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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
Commission File Number 0-26670
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NORTH AMERICAN SCIENTIFIC, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0366422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20200 Sunburst Street, Chatsworth, CA 91311
(Address of principal executive offices)
(818) 734-8600
(Registrant's telephone number, including area code)
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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.
/X/ Yes / / No
The number of shares of Registrant's Common Stock, $.01 par value,
outstanding as of March 1, 1999 was 6,788,575 shares.
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<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
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PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of January 31, 1999 and October 31, 1998.............................. 3
Consolidated Statements of Income for the three months ended
January 31, 1999 and 1998 ........................................................................ 4
Consolidated Statements of Cash Flows for the three months
ended January 31, 1999 and 1998 .................................................................. 5
Condensed Notes to Consolidated Financial Statements ................................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ...................................................................... 8
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits ............................................................................................ 11
Reports on Form 8-K ................................................................................. 11
</TABLE>
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ..................................................... $ 1,541,000 $ 2,119,000
Marketable securities ......................................................... 8,500,000 9,101,000
Accounts receivable, net ...................................................... 1,362,000 1,323,000
Inventories ................................................................... 678,000 731,000
Prepaid expenses and other current assets...................................... 174,000 196,000
------------ ------------
Total current assets ........................................................ 12,255,000 13,470,000
Notes receivable.................................................................. 1,778,000 1,163,000
Equipment and leasehold improvements, net ........................................ 2,393,000 1,587,000
Advances on construction of equipment ............................................ 2,744,000 2,289,000
Deposits and other assets ........................................................ 556,000 394,000
------------ ------------
Total assets .............................................................. $ 19,726,000 $ 18,903,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .............................................................. $ 554,000 $ 338,000
Accrued expenses .............................................................. 352,000 202,000
Income taxes payable .......................................................... 323,000 376,000
------------ -------------
Total current liabilities ................................................... 1,229,000 916,000
------------ ------------
Stockholders' equity
Preferred stock, $.01 par value, 2,000,000 shares authorized;
no shares issued............................................................. - -
Common stock, $.01 par value, 40,000,000 shares authorized; 6,787,975
shares issued and outstanding as of January 31, 1999 and
October 31, 1998............................................................. 68,000 68,000
Additional paid-in capital .................................................... 17,162,000 17,162,000
Retained earnings ............................................................. 1,267,000 757,000
------------ ------------
Total stockholders' equity .................................................. 18,497,000 17,987,000
------------ ------------
Total liabilities and stockholders' equity .................................. $ 19,726,000 $ 18,903,000
------------ ------------
------------ ------------
</TABLE>
See notes to the consolidated financial statements.
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
-----------------------------
1999 1998
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(UNAUDITED)
<S> <C> <C>
Net sales ...................................................................... $ 2,427,000 $ 820,000
Cost of goods sold.............................................................. 909,000 516,000
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Gross profit ............................................................. 1,518,000 304,000
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Selling, general and administrative expenses ................................... 698,000 358,000
Research and development........................................................ 92,000 42,000
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Income (loss) from operations .................................................. 728,000 (96,000)
Interest and other income....................................................... 122,000 166,000
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Income before provision for income taxes ....................................... 850,000 70,000
Provision for income taxes ..................................................... 340,000 28,000
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Net income ..................................................................... $ 510,000 $ 42,000
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------------- ------------
Earnings per share
Basic ...................................................................... $ .08 $ .01
------------- ------------
------------- ------------
Diluted..................................................................... $ .07 $ .01
------------- ------------
------------- ------------
Weighted average number of common and
common equivalent shares outstanding
Basic ..................................................................... 6,787,975 6,176,302
------------- ------------
------------- ------------
Diluted..................................................................... 7,162,358 6,947,254
------------- ------------
------------- ------------
</TABLE>
See notes to the consolidated financial statements.
