<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 000-21141
PHARMAPRINT INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0640125
(State or jurisdiction of incorporation or (I.R.S. employer identification No.)
organization)
2600 MICHELSON DRIVE, SUITE 1600,
IRVINE, CALIFORNIA 92612
(Address of principal executive offices) (Zip code)
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 794-7778
4 PARK PLAZA, SUITE 1900
IRVINE, CALIFORNIA
(FORMER ADDRESS)
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 |_|
Number of shares outstanding as of February 16, 1999: Common Stock: 13,651,589
Total number of pages: 16
<PAGE>
PHARMAPRINT INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
FACING SHEET ...................................................................................... 1
INDEX.............................................................................................. 2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheet as of December 31, 1998 (unaudited) .................. 3
Condensed Consolidated Statements of Operations for the three months ended December 31,
1997 and 1998 (unaudited), and for the nine months ended December 31, 1997 and 1998
(unaudited) ............................................................................... 4
Condensed Consolidated Statements of Cash Flows for the nine months ended December
31, 1997 and 1998 (unaudited).............................................................. 5
Notes to Condensed Consolidated Financial Statements (unaudited)........................... 6
Item 2. Management's Plan of Operation............................................................ 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................................... 15
SIGNATURES ....................................................................................... 16
</TABLE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains "forward-looking" statements. The Company is including
this statement for the express purpose of availing itself of protections of the
safe harbor provided by the Private Securities Litigation Reform Act of 1995
with respect to all such forward-looking statements. Examples of forward-looking
statements include, but are not limited to: (a) projections of revenues, capital
expenditures, growth, prospects, dividends, capital structure and other
financial matters; (b) statements of plans and objectives of the Company or its
management or Board of Directors; (c) statements of future economic performance;
(d) statements of assumptions underlying other statements and statements about
the Company and its business relating to the future; and (e) any statements
using the words "anticipate," "expect," "may," "project," "intend" or similar
expressions.
The Company's ability to predict projected results or the effect of certain
events on the Company's operating results is inherently uncertain. Therefore,
the Company wishes to caution each reader of this report to carefully consider
the following factors and certain other factors discussed herein, or in the
Company's Registration Statement on Form S-8 dated February 12, 1999 and in the
Company's Annual Report on Form 10-KSB for the year ended March 31, 1998, any or
all of which have in the past and could in the future affect the ability of the
Company to achieve its anticipated results and could cause actual results to
differ materially than those discussed herein: changes in the Company's
relationship with American Home Products Corporation, cost and availability of
botanical extracts, cost and availability of manufacturing service contractors,
ability to obtain and enforce patents, limited manufacturing experience,
dependence on third parties, uncertainties related to the PharmaPrint-TM-
Process, government regulation and uncertainty of product approvals, ability to
commercialize and market products, results of research and development and
clinical and toxicology studies, technological advances by third parties and
competition, future capital needs of the Company, history of operating losses,
dependence upon key personnel, control by existing stockholders and general
economic and business conditions. PHARMAPRINT-TM- IS A TRADEMARK OF THE COMPANY
AND CENTRUM-Registered Trademark- IS A REGISTERED TRADEMARK OF AMERICAN HOME
PRODUCTS CORPORATION ("AHP").
- 2 -
<PAGE>
PHARMAPRINT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET - DECEMBER 31, 1998
(Unaudited)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 4,513,977
Accounts receivable ....................................... 1,954,455
Inventories ............................................... 7,689,484
Other current assets ...................................... 907,402
------------
Total current assets .................................. 15,065,318
FIXED ASSETS, NET .............................................. 1,025,702
OTHER ASSETS, net of amortization of $134,071 .................. 389,504
------------
Total assets .......................................... $ 16,480,524
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................... $ 6,222,388
Accrued expenses .......................................... 1,321,918
Current portion of long-term debt ......................... 71,429
------------
Total current liabilities ............................. 7,615,735
------------
LONG-TERM DEBT ................................................. 428,571
------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value - 1,000,000 shares
authorized, no shares issued or outstanding ........... --
Common stock, $.001 par value - 24,000,000 shares
authorized, 13,651,589 shares issued and outstanding .. 13,652
Additional paid-in-capital ................................ 49,876,358
Deferred compensation ..................................... (468,511)
Accumulated deficit ....................................... (40,985,281)
------------
Total stockholders' equity ............................ 8,436,218
------------
Total liabilities and stockholders' equity ............ $ 16,480,524
------------
------------
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
balance sheet.
- 3 -
<PAGE>
PHARMAPRINT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Three months ended Nine months ended Nine months ended
December 31, 1997 December 31, 1998 December 31, 1997 December 31, 1998
------------------- -------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
REVENUES:
Manufacturing ........................ $ -- $ 4,378,624 $ -- $ 8,640,795
Licensing and development fees ....... 7,500,000 7,500,000
------------ ------------ ------------ ------------
Total revenues .................. -- 11,878,624 -- 16,140,795
COST OF SALES ........................ -- 3,545,191 -- 6,998,349
------------ ------------ ------------ ------------
GROSS PROFIT ......................... -- 8,333,433 -- 9,142,446
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Research and development ........ 2,793,991 4,051,204 5,511,394 14,493,887
General and administrative ...... 1,318,968 1,474,125 3,182,679 4,081,640
Stock compensation .............. 142,013 146,820 3,765,553 375,753
------------ ------------ ------------ ------------
Total operating expenses ....... 4,254,972 5,672,149 12,459,626 $ 18,951,280
------------ ------------ ------------ ------------
NET EARNINGS (LOSS) .................. $ (4,254,972) $ 2,661,284 (12,459,626) $ (9,808,834)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
EARNINGS (LOSS) PER COMMON SHARE:
Basic earnings (loss) per share.. ($0.39) $0.19 ($1.13) ($0.72)
Diluted earnings (loss) per share ($0.39) $0.18 ($1.13) ($0.72)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic ........................... 11,034,731 13,651,589 11,012,748 13,649,243
Diluted ......................... 11,034,731 15,010,220 11,012,748 13,649,243
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
- 4 -
<PAGE>
PHARMAPRINT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
December 31, December 31,
1997 1998
-------------------------- --------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .............................................. $(12,459,626) $ (9,808,834)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ....................... 67,727 195,737
Stock compensation expense .......................... 3,765,553 375,753
Changes in assets and liabilities:
Increase in accounts receivable ..................... -- (1,954,455)
Increase in inventories ............................. -- (5,506,202)
Increase in other current assets .................... (85,050) (7,678)
Increase in other assets ............................ (141,371) (38,716)
Increase in accounts payable and accrued expenses ... 456,554 2,464,531
Increase (decrease) in deferred revenue ............. 2,500,000 (2,500,000)
------------ ------------
Net cash used in operating activities ............... (5,896,213) (16,779,864)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ............................ (205,289) (774,064)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock .......... 5,000 9,989
Increase in deferred offering costs ................. (228,099) --
Proceeds from note payable .......................... -- 500,000
------------ ------------
Net cash (used in) provided by financing activities . (223,099) 509,989
------------ ------------
------------ ------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS .................................... (6,324,601) (17,043,939)
CASH AND CASH EQUIVALENTS, beginning of period ........ 8,170,072 21,557,916
------------ ------------
CASH AND CASH EQUIVALENTS, end of period .............. $ 1,845,471 $ 4,513,977
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
- 5 -
<PAGE>
PHARMAPRINT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited financial statements and related notes have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have not been presented. The accompanying unaudited
financial statements and related notes should be read in conjunction with the
financial statements and related notes included in the PharmaPrint Inc. Annual
Report on Form 10-KSB for the year ended March 31, 1998.
In the opinion of the Company, all material adjustments (consisting of
normal recurring items) considered necessary to present fairly the Company's
financial condition, results of operations, and changes in financial position
have been made. The results of operations for the nine month period ended
December 31, 1998, are not necessarily indicative of the results that may be
expected for the year ending March 31, 1999.
2. ORGANIZATION, NARRATIVE DISCUSSION OF THE BUSINESS AND RISK FACTORS
ORGANIZATION
PharmaPrint Inc. (the "Company" or "PharmaPrint") was originally
incorporated in the State of California in September 1994. In October 1997, the
Company's state of incorporation was changed from California to Delaware. The
Company was formed in order to complete the development of and commercialize the
research initiated by Dr. Tasneem A. Khwaja, a founder and significant
stockholder of the Company, over a 20 year period at the University of Southern
California ("USC") School of Medicine.
NARRATIVE DESCRIPTION OF THE BUSINESS
PharmaPrint uses its PharmaPrint-TM- Process technology to develop high
quality dietary supplement products and pharmaceutical candidates from botanical
sources. Unlike the traditional drug development process of identifying and
synthesizing single bioactive molecules from plant and other sources, the
Company's core technologies were developed based on empirical data that suggest
that the health benefits and safe usage of certain plant-derived therapeutics
might be the result of the natural combination of multiple molecules found in
the plant extract and that single molecules, in isolation, may not replicate the
natural plants' effectiveness. The PharmaPrint-TM- Process technology enables
the Company to identify, quantify and standardize the bioactives within plant
sources that are believed to provide therapeutic benefits and produce dietary
supplements and pharmaceuticals having consistent batch-to-batch quantities and
ratios of these bioactives.
The Company is applying a dual commercialization strategy with its
PharmaPrint-TM- Process technology. The first application of the PharmaPrint-TM-
Process is for the development of high quality, herbal dietary supplements. The
second application of the PharmaPrint-TM- Process is the development of
FDA-approvable pharmaceuticals from natural plant sources. The Company's initial
pharmaceutical product candidate, PPRT-321, a saw palmetto-derived drug that is
being developed for the treatment of symptoms associated with benign prostatic
hyperplasia is currently
- 6 -
<PAGE>
PHARMAPRINT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
in Phase II clinical trials. In addition, the Company continues to evaluate
additional plant-derived medicines that have long histories of safe use and
indications of efficacy for development into pharmaceuticals.
In October 1997, the Company entered into several agreements with American
Home Products Corporation ("AHP") whereby AHP is marketing the Company's dietary
supplements under AHP's Centrum-Registered Trademark- brand name. Pursuant to
the terms of the agreement, AHP paid the Company $2.5 million in an up-front
licensing fee and is required to pay additional fees of $500,000 upon each of
(i) the issuance of a patent containing claims covering the PharmaPrint-TM-
Process and (ii) receipt and approval by AHP of the initial AHP Products in
sufficient time to permit AHP to meet its proposed launch date. In October 1998,
AHP commenced marketing six of the Company's dietary supplement products. At
that time, the Company completed all research and development efforts relating
to the $2.5 million licensing fee and accordingly, during the three months ended
December 31, 1998, the Company recorded such licensing fee as revenue.
Additionally, AHP has agreed to spend at least the lesser of $20 million or an
amount equal to 50% of net sales of the AHP Products in advertising and other
marketing expenditures during each of the two years following product launch.
AHP has also agreed to purchase the dietary supplements under a Supply Agreement
at specified prices. In addition, if the company succeeds in securing a patent
containing a claim or claims comprising the PharmaPrint-TM- Process applied
generally or on a product-by-product basis covering the production of one or
more of the AHP Products, AHP will pay royalties to the Company on sales of
those products of 4% in the first year and 6% thereafter.
In November 1998, the Company entered into an additional agreement with
AHP. Pursuant to the terms of the agreement, AHP agreed to pay the Company $5.0
million as reimbursement for certain development and production costs and
increase the per unit amount for the AHP Products delivered prior to February
28, 1999. The Company recorded the $5.0 million as revenue during the three
months ended December 31, 1998. AHP and the Company are currently negotiating an
extension of this per unit increase or alternative pricing provisions.
During the three months ended September 30, 1998, the Company substantially
completed the development of the AHP Products and commenced significant
manufacture and delivery of such products. Prior to that time, the Company
engaged primarily in research and development activities and the Company
reported as a development stage entity.
RISK FACTORS
The Company recently recognized its first significant manufacturing
revenues from the sale of herbal dietary supplements to AHP. While the
Company reported net earnings for the three months ended December 31, 1998,
included in revenues were $7.5 million of license and development fees that
are not expected to recur. Prior to December 1998, the Company had incurred
net operating losses since its inception. The Company's future ability to
generate revenues in excess of its expenses is dependent upon many factors
including its ability to obtain patents, future sales of the AHP Products and
manufacturing and research and development expenses.
The Company's future capital requirements will depend on many factors,
including but not
- 7 -
<PAGE>
PHARMAPRINT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
limited to: the overall product manufacturing and development costs, cost and
availability of botanical extracts, cost and availability of manufacturing
service contractors, the amount of purchase orders received from AHP, the
ability to obtain certain patent approvals, the Company's ability to further
market its PharmaPrint-TM- Process to third parties, the length of time required
to obtain FDA approval, if any, competing technological and market developments,
changes in existing collaborative relationships, and the costs of establishing
subcontracts for research and development. The Company believes that its current
capital resources, along with borrowing $4.5 million available under a credit
facility, will enable it to maintain its current and planned operations for at
least the next nine months. However, no assurance can be given that additional
capital, if needed, will be available when required or upon terms acceptable to
the Company.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INCOME (LOSS) PER SHARE
During fiscal 1998, the Company adopted SFAS No. 128 "Earnings Per Share."
Pursuant to SFAS No. 128, basic income (loss) per common share is computed by
dividing income (loss) by the weighted average number of common shares
outstanding. Diluted income (loss) per common share is computed by dividing
income (loss) by the weighted average number of common shares outstanding plus
the effect of any dilutive stock options and warrants, utilizing the treasury
stock method.
For the nine months ended December 31, 1997 and 1998 and the three months
ended December 31, 1997, the effect of all stock options and warrants was
excluded from the computation of diluted loss per common share as the effect of
such inclusion would be antidilutive. For the three months ended December 31,
1998, 1,358,631 dilutive options and warrants were included in the computation
of dilute income per common share.
PENDING ACCOUNTING PRONOUNCEMENTS
The Company will adopt in the fiscal year ending March 31, 1999 SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information,"
which establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report information about operating segments in interim
financial reports. SFAS No. 131 also establishes standards
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<PAGE>
PHARMAPRINT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
for related disclosures about products and services, geographic areas and major
customers. The Company believes that it currently operates under one segment.
RECLASSIFICATIONS
Certain reclassifications were made to prior period amounts, enabling them
to conform to current period presentation.
REVENUE RECOGNITION
Sales of products are recorded based on shipment of products.
INVENTORIES
Inventories are stated at lower of cost (determined on a specific
identification method) or market, and consisted of the following at December
31, 1998:
<TABLE>
<S> <C>
Raw materials .......................... $2,860,692
Work-in-process ........................ 4,828,792
----------
Total inventories ...................... $7,689,484
----------
----------
</TABLE>
FIXED ASSETS
Fixed assets are stated at cost and consisted of the following at December
31, 1998:
<TABLE>
<S> <C>
Equipment ................................... $ 1,019,773
Furniture ................................... 187,891
Less accumulated depreciation ............... (181,962)
-----------
Fixed assets, net ........................... $ 1,025,702
-----------
-----------
</TABLE>
Depreciation is provided using the straight-line method over the estimated
useful life for equipment of three to ten years and furniture for five years.
4. COMMITMENTS AND CONTINGENCIES
The Company leases its corporate headquarters and certain equipment under
operating lease agreements that expire through December 2003. Lease expense for
the three and nine months ended December 31, 1998 was approximately $59,000 and
$206,000, respectively. At December 31, 1998, future minimum lease payments
under the current operating leases are as follows:
<TABLE>
<CAPTION>
Year Ended March 31 Amount
------------------- ----------------
<S> <C>
1999 $ 213,000
2000 $ 853,000
2001 $ 862,000
2002 $ 872,000
2003 $ 698,000
2004 $ 202,000
</TABLE>
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<PAGE>
PHARMAPRINT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
In December 1998, the Company entered into a $4.5 million credit
agreement with a bank. Pursuant to such agreement, at December 31, 1998, the
Company had borrowed $500,000 to finance certain equipment. The remaining
principal balance of the loan at December 31, 1998 was $500,000. The interest
rate on this borrowing is prime plus 1.25% and principal and interest are due
over 48 months from the date of the loan. The remaining $4.0 million under
this credit facility, which expires on December 31, 1999, is available to the
Company based upon accounts receivable and purchase orders. The interest rate
on this portion of the credit facility is prime plus 1.0%. At December 31,
1998, the prime rate was 7.75%. At December 31, 1998 no borrowings were made
under this portion of the agreement.
The Company has a $10 million purchase commitment, expiring in December
2000, with a vendor to purchase raw materials to be used for one herbal product
and to provide processing services for an additional herbal product. The
aforementioned product and services are anticipated to be used by the Company to
meet its obligations under the AHP Agreements.
In June 1998, the Company entered into a service agreement with a vendor.
Under the terms of the agreement, the vendor will provide certain manufacturing
services for the Company at agreed upon prices based upon production volume. The
Company is committed to reimburse the vendor a minimum of $300,000 per quarter.
The Company is also subject to the following termination fees: (i) $700,000 if
the agreement is terminated within 6 to 12 months of its effective date; (ii)
$200,000 if the agreement is terminated within 12 to 24 months of its effective
date and (iii) $100,000 if the agreement is terminated after 24 months of its
effective date.
- 10 -
<PAGE>
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
OVERVIEW
PharmaPrint uses its PharmaPrint-TM- Process technology to develop high
quality dietary supplement products and pharmaceutical candidates from botanical
sources. The Company believes that its PharmaPrint-TM- Process technology
represents a new paradigm in the development of therapeutic products from
botanical sources. Unlike the traditional drug development process of
identifying, isolating and synthesizing single bioactive molecules from plant
and other sources, the Company's core technologies were developed based on
empirical data that suggest that the health benefits and safe usage of certain
plant-derived therapeutics might be the result of the natural combination of
multiple molecules found in the plant extract and that single molecules, in
isolation, may not replicate the natural plant's effectiveness. The
PharmaPrint-TM- Process technology enables the Company to identify, quantify and
standardize the bioactives within plant sources that are believed to provide
therapeutic or other health benefits and produce dietary supplements and
pharmaceuticals having consistent batch-to-batch quantities of these bioactives.
In October 1997, the Company entered into several agreements with American
Home Products Corporation ("AHP") whereby AHP is marketing the Company's dietary
supplements under AHP's Centrum-Registered Trademark- brand name. Pursuant to
the terms of the agreement, AHP paid the Company $2.5 million in an up-front
licensing fee and is required to pay additional fees of $500,000 upon each of
(i) the issuance of a patent containing claims covering the PharmaPrint-TM-
Process and (ii) receipt and approval by AHP of the initial AHP Products in
sufficient time to permit AHP to meet its proposed launch date. In October 1998,
AHP commenced marketing six of the Company's dietary supplement products. At
that time, the Company completed all research and development efforts relating
to the $2.5 million licensing fee and accordingly, during the three months ended
December 31, 1998, the Company recorded such licensing fee as revenue.
Additionally, AHP has agreed to spend at least the lesser of $20 million or an
amount equal to 50% of net sales of the AHP Products in advertising and other
marketing expenditures during each of the two years following product launch.
AHP has also agreed to purchase the dietary supplements under a Supply Agreement
at specified prices. In addition, if the company succeeds in securing a patent
containing a claim or claims comprising the PharmaPrint-TM- Process applied
generally or on a product-by-product basis covering the production of one or
more of the AHP Products, AHP will pay royalties to the Company on sales of
those products of 4% in the first year and 6% thereafter.
In November 1998, the Company entered into an additional agreement with the
AHP. Pursuant to the terms of the agreement AHP agreed to pay the Company $5.0
million as reimbursement for certain development and production costs and
increase the per unit amount for the AHP Products delivered by the Company prior
to February 28, 1999. The Company recorded the $5.0 million as revenue during
the three months ended December 31, 1998. AHP and the Company are currently
negotiating an extension of this per unit increase or alternative pricing
provisions.
- 11 -
<PAGE>
During the three months ended September 30, 1998, the Company substantially
completed the development of the AHP Products and commenced significant
manufacture and delivery of such products pursuant to the Supply Agreement.
Prior to that time, the Company engaged primarily in research and development
activities.
The Company is also developing pharmaceuticals from natural plant sources
for the purpose of seeking FDA approval. Products derived from the same
botanical sources as those used in the Company's product development programs
historically have been widely used as medicines and dietary supplements. Because
of the well-documented history of safe usage of dietary supplements derived from
the same plant source as the Company's drug candidates, the Company believes
that, in certain cases, the FDA may allow the Company to commence clinical
trials at the Phase II stage, while concurrently performing toxicology studies.
The Company has received such FDA permission for its initial pharmaceutical
candidate, PPRT-321.
The Company incurred approximately $5,511,000 and $14,494,000 of research
and development expenses relating to its dietary supplement products and
pharmaceutical candidates for the nine months ended December 31, 1997 and 1998,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the sale of
equity securities. From inception (September 15, 1994) through May 1996, the
Company had raised an aggregate net amount of approximately $2.1 million through
private sales of equity securities. In August 1996, the Company completed an
initial public offering of 3,000,000 shares of its common stock at $5.00 per
share, raising net proceeds of approximately $12.7 million. In February 1998,
the Company completed a public offering of 2,587,500 shares of its common stock
at $10.50 per share. The net proceeds from this public offering were
approximately $24.4 million.
In December 1998, the Company entered into a $4.5 million credit
agreement with a bank. Pursuant to such agreement, at December 31, 1998, the
Company had borrowed $500,000 to finance certain equipment. The remaining
principal balance of the loan at December 31, 1998 was $500,000. The interest
rate on this borrowing is prime plus 1.25% and principal and interest are due
over 48 months from the date of the loan. The remaining $4.0 million under
this credit facility, which expires on December 31, 1999, is available to the
Company based upon accounts receivable and purchase orders. The interest rate
on this portion of the credit facility is prime plus 1.0%. At December 31,
1998, the prime rate was 7.75%. At December 31, 1998 no borrowings were made
under this portion of the agreement.
As of December 31, 1998, the Company's staff of full-time employees and
consultants was 27.
The Company has a $10 million purchase commitment, expiring in December
2000, with a vendor to purchase raw materials to be used for one herbal product
and to provide processing services for an additional herbal product. The
aforementioned product and services are anticipated to be used by the Company to
meet its obligations under the AHP Agreements.
- 12 -
<PAGE>
In June 1998, the Company entered into a service agreement with a vendor.
Under the terms of the agreement, effective July 1, 1998, the vendor will
provide certain manufacturing services for the Company at agreed upon prices
based upon production volume. The Company is committed to reimburse the vendor a
minimum of $300,000 per quarter. The Company is also subject to the following
termination fees: (i) $700,000 if the agreement is terminated within 6 to 12
months of its effective date; (ii) $200,000 if the agreement is terminated
within 12 to 24 months of its effective date and (iii) $100,000 if the agreement
is terminated after 24 months of its effective date.
The Company increased its inventories from approximately $2,183,000 at
March 31, 1998 to approximately $7,689,000 at December 31, 1998 in order to
supply certain dietary supplement products to AHP pursuant to the Supply
Agreement. The Company anticipates that its inventories will significantly
increase in the next 12 months.
The Company recently recognized its first significant manufacturing
revenues from the sale of herbal dietary supplements to AHP. While the
Company reported net earnings for the three months ended December 31, 1998,
included in revenues were $7.5 million of license and development fees that
are not expected to recur. Prior to December 1998, the Company had incurred
net operating losses since its inception. The Company's future ability to
generate revenues in excess of its expenses is dependent upon many factors
including its ability to obtain patents, future sales of the AHP Products and
manufacturing and research and development expenses.
The Company believes that its current capital resources, the proceeds from
its public offering completed in February 1998, its borrowings available under
its current credit agreement and its expected manufacturing revenue will enable
it to maintain its current and planned operations for at least the next nine
months. However, no assurance can be given that there will be no change in the
Company's operations that would consume available resources more rapidly than
anticipated. The Company will need substantial funds to support its long-term
pharmaceutical product development programs. Other than previously described,
the Company has no arrangements for additional bank financings. The amount and
type of the Company's future capital requirements will depend on many factors,
including, without limitation, the cost and availability of botanical extracts,
the cost and availability of manufacturing service contractors, the progress of
the Company's research, drug discovery and development programs, the progress
and results of toxicology studies and clinical trials, the timing and costs
involved in obtaining regulatory approvals, the costs of filing, prosecuting,
defending and enforcing any patent claims and other intellectual property
rights, competing technological and market developments, changes in the
Company's existing research relationships, the ability of the Company to
establish collaborative arrangements, the initiation of commercialization
activities, the purchase of capital equipment and the availability of other
financing. To the extent that the Company's capital resources are insufficient
to meet its operating requirements, the Company will seek additional funds
through equity or debt financings, collaborative or other arrangements with
corporate partners, licensees and others. Other than previously described, the
Company has no additional arrangements with respect to, or sources of, such
additional financing, and the Company does not anticipate that existing
stockholders will provide any portion of the Company's future financing
requirements. Any additional financings may have the effect of substantially
diluting the Company's book
- 13 -
<PAGE>
value per share and the ownership percentage of the Company's then existing
stockholders. Additionally, no assurance can be given that additional financing
will be available when needed or upon terms acceptable to the Company. If
adequate funds are not available, the Company may be required to delay or
terminate expenditures for certain or all of its programs or to license to third
parties the rights to commercialize products or technologies that the Company
would otherwise seek to develop itself, any of which could have a materially
adverse effect on the business, financial condition or results of operations of
the Company.
At March 31, 1998, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $27.2 million; such
carryforwards expire in various years through 2013.
YEAR 2000 COMPLIANCE
Many older computer programs use only the last two digits to refer to a
year. Therefore, they do not properly recognize a year that begins with "20"
rather than "19." This is referred to as the Year 2000, or Y2K Problem. The Y2K
Problem has been eliminated in many new programs and systems, which are said to
be "Y2K compliant." The Company has completed its initial assessment of the Y2K
Problem and believes, based on manufacturers' specifications and subject to
completion of testing later in 1998, that all its information technology ("IT")
systems and applications and related hardware are Y2K compliant. The Company has
not completed assessing Y2K compliance of its non-IT systems, principally
manufacturing systems, but it believes that any non-compliance will not affect
the ability to use the related manufacturing equipment. The Company will attempt
to assess later in 1998 and in 1999 whether third parties with whom it deals,
such as customers, vendors and governments have any Y2K problems that could
affect the Company; such problems could result in interruptions in delivery of
services and materials and payments, among other things. The Company has not
developed Y2K non-compliance contingency plans, but will consider the need for
such plans upon completion of the Y2K compliance assessments. Costs to assure
Y2K compliance are not expected to be material.
While the Company is not currently aware of any significant Y2K compliance
problems in its own systems, Y2K compliance of those systems cannot be assured
until completion of testing. Further, the Company cannot assure that the
information it receives from third parties about their Y2K compliance will be
meaningful or accurate. Failure to achieve compliance for the Company's systems,
or failure of significant third parties with whom the Company deals to achieve
Y2K compliance, could have a material adverse effect on the Company's
operations.
- 14 -
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
10.1 Operating lease dated November 13, 1998 for Company's
headquarter facility
10.2 Silicon Valley Bank Loan and Security Agreement
10.3 Varilease Corporation Manufacturing Equipment Lease Agreement
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
- 15 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHARMAPRINT INC.
Registrant
Date: February 16, 1999 /S/ James R. Wodach
-------------------------
James R. Wodach
Senior Vice President and
Chief Financial Officer
- 16 -
<PAGE>
Exhibit 10.1
OFFFICE BUILDING LEASE
BETWEEN
SPIEKER PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
(LANDLORD)
AND
PHARMA PRINT, INC.
A DELAWARE CORPORATION
(TENANT)
<PAGE>
BASIC LEASE INFORMATION
OFFICE GROSS
<TABLE>
<S> <C>
LEASE DATE: November 13, 1998
TENANT: PharmaPrint Inc., a Delaware corporation
TENANT'S NOTICE ADDRESS: 2600 Michelson Drive, Suite 1600, Irvine, California 92612
TENANT'S BILLING ADDRESS: 2600 Michelson Drive, Suite 1600, Irvine, California 92612
TENANT CONTACT: Mr. Phillip Trad PHONE NUMBER: (949) 794-7778
FAX NUMBER: (949) 794-7777
LANDLORD: Spieker Properties, L.P., a California limited partnership
LANDLORD'S NOTICE ADDRESS: 2600 Michelson Drive, Suite 160, Irvine, California 92612
LANDLORD'S REMITTANCE ADDRESS: Department 12331
P.O. Box 60077
Los Angeles, California 90060-0077
PROJECT DESCRIPTION: A project commonly known as 2600 Michelson consisting of one,
sixteen story office building and one, five story parking structure
located at 2600 Michelson Drive, Irvine, California as shown on
Exhibit B attached hereto.
BUILDING DESCRIPTION: One, sixteen story office building located at 2600 Michelson Drive,
Irvine, California as shown on Exhibit B attached hereto.
PREMISES: Approximately 9,606 rentable square feet (which includes a portion
of the building's common area). As shown on Exhibit B, attached
hereto and made a part of, on the 16th floor in the sixteen story office
building known as 2600 Michelson Drive in Irvine, California
referred to as Suite 1600.
PERMITTED USE: General office use for a pharmaceutical development company and
for no other purpose.
OCCUPANCY DENSITY: Thirty-eight (38) individuals.
PARKING DENSITY: Thirty-eight (38) non-exclusive parking spaces.
