross rent over the life of the lease, annualized.
(2) Expiration of CH2M Hill lease, Gainesville, Florida.
(3) Expiration of 69,424 square feet BellSouth lease, Jacksonville, Florida.
(4) Expiration of US Cellular lease, Madison, Wisconsin.
The following describes the properties in which the Partnership owns an interest
as of December 31, 1997:
FUND VII - FUND VIII JOINT VENTURE
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On February 10, 1995, the Partnership and Wells Real Estate Fund VII, L.P.
("Wells Fund VII"), a Georgia public limited partnership affiliated with the
Partnership through common general partners, entered into a Joint Venture
Agreement known as Fund VII and Fund VIII Associates (the "Fund VII - Fund VIII
Joint Venture"). The investment objectives of Wells Fund VII are substantially
identical to those of the Partnership. The Partnership holds an approximate 62%
equity interest and Wells Fund VII holds an approximate 38% equity interest in
the Fund VII -Fund VIII Joint Venture which owns and operates an office building
and a retail/office building as described below. As of December 31, 1997, the
Partnership had contributed $4,002,732 and Wells Fund VII had contributed
$2,448,924 for a total cost of $6,451,656 to the Fund VII - Fund VIII Joint
Venture for the acquisition and development of the property. Although the
ultimate percentages of ownership have not yet been finalized, it is currently
anticipated that the remaining costs of approximately $130,000 in the
Gainesville Property and $76,000 in the Hannover Property will be contributed by
the Partnership, in which event, upon completion, the Partnership will own an
approximately 63% equity interest in the Fund VII - Fund VIII Joint Venture.
The Partnership has reserved sufficient funds from Limited Partners'
contributions for this purpose.
4
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The Hannover Center
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On April 1, 1996, Wells Fund VII contributed 1.01 acres of land located in
Clayton County, Georgia and improvements thereon valued at $512,000 to the Fund
VII - Fund VIII Joint Venture for the development of a 12,040 square foot,
single story combination retail/office building. As of December 31, 1997, Wells
Fund VII had funded approximately $1,412,001 for the development of the Hannover
property, and the Partnership had contributed $150,000 to the joint venture for
the development of the property. The total cost to develop this property,
including land, is estimated to be approximately $1,638,000 and the Partnership
has reserved approximately $76,000 to complete the remaining development.
A nine year, eleven month lease has been signed with Moovies, Inc., a video sale
and rental store, to occupy 6,020 square feet. The annual base rent: (1) for
the initial term of 36 months is $93,310; (2) for the second term of 36 months
is $102,340; (3) for the third term of 36 months is $111,370, and (4) for the
final term of eleven months is $110,367. Moovies, Inc. has the option to extend
its lease for two five year terms at market rate. The tenant, which provided
its own build-out from the existing shell, moved into the building and opened
for business June 22, 1996. The lease will expire in 2006.
The average effective annual rental per square foot at the Hannover Property was
$8.92 for 1997 and $8.14 for 1996, the first year of occupancy. The occupancy
rate at year end for 1997 and 1996 was 50%.
CH2M Hill at Gainesville
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Wells Fund VII made an initial contribution to the Fund VII - Fund VIII Joint
Venture of $677,534, which constituted the total purchase price and all other
acquisition and development costs expended by the Fund VII - Fund VIII Joint
Venture for the purchase of a 5.0 acre parcel of land in Gainesville, Alachua
County, Florida. Construction of a 62,975 square foot office building,
containing 61,468 rentable square feet was completed in December, 1995. It is
anticipated that the total cost of the building will be approximately
$5,019,000, and the Partnership has reserved $130,000 to complete the remaining
unoccupied tenant space. The average effective annual rental per square foot at
the Gainesville Property was $8.63 for 1997, $8.69 for 1996 and $8.63 for 1995.
The variance in the effective annual rate in 1996 is due to an adjustment to
rent for 1995. The occupancy rate at year end for 1997, 1996 and 1995 was
93.5%.
A 9 year, 11 month lease, to occupy 57,457 square feet has been signed with CH2M
Hill, Engineers, Planners, Economists, Scientists, with an option to extend for
an additional five year period. The annual base rent during the initial term is
$530,313 payable in equal monthly installments of $44,193. The annual rent for
the extended term will be at market rate. Assuming no options or termination
rights, the lease with CH2M Hill will expire in the year 2005.
As of December 31, 1997, the Partnership had contributed $3,852,732, and Wells
Fund VII had contributed $1,036,923 to the Fund VII - Fund VIII Joint Venture
toward the completion of this project.
5
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FUND VI-VII-VIII JOINT VENTURE
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On April 17, 1995, the Partnership, Wells Fund VII and Wells Real Estate Fund
VI, L.P. ("Wells Fund VI") a Georgia public limited partnership, affiliated with
the Partnership through common general partners, formed a joint venture known as
the Fund VI, Fund VII, and Fund VIII Associates (the "Fund VI-VII-VIII Joint
Venture"). The investment objectives of Wells Fund VI are substantially
identical to those of the Partnership. As of December 31, 1997, the Partnership
had contributed approximately $5,700,000 for an approximately 32.3% equity
interest in the Fund VI-VII-VIII Joint Venture which owns an office building in
Jacksonville, Florida and a multi-tenant retail center in Clemmons, North
Carolina. As of December 31, 1997, Wells Fund VI had contributed $6,067,688
for an equity interest in the Fund VI-VII-VIII Joint Venture of approximately
34.3%, and Wells Fund VII contributed approximately $5,932,312 for an equity
interest in the Fund VI-VII-VIII Joint Venture of approximately 33.4%. The
total cost to complete both properties is approximately $17,700,000.
BellSouth Property
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On April 25, 1995, the Fund VI-VII-VIII Joint Venture purchased a 5.55 acre
parcel of land in Jacksonville, Florida for a total of $1,245,059 including
closing costs. In May 1996, the 92,964 square foot office building was completed
with BellSouth Advertising and Publishing Corporation, a subsidiary of BellSouth
Company, occupying approximately 66,333 square feet and American Express Travel
Related Services Company, Inc. occupying approximately 22,607 square feet.
BellSouth occupied an additional 3,091 square feet in December, 1996. The land
purchase and future construction costs, totaling approximately $9 million, were
funded by capital contributions of $2,000,000 by the Partnership, $3,500,000 by
Wells Fund VI and $3,500,000 by Wells Fund VII.
The BellSouth lease is for a term of nine years and eleven months with an option
to extend for an additional five-year period at market rate. The annual base
rent during the initial term is $1,094,426 during the first five years and
$1,202,034 for the balance of the initial lease term. The American Express lease
is for a term of five years at an annual base rent of $369,851. BellSouth and
American Express are required to pay additional rent equal to their share of
operating expenses during their respective lease terms.
The average effective annual rental per square foot at the BellSouth property
was $16.40 for 1997 and $14.15 for 1996, the first year of occupancy. The
occupancy rate at year end was 100% for 1997 and 1996.
Tanglewood Commons Shopping Center
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On May 31, 1995, the Fund VI-VII-VIII Joint Venture purchased a 14.683 acre
tract of real property located in Clemmons, Forsyth County, North Carolina. The
land purchase costs were funded by a capital contribution made by Wells Fund VI.
As of December 31, 1997, Fund VI had contributed $2,567,688, and Fund VII had
contributed $2,432,312 and the Partnership had contributed $3,700,000 for the
development of this project.
6
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The Fund VI-VII-VIII Joint Venture developed and constructed one large strip
shopping center building containing approximately 81,000 gross square feet on a
12.48 acre tract. The remaining 2.2 acre portion of the property consists of
four outparcels which have been graded and are held for future development or
resale.
Total costs and expenses incurred by the Fund VI-VII-VIII Joint Venture for the
acquisition, development, construction and completion of the shopping center are
anticipated to total approximately $8,700,000. Construction of the project
began in March, 1996, and was substantially completed in the first quarter of
1997.
Harris Teeter, Inc., a regional supermarket chain, executed a lease for a
minimum of 45,000 square feet with an initial term of 20 years with extension
options of four successive five year periods with the same terms as the initial
lease. The annual base rent during the initial term is $488,250. In addition,
Harris Teeter has agreed to pay percentage rents equal to one percent of the
amount by which Harris Teeters gross sales exceed $35,000,000 for any lease
year. The average effective annual rental per square foot at Tanglewood Commons
was $8.36 for 1997, the first year of occupancy. The occupancy rate was 86% as
of December 31, 1997.
FUND VIII - FUND IX JOINT VENTURE
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On June 10, 1996, the Partnership and Wells Real Estate Fund IX, L.P. ("Wells
Fund IX"), a Georgia public limited partnership, affiliated with the Partnership
through common general partners, formed a joint venture known as Fund VIII and
Fund IX Associates (the "Fund VIII - Fund IX Joint Venture"). The investment
objectives of Wells Fund IX are substantially identical to those of the
Partnership. As of December 31, 1997, the Partnership had contributed
$14,401,425 for an approximately 50% equity interest, and Wells Fund IX had
contributed $14,389,358 for an approximately 50% equity interest in the Fund
VIII - Fund IX Joint Venture. Although the ultimate percentages of ownership in
the Fund VIII - Fund IX Joint Venture have not yet been finally determined, it
is anticipated that the Partnership will contribute the remaining cost of
approximately $500,000 to complete the US Cellular Building for an approximately
51% equity interest.
US Cellular Building
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On June 17, 1996, the Fund VIII - Fund IX Joint Venture purchased a 7.09 acre
tract of real property in Madison, Dane County, Wisconsin for a total cost of
$859,255 including closing costs. The majority of construction has been
completed on a four-story office building containing approximately 101,727
rentable square feet (the "US Cellular Building").
In June 1997, Cellular One, a subsidiary of BellSouth Corporation, occupied its
leased space of 76,276 rentable square feet comprising approximately 75% of the
building. The initial term of the lease is 9 years and 11 months beginning in
June 1997, with the option to extend the initial term of the lease for two
consecutive five year periods. The annual base rent payable during the initial
term is $902,418 payable in equal monthly installments of $75,201 during the
first five years and $1,016,822 payable in equal monthly installments of $84,735
during the last four years and 11 months of the initial term. The annual base
rent for each extended term will be at market
7
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rental rate. Cellular One is required to pay additional rent equal to its share
of operating expenses during the lease term. Cellular One changed its name to US
Cellular as of October 31, 1997.
The land purchase and construction costs, to date, have been funded by capital
contributions of $4,987,444 by the Partnership and $5,012,444 by Wells Fund IX.
It is currently anticipated that the Partnership will contribute approximately
$500,000 to complete the property, which is estimated to be approximately
$10,500,000. The Partnership has reserved sufficient funds for this purpose.
The average effective annual rental per square foot at the US Cellular Building
was $8.87 for 1997, the first year of occupancy. The occupancy rate at year end
was 75% in 1997.
The TCI Building
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On October 10, 1996, the Fund VIII - Fund IX Joint Venture purchased a one-story
office building containing approximately 40,000 rentable square feet, located on
approximately 4.864 acres of land in Farmer's Branch, Dallas County, Texas for a
purchase price of $4,450,000 excluding acquisition costs (the "TCI Building").
The funds used by the Fund VIII - Fund IX Joint Venture to acquire the TCI
Building were derived from capital contributions made by the Partnership and
Wells Fund IX totaling $2,238,170 and $2,236,530, respectively, for total
contributions to the Fund VIII - Fund IX Joint Venture of $4,474,700, including
acquisition costs. The Partnership currently owns an approximately 50% equity
interest in the Fund VIII - Fund IX Joint Venture.
The TCI Building is leased to TCI Valwood Limited Partnership I for a period of
fifteen years, with options to extend the lease for three consecutive five-year
periods. The annual base rent is $430,001 during the first five years, $454,001
during the next five years and $482,001 during the last five years. The TCI
lease commenced on July 19, 1996 and was assigned by the seller to the Fund VIII
- - Fund IX Joint Venture on October 10, 1996. The lease agreement is a net lease
in that the tenant is responsible for the operating expenses including real
estate taxes.
The occupancy rate at the TCI Building at year end was 100% for 1997 and for the
last three months of 1996. The average effective rental per square foot in the
TCI Building is $11.49 for 1997 and 1996, the first year of ownership.
The Matsushita Building
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On January 10, 1997, the Fund VIII - Fund IX Joint Venture acquired a two story
office building containing approximately 65,006 rentable square feet on a 4.4
acre tract of land located at 15253 Bake Parkway, in the Irvine Spectrum planned
business community in metropolitan Orange County, California (the "Matsushita
Building"). The total consideration paid for the Matsushita Building was
$7,193,000 excluding acquisition expenses.
8
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The Matsushita Building was originally constructed in 1984 and was completely
refurbished in 1996. The entire Matsushita Building is currently under a net
lease dated April 29, 1996 (the "Lease") to Matsushita Avionics Systems
Corporation, a Delaware corporation ("Matsushita Avionics"), which Lease was
assigned to the Fund VIII - Fund IX Joint Venture at the closing. The Lease
currently expires in September 2003, and Matsushita Avionics has the option to
extend the Lease for two additional five-year periods.
The Lease provides that Matsushita Avionics' rental payment obligations do not
commence until the ninth month of the lease term which commenced when Matsushita
Avionics took possession in September 1996. Commencing in May 1997, the ninth
month of the lease term, the monthly base rental payable by Matsushita Avionics
under the Lease is $45,879.47 through the 12th month of the lease term. The
monthly base rental payable under the Lease for the 13th month of the lease term
through the 30th month of the lease term is $57,709.47; the monthly base rental
payable for the 31st month of the lease term through the 60th month of the lease
term is $59,611.98; and the monthly base rental payable for the 61st month of
the lease term through the 84th month of the lease term is $61,831.58. The
base rental payable during the option periods, if Matsushita Avionics exercises
its option to extend the Lease, is 95% of the then current market rental rate
for office space in other comparable buildings located in the Irvine area of
southern California. Under the Lease, Matsushita Avionics is responsible for
all utilities, taxes, insurance and other operating expenses during the term of
the Lease.
The funds used by the Fund VIII - Fund IX Joint Venture to acquire the
Matsushita Building were derived entirely from capital contributions made to the
Fund VIII Fund IX Joint Venture by the Partnership and Wells Fund IX. The
Partnership and Wells Fund IX made capital contributions of approximately
$3,620,316 and $3,608,109, respectively, to fund the purchase of the building,
for total capital contributions to the Fund VIII Fund IX Joint Venture with
respect to the Matsushita Building of approximately $7,228,425.
The average effective rental per square foot at the Matsushita building is $9.91
for 1997, the first year of ownership. The occupancy rate at year end was 100%
for 1997.
For additional information regarding the Matsushita Building, refer to the Form
8-K of Wells Real Estate Fund VIII, L.P. dated January 10, 1997 (Commission File
No. 0-27888).
The Cirrus Logic Building
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On February 20, 1997, the Fund VIII - Fund IX Joint Venture acquired a 4.26 acre
tract of real property in Broomfield, Colorado, located in Boulder County in the
Denver/Boulder metropolitan area (the "Denver Property"). A two-story office
building containing approximately 50,400 rentable square feet has been
constructed on the Denver Property (the "Cirrus Logic Building"). The Denver
Property is part of the Interlocken Business Park, a 963-acre business
development for advanced technology and research/development oriented companies.
9
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The purchase price paid for the Cirrus Logic Building was $7,029,000 excluding
acquisition costs. Construction of the Cirrus Logic Building was substantially
completed in March 1997 with Cirrus Logic, Inc. occupying the entire building.
Cirrus Logic is a Nasdaq-listed corporation and will use the leased premises as
office space for employees who design computer chips for the company's mass
storage division. The lease, as well as Cirrus Logic's obligation to pay rent,
commenced on the date upon which Cirrus Logic took occupancy of the building.
The lease with Cirrus Logic provides for a term of 15 years from the
commencement date. Cirrus Logic has the option to renew the lease for two
additional terms of five years each. The base rental payable during any such
extended term would be 95% of the then current market rental rate for comparable
office buildings in the Boulder County area.
The initial base annual rent payable by Cirrus Logic under its lease is equal to
10.29% of the costs related to acquiring the Denver Property and constructing
the Cirrus Logic Building; however, in no event shall the initial base annual
rent exceed $13.81 per square foot of leasable space. The base annual rent
derived from this formula will be increased by 10% beginning with the sixth year
of the lease and will be increased another 10% beginning with the eleventh year
of the lease.
Under its lease, Cirrus Logic is responsible for all utilities, cleaning taxes
and other operating expenses and for maintaining property and liability
insurance on the Cirrus Logic Building. The Fund VIII - Fund IX Joint Venture
shall maintain for its own benefit liability insurance for the Cirrus Logic
Building as well as insurance for fire, vandalism and malicious mischief.
The funds used by the Fund VIII - Fund IX Joint Venture to acquire the Cirrus
Logic Building were derived entirely from capital contributions made to the Fund
VIII Fund IX Joint Venture by the Partnership and Wells Fund IX. The
Partnership and Wells Fund IX each made capital contributions of approximately
$3,555,495 and $3,532,275, respectively, to fund the purchase of the property,
for total capital contributions to the Fund VIII - Fund IX Joint Venture with
respect to the Cirrus Logic Building of approximately $7,087,770.
The average effective rental rate per square foot at the Cirrus Logic Building
is $13.25 for 1997, the first year of occupancy. The occupancy rate at year end
was 100% for 1997.
For additional information regarding the Cirrus Logic Building, refer to the
Form 8-K of Wells Real Estate Fund VIII, L.P. dated February 20, 1997
(Commission File No. 0-27888).
ITEM 3. LEGAL PROCEEDINGS
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There were no material pending legal proceedings or proceedings known to be
contemplated by governmental authorities involving the Partnership during 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -------------------------------------------------------------
No matters were submitted to a vote of the Limited Partners during the fourth
quarter of 1997.
10
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PART II
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ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY HOLDER MATTERS.
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As of February 28, 1998, the Partnership had 2,643,680 outstanding Class A
Status Units held by a total of 1,957 Limited Partners and 559,589 outstanding
Class B Status Units held by a total of 285 Limited Partners. The capital
contribution per unit is $10.00. There is no established public trading for the
Partnership's limited partnership units, and it is not anticipated that a public
trading market for the units will develop. Under the Partnership Agreement, the
General Partners have the right to prohibit transfers of units.
Class A Status Limited Partners are entitled to a distribution from Net Cash
from Operations, as defined in the Partnership Agreement to mean cash flow, less
adequate cash reserves for other obligations of the Partnership for which there
is no provision, on a per Unit basis until they have received distributions in
each fiscal year of the Partnership equal to 10% of their adjusted capital
contributions. After this preference is satisfied, the General Partners will
receive an amount of Net Cash From Operations equal to 10% of the total amount
of Net Cash From Operations distributed. Thereafter, the Limited Partners
holding Class A Status Units will receive 90% of Net Cash From Operations and
the General Partners will receive 10%. No Net Cash from Operations will be
distributed to Limited Partners holding Class B Status Units. Holders of Class
A Status Units will, except in limited circumstances, be allocated none of the
Partnership's net loss, depreciation, amortization and cost recovery deductions.
These deductions will be allocated to the Class B Status Units, until their
capital account balances have been reduced to zero. No distributions have been
made to the General Partner as of December 31, 1997.
Cash available for distribution to the Limited Partners is distributed on a
quarterly basis unless Limited Partners select to have their cash distributed
monthly. Cash distributions made to Class A Status Limited Partners during the
two most recent fiscal years were as follows:
<TABLE>
<CAPTION>
PER CLASS A STATUS UNIT
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DISTRIBUTION FOR TOTAL CASH INVESTMENT RETURN OF
QUARTER ENDED DISTRIBUTED INCOME CAPITAL
- ------------------------ -------------- ------------- -------------
<S> <C> <C> <C>
March 31, 1996 $ 278,064 $ 0.11 $ 0.00
June 30, 1996 $ 275,224 $ 0.10 $ 0.00
September 30, 1996 $ 281,560 $ 0.11 $ 0.00
December 31, 1996 $ 317,451 $ 0.12 $ 0.00
March 31, 1997 $ 274,097 $ 0.10 $ 0.00
June 30, 1997 $ 332,218 $ 0.13 $ 0.00
September 30, 1997 $ 496,938 $ 0.19 $ 0.00
December 31, 1997 $ 530,514 $ 0.20 $ 0.00
</TABLE>
11
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The fourth quarter distribution was accrued for accounting purposes in 1997, and
was not actually paid to Limited Partners until February, 1998. Although there
is no assurance, the General Partners anticipate that cash distributions to
Limited Partners holding Class A Status Units will continue in 1998 at a level
at least comparable with 1997 cash distributions on an annual basis.
ITEM 6. SELECTED FINANCIAL DATA.
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The Partnership did not commence active operations until it received and
accepted subscriptions for a minimum of 125,000 units on February 24, 1995, and
accordingly, there is no comparative financial data available from prior fiscal
years. As of December 31, 1994, the Partnership's assets totaled approximately
$600 consisting primarily of the General Partners' capital contributions.
The following sets forth a summary of the selected financial data for the fiscal
years ended December 31, 1997, 1996 and the eleven months ended December 31,
1995.
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Total assets $27,021,694 $27,506,234 $26,254,253
Total revenues 1,204,018 1,057,694 402,428
Net income 1,102,567 936,590 273,914
Net loss allocated
to General Partners 0 (297) (203)
Net income allocated to
Class A Limited Partners 1,947,536 1,207,540 294,221
Net loss allocated to
Class B Limited Partners (844,969) (270,653) (20,104)
Net income per weighted
average (1) Class A
Limited Partner Unit 0.73 0.46 0.28
Net loss per weighted
average (1) Class B
Limited Partner Unit (1.50) (0.47) (0.03)
Cash Distributions per
weighted average (1)
Class A Limited Partner Unit:
Investment Income 0.62 0.44 0.28
Return of Capital 0.00 0.00 0.00
</TABLE>
(1) The weighted average unit is calculated by averaging units over the period
they are outstanding during the time units are still being purchased by Limited
Partners in the Partnership.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
- -------------------------------------------------------------------------
RESULTS OF OPERATION.
- ---------------------
The following discussion and analysis should be read in conjunction with the
Selected Financial Data and the accompanying financial statements of the
Partnership and notes thereto.
This Report contains forward-looking statements, within the meaning of Section
27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of
1934, including discussion and analysis of the financial condition of the
Partnership, anticipated capital expenditures required to complete certain
projects, amounts of cash distributions anticipated to be distributed to Limited
Partners in the future and certain other matters. Readers of this Report should
be aware that there are various factors that could cause actual results to
differ materially from any forward-looking statement made in the Report, which
include construction costs which may exceed estimates, construction delays,
lease-up risks, inability to obtain new tenants upon the expiration of existing
leases, and the potential need to fund tenant improvements or other capital
expenditures out of operating cash flow.
RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITIONS
- ---------------------------------------------------------
General
- -------
The Partnership commenced active operations on February 24, 1995, when it
received and accepted subscriptions for 125,000 units. As of December 31, 1997,
the Partnership had sold 2,643,680 Class A Status Units and 559,589 Class B
Status Units, held by a total of 1,957 and 285 Limited Partners respectively,
for total Limited Partner contributions of $32,042,689. After payment of
$1,273,995 in Acquisition and Advisory Fees, payment of $4,806,037 in selling
commissions and organization and offering expenses, the investment by the
Partnership of $4,002,732 in the Fund VII - Fund VIII Joint Venture, $5,700,000
in the Fund VI-VII-VIII Joint Venture and $14,401,425 in the Fund VIII Fund IX
Joint Venture, as of December 31, 1997, the Partnership was holding net offering
proceeds of approximately $1,850,000 available for investment in properties.
It is anticipated that additional investments in the Fund VII - Fund VIII Joint
Venture of approximately $130,000 will be required to complete the Gainesville
Property and $76,000 will be required to complete the Hannover Property, and an
additional investment in the Fund VIII - Fund IX Joint Venture of $500,000 will
be required to complete the US Cellular Building. It is anticipated that the
Partnership will contribute approximately $206,000 to the Fund VII - Fund VIII
Joint Venture and approximately $500,000 to the Fund VIII - Fund IX Joint
Venture for completion of these projects. The Partnership has reserved
$706,000 out of its net offering proceeds of approximately $1,850,000 available
for investment in properties for these purposes.
13
<PAGE>
Gross revenues of the Partnership were $1,204,018 for the year ended December
31, 1997, as compared to $1,057,694 for the year ended December 31, 1996 and
$402,428 for the eleven months ended December 31, 1995. This increase was
attributable primarily to increased investment in joint ventures and varying
interest income earned on funds held by the Partnership. Expenses of the
Partnership were $101,451 for 1997 as compared to $121,104 for 1996 and $128,514
for 1995. The decrease in expenses in each year since 1995 consisted primarily
of decreased partnership administrative costs and decreased legal and accounting
expenses. Net income of the Partnership was $1,102,567 for the year ended
December 31, 1997, as compared to $936,590 for the year ended December 31, 1996
and $273,914 for the eleven months ended December 31, 1995.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," which is
effective for fiscal years beginning after December 15, 1995. SFAS No. 121
establishes standards for determining when impairment losses on long-lived
assets have occurred and how impairment losses should be measured. The joint
ventures adopted SFAS No. 121, effective January 1, 1995. The impact of
adopting SFAS No. 121 was not material to the financial statements of the joint
ventures.
The Partnership made cash distributions of investment income to Limited Partners
holding Class A Status Units of $0.62 per Class A Status Unit for the year ended
December 31, 1997, $0.44 per Class A Status Unit for the year ended December 31,
1996 and $0.28 per Class A Status Unit for the eleven months ended December 31,
1995. The General Partners anticipate distributions per Unit will continue to
increase for Limited Partners holding Class A Status Units in 1998.
Distributions accrued for the fourth quarter of 1997 to the Limited Partners
holding Class A Status Units were paid in February, 1998. No cash distributions
were made to Limited Partners holding Class B Status Units.
14
<PAGE>
Property Operations
- -------------------
The Partnership's ownership interest in the Fund VII - Fund VIII Joint Venture
is 62%, in the Fund VI-VII-VIII Joint Venture is 32%, and in the Fund VIII -
Fund IX Joint Venture is 50%.
As of December 31, 1997, the Partnership owned equity through interests in Joint
Ventures in the following operational properties:
CH2M Hill at Gainesville/Fund VII - Fund VIII Joint Venture
- -----------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
---------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- ------------------------
<S> <C> <C>
Revenues:
Rental Income $530,493 $534,276
Expenses:
Depreciation 218,181 222,328
Management & leasing expenses 78,850 80,258
Other operating expenses (66,963) (1,380)
-------- --------
230,068 301,206
-------- --------
Net income $300,425 $233,070
======== ========
Occupied % 94.0% 94.0%
Partnership's Ownership % in the Fund VII
- VIII Joint Venture 62.0% 62.0%
Cash Distribution to Partnership $324,539 $268,812
Net Income Allocated to the Partnership $186,402 $156,368
</TABLE>
In February, 1995, the Fund VII - Fund VIII Joint Venture acquired a 5.0 acre
tract of land located in Gainesville, Alachua County, Florida for the purpose of
constructing a 62,975 square foot (61,468 rentable square feet) office building.
A 9 year, 11 month lease to occupy 57,457 square feet was signed by CH2M Hill.
The annual base rent is $530,313 payable in equal monthly installments of
$44,193. CH2M Hill occupied their portion of the building in mid-December, 1995.
Accordingly, no comparative financial data is available for 1995.
Net income and cash distributions have increased in 1997 over 1996 due primarily
to decreased operating expenses and increased common area billings to the
tenant.
Real estate taxes were $75 for 1995, based on undeveloped land, $79,235 for 1996
and $79,428 for 1997.
15
<PAGE>
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, Page 3.
The Hannover Center/Fund VII - Fund VIII Joint Venture
- ------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
<S> <C> <C>
Revenues:
Rental income $107,379 $ 48,988
Expenses:
Depreciation 43,925 31,391
Management & leasing expenses 11,237 4,424
Other operating expenses 25,813 28,812
-------- --------
80,975 64,627
-------- --------
Net income (loss) $ 26,404 $(15,639)
======== ========
Occupied % 50% 50%
Partnership's Ownership % in the
Fund VII - VIII Joint Venture 62% 62%
Cash distribution to Partnership $ 37,892 $ 5,755
Net income (loss) allocated to the $ 16,382 $ (9,703)
Partnership
</TABLE>
On April 1, 1996, Fund VII - Fund VIII Joint Venture acquired a 1.01 acre tract
of land and a 12,000 square foot combination retail/office building known as the
Hannover Retail Center.
Moovies, Inc., a video store and rental store, signed a nine year, eleven month
lease for 6,020 square feet and occupied the space and opened for business on
June 22, 1996. Accordingly, no comparative financial data is available for
prior years.
Real estate taxes were $12,219 for 1997 and $9,650 for 1996.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
16
<PAGE>
BellSouth Property / Fund VI - VII - VIII Joint Venture
- -------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED EIGHT MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
<S> <C> <C>
Revenues:
Rental income $1,524,708 $876,711
Interest income 8,188 60,092
---------- --------
1,532,896 936,803
---------- --------
Expenses:
Depreciation 443,544 290,407
Management & leasing expenses 191,176 99,330
Other operating expenses 414,754 288,665
---------- --------
1,049,474 678,402
---------- --------
Net income $ 483,422 $258,401
========== ========
Occupied % 100% 100%
Partnership's Ownership % in the
Fund VI- VII - VIII Joint Venture 32.3% 28.1%
Cash distribution to Partnership $ 289,843 $110,429
Net income allocated to the Partnership $ 146,895 $ 59,658
</TABLE>
On April 25, 1995, the Fund VI - VII - VIII Joint Venture purchased 5.55 acres
of land located in Jacksonville, Florida. In May 1996, the 92,964 square foot
office building was completed, with BellSouth Advertising and Publishing
Corporation occupying approximately 66,333 square feet and American Express
occupying approximately 22,607 square feet. An additional approximate 3,091
square feet of additional space was occupied by BellSouth commencing in
December, 1996 bringing occupancy to 100%.
The initial term of the BellSouth lease is for nine years and eleven months. The
annual base rent during the initial term is $1,048,061 during the first five
years and $1,150,878 for the balance of the initial lease term. The American
Express lease is for a term of five years at an annual base rent of $369,851.
BellSouth and American Express are required to pay additional rent equal to
their share of operating expenses during their respective lease terms.
Interest income was generated from construction dollars, not as yet funded on
construction, being invested in interest bearing accounts.
Since the building opened in May, 1996, comparative income and expense figures
for prior years are not available. The BellSouth Property incurred property
taxes of $164,400 for 1997 and $23,234 for 1996, the first year of occupancy.
17
<PAGE>
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
Tanglewood Commons/Fund VI-VII-VIII Joint Venture
- -------------------------------------------------
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED
DECEMBER 31, 1997
--------------------
<S> <C>
Revenues:
Rental income $562,880
Interest income 11,276
--------
574,156
--------
Expenses:
Depreciation 191,155
Management & leasing expense 41,589
Other operating expenses 88,873
--------
321,617
--------
Net income $252,539
========
Occupied % 86.0%
Partnership's Ownership % in the
Fund VI - Fund VII - Fund VIII Joint Venture 32.3%
Cash distribution to Partnership $118,839
Net income allocated to Partnership $ 79,268
</TABLE>
On May 31, 1995, the Fund VI-VII-VIII Joint Venture purchased a 14.683 acre
tract of real property located in Clemmons, Forsyth County, North Carolina. The
land purchase costs were funded by a capital contribution made by Wells Fund VI.
Total cost and expenses to be incurred by the Fund VI-VII-VIII Joint Venture for
the acquisition, development, construction and completion of the shopping center
were approximately $8,700,000. A strip shopping center containing approximately
67,320 gross square feet opened on the site on February 26, 1997.
In February 1997, Harris Teeter, Inc., a regional supermarket chain, occupied
its leased space of 46,120 square feet with an initial term of 20 years. The
annual base rent during the initial term is $488,250. In addition, Harris
Teeter has agreed to pay percentage rents equal to one percent of the amount by
which Harris Teeter's gross sales exceed $35,000,000 for any lease year.
Tanglewood Commons incurred property taxes of $58,466 for 1997, the first year
of occupancy. Since this property commenced operations in February 1997,
comparable income and expense figures for the prior year are not available.
18
<PAGE>
The TCI Building - Fund VIII -Fund IX Joint Venture
- ---------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------ ------------------
<S> <C> <C>
Revenues:
Rental income $459,656 $101,277
Interest income 6,607 0
Other income 4,479 0
-------- --------
470,742 102,277
-------- --------
Expenses:
Depreciation 166,595 50,444
Management & leasing expenses 17,496 3,884
Other operating expenses 14,561 1,050
-------- --------
198,652 55,378
-------- --------
Net income $272,090 $ 45,899
======== ========
Occupied % 100% 100%
Partnership's Ownership % in the
Fund VIII - Fund IX Joint Venture 50.1% 49.9%
Cash distribution to Partnership $206,961 $ 45,965
Net income allocated to the Partnership $136,186 $ 22,892
</TABLE>
On October 10, 1996, the Fund VIII - Fund IX Joint Venture purchased a one-story
office building containing approximately 40,000 rentable square feet, located on
approximately 4.864 acres of land in Farmer's Branch, Dallas, Texas (the "TCI
Building") for a purchase price of $4,450,000 excluding acquisition costs.
The TCI Building is leased to TCI Valwood Limited Partnership I for a period of
fifteen years, with options to extend the lease for three consecutive five-year
periods. The annual base rent is $430,001 during the first five years, $454,001
during the next five years and $482,001 during the last five years. The TCI
lease commenced on July 19, 1996, and was assigned by the seller to the Fund
VIII - Fund IX Joint Venture at closing.
Since the TCI Building was purchased in October 1996, comparative income and
expense figures for the prior year are not available. Real estate taxes and
primarily all operational expenses for the building are the responsibility of
the tenant.
The funds used by the Fund VIII - Fund IX Joint Venture to acquire the TCI
Building were derived from capital contributions made by the Partnership and
Wells Fund IX, totaling $2,238,170 and $2,236,530, respectively. The
Partnership currently owns an approximately 50% equity interest in the Fund VIII
- - Fund IX Joint Venture.
19
<PAGE>
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
The Matsushita Building/Fund VIII - Fund IX Joint Venture
- ---------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
------------------
<S> <C>
Revenues:
Rental income $644,240
Interest income 1,511
--------
645,751
--------
Expenses:
Depreciation 215,670
Management & leasing expense 30,872
Other operating expenses 3,973
--------
250,515
--------
Net income $395,236
========
Occupied % 100.0%
Partnership's Ownership % in the
Fund VIII - Fund IX Joint Venture 50.1%
Cash distribution to Partnership $185,783
Net income allocated to Partnership $197,953
</TABLE>
On January 10, 1997, the Fund VIII - Fund IX Joint Venture acquired a two-story
office building containing approximately 65,006 rentable square feet on a 4.4
acre tract of land located in the Irvine Spectrum planned business community in
metropolitan Orange County, California (the "Matsushita Building") for a
purchase price of $7,193,000 excluding acquisition costs.
The entire Matsushita Building is currently under a net lease to Matsushita
Avionics Systems Corporation. Matsushita Avionics' rental payment obligations
do not begin until the ninth month of the lease term which commenced when
Matsushita Avionics took possession in September 1996. Commencing in May 1997,
the ninth month of the lease term, the monthly base rental payable by Matsushita
Avionics under the lease is $45,879.47 through the 12th month of the lease term.
The monthly base rental payable under the lease for the 13th month of the lease
term through the 30th month of the lease term is $57,709.47; the monthly base
rental payable for the 31st month of the lease term through the 60th month of
the lease term is $59,611.98; and the monthly base rental payable for the 61st
month of the lease term through the 84th month of the lease term is $61,831.58.
The base rental payable during the option periods, if Matsushita
20
<PAGE>
Avionics exercises its option to extend the lease, is 95% of the then current
market rental rate for office space in other comparable buildings located in the
Irvine area of southern California.
Since the Matsushita Building was purchased in January 1997, comparative income
and expense figures for the prior year are not available. Real estate taxes and
primarily all operational expenses for the building are the responsibility of
the tenant.
The funds used by the Fund VIII - Fund IX Joint Venture to acquire the
Matsushita Building were derived from capital contributions made by the
Partnership and Wells Fund IX, totaling $3,620,316 and $3,608,109, respectively.
The Partnership currently owns an approximately 50% equity interest in the Fund
VIII - Fund IX Joint Venture.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
The Cirrus Logic Building/Fund VIII - Fund IX Joint Venture
- -----------------------------------------------------------
<TABLE>
<CAPTION>
TEN MONTHS ENDED
DECEMBER 31, 1997
------------------
<S> <C>
Revenues:
Rental income $584,373
Interest income 21,402
--------
605,775
--------
Expenses:
Depreciation 236,049
Management & leasing expense 25,605
Other operating expenses 5,330
--------
266,984
--------
Net income $338,791
========
Occupied % 100.0%
Partnership's Ownership % in the
Fund VIII - Fund IX Joint Venture 50.1%
Cash distribution to Partnership $234,721
Net income allocated to Partnership $169,670
</TABLE>
On February 20, 1997, the Fund VIII - Fund IX Joint Venture purchased a two-
story partially completed office building in Boulder County, Colorado (the
"Cirrus Logic Building") for $7,029,000, excluding acquisition costs.
Construction of the 49,460 square foot building was substantially completed in
March 1997.
21
<PAGE>
Cirrus Logic, Inc. has leased the entire building for a fifteen year term
beginning March 17, 1997. The annual base rental under the term of the Cirrus
Logic lease is $617,656 for the first five years, will be increased by 10% in
the sixth through tenth years and will be increased an additional 10% in years
eleven through fifteen.
Since the Cirrus Logic Building was purchased in February 1997 and was not
completed until March 1997, comparative income and expense figures for the prior
year are not available. Real estate taxes and primarily all operational expenses
for the building are the responsibility of the tenant.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
The funds used by the Fund VIII - Fund IX Joint Venture to acquire the Cirrus
Logic Building were derived from capital contributions made by the Partnership
and Wells Fund IX, totaling $3,555,495 and $3,532,275, respectively. The
Partnership currently owns an approximately 50% equity interest in the Fund VIII
- - Fund IX Joint Venture.
The US Cellular Building/Fund VIII - Fund IX Joint Venture
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
DECEMBER 31, 1997
-------------------
<S> <C>
Revenues:
Rental income $519,542
Expenses:
Depreciation 276,566
Management & leasing expense 47,957
Other operating expenses (8,883)
--------
315,640
--------
Net income $203,902
========
Occupied % 75.0%
Partnership's Ownership % in the
Fund VIII - Fund IX Joint Venture 50.1%
Cash distribution to Partnership $191,778
Net income allocated to Partnership $102,151
</TABLE>
On June 17, 1996, the Fund VIII - Fund IX Joint Venture purchased a 7.09 acre
tract of real property in Madison, Dane County, Wisconsin. Total cost and
expenses to be incurred by the
22
<PAGE>
Fund VIII - Fund IX Joint Venture for the acquisition, development, construction
and completion of the 101,727 rentable square foot building is estimated to be
approximately $10,500,000. It is anticipated that the Partnership will fund the
approximately $500,000 needed to complete construction on this project.
In June 1997, Cellular One, a subsidiary of BellSouth Corporation, occupied its
leased space of 76,276 square feet comprising approximately 75% of the building.
The initial term of the lease is 9 years and 11 months beginning in June 1997,
with the option to extend the initial term of the lease for two consecutive
five-year periods. The annual base rent payable during the initial term is
$902,418 payable in equal monthly installments of $75,201 during the first five
years and $1,016,822 payable in equal monthly installments of $84,735 during the
last four years and 11 months of the initial term. The annual base rent for
each extended term will be at market rental rates. Cellular One changed its
name to US Cellular as of October 31, 1997.
Since the US Cellular Building opened June 15, 1997, comparative income and
expenses figures are not available for prior periods. The building incurred
property taxes of $93,865 for 1997, the first year of occupancy.
As of December 31, 1997, the funds used by the Fund VIII - Fund IX Joint Venture
to acquire and develop the US Cellular Building were derived from capital
contributions made by the Partnership and Wells Fund IX, totaling $4,987,444 and
$5,012,444, respectively. The Partnership currently owns an approximately 50%
equity interest in the Fund VIII - Fund IX Joint Venture.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership commenced active operations on February 24, 1995, when it
received and accepted subscriptions for 125,000 Units. As of December 31, 1997,
the Partnership raised $32,042,689 in capital through the sale of 3,204,269
Units. After payment of $6,087,744 in acquisition and advisory fees, selling
commissions and organizational and offering expenses, a repurchase of 1,000
limited partnership units, and the investment by the Partnership of $24,104,160
in Joint Ventures, as of December 31, 1997, the Partnership was holding net
offering proceeds of approximately $1,850,000 available for investment in
additional properties.
The Partnership's net cash provided by operating activities decreased to $7,909
in 1997 as compared to $623,268 for 1996 due primarily to decreased interest
income earned on funds held by the Partnership prior to investment in
properties. Net cash used in investing activities of $9,446,529 in 1997 is
primarily the result of investments in the joint ventures offset by
distributions received from the joint ventures. The offering terminated on
January 5, 1996. Distribution to partners began in 1996 and increased in 1997.
Net cash (used in) provided by financing activities is the result of raising
$1,898,147 in 1996 and $30,144,542 in 1995 in Limited Partners contributions
less commissions and organizational and offering expenses.
23
<PAGE>
The Partnership's distributions paid and payable through the fourth quarter of
1997 have been paid from net cash from operations and from distributions
received from its equity investment in joint ventures. The Partnership
anticipates that distributions will continue to be paid on a quarterly basis
from such sources. No cash distributions were paid to Class B Unit holders for
1997. The Partnership expects to meet liquidity requirements and budget demands
through cash flow from operations.
The Partnership expects to make future real estate investments, directly or
through investments in joint ventures, from limited partnership contributions
and, as of December 31, 1997, has reserved approximately $206,000 for final
tenant buildout of the Gainesville Property and the Hannover Property owned by
the Fund VII - Fund VIII Joint Venture, and $500,000 needed to complete the US
Cellular Building owned by the Fund VIII-Fund IX Joint Venture.
Since properties are acquired on an all-cash basis, the Partnership has no
permanent long-term liquidity requirements.
INFLATION
- ----------
The real estate market has not been affected significantly by inflation in the
past three years due to the relatively low inflation rate. There are provisions
in the majority of tenant leases to protect the Partnership from the impact of
inflation. These leases contain common area maintenance charges (CAM charges),
real estate tax and insurance reimbursements on a per square foot bases, or in
some cases, annual reimbursement of operating expenses above a certain per
square foot allowance. These provisions should reduce the Partnership's
exposure to increases in costs and operating expenses resulting from inflation.
The General Partners have verified that all operational computer systems are
year 2000 compliant. This includes systems supporting accounting, property
management and investor services. Also, as part of this review, all building
control systems have been verified as compliant. The current line of business
applications are based on compliant operating systems and database servers. All
of these products are scheduled for additional upgrades before the year 2000.
Therefore, it is not anticipated that the year 2000 will have significant impact
on operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ----------------------------------------------------
The Financial Statements of the Registrant and supplementary data are detailed
under Item 14 (a) and filed as part of the report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
- --------------------
The Partnership's change in accountants during 1995 was previously reported in
the Partnership's Form 8-K dated September 11, 1995. There were no
disagreements with the Partnership's accountants or other reportable events
during 1997.
24
<PAGE>
PART III
--------
ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP.
- ----------------------------------------------
WELLS PARTNERS, L.P. Wells Partners, L.P. is a private Georgia limited
- --------------------
partnership formed on October 25, 1990. The sole General Partner of Wells
Partners, L.P. is Wells Capital, Inc., a Georgia corporation. The executive
offices of Wells Capital, Inc. are located at 3885 Holcomb Bridge Road,
Norcross, Georgia 30092.
LEO F. WELLS, III. Mr. Wells is a resident of Atlanta, Georgia, is 54 years
- -----------------
of age and holds a Bachelor of Business Administration Degree in Economics from
the University of Georgia. Mr. Wells is the President and sole Director of
Wells Capital, Inc. Mr. Wells is the President of Wells & Associates, Inc., a
real estate brokerage and investment company formed in 1976 and incorporated in
1978, for which he serves as principal broker. Mr. Wells is also currently the
sole Director and President of Wells Management Company, Inc., a property
management company he founded in 1983. In addition, Mr. Wells is the President
and Chairman of the Board of Wells Investment Securities, Inc., Wells &
Associates, Inc., and Wells Management Company, Inc. which are affiliates of the
General Partners. From 1980 to February 1985, Mr. Wells served as Vice-
President of Hill-Johnson, Inc., a Georgia corporation engaged in the
construction business. From 1973 to 1976, he was associated with Sax Gaskin
Real Estate Company and from 1970 to 1973, he was a real estate salesman and
property manager for Roy D. Warren & Company, an Atlanta real estate company.
25
<PAGE>
ITEM 11. COMPENSATION OF GENERAL PARTNERS AND AFFILIATES.
- ----------------------------------------------------------
The following table summarizes the compensation and fees (including
reimbursement of expenses) paid to the General Partners and their affiliates
during the year ended December 31, 1997.
CASH COMPENSATION TABLE
-----------------------
<TABLE>
<CAPTION>
( A ) ( B ) ( C )
NAME OF INDIVIDUAL OR NUMBER IN CAPACITIES IN WHICH SERVED FORM
GROUP OF COMPENSATION CASH COMPENSATION
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Wells Management Company, Inc. Property Manager - $164,662 (1)
Management & Leasing Fees
</TABLE>
(1) These fees are not paid directly by the Partnership but are paid by the
joint venture entities which owns properties for which the property
management and leasing services relate and include management and leasing
fees which were accrued for accounting purposes in 1997 but not actually
paid until January, 1998.
26
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
No Limited Partner is known by the Partnership to own beneficially more than 5%
of the outstanding units of the Partnership.
Set forth below is the security ownership of management as of February 28, 1998.
<TABLE>
<S> <C> <C> <C>
(1) (2) (3) (4)
NAME AND ADDRESS OF AMOUNT AND NATURE OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------------- ----------------------- -------------------- ----------------
Class A Units Leo F. Wells, III 140.88 Units Less than 1%
(IRA, 401 (k) Plan)
</TABLE>
No arrangements exist which would, upon operation, result in a change in control
of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
The compensation and fees paid or to be paid by the Partnership to the General
Partners and their affiliates in connection with the operation of the
Partnership are as follows:
INTEREST IN PARTNERSHIP CASH FLOW AND NET SALES PROCEEDS.
- --------------------------------------------------------
The General Partners will receive a subordinated participation in net cash flow
from operations equal to 10% of net cash flow after the Limited Partners holding
Class A Status Units have received preferential distributions equal to 10% of
their adjusted capital accounts in each fiscal year. The General Partners will
also receive a subordinated participation in net sales proceeds and net
financing proceeds equal to 20% of residual proceeds available for distribution
after Limited Partners holding Class A Status Units have received a return of
their adjusted capital contributions plus a 10% cumulative return on their
adjusted capital contributions and Limited Partners holding Class B Units have
received a return of their adjusted capital contributions plus a 15% cumulative
return on their adjusted capital contributions; provided, however, that in no
event shall the General Partners receive in the aggregate in excess of 15% of
net sales proceeds and net financing proceeds remaining after payments to
Limited Partners from such proceeds of amounts equal to the sum of their
adjusted capital contributions plus a 6% cumulative return on their adjusted
capital contributions. The General Partners did not receive any distributions
from net cash flow from operations or net sales proceeds for the year ended
December 31, 1997.
27
<PAGE>
PROPERTY MANAGEMENT AND LEASING FEES.
- ------------------------------------
Wells Management Company, Inc., an affiliate of the General Partners, will
receive compensation for supervising the management of the Partnership
properties equal to the lessor of (A) (i) 3% of the gross revenues for
management and 3% of the gross revenues for leasing (aggregate maximum of 6%)
plus a separate one-time fee for initial rent-up or leasing-up of newly
constructed properties in an amount not to exceed the fee customarily charged in
arm's-length transactions by others rendering similar services in the same
geographic area for similar properties; and (ii) in the case of industrial and
commercial properties which are leased on a long-term basis (ten or more years),
1% of the gross revenues except for initial leasing fees equal to 3% of the
gross revenues over the first five years of the lease term; or (B) the amounts
charged by unaffiliated persons rendering comparable services in the same
geographic area.
Management and leasing fees are not paid directly by the Partnership but by the
joint venture entity which owns the properties. The Partnership's share of
these fees were $164,662 for the year ended December 31, 1997.
REAL ESTATE COMMISSIONS.
- -----------------------
In connection with the sale of Partnership properties, the General Partners or
their affiliates may receive commissions not exceeding the lesser of (A) 50% of
the commissions customarily charged by other brokers in arm's-length
transactions involving comparable properties in the same geographic area or (B)
3% of the gross sales price of the property, and provided that payments of such
commissions will be made only after Limited Partners have received prior
distributions totaling 100% of their capital contributions plus a 6% cumulative
return on their adjusted capital contributions. No real estate commissions were
paid to the General Partners or affiliates for the year ended December 31, 1997.
28
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- --------------------------------------------------------------------------
(a) 1. The Financial Statements are contained on Pages F-2 through F-30 of this
Annual Report on Form 10-K, and the list of the Financial Statements
contained herein is set forth on page F-1, which is hereby incorporated
by reference.
(a) 2. Financial Statement Schedule III
Information with respect to this item begins on Page S-1 of this Annual
Report on Form 10-K
(a)3. The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(B) No reports on Form 8-K were filed with the Commission during the fourth
quarter of 1997.
(C) The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(D) See (a) 2 above.
29
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Sections 13 or 15(d) 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 this 17th day of March,
1998.
WELLS REAL ESTATE FUND VIII, L.P.
(Registrant)
By: /s/ Leo F. Wells, III
-------------------------------------------
Leo F. Wells, III
Individual General Partner and as President
and Chief Financial Officer of Wells
Capital, Inc., the General Partner of Wells
Partners, L.P.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacity as and on the date indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C> <C>
/s/Leo F. Wells, III Individual General Partner, March 17, 1998
- ----------------------- President and Sole Director of
Leo F. Wells, III Wells Capital, Inc., the
General Partner of Wells
Partners, L.P.
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRARS WHICH HAVE NOT BEEN REGISTERED PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material relating to an annual or other meeting of
security holders has been sent to security holders.
30
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
- ----------------------------------------------------------------------- ----
<S> <C>
Independent Auditors' Report F-2
Balance Sheets as of December 31, 1997, 1996 and 1995 F-3
Statements of Income for the Year Ended December 31, 1997, 1996
and for the Eleven Months ended December 31, 1995 F-4
Statements of Partners' Capital for the Year Ended December 31, 1997,
December 31, 1996 and for the Eleven Months ended
December 31, 1995 F-5
Statements of Cash Flows for the Year Ended December 31, 1997,
1996 and for the Eleven Months ended December 31, 1995 F-6
Notes to Financial Statements for December 31, 1997, 1996 and
1995 F-7
</TABLE>
F-1
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Real Estate Fund VIII, L.P.:
We have audited the accompanying balance sheets of WELLS REAL ESTATE FUND VIII,
L.P. (a Georgia public limited partnership) as of December 31, 1997 and 1996 and
the related statements of income, partners' capital, and cash flows for the
years ended December 31, 1997 and 1996 and the 11 months ended December 31,
1995. These financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Real Estate Fund VIII,
L.P. as of December 31, 1997 and 1996 and the results of its operations and its
cash flows for the years ended December 31, 1997 and 1996 and the 11 months
ended December 31, 1995 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule III--Real Estate Investments
and Accumulated Depreciation as of December 31, 1997 is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 9, 1998
F-2
<PAGE>
WELLS REAL ESTATE FUND VIII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
INVESTMENT IN JOINT VENTURES $24,501,876 $13,787,531
CASH AND CASH EQUIVALENTS 1,848,493 12,716,219
DUE FROM AFFILIATES 548,507 187,433
DEFERRED PROJECT COSTS 103,318 697,301
ORGANIZATION COSTS, LESS ACCUMULATED
AMORTIZATION OF $12,500 IN 1997 AND
$6,250 IN 1996 12,500 18,750
PREPAID EXPENSES AND OTHER ASSETS 7,000 99,000
----------- -----------
Total assets $27,021,694 $27,506,234
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses $ 0 $ 5,500
Partnership distributions payable 530,714 317,453
Due to affiliate 0 152,501
----------- -----------
Total liabilities 530,714 475,454
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Limited partners:
Class A 22,828,363 22,367,784
Class B 3,662,617 4,662,896
Original limited partner 0 100
----------- -----------
Total partners' capital 26,490,980 27,030,780
----------- -----------
Total liabilities and partners'
capital $27,021,694 $27,506,234
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
WELLS REAL ESTATE FUND VIII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
THE 11 MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
REVENUES:
Equity in income of joint ventures $1,034,907 $ 241,819 $ 28,377
Interest income 169,111 815,875 374,051
---------- ---------- --------
1,204,018 1,057,694 402,428
---------- ---------- --------
EXPENSES:
Partnership administration 58,391 74,440 103,444
Legal and accounting 27,592 35,745 12,882
Amortization of organization costs 6,250 6,250 6,250
Other 9,218 4,669 5,938
---------- ---------- --------
101,451 121,104 128,514
---------- ---------- --------
NET INCOME $1,102,567 $ 936,590 $273,914
========== ========== ========
NET LOSS ALLOCATED TO GENERAL
PARTNERS $ 0 $ (297) $ (203)
========== ========== ========
NET INCOME ALLOCATED TO CLASS
A LIMITED PARTNERS $1,947,536 $1,207,540 $294,221
========== ========== ========
NET LOSS ALLOCATED TO CLASS
B LIMITED PARTNERS $ (844,969) $ (270,653) $(20,104)
========== ========== ========
NET INCOME PER WEIGHTED AVERAGE
CLASS A LIMITED PARTNER UNIT $ 0.73 $ 0.46 $ 0.28
========== ========== ========
NET LOSS PER WEIGHTED AVERAGE
CLASS B LIMITED PARTNER UNIT $ (1.50) $ (0.47) $ (0.03)
========== ========== ========
CASH DISTRIBUTION PER WEIGHTED
AVERAGE CLASS A LIMITED
PARTNER UNIT $ 0.62 $ 0.44 $ 0.28
========== ========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
WELLS REAL ESTATE FUND VIII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE 11 MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
LIMITED PARTNERS
-----------------------------------------------------------
CLASS A CLASS B TOTAL
----------------------- --------------------- GENERAL PARTNERS'
ORIGINAL UNITS AMOUNT UNITS AMOUNT PARTNERS CAPITAL
---------- --------- ----------- ------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ 100 0 $ 0 0 $ 0 $ 500 $ 600
Net income (loss) 0 0 294,221 0 (20,104) (203) 273,914
Limited partner contributions 0 2,456,287 24,562,868 558,167 5,581,674 0 30,144,542
Partnership distributions 0 0 (295,926) 0 0 0 (295,926)
Sales commissions and discounts 0 0 (2,456,287) 0 (558,168) 0 (3,014,455)
Other offering expenses 0 0 (1,202,674) 0 (273,303) 0 (1,475,977)
---------- --------- ----------- ------- ---------- ----- -----------
BALANCE, DECEMBER 31, 1995 100 2,456,287 20,902,202 558,167 4,730,099 297 25,632,698
Net income (loss) 0 0 1,207,540 0 (270,653) (297) 936,590
Limited partner contributions 0 166,349 1,642,845 23,466 255,302 0 1,898,147
Partnership distributions 0 0 (1,152,299) 0 0 0 (1,152,299)
Sales commissions and discounts 0 0 (154,881) 0 (34,568) 0 (189,449)
Other offering expenses 0 0 (77,623) 0 (17,284) 0 (94,907)
---------- --------- ----------- ------- ---------- ----- -----------
BALANCE, DECEMBER 31, 1996 100 2,622,636 22,367,784 581,633 4,662,896 0 27,030,780
Net income (loss) 0 0 1,947,536 0 (844,969) 0 1,102,567
Partnership distributions 0 0 (1,633,767) 0 0 0 (1,633,767)
Class B conversion elections 0 22,044 155,310 (22,044) (155,310) 0 0
Return of capital (100) (1,000) (8,500) 0 0 0 (8,600)
---------- --------- ----------- ------- ---------- ----- -----------
BALANCE, DECEMBER 31, 1997 $ 0 2,643,680 $22,828,363 559,589 $3,662,617 $ 0 $26,490,980
========== ========= =========== ======= ========== ===== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
WELLS REAL ESTATE FUND VIII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
THE 11 MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,102,567 $ 936,590 $ 273,914
------------ ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of joint ventures (1,034,907) (241,819) (28,377)
Amortization of organization costs 6,250 6,250 6,250
Changes in assets and liabilities:
Prepaid expenses and other assets 92,000 (35,000) (64,000)
Organization costs 0 0 (31,250)
Accounts payable and accrued expenses (5,500) 50 5,450
Due to affiliates, net of deferred offering costs (152,501) (42,803) 42,803
------------ ----------- -----------
Total adjustments (1,094,658) (313,322) (69,124)
------------ ----------- -----------
Net cash provided by operating activities 7,909 623,268 204,790
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint ventures (10,675,811) (7,865,131) (5,563,214)
Deferred project costs paid 0 (66,435) (1,055,059)
Distributions received from joint ventures 1,229,282 279,984 20,287
------------ ----------- -----------
Net cash used in investing activities (9,446,529) (7,651,582) (6,597,986)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners from accumulated earnings (1,420,506) (1,130,772) 0
Limited partners' contributions 0 1,898,147 30,144,542
Sales commission paid 0 (369,853) (2,834,051)
Return of capital (8,600) 0 0
Offering costs paid 0 (94,907) (1,475,977)
------------ ----------- -----------
Net cash (used in) provided by financing activities (1,429,106) 302,615 25,834,514
------------ ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(10,867,726) (6,725,699) 19,441,318
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,716,219 19,441,918 600
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,848,493 $12,716,219 $19,441,918
============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied to joint venture properties $ 593,983 $ 337,782 $ 238,912
============ =========== ===========
Increase in deferred project cost accrual $ 0 $ (152,501) $ 0
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
WELLS REAL ESTATE FUND VIII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Real Estate Fund VIII, L.P. (the "Partnership") is a public limited
partnership organized on August 15, 1994 under the laws of the state of
Georgia. The general partners are Leo F. Wells, III and Wells Partners L.P.
("Wells Partners"), a Georgia nonpublic limited partnership. The Partnership
has two classes of limited partnership interests, Class A and Class B units.
Limited partners shall have the right to change their prior elections to have
some or all of their units treated as Class A units or Class B units one time
during each quarterly accounting period. Limited partners may vote to, among
other things, (a) amend the partnership agreement, subject to certain
limitations, (b) change the business purpose or investment objectives of the
Partnership, and (c) remove a general partner. A majority vote on any of the
above described matters will bind the Partnership, without the concurrence of
the general partners. Each limited partnership unit has equal voting rights,
regardless of class.
The Partnership was formed to acquire and operate commercial real properties,
including properties which are either to be developed, currently under
development or construction, newly constructed, or have operating histories.
The Partnership owns an interest in the following properties through joint
ventures between the Partnership and other Wells Real Estate Funds: (i) an
office building in Jacksonville, Florida (the "BellSouth property"); (ii) a
retail shopping center in Clemmons, Forsyth County, North Carolina; (iii) an
office building in Gainesville, Florida; (iv) a retail office building
located in Stockbridge, Georgia; (v) an office building in Madison, Wisconsin
(the "U.S. Cellular Building"); (vi) an office building in Farmers Branch,
Texas (the "Dallas property"); (vii) a two-story office building in Orange
County, California (the "Matsushita Building"); and (viii) a two-story office
building in Boulder County, Colorado (the "Cirrus Logic Building").
USE OF ESTIMATES AND FACTORS AFFECTING THE PARTNERSHIP
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-7
<PAGE>
The carrying values of the real estate assets are based on management's
current intent to hold the real estate assets as long-term investments. The
success of the Partnership's future operations and the ability to realize the
investment in its assets will be dependent on the Partnership's ability to
maintain rental rates, occupancy, and an appropriate level of operating
expenses in future years. Management believes that the steps it is taking
will enable the Partnership to realize its investment in its assets.
INCOME TAXES
The Partnership is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners are required to include their respective shares of
profits and losses in their individual income tax returns.
DISTRIBUTIONS OF NET CASH FROM OPERATIONS
Cash available for distribution, as defined by the partnership agreement, is
distributed to the limited partners quarterly. In accordance with the
partnership agreement, such distributions are paid first to limited partners
holding Class A units until they have received a 10% per annum return on
their net capital contributions, as defined. Then, such distributions are
paid to the general partners until they have received 10% of the total amount
distributed thus far. Any remaining cash available for distribution is split
between the limited partners holding Class A units and the general partners
on a basis of 90% and 10%, respectively. No distributions will be made to
the limited partners holding Class B units.
DISTRIBUTION OF SALES PROCEEDS
Upon sales of properties, the net sales proceeds are distributed in the
following order:
. To limited partners holding units, which at any time have been
treated as Class B units, until they receive an amount necessary to
equal the net cash available for distribution received by the limited
partners holding Class A units
. To limited partners on a per unit basis until each limited partner
has received 100% of their net capital contributions, as defined
. To limited partners on a per unit basis until they receive a
cumulative 10% per annum return on their net capital contributions,
as defined
. To limited partners on a per unit basis until they receive an amount
equal to their preferential limited partners return (defined as the
sum of a 10% per annum cumulative return on net capital contributions
for all periods during which the units were treated as Class A units
and a 15% per annum cumulative return on net capital contributions
for all periods during which the units were treated as Class B units)
. To the general partners until they have received 100% of their
capital contributions; in the event that limited partners have
received aggregate cash distributions from the Partnership over the
life of their investment in excess of a
F-8
<PAGE>
return of their net capital contributions plus their preferential
partner return, then the general partners shall receive an additional
sum equal to 25% of such excess
. Thereafter, 80% to the limited partners on a per unit basis and 20%
to the general partners
ALLOCATION OF NET INCOME, NET LOSS, AND GAIN ON SALE
Net income is defined as net income recognized by the Partnership, excluding
deductions for depreciation, amortization, and cost recovery. Net income, as
defined, of the Partnership will be allocated each year in the same
proportions that net cash from operations is distributed to the partners. To
the extent the Partnership's net income in any year exceeds net cash from
operations, it will be allocated 99% to the limited partners holding Class A
units and 1% to the general partners.
Net loss, depreciation, amortization, and cost recovery deductions for each
fiscal year will be allocated as follows: (a) 99% to the limited partners
holding Class B units and 1% to the general partners until their capital
accounts are reduced to zero, (b) then to any partner having a positive
balance in his capital account in an amount not to exceed such positive
balance, and (c) thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such sale
are distributed to partners after the following allocations are made, if
applicable: (a) allocations made pursuant to the qualified income offset
provisions of the partnership agreement, (b) allocations to partners having
negative capital accounts until all negative capital accounts have been
restored to zero, and (c) allocations to limited partners holding Class B
units in amounts equal to the deductions for depreciation, amortization, and
cost recovery previously allocated to them with respect to the specific
partnership property sold, but not in excess of the amount of gain on sale
recognized by the Partnership with respect to the sale of such property.
INVESTMENT IN JOINT VENTURES
BASIS OF PRESENTATION. The Partnership does not have control over the
operations of the joint ventures; however, it does exercise significant
influence. Accordingly, investments in joint ventures are recorded using the
equity method of accounting.
REAL ESTATE ASSETS. Real estate assets held by the joint ventures are stated
at cost less accumulated depreciation. Major improvements and betterments
are capitalized when they extend the useful life of the related asset. All
repairs and maintenance are expensed as incurred.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which is effective for fiscal years beginning after December 15, 1995. SFAS
No. 121 establishes standards for determining when impairment losses on long-
lived assets have occurred and how impairment losses should be measured. The
joint ventures adopted SFAS No. 121 effective January 1, 1995.
F-9
<PAGE>
The impact of adopting SFAS No. 121 was not material to the financial
statements of the Partnership or its affiliated joint ventures.
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present that
indicate the carrying amounts of real estate assets may not be recoverable,
management assesses the recoverability of real estate assets under SFAS No.
121 by determining whether the carrying value of such real estate assets will
be recovered through the future cash flows expected from the use of the asset
and its eventual disposition. Management has determined that there has been
no impairment in the carrying value of real estate assets held by the joint
ventures as of December 31, 1997.
Depreciation for buildings, building improvements, and land improvements is
calculated using the straight-line method over their useful lives. Effective
October 1, 1995, the joint ventures revised their estimate of the useful
lives of those assets from 40 to 25 years. This change was made to better
reflect the estimated periods during which such assets will remain in
service. The change had the effect on the Partnership, through its ownership
interest in the joint ventures, of increasing depreciation expense
approximately $8,699 in the fourth quarter of 1995 and $94,314 and $332,046
in the years ended December 31, 1996 and 1997, respectively. Tenant
improvements are amortized over the life of the related lease or the life of
the asset, whichever is shorter.
REVENUE RECOGNITION. All leases on real estate assets held by the joint
ventures are classified as operating leases, and the related rental income is
recognized on a straight-line basis over the terms of the respective leases.
PARTNERS' DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS. Cash available
for distribution and allocations of profit and loss to the Partnership by the
joint ventures are made in accordance with the terms of the individual joint
venture agreements. Generally, these items are allocated in proportion to
the partners' respective ownership interests. Cash is paid from the joint
ventures to the Partnership quarterly.
DEFERRED LEASE ACQUISITION COSTS. Costs incurred to procure operating leases
are capitalized and amortized on a straight-line basis over the terms of the
related leases.
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Partnership considers
all highly liquid instruments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market accounts.
PER UNIT DATA
Net income (loss) per unit with respect to the Partnership for the years
ended December 31, 1997 and 1996 and the 11 months ended December 31, 1995 is
computed based on the weighted average number of units outstanding during the
period.
F-10
<PAGE>
RECLASSIFICATIONS
Certain prior year items have been reclassified to conform with the current
year financial statement presentation.
2. DEFERRED PROJECT COSTS
The Partnership paid a percentage of limited partner contributions to Wells
Capital, Inc. (the "Company"), the general partner of Wells Partners, for
acquisition and advisory services. These payments, as stipulated by the
partnership agreement, can be up to 5% of the limited partner contributions,
subject to certain overall limitations contained in the partnership
agreement. Aggregate fees paid through December 31, 1997 were $1,273,995 and
amounted to 4% of the limited partners' contributions received. These fees
are allocated to specific properties as they are purchased or developed and
are included in capitalized assets of the joint ventures. Fees totaling
$152,501 had not yet been paid at December 31, 1996 and were included in due
to affiliate. Deferred project costs at December 31, 1997 and 1996 represent
fees not yet applied to properties.
3. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1997 and 1996 represents the
Partnership's share of cash distributed for the fourth quarters of 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Fund VI, VII, and VIII Associates $125,015 $ 75,614
Fund VII and VIII Associates 87,463 65,853
Fund VIII and IX Associates 336,029 45,966
-------- --------
$548,507 $187,433
======== ========
</TABLE>
The Partnership entered into a property management agreement with Wells
Management, Inc. ("Wells Management"), an affiliate of the general partners.
In consideration for supervising the management of the Partnership's
properties, the Partnership will generally pay Wells Management management
and leasing fees equal to (a) 3% of the gross revenues for management and 3%
of the gross revenues for leasing (aggregate maximum of 6%) plus a separate
fee for the one-time initial lease-up of newly constructed properties in an
amount not to exceed the fee customarily charged in arm's-length transactions
by others rendering similar services in the same geographic area for similar
properties or (b) in the case of commercial properties, which are leased on a
long-term net basis (ten or more years), 1% of the gross revenues except for
initial leasing fees equal to 3% of the gross revenues over the first five
years of the lease term.
The Partnership incurred management and leasing fees and lease acquisition
costs, at the joint venture level, of $164,662 and $58,378 for the years
ended December 31, 1997 and 1996 and the 11 months ended December 31, 1995,
respectively, which were paid to Wells Management.
F-11
<PAGE>
The Company performs certain administrative services for the Partnership,
such as accounting and other partnership administration, and incurs the
related expenses. Such expenses are allocated among the various Wells Real
Estate Funds based on time spent on each fund by individual administrative
personnel. In the opinion of management, such allocation is a reasonable
estimation of such expenses.
The general partners are also general partners of other Wells Real Estate
Funds. As such, there may exist conflicts of interest where the general
partners, while serving in the capacity as general partners of other Wells
Real Estate Funds, may be in competition with the Partnership for tenants in
similar geographic markets.
4. INVESTMENT IN JOINT VENTURES
The Partnership's investment and percentage ownership in joint ventures at
December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Fund VI, VII, and VIII Associates $ 5,722,761 32% $ 4,849,380 28%
Fund VII and VIII Associates 3,873,022 62 4,032,669 62
Fund VIII and IX Associates 14,906,093 50 4,905,482 50
----------- -----------
$24,501,876 $13,787,531
=========== ===========
</TABLE>
The following is a rollforward of the Partnership's investment in the joint
ventures for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Investment in joint ventures, beginning of year $13,787,531 $ 5,786,364
Equity in income of joint ventures 1,034,907 241,819
Contributions to joint ventures 11,269,794 8,202,913
Distributions from joint ventures (1,590,356) (443,565)
----------- -----------
Investment in joint ventures, end of year $24,501,876 $13,787,531
=========== ===========
</TABLE>
FUND VI, VII, AND VIII ASSOCIATES
On April 17, 1995, the Partnership entered into a joint venture with Wells
Real Estate Fund VI, L.P. ("Fund VI") and Wells Real Estate Fund VII, L.P.