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
-----------------------------
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................. $ 510,000 $ 42,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization .......................................... 69,000 43,000
Changes in assets and liabilities
Accounts receivable .................................................. (39,000) (210,000)
Inventories .......................................................... 53,000 (35,000)
Income taxes receivable............................................... - 28,000
Prepaid expenses and other assets .................................... (148,000) 1,000
Accounts payable ..................................................... 216,000 74,000
Accrued expenses ..................................................... 150,000 (26,000)
Income taxes payable ................................................. (53,000) -
-------------- ------------
Net cash provided by (used in) operating activities .......... 758,000 (83,000)
------------- -------------
Cash flows from investing activities:
Advances on construction of equipment....................................... (455,000) -
Net sales of marketable securities ......................................... 601,000 -
Notes receivable............................................................ (615,000) -
Capital expenditures ....................................................... (867,000) (236,000)
-------------- ------------
Net cash used in investing activities ........................ (1,336,000) (236,000)
------------- ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock.................................. - 13,256,000
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Net cash provided by financing activities .................... - 13,256,000
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Net increase (decrease) in cash and cash equivalents ........................... (578,000) 12,937,000
Cash and cash equivalents at beginning of period ............................... 2,119,000 1,596,000
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Cash and cash equivalents at end of period ..................................... $ 1,541,000 $ 14,533,000
------------- ------------
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Supplemental disclosure of cash flow information:
Interest paid .............................................................. $ - $ -
------------- ------------
------------- ------------
Income taxes paid........................................................... $ 393,000 $ -
------------- ------------
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</TABLE>
See notes to the consolidated financial statements.
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial information as of January 31, 1999 and for the
three months then ended is unaudited. In the opinion of the Company, the
unaudited financial information is presented on a basis consistent with the
audited financial statements and contains all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results
for such interim periods. The results of operations for interim periods are
not necessarily indicative of results of operations for the full year. The
interim financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual
Report on Form 10-KSB for the fiscal year ended October 31, 1998.
NOTE 2 - STOCK SPLIT
Effective April 20, 1998, the Company effected a 3-for-2 stock split in the
form of a share dividend. The par value of the Company's common stock was
unchanged. All common stock information set forth in the consolidated
financial statements and notes thereto has been restated to reflect the stock
split.
NOTE 3 - MARKETABLE SECURITIES
The Company considers its marketable securities available-for-sale as defined
in Statement of Financial Accounting Standards ("SFAS") No. 115. There were
no material realized or unrealized gains or losses nor any material
differences between estimated fair values, based upon quoted market prices,
and the costs of securities as of January 31, 1999.
NOTE 4 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
January 31, October 31,
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 538,000 $ 606,000
Work in process 43,000 16,000
Finished goods 97,000 109,000
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$ 678,000 $ 731,000
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</TABLE>
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NOTE 5 - NET INCOME PER SHARE
Basic earnings per share is computed by dividing the net income by the
weighted average number of shares outstanding for the period. Diluted
earnings per share is computed by dividing the net income by the sum of the
weighted average number of common shares outstanding for the period plus the
assumed exercise of all dilutive securities by applying the treasury stock
method. The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
January 31,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 510,000 $ 42,000
-------------- -------------
-------------- -------------
Weighted average shares outstanding (basic) 6,787,975 6,176,302
Dilutive effect of stock options and warrants 374,383 770,952
-------------- -------------
Diluted shares outstanding 7,162,358 6,947,254
-------------- -------------
-------------- -------------
Basic earnings per share $ .08 $ .01
Diluted earnings per share $ .07 $ .01
</TABLE>
<PAGE>
NORTH AMERICAN SCIENTIFIC, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements contained herein and the notes thereto.
Certain matters discussed in this quarterly report on Form 10-Q are forward
looking as that term is defined by: (i) the Private Securities Litigation
Reform Act of 1995 (the "1995 Act") and (ii) releases issued by the SEC.