PARKING AND PARKING CHARGE: Thirty-eight (38) non-exclusive parking spaces at the following rates:
$40.00 per space per month for months l-24
$45.00 per space per month for months 25-36
$50.00 per space per month for months 37-60
SCHEDULED TERM COMMENCEMENT DATE: January l, 1999
SCHEDULED LENGTH OF TERM: Sixty (60) months
SCHEDULED TERM EXPIRATION DATE: December 31, 2003
RENT:
BASE RENT: $19,212.00 per month for months 1-12
$19,980.48 per month for months 13-24
$20,779.70 per month for months 25-36
$21,610.89 per month for months 37-48
$22,475.32 per month for months 49-60
BASE YEAR FOR OPERATING EXPENSES: 1999
SECURITY DEPOSIT: $24,722.85 (as further outlined in Paragraph 19)
TENANT'S PROPORTIONATE SHARE:
OF BUILDING: 3.14%
OF PROJECT: 3.14%
</TABLE>
<PAGE>
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease information and the Lease, the latter shall control.
LANDLORD TENANT
Spieker Properties, L.P., PharmaPrint, Inc.
a California limited partnership a Delaware corporation
By: Spieker Properties, Inc.,
a Maryland corporation, By: /s/ Phillip G. Trad
its general partner -------------------------
Name: Phillip G. Trad
By: /s/ James R. Wood, Jr. Its: Senior Vice President
-----------------------------
James R. Wood, Jr.
Its: Vice President
By:
-------------------------
Name:
Its:
2
<PAGE>
TABLE OF CONTENTS
PAGE
Basic Lease Information................................................... 1
Table of Contents......................................................... 2
1. Premises.................................................................. 4
2. Possession and Lease Commencement......................................... 4
3. Term...................................................................... 4
4. Use....................................................................... 5
5. Rules and Regulations..................................................... 5
6. Rent...................................................................... 5
7. Operating Expenses........................................................ 6
8. Insurance and Indemnification............................................. 7
9. Waiver of Subrogation..................................................... 8
10. Landlord's Repairs and Maintenance........................................ 9
11. Tenant's Repairs and Maintenance.......................................... 9
12. Alterations............................................................... 9
13. Signs..................................................................... 9
14. Inspection/Posting Notices................................................10
15. Services and Utilities....................................................10
16. Subordination.............................................................10
17. Financial Statements......................................................11
18. Estoppel Certificate......................................................11
19. Security Deposit..........................................................11
20. Limitation of Tenant's Remedies...........................................11
21. Assignment and Subletting.................................................11
22. Authority of Tenant.......................................................12
23. Condemnation..............................................................12
24. Casualty Damage...........................................................13
25. Holding Over..............................................................13
26. Default...................................................................13
27. Liens.....................................................................15
28. Substitution..............................................................15
29. Transfers by Landlord.....................................................15
30. Right of Landlord to Perform Tenant's Covenants...........................15
31. Waiver....................................................................15
32. Notices...................................................................15
33. Attorney's Fees...........................................................16
34. Successors and Assigns....................................................16
35. Force Majeure.............................................................16
36. Surrender of Premises.....................................................16
37. Parking...................................................................16
38. Miscellaneous.............................................................16
39. Additional Provisions.....................................................17
40. Jury Trial Waiver.........................................................18
Signatures....................................................................18
Exhibits:
Exhibit A.............................................Rules and Regulations
Exhibit B...................................Site Plan, Property Description
Exhibit C............................Tenant Improvements and Specifications
3
<PAGE>
LEASE
THIS LEASE is made as of the 13th day of November, 1998, by and between Spieker
Properties, L.P., a California limited partnership (hereinafter called
"Landlord"), and PharmaPrint, Inc., a Delaware corporation (hereinafter called
"Tenant").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the
terms and conditions hereinafter set forth, those premises (the "PREMISES")
outlined in red on EXHIBIT B and described in the Basic Lease Information. The
Premises shall be all or part of a building (the "BUILDING") and of a project
(the "PROJECT"), which may consist of more than one building and additional
facilities, as described in the Basic Lease Information. The Building and
Project are outlined in blue and green respectively on EXHIBIT B. Landlord and
Tenant acknowledge that physical changes may occur from time to time in the
Premises, Building or Project, and that the number of buildings and additional
facilities which constitute the Project may change from time to time, which may
result in an adjustment in Tenant's Proportionate Share, as defined in the Basic
Lease Information, as provided in Paragraph 7.A.
2. POSSESSION AND LEASE COMMENCEMENT
A. EXISTING IMPROVEMENTS. If this Lease pertains to a Premises in which the
interior improvements have already been constructed ("EXISTING IMPROVEMENTS"),
the provisions of this Paragraph 2.A. shall apply and the term commencement date
("TERM COMMENCEMENT DATE") shall be the earlier of the date on which: (1) Tenant
takes possession of some or all of the Premises; or (2) Landlord notifies Tenant
that Tenant may occupy the Premises. If for any reason Landlord cannot deliver
possession of the premises on the scheduled Term Commencement Date, Landlord
shall not be subject to any liability therefor, nor shall Landlord be in default
hereunder nor shall such failure affect the validity of this Lease, and Tenant
agrees to accept possession of the Premises at such time as Landlord is able to
deliver the same, which date shall then be deemed the Term Commencement Date.
SHOULD LANDLORD NOT COMPLETE CONSTRUCTION OF THE TENANT IMPROVEMENTS BY FEBRUARY
1, 1999, THEN LANDLORD SHALL PAY TO TENANT IT'S INCREASE IN BASE RENT IN EXCESS
OF 100% ("HOLDOVER RENT") OF THE BASE RENT CHARGED FOR THE LAST MONTH OF THE
INITIAL LEASE TERM AT THE EXISTING LOCATION OF 4 PARK PLAZA, SUITE 1900, IRVINE,
CALIFORNIA, 92614 FOR THE PERIOD OF FEBRUARY 1, 1999 THROUGH SUBSTANTIAL
COMPLETION OF THE TENANT IMPROVEMENTS. IN THE EVENT LANDLORD HAS NOT DELIVERED
THE PREMISES BY MARCH 15, 1999 AND HAS NOT SUBSTANTIALLY COMPLETED THE TENANT
IMPROVEMENT TO BE CONSTRUCTED BY LANDLORD AS DESCRIBED IN EXHIBIT C TO THIS
LEASE, EXCEPT FOR PUNCHLIST ITEMS, OR BY EVENTS BEYOND LANDLORD'S CONTROL AND
OTHER FORCE MAJEURE EVENTS, INCLUDING, BUT NOT LIMITED TO, STRIKES, MATERIAL
SHORTAGES, DELAYS OF GOVERNMENTAL AGENCIES, ACTS OF GOD AND TENANT DELAYS
OUTLINED BELOW, WHICH DELAYS WILL NOT BE CAUSE FOR TERMINATION HEREUNDER, TENANT
AND/OR LANDLORD SHALL GIVE THE OTHER PARTY FIFTEEN (15) DAYS PRIOR NOTICE OF ITS
INTENT TO TERMINATE THIS LEASE AS OF MARCH 31, 1999. IN THE EVENT OF
TERMINATION, LANDLORD SHALL RETURN ANY SECURITY DEPOSIT TO TENANT AS WELL AS ANY
OTHER SUMS PAID HEREUNDER BY TENANT TO LANDLORD. ALL OBLIGATIONS OF TENANT AND
LANDLORD UNDER THIS LEASE SHALL THEREAFTER TERMINATE AND NO PARTY SHALL HAVE ANY
FURTHER OBLIGATIONS UNDER THIS LEASE. SHOULD LANDLORD AND/OR TENANT NOT EXERCISE
THE ABOVE REFERENCED TERMINATION AND LANDLORD HAS NOT SUBSTANTIALLY COMPLETED
THE TENANT IMPROVEMENTS IN ORDER FOR TENANT TO OCCUPY THE PREMISES ON OR BEFORE
MARCH 31, 1999, THEN LANDLORD SHALL PAY TO TENANT IT'S INCREASE IN BASE RENT IN
EXCESS OF 100% ("HOLDOVER RENT") OF THE BASE RENT CHARGED FOR THE LAST MONTH OF
THE INITIAL LEASE TERM AT THE EXISTING LOCATION OF 4 PARK PLAZA, SUITE 1900.
IRVINE, CALIFORNIA 92614 FOR THE PERIOD OF APRIL 1, 1999 THROUGH SUBSTANTIAL
COMPLETION OF THE TENANT IMPROVEMENTS.
TENANT AGREES TO THE FOLLOWING SCHEDULE IN ORDER FOR LANDLORD TO CONSTRUCT AND
COMPLETE THE TENANT IMPROVEMENTS AS OUTLINED ON EXHIBIT C: 1) DELIVER SPACE PLAN
APPROVAL TO LANDLORD ON OR BEFORE 11/4/1998 AND 2) DELIVER EXECUTED LEASES TO
LANDLORD ON OR BEFORE 11/6/1999. FAILURE TO COMPLY WITH THE ABOVE SCHEDULE SHALL
BE CONSIDERED A TENANT DELAY AND SHALL CONSTITUTE AN EXTENSION OF LANDLORD'S
DELIVERY WITHOUT PENALTY TO LANDLORD BY A FORMULA EQUAL TO THREE (3) DAYS OF
EXTENSION FOR LANDLORD FOR EVERY ONE (1) DAY OF TENANT DELAY (FOR EXAMPLE,
SHOULD TENANT SUBMIT TO LANDLORD THE APPROVED SPACE PLAN ON 11/6/98 COMPARED TO
11/4/98 AS OUTLINED ABOVE, LANDLORD SHALL HAVE AN EXTENSION ON THE DATE IN WHICH
TO REIMBURSE TENANT FOR THEIR "HOLDOVER RENT" FROM FEBRUARY 1, 1999 TO FEBRUARY
7, 1999).
Tenant shall not be liable for any Rent (defined below) for any period prior to
the Term Commencement Date. Tenant acknowledges that Tenant has inspected and
accepts the Premises in their present condition, "as is," and as suitable for,
the Permitted Use (as defined below), and for Tenant's intended operations in
the Premises. Tenant agrees that the Premises and other improvements are in good
and satisfactory condition as of when possession was taken. Tenant further
acknowledges that no representations as to the condition or repair of the
Premises nor promises to alter, remodel or improve the Premises have been made
by Landlord or any agents of Landlord unless such are expressly set forth in
this Lease. Upon Landlord's request, Tenant shall promptly execute and return to
Landlord a "Start-Up Letter" in which Tenant shall agree, among other things, to
acceptance of the Premises and to the determination of the Term Commencement
Date, in accordance with the terms of this Lease, but Tenant's failure or
refusal to do so shall not negate Tenant's acceptance of the Premises or affect
determination of the Term Commencement Date.
B. CONSTRUCTION OF IMPROVEMENTS. If this Lease pertains to a Building to be
constructed or improvements to be constructed within a Building, the provisions
of this Paragraph 2.B. shall apply in lieu of the provisions of Paragraph 2.A.
above and the term commencement date ("TERM COMMENCEMENT DATE") shall be the
earlier of the date on which: (1) Tenant takes possession of some or all of the
Premises; or (2) the improvements to be constructed or performed in the Premises
by Landlord (if any) shall have been substantially completed in accordance with
the plans and specifications, if any, described on EXHIBIT C and Tenant's taking
of possession of the Premises or any part thereof shall constitute Tenant's
confirmation of substantial completion for all purposes hereof, whether or not
substantial completion of the Building or Project shall have occurred. If for
any reason Landlord cannot deliver possession of the Premises to Tenant on the
scheduled Term Commencement Date, Landlord shall not be subject to any liability
therefor, nor shall Landlord be in default hereunder nor shall such failure
affect the validity of this Lease, and Tenant agrees to accept possession of the
Premises at such time as such improvements have been substantially completed,
which date shall then be deemed the Term Commencement Date. Tenant shall not be
liable for any Rent for any period prior to the Term Commencement Date (but
without affecting any obligations of Tenant under any improvement agreement
appended to this Lease). In the event of any dispute as to substantial
completion of work performed or required to be performed by Landlord, the
certificate of Landlord's architect or general contractor shall be conclusive.
Substantial completion shall have occurred notwithstanding Tenant's submission
of a punchlist to Landlord, which Tenant shall submit, if at all, within three
(3) business days after the Term Commencement Date or otherwise in accordance
with any improvement agreement appended to this Lease. Upon Landlord's request,
Tenant shall promptly execute and return to Landlord a "Start-Up Letter" in
which Tenant shall agree, among other things, to acceptance of the Premises and
to the determination of the Term Commencement Date, in accordance with the terms
of this Lease, but Tenant's failure or refusal to do so shall not negate
Tenant's acceptance of the Premises or affect determination of the Term
Commencement Date.
3. TERM
The term of this Lease (the "Term") shall commence on the Term
Commencement Date and continue in full force and effect for the number of months
specified as the Length of Term in the Basic Lease Information or until this
Lease is terminated as otherwise
4
<PAGE>
provided herein. If the Term Commencement Date is a date other than the first
day of the calendar month, the Term shall be the number of months of the Length
of Term in addition to the remainder of the calendar month following the Term
Commencement Date.
4. USE
A. GENERAL. Tenant shall use the Premises for the permitted use specified in
the Basic Lease Information ("PERMITTED USE") and for no other use or purpose.
Tenant shall control Tenant's employees, agents, customers, visitors, invitees,
licensees, contractors, assignees and subtenants (collectively, "TENANT'S
PARTIES") in such a manner that Tenant and Tenant's Parties cumulatively do not
exceed the occupant density (the "OCCUPANCY DENSITY") or the parking density
(the "PARKING DENSITY") specified in the Basic Lease Information at any time.
Tenant shall pay the Parking Charge specified in the Basic Lease Information as
Additional Rent (as hereinafter defined) hereunder. So long as Tenant is
occupying the Premises, Tenant and Tenant's Parties shall have the nonexclusive
right to use, in common with other parties occupying the Building or Project,
the parking areas, driveways and other common areas of the Building and Project,
subject to the terms of this Lease and such rules and regulations as Landlord
may from time to time prescribe. Landlord reserves the right, without notice or
liability to Tenant, and without the same constituting an actual or constructive
eviction, to alter or modify the common areas from time to time, including the
location and configuration thereof, and the amenities and facilities which
Landlord may determine to provide from time to time.
B. LIMITATIONS. Tenant shall not permit any odors, smoke, dust, gas,
substances, noise or vibrations to emanate from the Premises or from any portion
of the common areas as a result of Tenant's or any Tenant's Party's use thereof,
nor take any action which would constitute a nuisance or would disturb, obstruct
or endanger any other tenants or occupants of the Building or Project or
elsewhere, or interfere with their use of their respective premises or common
areas. Storage outside the Premises of materials, vehicles or any other items is
prohibited. Tenant shall not use or allow the Premises to be used for any
immoral, improper or unlawful purpose, nor shall Tenant cause or maintain or
permit any nuisance in, on or about the Premises. Tenant shall not commit or
suffer the commission of any waste in, on or about the Premises. Tenant shall
not allow any sale by auction upon the Premises, or place any loads upon the
floors, walls or ceilings which could endanger the structure, or place any
harmful substances in the drainage system of the Building or Project. No waste,
materials or refuse shall be dumped upon or permitted to remain outside the
Premises. Landlord shall not be responsible to Tenant for the non-compliance by
any other tenant or occupant of the Building or Project with any of the
above-referenced rules or any other terms or provisions of such tenant's or
occupant's lease or other contract.
C. COMPLIANCE WITH REGULATIONS. By entering the Premises, Tenant accepts the
Premises in the condition existing as of the date of such entry. Tenant shall at
its sole cost and expense strictly comply with all existing or future applicable
municipal, state and federal and other governmental statutes, rules,
requirements, regulations, laws and ordinances, including zoning ordinances and
regulations, and covenants, easements and restrictions of record governing and
relating to the use, occupancy or possession of the Premises, to Tenants use of
the common areas, or to the use, storage, generation or disposal of Hazardous
Materials (hereinafter defined) (collectively "REGULATIONS"). Tenant shall at
its sole cost and expense obtain any and all licenses or permits necessary for
Tenant's use of the Premises. Tenant shall at its sole cost and expense promptly
comply with the requirements of any board of fire underwriters or other similar
body now or hereafter constituted. Tenant shall not do or permit anything to be
done in, on, under or about the Project or bring or keep anything which will in
any way increase the rate of any insurance upon the Premises, Building or
Project or upon any contents therein or cause a cancellation of said insurance
or otherwise affect said insurance in any manner. Tenant shall indemnify, defend
(by counsel reasonably acceptable to Landlord), protect and hold Landlord
harmless from and against any loss, cost, expense, damage, attorneys' fees or
liability arising out of the failure of Tenant to comply with any Regulation.
Tenant's obligations pursuant to the foregoing indemnity shall survive the
expiration or earlier termination of this Lease.
D. HAZARDOUS MATERIALS. As used in this Lease, "HAZARDOUS MATERIALS" shall
include, but not be limited to, hazardous, toxic and radioactive materials and
those substances defined as "hazardous substances," "hazardous materials,"
"hazardous wastes," "toxic substances," or other similar designations in any
Regulation. Tenant shall not cause, or allow any of Tenant's Parties to cause,
any Hazardous Materials to be handled, used, generated, stored, released or
disposed of in, on, under or about the Premises, the Building or the Project or
surrounding land or environment in violation of any Regulations. Tenant must
obtain Landlord's written consent prior to the introduction of any Hazardous
Materials onto the Project. Notwithstanding the foregoing, Tenant may handle,
store, use and dispose of products containing small quantities of Hazardous
Materials for "general office purposes" (such as toner for copiers) to the
extent customary and necessary for the Permitted Use of the Premises; provided
that Tenant shall always handle, store, use, and dispose of any such Hazardous
Materials in a safe and lawful manner and never allow such Hazardous Materials
to contaminate the Premises, Building, or Project or surrounding land or
environment, Tenant shall immediately notify Landlord in writing of any
Hazardous Materials' contamination of any portion of the Project of which Tenant
becomes aware, whether or not caused by Tenant. Landlord shall have the right at
all reasonable times to inspect the Premises and to conduct tests and
investigations to determine whether Tenant is in compliance with the foregoing
provisions, the costs of all such inspections, tests and investigations to be
borne by Tenant. Tenant shall indemnify, defend (by counsel reasonably
acceptable to Landlord), protect and hold Landlord harmless from and against any
and all claims, liabilities, losses, costs, loss of rents, liens, damages,
injuries or expenses (including attorneys' and consultants' fees and court
costs), demands, causes of action, or judgments directly or indirectly arising
out of or related to the use, generation, storage, release, or disposal of
Hazardous Materials by Tenant or any of Tenant's Parties in, on, under or about
the Premises, the Building or the Project or surrounding land or environment,
which indemnity shall include, without limitation, damages for personal or
bodily injury, property damage, damage to the environment or natural resources
occurring on or off the Premises, losses attributable to diminution in value or
adverse effects on marketability, the cost of any investigation, monitoring,
government oversight, repair, removal, remediation, restoration, abatement, and
disposal, and the preparation of any closure or other required plans, whether
such action is required or necessary prior to or following the expiration or
earlier termination of this Lease. Neither the consent by Landlord to the use,
generation, storage, release or disposal of Hazardous Materials nor the strict
compliance by Tenant with all laws pertaining to Hazardous Materials shall
excuse Tenant from Tenant's obligation of indemnification pursuant to this
Paragraph 4.D. Tenant's obligations pursuant to the foregoing indemnity shall
survive the expiration or earlier termination of this Lease.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the building rules and
regulations attached hereto as EXHIBIT A and any other rules and regulations and
any modifications or additions thereto which Landlord may from time to time
prescribe in writing for the purpose of maintaining the proper care,
cleanliness, safety, traffic flow and general order of the Premises or the
Building or Project. Tenant shall cause Tenant's Parties to comply with such
rules and regulations. Landlord shall not be responsible to Tenant for the
noncompliance by any other tenant or occupant of the Building or Project with
any of such rules and regulations, any other tenant's or occupant's lease or any
Regulations.
6. RENT
A. BASE RENT. Tenant shall pay to Landlord and Landlord shall receive, without
notice or demand throughout the Term, Base Rent as specified in the Basic Lease
Information, payable in monthly installments in advance on or before the first
day of each calendar month, in lawful money of the United States, without
deduction or offset whatsoever, at the Remittance Address specified in the Basic
Lease Information or to such other place as Landlord may from time to time
designate in writing. Base Rent for the first full month of the Term shall be
paid by Tenant upon Tenant's execution of this Lease. If the obligation for
payment of Base Rent commences on a day other than the first day of a month,
then Base Rent shall be prorated and the prorated installment shall be paid on
the first day of the calendar month next succeeding the Term Commencement Date.
The Base Rent payable by Tenant hereunder is subject to adjustment as provided
5
<PAGE>
elsewhere in this Lease, as applicable. As used herein, the term "Base Rent"
shall mean the Base Rent specified in the Basic Lease Information as it may be
so adjusted from time to time.
B. ADDITIONAL RENT. All monies other than Base Rent required to be paid by
Tenant hereunder, including, but not limited to, Tenant's Proportionate Share of
Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be
paid by Tenant under Paragraph 15, the interest and late charge described in
Paragraphs 26.C. and D., and any monies spent by Landlord pursuant to Paragraph
30, shall be considered additional rent ("ADDITIONAL RENT"). "Rent" shall mean
Base Rent and Additional Rent.
7. OPERATING EXPENSES
A. OPERATING EXPENSES. In addition to the Base Rent required to be paid
hereunder, beginning with the expiration of the Base Year specified in the Basic
Lease Information (the "BASE YEAR"), Tenant shall pay as Additional Rent,
Tenant's Proportionate Share of the Building and/or Project (as applicable), as
defined in the Basic Lease Information, of increases in Operating Expenses
(defined below) over the Operating Expenses incurred by Landlord during the Base
Year (the "BASE YEAR OPERATING EXPENSES"), in the manner set forth below. Tenant
shall pay the applicable Tenant's Proportionate Share of each such Operating
Expenses. Landlord and Tenant acknowledge that if physical changes are made to
the Premises, Building or Project or the configuration of any thereof, Landlord
may at its discretion reasonably adjust Tenant's Proportionate Share of the
Building or Project to reflect the change. Landlord's determination of Tenant's
Proportionate Share of the Building and of the Project shall be conclusive so
long as it is reasonably and consistently applied. "OPERATING EXPENSES" shall
mean all expenses and costs of every kind and nature which Landlord shall pay or
become obligated to pay, because of or in connection with the ownership,
management, maintenance, repair, preservation, replacement and operation of the
Building or Project and its supporting facilities and such additional facilities
now and in subsequent years as may be determined by Landlord to be necessary or
desirable to the Building and/or Project (as determined in a reasonable manner)
other than those expenses and costs which are specifically attributable to
Tenant or which are expressly made the financial responsibility of Landlord or
specific tenants of the Building or Project pursuant to this Lease. Operating
Expenses shall include, but are not limited to, the following:
(1) TAXES. All real property taxes and assessments, possessory interest
taxes, sales taxes, personal property taxes, business or license taxes or
fees, gross receipts taxes, service payments in lieu of such taxes or fees,
annual or periodic license or use fees, excises, transit charges, and other
impositions, general and special, ordinary and extraordinary, unforeseen as
well as foreseen, of any kind (including fees "in-lieu" of any such tax or
assessment) which are now or hereafter assessed, levied, charged, confirmed,
or imposed by any public authority upon the Building or Project, its
operations or the Rent (or any portion or component thereof), or any tax,
assessment or fee imposed in substitution, partially or totally, of any of
the above. Operating Expenses shall also include any taxes, assessments,
reassessments, or other fees or impositions with respect to the development,
leasing, management, maintenance, alteration, repair, use or occupancy of
the Premises, Building or Project or any portion thereof, including, without
limitation, by or for Tenant, and all increases therein or reassessments
thereof whether the increases or reassessments result from increased rate
and/or valuation (whether upon a transfer of the Building or Project or any
portion thereof or any interest therein or for any other reason). Operating
Expenses shall not include inheritance or estate taxes imposed upon or
assessed against the interest of any person in the Project, or taxes
computed upon the basis of the net income of any owners of any interest in
the Project. If it shall not be lawful for Tenant to reimburse Landlord for
all or any part of such taxes, the monthly rental payable to Landlord under
this Lease shall be revised to net Landlord the same net rental after
imposition of any such taxes by Landlord as would have been payable to
Landlord prior to the payment of any such taxes.
(2) INSURANCE. All insurance premiums and costs, including, but not limited
to, any deductible amounts, premiums and other costs of insurance incurred
by Landlord, including for the insurance coverage set forth in Paragraph
8.A. herein.
(3) COMMON AREA MAINTENANCE.
(a) Repairs, replacements, and general maintenance of and for the
Building and Project and public and common areas and facilities of and
comprising the Building and Project, including, but not limited to, the
roof and roof membrane, windows, elevators, restrooms, conference rooms,
health club facilities, lobbies, mezzanines, balconies, mechanical
rooms, building exteriors, alarm systems, pest extermination, landscaped
areas, parking and service areas, driveways, sidewalks, loading areas,
fire sprinkler systems, sanitary and storm sewer lines, utility
services, heating/ventilation/air conditioning systems, electrical,
mechanical or other systems, telephone equipment and wiring servicing,
plumbing, lighting, and any other items or areas which affect the
operation or appearance of the Building or Project, which determination
shall bc at Landlord's discretion, except for: those items expressly
made the financial responsibility of Landlord pursuant to Paragraph 10
hereof; those items to the extent paid for by the proceeds of insurance;
and those items attributable solely or jointly to specific tenants of
the Building or Project.
(b) Repairs, replacements, and general maintenance shall include the
cost of any capital improvements made to or capital assets acquired for
the Project or Building that in Landlord's discretion may reduce any
other Operating Expenses, including present or future repair work, are
reasonably necessary for the health and safety of the occupants of the
Building or Project, or are required to comply with any Regulation, such
costs or allocable portions thereof to be amortized over such reasonable
period as Landlord shall determine, together with interest on the
unamortized balance at the publicly announced "prime rate" charged by
Wells Fargo Bank, N.A. (San Francisco) or its successor at the time such
improvements or capital assets are constructed or acquired, plus two (2)
percentage points, or in the absence of such prime rate, then at the
U.S. Treasury six-month market note (or bond, if so designated) rate as
published by any national financial publication selected by Landlord,
plus four (4) percentage points, but in no event more than the maximum
rate permitted by law, plus reasonable financing charges.
(c) Payment under or for any easement, license, permit, operating
agreement, declaration, restrictive covenant or instrument relating to
the Building or Project.
(d) All expenses and rental related to services and costs of supplies,
materials and equipment used in operating, managing and maintaining the
Premises, Building and Project, the equipment therein and the adjacent
sidewalks, driveways, parking and service areas, including, without
limitation, expenses related to service agreements regarding security,
fire and other alarm systems, janitorial services, window cleaning,
elevator maintenance, Building exterior maintenance, landscaping and
expenses related to the administration, management and operation of the
Project, including without limitation salaries, wages and benefits and
management office rent.
(e) The cost of supplying any services and utilities which benefit all
or a portion of the Premises, Building or Project, including without
limitation services and utilities provided pursuant to Paragraph 15
hereof.
(f) Legal expenses and the cost of audits by certified public
accountants; provided, however, that legal expenses chargeable as
Operating Expenses shall not include the cost of negotiating leases,
collecting rents, evicting tenants nor shall it include costs incurred
in legal proceedings with or against any tenant or to enforce the
provisions of any lease.
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(G) A management and accounting cost recovery fee equal to five percent
(5%) of the sum of the Project's base rents and Operating Expenses to
the extent not included in such base rents (other than such management
and accounting fee).
If the rentable area of the Building and/or Project is not fully occupied
during any fiscal year of the Term as determined by Landlord, an adjustment may
be made in Landlord's discretion in computing the Operating Expenses for such
year SO that Tenant pays an equitable portion of all variable items (e.g.,
utilities, janitorial services and other component expenses that are affected by
variations in occupancy levels) of Operating Expenses, as reasonably determined
by Landlord; provided, however, that in no event shall Landlord be entitled to
collect in excess of NINETY-FIVE percent (95 %) of the total Operating Expenses
from all of the tenants in the Building or Project, as the case may be.
Operating Expenses shall not include the cost of providing tenant
improvements or other specific costs incurred for the account of, separately
billed to and paid by specific tenants of the Building or Project, the initial
construction cost of the Building, or debt service on any mortgage or deed of
trust recorded with respect to the Project other than pursuant to Paragraph
7.A.(3)(b) above. Notwithstanding anything herein to the contrary, in any
instance wherein Landlord, in Landlord's sole discretion, deems Tenant to be
responsible for any amounts greater than Tenant's Proportionate Share, Landlord
shall have the right to allocate costs in any manner Landlord deems appropriate.
The above enumeration of services and facilities shall not be deemed to
impose an obligation on Landlord to make available or provide such services or
facilities except to the extent if any that Landlord has specifically agreed
elsewhere in this Lease to make the same available or provide the same. Without
limiting the generality of the foregoing, Tenant acknowledges and agrees that it
shall be responsible for providing adequate security for its use of the
Premises, the Building and the Project and that Landlord shall have no
obligation or liability with respect thereto, except to the extent if any that
Landlord has specifically agreed elsewhere in this Lease to provide the same.
B. PAYMENT OF ESTIMATED OPERATING EXPENSES. "ESTIMATED OPERATING EXPENSES" for
any particular year shall mean Landlord's estimate of the Operating Expenses for
such fiscal year made with respect to such fiscal year AS hereinafter provided.