("Fund VII"). The joint venture, Fund VI, VII, and VIII Associates, was
formed to acquire, develop, operate, and sell real properties. On April 25,
1995, the joint venture purchased a 5.55-acre parcel of land in Jacksonville,
Florida. A 92,964-square-foot office building, known as the BellSouth
property, was completed and commenced operations in 1996. On May 31, 1995,
the joint venture purchased a 14.683-acre parcel of land located in Clemmons,
Forsyth County, North Carolina. A retail shopping center was developed and
was substantially complete at December 31, 1997.
F-12
<PAGE>
During 1996, Fund VI and Fund VII each withdrew $500,000 from the joint
venture in order to contribute needed funds to the Fund II, III, VI, and VII
Associates joint venture. In addition, deferred project costs related to
Fund VI and Fund VII of $23,160 and $21,739, respectively, were unapplied
when the contribution were withdrawn. During 1996, the Partnership made an
additional contribution of $2,815,965, which included $115,965 of deferred
project costs that were applied. Ownership percentages were recomputed
accordingly.
F-13
<PAGE>
Following are the financial statements for Fund VI, VII, and VIII Associates:
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
<TABLE>
<CAPTION>
1997 1996
----------- -----------
Nonoperating real estate assets, at cost:
<S> <C> <C>
Land $ 0 $ 3,159,929
Construction in progress 0 4,587,178
----------- -----------
Total nonoperating real estate assets 0 7,747,107
----------- -----------
Operating real estate assets, at cost:
Land 4,461,819 1,301,890
Building and improvements, less accumulated depreciation of
$925,106 in 1997 and $290,407 in 1996 11,747,642 7,004,986
Construction in progress 94,715 0
----------- -----------
Total operating real estate assets 16,304,176 8,306,876
----------- -----------
Total real estate assets 16,304,176 16,053,983
Cash and cash equivalents 1,059,001 929,683
Accounts receivable 104,021 27,851
Prepaid expenses and other assets 712,814 691,741
----------- -----------
Total assets $18,180,012 $17,703,258
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 100,792 $ 203,275
Partnership distributions payable 386,390 268,656
Due to affiliates 5,177 1,555
----------- -----------
Total liabilities 492,359 473,486
----------- -----------
Partners' capital:
Wells Real Estate Fund VI 6,058,082 6,268,458
Wells Real Estate Fund VII 5,906,810 6,111,934
Wells Real Estate Fund VIII 5,722,761 4,849,380
----------- -----------
Total partners' capital 17,687,653 17,229,772
----------- -----------
Total liabilities and partners' capital $18,180,012 $17,703,258
=========== ===========
</TABLE>
F-14
<PAGE>
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (APRIL 17, 1995) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Revenues:
Rental income $2,087,588 $ 876,711 $ 0
Interest income 19,464 147,581 270,723
Other income 360 150 0
---------- ---------- --------
2,107,412 1,024,442 270,723
---------- ---------- --------
Expenses:
Depreciation 634,699 290,407 0
Operating costs 460,873 262,090 12,792
Lease acquisition costs 97,457 50,388 0
Management and leasing fees 135,308 48,942 0
Legal and accounting 15,934 17,251 0
Property administration 27,180 15,975 10,980
Computer costs 0 642 0
---------- ---------- --------
1,371,451 685,695 23,772
---------- ---------- --------
Net income $ 735,961 $ 338,747 $246,951
========== ========== ========
Net income allocated to Wells Real Estate Fund VI $ 258,122 $ 134,875 $108,199
========== ========== ========
Net income allocated to Wells Real Estate Fund VII $ 251,676 $ 131,609 $105,848
========== ========== ========
Net income allocated to Wells Real Estate Fund VIII $ 226,163 $ 72,263 $ 32,904
========== ========== ========
</TABLE>
F-15
<PAGE>
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (APRIL 17, 1995) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
WELLS REAL WELLS REAL WELLS REAL TOTAL
ESTATE ESTATE ESTATE PARTNERS'
FUND VI FUND VII FUND VIII CAPITAL
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, April 17, 1995 $ 0 $ 0 $ 0 $ 0
Net income 108,199 105,848 32,904 246,951
Partnership contributions 6,871,903 6,711,976 2,085,890 15,669,769
Partnership distributions (113,803) (111,331) (34,609) (259,743)
---------- ---------- ---------- -----------
Balance, December 31, 1995 6,866,299 6,706,493 2,084,185 15,656,977
Net income 134,875 131,609 72,263 338,747
Partnership contributions 0 0 2,815,965 2,815,965
Partnership distributions (209,556) (204,429) (123,033) (537,018)
Return of contributions (523,160) (521,739) 0 (1,044,899)
---------- ---------- ---------- -----------
Balance, December 31, 1996 6,268,458 6,111,934 4,849,380 17,229,772
Net income 258,122 251,676 226,163 735,961
Partnership contributions 0 0 1,055,900 1,055,900
Partnership distributions (468,498) (456,800) (408,682) (1,333,980)
---------- ---------- ---------- -----------
Balance, December 31, 1997 $6,058,082 $5,906,810 $5,722,761 $17,687,653
========== ========== ========== ===========
</TABLE>
F-16
<PAGE>
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (APRIL 17, 1995) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $735,961 $ 338,747 $ 246,951
----------- ----------- ----------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 634,699 290,407 0
Changes in assets and liabilities:
Accounts receivable (76,170) 5,149 (33,000)
Prepaid expenses and other assets (21,073) (427,363) (264,378)
Accounts payable 8,312 37,480 0
Due to affiliates 3,622 1,555 0
----------- ----------- ----------
Total adjustments 549,390 (92,772) (297,378)
----------- ----------- ----------
Net cash provided by (used in) operating activities 1,285,351 245,975 (50,427)
----------- ----------- ----------
Cash flows from investing activities:
(Decrease) increase in construction payables (110,795) (607,204) 772,999
Investment in real estate (828,992) (7,381,063) (8,892,261)
----------- ----------- ----------
Net cash used in investing activities (939,787) (7,988,267) (8,119,262)
----------- ----------- ----------
Cash flows from financing activities:
Contributions received from joint venture partners 1,000,000 2,700,000 15,669,769
Return of contributions from joint venture partners 0 (1,000,000) 0
Distributions to joint venture partners (1,216,246) (375,952) (152,153)
----------- ----------- ----------
Net cash (used in) provided by financing activities (216,246) 1,324,048 15,517,616
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents 129,318 (6,418,244) 7,347,927
Cash and cash equivalents, beginning of period 929,683 7,347,927 0
----------- ----------- ----------
Cash and cash equivalents, end of period $ 1,059,001 $ 929,683 $7,347,927
=========== =========== ==========
Supplemental disclosure of noncash items:
Deferred project costs contributed by partners, net $ 55,900 $ 71,066 $ 669,769
=========== =========== ==========
</TABLE>
FUND VII AND VIII ASSOCIATES
On February 10, 1995, the Partnership entered into a joint venture agreement
with Fund VII. The joint venture, Fund VII and VIII Associates, was formed
to acquire, develop, operate, and sell real properties. During 1995, the
joint venture purchased a five acre parcel of land in Gainesville, Alachua
County, Florida. A 62,975-square-foot office building was constructed and
began operations during 1995. In April 1996, Fund VII contributed 1.01 acres
of land located in Stockbridge, Georgia, and improvements thereon to the
joint venture for the development of a 12,000-square-foot, single-story
combination retail/office building. The building was completed and commenced
operations in 1996.
F-17
<PAGE>
Following are the financial statements for Fund VII and VIII Associates:
FUND VII AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Real estate assets, at cost:
Land $ 822,320 $ 822,320
Building and improvements, less accumulated depreciation of $467,401
in 1997 and $235,083 in 1996 5,020,941 5,250,058
Personal property, less accumulated depreciation of $62,059 in 1997
and $32,270 in 1996 235,824 265,613
Construction in progress 9,002 6,186
---------- ----------
Total real estate assets 6,088,087 6,344,177
Cash and cash equivalents 238,222 248,432
Accounts receivable 14,398 0
Prepaid expenses and other assets 77,894 71,963
---------- ----------
Total assets $6,418,601 $6,664,572
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 26,953 $ 51,293
Due to affiliates 844 0
Partnership distributions payable 140,964 106,136
---------- ----------
Total liabilities 168,761 157,429
---------- ----------
Partners' capital:
Wells Real Estate Fund VII 2,376,818 2,474,474
Wells Real Estate Fund VIII 3,873,022 4,032,669
---------- ----------
Total partners' capital 6,249,840 6,507,143
---------- ----------
Total liabilities and partners' capital $6,418,601 $6,664,572
========== ==========
</TABLE>
F-18
<PAGE>
FUND VII AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 10, 1995) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Rental income $637,692 $583,264 $15,995
Other income 180 320 0
-------- -------- -------
637,872 583,584 15,995
-------- -------- -------
Expenses:
Depreciation 262,106 249,262 18,091
Management and leasing fees 57,360 57,590 960
Lease acquisition costs 32,727 31,060 0
Legal and accounting 9,973 23,554 0
Property administration 24,830 17,202 0
Computer costs 107 2,073 0
Operating costs, net of reimbursements (76,060) (14,588) 2,770
-------- -------- -------
311,043 366,153 21,821
-------- -------- -------
Net income (loss) $326,829 $217,431 $(5,826)
======== ======== =======
Net income (loss) allocated to Wells
Real Estate Fund VII $124,045 $ 70,767 $(1,299)
======== ======== =======
Net income (loss) allocated to Wells
Real Estate Fund VIII $202,784 $146,664 $(4,527)
======== ======== =======
</TABLE>
F-19
<PAGE>
FUND VII AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 10, 1995) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
WELLS REAL WELLS REAL TOTAL
ESTATE ESTATE PARTNERS'
FUND VII FUND VIII CAPITAL
---------- ---------- ----------
<S> <C> <C> <C>
Balance, February 10, 1995 $ 0 $ 0 $ 0
Net loss (1,299) (4,527) (5,826)
Partnership contributions 1,066,354 3,716,236 4,782,590
Partnership distributions (2,735) (9,530) (12,265)
---------- ---------- ----------
Balance, December 31, 1995 1,062,320 3,702,179 4,764,499
Net income 70,767 146,664 217,431
Partnership contributions 1,487,301 458,393 1,945,694
Partnership distributions (145,914) (274,567) (420,481)
---------- ---------- ----------
Balance, December 31, 1996 2,474,474 4,032,669 6,507,143
Net income 124,045 202,784 326,829
Partnership distributions (221,701) (362,431) (584,132)
---------- ---------- ----------
Balance, December 31, 1997 $2,376,818 $3,873,022 $6,249,840
========== ========== ==========
</TABLE>
F-20
<PAGE>
FUND VII AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 10, 1995) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 326,829 $ 217,431 $ (5,826)
--------- ---------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 262,106 249,262 18,091
Changes in assets and liabilities:
Accounts receivable (14,398) 15,995 (15,995)
Prepaid expenses and other assets (5,931) (71,963) 0
Accounts payable (24,340) 51,293 0
Due to affiliates 844 (960) 960
--------- ---------- -----------
Total adjustments 218,281 243,627 3,056
--------- ---------- -----------
Net cash provided by (used in) operating
activities 545,110 461,058 (2,770)
--------- ---------- -----------
Cash flows from investing activities:
(Decrease) increase in construction payables 0 (285,787) 285,787
Investment in real estate (6,016) (136,623) (4,868,154)
Contributions from partners 0 536,394 4,585,137
--------- ---------- -----------
Net cash (used in) provided by investing
activities (6,016) 113,984 2,770
--------- ---------- -----------
Cash flows from financing activities:
Distributions to joint venture partners (549,304) (326,610) 0
--------- ---------- -----------
Net (decrease) increase in cash and cash equivalents
(10,210) 248,432 0
Cash and cash equivalents, beginning of year 248,432 0 0
--------- ---------- -----------
Cash and cash equivalents, end of year $ 238,222 $ 248,432 $ 0
========= ========== ===========
Supplemental disclosure of noncash activities:
Deferred project costs applied by partners, net of
deferred project costs transferred $ 0 $ 37,387 $ 197,453
========= ========== ===========
Contribution of real estate assets $ 0 $1,371,913 $ 0
========= ========== ===========
</TABLE>
FUND VIII AND IX ASSOCIATES
On June 10, 1996, the Partnership entered into a joint venture with Wells
Real Estate Fund IX, L.P. The joint venture, Fund VIII and IX Associates,
was formed to acquire, develop, operate, and sell real properties. On June
19, 1996, the joint venture purchased a
F-21
<PAGE>
7.09-acre parcel of land in Madison, Wisconsin. The parcel was developed and
commenced operations as the U.S. Cellular Building in 1997. On October 10,
1996, the joint venture purchased a 40,000-square-foot, one-story office
building, known as the Dallas property, in Farmers Branch, Texas. On January
10, 1997, the joint venture purchased a 63,417-square-foot, two-story office
building, known as the Matsushita Building, in Orange County, California. On
February 20, 1997, the joint venture purchased a two-story partially
completed office building, known as the Cirrus Logic Building, in Boulder
County, Colorado. Construction of the 49,460-square-foot building was
completed and commenced operations in 1997.
F-22
<PAGE>
Following are the financial statements for Fund VIII and IX Associates:
FUND VIII AND IX ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Nonoperating real estate assets, at cost:
Land $ 0 $ 896,698
Construction in progress 0 4,340,033
----------- -----------
Total nonoperating real estate assets 0 5,236,731
----------- -----------
Operating real estate assets, at cost:
Land 4,724,579 677,914
Building and improvements, less accumulated depreciation of
$945,324 in 1997 and $50,444 in 1996
24,122,271 3,938,508
Construction in progress 272,779 0
----------- -----------
Total operating real estate assets 29,119,629 4,616,422
----------- -----------
Total real estate assets 29,119,629 9,853,153
Cash and cash equivalents 1,088,438 675,353
Accounts receivable 389,347 7,489
Prepaid expenses and other assets 237,710 0
----------- -----------
Total assets $30,835,124 $10,535,995
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 388,723 $ 608,622
Due to affiliates 20,399 0
Partnership distributions payable 670,784 92,163
----------- -----------
Total liabilities 1,079,906 700,785
----------- -----------
Partners' capital:
Wells Real Estate Fund VIII 14,906,093 4,905,482
Wells Real Estate Fund IX 14,849,125 4,929,728
----------- -----------
Total partners' capital 29,755,218 9,835,210
----------- -----------
Total liabilities and partners' capital $30,835,124 $10,535,995
=========== ===========
</TABLE>
F-23
<PAGE>
FUND VIII AND IX ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE PERIOD FROM INCEPTION (JUNE 10, 1996)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Revenues:
Rental income $2,203,332 $101,277
Interest income 29,520 0
Other income 4,479 0
---------- --------
2,237,331 101,277
---------- --------
Expenses:
Depreciation 894,880 50,444
Management and leasing fees 115,073 3,884
Lease acquisition costs 6,857 0
Property administration 21,006 1,050
Legal and accounting 13,602 0
Operating costs, net of reimbursements (24,106) 0
---------- --------
1,027,312 55,378
---------- --------
Net income $1,210,019 $ 45,899
========== ========
Net income allocated to Wells Real Estate Fund VIII $ 605,960 $ 22,892
========== ========
Net income allocated to Wells Real Estate Fund IX $ 604,059 $ 23,007
========== ========
</TABLE>
F-24
<PAGE>
FUND VIII AND IX ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE PERIOD FROM INCEPTION (JUNE 10, 1996)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
WELLS REAL WELLS REAL TOTAL
ESTATE ESTATE PARTNERS'
FUND VIII FUND IX CAPITAL
----------- ----------- -----------
<S> <C> <C> <C>
Balance, June 10, 1996 $ 0 $ 0 $ 0
Net income 22,892 23,007 45,899
Partnership contributions 4,928,555 4,952,919 9,881,474
Partnership distributions (45,965) (46,198) (92,163)
----------- ----------- -----------
Balance, December 31, 1996 4,905,482 4,929,728 9,835,210
Net income 605,960 604,059 1,210,019
Partnership contributions 10,213,894 10,132,043 20,345,937
Partnership distributions (819,243) (816,705) (1,635,948)
----------- ----------- -----------
Balance, December 31, 1997 $14,906,093 $14,849,125 $29,755,218
=========== =========== ===========
</TABLE>
F-25
<PAGE>
FUND VIII AND IX ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE PERIOD FROM INCEPTION (JUNE 10, 1996)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,210,019 $ 45,899
------------ -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 894,880 50,444
Changes in assets and liabilities:
Accounts receivable (381,858) (7,489)
Prepaid expenses and other assets (237,710) 0
Accounts payable 115,507 520
Due to affiliates 20,399 0
------------ -----------
Total adjustments 411,218 43,475
------------ -----------
Net cash provided by operating activities 1,621,237 89,374
------------ -----------
Cash flows from investing activities:
(Decrease) increase in construction payables (335,406) 608,102
Investment in real estate (19,131,612) (9,489,739)
------------ -----------
Net cash used in investing activities (19,467,018) (8,881,637)
------------ -----------
Cash flows from financing activities:
Contributions from joint venture partners 19,316,193 9,467,616
Distributions to joint venture partners (1,057,327) 0
------------ -----------
Net cash provided by financing activities 18,258,866 9,467,616
------------ -----------
Net increase in cash and cash equivalents 413,085 675,353
Cash and cash equivalents, beginning of period 675,353 0
------------ -----------
Cash and cash equivalents, end of period $ 1,088,438 $ 675,353
============ ===========
Supplemental disclosure of noncash activities:
Deferred project costs applied by partners $ 1,029,744 $ 413,858
============ ===========
</TABLE>
F-26
<PAGE>
5. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the years ended December
31, 1997 and 1996 and for the period from inception (February 10, 1995) to
December 31, 1995 is calculated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Financial statement net income $1,102,567 $ 936,590 $273,914
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting
purposes in excess of amounts for income tax
purposes 332,046 94,314 8,699
Expenses deductible when paid for income tax
purposes, accrued for financial reporting purposes 12,319 1,365 121,735
Rental income accrued for financial reporting
purposes in excess of amounts for income tax
purposes (215,837) (7,363) 0
Other (17,571) (22,932) 0
---------- ---------- --------
Income tax basis net income $1,213,524 $1,001,974 $404,348
========== ========== ========
</TABLE>
The Partnership's income tax basis partners' capital at December 31, 1997,
1996, and 1995 is computed as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Financial statement partners' capital $26,490,980 $27,030,780 $25,632,698
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes
in excess of amounts for income tax purposes 435,059 103,013 8,699
Capitalization of syndication costs for income tax
purposes, which are accounted for as cost of capital
for financial reporting purposes 4,774,787 4,774,787 4,490,432
Accumulated expenses deductible when paid for income
tax purposes, accrued for financial reporting purposes 101,010 65,759 121,735
Rental income accrued for financial reporting purposes
in excess of amounts for income tax purposes (223,200) (7,363) 0
Partnership's distributions payable 530,714 317,453 296,171
Other (40,503) 0 0
----------- ----------- -----------
Income tax basis partners' capital $32,068,847 $32,284,429 $30,549,735
=========== =========== ===========
</TABLE>
F-27
<PAGE>
6. RENTAL INCOME
The future minimum rental income due from the Partnership's respective
ownership interests in joint ventures under noncancelable operating leases at
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1998 $ 2,647,740
1999 2,619,833
2000 2,633,696
2001 2,612,474
2002 2,373,257
Thereafter 12,951,183
-----------
$25,838,183
===========
</TABLE>
Six significant tenants contributed approximately 12%, 17%, 12%, 13%, 15%,
and 17% of rental income, which is included in equity in income of joint
ventures, for the year ended December 31, 1997. In addition, six significant
tenants will contribute approximately 13%, 12%, 10%, 12%, 21%, and 20% of
future minimum rental income.
The future minimum rental income due Fund VI, VII, and VIII Associates under
noncancelable operating leases at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1998 $ 2,179,779
1999 2,183,002
2000 2,195,447
2001 2,082,905
2002 1,927,031
Thereafter 11,759,263
-----------
$22,327,427
===========
</TABLE>
Two significant tenants contributed approximately 55% and 26% of rental
income for the year ended December 31, 1997. In addition, two significant
tenants will contribute approximately 43% and 46% of future minimum rental
income.
The future minimum rental income due Fund VII and VIII Associates under
noncancelable operating leases at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1998 $ 623,623
1999 628,138
2000 632,652
2001 632,653
2002 637,168
Thereafter 1,935,567
----------
$5,089,801
==========
</TABLE>
F-28
<PAGE>
Two significant tenants contributed approximately 83% and 17% of rental
income for the year ended December 31, 1997. In addition, two significant
tenants will contribute approximately 82% and 18% of future minimum rental
income.
The future minimum rental income due Fund VIII and IX Associates under
noncancelable operating leases as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1998 $ 3,107,233
1999 3,042,420
2000 3,056,160
2001 3,077,130
2002 3,225,470
Thereafter 16,316,453
----------
$31,824,866
</TABLE>
Four significant tenants contributed approximately 21%, 23%, 26%, and 30% of
rental income for the year ended December 31, 1997. In addition, four
significant tenants will contribute approximately 20%, 33%, 13%, and 34% of
future minimum rental income.
7. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial information
for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 QUARTERS ENDED
---------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 216,766 $ 261,709 $ 394,181 $ 331,362
Net income 181,780 224,486 382,209 314,092
Net income allocated to Class A limited
partners 327,726 422,125 630,233 567,452
Net loss allocated to Class B limited
partners (145,946) (197,639) (248,024) (253,360)
Net income per weighted average Class A
limited partner unit outstanding $ 0.12 $ 0.16 $ 0.24 $ 0.21
Net loss per weighted average Class B
limited partner unit outstanding (0.25) (0.36) (0.44) (0.45)
Cash distribution per weighted average Class
A limited partner unit outstanding 0.10 0.13 0.19 0.20
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
1996 QUARTERS ENDED
--------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $294,408 $257,476 $261,798 $ 244,012
Net income 267,598 221,278 229,270 218,444
Net loss allocated to general partners (297) 0 0 0
Net income allocated to Class A limited
partners 317,233 273,502 293,936 322,869
Net loss allocated to Class B limited
partners (49,338) (52,224) (64,666) (104,425)
Net income per weighted average Class A
limited partner unit outstanding $ 0.12 $ 0.11 $ 0.11 $ 0.12
Net loss per weighted average Class B
limited partner unit outstanding (0.09) (0.09) (0.10) (0.19)
Cash distribution per weighted average Class
A limited partner unit outstanding 0.11 0.10 0.11 0.12
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Partnership or the Company. In
the normal course of business, the Partnership or the Company may become
subject to such litigation or claims.
F-30
<PAGE>
WELLS REAL ESTATE FUND VIII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL COST
------------------------ COSTS OF
BUILDINGS AND CAPITALIZED
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS
- ------------------------ ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
BELLSOUTH PROPERTY (A) None $1,244,256 $ 0 $ 7,353,027
TANGLEWOOD COMMONS (B) None 3,020,040 0 5,611,959
GAINESVILLE PROPERTY (C) None 222,627 0 4,876,416
HANNOVER PROPERTY (D) None 512,001 869,037 137,466
TCI-DALLAS PROPERTY (E) None 650,000 0 4,016,866
U.S. CELLULAR PROPERTY (F) None 833,942 0 9,484,766
MATSUSHITA PROPERTY (G) None 2,108,304 5,120,835 383,594
CIRRUS LOGIC PROPERTY (H) None 881,840 6,182,710 402,096
---------- ----------- -----------
Total $9,473,010 $12,172,582 $32,266,190
========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31, 1997
-------------------------------------------------------
BUILDINGS AND CONSTRUCTION
DESCRIPTION LAND IMPROVEMENTS IN PROGRESS TOTAL
- ------------------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
BELLSOUTH PROPERTY (A) $ 1,301,890 $ 7,295,393 $ 0 $ 8,597,283
TANGLEWOOD COMMONS (B) 3,159,928 5,377,356 94,715 8,631,999
GAINESVILLE PROPERTY (C) 288,058 4,804,987 5,998 5,099,043
HANNOVER PROPERTY (D) 534,262 981,238 3,004 1,518,504
TCI-DALLAS PROPERTY (E) 677,914 3,988,952 0 4,666,866
U.S. CELLULAR PROPERTY (F) 896,698 9,149,231 272,779 10,318,708
MATSUSHITA PROPERTY (G) 2,220,993 5,391,740 0 7,612,733
CIRRUS LOGIC PROPERTY (H) 928,974 6,537,672 0 7,466,646
----------- ----------- -------- -----------
Total $10,008,717 $43,526,569 $376,496 $53,911,782
=========== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
LIFE ON WHICH
ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED (I)
- ------------------------ ------------ ------------ -------- ---------------
<S> <C> <C> <C> <C>
BELLSOUTH PROPERTY (A) $ 733,951 1996 04/25/95 20 to 25 years
TANGLEWOOD COMMONS (B) 191,155 1997 05/31/95 20 to 25 years
GAINESVILLE PROPERTY (C) 454,144 1995 01/20/95 20 to 25 years
HANNOVER PROPERTY (D) 75,316 1996 01/16/95 20 to 25 years
TCI-DALLAS PROPERTY (E) 217,039 1996 10/10/96 20 to 25 years
U.S. CELLULAR PROPERTY (F) 276,566 1997 06/17/96 20 to 25 years
MATSUSHITA PROPERTY (G) 215,670 1997 01/10/97 20 to 25 years
CIRRUS LOGIC PROPERTY (H) 236,049 1997 02/20/97 20 to 25 years
----------
Total $2,399,890
==========
</TABLE>
(a) The BellSouth Property consists of a four-story office building located in
Jacksonville, Florida. It is owned by Fund VI, VII, and VIII Associates. The
Partnership owned a 32% interest in Fund VI, VII, and VIII Associates at
December 31, 1997.
(b) Tanglewood Commons is a retail shopping center located in Clemmons, Forsyth
County, North Carolina. It is owned by Fund VI, VII, and VIII Associates.
The Partnership owned a 32% interest in Fund VI, VII, and VIII Associates at
December 31, 1997.
(c) The Gainesville Property consists of a two-story building located in
Gainesville, Florida. It is owned by Fund VII and VIII Associates. The
Partnership owned a 62% interest in Fund VII and VIII Associates at December
31, 1997.
(d) The Hannover Property consists of a one-story building located in
Stockbridge, Georgia. It is owned by Fund VII and VIII Associates. The
Partnership owned a 62% interest in Fund VII and VIII Associates at December
31, 1997.
(e) The Dallas Property consists of a one-story office building located in
Farmers Branch, Texas. It is owned by Fund VIII and IX Associates. The
Partnership owned a 50% interest in Fund VIII and IX Associates at December
31, 1997.
(f) The U.S. Cellular Property consists of a four-story office building located
in Madison, Wisconsin. It is owned by Fund VIII and IX Associates. The
Partnership owned a 50% interest in Fund VIII and IX Associates at December
31, 1997.
(g) The Matsushita Property consists of a two-story office building located in
Irvine, California. It is owned by Fund VIII and IX Associates. The
Partnership owned a 50% interest in Fund VIII and IX Associates at December
31, 1997.
(h) The Cirrus Logic Property consists of a two-story office building located in
Broomfield, Colorado. It is owned by Fund VIII and IX Associates. The
Partnership owned a 50% interest in Fund VIII and IX Associates at December
31, 1997.
(i) Depreciation lives used for buildings were 40 years through September 30,
1995, changed to 25 years thereafter. Depreciation lives used for land
improvements are 20 years.
S-1
<PAGE>
WELLS REAL ESTATE FUND VIII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION
----------- ------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1995 $13,659,985 $ 18,091
1996 additions 19,199,531 590,113
----------- ----------
BALANCE AT DECEMBER 31, 1996 32,859,516 608,204
1997 additions 21,052,266 1,791,686
----------- ----------
BALANCE AT DECEMBER 31, 1997 $53,911,782 $2,399,890
=========== ==========
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
-------------
(Wells Real Estate Fund VIII, L.P.)
The following documents are filed as exhibits to this report. Those exhibits
previously filed and incorporated herein by reference are identified below by an
asterisk. For each such asterisked exhibit, there is shown below the
description of the previous filing. Exhibits which are not required for this
report are omitted.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
*3(a) Amended and Restated Agreement of Limited Partnership of Wells Real
Estate Fund VIII, L.P. dated January 6, 1995 (Exhibit to Form 10-K of
Wells Real Estate Fund VIII, L.P. for the fiscal year ended December
31, 1995, File No. 0-27888)
*3(b) Certificate of Limited Partnership of Wells Real Estate Fund VIII,
L.P. (Exhibit 3(b) to Form S-11 Registration Statement of Wells Real
Estate Fund VIII, L.P. and Wells Real Estate Fund VIII, L.P., File No.
33-83852)
*10(a) Management Agreement dated January 6, 1995, between Wells Real Estate
Fund VIII, L.P. and Wells Management Company, Inc. (Exhibit to Form
10-K of Wells Real Estate Fund VIII, L.P. for the fiscal year ended
December 31, 1995, File No. 0-27888)
*10(b) Leasing and Tenant Coordinating Agreement dated January 6, 1995,
between Wells Real Estate Fund VIII, L.P. and Wells Management
Company, Inc. (Exhibit to Form 10-K of Wells Real Estate Fund VIII,
L.P. for the fiscal year ended December 31, 1995, File No. 0-27888)
*10(c) Custodial Agency Agreement dated November 15, 1994, between Wells Real
Estate Fund VIII, L.P. and NationsBank of Georgia, N.A. (Exhibit to
Form 10-K of Wells Real Estate Fund VIII, L.P. for the fiscal year
ended December 31, 1995, File No. 0-27888)
*10(d) Fund VII and Fund VIII Associates Joint Venture Agreement dated
February 10, 1995 (Exhibit 10(g) to Post-Effective Amendment No. 1 to
Form S-11 Registration Statement of Wells Real Estate Fund VIII, L.P.
and Wells Real Estate Fund IX, L.P., File No. 33-83852)
*10(e) Agreement for the Purchase and Sale of Real Property dated March 31,
1994 (Exhibit 10(h) to Post-Effective Amendment No. 1 to Form S-11
Registration Statement of Wells Real Estate Fund VIII, L.P. and Wells
Real Estate Fund IX, L.P., File No. 33-83852)
<PAGE>
*10(f) Letter Agreement amending Agreement for the Purchase and Sale of Real
Property dated July 27, 1994 (Exhibit 10(i) to Post-Effective
Amendment No. 1 to Form S-11 Registration Statement of Wells Real
Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(g) Letter Agreement amending Agreement for the Purchase and Sale of Real
Property dated October 27, 1994 (Exhibit 10(j) to Post-Effective
Amendment No. 1 to Form S-11 Registration Statement of Wells Real
Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(h) Letter Agreement between NationsBank of Georgia, N.A., as Agent for
Wells Real Estate Fund VII, L.P., as Landlord, and CH2M Hill, Inc., as
Tenant (Exhibit 10(k) to Post-Effective Amendment No. 1 to Form S-11
Registration Statement of Wells Real Estate Fund VIII, L.P. and Wells
Real Estate Fund IX, L.P., File No. 33-83852)
*10(i) First Amendment to Lease Agreement between NationsBank of Georgia,
N.A., as Agent for Wells Real Estate Fund VII, L.P., as Landlord, and
CH2M Hill, Inc., as Tenant (Exhibit 10(l) to Post-Effective Amendment
No. 1 to Form S-11 Registration Statement of Wells Real Estate Fund
VIII, L.P. and Wells Real Estate Fund IX, L.P., File No. 33-83852)
*10(j) Second Amendment to Lease Agreement between NationsBank of Georgia,
N.A., as Agent for Wells Real Estate Fund VII, L.P., as Landlord, and
CH2M Hill, Inc, as Tenant (Exhibit 10(m) to Post-Effective Amendment
No. 1 to Form S-11 Registration Statement of Wells Real Estate Fund
VIII, L.P. and Wells Real Estate Fund IX, L.P., File No. 33-83852)
*10(k) Development Agreement between Wells Real Estate Fund VII, L.P. and
ADEVCO Corporation (Exhibit 10(n) to Post-Effective Amendment No. 1 to
Form S-11 Registration Statement of Wells Real Estate Fund VIII, L.P.
and Wells Real Estate Fund IX, L.P., File No. 33-83852)
*10(l) Owner-Contractor Agreement between Wells Real Estate Fund VII, L.P.,
as Owner, and Integra Construction, Inc., as Contractor (Exhibit 10(o)
to Post-Effective Amendment No. 1 to Form S-11 Registration Statement
of Wells Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX,
L.P., File No. 33-83852)
*10(m) Architect's Agreement between Wells Real Estate Fund VII, L.P., as
Owner, and Smallwood, Reynolds, Stewart, Stewart & Associates, Inc.,
as Architect (Exhibit 10(p) to Post-Effective Amendment No. 1 to Form
S-11 Registration Statement of Wells Real Estate Fund VIII, L.P. and
Wells Real Estate Fund IX, L.P., File No. 33-83852)
<PAGE>
*10(n) Joint Venture Agreement of Fund VI, Fund VII and Fund VIII Associates
dated April 17, 1995 (Exhibit 10(q) to Post-Effective Amendment No. 3
to Form S-11 Registration Statement of Wells Real Estate Fund VIII,
L.P. and Wells Real Estate Fund IX, L.P., File No. 33-83852)
*10(o) Agreement for the Purchase and Sale of Real Property dated February
13, 1995, between G.L. National, Inc. and Wells Capital, Inc. (Exhibit
10(r) to Post-Effective Amendment No. 3 to Form S-11 Registration
Statement of Wells Real Estate Fund VIII, L.P. and Wells Real Estate
Fund IX, L.P., File No. 33-83852)
*10(p) Agreement to Lease dated February 15, 1995, between NationsBank of
Georgia, N.A., as Agent for Wells Real Estate Fund VII, L.P., and
BellSouth Advertising & Publishing Corporation (Exhibit 10(s) to Post-
Effective Amendment No. 3 to Form S-11 Registration Statement of Wells
Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., File
No. 33-83852)
*10(q) Development Agreement dated April 25, 1995, between Fund VI, Fund VII
and Fund VIII Associates and ADEVCO Corporation (Exhibit 10(t) to
Post-Effective Amendment No. 3 to Form S-11 Registration Statement of
Wells Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P.,
File No. 33-83852)
*10(r) Owner-Contractor Agreement dated April 24, 1995, between Fund VI, Fund
VII and Fund VIII Associates, as Owner, and McDevitt Street Bovis,
Inc., as Contractor (Exhibit 10(u) to Post-Effective Amendment No. 3
to Form S-11 Registration Statement of Wells Real Estate Fund VIII,
L.P. and Wells Real Estate Fund IX, L.P., File No. 33-83852)
*10(s) Architect's Agreement dated February 15, 1995, between Wells Real
Estate Fund VII, L.P., as Owner, and Mayes, Suddereth & Etheredge,
Inc., as Architect (Exhibit 10(v) to Post-Effective Amendment No. 3 to
Form S-11 Registration Statement of Wells Real Estate Fund VIII, L.P.
and Wells Real Estate Fund IX, L.P., File No. 33-83852)
*10(t) First Amendment to Joint Venture Agreement of Fund VI, Fund VII and
Fund VIII Associates dated May 30, 1995 (Exhibit 10(w) to Post-
Effective Amendment No. 4 to Form S-11 Registration Statement of Wells
Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., File
No. 33-83852)
*10(u) Real Estate Purchase Agreement dated April 13, 1995 (Exhibit 10(x) to
Post-Effective Amendment No. 4 to Form S-11 Registration Statement of
Wells Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P.,
File No. 33-83852)
*10(v) Lease Agreement dated February 27, 1995, between NationsBank of
Georgia, N.A., as Agent for Wells Real Estate Fund VII, L.P., and
Harris Teeter, Inc.
<PAGE>
(Exhibit 10(y) to Post-Effective Amendment No. 4 to Form S-11
Registration Statement of Wells Real Estate Fund VIII, L.P. and Wells
Real Estate Fund IX, L.P., File No. 33-83852)
*10(w) Development Agreement dated May 31, 1995, between Fund VI, Fund VII
and Fund VIII Associates and Norcom Development, Inc. (Exhibit 10(z)
to Post- Effective Amendment No. 4 to Form S-11 Registration Statement
of Wells Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX,
L.P., File No. 33-83852)
*10(x) First Amendment to Joint Venture Agreement of Fund VII and Fund VIII
Associates dated April 1, 1996 (Exhibit 10(nn) to Form 10-K of Wells
Real Estate Fund VII, L.P. for the fiscal year ended December 31,
1996, File No. 0-25606)
*10(y) Lease Agreement with Moovies, Inc. dated May 20, 1996 (Exhibit 10(oo)
to Form 10-K of Wells Real Estate Fund VII, L.P. for the fiscal year
ended December 31, 1996, File No. 0-25606)
*10(z) Joint Venture Agreement of Fund VIII and Fund IX Associates dated June
10, 1996 (Exhibit 10(aa) to Post-Effective Amendment No. 11 to Form S-
11 Registration Statement of Wells Real Estate Fund VIII, L.P. and
Wells Real Estate Fund IX, L.P., File No. 33-83852)
*10(aa) Agreement for the Purchase and Sale of Real Property dated April 23,
1996, between American Family Mutual Insurance Company and Wells
Capital, Inc. (Exhibit 10(bb) to Post-Effective Amendment No. 11 to
Form S-11 Registration Statement of Wells Real Estate Fund VIII, L.P.
and Wells Real Estate Fund IX, L.P., File No. 33-83852)
*10(bb) Agreement to Lease dated June 18, 1996, between Fund VIII and IX
Associates and Westel-Milwaukee, Inc., d/b/a Cellular One (Exhibit
10(cc) to Post-Effective Amendment No. 11 to Form S-11 Registration
Statement of Wells Real Estate Fund VIII, L.P. and Wells Real Estate
Fund IX, L.P., File No. 33-83852)
*10(cc) Development Agreement dated June 18, 1996, between Fund VIII and Fund
IX Associates and ADEVCO Corporation (Exhibit 10(dd) to Post-Effective
Amendment No. 11 to Form S-11 Registration Statement of Wells Real
Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(dd) Owner-Contractor Agreement dated June 18, 1996, with Kraemer Brothers,
Inc. (Exhibit 10(ee) to Post-Effective Amendment No. 11 to Form S-11
Registration Statement of Wells Real Estate Fund VIII, L.P. and Wells
Real Estate Fund IX, L.P., File No. 33-83852)
<PAGE>
*10(ee) First Amendment to Joint Venture Agreement of Fund VIII and Fund IX
Associates dated October 10, 1996 (Exhibit 10(ii) to Post-Effective
Amendment No. 12 to Form S-11 Registration Statement of Wells Real
Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
*10(ff) Agreement for the Purchase and Sale of Property dated October 10,
1996, between TCI Valwood Limited Partnership I and Fund VIII and Fund
IX Associates (Exhibit 10(ff) to Post-Effective Amendment No. 12 to
Form S-11 Registration Statement of Wells Real Estate Fund VIII, L.P.
and Wells Real Estate Fund IX, L.P., File No. 33-83852)
*10(gg) Build to Suite Industrial Lease Agreement dated November 1, 1995,
between Industrial Developments International, Inc. and TCI Central,
Inc., as amended July 16, 1996 and August 29, 1996 (Exhibit 10(gg) to
Post-Effective Amendment No. 12 to Form S-11 Registration Statement of
Wells Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P.,
File No. 33-83852)
*10(hh) Assignment and Assumption of Lease dated October 10, 1996, between TCI
Valwood Limited Partnership I and The Bank of New York, as Agent for
Fund VIII and Fund IX Associates (Exhibit 10(hh) to Post-Effective
Amendment No. 12 to Form S-11 Registration Statement of Wells Real
Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., File No.
33-83852)
10(ii) Second Amendment to Joint Venture Agreement of Fund VIII and Fund IX
Associates dated January 7, 1997, filed herewith
10(jj) Agreement for the Purchase and Sale of Property with Magellan Bake
Parkway Limited Partnership dated December, 1996, filed herewith
10(kk) Office Lease with Matsushita Avionics Systems Corporation dated
April 29, 1996, filed herewith
10(ll) Third Amendment to Joint Venture Agreement of Fund VIII and Fund IX
Associates dated February 18, 1997, filed herewith
10(mm) Agreement for the Purchase and Sale of Property with Orix Prime West
Bloomfield II Venture dated February 5, 1997, filed herewith
10(nn) Lease with Cirrus Logic, Inc. dated July 5, 1995, filed herewith
<PAGE>
EXHIBIT 10(ii)
SECOND AMENDMENT TO JOINT VENTURE AGREEMENT
OF
FUND VIII AND FUND IX ASSOCIATES
THIS SECOND AMENDMENT TO JOINT VENTURE AGREEMENT (the "Second Amendment") is
made and entered into as of the 7th day of January, 1997, by and between WELLS
REAL ESTATE FUND VIII, L.P. ("Fund VIII"), a Georgia limited partnership having
Leo F. Wells, III and Wells Partners, L.P., a Georgia limited partnership, as
general partners, and WELLS REAL ESTATE FUND IX, L.P. ("Fund IX"), a Georgia
limited partnership also having Leo F. Wells, III and Wells Partners, L.P., a
Georgia limited partnership, as general partners (each of the parties hereto is
referred to herein as a "Venturer" and together as the "Venturers").
W I T N E S S E T H :
WHEREAS, the Venturers have previously formed a joint venture (the "Joint
Venture") pursuant to that certain Joint Venture Agreement of Fund VIII and Fund
IX Associates dated June 10, 1996, as amended by that certain First Amendment to
Joint Venture Agreement of Fund VIII and Fund IX Associates dated October 10,
1996 (collectively, the "Joint Venture Agreement"); and
WHEREAS, the Joint Venture was formed for the acquisition, ownership,
development, leasing, operation, sale and management of certain "Properties"
described on Exhibit "A" to the Joint Venture Agreement; and
WHEREAS, the Joint Venture has previously acquired two properties, one of
which is located in Dane County, Wisconsin, which is described on Exhibit "A" to
the Joint Venture Agreement, and one of which is located in Dallas County,
Texas, which is described on Exhibit "A" to the First Amendment to Joint Venture
Agreement; and
WHEREAS, the Venturers now desire to cause the Venture to acquire a third
property located in Orange County, California, which is more particularly
described on Exhibit "A" to this Second Amendment (the "New Property"), and the
Venturers desire to amend the Joint Venture Agreement to contemplate the
acquisition of the New Property by the Venture.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree, and the Joint Venture Agreement is hereby
amended, as follows:
<PAGE>
I.
AMENDMENT TO SECTION 1.23
Section 1.23 of the Joint Venture Agreement is hereby amended and restated in
its entirety as follows:
"1.23 "Property" means any particular tract of land (and all rights and
--------
appurtenances incident thereto) acquired and owned by the Venture and all
improvements located, constructed or developed thereon, as more
particularly described on Exhibit "A" hereto, as may be amended from time
to time, including that certain real property located in Dane County,
Wisconsin, as more particularly described on Exhibit "A" to the Joint
Venture Agreement, that certain real property located in Dallas County,
Texas, as more particularly described on Exhibit "A" to the First Amendment
to Joint Venture Agreement, and that certain real property located in
Orange County, California, as more particularly described on Exhibit "A" to
the Second Amendment to Joint Venture Agreement."
II.
AMENDMENT TO SECTION 3.1
Section 3.1 of the Joint Venture Agreement is hereby amended and restated in
its entirety as follows:
"3.1 Capital Contributions. The parties hereto hereby acknowledge, agree and
---------------------
confirm that, as of December 31, 1996, the amount of aggregate Capital
Contribution made to the Venture by each of the Venturers and the Distribution
Percentage Interest of each of the Venturers was as follows:
Distribution
Capital Percentage
Venturer Contributions Interest
----------- ------------- -------------
Fund VIII $4,725,614 49.88%
Fund IX $4,748,973 50.12%
The Venturers shall make Capital Contributions to the Venture for the
acquisition of the New Property in such relative amounts as are mutually agreed
to by the Venturers, and shall from time to time make such additional Capital
Contributions to the Venture in such amounts as are agreed to by the Venturers."
2
<PAGE>
III.
AMENDMENT TO EXHIBIT "A"
The Exhibit "A" of the Joint Venture Agreement is hereby amended by adding
Exhibit "A" hereto to, and making said Exhibit "A" hereto a part of, Exhibit "A"
to the Joint Venture Agreement.
IV.
RECERTIFICATION
Except as specifically amended hereby, the Joint Venture Agreement shall
continue and remain in full force and effect.
IN WITNESS WHEREOF, the undersigned Venturers have executed this Second
Amendment to Joint Venture Agreement to Fund VIII and Fund IX Associates under
seal as of the day and year first above written.
WELLS REAL ESTATE FUND VIII, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(As General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
(As General Partner)
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: -----------------------------
Leo F. Wells, III
President
/s/ Caryl Jamieson
- ----------------------------
Unofficial Witness [Corporate Seal]
/s/ Martha Jean Cory
- ----------------------------
Notary Public
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ----------------------------------------
Leo F. Wells, III
General Partner
/s/ Caryl Jamieson
- ----------------------------
Unofficial Witness
/s/ Martha Jean Cory
- ----------------------------
Notary Public
3
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(As General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
(As General Partner)
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ----------------------------
Leo F. Wells, III
President
/s/ Caryl Jamieson
- ----------------------------
Unofficial Witness [Corporate Seal]
/s/ Martha Jean Cory
- ----------------------------
Notary Public
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: --------------------------------------
Leo F. Wells, III
General Partner
/s/ Caryl Jamieson
- ----------------------------
Unofficial Witness
/s/ Martha Jean Cory
- ----------------------------
4
<PAGE>
EXHIBIT 10(jj)
AGREEMENT FOR THE PURCHASE AND SALE OF PROPERTY
-----------------------------------------------
THIS AGREEMENT FOR THE PURCHASE AND SALE OF PROPERTY (the "Agreement"), is
made and entered into as of the _____ day of December, 1996, by and between
MAGELLAN BAKE PARKWAY LIMITED PARTNERSHIP, an Arizona limited partnership
(hereinafter referred to as "Seller"), and WELLS PARTNERS, L.P., a Georgia
limited partnership (hereinafter referred to as "Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller desires to sell and Purchaser desires to purchase the Property
(as hereinafter defined) subject to the terms and conditions hereinafter set
forth.
NOW, THEREFORE, for and in consideration of the premises, the mutual
agreements contained herein, the sum of Ten Dollars ($10.00) in hand paid by
Purchaser to Seller at and before the sealing and delivery of these presents and
for other good and valuable consideration, the receipt, adequacy, and
sufficiency which are hereby expressly acknowledged by the parties hereto, the
parties hereto do hereby covenant and agree as follows:
1. Purchase and Sale of Property. Subject to and in accordance with the
-----------------------------
terms and provisions of this Agreement, Seller hereby agrees to sell to
Purchaser and Purchaser hereby agrees to purchase from Seller, the Property,
which term "Property" shall mean and include the following:
(a) all that tract or parcel of land located in Irvine, Orange County,
California containing approximately 4.407 acres, and being more
particularly described on Exhibit "A" attached hereto and by this reference
made a part hereof (herein referred to as the "Land"); and
(b) all of Seller's rights, privileges, and easements appurtenant to the
Land, and all of Seller's water rights, mineral rights, reversions, or
other appurtenances to said Land, and all right, title, and interest of
Seller, if any, in and to any land lying in the bed of any street, road,
alley, or right-of-way, open or proposed, adjacent to or abutting the Land;
and
(c) all buildings, structures, and improvements situated on the Land,
including, without limitation, that certain two story office building
containing approximately 63,500 rentable square feet of space, the
parking areas containing approximately 404 parking spaces and other
amenities constructed on the Land, and all apparatus, built-in appliances,
equipment, pumps, machinery, plumbing, heating, air conditioning,
elevators, electrical and other fixtures located on or to be located on the
Land (all of which are herein collectively referred to as the
"Improvements"); and
<PAGE>
(d) all personal property located on or to be located on or in, or used
in connection with, the Land and Improvements, (all of which are herein
collectively referred to as the "Personal Property"); and
(e) all of Seller's right, title, and interest, as landlord or lessor,
in and to the Lease (as hereinafter defined); and
(f) all of Seller's right, title, and interest, if any, in and to the
plans and specifications with respect to the Improvements and any
guarantees, trademarks, rights of copyright, warranties, or other rights
related to the ownership of or use and operation of the Land, Personal
Property, or Improvements, all governmental licenses and permits, and all
intangibles associated with the Land, Personal Property, and Improvements,
including the name of the Improvements and the logo therefor, if any.
2. Earnest Money. Within two (2) business days after the Effective Date,
-------------
Purchaser shall deliver to First American Title Insurance Company ("Escrow
Agent"), whose offices are at 114 East Fifth Street, Santa Ana, California
92702, Purchaser's check, payable to Escrow Agent, in the amount of $100,000
(the "Earnest Money"), which Earnest Money shall be held and disbursed by Escrow
Agent pursuant to this Agreement. The Earnest Money shall be paid by Escrow
Agent to Seller at Closing (as hereinafter defined) and shall be applied as a
credit to the Purchase Price (as hereinafter defined), or shall otherwise be
paid to Seller or refunded to Purchaser in accordance with the terms of this
Agreement. All interest and other income from time to time earned on the Earnest
Money shall belong to Purchaser and shall be disbursed to Purchaser at any time
and from time to time as Purchaser shall direct Escrow Agent, all as provided in
the Escrow Agreement. In no event shall any such interest or other income be
deemed a part of the Earnest Money.
3. Purchase Price. Subject to adjustment and credits as otherwise
--------------
specified in this Agreement, the purchase price (the "Purchase Price") to be
paid by Purchaser to Seller for the Property shall be Seven Million, one Hundred
Ninety Three Thousand Dollars ($7,193,000.00). The Purchase Price shall be
deposited by Purchaser with Escrow Agent one (1) day prior to the Closing (as
hereinafter defined) by wire transfer of immediately available federal funds,
less the amount of Earnest Money and subject to prorations, adjustments and
credits as otherwise specified in this Agreement.
4. Purchaser's Inspection and Review Rights. Commencing on the Effective
----------------------------------------
Date and ending on the Closing Date, and subject to the rights of the Tenant (as
hereinafter defined), Purchaser and its agents, engineers, or representatives,
with Seller's
2
<PAGE>
reasonable, good faith cooperation, shall have the privilege of going upon the
Property as needed to inspect, examine, test, and survey the Property at all
reasonable times and from time to time. Such privilege shall include the right
to make tests, borings, and other tests to obtain information necessary to
determine surface and subsurface conditions, provided, however, that no borings
shall be made without the advance written consent of Seller, which consent shall
not be unreasonably withheld. Seller in its sole and absolute but reasonable
discretion, shall have the right to approve all consultants conducting any tests
as well as the scope of any invasive testing on the Property prior to the
Purchaser conducting such testing. Such privilege shall also include the right
to make any other tests deemed reasonably necessary by Purchaser. Purchaser
hereby agrees to indemnify and hold Seller harmless from any liens, claims,
liabilities, expenses and damages, including, without limitation, reasonable
attorney's fees, incurred through the exercise of such privilege, and Purchaser
further agrees to repair any damage to the Property caused by the exercise of
such privilege. At all reasonable times prior to the Closing (as hereinafter
defined), Seller shall make available to Purchaser, or Purchaser's agents and
representatives, and for copying at Purchaser's expense, all books, records, and
files in Seller's possession relating to the ownership and operation of the
Property, including, without limitation, title matters, surveys, tenant files,
service and maintenance agreements, and other contracts, books, records,
operating statements, and other information relating to the Property. Seller
further agrees to in good faith assist and cooperate with Purchaser, at no cost
to Seller, in coming to a thorough understanding of the books, records, and
files relating to the Property. Seller further agrees to provide copies of any
of such books, records, and files as may be reasonably requested by Purchaser,
with the copying costs to be borne by Purchaser. Seller further agrees to
provide to Purchaser prior to the date which is five (5) business days after the
Effective Date those items listed on Exhibit "B" hereto which are in the
possession of Seller or which Seller can obtain with a reasonable effort and
which have not been previously delivered to Purchaser. Purchaser acknowledges
that Seller has provided to Purchaser prior to the Effective Date, a statement
setting forth all revenues from the Property and setting forth all costs and
expenses of operating, maintaining, and repairing the Property (and the costs of
replacing component parts thereof) incurred by Seller, in each case during the
period of its ownership. The provisions of this paragraph 4 shall survive the
Closing or any termination of this Agreement. Purchaser represents and covenants
that Seller shall not have any liability, obligation or responsibility of any
kind with respect to the following, unless Seller actually knew that any
document was inaccurate, misleading or failed to provide material information:
(a) The content or accuracy of any report, study, opinion or conclusion
of any soils, toxic, environmental or other engineer or other person or
entity who has examined the Property or any aspect thereof.
3
<PAGE>
(b) The content or accuracy of any information released to Purchaser by
an engineer or planner in connection with the development of the Property.
(c) The availability of building or other permits or approvals for the
Property by any state or local governmental bodies with jurisdiction over
the Property.
(d) The availability or capacity of sewer, water or other utility
connections to the Property.
(e) Any of the items delivered to Purchaser pursuant to Purchaser's
review of the condition of the Property.
(f) The content or accuracy of any other development or construction
cost, projection, financial or marketing analysis or other information
given to Purchaser by Seller or reviewed by Purchaser with respect to the
Property.
5. Special Condition to Closing. Subject to the limitations set forth in
----------------------------
paragraph 4 above, Purchaser shall have until Closing (the "Inspection Period")
to make investigations, examinations, inspections, market studies, feasibility
studies, lease reviews, and tests relating to the Property and the operation
thereof in order to determine, in Purchaser's sole opinion and discretion, the
suitability of the Property for acquisition by Purchaser. Purchaser shall have
the right to terminate this Agreement at any time prior to the expiration of the
Inspection Period by giving written notice to Seller of such election to
terminate. In the event this Agreement is so terminated, Seller shall be
entitled to receive the sum of One Hundred Dollars ($100) of the Earnest Money,
and the balance of the Earnest Money shall be promptly refunded by Escrow Agent
to Purchaser, whereupon, except as expressly provided to the contrary in this
Agreement, Purchaser shall have no further right to purchase the Property and no
party hereto shall have any other or further rights or obligations under this
Agreement. Seller acknowledges that the sum of $100 is good and adequate
consideration for the termination rights granted to Purchaser hereunder.
6. General Conditions Precedent to Purchaser's Obligations Regarding the
---------------------------------------------------------------------
Closing. In addition to any other conditions to Purchaser's obligations
- -------
hereunder, the obligations and liabilities of Purchaser hereunder shall in all
respects be conditioned upon the satisfaction of each of the following
conditions prior to or simultaneously with the Closing (as hereinafter defined),
any of which may be waived by written notice from Purchaser to Seller:
(a) Seller shall have complied in all material respects with and
otherwise performed in all material respects each of the covenants and
obligations of Seller set forth in this Agreement.
4
<PAGE>
(b) All representations and warranties of Seller as set forth in this
Agreement shall be true and correct in all material respects as of the date
of Closing.
(c) There shall have been no material adverse change to the title to the
Property which has not been cured and the Title Company (as hereinafter
defined) shall have issued the Title Report (as hereinafter defined) on the
Land and Improvements without exceptions other than as have been approved
by Purchaser as Permitted Exceptions (as hereinafter defined) and the Title
Company shall be prepared to issue to Purchaser upon the Closing an ALTA
Owner's Title Insurance Policy on the Land and Improvements pursuant to
such Title Report.
(d) Purchaser shall have received the Tenant Estoppel Certificate
referred to in Paragraph 9(c) hereof, duly executed by the Tenant (as
hereinafter defined).
(e) Purchaser shall have received a date-down on the Title Report
through the date and time of recording the Grant Deed from Seller to
Purchaser, to reflect that Purchaser is vested with the fee simple title to
the Land and the Improvements, and to reflect that all requirements for the
issuance of the final title policy pursuant to such Title Commitment have
been satisfied.
(f) At no cost to Seller, Seller shall use reasonable efforts to cause
the entity which issued the environmental site assessment report to Seller
to address its report to Purchaser in such a way that Purchaser shall be
entitled to rely on same.
(g) Purchaser's obligations and liabilities hereunder shall be
conditioned upon Purchaser receiving, at Purchaser's sole cost and expense,
prior to the Closing, an appraisal of the Land and Improvements (as
encumbered by the Lease) from a competent independent appraiser selected by
Purchaser which shall state that the Land and Improvements have a value
equal to or exceeding the Purchase Price. If the appraisal received by the
Purchaser shall reflect a value of the Land and Improvements which is less
than the Purchase Price, Purchaser shall have the right to terminate this
Agreement prior to the Closing by giving written notice to Seller of such
election to terminate. In the event Purchaser so elects to terminate this
Agreement, Seller shall be entitled to receive $100 of the Earnest Money
from Escrow Agent, and Purchaser shall be entitled to a return of the
balance of the Earnest Money, if any, from Escrow Agent, Purchaser shall
have no further right to acquire the Property, and no party hereto shall
have any other or future rights or obligations under this Agreement, except
as expressly provided to the contrary herein.
5
<PAGE>
7. Title and Survey. Seller covenants and agrees that Seller, at its
----------------
sole cost and expense, shall, on or before seven (7) days after the Effective
Date of this Agreement cause First American Title Insurance Company, or such
other such title insurance company acceptable to Purchaser (herein referred to
as the "Title Company"), to deliver to Purchaser its Preliminary Title Report
(herein referred to as the "Title Report") to issue to Purchaser, upon the
recording of the Grant Deed conveying title to the Property from Seller to
Purchaser, the payment of the Purchase Price, and the payment to the Title
Company of the policy premium therefor, an ALTA Owner's Policy of Title
Insurance with endorsements covering survey and zoning, in the amount of the
Purchase Price, insuring good and marketable fee simple record title to the
Property to be in Purchaser without exception (including any general exception)
except for matters approved by Purchaser (herein referred to as the ("Permitted
Exceptions"). The Title Policy to be issued shall not contain any exception for
mechanic's or materialman's liens or any exception for unpaid taxes other than
an exception for taxes not yet due and payable. Such Title Policy shall not
contain any exception for rights of parties in possession other than an
exception for the rights of the Tenant (as hereinafter defined) under the Lease.
If the Title Report shall contain an exception for the state of facts which
would be disclosed by a survey of the Property or an "area and boundaries"
exception, the Title Report shall provide that such exception will be deleted
upon the presentation of an "as-built" survey, in which case the Title Report
shall be amended to contain an exception only for the matters shown on the as-
built survey which Seller shall obtain at its sole cost and expense for the
benefit of Purchaser. Seller shall also cause to be delivered to Purchaser
together with such Title Report, legible copies of all documents and instruments
referred to therein. Purchaser, upon receipt of the Title Report and the copies
of the documents and instruments referred to therein, shall then have until
Closing during which to examine the same, after which Purchaser shall notify
Seller of any defects or objections affecting the marketability of the title to
the Property other than the Permitted Exceptions. Seller shall then have until
the Closing to cure such defects and objections and shall, in good faith,
exercise reasonable diligence to cure such defects and objections. If Seller
fails to satisfy such defects or objections by the date of Closing, then, at the
option of Purchaser: (i) if any such defects or objections arose by, through, or
under Seller or if any such defects or objections consist of taxes, mortgages,
deeds of trust, deeds to secure debt, mechanic's or materialman's liens (not
exceeding $20,000), or other such monetary encumbrances, Purchaser shall have
the right to cure such defects or objections, in which event the Purchase Price
shall be reduced by an amount equal to the costs and expenses incurred by
Purchaser in connection with the curing of such defects or objections, and upon
such curing, the Closing hereof shall proceed in accordance with the terms of
this
6
<PAGE>
Agreement; or (ii) Purchaser shall have the right to terminate this Agreement by
giving written notice of such termination to Seller, whereupon Escrow Agent
shall promptly refund all Earnest Money to Purchaser, Purchaser shall have no
further right to purchase the Property and Purchaser and Seller shall have no
further rights, obligations, or liabilities hereunder, except as may be
expressly provided to the contrary herein; or (iii) Purchaser shall have the
right to accept title to the Property subject to such defects and objections
with no reduction in the Purchase Price, in which event such defects and
objections shall be deemed "Permitted Exceptions" above. Except as expressly
provided to the contrary herein, Seller makes no warranty of any kind with
respect to the title of the Property and Purchaser agrees to look solely to the
remedies afforded by Purchaser's title insurance policy with regard to the
condition of title.
8. Representations and Warranties of Seller. Seller hereby makes the
----------------------------------------
following representations and warranties to Purchaser:
(a) Lease. Seller has delivered to Purchaser a true and accurate copy of
-----
the only lease in effect relating to the Property, together with all
modifications and amendments to such lease, the cover page of which is
attached as Exhibit "A" (such lease, as modified and amended, being herein
referred to as the "Lease"). Seller is the "landlord" under the Lease and
the rents and other income thereunder, subject only to the collateral
assignment of the Lease and the rents thereunder in favor of the holder of
any existing mortgage or deed of trust encumbering the Property, which
mortgage or deed of trust shall be canceled and satisfied by Seller at the
Closing. Matsushita Avionics Systems Corporation is the tenant ("Tenant")
under the Lease.
(b) Lease - Assignment. To Seller's knowledge, the Tenant has not
------------------
assigned its interest in the Lease or sublet any portion of its premises
under the Lease.
(c) Lease - Default. (i) Seller has not received any notice of
---------------
termination or default under the Lease, (ii) to the Seller's knowledge
there are no existing or uncured defaults by Seller or by the Tenant under
the Lease, (iii) to the Seller's knowledge there are no events which with
the passage of time or notice, or both, would constitute a default by
Seller or by the Tenant, and Seller has complied with each and every
undertaking, covenant, and obligation of landlord under the Lease, and (iv)
Seller has not received notice that Tenant has asserted any defense, set-
off, or counterclaim with respect to its tenancy or its obligation to pay
rent, additional rent, or other charges under the Lease.
7
<PAGE>
(d) Lease - Rents and Special Consideration. Tenant: (i) has not prepaid
---------------------------------------
rent for more than one month in advance under the Lease, (ii) is not
entitled to receive any rent concession in connection with its tenancy
under the Lease which has not already been received except as expressly
provided therein, (iii) is not entitled to any special work (not yet
performed), or consideration (not yet given) in connection with its tenancy
under the Lease; and (iv) does not have any deed, option, or other evidence
of any right or interest in or to the Property, except as evidenced by the
express terms of the Lease.
(e) Lease - Commissions. No rental, lease, or other commissions with
-------------------
respect to the Lease is payable to Seller, any partner of Seller, any party
affiliated with or related to Seller or third party. All commissions
payable under, relating to, or as a result of the Lease has been cashed-out
and paid and satisfied in full by Seller or by Seller's predecessor in
title to the Property.
(f) Service Contracts. There are no service contracts with Seller (as
-----------------
opposed to Tenant) which are in effect and which relate to the operation,
management, or maintenance the Property which will continue in effect after
Closing. Seller has canceled or will cancel, effective as of the Closing,
any agreement in the nature of a management agreement or service contract
between Seller and any partner or shareholder of Seller or any party
affiliated with or related to Seller or any partner or shareholder of
Seller.
(g) No Other Agreements. Other than the Lease and the Permitted
-------------------
Exceptions, Seller has not entered into any leases, service contracts,
management agreements, or other agreements or instruments, to which Seller
is a party and that grant to any person whomsoever or any entity whatsoever
any right, title, interest or benefit in or to all or any part of the
Property or any rights relating to the use, operation, management,
maintenance, or repair of all or any part of the Property and which will
extend beyond the Closing.
(h) No Litigation. To Seller's knowledge, there are no actions, suits,
-------------
or proceedings pending, or, threatened by any organization, person,
individual, or governmental agency against Seller with respect to the
Property or against the Property, nor does Seller have any knowledge of any
basis for such action. Seller has no knowledge of any pending or threatened
application for changes in the zoning applicable to the Property or any
portion thereof.
(I) Condemnation. To Seller's knowledge no condemnation or other taking
------------
by eminent domain of the Property or any portion thereof has been
instituted and, there are no pending or threatened condemnation or eminent
8
<PAGE>
domain proceedings (or proceedings in the nature or in lieu thereof)
affecting the Property or any portion thereof or its use.
(j) Proceedings Affecting Access. The Property is served by a curb cut
----------------------------
for direct vehicular access to and from Bake Parkway, adjoining the
Property, which is a public road. To Seller's knowledge, there are no
pending or threatened proceedings that could have the effect of impairing
or restricting access between the Property and such adjacent public road.
(k) No Assessments. To Seller's knowledge, no assessments have been made
--------------
against the Property that are unpaid, whether or not they have become
liens, and there are no pending assessments, except as shown on the Title
Report.
(l) Violations. Seller has not received written notice of any violations
----------
of law, municipal or county ordinances, or other legal requirements with
respect to the Property that remain uncured, nor any notice that
Improvements thereon do not comply with any legal requirements with respect
to the use, occupancy and construction thereof. To Seller's knowledge, the
Property is currently zoned in a classification such as will permit the
operation of the Property for the uses specified in the Lease and the
conditions, if any, to the granting of the zoning of the Property have been
satisfied. To Seller's knowledge, the Improvements located on the Property
are not located in a flood plain.
(m) Improvements. Except as disclosed to Purchaser in any due diligence
------------
materials supplied to Purchaser pursuant to this Agreement and except for
the variable air volume valves in the HVAC system, to Seller's knowledge,
there are no structural or other defects, latent or otherwise, in the
Improvements, the heating, ventilating, air conditioning, electrical,
plumbing, water, roofing, elevators (if any), storm drainage and sanitary
sewer systems at or servicing the Land and Improvements are in good
condition and working order and there are no defects or deficiencies,
latent or otherwise, therein.
(n) Employees. There are no employment, collective bargaining, or
---------
similar agreements or arrangements between Seller and any of its employees
or others which will be binding on Purchaser or any of Purchaser's
successors in title.
(o) Bankruptcy. Seller is solvent and has not made a general assignment
----------
for the benefit of creditors nor been adjudicated a bankrupt or insolvent,
nor has a receiver,
9
<PAGE>
liquidator, or trustee for any of Seller's properties (including the
Property) been appointed or a petition filed by or to Seller's knowledge
against Seller for bankruptcy, reorganization, or arrangement pursuant to
the Federal Bankruptcy Act or any similar Federal or state statute, or any
proceeding instituted for the dissolution or liquidation of Seller.
(p) Pre-existing Right to Acquire. No person or entity has any right or
-----------------------------
option to acquire the Property or any portion thereof which will have any
force or effect after the execution of this Agreement, other than
Purchaser, except as set forth in the Lease, provided, however, Purchaser
has been informed of letter of intent between Seller and The Oxford Real
Estate Investment Trust which has by its terms expired.
(q) Effect of Certification. Neither this Agreement nor the transactions
-----------------------
contemplated herein will constitute a breach or violation of, or default
under, or will be modified, restricted, or precluded by the Leases, the
Service Contracts, or the Permitted Exceptions.
(r) Authorization. Seller is a duly organized and validly existing
-------------
limited partnership under the laws of the State of Arizona and has duly
registered in any jurisdiction where it is required to do so. This
Agreement has been duly authorized and executed on behalf of Seller and
constitutes the valid and binding agreement of Seller, enforceable in
accordance with its terms, and all necessary action on the part of Seller
to authorize the transactions herein contemplated has been taken, and no
further action is necessary for such purpose.
(s) Seller Not a Foreign Person. Neither Seller nor the owner of
---------------------------
beneficial title to the Property is a "foreign person" which would subject
Purchaser to the withholding tax provisions of Section 1445 of the Internal
Revenue Code of 1986, as amended.
(t) Utilities. To Sellers knowledge all utilities necessary for the use
---------
of the Property as an office building of the size and nature situated
thereon, including water, sanitary sewer, storm sewer, electricity, and
telephone, are installed and operational, and such utilities either enter
the Property through adjoining public streets, or, if they pass through
adjoining private land, do so in accordance with valid public easements or
private easements which inure to the benefit of the Property. All
installation and connection charges for utilities serving the Property have
been paid in full.
10
<PAGE>
(u) Tax Returns. All property tax returns required to be filed by Seller
-----------
relating to the Property under any law, ordinance rule, regulation, order,
or requirement of any governmental authority have been, or will be, as the
case may be, truthfully, correctly, and timely filed.