These statements are being made pursuant to the provisions of the 1995 Act
and with the intention of obtaining the benefits of the "Safe Harbor"
provisions of the 1995 Act. The Company cautions investors that any forward
looking statements made by the Company are not guarantees of future
performance and that actual results may differ materially from those in such
forward looking statements as a result of various factors, including, but not
limited to any risks detailed herein or detailed from time to time in the
Company's filings with the SEC, including those factors identified under
"Business-Risk Factors" in the Company's Annual Report on Form 10-KSB for the
fiscal year ended October 31, 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1999 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1998
NET SALES. Net sales increased $1,607,000, or 196%, to $2,427,000 for the
three months ended January 31, 1999 from $820,000 for the three months ended
January 31, 1998. The increase in net sales was due to the increase in
revenues generated from the I-125 brachytherapy product line which was
introduced in January 1998. Sales of the non-therapeutic lines remained
consistent between periods.
GROSS PROFIT. Gross profit increased $1,214,000 or 399% to $1,518,000 for the
three months ended January 31, 1999 from $304,000 for the three months ended
January 31, 1998. Gross profit as a percent of sales increased from 37% to
63% during this period. The increase in gross profit as a percentage of sales
was primarily attributable to the significant proportionate increase in
revenues from the brachytherapy product line in the first quarter of fiscal
1999 which yield greater gross margins than the Company's non-therapeutic
product lines.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased $340,000, or 95%, to $698,000 for
the three months ended January 31, 1999 from $358,000 for the three months
ended January 31, 1998. SG&A as a percent of net sales decreased to 29% for
the three months ended January 31, 1999 from 44% for the same period in 1998.
SG&A expenses increased primarily due to the following: (i) the Company added
a significant number of administrative personnel throughout fiscal 1998 and
continuing into the first quarter of fiscal 1999 to support the growth of the
Company, (ii) the Company leased a new facility in September 1998 that houses
new product development and corporate offices and (iii) other general and
administrative expenses were increased to give effect to management's plans
for the expansion of the Company.
RESEARCH AND DEVELOPMENT. Research and development efforts continued into the
first quarter of 1999 with such expenditures totaling $92,000 during this
period compared to $42,000 in the corresponding 1998 period. The increase was
due primarily to development efforts associated with new product lines. Such
expenditures may increase in future periods.
INCOME FROM OPERATIONS. Income from operations increased $824,000 to $728,000
for the three months ended January 31, 1999, from a loss of $96,000 for the
three months ended January 31, 1998. This increase is a result of a
combination of the factors described above.
<PAGE>
INTEREST AND OTHER INCOME. Interest and other income decreased $44,000 to
$122,000 for the three months ended January 31, 1999 from $166,000 for the
three months ended January 31, 1998. The Company maintained a lower average
cash and investments balance for the quarter ended January 31, 1999 compared
to January 31, 1998 as a result of the investment of funds in operations and
investing activities during the period December 1997 to January 1999 to
expand the brachytherapy product lines. The investments were consistent with
management's plans upon consummation of the private placement in November
1997.
NET INCOME. Net income increased $468,000 to $510,000 for the three months
ended January 31, 1999 from $42,000 for the three months ended January 31,
1998. The increase is a result of the factors described above.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1999, the Company had cash and investments in marketable
securities aggregating approximately $10 million and working capital of $11
million. For the three months ended January 31, 1999, net cash provided by
operating activities was approximately $0.8 million. Net cash used in
investing activities primarily for capital expenditures, convertible notes
and advances on construction of equipment totaled approximately $1.3 million
during the three months ended January 31, 1999. The capital expenditures
primarily related to projects designed to increase manufacturing capacity for
the brachytherapy product lines.
The Company is authorized to purchase up to $1.5 million of the Company's
common stock on the open market. No such shares have been repurchased as of
January 31, 1999.
To date, the Company's short term liquidity needs have generally consisted of
operating capital to finance growth in inventories, trade accounts receivable
and new product development as well as to take advantage of strategic
investments in related businesses. The Company has satisfied these needs
primarily through a combination of private equity financings and from cash
generated by operations. The Company has no long-term debt or a need for a
line of credit or similar arrangement with a bank. Management anticipates
that its existing cash resources will be sufficient to fund its planned
expansion over the next 24 months, although additional funding may be
required to fund the acquisition of complementary businesses, technologies or
products.