Landlord shall have the right from time to time to revise its fiscal year and
interim accounting periods so long as the periods as so revised are reconciled
with prior periods in a reasonable manner. During the last month of each fiscal
year during the Term, or as soon thereafter as practicable, Landlord shall give
Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal
year. Tenant shall pay Tenant's Proportionate Share of the difference between
Estimated Operating Expenses and Base Year Operating Expenses with installments
of Base Rent for the fiscal year to which the Estimated Operating Expenses
applies in monthly installments on the first day of each calendar month during
such year, in advance. Such payment shall be construed to be Additional Rent for
all purposes hereunder. If at any time during the course of the fiscal year,
Landlord determines that Operating Expenses are projected to vary from the then
Estimated Operating Expenses by more than five percent (5%), Landlord may, by
written notice to Tenant, revise the Estimated Operating Expenses for the
balance of such fiscal year, and Tenant's monthly installments for the remainder
of such year shall be adjusted so that by the end of such fiscal year Tenant has
paid to Landlord Tenant's Proportionate Share of the revised difference between
Estimated Operating Expenses and Base Year Operating Expenses for such year,
such revised installment amounts to be Additional Rent for all purposes
hereunder.
C. COMPUTATION OF OPERATING EXPENSE ADJUSTMENT. "OPERATING EXPENSE ADJUSTMENT"
shall mean the difference between Estimated Operating Expenses and actual
Operating Expenses for any fiscal year, over Base Year Operating Expenses,
determined as hereinafter provided. Within one hundred twenty (120) days after
the end of each fiscal year, or as soon thereafter as practicable, Landlord
shall deliver to Tenant a statement of actual Operating Expenses for the fiscal
year just ended, accompanied by a computation of Operating Expense Adjustment.
If such statement shows that Tenant's payment based upon Estimated Operating
Expenses is less than Tenant's Proportionate Share of actual increases in
Operating Expenses over the Base Year Operating Expenses, then Tenant shall pay
to Landlord the difference within twenty (20) days after receipt of such
statement, such payment to constitute Additional Rent for ail purposes
hereunder. If such statement shows that Tenant's payments of Estimated Operating
Expenses exceed Tenant's Proportionate Share of actual increases in Operating
Expenses over the Base Year Operating Expenses, then (provided that Tenant is
not in default under this Lease) Landlord shall pay to Tenant the difference
within twenty (20) days after delivery of such statement to Tenant. If this
Lease has been terminated or the Term hereof has expired prior to the date of
such statement, then the Operating Expense Adjustment shall be paid by the
appropriate party within twenty (20) days after the date of delivery of the
statement. Tenant's obligation to pay increases in Operating Expenses over the
Base Year Operating Expenses shall commence on January 1 of the year succeeding
the Base Year. Should this Lease terminate at any time other than the last day
of the fiscal year, Tenant's Proportionate Share of the Operating Expense
Adjustment shall be prorated based on a month of 30 days and the number of
calendar months during such fiscal year that this Lease is in effect. Tenant
shall in no event be entitled to any credit if Operating Expenses in any year
are less than Base Year Operating Expenses. Notwithstanding anything to the
contrary contained in Paragraph 7.A or 7.B, Landlord's failure to provide any
notices or statements within the time periods specified in those paragraphs
shall in no way excuse Tenant from its obligation to pay Tenant's Proportionate
Share of increases in Operating Expenses.
D. GROSS LEASE. This shall be a gross Lease; however, it is intended that Base
Rent shall be paid to Landlord absolutely net of all costs and expenses
other than Operating Expenses each year equal to Tenant's Proportionate Share of
Base Year Operating Expenses, except as otherwise specifically provided to the
contracccry in this Lease. The provisions for payment of increases in Operating
Expenses and the Operating Expense Adjustment are intended to pass on to Tenant
and reimburse Landlord for all costs and expenses of the nature described in
Paragraph 7.A. incurred in connection with the ownership, management,
maintenance, repair, preservation, replacement and operation of the Building
and/or Project and its supporting facilities and such additional facilities, in
excess of the Base Year Operating Expenses, now and in subsequent years as may
be determined by Landlord to be necessary or desirable to the Building and/or
Project.
E. TENANT AUDIT. If Tenant shall dispute the amount set forth in any statement
provided by Landlord under Paragraph 7.B. or 7.C. above, Tenant shall have the
right, not later than twenty (20) days following receipt of such statement and
upon the condition that Tenant shall first deposit with Landlord the full amount
in dispute, to cause Landlord's books and records with respect to Operating
Expenses for such fiscal year to be audited by certified public accountants
selected by Tenant and subject to Landlord's reasonable right of approval. The
Operating Expense Adjustment shall be appropriately adjusted on THE basis of
such audit. If such audit discloses a liability for a refund in excess of ten
percent (10%) of Tenant's Proportionate Share of the Operating Expenses
previously reported, the cost of such audit shall be borne by Landlord;
otherwise the cost of such audit shall be paid by Tenant. If Tenant shall not
request an audit in accordance with the provisions of this Paragraph 7.E. within
twenty (20) days after receipt of Landlord's statement provided pursuant to
Paragraph 7.B. or 7.C., such statement shall be final and binding for all
purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. LANDLORD'S INSURANCE. All insurance maintained by Landlord shall be for the
sole benefit of Landlord and under Landlord's sole control.
(1) PROPERTY INSURANCE. Landlord agrees to maintain property insurance
insuring the Building against damage or destruction due to risk including
fire, vandalism, and malicious mischief in an amount not less than the
replacement cost thereof, in the form and with deductibles and endorsements
as selected by Landlord. At its election, Landlord may instead (but shall
have no obligation to) obtain "All Risk" coverage, and may also obtain
earthquake, pollution, and/or flood insurance in amounts selected by
Landlord.
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(2) OPTIONAL INSURANCE. Landlord, at Landlord's option, may also (but shall
have no obligation to) carry insurance against loss of rent, in an amount
equal to the amount of Base Rent and Additional Rent that Landlord could be
required to abate to all Building tenants in the event of condemnation or
casualty damage for a period of twelve (12) months. Landlord may also (but
shall have no obligation to) carry such other insurance as Landlord may deem
prudent or advisable, including, without limitation, liability insurance in
such amounts and on such terms as Landlord shall determine. Landlord shall
not be obligated to insure, and shall have no responsibility whatsoever for
any damage to, any furniture, machinery, goods, inventory or supplies, or
other personal property or fixtures which Tenant may keep or maintain in the
Premises, or any leasehold improvements, additions or alterations within the
Premises.
B. TENANT'S INSURANCE.
(1) PROPERTY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term, insurance on all personal property and fixtures
of Tenant and all improvements, additions or alterations made by or for
Tenant to the Premises on an "All Risk" basis, insuring such property for
the full replacement value of such property.
(2) LIABILITY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term Commercial General Liability insurance covering
bodily injury and property damage liability occurring in or about the
Premises or arising out of the use and occupancy of the Premises and the
Project, and any part of either, and any areas adjacent thereto, and the
business operated by Tenant or by any other occupant of the Premises. Such
insurance shall include contractual liability insurance coverage insuring
all of Tenant's indemnity obligations under this Lease. Such coverage shall
have a minimum combined single limit of liability of at least Two Million
Dollars ($2,000,000.00), and a minimum general aggregate limit of Three
Million Dollars ($3,000,000.00), with an "Additional Insured--Managers or
Lessors of Premises Endorsement." All such policies shall bc written to
apply to all bodily injury (including death), property damage or loss,
personal and advertising injury and other covered loss, however occasioned,
occurring during the policy term, shall be endorsed to add Landlord and any
party holding an interest to which this Lease may be subordinated as an
additional insured, and shall provide that such coverage shall be "primary"
and non-contributing with any insurance maintained by Landlord, which shall
be excess insurance only. Such coverage shall also contain endorsements
including employees as additional insureds if not covered by Tenant's
Commercial General Liability Insurance. All such insurance shall provide for
the severability of interests of insureds; and shall be written on an
"OCCURRENCE" basis, which shall afford coverage for all claims based on
acts, omissions, injury and damage, which occurred or arose (or the onset of
which occurred or arose) in whole or in part during the policy period.
(3) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE. Tenant shall
carry Workers' Compensation Insurance as required by any Regulation,
throughout the Term at Tenant's sole cost and expense. Tenant shall also
carry Employers' Liability Insurance in amounts not LESS than One Million
Dollars ($1,000,000) each accident for bodily injury by accident; One
Million Dollars ($1,000,000) policy limit for bodily injury by disease; and
One Million Dollars ($1,000,000) each employee for bodily injury by disease,
throughout the Term at Tenant's sole cost and expense.
(4) GENERAL INSURANCE REQUIREMENTS. All coverages described in this
Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty (30)
days' notice of cancellation or change in terms; and (ii) waive all rights
of subrogation by the insurance carrier against Landlord. If at any time
during the Term the amount or coverage of insurance which Tenant is required
to carry under this Paragraph 8.B. is, in Landlord's reasonable judgment,
materially less than the amount or type of insurance coverage typically
carried by owners or tenants of properties located in the general area in
which the Premises are located which are similar to and operated for similar
purposes as the Premises or if Tenant's use of the Premises should change
with or without Landlord's consent, Landlord shall have the right to require
Tenant to increase the amount or change the types of insurance coverage
required under this Paragraph 8.B. All insurance policies required to be
carried by Tenant under this Lease shall be written by companies rated A X
or better in "Best's Insurance Guide" and authorized to do business in the
State of California. In any event deductible amounts under all insurance
policies required to be carried by Tenant under this Lease shall not exceed
Five Thousand Dollars ($5,000.00) per occurrence. Tenant shall deliver to
Landlord on or before the Term Commencement Date, and thereafter at least
thirty (30) days before the expiration dates of the expired policies,
certified copies of Tenant's insurance policies, or a certificate evidencing
the same issued by the insurer thereunder; and, if Tenant shall fail to
procure such insurance, or to deliver such policies or certificates,
Landlord may, at Landlord's option and in addition to Landlord's other
remedies in the event of a default by Tenant hereunder, procure the same for
the account of Tenant, and the cost thereof shall be paid to Landlord as
Additional Rent.
C. INDEMNIFICATION. Tenant shall indemnify, defend by counsel reasonably
acceptable to Landlord, protect and hold Landlord harmless from and against any
and all claims, liabilities, losses, costs, loss of rents, liens, damages,
injuries or expenses, including reasonable attorneys' and consultants' fees and
court costs, demands, causes of action, or judgments, directly or indirectly
arising out of or related to: (1) claims of injury to or death of persons or
damage to property occurring or resulting directly or indirectly from the use or
occupancy of the Premises, Building or Project by Tenant or Tenant's Parties, or
from activities or failures to act of Tenant or Tenant's Parties; (2) claims
arising from work or labor performed, or for materials or supplies furnished to
or at the request or for the account of Tenant in connection with performance of
any work done for the account of Tenant within the Premises or Project; (3)
claims arising from any breach or default on the part of Tenant in the
performance of any covenant contained in this Lease; and (4) claims arising from
the negligence or intentional acts or omissions of Tenant or Tenant's Parties.
The foregoing indemnity by Tenant shall not be applicable to claims to the
extent arising from the negligence or misconduct of Landlord. Landlord shall not
be liable to Tenant and Tenant hereby waives all claims against Landlord for any
injury or damage to any person or property in or about the Premises, Building or
Project by or from any cause whatsoever (other than Landlord's negligence or
misconduct) and, without limiting the generality of the foregoing, whether
caused by water leakage of any character from the roof, walls, basement or other
portion of the Premises, Building or Project, or caused by gas, fire, oil or
electricity in, on or about the Premises, Building or Project. The provisions of
this Paragraph shall survive the expiration or earlier termination of this
Lease.
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage provided
by insurance to be maintained hereunder or any other rights or remedies,
Landlord and Tenant each waive any right to recover against the other for: (a)
damages for injury to or death of persons; (b) damages to property, including
personal property; (c) damages to the Premises or any part thereof; and (d)
claims arising by reason of the foregoing due to hazards covered by insurance
maintained or required to be maintained pursuant to this Lease to the extent of
proceeds recovered therefrom, or proceeds which would have been recoverable
therefrom in the case of the failure of any party to maintain any insurance
coverage required to be maintained by such party pursuant to this Lease. This
provision is intended to waive fully, any rights and/or claims arising by reason
of the foregoing, but only to the extent that any of the foregoing damages
and/or claims referred to above are covered or would be covered, and only to the
extent of such coverage, by insurance actually carried or required to bc
maintained pursuant to this Lease by either Landlord or Tenant. This provision
is also intended to waive fully, and for the benefit of each party, any rights
and/or claims which might give rise to a right of subrogation on any insurance
carrier. Subject to all qualifications of this Paragraph 9, Landlord waives its
rights as specified in this Paragraph 9 with respect to any subtenant that it
has approved pursuant to Paragraph 21 but only in exchange for the written
waiver of such rights to be given by such subtenant to Landlord upon such
subtenant taking
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possession of the Premises or a portion thereof. Each party shall cause each
insurance policy obtained by it to provide that the insurance company waives all
right of recovery by way of subrogation against either party in connection with
any damage covered by any policy.
10. LANDLORD'S REPAIRS AND MAINTENANCE
Landlord shall at Landlord's expense maintain in good repair,
reasonable wear and tear excepted, the structural soundness of the roof,
foundations, and exterior walls of the Building. The term "exterior walls" as
used herein shall not include windows, glass or plate glass, doors, special
store fronts or office entries. Any damage caused by or repairs necessitated by
any negligence or act of Tenant or Tenant's Parties may be repaired by Landlord
at Landlord's option and Tenant's expense. Tenant shall immediately give
Landlord written notice of any defect or need of repairs in such components of
the Building for which Landlord is responsible, after which Landlord shall have
a reasonable opportunity and the right to enter the Premises at all reasonable
times to repair same. Landlord's liability with respect to any defects, repairs,
or maintenance for which Landlord is responsible under any of the provisions of
this Lease shall be limited to the cost of such repairs or maintenance, and
there shall be no abatement of rent and no liability of Landlord by reason of
any injury to or interference with Tenant's business arising from the making of
repairs, alterations or improvements in or to any portion of the Premises, the
Building or the Project or to fixtures, appurtenances or equipment in the
Building, except as provided in Paragraph 24. By taking possession of the
Premises, Tenant accepts them "as is," as being in good order, condition and
repair and the condition in which Landlord is obligated to deliver them and
suitable for the Permitted Use and Tenant's intended operations in the Premises,
whether or not any notice of acceptance is given.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain all
parts of the Premises and such portions of the Building as are within the
exclusive control of Tenant in a first-class, good, clean and secure condition
and promptly make all necessary repairs and replacements, as determined by
Landlord, with materials and workmanship of the same character, kind and quality
as the original. Notwithstanding anything to the contrary contained herein,
Tenant shall, at its expense, promptly repair any damage to the Premises or the
Building or Project resulting from or caused by any negligence or act of Tenant
or Tenant's Parties.
12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations, physical
additions, improvements or partitions, including without limitation the
attachment of any fixtures or equipment, in, about or to the Premises
("ALTERATIONS") without obtaining the prior written consent of Landlord, which
consent shall not be unreasonably withheld with respect to proposed Alterations
which: (a) comply with all applicable Regulations; (b) are, in Landlord's
opinion, compatible with the Building or the Project and its mechanical,
plumbing, electrical, heating/ventilation/air conditioning systems, and will not
cause the Building or Project or such systems to be required to be modified to
comply with any Regulations (including, without limitation, the Americans With
Disabilities Act); and (c) will not interfere with the use and occupancy of any
other portion of the Building or Project by any other tenant or its invitees.
Specifically, but without limiting the generality of the foregoing, Landlord
shall have the right of written consent for all plans and specifications for the
proposed Alterations, construction means and methods, all appropriate permits
and licenses, any contractor or subcontractor to be employed on the work of
Alterations, and the time for performance of such work, and may impose rules and
regulations for contractors and subcontractors performing such work. Tenant
shall also supply to Landlord any documents and information reasonably requested
by Landlord in connection with Landlord's consideration of a request for
approval hereunder. Tenant shall cause all Alterations to be accomplished in a
first-class, good and workmanlike manner, and to comply with all applicable
Regulations and Paragraph 27 hereof. Tenant shall at Tenant's sole expense,
perform any additional work required under applicable Regulations due to the
Alterations hereunder. No review or consent by Landlord of or to any proposed
Alteration or additional work shall constitute a waiver of Tenant's obligations
under this Paragraph 12, nor constitute any warranty or representation that the
same complies with all applicable Regulations, for which Tenant shall at all
times be solely responsible. Tenant shall reimburse Landlord for all costs which
Landlord may incur in connection with granting approval to Tenant for any such
Alterations, including any costs or expenses which Landlord may incur in
electing to have outside architects and engineers review said plans and
specifications, and shall pay Landlord an administration fee of fifteen percent
(15%) of the cost of the Alterations as Additional Rent hereunder. All such
Alterations shall remain the property of Tenant until the expiration or earlier
termination of this Lease, at which time they shall be and become the property
of Landlord; provided, however, that Landlord may, at Landlord's option, require
that Tenant, at Tenant's expense, remove any or all Alterations made by Tenant
and restore the Premises by the expiration or earlier termination of this Lease,
to their condition existing prior to the construction of any such Alterations.
All such removals and restoration shall be accomplished in a first-class and
good and workmanlike manner so as not to cause any damage to the Premises or
Project whatsoever. If Tenant fails to remove such Alterations or Tenant's trade
fixtures or furniture or other personal property, Landlord may keep and use them
or remove any of them and cause them to be stored or sold in accordance with
applicable law, at Tenant's sole expense. In addition to and wholly apart from
Tenant's obligation to pay Tenant's Proportionate Share of Operating Expenses,
Tenant shall be responsible for and shall pay prior to delinquency any taxes or
governmental service fees, possessory interest taxes, fees or charges in lieu of
any such taxes, capital levies, or other charges imposed upon, levied with
respect to or assessed against its fixtures or personal property, on the value
of Alterations within the Premises, and on Tenant's interest pursuant to this
Lease, or any increase in any of the foregoing based on such Alterations. To the
extent that any such taxes are not separately assessed or billed to Tenant,
Tenant shall pay the amount thereof as invoiced to Tenant by Landlord.
Notwithstanding the foregoing, at Landlord's option (but without obligation),
all or any portion of the Alterations shall be performed by Landlord for
Tenant's account and Tenant shall pay Landlord's estimate of the cost thereof
(including a reasonable charge for Landlord's overhead and profit) prior to
commencement of the work. In addition, at Landlord's election and
notwithstanding the foregoing, however, Tenant shall pay to Landlord the cost of
removing any such Alterations and restoring the Premises to their original
condition such cost to include a reasonable charge for Landlord's overhead and
profit as provided above, and such amount may be deducted from the Security
Deposit or any other sums or amounts held by Landlord under this Lease.
B. In compliance with Paragraph 27 hereof, at least ten (10) business days
before beginning construction of any Alteration, Tenant shall give Landlord
written notice of the expected commencement date of that construction to permit
Landlord to post and record a notice of non-responsibility. Upon substantial
completion of construction, if the law so provides, Tenant shall cause a timely
notice of completion to be recorded in the office of the recorder of the county
in which the Building is located.
13. SIGNS
Tenant shall not place, install, affix, paint or maintain any signs, notices,
graphics or banners whatsoever or any window decor which is visible in or from
public view or corridors, the common areas or the exterior of the Premises or
the Building, in or on any exterior window or window fronting upon any common
areas or service area without Landlord's prior written approval which Landlord
shall have the right to withhold in its absolute and sole discretion; provided
that Tenant's name shall be included in any Building-standard door and directory
signage, if any, in accordance with Landlord's Building signage program,
including without limitation, payment by Tenant of any fee charged by Landlord
for maintaining such signage, which fee shall constitute Additional Rent
hereunder. Any installation of signs, notices, graphics or banners on or about
the Premises or Project approved by Landlord shall be subject to any Regulations
and to any other requirements imposed by Landlord. Tenant shall remove all such
signs or graphics by the expiration or any earlier termination of this Lease.
Such installations and removals shall be made in such manner as to avoid injury
to or defacement of the Premises, Building or Project and any other improvements
contained therein, and Tenant shall repair any injury or defacement including
without limitation discoloration caused by such installation or removal.
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14. INSPECTION/POSTING NOTICES
After reasonable notice, except in emergencies where no such notice shall be
required, Landlord and Landlord's agents and representatives, shall have the
right to enter the Premises to inspect the same, to clean, to perform such work
as may be permitted or required hereunder, to make repairs, improvements or
alterations to the Premises, Building or Project or to other tenant spaces
therein, to deal with emergencies, to post such notices as may be permitted or
required by law to prevent the perfection of liens against Landlord's interest
in the Project or to exhibit the Premises to prospective tenants, purchasers,
encumbrancers or to others, or for any other purpose as Landlord may deem
necessary or desirable; provided, however, that Landlord shall use reasonable
efforts not to unreasonably interfere with Tenant's business operations. Tenant
shall not be entitled to any abatement of Rent by reason of the exercise of any
such right of entry. Tenant waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any LOSS of occupancy
or quiet enjoyment of the Premises, and any other loss occasioned thereby.
Landlord shall at all times have and retain a key with which to unlock all of
the doors in, upon and about the Premises, excluding Tenant's vaults and safes
or special security areas (designated in advance), and Landlord shall have the
right to use any and all means which Landlord may deem necessary or proper to
open said doors in an emergency, in order to obtain entry to any portion of the
Premises, and any entry to the Premises or portions thereof obtained by Landlord
by any of said means, or otherwise, shall not be construed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or an eviction, actual or
constructive, of Tenant from the Premises or any portions thereof. At any time
within six (6) months prior to the expiration of the Term or following any
earlier termination of this Lease or agreement to terminate this Lease, Landlord
shall have the right to erect on the Premises, Building and/or Project a
suitable sign indicating that the Premises are available for lease.
15. SERVICES AND UTILITIES
A. Provided Tenant shall not be in default hereunder, and subject to the
provisions elsewhere herein contained and to the rules and regulations of the
Building, Landlord shall furnish to the Premises during ordinary business hours
of generally recognized business days WHICH, AT THE TIME OF THIS LEASE CREATION
IS FROM 8:00 AM UNTIL 6:00 PM, MONDAY THROUGH FRIDAY, EXCLUDING LEGAL HOLIDAYS,
to be determined by Landlord (but exclusive, in any event, of Saturdays, Sundays
and legal holidays), water for lavatory and drinking purposes and electricity,
heat and air conditioning as usually furnished or supplied for use of the
Premises for reasonable and normal office use as of the date Tenant takes
possession of the Premises as determined by Landlord (but not including
above-standard or continuous cooling for excessive heat-generating machines,
excess lighting or equipment), janitorial services during the times and in the
manner that such services are, in Landlord's judgment, customarily furnished in
comparable office buildings in the immediate market area, and elevator service,
which shall mean service either by nonattended automatic elevators or elevators
with attendants, or both, at the option of Landlord. Tenant acknowledges that
Tenant has inspected and accepts the water, electricity, heat and air
conditioning and other utilities and services being supplied or furnished to the
Premises as of the date Tenant takes possession of the Premises, as being
sufficient for use of the Premises for reasonable and normal office use in their
present condition, "as is," and suitable for the Permitted Use, and for Tenant's
intended operations in the Premises. Landlord shall have no obligation to
provide additional or after-hours electricity, heating or air conditioning, but
if Landlord elects to provide such services at Tenant's request, Tenant shall
pay to Landlord a reasonable charge for such services as determined by Landlord.
LANDLORD SHELL PROVIDE TENANT WITH HEAT AND AIR CONDITIONING FOR REASONABLE AND
NORMAL OFFICE USE AT TENANT'S REQUEST ON SATURDAYS FROM 8:00 AM UNTIL 12:00 PM
AT NO CHARGE TO TENANT DURING THE INITIAL LEASE TERM. Tenant agrees to keep and
cause to be kept closed all window covering when necessary because of the sun's
position, and Tenant also agrees at all times to cooperate fully with Landlord
and to abide by all of the regulations and requirements which Landlord may
prescribe for the proper functioning and protection of electrical, heating,
ventilating and air conditioning systems. Wherever heat-generating machines,
excess lighting or equipment are used in the Premises which affect the
temperature otherwise maintained by the air conditioning system, Landlord
reserves the right to install supplementary air conditioning units in the
Premises and the cost thereof, including the cost of installation and the cost
of operation and maintenance thereof, shall be paid by Tenant to Landlord upon
demand by Landlord.
B. Tenant shall not without written consent of Landlord use any apparatus,
equipment or device in the Premises, including without limitation, computers,
electronic data processing machines, copying machines, and other machines, using
excess lighting or using electric current, water, or any other resource in
excess of or which will in any way increase the amount of electricity, water, or
any other resource being furnished or supplied for the use of the Premises for
reasonable and normal office use, in each case as of the date Tenant lakes
possession of the Premises as determined by Landlord, or which will require
additions or alterations to or interfere with the Building power distribution
systems; nor connect with electric current, except through existing electrical
outlets in the Premises or water pipes, any apparatus, equipment or device for
the purpose of using electrical current, water, or any other resource. If Tenant
shall require water or electric current or any other resource in excess of that
being furnished or supplied for the use of the Premises as of the date Tenant
takes possession of the Premises as determined by Landlord, Tenant shall first
procure the written consent of Landlord which Landlord may refuse, to the use
thereof, and Landlord may cause a special meter to be installed in the Premises
so as to measure the amount of water, electric current or other resource
consumed for any such other use. Tenant shall pay directly to Landlord as an
addition to and separate from payment of Operating Expenses the cost of all such
additional resources, energy, utility service and meters (and of installation,
maintenance and repair thereof and of any additional circuits or other equipment
necessary to furnish such additional resources, energy, utility or service).
Landlord may add to the separate or metered charge a recovery of additional
expense incurred in keeping account of the excess water, electric current or
other resource so consumed. Landlord shall not be liable for any damages
directly or indirectly resulting from nor shall the Rent or any monies owed
Landlord under this Lease herein reserved be abated by reason of: (a) the
installation, use or interruption of use of any equipment used in connection
with the furnishing of any such utilities or services, or any change in the
character or means of supplying or providing any such utilities or services or
any supplier thereof; (b) the failure to furnish or delay in furnishing any such
utilities or services when such failure or delay is caused by acts of God or the
elements, labor disturbances of any character, or any other accidents or other
conditions beyond the reasonable control of Landlord or because of any
interruption of service due to Tenant's use of water, electric current or other
resource in excess of that being supplied or furnished for the use of the
Premises as of the date Tenant takes possession of the Premises; (c) the
inadequacy, limitation, curtailment, rationing or restriction on use of water,
electricity, gas or any other form of energy or any other service or utility
whatsoever serving the Premises or Project, whether by Regulation or otherwise;
or (d) the partial or total unavailability of any such utilities or services to
the Premises or the Building, whether by Regulation or otherwise; nor shall any
such occurrence constitute an actual or constructive eviction of Tenant.
Landlord shall further have no obligation to protect or preserve any apparatus,
equipment or device installed by Tenant in the Premises, including without
limitation by providing additional or after-hours heating or air conditioning.
Landlord shall be entitled to cooperate voluntarily and in a reasonable manner
with the efforts of national, state or local governmental agencies or utility
suppliers in reducing energy or other resource consumption. The obligation to
make services available hereunder shall be subject to the limitations of any
such voluntary, reasonable program. IN addition, Landlord reserves the right to
change the supplier or provider of any such utility or service from time to
time. Tenant shall have no right to contract with or otherwise obtain any
electrical or other such service for or with respect to the Premises or Tenant's
operations therein from any supplier or provider of any such service. Tenant
shall cooperate with Landlord and any supplier or provider of such services
designated by Landlord from time to time to facilitate the delivery of such
services to Tenant at the Premises and to the Building and Project, including
without limitation allowing Landlord and Landlord's suppliers or providers, and
their respective agents and contractors, reasonable access to the Premises for
the purpose of installing, maintaining, repairing, replacing or upgrading such
service or any equipment or machinery associated therewith.
C. Tenant shall pay, upon demand, for all utilities furnished to the Premises,
or if not separately billed to or metered to Tenant, Tenant's Proportionate
Share of all charges jointly serving the Project in accordance with Paragraph 7.
All sums payable under this Paragraph 15 shall constitute Additional Rent
hereunder.
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16. SUBORDINATION
Without the necessity of any additional document being executed by Tenant for
the purpose of effecting a subordination, this Lease shall be and is hereby
declared to be subject and subordinate at all times to: (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Premises and/or the land upon which the Premises and Project are situated, or
both; and (b) any mortgage or deed of trust which may now exist or be placed
upon the Building, the Project and/or the land upon which the Premises or the
Project are situated, or said ground leases or underlying leases, or Landlord's
interest or estate in any of said items which is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. If any ground lease or underlying lease terminates for any
reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the successor in interest to
Landlord provided that Tenant shall not be disturbed in its possession under
this Lease by such successor in interest so long as Tenant is not in default
under this Lease. Within ten (10) days after request by Landlord, Tenant shall
execute and deliver any additional documents evidencing Tenant's attornment or
the subordination of this Lease with respect to any such ground leases or
underlying leases or any such mortgage or deed of trust, in the form requested
by Landlord or by any ground landlord, mortgagee, or beneficiary under a deed of
trust, subject to such nondisturbance requirement. If requested in writing by
Tenant, Landlord shall use commercially reasonable efforts to obtain a
subordination, nondisturbance and attornment agreement for the benefit of Tenant
reflecting the foregoing from any ground landlord, mortgagee or beneficiary, at
Tenant's expense, subject to such other terms and conditions as the ground
landlord, mortgagee or beneficiary may require.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time AND NOT IN EXCESS OF ONE TIME
PER YEAR, Tenant shall provide to Landlord Tenant's and any guarantor's current
financial statements or other information discussing financial worth of Tenant
and any guarantor, which Landlord shall use solely for purposes of this Lease
and in connection with the ownership, management, financing and disposition of
the Project.
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) days after request of
Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this Lease is in full force and effect, that this Lease
has not been modified (or stating all modifications, written or oral, to this
Lease), the date to which Rent has been paid, the unexpired portion of this
Lease, that there are no current defaults by Landlord or Tenant under this Lease
(or specifying any such defaults), that the leasehold estate granted by this
Lease is the sole interest of Tenant in the Premises and/or the land at which
the Premises are situated, and such other matters pertaining to this Lease as
may be reasonably requested by Landlord or any mortgagee, beneficiary, purchaser
or prospective purchaser of the Building or Project or any interest therein.