At Closing, Seller shall represent and warrant to Purchaser that all
representations and warranties of Seller in this Agreement remain true and
correct as of the date of the Closing, except for any changes in any such
representations or warranties that occur and are disclosed by Seller to
Purchaser expressly and in writing at any time and from time to time prior to
Closing, which disclosures shall thereafter be updated by Seller to the date of
Closing. If there is any change in any representations or warranties and Seller
does not cure or correct such changes prior to Closing, then Purchaser may, at
Purchaser's option, (i) close and consummate the transaction contemplated by
this Agreement, or as its sole and exclusive remedy (ii) terminate this
Agreement by written notice to Seller, whereupon the Earnest Money shall be
immediately returned by Escrow Agent to Purchaser, Purchaser shall have no
further right to purchase the Property and thereafter the parties hereto shall
have no further rights or obligations hereunder, except only for such rights or
obligations that, by the express terms hereof, survive any termination of this
Agreement. As set forth in this Agreement, "to Seller's knowledge" shall mean
the actual, current knowledge of Gary Cunningham or any officer or employee of
Seller with respect to the Property, without undertaking any independent
investigation with respect to the matters represented. The foregoing
representatives and warranties shall survive the Closing for a period of one (1)
year and shall thereafter be of no further force and effect. Except as
expressly provided herein, Purchaser is acquiring the Property "AS IS" without
any representation or warranty of Seller, express, implied or statutory, as to
the nature or condition of or title to the Property or its fitness for
Purchaser's intended use of same. Purchaser is, or as of the Closing Date will
have conducted, its own, independent inspection, investigation and analysis of
the Property as it deems necessary or appropriate in so acquiring the Property
from Seller, including, without limitation, an analysis of any and all matters
concerning the condition of the Property and its suitability for Purchaser's
intended purposes, and a review of all applicable laws, ordinances, rules and
governmental regulations (including, but not limited to, those relative to
building, zoning and land use) affecting the development, use, occupancy or
enjoyment of the Property.
9. Seller's Additional Covenants. Seller does hereby further covenant
-----------------------------
and agree as follows:
(a) Operation of Property. Seller hereby covenants that, from the date
---------------------
of this Agreement up to and including
11
<PAGE>
the date of Closing, Seller shall: (i) not negotiate with any third party
respecting the sale of the Property or any interest therein, (ii) not
modify, amend, or terminate the Lease or enter into any new lease,
contract, or other agreement respecting the Property, without the consent
of Purchaser, which consent shall not be withheld or delayed and (iii) not
grant or otherwise create or consent to the creation of any easement,
restriction, lien, assessment, or encumbrance respecting the Property.
(b) Preservation of Lease. Seller shall, from and after the date of this
---------------------
Agreement to the date of Closing, use its best efforts to perform and
discharge all of the duties and obligations and shall otherwise comply with
every covenant and agreement of the landlord under the Lease, at Seller's
expense, in the manner and within the time limits required thereunder.
Furthermore, Seller shall, for the same period of time, use diligent and
good faith efforts to cause the Tenant under the Lease to perform all of
its duties and obligations and otherwise comply with each and every one of
its covenants and agreements under such Lease and shall take such actions
as are reasonably necessary to enforce the terms and provisions of the
Lease.
(c) Tenant Estoppel Certificate. Prior to Closing, Seller shall obtain
---------------------------
and deliver to Purchaser a fully completed estoppel certificate with
respect to the Lease (herein referred to as the "Tenant Estoppel
Certificate") duly executed by the Tenant thereunder in the form attached
hereto as Exhibit " D ". The Tenant Estoppel Certificate shall be executed
---
as of a date not more than twenty (20) days prior to Closing.
(d) Insurance. From and after the date of this Agreement to the date and
---------
time of Closing, Seller shall, at its expense, continue to maintain the
insurance policies covering the Property which are currently in force and
effect.
(e) Securities Act Compliance. Seller acknowledges that Purchaser may be
-------------------------
required by the Securities and Exchange Commission to file audited
financial statements for one to three years with regard to the Property. At
no cost or liability to Seller, Seller shall (i) cooperate with Purchaser,
its counsel, accountants, agents, and representatives, provide them with
access to Seller's books and records with respect to the ownership,
management, maintenance, and operation of the Property for the applicable
period, and permit them to copy the same,(ii) execute a form of "rep"
letter in form and substance reasonably satisfactory to Seller, and (iii)
furnish Purchaser with such additional information concerning the
12
<PAGE>
same as Purchaser shall reasonably request. Purchaser will pay the costs
associated with any such audit. The terms of this paragraph shall survive
Closing.
10. Closing. Provided that all of the conditions set forth in this
-------
Agreement are theretofore satisfied or performed in all material respects, it
being fully understood and agreed, however, that Purchaser may expressly waive
in writing, at or prior to Closing, any conditions that are unsatisfied or
unperformed at such time, the consummation of the sale by Seller and purchase by
Purchaser of the Property (herein referred to as the "Closing") shall be held on
or before January 9, 1997, and at such specific time, and date as shall be
designated by Purchaser in a written notice to Seller not less than two (2)
business days prior to Closing at the office of the Title Company.
11. Seller's Closing Documents. For and in consideration of, and as a
--------------------------
condition precedent to, Purchaser's delivery to Seller of the Purchase Price
described in Paragraph 3 hereof, Seller shall obtain or execute, at Seller's
expense, and deliver to Purchaser at Closing the following documents (all of
which shall be duly executed, acknowledged, and notarized where required):
(a) Grant Deed. A Grant Deed ("Grant Deed") in the form attached hereto
----------
as Exhibit "E" conveying to Purchaser fee simple title to the Land and
-
Improvements, together with all rights, members, easements, and
appurtenances thereto, subject only to the Permitted Exceptions. The legal
description set forth in the Grant Deed shall be as set forth on Exhibit
"A" attached hereto. In the event Purchaser shall obtain a new or updated
survey of the Land and Improvements and the legal description set forth in
Purchaser's survey shall differ from the legal description set forth on
Exhibit "A" hereto, Seller shall execute and deliver to Purchaser a
quitclaim deed containing a legal description based upon such survey
obtained by Purchaser;
(b) Bill of Sale. A Bill of Sale conveying to Purchaser marketable title
------------
to the Personal Property in the form attached hereto as Exhibit " F ";
---
(c) Blanket Transfer. A Blanket Transfer and Assignment in the form
----------------
attached hereto as Exhibit " G ";
---
(d) Assignment and Assumption of Lease. An Assignment and Assumption of
----------------------------------
Lease in the form attached hereto as Exhibit " H " assigning to Purchaser
---
all of Seller's right, title, and interest in and to the Lease and the
rents thereunder;
(e) ALTA Affidavit. A customary ALTA affidavit in the form required by
--------------
the Title Company;
13
<PAGE>
(f) FIRPTA Certificate. A FIRPTA Certificate;
------------------
(g) Surveys and Plans. Such surveys, site plans, plans and
-----------------
specifications, and other matters relating to the Property as are described
in subparagraph (a) of the Blanket Transfer and Assignment and are in the
possession of Seller or Seller's agents;
(h) Certificates of Occupancy. To the extent in Seller's possession, the
-------------------------
original certificates of occupancy for all space within the Improvements;
(i) Lease. An original executed counterpart or certified copy of the
-----
Lease and all amendments to and modifications thereof;
(j) Estoppel Certificate. The estoppel certificate referred to in
--------------------
Paragraph 9(c) hereof;
(k) Keys and Records. All of the keys to any doors or locks on the
----------------
Property and the original tenant files and other books and records relating
to the Property in Seller's possession;
(l) Tenant Notice. Notice from Seller to the Tenant of the sale of the
-------------
Property to Purchaser in such form as Purchaser shall reasonably approve;
and,
(m) Settlement Statement. A settlement statement setting forth the
--------------------
amounts paid by or on behalf of and/or credited to each of Purchaser and
Seller pursuant to this Agreement.
12. Purchaser's Closing Documents. Purchaser shall deliver the balance
-----------------------------
of the Purchase Price and shall obtain or execute and deliver to Seller at
Closing the following documents, all of which shall be duly executed and
acknowledged where required and shall survive the Closing:
(a) Blanket Transfer. The Blanket Transfer and Assignment;
----------------
(b) Assignment and Assumption of Lease. The Assignment and Assumption of
----------------------------------
Lease; and
(c) Settlement Statement. A settlement statement setting forth the
--------------------
amounts paid by or on behalf of and/or credited to each of Purchaser and
Seller pursuant to this Agreement.
14
<PAGE>
13. Closing Costs. Seller shall pay the cost of the Title Report, the
-------------
portion of the premium for the ALTA Owner's Policy of Title Insurance issued
pursuant thereto, the cost of the as-built survey, the cost of any recording
fees, grantor, documentary or transfer tax imposed by the State of California,
Orange County and local transfer taxes, if any, upon the conveyance of the
Property pursuant hereto, the attorneys' fees of Seller, and all other costs and
expenses incurred by Seller in closing and consummating the purchase and sale of
the Property pursuant hereto. Purchaser shall pay for that portion of the
premium for the ALTA Owner's Policy of Title Insurance attributed to any
coverage in excess of the CLTA coverage, the cost of any title insurance
endorsements, its attorneys' fees and all other costs and expenses incurred by
Purchaser in closing and consummating the purchase and sale of the Property
pursuant hereto. The parties shall each pay one-half of any escrow fees.
14. Prorations. The following items shall be prorated and/or credited
----------
between Seller and Purchaser as of Midnight preceding the date of Closing:
(a) Rent. Rent, additional rents, operating costs, and other income of
----
the Property (other than security deposits) collected by Seller from Tenant
for the month of Closing. Seller shall pay to Purchaser at Closing any
rents or other sums prepaid by Tenant for any period following the month of
Closing. The parties shall adjust after Closing for any uncollected rent or
other income under the Lease that shall become due and payable upon final
reconciliation of any pass-through items under the Lease. Seller further
reserves the right to collect (without any right to pursue the right of
possession against the Tenant under the Lease) any delinquent rents or
other sums payable under the Lease as of the Closing.
(b) Property Taxes. Except for such taxes which are the responsibility
--------------
of Tenant and for which Seller has not received payment, City, state,
county, and school district ad valorem taxes based on the ad valorem tax
bills for the Property, if then available, or if not, then on the basis of
the latest available tax figures and information. Should such proration be
based on such latest available tax figures and information and prove to be
inaccurate upon receipt of the ad valorem tax bills for the Property for
the year of Closing, either Seller or Purchaser, as the case may be, may
demand at any time after Closing a payment from the other correcting such
malapportionment. In addition, if after Closing there is an adjustment or
reassessment by any governmental authority with respect to, or affecting,
any ad valorem taxes for the Property for the year of Closing or any prior
year, any additional tax payment or refund for the Property required to be
paid or refunded with respect to the year of
15
<PAGE>
Closing shall be prorated between Purchaser and Seller and any such
additional tax payment or refund for the Property for any year prior to the
year of Closing shall be paid by or to Seller, as the case may be. This
agreement shall expressly survive the Closing.
(c) Utility Charges. Except for utilities which are the responsibility
---------------
of Tenant and for which Seller has not received payment, Seller shall pay
all utility bills received prior to Closing and shall be responsible for
utilities furnished to the Property prior to Closing. Purchaser shall be
responsible for the payment of all bills for utilities furnished to the
Property subsequent to the Closing. Seller and Purchaser hereby agree to
prorate and pay their respective shares of all utility bills received
subsequent to Closing, which agreement shall survive Closing.
15. PURCHASER'S DEFAULT. IN THE EVENT OF DEFAULT BY PURCHASER UNDER THE
-------------------
TERMS OF THIS AGREEMENT, SELLER'S SOLE AND EXCLUSIVE REMEDY SHALL BE TO RECEIVE
THE EARNEST MONEY AS LIQUIDATED DAMAGES AND THEREAFTER THE PARTIES HERETO SHALL
HAVE NO FURTHER RIGHTS OR OBLIGATIONS HEREUNDER WHATSOEVER. IT IS HEREBY AGREED
THAT SELLER'S DAMAGES WILL BE DIFFICULT TO ASCERTAIN AND THAT THE EARNEST MONEY
CONSTITUTES A REASONABLE LIQUIDATION THEREOF AND IS INTENDED NOT AS A PENALTY,
BUT AS FULLY LIQUIDATED DAMAGES. SELLER AGREES THAT IN THE EVENT OF DEFAULT BY
PURCHASER, IT SHALL NOT INITIATE ANY PROCEEDING TO RECOVER DAMAGES FROM
PURCHASER, BUT SHALL LIMIT ITS RECOVERY TO THE RETENTION OF THE EARNEST MONEY.
_________________________
Seller's Initials
_________________________
Purchaser's Initials
16. Seller's Default. In the event of default by Seller under the terms
----------------
of this Agreement, except as otherwise specifically set forth herein, at
Purchaser's option: (i) Purchaser may terminate this Agreement by written notice
to Seller, whereupon the Earnest Money shall be immediately returned by Escrow
Agent to Purchaser, and the parties hereto shall have no further rights or
obligations hereunder whatsoever, or (ii) Purchaser shall be entitled to an
immediate refund of the Earnest Money and to pursue the remedy of specific
performance as its sole and exclusive remedies.
17. Condemnation. If, prior to the Closing, all or any part of the
------------
Property valued at more than $100,000 is subjected to a bona fide threat of
condemnation by a body having the power of eminent domain or is taken by eminent
domain or condemnation (or sale in lieu thereof), or if Seller has received
notice that any
16
<PAGE>
condemnation action or proceeding with respect to the Property is contemplated
by a body having the power of eminent domain, Seller shall give Purchaser
immediate written notice of such threatened or contemplated condemnation or of
such taking or sale, and Purchaser may by written notice to Seller given within
thirty (30) days of the receipt of such notice from Seller, elect to cancel this
Agreement. If Purchaser chooses to cancel this Agreement in accordance with this
Paragraph 17, then the Earnest Money shall be returned immediately to Purchaser
by Escrow Agent and except as otherwise provided herein, the rights, duties,
obligations, and liabilities of the parties hereunder shall immediately
terminate and be of no further force and effect. If Purchaser does not elect to
cancel this Agreement in accordance herewith or the portion of the Property in
question is valued at less than $100,000, this Agreement shall remain in full
force and effect and the sale of the Property contemplated by this Agreement,
less any interest taken by eminent domain or condemnation, or sale in lieu
thereof, shall be effected with no further adjustment and without reduction of
the Purchase Price, and at the Closing, Seller shall assign, transfer, and set
over to Purchaser all of the right, title, and interest of Seller in and to any
awards that have been or that may thereafter be made for such taking.
18. Damage or Destruction. If any of the Improvements shall be destroyed
---------------------
or damaged prior to the Closing, and the estimated cost of repair or replacement
exceeds One Hundred Thousand Dollars ($100,000) or if the Lease shall terminate
as a result of such damage, Purchaser may, by written notice given to Seller
within ten (10) days after receipt of written notice from Seller of such damage
or destruction, elect to terminate this Agreement, in which event the Earnest
Money shall immediately be returned by Escrow Agent to Purchaser and except as
expressly provided herein to the contrary, the rights, duties, obligations, and
liabilities of all parties hereunder shall immediately terminate and be of no
further force or effect. If Purchaser does not elect to terminate this Agreement
pursuant to this Paragraph 18, or has no right to terminate this Agreement
(because the damage or destruction does not exceed $100,000 and the Lease
remains in full force and effect), and the sale of the Property is consummated,
Purchaser shall be entitled to receive all insurance proceeds paid or payable to
Seller by reason of such destruction or damage under the insurance required to
be maintained by Seller pursuant to Paragraph 9(d) hereof (less amounts of
insurance theretofore received and applied by Seller to restoration) and Seller
shall pay to Purchaser the amount of any deductible thereunder. If the amount of
said casualty or rent loss insurance proceeds is not settled by the date of
Closing, Seller shall execute at Closing all proofs of loss, assignments of
claim, and other similar instruments to ensure that Purchaser shall receive all
of Seller's right, title, and interest in and under said insurance proceeds.
17
<PAGE>
19. Hazardous Substances. Seller has not received any notice (a) of any
--------------------
"hazardous substances" (as defined in Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq. as
------
amended) at the Property; (b) that there has been any release or threat of
release of any such hazardous substance; (c) that the Property is subject to
regulation by any governmental entity as result of the presence of (A) stored,
leaked or spilled petroleum products,(B) underground storage tanks, (C) an
accumulation of rubbish, debris or other solid waste, or because of the
presence, release, threat of release, discharge, storage, treatment, generation
or disposal of any "hazardous waste" (as defined in the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 et seq., as amended), or "toxic
------
substance" (as defined in the Toxic Substance Control Act, 15 U.S.C. Section
2601 et seq., as amended), including without limitation asbestos and items or
------
equipment containing polychlorinated biphenyls ( PCBs ) in excess of 50 parts
per million; and (d) that any environmental condition exists on the Property
that either (X) requires the owner of the Property to report such condition to
any authority or agency of the State of Illinois or (Y) requires the owner of
the Property to make a notation of such condition in any public records or
conveyancing instrument upon the conveyance of the Property. Seller covenants
during the period of this Agreement not to discharge or store any such materials
on the Property.
20. Assignment. Purchaser's rights and duties under this Agreement shall
----------
be freely transferable and assignable by Purchaser to an affiliate of Purchaser,
and, subject to Seller's prior written consent, not to be unreasonably withheld,
to any third party, either in full or in part, but in the event of any such
transfer or assignment, Purchaser shall remain liable for the performance of all
obligations, covenants, conditions, and agreements imposed upon Purchaser
pursuant to the terms of this Agreement.
21. Broker's Commission. Seller has by separate agreement agreed to pay
-------------------
a real estate commission to Matlow -Kennedy Commercial Real Estate Services (the
"Broker"). Purchaser and Seller hereby represent each to the other that they
have not discussed this Agreement or the subject matter hereof with any real
estate broker or agent other than Broker so as to create any legal right in any
such broker or agent to claim a real estate commission with respect to the
conveyance of the Property contemplated by this Agreement. Seller shall and does
hereby indemnify and hold harmless Purchaser from and against any claim, whether
or not meritorious, for any real estate sales commission, finder's fees, or like
compensation in connection with the sale contemplated hereby and arising out of
any act or agreement of Seller. Likewise, Purchaser shall and does hereby
indemnify and hold harmless Seller from and against any claim, whether or not
meritorious, for any real estate sales commission, finder's fees,
18
<PAGE>
or like compensation in connection with the sale contemplated hereby and arising
out of any act or agreement of Purchaser, except any such claim asserted by
Broker, The Kemper Company or any broker or agent claiming under Broker. The
parties acknowledge that The Kemper Company has participated in this transaction
and will be paid a portion of the commission due Broker. This Paragraph 21 shall
survive the Closing or any termination of this Agreement.
22. Notices. Wherever any notice or other communication is required or
-------
permitted hereunder, such notice or other communication shall be in writing and
shall be delivered by overnight courier, by hand, or sent by U.S. registered or
certified mail, return receipt requested, postage prepaid, to the addresses set
out below or at such other addresses as are specified by written notice
delivered in accordance herewith:
PURCHASER: c/o Wells Capital, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Attn: Mr. Leo F. Wells, III
with a copy to: O'Callaghan & Stumm
3867 Holcomb Bridge Road, Suite 800
Norcross, Georgia 30092
Attn: William L. O'Callaghan, Jr., Esq.
SELLER: Magellan Property Corporation
2198 E. Camelback Road, Suite 325
Phoenix, Arizona 85016
Telephone No.: (602) 381-0383
Facsimile No.: (602) 381-0502
Attention: David C. Dewar, President
With copies to Vicki L. Christensen
with a copy to: Allen, Matkins, Lock, Gamble
and Mallory LLP
18400 Von Karman, 4th Floor
Irvine, California 92612-1597
Attn: Michael Joyce, Esq.
Any notice or other communication given as hereinabove provided shall be deemed
effectively given or received on the date of delivery.
23. Possession. Possession of the Property shall be granted by Seller to
----------
Purchaser on the date of Closing, subject only to the Leases and the Permitted
Exceptions.
24. Time Periods. If the time period by which any right, option, or
------------
election provided under this Agreement must be exercised, or by which any act
required hereunder must be
19
<PAGE>
performed, or by which the Closing must be held, expires on a Saturday, Sunday,
or holiday, then such time period shall be automatically extended through the
close of business on the next regularly scheduled business day in Dallas, Texas.
25. Survival of Provisions. All covenants, warranties, and agreements
----------------------
set forth in this Agreement shall survive the execution or delivery of any and
all deeds and other documents at any time executed or delivered under, pursuant
to, or by reason of this Agreement, and shall survive the payment of all monies
made under, pursuant to, or by reason of this Agreement, for a period of 36
months following Closing.
26. Severability. This Agreement is intended to be performed in
------------
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules, and regulations. If any provision of this Agreement, or the
application thereof to any person or circumstance, shall, for any reason and to
any extent be invalid or unenforceable, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected thereby but rather shall be enforced to the greatest extent permitted
by law.
27. Authorization. Purchaser represents to Seller that this Agreement
-------------
has been duly authorized and executed on behalf of Purchaser and constitutes the
valid and binding agreement of Purchaser, enforceable in accordance with its
terms, and all necessary action on the part of Purchaser to authorize the
transactions herein contemplated has been taken, and no further action is
necessary for such purpose.
28. General Provisions. No failure of either party to exercise any power
------------------
given hereunder or to insist upon strict compliance with any obligation
specified herein, and no custom or practice at variance with the terms hereof,
shall constitute a waiver of either party's right to demand exact compliance
with the terms hereof. This Agreement contains the entire agreement of the
parties hereto, and no representations, inducements, promises, or agreements,
oral or otherwise, between the parties not embodied herein shall be of any force
or effect. Any amendment to this Agreement shall not be binding upon the parties
hereto unless such amendment is in writing and executed by all parties hereto.
Subject to the provisions of paragraph 20, the provisions of this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective heirs, legal representatives, successors, and assigns. Time is of the
essence of this Agreement. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original, but all of which taken
together shall constitute one and the same agreement. The headings inserted at
the beginning of each paragraph are for convenience only, and do not add to or
subtract from the meaning of the contents of each paragraph. This
20
<PAGE>
Agreement shall be construed and interpreted under the laws of the State of
California. Except as otherwise provided herein, all rights, powers, and
privileges conferred hereunder upon the parties shall be cumulative but not
restrictive to those given by law. All personal pronouns used in this Agreement,
whether used in the masculine, feminine, or neuter gender shall include all
genders, and all references herein to the singular shall include the plural and
vice versa.
29. Effective Date. The "Effective Date" of this Agreement shall be
--------------
deemed to be the date this Agreement is fully executed by both Purchaser and
Seller and a fully executed original counterpart of this Agreement has been
received by both Purchaser and Seller. If the Effective Date does not occur on
or before December 17, 1996, this Agreement shall be void and of no further
force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective seals to be affixed hereunto as of the day,
month and year first above written.
"SELLER":
Magellan Bake Parkway Limited
Partnership, an Arizona
limited partnership
By: Magellan Bake Parkway I, L.L.C., an
Arizona limited liability company,
its general partner
By: Magellan Management Corporation,
an Arizona corporation, its manager
By: /s/ David C. Dewar
--------------------------------
David C. Dewar
Secretary/Treasurer
"PURCHASER":
WELLS PARTNERS, L.P.
a Georgia limited partnership
By: Wells Capital, Inc.
Its: General Partner
By: /s/ Leo F. Wells, III
--------------------------------
Leo F. Wells, III
President
21
<PAGE>
EXHIBIT 10.KK
OFFICE LEASE
------------
15253 BAKE PARKWAY BUILDING
Magellan Property Corporation,
an Arizona corporation
as Landlord,
and
Matsushita Avionics Systems Corporation,
a Delaware corporation
as Tenant.
Dated April __, 1996
15253 BAKE PARKWAY BUILDING
[Matsushita Avionics Systems]
<PAGE>
SUMMARY OF BASIC LEASE INFORMATION
The undersigned hereby agree to the following terms of this Summary of Basic
Lease Information (the "Summary"). This Summary is hereby incorporated into and
made a part of the attached Office Lease (this Summary and the Office Lease to
be known collectively as the "Lease") which pertains to the office building (the
"Building") which is located at 15253 Bake Parkway Building, Irvine, California
92718. Each reference in the Office Lease to any term of this Summary shall
have the meaning as set forth in this Summary for such term. In the event of a
conflict between the terms of this Summary and the Office Lease, the terms of
the Office Lease shall prevail. Any capitalized terms used herein and not
otherwise defined herein shall have the meaning as set forth in the Office
Lease.
<TABLE>
<CAPTION>
TERMS OF LEASE
(References are to
the Office Lease) DESCRIPTION
- --------------------- -----------
<S> <C> <C>
1. Date: April __, 1996.
2. Landlord: Magellan Property Corporation,
an Arizona corporation
3. Address of Landlord Magallen Property Corporation
(Section 29.16): 2198 East Camelback Road, Suite 325
Phoenix, Arizona 85916
Attention: Ms. Ulrike Gross
4. Tenant: Matsushita Avionics Systems Corporation,
a Delaware corporation
5. Address of Tenant Matsushita Electric Corporation of America
(Section 29.16): 1 Panasonic Way
Secaucus, New Jersey 07094
Attn: Sharon Streicher, Esq.
</TABLE>
15253 BAKE PARKWAY BUILDING
[Matsushita Avionics Systems]
(i)
<PAGE>
<TABLE>
<S> <C>
and Procopio, Cory and Hargreaves & Savitch
530 B Street , Suite 2100
San Diego, California 92101
Attn: Todd E. Leigh, Esq.
6. Premises (Article 1): Approximately 63,417 rentable square feet of space in the
aggregate, consisting of the entire Building as set forth in
Exhibit A attached hereto.
---------
7. Term (Article 2).
7.1 Lease Term: 7 years
7.2 Lease Commencement Date: July 15, 1996 The Lease Commencement Date shall be one hundred
twenty (120) days after the date Landlord delivers possession of
the Premises to Tenant so that Tenant can begin construction of
the Tenant Improvements, provided, the one hundred twenty (120)
days shall be extended by delays caused by force majeure and
Landlord Caused Delays (as defined in Work Letter Paragraph 5.1).
Landlord shall cooperate with Tenant to assist Tenant in
expediting the necessary building permits to construct the Tenant
Improvements.
7.3 Lease Expiration Date: July 14, 2003 Seven (7) years after the Lease Commencement Date.
8. Base Rent (Article 3)
</TABLE>
<TABLE>
<CAPTION>
Monthly Rental Rate
Annual Monthly Installment per Rentable Square
Lease Month Base Rent of Base Rent Foot
----------- ----------- ------------------- -------------------
<S> <C> <C> <C>
1 thru 8 $ 0.00 $ 0.00 $ 0.00
9 thru 12* $550,553.64 $45,879.47 $10.92
</TABLE>
15253 BAKE PARKWAY BUILDING
[Matsushita Avionics Systems]
(ii)
<PAGE>
<TABLE>
<S> <C> <C> <C>
13 thru 30 $692,513.64 $57,709.47 $10.92
31 thru 60 $715,343.76 $59,611.98 $11.28
61 thru 84 $741,978.90 $61,831.58 $11.70
----------------
*Base Rent payable on only 50,417 square feet of the Premises during months
9 thru 12 of the Lease Term
</TABLE>
<TABLE>
<S> <C>
9. Brokers (Section 29.20): Matlow-Kennedy Commercial
4610 East Pacific Coast Highway, Suite 100
Long Beach, California 90804
Attention: Mr. Greg R. Gill (Landlord's Broker)
and
Cushman Realty Corporation
4675 McArthur Court, Suite 500
Newport Beach, California 92680-1836
Attention: Mr. Rick M. Kaplan (Tenant's Broker)
10. Guarantor Matsushita Electric Corporation of America,
(Section 29.15): a Delaware corporation
</TABLE>
15253 BAKE PARKWAY BUILDING
[Matsushita Avionics Systems]
(iii)
<PAGE>
<TABLE>
<CAPTION>
INDEX
SUBJECT MATTER PAGE
ARTICLE -------------- ----
<S> <C> <C>
ARTICLE 1 REAL PROPERTY, BUILDING AND PREMISES 1
ARTICLE 2 LEASE TERM 1
ARTICLE 3 BASE RENT 5
ARTICLE 4 ADDITIONAL RENT 5
ARTICLE 5 USE OF PREMISES 8
ARTICLE 6 SERVICES AND UTILITIES 8
ARTICLE 7 REPAIRS 10
ARTICLE 8 ADDITIONS AND ALTERATIONS 12
ARTICLE 9 COVENANT AGAINST LIENS 13
ARTICLE 10 INSURANCE 13
ARTICLE 11 DAMAGE AND DESTRUCTION 16(1)
</TABLE>
15253 BAKE PARKWAY BUILDING
[Matsushita Avionics Systems]
(iv)
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 12 NONWAIVER 18
ARTICLE 13 CONDEMNATION 18
ARTICLE 14 ASSIGNMENT AND SUBLETTING 19
ARTICLE 15 SURRENDER OF PREMISES; OWNERSHIP AND
REMOVAL OF TRADE FIXTURES 21
ARTICLE 16 HOLDING OVER 22
ARTICLE 17 ESTOPPEL CERTIFICATES 22
ARTICLE 18 SUBORDINATION 23
ARTICLE 19 DEFAULTS; REMEDIES 23
ARTICLE 20 OF QUIET ENJOYMENT 25
ARTICLE 21 FORCE MAJEURE 25
ARTICLE 22 ATTORNEYS' FEES 25
ARTICLE 23 SIGNS 26
</TABLE>
15253 BAKE PARKWAY BUILDING
[Matsushita Avionics Systems]
(v)
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 24 COMPLIANCE WITH LAW 26
ARTICLE 25 LATE CHARGES 27
ARTICLE 26 LANDLORD'S RIGHT TO CURE
DEFAULT; PAYMENTS BY TENANT 27
ARTICLE 27 ENTRY BY LANDLORD 28
ARTICLE 28 TENANT PARKING 28
ARTICLE 29 MISCELLANEOUS PROVISIONS 28
</TABLE>
EXHIBITS
A OUTLINE OF PREMISES
A-1 OUTLINE OF THE REAL PROPERTY
B TENANT WORK LETTER
C FORM OF NOTICE OF LEASE TERM DATES
D FORM OF LEASE TERMINATION AGREEMENTRULES AND REGULATIONS
E FORM OF TENANT'S ESTOPPEL CERTIFICATE
F BUILDING SIGNAGE
G GUARANTY OF LEASE
15253 BAKE PARKWAY BUILDING
[Matsushita Avionics Systems]
(vi)
<PAGE>
INDEX OF MAJOR DEFINED TERMS
<TABLE>
<CAPTION>
LOCATION
OF DEFINITION
DEFINED TERMS IN OFFICE LEASE
- ------------- ---------------
<S> <C>
Additional Rent.................................Section 4.1
Base Rent.........................................Article 3
Building........................................Section 1.1
Direct Expenses...............................Section 4.2.3
Expense Year..................................Section 4.2.4
Force Majeure.................................Section 29.17
Hazardous Material..........................Section 29.29.1
Lease Commencement Date...........................Article 2
Lease Expiration Date.............................Article 2
Lease Term........................................Article 2
Lease Year........................................Article 2
Notices.......................................Section 29.19
Operating Expenses............................Section 4.2.5
Parking Areas...................................Section 1.1
Premises........................................Section 1.1
Real Property...................................Section 1.1
Rent............................................Section 4.1
Security Deposit.................................Article 21
Statement.....................................Section 4.3.2
Tax Expenses..................................Section 4.2.7
Transfer Notice................................Section 14.1
Transfer Premium.............................Section 14.3.1
Transferee.....................................Section 14.1
Transfers.........................Sections 14.1, 14.6, 14.7
</TABLE>
15253 BAKE PARKWAY BUILDING
[Matsushita Avionics Systems]
(vii)
<PAGE>
OFFICE LEASE
------------
This Office Lease, which includes the preceding Summary of Basic Lease
Information (the "Summary") attached hereto and incorporated herein by this
reference (the Office Lease and Summary to be known sometimes collectively
hereafter as the "Lease"), dated as of the date set forth in Section 1 of the
Summary, is made by and between Magellan Property Corporation, an Arizona
corporation ("Landlord"), and Matsushita Avionics Systems Corporation, a
Delaware Corporation ("Tenant").
ARTICLE 1
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REAL PROPERTY, BUILDING AND PREMISES
------------------------------------
1.1 Real Property, Building and Premises. Upon and subject to the terms,
------------------------------------
covenants and conditions hereinafter set forth in this Lease, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the premises set forth
in Section 6 of the Summary (the "Premises"), which Premises consists of the
entire "Building," as that term is defined in this Section 1.1. The outline of
the floor plan of each floor the Premises is set forth in Exhibit A attached
---------
hereto. The "Building" is located at 15253 Bake Parkway, Irvine, California
92718. The Building, the surface parking areas, outside land surrounding the
Building which are, subject to the provisions of this Lease, appurtenant to or
servicing the Building, and the land upon which any of the foregoing are
situated, are herein sometimes collectively referred to as the "Real Property,"
which Real Property is outlined on the "Outline of the Real Property," attached
hereto as Exhibit A-1.
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1.2 Verification of Rentable Square Feet of Premises and Building. For
---------------------------------------------
purposes of this Lease, "rentable square feet" shall mean the lesser of 63,417
square feet or the square footage calculated by use of the "drip line" method of
measurement; i.e., the square footage determined by a hypothetical flooding of
---
the roof of the Building and measuring from the line where the water would drip
to the ground. The rentable square feet of the Premises and Building are
subject to verification and audit which shall be completed prior to the
occupancy of the Premises by Tenant and by Landlord's planners and designers.
In the event that such planner/designer determines that the amounts thereof are
different from those set forth in this Lease, all amounts, percentages and
figures appearing or referred to in this Lease based upon such incorrect amount
(including, without limitation, the amount of the "Rent" as that term is defined
in Article 4 of this Lease) shall be modified in accordance with such
determination. If such determination is made, it will be confirmed in writing
by Landlord to Tenant.
1.3 Delivery of the Premises. Upon the full execution and delivery of
------------------------
this Lease, Landlord shall deliver the Premises to Tenant. Except as
specifically set forth in this Lease and in the Tenant Work Letter attached to
this Lease as Exhibit B, Landlord shall not be obligated to provide or pay for
---------
any improvement work or services related to the improvement of the Premises.
Tenant acknowledges that Landlord has made no representation or warranty
regarding the condition of the Premises or the Building except as specifically
set forth in this Lease and the Tenant Work Letter.
<PAGE>
ARTICLE 2
---------
LEASE TERM
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2.1 Initial Term. The terms and provisions of this Lease shall be
------------
effective as of the date of this Lease except for the provisions of this Lease
relating to the payment of Rent. The term of this Lease and any validly
exercised option (the "Lease Term") shall be as set forth in Section 7.1 of the
Summary and shall commence on the date (the "Lease Commencement Date") set forth
in Section 7.2 of the Summary (subject, however, to the terms of Section 5 of
the Tenant Work Letter), and shall terminate on the date (the "Lease Expiration
Date") set forth in Section 7.3 of the Summary, unless this Lease is sooner
terminated as hereinafter provided. For purposes of this Lease, the term "Lease
Year" shall mean each consecutive twelve (12) month period during the Lease
Term. At any time within six (6) months following the Lease Commencement Date,
Landlord may deliver to Tenant a notice of Lease Term dates in the form as set
forth in Exhibit C, attached hereto, which notice Tenant shall execute and
---------
return to Landlord within ten (10) business days of receipt thereof (provided
that if said notice is not factually correct, Tenant shall make any necessary
revisions prior to returning such notice to Landlord). Notwithstanding the
definition of the Lease Commencement Date for the Premises set forth in Section
3.2 of the Summary, if Tenant commences business operations from any portion of
the Premises prior to the occurrence of the Lease Commencement Date (the "Pre-
Occupancy Space"), all of the terms and conditions of this Lease shall apply to
that portion of the Premises containing the Pre-Occupancy Space, except that
Tenant shall have no obligation to pay Base Rent (but will be obligated to pay
Direct Expense payments) during the period commencing on the date Tenant
commences business operations from the applicable Pre-Occupancy Space and
continuing until the Lease Commencement Date (the "Pre-Occupancy Period"). For
purposes of the immediately preceding sentence, Tenant will not be deemed to
have "commenced business operations" if Tenant has entered the Building for the
purpose of performing its work of construction in the Premises; rather, the
"commencement of business operations" will occur when Tenant is conducting
business from the Premises in its normal course with one or more employees. At
such time as the Lease Commencement Date occurs, and Tenant has relocated its
business operations from the buildings located at 16255, 26267 and 16267 Laguna
Canyon Road, Irvine, California, into the Premises, the rent shall cease in the
former premises pursuant to a Lease Termination Agreement, in the form attached
hereto as Exhibit D. Tenant shall have the right to commence business
---------
operations from any portion of the Premises during the Pre-Occupancy Period,
provided that (i) Tenant shall give Landlord at least ten (10) days prior notice
of any such use of the Premises, and (ii) a certificate of occupancy or its
equivalent permitting occupancy shall have been issued by the appropriate
governmental authorities for the Pre-Occupancy Space.
<PAGE>
2.2. Option Terms.
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2.2.1 Option Rights. Landlord hereby grants Tenant two (2) options
-------------
to extend the Lease Term for a period of five (5) years each (the "Option
Terms"), which option shall be exercisable only by written notice delivered by
Tenant to Landlord as provided below, provided that, as of the date of delivery
of each of such notices there is not an outstanding Event of Default by Tenant.
Upon the proper exercise of an option to extend, the Lease Term, as it then
applies to the Premises, shall be extended for a period of five (5) years. The
rights contained in this Section 2.2 may only be exercised by Tenant, its
"Affiliates" (as defined in Section 14.5 below) or an assignee of Tenant to whom
an assignment of this Lease has been made in accordance with Article 14 (and not
any sublessee or other transferee of Tenant's interest in this Lease).
2.2.2 Option Rent.
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2.2.2.1 Rent. The Rent payable by Tenant during the Option
----
Term (the "Option Rent") shall be equal to (A) ninety-five percent (95%) of the
face or stated rental rate which face or stated rate may be a flat or escalating
rate, as applicable, and (B) ninety-five percent (95%) of the other non-
discounted economic terms, at which, as of the commencement of the Option Term,
tenants are leasing non-expansion, non-affiliated, non-sublease, non-encumbered,
non-equity space comparable in size, location and quality to the Premises for a
term of five (5) years, which comparable space is located in other comparable
buildings and building projects located in the Irvine area of Southern
California, of similar age, location and quality of initial construction (the
"Comparable Buildings") taking into consideration, and accounting for any
relevant differences in all or any of the following to the extent applicable:
(a) Use, location, size and/or floor level(s) of the space in
question;
(b) The time the particular rental rate under consideration
was agreed upon and became or is to become effective;
(c) Abatement or free rent provisions reflecting free rent
(with respect to base rental, operating expenses, real estate taxes and/or
parking charges) or absence thereof during any period of the lease term, except
as set forth below;
(d) Inclusion (or absence) of parking charges in rental,
and/or, subject to the terms of Article 28, below, the extent of associated
parking rights and the cost thereof and the amount of parking available for use
by the tenant (it being understood that Tenant shall not be required to pay for
parking, which shall remain at a ratio of six (6) spaces per 1,000 square feet
of rentable area in the Building);
(e) Lease takeovers/assumptions;
3
<PAGE>
(f) Relocation/moving allowances;
(g) Space planning allowances;
(h) Tenant improvement, refurbishment and/or repainting
allowances;
(i) Any other concessions or inducements;
(j) The base year or expense-stop, if any, applicable to such
comparable space;
(k) Any other adjustments (including by way of Consumer Price
Index or other indexes) to base rental; and
(l) Term of lease.
Notwithstanding the foregoing, however, in calculating the Option
Rent, no consideration shall be given to (1) any period of rent abatement given
such tenants in connection with the construction of improvements in such
comparable space or (2) the presence or absence of a brokerage commission in
connection with Tenant's exercise of the Option Term, or in connection with such
comparable deals.
2.2.2.2 Concessions. The arbitrator shall inform Landlord and
-----------
Tenant of the amount of any concessions to be granted Tenant pursuant to items
(e) through (i), above (the "Option Concessions") as a component of the Option
Rent. Landlord or Tenant may make a binding election that, in lieu of granting
any or a portion the Option Concessions to Tenant in the form and at the times
as granted in the comparable transactions, the rental rate component of the
Option Rent shall be adjusted to be an effective rental rate which takes into
consideration the total present dollar value (with interest at the Interest
Rate) of that portion of such Option Concessions which Landlord or Tenant has
elected not be granted to Tenant (in which case that portion of the Option
Concessions evidenced in the effective rental rate shall not be granted to
Tenant).
2.2.3 Exercise of Option. The options contained in this Section 2.2
------------------
shall be exercised by Tenant, if at all, and only in the following manner: (i)
Tenant shall deliver written notice to Landlord (the "Option Interest Notice")
not more than nineteen (19) months nor less than fifteen (15) months prior to
the expiration of the initial Lease Term or the initial Option Term, as
applicable, stating that Tenant is interested in exercising its option, and
within thirty (30) days after receipt of Tenant's Option Interest Notice
Landlord shall deliver to Tenant notice containing Landlord's proposed Option
Rent; (ii) Landlord and Tenant shall thereafter use their reasonable good-faith
efforts to agree upon the Option Rent before the first day of the thirteenth
(13th) month prior to the expiration of the initial Lease Term or the initial
Option Term, as applicable; (iii) whether or not Tenant has previously delivered
an Option Interest Notice to Landlord, not later
4
<PAGE>
than the first day of the thirteenth (13th) month prior to the expiration of the
initial Lease Term or the initial Option Term, as applicable, Tenant may, by
notice to Landlord, request Landlord's determination of the Option Rent which
Landlord would submit to arbitration, if arbitration were to occur under Section
1.5.7, above, and within ten (10) business days of such request, Landlord and
Tenant shall each concurrently deliver to the other the determinations of the
Option Rent that each would submit to arbitration if arbitration were to occur
under Section 1.5.7, above (the "Arbitration Option Rent"); and (iv) if Tenant
wishes to exercise its option Tenant shall, on or before the date occurring
twelve (12) months prior to the expiration of the initial Lease Term or the
initial Option Term, as applicable, exercise the option by delivering written
notice thereof to Landlord and upon, and concurrent with, such exercise Tenant
may, at its option, elect to arbitrate the Option Rent, in which case the
parties shall follow the procedure, and the Option Rent shall be determined, as
set forth in Section 2.2.4, below. Notwithstanding the foregoing, if Tenant
fails to deliver the Option Interest Notice, Tenant may nevertheless, on or
before the date which is twelve (12) months prior to the expiration of the
initial Lease Term or the initial Option Term, as applicable, deliver to
Landlord notice that Tenant is thereby irrevocably electing to exercise its
option to extend the Lease Term, in which case the Option Rent shall be
determined pursuant to the procedure set forth in Section 2.2.4, below.
2.2.4 Determination of Option Rent. In the event Tenant timely
----------------------------
elects to arbitrate the Option Rent, pursuant to the terms of Section 2.2.3,
Landlord and Tenant shall attempt to agree upon the Option Rent using their best
good-faith efforts. If Landlord and Tenant fail to reach agreement within
fifteen (15) days following Tenant's election to arbitrate (the "Outside
Agreement Date"), then each party shall make a separate determination of the
Option Rent within ten (10) business days after the Outside Agreement Date, and
such determinations (which for purposes of this Section 2.2.4 shall also be
known as "Arbitration Option Rents") shall be submitted to arbitration in
accordance with Sections 2.2.4.1 through 2.2.4.7, below; provided, however, that
if the Arbitration Option Rents have been established pursuant to Section 2.2.3,
then such Arbitration Option Rents shall be submitted to arbitration in
accordance with Sections 2.2.4.1 through 2.2.4.7, below.
2.2.4.1 Landlord and Tenant shall each appoint one arbitrator
who shall by profession be a real estate broker or appraiser who shall have been
active over the five (5) year period ending on the date of such appointment in
the leasing (or appraisal, as the case may be) of Irvine, California-area
commercial buildings such as the Comparable Buildings, exclusive of any broker
from any brokerage firm currently representing (or who had previously
represented within the preceding two (2) year period) either party or any
affiliate thereof. The determination of the arbitrators shall be limited solely
to the issue area of whether Landlord's or Tenant's submitted Arbitration Option
Rent is the closest to the actual Option Rent as determined by the arbitrators,
taking into account the requirements of Section 2.2.2. Each such arbitrator
shall be appointed within fifteen (15) days after the applicable Outside
Agreement Date.
5
<PAGE>
2.2.4.2 The two arbitrators so appointed shall within fifteen
(15) days of the date of the appointment of the last appointed arbitrator agree
upon and appoint a third arbitrator who shall be qualified under the same
criteria set forth hereinabove for qualification of the initial two arbitrators.
2.2.4.3 The three arbitrators shall within thirty (30) days of
the appointment of the third arbitrator reach a decision as to whether the
parties shall use Landlord's or Tenant's submitted Arbitration Option Rent and
shall notify Landlord and Tenant thereof.
2.2.4.4 Subject to the following provisions, the decision of
the majority of the three arbitrators shall be binding upon Landlord and Tenant.
2.2.4.5 If either Landlord or Tenant fails to appoint an
arbitrator within 15 days after the applicable Outside Agreement Date, the
arbitrator appointed by one of them shall reach a decision, notify Landlord and
Tenant thereof, and, subject to the provisions of this Section 2.2.4, such
arbitrator's decision shall be binding upon Landlord and Tenant.
2.2.4.6 If the two arbitrators fail to agree upon and appoint a
third arbitrator, or both parties fail to appoint an arbitrator, then the
appointment of the third arbitrator or any arbitrator shall be dismissed and the
matter to be decided shall be forthwith submitted to arbitration under the
provisions of the American Arbitration Association, but subject to the
instruction set forth in this Section 2.2.4.
2.2.4.7 The cost of the arbitration shall be paid by the party
whose submitted Arbitration Option Rent is not selected.
ARTICLE 3
---------
BASE RENT
---------
Tenant shall pay, without notice or demand, to Landlord at the address set
forth in Section 3 of the Summary, or at such other place in the continental
United States as Landlord may from time to time designate in writing, by check
drawn upon a bank located in the United States of America, base rent ("Base
Rent") as set forth in Section 8 of the Summary, payable in equal monthly
installments as set forth in Section 8 of the Summary in advance on or before
the first day of each and every month during the Lease Term, without any setoff
or deduction whatsoever, except as otherwise expressly provided in this Lease.
If any rental payment date (including the Lease Commencement Date) falls on a
day of the month other than the first day of such month or if any rental payment
is for a period which is shorter than one month, then the rental for any such
fractional month shall be a proportionate amount of a full calendar month's
rental based on the proportion that the number of days in such fractional month
bears to the number of days in the calendar month during which such fractional
month occurs. All other payments or adjustments
6
<PAGE>
required to be made under the terms of this Lease that
require proration on a time basis shall be prorated on the same basis.
ARTICLE 4
---------
ADDITIONAL RENT
---------------
4.1 Additional Rent. In addition to paying the Base Rent specified in
---------------
Article 3 of this Lease, and except to the extent which Tenant elects to manage
the Real Property and pay such expenses on a direct basis (subject to a review
thereof by Landlord on a semi-annual basis, with Landlord reserving the right to
reinstate itself in the management role if Landlord determines, in good faith
that Tenant is not performing its management responsibilities in a manner which
appropriately preserves the value of the Real Property) Tenant shall pay as
additional rent for each "Expense Year," as that term is defined in Section
4.2.4 of this Lease, all of the annual "Direct Expenses," as that terms is
defined in Section 4.2.2 of this Lease. Such additional rent, together with any
and all other amounts payable by Tenant to Landlord pursuant to the terms of
this Lease, shall be hereinafter collectively referred to as the "Additional
Rent." The Base Rent and Additional Rent are herein collectively referred to as
the "Rent." All amounts payable to under this Article 4 as Additional Rent
shall be payable for the same periods and in the same manner and place as the
Base Rent. All direct payments by Tenant to vendors, suppliers, and other
providers of services to the Premises shall be timely made. Without limitation
on other obligations which shall survive the expiration of the Lease Term, the
obligations of Tenant and Landlord provided for in this Article 4 shall survive
the expiration of the Lease Term.
4.2 Definitions. As used in this Article 4, the following terms shall
-----------
have the meanings hereinafter set forth:
4.2.1 "Calendar Year" shall mean each calendar year in which any
portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires.
4.2.2 "Direct Expenses" shall mean "Operating Expenses" and "Tax
Expenses."
4.2.3 "Expense Year" shall mean each Calendar Year.
4.2.4 "Operating Expenses" shall mean all direct and indirect costs,
expenses, and assessments charged to the Real Property with respect to its
operation (including insurance premiums for the insurance policies described in
Section 10.2, 10.3 and 10.5 below), management, use, maintenance and repair,
other than those which are set forth in Section 6.1 below.
4.2.5 "Tax Expenses" shall mean all federal, state, county, or local
governmental or municipal taxes, fees or other impositions of every kind and
nature, whether general, special, ordinary or extraordinary, (including, without
limitation, real estate taxes, general and special
7
<PAGE>
assessments, transit taxes, leasehold taxes or taxes based upon the receipt of
rent, including gross receipts or sales taxes applicable to the receipt of rent,
unless required to be paid by Tenant, personal property taxes imposed upon the
fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances,
furniture and other personal property used in connection with the Building),
which are allocable to a particular Expense Year (without regard to any
different fiscal year used by such governmental or municipal authority) in
connection with the ownership, leasing and operation of the Real Property or
Landlord's interest therein.
4.2.5.1 Tax Expenses shall include, without limitation:
(i) Any governmental tax on Landlord's rent, right to rent or
other income from the Real Property or as against Landlord's business of
leasing any of the Real Property;
(ii) Any assessment, tax, fee, levy or charge in addition to,
or in substitution, partially or totally, of any assessment, tax, fee, levy
or charge previously included as of the date hereof within the definition
of real property tax;
(iii) Any governmental assessment, tax, fee, levy, or charge
allocable to or measured by the area of the Premises or the rent payable
hereunder, including, without limitation, any gross income tax with respect
to the receipt of such rent; and
(iv) Any assessment, tax, fee, levy or charge, upon this
transaction or any document to which Tenant is a party, creating or
transferring an interest or an estate in the Premises.
4.2.5.2 With respect to any assessment otherwise includable within
Tax Expenses that may be levied against or upon the Real Property and that under
the laws then in force may be evidenced by improvement or other bonds, or may be
paid in annual installments, there shall be included within the definition of
Tax Expenses with respect to any tax fiscal year only the amount currently
payable on such bonds, including interest, for such tax fiscal year, or the
current annual installment for such tax fiscal year, in each case utilizing the
payment or installment method which will minimize the amount of Tax Expenses.
4.2.5.3 If the method of taxation of real estate prevailing at the
time of execution hereof shall be, or has been, altered so as to cause the whole
or any part of the taxes now, hereafter or heretofore levied, assessed or
imposed on real estate to be levied, assessed, or imposed upon Landlord, wholly
or partially, as a capital levy or otherwise, or on or measured by the rents
received therefrom, then such new or altered taxes attributable to the Real
Property shall be included within the term "Tax Expenses" except that the same
shall not include any enhancement of said tax attributable to other income of
Landlord.
8
<PAGE>
4.2.5.4 Subject to the provisions of this Lease, any reasonable
expenses reasonably incurred by Landlord in attempting to protest, reduce or
minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such
expenses are paid.
4.2.5.5 Tax refunds shall be deducted from Tax Expenses in the
Expense Year to which the same are attributable.
4.2.5.6 Subject to the terms of Section 4.5, below, if Tax
Expenses for any period during the Lease Term or any extension thereof are
increased after payment thereof by Landlord for any reason, including, without
limitation, error or reassessment by applicable governmental or municipal
authorities, such increase shall be included in Tax Expenses in the Expense Year
to which such increase is attributable, and Tenant shall pay Landlord Tenant's
Share of such increased Tax Expenses to the extent there exists an Excess for
such Expense Year.
4.2.5.7 Notwithstanding anything to the contrary contained in
this Lease, there shall be excluded from Tax Expenses (i) all excess profits
taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and
succession taxes, estate taxes, federal and state income taxes, and other taxes
to the extent applicable to Landlord's general or net income (as opposed to
rents, receipts or income attributable to operations at the Building), (ii) any
items included as Operating Expenses, and (iii) any items paid by Tenant under
Section 4.4 of this Lease.
4.3 Calculation and Payment of Additional Rent.
------------------------------------------
4.3.1 Payment Direct Expenses. For any Expense Year ending or
-----------------------
commencing within the Lease Term Tenant shall pay directly, or, as applicable,
to Landlord, in the manner set forth in Section 4.3.2, below, and as Additional
Rent, an amount equal to the Direct Expenses for such Expense Year.
4.3.2 Statement of Actual Direct Expenses and Payment by Tenant.
---------------------------------------------------------
Landlord shall endeavor to give to Tenant on or before the first day of April
following the end of each Expense Year, a statement (the "Statement"), certified
by an appropriate official of Landlord or independent certified public
accountant, which shall state that portion of the Direct Expenses not directly
paid by Tenant, and which portion is allocable to such preceding Expense Year.
Tenant shall pay, within thirty (30) days after receipt of the Statement, the
full amount of the Landlord-billed Direct Expenses for such Expense Year, less
the amounts, if any, paid during such Expense Year as an "Estimated Payment," as
that term is defined in Section 4.3.3, below. In the event the amount paid by
Tenant as an Estimated Payment exceeds the amount of the Landlord-billed Direct
Expenses, Tenant shall receive a credit against the next payment of Additional
Rent due under this Lease. The failure of Landlord to timely furnish the
Statement for any Expense Year shall not prejudice either party from enforcing
its rights under this Article 4; provided, however, that except with regard to
the recalculation of those items of Direct Expenses which are not under
Landlord's reasonable control, specifically including Tax Expenses and public
utility charges, Landlord shall not be permitted to add to Direct Expenses or
bill for the first time any portion of
9
<PAGE>
Direct Expenses more than three (3) years following the last day of the
Expense Year to which such Direct Expenses relate.
Subject to the provisions of this Lease, even though the Lease Term
has expired and Tenant has vacated the Premises, when the final determination is
made of the Direct Expenses for the Expense Year in which this Lease terminates,
(i) if Tenant has not paid all of the Direct Expenses for such Expense Year,
Tenant shall pay to Landlord, within thirty (30) days after receipt of a
reasonably detailed bill therefor, an amount as calculated pursuant to the
provisions of Section 4.3.1 of this Lease, and (ii) if Tenant has made an
overpayment of Additional Rent, Landlord shall pay the same to Tenant within
thirty (30) days of such determination. The provisions of this Section 4.3.2
shall survive the expiration or earlier termination of the Lease Term.
4.3.3 Statement of Estimated Direct Expenses. In addition, Landlord
--------------------------------------
shall endeavor to give Tenant a yearly expense estimate statement (the "Estimate
Statement") within one hundred twenty (120) days of the commencement of each
Expense Year, which Estimate Statement shall set forth Landlord's reasonable
estimate (the "Estimate") of what the total amount of Landlord-billed Direct
Expenses for the then-current Expense Year shall be (the "Estimated Payment").
The failure of Landlord to timely furnish the Estimate Statement for any Expense
Year shall not preclude Landlord from enforcing its rights to collect any
Estimated Payment under this Article 4. Tenant shall pay, within thirty (30)
days of Tenant's receipt of such Estimate Statement, a fraction of the Estimated
Payment for the then-current Expense Year (reduced by any amounts paid pursuant
to the last sentence of this Section 4.3.3). Such fraction shall have as its
numerator the number of months which have elapsed in such current Expense Year
to the month of such payment, both months inclusive, and shall have twelve (12)
as its denominator. Until a new Estimate Statement is furnished, Tenant shall
pay monthly, with the monthly Base Rent installments, an amount equal to one-
twelfth (1/12) of the total Estimated Payment set forth in the previous Estimate
Statement delivered by Landlord to Tenant.
4.4 Taxes and Other Charges for Which Tenant Is Directly Responsible.
----------------------------------------------------------------
Tenant shall reimburse Landlord, within thirty (30) days of Tenant's receipt of
a reasonably detailed written demand accompanied by appropriate supporting
evidence (but in any case prior to delinquency), for any and all taxes or
assessments required to be paid by Landlord (except to the extent included in
Tax Expenses by Landlord), excluding state, local and federal personal or
corporate income taxes measured by the net income of Landlord from all sources
and estate and inheritance taxes, whether or not now customary or within the
contemplation of the parties hereto, when said taxes are required to be paid by
Tenant and said taxes are measured by or reasonably attributable to the cost of
Tenant's equipment, furniture, fixtures and other personal property located in
the Premises, or by the cost of all leasehold improvements made in or to the
Premises by or for Tenant.
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<PAGE>
ARTICLE 5
---------
USE OF PREMISES
---------------
5.1 Permitted Use. Tenant shall use the Premises for general office
-------------
purposes, manufacturing, warehousing, testing, assembly and for other purposes
ancillary thereto and consistent therewith and for any other legally permitted
purpose.
5.2 Prohibited Uses. Tenant shall not use the Premises or any part
---------------
thereof for any use or purpose contrary to the provisions of the Declaration of
the Covenants, Conditions and Restrictions for the Irvine Spectrum recorded on
___________ as Instrument No. ______, Official Records of Orange County,
California (the "CC&Rs"). Tenant shall comply with all other recorded
covenants, conditions and restrictions now or (so long as no negative impact
affects the Premises or Tenant's occupancy of the Premises) hereafter affecting
the Premises. Tenant shall not use or allow another person or entity to use any
part of the Premises for the storage, use, treatment, manufacture or sale of
"Hazardous Material" as that term is defined in Section 29.24 of this Lease.
ARTICLE 6
---------
SERVICES AND UTILITIES
----------------------
6.1 In General. Tenant will be responsible, at its sole cost and expense,
----------
for the furnishing of all services and utilities to the Premises, including, but
not limited to heating, ventilation and air-conditioning, electricity, water,
telephone janitorial and security services.
6.2 Interruption of Use. Except as provided in Sections 6.4 and 19.5,
------------------- ---------------------
below, Tenant agrees that Landlord shall not be liable for damages, by abatement
of Rent or otherwise, for failure of Tenant to receive any service (including
telephone and telecommunication services) or utility for any reason whatsoever,
or for any diminution in the quality or quantity thereof, and such failures or
delays or diminution shall never be deemed to constitute an eviction or
disturbance of Tenant's use and possession of the Premises or relieve Tenant
from paying Rent or performing any of its obligations under this Lease, except
as provided in this Lease to the contrary. Furthermore, Landlord shall not be
liable under any circumstances for a loss of, or injury to, property or for
injury to, or interference with, Tenant's business, including, without
limitation, loss of profits, however occurring, through or in connection with or
incidental or any such failure of Tenant to receive any services or utilities.
6.3 No Obligation. Landlord shall have no obligation to provide any
-------------
services or utilities to the Premises including, but not limited to heating,
ventilation and air-conditioning, electricity, water, telephone, janitorial and
security services.
11
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6.4 Abatement Conditions.
--------------------
6.4.1 Notwithstanding anything to the contrary contained in this
Lease, if Tenant is prevented from using all or a portion of the Premises for
its normal business operations, and Tenant does not, in fact, use the all or a
portion of the Premises for a period of three (3) consecutive business days or
more, (i) due to any service or utility, meaning HVAC, electricity or water
(collectively, the "Essential Services"), not being provided to the Premises, or
portion thereof, as required by the terms of this Lease, (ii) because of the
presence, in a form or concentration in violation of applicable law then in
effect, of Hazardous Materials regarded as unhealthful under applicable
regulations then in effect in or about the Premises (which Hazardous Materials
were not brought onto the Premises by Tenant or Tenant's employees, agents, or
licensees), or (iii) due to a "Service Interruption" (meaning an interruption in
services as described in Section 6.2 above), because Tenant does not have access
to the Building, the Premises, or portion thereof, and such prevention from use
is not caused by Tenant and/or its agents, or if caused by Tenant and/or its
agents, such prevention from use is covered by insurance required to be carried
by Landlord under the provisions of Article 10 of this Lease, the following
Sections 6.4.1.1 and 6.4.1.2 shall apply (the conditions set forth in items (i)
through (iii), above, to be known as an "Abatement Condition"). Notwithstanding
the foregoing, this Section 6.4 shall not apply to the damage or destruction of
the Premises or the parking area pursuant to Article 11, or to the condemnation
of the Premises pursuant to Article 13. To the extent an Abatement Condition
affects only a portion of the Premises, and such portion is a material portion
of the Premises, and Tenant is not reasonably able to conduct its business from
the remaining portion of the Premises, the Abatement Condition shall be deemed
to affect the entire Premises.
6.4.1.1 Tenant shall promptly deliver to Landlord notice (the
"Cure Notice") of such condition and if Landlord fails to cure such condition
within two (2) business days after delivery to it of the Cure Notice, then Rent
applicable to the affected portion of the Premises shall be abated from the date
which occurred three (3) full business days prior to delivery to Landlord of the
Cure Notice until the date when such failure is cured; provided, however, that
if Tenant has previously paid Rent to Landlord for a period of time subsequent
to the commencement of Tenant's right to abate Rent hereunder, then Landlord
shall, within ten (10) business days following the date of such abatement,
credit to Tenant an amount equivalent to such excess payments against the sums
next due under this Lease, or, if after the expiration or termination of this
Lease, reimburse to Tenant the amount of such excess payments. The right to
abate Rent set forth in this Section 6.4 shall be Tenant's sole and exclusive
Rent Abatement remedy for the occurrence of an Abatement Condition.
6.4.1.2 If any Abatement Condition shall not be cured within
ninety (90) days after Landlord's receipt of the Cure Notice, the Abatement
Condition applies to the entire Premises and Tenant does not use a commercially
tenantable portion of the Premises during a significant portion of the period of
the Abatement Condition, then Tenant, upon notice to Landlord and "Lender" (as
that term is defined in Article 18 hereof) (the "Services Termination Notice")
within thirty (30) days after the expiration of such ninety (90) day period (the
"Termination Cure
12
<PAGE>
Period"), may terminate this Lease, which termination shall be deemed effective
upon Tenant's vacation of the entire Premises, but in no event more than two (2)
years after the receipt of the Services Termination Notice by Landlord and
Lender.
6.4.2 If any governmental entity promulgates or revises any statute,
ordinance, building code, fire code or other code or imposes mandatory controls
on Landlord or any part thereof, relating to the use or conservation of energy,
water, gas, light or electricity or the reduction of automobile or other
emissions or the provision of any other utility or service provided with respect
to this Lease or if Landlord is required to make alterations to the Building or
any other part in order to comply with such mandatory controls or guidelines
(which compliance shall be subject to the terms of Article 7 of this Lease),
then Landlord shall comply with such mandatory controls or make such alterations
to the Building or any other part of the Real Property related thereto without
creating any liability of Landlord to Tenant under this Lease, provided that the
Premises are not thereby rendered untenantable and provided further that
Landlord shall use reasonable efforts to minimize the impact of such compliance
and alterations on Tenant's use and occupancy of the Premises. Such compliance
and the making of such permitted alterations shall, except as provided in
Section 6.4.1, not entitle Tenant to any damages, relieve Tenant of the
obligation to pay the full Rent reserved hereunder or constitute or be construed
as a constructive or other eviction of Tenant.
ARTICLE 7
---------
REPAIRS
-------
7.1 Tenant's Obligations.
--------------------
7.1.1 Tenant Required Actions. Subject to the provisions of Section
----------------
7.2, Articles 11 and 13 and Section 29.29, Tenant shall, at Tenant's sole cost
and expense, operate, keep, and maintain, and. as necessary, repair, restore,
replace, and make any capital improvements to (collectively, the "Tenant
Required Actions") (i) the structural portions of the Building (excluding the
structural skeleton of the Building described in Section 7.2 below), including
the ceilings, floor surface, interior walls and wall covering, roof membrane
(Landlord will replace the roof membrane when it is no longer reasonably and
economically subject to repair, and the cost of such replacement shall be
amortized (including interest on the unamortized cost) over its useful life as
Landlord shall reasonably determine, payable by Tenant as an Operating Expense;
Landlord is to repair and maintain roof membrane), shafts, stairs, parking
areas, stairwells, elevator cabs, washrooms, and Building mechanical, electrical
and telephone closets (collectively, "Building Structure"), and (ii) the
Building mechanical, electrical, life safety, plumbing, sprinkler systems, and
heating, ventilation and air-conditioning systems (the "Building Systems"), in
good order and repair and in good and safe working order and condition at all
times during the Lease Term, including any items of the Building Structure or
Building Systems included in the "Tenant Improvements", as that term is defined
in the Tenant Work Letter, or "Alterations", as that term is defined in Section
8.1, below (collectively, the "Tenant Maintenance Items"). All
13
<PAGE>
repairs and maintenance of the Premises by Tenant as required under the Lease
shall be performed in a good and safe manner by contractors and other personnel
reasonably approved by Landlord, and in compliance with the provisions of
Article 8, below. Tenant shall also be obligated to pay, as an Operating
Expense, the following costs: the cost of any capital improvements made by
Landlord which are intended as a labor saving device or to effect other
economies in the operation or maintenance of the Real Property, or any portion
thereof, or made to all or any portion, or any portion thereof, after the Lease
Commencement Date which are required under any governmental law or regulation
which was not applicable at the time that permits for the construction of the
Building were obtained; provided, however, that each such permitted capital
expenditure shall be amortized (including interest on the unamortized cost) over
its useful life as Landlord shall reasonably determine, provided, however, that
Tenant shall not be responsible for such amortization payments to the extent
that the capital expenditure was for an item as to which Landlord is solely
responsible under the provisions of Section 7.2 below.
7.1.2 Maintenance Contracts. As a part of Tenant's Required Actions,
------------
Tenant shall, at Tenant's sole cost and expense, maintain contracts for the
inspection, maintenance and service of the (i) heating, air conditioning and
ventilation equipment, (ii) boiler, fired or unfired pressure vessels, (iii)
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
systems, including fire alarm and/or smoke detection, and (iv) electrical
systems.
7.2 Lessor's Obligations. It is intended by the parties hereto that
--------------------
Lessor have no obligation, in any manner whatsoever, to take any of the Tenant
Required Actions with respect to the Building Systems or Building Structure,
except as set forth in this Section 7.2, below. It is the intention of the
parties that the terms of this Lease govern the respective obligations of the
parties as to maintenance and repair of the Premises. Tenant waives the right
to make repairs at the expense of Landlord or to terminate this Lease by reason
of any needed repairs under Sections 1941 and 1942 of the California Civil Code,
or any similar law, statute, or ordinance, now or hereafter in effect.
Notwithstanding the foregoing, during the Lease Term, Landlord shall maintain
and repair the structural skeleton of the Building consisting only of the floor
slabs, foundation, roof structure, roof membrane (subject to Tenant's
replacement amortization payment responsibility described in Section 7.1.1
above), curtain walls and exterior glass and mullions ("Landlord Maintenance
Items"). Further, Landlord shall provide Tenant with a Title 19 Inspection
Report for the fire sprinkler system for the Building. The Building shall be
delivered with all of the Building Systems described in Section 7.1.1. above in
proper working condition including also the restrooms, sewer and gas systems
serving the Premises. Landlord hereby agrees that to the extent that the
Building and its component parts were not constructed in accordance with
applicable building codes at the time of construction, Landlord shall at its
sole cost and expense, remedy any and all such portions of the Building or its
component parts so long as such non-compliance is ascertained within one (1)
year from the Commencement Date. Lessor shall provide written certification
from a State-licensed electrical inspector, that the Building's main switchboard
meets the DL standard in existence at the time of installation.
14
<PAGE>
7.3 Tenant's Right to Make Repairs. If Tenant provides written
------------------------------
notice to Landlord of an event or circumstance which requires the action of
Landlord with respect to the Landlord Maintenance Items, and Landlord fails to
provide or commence to provide (and thereafter diligently proceed with such
efforts to completion), such action as required by the terms of this Lease
within ten (10) days after receipt of such written notice (or such lesser period
of time as may be applicable in the event of an emergency), Tenant may proceed
to take the required action upon delivery of an additional five (5) business
days notice to Landlord (or within the applicable and appropriate time period
based on an emergency) specifying that Tenant is taking such required action,
and if such action was required under the terms of this Lease to be taken by
Landlord, then Tenant shall be entitled to prompt reimbursement by Landlord of
Tenant's costs and expenses in taking such action plus interest at the Interest
Rate during the period from the date Tenant incurs such costs and expenses until
such time as payment is made by Landlord. Tenant shall use only those
contractors used by Landlord for such work unless such contractors are unwilling
or unable to perform such work, in which event Tenant may utilize the services
of any other qualified contractor which normally and regularly performs similar
work in Comparable Buildings. Further, if Landlord does not deliver a detailed
written objection to Tenant, within thirty (30) days after receipt of an invoice
by Tenant of its costs of taking action which Tenant claims should have been
taken by Landlord, and if such invoice from Tenant sets forth a reasonably
particularized breakdown of its costs and expenses in connection with taking
such action on behalf of Landlord, then Tenant shall be entitled to deduct from
Rent payable by Tenant under this Lease, the amount set forth in such invoice
together with interest at the Interest Rate. If, however, Landlord in good faith
delivers to Tenant, within thirty (30) days after receipt of Tenant's invoice, a
written objection to the payment of such invoice, setting forth with reasonable
particularity Landlord's reasons for its claim that such action did not have to
be taken by Landlord pursuant to the terms of this Lease or that the charges are
excessive (in which case Landlord shall pay the amount it contends would not
have been excessive), then Tenant shall not be entitled to such deduction from
Rent, but Tenant may proceed to institute legal proceedings against Landlord to
collect the amount set forth in the subject invoice. If Tenant receives a non-
appealable final judgment against Landlord in connection with such legal
proceedings, Tenant may deduct the amount of the judgment, not to exceed the
amount of the unpaid portion of the relevant invoice, together with interest
thereon at the Interest Rate from the Base Rent next due and owing under this
Lease.
ARTICLE 8
---------
ADDITIONS AND ALTERATIONS
-------------------------
8.1 Landlord's Consent to Alterations. Tenant may, without the need to
---------------------------------
obtain the consent or approval of Landlord, make any improvements, alterations,
additions or changes to the Premises (collectively, the "Alterations") desired
by Tenant which do not create a Design Problem, by providing Landlord with
written notice not less than six (6) business days prior to the
15
<PAGE>
commencement thereof. For purposes of this Lease, "Design Problem" shall mean
any alteration, repair, modification, or improvement by Tenant which (a)
materially and adversely affects the Building Systems or Building Structure, (b)
is not in compliance with applicable laws, or (c) affects the exterior
appearance of the Building. Tenant may not make any Alteration which may create
a Design Problem (collectively, "Consent Alterations"), without first procuring
the prior written consent of Landlord to such Alterations, which consent shall
be requested by Tenant not less than ten (10) business days prior to the
commencement thereof, and which consent shall not be unreasonably withheld by
Landlord. In the event Tenant proposes to make a Consent Alteration, Tenant's
notice regarding the proposed Alteration shall include the plans and
specifications for the Alterations. Landlord shall grant or withhold its consent
to any Consent Alterations within ten (10) business days of receipt of Tenant's
notice; Landlord's failure to respond within three (3) business days of a second
notice given after such ten (10) business day period shall be deemed to evidence
Landlord's approval with respect to the same. The construction of the initial
improvements to the Premises shall be governed by the terms of the Tenant Work
Letter and not the terms of this Article 8.
8.2 Manner of Construction. In connection with the making of Alterations,
----------------------
except for minor or purely cosmetic Alterations such as painting or replacement
of wall covering ("Finish Work"), Tenant shall utilize only contractors and
subcontractors selected from the list of contractors and subcontractors attached
to this Lease as Schedule "1" to Exhibit "B", or which have been otherwise
------------ -----------
approved by Landlord, which approval shall not be unreasonably withheld or
delayed. Subject to the terms of Article 24, below, Tenant shall construct all
Alterations in conformance with any and all applicable rules and regulations of
any federal, state, county or municipal code or ordinance and, when required
pursuant to applicable law, pursuant to a valid building permit issued by the
City of Irvine. Landlord's approval of the plans, specifications and working
drawings for Tenant's Alterations shall create no responsibility or liability on
the part of Landlord for their completeness, design sufficiency, or compliance
with all laws, rules and regulations of governmental agencies or authorities.
All work with respect to any Alterations must be done in a good and workmanlike
manner. Upon completion of any Alterations, Tenant agrees to cause a Notice of
Completion to be recorded in the office of the Recorder of Orange County in
accordance with Section 3093 of the Civil Code of the State of California or any
successor statute, and, except as to Finish Work, Tenant shall deliver to
Landlord a reproducible copy of the construction set of drawings of the
Alterations (or, at Tenant's election, a copy of the final working drawings for
such Alterations, with field changes shown thereon) within thirty (30) days
following completion thereof.
8.3 Construction Insurance. Prior to the commencement of any Alteration,
----------------------
Tenant shall provide Landlord with reasonable evidence that Tenant carries
"Builder's All Risk" insurance in a commercially reasonable amount given the
scope of such Alterations, covering the construction of such Alterations, it
being understood and agreed that all of such Alterations shall be insured by
Tenant pursuant to Article 10 of this Lease immediately upon completion thereof.
In addition, Landlord may, in its discretion, require any "Transferee," as that
term is defined in Section 14.1, below, other than any Affiliate, to obtain a
lien and completion bond or some alternate form of
16
<PAGE>
security satisfactory to Landlord in an amount sufficient to ensure the lien-
free completion of such Alterations and naming Landlord as a co-obligee.
8.4 Landlord's Property. Subject to the terms of this Lease, all
-------------------
Alterations, improvements, fixtures and/or equipment which may be installed or
placed in or about the Premises, from time to time, shall be at the sole cost of
Tenant and shall be and become the property of Landlord, except that Tenant
shall have the right to remove any such Alterations, improvements, fixtures
and/or equipment which Tenant can reasonably substantiate to Landlord have not
been paid for with any tenant improvement allowance funds provided to Tenant by
Landlord, together with any non-affixed personal property in the Premises,
provided Tenant repairs any damage to the Premises and Building caused by such
removal. Upon the expiration or early termination of the Lease Term, Landlord
may, by written notice to Tenant, require Tenant at Tenant's expense remove any
improvements in the Premises, including the initial Tenant Improvements and any
Alterations, and repair any damage to the Premises and Building caused by such
removal, and leave the Premises in a broom-clean condition. If Tenant fails to
complete such removal and/or to repair any damage caused by the removal of any
such improvement, after notice to Tenant from Landlord, and a reasonable
opportunity (based on the then current circumstances) for Tenant to complete
such removal and/or repair, Landlord may do so and may charge the cost thereof
to Tenant.
ARTICLE 9
---------
COVENANT AGAINST LIENS
----------------------
Tenant has no authority or power to cause or permit any lien or encumbrance
of any kind whatsoever, whether created by act of Tenant, operation of law or
otherwise, to attach to or be placed upon the Real Property, Building or
Premises, and any and all liens and encumbrances created by Tenant shall attach
to Tenant's interest only. Landlord shall have the right at all times to post
and keep posted on the Premises customary notices of non-responsibility which it
deems necessary for protection from such liens. Tenant covenants and agrees not
to suffer or permit any lien of mechanics or materialmen or others to be placed
against the Real Property, the Building or the Premises with respect to work or
services claimed to have been performed for or materials claimed to have been
furnished to Tenant or the Premises, and, in case of any such lien attaching or
notice of any such lien, Tenant covenants and agrees to cause it to be
immediately released and removed of record by bond or otherwise within ten (10)
business days after notice by Landlord, and if Tenant shall fail to do so
Landlord, at its sole option, may, after an additional five (5) business days
notice to Tenant, take all action necessary to release and remove such lien,
without any duty to investigate the validity thereof, and all sums, costs and
expenses, including reasonable attorneys' fees and costs, incurred by Landlord
in connection with such lien shall be deemed Additional Rent under this Lease
and shall be due and payable by Tenant within thirty (30) days of receipt of an
invoice therefor.
17
<PAGE>
ARTICLE 10
----------
INSURANCE
---------
10.1 Indemnification and Waiver.
--------------------------
10.1.1 Waiver. Tenant hereby assumes all risk of damage to
------
property or injury to persons in or upon the Premises from any cause whatsoever
and agrees that Landlord, its partners and their respective officers, agents,
servants, and employees (collectively, the "Landlord Parties") shall not be
liable for any damage either to person or property or resulting from the loss of
use thereof, which damage is sustained by Tenant or by other persons claiming
through Tenant, except to the extent caused by the negligence or wilful
misconduct of the Landlord Parties.
10.1.2 Tenant's Indemnity. Tenant shall indemnify, defend,
------------------
protect, and hold harmless Landlord and the Landlord Parties from any and all
claims, loss, cost, damage, expense and liability (including without limitation
court costs and reasonable attorneys' fees) (collectively, "Claims") incurred in
connection with or arising from (1) any cause in or on the Premises during the
Lease Term or any holdover period and (2) subject to the terms of the last
sentence of Section 10.1.3, below, any acts or omissions or wilful misconduct of
Tenant or any person claiming by, through or under Tenant, its partners, and
their respective officers agents, servants or employees of Tenant or any such
person (collectively, "Tenant Parties"), in or on or about the Premises or the
Real Property either prior to, during, or after the expiration of the Lease
Term, provided that, except as set forth below, the terms of the foregoing
indemnity shall not apply to the extent such Claims arise from the negligence or
wilful misconduct of the Landlord Parties in connection with the Landlord
Parties' activities in, on or about the Real Property, including the Premises.
Notwithstanding the foregoing, because Tenant must carry insurance pursuant to
Section 10.3.2, below, to cover its personal property and all office furniture,
- --------------
trade fixtures, office equipment and merchandise within the Premises and the
Tenant Improvements and Alterations, Tenant hereby agrees to protect, defend,
indemnify and hold Landlord harmless from any Claim with respect to any such
property within the Premises, to the extent such Claim is covered by Tenant's
insurance, even if resulting from the negligence or wilful misconduct of the
Landlord Parties.
10.1.3 Landlord's Indemnity. Landlord shall indemnify, defend,
--------------------
protect, and hold harmless Tenant and the Tenant Parties from any Claims
incurred in connection with or arising from (1) any cause in or about the Real
Property during the Lease Term (to the extent covered by Landlord's insurance
policies carried pursuant to the terms of Section 10.2, below), or (2) any
negligent acts or omissions or wilful misconduct of any of the Landlord Parties
in, on, or about the Premises (subject to the terms of the last sentence of
Section 10.1.2, above) or the
18
<PAGE>
Real Property, either prior to, during, or after the expiration of the Lease
Term, provided that, except as set forth below, the terms of the foregoing
indemnity shall not apply to the extent such Claims arise from the negligence or
wilful misconduct of the Tenant Parties in connection with the Tenant Parties'
activities in, on, or about the Real Property. Notwithstanding the foregoing,
because Landlord is required to maintain pursuant to the terms of Section 10.2,
below, insurance on the Building and Real Property and Tenant compensates
Landlord for such insurance as part of Operating Expenses, Landlord hereby
agrees to protect, defend, indemnify and hold Tenant harmless from any Claims
with respect to the Building and Landlord's equipment and property on the Real
Property to the extent such Claim is covered by Landlord's insurance, even if
resulting from the negligent acts or wilful misconduct of the Tenant Parties.
10.1.4 Waiver of Consequential Damages. Notwithstanding any
-------------------------------
contrary provision of this Lease, neither Landlord nor Tenant shall be liable to
the other party for any consequential damages for a breach or default under this
Lease, provided that this sentence shall not be applicable to any consequential
damages which may be incurred by the Landlord Parties relating to or in
connection with (i) action taken by or on behalf of Tenant pursuant to the
provisions of Section 7.3, above, or (ii) any holdover by Tenant following the
------------
expiration of the Lease Term, subject to and in accordance with the provisions
of Article 16 hereof.
----------
10.1.5 General Terms. The provisions of this Section 10.1 shall
-------------
survive the expiration or sooner termination of this Lease with respect to any
claims or liability occurring prior to such expiration or termination.
10.2 Landlord's Fire and Casualty Insurance. Landlord shall maintain
--------------------------------------
during the Lease Term "all-risk" insurance insuring the Building against loss or
damage due to fire and other casualties covered within the classification of
fire and extended coverage, vandalism coverage and malicious mischief, sprinkler
leakage, water damage, earthquake and flood damage and special extended. Such
coverage shall be written for one hundred percent (100%) of the replacement cost
value of the Building, without deduction for depreciation, and shall be from
such companies, and on such other terms and conditions as Landlord may from time
to time reasonably determine. Such insurance coverage shall also include a
rental loss endorsement and one or more loss payee endorsements in favor of the
holders of any mortgages or deeds of trust encumbering the interest of Landlord
in the Real Property or the ground or underlying lessors of the Real Property,
or any portion thereof. Notwithstanding the foregoing provisions of this
Section 10.2, the coverage and amounts of insurance carried by Landlord in
- ------------
connection with the Building shall at a minimum be comparable to the coverage
and amounts of insurance which are carried by reasonably prudent landlords of
Comparable Buildings, and Worker's Compensation and Employee's Liability
coverage as required by applicable law. Upon inquiry by Tenant, from time to
time, Landlord shall inform Tenant of all such insurance carried by Landlord.
Tenant shall, at Tenant's expense, comply as to the Premises with all customary
insurance company requirements pertaining to the use of the Premises to the
extent consistent with the insurance company requirements imposed at the
Comparable Buildings. If Tenant's conduct or use of the Premises other than for
the uses permitted under Section 5.1 of this Lease causes any increase in the
premium for such insurance
19
<PAGE>
policies, then Tenant shall, following notice from Landlord either (i) cease
such conduct or use, or (ii) reimburse Landlord for any such increase. Tenant,
at Tenant's expense, shall comply with all rules, orders, regulations or
requirements of the American Insurance Association (formerly the National Board
of Fire Underwriters) and with any similar body to the extent consistent with
the rules, orders, regulations or requirements imposed at the Comparable
Buildings.
10.3 Tenant's Insurance. Tenant shall maintain the following coverages in
------------------
the following amounts.
10.3.1 Commercial General Liability Insurance covering the insured
against claims of bodily injury, personal injury and property damage arising out
of Tenant's operations or use of the Premises, including a Broad Form Commercial
General Liability endorsement covering the insuring provisions of this Lease
and, to the extent customarily and commercially available, covering the
performance by Tenant of the indemnity agreements set forth in Section 10.1 of
this Lease, for limits of liability not less than:
Bodily Injury and
Property Damage Liability $5,000,000 each occurrence
$5,000,000 annual aggregate
$5,000,000 each occurrence
Personal Injury Liability
$5,000,000 annual aggregate
10.3.2 "All-Risk" Insurance, with commercially reasonable
deductibles, covering (i) all office furniture, trade fixtures, office
equipment, merchandise and all other items of Tenant's property on the Premises
installed by, for, or at the expense of Tenant, (ii) the Tenant Improvements,
and (iii) all other improvements, alterations and additions to the Premises,
including any improvements, alterations or additions installed at Tenant's
request above the ceiling of the Premises or below the floor of the Premises.
Such insurance shall be written for the full replacement cost value, new,
without deduction for depreciation, of the covered items and in amounts that
meet any co-insurance clauses of the policies of insurance and may include, at
Tenant's sole option, a vandalism and malicious mischief endorsement, and
sprinkler leakage coverage.
10.3.3 Form of Policies. The minimum limits of policies of
----------------
liability insurance required of Tenant or Landlord under this Lease shall in no
event limit the liability of Tenant or Landlord under this Lease. Each party's
insurance shall (i) name the other party (including, as to Landlord, the
"Lender," as described in Article 18 below), as an additional insured; (ii)
specifically cover the Tenant's indemnity obligations of the insuring party set
forth in Section 10.1 of this Lease to the extent customarily and commercially
available; (iii) be issued by an insurance company having a rating of not less
than B+/VII in Best's Insurance Guide or which is otherwise reasonably
acceptable to the named party and licensed to do business in the State of
California; (iv) be primary insurance as to all claims thereunder and provide
that any
20
<PAGE>
insurance carried by the named party is not excess and is non-contributing with
any insurance requirement of the insuring party; and (v) contain a cross-
liability endorsement or severability of interest clause acceptable to the named
party. The insuring party shall use its good faith efforts to cause its
insurance carrier to provide that said insurance carrier shall endeavor to give
thirty (30) days' prior written notice to the named party and any mortgagee or
ground or underlying lessor of the named party prior to the date said insurance
is canceled. The parties agree that the insuring party may satisfy its insurance
requirements herein with a "blanket" or "umbrella" insurance policy covering the
Premises and other premises of the insuring party. The insuring party shall
deliver said policy or policies or certificates thereof to the named party on or
before the Lease Commencement Date and at least thirty (30) days before the
expiration dates thereof. In the event the insuring party shall fail to procure
such insurance, or to deliver such policies or certificate at least thirty (30)
days before the expiration dates thereof, the named party may, at its option, if
such failure continues for ten (10) business days following written notice to
the insuring party, procure such policies for the account of the insuring party,
and the cost thereof shall be paid to the named party as Additional Rent within
thirty (30) days after delivery to the insuring party of bills therefor.
10.4 Subrogation. Landlord and Tenant agree to have their respective
-----------
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant, as the case
may be. Landlord and Tenant hereby waive any right that either may have against
the other on account of any loss or damage to their respective property to the
extent such loss or damage is insurable under the types of policies of insurance
set forth in Sections 10.2 and 10.3.2, above.
10.5 Additional Insurance Obligations. Tenant shall carry and maintain
--------------------------------
during the entire Lease Term, at Tenant's sole cost and expense, such increased
amounts of the insurance required to be carried by Tenant pursuant to this
Article 10, and such other reasonable types of insurance coverage and in such
reasonable amounts covering the Premises and Tenant's operations therein, as may
be reasonably requested by Landlord; provided that such requests shall be
consistent with the treatment of comparable tenants in the Comparable Buildings.
ARTICLE 11
----------
DAMAGE AND DESTRUCTION
----------------------
11.1 Repair of Damage to Premises by Landlord. Except in the case where
----------------------------------------
Landlord or its agents are already aware of the same, Tenant shall notify
Landlord of any material damage to the Premises resulting from fire or any other
casualty promptly following the date Tenant becomes aware of such damage. If
the Building or Premises shall be damaged by fire or other casualty, Landlord
shall promptly and diligently, subject to reasonable delays for insurance
adjustment or other matters beyond Landlord's reasonable control, and subject to
all other terms
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of this Article 11, restore the Building, the Building Structure and Building
Systems, except for those items which were constructed by or for the benefit of
Tenant above and beyond the Tenant Improvement Allowance (the "Base, Shell and
Core") . Such restoration shall be to substantially the same condition of the
Base, Shell and Core prior to the casualty, except for modifications required by
zoning and building codes and other laws. Notwithstanding any other provision of
this Lease, upon the occurrence of any damage to the Premises, Tenant shall
assign to Landlord (or to any party designated by Landlord) all insurance
proceeds payable to Tenant under Tenant's insurance required under items (ii)
and (iii) of Section 10.3.2 of this Lease, and Landlord shall repair any injury
or damage to the Tenant Improvements installed in the Premises and shall return
such Tenant Improvements to their original condition. If the cost of such repair
by Landlord is estimated, after review of the costs by Tenant, to exceed the
amount of insurance proceeds scheduled to be received by Landlord from Tenant's
insurance carrier, as assigned by Tenant, Tenant shall pay any such short fall
to Landlord prior to Landlord's repair of the damage. In the event this Lease
shall terminate as a result of such damage, Tenant shall assign to Landlord the
right to receive any insurance proceeds received from Tenant's insurance carrier
related to the Tenant Improvements constructed utilizing the proceeds of the
Tenant Improvement Allowance, and Tenant shall retain the insurance proceeds
related to those of the Tenant Improvements which were constructed utilizing
funds provided by Tenant over and above the Tenant Improvement Allowance. Tenant
shall retain all insurance proceeds related to Tenant's personal property,
furniture, fixtures and equipment. In connection with such repairs and
replacements, Tenant shall, prior to the commencement of construction, submit to
Landlord, for Landlord's review and approval, which approval shall not be
unreasonably withheld, conditional, or delayed, all plans, specifications and
working drawings relating thereto, and Landlord shall select the contractors to
perform such improvement work; provided, however, that Tenant shall have the
right to approve the contractor and the primary subcontractors if the contractor
and/or its subcontractors are other than those listed on Schedule "1" to Exhibit
------------ -------
"B" to this Lease, which approval shall not be unreasonably withheld or delayed.
- ---
Landlord shall not be liable for any inconvenience or annoyance to Tenant or its
visitors, or injury to Tenant's business resulting in any way from such damage
or the repair thereof; provided however, that as a result of such damage Tenant
may be entitled to abatement of Rent pursuant to the terms of this Lease.
11.2 Landlord's Option to Repair.
---------------------------
11.2.1 Landlord Right To Terminate. Notwithstanding the terms of
---------------------------
Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the
Premises and/or Building and/or Real Property and instead terminate this Lease
by notifying Tenant in writing (the "Landlord Termination Notice") of such
termination within sixty (60) days after the date of Landlord's discovery of
damage (the "Damage Date"), such notice to include a termination date giving
Tenant ninety (90) days to vacate the Premises, but Landlord may so elect only
if the Premises, Building and/or Real Property shall be damaged by fire or other
casualty or cause, whether or not the Premises are affected, and one or more of
the following conditions is present: (i) repairs cannot reasonably be completed
within two hundred forty (240) days of the Damage Date (when such repairs are
made without the payment of overtime or other premiums); (ii) over
22
<PAGE>
One Million Dollars ($1,000,000.00) of the cost of the damage is not covered,
excluding deductible amounts, by Landlord's insurance policies (which One
Million Dollar ($1,000,000.00) amount shall decline, on a straight line basis,
over the seven (7) years of the term of this Lease, each year reducing such
amount by One Hundred Forty-Three Thousand Dollars ($143,000.00)),or (iii) the
holder of any mortgage on the Building or Real Property shall require (based on
such holders legal right to so require) that the insurance proceeds or any
portion thereof be used to retire the mortgage debt and the remaining proceeds
are more than Two Hundred Fifty Thousand and 00/100 Dollars ($250,000) less than
the amount required to repair the damage.
11.2.2 Tenant's Right to Terminate. If Landlord does not elect
---------------------------
to terminate this Lease pursuant to Landlord's termination right as provided
above, and the repairs of such damage cannot, in the reasonable judgment of the
contractor selected by Landlord to complete such repairs, be completed to the
standard set forth in Section 11.1, above, within two hundred forty (240) days
after the Damage Date (which two hundred forty (240) day period shall not be
subject to extension as a result of any "Force Majeure" as that term is defined
in Section 29.16, below), Landlord shall, within sixty (60) days after the
Damage Date, deliver notice of such fact to Tenant. Within thirty (30) days
after Tenant's receipt of such notice, Tenant may elect to terminate this Lease
by written notice to Landlord effective as of the date specified in Tenant's
notice, which date may be up to ninety (90) days following the date of the
notice. Furthermore, if neither Landlord nor Tenant has terminated this Lease,
and the repairs are not actually completed within such two hundred forty (240)
day period, Tenant shall have the right to terminate this Lease within five (5)
business days of the end of such period and thereafter during the first five (5)
business days of each calendar month following the end of such period until such
time as the repairs are complete, by notice to Landlord (the "Damage Termination
Notice"), effective as of a date set forth in the Damage Termination Notice (the
"Damage Termination Date"), which Damage Termination Date shall not be less than
five (5) business days following the end of such period or each such month, as
the case may be. Notwithstanding the foregoing, if Tenant delivers a Damage
Termination Notice to Landlord, then Landlord shall have the right, which may
only be exercised once with respect to any specific event of damage or
destruction, to suspend the occurrence of the Damage Termination Date for a
period ending thirty (30) days after the Damage Termination Date set forth in
the Damage Termination Notice by delivering to Tenant, within five (5) business
days of Landlord's receipt of the Damage Termination Notice, a certificate of
Landlord's contractor responsible for the repair of the damage certifying that
it is such contractor's good faith judgment that the repairs shall be
substantially completed within thirty (30) days after the Damage Termination
Date. If repairs shall be substantially completed prior to the expiration of
such thirty-day period, then the Damage Termination Notice shall be of no force
or effect, but if the repairs shall not be substantially completed within such
thirty-day period, then this Lease shall terminate upon the expiration of such
thirty-day period. At any time, from time to time, after the date occurring
thirty (30) days after the Damage Date, Tenant may request that Landlord provide
Tenant with a certificate from the architect or contractor described above
setting forth such architect's or contractor's reasonable opinion of the date of
completion of the repairs and Landlord shall respond to such request within
five (5) business days.
23
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11.3 Waiver of Statutory Provisions. The provisions of this Lease,
------------------------------
including this Article 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or the Real Property, and any statute or
regulation of the State of California, including, without limitation, Sections
1932(2) and 1933(4) of the California Civil Code, with respect to any rights or
obligations concerning damage or destruction in the absence of an express
agreement between the parties, and any other statute or regulation, now or
hereafter in effect, shall have no application to this Lease or any damage or
destruction to all or any part of the Premises, the Building or the Real
Property.
ARTICLE 12
----------
NONWAIVER
---------
No waiver of any provision of this Lease shall be implied by any failure of
either party to enforce any remedy on account of the violation of such
provision, even if such violation shall continue or be repeated subsequently,
any waiver by either party of any provision of this Lease may only be in
writing, and no express waiver shall affect any provision other than the one
specified in such waiver and that one only for the time and in the manner
specifically stated. No receipt of monies by Landlord from Tenant after the
termination of this Lease shall in any way alter the length of the Lease Term.
ARTICLE 13
----------
CONDEMNATION
------------
13.1 Permanent Taking. If the whole or any part of the Premises or
----------------
Building shall be taken by power of eminent domain or condemned by any competent
authority for any public or quasi-public use or purpose, or if any adjacent
property or street shall be so taken or condemned, or reconfigured or vacated by
such authority in such manner as to require the use, reconstruction or
remodeling of any part of the Premises or Building, or if Landlord shall grant a
deed or other instrument in lieu of such taking by eminent domain or
condemnation (collectively, a "Taking"), and if such Taking involves a Taking of
all or substantially all of the Premises, Landlord shall have the option to
terminate this Lease upon delivery of ninety (90) days' notice, provided such
notice is given no later than one hundred eighty (180) days after the date of
such taking, condemnation, reconfiguration, vacation, deed or other instrument.
If more than twenty-five percent (25%) of the rentable square feet of the
Premises is taken, or if less than twenty five percent (25%) of the rentable
square feet of the Premises is taken and Tenant is unable to reasonably conduct
its business within the Premises, or if parking is substantially interfered
with, or if access to the Premises is substantially interfered with, Tenant
shall have the option to terminate this Lease upon delivery of ninety (90) days'
notice, provided such notice is given no later than one hundred eighty (180)
days after the date of such taking. Landlord shall be entitled
24
<PAGE>
to receive the entire award or payment in connection therewith, except that
Tenant shall have the right to receive an award for fifty percent (50%) of the
"bonus value" of its leasehold interest hereunder (which bonus value shall be
equal to the sum paid by the condemning authority as the award for compensation
for taking the leasehold created by this Lease), its relocation expenses,
damages to Tenant's personal property, trade fixtures, and loss of goodwill. All
Rent shall be apportioned as of the date of such termination, or the date of
such taking, whichever shall first occur. If any part of the Premises shall be
taken, and this Lease shall not be so terminated, the Rent shall be
proportionately abated or reduced based on the number of rentable square feet of
the Premises so taken. Tenant hereby waives any and all rights it might
otherwise have pursuant to Section 1265.130 of The California Code of Civil
Procedure.
13.2 Temporary Taking. Notwithstanding anything to the contrary contained
----------------
in this Article 13, in the event of a temporary taking of all or any portion of
the Premises for a period of one hundred and eighty (180) days or less, then
this Lease shall not terminate but the Base Rent and the Additional Rent shall
be abated for the period of such taking (commencing on the date of such taking)
in proportion to the ratio that the amount of rentable square feet of the
Premises taken bears to the total rentable square feet of the Premises; provided
that if the remaining portion of the Premises is not sufficient to allow Tenant
to effectively conduct its business therein, and if Tenant does not conduct its
business from such remaining portion, then Base Rent and the Additional Rent
shall be abated for the entire Premises for such time as Tenant continues to be
so prevented from using, and does not use, the Premises. Landlord shall be
entitled to receive the entire award made in connection with any such temporary
taking.
ARTICLE 14
----------
ASSIGNMENT AND SUBLETTING
-------------------------
14.1 Transfers. Subject to the provisions of this Article 14, Tenant shall
---------
not, without the prior written consent of Landlord, assign, mortgage, pledge,
hypothecate, encumber, or permit any lien to attach to, or otherwise transfer,
this Lease or any interest hereunder, permit any assignment or other transfer of
this Lease or any interest hereunder by operation of law, sublet the Premises or
any part thereof, or otherwise permit the occupancy or use of the Premises by
any persons other than Tenant, its Affiliates and their employees (all of the
foregoing are hereinafter sometimes referred to collectively as "Transfers" and
any person to whom any Transfer is made or sought to be made is hereinafter
sometimes referred to as a "Transferee"). Any Transfer with respect to which
Landlord's consent is required under this Article 14 and with respect to which
such consent requirement is not exempted under this Article 14 is referred to
herein as a "Consent Transfer." If Tenant desires Landlord's consent to any
Consent Transfer, Tenant shall notify Landlord in writing, which notice (the
"Transfer Notice") shall include (i) the proposed effective date of the
Transfer, which shall not be less than (a) in the case of a sublease of less
than 12,000 rentable square feet, ten (10) business days, (b) in the case of a
sublease of 12,000 square feet or
25
<PAGE>
more, fifteen (15) business days, and (c) in the case of an assignment of this
Lease or any other Transfer, twenty (20) business days after the date of
delivery of the Transfer Notice, (ii) a description of the portion of the
Premises to be transferred (the "Subject Space"), (iii) all of the principal
terms of the proposed Transfer and the consideration therefor, including a
calculation of the "Transfer Premium," as that term is defined in Section 14.3
below, in connection with such Transfer, the name and address of the proposed
Transferee, and a copy of all existing and/or proposed documentation pertaining
to the proposed Transfer, including all then existing material, executed
operative documents to evidence such Transfer or the agreements incidental or
related to such Transfer, (iv) current financial statements of the proposed
Transferee and (v) to the extent reasonably available, any other reasonable
information reasonably and customarily required by landlords of Comparable
Buildings in connection with the review of similar Transfers. Subject to the
terms of this Article 14, any Consent Transfer made without Landlord's prior
written consent shall, at Landlord's option, be null, void and of no effect.
Whether or not Landlord consents to any Consent Transfer, Tenant shall pay
Landlord's review and processing fees, as well as any reasonable legal fees
incurred by Landlord, within thirty (30) days after written request by Landlord.
14.2 Landlord's Consent. Landlord shall not unreasonably withhold, delay
------------------
or condition its consent to any proposed Consent Transfer. Subject to the
provisions of this Section 14.2, the parties hereby agree that it shall be
reasonable under this Lease and under any applicable law for Landlord to
withhold consent to any proposed Consent Transfer where one or more of the
following apply, without limitation as to other reasonable grounds for
withholding consent:
14.2.1 The Transferee is of a character or reputation or engaged in a
business which is materially inconsistent with the quality of the Building; or
14.2.2 The Transferee intends to use the Subject Space for purposes
which are materially inconsistent with those permitted under this Lease; or
14.2.3 The Transferee is not a party of reasonable financial worth
and/or financial stability in light of the responsibilities to be undertaken in
connection with the Transfer on the date consent is requested; provided that the
provisions of this Section 14.2.4 shall be applicable only if (i) the proposed
--------------
Transfer is an assignment of Tenant's interest in the Lease, (ii) the proposed
Transfer concerns ten thousand (10,000) rentable square feet or more of the
Premises, or (iii) upon the consummation of the proposal Transfer, the Original
Tenant and/or its Affiliates will not continue to directly occupy (i.e., have
not subleased or otherwise transferred its space) at least twenty thousand
(20,000) rentable square feet of the Premises.
If Landlord consents to any Consent Transfer pursuant to the
terms of this Section 14.2, Tenant may within nine (9) months after Landlord's
consent, but not later than the expiration of said nine-month period, enter into
such Transfer of the Premises or portion thereof, provided that if there are any
material changes in the terms and conditions from those specified in the
Transfer Notice such that Landlord would initially have been entitled to refuse
its
26
<PAGE>
consent to such Transfer under this Section 14.2, Tenant shall again submit the
Transfer to Landlord for its consent under this Article 14.
14.3 Transfer Premium.
----------------
14.3.1 Definition of Transfer Premium. Subject to the terms of this
------------------------------
Article 14, if Landlord consents to a Consent Transfer, as a condition thereto
which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty
percent (50%) of any "Transfer Premium," as that term is defined in this Section
14.3, received by Tenant from such Transferee. "Transfer Premium" shall mean all
rent, additional rent or other consideration payable by such Transferee in
connection with the Transfer in excess of the Rent and Additional Rent payable
by Tenant under this Lease during the term of the Transfer on a per rentable
square foot basis if less than all of the Premises is transferred (unless all or
a portion of the Subject Space is subject to different Rent and Additional Rent
terms, in which case, to the extent applicable, such different terms shall be
applicable), after deducting the actual, out-of-pocket expenses incurred or to
be incurred by Tenant for the following (collectively, the "Subleasing Costs")
(i) any changes, alterations and improvements to the Premises in connection with
the Transfer, (ii) any space planning, architectural or design fees or expenses
incurred in marketing such space or in connection with such Transfer, (iii) any
improvement allowance or other monetary concessions provided to the Transferee,
(iv) any brokerage commissions incurred by Tenant in connection with the
Transfer, (v) legal fees incurred in connection with the Transfer, including
those fees and costs reimbursed to Landlord pursuant to the last sentence of
Section 14.1, (vi) any lease takeover costs incurred by Tenant in connection
with the Transfer, (vii) out-of-pocket costs of advertising the space which is
the subject of the Transfer, and (viii) the amount of any Base Rent and
Additional Rent paid by Tenant to Landlord with respect to the Subject Space
during the period, not to exceed four (4) months, commencing on the later of (a)
the earlier of the date Tenant contracts with a reputable broker to market the
Subject Space or commences negotiations with the Transferee as evidenced by an
exchange of proposals, or (b) the date Tenant vacates the Subject Space, until
the commencement of the term of the Transfer. "Transfer Premium" shall also
include, but not be limited to, key money, bonus money or other cash
consideration paid by Transferee to Tenant in connection with such Transfer, but
shall exclude any payment which is not in excess of fair market value for (i)
services rendered by Tenant to Transferee or (ii) for assets, fixtures,
inventory, equipment, or furniture transferred by Tenant to Transferee in
connection with such Transfer.
14.3.2 Payment of Transfer Premiums. The determination of the amount
----------------------------
of the Transfer Premium shall be made on a monthly basis in accordance with the
terms of this Section 14.3.2, as rent or other consideration is received by
Tenant by under the Transfer. For purposes of calculating the Transfer Premium,
Tenant's Subleasing Costs shall be credited against the first amounts received
by Tenant as a result of the Transfer.
14.4 Effect of Transfer. Subject to the terms of this Article 14, if
------------------
Landlord consents to a Consent Transfer, (i) the terms and conditions of this
Lease shall in no way be deemed to have been waived or modified, (ii) such
consent shall not be deemed consent to any further Consent
27
<PAGE>
Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to
Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer, and (iv) Tenant shall furnish upon
Landlord's request a reasonable statement, certified by an independent certified
public accountant, or Tenant's chief financial officer or other appropriate
officer of Tenant, setting forth in reasonable detail the computation of any
Transfer Premium Tenant has derived and expects to derive from such Transfer.
Except as set forth in Section 14.4, above, no Transfer relating to this Lease
or agreement entered into with respect thereto, whether with or without
Landlord's consent, shall relieve Tenant from liability under this Lease,
including, without limitation, in connection with the Subject Space. Landlord or
its authorized representatives shall have the right at all reasonable times
during Business Hours following ten (10) business days advance notice to audit
the books, records and papers of Tenant directly relating to any Consent
Transfer. If the Transfer Premium respecting any Consent Transfer shall be found
understated, or overstated, the appropriate party shall within thirty (30) days
after demand, pay to the other the deficiency or excess, and if understated by
more than ten percent (10%), Tenant shall pay Landlord's costs of such audit.
14.5 Non-Transfers. Notwithstanding anything to the contrary contained in
-------------
this Article 14, an assignment of this Lease or subletting of all or a portion
of the Premises to an entity (an "Affiliate") which is controlled by, controls,
or is under common control with, Tenant or Tenant's parent or any subsidiary of
Tenant or Tenant's parent, or to a resulting entity from a merger or
consolidation of Tenant with another entity, shall not be deemed a Transfer
under this Article 14, and Landlord's consent shall not be required in
connection therewith, provided that Tenant notifies Landlord of any such
assignment or sublease and promptly supplies Landlord with any documents or
information reasonably requested by Landlord regarding such assignment or
sublease or such Affiliate or resulting entity, and further provided that such
assignment or sublease is not a subterfuge by Tenant to avoid its obligations
under this Lease and shall in no way relieve Tenant from any liability under
this Lease. "Control," as used in this Section 14.5, shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a person or entity, whether through the ownership of
voting securities, by contract or otherwise. As used in this Section 14.5,
"Affiliate" shall also include any entity which is subleasing from Tenant less
than 6,000 square feet of rentable area of the Premises and with respect to
which no demising wall is to be erected, and with the only identification of
such subtenant appearing on the door or doors to the offices, if any, in that
portion or portions of the Premises being occupied by such sublessee.
ARTICLE 15
----------
SURRENDER OF PREMISES; OWNERSHIP
---------------------------------
AND REMOVAL OF TRADE FIXTURES
-----------------------------
15.1 Surrender of Premises. No act or thing done by Landlord or any agent
---------------------
or employee of Landlord during the Lease Term shall be deemed to constitute an
acceptance by Landlord of
28
<PAGE>
a surrender of the Premises unless such intent is specifically acknowledged in a
writing signed by Landlord. The delivery of keys to the Premises to Landlord or
any agent or employee of Landlord shall not constitute a surrender of the
Premises or effect a termination of this Lease, whether or not the keys are
thereafter retained by Landlord, and notwithstanding such delivery Tenant shall
be entitled to the return of such keys at any reasonable time upon request until
this Lease shall have been properly terminated. The voluntary or other surrender
of this Lease by Tenant, whether accepted by Landlord or not, or a mutual
termination hereof, shall not work a merger.
15.2 Removal of Tenant Property by Tenant. Upon the expiration of the
------------------------------------
Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this Article 15, quit and surrender possession of the
Premises to Landlord in good order and condition, reasonable wear and tear,
casualty events, damage resulting from the negligence or misconduct of the
Landlord Parties, and repairs which are specifically made the responsibility of
Landlord hereunder excepted. Upon such expiration or termination, Tenant shall,
without expense to Landlord, remove or cause to be removed from the Premises all
debris and rubbish, and such items of free-standing furniture, equipment,
cabinet work, and other personal property owned by Tenant or installed or placed
by Tenant at its expense in the Premises, and such similar articles of any other
persons claiming under Tenant, as Landlord may, in its sole discretion, require
to be removed, and, subject to the terms of this Lease, Tenant shall repair at
its own expense all damage to the Premises and Building resulting from such
removal.
ARTICLE 16
----------
HOLDING OVER
------------
(a) If Tenant holds over after the expiration of the Lease Term
hereof, with or without the express or implied consent of Landlord, such tenancy
shall be from month-to-month only, and shall not constitute a renewal hereof or
an extension for any further term, and in such case Base Rent shall be payable
at a monthly rate equal to one hundred twenty-five percent (125%) of the Base
Rent applicable during the last rental period of the Lease Term under this
Lease. Such month-to-month tenancy shall be subject to every other term,
covenant and agreement contained herein. Nothing contained in this Article 16
shall be construed as consent by Landlord to any holding over by Tenant, and
Landlord expressly reserves the right to require Tenant to surrender possession
of the Premises to Landlord as provided in this Lease upon the expiration or
other termination of this Lease. Except for the time limitation on Landlord's
right to seek consequential damages set forth in the next sentence (which time
limitation shall also apply to Landlord's rights to seek damages other than by
reason of the following sentence), the provisions of this Article 16 shall not
be deemed to limit or constitute a waiver of any other rights or remedies of
Landlord provided herein or at law. If Tenant fails to surrender the Premises
within sixty (60) days after the termination or expiration of this Lease, then,
in addition to any other liabilities to Landlord accruing therefrom, Tenant
shall protect, defend, indemnify and hold Landlord harmless from all loss, costs
(including reasonable attorneys' fees) and liability resulting from such
failure,
29
<PAGE>
including, without limiting the generality of the foregoing, any claims made by
any succeeding tenant founded upon such failure to surrender, and any lost
profits to Landlord resulting therefrom.
(b) Notwithstanding the foregoing, by written notice to Landlord given
at least one hundred twenty (120) days prior to the expiration of the original
Term, Tenant shall have one time right to elect to holdover in the Premises
(which holdover will be deemed to be with Landlord's consent) for one (1), two
(2), or three (3) full months (as specified in Tenant's notice) at the same
Monthly Base Rent and Additional Rent in effect under this Lease immediately
prior to such holdover, and such continued occupancy by Tenant shall be subject
to all of the other terms, covenants and conditions of this Lease, so far as
applicable. The Lease Term will be extended for the period specified in such
notice by Tenant to Landlord and a vacation of the Premises by Tenant prior to
such date will not relieve Tenant of liability for Monthly Base Rent and
Additional Rent accruing under this Lease through the expiration of the Term, as
extended pursuant to Tenant's notice. The provisions of this Subsection 16(b)
will survive the expiration or earlier termination of this Lease.
ARTICLE 17
----------
ESTOPPEL CERTIFICATES
---------------------
Within fifteen (15) business days following a request in writing by
Landlord, Tenant shall execute and deliver to Landlord an estoppel certificate,
which, as submitted by Landlord, shall be substantially in the form of Exhibit
-------
E, attached hereto, indicating therein any exceptions thereto that may exist at
- -
that time, and shall also contain any other customary factual information
certified to Tenant's knowledge, without a duty of investigation or inquiry by
Tenant, reasonably requested by Landlord or Landlord's mortgagee or prospective
mortgagee. Tenant shall execute and deliver whatever other instruments may be
reasonably required for such purposes. Landlord hereby agrees to provide to
Tenant an estoppel certificate signed by Landlord, containing the same types of
information, and within the same periods of time, as set forth above, with such
changes as are reasonably necessary to reflect that the estoppel certificate is
being granted to Tenant by Landlord, rather than being granted by Tenant to
Landlord or to a lender.
ARTICLE 18
----------
SUBORDINATION
-------------
Subject to the terms of this Article 18, this Lease shall be subject and
subordinate to all future ground or underlying leases of the Real Property and
to the lien of any "Lender," which in this Lease shall mean any mortgage under a
mortgage or beneficiaries under any trust deeds
30
<PAGE>
hereafter in force against the Real Property and the Building, if any, and to
all renewals, extensions, modifications, consolidations and replacements
thereof, and to all advances made or hereafter to be made upon the security of
such mortgages or trust deeds, unless the Lenders or the lessors under such
ground lease or underlying leases, require in writing that this Lease be
superior thereto. As of the date of execution and delivery of this Lease,
Landlord has not acquired title to the Real Property; therefore, Landlord will
not be in a position to provide a Non-Disturbance Agreement to Tenant from the
entity presently holding a recorded interest in the Real Property. However,
following Landlord's acquisition of title to the Real Property, Landlord's
delivery to Tenant of commercially reasonable non-disturbance agreement(s) in
favor of Tenant from any ground lessors, or who come into existence at any time
prior to the expiration of the Lease Term shall be in consideration of, and a
condition precedent to, Tenant's agreement to be bound by the terms of this
Article 18. Such commercially reasonable non-disturbance agreements shall
include the obligation of any such successor ground lessor, or Lender to
recognize Tenant's rights specifically set forth in this Lease to offset certain
amounts against Rent due hereunder, or to otherwise receive certain credits
against Rent as set forth herein, and shall require the recognition by any such
successor ground lessor or Lender to pay for the construction of the Tenant
Improvements and further must acknowledge the free rent concessions granted to
Tenant under the Lease. Subject to the non-disturbance agreements described
above, Tenant covenants and agrees in the event any proceedings are brought for
the foreclosure (or deed lieu thereof) of any such mortgage, or if any ground or
underlying lease is terminated, to attorn, to the lien holder or purchaser or
any successors thereto upon any such foreclosure sale (or deed in lieu thereof),
or to the lessor of such ground or underlying lease, as the case may be, if so
requested to do so by such purchaser or lessor, and to recognize such purchaser
or lessor as the lessor under this Lease. Tenant shall, within fifteen (15)
business days of request by Landlord, execute such further instruments or
assurances as Landlord may reasonably deem necessary to evidence or confirm the
subordination or superiority of this Lease to any such mortgages, trust deeds,
ground leases or underlying leases, subject to the terms of this Article 18.
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ARTICLE 19
----------
DEFAULTS; REMEDIES
------------------
19.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute an event of default ("Event of Default") under this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, within ten (10)
business days after delivery of written notice to Tenant that such sum is past
due; or
19.1.2 Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for thirty (30) days after written notice
thereof from Landlord to Tenant; provided that if the nature of such default is
such that the same cannot reasonably be cured within a thirty (30)-day period,
Tenant shall not be deemed to be in default if it commences such cure within
such period and thereafter proceeds to rectify and cure said default with
reasonable diligence; or
19.1.3 The failure by Tenant to observe or perform according to the
provisions of Article 17 or Article 18 of this Lease where such failure
continues for more than ten (10) business days after notice from Landlord.
All notices to be given pursuant to this Section 19.1 shall be in
addition to and not in lieu of the notice requirements of the California Code of
Civil Procedure (S) 1161 et seq.
-- ---
19.2 Remedies Upon Default. Upon the occurrence of any Event of Default by
---------------------
Tenant, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity, the option to pursue any one or more of the
following remedies, each and all of which shall be cumulative and nonexclusive,
without any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
subject to due process of law and without prejudice to any other remedy which it
may have for possession or arrearages in rent, enter upon and take possession of
the Premises and expel or remove Tenant and any other person who may be
occupying the Premises or any part thereof; and Landlord may recover from Tenant
the following:
(i) The worth at the time of award of any unpaid rent which
has been earned at the time of such termination; plus
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(ii) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iii) The worth at the time of award of the amount by which
the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iv) Any other amount reasonably necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, specifically including but not limited to, brokerage
commissions and advertising expenses incurred, expenses of remodeling the
Premises or any portion thereof for a new tenant, whether for the same or a
different use, and any special concessions made to obtain a new tenant; and
(v) At Landlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by applicable
law.
The term "rent" as used in this Section 19.2 shall be deemed to be and to mean
all sums of every nature required to be paid by Tenant to Landlord pursuant to
the terms of this Lease. As used in Paragraphs 19.2.1(i) and (ii), above, the
"worth at the time of award" shall be computed by allowing interest at the rate
set forth in Article 25 of this Lease, but in no case greater than the maximum
amount of such interest permitted by law. As used in Paragraph 19.2.1(iii)
above, the "worth at the time of award" shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California Civil
Code Section 1951.4 (lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has the right to
sublet or assign, subject only to reasonable limitations). Accordingly, if
Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all rent as it becomes due.
19.3 Sublessees of Tenant. In the event Landlord elects to terminate this
--------------------
Lease on account of any Event of Default by Tenant Landlord shall have the right
to terminate any and all subleases, licenses, concessions or other consensual
arrangements for possession entered into by Tenant and affecting the Premises or
may, in Landlord's sole discretion, succeed to Tenant's interest in such
subleases, licenses, concessions or arrangements. In the event of Landlord's
election to succeed to Tenant's interest in any such subleases, licenses,
concessions or
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arrangements, Tenant shall, as of the date of notice by Landlord of such
election, have no further right to or interest in the rent or other
consideration receivable thereunder.
19.4 Waiver of Default. No waiver by Landlord or Tenant of any violation
-----------------
or breach of any of the terms, provisions and covenants herein contained shall
be deemed or construed to constitute a waiver of any other or later violation or
breach of the same or any other of the terms, provisions, and covenants herein
contained. Forbearance by Landlord or Tenant in enforcement of one or more of
the remedies herein provided upon an Event of Default shall not be deemed or
construed to constitute a waiver of such default. The acceptance of any Rent or
other payment hereunder by Landlord or Tenant following the occurrence of any
default, whether or not known to Landlord or Tenant, as the case may be, shall
not be deemed a waiver of any such default, except only a default in the payment
of the Rent or other payment so accepted.
19.5 Landlord Default. Notwithstanding anything to the contrary set forth
----------------
in this Lease, Landlord shall be in default in the performance of any obligation
required to be performed by Landlord pursuant to this Lease if (i) Landlord is
obligated to make a payment of money to Tenant, and Landlord fails to pay such
unpaid amounts within ten (10) days of written notice from Tenant that the same
was not paid when due, or (ii) such failure is other than the obligation to pay
money, and Landlord fails to perform such obligation within thirty (30) days
after the receipt of notice from Tenant specifying in detail Landlord's failure
to perform; provided, however, if the nature of Landlord's obligation is such
that more than thirty (30) days are required for its performance, then Landlord
shall not be in default under this Lease if it shall commence such performance
within such thirty (30) day period and thereafter diligently pursue the same to
completion. Upon any such default by Landlord under this Lease, Tenant may,
except as otherwise specifically provided in this Lease to the contrary,
exercise any of its rights provided at law or in equity.
ARTICLE 20
----------
COVENANT OF QUIET ENJOYMENT
---------------------------
Subject to Landlord's rights following an Event of Default, Landlord
covenants that during the Lease Term Tenant shall peaceably and quietly have,
hold and enjoy the Premises subject to the terms, covenants, conditions,
provisions and agreements hereof without interference by any persons lawfully
claiming by or through Landlord. The foregoing covenant is in lieu of any other
covenant express or implied, except as otherwise expressly provided in this
Lease.
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ARTICLE 21
-----------
FORCE MAJEURE
-------------
Any prevention, delay or stoppage due to strikes, lockouts, labor disputes,
acts of God, inability to obtain services, labor, or materials or reasonable
substitutes therefore after reasonable efforts to do so, governmental actions,
civil commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, except with respect to the
obligations imposed with regard to Rent and other monetary charges to be paid
pursuant to this Lease, and except with regard to the time periods set forth in
Article 11 of this Lease (collectively, the "Force Majeure"), notwithstanding
anything to the contrary contained in this Lease, shall excuse the performance
of such party for a period equal to any such prevention, delay or stoppage and,
therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure.
ARTICLE 22
----------
ATTORNEYS' FEES
---------------
If either party commences litigation against the other for the specific
performance of this Lease, for damages for the breach hereof or otherwise for
enforcement of any remedy hereunder, the parties hereto agree that the
prevailing party shall be entitled to recover from the other party such costs
and reasonable attorneys' fees as may have been incurred, including any and all
costs incurred in enforcing, perfecting and executing such judgment.
ARTICLE 23
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SIGNS
-----
23.1 Monument Signage.
----------------
23.1.1 Design and Approval. Subject to the provisions of this
-------------------
Section 23.1, and subject to the terms of the CC&Rs, and any applicable
governmental requirements, Tenant shall have the right to have a "Tenant Name"
as that term is defined below, placed upon the existing monument sign (the
"Monument Sign") located in front of the Building.
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23.1.2 Tenant Name. Tenant shall have the right at Tenant's expense,
-----------
to designate from time to time during the Lease Term, including any Option Term,
as the "Tenant Name", either (i) the name of Tenant, or (ii) the name of a
Transferee of Tenant properly approved by Landlord pursuant to the terms of
Article 14, and which Transferee occupies at least fifty percent (50%) of the
Premises, provided that such Tenant Name shall not be an "Objectionable Name" as
that term is defined in this Section 23.1.2, below. The term "Objectionable
Name" shall mean any name which relates to an entity which is of a character or
reputation, or is associated with a political orientation or faction, which is
inconsistent with the quality of the Real Property, or which would otherwise
reasonably offend a landlord of a Comparable Building..
23.1.3 Repair and Maintenance; Government Approval. Tenant shall be
-------------------------------------------
responsible for the cost of the design, permitting, construction and
installation of the Monument Sign and Tenant Name (the "Sign Cost"), and shall
also be responsible for the repair and maintenance during the Lease Term of the
Monument Sign. Tenant shall also be responsible for the cost and expense of the
removal of its name from and restoration of the Building, if affected by the
Monument Sign (or from the sign itself, but without restoration obligations) as
of the expiration or earlier termination of the Lease. Tenant acknowledges and
agrees that the Monument Sign shall be subject to all necessary approvals and
permits from governmental agencies and from any "Approving Agent" under the
CC&Rs.
23.2 Building Signage. Tenant shall have the right, during the Lease Term,
----------------
at Tenant's sole cost and expense, to install a sign, with the specifications as
set forth on Exhibit F, attached hereto, on the exterior of the Building
---------
containing the Tenant Name (the "Building Signage"), provided that such Building
Signage shall be subject to all of the terms of the CC&Rs and any applicable
governmental requirements. Except as provided in this Lease, Tenant shall be
responsible, at Tenant's sole cost and expense, to repair and maintain the
Building Signage in first class condition during the Lease Term. In addition
Tenant shall be responsible for the cost and expense of the removal of the
Building Signage as of the termination or earlier expiration of the Lease Term,
and for the cost of repair of any damage to the Building resulting from such
removal.
23.3 Prohibited Signage and Other Items. Any signs, notices, logos,
----------------------------------
pictures, names or advertisements which are installed and visible from the
exterior of the Premises and/or Building and that have not been individually
approved by Landlord may be removed without notice by Landlord at the sole
expense of Tenant. Tenant may not install any signs on the exterior or roof of
the Building. Any signs, window coverings, or blinds (even if the same are
located behind the Landlord approved window coverings for the Building), or
other items visible from the exterior of the Premises or Building are subject to
the prior approval of Landlord, in its sole discretion.
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ARTICLE 24
----------
COMPLIANCE WITH LAW
-------------------
Neither Landlord nor Tenant shall do anything in or about the Premises
which will in any way conflict with any law, statute, ordinance or other
governmental rule, regulation or requirement now in force or which may hereafter
be enacted or promulgated (collectively, "Laws"). Should any Laws now or
hereafter be imposed on Landlord or Tenant by a state, federal or local
governmental body charged with the establishment, regulation and enforcement of
occupational, health or safety standards for employers, employees or tenants,
then (i) Tenant agrees, at its sole cost and expense, to comply promptly with
such Laws if they relate to any of the Tenant Maintenance Items, the Tenant
Improvements or the Alterations and to make all alterations to the Premises,
Building, and/or Real Property as are required to comply with such Laws and (ii)
Landlord shall comply with any Laws which relate to the Landlord Maintenance
Items, unless such compliance obligations are triggered by the construction of
the Tenant Improvements or Alterations, in which event such compliance
obligations to the Landlord Maintenance Items shall be at Tenant's sole cost and
expense.
ARTICLE 25
----------
LATE CHARGES
------------
Each party hereby acknowledges that late payment by the other of Rent or
other sums due hereunder will cause such party to incur costs not contemplated
by this Lease, the exact amount of which is extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting charges,
and late charges which may be imposed upon Landlord by the terms of any
mortgage, deed of trust, or ground or underlying lease covering the Premises.
Accordingly, if any installment of Rent or any other sum due from either party
shall not be received by the other within five (5) business days after notice
that said amount is over due, then the defaulting party shall pay to the other a
late charge equal to two percent (2.0%) of the amount due, provided that three
(3) times in any twenty-four (24) month period, Landlord shall first deliver a
second five (5) business day notice prior to such late charge becoming due. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs that will be incurred by reason of such late payment.
Acceptance of such late charge shall in no event constitute a waiver of any
default with respect to such overdue amount, nor prevent the non-defaulting
party from exercising any of the other rights and remedies granted hereunder.
Any late charge owed by Tenant shall be deemed Additional Rent and the right to
require it shall be in addition to all of Landlord's other rights and remedies
hereunder or at law other than for damages for the late payment of Rent. In
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addition to the late charge described above, any Rent or other amounts owing
hereunder which are not paid within five (5) business days after notice the same
are over due shall thereafter bear interest until paid at a rate (the "Interest
Rate") per annum equal to the Wells Fargo Bank (or other "money center" national
bank reasonably selected by Landlord) "reference rate" or "base rate" publicly
announced from time to time, plus two percent (2%), provided that in no case
shall such rate be higher than the highest rate permitted by applicable law.
ARTICLE 26
----------
LANDLORD'S RIGHT TO CURE DEFAULT;
----------------------------------
PAYMENTS BY TENANT
------------------
26.1 Landlord's Cure. Except as otherwise specifically set forth in this
---------------
Lease, all covenants and agreements to be kept or performed by Tenant under this
Lease shall be performed by Tenant at Tenant's sole cost and expense and without
any reduction of Rent. If Tenant shall fail to perform any of its obligations
under this Lease within a reasonable time after such performance is required by
the terms of this Lease, Landlord may, but shall not be obligated to, after
thirty (30) days prior notice to Tenant (or in the case of an emergency, after
such notice as is reasonable under the circumstances), make any such payment or
perform any such act on Tenant's part without waiving its right based upon any
default of Tenant and without releasing Tenant from any obligations hereunder.
26.2 Tenant's Reimbursement. Except as may be specifically provided to the
----------------------
contrary in this Lease, Tenant shall pay to Landlord, within fifteen (15) days
after delivery by Landlord to Tenant of statements therefor, sums equal to
expenditures reasonably made and obligations reasonably incurred by Landlord in
connection with the remedying by Landlord of Tenant's
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<PAGE>
defaults pursuant to the provisions of Section 26.1. Tenant's obligations under
this Section 26.2 shall survive the expiration or sooner termination of the
Lease Term.
ARTICLE 27
----------
ENTRY BY LANDLORD
-----------------
Subject to the provisions of this Lease, and provided Landlord uses
commercially reasonable efforts to minimize any interference with Tenant's
business, Landlord reserves the right at all reasonable times and upon
reasonable notice to the Tenant (or in the case of an emergency upon such notice
as is reasonable under the circumstances) to enter the Premises to (i) inspect
them; (ii) show the Premises to prospective purchasers, mortgagees or tenants,
ground or underlying lessors or insurers (provided that such right shall not
extend to prospective tenants until twelve (12) months prior to the Lease
Expiration Date); (iii) post notices of nonresponsibility; or (iv) alter,
improve or repair the Premises or the Building if necessary to comply with Laws,
or for alterations, repairs or improvements to the Landlord Maintenance Items.
Notwithstanding anything to the contrary contained in this Article 27, and
subject to the notice requirements set forth in Section 19.1.2, above, and
Landlord's compliance with the terms of Section 26.1, Landlord may enter the
Premises at any time to perform any covenants of Tenant which Tenant fails to
perform. Except as otherwise expressly provided in this Lease, any such entries
shall be without the abatement of Rent and shall include the right to take such
reasonable steps as required to accomplish the stated purposes. Tenant hereby
waives any claims (not including claims for physical property damages or
personal injury damages) for any injuries or inconvenience to or interference
with Tenant's business or lost profits, occasioned thereby. For each of the
above purposes, Landlord shall at all times have a key with which to unlock all
the doors in the Premises, excluding Tenant's vaults, safes and special security
areas designated in advance by Tenant. In an emergency, Landlord shall have the
right to use any means that Landlord may in good faith deem proper to open the
doors in and to the Premises. Subject to the provisions of this Lease, any entry
into the Premises by Landlord in the manner hereinbefore described shall not be
deemed to be a forcible or unlawful entry into, or a detainer of, the Premises,
or an actual or constructive eviction of Tenant from any portion of the
Premises. Notwithstanding the foregoing, as reasonably necessary in connection
with Tenant's business use of the Premises, Tenant may designate certain secure
areas, and on prior written notice to Landlord of these areas, Tenant may deny
Landlord access to such areas except in an emergency or when Landlord is
accompanied by Tenant. Subject to the provisions of this Lease, no provision of
this Lease shall be construed as obligating Landlord to perform any repairs,
alterations or decorations except as otherwise expressly agreed to be performed
by Landlord herein.
ARTICLE 28
----------
39
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TENANT PARKING
--------------
During the Lease Term, Tenant shall have the right to use, without charge,
the parking areas contained within the Real Property (currently striped to
provide six (6) spaces per 1,000 rentable square feet of space in the Building),
subject to the CC&Rs.
ARTICLE 29
----------
MISCELLANEOUS PROVISIONS
------------------------
29.1 Terms. The necessary grammatical changes required to make the
-----
provisions hereof apply either to corporations or partnerships or individuals,
men or women, as the case may require, shall in all cases be assumed as though
in each case fully expressed.
29.2 Binding Effect. Each of the provisions of this Lease shall extend to
--------------
and shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective successors or assigns,
provided this clause shall not permit any assignment by Tenant contrary to the
provisions of Article 14 of this Lease.
29.3 No Air Rights. No rights to any view or to light or air over any
-------------
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease.
29.4 Modification of Lease. Should any prospective mortgagee or ground
---------------------
lessor for the Building or Real Property require a modification or modifications
of this Lease, which modification or modifications will not directly or
indirectly cause an increased cost or expense to Tenant under this Lease or in
connection with Tenant's business operations, or in any other way adversely
change the rights and obligations of Tenant hereunder including, without
limitation, all rights and obligations of Tenant with respect to renewal,
assignment and subletting, insurance proceeds and Tenant's rights to terminate
this Lease, or receive abatement of Rent, then and in such event, Tenant agrees
that this Lease may be so modified at Landlord's sole cost and expense
(including Tenant's reasonable attorneys' fees for review of the same), and
agrees to execute whatever reasonable documents are required therefor and
deliver the same to Landlord within thirty (30) days following the request
therefor. Should Landlord or any such prospective mortgagee or ground lessor
require execution of a short form of Lease for recording, containing, among
other customary provisions, the names of the parties, a description of the
Premises and the Lease Term, Tenant agrees to execute such short form of Lease
and to deliver the same to Landlord within fifteen (15) business days following
Tenant's receipt of written request therefor.
40
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29.5 Transfer of Landlord's Interest. Notwithstanding the provisions of
-------------------------------
this Section 29.5, Landlord shall not be released from its liabilities or
obligations under this Lease, until the Tenant Improvements have been completed
pursuant to Section 2 of Exhibit 'B" and Landlord has satisfied all of its
-----------
financial obligations with respect thereto. Tenant acknowledges that Landlord
has the right to transfer all or any portion of its interest in the Real
Property and Building and in this Lease. Tenant agrees that in the event of a
transfer of fee title and provided that such transferee is a bona fide purchaser
and agrees in writing to perform all of Landlord's obligations thereafter
accruing, Landlord shall automatically be released from all liability under this
Lease thereafter accruing and Tenant agrees to look solely to such transferee
for the performance of Landlord's obligations hereunder arising or accruing
after the date of transfer upon agreement by such transferee to fully assume and
be liable for all obligations of this Lease to be performed by Landlord which
first accrue or arise after the date of the conveyance, and Tenant shall attorn
to such transferee. Tenant further acknowledges that Landlord may assign its
interest in this Lease to a mortgage lender as additional security and agrees
that such an assignment shall not release Landlord from its obligations
hereunder and that unless and until such mortgage lender succeeds to Landlord's
interest and obligations hereunder, Tenant shall continue to look to Landlord
for the performance of its obligations hereunder.
29.6 Prohibition Against Recording. Except as provided in Section 29.4 of
-----------------------------
this Lease, neither this Lease, nor any memorandum, affidavit or other writing
with respect thereto, shall be recorded by Tenant or by anyone acting through,
under or on behalf of Tenant, without the prior written consent of Landlord,
which consent may be conditioned upon Tenant's agreement to deliver to Landlord
an executed, recordable, memorandum of termination of the same, within ten (10)
business days after the expiration or earlier termination of this Lease.
29.7 Landlord's Title. Subject to and except for the rights of Tenant
----------------
expressly set forth in this Lease, Landlord's title is and always shall be
paramount to the title of Tenant, and nothing herein contained shall empower
Tenant to do any act which can, shall or may encumber the title of Landlord.
29.8 Captions. The captions of Articles and Sections are for convenience
--------
only and shall not be deemed to limit, construe, affect or alter the meaning of
such Articles and Sections.
29.9 Relationship of Parties. Nothing contained in this Lease shall be
-----------------------
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant.
29.10 Time of Essence. Time is of the essence of this Lease and each of
---------------
its provisions.
29.11 Partial Invalidity. If any term, provision or condition contained
------------------
in this Lease shall, to any extent, be invalid or unenforceable, the remainder
of this Lease, or the application of such term, provision or condition to
persons or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
41
<PAGE>
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.
29.12 No Warranty. Except as otherwise expressly set forth in this Lease,
-----------
in executing and delivering this Lease, Tenant has not relied on any
representation, including, but not limited to, any representation whatsoever as
to the amount of any item comprising Additional Rent or the amount of the
Additional Rent in the aggregate or that Landlord is furnishing the same
services to other tenants, at all, on the same level or on the same basis, or
any warranty or any statement of Landlord which is not set forth herein or in
one or more of the exhibits attached hereto.
29.13 Landlord Exculpation. It is expressly understood and agreed that,
--------------------
notwithstanding anything in this Lease to the contrary, the liability of
Landlord or the Landlord Parties to Tenant for performance of Landlord's
obligation under the Lease shall be (i) limited solely and exclusively to an
amount which is equal to the interest of Landlord in the Building and Real
Property and to the proceeds of any insurance (the cost of which is included in
Operating Expenses) or condemnation awards received by Landlord pursuant to the
items of Article 13 of this Lease and (ii) subject to the waiver of
consequential damages set forth in Section 10.1, above. Neither Landlord, nor
any of the Landlord Parties shall have any personal liability therefor, and
Tenant hereby expressly waives and releases such personal liability on behalf of
itself and all persons claiming by, through or under Tenant. The limitations of
liability contained in this Section 29.13 shall inure to the benefit of
Landlord's and the Landlord Parties' present and future partners, beneficiaries,
officers, directors, trustees, shareholders, agents and employees, and their
respective partners, heirs, successors and assigns.
29.14 Entire Agreement. It is understood and acknowledged that there are
----------------
no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease. This Lease
(including all exhibits attached hereto) and any side letter or separate
agreement executed by Landlord and Tenant in connection with this Lease and
dated of even date herewith contain all of the terms, covenants, conditions,
warranties and agreements of the parties relating in any manner to the rental,
use and occupancy of the Premises, shall be considered to be the only agreement
between the parties hereto and their representatives and agents, and none of the
terms, covenants, conditions or provisions of this Lease can be modified,
deleted or added to except in writing signed by the parties hereto. All
negotiations and oral agreements acceptable to both parties have been merged
into and are included herein. There are no other representations or warranties
between the parties, and all reliance with respect to representations is based
totally upon the representations and agreements contained in this Lease.
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29.15 Guaranty of Lease.
-----------------
29.15.1 Form of Guaranty. This Lease is to be guaranteed by
----------------
Matsushita Electric Company of America. The form of the Guaranty to be executed
shall be in the form attached hereto as Exhibit G. Guarantor shall have the
---------
same obligations as Tenant under this Lease, including but not limited to the
obligations to provide the estoppel certificate and information required in
Article 17.
29.15.2 Additional Obligations of Guarantor. It shall constitute
-----------------------------------
an Event of Default of Tenant under this Lease if Guarantor fails or refuses,
upon reasonable request by Landlord to give: (a) evidence of the due execution
of the guaranty called for by this Lease, including the authority of the
Guarantor (and of the party signing on Guarantor's behalf) to obligate such
Guarantor on said guaranty, and resolution of its board of directors authorizing
the making of such guaranty, together with a certificate of incumbency showing
the signatures of the persons authorized to sign on its behalf, (b) current
financial statements of Guarantor as may from time to time be requested by
Landlord, (c) an estoppel certificate, or (d) written confirmation that the
guaranty is still in effect.
29.16 Notices. All notices, demands, statements, designations, approvals
-------
or other communications (collectively, "Notices") given or required to be given
by either party to the other hereunder or by law shall be in writing, and shall
be delivered personally or by nationally recognized overnight courier service
(i) to Tenant at the appropriate addresses set forth in Section 5 of the
Summary, or to such other place in the continental United States as Tenant may
from time to time designate in a Notice to Landlord; or (ii) to Landlord at the
addresses set forth in Section 3 of the Summary, or to such other firm or to
such other place in the continental United States as Landlord may from time to
time designate in a Notice to Tenant. Any Notice will be deemed given on the
date delivery is made.
29.17 Authority. If either party is a corporation or partnership, each
---------
individual executing this Lease on behalf of such party hereby represents and
warrants that such party is a duly formed and existing entity and that such
party has full right and authority to execute and deliver this Lease and that
each person signing on behalf of such party is authorized to do so.
29.18 Governing Law. This Lease shall be construed and enforced in
-------------
accordance with the laws of the State of California.
29.19 Submission of Lease. Submission of this instrument for examination
-------------------
or signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
29.20 Brokers. Landlord and Tenant hereby warrant to each other that they
-------
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease,
43
<PAGE>
excepting only the real estate brokers or agents specified in Section 9 of the
Summary (the "Brokers"), and that they know of no other real estate broker or
agent who is entitled to a commission in connection with this Lease. Each party
agrees to indemnify and defend the other party against and hold the other party
harmless from any and all claims, demands, losses, liabilities, lawsuits,
judgments, and costs and expenses (including without limitation reasonable
attorneys' fees) with respect to any leasing commission or equivalent
compensation alleged to be owing on account of the indemnifying party's dealings
with any real estate broker or agent other than the Brokers. If Landlord fails
to pay any amounts due a Broker in connection with a written agreement with
respect to this Lease by and between Landlord and such Broker, which agreement
was fully executed and delivered and is in full force and effect as of the date
of execution and delivery of this Lease by the parties hereto, such Broker may
send written notice to Landlord and Tenant of such failure and if Landlord fails
to pay such amounts within thirty (30) days after said notice, Tenant shall be
entitled to offset such amounts owed to such Broker from Landlord against
Tenant's next rental obligations which may become due under this Lease. Any
amounts so offset from Tenant's rental obligations hereunder shall no longer be
owed from Landlord to such Broker.