Failure by Tenant to execute and deliver such certificate shall constitute an
acceptance of the Premises and acknowledgment by Tenant that the statements
included are true and correct without exception. Tenant agrees that if Tenant
fails to execute and deliver such certificate within such ten (10) day period,
Landlord may execute and deliver such certificate on Tenant's behalf and that
such certificate shall be binding on Tenant. Landlord and Tenant intend that any
statement delivered pursuant to this Paragraph may be relied upon by any
mortgagee, beneficiary, purchaser or prospective purchaser of the Building or
Project or any interest therein. The parties agree that Tenant's obligation to
furnish such estoppel certificates in a timely fashion is a material inducement
for Landlord's execution of this Lease, and shall be an event of default
(without any cure period that might be provided under Paragraph 26.A(3) of this
Lease) if Tenant fails to fully comply or makes any material misstatement in any
such certificate.
19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of this Lease, a
security deposit as stated in the Basic Lease Information (the "SECURITY
DEPOSIT"), which sum shall be held and owned by Landlord, without obligation to
pay interest, as security for the performance of Tenant's covenants and
obligations under this Lease. The Security Deposit is not an advance rental
deposit or a measure of damages incurred by Landlord in case of Tenant's
default. Upon the occurrence of any event of default by Tenant, Landlord may
from time to time, without prejudice to any other remedy provided herein or by
law, use such fund as a credit to the extent necessary to credit against any
arrears of Rent or other payments due to Landlord hereunder, and any other
damage, injury, expense or liability caused by such event of default, and Tenant
shall pay to Landlord, on demand, the amount so applied in order to restore the
Security Deposit to its original amount. Although the Security Deposit shall be
deemed the property of Landlord, any remaining balance of such deposit shall be
returned by Landlord to Tenant at such time after termination of this Lease that
all of Tenant's obligations under this Lease have been fulfilled, reduced by
such amounts as may be required by Landlord to remedy defaults on the part of
Tenant in the payment of Rent or other obligations of Tenant under this Lease,
to repair damage to the Premises, Building or Project caused by Tenant or any
Tenant's Parties and to clean the Premises. Landlord may use and commingle the
Security Deposit with other funds of Landlord. IN ADDITION TO THE $24,722.85
SECURITY DEPOSIT AS DESCRIBED IN THE BASIC LEASE INFORMATION TENANT SHALL
DEPOSIT WITH LANDLORD AN ADDITIONAL SECURITY DEPOSIT IN THE AMOUNT OF
$19,212.00. PROVIDED TENANT HAS NOT BEEN IN DEFAULT OF THE TERMS OF THIS LEASE
AGREEMENT DURING ANY PORTION OF THE LEASE TERM, THE ADDITIONAL SECURITY DEPOSIT
WILL BE CREDITED TOWARDS TENANT'S MONTHLY RENT CHARGES AS FOLLOWS:
$19,212.00 WILL THE CREDITED TOWARDS BASE RENT FOR MONTH SEVEN (7) OF THE
INITIAL LEASE TERM
IN THE EVENT TENANT IS OR HAS BEEN IN MONETARY OR FINANCIAL DEFAULT OF THE TERMS
AND CONDITIONS OF THIS LEASE AGREEMENT, THE ADDITIONAL SECURITY DEPOSIT
REMAINING AT SUCH TIME OF SAID DEFAULT SHALL REMAIN IN LANDLORD'S POSSESSION AS
ADDITIONAL SECURITY FOR THE REMAINDER OF THE LEASE TERM.
20. LIMITATION OF TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by
Landlord under the terms of this Lease are not personal obligations of Landlord
or of the individual or other partners of Landlord or its or their partners,
directors, officers, or shareholders, and Tenant agrees to look solely to
Landlord's interest in the Project for the recovery of any amount from Landlord,
and shall not look to other assets of Landlord nor seek recourse against the
assets of the individual or other partners of Landlord or its or their partners,
directors, officers or shareholders. Any lien obtained to enforce any such
judgment and any levy of execution thereon shall be subject and subordinate to
any lien, mortgage or deed of trust on the Project. Under no circumstances shall
Tenant have the right to offset against or recoup Rent or other payments due and
to become due to Landlord hereunder except as expressly provided in Paragraph
23.B. below, which Rent and other payments shall be absolutely due and payable
hereunder in accordance with the terms hereof.
21. ASSIGNMENT AND SUBLETTING
A. (1) GENERAL. This Lease has been negotiated WITH Tenant AND ACCORDINGLY,
this Lease is personal to Tenant, and Tenant's rights granted hereunder
do not include the right to assign this Lease or sublease the Premises,
or to receive any excess, either in installments or lump sum, over the
Rent which is expressly reserved by Landlord as hereinafter provided,
except as otherwise expressly hereinafter provided. Tenant shall not
assign or pledge this Lease or sublet the Premises or any part thereof,
whether voluntarily or by operation of law, or permit the
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use or occupancy of the Premises or any part thereof by anyone other
than Tenant, or suffer or permit any such assignment, pledge, subleasing
or occupancy, without Landlord's prior written consent except as
provided herein. If Tenant desires to assign this Lease or sublet any or
all of the Premises, Tenant shall give Landlord written notice (the
"TRANSFER NOTICE") at least THIRTY (30) days prior to the anticipated
effective date of the proposed assignment or sublease, which shall
contain all of the information reasonably requested by Landlord to
address Landlord's decision criteria specified hereinafter. Landlord
shall then have a period of FIFTEEN (15) days following receipt of the
Transfer Notice to notify Tenant in writing that Landlord elects either:
(i) to terminate this Lease as to the space so affected as of the date
so requested by Tenant; or (ii) to consent to the proposed assignment or
sublease, subject, however, to Landlord's prior written consent of the
proposed assignee or subtenant and of any related documents or
agreements associated with the assignment or sublease. If Landlord
should fail to notify Tenant in writing of such election within said
period, Landlord shall be deemed to have waived option (i) above. If
Landlord does not exercise option (i) above, Landlord's consent to a
proposed assignment or sublease shall not be unreasonably withheld.
Consent to any assignment or subletting shall not constitute consent to
any subsequent transaction to which this Paragraph 21 applies.
(2) CONDITIONS OF LANDLORD'S CONSENT. Without limiting the other
instances in which it may be reasonable for Landlord to withhold
Landlord's consent to an assignment or subletting, Landlord and Tenant
acknowledge that it shall be reasonable for Landlord to withhold
Landlord's consent in the following instances: if the proposed assignee
does not agree to be bound by and assume the obligations of Tenant under
this Lease in form and substance satisfactory to Landlord; the use of
the Premises by such proposed assignee or subtenant would not be a
Permitted Use or would violate any exclusivity or other arrangement
which Landlord has with any other tenant or occupant or any Regulation
or would increase the Occupancy Density or Parking Density of the
Building or Project, or would otherwise result in an undesirable tenant
mix for the Project as determined by Landlord; the proposed assignee or
subtenant is not of sound financial condition as determined by Landlord
in Landlord's sole discretion; the proposed assignee or subtenant is a
governmental agency; the proposed assignee or subtenant docs not have a
good reputation as a tenant of property or a good business reputation;
the proposed assignee or subtenant is a person with whom Landlord is
negotiating to lease space in the Project or is a present tenant of the
Project; the assignment or subletting would entail any Alterations which
would lessen the value of the leasehold improvements in the Premises or
use of any Hazardous Materials or other noxious use or use which may
disturb other tenants of the Project; or Tenant is in default of any
obligation of Tenant under this Lease, or Tenant has defaulted under
this Lease on three (3) or more occasions during any twelve (12) months
preceding the date that Tenant shall request consent. THE REASONABLE
FAILURE by or refusal of Landlord to consent to a proposed assignee or
subtenant shall not cause a termination of this Lease. Upon a
termination under Paragraph 21.A.(1)(i), Landlord may lease the Premises
to any party, including parties with whom Tenant has negotiated an
assignment or sublease, without incurring any liability to Tenant. At
the option of Landlord, a surrender and termination of this Lease shall
operate as an assignment to Landlord of some or all subleases or
subtenancies. Landlord shall exercise this option by giving notice of
that assignment to such subtenants on or before the effective date of
the surrender and termination. In connection with each request for
assignment or subletting, Tenant shall pay to Landlord Landlord's
standard fee for approving such requests, as well as all costs incurred
by Landlord or any mortgagee or ground lessor in approving each such
request and effecting any such transfer, including, without limitation,
reasonable attorneys' fees.
B. BONUS RENT. Any Rent or other consideration realized by Tenant under any
such sublease or assignment in excess of the Rent payable hereunder, after
DEDUCTION of a reasonable brokerage commission AND DEDUCTION OF COMMERCIALLY
REASONABLE COSTS FOR TENANT IMPROVEMENTS AS AGREED UPON BY LANDLORD incurred by
Tenant, shall be divided and paid, FORTY percent (40%) to Tenant, SIXTY percent
(60%) to Landlord. In any subletting or assignment undertaken by Tenant, Tenant
shall diligently seek to obtain the maximum rental amount available in the
marketplace for comparable space available for primary leasing.
C. CORPORATION. If Tenant is a corporation, a transfer of corporate shares by
sale, assignment, bequest, inheritance, operation of law or other disposition
(including such a transfer to or by a receiver or trustee in federal or state
bankruptcy, insolvency or other proceedings) resulting in a change in the
present control of such corporation or any of its parent corporations by the
person or persons owning A majority of said corporate shares, shall constitute
an assignment for purposes of this Lease.
D. UNINCORPORATED ENTITY. If Tenant is a partnership, joint venture,
unincorporated limited liability company or other unincorporated business form,
a transfer of the interest of persons, firms or entities responsible for
managerial control of Tenant by sale, assignment, bequest, inheritance,
operation of law or other disposition, so as to result in a change in the
present control of said entity and/or of the underlying beneficial interests of
said entity and/or a change in the identity of the persons responsible for the
general credit obligations of said entity shall constitute an assignment for all
purposes of this Lease.
E. LIABILITY. No assignment or subletting by Tenant, permitted or otherwise,
shall relieve Tenant of any obligation under this Lease or alter the primary
liability of the Tenant named herein for the payment of Rent or for the
performance of any other obligations to be performed by Tenant, including
obligations contained in Paragraph 25 with respect to any assignee or subtenant.
Landlord may collect rent or other amounts or any portion thereof from any
assignee, subtenant, or other occupant of the Premises, permitted or otherwise,
and apply the net rent collected to the Rent payable hereunder, but no such
collection shall be deemed to be a waiver of this Paragraph 21, or the
acceptance of the assignee, subtenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of the obligations of Tenant under
this Lease. Any assignment or subletting which conflicts with the provisions
hereof shall be void.
22. AUTHORITY
Landlord represents and warrants that it has full right and authority to
enter into this Lease and to perform all of Landlord's obligations hereunder and
that all persons signing this Lease on its behalf are authorized to do. Tenant
and the person or persons, if any, signing on behalf of Tenant, jointly and
severally represent and warrant that Tenant has full right and authority to
enter into this Lease, and to perform all of Tenant's obligations hereunder, and
that all persons signing this Lease on its behalf are authorized to do so.
23. CONDEMNATION
A. CONDEMNATION RESULTING IN TERMINATION. If the whole or any substantial part
of the Premises should be taken or condemned for any public use under any
Regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the taking would prevent or materially interfere with the Permitted
Use of the Premises, either party shall have the right to terminate this Lease
at its option. If any material portion of the Building or Project is taken or
condemned for any public use under any Regulation, or by right of eminent
domain, or by private purchase in lieu thereof, Landlord may terminate this
Lease at its option. In either of such events, the Rent shall be abated during
the unexpired portion of this Lease, effective when the physical taking of said
Premises shall have occurred.
B. CONDEMNATION NOT RESULTING IN TERMINATION. If a portion of the Project of
which the Premises are a part should be taken or condemned for any public use
under any Regulation, or by right of eminent domain, or by private purchase in
lieu thereof, and the taking prevents or materially interferes with the
Permitted Use of the Premises, and this Lease is not terminated as provided in
Paragraph 23.A. above, the Rent payable hereunder during the unexpired portion
of this Lease shall be reduced, beginning on the date when the physical taking
shall have occurred, to such amount as may be fair and reasonable under all of
the circumstances, but only after giving Landlord credit for all sums received
or to be received by Tenant by the condemning authority. Notwithstanding
anything to the contrary contained in this Paragraph, if the temporary use or
occupancy of any part of the Premises shall be taken or appropriated under power
of eminent domain during the Term, this Lease shall be and remain unaffected by
such taking or appropriation and Tenant shall continue to pay in full
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all Rent payable hereunder by Tenant during the Term; in the event of any such
temporary appropriation or taking, Tenant shall be entitled to receive that
portion of any award which represents compensation for the use of or occupancy
of the Premises during the Term, and Landlord shall be entitled to receive that
portion of any award which represents the cost of restoration of the Premises
and the use and occupancy of the Premises.
C. AWARD. Landlord shall be entitled to (and Tenant shall assign to Landlord)
any and all payment, income, rent, award or any interest therein whatsoever
which may be paid or made in connection with such taking or conveyance and
Tenant shall have no claim against Landlord or otherwise for any sums paid by
virtue of such proceedings, whether or not attributable to the value of any
unexpired portion of this Lease, except as expressly provided in this Lease.
Notwithstanding the foregoing, any compensation specifically and separately
awarded Tenant for Tenant's personal property and moving costs, shall be and
remain the property of Tenant.
D. WAIVER OF CCP SECTION 1265.130. Each party waives the provisions of
California Civil Code Procedure Section 1265.130 allowing either party to
petition the superior court to terminate this Lease as a result of a partial
taking.
24. CASUALTY DAMAGE
A. GENERAL. If the Premises or Building should be damaged or destroyed by fire,
tornado, or other casualty (collectively, "CASUALTY"), Tenant shall give
immediate written notice thereof to Landlord. Within thirty (30) days after
Landlord's receipt of such notice, Landlord shall notify Tenant whether in
Landlord's estimation material restoration of the Premises can reasonably be
made within NINETY (90)days from the date of such notice and receipt of required
permits for such restoration. Landlord's determination shall be binding on
Tenant.
B. WITHIN 90 DAYS. If the Premises or Building should be damaged by Casualty to
such extent that material restoration can in Landlord's estimation be reasonably
completed within NINETY (90) days after the date of such notice and receipt of
required permits for such restoration, this Lease shall not terminate. Provided
that insurance proceeds are received by Landlord to fully repair the damage,
Landlord shall proceed to rebuild and repair the Premises in the manner
determined by Landlord, except that Landlord shall not be required to rebuild,
repair or replace any part of the Alterations which may have been placed on or
about the Premises by Tenant. If the Premises are untenantable in whole or in
part following such damage, the Rent payable hereunder during the period in
which they are untenantable shall be abated proportionately.
C. GREATER THAN 90 DAYS. If the Premises or Building should be damaged by
Casualty to such extent that rebuilding or repairs cannot in Landlord's
estimation be reasonably completed within NINETY (90) days after the date of
such notice and receipt of required permits for such rebuilding or repair, then
Landlord OR TENANT shall have the option of either: (1) terminating this Lease
effective upon the date of the occurrence of such damage, in which event the
Rent shall be abated during the unexpired portion of this Lease; or (2) electing
to rebuild or repair the Premises diligently and in the manner determined by
Landlord. Landlord shall notify Tenant of its election within thirty (30) days
after Landlord's receipt of notice of the damage or destruction. Notwithstanding
the above, Landlord shall not be required to rebuild, repair or replace any part
of any Alterations which may have been placed, on or about the Premises by
Tenant. If the Premises are untenantable in whole or in part following such
damage, the Rent payable hereunder during the period in which they are
untenantable shall be abated proportionately.
D. TENANT'S FAULT. Notwithstanding anything herein to the contrary, if the
Premises or any other portion of the Building are damaged by Casualty resulting
from the fault, negligence, or breach of this Lease by Tenant or any of Tenant's
Parties, Base Rent and Additional Rent shall not be diminished during the repair
of such damage and Tenant shall be liable to Landlord for the cost and expense
of the repair and restoration of the Building caused thereby to the extent such
cost and expense is not covered by insurance proceeds.
E. INSURANCE PROCEEDS. Notwithstanding anything herein to the contrary, if the
Premises or Building are damaged or destroyed and are not fully covered by the
insurance proceeds received by Landlord or if the holder of any indebtedness
secured by a mortgage or deed of trust covering the Premises requires that the
insurance proceeds be applied to such indebtedness, then in either case Landlord
shall have the right to terminate this Lease by delivering written notice of
termination to Tenant within thirty (30) days after the date of notice to
Landlord that said damage or destruction is not fully covered by insurance or
such requirement is made by any such holder, as the case may be, whereupon this
Lease shall terminate.
F. WAIVER. This Paragraph 24 shall be Tenant's sole and exclusive remedy in the
event of damage or destruction to the Premises or the Building. As a material
inducement to Landlord entering into this Lease, Tenant hereby waives any rights
it may have under Sections 1932, 1933(4), 1941 or 1942 of the Civil Code of
California with respect to any destruction of the Premises, Landlord's
obligation for tenantability of the Premises and Tenant's right to make repairs
and deduct the expenses of such repairs, or under any similar law, statute or
ordinance now or hereafter in effect.
G. TENANT'S PERSONAL PROPERTY. In the event of any damage or destruction of the
Premises or the Building, under no circumstances shall Landlord be required to
repair any injury or damage to, or make any repairs to or replacements of,
Tenant's personal property.
25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over,
Tenant shall be unlawfully and illegally in possession of the Premises, whether
or not Landlord accepts any rent from Tenant or any other person while Tenant
remains in possession of the Premises without Landlord's written consent. If
Tenant shall retain possession of the Premises or any portion thereof without
Landlord's consent following the expiration of this Lease or sooner termination
for any reason, then Tenant shall pay to Landlord for each day of such retention
ONE HUNDRED FIFTY PERCENT (150%) FOR THE FIRST NINETY (90) DAYS AFTER THE
TERMINATION DATE, TWO HUNDRED PERCENT (200%) FOR DAYS NINETY-ONE (91) THROUGH
ONE HUNDRED EIGHTY (180) AFTER THE TERMINATION DATE AND THEN triple the amount
of daily rental THEREAFTER as of the last month prior to the date of expiration
or earlier termination. Tenant shall also indemnify, defend, protect and hold
Landlord harmless from any loss, liability or cost, including consequential and
incidental damages and reasonable attorneys' fees, incurred by Landlord
resulting from delay by Tenant in surrendering the Premises, including, without
limitation, any claims made by the succeeding tenant founded on such delay.
Acceptance of Rent by Landlord following expiration or earlier termination of
this Lease, or following demand by Landlord for possession of the Premises,
shall not constitute a renewal of this Lease, and nothing contained in this
Paragraph 25 shall waive Landlord's right of reentry or any other right.
Additionally, if upon expiration or earlier termination of this Lease, or
following demand by Landlord for possession of the Premises, Tenant has not
fulfilled its obligation with respect to repairs and cleanup of the Premises or
any other Tenant obligations as set forth in this Lease, then Landlord shall
have the right to perform any such obligations as it deems necessary at Tenant's
sole cost and expense, and any time required by Landlord to complete such
obligations shall be considered a period of holding over and the terms of this
Paragraph 25 shall apply. The provisions of this Paragraph 25 shall survive any
expiration or earlier termination of this Lease.
26. DEFAULT
A. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute
an event of default on the part of Tenant:
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(1) ABANDONMENT. Abandonment or vacation of the Premises for a
continuous period in excess of THIRTY (30) DAYS COUPLED WITH NON-PAYMENT
OF RENT OR OTHER CHARGES. Tenant waives any right to notice Tenant may
have under Section 1951.3 of the Civil Code of the State of California,
the terms of this Paragraph 26.A. being deemed such notice to Tenant as
required by said Section 1951.3.
(2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any
other amount due and payable hereunder upon the date when said payment
is due, as to which time is of the essence.
(3) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or
covenant under this Lease other than those matters specified in
subparagraphs (I) and (2) of this Paragraph 26.A., such failure
continuing for fifteen (15) days after written notice of such failure,
as to which time is of the essence.
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit
of creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's creditors,
which involuntary petition remains undischarged for a period of thirty
(30) days. If under applicable law, the trustee in bankruptcy or Tenant
has the right to affirm this Lease and continue to perform the
obligations of Tenant hereunder, such trustee or Tenant shall, in such
time period as may be permitted by the bankruptcy court having
jurisdiction, cure all defaults of Tenant hereunder outstanding as of
the date of the affirmance of this Lease and provide to Landlord such
adequate assurances as may be necessary to ensure Landlord of the
continued performance of Tenant's obligations under this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take possession of
substantially all of Tenant's assets or Tenant's leasehold of the
Premises, if such appointment remains undismissed or undischarged for a
period of fifteen (15) days after the order therefor.
(7) ATTACHMENT. The attachment, execution or other judicial seizure of
all or substantially all of Tenant's assets or Tenant's leasehold of the
Premises, if such attachment or other seizure remains undismissed or
undischarged for a period of fifteen (15) days after the levy thereof.
(8) INSOLVENCY. The admission by Tenant in writing of its inability to
pay its debts as they become due.
B. REMEDIES UPON DEFAULT.
(1) TERMINATION. In the event of the occurrence of any event of default,
Landlord shall have the right to give a written termination notice to
Tenant, and on the date specified in such notice, Tenant's right to
possession shall terminate, and this Lease shall terminate unless on or
before such date all Rent in arrears and all costs and expenses incurred
by or on behalf of Landlord hereunder shall have been paid by Tenant and
all other events of default of this Lease by Tenant at the time existing
shall have been fully remedied to the satisfaction of Landlord. At any
time after such termination, Landlord may recover possession of the
Premises or any part thereof and expel and remove therefrom Tenant and
any other person occupying the same, including any subtenant or
subtenants notwithstanding Landlord's consent to any sublease, by any
lawful means, and again repossess and enjoy the Premises without
prejudice to any of the remedies that Landlord may have under this
Lease, or at law or equity by any reason of Tenant's default or of such
termination. Landlord hereby reserves the right, but shall not have the
obligation, to recognize the continued possession of any subtenant. The
delivery or surrender to Landlord by or on behalf of Tenant of keys,
entry codes, or other means to bypass security at the Premises shall not
terminate this Lease.
(2) CONTINUATION AFTER DEFAULT. Even though an event of default may have
occurred, this Lease shall continue in effect for so long as Landlord
does not terminate Tenant's right to possession under Paragraph 26.B.(1)
hereof, and Landlord may enforce all of Landlord's rights and remedies
under this Lease and at law or in equity, including without limitation,
the right to recover Rent as it becomes due, and Landlord, without
terminating this Lease, may exercise all of the rights and remedies of a
landlord under Section 1951.4 of the Civil Code of the State of
California or any successor code section. Acts of maintenance,
preservation or efforts to lease the Premises or the appointment of a
receiver under application of Landlord to protect Landlord's interest
under this Lease or other entry by Landlord upon the Premises shall not
constitute an election to terminate Tenant's right to possession.
(3)
C. DAMAGES AFTER DEFAULT. Should Landlord terminate this Lease pursuant to the
provisions of Paragraph 26.B.(1) hereof, Landlord shall have the rights and
remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State
of California, or any successor code sections. Upon such termination, in
addition to any other rights and remedies to which Landlord may be entitled
under applicable law or at equity, Landlord shall be entitled to recover from
Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts
which had been earned at the time of termination, (2) the worth at the time of
award of the amount by which the unpaid Rent and other amounts that would have
been earned after the date of termination until the time of award exceeds the
amount of such Rent loss that Tenant proves could have been reasonably avoided;
(3) the worth at the time of award of the amount by which the unpaid Rent and
other amounts for the balance of the Term after the time of award exceeds the
amount of such Rent loss that the Tenant proves could be reasonably avoided; and
(4) any other amount and court costs necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which, in the ordinary course of things, would be likely to
result therefrom. The "worth at the time of award" as used in (1) and (2) above
shall be computed at the Applicable Interest Rate (defined below). The "worth at
the time of award" as used in (3) above shall be computed by discounting such
amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent (1%). If this Lease provides for any
periods during the Term during which Tenant is not required to pay Base Rent or
if Tenant otherwise receives a Rent concession, then upon the occurrence of an
event of default, Tenant shall owe to Landlord the full amount of such Base Rent
or value of such Rent concession, plus interest at the Applicable Interest Rate,
calculated from the date that such Base Rent or Rent concession would have been
payable.
D. LATE CHARGE. In addition to its other remedies, Landlord shall have the right
without notice or demand to add to the amount of any payment required to be made
by Tenant hereunder, and which is not paid and received by Landlord on or before
the FIFTH (5TH) day of each calendar month, an amount equal to SIX percent (6%)
of the delinquency for each month or portion thereof that the delinquency
remains outstanding to compensate Landlord for the loss of the use of the amount
not paid and the administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such delinquencies would be
extremely difficult and impracticable to compute and the amount stated herein
represents a reasonable estimate thereof. Any waiver by Landlord of any late
charges or failure to claim the same shall not constitute a waiver of other late
charges or any other remedies available to Landlord.
E. INTEREST. Interest shall accrue on all sums not paid when due hereunder at
the lesser of eighteen percent (18%) per annum or the maximum interest rate
allowed by law ("APPLICABLE INTEREST RATE") from the due date until paid.
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F. REMEDIES CUMULATIVE. All rights, privileges and elections or remedies of the
parties are cumulative and not alternative, to the extent permitted by law and
except as otherwise provided herein.
27. LIENS
Tenant shall at all times keep the Premises and the Project free from liens
arising out of or related to work or services performed, materials or supplies
furnished or obligations incurred by or on behalf of Tenant or in connection
with work made, suffered or done by or on behalf of Tenant in or on the Premises
or Project. If Tenant shall not, within ten (10) days following the imposition
of any such lien, cause the same to be released of record by payment or posting
of a proper bond, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but not the obligation, to cause the same
to be released by such means as Landlord shall deem proper, including payment of
the claim giving rise to such lien. All sums paid by Landlord on behalf of
Tenant and all expenses incurred by Landlord in connection therefor shall be
payable to Landlord by Tenant on demand with interest at the Applicable interest
Rate as Additional Rent. Landlord shall have the right at all times to post and
keep posted on the Premises any notices permitted or required by law, or which
Landlord shall deem proper, for the protection of Landlord, the Premises, the
Project and any other party having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give Landlord not less than ten (10)
business days prior written notice of the commencement of any work in the
Premises or Project which could lawfully give rise to a claim for mechanics' or
materialmen's liens to permit Landlord to post and record a timely notice of
non-responsibility, as Landlord may elect to proceed or as the law may from time
to time provide, for which purpose, if Landlord shall so determine, Landlord may
enter the Premises. Tenant shall not remove any such notice posted by Landlord
without Landlord's consent, and in any event not before completion of the work
which could lawfully give rise to a claim for mechanics' or materialmen's liens.
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a
foreclosure by any creditor of Landlord, the same shall operate to release
Landlord from any liability upon any of the covenants or conditions, express or
implied, herein contained in favor of Tenant, to the extent required to be
performed after the passing of title to Landlord's successor-in-interest. In
such event, Tenant agrees to look solely to the responsibility of the
successor-in-interest of Landlord under this Lease with respect to the
performance of the covenants and duties of "Landlord" to be performed after the
passing of title to Landlord's successor-in-interest. This Lease shall not be
affected by any such sale and Tenant agrees to attorn to the purchaser or
assignee. Landlord's successor(s)-in-interest shall not have liability to Tenant
with respect to the failure to perform any of the obligations of "Landlord," to
the extent required to be performed prior to the date such
successor(s)-in-interest became the owner of the Building.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of the terms
of this Lease shall bc performed by Tenant at Tenant's sole cost and expense and
without any abatement of Rent. If Tenant shall fail to pay any sum of money,
other than Base Rent, required to be paid by Tenant hereunder or shall fail to
perform any other act on Tenant's part to be performed hereunder, including
Tenant's obligations under Paragraph l l hereof, and such failure shall continue
for fifteen (15) days after notice thereof by Landlord, in addition to the other
rights and remedies of Landlord, Landlord may make any such payment and perform
any such act on Tenant's part. In the case of an emergency, no prior
notification by Landlord shall be required. Landlord may take such actions
without any obligation and without releasing Tenant from any of Tenant's
obligations. All sums so paid by Landlord and all incidental costs incurred by
Landlord and interest thereon at the Applicable Interest Rate, from the date of
payment by Landlord, shall be paid to Landlord on demand as Additional Rent.
31. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant or
condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition contained herein, or constitute a course of dealing contrary to the
expressed terms of this Lease. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease, regardless of Landlord's knowledge of such preceding
breach at the time Landlord accepted such Rent. Failure by Landlord to enforce
any of the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or decrease the right of Landlord to insist
thereafter upon strict performance by Tenant. Waiver by Landlord of any term,
covenant or condition contained in this Lease may only be made by a written
document signed by Landlord, based upon full knowledge of the circumstances.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to sending,
mailing, or delivery of any notice or the making of any payment by Landlord or
Tenant to the other shall be deemed to be complied with when and if the
following steps are taken:
A. RENT. All Rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at Landlord's Remittance Address set
forth in the Basic Lease Information, or at such other address as Landlord may
specify from time to time by written notice delivered in accordance herewith.
Tenant's obligation to pay Rent and any other amounts to Landlord under the
terms of this Lease shall not be deemed satisfied until such Rent and other
amounts have been actually received by Landlord.
B. OTHER. All notices, demands, consents and approvals which may or are
required to be given by either party to the other hereunder shall be in writing
and either personally delivered, sent by commercial overnight courier, mailed,
certified or registered, postage prepaid or sent by facsimile with confirmed
receipt (and with an original sent by commercial overnight courier), and in each
case addressed to the party to be notified at the Notice Address for such party
as specified in the Basic Lease Information or to such other place as the party
to be notified may from time to time designate by at least fifteen (15) days
notice to the notifying party. Notices shall be deemed served upon receipt or
refusal to accept delivery. Tenant appoints as its agent to receive the service
of all default notices and
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notice of commencement of unlawful detainer proceedings the person in charge of
or apparently in charge of occupying the Premises at the time, and, if there is
no such person, then such service may be made by attaching the same on the main
entrance of the Premises.
C. REQUIRED NOTICES. Tenant shall immediately notify Landlord in writing of any
notice of a violation or a potential or alleged violation of any Regulation that
relates to the Premises or the Project, or of any inquiry, investigation,
enforcement or other action that is instituted or threatened by any governmental
or regulatory agency against Tenant or any other occupant of the Premises, or
any claim that is instituted or threatened by any third party that relates to
the Premises or the Project.
33. ATTORNEYS' FEES
If Landlord places the enforcement of this Lease, or any part thereof, or the
collection of any Rent due, or to become due hereunder, or recovery of
possession of the Premises in the hands of an attorney, Tenant shall pay to
Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs,
whether incurred without trial, at trial, appeal or review. In any action which
Landlord or Tenant brings to enforce its respective rights hereunder, the
unsuccessful party shall pay all costs incurred by the prevailing party
including reasonable attorneys' fees, to be fixed by the court, and said costs
and attorneys' fees shall be a part of the judgment in said action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord, its
successors and assigns, and shall be binding upon and inure to the benefit of
Tenant, its successors, and to the extent assignment is approved by Landlord as
provided hereunder, Tenant's assigns.
35. FORCE MAJEURE
If performance by a party of any portion of this Lease is made impossible by
any prevention, delay, or stoppage caused by strikes, lockouts, labor disputes,
acts of God, inability to obtain services, labor, or materials or reasonable
substitutes for those items, government actions, civil commotions, fire or other
casualty, or other causes beyond the reasonable control of the party obligated
to perform, performance by that party for a period equal to the period of that
prevention, delay, or stoppage is excused. Tenant's obligation to pay Rent,
however, is not excused by this Paragraph 35.
36. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease, surrender
the Premises to Landlord in the same condition as existed on the date Tenant
originally took possession thereof, including, but not limited to, all interior
walls cleaned, all interior painted surfaces repainted in the original color,
all holes in walls repaired, all carpets shampooed and cleaned, and all floors
cleaned, waxed, and free of any Tenant-introduced marking or painting, all to
the reasonable satisfaction of Landlord. Tenant shall remove all of its debris
from the Project. At or before the time of surrender, Tenant shall comply with
the terms of Paragraph 12.A. hereof with respect to Alterations to the Premises
and all other matters addressed in such Paragraph. If the Premises are not so
surrendered at the expiration or sooner termination of this Lease, the
provisions of Paragraph 25 hereof shall apply. All keys to the Premises or any
part thereof shall be surrendered to Landlord upon expiration or sooner
termination of the Term. Tenant shall give written notice to Landlord at least
thirty (30) days prior to vacating the Premises and shall meet with Landlord for
a joint inspection of the Premises at the time of vacating, but nothing
contained herein shall be construed as an extension of the Term or as a consent
by Landlord to any holding over by Tenant. In the event of Tenant's failure to
give such notice or participate in such joint inspection, Landlord's inspection
at or after Tenant's vacating the Premises shall conclusively be deemed correct
for purposes of determining Tenant's responsibility for repairs and restoration.
Any delay caused by Tenant's failure to carry out its obligations under this
Paragraph 36 beyond the term hereof, shall constitute unlawful and illegal
possession of Premises under Paragraph 25 hereof.
37. PARKING
So long as Tenant is occupying the Premises, Tenant and Tenant's
Parties shall have the right to use up to the number of parking spaces, if any,
specified in the Basic Lease Information on an unreserved, nonexclusive, first
come, first served basis, for passenger-size automobiles, in the parking areas
in the Project designated from time to time by Landlord for use in common by
tenants of the Building.
Tenant may request additional parking spaces from time to time and if
Landlord in its sole discretion agrees to make such additional spaces available
for use by Tenant, such spaces shall be provided on a month-to-month unreserved
and nonexclusive basis (unless otherwise agreed in writing by Landlord), and
subject to such parking charges as Landlord shall determine, and shall otherwise
be subject to such terms and conditions as Landlord may require.
Tenant shall at all times comply and shall cause all Tenant's Parties
and visitors to comply with all Regulations and any rules and regulations
established from time to time by Landlord relating to parking at the Project,
including any keycard, sticker or other identification or entrance system, and
hours of operation, as applicable.
Landlord shall have no liability for any damage to property or other
items located in the parking areas of the Project, nor for any personal injuries
or death arising out of the use of parking areas in the Project by Tenant or any
Tenant's Parties. Without limiting the foregoing, if Landlord arranges for the
parking areas to be operated by an independent contractor not affiliated with
Landlord, Tenant acknowledges that Landlord shall have no liability for claims
arising through acts or omissions of such independent contractor. In all events,
Tenant agrees to look first to its insurance carrier and to require that
Tenant's Parties look first to their respective insurance carriers for payment
of any losses sustained in connection with any use of the parking areas.
Landlord reserves the right to assign specific spaces, and to reserve
spaces for visitors, small cars, disabled persons or for other tenants or
guests, and Tenant shall not park and shall not allow Tenant's Parties to park
in any such assigned or reserved spaces. Tenant may validate visitor parking by
such method as Landlord may approve, at the validation rate from time to time
generally applicable to visitor parking. Landlord also reserves the right to
alter, modify, relocate or close all or any portion of the parking areas in
order to make repairs or perform maintenance service, or to restripe or renovate
the parking areas, or if required by casualty, condemnation, act of God,
Regulations or for any other reason deemed reasonable by Landlord.
Tenant shall pay to Landlord (or Landlord's parking contractor, if so
directed in writing by Landlord), as Additional Rent hereunder, the monthly
charges established from time to time by Landlord for parking in such parking
areas (which shall initially be the charge specified in the Basic Lease
Information, as applicable). Such parking charges shall be payable in advance
with Tenant's payment of Basic Rent. No deductions from the monthly parking
charge shall be made for days on which the Tenant does not use any of the
parking spaces entitled to be used by Tenant.
38. MISCELLANEOUS
A. GENERAL. The term "Tenant" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their respective successors, executors,
administrators and permitted assigns, according to the context hereof.
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B. TIME. Time is of the essence regarding this Lease and all of its provisions.
C. CHOICE OF LAW. This Lease shall in all respects be governed by the laws of
the State of California.
D. ENTIRE AGREEMENT. This Lease, together with its Exhibits, addenda and
attachments and the Basic Lease Information, contains all the agreements of the
parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its Exhibits, addenda and
attachments and the Basic Lease information.
E. MODIFICATION. This Lease may not be modified except by a written instrument
signed by the parties hereto. Tenant accepts the area of the Premises as
specified in the Basic Lease Information as the approximate area of the Premises
for all purposes under this Lease, and acknowledges and agrees that no other
definition of the area (rentable, usable or otherwise) of the Premises shall
apply. Tenant shall in no event be entitled to a recalculation of the square
footage of the Premises, rentable, usable or otherwise, and no recalculation, if
made, irrespective of its purpose, shall reduce Tenant's obligations under this
Lease in any manner, including without limitation the amount of Base Rent
payable by Tenant or Tenant's Proportionate Share of the Building and of the
Project.
F. SEVERABILITY. If, for any reason whatsoever, any of the provisions hereof
shall be unenforceable or ineffective, all of the other provisions shall be and
remain in full force and effect.
G. RECORDATION. Tenant shall not record this Lease or a short form memorandum
hereof.
H. EXAMINATION OF LEASE. Submission of this Lease to Tenant does not constitute
an option or offer to lease and this Lease is not effective otherwise until
execution and delivery by both Landlord and Tenant.
I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount than the
total Rent due nor any endorsement on any check or letter accompanying any check
or payment of Rent shall be deemed an accord and satisfaction of full payment of
Rent, and Landlord may accept such payment without prejudice to Landlord's right
to recover the balance of such Rent or to pursue other remedies. All offers by
or on behalf of Tenant of accord and satisfaction are hereby rejected in
advance.
J. EASEMENTS. Landlord may grant easements on the Project and dedicate for
public use portions of the Project without Tenant's consent; provided that no
such grant or dedication shall materially interfere with Tenant's Permitted Use
of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and
deliver to Landlord documents, instruments, maps and plats necessary to
effectuate Tenant's covenants hereunder.
K. DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge that this
Lease has been agreed to by both the parties, that both Landlord and Tenant have
consulted with attorneys with respect to the terms of this Lease and that no
presumption shall be created against Landlord because Landlord drafted this
Lease. Except as otherwise specifically set forth in this Lease, with respect to
any consent, determination or estimation of Landlord required or allowed in this
Lease or requested of Landlord, Landlord's consent, determination or estimation
shall be given or made solely by Landlord in Landlord's good faith opinion,
whether or not objectively reasonable. If Landlord fails to respond to any
request for its consent within the time period, if any, specified in this Lease,
Landlord shall be deemed to have disapproved such request.
L. EXHIBITS. The Basic Lease Information, and the Exhibits, addenda and
attachments attached hereto are hereby incorporated herein by this reference and
made a part of this Lease as though fully set forth herein.
M. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light, air
or view by any structure which may be erected on lands adjacent to or in the
vicinity of the Building shall in no way affect this Lease or impose any
liability on Landlord.
N. NO THIRD PARTY BENEFIT. This Lease is a contract between Landlord and Tenant
and nothing herein is intended to create any third party benefit.
O. QUIET ENJOYMENT. Upon payment by Tenant of the Rent, and upon the observance
and performance of all of the other covenants, terms and conditions on Tenant's
part to be observed and performed, Tenant shall peaceably and quietly hold and
enjoy the Premises for the term hereby demised without hindrance or interruption
by Landlord or any other person or persons lawfully or equitably claiming by,
through or under Landlord, subject, nevertheless, to all of the other terms and
conditions of this Lease. Landlord shall not be liable for any hindrance,
interruption, interference or disturbance by other tenants or third persons, nor
shall Tenant be released from any obligations under this Lease because of such
hindrance, interruption, interference or disturbance.
P. COUNTERPARTS. This Lease may be executed in any number of counterparts, each
of which shall be deemed an original.
Q. MULTIPLE PARTIES. If more than one person or entity is named herein as
Tenant, such multiple parties shall have joint and several responsibility to
comply with the terms of this Lease.
R. PRORATIONS. Any Rent or other amounts payable to Landlord by Tenant
hereunder for any fractional month shall be prorated based on a month of 30
days. As used herein, the term "fiscal year" shall mean the calendar year or
such other fiscal year as Landlord may
39. ADDITIONAL PROVISIONS
MONUMENT SIGNAGE.
A. DURING THE INITIAL LEASE TERM, TENANT SHALL HAVE THE RIGHT TO INSTALL
"PHARMAPRINT" ON THE MONUMENT SIGN LOCATED ON THE MICHELSON FRONTAGE
AS NOTED ON THE SITE PLAN IN EXHIBIT B WITH LANDLORD'S PRIOR WRITTEN
APPROVAL OF DESIGN AND SUBJECT TO APPROVAL OF THE CITY OF IRVINE.
TENANT SHALL BEAR THE COST OF CONSTRUCTION, INSTALLATION,
ELECTRICITY, MAINTENANCE, REMOVAL AND REPAIRS NEEDED UPON EXPIRATION.
THIS OPTION SHALL BE PERSONAL TO PHARMAPRINT AND/OR ITS ASSIGNS AND
SHALL NOT BE TRANSFERABLE AT ANY TIME.
B. LANDLORD RESERVES THE RIGHT TO TERMINATE THIS OPTION WITH THIRTY (30)
DAYS PRIOR NOTICE TO TENANT IN THE EVENT THAT LANDLORD HAS AGREED TO
A FULL FLOOR TENANT UTILIZING THE MONUMENT SIGN. SHOULD THIS OCCUR,
UPON WRITTEN NOTIFICATION FROM LANDLORD, TENANT'S MONUMENT SIGNAGE
OPTION SHALL TERMINATE IMMEDIATELY. SHOULD LANDLORD SECURE A TENANT
WHO AGREES TO SECURE A TENANT WHO AGREES TO PAY A MINIMUM OF $500.00
PER MONTH FOR THE RIGHT TO UTILIZE THE MONUMENT SIGN, LANDLORD SHALL
GIVE TENANT NOTIFICATION IN WRITING AND TENANT SHALL HAVE TEN (10)
DAYS TO NOTIFY LANDLORD IN WRITING OF TENANT'S DESIRE TO MATCH THE
OFFER. IN THE EVENT TENANT FAILS TO GIVE LANDLORD NOTICE OF TENANT'S
ELECTION TO MATCH THE OFFER AND CONTINUE TO UTILIZE THE MONUMENT SIGN
WITHIN THE TEN (10) DAYS, TENANT SHALL HAVE NO FURTHER RIGHT, TITLE
OR INTEREST IN SUCH SIGNAGE AND THIS MONUMENT SIGNAGE OPTION SHALL
TERMINATE. IF, ON THE OTHER HAND, TENANT WISHES TO MATCH THE OFFER ON
THE TABLE, TENANT SHALL IMMEDIATELY
17
<PAGE>
DELIVER TO LANDLORD PAYMENT FOR THE FIRST MONTH'S MONUMENT SIGNAGE RENTAL
AND THIS MONUMENT SIGNAGE OPTION shall REMAIN IN EFFECT UNTIL SUCH TIME
AS THE ABOVE REFERENCE TERMS AND CONDITIONS SHOULD AGAIN OCCUR.
40. JURY TRIAL WAIVER
EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIROR PERSONAL
REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES TRIAL BY
JURY, AND HEREBY FURTHER WAIVES ANY OBJECTION TO VENUE IN THE COUNTY IN WHICH
THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL JURISDICTION OF THE
COURTS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN ANY ACTION OR
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER ON ANY
MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE
RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES,
OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY
STATUTE, EMERGENCY OR OTHERWISE, WHETHER ANY OF THE FOREGOING IS BASED ON THIS
LEASE OR ON TORT LAW, EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO
CONSULT WITH LEGAL COUNSEL. CONCERNING THE EFFECT OF THIS PARAGRAPH 40. THE
PROVISIONS OF THIS PARAGRAPH 40 SHALL SURVIVE THE EXPIRATION OR EARLIER
TERMINATION OF THIS LEASE.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and the year first above written.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, inc.,
a Maryland corporation,
its general partner
By:/s/ James R. Wood, Jr.
--------------------------
James R. Wood, Jr.
Its: Vice President
Date: 11/13/98
TENANT
PharmaPrint, Inc.,
a Delaware corporation
By: /s/ Phillip G. Trad
-------------------------
Name: Phillip G. Trad
Its: Senior Vice President
Date:/s/ 11-3-98
By:
-------------------------
Name:
Its:
Date:
18
<PAGE>
Exhibit 10.2
SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
by and between
SILICON VALLEY BANK
as Lender
and
PHARMAPRINT INC.
as Borrower
Dated: December 18, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS AND CONSTRUCTION............................................. 1
1.1 DEFINITIONS......................................................... 1
1.2 ACCOUNTING AND OTHER TERMS.......................................... 8
2. LOAN AND TERMS OF PAYMENT................................................ 8
2.1 CREDIT EXTENSIONS................................................... 8
2.2 OVERADVANCES........................................................10
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS..........................10
2.4 CREDITING PAYMENTS..................................................11
2.5 FEES................................................................11
2.6 ADDITIONAL COSTS....................................................11
2.7 TERM................................................................12
3. CONDITIONS OF LOANS......................................................12
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION....................12
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.......................13
4. CREATION OF SECURITY INTEREST............................................13
4.1 GRANT OF SECURITY INTEREST..........................................13
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED.......................13
4.3 RIGHT TO INSPECT....................................................13
5. REPRESENTATIONS AND WARRANTIES ..........................................13
5.1 DUE ORGANIZATION AND QUALIFICATION..................................13
5.2 DUE AUTHORIZATION; NO CONFLICT......................................13
5.3 NO PRIOR ENCUMBRANCES...............................................14
5.4 BONA FIDE ELIGIBLE ACCOUNTS.........................................14
5.5 MERCHANTABLE INVENTORY..............................................14
5.6 INTELLECTUAL PROPERTY...............................................14
5.7 NAME: LOCATION OF CHIEF EXECUTIVE OFFICE............................14
5.8 LITIGATION..........................................................14
5.9 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS..................14
5.10 SOLVENCY............................................................14
5.11 REGULATORY COMPLIANCE...............................................14
5.12 ENVIRONMENTAL CONDITION.............................................15
5.13 TAXES...............................................................15
5.14 SUBSIDIARIES........................................................15
5.15 GOVERNMENT CONSENTS.................................................15
5.16 FULL DISCLOSURE.....................................................15
6. AFFIRMATIVE COVENANTS.....................................................15
6.1 GOOD STANDING.......................................................15
6.2 GOVERNMENT COMPLIANCE...............................................15
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.........................16
6.4 INVENTORY: RETURNS..................................................16
6.5 TAXES...............................................................16
6.6 INSURANCE...........................................................17
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<PAGE>
TABLE OF CONTENTS (contd)
PAGE
6.7 PRINCIPAL DEPOSITORY................................................17
6.8 QUICK RATIO.........................................................17
6.9 DEBT-NET WORTH RATIO................................................17
6.12 PROFITABILITY.......................................................17
6.10 MINIMUM CASH; DEBT SERVICE RATIO....................................17
6.11 FURTHER ASSURANCES..................................................17
7. NEGATIVE COVENANTS........................................................18
7.1 DISPOSITIONS........................................................18
7.2 CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT BUSINESS LOCATIONS....18
7.3 MERGERS OR ACQUISITIONS.............................................18
7.4 INDEBTEDNESS........................................................18
7.5 ENCUMBRANCES........................................................18
7.6 DISTRIBUTIONS.......................................................18
7.7 INVESTMENTS; LOANS; GUARANTEES......................................19
7.8 TRANSACTIONS WITH AFFILIATES........................................19
7.9 RESERVED............................................................19
7.10 SUBORDINATED DEBT...................................................19
7.11 INVENTORY...........................................................19
7.12 COMPLIANCE..........................................................19
8. EVENTS OF DEFAULT.........................................................19
8.1 PAYMENT DEFAULT.....................................................19
8.2 COVENANT DEFAULT....................................................19
8.3 MATERIAL ADVERSE CHANGE.............................................20
8.4 ATTACHMENT..........................................................20
8.5 INSOLVENCY..........................................................20
8.6 OTHER AGREEMENTS....................................................20
8.7 SUBORDINATED DEBT...................................................20
8.8 JUDGMENTS...........................................................20
8.9 MISREPRESENTATIONS..................................................20
8.10 GUARANTY............................................................20
9. BANK'S RIGHTS AND REMEDIES...............................................21
9.1 RIGHTS AND REMEDIES.................................................21
9.2 POWER OF ATTORNEY...................................................22
9.3 ACCOUNTS COLLECTION.................................................22
9.4 BANK EXPENSES.......................................................22
9.5 BANK'S LIABILITY FOR COLLATERAL.....................................23
9.6 REMEDIES CUMULATIVE.................................................23
9.7 DEMAND; PROTEST.....................................................23
10. NOTICES...................................................................23
11. CHOICE OF LAW AND VENUE; JURY WAIVER......................................23
12. GENERAL PROVISIONS........................................................24
12.1 SUCCESSORS AND ASSIGNS..............................................24
12.2 INDEMNIFICATION.....................................................24
12.3 TIME OF ESSENCE.....................................................24
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<PAGE>
TABLE OF CONTENTS (contd)
PAGE
12.4 SEVERABILITY OF PROVISIONS..........................................24
12.5 AMENDMENTS IN WRITING, INTEGRATION..................................24
12.6 COUNTERPARTS........................................................24
12.7 SURVIVAL............................................................24
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<PAGE>
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of December 18, 1998 by and
between SILICON VALLEY BANK ("Bank") and PHARMAPRINT INC., a Delaware
corporation ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank desires
to extend credit to Borrower. This Agreement sets forth the terms on which Bank
will advance credit to Borrower, and Borrower will repay the amounts owing to
Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Accounts" means all presently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods (including, without limitation, the licensing
of software and other technology) or the rendering of services by Borrower,
whether or not earned by performance, and any and all credit insurance,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower and Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
"AAHP" means American Home Products Corporation and its subsidiaries.
"AAHP Orders" means those orders made by AHP for products from the
Borrower, and which orders are final and binding on AHP.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, (including fees and expenses of
appeal or review, or those incurred in any Insolvency Proceeding) whether or not
suit is brought.
"Borrower's Books" means all of Borrower's books and records including,
without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
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"Borrowing Base" means an amount equal to (A) 75% of Eligible Accounts,
as determined by Bank with reference to the most recent Borrowing Base
Certificate delivered by Borrower PLUS (B) 25% of the amount of the outstanding
AHP Orders, which are determined to be acceptable to the Bank in its discretion
exercised in the Bank's good faith business judgment, provided that in no event
shall the amount under this clause (B) as of any date exceed 25% of the
aggregate amount of AHP Orders as referred to in the forecast relating thereto
as provided to the Bank with respect to the then next three month period as of
such date, PROVIDED that in no event shall the aggregate amount of such AHP
Orders exceed the amount that represents the required amount of required
purchases of products by AHP under the contract between AHP and Borrower, as
such contract is amended or modified from time to time, PROVIDED, FURTHER, that
each of above advance percentages shall be subject to adjustment, in the
discretion of the Bank exercised in the Bank's good faith business judgment,
based on the results of an audit of the Collateral to be conducted on and after
the date hereof. It is understood that the components of (A) and (B) of the
Borrowing Base are not duplicative and thus an Account arising from an AHP Order
shall constitute an Eligible Account if it otherwise complies the requirements
set forth herein for Eligible Accounts and the related AHP Order or portion
thereof no longer comprises an outstanding AHP Order for purposes of clause (B)
hereof.
"Business Day" means any day that is not a Saturday, Sunday, or other day
on which banks in the State of California are authorized or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on EXHIBIT A attached hereto.
"Committed Revolving Line" means a Credit Extension of up to $4,000,000.
"Committed Term Line" means a Credit Extension of up to $500,000.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Credit Extension" means each Advance, Letter of Credit, Term Loan, and
each other extension of credit by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and Subsidiaries as of such date.
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<PAGE>
"Current Liabilities" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and Subsidiaries, as at such date, plus,
to the extent not already included therein, all outstanding Credit Extensions
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Debt Service Ratio" means, on a consolidated basis, the ratio of (a) net
income of Borrower before interest, taxes, depreciation and other non-cash
amortization expenses and other non-cash expenses of Borrower, relating to the
immediately preceding four fiscal quarters, determined in accordance with GAAP,
consistently applied, to (b) the amount of Borrower's obligations to pay
interest on an annualized basis and current maturities of principal on
Borrower's outstanding long term indebtedness, determined in accordance with
GAAP, consistently applied.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrower's representations
and warranties to Bank set forth in Section 5.4; PROVIDED, that standards of
eligibility may be fixed and revised from time to time by Bank in Bank's
reasonable judgment and upon notification thereof to Borrower in accordance with
the provisions hereof. Unless otherwise agreed to by Bank in writing, Eligible
Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, in which fifty
percent (50%) or more of the outstanding balance of the Accounts owed by
such account debtor have not been paid within ninety (90) days of invoice
date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed twenty-five
percent (25%) of all Accounts, to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by Bank (with
the understanding that the foregoing limitation shall not apply to any
Accounts arising from AHP);
(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States;
(e) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department, agency,
or instrumentality thereof, except for those Accounts of the United
States or any department, agency or instrumentality thereof as to which
the payee has assigned its rights to payment thereof to Bank and the
assignment has been acknowledged, pursuant to the Assignment of Claims
Act of 1940, as amended (31 U.S.C. 3727);
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the
account debtor (sometimes referred to as "contra" accounts, e.g. accounts
payable, customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or
other terms by reason of which the payment by the account debtor may be
conditional;
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<PAGE>
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for dispute
(but only to the extent of the amount subject to such dispute or claim),
or is subject to any Insolvency Proceeding, or becomes insolvent, or goes
out of business;
(j) Accounts the collection of which Bank reasonably determines
to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit
either advised or negotiated through Bank or in favor of Bank as beneficiary, in
an amount and of a tenor, and issued by a financial institution, acceptable to
Bank; or (3) that Bank approves on a case-by-case basis.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in the
United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including, without limitation,
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against any
person or entity under any provision of the United States Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency law, including assignments
for the benefit of creditors, formal or informal moratoria, compositions,
extension generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Intellectual Property" means with respect to the Borrower, (a) any and
all copyright rights, copyright applications, copyright registrations and like
protections in each work or authorship and derivative work thereof, whether
published or unpublished and whether or not the same also constitutes a trade
secret, now or hereafter existing, created, acquired or held; (b) any trademark
and servicemark rights, whether registered or not, applications to register and
registrations of the same and like protections; (c) all patents, patent
applications and like protections including, without limitation, improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same; and (d) all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired.
"Inventory" means all present and future inventory in which Borrower has
any interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials.
-4-
<PAGE>
work in process and finished products intended for sale or lease or to be
furnished under a contract of service, of every kind and description now or at
any time hereafter owned by or in the custody or possession, actual or
constructive, of Borrower, including such inventory as is temporarily out of its
custody or possession or in transit and including any returns upon any accounts
or other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title representing any
of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Letter of Credit" means a letter of credit or similar undertaking issued
by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth in Section 2.1.2(d).
"Lien" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or notes
executed by Borrower pursuant to this Agreement, and any other present or future
agreement entered into between Borrower and/or for the benefit of Bank in
connection with this Agreement, all as amended, extended or restated from time
to time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means the later of (i) the Revolving Maturity Date, or
(ii) if the Term Loan is outstanding, the Term Loan Maturity Date.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement between Borrower and Bank, whether absolute or contingent, due or to
become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding and including any
debt, liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"Payment Date" means the first calendar day of each month commencing on
the first such date after the Closing Date and ending on the Revolving Maturity
Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document:
-5-
<PAGE>
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business;
(e) Indebtedness relating to operating leases of Borrower; and
(f) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State
thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from
the date of creation thereof and currently having the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., and (iii) certificates of deposit maturing no more than
one (1) year from the date of investment therein issued by Bank;
(c) Investments that are otherwise permitted under Section 7.3
hereof; and
(d) Investments by Borrower in Subsidiaries in an aggregate
amount not to exceed $500,000 per fiscal year of the Borrower.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith
by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, PROVIDED the same
have no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any Subsidiary to secure the purchase price or lease
financing of such Equipment or indebtedness incurred solely for the
purpose of financing the acquisition of such Equipment, or (ii) existing
on such equipment at the time of its acquisition, PROVIDED that the Lien
is confined solely to the property so acquired and improvements thereon,
and the proceeds of such equipment;
(d) Liens arising in connection with collaborative relationships
with other entities, PROVIDED the same have no priority over any of
Bank's security interests and PROVIDED, FURTHER, that such Liens arise
only in connection with Borrower's copyright, patent and trade mark
assets and related property;
(d) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described
in clauses (a)
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<PAGE>
through (c) above, PROVIDED that any extension, renewal or replacement Lien
shall be limited to the property encumbered by the existing Lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase.
"Person" means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the following assets of
the Borrower: consolidated cash, cash equivalents, accounts receivable and
investments with maturities of less than one year determined in accordance with
GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Advances" means those Advances made under and pursuant to the
Revolving Committed Line.
"Revolving Maturity Date" means the date which is one day prior to the
first anniversary of the date of this Agreement.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means (i) any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank) and (ii) such other debt of
the Borrower in an aggregate amount not to exceed $50,000 at any time, which is
denominated as subordinated debt and the evidence of which and related
instruments and agreements contain subordination provisions that do not
necessarily comply with the conditions set forth in clause (i) hereof.
"Subsidiary" means with respect to Borrower, any corporation,
partnership, company association, joint venture, or any other business entity of
which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by Borrower or one or
more Affiliates of Borrower.
"Tangible Net Worth" means as of any applicable date, the consolidated
total assets of Borrower and Subsidiaries MINUS, without duplication, (i) the
sum of any amounts attributable to (a) goodwill, (b) intangible items such as
unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses except prepaid expenses,
and (c) all reserves not already deducted from assets, AND (ii) Total
Liabilities.
"Term Loan Maturity Date" means the date which is the first day of the
48th full calendar month ending after the date hereof.
"Term Loan Payment" has the meaning set forth in Section 2.1.3 hereof.
"Total Liabilities" means as of any date as of which the amount thereof
shall be determined, all obligations that should, in accordance with GAAP, be
classified as liabilities on the
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consolidated balance sheet of Borrower, including all Indebtedness, but
specifically excluding Subordinated Debt.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower connected
with and symbolized by such trademarks.
1.2 ACCOUNTING AND OTHER TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all calculations and
determinations made hereunder shall be made in accordance with GAAP. When used
herein, the term "financial statements" shall include the notes and schedules
thereto. The terms "including"/"includes" shall always be read as meaning
"including (or includes) without limitation", when used herein or in any other
Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS. Borrower promises to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of all Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate
outstanding amount not to exceed (i) the Committed Revolving Line or the
Borrowing Base, whichever is less, minus (ii) the face amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters
of Credit). Subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this Section 2.1 may be repaid and
reborrowed at any time during the term of this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will notify
Bank by facsimile transmission or telephone no later than 3:00 p.m.