29.21 Independent Covenants. If Landlord fails to perform its obligations
---------------------
set forth herein, Tenant shall not, except as expressly provided in this Lease
to the contrary, be entitled (i) to make any repairs or perform any acts
hereunder at Landlord's expense or (ii) to any setoff of the Rent or other
amounts owing hereunder against Landlord; provided, however, that the foregoing
shall in no way impair the right of Tenant to commence a separate action against
Landlord for any violation by Landlord of the provisions hereof so long as, to
the extent required in this Lease, notice is first given to Landlord and an
opportunity is granted to Landlord to correct such violations as provided in
Section 19.5, above.
29.22 Landlord Signage. Landlord shall have the right at any time to
----------------
install, affix and maintain a sign on the Building identifying Landlord's
interest in the Building, in a commercially reasonable size and with graphics
which are consistent with landlord-identification signage on the Comparable
Buildings.
29.23 Transportation Management. To the extent required by Laws, Tenant
-------------------------
shall fully comply with all present or future programs intended to manage
parking, transportation or traffic in and around the Building.
29.24 Hazardous Material.
------------------
29.24.1 Definition. As used herein, the term "Hazardous Material"
----------
means any hazardous or toxic substance, material or waste which is or becomes
regulated by any local governmental authority, the State of California or the
United States Government. The term "Hazardous Material" includes, without
limitation, any material or substance which is (i) defined as a "hazardous
waste," "extremely hazardous waste" or "restricted hazardous waste" under
Sections 25115, 25117 or 25122.7, or listed pursuant to Section 25140 of the
California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste
Control Law), (ii) defined as a
44
<PAGE>
"hazardous substance" under Section 25316 of the California Health and Safety
Code, Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and
Inventory), (iii) defined as a "hazardous substance" under Section 25281 of the
California Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage
of Hazardous Substances), (iv) petroleum, (v) asbestos or asbestos containing
materials, (vi) listed under Article 9 or defined as hazardous or extremely
hazardous pursuant to Article 11 of Title 22 of the California Administrative
Code, division 4, Chapter 20, (vii) designated as a "hazardous substance"
pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C.
(S) 1317), (viii) defined as a "hazardous waste" pursuant to Section 1004 of the
Federal Resource Conservation and Recovery Act, 42 U.S.C. (S) 6902 et seq. (42
U.S.C. (S) 6903), or (ix) defined as a "hazardous substance" pursuant to Section
101 of the Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq. (42 U.S.C.
(S) 9601).
29.24.2 Operating Expenses. Tenant agrees that the costs incurred by
------------------
Landlord with respect to, or in connection with, complying with laws, codes,
regulations or ordinances relating to Hazardous Material shall be an Operating
Expense, except to the extent provided in Section 29.23.3 or 29.23.4 below. To
the extent any such Operating Expense relating to Hazardous Material is
subsequently recovered or reimbursed through insurance, or recovery from
responsible third parties, or other action, Tenant shall be entitled to a
proportionate share of such Operating Expense to which such recovery or
reimbursement relates.
29.24.3 Asbestos. Landlord agrees to (i) remove, at Landlord's sole
--------
cost and expense any asbestos or asbestos containing materials from the Premises
and restore the Premises to the condition existing prior to removal, except
where such restoration is unnecessary due to the installation of by the Tenant
Improvements, and (ii) provide to Tenant copies of any and all asbestos surveys
conducted on the Premises by Landlord, or furnished to Landlord..
29.24.4 Landlord's Representation. Landlord hereby represents to
-------------------------
Tenant that to the best of Landlord's knowledge, there are no Hazardous
Materials located in, on or under the Building, the Real Property or the
Premises, and there has been no violation thereon of any law governing Hazardous
Materials. To the extent that there has, in fact, been any such violation,
Landlord hereby agrees to remove, at Landlord's sole cost and expense, any such
Hazardous Materials unless Tenant has caused such violation. Landlord shall
cause the Premises, the Building and the Real Property be in full compliance
with any governmental laws, ordinances, regulations or orders relating to
environmental conditions on, under or about the Premises, the Building or the
Real Property, including but not limited to asbestos, soil and ground water
conditions and Hazardous Materials. Landlord further represents that to the
best of Landlord's knowledge, the Building complies with all applicable
earthquake codes. To the extent that the Building is not in such compliance,
Landlord shall promptly cause such compliance, at Landlord's sole cost and
expense.
29.25 Confidentiality. The parties acknowledge that the content of this
---------------
Lease and any related documents are confidential information. Each party agrees
to exercise reasonable efforts to keep all terms of this Lease which are not
public (and remain so) confidential and shall not
45
<PAGE>
disclose the same to any other person not a party hereto without the prior
written consent of the other party; however, each party may disclose such terms
hereof as may be reasonably necessary to comply with any subpoena, law or
directive of government authority (including, without limitation, as may be
required to comply with any governmental order, regulation or standard in
connection with any securities offering or securities law disclosure, as may be
required by underwriters, stock exchange rules or other relevant sources in
connection with any securities offering of the maintenance of a public market in
such party's securities), or to its real estate broker, proposed assignees or
sublessees, Affiliates and their real estate brokers, accountants or attorneys,
to the extent reasonably necessary for such party's business purposes and so
long as, to the extent reasonably possible, such party receiving such disclosure
agrees to maintain the confidentiality of such information.
29.26 Reasonable Consent. Except for matters for which there is a
------------------
standard of consent or approval specifically set forth in this Lease, in which
case the express standard shall control, and except for matters which could (i)
adversely affect the Systems and Equipment, (ii) adversely affect the Building
structure, or (iii) affect the exterior appearance of the Building, in which
case Landlord shall have the right to act in its sole and absolute discretion
(but at all times in good faith) as to the matters described in items (i), and
(ii) and (iii) above, any time the consent or approval of Landlord or Tenant is
required under this Lease, such consent or approval shall not be unreasonably
withheld, conditioned or delayed. Subject to the foregoing, and except for
matters pertaining to the exercise by either party of any remedies in the event
of a default by the other party, in the event this Lease grants Landlord or
Tenant the right to take action, exercise discretion, establish rules and
regulations or make an allocation or other determination, Landlord and Tenant
shall act reasonably and in good faith.
29.27 Counterparts. This Lease may be executed in counterparts, each of
------------
which shall be deemed an original, but such counterparts, when taken together
shall constitute one agreement.
29.28 Termination of Existing Leases. Upon the full execution and
------------------------------
delivery of this Lease and the acquisition of the Real Property by Landlord,
Tenant and its Guarantor shall be conditionally released from all of its
financial and legal obligations with respect to Tenant's existing Leases with
Laguna Canyon Corporation at 16255, 16267 and 16269 Laguna Canyon Road, Irvine,
California(pursuant to the Lease Termination Agreement attached hereto as
Exhibit D), as well as all temporary Space Leases between Landlord and Tenant
- ----------
within the Irvine Oaks Project in the Irvine area of Southern California;
provided, however, the existing Leases should not be terminated and Tenant
should not be obligated to move from the existing Premises until Landlord's Work
and Tenant's Work is substantially completed and the certificate of occupancy or
its equivalent has been issued so that the Tenant can take occupancy of the
Premises and commence doing business therein. The condition to such release is
the compliance by Tenant with all of the surrender obligations set forth in such
Leases.
29.29 General Compliance. Landlord hereby represents to Tenant, that
------------------
Landlord shall, throughout the initial term of the Lease and any extension of
the term of the Lease, cause the
46
<PAGE>
Premises (including all parking lots and entrances serving the Premises) to
comply with all applicable laws, ordinances, rules and regulations of
governmental authorities, including but not limited to, the Americans with
Disabilities Act, and all regulations and orders promulgated pursuant to such
act ("Applicable Laws") with the cost of such compliance to be at Landlord's
sole cost and expense; provided that such compliance by Landlord shall be
applicable to any of the Tenant Improvement work contemplated by the provisions
of Section 2 of this Work Letter.
29.30 Future Construction [THE PARTIES NEED TO DISCUSS THE APPLICABLE
-------------------
PROVISION REGARDING EXPANSION OF THE BUILDING AS CONTEMPLATED BY PARAGRAPHS ON
PAGE 4 OF THE FEBRUARY 23, 1996 LETTER OF INTENT.]
29.31 Telecommunication Equipment.
----------------------------
29.31.1 Installation. At any time during the Lease Term, Tenant
------------
shall have the exclusive right, so long as Tenant is the sole lessee of all non-
common areas of the Building and thereafter a non-exclusive right, to install at
Tenant's sole cost and expense, antenna, satellite, microwave dish or any other
type of telecommunications or communications device ("Communications Equipment")
upon the roof of the Building at a location designated by Tenant, which location
as well as Tenant's plans and specifications relating to the installation of
Tenant's Communications Equipment shall be subject to Landlord's reasonable
approval, without the payment of operating expenses; provided, however, Tenant
shall pay all cost of such Communications Equipment, including, without
limitation, the utilities and maintenance necessary to Tenant's operation of the
Communications Equipment and liability insurance for such Communications
Equipment. In addition, Tenant shall, at Tenant's sole cost and expense,
install a submeter and submeter the electricity for the Communications Equipment
on the roof of the Building. Tenant's Communications Equipment shall, to the
extent required by the restrictions on the Building, not be visible from the
portion of the streets adjacent to and adjoining the boundaries of the project
at the areas of such streets which abut the building, and Landlord may
reasonable require Tenant to install screening around such Communications
Equipment, at Tenant's sole cost and expense, as reasonably designated by
Landlord. The Communications Equipment shall comply with all governmental laws
and ordinances and shall not pose any unreasonable safety hazards to any tenant
of the Building.
29.31.2 Maintenance and Repair. Tenant shall maintain, repair or
----------------------
replace Communications Equipment, at Tenant's sole cost and expense. During the
Lease Term, Tenant shall have the obligation to repair all damage to the
Building rooftop caused by the installation, repair, maintenance and use of the
Communications Equipment. If Landlord's or any other tenant's Communications
Equipment interferes with the operation or signal of Tenant's Communications
Equipment, then, promptly following notice from Tenant to Landlord of such
interference, Landlord shall have the option either to (i) immediately
discontinue its use, or cause any other Tenant in the Building causing such
interference to discontinue its use, of the communications equipment causing
such interference, or (ii) reposition Landlord's or any other tenant's
communications equipment to a location designated by Tenant which will remedy
the
47
<PAGE>
situation. If Tenant's Communications Equipment interferes with the use of
normal office equipment by any_existing tenant in its space in the Building,
Tenant shall either (i) discontinue its use, or (ii) reposition its
Communications Equipment to a location designated by Tenant, and
subject to Landlord's reasonable approval, which will remedy the situation.
Further, Tenant shall have the obligation to repair any damage to the Building
rooftop caused by Tenant's Communications Equipment, reasonable wear and tear,
casualty and repairs which are specifically made the responsibility of Landlord
hereunder excepted.
29.31.3 Termination. Tenant shall be entitled at any time to
-----------
terminate such use of space on the roof, in which case Tenant shall be relieved
of all of its obligations to pay any utilities and/or maintenance charges
attributable to the operation of Tenant's Communications Equipment upon removal
of all such equipment from the roof of the Building by Tenant. Upon Tenant's
termination of the use of space on the roof and removal of its Communications
Equipment therefrom, Tenant shall have the obligation to repair all damage to
the Building rooftop caused by such removal of the Communications Equipment,
reasonable wear and tear, casualty and repairs which are specifically made the
responsibility of Landlord under this Lease excepted.
29.32 Acquisition of the Real Property. If Landlord fails to purchase the
--------------------------------
Property on or before June 1, 1996, Tenant may cancel this Lease. If Tenant
does not deliver written notice to Landlord canceling this Lease, then beginning
July 1, 1996, Tenant shall be entitled to an abatement of rent equal to two (2)
days for each one (1) day after July 1, 1996 by which Landlord has not purchased
the Real Property.
48
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.
"Landlord":
MAGELLAN PROPERTY CORPORATION,
an Arizona corporation
By:
------------------------------
Its:
------------------------------
By:
------------------------------
Its:
------------------------------
49
<PAGE>
"Tenant":
MATSUSHITA AVIONICS SYSTEMS CORPORATION,
a Delaware corporation
By:
------------------------------
Its:
------------------------------
By:
------------------------------
Its:
------------------------------
50
<PAGE>
EXHIBIT A
---------
OUTLINE OF FLOOR PLAN OF PREMISES
---------------------------------
<TABLE>
<CAPTION>
DRYWALL: PAINT/WALLCOVERING:
-------- -------------------
<S> <C>
Raymond Interiors Shapiro Ben Basat
Sharpe Interiors Randall MacAnanny
Gierahn Drywall Lawrence Bonas
Superior Wall Systems J.C. French
Martin Brothers
<CAPTION>
ELECTRICAL: PLUMBING:
----------- ---------
<S> <C>
Anderson Howard Western Supply
Desco Muir Chase Plumbing
Bergel Maclot Plumbing
Sasco ectric
<CAPTION>
FIRE SPRINKLERS: ROUGH CARPENTRY:
---------------- ----------------
<S> <C>
Indicom Amort
Cosco Cantebury
Grinnell Fire Felman
Sentry Turelk, Inc.
Garvin
<CAPTION>
FLOORING: STRUCTURAL STEEL:
--------- -----------------
<S> <C>
Paul Singer Washington Iron
Floor Mart Riverton Steel
Metro Flooring Schroeder Iron
<CAPTION>
FIRE SAFETY:
------------
Tele Fire
</TABLE>
EXHIBIT A
<PAGE>
EXHIBIT A-1
OUTLINE OF REAL PROPERTY
------------------------
[TO BE ATTACHED]
----------------
<PAGE>
EXHIBIT B
TENANT WORK LETTER
------------------
This Tenant Work Letter shall set forth the terms and conditions relating to the
construction of the Premises. This Tenant Work Letter is essentially organized
chronologically and addresses the issues of the construction of the Premises, in
sequence, as such issues will arise during the actual construction of the
Premises. All references in this Tenant Work Letter to Articles or Sections of
this "Lease" shall mean the relevant portions of Articles 1 through 29 of this
Lease to which this Tenant Work Letter is attached as Exhibit B, and all
---------
references in this Tenant Work Letter to Sections of "this Tenant Work Letter"
shall mean the relevant portions of Sections 1 through 6 of this Tenant Work
Letter. All capitalized terms used in this Tenant Work Letter without
definition shall have the meanings as set forth in the Lease.
SECTION 1
---------
DELIVERY OF THE PREMISES
------------------------
As soon as reasonably possible following the full execution and delivery of this
Lease by Landlord and Tenant, Landlord shall deliver the Premises to Tenant in
the condition required by the provisions of Section 7.2 of the Lease, and Tenant
shall accept the Premises from Landlord in such condition. In addition to the
foregoing, Tenant shall have the right to inspect the Building and the Real
Property with the assistance of mechanical, electrical and structural engineers.
Tenant and its consultants shall have the right to review all reports produced
as a result of the acquisition of the Property by Landlord (i.e., any Phase I
Environmental Reports in the possession of Landlord). Furthermore, Landlord
shall be responsible for all compliance issues (e.g., compliance with the
Americans with Disabilities Act, and compliance with fire, life safety, seismic
and Title 24 issues) relating to the Building and Real Property as of the date
of execution of this Lease. Landlord shall also be responsible for the
replacement of any capital items such as the existing roof membrane, to the
extent necessary as of the date of execution of this Lease in order to cause the
Building to be in "good condition", and Landlord shall re-slurry and repair and
re-stripe the parking lot, replace the light-weight concrete on the second floor
of the Building, provide reasonable landscaping modifications consistent with
the Comparable Buildings, and repair other Building and site deficiencies
existing as of the date of execution of this Lease, all at Landlord's sole cost
and expense. Landlord shall contract with Tenant's selected general contractor
(as described in Section 4 of this Tenant Work Letter) to complete the work
required in this Section 1 in order to mitigate disruption of Tenant's work of
improvement in the Building.
<PAGE>
SECTION
TENANT IMPROVEMENTS
2.1 Tenant Improvement Allowance. Tenant shall be entitled to a tenant
----------------------------
improvement allowance (the "Tenant Improvement Allowance") in the amount equal
to One Million Fourteen Thousand Six Hundred Seventy Two Dollars and No/100
($1,014,672.00) (Sixteen Dollars and No/100 ($16.00) per rentable square foot
contained in the Premises) for the costs relating to the initial design and
construction of Tenant's improvements in the Premises (the "Tenant
Improvements"). Except as otherwise set forth in this Tenant Work Letter or in
this Lease, Landlord shall not be obligated to make disbursements pursuant to
this Tenant Work Letter in a total amount which exceeds the Tenant Improvement
Allowance. Notwithstanding anything to the contrary in this Section 2.1, if
Landlord does not distribute the Tenant Improvement Allowance pursuant to
Section 2.2 and Section 2.3 below, within thirty (30) days following demand by
Tenant in writing, then, subject to Landlord's right to seek equitable relief if
Landlord objects in good faith to Tenant's assertion that Landlord has failed to
make such distribution, Tenant shall have the option of completing the Tenant
Improvements at Tenant's sole cost and expense, and withholding such amounts
including interest thereon, from any rents and/or other charges due under the
Lease.
2.2 Disbursement of the Tenant Improvement Allowance. Except as otherwise
------------------------------------------------
set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be
disbursed by Landlord (each of which disbursement shall be made pursuant to
Landlord's disbursement process as set forth in Section 2.3, below) only for the
following items and costs (collectively the "Tenant Improvement Allowance
Items"):
2.2.1 Payment of the fees of (i) the "Architect" and the "Engineers,"
as those terms are defined in Section 3.1 of this Tenant Work Letter, and (ii)
any consultant engaged by Tenant in connection with Tenant's, design and/or
construction of the Premises or Tenant Improvements;
2.2.2 The payment of plan check, permit and license fees relating to
construction of the Tenant Improvements;
2.2.3 The cost of construction of the Tenant Improvements;
EXHIBIT B
Page 2
<PAGE>
2.2.4 The cost of any changes in the Building when such changes are
required by the "Construction Drawings," as defined in Section 3.1, below, such
cost to include all direct architectural and/or engineering fees and expenses
incurred in connection therewith;
2.2.5 Sales and use taxes and Title 24 fees in connection with the
construction of the Tenant Improvements; and
2.2.6 The cost of furniture, fixtures, freestanding work stations,
built-ins, related cabinets, reception desks, telecommunications and other
equipment and related wiring, audiovisual equipment, security systems and all
carpets and floor coverings covered by the Final Working Drawings or ordered
directly by Tenant for the Premises and the costs of Tenant's moving into and
relocation to the Premises with respect to which Tenant seeks reimbursement
hereunder, provided that the foregoing amounts do not exceed $126,834.
2.3.8 All costs and expenses incurred by Tenant in connection with
the design, construction, permitting and installation of the Monument Sign; andy
2.3.9 Any other cost, expense or amount incurred or expended by
Tenant which is payable by Tenant pursuant to the provisions of this Tenant Work
Letter with respect to which Tenant seeks payment or reimbursement hereunder.
2.3 Disbursement of Tenant Improvement Allowance. Prior to, during and
--------------------------------------------
following the design and construction of the Tenant Improvements, as the case
may be, Landlord shall make monthly disbursements of the Tenant Improvement
Allowance for Tenant Improvement Allowance Items as follows.
2.3.1 Monthly Disbursements.
2.3.1.1 Request for Payment. On or before the 25th day (the
-------------------
"Submittal Date") of each calendar month commencing with the first calendar
month following the execution of the Lease, the Contractor, shall deliver to
Landlord and Tenant, or Tenant shall deliver to Landlord, as applicable: (i) in
the case of Contractor only, a request for payment, on the standard AIA (G702)
form showing, by trade, the percentage of completion of the Tenant Improvements
in the Premises (as reasonably extrapolated by Contractor through the end of the
applicable month), detailing the portion of the work completed, and reasonably
demonstrating that the relationship between the cost of the work completed and
the cost of the work to be completed,
EXHIBIT B
Page 3
<PAGE>
including invoices from all "Subcontractors," as that term is defined in Section
4.2, below, (ii) invoices from all of Tenant's agents, contractors, materialmen,
laborers and suppliers which are directly retained by Tenant (collectively
"Tenant's Agents"), for labor rendered and materials delivered to the Premises
for the applicable payment period; (iii) executed conditional mechanic's lien
releases from all of the Subcontractors and Tenant's Agents, as applicable,
which shall comply with the appropriate provisions of California Civil Code
Section 3262(d); provided, however, that with respect to fees and expenses of
the Architect or Engineers, or Tenant's Agent's which are equipment suppliers,
movers or consultants, for which the payment scheme set forth in items (ii) and
(iii), above, is not applicable (collectively, the "Non-Construction Allowance
Items"), Tenant shall only be required to deliver to Landlord on or before the
applicable Submittal Date, reasonable evidence of incurring the cost for the
applicable Non-Construction Allowance Items (unless Landlord has received a
preliminary notice in connection with such costs in which event conditional lien
releases must be submitted in connection with such costs); and (iv) all other
customary information reasonably requested in good faith by Landlord. Submittal
of the Contractor's request for payment shall be deemed to constitute Tenant's
authorization for Landlord to disburse the amounts requested to Contractor set
forth in the request for payment and to deduct those portions thereof to be
borne by Tenant under this Tenant Work Letter from the Tenant Improvement
Allowance. Tenant's request for payment of invoices from Tenant's Agents shall
be deemed Tenant's acceptance and approval of the work furnished and/or the
materials supplied as set forth in Tenant's payment request vis-a-vis Landlord
(but not vis-a-vis Tenant's Agents).
2.3.1.2 Payment. On or before the date which is thirty (30)
-------
days after Landlord's receipt of the payment requests set forth above (the
"Payment Date"), and assuming Landlord receives the applicable information
described in items (i) through (iv), above, and unconditional lien releases, as
applicable, for all work paid for from the Tenant Improvement Allowance as of
the previous Payment Date, Landlord shall deliver a check to Contractor in
payment of the lesser of: (A) the amounts so requested, as set forth in Section
2.3.1.1, above, less a ten percent (10%) retention (the aggregate amount of such
retentions to be known as the "Final Retention"), and (B) the balance of any
remaining available portion of the Tenant Improvement Allowance (not including
the Final Retention), provided that Landlord does not dispute any request for
payment based on material non-compliance of any work with the "Approved Working
Drawings", as that term is defined in Section 3.3, below, or due to any
materially substandard work as identified in good faith by Landlord.
2.3.2 Final Retention. Subject to the provisions of this Tenant Work
---------------
Letter, checks for the Final Retention payable to Contractor shall be delivered
by Landlord to Contractor following the completion of construction of the
Premises, provided that (i) Contractor delivers to Landlord
EXHIBIT B
Page 4
<PAGE>
properly executed mechanics lien releases in compliance with both California
Civil Code Section 3262(d)(2) and either Section 3262(d)(3) or Section
3262(d)(4), and (ii) Landlord has reasonably determined that no materially
substandard work exists which materially and adversely affects the mechanical,
electrical, plumbing, heating, ventilating and air conditioning, life-safety or
other systems of the Building, the curtain wall of the Building, or the
structure or exterior appearance of the Building.
2.3.3 Failure to Disburse Tenant Improvement Allowance. In the event
------------------------------------------------
that Landlord fails to fulfill its obligation to disburse the Tenant Improvement
Allowance in accordance with the terms of this Section 2.3, above, following
thirty (30) days notice from Tenant and Landlord's failure to cure such failure
within such period, Tenant shall have the right, which right shall be in
addition to any rights or remedies available to Tenant under this Tenant Work
Letter or at law or in equity, to pay any such amount due and offset any such
amount paid by Tenant, together with interest at the Interest rate, against
Tenant's obligation for Rent next coming due under this Lease.
2.4 Unused Tenant Improvement Allowance. Any portion of the Tenant
-----------------------------------
Improvement Allowance which is not disbursed by Landlord pursuant to the terms
of Section 2.3, above, for Tenant Improvement Allowance Items within three (3)
months following the Lease Commencement Date shall, thereafter be credited
against Base Rent becoming due for the 9th and 10th months of the Lease Term.
EXHIBIT B
Page 5
<PAGE>
SECTION 3
CONSTRUCTION DRAWINGS
---------------------
3.1 Selection of Architect/Construction Drawings. Tenant shall retain
--------------------------------------------
________________________ ("_______") or any other reputable architect/space
planner selected by Tenant (the "Architect") and reasonably approved by
Landlord, which approval shall not be unreasonably withheld, conditioned or
delayed by Landlord, to prepare the Construction Drawings. Tenant shall retain
an engineering consultant (the "Engineers") approved by Landlord, which approval
shall not be unreasonably withheld, conditioned or delayed by Landlord, to
prepare all plans and engineering working drawings relating to the mechanical,
electrical, plumbing, HVAC, lifesafety, sprinkler and structural work in the
Premises. Landlord hereby approves _______________________________ as the
Engineers. The plans and drawings to be prepared by Architect and the Engineers
hereunder with respect to the Tenant Improvements shall be known collectively as
the "Construction Drawings." Tenant and Architect shall verify, in the field,
the dimensions and conditions as shown on the relevant portions of the Base
Building Plans, and Tenant and Architect shall be solely responsible for the
same, and Landlord shall have no responsibility in connection therewith.
3.2 Review Liability. Landlord's review of the Construction Drawings as
----------------
set forth in this Section 3, shall be for its sole purpose and shall not imply
Landlord's review of the same, or obligate Landlord to review the same, for
quality, design, compliance with Applicable Law or other like matters.
Accordingly, notwithstanding that any Construction Drawings are reviewed by
Landlord or its space planner, architect, engineers and consultants, and
notwithstanding any advice or assistance which may be rendered to Tenant by
Landlord or Landlord's space planner, architect, engineers, and consultants,
Landlord shall have no liability whatsoever in connection therewith, except to
the extent that Landlord has specifically requested modification to the
Construction Drawings as a condition of Landlord's approval of the same, and
shall not be responsible for any omissions or errors contained in the
Construction Drawings.
3.3 Final Working Drawings. Architect and the Engineers shall prepare or
----------------------
reasonably complete set of architectural and engineering drawings for the Tenant
Improvements to be constructed in the Premises, and Architect shall compile a
reasonably complete coordinated set of architectural, structural, mechanical,
electrical and plumbing working drawings in a form which is sufficiently
complete to allow subcontractors to bid on the work and to obtain all applicable
permits
EXHIBIT B
Page 6
<PAGE>
(collectively, the "Final Working Drawings") and shall submit the same to
Landlord for Landlord's approval. The Final Working Drawings may be submitted in
one or more stages at one or more times,provided that Tenant shall ultimately
supply Landlord with four (4) completed copies signed by Tenant of such Final
Working Drawings. Within ten (10) business days following Landlord's receipt of
the Final Working Drawings, Landlord shall either approve or disapprove the
Final Working Drawings, provided that Landlord may only disapprove or condition
its approval of the same for (i) an adverse affect on the structural integrity
of the Building; (ii) non-compliance with Applicable Laws; (iii) an adverse
affect on the Systems and Equipment; (iv) an adverse affect on the exterior
appearance of the Building; (individually or collectively, a "Design Problem").
If Landlord disapproves the Final Working Drawings, Landlord shall specify in
reasonable detail the corrections required to rectify the Design Problem or
Design Problems, as the case may be, and Tenant shall make the changes necessary
in order to correct the Design Problem or Design Problems and deliver the
revised Final Working Drawings to Landlord. Landlord shall either approve or
disapprove the revised Final Working Drawings. If Landlord again disapproves the
revised Final Working Drawings, Tenant shall make the changes necessary in order
to correct the Design Problem or Design Problems and deliver the revised Final
Working Drawings to Landlord.
3.4 Approved Working Drawings. The Final Working Drawings shall be
-------------------------
approved by Landlord (the "Approved Working Drawings") prior to the commencement
of the construction of the Tenant Improvements. Tenant shall submit the
Approved Working Drawings to the appropriate municipal authorities for all
applicable building permits necessary to allow Contractor to commence the
construction of the Tenant Improvements (the "Permits"), ; provided, however,
that in the event that portions of the Tenant Improvements may be lawfully
commenced prior to issuance of permits therefor, to the extent it is lawful to
do so, Tenant may cause performance of such work to be commenced. Tenant hereby
agrees that with respect to Tenant's Work neither Landlord nor Landlord's
consultants shall be responsible for obtaining any building permit or
certificate of occupancy for the Premises and that the obtaining of the same
shall be Tenant's responsibility; provided, however, that Landlord shall, in any
event, cooperate with Tenant in executing permit applications and performing
other ministerial acts reasonably necessary to enable Tenant to obtain any such
permit or certificate of occupancy and Landlord shall be responsible for these
items with respect to Landlord's work.
3.5 Change Orders. In the event that Tenant requests any material changes
-------------
to the Approved Working Drawings ("Changes"), Landlord shall not unreasonably
withhold or condition its consent to any such Changes, and shall grant its
consent to such Changes within three (3) business days after Landlord's receipt
of Tenant's request for the same, provided the proposed Change does not create a
Design Problem.
EXHIBIT B
Page 7
<PAGE>
3.6 Suspension of Tenant Improvements. In the event that, at any time and
---------------------------------
from time to time and for any reason, Tenant elects not to proceed with or to
suspend (a) the design or construction of the Tenant Improvements, or (b) its
move into the Premises, then, such election shall not excuse any performance of
Landlord under the Lease or this Tenant Work Letter, and shall not result in an
Event of Default (as defined in Section 19.1 of the Lease).
EXHIBIT B
Page 8
<PAGE>
SECTION 4
CONSTRUCTION OF THE
--------------------
TENANT IMPROVEMENTS
-------------------
4.1 Selection of Contractor. The contractors to perform the construction
-----------------------
of the Tenant Improvements (the "Contractors") shall be selected by Tenant from
the three (3) general contractors listed in Schedule 1 attached hereto (the
"Bidding Contractors"), each of whom is hereby approved by Landlord and Tenant.
4.2 Subcontractors. Each line item and trade to be performed under the
--------------
general construction contract shall be performed by subcontractors (the
"Subcontractors") listed in Schedule 1 to this Exhibit B or otherwise approved
by Landlord, which approval shall not be unreasonably withheld, conditioned or
delayed.
4.3 Construction Contract.
---------------------
4.3.1 Required Construction Contract Provisions. Following the
-----------------------------------------
selection of the Contractor, Tenant shall independently retain Contractor to
construct the Tenant Improvements in accordance with the Approved Working
Drawings.
4.3.2 Construction Contract Guarantees and Warranties. Contractor
-----------------------------------------------
and each Subcontractor shall guarantee and warrant for the benefit of Landlord
and Tenant that (i) the portion of the Tenant Improvements for which it is
responsible shall be free from any defects in workmanship and materials for a
period of not less than one (1) year (unless a longer period is expressly
required in the Approved Working Drawings) from the date of Substantial
Completion of the Tenant Improvements (the "Warranty Period") and (ii) such
Contractor and
EXHIBIT B
Page 9
<PAGE>
Subcontractors shall be responsible for the replacement or repair, without
additional charge, of all work done or furnished in accordance with its contract
within such Warranty Period. All such guarantees and warranties shall be
expressly set forth in the general construction contract. The correction of any
such work shall include, without additional charge, all additional expenses and
damages in connection with such removal or replacement of all or any part of the
Tenant Improvements.
4.3.3 No Chargebacks. To the extent that Landlord has performed, or
--------------
will perform, any extra or other work in or for the benefit of the Premises
which is not specifically called for by the Approved Working Drawings, except in
the case where such work is not required hereunder to be performed by Landlord
and Tenant requests Landlord to perform such work, such work shall not be
charged to Tenant or deducted from the Tenant Improvement Allowance. Unless
otherwise approved in writing by Tenant, neither Tenant nor Contractor shall be
required to use any materials or supplies prestocked or otherwise furnished or
specified by Landlord.
4.3.4 Presence of Hazardous Materials. In the event that (i) at
-------------------------------
any point during the period ("Construction Period") commencing with the date of
this Lease and ending with completion of the Tenant Improvements, the Premises
or any portion thereof are determined to contain Hazardous Materials which were
not put there after the date of this Lease, and which require remediation under
applicable laws, (ii) Landlord shall fail to remediate the same with reasonable
promptness and diligence pursuant to (and in accordance with the requirements
of) of the Lease, and (iii) such failure shall continue for ten (10) days
following written notice of such failure from Tenant, Tenant shall have the
right to remove, encapsulate, contain, or otherwise dispose of such Hazardous
Materials, and the cost incurred by Tenant in connection therewith shall be
reimbursed by Landlord to Tenant within five (5) days after receipt by Landlord
from Tenant of an invoice documenting and evidencing such costs. In addition, in
the event that the discovery, presence, investigation and/or remediation of such
Hazardous Materials delays the design or construction of the Tenant
Improvements, or increases in any way the costs to be borne by Tenant hereunder,
such delay shall constitute a Landlord Caused Delay and such costs (if and to
the extent paid or borne by Tenant instead of Landlord) shall be reimbursable to
Tenant by Landlord within fifteen (15) days of Tenant's delivery to Landlord of
reasonable evidence of such increased costs. The amount of such reimbursements
shall be separate and apart from, and in addition to, the Tenant Improvement
Allowance and shall not be deducted from the Tenant Improvement Allowance.
EXHIBIT B
Page 10
<PAGE>
4.3.5 Bonding. Except for Contractor's obligation to remove or bond
-------
over liens under the general construction contract at no cost to either Landlord
or Tenant, notwithstanding any provision to the contrary set forth in this
Tenant Work Letter or in the Lease, neither Contractor nor Tenant shall be
required to obtain or provide any completion, performance or other bond in
connection with the Tenant Improvements.
4.4 Tenant's Covenants.
------------------
4.4.1 Tenant's Agents.
4.4.1.1 Landlord's General Conditions for Tenant's Agents
--------------------------------------------------
and Tenant Improvement Work. The Tenant Improvements shall be constructed in
- ---------------------------
strict accordance with the Approved Working Drawings; provided however that
Tenant may make changes to the Approved Working Drawings which changes would not
represent reasonable grounds for Landlord to disapprove of the Final Space Plan.
EXHIBIT B
Page 11
<PAGE>
4.4.1.2 Indemnity. Tenant's indemnity of Landlord as set forth in
---------
Section 10.1 of this Lease shall also apply with respect to any and all costs,
losses, damages, injuries and liabilities related in any way to any act or
omission of Tenant or Tenant's Agents, or anyone directly or indirectly employed
by any of them, or in connection with Tenant's non-payment of any amount arising
out of the Tenant Improvements and/or Tenant's disapproval of all or any portion
of any request for payment.
4.4.1.3 Requirements of Tenant's Agents. Each of Tenant's Agents
-------------------------------
shall guarantee to Tenant and for the benefit of Landlord that the portion of
the Tenant Improvements for which it is responsible shall be free from any
defects in workmanship and materials for a period of not less than one (1) year
from the date of completion thereof. Each of Tenant's Agents shall be
responsible for the replacement or repair, without additional charge, of all
work done or furnished in accordance with its contract that shall become
defective within one (1) year after the later to occur of (i) completion of the
work performed by such contractor or subcontractors and (ii) the Lease
Commencement Date. The correction of such work shall include, without
additional charge, all additional expenses and damages incurred in connection
with such removal or replacement of all or any part of the Tenant Improvements,
and/or the Building and/or the Real Property that may be damaged or disturbed
thereby. All such warranties or guarantees as to materials or workmanship of or
with respect to the Tenant Improvements shall be contained in the Contract or
subcontract and shall be written such that such guarantees or warranties shall
inure to the benefit of both Landlord and Tenant, as their respective interests
may appear, and can be directly enforced by either. Tenant covenants to give to
Landlord any assignment or other assurances which may be necessary to effect
such right of direct enforcement.
4.4.1.4 Insurance Requirements.
4.4.1.4.1 General Coverages. All of Tenant's Agents
-----------------
shall carry worker's compensation insurance covering all of their respective
employees, and shall also carry commercial general liability, including property
damage, all with limits, in form and with companies as are required to be
carried by Tenant as set forth in Article 10 of this Lease, and the policies
therefor shall insure Landlord, Tenant, Contractor and subcontractors, all as
additional insureds.
EXHIBIT B
Page 12
<PAGE>
4.4.1.4.2 Special Coverages. Tenant shall carry
-----------------
"Builder's All Risk" insurance covering the construction of the Tenant
Improvements and such other insurance as Landlord may require, it being
understood and agreed that the Tenant Improvements shall be insured by Tenant
pursuant to Article 10 of this Lease immediately upon completion thereof.
4.4.1.4.3 General Terms. Certificates for all insurance
-------------
carried pursuant to this Section 4.4.1.4.3 shall be delivered to Landlord before
the commencement of construction of the Tenant Improvements and before the
Contractor's equipment is moved onto the site. All such policies of insurance
must contain a provision that the company writing said policy will give Landlord
thirty (30) days prior written notice of any cancellation or lapse of the
effective date or any reduction in the amounts of such insurance. In the event
that the Tenant Improvements are damaged by any cause during the course of the
construction thereof, Tenant shall immediately repair the same at Tenant's sole
cost and expense. Tenant's Agents shall maintain all of the foregoing insurance
coverage in force until the Tenant Improvements are fully completed, except for
any Products and Completed Operation Coverage insurance required by Landlord,
which is to be maintained for ten (10) years following completion of the work
and acceptance by Landlord and Tenant. All insurance, except Workers'
Compensation, maintained by Tenant's Agents shall preclude subrogation claims by
the insurer against anyone insured thereunder. Such insurance shall provide that
it is primary insurance as respects the owner and that any other insurance
maintained by owner is excess and noncontributing with the insurance required
hereunder. The requirements for the foregoing insurance shall not derogate from
the provisions for indemnification under Section 4.4.1.2 of this Tenant Work
Letter.
4.4.2 Governmental Compliance. The Tenant Improvements shall comply
-----------------------
in all respects with the following: (i) the Code and other state, federal, city
or quasi-governmental laws, codes, ordinances and regulations, as each may apply
according to the rulings of the controlling public official, agent or other
person; (ii) applicable standards of the American Insurance Association
(formerly, the National Board of Fire Underwriters) and the National Electrical
Code; and (iii) building material manufacturer's specifications.
4.4.3 Inspection by Landlord. Landlord shall have the right to
----------------------
inspect the Tenant Improvements at all times, provided however, that Landlord's
failure to inspect the Tenant Improvements shall in no event constitute a waiver
of any of Landlord's rights hereunder nor shall Landlord's inspection of the
Tenant Improvements constitute Landlord's approval of the same. Should Landlord
disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant
in writing of such disapproval and shall specify the items disapproved; provided
however that Landlord shall not disapprove of any portion of the Tenant
Improvements which
EXHIBIT B
Page 13
<PAGE>
have been constructed in accordance with the Approved Working Drawings. Any
defects or deviations in, and/or disapproval by Landlord of, the Tenant
Improvements shall be rectified by Tenant at no expense to Landlord, provided
however, that in the event Landlord determines that a defect or deviation exists
or disapproves of any matter in connection with any portion of the Tenant
Improvements and such defect, deviation or matter might adversely affect the
mechanical, electrical, plumbing, heating, ventilating and air conditioning or
life-safety systems of the Building, the structure or exterior appearance of the
Building or any other tenant's use of such other tenant's leased premises,
Landlord may, take such action as Landlord deems necessary, at Tenant's expense
and without incurring any liability on Landlord's part, to correct any such
defect, deviation and/or matter, including, without limitation, causing the
cessation of performance of the construction of the Tenant Improvements until
such time as the defect, deviation and/or matter is corrected to Landlord's
satisfaction.
4.5 Notice of Completion; Copy of Plans. Within ten (10) days after the
-----------------------------------
issuance of the permanent or temporary certificate of occupancy for the Tenant
Improvements, Tenant shall cause a Notice of Completion to be recorded in the
office of the Recorder of the County of Los Angeles in accordance with Section
3093 of the Civil Code of the State of California or any successor statute, and
shall furnish a copy thereof to Landlord upon such recordation; provided however
that if Tenant fails to do so, Tenant shall not be in breach hereunder, but
Tenant shall protect, defend, indemnify and hold Landlord harmless from any
loss, cost, damage, claim or expense incurred by Landlord in connection with
Tenant's failure to record the Notice of Completion. At the conclusion of
construction, (i) Tenant shall cause the Architect and Contractor (A) to update
the Approved Working Drawings as necessary to reflect all changes made to the
Approved Working Drawings during the course of construction, (B) to certify to
the best of their knowledge that the "field grade" of drawings are true and
correct, which certification shall survive the expiration or termination of this
Lease, and (C) to deliver to Landlord two (2) sets of such as-built drawings
within ninety (90) days following issuance of a certificate of occupancy for the
Premises, and (ii) Tenant shall deliver to Landlord a copy of all warranties,
guaranties, and operating manuals and information relating to the improvements,
equipment, and systems in the Premises.
SECTION 5
DELAY OF LEASE COMMENCEMENT DATE
--------------------------------
EXHIBIT B
Page 14
<PAGE>
5.1 Lease Commencement Date Delays. The Lease Commencement Date shall
------------------------------
occur as provided in Article 2 of this Lease, provided that the Lease
Commencement Date shall be delayed by the number of days of delay of the
"substantial completion of the Tenant Improvements," as that term is defined
below in this Section 5, in the Premises which is caused solely by a "Lease
Commencement Date Delay." As used herein, the term "Lease Commencement Date
Delay" shall mean only a "Force Majeure Delay" or a "Landlord Caused Delay," as
those terms are defined below in this Section 5.1. As used herein, the term
"Force Majeure Delay" shall mean only an actual delay resulting from fire,
earthquake, explosion, flood, hurricane, the elements, acts of God or the public
enemy, war, invasion, insurrection, rebellion, riots, industry-wide labor
strikes or lockouts (which objectively preclude Tenant from obtaining from any
reasonable source of union labor or substitute materials at a reasonable cost
necessary for completing the Tenant Improvements), or governmental acts (which
do not specifically relate to the construction of the Tenant Improvements and
which objectively preclude construction of tenant improvements by any person).
Notwithstanding anything to the contrary contained herein, a Force Majeure Delay
shall not include any of the foregoing delays to the extent caused by the
negligence or wilful misconduct of Tenant, its contractors or agents. As used in
this Tenant Work Letter, "Landlord Caused Delay" shall mean only an actual delay
resulting from the acts or omissions of Landlord including, but not limited to,
(i) failure of Landlord to timely approve or disapprove any Construction
Drawings; (ii) unreasonable and material interference by Landlord, its agents or
contractors with the completion of the Tenant Improvements and which objectively
preclude construction of tenant improvements in the Building by any person,
which interference relates to access by Tenant, its agents and contractors to
the Building during normal construction hours, or the use thereof during normal
construction hours; and (iii) delays due to the acts or failures to act of
Landlord, its agents or contractors with respect to payment of the Tenant
Improvement Allowance and/or any cessation of work upon the Tenant Improvements
as a result thereof.
5.2 Determination of Lease Commencement Date Delay. If Tenant contends
----------------------------------------------
that a Lease Commencement Date Delay has occurred, Tenant shall notify Landlord
in writing within two (2) business days of each of (i) the date upon which such
Lease Commencement Date Delay becomes known to Tenant, Architect, or Contractor
and (ii) the date upon which such Lease Commencement Date Delay ends (the
"Termination Date"). Tenant's failure to deliver either or both of such notices
to Landlord within the required time period shall be deemed to be a waiver by
Tenant of the contended Lease Commencement Date Delay to which such notices
would have related. If such actions, inaction or circumstances described in the
notice set forth in clause (i), above (the "Delay Notice") are not cured by
Landlord within two (2) business day of receipt of the Delay Notice and if such
actions, inaction or circumstances otherwise qualify as a Lease Commencement
Date Delay, then a Lease Commencement Date Delay shall be deemed to have
occurred commencing as of the date of Landlord's receipt of the Delay Notice and
ending as of the Termination Date.
EXHIBIT B
Page 15
<PAGE>
SECTION 6
MISCELLANEOUS
-------------
6.1 Tenant's Representative. Tenant has designated ___________________ as
-----------------------
its sole representative with respect to the matters set forth in this Tenant
Work Letter, who shall have full authority and responsibility to act on behalf
of the Tenant as required in this Tenant Work Letter. Tenant shall have the
right to designate a replacement and/or alternate representative by delivery of
written notice thereof to Landlord.
EXHIBIT B
Page 16
<PAGE>
6.2 Landlord's Representative. Landlord has designated James Dawson as
-------------------------
its sole representative with respect to the matters set forth in this Tenant
Work Letter, who, until further notice to Tenant, shall have full authority and
responsibility to act on behalf of the Landlord as required in this Tenant Work
Letter.
6.3 Time of the Essence in This Tenant Work Letter. Unless otherwise
----------------------------------------------
indicated, all references herein to a "number of days" shall mean and refer to
calendar days.
6.4 Miscellaneous Charges. Tenant shall be charged for the use of
---------------------
electricity and water during the completion of the Tenant Improvements.
EXHIBIT B
Page 17
<PAGE>
SCHEDULE 1 TO EXHIBIT B
APPROVED TENANT AGENTS
----------------------
<TABLE>
<S> <C>
_______________________________________________________
GENERAL CONTRACTORS
- ------------------------------
Howard Building Corporation
Turelk, Inc.
_______________________________________________________
ACOUSTICAL: GLASS/GLAZING:
- ------------------------------ ----------------------
Diamond National Glass
Raymond Interiors GoldCoast Glass
Elljay Acoustical Roundtree
Martin Integrated Jewel
Imperial Tenant
_______________________________________________________
DEMOLITION: HVAC:
- ------------------------------ ----------------------
ACCO
American Demo Air Mechanical
Packard Control Air
Turelk, Inc. Air Tec
G. D. Heil
J & G Industries
_______________________________________________________
DOORS/FRAMES/HARDWARE: MILLWORK:
- ------------------------------ ----------------------
Eppink of California
Architectural Doors A.M. Cabinets
Cabo Door Seeley Brothers
Seeley Brothers F.K. Anderson
Turi
_______________________________________________________
FIRE SPRINKLERS: ROUGH CARPENTRY:
- ------------------------------ ----------------------
Amort
Indicom Cantebury
Cosco Felman
Grinnell Fire Turelk, Inc.
Sentry
Garvin
_______________________________________________________
</TABLE>
EXHIBIT B
Page 1
<PAGE>
EXHIBIT C
NOTICE OF LEASE TERM DATES
- --------------------------
To: __________________________
__________________________
__________________________
__________________________
Re: Office Lease dated ________________________, 19__, between Magellan
Property Corporation, an Arizona corporation ("Landlord"), and
Matsushita Avionics Systems Corporation, a Delaware corporation
("Tenant") concerning the Office Building located at 15253 Bake
Parkway Building, Irvine, California.
Gentlemen:
In accordance with the Office Lease (the "Lease"), we wish to advise you
and/or confirm as follows:
1. The Lease Term commence as of ________________ for a term of
_______________ending on _______________.
2. That in accordance with the Lease, Rent commenced to accrue on
_______________________.
"Landlord":
MAGELLAN PROPERTY CORPORATION,
an Arizona corporation
By:
---------------------------
Its:
--------------------------
EXHIBIT C
Page 1
<PAGE>
greed to and Accepted as
of _____________, 19__.
Tenant":
MATSUSHITA AVIONICS SYSTEMS CORPORATION,
a Delaware corporation
By:
-------------------------------
Its:
----------------------------
EXHIBIT C
Page 2
<PAGE>
EXHIBIT D
FORM OF LEASE TERMINATION AGREEMENT
-----------------------------------
THIS AGREEMENT, made as of ________________, 1996, by and between Magellan
Property Corporation, an Arizona corporation ("Landlord"), and Matsushita
Avionics Systems Corporation, a Delaware corporation, ("Tenant"), collectively,
the "Parties," and individually, a "Party."
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Landlord has entered into an agreement with the landlord under
those certain leases dated __________, 19__ ("Lease A"), __________, 19__
("Lease B") and _________, 19__ ("Lease C") by and between Laguna Canyon,
Corporation, a California corporation ("LCC") as Landlord and Tenant relating to
properties located at, respectively, 16255, 26267 and 16269 Laguna Canyon Road,
Irvine, California (the "Existing Leases"); and; and
WHEREAS, Landlord and Tenant have entered into a new lease of premises in
Irvine, California , commonly known as 15253 Bake Parkway, Irvine, California
92718 (the "New Lease"); and (the "New Lease"); and
WHEREAS, Tenant has vacated and surrendered possession to LCC, and Landlord
has delivered possession of the Premises described in the New Lease to Tenant
for the purposes described therein; and'
WHEREAS, Landlord and Tenant desire to terminate the Existing Leases upon
the terms hereinafter stated, and LCC desires to evidence its approval with such
termination by its counter signature of this Lease Termination Agreement below;
NOW, THEREFORE, in consideration of the foregoing and the provisions
hereinafter stated, and for other valuable consideration, IT IS AGREED as
follows:
1. The Existing Leases shall be and hereby are terminated as of the date
first above written.
2. Fixed minimum rent, Tenant's share of real property taxes and
assessments and costs of maintaining and operating the real property and any
other items of additional rent or other charges payable under the Existing
Leases shall be prorated as of the date of this
EXHIBIT D
Page 1
<PAGE>
Agreement and an appropriate adjustment shall be made between LCC and Tenant
hereunder respecting payment of such items within sixty (60) days following the
date of this Agreement
3. Subject to the provisions of the New Lease, Tenant and LCC are hereby
released and relieved of all further obligations or liability to the other
arising under the Existing Leases from and after the date of this Agreement.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement as of
the date first above written.
MAGELLAN PROPERTY CORPORATION,
an Arizona corporation
By: _______________________________
Its: ________________________
By: _______________________________
Its: _________________________
MATSUSHITA AVIONICS SYSTEMS
CORPORATION,
a Delaware corporation
By: _______________________________
Its: ________________________
EXHIBIT D
Page 2
<PAGE>
By: _______________________________
Its: ________________________
The foregoing is hereby agreed to and accepted this ___ day of __________,
1996.
LAGUNA CANYON CORPORATION,
a California corporation
By: _______________________________
Its:___________________________
By: _______________________________
Its:___________________________
EXHIBIT D
Page 3
<PAGE>
EXHIBIT E
FORM OF TENANT'S ESTOPPEL CERTIFICATE
-------------------------------------
The undersigned as Tenant under that certain Office Lease (the "Lease")
made and entered into as of April __, 1996 and between Magellan Property
Corporation, an Arizona corporation, as Landlord, and the undersigned as Tenant,
for Premises being the entire Office Building located at _______________________
certifies as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease
---------
and all amendments and modifications thereto. The documents contained in
Exhibit A represent the entire agreement between the parties as to the Premises.
- ---------
2. The undersigned has commenced occupancy of the Premises described in
the Lease, currently occupies the Premises, and the Lease Term commenced on
_________.
3. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.
---------
4. Tenant has not transferred, assigned, or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto except as follows:
5. Base Rent became payable on _______________.
6. The Lease Term expires on _________________.
7. To the actual knowledge of Tenant, without investigation or inquiry
and except as specified herein, all conditions of the Lease to be performed by
Landlord necessary to the enforceability of the Lease have been satisfied and
Landlord is not in default thereunder.
8. No rental has been paid more than thirty (30) days in advance and no
security has been deposited with Landlord except as provided in the Lease.
9. To the actual knowledge of Tenant, without investigation or inquiry
and except as specified herein, as of the date hereof, there are no existing
defenses or offsets that the undersigned has, which preclude enforcement of the
Lease by Landlord.
10. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through _________________. The current monthly installment of Base Rent is
$__________.
EXHIBIT E
Page 1
<PAGE>
11. The undersigned acknowledges that this Estoppel certificate may be
delivered to Landlord's prospective mortgagee, or a prospective purchaser, and
acknowledges that it recognizes that if same is done, said mortgagee,
prospective mortgagee, or prospective purchaser will be relying upon the
statements contained herein in making the loan or acquiring the property of
which the Premises are a part, and in accepting an assignment of the Lease as
collateral security, and that receipt by it of this certificate is a condition
of making of the loan or acquisition of such property.
Executed at ______________ on the _____ day of ______________, 19___.
"Tenant":
Matsushita Avionics Systems Corporation,
a Delaware corporation
By: __________________________________
Its: __________________________
By: __________________________________
Its: __________________________
EXHIBIT E
Page 2
<PAGE>
EXHIBIT F
BUILDING SIGNAGE
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[TO BE SUBMITTED]
EXHIBIT F
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EXHIBIT G
GUARANTY OF LEASE
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THIS GUARANTY OF LEASE ("Guaranty") is executed as of ___________, 1994, by
MATSUSHITA ELECTRIC CORPORATION OF AMERICA, a Delaware corporation
("Guarantor"), whose address is 1 Panasonic Way, Secaucus, New Jersey 07094 for
the benefit of Laguna Canyon, Inc., a California corporation ("Landlord"), whose
address is 16261 Laguna Canyon Road, Suite 100, Irvine, California 92718, with
reference to the following facts:
A. Landlord and Matsushita Avionics Development Corporation, a Delaware
corporation ("Tenant") intend to enter into that certain Standard Form Lease
(Office) and Addendum thereto dated as of July __, 1994 (the "Lease") pursuant
to which Tenant shall lease from Landlord the real property commonly known as
16267 Laguna Canyon Road, Irvine, California;
B. As a condition to Landlord's execution of the Lease, Landlord requires
that the undersigned guaranty the full and timely performance of the obligations
of Tenant under said Lease; and
C. The undersigned desires that Landlord enter into the Lease with
Tenant. Capitalized terms not expressly defined herein shall have the
definitions set forth in the Lease.
NOW, THEREFORE, in consideration of the execution of the Lease by Landlord,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Guarantor unconditionally guaranties, without deduction by reason of
setoff, defense or counterclaim, to Landlord and its successors and assigns the
full and punctual payment, and the performance and observance by Tenant, of all
sums, terms, covenants and conditions in the Lease to be paid, kept, performed
or observed by Tenant.
EXHIBIT G
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2. If Tenant shall at any time default in the performance or observance
of any of the terms, covenants or conditions of the Lease to be kept, performed
or observed by Tenant, Guarantor will keep, perform and observe same, as the
case may be, in the place and stead of Tenant. Guarantor has the right to cure
any default of Tenant, provided such cure is performed in accordance with the
terms and within the time periods set forth in the Lease. Notice of default
shall be given to Guarantor, it being specifically agreed and understood that
the guarantee of the undersigned is a continuing guarantee under which Landlord
may proceed immediately against Tenant or Guarantor following any breach or
default by Tenant or for the enforcement of any rights which Landlord may have
as against Tenant pursuant to or under the terms of the Lease or at law or in
equity. 3. Any act or omission of Landlord, or of its successors or assigns,
constituting a waiver of any of the terms or conditions of the Lease (including,
without limitation, concerning any consent required under the Lease); or the
granting of any indulgences or extensions of time to Tenant, may be done without
notice to Guarantor and without releasing Guarantor from any of its obligations
hereunder.
4. The obligations of Guarantor hereunder shall not be released by Landlord's
receipt, application or release of any security given for the performance and
observance of any covenant or condition of the Lease to be performed or observed
by Tenant, nor by any modification of the Lease, regardless of whether Guarantor
consents thereto or receives notice thereof.
5. The liability of Guarantor hereunder shall in no way be affected by (a) the
release or discharge of Tenant in any creditor's receivership, bankruptcy or
other proceeding; (b) the impairment, limitation or modification of the
liability of Tenant or the estate of Tenant in bankruptcy, or of any remedy for
the enforcement of Tenant's liability under the Lease resulting from the
operation of any present or future provision of any federal or state bankruptcy
or insolvency law or other statute or from the decision of any court; (c) the
rejection or disaffirmance of the Lease in any such proceedings; (d) the
assignment or transfer of the Lease by Tenant; (e) any disability or other
defense of tenant; (f) the cessation from any cause whatsoever of the liability
of Tenant; (g) the exercise by Landlord of any of its rights or remedies
reserved under the Lease or by law; or (h) any termination of the Lease.
6. Guarantor further agrees that it may be joined in any action against Tenant
in connection with the obligations of Tenant and recovery may be had against
Guarantor in any such action. Landlord may enforce the obligations of Guarantor
hereunder without first taking any action whatsoever against Tenant or its
successors and assigns, or pursue any other remedy or apply any security it may
hold, and Guarantor hereby waives (a) notice of acceptance of this
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Guaranty, (b) demand of payment, presentation and protest, (c) all right to
assert or plead any statute of limitations relating to this Guaranty and/or the
Lease, (d) any right to require Landlord to proceed against Tenant or any other
guarantor or any other person or entity liable to Landlord, (e) any right to
require Landlord to apply to any default any security deposit or other security
it may hold under the Lease, (f) any right to require Landlord to proceed under
any other remedy Landlord may have before proceeding against Guarantor, (g) any
right of subrogation, and (h) and any and all surety or other defenses in the
nature thereof including, without limitation, the provisions of California Civil
Code Section 2918 and 2845 or any similar, related or successor provisions of
law.
7. This Guaranty shall apply to the Lease, any extension, renewal,
modification or amendment thereof, and to any assignment, subletting or other
tenancy thereunder or to any holdover term following the term granted under the
Lease or any extension or renewal thereof; provided, however, that with respect
to any assignment to other than an Affiliate, this guaranty shall not apply to
any modification or amendment to the Lease made after such an assignment solely
to the extent of any additional obligations or modifications to existing
obligations. It is specifically agreed and understood that the terms of the
Lease may be altered, affected, modified or changed by agreement between
Landlord and Tenant, or by a course of conduct, and said Lease may be assigned
by Landlord or any assignee of Landlord without consent or notice to Guarantor
and that this Guaranty shall thereupon and thereafter guaranty the performance
of said Lease as so changed, modified, altered or assigned.
8. In the event this Guaranty shall be held ineffective or unenforceable by
any court of competent jurisdiction or in the event of any limitation of
Guarantor's liability hereunder other than as expressly provided herein, then
Guarantor shall be deemed to be a tenant under the Lease with the same force and
effect as if Guarantor were expressly named as a joint and several tenant
therein.
9. In the event of any litigation between Guarantor and Landlord with respect
to the subject matter hereof, the unsuccessful party to such litigation agrees
to pay to the successful party all fees, costs and expenses thereof, including
reasonable attorneys' fees and expenses.
10. No delay on the part of Landlord in exercising any right hereunder or under
the Lease shall operate as a waiver of such right or of any other right of
Landlord under the Lease or hereunder, nor shall any delay, omission or waiver
on any one occasion be deemed a bar to or a waiver of the same or any other
right on any future occasion. This Guaranty shall not be released,
EXHIBIT G
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modified or affected by failure or delayed on the part of Landlord to enforce
any of the rights or remedies of Tenant under the Lease, whether pursuant to the
terms thereof or at law or in equity.
11. If there is more than one undersigned Guarantor, the term Guarantor, as
used herein, shall include all of the undersigned; each and every provision of
this Guaranty shall be binding on each and every one of the undersigned; they
shall be jointly and severally liable hereunder; and Landlord shall have the
right to join one or all of them in any proceeding or to proceed against them in
any order.
12. This instrument constitutes the entire agreement between Landlord and
Guarantor with respect to the subject matter hereof, superseding all prior oral
or written agreements or understandings with respect thereto and may not be
changed, modified, discharged or terminated orally or in any manner other than
by an agreement in writing signed by Guarantor and Landlord.
13. This Guaranty shall be governed by and construed in accordance with the
laws of the State of California. The parties further agree that venue shall be
proper in the Superior Court or federal district court for Orange County,
California, in the event of any litigation between the parties with respect to
this Guaranty.
14. All notices or other communications required or permitted hereunder shall
be in writing, and shall be personally delivered or sent either to Guarantor at
the address set forth on Page 1 hereof to the attention of V.P. - Logistics with
a copy to the same address to the attention of General Counsel, or to Landlord,
at the address set forth on Page 1 hereof with a copy to Riverbank Financial
Group, 1355 Market Street, Suite 294, San Francisco, California 94103, by
registered or certified mail, postage prepaid, return receipt requested,
telegraphed, delivered or sent by telex, telecopy or cable and shall be deemed
received upon the earlier of (i) if personally delivered, the date of delivery
to the address of the person to receive such notice; (ii) if mailed, four (4)
business days after the date of posting by the United States Post Office; (iii)
if given by telegraph or cable, when delivered to the telegraph company with
charges prepaid; or (iv) if given by telex or telecopy, when sent. Any notice,
request, demand, direction or other communication sent by cable, telex, or
telecopy must be confirmed within forty-eight (48) hours by letter mailed or
delivered in accordance with the foregoing.
15. If Landlord desires to sell, finance or refinance the 'Building" or the
"Premises" (as such terms are defined in the Lease), or any part thereof,
Guarantor hereby agrees to deliver to any lender or buyer designated by Landlord
such estoppel statements of Guarantor as may be reasonably required by such
lender or buyer. All such statements shall be received by any such
EXHIBIT G
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lender or buyer in confidence and shall be used only for the foregoing purposes,
and such lender or buyer shall acknowledge the same to Guarantor in writing
(should Guarantor require such an acknowledgment) as a precondition to
Guarantor's obligations under this Paragraph 15. In addition, Guarantor shall
not be obligated to deliver estoppel statements hereunder more frequently than
two (2) times in any calendar year.
16. The term "Landlord" whenever hereinabove used refers to and means the
Landlord in the Lease specifically named and also any assignee of said Landlord,
whether by outright assignment or by assignment for security, and also any
successor to the interest of said Landlord of any assignee in such Lease or any
part thereof, whether by assignment or otherwise. So long as the Landlord's
interest in or to the leased premises or the rents, issues and profits
therefrom, or in, to or under said Lease, are subject to any mortgage or deed of
trust or assignment for security, no acquisition by Guarantor of Landlord's
interest in the leased premises or under said Lease shall affect the continuing
obligation of Guarantor under this Guarantee which shall nevertheless continue
in full force and effect for the benefit of the mortgagee, beneficiary, trustee
or assignee under such mortgage, deed of trust or assignment, or any purchase at
sale by judicial foreclosure or under private power of sale, and of the
successors and assigns of any such mortgagee, beneficiary, trustee, assignee or
purchaser.
The term "Tenant" wherever hereinabove used refers to and means the Tenant in
the foregoing Lease specifically named and also any assignee or sublessee of
said Lease and also any successor to the interests of said Tenant, assignee or
sublessee of such Lease or any part thereof, whether by assignment, sublease or
otherwise.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date first
above written.
"GUARANTOR"
MATSUSHITA ELECTRIC CORPORATION OF AMERICA,
a Delaware corporation
By:
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Its:
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By:
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Its:
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EXHIBIT G
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Exhibit 10(ll)
THIRD AMENDMENT TO JOINT VENTURE AGREEMENT
OF
FUND VIII AND FUND IX ASSOCIATES
THIS THIRD AMENDMENT TO JOINT VENTURE AGREEMENT (the "Third Amendment") is
made and entered into as of the 18th day of February, 1997, by and between WELLS
REAL ESTATE FUND VIII, L.P. ("Fund VIII"), a Georgia limited partnership having
Leo F. Wells, III and Wells Partners, L.P., a Georgia limited partnership, as
general partners, and WELLS REAL ESTATE FUND IX, L.P. ("Fund IX"), a Georgia
limited partnership also having Leo F. Wells, III and Wells Partners, L.P., a
Georgia limited partnership, as general partners (each of the parties hereto is
referred to herein as a "Venturer" and together as the "Venturers").
W I T N E S S E T H :
WHEREAS, the Venturers have previously formed a joint venture (the "Joint
Venture") pursuant to that certain Joint Venture Agreement of Fund VIII and Fund
IX Associates dated June 10, 1996, as amended by that certain First Amendment to
Joint Venture Agreement of Fund VIII and Fund IX Associates dated October 10,
1996, and as further amended by that certain Second Amendment to Joint Venture
Agreement of Fund VIII and Fund IX Associates dated January 7, 1997
(collectively, the "Joint Venture Agreement"); and
WHEREAS, the Joint Venture was formed for the acquisition, ownership,
development, leasing, operation, sale and management of certain "Properties"
described on Exhibit "A" to the Joint Venture Agreement; and
WHEREAS, the Joint Venture has previously acquired three properties, one of
which is located in Dane County, Wisconsin, which is described on Exhibit "A" to
the Joint Venture Agreement, one of which is located in Dallas County, Texas,
which is described on Exhibit "A" to the First Amendment to Joint Venture
Agreement, and one of which is located in Orange County, California, which is
described on Exhibit "A" to the Second Amendment to the Joint Venture Agreement;
and
WHEREAS, the Venturers now desire to cause the Venture to acquire a fourth
property located in Boulder County, Colorado, which is more particularly
described on Exhibit "A" to this Third Amendment (the "New Property"), and the
Venturers desire to amend the Joint Venture Agreement to contemplate the
acquisition of the New Property by the Venture.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree, and the Joint Venture Agreement is hereby
amended, as follows:
I.
AMENDMENT TO SECTION 1.23
Section 1.23 of the Joint Venture Agreement is hereby amended and
restated in its entirety as follows:
"1.23 "Property" means any particular tract of land (and all rights and
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appurtenances incident thereto) acquired and owned by the Venture and all
improvements located, constructed or developed thereon, as more
particularly described on Exhibit "A" hereto, as may be amended from time
to time, including that certain real property located in Dane County,
Wisconsin, as more particularly described on Exhibit "A" to the Joint
Venture Agreement, that certain real property located in Dallas County,
Texas, as more particularly described on Exhibit "A" to the First Amendment
to Joint Venture Agreement, that certain real property located in Orange
County, California, as more particularly described on Exhibit "A" to the
Second Amendment to Joint Venture Agreement, and that certain real property
located in Boulder County, Colorado, as more particularly described on
Exhibit "A" to the Third Amendment to the Joint Venture Agreement."
II.
AMENDMENT TO SECTION 3.1
Section 3.1 of the Joint Venture Agreement is hereby amended and
restated in its entirety as follows:
"3.1 Capital Contributions. The parties hereto hereby acknowledge, agree and
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confirm that, as of December 31, 1996, the amount of aggregate Capital
Contribution made to the Venture by each of the Venturers and the Distribution
Percentage Interest of each of the Venturers was as follows:
Distribution
Capital Percentage
Venturer Contributions Interest
----------- ------------- -------------
Fund VIII $4,725,614 49.88%
Fund IX $4,748,973 50.12%
2
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The Venturers shall make Capital Contributions to the Venture for the
acquisition of the New Property in such relative amounts as are mutually agreed
to by the Venturers, and shall from time to time make such additional Capital
Contributions to the Venture in such amounts as are agreed to by the Venturers."
III.
AMENDMENT TO EXHIBIT "A"
The Exhibit "A" of the Joint Venture Agreement is hereby amended by adding
Exhibit "A" hereto to, and making said Exhibit "A" hereto a part of, Exhibit "A"
to the Joint Venture Agreement.
IV.
RECERTIFICATION
Except as specifically amended hereby, the Joint Venture Agreement shall
continue and remain in full force and effect.
IN WITNESS WHEREOF, the undersigned Venturers have executed this Third
Amendment to Joint Venture Agreement to Fund VIII and Fund IX Associates under
seal as of the day and year first above written.
WELLS REAL ESTATE FUND VIII, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(As General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
(As General Partner)
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ------------------------------
Leo F. Wells, III
President
/s/ R. Douglas Wright
- ----------------------------
Unofficial Witness [Corporate Seal]
/s/ Wendy T. Chambers
- ----------------------------
Notary Public
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Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ----------------------------------------
Leo F. Wells, III
General Partner
/s/ R. Douglas Wright
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Unofficial Witness
/s/ Wendy T. Chambers
- ----------------------------
Notary Public
WELLS REAL ESTATE FUND IX, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(As General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
(As General Partner)
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ------------------------------
Leo F. Wells, III
President
/s/ R. Douglas Wright
- ----------------------------
Unofficial Witness [Corporate Seal]
/s/ Wendy T. Chambers
- ----------------------------
Notary Public
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: -----------------------------------------
Leo F. Wells, III
General Partner
/s/ R. Douglas Wright
- ----------------------------
Unofficial Witness
/s/ Wendy T. Chambers
- ----------------------------
Notary Public
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EXHIBIT 10(mm)
AGREEMENT FOR THE PURCHASE AND SALE OF PROPERTY
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THIS AGREEMENT FOR THE PURCHASE AND SALE OF PROPERTY (the "Agreement"), is
made and entered into as of the ____ day of February, 1997, by and between ORIX
PRIME WEST BROOMFIELD II VENTURE, a Colorado general partnership (hereinafter
referred to as "Seller"), and FUND VIII AND FUND IX ASSOCIATES, a Georgia
general partnership (hereinafter referred to as "Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller desires to sell and Purchaser desires to purchase the
Property (as hereinafter defined) subject to the terms and conditions
hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises, the mutual
agreements contained herein, the sum of Ten and No/100 Dollars ($10.00) in hand
paid by Purchaser to Seller at and before the sealing and delivery of these
presents and for other good and valuable consideration, the receipt, adequacy,
and sufficiency of which are hereby expressly acknowledged by the parties
hereto, the parties hereto do hereby covenant and agree as follows:
1. Definitions and Meanings. In addition to any other terms whose
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definitions are fixed and defined by this Agreement, each of the following
defined terms, when used in this Agreement, with an initial capital letter or
letters, shall have the meaning ascribed thereto in this Paragraph 1:
"Agreement" means this Agreement for the Purchase and Sale of Property,
together with all exhibits attached hereto and made a part hereof.