Pacific time, on the Business Day that the Advance is to be made. Each
such notification shall be promptly confirmed by a Payment/Advance Form
in substantially the form of EXHIBIT B hereto. Bank is authorized to make
Advances under this Agreement, based upon instructions received from a
Responsible Officer or a designee of a Responsible Officer, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be
entitled to rely on any telephonic notice given by a person who Bank
reasonably believes to be a Responsible Officer or a designee thereof,
and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the
amount of Advances made under this Section 2.1 to Borrower's deposit
account maintained with Bank. Further, Borrower shall supply to Bank
copies of all underlying purchase orders relating to AHP Orders when
Borrower requests an Advance relating to AHP Orders.
(c) The Committed Revolving Line shall terminate on the Revolving
Maturity Date, at which time all Advances under this Section 2.1 and
other amounts due under this Agreement (except as otherwise expressly
specified herein) shall be immediately due and payable.
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2.1.2 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, Bank
agrees to issue or cause to be issued Letters of Credit for the account
of Borrower in an aggregate outstanding face amount not to exceed (i) the
lesser of the Committed Revolving Line or the Borrowing Base, whichever
is less, minus (ii) the then outstanding principal balance of the
Advances; PROVIDED that the aggregate face amount of outstanding Letters
of Credit (including drawn but unreimbursed Letters of Credit and the
aggregate amount of any and all Letter of Credit Reserves) shall not in
any case exceed $500,000. Letters of Credit may have a maturity date up
to six months beyond the Maturity Date in effect from time to time,
provided that if on the Maturity Date, or on any earlier effective date
of termination, there are any outstanding Letters of Credit issued by
Bank or issued by another institution based upon an application,
guarantee, indemnity or similar agreement on the part of Bank, then on
such date Borrower shall provide to Bank cash collateral in an amount
equal to the face amount of all such letters of credit plus all interest,
fees and costs due or to become due in connection therewith, to secure
all of the Obligations relating to said Letters of Credit, pursuant to
Bank's then standard form cash pledge agreement. All Letters of Credit
shall be, in form and substance, acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank's
form of standard Application and Letter of Credit Agreement.
(b) The obligation of Borrower to immediately reimburse Bank for
drawings made under Letters of Credit shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the
terms of this Agreement and such Letters of Credit, under all
circumstances whatsoever. Borrower shall indemnify, defend, protect, and
hold Bank harmless from any loss, cost, expense or liability, including,
without limitation, reasonable attorneys' fees, arising out of or in
connection with any Letters of Credit. Further, Borrower shall pay to
Bank such standard and other fees for each Letter of Credit as the Bank
charges therefor, which shall be in addition to interest and all other
amounts payable under this Agreement.
(c) Borrower may request that Bank issue a Letter of Credit
payable in a currency other than United States Dollars. If a demand for
payment is made under any such Letter of Credit, Bank shall treat such
demand as an Advance to Borrower of the equivalent of the amount thereof
(plus cable charges) in United States currency at the then prevailing
rate of exchange in San Francisco, California, for sales of that other
currency for cable transfer to the country of which it is the currency.
(d) Upon the issuance of any Letter of Credit payable in a
currency other than United States Dollars, Bank shall create a reserve
under the Committed Revolving Line for Letters of Credit against
fluctuations in currency exchange rates, in an amount equal to ten
percent (10%) of the face amount of such Letter of Credit (the ALetter of
Credit Reserve"). The amount of such reserve may be amended by Bank from
time to time to account for fluctuations in the exchange rate. The
availability of funds under the Committed Revolving Line shall be reduced
by the amount of such reserve for so long as such Letter of Credit
remains outstanding.
2.1.3 Term Loan.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank shall make term loans (jointly and severally referred to
as the ATerm Loan") available to Borrower through the period ending on
the date that is six months after the date hereof and shall be in an
aggregate amount outstanding at any time not to exceed the Committed Term
Line. Borrower shall deliver to Bank, at the time of each Term Loan
request, an invoice
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for the equipment and other items to be purchased or purchased within
the then immediately preceding 90 days. Each Term Loan shall be used
only to purchase equipment and related items, acceptable to the Bank,
and shall not exceed one-hundred percent (100%) of the invoice amount
of such items approved from time to time by Bank, plus taxes, shipping,
warranty charges, freight discounts and installation expense
(collectively all of the foregoing other than the invoice amount of the
item or items purchased are referred to herein as the "Soft Costs"),
provided that such Soft Costs shall at no time be in excess of twenty
percent (20%) of the aggregate amount of the Term Loan.
(b) The first Term Loan Payment (as defined below) plus interest
thereon shall be due and payable on the date that is the first day of the
month of the seventh full calendar month after the date hereof, and
Borrower shall continue to make a Term Loan Payment plus interest thereon
on the first calendar day of each succeeding calendar month during the
term hereof until the Term Loan Maturity Date, on which date the final
Term Loan Payment and all accrued and unpaid interest on the Term Loan
shall be fully due and payable. The "Term Loan Payment" shall be equal to
1/42nd of the aggregate principal amount of the Term Loan outstanding as
of the date of the required first Term Loan Payment determined prior to
the making of such payment. Prior to the making of the first Term Loan
Payment, Borrower shall pay interest only on the principal balance of the
Term Loan outstanding from time to time.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 or 2.1.2 of this
Agreement is greater than the lesser of (i) the Committed Revolving Line or (ii)
the Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount
of such excess.
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in Section 2.3(b), (I) any
Revolving Advances shall bear interest, on the average daily balance thereof, at
a per annum rate equal to 1.00% percentage points above the Prime Rate and (II)
the Term Loan shall bear interest, on the average daily balance thereof, at a
per annum rate equal to 1.25% percentage points above the Prime Rate.
(b) DEFAULT RATE. Upon the occurrence and during the continuance of an
Event of Default, all Obligations shall bear interest at a rate equal to five
(5) percentage points above the interest rate applicable immediately prior to
the occurrence of such Event of Default, and all Obligations relating to the
Revolving Advances and all Obligations relating to the Term Loan shall bear
interest at a rate equal to five (5) percentage points above the interest rate
applicable immediately prior to the occurrence of such Event of Default
regarding Revolving Advances and the Term Loan, respectively.
(c) PAYMENTS. Interest on the outstanding principal balance of the
Revolving Advances shall be due and payable on each Payment Date. Interest on
the outstanding principal balance of the Term Loan shall be paid as set forth in
Section 2.1.3(b) hereof. Borrower hereby authorizes Bank to debit any accounts
maintained by Borrower with Bank, including, without limitation, Account Number
for payments of principal and interest due on the Obligations and any
other amounts owing by Borrower to Bank. Bank will notify Borrower of all
debits which Bank has made against Borrower's accounts. Any such debits
against Borrower's accounts in no way shall he deemed a set-off. Any interest
not paid when due shall be compounded by becoming a part of the Obligations,
and such interest shall thereafter accrue interest at the rate then
applicable hereunder.
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(d) COMPUTATION. In the event the Prime Rate is changed from time to time
hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an
amount equal to such change in the Prime Rate. All interest chargeable under the
Loan Documents shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of Default, Bank
shall credit a wire transfer of funds, check or other item of payment to such
deposit account or Obligation as Borrower specifies. After the occurrence of an
Event of Default, the receipt by Bank of any wire transfer of funds, check, or
other item of payment, whether directed to Borrower's deposit account with Bank
or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 FEES. Borrower shall pay to Bank the following:
(a) FACILITY FEE. A Facility Fee equal to $22,500, which fee shall be due
on the Closing Date and shall be fully earned and non-refundable;
(b) UNUSED LINE FEE. Borrower shall pay to Bank quarterly an unused line
fee equal to the rate of one-half of one percent (.50%) per annum multiplied by
the amount by which the Unused Line Fee Base Amount (as defined below) exceeds
the average daily principal balance of the outstanding Advances under the
Committed Revolving Line during the immediately preceding quarter (or part
thereof) while this Agreement is in effect and for so long thereafter as any of
the Obligations are outstanding, which fee shall be payable on the first day of
each quarter in arrears. The "Unused Line Fee Base Amount" shall mean
$4,000,000.
(c) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary fees and
out-of-pocket expenses for Bank's audits of Borrower's Accounts, and for each
appraisal of Collateral and financial analysis and examination of Borrower
performed from time to time by Bank or its agents, PROVIDED, HOWEVER, prior to
occurrence and the continuance of an Event of Default, the frequency of such
audits shall not exceed twice per calendar year, PROVIDED, FURTHER, that on and
after the occurrence and continuance of an Event of Default the foregoing
frequency limitation shall no longer apply or otherwise be effective.
(d) BANK EXPENSES. Upon demand from Bank, including, without limitation.
upon the date hereof, all Bank Expenses incurred through the date hereof,
including reasonable attorneys' fees and expenses, and, after the date hereof,
all Bank Expenses, including reasonable attorneys' fees and expenses, as and
when they become due, provided, however, Bank's legal fees (but not associated
costs such as courier, copying, diligence and search charges and other similar
cost items customarily charged), which are incurred in connection with the
preparation, negotiation and closing of the Loan Documents, shall be limited to
Five Thousand ($5,000.00) Dollars plus fifty (50%) percent of the time value of
Bank's legal fees in excess of Five Thousand ($5,000.00) dollars.
2.6 ADDITIONAL COSTS. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the
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administration thereof or the compliance with any guideline or request of any
central bank or other governmental authority (whether or not having the force of
law):
(a) subjects Bank to any tax with respect to payments of principal or
interest or any other amounts payable hereunder by Borrower or otherwise with
respect to the transactions contemplated hereby (except for taxes on the overall
net income of Bank imposed by the United States of America or any political
subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance, reserve,
special deposit or similar requirement against assets held by, or deposits in or
for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its performance
under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loan or other credit accommodation, including, the Credit Extensions, Bank
shall notify Borrower thereof. Borrower agrees to pay to Bank the amount of such
increase in cost, reduction in income or additional expense as and when such
cost, reduction or expense is incurred or determined, upon presentation by Bank
of a statement of the amount and setting forth Bank's calculation thereof, all
in reasonable detail, which statement shall be deemed true and correct absent
manifest error.
2.7 TERM. Except as otherwise set forth herein, this Agreement shall become
effective on the Closing Date and, subject to Section 12.7, shall continue in
full force and effect for a term ending on the Maturity Date. Notwithstanding
the foregoing, Bank shall have the right to terminate its obligation to make
Credit Extensions under this Agreement immediately and without notice upon the
occurrence and during the continuance of an Event of Default. Notwithstanding
termination of this Agreement, Bank's lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding. Further, Borrower shall
have the right to prepay the Obligations at any point in time without penalty.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. The obligation of Bank
to make the initial Credit Extension is subject to the condition precedent that
Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to articles,
bylaws, incumbency and resolutions authorizing the execution and delivery of
this Agreement;
(c) negative pledge agreement in Bank's standard form;
(d) financing statements (Forms UCC-1);
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified in Section
2.5 hereof;
(g) certificate of foreign qualification regarding Borrower (if
applicable); and
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(h) such other documents, and completion of such other matters, as Bank
may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. The obligation of Bank to
make each Credit Extension, including the initial Credit Extension, is further
subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided in
Section 2.1; and
(b) the representations and warranties contained in Section 5 shall be
true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Borrower
acknowledges that Bank may place a "hold" on any deposit account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall from time
to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 RIGHT TO INSPECT. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 DUE AUTHORIZATION: NO CONFLICT. The execution, delivery, and performance
of the Loan Documents are within Borrower's powers, have been duly authorized,
and are not in conflict
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with nor constitute a breach of any provision contained in Borrower's
Certificate of Incorporation or Bylaws, nor will they constitute an event of
default under any material agreement to which Borrower is a party or by which
Borrower is bound. Borrower is not in default under any agreement to which it is
a party or by which it is bound, which default could have a Material Adverse
Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS; BONA FIDE AHP ORDERS. The Eligible Accounts
are bona fide existing obligations of the related account debtors. The service
or property giving rise to such Eligible Accounts has been performed or
delivered to the account debtor or to the account debtor's agent for immediate
shipment to and unconditional acceptance by the account debtor. Borrower has not
received notice of actual or imminent Insolvency Proceeding of any account
debtor whose accounts are included in any Borrowing Base Certificate as an
Eligible Account. The AHP Orders are bona fide existing obligations; the
underlying contracts relating thereto represent binding purchase orders from AHP
and Borrower has no knowledge of any dispute in connection therewith.
5.5 MERCHANTABLE INVENTORY. All Inventory is in all material respects of good
and marketable quality, free from all material defects.
5.6 INTELLECTUAL PROPERTY. Borrower is the sole owner of the Intellectual
Property, except for non-exclusive licenses granted by Borrower to its customers
in the ordinary course of business, Permitted Liens and licenses that the
Borrower has granted to AHP.
5.7 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in the
Schedule, Borrower has not done business and will not without at least thirty
(30) days prior written notice to Bank do business under any name other than
that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.8 LITIGATION. Except as set forth in the Schedule, there are no actions or
proceedings pending, or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect, or a material adverse
effect on either Borrower's interest in its assets or Bank's security interest
in the Collateral.
5.9 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the Closing Date.
5.10 SOLVENCY. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions
contemplated by this Agreement; and Borrower is able to pay its debts (including
trade debts) as they mature.
5.11 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the minimum
funding requirements of ERISA with respect to any employee benefit plans subject
to ERISA. No event has occurred resulting from Borrower's failure to comply with
ERISA that is reasonably likely to result in Borrower's incurring any liability
that could have a Material Adverse Effect. Borrower is not an "investment
company" or a company "controlled" by an "investment company"
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within the meaning of the Investment Company Act of 1940. Borrower is not
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.12 ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure .pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the release, or other
disposition of hazardous waste or hazardous substances into the environment.
5.13 TAXES. Borrower and each Subsidiary has filed or caused to be filed all
tax returns required to be filed on a timely basis, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein.
5.14 SUBSIDIARIES. Borrower does not own any stock, partnership interest or
other equity securities of any Person, except for Permitted Investments.
5.15 GOVERNMENT CONSENTS. Borrower and each Subsidiary have obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.16 FULL DISCLOSURE. No representation, warranty or other statement made by
Borrower in any certificate or written statement furnished to Bank contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained in such certificates or statements not
misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all outstanding
Obligations, and for so long as Bank may have any commitment to make a Credit
Extension hereunder, Borrower shall do all of the following:
6.1 GOOD STANDING. Borrower shall maintain its and each Subsidiary's
corporate existence and good standing in its respective jurisdiction of
incorporation and establish and maintain qualification in each jurisdiction in
which the failure to so qualify could have a Material Adverse Effect. Borrower
shall maintain, and shall cause each Subsidiary to maintain in force, to the
extent consistent with prudent management of Borrower's business, all licenses,
approvals and agreements, the loss of which could have a Material Adverse
Effect.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans
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subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to
comply, with all statutes, laws, ordinances and government rules and regulations
to which such Person is subject, the noncompliance with which could have a
Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Bank's Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall deliver to
Bank: (a) as soon as available, but in any event within 45 days after the end of
each month, a company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during such period, in a form and
certified by an officer of Borrower reasonably acceptable to Bank; (b) as soon
as available, but in any event within 90 days after the end of Borrower's fiscal
year, audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified opinion
on such financial statements of an independent certified public accounting firm
selected by Borrower and reasonably acceptable to Bank; (c) within 10 days of
filing, copies of all statements, reports and notices sent or made available
generally by Borrower to its security holders or to any holders of Subordinated
Debt and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission; (d) promptly upon receipt of notice thereof, a report of
any legal actions pending or threatened against Borrower or any Subsidiary that,
in the Company's reasonable opinion, could result in damages or costs to
Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more;
(e) [reserved]; and (f) such budgets, sales projections, operating plans or
other financial information as Bank may reasonably request from time to time,
including, without limitation, all forecasts and updates regarding or relating
to AHP within 10 days of receipt thereof by the Borrower.
Within 20 days after the last day of each MONTH, Borrower shall deliver to
Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of EXHIBIT C hereto, together with aged listings of
accounts receivable and accounts payable.
Within 45 days after the last day of each MONTH, Borrower shall deliver to
Bank with the MONTHLY financial statements a Compliance Certificate signed by a
Responsible Officer in substantially the form of EXHIBIT D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts and AHP Orders at Borrower's expense, provided that such audits will be
conducted no more often than every six (6) months unless an Event of Default has
occurred and is continuing, with the understanding that the first of such audits
shall be conducted within 90 days of the date hereof.
6.4 INVENTORY; RETURNS. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries of inventory and of all
disputes and claims, where the return, recovery, dispute or claim involves more
than Fifty Thousand Dollars ($50,000).
6.5 TAXES. Borrower shall make, and shall cause each Subsidiary to make, due
and timely payment or deposit of all material federal, state, and local taxes,
assessments. or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or Subsidiary has made such payments or deposits;
provided that Borrower or a Subsidiary need not make any
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payment it the amount or validity of such payment is (i) contested in good faith
by appropriate proceedings, (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results
therefrom.
6.6 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral insured against
loss or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, as ordinarily insured against by other owners in similar businesses
conducted in the locations where Borrower's business is conducted on the date
hereof.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 PRINCIPAL DEPOSITORY. Borrower shall maintain its principal depository
and operating accounts with Bank.
6.8 QUICK RATIO. Borrower, on a consolidated basis, shall maintain, as of the
last day of each calendar month prior to the period ending March 31, 1999, a
ratio of Quick Assets to Current Liabilities of at least 0.80 to 1.0. With
respect to the month ending March 31, 1999 and as of the last day of each
calendar month thereafter, Borrower, on a consolidated basis, shall maintain a
ratio of Quick Assets to Current Liabilities of at least 1.00 to 1.0.
6.9 DEBT-NET WORTH RATIO. Borrower, on a consolidated basis, shall maintain,
as of the last day of each calendar month commencing with the period ending
December 31, 1998 and thereafter, a ratio of Total Liabilities to Tangible Net
Worth plus Subordinated Debt of not more than 1.00 to 1.0.
6.10 PROFITABILITY. Borrower, on a consolidated basis, shall not incur a net
loss in any fiscal quarter in excess of $1,000,000. Further, with respect to
each consecutive four fiscal quarter period commencing with such period ending
September 30, 1999 and for each such consecutive four fiscal quarter period
thereafter, Borrower, on a consolidated basis, shall attain net profitability.
6.11 MINIMUM CASH: DEBT SERVICE RATIO. Borrower, on a consolidated basis,
shall maintain, as of the last day of each calendar month, cash and cash
equivalents, as determined by the Bank, in the amount of $1,000,000, PROVIDED
that on and after the two consecutive quarters that the Borrower, on a
consolidated basis, demonstrates to Bank that it has maintained a Debt Service
Ratio of at least 1.50 to 1.0, Borrower, on a consolidated basis, shall
maintain, as of the last day of each quarter, such ratio of at least 1.50 to 1.0
and shall no longer be required to comply with the foregoing cash and cash
equivalents financial covenant.
6.12 FURTHER ASSURANCES. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
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7. NEGATIVE COVENANTS
Borrower covenants and agrees that until payment in full of the outstanding
Obligations, Borrower will not do any of the following:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers: (i) of inventory
in the ordinary course of business, (ii) of nonexclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (iii) that constitute payment of normal and usual
operating expenses in the ordinary course of business; (iv) of worn-out or
obsolete Equipment or (iv) Transfers denoted as "Permitted Transfers" under the
Negative Pledge Agreement dated of even date herewith by Borrower in favor of
Bank.
7.2 CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT BUSINESS LOCATIONS. Engage
in any business, or permit any of its Subsidiaries to engage in any business,
other than the businesses currently engaged in by Borrower and any business
substantially similar or related thereto (or incidental thereto), or suffer to
exist a Change of Control (as defined below). "Change of Control" shall mean any
of the following events: (i) the merger or consolidation of the Borrower where
parties other than the Borrower's current security holders own, following
consummation of such merger or consolidation, less than fifty percent (50%) of
the surviving entity's issued and outstanding shares of common stock, after
giving effect to the exercise, exchange or conversion of any outstanding
options, warrants, preferred stock or other securities exercisable, exchangeable
or convertible into shares of common stock or (ii) if any Person, other than the
Borrower or an employee benefit plan of the Borrower or any "Affiliate" or
"Associate" (each as defined in Rule 12b-2 under the Securities Exchange Act of
1934, as amended), shall, individually or together with Affiliates or Associates
of such Person, acquire or become the beneficial owner of, in the aggregate, in
excess of fifty percent (50%) of the issued and outstanding shares of common
stock of the Borrower following such acquisition after giving effect to the
exercise, exchange or conversion of any outstanding options, warrants, preferred
stock or other securities exercisable, exchangeable or convertible into shares
of common stock. Borrower will not, without at least thirty (30) days prior
written notification to Bank, relocate its chief executive office or add any new
offices or business locations.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person, provided
that the foregoing shall not restrict stock acquisitions in an aggregate amount
not to exceed $10,000,000 by the Borrower of other entities as long as no
default or Event of Default is in existence either before or after such
transaction, and no event or occurrence with which the passage of time or notice
would constitute an Event of Default has occurred either before or after such
transaction.
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable with respect
to any Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness.
7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock.
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7.7 INVESTMENTS; LOANS; GUARANTEES. Directly or indirectly acquire or own, or
make any Investment in or to any Person, or permit any of its Subsidiaries so to
do, other than Permitted Investments, or make any loans of any money or any
other assets to any Person, or guarantee or otherwise become liable with respect
to the obligations of any other Person.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or permit
to exist any material transaction with any Affiliate of Borrower except for
transactions that are in the ordinary course of Borrower's business, upon fair
and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person.
7.9 [RESERVED].
7.10 SUBORDINATED DEBT. Make any payment in respect of any Subordinated Debt,
or permit any of its Subsidiaries to make any such payment, except in compliance
with the terms of such Subordinated Debt, or amend any provision contained in
any documentation relating to the Subordinated Debt without Bank's prior written
consent.
7.11 INVENTORY. Store the Inventory with a bailee, warehouseman, or similar
party unless Bank has received a pledge of any warehouse receipt covering such
Inventory. Except for Inventory sold in the ordinary course of business and
except for such other locations as Bank may approve in writing, Borrower shall
keep the Inventory only at the location set forth in Section 10 hereof and such
other locations of which Borrower gives Bank prior written notice and as to
which Borrower signs and files a financing statement where needed to perfect
Bank's security interest.
7.12 COMPLIANCE. Become an "investment company" or a company controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral; or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of Default
by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay, when due, any of the
Obligations.
8.2 COVENANT DEFAULT.
(a) If Borrower fails to perform any obligation under Sections 6.3, 6.6,
6.7, 6.8, 6.9, 6.10, 6.11 or 6.12, or violates any of the covenants contained in
Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely
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to be cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed thirty (30) days) to
attempt to cure such default, and within such reasonable time period the failure
to have cured such default shall not be deemed an Event of Default (provided
that no Advances will be required to be made during such cure period);
8.3 MATERIAL ADVERSE CHANGE. If there (i) occurs a material adverse change in
the business, operations, or condition (financial or otherwise) of the Borrower,
or (ii) is a material impairment of the prospect of repayment of any portion of
the Obligations or (iii) is a material impairment of the value or priority of
Bank's security interests in the Collateral;
8.4 ATTACHMENT. If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any- trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within thirty (30) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within thirty (30)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency Proceeding
is commenced by Borrower, or if an Insolvency Proceeding is commenced against
Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 OTHER AGREEMENTS. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect;
8.7 SUBORDINATED DEBT. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 JUDGMENTS. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Two-Hundred Thousand
Dollars ($200,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days (provided that no
Credit Extensions will be made prior to the satisfaction or stay of such
judgement); PROVIDED, HOWEVER, an Event of Default shall occur if a judgment
lien arises with respect to the Borrower in any amount (including regarding an
amount that is less that $200,000), which lien does not otherwise constitute a
Permitted Lien hereunder; or
8.9 MISREPRESENTATIONS. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
8.10 GUARANTY. Any guaranty of all or a portion of the Obligations ceases for
any reason (other than a release by Bank of such guaranty) to he in full force
and effect, or any Guarantor fails
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to perform any obligation under any guaranty of all or a portion of the
Obligations, or any material misrepresentation or material misstatement exists
now or hereafter in any warranty or representation set forth in any guaranty of
all or a portion of the Obligations or in any certificate delivered to Bank in
connection with such guaranty, or any of the circumstances described in Sections
8.4, 8.5 or 8.8 occur with respect to any Guarantor.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the continuance of an
Event of Default, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any
of the other Loan Documents, or otherwise, immediately due and payable (provided
that upon the occurrence of an Event of Default described in Section 8.5 all
Obligations shall become immediately due and payable without any action by
Bank);
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement or under any other agreement between Borrower and
Bank;
(c) Demand that Borrower (i) deposit cash with Bank in an amount equal to
the amount of any Letters of Credit remaining undrawn, as collateral security
for the repayment of any future drawings under such Letters of Credit, and
Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance
all Letters of Credit fees scheduled to be paid or payable over the remaining
term of the Letters of Credit;
(d) [Reserved]
(e) Settle or adjust disputes and claims directly with account debtors
for amounts, upon terms and in whatever order that Bank reasonably considers
advisable;
(f) Without notice to or demand upon Borrower, make such payments and do
such acts as Bank considers necessary or reasonable to protect its security
interest in the Collateral. Borrower agrees to assemble the Collateral if Bank
so requires, and to make the Collateral available to Bank as Bank may designate.
Borrower authorizes Bank to enter the premises where the Collateral is located,
to take and maintain possession of the Collateral, or any part of it, and to
pay, purchase, contest, or compromise any encumbrance, charge, or lien which in
Bank's determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any of
Borrower's premises, Borrower hereby grants Bank a license to enter such
premises and to occupy the same, without charge in order to exercise any of
Bank's rights or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower, set off and apply to the Obligations any
and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness
at any time owing to or for the credit or the account of Borrower held by Bank;
(h) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale. advertise for sale, and sell (in the manner provided for herein) the
Collateral. Subject to the rights of any licensee now existing and hereafter
arising/permitted under the terms of this Agreement. now existing or hereafter
arising, Bank is hereby granted a non-exclusive, royalty-free license or other
right, solely pursuant to the provisions of this Section 9.1, to use, without
char e. Borrower's labels, patents, copyrights, mask works, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling
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any Collateral and, in connection with Bank's exercise of its rights under this
Section 9. l, Borrower's rights under all licenses and all franchise agreements
shall inure to Bank's benefit;
(i) Sell the Collateral at either a public or private sale, or both, by
way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as Bank determines is
commercially reasonable, and apply the proceeds thereof to the Obligations in
whatever manner or order it deems appropriate;
(j) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law; and
(k) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.
(l) Subject to the rights of any licensee permitted under the terms of
this Agreement, now existing or hereafter arising, Bank shall have a
non-exclusive, royalty-free license to use the Intellectual Property to the
extent reasonably necessary to permit Bank to exercise its rights and remedies
upon the occurrence of an Event of Default.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable, provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. Upon the occurrence and during the continuance of an
Event of Default, Bank may notify any Person owing funds to Borrower of Bank's
security interest in such funds and verify the amount of such Account. Borrower
shall collect all amounts owing to Borrower for Bank, receive in trust all
payments as Bank's trustee, and if requested or required by Bank, immediately
deliver such payments to Bank in their original form as received from the
account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
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9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with reasonable
banking practices, Bank shall not in any way or manner be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any diminution
in the value thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other person whomsoever. All risk of loss, damage
or destruction of the Collateral shall be borne by Borrower.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this Agreement, the
Loan Documents, and all other agreements shall be cumulative. Bank shall have
all other rights and remedies not expressly set forth herein as provided under
the Code, by law, or in equity. No exercise by Bank of one right or remedy shall
be deemed an election, and no waiver by Bank of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be
effective unless made in a written document signed on behalf of Bank and then
shall be effective only in the specific instance and for the specific purpose
for which it was given.
9.7 DEMAND: PROTEST. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: PharmaPrint Inc.
4 Park Plaza
Irvine, California 92614
Attn: James Wodach
FAX: 949-794-7777
If to Bank: Silicon Valley Bank
38 Technology Drive, Suite 150
Irvine, California 92618
Attention: Mr. Gary Reagan
FAX: 949-789-1930
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE; JURY WAIVER
The Loan Documents shall be governed by, and construed in accordance with,
the internal laws of the State of California, without regard to principles of
conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Orange,
State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR
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CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF
THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; PROVIDED, HOWEVER, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 INDEMNIFICATION. Borrower shall, indemnify, defend, protect and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING. INTEGRATION. This Agreement cannot be amended or
terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
PHARMAPRINT INC.
By: /s/ Phillip G. Trad
----------------------
Title: Senior Vice President
----------------------
By: /s/ James R. Wodach
-------------------------
Title: Senior Vice President
-----------------------
SILICON VALLEY BANK
By: /s/ Gary Reagan
-------------------------
Title: VP
----------------------
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Exhibit 10.3
EXHIBIT A
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT ("Master Agreement") made as of November 30, 1998,
between VARILEASE CORPORATION, a Michigan corporation, having its chief
executive offices at 28525 Orchard Lake Road, Farmington Hills, MI 48334
("Lessor") and PHARMAPRINT INC., a Delaware corporation having its chief
executive offices at 4 Park Plaza, Suite 1900, Irvine, CA 92614 ("Lessee").
1. LEASE
On the terms and conditions of this Master Agreement, Lessor shall lease to
Lessee, and Lessee shall hire from Lessor, the items of personal property
described in the Schedule(s) (collectively the "Equipment", and individually an
"Item") which shall incorporate this Master Agreement. Each Schedule shall
constitute a separate and independent lease and contractual obligation of
Lessee. The term "Lease" shall refer to an individual Schedule which
incorporates this Master Agreement. In the event of a conflict between this
Master Agreement and any Schedule, the language of the Schedule shall prevail.
The Lease shall be effective upon execution by Lessor at its offices.
2. TERM
(a) The term of the Lease shall be comprised of a Delivery Term,
Installation Term and Base Term. The Delivery Term for each Item shall
commence on the date the Item is delivered to Lessee and shall end on
the Installation Date. The Installation Term shall commence on the
Installation Date and terminate on the first day of the month following
the Installation Date for the last Item to be installed (the "Base Term
Commencement Date"). The Base Term of the Lease shall begin on the Base
Term Commencement Date, and may, subject to Subsection 2(b), terminate
on the last day of the last month of the Base Term. The date of
installation (the "Installation Date") for any Item shall be the
earlier of either (i) the date on which the entity responsible for
installing such Item certifies that the Item is installed and placed in
good working order, or (ii) if Lessee has caused a delay in the
installation of an Item, seven days from the date the Item is delivered
to the equipment location specified in the Schedule, or (iii) if Lessee
is to install the Item, the seventh day after delivery. In the event
the Equipment is already installed at the equipment location of Lessee
and has been previously paid for by Lessee, the Installation Date shall
be the date on which the Lessor pays Lessee for the Equipment.
(b) A Lease may be terminated as of the last day of the last month of the
Base Term by written notice given by either Lessor or Lessee not less
than six (6) months prior to the date of termination of the Base Term.
If the Lease is not so terminated at the end of the Base Term, the Base
Term shall be automatically extended for successive six (6) month
periods until such six (6) month notice is given. The Base Monthly
Rental, as hereinafter defined, shall continue to be due and payable by
Lessee until the Equipment is redelivered to Lessor upon the
termination of the Base Term or any extension term, and throughout any
such extension term(s). No notice of termination may be revoked without
the written consent of the other party.
3. RENTAL
(a) The rental amount payable to Lessor by Lessee for the Equipment will be
as set forth on the Schedule ("Base Monthly Rental"). As rent for
Equipment, Lessee shall pay Lessor in immediately available funds and
in advance on the Base Term Commencement Date and on the first business
day of each month during the Base Term of the Lease the Base Monthly
Rental, per month, and (ii) on the Installation Date an amount equal to
1/30th of the Base Monthly Rental for each Item times the number of
days which will elapse from the Installation Date of such Item to the
Base Term Commencement Date of the Lease. Each remittance from Lessee
to Lessor shall contain information as to the Lease for which payment
is made.
(b) For any payment of rent or other amount due under a Lease which is past
due for more than five (5) days, interest shall accrue at the rate of
2% per month, from the date such payment was due until payment is
received by Lessor, or if such rate shall exceed the maximum rate of
interest allowed by law, then at such maximum rate.
4. TAXES
Lessee shall reimburse Lessor for (or pay directly, but only if instructed by
Lessor) all taxes, fees, and assessments that may be imposed by any taxing
authority on the Equipment, on its purchase, ownership, delivery, possession,
operation, rental, return to Lessor or its purchase by Lessee (collectively,
Taxes); provided, however, that Lessee shall not be liable for any such Taxes
(whether imposed by the United States of America or by any other domestic or
foreign taxing authority) imposed on or measured by Lessor's net income or tax
preference items. Lessee's obligation includes, but is not limited to, the
obligation to pay all license and registration fees and all sales, use, personal
property, recordation and other taxes and governmental charges, together with
any penalties, fines and interest thereon, that may be imposed during the Base
Term of the applicable Schedule. Lessor shall report and file any and all Taxes
and shall invoice Lessee for same. Lessee shall promptly reimburse Lessor for
all Taxes and hold Lessor harmless with respect to any non-payment
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thereof.
5. NET LEASE
The Lease is a net lease, it being the intention of the parties that all costs,
expenses and liabilities associated with the Equipment or its lease shall be
borne by Lessee. Lessee's agreement to pay all obligations under the Lease,
including but not limited to Base Monthly Rental, is absolute and unconditional
and such agreement is for the benefit of Lessor and its Assignees). Lessee's
obligations shall not be subject to any abatement, deferment, reduction, setoff,
defense, counterclaim or recoupment for any reason whatsoever. Except as may be
otherwise expressly provided in the Lease, it shall not terminate, nor shall the
obligations of Lessee be affected by reason of any defect in or damage to, or
any loss or destruction of, or obsolescence of, the Equipment or any Item from
any cause whatsoever, or the interference with its use by any private person,
corporation or governmental authority, or as a result of any war, riot,
insurrection or an Act of God. It is the express intention of Lessor and Lessee
that all rent and other sums payable by Lessee under the Lease shall be, and
continue to be, payable in all events throughout the term of the Lease. The
Lease shall be binding upon the Lessee, its successors and permitted assigns and
shall inure to the benefit of Lessor and its Assignee(s).
6. INSTALLATION, RETURN AND USE OF EQUIPMENT
(a) Upon delivery of the Equipment to Lessee, Lessee shall pay all
transportation, installation, rigging, packing and insurance charges
with respect to the Equipment. In the case of a sale and leaseback
transaction, Lessee shall, upon the request of Lessor, certify the date
the Equipment was first put into use. Lessee will provide the required
electric current and a suitable place of installation for the Equipment
with all appropriate facilities as specified by the manufacturer. No
cards, tapes, disks, data cells or other input/output and storage media
may be used by Lessee to operate any Item unless it meets the
specifications of the manufacturer. Lessee agrees that it will not
install, or permit the installation of the Equipment without Lessor's
consent, which consent shall not be unreasonably withheld or delayed.
(b) Lessee shall, at all times during the term of the Lease, be entitled to
unlimited use of the Equipment. Lessee will at all times keep the
Equipment in its sole possession and control; provided Lessee shall be
permitted to place the Equipment in the manufacturing facilities of
third the parties with the consent of Lessor which consent shall not be
unreasonably withheld or delayed. The Equipment shall not be moved from
the location stated in the Schedule without the prior written consent
of Lessor, which consent shall not be unreasonably withheld or delayed,
and in no event shall the Equipment be moved outside the continental,
contiguous United States. Lessee will comply with all laws,
regulations, and ordinances, and all applicable requirements of the
manufacturer of the Equipment which apply to the physical possession,
use, operation, condition, and maintenance of the Equipment. Lessee
agrees to obtain all permits and licenses necessary for the operation
of the Equipment.
(c) Lessee shall not without the prior written consent of Lessor, affix or
install any accessory, feature, equipment or device to the Equipment or
make any improvement, upgrade, modification, alteration or addition to
the Equipment the cost of which is in excess of $50,000.00 (any such
accessory, feature, equipment, device or improvement, upgrade,
modification, alteration or addition affixed or installed is an
"Improvement"). Title to all Improvements shall, without further act,
upon the making, affixing or installation of such Improvement, vest
solely in Lessor, except such Improvements as may be readily removed
without causing material damage to the Equipment and without in any way
affecting or impairing the originally intended function, value or use
of the Equipment. Removal of the Improvement shall be performed by the
manufacturer or other party acceptable to the Lessor, at the sole
expense of Lessee. Provided the Equipment is returned to Lessor in the
condition required by the Lease, including, but not limited to coverage
under the manufacturer's standard maintenance contract, title to the
Improvement shall vest in the Lessee upon removal. Any Improvement not
removed from the Equipment prior to return shall at Lessor's option
remain the property of Lessor and shall be certified for maintenance by
the manufacturer, at Lessee's expense.
Lessee shall notify Lessor in writing no less than 30 days prior to the
desired installation date of the type of Improvement Lessee desires to
obtain. Lessor may, at any time within 10 days after receipt of the
notice offer to provide the Improvement to Lessee upon terms and
conditions to be mutually agreed upon. Lessee shall notify Lessor of
any third party offers and shall lease the Improvement from Lessor if
Lessor meets the terms of the third party offer.
If Lessee leases an Improvement from Lessor, such lease shall be under
a separate Schedule, the Improvement shall not be placed in service by
Lessee prior to acquisition by Lessor, and Lessee shall execute and
deliver any document necessary to vest title to such Improvement in
Lessor.
During the term of the Lease term and any renewal term, Lessee shall
cause all Improvements to be maintained, at Lessee's expense, in
accordance with the requirements of Section 7. Unless otherwise agreed
to by Lessor, upon the expiration or earlier termination of the term of
the Lease, any Improvement shall be de-installed and removed from the
Equipment by the manufacturer or other party acceptable to Lessor, at
Lessee's expense. If the Improvement is removed, the Equipment shall be
restored to its unmodified condition and shall be certified for
maintenance by the manufacturer, at Lessee's expense.
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In the event an Improvement is provided to Lessee by a party other than
Lessor, Lessee shall cause such party to execute and deliver to Lessor
such documents as shall be reasonably required by Lessor to protect the
interests of Lessor and any Assignee in the Equipment, this Master
Agreement and any Schedule.
(d) Lessee shall, at the termination of the Lease, at its expense,
de-install, pack and return the Equipment to Lessor at such location
within the continental United States as shall be designated by Lessor
in the same operating order, repair, condition and appearance as of the
Installation Date, reasonable wear and tear excepted, with all current
engineering changes prescribed by the manufacturer of the Equipment or
a maintenance contractor approved by Lessor (the "Maintenance
Organization") incorporated in the Equipment. Until the return of the
Equipment to Lessor, Lessee shall be obligated to pay the Base Monthly
Rental and all other sums due under the Lease. Upon redelivery to
Lessor, Lessee shall arrange and pay for such repairs (if any) as are
necessary for the manufacturer of the Equipment to accept the Equipment
under a maintenance contract at its then standard rates.
7. MAINTENANCE AND REPAIRS
Lessee shall, during the term of the Lease, maintain in full force and effect a
contract with the manufacturer of the Equipment or Maintenance Organization
covering at least prime shift maintenance of the Equipment. Lessee upon request
shall furnish Lessor with a copy of such maintenance contract as amended or
supplemented. During the term of the Lease, Lessee shall, at its expense, keep
the Equipment in good working order, repair, appearance and condition and make
all necessary adjustments, repairs and replacements, all of which shall become
the property of Lessor. Lessee shall not use or permit the use of the Equipment
for any purpose for which, in the opinion of the manufacturer of the Equipment
or Maintenance Organization, the Equipment is not designed or intended.
8. OWNERSHIP, LIENS AND INSPECTIONS
(a) Lessee shall keep the Equipment free from any marking or labeling which
might be interpreted as a claim of ownership by Lessee or any party
other than Lessor and its Assignee(s), and shall aux and maintain tags,
decals or plates furnished by Lessor on the Equipment indicating
ownership and title to the Equipment in Lessor or its Assignee(s). Upon
reasonable notice to Lessee, Lessor or its agents shall have access to
the Equipment and Lessee's books and records with respect to the Lease
and the Equipment at reasonable times for the purpose of inspection and
for any other purposes contemplated by the Lease, subject to the
reasonable security requirements of Lessee.
(b) Lessee shall execute and deliver such instruments, including Uniform
Commercial Code financing statements, as are required to be filed to
evidence the interest of Lessor and its Assignee(s) in the Equipment or
the Lease. Lessee has no interest in the Equipment except as expressly
set forth in the Lease, and that interest is a lease-hold interest.
Lessor and Lessee agree, and Lessee represents for the benefit of
Lessor and its Assignees) that the Lease is intended to be a "finance
lease" and not a "lease intended as security " as those terms are used
in the Uniform Commercial Code; and that the Lease is intended to be a
"true lease" as the term is commonly used under the Internal Revenue
Code of 1986, as amended.
(c) LESSEE SHALL NOT TAKE ANY ACTION WHICH WILL CAUSE THE LEASE, THE
EQUIPMENT AND ANY IMPROVEMENTS TO BE SUBJECT TO LIENS AND ENCUMBRANCES
OF WHATSOEVER KIND (EXCEPT THOSE CREATED BY LESSOR) AND LESSEE SHALL
NOT ASSIGN THE LEASE OR ANY OF ITS RIGHTS UNDER THE LEASE OR SUBLEASE
ANY OF THE EQUIPMENT OR GRANT ANY RIGHTS TO THE EQUIPMENT WITHOUT THE
PRIOR WRITTEN CONSENT OF LESSOR. No permitted assignment or sublease
shall relieve Lessee of any of its obligations under the Lease and
Lessee agrees to pay all costs and expenses Lessor may incur in
connection with such sublease or assignment. Lessee grants to Lessor
the right of first refusal on any sublease or other grant of Lessee's
rights to the Equipment. Notwithstanding the foregoing or anything in
this Master Agreement to the contrary, Lessee may assign its rights
hereunder by operation of law (e.g. change of control) so long as the
assignee is, in Lessor's reasonable judgment, of a creditworthiness
equal to or greater than Lessee.
9. DISCLAIMER OF WARRANTIES
(a) LESSOR LEASES THE EQUIPMENT "AS IS," AND BEING NEITHER THE MANUFACTURER
OF THE EQUIPMENT NOR THE AGENT OF EITHER THE MANUFACTURER OR SELLER,
LESSOR DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR
IMPLIED, WITH RESPECT TO THE CONDITION OR PERFORMANCE OF THE EQUIPMENT,
ITS MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR WITH RESPECT
TO PATENT INFRINGEMENTS OR THE LIKE. LESSOR SHALL HAVE NO LIABILITY TO
LESSEE FOR ANY CLAIM, LOSS OR DAMAGE OF ANY KIND OR NATURE WHATSOEVER,
NOR SHALL THERE BE ANY ABATEMENT OF RENTAL FOR ANY REASON INCLUDING
CLAIMS ARISING OUT OF OR IN CONNECTION WITH (i) THE DEFICIENCY OR
INADEQUACY OF THE EQUIPMENT FOR ANY PURPOSE, WHETHER OR NOT KNOWN OR
DISCLOSED TO LESSOR, (ii) ANY DEFICIENCY OR DEFECT IN THE EQUIPMENT,
(iii) THE USE OR PERFORMANCE OF THE EQUIPMENT, OR (iv) ANY LOSS OF
BUSINESS OR OTHER CONSEQUENTIAL LOSS OR
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DAMAGE, WHETHER OR NOT RESULTING FROM ANY OF THE FOREGOING.
(b) For the term of the Lease, Lessor assigns to Lessee (to the extent
possible), and Lessee may have the benefit of, any and all
manufacturer's warranties, service agreements and patent indemnities,
if any, with respect to the Equipment; provided, however, that Lessee's
sole remedy for the breach of any such warranty, indemnification or
service agreement shall be against the manufacturer of the Equipment
and not against Lessor, nor shall any such breach have any effect
whatsoever on the rights and obligations of Lessor or Lessee with
respect to the Lease.
(c) NO REPRESENTATIONS OR WARRANTIES OF THE MANUFACTURER OR DISTRIBUTOR OF
THE EQUIPMENT, OR ANY OTHER THIRD PARTY, CAN BIND LESSOR, AND LESSEE
ACKNOWLEDGES AND AGREES THAT LESSOR SHALL HAVE NO OBLIGATIONS WITH
RESPECT TO THE EQUIPMENT EXCEPT AS SPECIFICALLY SET FORTH HEREIN OR
OTHER DOCUMENT EXECUTED BY LESSOR.
10. ASSIGNMENT
(a) Lessee acknowledges and understands that Lessor may assign to a
successor, financing lender and/or purchaser (the "Assignee"), all or
any part of the Lessor's right, title and interest in and to the Lease
and the Equipment and Lessee hereby consents to such assignments). In
the event Lessor transfers or assigns, or retransfers or reassigns, to
an Assignee all or part of Lessor's interest in the Lease, the
Equipment or any sums payable under the Lease, whether as collateral
security for loans or advances made or to be made to Lessor by such
Assignee or otherwise, Lessee covenants that, upon receipt of notice of
any such transfer or assignment and instructions from Lessor,
(i) Lessee shall, if so instructed, pay and perform its obligations
under the Lease to the Assignee (or to any other party designated
by Assignee), and shall not assign the Lease or any of its rights
under the Lease or permit the Lease to be amended, modified, or
terminated without the prior written consent of Assignee; and
(ii) Lessee's obligations under the Lease with respect to Assignee
shall be absolute and unconditional and not be subject to any
abatement, reduction, recoupment, defense, offset or counterclaim
for any reason, alleged or proven, including, but not limited to,
defect in the Equipment, the condition, design, operation or
fitness for use of the Equipment or any loss or destruction or
obsolescence of the Equipment or any part, the prohibition of or
other restrictions against Lessee's use of the Equipment, the
interference with such use by any person or entity, any failure
by Lessor to perform any of its obligations contained in the
Lease, any insolvency or bankruptcy of Lessor, or for any other
cause; and
(iii) Lessee shall, upon request of Lessor, submit documents and
certificates as may be reasonably required by Assignee to secure
and complete such transfer or assignment, including but not
limited to the documents set forth in Section 15(c) of this
Master Agreement.
(iv) Lessee shall deliver to Assignee copies of any notices which are
required under the Lease to be sent to Lessor, and
(v) Lessee shall, if requested, restate to Assignee the
representations, warranties and covenants contained in the Lease
(upon which Lessee acknowledges Assignee may rely) and shall make
such other representations, warranties and covenants to Assignee
as may be reasonably required to give effect to the assignment.
(b) Lessor shall not make an assignment or transfer to any Assignee who
shall not agree that, so long as Lessee is not in default under the
Lease, such Assignee shall take no action to interfere with Lessee's
quiet enjoyment and use of the Equipment in accordance with the terms
of the Lease. No such assignment or conveyance shall relieve Lessor of
its obligations under the Lease and Lessee agrees it shall not look to
any Assignee to perform any of Lessor>s obligations under the Lease. No
such assignment shall increase Lessee's obligations nor decrease
Lessee's rights hereunder.
11. QUIET ENJOYMENT
Lessor covenants that so long as Lessee is not in default under a Lease, Lessor
shall take no action to interfere with Lessee's possession and use of the
Equipment subject to and in accordance with the provisions of the Lease.
12. INDEMNIFICATION
Except for the sole and gross negligence or willful misconduct of Lessor or
Assignee, Lessee shall and does agree to indemnity, protect defend, save and
keep harmless Lessor and its Assignee(s) from and against any and all
liabilities, obligations, losses, damages, penalties, claims, actions, suits,
costs, or expenses of any kind and nature whatsoever, including but not limited
to reasonable attorneys fees, including without limitation reasonable attorneys
fees in connection with the enforcement of this indemnification, which may be
imposed upon, incurred by or asserted against Lessor or its Assignee(s) in any
way relating to or arising out of the Lease, the
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manufacture, ownership, lease, possession, use, condition, operation, or
accident in connection with the Equipment (including, without limitation, those
claims based on latent and other defects, whether or not discoverable, or claims
based on strict liability, or any claim for patent, trademark or copyright
infringement). Lessor's rights arising from this Section shall survive the
expiration or other termination of the Lease. Nothing in this Section shall
limit or waive any right of Lessee to proceed against the manufacturer of the
Equipment.
13. RISK OF LOSS
(a) Lessee assumes and shall bear the entire risk of loss and damage,
whether or not insured against, of the Equipment from any and every
cause whatsoever as of the date the Equipment is delivered to Lessee.
(b) In the event of loss or damage of any kind to any Item, Lessee shall
use all reasonable efforts to place the Item in good repair, condition
and working order to the reasonable satisfaction of Lessor within
ninety (90) days of such loss or damage, unless the manufacturer of the
Equipment determines that such Item has been irreparably damaged, in
which case Lessee shall, within ten (10) days of the manufacturer's
determination of irreparable loss, make its election to either pay
Lessor the Stipulated Loss Value (as set forth in Attachment A to this
Master Agreement) for the irreparably damaged Item or replace the
irreparably damaged Item, all as provided in this Section. To the
extent that the Item is damaged but not irreparably damaged and if
Lessee is entitled, pursuant to the insurance coverage, to obtain
proceeds from such insurance for the repair of the Item, Lessee
(provided no Event of Default has occurred under the Lease) may arrange
for the disbursement of such proceeds to the manufacturer or other
entity approved by Lessor to perform the repairs to pay the cost of
repair. However, Lessee's obligation to timely repair the damaged Item
is not contingent upon receipt of such insurance proceeds.
(c) In the event that Lessee elects to pay Lessor the Stipulated Loss Value
for the irreparably damaged Item, Lessee shall (i) pay such amount
(computed as of the first day of the month following the determination
of the irreparable damage by the manufacturer) to Lessor on the first
day of the month following the election by Lessee as provided in (b)
above, (ii) pay all Base Monthly Rental for the Item up to the date
that the Stipulated Loss Value is paid to Lessor, and (iii) arrange
with the applicable insurance company (with the consent of Lessor) for
the disposition of the irreparably damaged Item. If not all the
Equipment is irreparably damaged, the Value for Calculation of
Stipulated Loss Value ("Value") as set forth on the Schedule for the
irreparably damaged Item shall be multiplied by the applicable
percentage set forth in Attachment A to compute the Stipulated Loss
Value for such irreparably damaged Item, and the Base Monthly Rental
for the undamaged Equipment remaining due (after payment of the
Stipulated Loss Value for the irreparably damaged Item) shall be that
amount resulting from multiplying the original Base Monthly Rental by
the ratio of the Value of the undamaged Equipment divided by the Value
for all the Equipment prior to the damage.
(d) If Lessee elects to replace the irreparably damaged Item, Lessee shall
continue all payments under the Lease without interruption, as if no
such damage, loss or destruction had occurred, and shall replace such
irreparably damaged Item, paying all such costs, associated with the
replacement, and Lessee shall be entitled to insurance proceeds up to
the amount expended by Lessee in effecting the replacement. Lessee
shall within twenty (20) days following the date of determination of
irreparable damage by the manufacturer, effect the replacement by
replacing the irreparably damaged Item with a "Replacement Item" so
that Lessor has good, marketable and unencumbered title to such
Replacement Item. The Replacement Item shall have a fair market value
equal to or greater than the Item replaced, and anticipated to have a
fair market value at the expiration of the Base Term equal to the fair
market value that the replaced Item would have had at the end of the
Base Term, and be the same manufacture, model and type and of at least
equal capacity to the Item for which the replacement is being made.
Upon delivery, such Replacement Item shall become subject to all of the
terms and conditions of the Lease. Lessee shall execute all instruments
or documents necessary to effect the foregoing.
(e) For purposes of this Lease, the term "fair market value" shall mean the
price of the Equipment delivered and installed at Lessee's location
that would be obtained in an arm's-length transaction between an
informed and willing buyer-lessee under no compulsion to buy or lease
and an informed and willing seller-lessor under no compulsion to sell
or lease. If Lessor and Lessee are unable to agree upon fair market
value, such value shall be determined, at Lessee's expense, in
accordance with the foregoing definition, by three independent
appraisers, one to be appointed by Lessee, one to be appointed by
Lessor and the third to be appointed by the first two.
14. INSURANCE
During the term of the Lease, Lessee, at its own expense, shall maintain in
regard to the Equipment all risk insurance (in an amount not less than the
Stipulated Loss Value as identified on Attachment A) and comprehensive public
liability insurance in amounts and with carriers reasonably satisfactory to
Lessor. Any such insurance shall name Lessor and the Assignee(s) as additional
insured and, as for the all risk insurance, loss payees as their interests may
appear. All such insurance shall provide that it may not be terminated, canceled
or altered without at least thirty (30) days' prior written notice to Lessor and
its Assignee(s). Coverage afforded to Lessor shall not be rescinded, impaired,
or invalidated by any act or neglect of Lessee. Lessee agrees to supply to
Lessor, upon request, evidence of such insurance. Unless Lessee is in default,
Lessee shall be entitled to any surplus of insurance proceeds after the
Equipment is repaired as required hereunder.
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15. REPRESENTATIONS AND WARRANTIES OF LESSEE; FINANCIAL STATEMENTS
(a) Lessee represents and warrants to Lessor and its Assignees) (i) that
the execution, delivery and performance of this Master Agreement and
the Lease was duly authorized and that upon execution of this Master
Agreement and the Lease by Lessee and Lessor, the Master Agreement and
the Lease will be in full force and effect and constitute a valid legal
and binding obligation of Lessee, and enforceable against Lessee in
accordance with their respective terms; (ii) the Equipment is
accurately described in the Lease and all documents of Lessee relating
to the Lease; (iii) that Lessee is in good standing in the jurisdiction
of its incorporation and in any jurisdiction in which any of the
Equipment is located; (iv) that no consent or approval of, giving of
notice to, registration with, or taking of any other action in respect
of, any state, federal or other government authority or agency is
required with respect to the execution, delivery and performance by the
Lessee of this Master Agreement or the Lease or, if any such approval,
notice, registration or action is required, it has been obtained; (v)
that the entering into and performance of this Master Agreement and the
Lease will not violate any judgment, order, law or regulation
applicable to Lessee or any provision of Lessee's Articles of
Incorporation or Bylaws or result in any breach of, or constitute a
default under, or result in the creation of any lien, charge, security
interest or other encumbrance upon any assets of Lessee or upon the
Equipment pursuant to any instrument to which Lessee is a party or by
which it or its property may be bound; (vi) there are no actions, suits
or proceedings pending, or to the knowledge of Lessee, threatened,
before any court or administrative agency, arbitrator or governmental
body which will, if determined adversely to Lessee, materially
adversely affect its ability to perform its obligations under the Lease
or any related agreement to which it is a party, (vii) that aside from
the Master Agreement and the Lease there are no additional agreements
between Lessee and Lessor relating to the Equipment, and (viii) that
any and all financial statements and other information with respect to
Lessee supplied to Lessor at the time of execution of the Lease and any
amendment, are true and complete in all material respects. The
foregoing representations and warranties shall survive the execution
and delivery of the Lease and any amendments hereto and shall upon the
written request of Lessor, be made to Lessor's Assignee(s).
(b) Prior to and during the term of the Lease, Lessee will furnish Lessor
with Lessee's audited financial statements as filed with the SEC. If
Lessee is a subsidiary of another company, Lessee shall supply such
company's financial statements and guarantees as are reasonably
acceptable to Lessor. Lessor's obligations to perform under any Lease
is subject to the condition that the financial statements furnished to
Lessor by Lessee present the financial condition and results of
operations of Lessee and its affiliated corporations, if any, and any
guarantor of Lessee's obligations under any Lease, as of the date of
such financial statements. Lessee shall also provide Lessor with such
other statements concerning the Lease and the condition of the
Equipment as Lessor may from time to time request.
(c) Upon Lessor's request, Lessee shall, with respect to each Lease,
deliver to Lessor (i) a certificate of a secretarial officer of Lessee
certifying the bylaws, resolutions (specific or general) or corporate
action authorizing the transactions contemplated in the Lease; (ii) an
incumbency certificate certifying that the person signing this Master
Agreement and the Lease holds the office the person purports to hold
and has authority to sign on behalf of Lessee; (iii) an opinion of
Lessee's counsel with respect to the representations in Section 15(a)
(i), (iii), (iv) and (v), with appropriate qualifications and
limitationsa; (iv) an agreement with Lessor's Assignee with regard to
any assignment as referred to in Section 10; (v) the purchase documents
if Lessee has sold or assigned its interest in the Equipment to Lessor,
(vi) an insurance certificate evidencing the insurance provided by
Lessee pursuant to Section 14; and (vii) an Installation Certificate
duly executed by Lessee. Failure by Lessee to deliver any of these
documents when due shall operate, at Lessor's option, to continue the
Installation Term for the Lease thus delaying the Base Term
Commencement Date, or to increase the Base Monthly Rental to recover
costs incurred by Lessor consequent to the delay or the termination of
the Lease as provided in Section 16.
16. DEFAULT, REMEDIES
(a) The following shall be deemed "Events of Default" under the Lease:
(1) Lessee fails to pay any installment of rent or other charge or
amount due under the Lease within ten (10) days after notice
that such payment is overdue; or
(2) Except as expressly permitted in the Lease, Lessee attempts to
remove, sell encumber, assign or sublease or fails to insure
any of the Equipment, or fails, within ten (10) days written
notice, to deliver any documents required from Lessee under
the Lease; or
(3) Any representation or warranty made by Lessee or Lessee's
guarantor in the Lease or any document supplied in connection
with the Lease or any financial statement is misleading or
materially inaccurate; or
(4) Lessee fails to observe or perform any of the other
obligations required to be observed by Lessee under the Lease
within thirty (30) days of Lessee's first knowledge of such
failure; or
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(5) Lessee or Lessee's guarantor ceases doing business as a going
concern; makes an assignment for the benefit of creditors;
admits in writing its inability to pay its debts as they
become due; files a voluntary petition in bankruptcy; is
adjudicated a bankrupt or an insolvent; files a petition
seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
arrangement under any present or future statute, law or
regulation or files an answer admitting or fails to deny the
material allegations of a petition filed against it in any
such proceeding; consents to or acquiesces in the appointment
of a trustee, receiver, or liquidator for it or of all or any
substantial part of its assets or properties, or if it or its
trustee, receiver, liquidator or shareholders shall take any
action to effect its dissolution or liquidation; or
(6) If within sixty (60) days after the commencement of any
proceedings against Lessee or Lessee's guarantor seeking
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present
or future statute, law or regulation, such proceedings shall
not have been dismissed, or if within thirty (30) days after
the appointment (with or without Lessee's or Lessee's
guarantor's consent) of any trustee, receiver or liquidator of
it or all of or any substantial part of its respective assets
and properties, such appointment shall not be vacated.