"Architect" means the architectural firm of Intergroup, Inc.
"Architect's Agreement" means the agreement between the Seller and the
Architect under which the Architect has been engaged to prepare architectural
designs, plans, drawings and specifications for the Project and to render other
services in connection with the design and construction of the Project, a
description of said Architect's Agreement being attached hereto as Exhibit "O"
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and by reference made a part hereof.
"Building" means the first-class, single tenant two-story office building,
containing approximately 49,460 rentable square feet which the Seller is
currently developing and constructing upon the Land.
"Closing" means the consummation of the purchase and sale contemplated by
this Agreement by the deliveries required under Paragraph 11 hereof.
"Committee" means the Architectural Control Committee established under the
Declaration.
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"Completion Date" means the first day on which all of the following have
occurred: (i) the construction and equipping of the Project, including all
Punch List Items, have been completed in accordance with the Plans and
Specifications (inclusive of landscaping plans), as evidenced by a certificate
to such effect from the Architect, (ii) the Tenant Improvements for the space in
the Building to be occupied by Tenant have been completed in accordance with the
working drawings and specifications for such space, as evidenced by a
certificate to such effect from the Architect, and any Punch List Items have
been completed to the satisfaction of Tenant, (iii) permanent certificates of
occupancy or their equivalent have been issued by the appropriate Governmental
Authority with respect to the base building and with respect to the space in the
Building to be occupied by Tenant, (iv) the Commencement Date under the Lease
has occurred, the amount of Base Rent payable by Tenant under the Lease
(following any adjustment thereto as provided in the Lease) has been determined,
and Tenant has commenced to pay monthly Base Rent and Additional Rent under the
Lease coming due after the application of the prepaid rent for which provision
is made in Section 32.1 of the Lease, (v) Tenant has executed and delivered to
the "Landlord" under the Lease the estoppel certificate required in the
definition of "Substantial Completion Date" set forth below, (vi) Tenant has
executed and delivered to the Landlord under the Lease the Supplemental
Agreement in the form attached to the Lease as Exhibit I thereto, completed with
the appropriate information, (vii) Purchaser has received the originals of
substantially all Warranties with respect to the Project required to be issued
with respect to the Project pursuant to the Plans and Specifications (and in any
event all of the Warranties of a significant or material nature), a final
Contractor's Affidavit and Lien Waiver from all Contractors and all major
subcontractors performing work or supplying labor or materials with respect to
the Project, a lien waiver from all non-major subcontractors who have filed a
lien with respect to the Project (or the discharge of such lien by the filing of
a statutory bond relating thereto), and an endorsement to the Purchaser's
owner's title insurance policy deleting the "pending improvements" clause
therefrom and providing special coverage against any filed or unfiled mechanic's
or materialmen's liens as of a date after the Substantial Completion Date,
(viii) Purchaser has received both the preliminary certificate of compliance and
the final certificate of compliance from the Committee as required by the
Declaration, and (ix) Purchaser shall have received a receipt and, if brokers
are afforded lien rights under Colorado law, a final lien waiver from Leasing
Agents acknowledging payment in full of all commissions payable to Leasing
Agents under the commission agreement between Seller and Leasing Agents dated
January 31, 1994, and, if brokers are afforded lien rights under Colorado law,
waiving any lien or claim or right to lien with respect to the Property. For
purpose hereof, a major subcontractor shall be deemed to be a subcontractor or
materialman who either has a contract providing for a contract sum in excess of
$25,000 or has filed a an extension of lien rights or "notice of commencement"
or "preliminary notice of lien rights" with respect to the Project.
"Construction Agreements" means, collectively, the construction contracts
between the Seller and the Contractors with respect to the Project, a complete
list of which is attached hereto as Exhibit "P" and by reference made a part
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hereof.
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"Contractors" means, collectively, DSP Builders, Inc. and all other firms
employed by Seller as a general contractor or as a special purpose contractor
with respect to the Project; and singly any such general or special purpose
contractor.
"Declaration" means the Amended and Restated Master Declaration of
Covenants, Conditions and Restrictions for Interlocken dated January 23, 1990,
recorded January 24, 1990 under Reception No. 1025034, as amended.
"Development Budget" means the budget, a copy of which is attached hereto
and made a part hereof as Exhibit "C", which sets forth in reasonable detail all
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expenses to be incurred with respect to the acquisition of the Land, the leasing
of the Building to Tenant, and the planning, design, development, construction
and completion of the Project (including the Tenant Improvements), and which
sets forth with respect to each line item of expense the "previous
applications", the "work in place", the "total completed to date", the "balance
to finish" and the "retainage held".
"Development Functions" means those functions of the Seller set forth in
Paragraph 16 of this Agreement.
"Earnest Money" means the amounts deposited by the Purchaser with the
Escrow Agent as Earnest Money as provided in Paragraph 3 hereof, together with
all interest earned thereon.
"Effective Date" means the date on which this Agreement is duly executed by
both Seller and Purchaser, and said date shall be inserted in the first
paragraph on page 1 hereof.
"Environmental Laws" means the following, as the same may have been amended
through the date of Closing: the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601, et seq.; the
-- ---
Resource Conservation Act of 1976, 42 U.S.C. (S) 6921, et seq.; the Toxic
-- ---
Substances Control Act, 15 U.S.C. (S) 2601, et seq.; the Federal Insecticide,
-- ---
Fungicide and Rodenticide Act, 7 U.S.C. (S) 136; the Federal Water Pollution
Control Act, 33 U.S.C. (S) 1251, et seq.; the Hazardous Materials Transportation
-- ---
Act, 49 U.S.C. (S) 1801, et seq.; the Federal Solid Waste Disposal Act, 42
-- ---
U.S.C. (S) 6901, et seq.; the Clean Air Act, 42 U.S.C. (S) 7401, et seq.; and
-- --- -- ---
any other legislation or ordinance of any Governmental Authority identified by
its terms as pertaining to hazardous substances or waste.
"Environmental Report" means the Phase I Environmental Audit prepared for
Prime West by Scott, Cox & Associates, Inc. dated September, 1995.
"Escrow Agent" means Security Title Guaranty Company.
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<PAGE>
"Existing Deed of Trust" means the Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Fixture Filing dated June 10, 1996, and recorded
on Film 2133 at Reception No. 01616568 as same may be modified or amended.
"Good and Marketable Title" means fee simple title to the Land and the
Improvements insurable by the Title Company at its standard rates on American
Land Title Association (ALTA) Owner's Policy Form 1992 without exception, except
for the Permitted Exceptions and standard exceptions (which standard exceptions,
other than an exception for unfiled mechanic's or materialmen's liens, shall be
deleted at Closing based upon the Seller's affidavit, the Survey and such other
affidavits and lien waivers as shall be requested by the Title Company).
"Governmental Authority" means any federal, state, or municipal government,
branch, authority, district, agency, court, tribunal, department, officer,
official, board, commission or other instrumentality.
"Hazardous Substances" means petroleum, including crude oil or any fraction
thereof, asbestos, polychlorinated biphenyls, and any other substance identified
in the Environmental Laws.
"Improvements" means the approximately 49,460 rentable square foot office
building and related buildings, structures, and other improvements located on
the Land.
"Inspection Period" means the period from the Effective Date through the
date which is ten (10) business days after the Effective Date.
"Intangible Personal Property" means all intangible personal property owned
by Seller and now, or hereafter, located upon the Land or used in connection
with the Property, including, without limitation, all (i) tradenames, (ii)
logos, (iii) warranties and guaranties given in connection with the construction
and repair of the Improvements or the purchase of any Personal Property, and
(iv) certificates of occupancy (or the local equivalents), permits, licenses,
approvals and authorizations issued by any Governmental Authority.
"Land" means that certain tract or parcel of land containing approximately
4.26 acres and being described in Exhibit "A" attached hereto and by reference
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made a part hereof.
"Lease" means that certain Lease between Prime West and Cirrus Logic, Inc.
dated July 5, 1995, as assigned by Prime West to Seller, and as amended by
Amendment to Lease dated October 4, 1996, and as further amended by the
agreements listed on Exhibit "Q" attached hereto and by reference made a part
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hereof.
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<PAGE>
"Lease Amendment and Estoppel Certificate" means the amendment and
certificate to be executed by Tenant with respect to the Lease, as provided in
Paragraph 10(d) hereof, such amendment and certificate to be in the form
attached hereto as Exhibit "D" and incorporated herein by this reference.
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"Leasing Agents" means The Colorado Group, Inc. and Cushman & Wakefield of
Colorado, Inc..
"Monthly Report" means the report to be prepared by the Seller and
submitted to the Purchaser on a monthly basis as provided in Paragraph 16
hereof.
"Option Agreement" means the Option Agreement between Interlocken, Ltd. and
Prime West, executed on August 4, 1995, as to Prime West, and August 10, 1995,
as to Interlocken, Ltd., as amended by First Amendment to Option Agreement dated
March 15, 1996, and as assigned by Prime West to Seller.
"Permitted Exceptions" means the exceptions listed on Exhibit "E" attached
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hereto and by this reference made a part hereof and any Title Objections to
which Purchaser fails to object or which Purchaser waives pursuant to Paragraph
8 hereof.
"Personal Property" means all tangible personal property owned by Seller
and now, or hereafter, located upon the Land or used in connection with the
ownership, operation, management or maintenance of the Property, including,
without limitation, all machinery, apparatus, equipment, engines, motors,
appliances, office equipment, furniture, coverings, blinds, curtains, vehicles,
accessories, and the property described on Exhibit "F" attached hereto and by
-----------
reference made a part hereof.
"Plans and Specifications" means those certain working drawings, plans and
specification described on Exhibit "G" attached hereto and by reference made a
-----------
part hereof.
"Prime West" means Prime West Development, Inc., a Colorado corporation.
"Project" means the Building, the Tenant Improvements and the Site
Improvements, collectively.
"Project Costs" means the costs and expenses of completing the
construction, installation and equipping of the Project and of causing the
Completion Date to occur with respect to the Project, excluding the portion of
such costs and expenses paid or reimbursed by Tenant. Project Costs shall
include, without limitation, commission obligations with respect to the Lease,
the cost of the Tenant Work borne by the Landlord under Exhibit J to the Lease,
including up to the full "Additional Landlord Contribution" required in
connection therewith, and other costs of the nature described in the Development
Budget.
-5-
<PAGE>
"Property" means, collectively, the Real Estate, the Personal Property, and
the Intangible Property.
"Punch List Items" means the details of construction, decoration and
mechanical adjustment which remain to be performed or completed after
substantial completion of the Project in accordance with the Plans and
Specifications and which, in the aggregate, are minor in character and do not
and will not interfere with Tenant's use or enjoyment of the Project, as
determined by the Architect.
"Purchase Price" means the amount which Purchaser shall pay to consummate
the purchase and sale of the Property as provided in Paragraph 4 of this
Agreement.
"Real Estate" means (i) the Land, (ii) the Improvements, and (iii) all
rights, members, rights-of-way, easements, mineral rights, privileges, options,
leases, licenses, and appurtenances in any manner belonging to, or pertaining
to, the Land and the Improvements.
"REA" means the Reciprocal Easement Agreement between Seller and
Interlocken, Ltd., recorded June 12, 1996, on Film 2133 under Reception No.
01616561, as amended by First Amendment to Reciprocal Easement Agreement dated
June 10, 1996.
"Service Contracts" means the contracts entered into by or on behalf of
Seller for the maintenance and operation of the Property, as listed on Exhibit
-------
"H" attached hereto and by reference made a part hereof.
- ---
"Site Improvements" means the surface level parking facilities, sufficient
to accommodate approximately 200 automobiles, any and all on and off-site road
improvements, walkways, complete utilities and drainage systems, landscaping
work, exterior lighting, ground-mounted signs and other site improvements to be
constructed and installed and upon the Land pursuant to the Plan and
Specifications, the Lease and the Permitted Exceptions.
"Substantial Completion Date" means the first day on which all of the
following have occurred: (i) the construction and equipping of the Project have
been substantially completed in accordance with the Plans and Specifications
(inclusive of landscaping plans, to the extent that landscaping can feasibly be
installed due to the season), as evidenced by a certificate of substantial
completion to such effect from the Architect on AIA Document G 704, subject only
to Punch List Items and the completion of the top coat and striping with respect
to the paved areas, (ii) the Tenant Improvements for the space in the Building
to be occupied by Tenant have been substantially completed in accordance with
the working drawings and specifications for such space, as evidenced by a
certificate to such effect from the Architect on AIA Document G 704, subject
only to Punch List Items, (iii) temporary certificates of occupancy or their
equivalent have been issued by the appropriate Governmental Authority with
respect to the base building and with respect to the space in the Building to be
occupied by Tenant, (iv) the Commencement Date under the Lease has occurred and
either Tenant has commenced to pay monthly Base Rent under the Lease or
-6-
<PAGE>
Tenant has prepaid the first month's Base Rent and Additional Rent as provided
in Section 32.1 of the Lease and the Landlord under the Lease has the right to
apply same to the first month's Base Rent and Additional Rent under the Lease,
and (v) Tenant has executed and delivered to the "Landlord" under the Lease an
estoppel certificate substantially in the form attached to the Lease as Exhibit
E thereto, completed with the appropriate information and reflecting that,
except for items in the nature of Punch List Items, landscaping not installed
due to the season, and the top coat and striping of paved areas, Tenant has
accepted the leased premises and the work and improvements performed by Landlord
and that there exist no defaults and no offsets against rent.
"Tenant" means Cirrus Logic, Inc., a California corporation.
"Tenant Improvements" means all improvements constructed on or within the
Building for use or operation by the Tenant under or pursuant to the Lease,
including without limitation the "Tenant's Work" (as defined in the Lease) for
Tenant and other tenant improvements required to be installed or constructed by
the "Landlord" under the Lease.
"Title Commitment" means a title insurance commitment issued by the Title
Company for issuance to Purchaser, at regular rates, of an owner's policy of
title insurance in accordance with American Land Title Association (ALTA)
Owner's Policy Form 1992 pursuant to which Purchaser's Good and Marketable Title
to the Real Estate shall be insured upon the Closing.
"Title Company" means First American Title Insurance Company.
"Title Objection" and "Title Objections" mean any mortgages, deeds of
trust, deeds to secure debt, liens, financing statements, security interests,
easements, leases, restrictive covenants, agreements, options, claims, clouds,
encroachments, rights, taxes, assessments, mechanics' or materialmen's liens
(inchoate or perfected), liens for federal or state estate or inheritance taxes
and other encumbrances of any nature whatsoever, whether existing of record or
otherwise, together with any and all matters of any kind or description,
including, without limitation, matters of survey and any litigation or other
proceedings affecting Seller and which affect title to the Real Estate or the
right, power and authority of the Seller to convey Good and Marketable Title to
the Real Estate to Purchaser in accordance with the terms of this Agreement,
other than the exceptions listed on Exhibit "E" attached hereto.
-----------
"Warranties" means all warranties and guaranties relating to the
construction, operation, maintenance, repair, and use of the Improvements and
Personal Property.
2. Purchase and Sale of Property. Subject to and in accordance with the
-----------------------------
terms and provisions of this Agreement, Seller hereby agrees to sell the
Property to Purchaser and Purchaser hereby agrees to purchase the Property from
Seller.
-7-
<PAGE>
3. Earnest Money. Within two (2) business days after the full execution
-------------
of this Agreement, Purchaser shall deliver to Escrow Agent, whose offices are at
Orchard Place 1, 5995 Greenwood Plaza Blvd., Suite 110, Greenwood Village,
Colorado 80111-4710, Purchaser's check, payable to Escrow Agent, in the amount
of Fifty Thousand and No/100 Dollars ($50,000.00) (the "Earnest Money"), which
Earnest Money shall be held and disbursed by Escrow Agent pursuant to a written
Escrow Agreement and Escrow Instructions, copies of which are attached hereto as
Exhibit "B" and by this reference made a part hereof. The Earnest Money shall
- -----------
be paid by Escrow Agent to Seller at Closing (as hereinafter defined) and shall
be applied as a credit to the Purchase Price (as hereinafter defined). All
interest and other income from time to time earned on the Earnest Money shall be
deemed a part of the Earnest Money for all purposes of this Agreement.
4. Purchase Price. Subject to adjustment and credits as otherwise
--------------
specified in this Agreement, the purchase price (the "Purchase Price") to be
paid by Purchaser to Seller for the Property shall be Six Million Seven Hundred
Seventy-Nine Thousand and No/100 Dollars ($6,779,000.00). The amount of the
Purchase Price has been determined by Seller and Purchaser based upon the
assumptions (A) that Seller shall cause the Substantial Completion Date and the
Commencement Date under the Lease to occur on or before April 1, 1997 and (B)
that the annual Base Rent (as defined in the Lease) payable by the Tenant under
the Lease for the first five (5) Lease Years (as defined in the Lease) shall be
in an amount not less than $644,000.00. In the event the Substantial Completion
Date and the Commencement Date under the Lease do not occur on or before April
1, 1997, for any reason whatsoever other than construction delays caused by
Purchaser, the Purchase Price shall be reduced on a per day basis for each day
that such events are delayed beyond April 1, 1997, by an amount equal to the
difference between $1,764.00 and the actual per diem interest earned on the
portion of the Purchase Price which is still in escrow on such day as
hereinafter provided. In the event the annual Base Rent payable by the Tenant
under the Lease for the first five (5) Lease Years shall be less than
$644,000.00, the Purchase Price shall be reduced to an amount calculated by
dividing the amount of annual Base Rent payable by the Tenant under the Lease by
0.095. In the event the annual Base Rent payable by Tenant under the Lease for
the first five (5) Lease Years shall be more than $644,000.00, the Purchase
Price shall be increased to an amount calculated by dividing the amount of
annual Base Rent payable by the Tenant under the Lease by 0.095; provided,
however, in no event shall the Purchase Price increase by more than $250,000.00.
An example to illustrating the application of the foregoing adjustment
provisions is set forth on Exhibit "T" and by this reference made a part hereof.
-----------
At the Closing, Purchaser will pay to Seller by cashier's check or by wire
transfer of immediately available federal funds, an amount which, when combined
with the Earnest Money to be disbursed by Escrow Agent to Seller at Closing,
will be equal to the lesser of (a) the principal and all accrued interest
secured by the Existing Deed of Trust as of the date of Closing, or (b) the
Purchase Price (as estimated by Seller and Purchaser) less an amount equal to
the sum of (i) the Project Costs theretofore incurred in connection with the
construction and completion of the Project for work performed and materials
incorporated into the Project, but not yet paid (including retainage), plus (ii)
one hundred twenty percent (120%) of the cost and expenses reasonably expected
to be incurred
-8-
<PAGE>
in order to fully complete and equip the Project, including completion of Punch
List Items, and to cause the Completion Date to occur with respect to the
Project. Seller shall represent and warrant to Purchaser at Closing that the
portion of the estimated Purchase Price paid into escrow shall be an amount
equal to or greater than the sum of (i) and (ii) set forth in the preceding
sentence. In the event the amount of the estimated Purchase Price to be paid by
Purchaser to Seller at Closing is less than the principal and all accrued
interest secured by the Existing Deed of Trust or any other monetary liens or
encumbrances, Seller shall be responsible from its own funds to cause the
Existing Deed of Trust and all other monetary liens or encumbrances affecting
the Property or any portion thereof to be fully released and cancelled at
Closing. The entire balance of the estimated Purchase Price not paid to Seller
at Closing shall be deposited by Purchaser at Closing into escrow with Escrow
Agent pursuant to an escrow agreement among Purchaser, Seller and Escrow Agent
in the form attached hereto as Exhibit "U" and by this reference made a part
-----------
hereof. The portion of the estimated Purchase Price paid into escrow shall be
disbursed by Escrow Agent in accordance with the procedures for disbursements
set forth in such escrow agreement, and all such disbursements from escrow shall
be deemed to be payment of the Purchase Price hereunder. The amount so paid into
escrow shall be invested by the Escrow Agent in an interest bearing money market
fund with a national banking association approved by Seller and Purchaser, and
all interest earned on the amount paid into escrow shall be the sole property of
Purchaser and may be withdrawn by Purchaser at any time or from time to time.
5. Purchaser's Inspection and Review Rights. Commencing on the Effective
----------------------------------------
Date of this Agreement, Purchaser and its agents, engineers, or representatives,
with Seller's cooperation, shall have the privilege of going upon the Property
as needed to inspect, examine, test, and survey the Property at all reasonable
times and from time to time. Such privilege shall include the right to make
borings and other tests to obtain information necessary to determine surface and
subsurface conditions, provided that such activities do not materially interfere
with the ongoing construction operations on the Property. Purchaser hereby
agrees to hold Seller harmless from any liens, claims, liabilities, and damages
incurred through the exercise of such privilege (but excluding any liability
arising out of the existing environmental condition of the Property and
excluding any claims arising out of a release of existing or in-place Hazardous
Substances on or under the Property), and Purchaser further agrees to repair any
damage to the Property caused by the exercise of such privilege (excluding any
damage arising out of a release of existing or in-place Hazardous Substances on
or under the Property). The indemnification and agreement by Purchaser set forth
in the preceding sentence shall survive any termination of this Agreement.
Purchaser shall give Seller reasonable prior verbal notice of Purchaser's
intention to conduct any inspections, examinations, tests and surveys of the
Property so that Seller shall have an opportunity to have a representative
present during any such activities. Purchaser agrees that Purchaser shall carry
not less than $1,000,000 commercial general liability insurance covering all
activities of Purchaser and its representatives while exercising the right of
access on the Property. Seller shall be named as an additional insured on such
commercial general liability insurance policy. A certificate of such insurance
shall be provided to Seller prior to Purchaser exercising such right of access
on the Property. Within three (3) days after the
-9-
<PAGE>
Effective Date of this Agreement, to the extent not already provided to
Purchaser, Seller shall provide to Purchaser complete copies of all Service
Contracts, if any, the Architect's Agreement, the Construction Agreements,
copies of all existing environmental reports (including the Environmental
Report), soil reports and other reports from any tests and studies obtained by
Seller, and a written inventory and listing of the Personal Property. In
addition, at all reasonable times prior to the Closing, Seller shall make
available to Purchaser, or Purchaser's agents and representatives, at Seller's
office in Englewood, Colorado, and for copying at Purchaser's expense, all
books, records, and files relating to the acquisition, leasing and development
of the Property, including, without limitation, title matters, tenant files,
commission agreements, tax bills, construction contracts, contracts with
architects, engineers and consultants, warranties and guaranties in effect with
respect to the Improvements and Personal Property, plans and specifications,
environmental reports, engineering reports, reports of insurance carriers
insuring the Property, and other contracts, books, records, budgets, and other
information relating to the Property. Seller further agrees to in good faith
assist and cooperate with Purchaser in coming to a thorough understanding of the
books, records, and files relating to the Property. Except as otherwise provided
herein, and except for data and information expressly prepared by Seller for the
benefit of Purchaser, Seller makes no representations or warranties as to the
truth or accuracy of any material, data or other information supplied to
Purchaser in connection with Purchaser's inspection of the Property. In the
event the purchase and sale contemplated herein fails to close for any reason
other than the default of Seller, Purchaser agrees to return to Seller all
documents, records, files and reports provided by Seller to Purchaser, and
Purchaser agrees to provide Seller with copies of any reports or studies
prepared for Purchaser by third parties relating to the Property (other than
reports or studies which have previously been sent to Seller or which are the
subject to attorney-client privilege), which agreements shall survive the
termination of this Agreement. Purchaser shall in no event be responsible or
liable for the contents of or the accuracy or completeness of any such reports
or studies prepared by third parties.
6. Special Condition to Closing. Purchaser shall have the right during
----------------------------
the Inspection Period, on the basis of its investigations, examinations,
inspections, market studies, feasibility studies, lease reviews, and tests
relating to the Property and the operation thereof, to determine, in Purchaser's
sole opinion and discretion, the suitability of the Property for acquisition by
Purchaser. Purchaser shall have the right to terminate this Agreement at any
time prior to the expiration of the Inspection Period by giving written notice
to Seller of such election to terminate. In the event Purchaser so elects to
terminate this Agreement, Escrow Agent shall pay to Seller from the Earnest
Money the sum of Twenty-Five Dollars ($25.00) and the balance of the Earnest
Money shall be refunded by Escrow Agent to Purchaser, whereupon, except as
expressly provided to the contrary in this Agreement, no party hereto shall have
any other or further rights or obligations under this Agreement. Seller
acknowledges that the sum of $25.00 is good and adequate consideration for the
termination rights granted to Purchaser hereunder.
-10-
<PAGE>
7. General Conditions Precedent to Purchaser's Obligations Regarding the
---------------------------------------------------------------------
Closing. In addition to the conditions to Purchaser's obligations set forth in
- -------
Paragraph 6 above, the obligations and liabilities of Purchaser hereunder shall
in all respects be conditioned upon the satisfaction of each of the following
conditions prior to or simultaneously with the Closing, any of which may be
waived by written notice from Purchaser to Seller:
(a) Seller has complied with and otherwise performed each of the covenants
and obligations of Seller set forth in this Agreement required to be
complied with and/or performed as of the date of Closing.
(b) All representations and warranties of Seller as set forth in this
Agreement shall be in all material respects true and correct as of the date
of Closing as determined by Purchaser in its reasonable discretion.
(c) There has been no adverse change to the title to the Property which has
not been cured and the Title Company has issued an owner's title insurance
commitment on the Real Estate and is prepared to issue to Purchaser upon
the Closing a fee simple ALTA owner's title insurance policy on the Real
Estate in accordance with the requirements of this Agreement.
(d) The Tenant shall not be in default (without regard to the expiration of
any applicable cure period provided in the Lease with such Tenant) under
the terms of such Tenant's Lease as of the date of Closing, and Tenant
shall have theretofore deposited with Seller the entire portion of the
"Excess TI Amount" (as defined in the Lease) required to be deposited by
Tenant.
(e) Seller shall have obtained an executed Lease Amendment and Estoppel
Certificate from the Tenant in the form attached hereto as Exhibit "D" and
-----------
by this reference made a part hereof.
(f) Seller shall not be in material default or breach of the obligations of
Seller under the Architect's Agreement or any of the Construction
Agreements, and no uncured material default or event of default shall exist
under the Architect's Agreement or the Construction Agreements.
(g) The status of construction of the Project shall be such that it is
reasonable to expect that Seller shall cause the Substantial Completion
Date to occur on or before March 31, 1997.
8. Title to the Property. Good and Marketable Title to the Real Estate
---------------------
shall be conveyed by Seller to Purchaser by Special Warranty Deed, free and
clear of all liens, easements, restrictions, and encumbrances whatsoever,
excepting only the Permitted Exceptions. Seller at its sole cost and expense,
has heretofore caused Title Company or its
-11-
<PAGE>
agent to deliver to Purchaser a copy of its Commitment No. GO69739A96-2
(hereinafter referred to as the "Title Commitment"), together with, copies of
all documents and instruments referred to therein. Purchaser, shall have until
the expiration of the Inspection Period during which to examine the Title
Commitment and such title documents after which Purchaser shall notify Seller of
any objections with respect to the form of the Title Commitment or any defects
or objections affecting the record marketability of the title to the Property,
other than the Permitted Exceptions. If Purchaser fails to give such notice of
defects or objections as to any matters disclosed by such Title Commitment, such
matters shall be deemed to be additional Permitted Exceptions. Seller shall then
have ten (10) days after receipt of such notice of title defects or objections
from Purchaser to advise Purchaser in writing which of such title defects or
objections Seller does not intend to satisfy or cure; provided, however, Seller
hereby agrees that Seller shall satisfy or cure any such defects or objections
consisting of taxes, mortgages, deeds of trust, mechanic's or materialmen's
liens or other such monetary encumbrances. In the event Seller fails to give
such written advice to Purchaser within such ten (10) day period, Seller shall
be deemed to have agreed to satisfy or cure all such defects or objections set
forth in Purchaser's notice. If Seller shall advise Purchaser in writing that
Seller does not intend to satisfy or cure any specific non-monetary
encumbrances, Purchaser may elect either (a) to terminate this Agreement by
written notice to Seller, in which event the Earnest Money shall be immediately
refunded to Purchaser and this Agreement shall be of no further force or effect
and Purchaser and Seller shall have no further rights, obligations or
liabilities hereunder, except as expressly provided herein, or (b) to accept
title subject to such specific non-monetary encumbrances. Seller shall have
until Closing to satisfy or cure all such defects and objections which Seller
agreed (or is deemed to have agreed) to satisfy or cure as provided above. In
the event Seller fails or refuses to cure any defects and objections which are
required herein to be satisfied or cured by Seller prior to the Closing, then,
at the option of Purchaser, (i) Purchaser may terminate this Agreement by
written notice to Seller and Escrow Agent, in which event the Earnest Money
shall be immediately refunded to Purchaser, and this Agreement shall be deemed
null and void and of no force and effect and Purchaser and Seller shall have no
further rights, obligations or liabilities hereunder, except as expressly
provided herein, (ii) if any such defect or objection is one that Seller agreed
(or is deemed to have agreed) to satisfy or cure as provided above, Purchaser
may cure such defect or objection, in which event the Purchase Price payable
pursuant to Paragraph 4 hereof shall be reduced by an amount equal to the actual
cost and expense incurred by Purchaser in connection with the curing of such
defect or objection, (iii) Purchaser may accept title to the Property subject to
such defects and objections, or (iv) any combination of items (ii) and (iii). In
the event Purchaser elects to cure any such defects and objections pursuant to
item (ii) hereof, Purchaser at its option, upon giving notice to Seller, may
extend the date of Closing until the curing of such defects or objections or
thirty (30) days from and after the previously scheduled date of Closing,
whichever shall first occur. If any defect or objection shall not have been
cured within such period, Purchaser may exercise its option under either item
(i) or (iii) hereof.
9. Representations and Warranties of Seller. Seller hereby makes the
----------------------------------------
following representations and warranties to Purchaser:
-12-
<PAGE>
(a) Lease. Seller has delivered to Purchaser a complete and accurate copy
-----
of the Lease. The Lease has not been further supplemented or modified or
amended, and there are no agreements or commitments between Seller and the
Tenant relating to the Property other than as expressly set forth in the
Lease. Seller is the "Landlord" under the Lease and owns legal and
beneficial title to the Lease and the rents and other income thereunder
subject only to the Existing Deed of Trust.
(b) Lease - Assignment. To the best of Seller's knowledge, the Tenant has
------------------
not assigned its interest in its Lease or sublet any portion of the
premises leased to such Tenant under its Lease.
(c) Lease - Default. (i) Seller has not received any notice of termination
---------------
or default under the Lease, (ii) there are no existing or uncured material
defaults by Seller or by the Tenant under the Lease, except that Tenant is
currently obligated to pay to Seller certain costs incurred by Seller as
provided in the Lease, (iii) to the best of Seller's knowledge, there are
no events which with passage of time or notice, or both, would constitute a
material default by Seller or by the Tenant, except that Tenant is
currently obligated to pay to Seller certain costs incurred by Seller as
provided in the Lease, and Seller has complied with each and every
undertaking, covenant, and obligation of Seller under the Lease, and (iv)
the Tenant has not asserted any defense, set-off, or counterclaim with
respect to its tenancy or its obligation to pay rent, additional rent, or
other charges pursuant to its Lease. Further, Tenant has not indicated to
Seller either orally or in writing its request or its intent to terminate
its Lease prior to the expiration of the term of the Lease or to reduce the
size of the premises leased by the Tenant.
(d) Lease - Rents and Special Consideration. Except as expressly set forth
---------------------------------------
in the Lease, the Tenant: (i) has not prepaid any rent under the Lease,
(ii) is not entitled to receive any rent concession in connection with its
tenancy under its Lease, and (iii) does not have any option or other
evidence of any right or interest in or to the Property.
(e) Lease - Commissions. No rental, lease, or other commissions with
-------------------
respect to the Lease is payable to Seller, any party affiliated with or
related to Seller. The only commission obligation of Seller with respect
to the Lease is set forth in the commission agreement between Seller and
Leasing Agents dated January 31, 1994, a true and complete copy of which
has been provided to Purchaser. Seller has heretofore paid to Leasing
Agents $117,576.31 of the commission payable to Leasing Agents under the
aforesaid commission agreement and the remaining balance of such commission
($120,143.69) shall be due and payable to Leasing Agents as provided in the
aforesaid commission agreement. Except for the remaining $120,143.69 of
the total commission in the amount of $237,720.00 payable to Leasing Agents
as provided in the aforesaid commission agreement, no commissions shall be
due or payable by Purchaser, Seller or any successor to the "Landlord"
under the Lease as a
-13-
<PAGE>
result of the Lease or as a result of the exercise by the Tenant thereunder
of any right or option in the Lease to extend the term of such Lease or to
expand the space leased thereunder (unless such expansion shall occur as a
result of the exercise of the expansion under Section 33.5 of the Lease and
the commission is includable in the costs which are utilized in determining
the amount of Base Rent to be paid by the Tenant for the Expansion Space
under the Lease). Seller shall and does hereby indemnify and hold harmless
Purchaser from and against any claim, whether or not meritorius, for any
real estate commission, finder's fee, or like compensation in connection
with the Lease or in connection with the exercise by Tenant thereunder of
any right or option in the Lease to extend the term of such Lease or to
expand the space leased thereunder, including any such claim by Leasing
Agents, but excluding any such claim by Leasing Agents attributable to an
expansion of the space leased by Tenant under the Lease as a result of the
exercise of the expansion option set forth in Section 33.5 of the Lease,
and only if the entire commission payable to Leasing Agents under such
circumstances is includable in the costs which are utilized in determining
the amount of Base Rent to be paid by the Tenant for the "Expansion
Premises" under the Lease.
(f) Architect's Agreement and Construction Agreements. Complete and
-------------------------------------------------
accurate copies of the Architect's Agreement and Construction Agreements
will be delivered by Seller to Purchaser as provided in Paragraph 5 hereof.
To the best of Seller's knowledge, the Architect's Agreement and
Construction Agreements are in full force and effect in accordance with
their respective provisions, all payments now due and payable by Seller or
the "Owner" thereunder have been paid in full, except for the current
monthly draw requests thereunder and less applicable retainage amounts, and
to the best of Seller's knowledge, there is no default, or claim of
default, or any event which with the passage of time or notice, or both,
would constitute a default on the part of any party to the Architect's
Agreement and Construction Agreements.
(g) Service Contracts. Complete and accurate copies of all of the Service
-----------------
Contracts, if any, will be delivered by Seller to Purchaser as provided in
Paragraph 5 hereof. To the best of Seller's knowledge, all such Service
Contracts are in full force and effect in accordance with their respective
provisions, all payments required to be made by Seller or the "Owner"
thereunder have been paid in full, and there is no default, or claim of
default, or any event which with the passage of time or notice, or both,
would constitute a default on the part of any party to any of such Service
Contracts. All such Service Contracts are terminable without penalty or
obligation to pay any severance or similar compensation on no more than
thirty (30) days' notice. Seller agrees to cancel, effective no later than
the Closing, any of the Service Contracts specified by Purchaser in a
written notice to Seller given at least thirty (30) days prior to the
Closing. To the best of Seller's knowledge, all Service Contracts are
assignable by Seller to Purchaser and no Service Contract prohibits such
assignment or provides for any right, claim, or cause of action against
Purchaser or
-14-
<PAGE>
the Property upon such assignment. Seller has cancelled or will cancel,
effective as of the Closing, any agreement in the nature of a management
agreement or service contract between Seller and any partner of Seller or
any party affiliated with or related to Seller or any partner of Seller.
(h) Warranties and Guaranties. Within three (3) days after the Effective
-------------------------
Date of this Agreement, Seller shall provide Purchaser with complete and
accurate copies of all such warranties and guaranties which are written,
which are known by Seller to relate to the Property and which are in the
possession or control of Seller.
(i) No Other Agreements. Other than the Lease, the Architect's Agreement,
-------------------
the Construction Agreements, the Service Contracts, and the Permitted
Exceptions, there are no leases, contracts, service contracts, management
agreements, or other agreements or instruments in force and effect, oral or
written, that grant to any person whomsoever or any entity whatsoever any
right, title, interest or benefit in or to all or any part of the Property,
any rights to acquire all or any part of the Property or any rights
relating to the development, use, operation, management, maintenance, or
repair of all or any part of the Property.
(j) No Litigation. There are no actions, suits, or proceedings pending, or
-------------
to the best of Seller's knowledge threatened by any organization, person,
individual, or governmental agency against Seller with respect to the
Property or against the Property, nor does Seller know of any basis for
such action. Seller also has no knowledge of any pending or threatened
application for changes in the zoning applicable to the Property or any
portion thereof.
(k) Condemnation. No condemnation or other taking by eminent domain of the
------------
Property or any portion thereof has occurred and, to the best of Seller's
knowledge, there are no pending or threatened condemnation or eminent
domain proceedings (or proceedings in the nature or in lieu thereof)
affecting the Property.
(l) Proceedings Affecting Access. To the best of Seller's knowledge, there
----------------------------
are no pending or threatened proceedings that could have the effect of
impairing or restricting access between the Property and adjacent public
roads.
(m) No Roll-Back Taxes. The Property has not been classified under any
------------------
designation authorized by law to obtain a special low ad valorem tax rate
or to receive a reduction, abatement or deferment of ad valorem taxes
which, in such case, will result in additional, catch-up or roll-back ad
valorem taxes in the future in order to recover the amounts previously
reduced, abated or deferred.
(n) No Assessments. To the best of Seller's knowledge, except for annual
--------------
assessments and special assessments for which provision is made under the
Declaration, no special assessments have been made against the Property,
whether or
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not they have become liens, and except for the water tap-on fee which has
not yet been paid by Seller, all impact fees, permit fees, storm drainage
area fees, sewer connection fees, exactions or similar charges or sums
payable as result of the construction of the Improvements have been paid in
full.
(o) Permits. To the best of Seller's knowledge, Seller has obtained all
-------
licenses, permits and approvals required to be obtained from Governmental
Authorities in order to construct and install the Property, and to the best
of Seller's knowledge, the Project is being constructed in compliance with
all such licenses, permits and approvals.
(p) Conditions of Improvements. Seller is not aware of any structural or
--------------------------
other defects, latent or otherwise, in the Improvements. The electrical,
plumbing, water, elevator (if installed), roofing, storm drainage and
sanitary sewer systems at or servicing the Land and Improvements are, to
the best of Seller's knowledge, in good condition and working order and
Seller is not aware of any defects or deficiencies, latent or otherwise,
therein. To the best of Seller's knowledge, the Improvements heretofore
constructed and installed have been constructed and installed in accordance
with the requirements and conditions of all governmental permits applicable
thereto and any private restrictive covenants affecting the Property.
(q) Compliance With Governmental Requirements. To the best of Seller's
-----------------------------------------
knowledge, there are no violations of law, municipal or county ordinances,
or other legal requirements with respect to the Property, and the
Improvements thereon, when construction thereof is completed in accordance
with the Plans and Specifications, will comply with (i) all applicable
legal requirements with respect to the use, occupancy, and construction
thereof, including, without limitation, the Americans with Disabilities
Act., and (ii) the Permitted Exceptions. To the best of Seller's
knowledge, the Property is currently zoned in a classification such as will
permit the operation of the Property for the uses thereof permitted in the
Lease, and the conditions, if any, to the granting of the zoning of the
Property have been satisfied. To the best of Seller's knowledge, the
Property is not located in a wetland area or in a designated or recognized
flood plain, flood plain district, flood hazard area or area of similar
characterization.
(r) Declaration. Seller has obtained a determination by the Committee that
-----------
the intended use of the Property by Tenant is permitted under Section 4.1
of the Declaration and that such intended use is in keeping with the
purposes referred to in Article III of the Declaration. Seller has
obtained the written approval of the Plans and Specifications by the
Committee, and no other approvals are required to be obtained under the
Declaration in connection with development and construction of the Project.
To the best of Seller's knowledge, the Plans and Specifications comply with
all requirements of the Declaration, including without limitation,
requirements relating to design, setbacks, landscaping, floor area ratios,
building heights, signs,
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<PAGE>
sewer systems, water drainage, and irrigation. Seller has not received any
notice, and Seller is not aware, of any default by Seller or with respect
to the Property or any event, or occurrence which, with the giving of
notice or lapse of time, or both, would result in a default of Seller or
with respect to the Property under the Declaration. Seller has paid all
annual assessments due and payable with respect to the Property under the
Declaration for the period through December 31, 1996, and no special
assessments are currently due and payable with respect to the Property
under the Declaration.
(s) Utilities. All utilities necessary for the use of the Property by the
---------
Tenant, including water, sanitary sewer, storm sewer, natural gas,
electricity, and telephone, are or shall be installed and such utilities
either enter the Property through adjoining public streets, or, if they
pass through adjoining private land, do so in accordance with valid public
easements or private easements which inure to the benefit of the Property.
(t) Existing Surveys. Seller has heretofore delivered to Purchaser the
----------------
most current boundary survey of the Land in the possession or control of
Seller.
(u) Initial Utility Charges. All installation and connection charges for
-----------------------
utilities serving the Property have been paid in full, except for the water
tap-on fee which has not yet been paid by Seller.
(v) Employees. There are no employment, collective bargaining, or similar
---------
agreements or arrangements between Seller and any of its employees or
others which will be binding on Purchaser or any of Purchaser's successors
in title.
(w) Authorization. Seller is a duly organized and validly existing general
-------------
partnership under the laws of the State of Colorado. This Agreement has
been duly authorized and executed on behalf of Seller, all necessary action
on the part of Seller to authorize the transactions herein contemplated has
been taken, and no further action is necessary for such purpose, and this
Agreement constitutes the valid and binding agreement of Seller,
enforceable in accordance with its terms, subject to bankruptcy, insolvency
and similar laws affecting generally the enforcement of creditor's rights.
Neither the execution and delivery of this Agreement nor the consummation
of the transaction contemplated hereby will (i) be in violation of Seller's
partnership agreement, (ii) conflict with or result in the breach or
violation of any law, regulation, writ, injunction or decree of any court
or governmental instrumentality applicable to Seller, or (iii) constitute a
breach of any evidence of indebtedness or agreement of which Seller is a
party or by which Seller is bound.
(x) Seller Not a Foreign Person. Seller is not a "foreign person" which
---------------------------
would subject Purchaser to the withholding tax provisions of Section 1445
of the Internal Revenue Code of 1986, as amended.
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<PAGE>
(y) Option Agreement. Seller has delivered to Purchaser a complete and
----------------
accurate copy of the Option Agreement. The Option Agreement has not been
further supplemented or modified or amended. Seller has not received any
notice of termination or default under the Option Agreement, and to the
best of Seller's knowledge, there are no existing or uncured defaults by
Seller or by Interlocken, Ltd. under the Option Agreement, and there are no
events which with the passage of time or notice, or both, would constitute
a default Seller or by Interlocken, Ltd. under the Option Agreement.
(z) REA. Seller has delivered to Purchaser a complete and accurate copy of
---
the REA and the REA has not been modified or amended and remains in full
force and effect. To the best of Seller's knowledge, there is no default,
or claim of default, or any event which with the passage of time or notice,
or both, would constitute a default on the part of either party to the REA.
At Closing, Seller shall reaffirm to Purchaser that all such representations and
warranties of Seller in this Agreement remain true and correct as of the date of
the Closing, except for any changes in any such representations or warranties
that occur and are disclosed by Seller to Purchaser expressly and in writing at
any time and from time to time prior to Closing upon their occurrence, which
disclosures shall thereafter be updated by Seller to the date of Closing. If
there is any change in any representations or warranties and Seller does not
cure or correct such changes prior to Closing, then Purchaser may, at
Purchaser's option, (i) close and consummate the transaction contemplated by
this Agreement, except that after such closing and consummation Purchaser shall
have the right to seek monetary damages from Seller for any such changes
willfully caused by Seller or any such representations or warranties willfully
breached by Seller, or (ii) terminate this Agreement by written notice to
Seller, whereupon the Earnest Money shall be immediately returned to Purchaser,
and thereafter the parties hereto shall have no further rights or obligations
hereunder, except only (1) for such rights or obligations that, by the express
terms hereof, survive any termination of this Agreement and (2) that Purchaser
shall have the right to seek monetary damages from Seller for any changes in
such representations and warranties willfully caused by Seller or any such
representations and warranties willfully breached by Seller.
10. Seller's Additional Covenants. Seller does hereby further covenant
-----------------------------
and agree as follows:
(a) Operation of Property. Seller hereby covenants that, from the
---------------------
Effective Date of this Agreement up to and including the date of Closing,
Seller shall: (i) not negotiate with any third party respecting the sale
of the Property or any interest therein, (ii) except for the Lease
Amendment and Estoppel Certificate, not modify, amend, or terminate the
Lease without the prior written consent of Purchaser, (iii) not enter into
any new service contract or other agreement respecting the Property without
the prior written consent of Purchaser, which consent shall not be
unreasonably withheld or delayed, (iv) not waive any rights of Seller under
the Lease
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<PAGE>
or any Service Contract, (v) not grant or otherwise create or consent to
the creation of any easement, restriction, lien, assessment, or encumbrance
respecting the Property, without the prior written consent of Purchaser,
which consent shall not be unreasonably withheld or delayed with respect to
easements for utilities to serve the Property, and (vi) neither transfer
nor remove any personal property or fixtures from the Property except for
purposes of replacement thereof, in which case such replacements shall be
properly installed and shall be comparable in quality to the items being
replaced. Seller has advised Purchaser that Seller is currently negotiating
a contract for the acquisition of irrigation water from Interlocken, Ltd.
Seller agrees that such contract shall be subject to the approval of
Purchaser, which approval shall not be unreasonably withheld or delayed.
(b) Continuation of Construction. Seller shall, from and after the
----------------------------
Effective Date of this Agreement to the date of Closing, (i) continue to
prosecute the construction and development of the Project in accordance
with the Plans and Specifications and the Permitted Exceptions with
diligence and without interruption, unless such interruption is due to an
event or occurrence beyond Seller's reasonable control (it being agreed,
however, that lack of funds and contractor defaults are not events or
occurrences beyond Seller's reasonable control), (ii) except for change
orders which would not require Purchaser's prior consent if effectuated
after Closing as provided in Paragraph 16(d) hereof, not modify, amend, or
terminate the Architect's Agreement or the Construction Agreements without
the prior written consent of Purchaser, which consent shall not be
unreasonably withheld or delayed, (iii) not waive any rights of Seller
under the Architect's Agreement or Construction Contracts, and (iv) perform
and discharge all of the duties and obligations and comply with every
covenant and agreement of the Seller or the "Owner" under the Architect's
Agreement and Construction Agreements, in the manner and within the time
limits required thereunder. Furthermore, Seller shall, for the same period
of time, use diligent and good faith efforts to cause the Architect and the
Contractors to perform all of their respective duties and obligations and
otherwise comply with each and every one of their respective covenants and
agreements under the Architect's Agreement and Construction Agreements.
(c) Preservation of Lease. Seller shall, from and after the Effective Date
---------------------
of this Agreement to the date of Closing, use diligent and good faith
efforts to perform and discharge all of the duties and obligations and
shall otherwise comply with every covenant and agreement of the landlord
under the Lease, at Seller's expense, in the manner and within the time
limits required thereunder. Furthermore, Seller shall, for the same period
of time, use diligent and good faith efforts to cause the Tenant under the
Lease to perform all of its duties and obligations and otherwise comply
with each and every one of its covenants and agreements under the Lease.
(d) Lease Amendment and Estoppel Certificate. Prior to Closing, Seller
----------------------------------------
shall obtain and deliver to Purchaser a fully completed Lease Amendment and
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<PAGE>
Estoppel Certificate with respect to the Lease in the form attached hereto
as Exhibit "D" and by this reference made a part hereof, duly executed by
-----------
the Tenant thereunder. In the event Seller is unable to obtain the Lease
Amendment and Estoppel Certificate with respect to the Lease, and if
Purchaser elects to waive the condition set forth in Paragraph 7(e) hereof
and proceed to Closing, Seller shall make a written representation and
warranty to Purchaser at Closing with respect to the factual matters set
forth in the form of such Lease Amendment and Estoppel Certificate.
(e) As-Built Survey. Seller agrees to obtain at Seller's cost and deliver
---------------
to Purchaser within twenty (20) days after the Substantial Completion Date,
an as-built survey of the Real Estate prepared for and certified to
Purchaser and the Title Company by Christopher D. Johnson of Accurate
Consultants, Inc. or such other registered land surveyor approved by
Purchaser, which approval shall not be unreasonably withheld. The as-built
survey shall comply with the minimum detail requirements for land title
surveys as adopted by the American Land Title Association and American
Congress on Surveying and Mapping, adopted in 1992, shall be dated not
earlier than the Substantial Completion Date, and shall show the following
items, whether covered by the foregoing minimum detail requirements or not:
(i) The political subdivision, county, and such other notations as will
accurately describe the property surveyed.
(ii) All courses and distances of the boundaries of the Land.
(iii) The location of all Improvements (including measured dimensions) on
the Land with the dimensions in relation to lot and building lines. If any
applicable restrictions, recorded plats, or zoning ordinances require a
building to be set back specified distances from streets or property lines,
the as-built survey must show measured distances from said building to said
streets or lines.
(iv) The location of all rights-of-way, water courses, drains, sewers,
utility easements, driveways, or roads which serve the Real Estate or to
which the Real Estate is subject.
(v) The names and widths of streets with the distance from the nearest
corner to the beginning point of Land surveyed.
(vi) The total acreage or square foot area of the Land and the location and
number of paved parking spaces.
(vii) The names of adjoining owners on all sides of the Land.
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<PAGE>
(viii) If the surveyor prepared the subdivision plat of the Land,
certification by the surveyor that the real property, as shown and
described in the as-built survey, does not constitute an illegal
subdivision of land under applicable county or city ordinances.
(ix) Certification as to whether or not the Land lies within a flood zone
as determined by the United States Department of Housing and Urban
Development. If the Land lies within a flood zone, the certification
should reflect the flood zone classification.
Seller also agrees to obtain at Seller's cost and deliver to Purchaser
within ten (10) days after the Effective Date of this Agreement, the
reissuance of the existing "ALTA/ACSM Land Title Survey" prepared by
Accurate Consultants, Inc., dated December 10, 1996, revised so as to be
certified to Purchaser, Escrow Agent and Title Company and containing
thereon the signature and seal of Christopher D. Johnson, the registered
land surveyor.
(f) Declaration Estoppel Certificate. Prior to Closing, Seller shall
--------------------------------
obtain from the Owner's Association under the Declaration a written
certificate stating the amount of Assessments for which Seller is liable
and whether such Assessments have been paid in full as provided in Section
13.9 of the Declaration.
(g) Contractors' and Architect's Consents. Prior to Closing, Seller shall
-------------------------------------
obtain from each of the Contractors with respect to its construction
agreement, a Contractor's Certification and Agreement to Continue Work in
the form attached hereto as Exhibit "R" and by reference made a part
-----------
hereof, and Seller shall obtain from the Architect with respect to the
Architect's Agreement, a Architect's Certification and Agreement to
Continue Work in the form attached hereto as Exhibit "S" and by reference
-----------
made a part hereof.
(h) Option Agreement. Prior to Closing, Seller shall obtain and deliver to
----------------
Purchaser the written consent of Interlocken, Ltd. to the transfer and
assignment by Seller to Purchaser of the Option Agreement.
11. Closing. Provided that all of the conditions set forth in this
-------
Agreement are theretofore fully satisfied or performed, it being fully
understood and agreed, however, that Purchaser may waive expressly and in
writing, at or prior to Closing, any conditions that are unsatisfied or
unperformed at such time, the consummation of the sale by Seller and purchase by
Purchaser of the Property (herein referred to as the "Closing") shall be held on
or before the date which is fifteen (15) business days after the Effective Date
of this Agreement, at an office in Greenwood Village or Broomfield, Colorado, at
such specific office, and at such specific time and date as shall be designated
by Purchaser in a written notice to Seller not less than five (5) business days
prior to Closing. In the event Purchaser fails to give such notice of the time,
date and place of Closing, the Closing shall occur at 1:30 p.m. on the last
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<PAGE>
date for such Closing as provided above, at the office of the Escrow Agent at
Orchard Place 1, 5995 Greenwood Plaza Blvd., Suite 110, Greenwood Village,
Colorado 80111-4710.
12. Seller's Closing Documents. For and in consideration of, and as a
--------------------------
condition precedent to Purchaser's delivery to Seller of the Purchase Price
described in Paragraph 4 hereof, Seller shall obtain or execute, at Seller's
expense, and deliver to Purchaser at Closing the following documents (all of
which shall be duly executed, acknowledged, and notarized where required):
(a) Deed. A Special Warranty Deed conveying to Purchaser marketable fee
----
simple title to the Real Estate, together with all rights, members,
easements, and appurtenances thereof, subject only to the Permitted
Exceptions. The legal description set forth in the Special Warranty Deed
shall be identical to Exhibit "A" attached hereto;
-----------
(b) Bill of Sale. A Bill of Sale conveying to Purchaser marketable title
------------
to the Personal Property in the form and substance of Exhibit "I" attached
-----------
hereto and by this reference made a part hereof;
(c) Blanket Transfer. A Blanket Transfer and Assignment in the form and
----------------
substance of Exhibit "J" attached hereto and by this reference made a part
-----------
hereof;
(d) Assignment and Assumption of Lease. An Assignment and Assumption of
----------------------------------
Lease in the form and substance of Exhibit "K" attached hereto and by this
-----------
reference made a part hereof, assigning to Purchaser all of Seller's
right, title, and interest in and to the Lease and the rents thereunder;
(e) Assignment and Assumption of Construction Agreements. An Assignment
----------------------------------------------------
and Assumption of Construction Documents in the form and substance of
Exhibit "L" attached hereto and by the reference made a part hereof,
-----------
assigning to Purchaser all of Seller's right, title and interest in and to
the Architect's Agreement and the Construction Agreements;
(f) Assignment and Assumption of Option Agreement. An Assignment and
---------------------------------------------
Assumption of Option Agreement in the form and substance of Exhibit "M"
----------
attached hereto and by reference made a part hereof, assigning to
Purchaser all of Seller's right, title and interest in and to the Option
Agreement;
(g) Seller's Certificate. A certificate evidencing the reaffirmation of
--------------------
the truth and accuracy of Seller's representations, warranties, and
agreements set forth in Paragraphs 9 and 21 hereof;
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(h) FIRPTA Certificate. An executed affidavit that Seller is not a foreign
------------------
entity in accordance with the provisions of Section 1445 of the Internal
Revenue Code of 1986, as amended;
(i) Surveys and Plans. Such surveys, site plans, plans and specifications,
-----------------
and other matters relating to the Property as are described in subparagraph
(a) of the Blanket Transfer and Assignment and are in the possession or
control of Seller;
(j) Lease. An original executed counterpart of the Lease;
-----
(k) Service Contracts. An original executed counterpart of each Service
-----------------
Contract;
(l) Estoppel Certificate. The Lease Amendment and Estoppel Certificate (or
--------------------
representation from Seller) referred to in Paragraph 10(d) hereof;
(m) Construction Expense Statements. Statements, certified to be complete
-------------------------------
and accurate by Seller, (i) of the updated Development Budget, and (ii)
copies of all draw requests relating to the Project through the date of
Closing;
(n) Corporate Resolution. A copy of a resolution of the Board of Directors
--------------------
each corporate general partner of Seller, certified by the Secretary,
Assistant Secretary of such corporate general partner of Seller to be in
force and unmodified as of the date and time of Closing, authorizing the
execution and delivery of documents required hereunder, and a certificate
of incumbency designating the signatures of the officers or members of each
such corporate general partner of Seller who are to execute and deliver all
such documents on behalf of such corporate general partner of Seller;
(o) Keys and Records. Any keys to any doors or locks on the Property in
----------------
the possession or control of Seller and the original tenant files and other
books and records relating to the Property in Seller's possession or
control;
(p) Tenant Notices. Notice from Seller to the Tenant of the sale of the
--------------
Property to Purchaser in such form as Purchaser and Seller shall reasonably
approve;
(q) Settlement Statement. A settlement statement setting forth the amounts
--------------------
paid by or on behalf of and/or credited to each of Purchaser and Seller
pursuant to this Agreement;
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<PAGE>
(r) Escrow Agreement. The escrow agreement referred to in Paragraph 4
----------------
hereof;
(s) Construction Plans. Seller's construction plans, including but not
------------------
limited to the Plans and Specifications and any and all other surveys, plans and
specifications for engineering, architectural, landscaping, electrical, civil,
sewage, storm water, drainage or elevations, or any combination thereof with
respect to the Land or Improvements thereon or both Land and Improvements;
(t) Builder's Risk Policy. An assignment of the current all-risk,
---------------------
builder's risk policy in effect with respect to the Project, together with an
endorsement to such policy issued by the insurer reflecting the change in
ownership, it being understood, however, that Seller shall be named an
additional insured with respect to such policy following the Closing and for so
long as Seller is performing the Development Functions; and
(u) Other Documents. Such other documents as are customarily and
---------------
reasonably required by the Title Company, including an owner's affidavit.
13. Purchaser's Closing Documents. Purchaser shall obtain or execute, at
-----------------------------
Purchaser's expense, and deliver to Seller at Closing the following documents,
all of which shall be duly executed and acknowledged where required:
(a) Assignment and Assumption of Lease. The Assignment and Assumption
----------------------------------
of Lease in the form and substance of Exhibit "K" attached hereto;
-----------
(b) Blanket Transfer. A Blanket Transfer and Assignment in the form
----------------
and substance of Exhibit "J" attached hereto;
-----------
(c) Assignment and Assumption of Construction Documents. An Assignment
---------------------------------------------------
and Assumption of Construction Documents in the form of Exhibit "L" attached
-----------
hereto;
(d) Assignment and Assumption of Option Agreement. An Assignment and
---------------------------------------------
Assumption of Option Agreement in the form of Exhibit "M" attached hereto.
-----------
(e) Settlement Statement. A settlement statement setting forth the
--------------------
amounts paid by or on behalf of and/or credited to each of Purchaser and Seller
pursuant to this Agreement;
(f) Escrow Agreement. The escrow agreement referred to in Paragraph 4
----------------
hereof; and
(g) Other Documents. Such other documents as shall be reasonably
---------------
required by the Title Company.
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<PAGE>
14. Closing Costs. Seller shall pay the cost of the Title Commitment,
-------------
including the cost of the examination of title to the Property made in
connection therewith, the premium for the owner's policy of title insurance
issued pursuant thereto (excluding the premium for any special endorsements),
the cost of the as-built survey obtained by Seller as provided in Paragraph
10(e) hereof, the cost of any transfer or documentary tax imposed by the State
of Colorado or any county or municipality upon the conveyance of the Property
pursuant hereto, the attorneys' fees of Seller, and all other costs and expenses
incurred by Seller in closing and consummating the purchase and sale of the
Property pursuant hereto. Purchaser shall pay the recording fees on the Special
Warranty Deed (and quitclaim deed if required pursuant to Paragraph 12[a]
hereof) of the Property from Seller to Purchaser to be recorded in connection
with this transaction, the premium for any special endorsements to Purchaser's
owner's policy of title insurance, the attorneys' fees of Purchaser, and all
other costs and expenses incurred by Purchaser in closing and consummating the
purchase and sale of the Property pursuant hereto. Seller and Purchaser shall
share equally the costs of the escrow established under Paragraph 4 hereof,
including the fees of Escrow Agent.
15. Prorations. The following items shall be prorated and/or credited
----------
between Seller and Purchaser as follows:
(a) Rents. If applicable, rent, additional rent, operating costs, and
-----
other income of the Property (other than security deposits) collected by
Seller from the Tenant for the month of Closing shall be prorated as of
Midnight preceding the date of Closing. Purchaser shall also receive a
credit against the Purchase Price payable by Purchaser to Seller at Closing
for any rent or other sums (not including security deposits) prepaid by the
Tenant for any period following the month of Closing, or otherwise.
Purchaser shall receive a credit against the Purchase Price payable by
Purchaser to Seller at Closing for the total sum of all security deposits
paid by the Tenant under the Lease and not theretofore applied to
delinquent rent and other charges payable by the Tenant. Seller hereby
acknowledges that Purchaser shall not be legally responsible to Seller for
the collection of any uncollected rent or other income under the Lease that
is past due or otherwise due and payable as of the date of Closing.
Purchaser agrees that if (i) the Tenant is in arrears on the date of
Closing in the payment of rent or other charges under such Tenant's Lease,
and (ii) upon Purchaser's receipt of any rental or other payment from such
Tenant, such Tenant is, or after application of a portion of such payment
will be, current under the Lease in the payment of all accrued rental and
other charges that become due and payable on the date of Closing or
thereafter and in the payment of any other obligations of the Tenant to
Purchaser, then Purchaser shall refund to Seller, out of and to the extent
of the portion of such payment remaining after Purchaser deducts therefrom
any and all sums due and owning it from such Tenant from and after the date
of Closing, an amount up to the full amount of any arrearage existing on
the date of Closing.
(b) Property Taxes. Seller and Purchaser acknowledge that city,
--------------
state, county, and school district ad valorem taxes which shall accrue
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<PAGE>
during the period from the commencement of construction of the Project
through the date preceding the Commencement Date under the Lease are
Project Costs and shall not be prorated between Seller and Purchaser at
Closing. Seller is responsible for the payment of all such taxes for 1996
and prior years (which obligation of Seller shall be satisfied with the
proceeds from the escrow established as provided in Paragraph 4 hereof as
contemplated in the Development Budget), and Purchaser shall be responsible
for the payment of all such taxes for 1997 (which obligation of Purchaser
shall be satisfied in part with the proceeds to be paid to Purchaser from
escrow as provided below). Promptly after the execution and delivery of
the Supplemental Agreement under the Lease, the amount of city, state,
county, and school district ad valorem taxes for the period attributable to
the period from January 1, 1997 through the date preceding the Commencement
Date under the Lease shall be paid to Purchaser from the portion of the
Purchase Price deposited into escrow with Escrow Agent at Closing pursuant
to Paragraph 4 hereof, and Seller and Purchaser agree that they shall each
promptly authorize and direct Escrow Agent in writing to make payment of
such amount to Purchaser from the escrow funds in connection with the next
regular disbursement of escrow funds by the Escrow Agent. The proration of
such taxes for 1997 shall be based on the ad valorem tax bills for the
Property, if then available, or if not, then on the basis of the latest
available tax figures and information. Should such proration be based on
such latest available tax figures and information and prove to be
inaccurate on receipt of the ad valorem tax bills for the Property for the
year of Closing, and if the Base Rent under the Lease shall be adjusted on
the basis of such actual tax figures, either Seller or Purchaser, as the
case may be, may demand at any time after the execution and delivery of the
Supplemental Agreement under the Lease a payment from the other correcting
such malapportionment. In addition, if after Closing there is an
adjustment or reassessment by any governmental authority with respect to,
or affecting, any ad valorem taxes for the Property for any year prior to
Closing, any additional tax payment for the Property required to be paid
with respect to any year prior to the year of Closing shall be paid by
Seller (which obligation of Seller shall be satisfied with the proceeds
from escrow established as provided in Paragraph 4 hereof, to the extent
proceeds in escrow are available for such purpose). This agreement shall
expressly survive the Closing.
(c) Utility Charges. Seller and Purchaser acknowledge that costs of
---------------
utilities incurred during construction of the Project are Project Costs and
shall not be prorated between Seller and Purchaser.
(d) Service Contracts. Charges under the Service Contracts, if any,
-----------------
shall be prorated as of Midnight preceding the date of Closing.
(e) Other Tenant Charges. Where the Lease contains the Tenant's
--------------------
obligations for taxes, common area expenses, operating expenses or additional
charges of any nature, and where Seller shall have collected on an estimated
basis any portion thereof in excess of amounts owed by Seller for such items for
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the period prior to the date of Closing, then there shall be an adjustment and
credit given to Purchaser on the date of Closing for such excess amounts
collected. Purchaser shall apply all such excess amounts to the charges owed by
Purchaser for such items for the period after the date of Closing, and if
required by the Lease, shall rebate or credit the Tenant with any remainder. If
it is determined subsequent to the Closing that the amount collected during
Seller's ownership period exceeded expenses incurred during the same period by
more than the amount previously credited to Purchaser at Closing, then Seller
shall promptly pay to Purchaser the deficiency. If it is determined subsequent
to Closing that the amount collected during Seller's ownership period exceeded
expenses incurred during the same period by less than the amount previously
credited to Purchaser at Closing, then Purchaser shall promptly pay to Seller
the overpayment.
(f) Assessments Under Declaration. Seller and Purchaser acknowledge
-----------------------------
that the annual assessments under the Declaration which shall accrue during the
period following commencement of construction of the Project through the date
preceding the Commencement Date under the Lease are Project Costs and shall not
be prorated between Seller and Purchaser at Closing. Seller is responsible for
the payment of such assessments for 1996 and prior years, and Purchaser shall be
responsible for the payment of such assessments for 1997 (which obligation of
Purchaser shall be satisfied in part with the proceeds to be paid to Purchaser
from escrow as provided below). Promptly after the occurrence of the
Commencement Date under the Lease, the amount of such assessments attributable
to the period from January 1, 1997 through the date preceding the Commencement
Date under the Lease shall be paid to Purchaser from the portion of the Purchase
Price deposited into escrow with Escrow Agent at Closing pursuant to Paragraph 4
hereof, and Seller and Purchaser agree that they shall each promptly authorize
and direct Escrow Agent in writing to make payment of such amount to Purchaser
from the escrow funds in connection with the next regular disbursement of escrow
funds by the Escrow Agent.
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16. Completion of Project.
---------------------
(a) Seller's Responsibilities. Following the Closing, Seller shall be
-------------------------
responsible to continue to administer, coordinate and manage the construction
and completion of the Project, all in accordance with the terms and provisions
set forth herein, and all without compensation or reimbursement to Seller
whatsoever other than the payment of the Purchase Price as provided in this
Agreement (it being acknowledged, however, that the Project Costs to which the
Purchase Price shall be applied include a development fee to Seller or an
affiliate of Seller). Seller agrees to diligently perform its duties and the
Development Functions hereunder, which performance in all respects and at all
times shall be carried out to the same extent and with the same degree of care
and quality as Seller would exercise in the conduct of its own affairs if Seller
were the owner of the Project. Seller agrees to apply prudent and reasonable
business practices in the performance of its duties hereunder. Seller shall
have a license to enter the Real Estate following the Closing for the purpose of
performing the Development Functions.
With respect to Purchaser, Seller shall at all times be an independent
contractor. No provision of this Paragraph 16 shall be construed to constitute
the Seller or any of its officers or employees as an employee or employees of
the Purchaser nor shall any provision of this Agreement be construed as creating
a partnership or joint venture between Seller and Purchaser. Neither Purchaser
nor Seller shall have the power to bind the other party except pursuant to the
terms of this Agreement. Seller acknowledges and agrees that following the
Closing, Seller shall act as a fiduciary hereunder with respect to the Purchaser
and that, with respect to all of the services to be rendered by the Seller to
the Purchaser pursuant to this Agreement following the Closing, Seller shall
have the duty to act at all times in the best interests of Purchaser.
Seller's general responsibility hereunder as Purchaser's development
manager shall be to manage, to administer, to monitor, and to coordinate the
construction and installation of the Project and the completion thereof free and
clear of all liens and claims or rights to liens (subject to the funding by
Purchaser of the Purchase Price). In discharging its general responsibility
hereunder, Seller shall perform and discharge the following specific
responsibilities with respect to the Project (herein collectively referred to as
the "Development Functions"):
(1) Seller, in the name of, and on behalf of, Purchaser, shall
maintain and continue the engagement of Architect and Contractors, for the
compensation and on the terms provided for in the Architect's Agreement and
the Construction Agreements.
(2) Seller shall implement the Development Budget as provided herein.
(3) In implementing the Development Budget and in otherwise discharging
its duties and responsibilities hereunder, Seller shall negotiate with, and
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submit to Purchaser contracts (for execution by Purchaser) with, coordinate
and administer the performance of, and review and approve or disapprove
applications for payment of the fees, charges, and expenses of, such
architects, engineers, planners, designers, consultants, general
contractors, subcontractors, vendors, and other design and construction
professionals, consultants, and suppliers as Seller deems necessary or
appropriate to develop the Project in accordance with and subject to the
limitations of the Development Budget. Such fees, charges and expenses shall
be borne by Purchaser as contemplated in the Development Budget. Subject to
the provisions of Paragraph 16(e) hereof, the employment, coordination and
payment of such additional architects, engineers, planners, designers,
consultants, general contractors, subcontractors, vendors, and other design
and construction professionals, consultants, and suppliers on terms not
consistent with or within the limitations of the Development Budget shall be
only at the direction of Purchaser.
(4) Seller shall administer and review the selection by the Contractors
of subcontractors and others as appropriate for construction of the Project
(to the extent not yet selected) and review bids for acceptability from
subcontractors.
(5) Seller shall endeavor to cause the Contractors to keep in full force
and effect all necessary governmental approvals and permits, and shall
endeavor to perform such acts as shall be reasonably necessary to effect
compliance by Purchaser with all laws, rules, ordinances, statutes, and
regulations of any Governmental Authority applicable to the Project.
(6) Seller shall endeavor to perform such acts as shall be reasonably
necessary to effect compliance by Purchaser with all applicable private
restrictions, covenants and easement agreements concerning the development,
use and operation of the Project or any portion thereof.
(7) Seller shall negotiate and submit to the Purchaser for the
Purchaser's approval all contracts for, or otherwise arrange for the
delivery of all utilities required for the development, construction, and
operation of the Project, including, without limitation, water, electricity,
telephone, storm sewer, and sanitary sewer services. Purchaser agrees that
its approval of such contracts shall not be unreasonably withheld or
delayed.
(8) Seller shall assist Purchaser so that the Purchaser shall obtain and
keep in force, such policies of insurance, including, but not limited to,
public liability, all-risk, and builder's risk, in such amounts and with
such carriers as shall be required to be maintained by Purchaser under the
Architect's Agreement and the Construction Agreements.
(9) Seller shall maintain complete and accurate records reflecting the
progress of the Seller's implementation, both before and after Closing, of
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the Development Budget, which records shall include all contracts, purchase
orders, disbursement requests, bids, and proposals of contractors,
suppliers, and vendors, and such other records, plans and information as
Seller shall deem appropriate to maintain in discharging its duties and
responsibilities hereunder.
(10) Seller shall inspect the Project at regular intervals so as to be
kept informed as to the stage of development and the condition of the
Project.
(11) Seller shall examine the contents of all applications for payments
submitted under the Architect's Agreement or any Construction Agreement,
verify the contents of such applications and prepare, execute and deliver,
or cause to be prepared, executed and delivered such certificates and other
documents as may be required by such Agreements and shall review and approve
all disbursements made by or on behalf of Purchaser under the Architect's
Agreement and under any Construction Agreement, all in accordance with the
Development Budget as it may from time to time be revised pursuant to
Paragraph 16(e) hereof. Seller shall process all such applications for
payments and any other invoices and charges as expeditiously as possible to
avoid all penalties and any excess interest and to use reasonable efforts,
to the extent possible and when desirable, to take advantage of vendor
discounts. Seller shall also make recommendations to Purchaser with respect
to modifications, clarifications and change orders necessary or desirable
under any Construction Agreement; and Seller shall also review and recommend
for approval or disapproval by Purchaser, as appropriate, change orders
under any Construction Agreement, all in accordance with the Development
Budget as it may from time to time be revised pursuant to Paragraph 16(e)
hereof.
(12) Seller shall coordinate, administer and manage the work, activities
and performance of the Architect under the Architect's Agreement and of the
Contractors under the Construction Agreements. Such activities by Seller
shall include, without limitation, reviewing, monitoring and coordinating
all construction scheduling to ensure the orderly process of construction
and completion thereof in the manner and within the time periods required by
the Lease and this Agreement, and reviewing and verifying all payment
requests from the Architect and the Contractors. Seller shall serve as the
Purchaser's representative in all discussions, negotiations, and dealings
with the Architect and the Contractors. Seller shall periodically (but no
less often than every ten [10] days prior to the Substantial Completion Date
and no less often than biweekly after the Substantial Completion Date)
advise Purchaser of the status of the Project and of their respective duties
and obligations with respect to the Project and shall provide copies to
Purchaser of the weekly meeting notes and field reports for such week (but
no other formal written reports). Seller shall also assist and advise
Purchaser with respect to the performance and enforcement by Purchaser of
its duties and rights under the Architect's Agreement and the Construction
Agreements. Seller shall coordinate with the Architect and the Contractor an
orderly and expeditious transition from the construction stage of the
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Project to the operating stage of the Project and, in connection therewith,
Seller shall expedite and supervise the completion of any remedial work that
may be required to be performed by the Contractors following the completion
of the Project.
(13) Seller shall cooperate with Purchaser's inspecting engineer, if
any, engaged for the purpose of reviewing the status of the work.
(14) Seller shall purchase, to the extent the same are not provided
under the Construction Agreement, all supplies, materials, and equipment
required in connection with the development of the Project, and the cost of
same shall be borne by Purchaser as contemplated in the Development Budget.
(15) Seller shall coordinate, review, administer and manage the work and
activities relating to, and the performance of, the Tenant Improvements to
be constructed and installed by the "Landlord" under the Lease.
(16) Upon substantial completion of the Project, Seller shall cause the
Project to be inspected by the Committee and shall obtain the Preliminary
Certificate of Compliance from the Committee as required by the Declaration.
Thereafter, Seller shall cause the as-built site drawings to be prepared and
submitted to the Committee as required by the Declaration and shall obtain
the final Certificate of Compliance from the Committee as contemplated in
the Declaration.
(17) Seller shall deliver to Purchaser the originals of all permits,
licenses, guaranties, warranties, bills of sale and other contracts,
agreements, change orders or commitments obtained or received by Seller for
the account or benefit of Purchaser, it being understood that Purchaser,
upon Purchaser's approval thereof, which approval shall not be unreasonably
withheld or delayed, will execute all such contracts, agreements, change
orders and documents, and that Seller will not, under any circumstances,
execute contracts, agreements, change orders (other than as permitted under
Paragraph 16[d] hereof) or documents on behalf of Purchaser except as
specifically provided otherwise in this Agreement (including Paragraph 16[d]
hereof) or as otherwise expressly authorized in writing by Purchaser.
(18) Seller will prepare the final accounting of all costs for the
purpose of establishing the Base Rental Rate as contemplated in Exhibit J to
---------
the Lease, and Seller and Purchaser shall each cooperate and participate
fully in establishing the Base Rental Rate under the Lease.
(19) In connection with the initial conversion of the Project from the
development stage to the operational stage, Seller shall make
recommendations to Purchaser regarding the selection of independent
contractors to provide services with respect to the Property (janitorial,
security, sweeping, landscape maintenance, etc.).
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(b) Completion and Guarantee. Seller hereby agrees to devote sufficient
------------------------
time and personnel to cause the development of the Project to be completed in
compliance with the time parameters established therefor under the Lease and
this Agreement, and in accordance with the Development Budget as it may from
time to time be revised pursuant to Paragraph 16(e) hereof. Seller does hereby
guarantee to Purchaser that the sum of the following shall in no event exceed
the Purchase Price: (i) the portion of the Purchase Price paid by the Purchaser
to Seller at Closing, (ii) the Earnest Money paid by Escrow Agent to Seller at
Closing, and (iii) the costs and expenses incurred by Purchaser for the
completion of the Project and the satisfaction of all of the conditions required
for the Completion Date to have occurred with respect to the Project. Seller
shall be responsible for and shall pay to Purchaser the amount by which the sum
of the foregoing shall exceed the Purchase Price, which amount(s) shall be paid
within five (5) days after receipt by Seller of a statement therefor accompanied
by such back-up information as may be reasonably required to substantiate the
amount due and payable. Any such amounts payable by Seller to Purchaser
hereunder shall bear interest at the rate of twelve percent (12%) per annum from
the due date thereof until paid.
(c) Employees. Seller shall have in its employ at all times a sufficient
---------
number of capable employees to enable Seller to perform its duties hereunder.
All persons, other than independent contractors, employed by Seller in the
performance of its responsibilities hereunder shall be exclusively controlled by
and shall be the employees of Seller and not of Purchaser, and Purchaser shall
have no liability, responsibility or authority with respect thereto.
(d) Implementation of Development Budget. Seller is hereby authorized
------------------------------------
and directed to implement the Development Budget pursuant to this Agreement.
Seller may, without the need for any further approval whatsoever by Purchaser,
(i) allocate contingency amounts set forth in the Development Budget to other
categories or line items of expense set forth in the Development Budget, (ii)
make reallocations of amounts for any line items of expense in the Development
Budget relating to the "shell and core" of the Improvements to other line items
of expense relating to the "shell and core" of the Improvements, provided that
such reallocation is prudent and shall not result in a diminution in the value
or quality of the Improvements, (iii) make reallocations of amounts for any line
items of expense in the Development Budget relating to Tenant Improvements,
provided that any consent required of the Tenant for the change, addition or
deletion causing such reallocation has been obtained in writing, (iv) approve
and effectuate change orders in the Construction Agreements, provided that (A)
no single change order with respect to the "shell and core" of the Improvements
shall increase the Project Costs by more than Five Thousand Dollars ($5,000.00),
(B) the change orders with respect to the "shell and core" of the Improvements
not expressly approved by Purchaser in writing shall not increase the Project
Costs by more than Twenty Thousand Dollars ($20,000.00) in the aggregate, (C)
the change orders relating to the "shell and core" of the Improvements shall not
result in a diminution in the value or quality of the Improvements, and (D) the
change orders relating to the Tenant Improvements shall not result in a
diminution in the value or quality of the Tenant Improvements unless Tenant's
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consent to such change orders has been obtained in writing. Seller shall have
the right to sign for an on behalf of Purchaser any change orders which Seller
is entitled to approve and effectuate under clause (iv) above if Seller
determines in its reasonable discretion that a delay which would be caused by
submitting such change order to Purchaser for signature by Purchaser would
adversely affect the schedule or cost of the Project. Seller shall give
Purchaser prompt written notice of any reallocations of line items of expense as
set forth in the Development Budget effectuated by Seller without Purchaser's
approval as provided above and of any change orders entered into, approved and
effectuated by Seller without Purchaser's consent as provided above. Seller
shall use prudence and diligence and shall employ commercially reasonable
efforts to ensure that the actual costs incurred for each category or line item
of expense as set forth in the Development Budget (as revised as provided
herein) shall not exceed such category or line item in the Development Budget.
Seller shall advise Purchaser promptly if it appears that costs in any category
or line item specified in the Development Budget will exceed the amount budgeted
therefor. All expenses shall be charged to the proper category or line item in
the Development Budget, and except as herein provided, no expenses may be
classified or reclassified for the purpose of avoiding an excess in the budgeted
amount of a category or line item without Purchaser's prior written approval.
(e) Revision of Development Budget. If Seller at any time determines
------------------------------
that the Development Budget is not compatible with the then-prevailing status of
the Project and does not adequately provide for the completion of the Project,
Seller shall promptly prepare and submit to Purchaser an appropriate revision of
the Development Budget. Any such revision shall require the approval of
Purchaser, except as expressly provided in Paragraph 16(d) above. Purchaser
agrees that Purchaser shall not unreasonably withhold its approval of increases
in any line item of expense in the Development Budget if such lien item of
expense (including the increase thereof) shall be a cost which is included for
purposes of calculating the Base Rent under the Lease, but no such consent by
Purchaser shall imply any agreement to increase the Purchase Price except as
expressly provided in Paragraph 4 hereof.
(f) Books of Account. Seller shall maintain or cause to be maintained
----------------
true and accurate books of account reflecting the planning, design,
construction, and completion of the Project. All entries to such books of
account shall be supported by sufficient documentation to permit Purchaser and
its auditors to ascertain that said entries are properly and accurately
recorded. Such books of account shall be located at Seller's principal
metropolitan Englewood, Colorado office and shall be maintained in accordance
with Seller's present cash method of accounting. Seller shall ensure such
control over accounting and financial transactions as is reasonably required to
protect against theft, error or fraudulent activity on the part of Seller,
Seller's employees or agents.
(g) Monthly Reports. Within fifteen (15) days following the end of each
---------------
calendar month, Seller shall prepare a report with respect to the Project
(hereinafter referred to as the "Monthly Report") and shall cause the same to be
delivered to Purchaser and the Purchaser's inspecting engineer, if any. Each
Monthly Report shall be in the form attached hereto as Exhibit "V" and by
-----------
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reference made a part hereof and shall be accompanied by the following
information respecting the Project:
(1) A copy of the draw request for the month covered by the Monthly
Report, including:
(A) each draw request letter;
(B) each certificate of the Architect; and
(C) each application and certificate for payment of the
Contractor.
(2) The costs incurred under the Construction Contract as of the date
of the Monthly Report, if not included in the application and certificate
for payment referred to in item (1)(C) above.
(3) A comparison of the amount of actual costs incurred as of the date
of the Monthly Report to the budgeted costs as of such date, shown on a
line-item basis using the same categories or line items set forth in the
Development Budget.
(4) Photographs of the Project depicting the current status of
construction.
(5) A report with respect to the progress of construction, including
information as to whether the commencement, milestone and completion dates
in the Lease are being achieved. Seller shall identify in such report
potential variances between the completion dates required in the Lease and
the probable completion dates and shall make recommendations as to
adjustments necessary to meet the required completion dates.
(h) Examination of Books and Records. Purchaser, at its expense, shall
--------------------------------
have the right at all reasonable times during normal business hours and upon at
least twenty-four (24) hours advance notice, to audit, to examine, and to make
copies of or extracts from the books of account and records maintained by Seller
with respect to the Project. If Purchaser shall notify Seller of either
weaknesses in internal control (and provided Purchaser's determination regarding
weaknesses in internal control is reasonable) or errors in record keeping,
Seller shall correct such weaknesses and errors as soon as possible after they
are disclosed to Seller. Seller shall notify Purchaser in writing of the
actions taken to correct such weaknesses and errors.
(i) Indemnity of Purchaser. Seller hereby agrees to indemnify, defend
----------------------
and hold harmless Purchaser and its partners and their respective officers,
directors and employees, from and against any and all claims, demands, losses,
liabilities, actions, lawsuits and other proceedings, judgments and awards, and
costs and expenses (including without limitation reasonable attorneys' fees and
court costs incurred in connection with the enforcement of this indemnity or
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otherwise), arising out of the negligence, fraud or any willful act or omission
of Seller, or any of its officers, directors, agents or employees, in connection
with the obligations of Seller under Paragraph 16 or Seller's services or work
hereunder, whether within or beyond the scope of its duties or authority
hereunder.
(j) Ownership of Information and Materials. Purchaser shall have the
--------------------------------------
right to use, without further compensation to the Seller, all written data and
information generated by or for Seller in connection with the Project or
supplied to Seller by Purchaser or the Purchaser's contractors or agents, and
all drawings, plans, books, records, contracts, agreements and all other
documents and writings in its possession relating to its services or the
Project. Such data and information shall at all times be the property of
Purchaser, subject to any proprietary restrictions in the Architect's Agreement
and Construction Agreements.
(k) Insurance Requirements. Until the Completion Date, insurance with
----------------------
respect to the Project shall be carried and maintained in force in accordance
with the provisions contained in Exhibit "N" attached hereto and incorporated
-----------
herein by this reference, with the premiums and other costs and expenses for
such required insurance to be borne as provided in Exhibit "N".
-----------
(l) Purchaser's Insurance Primary Coverage. As between any insurance
--------------------------------------
carried by Purchaser pursuant to this Paragraph 16 and any insurance carried by
Seller, Purchaser's insurance shall for all purposes be considered the primary
coverage, and no claim shall be made under or with respect to any insurance
maintained by Seller except in the event that Purchaser's entire insurance is
exhausted (without regard to whether the actual amount of Purchaser's insurance
exceeds the amounts specified in this Paragraph 16).
(m) Waiver of Subrogation. Each casualty insurance policy maintained by
---------------------
Purchaser or by Seller with respect to the Project shall contain a waiver of
subrogation clause, so that no insurer shall have any claim over or against
Purchaser or Seller, as the case may be, by way of subrogation or otherwise,
with respect to any claims which are insured under any such policy.
17. Purchaser's Default. In the event of default by Purchaser under the
-------------------
terms of this Agreement occurring prior to Closing, Seller's sole and exclusive
remedy shall be to receive the Earnest Money as liquidated damages and
thereafter the parties hereto shall have no further rights or obligations
hereunder whatsoever, except for obligations hereunder which expressly survive
the termination of this Agreement. It is hereby agreed that Seller's damages
will be difficult to ascertain and that the Earnest Money constitutes a
reasonable liquidation thereof and is intended not as a penalty, but as fully
liquidated damages. Seller agrees that in the event of a default by Purchaser
prior to Closing, Seller shall not initiate any proceeding to recover damages
from Purchaser, but shall limit its recovery to the receipt and retention of the
Earnest Money. The limitations on Purchaser's liability under this Paragraph 17
shall be inapplicable to the liability of Purchaser for payments, if any, due by
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Purchaser to Seller under Paragraph 5 hereof. In the event of any default by
Purchaser occurring after Closing under any of the terms of this Agreement which
survive Closing, Seller may pursue any remedy granted to Seller at law or in
equity, except that Seller waives any right to recover consequential damages
and/or punitive damages arising from any such default by Purchaser occurring
after Closing.
18. Seller's Default. In the event of default by Seller under the terms
----------------
of this Agreement occurring prior to Closing, except as otherwise specifically
set forth herein, at Purchaser's option: (i) Purchaser may terminate this
Agreement by written notice to Seller, whereupon the Earnest Money shall be
immediately returned by Escrow Agent to Purchaser, and the parties hereto shall
have no further rights or obligations hereunder except for rights and
obligations which expressly survive any termination of this Agreement, or (ii)
Purchaser shall be entitled to an immediate refund of all but $25.00 of the
Earnest Money and to pursue against Seller any remedy granted to Purchaser at
law or in equity, including, without limitation, specific performance, but
Purchaser waives any right to recover consequential damages and/or punitive
damages arising from any such default by Seller under this Agreement. In the
event of any default by Seller occurring after Closing under any of the terms of
this Agreement which survive Closing, Purchaser may pursue any remedy granted to
Purchaser at law or in equity, except that Purchaser waives any right to recover
consequential damages and/or punitive damages arising from any such default by
Seller occurring after Closing.
19. Condemnation. If, prior to the Closing, all or any part of the
------------
Property which Purchaser reasonably determines will interfere with the operation
of the Property is subjected to a bona fide threat of condemnation by a body
having the power of eminent domain or is taken by eminent domain or condemnation
(or sale in lieu thereof), or if Seller has received notice that any
condemnation action or proceeding with respect to the Property is contemplated
by a body having the power of eminent domain, Seller shall give Purchaser
immediate written notice of such threatened or contemplated condemnation or of
such taking or sale, and Purchaser may by written notice to Seller given within
thirty (30) days of the receipt of such notice from Seller, elect to cancel this
Agreement. If Purchaser chooses to cancel this Agreement in accordance with
this Paragraph 19, then the Earnest Money shall be returned immediately to
Purchaser by Escrow Agent and the rights, duties, obligations, and liabilities
of the parties hereunder shall immediately terminate and be of no further force
and effect. If Purchaser does not elect to cancel this Agreement in accordance
herewith, this Agreement shall remain in full force and effect and the sale of
the Property contemplated by this Agreement, less any interest taken by eminent
domain or condemnation, or sale in lieu thereof, shall be effected with no
further adjustment and without reduction of the Purchase Price, and at the
Closing, Seller shall assign, transfer, and set over to Purchaser all of the
right, title, and interest of Seller in and to any awards that have been or that
may thereafter be made for such taking. At such time as all or a part of the
Property is subjected to a bona fide threat of condemnation and Purchaser shall
not have elected to terminate this Agreement as hereinabove provided, Purchaser
shall be permitted to participate in the proceedings as if Purchaser were a
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party to the action. Seller shall not settle or agree to any award or payment
pursuant to condemnation, eminent domain, or sale in lieu thereof without
obtaining Purchaser's prior written consent thereto in each case.
20. Damage or Destruction. If any of the Improvements shall be destroyed
---------------------
or damaged prior to the Closing, and if either the estimated cost of repair or
replacement exceeds One Hundred Fifty Thousand Dollars ($150,000.00) or the
damage could result in the termination of the Lease, Purchaser may, by written
notice given to Seller within twenty (20) days after receipt of written notice
from Seller of such damage or destruction, elect to terminate this Agreement, in
which event the Earnest Money shall immediately be returned by Escrow Agent to
Purchaser and the rights, duties, obligations, and liabilities of all parties
hereunder shall immediately terminate and be of no further force or effect. If
Purchaser does not elect to terminate this Agreement pursuant to this Paragraph
20, or has no right to terminate this Agreement (because the damage or
destruction does not exceed $150,000.00 and could not result in the termination
of the Lease), and the sale of the Property is consummated, Purchaser shall be
entitled to receive all insurance proceeds paid or payable to Seller by reason
of such destruction or damage under the insurance required to be maintained by
the Tenant pursuant to the Lease (less amounts of insurance theretofore received
and applied by Seller to costs actually incurred for restoration). Seller shall
not settle or release any damage or destruction claims without obtaining
Purchaser's prior written consent in each case. All said insurance proceeds
received by Seller by the date of Closing shall be paid by Seller to Purchaser
at Closing. In addition, at Closing, Seller shall pay over to Purchaser, and
assign to Purchaser, all proceeds of any rent loss insurance for the period of
time commencing on the date of Closing. If the amount of said casualty or rent
loss insurance proceeds is not settled by the date of Closing, Seller shall
execute at Closing all proofs of loss, assignments of claim, and other similar
instruments in order that Purchaser receive all of Seller's right, title, and
interest in and under said insurance proceeds.
21. Hazardous Substances. Seller represents and warrants to Purchaser
--------------------
that, to the best of Seller's knowledge, except as disclosed in the
Environmental Report, (i) no Hazardous Substances, nor any other pollutants,
toxic materials, or contaminants have been or shall prior to Closing be
discharged, disbursed, released, stored, treated, generated, disposed of, or
allowed to escape on the Property, (ii) no asbestos or asbestos containing
materials have been installed, used, incorporated into, or disposed of on the
Property, (iii) no polychlorinated biphenyls are located on or in the Property,
in the form of electrical transformers, fluorescent light fixtures with
ballasts, cooling oils, or any other device or form, (iv) no underground storage
tanks are located on the Property or were located on the Property and
subsequently removed or filled, (v) no investigation, administrative order,
consent order and agreement, litigation, or settlement with respect to Hazardous
Substances is proposed, threatened, anticipated or in existence with respect to
the Property, and (vi) the Land has not previously been used as a landfill,
cemetery, or as a dump for garbage or refuse. Seller hereby indemnifies
Purchaser and agrees to holds Purchaser harmless from and against any lost,
cost, damage, liability or expense due to or arising out of the breach of any
representation or warranty contained in this Paragraph 21. The representations
and warranties set forth in this Paragraph 21 and the indemnification given
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<PAGE>
herein shall expressly survive the execution and delivery of the Special
Warranty Deed conveying the Real Estate from Seller to Purchaser.
22. Assignment. This Agreement and Purchaser's rights, duties, and
----------
obligations hereunder may not be delegated, transferred, or assigned by
Purchaser without the prior written consent of Seller, and any assignee or
transferee proposed by Purchaser shall expressly assume all of Purchaser's
duties, liabilities and obligations under this Agreement by written instrument
delivered to Seller. Notwithstanding the foregoing to the contrary, this
Agreement, and Purchaser's rights and duties hereunder, may be freely assigned
and transferred to any partnership having Wells Capital, Inc. or Leo F. Wells,
III as a direct or indirect general partner thereof or to The Bank of New York,
as agent for Purchaser or for any other partnership having Wells Capital, Inc.
or Leo F. Wells, III as a direct or indirect general partner thereof.
23. Broker's Commission. Seller has agreed to pay to Galesi Realty
-------------------
Corporation ("Broker") a real estate sales commission in accordance with a
separate agreement between Seller and Broker. Seller shall and does hereby
indemnify and hold harmless Purchaser from and against any claim, whether or not
meritorious, for any real estate sales commission, finder's fees, or like
compensation in connection with the sale contemplated hereby and arising out of
any act or agreement of Seller, including any claim asserted by Broker.
Likewise, Purchaser shall and does hereby indemnify and hold harmless Seller
from and against any claim, whether or not meritorious, for any real estate
sales commission, finder's fees, or like compensation in connection with the
sale contemplated hereby and arising out of any act or agreement of Purchaser,
except any such claim asserted by Broker.
24. Notices. Wherever any notice or other communication is required or
-------
permitted hereunder, such notice or other communication shall be in writing and
shall be delivered by overnight courier, by hand, or sent by U.S. registered or
certified mail, return receipt requested, postage prepaid, to the addresses set
out below or at such other addresses as are specified by written notice
delivered in accordance herewith:
PURCHASER: Fund VIII and Fund IX Associates
c/o Wells Capital, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Attn: Mr. Michael Berndt
with a copy to: Troutman Sanders LLP
NationsBank Plaza, Suite 5200
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
Attn: Mr. John W. Griffin
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<PAGE>
SELLER: ORIX Prime West Broomfield II Venture
c/o Prime West Development, Inc.
6025 South Quebec St.
Suite 110
Englewood, Colorado 80111
Attn: Mr. John Steele
with a copy to: ORIX Real Estate Equities, Inc.
100 North Riverside Plaza
Suite 1400
Chicago, Illinois 60606
Attn: Mr. James H. Purinton
with a further copy to: Katz Randall & Weinberg
Suite 1800
333 West Wacker Drive
Chicago, Illinois 60606
Attn: Mr. Arnold Weinberg
Any notice or other communication mailed as hereinabove provided shall be deemed
effectively given or received on the date of delivery, if delivered by hand or
by overnight courier, or otherwise on the third (3rd) business day following the
postmark date of such notice or other communication.
25. Possession. Possession of the Property shall be granted by Seller to
----------
Purchaser on the date of Closing, subject only to the Lease and the Permitted
Exceptions.
26. Time Periods. If the time period by which any right, option, or
------------
election provided under this Agreement must be exercised, or by which any act
required hereunder must be performed, or by which the Closing must be held,
expires on a Saturday, Sunday, or holiday, then such time period shall be
automatically extended through the close of business on the next regularly
scheduled business day.
27. Access to Records Following Closing. Seller acknowledges that
-----------------------------------
Purchaser may be required by the Securities and Exchange Commission to file
audited financial statements for one (1) to three (3) years with regard to the
Property. Seller shall (i) cooperate with Purchaser, its counsel, accountants,
agents and representatives, provide them with access to Seller's books and
records with respect to the acquisition, leasing, development, maintenance and
operation of the Property for the period prior to Closing, and permit them to
copy the same, (ii) execute a form of "rep" letter and such other documents as
are reasonably required by Purchaser or Purchaser's accountants in connection
with such audit, and (iii) furnish Purchaser with such additional information
concerning the same as Purchaser shall reasonably request. Purchaser will pay
the costs associated with any such audit.
-39-
<PAGE>
28. Survival of Provisions. All covenants, warranties, and agreements
----------------------
set forth in this Agreement shall survive the execution or delivery of any and
all deeds and other documents at any time executed or delivered under, pursuant
to, or by reason of this Agreement, and shall survive the payment of all monies
made under, pursuant to, or by reason of this Agreement; provided, however, that
the representations and warranties contained in Paragraphs 9, 21 and 30 hereof
shall automatically expire on the dates which are one (1) year, three (3) years
and one (1) year, respectively, after the date of Substantial Completion, except
to the extent that a notice of breach of any representation or warranty has been
given prior to such expiration, and except that the representations and
warranties contained in Paragraph 9(e) hereof shall not be subject to any time
limitation.
29. Severability. This Agreement is intended to be performed in
------------
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules, and regulations. If any provision of this Agreement, or the
application thereof to any person or circumstance, shall, for any reason and to
any extent be invalid or unenforceable, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected thereby but rather shall be enforced to the greatest extent permitted
by law.
30. Purchaser's Authorization. Purchaser represents to Seller that this
-------------------------
Agreement has been duly authorized and executed on behalf of Purchaser and that
this Agreement constitutes the valid and binding agreement of Purchaser,
enforceful in accordance with these terms, subject to bankruptcy, insolvency,
and similar laws affecting generally the enforcement of creditor's rights.
31. General Provisions. No failure of either party to exercise any power
------------------
given hereunder or to insist upon strict compliance with any obligation
specified herein, and no custom or practice at variance with the terms hereof,
shall constitute a waiver of either party's right to demand exact compliance
with the terms hereof. This Agreement contains the entire agreement of the
parties hereto, and no representations, inducements, promises, or agreements,
oral or otherwise, between the parties not embodied herein shall be of any force
or effect. Any amendment to this Agreement shall not be binding upon the parties
hereto unless such amendment is in writing and executed by all parties hereto.
The provisions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Time is of the essence of this Agreement. This
Agreement may be executed in multiple counterparts, each of which shall
constitute an original, but all of which taken together shall constitute one and
the same agreement. The headings inserted at the beginning of each paragraph are
for convenience only, and do not add to or subtract from the meaning of the
contents of each paragraph. This Agreement shall be construed and interpreted
under the laws of the State of Colorado. Except as otherwise provided herein,
all rights, powers, and privileges conferred hereunder upon the parties shall be
cumulative but not restrictive to those given by law. All personal pronouns used
in this Agreement, whether used in the masculine, feminine, or neuter gender
shall include all genders, and all references herein to the singular shall
include the plural and vice versa.
-40-
<PAGE>
32. Confidentiality. Each of Seller and Purchaser agrees to keep the
---------------
terms of this Agreement and any related discussions with the other party hereto
confidential prior to the date of Closing; provided, that each party may
disclose this Agreement to its attorneys, accountants, lenders, prospective
lenders, and financial advisors and otherwise as required by law.
33. Enlargement. Seller and Purchaser acknowledge that in accordance
-----------
with the provisions of Section 33.5 of the Lease, the Tenant has been granted
the right, exercisable no later than December 10, 1999, to request the
"Landlord" under the Lease to acquire the property described in the Option
Agreement and to construction the Expansion Building (as defined in the Lease).
Purchaser agrees that if Tenant exercises its option for the Expansion Premises
(as defined in the Lease) pursuant to Section 33.5 of the Lease and Purchaser,
as the "Landlord" under the Lease, elects to exercise the option under the
Option Agreement and to cause the construction of the Expansion Premises in
accordance with Section 33.5 of the Lease, Purchaser shall employ Seller or an
affiliate of Seller reasonably approved by Purchaser as the development manager
with respect to the Expansion Premises, and Seller or such affiliate shall
receive as its fee for acting as the development manager a development fee in
the amount of the aggregate of (i) $3.00 per square foot of usable area of the
Expansion Premises and (ii) ten percent (10%) of the costs which are actually
included in determining the Base Rent to be paid by Tenant for the Expansion
Premises. Purchaser shall advise Seller in writing of Tenant's exercise of its
option and of Purchaser's election to construct the Expansion Premises. If
Purchaser elects to construct the Expansion Premises, Purchaser and Seller shall
proceed in good faith to enter into a development agreement containing such
customary terms and provisions for the development of similar type properties
and providing for the payment of the fees set forth in this Paragraph 33. If
Tenant shall fail to exercise its option under Section 33.5 of the Lease on or
before December 10, 1999, or if Tenant does exercise such option but Purchaser
does not elect to purchase and construct the Expansion Premises, then this
Paragraph 33 shall terminate and be of no further force or effect, and Seller
shall have no claim or right against Purchaser under this Paragraph 33.
Likewise, this Paragraph 33 shall be inapplicable in the event Tenant elects to
construct the Expansion Premises itself or through its designee as contemplated
in Section 33.5 of the Lease. Nothing contained in this Paragraph 33 shall
obligate Purchaser to construct the Expansion Premises if Tenant exercises its
option, which decision shall be made by Purchaser at its sole discretion and if
Purchaser elects to not construct the Expansion Premises, Seller shall have no
claim or right against Purchaser under this Paragraph 33. The terms and
provisions of this Paragraph 33 shall be binding upon and inure to the benefit
of the successors and assigns of the parties hereto (except that Seller shall
have no right to transfer or assign its rights under this Paragraph 33 except to
an affiliate of Seller reasonably approved by Purchaser), and at the Closing,
Purchaser and Seller shall enter into a mutually acceptable Memorandum setting
forth the terms and provisions of this Paragraph 33, which shall be recorded in
the public records of Boulder County.
34. Interference with Occupancy by Tenant. By its execution of this
-------------------------------------
Agreement as a general partner of Seller, Prime West Boulder Venture II, Inc.
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<PAGE>
("PWBV") acknowledges that a material inducement for the acquisition of the
Property by Purchaser is the Lease with Tenant and the expectation that Tenant
or an affiliate of Tenant will actually occupy the Building throughout the
initial term of the Lease. PWBV covenants and agrees that after the Closing,
neither PWBV nor any affiliate, officer or director of PWBV shall take any
action which would cause or facilitate any reduction in the occupancy of the
Building by Tenant or the relocation of Tenant's business from the Building
during the initial term of the Lease, and in furtherance thereof, PWBV hereby
covenants and agrees that during the initial term of the Lease, neither PWBV nor
any affiliate, officer or director of PWBV shall lease any space to Tenant or an
affiliate of Tenant in any other building within a five (5) mile radius of the
Property or construct any building within a five (5) mile radius of the Property
to be occupied by Tenant or any affiliate of Tenant if the result of such lease
or construction of any other building shall be the reduction in the occupancy of
the Building by Tenant or the relocation of Tenant's business from the Building
during the initial term of the Lease. The obligations of PWBV under this
Paragraph 34 shall survive the Closing. Prime West shall join in this Agreement
solely for the purpose of guarantying the obligations of PWBV under this
Paragraph 34.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective seals to be affixed hereunto as of the day,
month and year first above written.
"SELLER":
------
ORIX PRIME WEST BROOMFIELD II VENTURE,
a Colorado general partnership
By: Prime West Boulder Venture II, Inc.
By: /s/ Stephen F. Clarke
------------------------------------
Stephen F. Clarke, President
(CORPORATE SEAL)
By: ORIX Broomfield II, Inc.
By: /s/ James H. Purinton
------------------------------------
James H. Purinton,
Executive Vice President
(CORPORATE SEAL)
[Signatures continued on following page]
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<PAGE>
[Signatures continued from previous page]
"PURCHASER":
---------
FUND VIII AND FUND IX ASSOCIATES,
a Georgia general partnership
By: Wells Real Estate Fund VIII, L.P.,
a Georgia limited partnership
By: /s/ Leo F. Wells, III (SEAL)
----------------------
Leo F. Wells, III,
General Partner
By: Wells Partners, L.P.,
a Georgia limited partnership,
General Partner
By: Wells Capital, Inc.,
a Georgia corporation,
General Partner
By: /s/ Leo F. Wells, III
-------------------------
Leo F. Wells, III,
President
(CORPORATE SEAL)
[Signatures continued on following page]
-43-
<PAGE>
[Signatures continued from previous page]
By: Wells Real Estate Fund IX, L.P.,
a Georgia limited partnership
By: /s/ Leo F. Wells, III (SEAL)
------------------------
Leo F. Wells, III,
General Partner
By: Wells Partners, L.P.,
a Georgia limited partnership,
General Partner
By: Wells Capital, Inc.,
a Georgia corporation,
General Partner
By: /s/ Leo F. Wells, III
------------------------------
Leo F. Wells, III,
President
(CORPORATE SEAL)
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<PAGE>
The undersigned Prime West does hereby guaranty to Purchaser the
performance of the obligations of PWBV under Paragraph 34 of this Agreement and
joins in this Agreement solely for the purpose of confirming such guaranty.
"PRIME WEST":
Prime West Development, Inc.,
a Colorado corporation
By: /s/ Stephen F. Clarke
----------------------------------
Name: Stephen F. Clarke
Title: President
-45-
<PAGE>
Schedule of Exhibits
--------------------
Exhibit "A" Description of Land
Exhibit "B" Escrow Agreement Form and Escrow Instructions
Exhibit "C" Development Budget
Exhibit "D" Lease Amendment and Estoppel Certificate Form
Exhibit "E" Permitted Exceptions
Exhibit "F" List of Personal Property
Exhibit "G" Plans and Specifications
Exhibit "H" Service Contracts
Exhibit "I" Bill of Sale Form
Exhibit "J" Blanket Transfer and Assignment Form
Exhibit "K" Assignment and Assumption of Lease Form
Exhibit "L" Assignment and Assumption of Construction Documents Form
Exhibit "M" Assignment and Assumption of Option Agreement Form
Exhibit "N" Insurance Requirements
Exhibit "O" Description of Architect's Agreement
Exhibit "P" List and Description of Construction Agreements
Exhibit "Q" List and Description of Lease and All Amendments Thereto
Exhibit "R" Contractor's Certification and Agreement to Continue Work Form
Exhibit "S" Architect's Certification and Agreement to Continue Work Form
Exhibit "T" Purchase Price Adjustment Example
Exhibit "U" Escrow Agreement Form
Exhibit "V" Monthly Report Form
-46-
<PAGE>
LEASE
305 INTERLOCKEN PARKWAY
INTERLOCKEN ADVANCED TECHNOLOGY ENVIRONMENT
BOULDER COUNTY
BROOMFIELD, COLORADO
TABLE OF CONTENTS
-----------------
ARTICLE I - DEMISE......................................... 1
1.1 Demise............................................ 1
1.2 Construction Date................................. 1
ARTICLE II - TERM.......................................... 2
2.1 Term.............................................. 2
2.2 Supplemental Agreement............................ 2
2.3 Landlord's Work................................... 2
2.4 Landlord's Failure to Complete.................... 2
ARTICLE III - RENT......................................... 3
3.1 Base Rent......................................... 3
3.2 Estimated Base Rent............................... 3
3.3 Additional Rent................................... 3
3.4 Interest on Late Payments and Late Payment Charge. 3
ARTICLE IV - TAXES AND OPERATING EXPENSE ADJUSTMENT........ 4
4.1 Definitions....................................... 4
4.2 Payments of Taxes and Operating Expenses.......... 6
4.3 Reimbursement Survives Termination................ 7
4.4 Direct Payment.................................... 8
ARTICLE V - BUILDING SERVICES.............................. 8
5.1 Standard Services................................. 8
5.2 Interruption of Services.......................... 8
5.3 Services Paid by Tenant........................... 9
5.4 HVAC Requirements................................. 9
5.5 Cleaning.......................................... 9
5.6 Re-Lamping........................................ 9
5.7 Maintenance by Landlord........................... 9
ARTICLE VI - TENANT REPAIR................................. 9
6.1 Damage by Tenant.................................. 9
6.2 Maintenance....................................... 10
6.3 Good Condition.................................... 10
6.4 Surrender......................................... 10
6.5 Broken Glass...................................... 10
ARTICLE VII - ASSIGNMENT AND SUBLETTING.................... 10
7.1 Limitations....................................... 10
7.2 Acceptance of Performance......................... 11
7.3 Document Review................................... 11
ARTICLE VIII - TRANSFER BY LANDLORD AND LIMITED LIABILITY.. 11
8.1 Transfer of Landlord's Interest................... 11
8.2 Limited Liability of Landlord..................... 11
8.3 Pre-Construction Date Liability................... 12
ARTICLE IX - USE OF PREMISES............................... 12
9.1 Use............................................... 12
9.2 Compliance with Rules and Regulations............. 12
ARTICLE X - INSURANCE...................................... 13
10.1 Tenant's Insurance................................ 13
10.2 Landlord's Insurance.............................. 14
10.3 Subrogation....................................... 14
<PAGE>
ARTICLE XI - OBSERVANCE OF LAW............................. 14
11.1 Law............................................... 14
11.2 Taxes............................................. 15
ARTICLE XII - WASTE AND NUISANCE........................... 15
12.1..................................................... 15
ARTICLE XIII - ENTRY BY LANDLORD........................... 15
13.1..................................................... 15
ARTICLE XIV - INDEMNIFICATION.............................. 16
14.1 Tenant's Indemnity................................ 16
14.2 Landlord's Indemnity.............................. 16
14.3 Comparative Negligence............................ 16
ARTICLE XV - ALTERATIONS................................... 16
15.1 Alterations by Tenant............................. 16
15.2 Alterations by Landlord........................... 17
ARTICLE XVI - SIGNS AND ADVERTISING........................ 18
16.1..................................................... 18
ARTICLE XVII - SUBORDINATION TO MORTGAGES AND
DEEDS OF TRUST........................................ 18
17.1..................................................... 18
ARTICLE XVIII - ESTOPPEL CERTIFICATE/FINANCIAL INFORMATION..19
18.1 Initial Estoppel Certificate...................... 19
18.2 Additional Estoppel Certificates.................. 19
18.3 Financial Information............................. 19
ARTICLE XIX - QUIET ENJOYMENT.............................. 19
19.1..................................................... 19
ARTICLE XX - FIXTURES...................................... 19
20.1..................................................... 19
ARTICLE XXI - DAMAGE OR DESTRUCTION........................ 20
21.1 Casualty.......................................... 20
21.2 Casualty Caused by Tenant......................... 20
ARTICLE XXII - CONDEMNATION................................ 20
22.1 Eminent Domain.................................... 20
22.2 Damages........................................... 21
22.3 Restoration....................................... 21
ARTICLE XXIII - LOSS AND DAMAGE AND DELAY.................. 21
23.1 Loss and Damage................................... 21
23.2 Delays............................................ 21
ARTICLE XXIV - DEFAULT AND REMEDIES........................ 22
24.1 Default by Tenant................................. 22
24.2 Remedies of Landlord.............................. 22
24.3 Landlord's Default................................ 24
24.4 Personal Property Lien............................ 24
ARTICLE XXV - HOLDING OVER................................. 25
25.1..................................................... 25
ARTICLE XXVI - NOTICE...................................... 25
26.1 Notice............................................ 25
26.2 Change of Address................................. 25
ARTICLE XXVII - SECURITY DEPOSIT........................... 25
27.1..................................................... 25
<PAGE>
ARTICLE XXVIII - MISCELLANEOUS PROVISIONS.................. 26
28.1 Captions.......................................... 26
28.2 Waiver............................................ 26
28.3 Entire Agreement.................................. 26
28.4 Severability...................................... 26
28.5 Modification...................................... 26
28.6 Governing Law..................................... 26
28.7 Successors and Assigns............................ 26
28.8 Authorization to Execute.......................... 26
28.9 Guaranty of Lease................................. 27
28.10 Approval of Documents............................. 27
28.11 Financing Contingency............................. 27
ARTICLE XXIX - SUBSTITUTION OF PREMISES.................... 27
29.1..................................................... 27
ARTICLE XXX - RECORDING.................................... 27
30.1..................................................... 27
ARTICLE XXXI - REAL ESTATE BROKER.......................... 28
31.1..................................................... 28
ARTICLE XXXII - RENT PREPAYMENT............................ 28
32.1..................................................... 28
ARTICLE XXXIII - OTHER PROVISIONS.......................... 28
33.1 Budget............................................ 28
33.2 Single Tenant Building............................ 29
33.3 Abandonment and Vacation.......................... 29
33.4 Option to Renew................................... 29
33.5 Option to Expand.................................. 30
EXHIBIT A - LEGAL DESCRIPTION.............................. 33
EXHIBIT B - INTENTIONALLY DELETED.......................... 34
EXHIBIT C - TENANT WORK LETTER............................. 35
EXHIBIT D - COMPONENTS OF TENANT WORK...................... 38
EXHIBIT E - TENANT ESTOPPEL CERTIFICATE.................... 39
EXHIBIT F - INTENTIONALLY DELETED.......................... 41
EXHIBIT G - INTENTIONALLY DELETED.......................... 42
EXHIBIT H - COMPONENTS OF SITE, SHELL, AND CORE............ 43
EXHIBIT I - SUPPLEMENTAL AGREEMENT......................... 44
EXHIBIT J - BASE RENTAL RATE (NNN)......................... 46
EXHIBIT K - EXPANSION PREMISES............................. 48
<PAGE>
EXHIBIT 10(nn)
LEASE
CIRRUS LOGIC, INC. FACILITY
305 INTERLOCKEN PARKWAY
INTERLOCKEN ADVANCED TECHNOLOGY ENVIRONMENT
BOULDER COUNTY
BROOMFIELD, COLORADO
THIS LEASE is made this 5th day of July, 1995, by and between Prime West
-------
Development, Inc. Company, a Colorado corporation ("Landlord") and Cirrus Logic,
Inc., a California Corporation ("Tenant").
W I T N E S S E T H :
ARTICLE I
DEMISE
------
1.1 Demise. Landlord does hereby lease to Tenant and Tenant hereby leases from
------
Landlord that certain one-story office building (the "Building") consisting of
approximately 50,400 gross square feet (the "Gross Area"), which Building shall
be known as the Cirrus Logic, Inc. Facility, located at 305 Interlocken Parkway,
Interlocken Advanced Technology Environment, Boulder County, Broomfield,
Colorado, which Building shall be situated on that certain real Property (the
"Property") legally described in Exhibit A, attached hereto, together with a
right subject to the provisions hereof, to use all appurtenances thereto,
including, but not limited to, any plazas, common areas, walkways or other areas
in Building or on Property, all of which inclusive of Building are hereinafter
collectively called the "Building Complex" or the "Premises".
Such letting and hiring is upon and subject to the terms, conditions and
covenants herein set forth, and Tenant covenants as a material part of the
consideration for this Lease to keep and perform each and all of said terms,
conditions and covenants by it to be kept and performed and that this Lease is
made upon the condition of such performance.
For purposes hereof, "gross square feet" shall be determined in accordance
with BOMA standards for single tenant buildings.
1.2 Construction Date. Landlord shall commence construction of Building
-----------------
("Construction Date") on or before eight (8) months after execution of the Lease
by Tenant. Landlord shall thereafter prosecute the completion of such Building
in a diligent manner. The Construction Date and Landlord's obligations hereunder
are subject to matters outside of Landlord's reasonable control, including
Tenant Delay, delays attributable to compliance with applicable laws and delays
in issuance of permits by the respective regulatory authority and subject to the
terms and conditions of the Tenant Work Letter.
If Landlord has not commenced construction by the Construction Date, as same
may be extended by reason of the above-referenced delays, then Tenant may elect
by written notice to Landlord to terminate this Lease, which notice of
termination must be received by Landlord within thirty (30) days after the
Construction Date (as same may be extended), time being of the essence. In the
event of the termination of this Lease pursuant to the terms of this Section
1.2, neither party shall have any liability or obligation whatsoever to the
other except that any rent or deposit of Tenant shall be promptly refunded,
without interest except as specifically set forth herein, by Landlord.
1
<PAGE>
ARTICLE II
TERM
----
2.1 Term. The term of this Lease and Tenant's obligation to pay rent shall
----
commence on the earlier of (a) the day after the day which is the later to occur
of the date that a certificate of occupancy is issued for the Building or the
day Landlord issues its certificate of substantial completion in accordance with
the Tenant Work Letter attached hereto as Exhibit C, unless any delay in issuing
said certificate of occupancy or certificate of substantial completion is caused
by those matters set forth in Section 7 of Exhibit C, in which event the date of
issuance of the respective certificate of substantial completion shall be deemed
----------
to be the date that the respective certificate would have been issued but for
the Tenant Delay, as hereinafter defined, or (b) the date upon which Tenant
takes occupancy of the Building (the "Commencement Date") and shall end at
twelve (12) p.m. on the last day of the one hundred and eightieth (180th) month
thereafter, unless sooner terminated as herein provided (the "Term").
2.2 Supplemental Agreement. Within five (5) days after the commencement of the
----------------------
Term of this Lease, Tenant agrees to execute a Supplemental Agreement in the
form attached as Exhibit I to become a part hereof, setting forth the
commencement and termination dates of the term of this Lease and such other
information as set forth therein.
2.3 Landlord's Work. Other than as set forth specifically in this Lease and in
---------------
the Tenant Work Letter, Landlord shall have no further obligation for the
completion of Premises and Tenant shall accept Premises in its "AS IS" condition
as of the date Landlord delivers possession thereof in accordance with the
provisions of the Tenant Work Letter, subject to (i) any punch list items
identified by Tenant prior to its acceptance of the Premises which items are
uncompleted items, material defects in design or defects in construction or are
otherwise in violation of the Landlord's obligation to deliver the Premises in
the condition required by Exhibit C, (ii) any latent defects in the Premises
which Tenant identifies in writing to Landlord no later than eleven months
subsequent to the Commencement Date and (iii) violations of law relating to
construction of the Building including Building Code violations and failure to
comply with the then applicable standards of Title III of the Americans with
Disabilities Act. Landlord shall promptly correct items (i)-(iii) after receipt
of notice thereof and the cost of correction shall not be borne by Tenant
directly or indirectly, or as a part of Base Rent, Additional Rent, or as an
Operating Expense. Furthermore, Landlord shall continue to have the obligations
set forth in Section 5.7 hereof regarding the structural integrity of the
Building.
2.4 Landlord's Failure to Complete. Notwithstanding anything to the contrary
------------------------------
herein, should the Commencement Date occur on or subsequent to the date which is
the earlier of (i) March 1, 1997 or (ii) the date which is eighteen (18) months
after execution of this Lease by Tenant, unless such delay in the Commencement
Date arises from those matters set forth in Section 7 of Exhibit C, then, within
thirty (30) days from such date, Tenant shall have the option to terminate this
Lease upon written notice to Landlord, the effective date of termination to be
at least sixty (60) days after the date of delivery of Tenant's notice;
provided, that should Landlord meet all requirements set forth in Exhibit C for
the issuance of the certificate of substantial completion prior to the effective
termination date specified in Tenant's notice, such termination notice shall be
of no force and effect and this Lease shall continue in full force and effect
between the parties. However, if this Lease has not commenced on or before two
(2) years from the date hereof, then this Lease shall be automatically
terminated without notice. In the event of the termination of this Lease
pursuant to the terms of this Section 2.4, neither party shall have any
liability or obligation whatsoever to the other except that any rent or deposit
of Tenant shall be promptly refunded, without interest except as specifically
set forth herein, by Landlord.
2
<PAGE>
ARTICLE III
RENT
----
3.1 Base Rent. Tenant agrees to pay as base annual rent (the "Base Rent")
---------
during the Term of the Lease the sums as calculated pursuant to Exhibit J
attached hereto. Once determined, Base Rent shall be payable without notice,
deduction, set-off or abatement to Landlord at Building, or such other address
as Landlord may notify the Tenant of in writing, in lawful money of the United
States payable in advance on the first day of each month. If Term commences or
terminates on a day other than the first or last day of a calendar month
respectively, then the installments of Base Rent for such month or months shall
be prorated and the installments so prorated shall be paid in advance. The term
"Lease Year" shall mean each twelve month period subsequent to the Commencement
Date.
3.2 Estimated Base Rent. Tenant acknowledges that Landlord may not be able to
-------------------
calculate Base Rent as of the Commencement Date. As of the Commencement Date,
Tenant agrees to pay monthly Base Rent as reasonably estimated by Landlord. If
the actual Base Rent is greater than the estimated Base Rent, Tenant shall pay
the difference within thirty (30) days of receipt of written notice. If the
actual Base Rent is less than the estimate, then Landlord shall offset such
difference against the next monthly installment of Base Rent and Additional
Rent.
3.3 Additional Rent. Any other sums of money or charges to be paid by the
---------------
Tenant pursuant to the provisions of this Lease may be designated as "Additional
Rent". A failure to pay Additional Rent shall be treated in all events as the
failure to pay rent.
3.4 Interest on Late Payments and Late Payment Charge. Any rent (whether Base
-------------------------------------------------
Rent or Additional Rent) or other amount due from Tenant to Landlord under this
Lease not paid when due shall bear interest from the date due until the date
paid at the rate of one and one-half percent (1-1/2%) per month, but the payment
of such interest shall not excuse or cure any default by Tenant under this
Lease. Failure to charge or collect such interest in connection with any one or
more such late payments shall not constitute a waiver of Landlord's right to
charge and collect such interest in connection with any other or similar or like
late payments. Notwithstanding the above, Landlord agrees that it shall, twice
during any calendar year, give written notice of such late payment and if Tenant
pays the late payment within ten (10) days of receipt of written notice,
Landlord will waive the interest for such payment.
Notwithstanding the above, in the event any rent or other amounts owing
hereunder are not paid within five (5) days after the due date, then Landlord
and Tenant agree that Landlord will incur additional administrative expenses,
the amount of which will be difficult if not impossible to determine.
Accordingly, in addition to such required payment, Tenant shall pay to Landlord
an additional one time late charge for any such late payment in the amount of
five percent (5%) of the amount of such late payment; provided, however,
Landlord agrees that it shall, twice during any calendar year, give written
notice of such late payment due and if Tenant pays the late payment within five
(5) days of receipt of written notice, Landlord will waive the late charge for
such payments.
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ARTICLE IV
TAXES AND OPERATING EXPENSE ADJUSTMENT
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In addition to Base Rent, Tenant shall reimburse Landlord for Real Estate
Taxes and Operating Expenses (which sum may be adjusted pursuant to Section 4.2)
for Building Complex as hereinafter set forth in this Section.
4.1 Definitions. The following terms shall have the following meanings with
-----------
respect to the provisions of this Section 4.1:
(a) "Tenant's Proportionate or Prorata Share" shall mean one hundred
percent (100%).
(b) "Real Estate Taxes" shall include (a) any form of assessment
(including any so-called "special" assessments), license tax, business license
fee, business license tax, commercial rental tax, levy, charge, penalty or tax,
imposed by any authority having the direct power to tax, including any city,
county, state or federal government, or any school, agricultural, lighting,
water, drainage or other improvement or special district thereof, against
Premises, Building or Property or any legal or equitable interest of Landlord
therein; (b) any tax on Landlord's right to rent or other income from Premises
or against Landlord's business of leasing Premises; and (c) any assessments,
tax, fee, levy or charge in substitution, partially or totally, of or in
addition to any assessment, tax, fee, levy or charge previously included within
the definition of Real Estate Taxes which may be imposed by governmental
agencies for such services as fire protection, street, sidewalk and road
maintenance, refuse removal and for other governmental services formerly
provided without charge to property owners or occupants. It is the intention of
Landlord and the Tenant that all such new and increased assessments, taxes,
fees, levies and charges be included within the definition of Real Estate Taxes
for purposes of this Lease. The following shall also be included within the
definition of Real Estate Taxes for purposes of this Lease, provided, however,
that the Tenant shall pay Landlord the entire amount thereof: (i) any tax
allocable to or measured by the area of Premises or the rental payable
hereunder, including without limitation, any gross income, privilege, sales or
excise tax levied by the State, any political subdivision thereof, city,
municipal or federal government, with respect to the receipt of such rental, or
upon or with respect to the possession, leasing, operating, management,
maintenance, alteration, repair, use or occupancy by the Tenant of Premises or
any portion thereof; and (ii) any tax upon this transaction or any document to
which the Tenant is a party, creating or transferring an interest or an estate
in Premises. "Real Estate Taxes" shall not include Landlord's federal or state
income, franchise, inheritance or estate taxes. "Real Estate Taxes" included in
this definition mean taxes or assessments in the year assessed, without regard
to the year in which same become due or payable. Furthermore, if the Building
Complex excludes any portion of the Real Property as disclosed on Exhibit A,
then the Real Property Taxes shall be equitably reduced on the basis that the
portion of the undeveloped land bears to the appraisal for the total land value.
There shall be no apportioning of improvements unless such parcel is later
improved and is not part of the Building Complex.
(c) "Operating Expenses" shall mean all maintenance and operating costs
of any kind or nature with respect to the operation, ownership and maintenance
of Building Complex in a manner consistent with a "Class A," suburban single-
tenant office building and shall include, but not be limited to, the cost of
building supplies, window cleaning, costs incurred in connection with all energy
sources for Building such as propane, butane, natural gas, steam, electricity,
solar energy and fuel oil; the costs of water and sewer service, janitorial
services, both interior and exterior, general maintenance and repair of Building
Complex including the heating and air conditioning systems and structural
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components of Building; landscaping, maintenance, repair and striping of all
parking areas; insurance, including fire and extended coverage and public
liability insurance and any rental insurance and all risk insurance carried by
Landlord pursuant to Section 10.2; labor costs incurred in the operation and
maintenance of Building Complex, including wages and other payments; costs to
Landlord for Workmen's Compensation and disability insurance; payroll taxes and
welfare fringe benefits, including professional building management fees, legal,
accounting, inspection and consultation fees incurred in connection with
Building Complex; any expense attributable to costs incurred by Landlord for any
capital improvements or structural repairs to Building or Property required by
any change in the laws, ordinances, rules, regulations or otherwise which were
not in effect on the date Landlord obtained its building permit to construct
Building required by any governmental or quasi-governmental authority having
jurisdiction over Building which costs shall be amortized over the useful life
of the capital improvements or structural repair; and any costs incurred by
Landlord in making capital improvements or other modifications to Building or
any part thereof, which costs shall be amortized over the useful life of such
improvement or modification, in accordance with reasonable life and amortization
schedules and shall be determined by Landlord in accordance with generally
accepted accounting principles. Operating Expenses shall expressly exclude:
(a) any ground lease rental;
(b) depreciation, amortization and interest payments, except as
specifically provided herein, and except on materials, tools, supplies and
vendor-type equipment purchased by Landlord to enable Landlord to supply
services Landlord might otherwise contract for with a third party, where such
depreciation, amortization and interest payments would otherwise have been
included in the charge for such third party's services, all as determined in
accordance with standard accounting practices;
(c) interest, principal, points and fees on debt or amortization on any
mortgage, deed of trust or other debt encumbering the Building or Building
Complex;
(d) costs of Landlord's general corporate overhead in lieu of management
(such as salaries for executives of Landlord and any and all affiliated or
related entities and contributions to employee pension plans);
(e) that portion of any item and service for which Tenant reimburses
Landlord directly as Additional Rent (other than through Operating Expense
pass-through provisions);
(f) electric power and other utility costs if Tenant directly contracts
with the local public utility companies;
(g) costs arising from Landlord's charitable or political contributions;
(h) any depreciation on the Building, or the Building Complex;
(i) any costs related to leasing or selling the Building or any portion
thereof to any tenant or purchasers; provided that leasing and/or management
office rental fees may be included in Operating Expenses so long as (i) such
office is not over 500 square feet in area, and (ii) such fees are equitably
prorated to the extent such office is used for leasing or sales at buildings
other than the Building;
(j) costs relating to the removal or other disposition of any hazardous
materials from any soil or groundwater contamination at the Building Complex or
any portion thereof or any amounts expended by Landlord or its affiliates to
indemnify Tenant or third parties for any liability concerning the presence of
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hazardous materials in, on or about the Building Complex which relate to any
soil or groundwater contamination, except to the extent caused or contributed to
by Tenant, its agents, employees, contractors or invitees;
(k) any payments for supplies, materials or services provided or
rendered by any affiliates of Landlord to the extent that the costs of such
supplies, materials and services exceed the costs that would have been paid had
the supplies, materials and services been provided or rendered by parties
unaffiliated with Landlord on a competitive basis;
(l) advertising, art, sculpture, and promotional costs except holiday
decorations;
(m) all costs of repair or replacement of any item covered by a warranty
to the extent recoverable on the warranty;
(n) any fines, penalties or interest, or costs resulting from negligence
or willful misconduct of Landlord or its agents, employees and/or independent
contractors; and
(o) capital improvement costs attributable to maintaining, replacing or
maintaining the integrity of structural components of the Building and the costs
of replacing the roof;
(p) management fees in excess of two percent (2%) of annual gross
revenues which Landlord collects from Tenant (specifically excluding those
janitorial costs which are being paid directly by Tenant);
(q) costs of construction to comply with applicable law to the extent
that the Building was constructed in violation of then applicable laws including
Building Code violations and then applicable standards of Title III of the
Americans with Disabilities Act;
(r) insurance deductibles in excess of $1,000.00; and
(s) amounts in excess of insurance policy coverage.
Furthermore, commencing with the second full calendar year of the Term and
thereafter, the controllable costs paid by Tenant as a part of Operating
Expenses shall not increase by more than three percent (3%) per calendar year of
the Term, cumulative. For purposes hereof, controllable costs are those service
costs contracted for on an hourly basis by Landlord or its managing agent.
4.2 Payments of Taxes and Operating Expenses. It is hereby agreed that
----------------------------------------
during each Lease Year of Term hereof, the Tenant shall pay to Landlord Tenant's
Prorata Share of the amount of the Operating Expenses and Real Estate Taxes for
Building Complex as set forth above. It is agreed that the Tenant shall, during
each calendar year in which the term of this Lease commences pay to Landlord an
estimate of the Tenant's Prorata Share of Real Estate Taxes and Operating
Expenses, if any, as hereinafter set forth. Beginning with the first calendar
year following the year in which this Lease commenced, the Tenant shall pay to
Landlord each month on the first day of the month an amount equal to one-twelfth
(1/12) of Tenant's Prorata Share of the Real Estate Taxes and Operating Expenses
for the new calendar year as reasonably estimated by Landlord, with an
adjustment to be made between the parties at a later date as hereinafter
provided. Furthermore, Landlord may from time to time but no more than three (3)
times during any Lease Year furnish Tenant with notice of a re-estimation of the
Real Estate Taxes and Operating Expenses and Tenant shall commence paying its
re-estimated prorata share on the first day of the month following receipt of
said notice. As soon as practicable following the end of any calendar year, but
in no event later than March 1 of the following calendar year, Landlord shall
submit to the Tenant a statement setting forth the exact amount of the Tenant's
Prorata Share of the Real Estate Taxes and Operating Expenses for the calendar
year just
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completed and the difference, if any, between the Tenant's actual Prorata Share
of the Real Estate Taxes and Operating Expenses for the calendar year just
completed and the estimated amount of the Tenant's Prorata Share of the Real
Estate Taxes and Operating Expenses (which were paid in accordance with this
subparagraph) for such year. Such statement shall also set forth the amount of
the estimated Real Estate Taxes and Operating Expenses reimbursement for the new
calendar year computed in accordance with the foregoing provisions. To the
extent that the Tenant's Prorata Share of the actual Real Estate Taxes and
Operating Expenses for the period covered by such statement are higher than the
estimated installments which the Tenant previously paid during the calendar year
just completed, the Tenant shall pay to Landlord the difference within thirty
(30) days following receipt of said statement from Landlord. To the extent that
the Tenant's Prorata Share of the actual Real Estate Taxes and Operating
Expenses for the period covered by the Statements are less than the estimated
installments which the Tenant previously paid during the calendar year just
completed, Landlord may at its option either refund said amount to Tenant or
credit the difference against the Tenant's estimated reimbursement for such Real
Estate Taxes and Operating Expenses for the current year. In addition, with
respect to the monthly reimbursement, until the Tenant receives such statement,
the Tenant's monthly reimbursement for the new calendar year shall continue to
be paid at the then current rate, but the Tenant shall commence payment to
Landlord of the monthly installments of reimbursement on the basis of the
statement beginning on the first day of the month following the month in which
Tenant receives such statement.
The Tenant's obligation with respect to its Prorata Share of the Real
Estate Taxes and Operating Expenses shall survive the expiration or early
termination of this Lease and Landlord shall have the right to retain the
Security Deposit, or so much thereof as it deems necessary, to secure payment of
the Tenant's Prorata Share of the actual Real Estate Taxes and Operating
Expenses for the portion of the final calendar year of the Lease during which
the Tenant was obligated to pay such expenses. If the Tenant occupies Premises
for less than a full calendar year during the first or last calendar years of
the term hereof, the Tenant's Prorata Share for such partial year shall be
calculated by proportionately reducing the Real Estate Taxes and Operating
Expenses to reflect the number of days in such year during which Tenant occupied
Premises. The Tenant shall pay its Prorata Share of any such amounts within
thirty (30) days following receipt of notice thereof.
The Tenant shall have the right but not more than twice per annum, at
any time within thirty-six (36) months after a statement of actual Real Estate
Taxes and Operating Expenses for a particular calendar year has been rendered by
Landlord as provided herein, at Tenant's sole cost and expense, to examine
Landlord's books and records during normal business hours, at Landlord's office
relating to the determination of such Real Estate Taxes and Operating Expenses.
Unless Tenant objects to the statement provided by Landlord, within said forty-
five (45) day period, such statement and adjustment shall be deemed conclusive.
If the audit discloses that Landlord overstated the Real Estate Taxes and
Operating Expenses by five percent (5%) or more then Landlord shall reimburse
Tenant for the reasonable costs of the audit.
4.3 Reimbursement Survives Termination. In the event of the termination
----------------------------------
of this Lease by expiration of the stated term or for any other cause or reason
whatsoever prior to the determination of rental adjustment as hereinafter set
forth, the Tenant's agreement to reimburse Landlord up to the time of
termination shall survive termination of the Lease and the Tenant shall pay any
amount due to Landlord within thirty (30) days after being billed therefor. In
the event of the termination of this Lease by expiration of the stated term or
for any other cause or reason whatsoever, except default by the Tenant of any of
the terms or provisions of this Lease, prior to the determination of rental
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adjustments as hereinabove set forth, Landlord's agreement to refund any excess
additional rental paid by the Tenant up to the time of termination shall survive
termination of the Lease and Landlord shall pay the amount due to the Tenant
within thirty (30) days of Landlord's determination of such amount, but in no
event later than April 30 of the calendar year following the year of
termination. This covenant shall survive the expiration or termination of this
Lease.
If the last year of the term of this Lease ends on any day other than
the last day of December, any payment of Real Estate Taxes and Operating Costs
due to Landlord shall be prorated on the basis by which the number of days in
such partial year bears to 365.
Any failure of Landlord to furnish Tenant with an estimate of its
Prorata Share of Real Estate Taxes and Operating Expenses or any statements as
set forth in this Section 4 shall not act to relieve Tenant of its liability
therefor; and with respect to any deficiencies, Tenant agrees to pay same within
thirty (30) days of written demand from Landlord.
4.4 Direct Payment. Provided Tenant is not in default hereunder and
--------------
further provided that Landlord under any mortgage or deed of trust has no escrow
requirement for taxes and/or insurance, then Tenant may, upon written notice to
Landlord given thirty (30) days prior to the expiration of any calendar year,
elect to pay Real Estate Taxes and Landlord's insurance for the following
calendar year directly when due (see example below). Evidence of such payments
shall be delivered to Landlord within ten (10) business days of the earlier of
the date payment was made or the date due. Failure to make such payments when
due shall be deemed an event of default. Tenant shall be fully liable for all
penalties, interest or other damages arising or related to such failure to pay.
If Landlord is required to escrow funds for Real Estate Taxes and Landlord's
insurance then the monthly installment of funds (allocable to Real Estate Taxes
and Landlord's insurance) received by Landlord from Tenant will be put into an
interest-bearing account, interest to accrue for Tenant, to be paid annually.
For example, notice for payment of Real Estate Taxes for calendar year 1997, due
and payable in 1998, Tenant would give notice of its election to pay taxes
directly on or before December 1, 1997. In such event Landlord would not collect
for Real Estate Taxes during calendar year 1998.
ARTICLE V
BUILDING SERVICES
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5.1 Standard Services. [INTENTIONALLY DELETED.]
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5.2 Interruption of Services. Tenant agrees that Landlord shall not be
------------------------
liable for failure to supply any heating, air conditioning ("HVAC") during any
period when Landlord uses reasonable diligence to restore or to supply such
services, it being further agreed that Landlord reserves the right to
temporarily discontinue such service or any electric current at such times as
may be necessary by reason of accident, repairs, alterations, or improvements,
or whenever by reason of strikes, lockouts, riots, acts of God or any other
happening or occurrence beyond the reasonable control of Landlord. If Landlord
is unable to furnish such service, Landlord shall not be liable for damages to
persons or property for any such discontinuance, nor shall such discontinuance
in any way be construed as a constructive or actual eviction of Tenant or cause
an abatement of rent or operate to release Tenant from any of Tenant's
obligations hereunder. Landlord's obligation to furnish HVAC service shall be
conditioned upon the availability of adequate energy sources from the public
utility companies presently serving Building Complex. Tenant shall comply with
any laws or governmental regulations to reduce heating, cooling or lighting
required by mandatory energy-saving program. Furthermore, due to energy code
design requirements as promulgated from time to time, Tenant hereby acknowledges
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that it may on certain days experience discomfort with the heating and air
conditioning cycle due to abnormal weather conditions, and Landlord shall have
no responsibility or liability therefor.
5.3 Services Paid by Tenant. Tenant shall separately arrange with the
-----------------------
applicable local public authorities or utilities, as the case may be, for the
furnishing of and payment for all utilities including telephone services as may
be required by Tenant in the use of Premises. Tenant shall directly pay for such
utilities, including the establishment and connection of all telephone services,
at the rates charged for such services by said authority or utility, and the
failure of Tenant to obtain or to continue to receive such services for any
reason whatsoever shall not relieve Tenant of any of its obligations under this
Lease.
5.4 HVAC Requirements. If heat-generating machines or equipment,
-----------------
including telephone equipment, cause the temperature in Premises, or any part
thereof, to exceed the temperatures Building's air conditioning system were
designed to meet pursuant to the specifications Tenant gave to Landlord prior to
construction, then to the extent that Tenant has changed the use or demands for
which the system was designed, Tenant may either, at Tenant's expense, subject
to the provisions of Article XV, install additional HVAC or Tenant shall reduce
its demands to the level for which the HVAC system was designed.
Tenant shall not, without the written consent of Landlord which shall
not be unreasonably withheld provided Tenant complies with the provisions of
Article XV, connect with electric current (except through existing electrical
outlets in Building) or water pipes any apparatus or device for the purposes of
using electric current, other energy or water.
5.5 Cleaning. Subject to the prior written approval of the Landlord,
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Tenant shall provide at its own expense janitorial or cleaning services for the
Building. Landlord's written consent shall not be unreasonably withheld or
delayed.