(b) Upon the happening of any Event of Default, Lessor may declare the
Lessee to be in default. Lessee authorizes Lessor at any time
thereafter, with or without terminating the Lease, to enter any
premises where the Equipment may be and take possession of the
Equipment. Lessee shall, upon such declaration of default, without
further demand, immediately pay Lessor an amount which is equal to (i)
any unpaid amount due on or before Lessor declared the Lease to be in
default, plus (ii) as liquidated damages for loss of a bargain and not
as a penalty, an amount equal to the Stipulated Loss Value for the
Equipment computed as of the date the last Base Monthly Rental payment
was due prior to the date Lessor declared the Lease to be in default,
together with interest, as provided herein, plus (iii) all attorney and
court costs incurred by Lessor relating to the enforcement of its
rights under the Lease. After an Event of Default, at the request of
Lessor and to the extent requested by Lessor, Lessee shall immediately
comply with the provisions of Section 6(d) and Lessor may sell the
Equipment at private or public sale, in bulk or in parcels, with or
without notice, without having the Equipment present at the place of
sale; or Lessor may lease, otherwise dispose of or keep idle all or
part of the Equipment, subject, however, to its obligation to mitigate
damages. The proceeds of sale, lease or other disposition, if any, of
the Equipment shall be applied: (1) to all Lessor's costs, charges and
expenses incurred in taking, removing, holding, repairing and selling,
leasing or otherwise disposing of the Equipment including attorney
fees; then (2) to the extent not previously paid by Lessee, to pay
Lessor the Stipulated Loss Value for the Equipment and all other sums
owed by Lessee under the Lease, including any unpaid rent which accrued
to the date Lessor declared the Lease to be in default and indemnities
then remaining unpaid under the Lease; then (3) to reimburse to Lessee
Stipulated Loss Value previously paid by Lessee as liquidated damages;
and (4) any surplus shall be retained by Lessor. Lessee shall pay any
deficiency in (1) and (2) immediately. The exercise of any of the
foregoing remedies by Lessor shall not constitute a termination of the
Lease unless Lessor so notifies Lessee in writing. Lessor may also
proceed by appropriate court action, either at law or in equity to
enforce performance by Lessee of the applicable covenants of the Lease
or to recover damages for the breach of the Lease.
(c) The waiver by Lessor of any breach of any obligation of Lessee shall
not be deemed a waiver of any future breach of the same or any other
obligation. The subsequent acceptance of rental payments under the
Lease by Lessor shall not be deemed a waiver of any such prior existing
breach at the time of acceptance of such rental payments. The rights
afforded Lessor under Section 16 shall be cumulative and concurrent and
shall be in addition to every other right or remedy provided for the
Lease or now or later existing in law (including as appropriate all the
rights of a secured party or lessor under the Uniform Commercial Code)
or in equity and Lessor's exercise or attempted exercise of such rights
or remedies shall not preclude the simultaneous or later exercise of
any or all other rights or remedies.
(d) In the event Lessee shall fail to perform any of its obligations under
the Lease, then Lessor may perform the same, but shall not be obligated
to do so, at the cost and expense of Lessee. In any such event, Lessee
shall promptly reimburse Lessor for any such costs and expenses
incurred by Lessor.
17. LESSOR'S TAX BENEFITS
Lessee acknowledges that Lessor shall be entitled to claim all tax benefits,
credits and deductions related to the Equipment for federal income tax purposes
including, without limitation: (i) deductions on Lessor's cost of the Equipment
for each of its tax years during the term of the Lease under any method of
depreciation or other cost recovery formula permitted by the Internal Revenue
Code of 1986, as amended (hereinafter called the "Code"), and (ii) interest
deductions as permitted by the Code on the aggregate interest paid to any
Assignee (hereinafter collectively "Lessor's Tax Benefits"). Lessee agrees to
take no action inconsistent (including the voluntary substitution of Equipment)
with the foregoing or which would result in the loss, disallowance, recapture or
unavailability to Lessor of Lessor's Tax Benefits. Lessee hereby indemnifies
Lessor and its Assignee(s) from and against (a) any loss, disallowance,
unavailability or recapture of Lessor's Tax Benefits resulting from any action
or failure to act of Lessee, including replacement of the Equipment, plus (b)
all interest, penalties, costs, (including attorney fees), or additions to tax
resulting from such loss, disallowance, unavailability or recapture.
7
<PAGE>
18. GENERAL
(a) The Lease shall be deemed to have been made and delivered in the State
of Michigan and shall be governed in all respects by the laws of such
State. THE PARTIES HERETO AGREE THAT IN THE EVENT OF AN ALLEGED BREACH
OF THIS AGREEMENT OR ANY DOCUMENTS RELATING THERETO BY EITHER PARTY, OR
ANY CONTROVERSIES ARISE BETWEEN THE PARTIES RELATING TO THIS AGREEMENT
OR ANY DOCUMENTS RELATING THERETO, AND SUCH BREACHES OR CONTROVERSIES
ARE BROUGHT BEFORE ANY COURT, SUCH CONTROVERSIES SHALL BE TRIED BY A
JUDGE ALONE. THE PARTES, HAVING HAD THE OPPORTUNITY TO CONSULT WITH
INDEPENDENT COUNSEL OF THEIR OWN CHOOSING, HEREBY KNOWINGLY AND
VOLUNTARILY WAIVE THEIR RIGHTS TO A TRIAL BY JURY IN ANY MATTER
RELATING TO THIS AGREEMENT OR ANY DOCUMENTS RELATED THERETO.
(b) The Master Agreement and the Lease constitute the entire and only
agreement between Lessee and Lessor with respect to the lease of the
Equipment, and the parties have only those rights and have incurred
only those obligations as specifically set forth herein. The covenants,
conditions, terms and provisions may not be waived or modified orally
and shall supersede all previous proposals, both oral and written,
negotiations, representations, commitments or agreements between the
parties. The Lease may not be amended or discharged except by a
subsequent written agreement entered into by duly authorized
representatives of Lessor and Lessee.
(c) All notices, consents or requests desired or required to be given under
the Lease shall be in writing and shall be delivered in person or sent
by certified mail, return, receipt requested, or by courier service to
the address of the other party set forth in the introduction of the
Master Agreement or to such other address as such party shall have
designated by proper notice.
(d) Each Schedule shall be executed in three counterparts, consecutively
numbered. To the extent, if any, that a Schedule constitutes chattel
paper (as such term is defined in the Uniform Commercial Code) no
security interest in the Schedule may be created through the transfer
or possession of any counterpart other than Counterpart No. 1. The
Master Agreement, in the form of a photocopy, is Exhibit A to the
Schedule and is not chattel paper by itself.
(e) Section headings are for convenience only and shall not be construed as
part of the Lease.
(f) It is expressly understood that all of the Equipment shall be and
remain personal property, notwithstanding the manner in which the same
may be attached or affixed to realty, and, upon Lessor's request,
Lessee shall secure from its mortgagee, landlord or owner of the
premises a waiver in form and substance reasonably satisfactory to
Lessor.
(g) Lessor may upon written notice to Lessee advise Lessee that certain
Items supplied to Lessee are leased to Lessor and supplied to Lessee
under the Lease as a sublease. Lessee agrees to execute and deliver
such acknowledgements and assignments in connection with such a Lease
as are reasonably required. If, at any time during the term of the
Lease, Lessor's right to lease the Equipment expires, Lessor may remove
the Equipment from Lessee's premises and shall promptly provide
identical substitute Equipment. All expenses of such substitution,
including de-installation, installation and transportation expenses,
shall be borne by Lessor.
(h) Prior to the delivery of any Item, the obligations of Lessor hereunder
shall be suspended to the extent that it is hindered or prevented from
complying therewith because of: labor disturbances, including strikes
and lockouts; acts of God; fires; storms; accidents; failure to deliver
any Item; governmental regulations or interferences or any cause
whatsoever not within the sole control of Lessor.
(i) Any provision of the Master Agreement or any Schedule prohibited by or
unlawful or unenforceable under any applicable law of any jurisdiction
shall be ineffective as to such jurisdiction without invalidating the
remaining provisions of the Master Agreement and such Schedule.
(j) Although this Lease is the standard form used by Lessor to lease
hardware equipment to Lessee, both Lessor and Lessee acknowledge that,
with respect to any software which may be included as Equipment
("Software"), this Lease is a financing agreement whereby that portion
of Lessee's Base Monthly Rental payment obligation applicable to any
Software represents license fees which are being paid by Lessee in
consideration for payment by Lessor to the software vendor ("Vendor")
of the total license fee relating to any such Software. Neither Lessor
nor Lessee have or were granted any ownership or other proprietary
rights in the Software, and neither party purports to transfer any such
rights to the other hereunder. Lessee has only those rights in the
Software which were granted to Lessee pursuant to the software license
agreement entered into directly between Vendor and Lessee ("License").
The terms of this Lease are applicable only as between Lessor (and any
Assignee) and Lessee. The terms of the License are applicable only as
between Lessee and Vendor, and Lessor does not assume and is not liable
for any obligations under any of the provisions of the License.
Lessee's Base Monthly Rental payment obligation is
8
<PAGE>
absolute and unconditional in all respects regardless of any problem
Lessee may have with the Software, any dispute Lessee may have with the
Vendor, any inability of Lessee to use the Software, or the exercise by
Vendor of any remedies it may have pursuant to the License.
Notwithstanding anything herein to the contrary, this Section 18(j)
shall not apply to any Schedule which does not include any software.
(k) The parties agree that this is a "Finance Lease" as defined by section
2A-103(g) of the Uniform Commercial Code ("UCC"). Lessee acknowledges
either (a) that Lessee has reviewed and approved any written Supply
Contract (as defined by UCC 2-A- 103(y)) covering the Equipment
purchased from the Supplier (as defined by UCC 2A-103(x)) thereof for
lease to Lessee or (b) that Lessor has informed or advised Lessee, in
writing, either previously or by Master Agreement Lease of the
following: (i) the identity of the Supplier, (ii) that the Lessee may
have rights under the Supply Contract; and (iii) that the Lessee may
contact the Supplier for a description of any such rights Lessee may
have under the Supply Contract.
(1) The parties acknowledge that serial numbers for one or more Items may
be unavailable prior to execution of the applicable Schedule. In the
event a Schedule fails to indicate a serial number for one or more
Items, Lessee expressly consents to Lessor's unilateral amendment of
the applicable Schedule to insert accurate serial numbers therein.
The parties have executed this Master Lease Agreement as of the date written
above.
LESSOR: LESSEE:
VARILEASE CORPORATION PHARMAPRINT
By:/s/ Gary F. Miller By: /s/ Phillip G. Trad
---------------------- -------------------------
Name: Gary F. Miller Name: Phillip G. Trad
-------------------- -----------------------
By: Senior Vice President Title: Senior Vice President
---------------------- ----------------------
If there are no Additional Provisions to this Master Lease Agreement, check here
X . If there are Additional Provisions describe here:
9
<PAGE>
Page 1 of 3
SCHEDULE NO. 01
dated December 19, 1998
incorporating by reference
Master Agreement dated November 30, 1998
between VARILEASE CORPORATION, as Lessor,
and PHARMAPRINT INC., as Lessee.
LESSEE AGREES TO LEASE THE DESCRIBED EQUIPMENT FROM LESSOR, AND LESSOR BY
ACCEPTANCE OF THIS LEASE, AGREES TO LEASE THE EQUIPMENT TO LESSEE ON THE TERMS
AND CONDITIONS SET FORTH IN THIS SCHEDULE AND THE MASTER AGREEMENT, WHICH IS
INCORPORATED HEREIN BY REFERENCE.
1. EQUIPMENT DESCRIPTION:
<TABLE>
<CAPTION>
Value for
Calculation
Model/ of Stip.
QTY MFGR FEATURE DESCRIPTION LOSS VALUE
<S> <C> <C> <C> <C>
2 Bosch GKF 2000 Capsule Filler $ 974,760.00
1 Bosch KKE 2000 Check Weigher (Size Parts) $ 15,950.00
1 Bosch KKE 2000 Check Weigher (Size Parts) N/C
2 Bosch KKE 2000 Capsule Weigher $ 539,800.00
1 Bosch KKE 2000 Capsule Weigher N/C
TOTAL $1,530,510.00
</TABLE>
<TABLE>
<S> <C>
2. BASE MONTHLY RENTAL: $36,992.43
3. EQUIPMENT LOCATION: IPC, Inc.
1100 Enterprise Drive
Winchester, KY 40391
4. EQUIPMENT RETURN LOCATION: To Be Advised
5. EXPECTED DELIVERY DATE: Installed
6. BASE TERM: 48 months
</TABLE>
7. RIDERS: If there are no Riders, please check here: X . If there are Riders,
attach and describe here:
8. SPECIAL TERMS:
1. EARLY TERMINATION OPTION. Provided no Event of Default or event
which with the giving of notice or lapse of time, or both, would constitute an
Event of Default has occurred and is continuing, and provided Lessee has given
Lessor at least 180 days prior written notice ("Notice"), Lessee shall have the
option to terminate this Schedule, with respect to all, but not less than all,
the Equipment, on the last day of the twenty-fourth month of the Base Term of
the Lease ("Termination Date"). On or before the Termination Date, Lessee shall
return the Terminated Items to Lessor and pay to Lessor an amount equal to
45.075% of the Original Cost of the Equipment.
Lessor /s/ G.P.M. Lessee /s/ P.G.T.
----------- ----------
THIS IS COUNTERPART NO. OF 3 SERIALLY NUMBERED COUNTERPARTS. TO THE EXTENT THAT
THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO
SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED THROUGH THE TRANSFER AND
POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.
<PAGE>
Page 2 of 3
2. RENEWAL OPTION. Provided no Event of Default or event which with
the giving of notice or lapse of time, or both, would constitute an Event of
Default has occurred and is continuing, Lessee shall have the option to
extend the term of the Lease, for an additional term of either twelve (12) or
twenty-four (24) months, as to all, but not less than all, of the Equipment
at the end of the Base Term or any prior renewal term subject to the
following terms and conditions: (i) Lessee must notify Lessor of its exercise
of the option at least 180 days prior to the expiration of the Base Term;
(ii) all of the terms and conditions of the Lease, other than the Base
Monthly Rental, which shall be the then Fair Rental Value of the Equipment at
the commencement of such renewal term, shall remain the same. For purposes of
this Renewal Option, the "Fair Rental Value" is defined as the value upon
which a willing lessor and a willing lessee would agree, for the term
involved, each respectively under no compulsion to lease. Fair Rental Value
shall be determined by agreement of Lessor and Lessee, or, if they are unable
to agree, Fair Rental Value shall be determined by an independent appraiser
selected by Lessor and satisfactory to Lessee. The cost of such appraisal
shall be borne equally by Lessor and Lessee.
3. PURCHASE OPTION. Provided no Event of Default or event which with
the giving of notice or lapse of time, or both, would constitute an Event of
Default has occurred and is continuing, and provided Lessee has given Lessor
at least 180 days written notice prior to the expiration of the Base Term or
any extension, Lessee shall have the option at the end of such Base Term or
any extension to purchase all, but not less than all, of the Equipment for an
amount equal to the then Fair Market Value of the Equipment. For purposes of
this Purchase Option, "Fair Market Value" shall be defined as the purchase
price of the Equipment (delivered and installed at Lessee's location) that
would be obtained in an arm's length transaction between a willing seller and
a willing purchaser, neither under a compulsion to buy or sell. In the event
Lessor and Lessee cannot agree upon the Fair Market Value, then such amount
shall be determined by an independent appraiser selected by Lessor but
satisfactory to Lessee. The cost of such appraisal shall be borne equally by
Lessor and Lessee. Upon receipt of the Fair Market Value, plus any taxes,
Lessor shall execute and deliver to Lessee a bill of sale without
representation or warranty except that the Equipment is free and clear of any
liens, claims or encumbrances created by Lessor.
4. LETTER OF CREDIT. Lessee hereby agrees, should it fail to achieve
the credit targets outlined below ("Targets"), to arrange for a
non-cancelable Letter of Credit ("LOC") to be issued in favor of Lessor or
its assigns by a financial institution acceptable to Lessor, in an amount
equal to 25% of the sum of all remaining unpaid rentals under the Lease.
Failure to provide this LOC if the Targets are not met shall be deemed an
immediate Event of Default hereunder. The form of the LOC must be acceptable
to Lessor in its sole discretion. The Targets are as follows (capitalized
terms herein shall have the same meaning as set forth in Lessee's Quarterly
Financial Statements):
1. Lessee Earnings before deducting Interest, Taxes,
Depreciation, Amortization and Rent, for the three (3)
month period ending June 30, 1999 shall be equal to or
greater than 100% of the Lessee's Fixed Charges, including
lease rentals.
2. For the entire Base Term, the sum of Lessee's Cash and
Cash Equivalent Assets shall equal or exceed the greater of
Lessee's Accounts Payable or the Lessee's Operating Deficit
for the prior six (6) months.
Lessor /s/ G.P.M. Lessee /s/ P.G.T.
----------- ----------
THIS IS COUNTERPART NO. OF 3 SERIALLY NUMBERED COUNTERPARTS. TO THE EXTENT THAT
THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO
SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED THROUGH THE TRANSFER AND
POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.
<PAGE>
Page 3 of 3
9. LESSEE ADDRESS FOR NOTICES (if different than Master Agreement):
Notwithstanding anything herein or in the Master Agreement to the contrary,
Lessee acknowledges and agrees, that Lessor shall be entitled to claim for
federal income tax purposes, without limitation, all benefits, credits and
deductions related to the Equipment.
The undersigned Lessee acknowledges that this Schedule authorizes the Lessor
or its agents or assignee(s) to sign and execute on its behalf any and all
necessary documents to make public this lease transaction. The parties intend
this transaction to be a true lease, but if any court or tribunal, having
power to bind the parties, should conclude that all or part of this Schedule
is not a true lease but is in the nature of a sale, consignment, or other
transaction, the parties intend and the Lessee hereby grants a continuing
security interest in the Equipment from the date of this Schedule to secure
the payment of all Lessee's indebtedness to Lessor. In the event serial
numbers for Items are unavailable upon execution hereof, Lessee authorizes
Lessor to amend this Schedule by inserting correct serial numbers with
respect to those Items.
THIS SCHEDULE TOGETHER WITH EXHIBIT A AND ANY ADDITIONAL PROVISION(S)
REFERRED TO IN ITEM 7 CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE LESSOR AND
LESSEE AS TO THE LEASE AND THE EQUIPMENT. LESSEE ACKNOWLEDGES THAT ON OR
BEFORE LESSEE'S SIGNING OF THIS SCHEDULE IT RECEIVED A COPY OF THE CONTRACT
EVIDENCING LESSOR'S ACQUISITION OF THE EQUIPMENT.
LESSOR: LESSEE:
VARILEASE CORPORATION PHARMAPRINT INC.
By: /s/ GARY F. MILLER By: /s/ PHILLIP G. TRAD
--------------------------------- -------------------------------
Name: GARY F. MILLER Name: PHILLIP G. TRAD
--------------------------------- -------------------------------
Title: SENIOR VICE PRESIDENT Title: SENIOR VICE PRESIDENT
--------------------------------- -------------------------------
THIS IS COUNTERPART NO. OF 3 SERIALLY NUMBERED COUNTERPARTS. TO THE EXTENT THAT
THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO
SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED THROUGH THE TRANSFER AND
POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.
<PAGE>
Page 1 of 3
SCHEDULE NO. 02
dated December 19, 1998
incorporating by reference
Master Agreement dated November 30, 1998
between VARILEASE CORPORATION, as Lessor, and
PHARMAPRINT INC., as Lessee.
LESSEE AGREES TO LEASE THE DESCRIBED EQUIPMENT FROM LESSOR, AND LESSOR BY
ACCEPTANCE OF THIS LEASE, AGREES TO LEASE THE EQUIPMENT TO LESSEE ON THE TERMS
AND CONDITIONS SET FORTH IN THIS SCHEDULE AND THE MASTER AGREEMENT, WHICH IS
INCORPORATED HEREIN BY REFERENCE.
1. EQUIPMENT DESCRIPTION:
<TABLE>
<CAPTION>
VALUE
FOR
CALCULATION
MODEL/ OF STIP.
QTY MFGR FEATURE DESCRIPTION LOSS VALUE
<S> <C> <C> <C> <C>
1 Bosch GKF 2000 Capsule Filler $487,380.00
2. BASE MONTHLY RENTAL: $11,779.97
3. EQUIPMENT LOCATION: IPC, Inc.
1100 Enterprise Drive
Winchester, KY 40391
4. EQUIPMENT RETURN LOCATION: To Be Advised
5. EXPECTED DELIVERY DATE: December 31, 1998
6. BASE TERM: 48 months
7. RIDERS: If there are no Riders, please check here: X . If there are
Riders: attach and describe here:
8. SPECIAL TERMS:
</TABLE>
l. EARLY TERMINATION OPTION. Provided no Event of Default or event
which with the giving of notice or lapse of time, or both, would constitute an
Event of Default has occurred and is continuing, and provided Lessee has given
Lessor at least 180 days prior written notice ("Notice"), Lessee shall have the
option to terminate this Schedule, with respect to all, but not less than all,
the Equipment, on the last day of the twenty-fourth month of the Base Term of
the Lease ("Termination Date"). On or before the Termination Date, Lessee shall
return the Terminated Items to Lessor and pay to Lessor an amount equal to
45.075% of the Original Cost of the Equipment.
Lessor /s/ not legible Lessee /s/ not legible
- --------------------------- ---------------------------
THIS IS COUNTERPART NO. 3 OF 3 SERIALLY NUMBERED COUNTERPARTS. TO THE
EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM
COMMERCIAL CODE, NO SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED
THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN
COUNTERPART NO. 1.
<PAGE>
Page 2 of 3
2. RENEWAL OPTION. Provided no Event of Default or event which with the
giving of notice or lapse of time, or both, would constitute an Event of Default
has occurred and is continuing, Lessee shall have the option to extend the term
of the Lease, for an additional term of either twelve (12) or twenty-four (24)
months, as to all, but not less than all, of the Equipment at the end of the
Base Term or any prior renewal term subject to the following terms and
conditions: (i) Lessee must notify Lessor of its exercise of the option at least
180 days prior to the expiration of the Base Term; (ii) all of the terms and
conditions of the Lease, other than the Base Monthly Rental, which shall be the
then Fair Rental Value of the Equipment at the commencement of such renewal
term, shall remain the same. For purposes of this Renewal Option, the "Fair
Rental Value" is defined as the value upon which a willing lessor and a willing
lessee would agree, for the term involved, each respectively under no compulsion
to lease. Fair Rental Value shall be determined by agreement of Lessor and
Lessee, or, if they are unable to agree, Fair Rental Value shall be determined
by an independent appraiser selected by Lessor and satisfactory to Lessee. The
cost of such appraisal shall be borne equally by Lessor and Lessee.
3. PURCHASE OPTION. Provided no Event of Default or event which with
the giving of notice or lapse of time, or both, would constitute an Event of
Default has occurred and is continuing, and provided Lessee has given Lessor at
least 180 days written notice prior to the expiration of the Base Term or any
extension, Lessee shall have the option at the end of such Base Term or any
extension to purchase all, but not less than all, of the Equipment for an amount
equal to the then Fair Market Value of the Equipment. For purposes of this
Purchase Option, "Fair Market Value" shall be defined as the purchase price of
the Equipment (delivered and installed at Lessee's location) that would be
obtained in an arm's length transaction between a willing seller and a willing
purchaser, neither under a compulsion to buy or sell. In the event Lessor and
Lessee cannot agree upon the Fair Market Value, then such amount shall be
determined by an independent appraiser selected by Lessor but satisfactory to
Lessee. The cost of such appraisal shall be borne equally by Lessor and Lessee.
Upon receipt of the Fair Market Value, plus any taxes, Lessor shall execute and
deliver to Lessee a bill of sale without representation or warranty except that
the Equipment is free and clear of any liens, claims or encumbrances created by
Lessor.
4. LETTER OF CREDIT. Lessee hereby agrees, should it fail to achieve
the credit targets outlined below ("Targets"), to arrange for a non-cancelable
Letter of Credit ("LOC") to be issued in favor of Lessor or its assigns by a
financial institution acceptable to Lessor, in an amount equal to 25% of the sum
of all remaining unpaid rentals under the Lease. Failure to provide this LOC if
the Targets are not met shall be deemed an immediate Event of Default hereunder.
The form of the LOC must be acceptable to Lessor in its sole discretion. The
Targets are as follows (capitalized terms herein shall have the same meaning as
set forth in Lessee's Quarterly Financial Statements):
1. Lessee Earnings before deducting Interest, Taxes, Depreciation
and amortization, for the three (3) month period ending June 30,
1999 shall be equal to or greater than 100% of the Lessee's
Fixed Charges, Including lease rentals.
2. For the entire Base Term, the sum of Lessee's Cash as Equivalent
Assets shall equal or exceed the greater of Lessee's Accounts
Payable or the Lessee's r ting Deficit for the prior six (6)
months.
Lessor /s/ not legible Lessee /s/ not legible
- --------------------------- ---------------------------
THIS IS COUNTERPART NO. 3 OF 3 SERIALLY NUMBERED COUNTERPARTS. TO THE EXTENT
THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE,
NO SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED THROUGH THE TRANSFER AND
POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.
<PAGE>
Page 3 of 3
9. LESSEE ADDRESS FOR NOTICES (if different than Master Agreement):
Notwithstanding anything herein or in the Master Agreement to the contrary,
Lessee acknowledges and agrees, that Lessor shall be entitled to claim for
federal income tax purposes, without limitation, all benefits, credits and
deductions related to the Equipment.
The undersigned Lessee acknowledges that this Schedule authorizes the Lessor or
its agents or assignee(s) to sign and execute on its behalf any and all
necessary documents to make public this lease transaction. The parties intend
this transaction to be a true lease, but if any court or tribunal, having power
to bind the parties, should conclude that all or part of this Schedule is not a
true lease but is in the nature of a sale, consignment, or other transaction,
the parties intend and the Lessee hereby grants a continuing security interest
in the Equipment from the date of this Schedule to secure the payment of all
Lessee's indebtedness to Lessor. In the event serial numbers for Items are
unavailable upon execution hereof, Lessee authorizes Lessor to amend this
Schedule by inserting correct serial numbers with respect to those Items.
THIS SCHEDULE TOGETHER WITH EXHIBIT A AND ANY ADDITIONAL PROVISION(S) REFERRED
TO IN ITEM 7 CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE LESSOR AND LESSEE AS TO
THE LEASE AND THE EQUIPMENT. LESSEE ACKNOWLEDGES THAT ON OR BEFORE LESSEE'S
SIGNING OF THIS SCHEDULE IT RECEIVED A COPY OF THE CONTRACT EVIDENCING LESSOR'S
ACQUISITION OF THE EQUIPMENT.
LESSOR: LESSEE
VARILEASE CORPORATION PHARMAPRINT INC.
By:/s/ Gary F. Miller By: /s/ Phillip G. Trad
-------------------- -------------------------
Name: Gary F. Miller Name: Phillip G. Trad
------------------ ------------------------
Title: Senior Vice President Title: Senior Vice President
---------------------- ----------------------
THIS IS COUNTERPART NO. 3 OF 3 SERIALLY NUMBERED COUNTERPARTS. TO THE EXTENT
THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE,
NO SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED THROUGH THE TRANSFER AND
POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.
<PAGE>
INSTALLATION CERTIFICATE
FOR SCHEDULE NO. 02
dated December 19, 1998
incorporating by reference
Master Agreement dated November 30, 1998
between VARILEASE CORPORATION, as Lessor,
and PHARMAPRINT INC., as Lessee.
Lessee hereby certifies (i) that the Items of Equipment described below have
been delivered to the specified Equipment Location, and inspected by Lessee and
have been found to be in good order as of the Installation Date, and (ii) that
the quantity, description, and serial numbers as indicated below are true and
correct.
<TABLE>
<CAPTION>
MODEL/ SERIAL
QTY MFGR FEATURE DESCRIPTION NUMBER
<S> <C> <C> <C> <C>
1 Bosch GKF 2000 Capsule Filler
Installation Date:
-------------------------
Equipment Location: IPC, Inc.
1100 Enterprise Drive
Winchester, KY 40391
</TABLE>
Lessee hereby represents and warrants to Lessor that on the Installation Date:
(1) The representations and warranties of Lessee contained in the
Master Agreement and the Schedule are true and correct in all
material respects as though made as of the Installation Date.
(2) No Event of Default as defined in the Master Agreement has
occurred and is continuing as of the Installation Date.
(3) There are in full force and effect such insurance policies with
resect to the Equipment as are required pursuant to the Master
Agreement.
(4) Lessee's agreement to pay all obligations under the Lease,
including but not limited to Base Monthly Rental, is absolute
and unconditional and shall not be subject to any abatement,
deferment, reduction, setoff, defense, counterclaim or
recoupment for any reason whatsoever.
LESSEE: PHARMAPRINT INC.
By: /s/ Phillip G. Trad
-------------------------
Name: Phillip G. Trad
-----------------------
Title: Senior Vice President
----------------------
THIS IS COUNTERPART NO. 3 OF 3 SERIALLY NUMBERED COUNTERPARTS. TO THE EXTENT
THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE,
NO SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED THROUGH THE TRANSFER AND
POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,513,977
<SECURITIES> 0
<RECEIVABLES> 1,954,455
<ALLOWANCES> 0
<INVENTORY> 7,689,484
<CURRENT-ASSETS> 15,065,318
<PP&E> 1,207,664
<DEPRECIATION> 181,962
<TOTAL-ASSETS> 16,480,524
<CURRENT-LIABILITIES> 7,615,735
<BONDS> 0
0
0
<COMMON> 13,652
<OTHER-SE> 8,422,566
<TOTAL-LIABILITY-AND-EQUITY> 16,480,524
<SALES> 8,640,795
<TOTAL-REVENUES> 16,140,795
<CGS> 6,998,349
<TOTAL-COSTS> 6,998,349
<OTHER-EXPENSES> 18,951,280
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,614
<INCOME-PRETAX> (9,808,834)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,808,834)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,808,834)
<EPS-PRIMARY> (0.72)
<EPS-DILUTED> (0.72)
</TABLE>