5.6 Re-Lamping. [INTENTIONALLY DELETED.]
----------
5.7 Maintenance by Landlord. Subject to casualty, Landlord agrees to
-----------------------
keep and maintain in good condition and repair that portion of the Building
Complex shown on Exhibit A which is not designated as the Tenant's Usable
Premises (as defined in Article XV), the roof and structural portions of the
Building Complex. All such costs may be included as "Operating Expenses" to the
extent provided in Article IV hereof. Furthermore, Landlord agrees at its own
cost and expense (without reimbursement by Tenant) to maintain the integrity of
the structural components of the Building and to replace the roof, if and when
such replacement is necessary.
ARTICLE VI
TENANT REPAIR
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6.1 Damage by Tenant. Subject to section 10.3 hereof, if Building
----------------
Complex or any portion thereof including but not limited to the elevators,
boilers, engines, pipes and other apparatus, or members of elements of Building
(or any of them) used for the purpose of climate control of Building or
operating the elevators, or if the water pipes, drainage pipes, electric
lighting or other equipment of Building or the roof or outside walls of Building
or parking facilities and also the Tenant Finish including but not limited to
the carpet, wall covering, doors and woodwork, become damaged or are destroyed
through the negligence, carelessness or misuse of the Tenant, its servants,
agents, employees or anyone permitted by Tenant to be in Building, or through it
or them, then the cost of the necessary repairs, replacements or alterations
shall be borne by the Tenant as an Operating Expense. Landlord shall have the
exclusive right, but not the obligation, to make any repairs necessitated by
such damage.
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6.2 Maintenance. Tenant shall keep the Usable Premises in as good order,
-----------
condition and repair as when they were entered upon, reasonable wear and tear
for normal office use excepted and loss by casualty pursuant to Article XXI
excepted. If Tenant fails to keep the Usable Premises in such good order,
condition and repair as required hereunder to the satisfaction of Landlord,
Landlord may restore the Usable Premises to such good order and condition and
make such repairs without liability to Tenant for any loss or damage that may
accrue to Tenant's property or business by reason thereof, and upon completion
thereof, Tenant shall pay to Landlord, as Additional Rent, upon demand, the cost
of restoring the Usable Premises to such good order and condition and of the
making of the repairs.
6.3 Good Condition. [INTENTIONALLY DELETED.]
--------------
6.4 Surrender. Except as set forth in Article XXI, Tenant shall deliver,
---------
at the expiration of the Term hereof or upon sooner termination of the Term,
Premises in good repair as aforesaid reasonable wear and tear excepted and in a
clean and orderly condition including all waste removed and floors vacuumed.
6.5 Broken Glass. Tenant shall pay on demand the cost of replacement
------------
with identical quality, size and characteristics of glass broken on Premises,
including outside windows and doors of the perimeter of Premises (including
perimeter windows in the exterior walls) during the continuance of this Lease,
unless the glass shall be broken by Landlord, its servants, employees or agents
acting on its behalf.
ARTICLE VII
ASSIGNMENT AND SUBLETTING
-------------------------
7.1 Limitations. Tenant shall not assign or in any manner transfer this
-----------
Lease or any estate or interest therein or sublet Premises or any part thereof,
or grant any license, concession or other right to occupy any portion of
Premises without the prior written consent of Landlord as set forth herein.
Landlord shall not unreasonably withhold consent to any subletting or assignment
provided Tenant requests such consent in writing at least fifteen (15) days
prior to the proposed assignment or subletting and (i) Tenant is not in default
of this Lease as "default" is set forth in Section 24.1 hereof, unless Tenant
fully cures the default prior to such assignment or subletting and Landlord has
not terminated the Lease or commenced any legal proceeding arising from the
default (ii) the use of the Premises to be made by the assignee or subtenant is
within the uses permitted by this lease, (iii) the proposed sublessee or
assignee has a good business reputation, (iv) Tenant submits audited current
financials (or such other financial information as is available) for such
sublessee or assignee, and (v) Tenant submits the form of assignment or sublease
for Landlord's prior reasonable review and approval. In no event shall Tenant
have any right to sublet or assign if there exists any default under this Lease
as "default" is set forth in Article XXV hereof. Consent by Landlord to one or
more assignments of this Lease or to one or more sublettings of Premises shall
not operate as a waiver of Landlord's rights under this section. Any such
assignment or subletting without Landlord's consent shall be deemed void and
confer no rights upon a third party. Notwithstanding any assignment or
subletting, Tenant and any guarantor of Tenant's obligations under this Lease
shall at all times remain fully responsible and liable for the payment of the
rental herein specified and for compliance with all other terms and conditions
of this Lease.
Notwithstanding the above provisions, Tenant may sublet or assign this
Lease in accordance with the provisions of this Article VII even if Tenant is in
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default hereunder if (i) the default is nonmonetary and it is impossible to cure
the default, and Landlord has not elected to terminate the Lease by reason of
such default or otherwise exercise its legal remedies arising from such default
or (ii) Tenant prior to Landlord terminating this Lease submits to Landlord a
subtenant or assignee willing to sublet or take an assignment of the balance of
the lease term of the Premises on the same terms as the Lease, and such
subtenant or assignee is otherwise acceptable pursuant to the terms hereof.
Nothing herein shall (adversely to Tenant's interest) affect Landlord's
obligation to mitigate damages as set forth in subsection 24.2 hereof.
Tenant may, without Landlord's prior written consent and without any
participation by Landlord in assignment and subletting proceeds, sublet the
Premises or assign the Lease to: (i) a subsidiary, affiliate, division or
corporation controlled or under common control with Tenant; (ii) a successor
corporation related to Tenant by merger, consolidation, nonbankruptcy
reorganization, or government action; (iii) a purchaser of substantially all of
Tenant's assets located in the Premises (collectively, Permitted Assignees").
Tenant acknowledges warrants and agrees that the Permitted Assignee shall assume
all liabilities and obligations of Tenant under the Lease. Tenant shall notify
Landlord of all Permitted Assignee(s) within thirty (30) days of such assignment
or subletting. For the purpose of this Lease, sale or transfer of Tenant's
capital stock, including without limitation, a transfer in reorganization of
Tenant and any sale through any public exchange, shall not be deemed an
assignment, subletting, or any other transfer of the Lease or the Premises,
provided that the surviving entity in such transfer assumes the Lease by
operation of law.
7.2 Acceptance of Performance. If this Lease be assigned or if Premises
-------------------------
or any part thereof be sublet or occupied by anybody other than Tenant, Landlord
may, after default by Tenant, collect the rent from the assignee, subtenant or
occupant and apply the net amount collected to the rent herein reserved
retaining the remainder, if any, for the account of Landlord, but no such
assignment, subletting, occupancy or collection shall be deemed an acceptance of
the assignee, subtenant or occupant as the Tenant hereof, or constitute a
release of Tenant from further performance by Tenant of the covenants on the
part of Tenant herein contained.
7.3 Document Review. All documents utilized by Tenant to evidence any
---------------
subletting or assignment for which Landlord's consent has been requested, shall
be subject to prior approval by Landlord, which approval shall not be
unreasonably withheld or delayed.
ARTICLE VIII
TRANSFER BY LANDLORD AND LIMITED LIABILITY
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8.1 Transfer of Landlord's Interest. In the event of a sale, conveyance,
-------------------------------
or assignment by Landlord of Landlord's interest in Building Complex (other than
a transfer for security purposes only), Landlord shall be relieved from all of
Landlord's obligations and liabilities accruing on the part of Landlord after
the date specified in any such notice of transfer or assignment, and Tenant
agrees to look only toward such assignee or transferee of Landlord's interest.
If Landlord sells or otherwise conveys its interest in the Premises, Landlord
shall not be relieved of its obligation under this Lease until it has
transferred or credited any prepaid rent of Tenant to Landlord's successor and
its successor assumes in writing the obligations to be performed by Landlord in
and after the effective date of transfer.
8.2 Limited Liability of Landlord. Anything contained in this Lease to
-----------------------------
the contrary notwithstanding, Tenant agrees that Tenant shall look solely to the
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estate of Landlord in Building Complex and any insurance proceeds collected by
Landlord in conjunction with such claim of Tenant, for the collection of any
judgment (or other judicial process) requiring the payment of money by Landlord
in the event of any default or breach by Landlord with respect to any of the
terms and provisions of this Lease to be observed or performed by Landlord,
subject, however, to the prior rights of the holder of any mortgage covering
Building Complex, and no other assets of Landlord, its agents, employees or
officers, shall be subject to levy, execution or other judicial process for the
satisfaction of Tenant's claim and Landlord shall not be liable for any such
default or breach except to the extent of Landlord's estate in Building Complex.
8.3 Pre-Construction Date Liability. Notwithstanding the above, prior to
-------------------------------
the Commencement Date, in the event of any default or breach of Landlord not
cured within any applicable cure period, if the estate of Landlord in Building
Complex and insurance proceeds (to the extent applicable) are less than Tenant's
damages sustained by such breach or default of Landlord, then Tenant may look to
Landlord for recovery of damages against the amount of development fees received
to date by Landlord under the Construction Loan. As of the Commencement Date
this Section 8.3 shall terminate and be of no further force and effect.
ARTICLE IX
USE OF PREMISES
---------------
9.1 Use. Except as expressly permitted by prior written consent of the
---
Landlord, Premises shall not be used other than for general office purposes or
such other purposes permitted by zoning and permitted by any restrictive
covenants. Such uses must be consistent with the design specifications for the
Building and shall not use, dispose of, create emissions, store or generate any
hazardous, toxic, infectious or other substance(s) or emission regulated by any
law or in violation of law, ordinance, rule or regulation including all laws
pertaining to the environment (the "Law") except for de minimis amounts which
are not in violation of the Law and consistent with general office use. All use
of Premises shall comply with the terms of this Lease and all applicable laws,
ordinances, regulations or other governmental ordinances from time to time in
existence.
9.2 Compliance with Rules and Regulations. Tenant and employees and all
-------------------------------------
persons visiting or doing business with the Tenant in Premises shall be bound by
and shall observe the reasonable Rules and Regulations as set forth in Exhibit
F, attached hereto and made a part hereof, which may, at Landlord's reasonable
discretion, be promulgated, amended, or expanded from time to time during Term
by the Landlord relating to Building, Building Complex and/or Premises of which
notice in writing shall be given to the Tenant within thirty (30) days of such
clause at which time they will become effective and all such rules and
regulations as changed from time to time shall be deemed to be incorporated into
and form a part of this Lease. Any default in the performance or observance of
such rules and regulations shall be a default hereunder and Landlord shall have
all remedies provided for in this Lease in the event of default by Tenant.
Landlord shall not be responsible to Tenant for nonobservance by any other
tenant or person of any tenant or person of any such rules and regulations.
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ARTICLE X
INSURANCE
---------
10.1 Tenant's Insurance. Tenant shall, during the entire term hereof, at
------------------
its sole cost and expense, obtain, maintain and keep in full force and effect,
and with the Tenant, the Landlord and its mortgagees of the Landlord named as
beneficiaries additional insured therein as their respective interests may
appear, the following types and kinds of insurance:
(a) Upon property of every description and kind owned by the Tenant and
located in Building Complex or for which the Tenant is legally liable or
installed by or on behalf of the Tenant, including, without limitation,
furniture, fittings, installations, alterations, additions, partitions, fixtures
and anything in the nature of a leasehold improvement in an amount not less than
the full replacement cost thereof, with a minimum coverage including sprinkler
leakage (where applicable).
(b) Commercial general liability including bodily liability, property
damage and public liability insurance including personal liability, contractual
liability, non-owned automobile liability, tenants' legal liability for the full
replacement costs of Premises, and owners' and contractors' protective insurance
coverage and a cross-liability clause with respect to the Tenant's use of any
part of the Premises and which coverage shall include the business operations
conducted by the Tenant and any other persons on Premises. Such policies shall
be written on a comprehensive basis with limits of not less than $3,000,000.00
with respect to injuries or death of one or more persons, and not less than
$1,000,000.00 with respect to property damage and not less than $2,000,000.00
for any one occurrence and such higher limits as the Landlord or the mortgagees
of the Landlord may reasonably require from time to time. Deductibles are not to
exceed $5,000.00.
(c) Any other form or forms of insurance as the Landlord or the
mortgagees of the Landlord may reasonably require from time to time in form, in
amounts and for insurance risks against which a prudent tenant would protect
itself, which are commonly carried by landlords of similar properties.
(d) If Tenant performs any work on Premises, prior to the commencement
of any such work, Tenant shall deliver to Landlord certificates issued by
insurance companies qualified to do business in the State of Colorado,
evidencing that workmen's compensation and public liability insurance and
property damage insurance, all in amounts reasonably satisfactory to Landlord,
are in force and effect and maintained by all contractors and subcontractors
engaged by Tenant to perform such work.
All policies shall be primary and non-contributory and taken out with
insurers reasonably acceptable to the Landlord and in form reasonably
satisfactory from time to time to the Landlord. All policies shall be with
insurers that have a Best Rating of "A" or better. The Tenant agrees that
certificates of insurance, or, if required by the Landlord or the mortgagees of
the Landlord, certified copies of each such insurance policies will be delivered
to the Landlord, if policies are required by Landlord's mortgagee or if not so
required then Tenant will deliver certificates of insurance, as soon as
practicable after the placing of the required insurance, but in no event later
than ten (10) days after Tenant takes possession of all or any part of Premises.
To the extent copies of policies are required, then if such policies are blanket
policies then a binder together with a certified copy of the form of the policy
shall be delivered to Landlord. All policies shall contain an undertaking by the
insurers to notify the Landlord and the mortgagees of the Landlord in writing
not less than thirty (30) days prior to any material change, cancellation or
sooner termination thereof.
The Tenant covenants and agrees that in the event of damage or
destruction to the leasehold improvements in Premises covered by insurance as
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required to be taken out by the Tenant herein, and if the Landlord or Tenant do
not terminate this Lease pursuant to Section 21.1 herein, the Tenant may use the
proceeds of such insurance for the purpose of repairing or restoring such
leasehold improvements which were paid by the Tenant. If Tenant elects not to
repair or restore, Landlord shall have no responsibility or liability therefor.
10.2 Landlord's Insurance. Landlord agrees to carry or cause to be
--------------------
carried during the term hereof public liability insurance on Building Complex
providing coverage of not less than Three Million and No/100 Dollars
($3,000,000.00) for personal injury or death arising out of any one occurrence.
Landlord also agrees to carry during the term hereof insurance for fire,
extended coverage, vandalism and malicious mischief, insuring Building Complex
(excluding land, foundations, excavations and other non-insurable items) for the
full insurable value thereof. Landlord may, but shall not be obligated to, take
out and carry any other form or forms of insurance as it or the mortgagees of
Landlord may reasonably determine to be advisable. Notwithstanding any
contribution by Tenant to the cost of insurance premiums, as provided in Article
IV, Tenant acknowledges that it has no right to receive any proceeds from any
such insurance policies carried by Landlord, and that such insurance will be for
the sole benefit of Landlord, with no coverage for Tenant for any risk insured
against. Deductibles are not to exceed $1,000.00, unless requested or approved
by Tenant in which event such additional amount of deductible shall be included
as an Operating Expense. If Tenant requests a higher deductible materially in
excess of deductibles carried by other landlords of similar office buildings in
the County of Boulder, or in excess of the deductible permitted by Landlord's
lender for the Premises, then Landlord shall not be required to obtain such
higher deductible.
10.3 Subrogation. The parties hereto agree that any and all fire,
-----------
extended coverage and/or property damage insurance which is required to be
carried by either shall be endorsed with a subrogation clause, substantially as
follows: "This insurance shall not be invalidated should the insured waive, in
writing prior to a loss, any and all right of recovery against any party
including other parties to the Lease and persons under the insured's control,
its invitees or licensees for loss occurring to the property described therein";
and each party hereto waives all claims for recovery from the other party, its
officers, agents or employees for any loss or damage (whether or not such loss
or damage is caused by negligence of the other party), and notwithstanding any
provisions contained in this Lease to the contrary to any of its real or
personal property insured under valid and collectible insurance policies to the
extent of the collectible recovery under such insurance.
ARTICLE XI
OBSERVANCE OF LAW
-----------------
11.1 Law. Tenant shall comply with all provisions of law, including
---
without limitation, federal, state, county and city laws, ordinances and
regulations and any other governmental, quasi-governmental or municipal
regulations, which shall impose any duty upon Landlord or Tenant, and which
relate to the partitioning, equipment operation, alteration, occupancy and use
of Premises, and to the making of any repairs, replacements, alterations,
additions, changes, substitutions or improvements of or to Premises. Moreover,
Tenant shall comply with all police, fire and sanitary regulations imposed by
any federal, state, county or municipal authorities, or made by insurance
underwriters, and to observe and obey all governmental and municipal regulations
and other requirements governing the conduct of any business conducted in
Premises. Notwithstanding the above, Tenant shall have no responsibility for the
costs of remedying violations of laws pertaining to (i) the construction of the
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Building Complex which violations were in existence as of the Commencement Date
of this Lease and (ii) any costs for remediation of hazardous substances in the
soil or groundwater except to the extent caused or contributed to by Tenant, its
agents, employees, invitees or contractors. Any costs incurred for such
compliance shall be borne by Landlord and shall not be included as Operating
Expenses.
11.2 Taxes. Tenant shall fully and timely pay all business and other
-----
taxes, charges, rates, duties, assessments and license fees levied, rates
imposed, charged or assessed against or in respect of the Tenant's occupancy of
Premises or in respect of the personal property, trade fixtures, furniture and
facilities of the Tenant or the business or income of the Tenant on and from
Premises, if any, as and when the same shall become due, and to indemnify and
hold Landlord harmless from and against all payment of such taxes, charges,
rates, duties, assessments and license fees and against all loss, costs, charges
and expenses occasioned by or arising from any and all such taxes, rates,
duties, assessments and license fees, and to promptly deliver to Landlord for
inspection, upon written request of the Landlord, evidence satisfactory to
Landlord of any such payments.
ARTICLE XII
WASTE AND NUISANCE
------------------
12.1 Tenant shall not commit, suffer or permit any waste or damage or
disfiguration or injury to Premises or the fixtures and equipment located
therein or thereon, or permit or suffer any overloading of the floors thereof
and shall not place therein any safe, heavy business machinery, computers, data
processing machines, or other heavy things without first obtaining the consent
in writing of the Landlord and, if requested, by Landlord's superintending
architect and Landlord's structural engineer, and not use or permit to be used
any part of Premises for any dangerous, noxious or offensive trade or business,
and shall not cause or permit any nuisance, noise or action in, at or on
Premises. Tenant shall not store, produce, maintain or dispose of any materials
or substances in or about Building Complex which are regulated, toxic, hazardous
or infectious material or substance under any environmental statute, rule,
regulation, or ordinance of any governmental authority, except for de minimis
amounts consistent with general office use, including janitorial which are at
all times in compliance with applicable law.
ARTICLE XIII
ENTRY BY LANDLORD
-----------------
13.1 Upon twenty-four (24) hour prior verbal notice to Tenant, Landlord
and its agents shall have the right to enter Premises at all reasonable times
for the purpose of examining or inspecting the same, and any other services to
be provided by Landlord to Tenant hereunder and to make such alterations,
repairs, improvements or additions, whether structural or otherwise, to Premises
as Landlord may deem necessary or desirable. In no event shall prior notice be
required if Landlord reasonably believes that there is an emergency. Landlord
may enter by means of a master key without liability to Tenant except for any
failure to exercise due care for Tenant's property and without affecting this
Lease. Landlord may show the Premises to prospective purchasers, investors or
lenders upon twenty-four (24) hour prior verbal notice to Tenant. Tenant may
provide Landlord with an escort for any inspection.
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ARTICLE XIV
INDEMNIFICATION
---------------
14.1 Tenant's Indemnity. Subject to the provisions of Section 10.3 of
------------------
this Lease and Section 14.3 below, Tenant shall indemnify the Landlord and save
it harmless from and against any and all loss (including loss of rentals payable
by the Tenant or other tenants in the event of loss either directly or
indirectly caused by any act or omission or Tenant), claims, actions, damages,
liability and expenses in connection with loss of life and personal injury
arising from any occurrence in, upon or at Premises during the term of this
Lease or any part thereof, or occasioned wholly or in part by any act or
omission of the Tenant, its agents, contractors, employees, servants, licensees,
or concessionaires or invitees or by anyone permitted to be on Premises by the
Tenant; however in no event shall Tenant indemnify Landlord or hold it harmless
from any negligence or misconduct of Landlord, its agents, employees or
contractors or Landlord's invitees. In case the Landlord shall be made a party
to any litigation commenced by or against the Tenant (except litigation where
the Tenant is seeking relief from or a remedy against Landlord, its agents,
employees, or contractors), then the Tenant shall protect and hold the Landlord
harmless and shall pay all costs, expenses and reasonable attorney's fees
incurred or paid by the Landlord in connection with such litigation whether or
not such action is contested or prosecuted to judgement. All personal property
on Premises shall be at the Tenant's sole risk, and Landlord shall not be liable
for any damage done to or loss of such personal property or for damage or loss
suffered by Tenant.
14.2 Landlord's Indemnity. Subject to the provisions of Section 10.3 and
--------------------
Section 14.3 below, Landlord shall indemnify and hold Tenant harmless from and
against any and all loss, claims, actions or damages, liability and expenses in
connection with loss of life and personal injury arising from any occurrence
occasioned wholly or in part by any act or omission of the Landlord, its agent,
employees or contractors, except as set forth herein, however in no event shall
Landlord indemnify Tenant or hold it harmless from any negligence of Tenant, its
agents, employees or contractors. If Landlord has any liability pursuant to
Article 23, then this indemnity shall apply to any claims or expenses of Tenant
arising in conjunction with such liability, however this indemnity shall not
change or increase Landlord's liability under Article 23.
14.3 Comparative Negligence. Subject to the provisions of Section 10.3
----------------------
but notwithstanding any indemnity provision or other provisions contained in
this Lease to the contrary, if both the Landlord's and the Tenant's negligence
(which shall include the agents, contractors, invitees and employees of either,
as applicable) caused or contributed to any claim for damages for injury to
person or property then neither party shall indemnify the other for such
negligence and each party shall be responsible for such claims pursuant to the
provisions of C.R.S. (S) 13-21-111 pertaining to comparative negligence, as
amended from time to time.
ARTICLE XV
ALTERATIONS
-----------
15.1 Alterations by Tenant. Tenant may not make any alterations,
---------------------
additions or changes to the structural portions of the Premises, the exterior of
the Building or the exterior portion of the Building Complex, the roof, the
mechanical systems, HVAC, elevator or plumbing systems, without consent of
Landlord, which consent shall not be unreasonably withheld or delayed. The
balance of the Premises for which Landlord's consent is not required prior to
making such alterations is hereafter called the "Usable Premises". In no event
shall Landlord be deemed to be unreasonable in withholding consent if the
changes, additions, or alterations would directly, indirectly or potentially
cause Landlord to incur expenses or costs now or in the future which expenses or
costs would be borne by Landlord, unless Tenant agrees to bear such expenses.
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Tenant shall not make, install or erect in or to the any other portion of the
Premises any installations, alterations, additions or partitions without
submitting the drawings and specifications to the Landlord and to the extent
such alteration which constitutes a single integrated work of improvement equals
or exceeds $25,000.00 in cost, Tenant shall first obtain the Landlord's prior
written consent in each instance, which consent shall not be unreasonably
withheld. Furthermore, the Tenant shall obtain the Landlord's prior written
consent to any change or changes in such drawings or specifications submitted as
aforesaid, subject to the payment of the cost to the Landlord of having its
architects and appropriate consulting engineers review such plans and changes
thereto prior to proceeding with any work based on such drawings or
specifications. All such work shall be performed free and clear of all
mechanic's liens and Landlord shall have no liability for the performance of
such work, notwithstanding its consent to any plans and specifications. All such
work shall be performed free and clear of all mechanic's liens and Landlord
shall have no liability for the performance of such work, notwithstanding its
consent to any plans and specifications. Any work performed by or for the Tenant
shall be performed by competent workmen whose labor union affiliations are not
incompatible with those of any workmen who may be employed in Building Complex
by the Landlord, its contractors or subcontractors. The Tenant covenants that
the Tenant will not suffer or permit during the Term hereof any mechanics' or
other liens for work, labor, services or materials ordered by the Tenant or for
the cost of which the Tenant may be in any obligated, to attach to Premises and
that whenever and so often as any such liens shall attach or claims therefor
shall be filed, the Tenant shall, within thirty (30) days after the Tenant has
notice of the claim for lien, procure the discharge thereof by payment or by
giving security or in such other manner as is or may be required or permitted by
law or which shall otherwise satisfy Landlord. The Tenant shall, at its own cost
and expense, take out or cause to be taken out any additional insurance or bonds
reasonably required by the Landlord to protect the Landlord's and the Tenant's
interest during the period of alteration. Tenant, at least twenty (20) days
prior to installation of any alteration and subsequent to review and approval of
any plans and specifications by Landlord, may request Landlord to advise Tenant
in writing whether Landlord reserves the right to require Tenant to remove any
Alterations from the Premises upon termination or expiration of the Lease which
notice shall be delivered to Tenant within fifteen (15) days of receipt of such
request from Tenant.
At least five (5) days prior to the commencement of any work permitted
to be done by persons requested by the Tenant on the Usable Premises, the Tenant
shall notify the Landlord of the proposed work and the names, addresses, phone
numbers, fax numbers and tax I.D. numbers of the persons supplying labor and
materials for the proposed work so that the Landlord may avail itself of the
provisions of statutes such as Section 38-22-105(2) of the Colorado Revised
Statutes (1982). During any such work on Premises, the Landlord, or its
representatives, shall have the right to go upon and inspect Premises at all
reasonable times, and shall have the right to post and keep posted thereon
notices such as those provided for by Section 38-22-105(2) C.R.S. (1982) or to
take any further action which the Landlord may deem to be proper for the
protection of the Landlord's interest in Premises.
15.2 Alterations by Landlord. Landlord hereby reserves the right at any
-----------------------
time and from time to time to make changes in, additions to, subtractions from
or rearrangements of the Building Complex (excluding the Building), at any time
thereof, all entrances and exits thereto, and to grant, modify and terminate
easements or other agreements pertaining to the use and maintenance of all or
parts of the Building Complex (excluding the Building), provided that Landlord
may not make any such alterations of the Building Complex or grant to third
parties any parking rights or exclusive rights to use the exterior portions of
the Building Complex or nonexclusive rights which impair Tenant's use of the
Premises in any material way.
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ARTICLE XVI
SIGNS AND ADVERTISING
---------------------
16.1 Tenant shall not install, paint, display, inscribe, place or affix
any sign, picture, advertisements, notice, lettering or direction on any part of
Building Complex or in the interior of Building which is visible from the
exterior without Landlord's prior written consent. All signage must be in
compliance with zoning and applicable covenants and restrictions for the
Building Complex.
ARTICLE XVII
SUBORDINATION TO MORTGAGES AND DEEDS OF TRUST
---------------------------------------------
17.1 This Lease and the rights of Tenant hereunder shall be and are
hereby made subject and subordinate to the lien of any mortgages or deeds of
trust now or hereafter existing against Building Complex and to all renewals,
modifications, consolidations, replacements and extensions thereof and to all
advances made, or hereafter to be made, upon the security thereof, and Tenant
hereby attorns to the mortgagee , provided, however, (i) that Tenant's rights
under this Lease shall not be disturbed so long as there is no default by Tenant
and (ii) that the mortgagee perform and fulfill all of the obligations of
Landlord under this Lease arising after the date that such mortgagee succeeds to
Landlord's interest. Although such subordination, attornment and nondisturbance
shall be self-operating, Tenant, or its successors in interest, shall upon
Landlord's request, execute and deliver upon the demand of Landlord any and all
reasonable subordination, attornment and nondisturbance instruments desired by
Landlord, in the manner reasonably requested by Landlord, subordinating this
Lease to any such mortgage or deed of trust and to which Tenant shall not
unreasonably withhold or delay its consent and execution thereof.
Should any mortgage or deed of trust affecting Building Complex be
foreclosed, then:
(a) the liability of the mortgagee, at such foreclosure sale shall exist
only so long as such mortgagee, is the owner of Building Complex and such
liability shall not continue or survive after further transfer of ownership; and
(b) this Lease shall continue in full force and effect as a direct lease
between and binding upon both the Tenant and mortgagee.
As used in this Article XVII, the terms "mortgagee" and "beneficiary"
shall include successors and assigns of any such party, whether immediate or
remote, the purchaser of any mortgage or deed of trust, whether at foreclosure
or otherwise, and the successors, assigns and mortgagees and beneficiaries of
such purchaser, whether immediate or remote.
In the event the parties are unable to agree upon the form of any
subordination, attornment and nondisturbance agreement or proposed language to
such form, then Landlord may elect to retain an independent third party Colorado
licensed attorney with at least ten (10) years prior institutional real estate
lending experience and experience representing both landlords and tenants in
Colorado and Tenant agrees that such attorney's opinion as to whether the form
and/or the proposed language is commercially reasonable shall be binding on
Tenant and Landlord cannot declare Tenant in default so long as Tenant complies
with the decision of such third party.
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ARTICLE XVIII
ESTOPPEL CERTIFICATE/FINANCIAL INFORMATION
------------------------------------------
18.1 Initial Estoppel Certificate. Tenant agrees within five (5)
----------------------------
business days of receipt of written request to execute and deliver to Landlord
to and for the benefit of Landlord, any purchaser or lender the Initial Estoppel
Certificate attached hereto as Exhibit E. To the extent that any matter set
forth thereon is incorrect then Tenant shall specify in detail any such
inaccuracy.
18.2 Additional Estoppel Certificates. Tenant agrees that it will from
--------------------------------
time to time, upon request by Landlord, execute and deliver to Landlord within
five (5) business days after demand therefor an estoppel certificate in
Landlord's form certifying that this Lease is unmodified and in full force and
effect (or if there have been modifications, that the same is in full force and
effect as so modified).
18.3 Financial Information. Tenant shall, from time to time at
---------------------
reasonable intervals upon Landlord's request, deliver to Landlord a copy of
Tenant's most recent audited Financial Statements, which statements shall be
requested by Landlord for the purposes of meeting any investor's, lender's or
prospective purchaser's request.
ARTICLE XIX
QUIET ENJOYMENT
---------------
19.1 Subject to the terms and provisions of this Lease, Landlord
covenants and agrees that Tenant shall peaceably and quietly enjoy Premises and
Tenant's rights hereunder during the term hereof, without hindrance by Landlord,
its agents and employees.
ARTICLE XX
FIXTURES
--------
20.1 Any or all installations, alterations, additions, partitions and
fixtures which are affixed to or upon Premises, if placed there by the Landlord
or as an alteration made by the Tenant, shall, immediately upon such placement,
become the property of the Landlord without compensation therefor to the Tenant
to the extent that it is not personalty or trade fixtures owned by Tenant and is
characterized under applicable law as real property, including without
limitation carpets, walls, electrical and plumbing. Notwithstanding anything
herein contained, the Landlord shall be under no obligation to repair, maintain
or insure any installations, alterations, additions, partitions and fixtures or
anything in the nature of a leasehold improvement made or installed by the
Tenant. Subject to the provisions of Section 15.1, the Landlord may elect that
any or all installations made or installed by or on behalf of the Tenant be
removed at the end of Term (exclusive of the initial tenant improvements
installed prior to the Commencement Date) and, if the Landlord so elects, it
shall be the Tenant's obligation to restore Premises to the condition it was in
previous to such alterations, installations, partitions and fixtures on or
before the termination of this Lease. Such removal and restoration shall be at
the sole expense of the Tenant. Furthermore, all personal property, alterations
and trade fixtures installed and paid for by Tenant (Tenant's Property) shall at
all times remain Tenant's property, shall be insured by Tenant, and Tenant shall
be entitled to all depreciation, amortization and other tax benefits with
respect thereto. Tenant may from time to time remove any personal property or
trade fixtures which were installed and/or paid for by Tenant provided Tenant
19
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repairs all damage to the Building Complex caused by such removal. Provided
Tenant is not in default hereunder, Landlord agrees to execute within fifteen
(15) business days of receipt a landlord lien waiver, in form satisfactory to
Landlord, waiving any lien of Landlord in Tenant's personal property., trade
fixtures and other alterations installed and paid for by Tenant which do not
become Landlord's property upon expiration or termination of the Lease.
ARTICLE XXI
DAMAGE OR DESTRUCTION
---------------------
21.1 Casualty. In the event that Building should be totally destroyed by
--------
fire, tornado or other casualty, or should be so damaged that rebuilding or
repairs cannot be completed within nine months from issuance of building
permit(s) after the date of such damage, Landlord or Tenant may, at its option,
terminate this Lease in which event the rent shall be abated during the
unexpired portion of this Lease effective with the date of such damage, or
Landlord may proceed to rebuild Building and Premises. In the event Building
should be damaged by fire, tornado or other casualty, but only to such extent
that rebuilding or repairs in Landlord's reasonable estimation can be completed
within nine months of issuance of building permit(s) after the date of such
damage, or if the damage cannot be repaired within such time frame but neither
Tenant nor Landlord elect to terminate this Lease, in either such event,
Landlord shall, within ninety (90) days after the date of such damage commence
to rebuild or repair Building and shall proceed with reasonable diligence to
restore Building to substantially the same condition in which it was immediately
prior to the happening of the casualty, except that the Landlord shall not be
required to rebuild, repair or replace any part of the partitions, fixtures and
other improvements which may have been placed by the Tenant within Building. In
the event any mortgagee under a deed of trust, security agreement or mortgage on
Building should require that the insurance proceeds be used to retire the
mortgage debt (notwithstanding Landlord's reasonable efforts to obtain the right
to use proceeds to rebuild) then Landlord shall have no obligation to rebuild
and if Landlord so elects, this Lease shall terminate upon notice to Tenant.
Unless otherwise provided in this Lease, any insurance which may be carried by
the Landlord or the Tenant against loss or damage to the Building Complex shall
be for the sole benefit of the party carrying such insurance and under its sole
control. Furthermore, if the casualty occurs during the last twenty-four (24)
months of the Lease Term and any damage cannot be repaired within 180 days or
alternatively if upon completion of the repair there would be less one hundred
and eighty (180) days remaining in the Lease Term then, Tenant may within ten
(10) days of receipt of written notice from Landlord of Landlord's election to
repair, terminate this Lease by written notice to Landlord.
21.2 Casualty Caused by Tenant. [INTENTIONALLY DELETED.]
-------------------------
ARTICLE XXII
CONDEMNATION
------------
22.1 Eminent Domain. If all or any part of the Building is taken by
--------------
eminent domain, or by conveyance in lieu thereof or if a portion of the total
parking is taken by eminent domain resulting in a zoning violation and no
reasonable alternative parking is made available, then this Lease, at the option
of either party evidenced by notice to the other given within thirty (30) days
from such taking or conveyance, shall forthwith cease and terminate entirely. In
the event of such termination of this Lease, then rental shall be due and
payable to the actual date of such termination. If this Lease does not otherwise
terminate, this Lease shall cease and terminate as to that portion of Premises
so taken as of the date of such taking, and the rental thereafter payable under
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this Lease shall be abated pro rata from the date of such taking in an amount by
which that portion of Gross Area of Premises so taken shall bear to Gross Area
of Premises prior to such taking. If any part of Building Complex shall be taken
by eminent domain, or by conveyance in lieu thereof, and if such taking
substantially interferes with the Landlord's ownership or use of Building
Complex, the Landlord, at its option, may upon thirty (30) days' notice to the
Tenant, terminate this Lease as of the date of such taking.
22.2 Damages. All compensation awarded for any taking (or the proceeds
-------
of private sale in lieu thereof) of Premises shall be the property of Landlord
and Tenant hereby assigns its interest in any such award to Landlord; provided,
however, Landlord shall have no interest in any award made to Tenant for the
taking of Tenant's fixtures and other personal property or moving expenses if a
separate award for such items is made to Tenant.
22.3 Restoration. If both Landlord and Tenant elect not to terminate
-----------
this Lease, Tenant shall remain in that portion of Premises which shall not have
been appropriated or taken as herein provided, and Landlord agrees, at
Landlord's sole cost and expense, to, as soon as reasonably possible, restore
the remaining portion of Premises to a complete unit of like quality and
character as existed prior to such appropriation or taking.
ARTICLE XXIII
LOSS AND DAMAGE AND DELAY
-------------------------
23.1 Loss and Damage. The Landlord shall not be liable or responsible in
---------------
any way for:
(a) any death or injury arising from or out of any occurrence in, upon
or at Building Complex or for damage to property of the Tenant or others located
on Premises, nor shall it be responsible in any event for damage to any property
of the Tenant or others from any cause whatsoever, except to the extent such
damage, loss, injury or death results from the intentional misconduct or
negligence of the Landlord, its agents, servants or employees. Without limiting
the generality of the foregoing, the Landlord shall not be liable for any injury
or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water, rain, snow or leaks from any part of
Premises or from the pipes, appliances, plumbing works, roof, street, or
subsurface of any floor or ceiling or from any other place or because of
dampness or climatic conditions from any other cause of whatsoever kind. The
Landlord shall not be liable for any damage whatsoever caused by any other
persons in or about Building Complex, or by an occupant of adjacent property
thereto, or the public, or construction of any private, public or quasi-public
work. All property of the Tenant kept or stored on Premises shall be kept or
stored at the risk of the Tenant only and the Tenant shall indemnify the
Landlord in the event of any claims arising out of damages to the same,
including any subrogation claim by the Tenant's insurers;
(b) loss or damage, however caused, to money, securities, negotiable
instruments, papers or other valuables of the Tenant.
23.2 Delays. Whenever and to the extent that the Landlord or Tenant
------
(except for nonpayment of any sums due Landlord from Tenant) shall be unable to
fulfill, or shall be delayed or restricted in the fulfillment of, any obligation
hereunder in respect to the supply of or provision for, any service or utility
or the doing of any work or the making of any repairs by reason of being unable
to obtain the material, goods, equipment, service, utility or labor required to
enable it to fulfill such obligation or by reason of any statute, law or any
regulation or order passed or made pursuant thereto or by reason of the order or
direction of any administrator, controller or board, or any governmental
21
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department or officer or other authority, or by reason of not being able to
obtain any permission or authority required thereby, or by reason of any other
cause beyond its control (other than financial inability), whether of the
foregoing character or not, the Landlord or Tenant, as applicable, shall be
entitled to extend the time for fulfillment of such obligation by a time equal
to the duration of such delay or restriction, and the Tenant shall not be
entitled to compensation for any inconvenience, nuisance or discomfort thereby
occasioned.
ARTICLE XXIV
DEFAULT AND REMEDIES
--------------------
24.1 Default by Tenant. The following events shall be deemed to be
-----------------
events of default by Tenant under this Lease:
(a) Tenant shall fail to pay any installment of rent or any other sum
due to Landlord as herein provided and such failure shall continue for a period
of five (5) days after receipt of written notice thereof to Tenant.
(b) Tenant shall fail to comply with any term, provision or covenant of
this Lease, other than payment of rent or other sums due to Landlord, and shall
not cure such failure within thirty (30) days after written notice thereof to
Tenant. However to the extent that such covenants cannot reasonably be cured
within thirty (30) days then Tenant shall not be deemed in default if it has
commenced to cure such default within thirty (30) days and is diligently
prosecuting same to completion.
(c) Tenant or any guarantor of Tenant's obligations under this Lease
shall die, cease to exist as a corporation or partnership (except as expressly
permitted pursuant to Article VII), or be otherwise dissolved or liquidated, or
shall make a transfer in fraud of creditors, or shall make an assignment for the
benefit of creditors.
(d) Unless discharged within sixty (60) days, Tenant or any guarantor of
Tenant's obligations under this Lease shall file a petition under any section or
chapter of the national bankruptcy act as amended or under any similar law or
statute of the United States or any state thereof; or Tenant or any guarantor of
Tenant's obligations under this Lease shall be adjudged bankrupt or insolvent in
proceedings filed against Tenant or any guarantor of Tenant's obligations under
this Lease.
(e) Unless removed within sixty (60) days, a receiver or trustee shall
be appointed for all of Premises or for all or substantially all of the assets
of Tenant or any guarantor of Tenant's obligations under this Lease.
(f) Tenant shall abandon or vacate any portion of Premises, in whole or
in part in violation of Section 33.3 hereof.
24.2 Remedies of Landlord. Upon the occurrence of any such events of
--------------------
default as set forth in Section 24.1, Landlord shall have the option to pursue
any one or more of the following remedies without any notice or demand
whatsoever:
(a) Terminate this Lease, in which event Tenant shall immediately
surrender Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of Premises and expel or
remove Tenant and any other person who may be occupying such Premises or any
part thereof, by force if necessary, without being liable for prosecution of any
claim of damages therefor.
(b) Enter upon and take possession of Premises and expel or remove
Tenant and any other person who may be occupying such Premises or any part
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thereof, by force if necessary, without being liable for prosecution or any
claim for damages therefor, and relet Premises and receive the rent therefor.
(c) Enter upon Premises, by force if necessary, without being liable for
prosecution or any claim for damages therefor, and do whatever Tenant is
obligated to do under the terms of this Lease; and Tenant agrees to reimburse
Landlord on demand for any expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this Lease, and Tenant further agrees
that Landlord shall not be liable for any damages resulting to the Tenant from
such action, whether caused by the negligence of Landlord or otherwise.
(d) Alter all locks and other security devices at Premises without
terminating this Lease.
Exercise by Landlord of any one or more of the remedies hereunder
granted or otherwise available shall not be deemed to be an acceptance of
surrender of Premises by Tenant, whether by agreement or by operation of law, it
being understood that such surrender can be effected only by the written
agreement of Landlord and Tenant. No such alteration of locks or other security
devices and no removal or other exercise of dominion by Landlord over the
property of Tenant or others at Premises shall be deemed unauthorized or
constitute a conversion, Tenant hereby consenting, after any event of default,
to the aforesaid exercise of dominion over Tenant's property within Premises.
All claims for damages by reason of such reentry and/or repossession and/or
alteration of locks or other security devices are hereby waived, as all claims
for damages by reason of any distress warrant, forcible detainer proceedings,
sequestration proceedings or other legal process, to the extent permitted by
law. Tenant agrees that any reentry by Landlord may be pursuant to judgment
obtained in forcible detainer proceedings or other legal proceedings or without
the necessity for any legal proceedings, as Landlord may elect, and Landlord
shall not be liable in trespass or otherwise.
In the event Landlord elects to terminate the Lease by reason of an
event of default then notwithstanding such termination, Tenant shall be liable
for and shall pay to Landlord, at the address specified for notice to Landlord
herein, the sum of (i) all rental and other indebtedness accrued to date of such
termination, plus, as damages, (ii) an amount equal to the total rental
hereunder for the remaining portion of Term (had such term not been terminated
by Landlord prior to the date of expiration as stated herein) less reasonable
rental value, reduced to then present value based upon the discount rate of the
Federal Reserve Bank of San Francisco, California, plus one percent. Such sum
shall accrue interest at the rate for late payments, until paid.
In the event that Landlord elects to repossess Premises without
terminating the Lease, then Tenant shall be liable for and shall pay to Landlord
at the address specified for notice to Landlord herein, all rental and other
indebtedness accrued to the date of such repossession, plus rent required to
paid by Tenant to Landlord during the remainder of Term until the date of
expiration of the term as stated herein diminished by any net sums thereafter
received by Landlord through reletting Premises during such period (after
deducting expenses incurred by Landlord as provided below). In no event shall
Tenant be entitled to any excess of any rental obtained by reletting over and
above the rental herein reserved. Actions to collect amounts due by Tenant to
Landlord under this subparagraph may be brought from time to time, on one or
more occasions, without the necessity of Landlord's waiting until expiration of
Term. In the event that Landlord relets the Premises without terminating the
Lease Tenant's liability for Base Rent and Additional Rent hereunder shall not
include any liability for the wrongful acts, breaches or indemnity of such
subsequent tenant other than nonpayment of Base Rent and Additional Rent
attributable to Operating Expenses and Real Estate Taxes.
23
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In the event of any default or breach by Tenant, or threatened or
anticipatory breach or default, Tenant shall also be liable and shall pay to
Landlord, in addition to any sums provided to be paid above, broker's fees
incurred by Landlord in connection with reletting the whole or any part of
Premises; the costs of removing and storing Tenant's or other occupants'
property; the costs of repairing, altering, remodeling, or otherwise putting
Premises into condition acceptable to a new tenant or tenants; and all
reasonable expenses incurred by Landlord in enforcing or defending Landlord's
rights and/or remedies, including reasonable attorney's fees whether suit was
actually filed or not. In no event shall Tenant be liable for additional damages
(exclusive of rent) for any nonmonetary default arising by, through, or under
any tenant under any subsequent reletting including but not limited to damages
caused by hazardous materials generated by any subsequent tenant.
In the event of termination or repossession of Premises for an event of
default, Landlord shall not have any obligation (except set forth below) to
relet or attempt to relet Premises or any portion thereof, or to collect rental
after reletting; and in the event of reletting, Landlord may relet the whole or
any portion of Premises for any period to any Tenant and for any use or purpose.
Landlord shall use reasonable efforts to mitigate its damages, but Landlord
shall not be obligated to expend sums to lease the Premises nor required to
lease at below market rates.
If Tenant shall fail to make any payment or cure any default hereunder
within the time herein permitted, Landlord, without being under any obligation
to do so and without thereby waiving such default, may make such payment and/or
remedy such other default for the account of Tenant (and enter the Premises for
such purpose), and thereupon Tenant shall be obligated to, and hereby agrees to
pay Landlord upon demand all costs, expenses and disbursements, including
reasonable attorney's fees incurred by Landlord in taking such remedial action.
Landlord is entitled to accept, receive in cash or deposit any payment
made by Tenant for any reason or purpose or in any amount whatsoever, and apply
the same at Landlord's option to any obligation of Tenant and the same shall not
constitute payment of any amount owed except that to which Landlord has applied
the same. No endorsement or statement on any check or letter of Tenant shall be
deemed an accord and satisfaction or recognized for any purpose whatsoever. The
acceptance of any such check or payment shall be without prejudice to Landlord's
rights to recover any and all amounts owed by Tenant hereunder and shall not be
deemed to cure any other default nor prejudice Landlord's rights to pursue any
other available remedy. Nothing herein shall bar or limit Tenant's right to
submit evidence that Landlord failed to reasonably mitigate damages by not
attempting to relet the Premises or by not accepting a reasonable subletting or
assignment submitted by Tenant.
24.3 Landlord's Default. Landlord shall not be deemed in default
------------------
hereunder unless Tenant shall have given Landlord written notice of such default
specifying such default with particularity and Landlord shall thereupon have
thirty (30) days in which to cure any default unless such default cannot
reasonably be cured within such period wherein Landlord shall not be in default
if it commences to cure the default within the thirty (30) day period and
diligently pursues completion of same. In the event of any default, Tenant
agrees that its exclusive remedy shall be an action for damages.
24.4 Personal Property Lien.
----------------------
24
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ARTICLE XXV
HOLDING OVER
------------
25.1 If the Tenant shall continue to occupy and continue to pay rent for
Premises after the expiration of this Lease with or without the consent of the
Landlord, and without any further written agreement, the Tenant shall be a
tenant from month to month at a monthly Base Rent equal to one hundred twenty-
five percent (125%) of the last full monthly Base Rent payment due hereunder,
and subject to all of the additional rentals, terms and conditions herein set
out except as to expiration of Term. Such holding over may be terminated by the
Landlord or the Tenant upon thirty (30) days' notice. In the event that the
Tenant fails to surrender Premises upon termination or expiration of this Lease
or such month to month tenancy, then the Tenant shall indemnify the Landlord
against loss or liability resulting from any delay of the Tenant in not
surrendering Premises, including, but not limited to, any amounts required to be
paid to third parties who were to have occupied Premises and any attorney's fees
related thereto.
ARTICLE XXVI
NOTICE
------
26.1 Notice. Any notice, request, statement or other writing pursuant to
------
this Lease shall be deemed to have been given if personally delivered, sent by
registered or certified mail, postage prepaid, return receipt requested or by
recognized overnight express receipted delivery service, or delivered by hand to
the party at the addresses set forth below;
TENANT: Cirrus Logic, Inc.
(PRIOR TO 3100 West Warren Avenue
COMMENCEMENT Freemont, CA 94538
DATE) Attn: ___________________
TENANT: Cirrus Logic, Inc.
(AS OF 305 Interlocken Parkway
COMMENCEMENT Broomfield, CO 80021
DATE AND Attn: ______________________
THEREAFTER)
LANDLORD: Prime West Development
6025 South Quebec Street
Suite 350
Englewood, Colorado 80111
Attention: President
Copy to: Director of Property
Management
and such notice shall be deemed to have been received by the Landlord or the
Tenant, as the case may be, on the date on which it shall have been so mailed
actually received.
26.2 Change of Address. Any party may, by notice to the other, from time
-----------------
to time, designate another address in the United States, which notices mailed
more than ten (10) days thereafter shall be addressed.
ARTICLE XXVII
SECURITY DEPOSIT
----------------
27.1 Tenant has deposited with Landlord the sum of (-0-) as security for
the performance by Tenant of all of the terms, covenants, and conditions
required to be performed by it hereunder. Such sum shall be returned to Tenant
after a reasonable period after the expiration of Term and delivery of
possession of the Premises to Landlord if, at such time, Tenant has fully
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performed all such terms, covenants and conditions. Prior to the time when
Tenant is entitled to the return of the security deposit, Landlord shall be
entitled to intermingle such deposit with its own funds and to use same for such
purposes as Landlord may determine. Tenant shall not be entitled to any interest
on the security deposit. In the event of default by Tenant in performing any of
its obligations under this Lease, Landlord may, in addition to any other right
or remedy available to Landlord hereunder, use, apply, or retain all or any part
of this security deposit for the payment of any unpaid rent or for any other
amount which Landlord may be required to expend by reason of the default of
Tenant, including any damages or deficiency in the reletting of the Premises or
any attorney's fees associated therewith, regardless of the whether the accrual
of such damages or deficiency occurs before or after an eviction. If a portion
of the security deposit is used or applied by Landlord during the term hereof,
Tenant shall, upon five (5) days written demand, deposit with Landlord an amount
sufficient to restore the security deposit to its original amount.
ARTICLE XXVIII
MISCELLANEOUS PROVISIONS
------------------------
28.1 Captions. The captions used herein are for convenience only and do
--------
not limit or amplify the provisions hereof. Whenever the singular is used the
same shall include the plural, and words of any gender shall include the other
gender.
28.2 Waiver. One or more waivers of any covenant, term or condition of
------
this Lease by either party should not be construed as a waiver of a subsequent
breach of the same covenant, term or condition. The consent or approval by
either party shall not be construed as a waiver of a subsequent breach of the
same covenant, term or condition. The consent or approval by either party to or
of any act by the other party requiring such consent or approval should not be
deemed to waive or render unnecessary consent to or approval of any subsequent
similar act.
28.3 Entire Agreement. This Lease contains the entire agreement between
----------------
the parties and no agreement shall be effective to change, modify or terminate
this Lease in whole or in part unless such agreement is in writing and duly
signed by the parties hereto.
28.4 Severability. The invalidity or unenforceability of any provision
------------
hereof shall not affect or impair any other provision.
28.5 Modification. Should any mortgagee or beneficiary under a deed of
------------
trust require a modification of this Lease, which modification (i) will not
bring about any increased cost or expense to Tenant and (ii) will not in any way
substantially change the rights and obligations of Tenant hereunder, then and in
such event, Tenant agrees that this Lease may be so modified.
28.6 Governing Law. This Lease shall be governed by and construed
-------------
pursuant to the laws of the State of Colorado.
28.7 Successors and Assigns. The covenants and conditions herein
----------------------
contained shall inure to and bind the respective heirs, permitted successors,
executors, administrators and assigns of the parties hereto, and the terms
"Landlord" and "Tenant" shall include the permitted successors and assigns of
either such party, whether immediate or remote, except as otherwise specifically
set forth in this Lease to the contrary.
28.8 Authorization to Execute. In the event that Landlord or Tenant
------------------------
hereunder shall be a corporation, the parties executing this Lease on behalf of
such entity hereby covenant and warrant that such entity is a duly qualified
corporation and all steps have been taken prior to the date hereof to qualify
such entity to do business in the State of Colorado; all franchise and corporate
26
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taxes have been paid to date, and all future forms, reports, fees and other
documents necessary to comply with applicable laws will be filed.
28.9 Guaranty of Lease. [INTENTIONALLY DELETED.]
-----------------
28.10 Approval of Documents. Unless such work is performed by Landlord
---------------------
or by Landlord's contractor, agents or employees, Landlord's approval of
Tenant's plans for work performed by Landlord or Tenant in the Premises shall
create no responsibility or liability on the part of Landlord for their
completeness, design, sufficiency, or compliance with any laws, rules, or
regulations of governmental agencies or authorities. If Landlord or its
contractor, agents, or employees perform such work, then Landlord will be
responsible for obtaining the applicable permits which will be deemed compliance
with law.
28.11 Financing Contingency. Tenant acknowledges that this Lease is
---------------------
subject to the condition subsequent that Landlord obtain a construction and
acquisition loan for Building Complex on or before the date which is sixty (60)
days after Tenant's final approval of the Construction Drawings subject to
extensions for Tenant caused or contributed to delays. Landlord acknowledges and
agrees that it will apply for a construction loan with (a) a maximum interest
rate not to exceed three hundred basis points over the prime rate quoted by such
lender, as the rate floats over the term of the loan (b) a minimum term of not
less than eighteen (18) months and (c) a principal amount of not less than
eighty percent (80%) of all costs attributable to the construction, inclusive of
loan fees and interest payments permitted to be made with loan proceeds. In the
event of the termination of this Lease pursuant to the terms of this Section
28.11, neither party shall have any liability or obligation whatsoever to the
other except that any rent or deposit of Tenant shall be promptly refunded,
without interest except as specifically set forth herein, by Landlord.
ARTICLE XXIX
SUBSTITUTION OF PREMISES
------------------------
29.1 [INTENTIONALLY DELETED.]
ARTICLE XXX
RECORDING
---------
30.1 Tenant may place a memorandum of this Lease of record on a form
previously approved by Landlord which approval shall not be unreasonably
withheld. Landlord or Tenant shall also execute a reasonable memorandum of lease
in recordable form if requested by the other, which may be placed of record. In
addition, if requested by the Landlord, the Tenant will execute a memorandum of
lease to be filed with the Colorado Department of Revenue on such form as may be
prescribed by said department within ten (10) days after the execution of this
Lease or any other such memorandum so that the Landlord may avail itself of the
provisions of the statutes such as Section 39-22-604(7)(c) of the Colorado
Revised Statutes (1993).
Any recording by Tenant without Landlord's prior written consent shall
at Landlord's option be deemed a default pursuant to Article XVII hereof and
Landlord shall have all of the rights and remedies set forth therein. Tenant
agrees if requested by Landlord to execute a quitclaim deed, releasing any
interests in the lease as set forth in the memorandum, which deed will be held
in escrow and recorded upon termination or expiration of the Lease.
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ARTICLE XXXI
REAL ESTATE BROKER
------------------
31.1 Tenant represents and warrants that Tenant has dealt directly with
(and only with) The Colorado Group, Cushman & Wakefield and R.A. Mohr and
Associates, as brokers (the "Brokers") in connection with this Lease, and that
insofar as Tenant knows, no other broker negotiated or participated in the
negotiations of this Lease, or submitted or showed the Premises, or is entitled
to any commission in connection herewith and Tenant agrees to indemnify Landlord
against any liability arising from anyone claiming by or through Tenant,
including reasonable attorney's fees.
Landlord represents and warrants to Tenant that Landlord has dealt only
with the Brokers and that Landlord shall pay pursuant to its written agreement
with Cushman & Wakefield the commission set forth therein when same becomes due
and payable. All other commissions due the Brokers shall be payable by Cushman &
Wakefield and The Colorado Group pursuant to its separate agreement(s) with such
Brokers.
ARTICLE XXXII
RENT PREPAYMENT
---------------
32.1 Simultaneous with the satisfaction of the condition subsequent set
forth in Section 28.11, Tenant shall deposit with Landlord the sum of one month
of estimated Base Rent plus one-twelfth of estimated Real Estate Taxes and
Operating Expenses, which shall be applied to the first month's Base Rent and
Additional Rent as same becomes due and payable. Prior to the application of
said payment, in the event the Tenant defaults in its performance of any of the
terms and conditions hereof, Tenant hereby agrees that the rent prepayment shall
be treated as a security deposit, and Landlord may use, apply, or retain said
sum in accordance with Article 27.1. Landlord agreed to deposit the rent
prepayment into a segregated interest-bearing account and Tenant, provided there
is no default by Tenant, shall be entitled to the interest earned on such
amounts where (i) the Lease is terminated prior to the Commencement Date and the
prepayment is returned, or (ii) prepaid rent is applied to the first month's
Base Rent and Additional Rent in accordance with the above. To the extent
Landlord is taxed on the interest earned on such prepaid rent, then Landlord may
deduct from any interest to be paid to Tenant the amount of tax required to be
paid by Landlord.
ARTICLE XXXIII
OTHER PROVISIONS
----------------
33.1 Budget. Landlord shall disclose to Tenant all costs associated with
------
the development of Building Complex. Landlord will provide a budget ("Budget")
projecting all costs associated with the construction of the shell and core as
well as all costs associated with the tenant finish within the Premises. The
Budget, when mutually agreed to by Landlord and Tenant as hereinafter set forth,
shall be attached to this Lease as Exhibit K. On or before April 1, 1995,
Landlord and Tenant shall mutually review and approve the Budget. The Budget
will also contain a provision whereby Landlord will supply Tenant with a "not to
exceed" Base Rental Rate, which "not to exceed" Base Rental Rate shall be
calculated pursuant to the agreed upon Budget. If for any reason the Landlord
and the Tenant cannot agree on the Budget to be attached as Exhibit K to the
Lease, then the Lease shall be deemed terminated by written notice of either
party to the other and the rent prepayment shall be promptly returned by
Landlord to Tenant.
Ninety (90) days subsequent to the completion of the Building Complex by
Landlord, Landlord will provide a final accounting of all of the costs for the
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Building Complex, in order to establish the Base Rental Rate, which Base Rental
Rate shall be based upon the actual costs incurred for the Building Complex and
shall be calculated pursuant to the provisions of Section 3.1 herein, but in no
event shall the Base Rental Rate exceed the "not to exceed" Base Rental Rate,
except as specifically provided in Exhibit K.
33.2 Single Tenant Building. Landlord and Tenant hereby acknowledge and
----------------------
agree that this Lease is intended as a lease for Tenant, as the sole and single
tenant, and to the extent any provisions provide for rights and/or obligations
of other tenants or otherwise is inconsistent with the rights or obligations of
Tenant as the sole and single tenant, then the lease shall be construed
consistent with the rights and obligations of the Tenant as the sole and single
tenant. Nothing herein shall prohibit Tenant from subletting in accordance with
Article VII hereof.
33.3 Abandonment and Vacation. Tenant may abandon or vacate all or any
------------------------
portion of the Building Complex, provided Tenant keeps and performs all other
obligations under the Lease including payment of Rent and maintenance of
insurance.
33.4 Option to Renew. Tenant shall have an option to renew the Lease for
---------------
two (2) additional terms of five (5) years each. In order to exercise each such
option, Tenant shall notify Landlord in writing at least 180 days prior to the
expiration of the respective lease term of its election to exercise option, upon
which time Landlord shall submit in writing within 30 days a proposal for the
then current Market Base Rental Rate (per rentable square foot per annum, "NNN")
for the applicable renewal option. Tenant shall have thirty (30) days from the
receipt of said notice to (i) accept the proposed Base Rental Rate in writing to
Landlord (ii) to reject the Base Rental Rate and elect the appraisal process set
forth below or (iii) elect not to extend. If Tenant elects not to extend or
fails to timely exercise its option, time being of the essence, the option shall
automatically terminate and be of no further force and effect and this Lease
shall terminate upon expiration of the then Lease term. The Base Rental Rate
during the respective renewal term shall be at ninety-five percent (95%) of the
then current Market Base Rental Rate. Any such renewal shall be upon all of the
terms, conditions and covenants of this Lease except as to (i) the amount of
Base Rent, (ii) options to renew or expand and (iii) Tenant finish or other
allowances or concessions. As used herein, "Market Base Rental Rate" shall mean
the then Base Rental Rate for comparable first class single tenant office
buildings of comparable size, location and age in the County of Boulder,
Colorado, at such time, taking into account the following factors (1) rent per
rentable square foot; (2) operating expenses and real estate tax payments; (3)
current rental escalators and (4) rental concessions, if any. If any portion of
the Market Base Rental Rate is attributable to improvements made by Tenant at
Tenant's expense, then the Market Base Rental Rate shall specifically exclude
any adjustment made by reason of such alterations.
If Tenant, by written notice delivered no later than thirty (30) days
after the date Landlord notifies Tenant of the Market Base Rental Rates, objects
to the Market Base Rental Rate determined by Landlord and elects to submit the
rate determination to appraisal, then, within seven (7) days of the date of
Tenant's objection, each party shall appoint a non-affiliated certified M.A.I.
Appraiser that has at least five (5) years' full-time commercial appraisal
experience in Boulder County to determine the Market Base Rental Rate, such
process to be completed within twenty (20) days after the date of the
appointment of the last appraiser. If a party does not appoint a qualified
appraiser within five (5) days after the other party has given notice of the
name of the appraiser then the single appraiser shall be the sole appraiser and
shall set the Market Base Rental Rate. The appraisers appointed by the parties
shall meet promptly and attempt to set the Market Base Rental Rate. If they are
unable to agree on the Market Base Rental Rate within twenty (20) days after the
date the second appraiser has been appointed, they shall elect a third appraiser
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meeting the qualifications stated in this paragraph within seven (7) days after
the last day the two (2) appraisers are to set the Market Base Rental Rate. If
the appraisers are unable to agree on the third appraiser, either of the parties
to this Lease, after giving five (5) days' prior written notice to the other
party, may apply to the then president of the real estate board of Denver,
Colorado for the selection of a third appraiser who meets the qualifications
stated in this Section, which selection shall be made within three (3) days.
Each of the parties shall pay for the appraiser appointed by it and shall bear
one-half of the cost of appointing the third appraiser and of paying the third
appraiser's fee. The third appraiser, however selected, shall be a person who
has not previously acted in any capacity for either party. The appraisers shall
be instructed to consider the criteria above stated in determining the Market
Base Rental Rate.
Within twenty (20) days after the selection of the third appraiser, the
third appraiser shall determine the Market Base Rental Rate and all three of the
appraiser's Market Base Rental Rates shall be averaged excluding any single
Market Base Rental Rate which is either ten percent (10%) higher or lower than
the middle appraisal of Market Base Rental Rate and the remaining appraisals
shall then be averaged.
If the Market Base Rental Rate is not established for the respective
extended term prior to its commencement, Tenant shall continue to pay the
applicable Base Rent required for the last full month of the respective Lease
term until the appraisers have made their determination. The Market Base Rental
Rate in question, when finally determined by the appraisers, shall be
retroactive to the commencement of the extension term, and the first Base Rent
payment becoming due after the determination of the applicable Market Base
Rental Rate shall include the retroactive amounts of monthly Base Rent
installments accrued and unpaid. In no event may either Landlord or Tenant elect
not to extend the Lease based upon the Market Base Rental Rate established in
accordance herewith.
This option to renew may not be exercised and the Lease shall not be
renewed if Landlord has given Tenant notice of default which default is not
cured within any applicable cure periods or waived by Landlord.
33.5 Option to Expand. Tenant may, upon written notice to Landlord
----------------
received not later than the day which is forty-two months after the date that
Landlord acquires the real property portion of the Premises (the "Acquisition
Date"), elect to have Landlord acquire the real property designated on Exhibit
L hereto (the "Expansion Land") and build certain improvements thereon as
- ---
shown on Exhibit K (the "Expansion Building") (collectively the Expansion Land
and the Expansion Building hereinafter called the "Expansion Premises").
Landlord and Tenant acknowledge that the Acquisition Date shall be as set forth
in Exhibit I, Supplemental Agreement.
Provided there is no uncured default of Tenant, as set forth below then
the Landlord shall exercise the option to purchase and shall purchase the
Expansion Land pursuant to the terms of that certain option to purchase by and
between Interlockers, Ltd. and Prime West Development, Inc. (the "Option"). If
-------------
Landlord fails to acquire the Expansion Land due to (i) default of Seller or
(ii) a Material Problem (defined below) which arises during any due diligence
period with respect to which Landlord follows the Resolution Procedure (defined
below) and such Material Problem is not resolved to Landlord's reasonable
satisfaction or waived by Landlord, then Landlord shall have no further option
to acquire the Expansion Land, and upon Landlord's written notice to Tenant,
this expansion option shall become null and void. The term "Material Problem"
shall mean a problem with the Expansion Land itself which would make it
commercially unreasonable for Landlord to acquire the Expansion Land, such as a
material title problem which is not curable on or before the closing (e.g., lis
pendens), environmental problems (e.g., groundwater contamination), and changes
in zoning or building ordinances which would materially interfere with the
construction of the Expansion Premises as outlined in Exhibit K. If any
Material Problem arises during a due diligence period available to Landlord with
respect to the Expansion Land, Landlord shall immediately notify Tenant of such
Material Problem by telephone and in writing. Tenant shall have the right, at
Tenant's option, to work with Landlord to determine whether or not a reasonable
cure for such Material Problem can be effected at no cost or expense to
Landlord. Landlord shall cooperate with Tenant to effect such reasonable cure
and shall not disapprove any cure proposed by Tenant which is commercially
reasonable and can be effected on or before the expiration of Landlord's due
diligence period (as it may be extended as set forth hereafter). If Tenant so
requests, Landlord will request an extension of any such due diligence period.
If the seller of the Expansion Land requires the payment of a fee or an
increased purchase price as a condition to granting an extension to the due
diligence period, Landlord will not be required to agree to such condition
unless Tenant agrees to pay such fee or such increased purchase price.
Landlord and Tenant agree to use the procedures, appraisal process and
time frames outlined on Exhibit C for the Expansion Premises. If Landlord is not
30
<PAGE>
Prime West Development, Inc., Landlord may retain a developer for the
construction of the Expansion Premises, which developer shall work directly with
Tenant subject to the written direction and approval of the Landlord.
The Base Rental Rate for the Expansion Premises shall be calculated in
the same manner, using the same methods as the Base Rental Rate for the Premises
as described in Exhibit J. Exhibits E and H shall be applicable to the Expansion
Premises. The time frames for the Construction Date, the Financing Contingency,
and defined dates for construction and completion shall be calculated for the
Expansion Premises using the same time frames as presently set forth in the
Lease. Tenant acknowledges that the Landlord's option price for the Expansion
Land is $4.00 per square foot and escalates by five percent (5%) per annum,
compounded from the Acquisition Date. Except as set forth below with respect to
the Term and the adjustments to Base Rental Rate, the Expansion Premises shall
be deemed for all other purposes a portion of the Premises and subject to all
other terms and conditions of the Lease including payments of Operating Expenses
and Real Estate Taxes, and renewal rights.
As of the Commencement Date for the Expansion Premises the Lease Term
for the Premises inclusive of the Expansion Premises shall be extended for a
period equal to fifteen (15) years from such Commencement Date. The Base Rental
Rate shall adjust every five (5) years thereafter. For the existing Premises,
the five-year adjustment shall continue on its present schedule and will
continue to adjust every five years for the remainder of the Lease Term as
extended. The parties hereto acknowledge that this may result in staggered
adjustments in the Base Rental Rate for the existing Premises and the Expansion
Premises.
This Option may not be exercised by Tenant and the Premises shall not be
expanded if Landlord has given Tenant notice of default which default is not
cured within any applicable cure periods or waived by Landlord.Failure to
exercise the Option in accordance herewith shall render this Option null and
void. The parties agree to promptly execute a Supplemental Agreement for the
Expansion Premises upon completion of the Expansion Premises, in accordance with
the terms hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Lease this
5th day of July, 1995.
LANDLORD:
Prime West Development, a Colorado corporation
By: /s/ Stephen F. Clarke
-------------------------------------
Stephen F. Clarke
Its: President & CEO
TENANT:
CIRRUS LOGIC, INC., a __________ corporation
By:
-----------------------------------
Title: Controller
31
<PAGE>
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 22nd day
of June, 1995, by Stephen F. Clarke as President and CEO of Prime West.
WITNESS my hand and official seal.
My commission expires:
My address is:
[NOTARY PUBLIC SIGNATURE APPEARS
HERE] [ILLEGIBLE]
--------------------------------
Notary Public
My Commission Expires July 6, 19??
410 17th Street 22nd Floor
Denver, Colorado 80208
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this _____ day of
_______________, 19__, by _________________________________
as ___________________ of ____________________________________.
WITNESS my hand and official seal.
My commission expires:
My address is:
--------------------------------
Notary Public
32
<PAGE>
EXHIBIT A
CIRRUS LOGIC, INC. FACILITY
305 INTERLOCKEN PARKWAY
LEGAL DESCRIPTION
(To Be Determined Based Upon Final Survey)
A portion of
Lot 1
Final Plat
Interlocken, Filing #2
Consisting of approximately 4.6 Acres
Known as 305 Interlocken Parkway
Interlocken Advanced Technology Environment
Broomfield, Colorado
33
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0
0
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