YEAR 2000 COMPLIANCE. The Year 2000 issue arises from the fact that most
computer software programs have been written using two digits rather than
four to represent a specific year. Any computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculation causing disruption of operations, including among other
things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
In an effort to address our Year 2000 exposure the Company assembled a team
of senior managers to create a program that included IT and non-IT components
(office productivity, manufacturing, product, computer, and systems). For
each component area, the team has created projects to identify and address
the risks associated with the new millennium and leap year. The projects
include:
- - Strategic Customer and Supplier Evaluation;
- - Component Assessment;
- - Non-compliance Resolution;
- - Testing; and
- - Documentation.
Further, the Company has added a Year 2000 assessment and disclosure step to
the purchasing process. Hereafter, each IT and non-IT component acquisition
must include a Year 2000 product assessment.
Based upon this ongoing assessment, the Company believes that it will not be
required to modify or replace significant portions of its component inventory
to address Year 2000 issues.
In addition to risks associated with internal components, the Company has
relationships with, and is to varying degrees dependent upon, third parties
that provide us with information, goods and services. These include financial
institutions, suppliers, vendors, research partners and governmental
entities, as well as customers and distributors. External agent risks remain
outside of our control, however the Company has instituted programs to
identify and assess our external agents' Year 2000 compliance. To date, the
Company has received no indication from any material third party that they
anticipate any Year 2000 compliance problems.
The Company will continue to assess Year 2000 compliance on an on-going
basis, including monitoring new products and conducting surveys with third
parties to ensure Year 2000 issues are resolved in a timely manner.
Additionally, the Company is developing a contingency plan which it will put
into effect in the event of any currently unanticipated Year 2000 compliance
issues.
<PAGE>
All aspects of the Company's Year 2000 program are expected to be completed
in mid-1999. Total costs to resolve the Year 2000 issue are not expected to
be material to the Company's financial position, results of operations or
cash flows
The foregoing is a Year 2000 readiness disclosure entitled to protection as
provided in the Year 2000 Information and Readiness Disclosure Act.
<PAGE>
PART II - OTHER INFORMATION
The Company was not required to report the information pursuant to Items 1
through 6 of Part II of Form 10-Q except as follows:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - The following Exhibits are filed herewith:
Exhibit 10.1 - Lease Agreement dated as of August 14, 1998 between the
Registrant and The Vernon and Helen Farquhar Family Trust, et al
Exhibit 27 - Financial Data Schedule (EDGAR only)
b. Reports on Form 8-K - No reports on Form 8-K have been filed during the
quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTH AMERICAN SCIENTIFIC, INC.
March 3, 1999 By: /s/ L. Michael Cutrer
--------------------------------------
Name: L. Michael Cutrer
Title: President and
Chief Executive Officer
(Principal Executive Officer)
March 3, 1999 By: /s/ Alan I. Edrick
--------------------------------------
Name: Alan I. Edrick
Title: Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT 10.1
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: THIS LEASE ("Lease"), dated for reference purposes
only, August 14, 1998, is made by and between The Vernon and Helen Farquhar
Family Trust et al and North American Scientific, Inc., a California
Corporation ("LESSEE") (collectively the "PARTIES," or individually a
"PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known as 20200 Sunburst Street, Chatsworth, CA 91311, located in
the County of Los Angeles, State of California, and generally described as
(describe briefly the nature of the property and, if applicable, the
"PROJECT", if the property is located within a Project) an approximately
24,000 square foot building situated on an approximately 52,708 square foot
parcel of MR-2 zoned land. ("PREMISES"). (See also Paragraph 2).
1.3 TERM: five (5) years and two (2) months ("ORIGINAL TERM")
commencing October 1, 1998 ("COMMENCEMENT DATE") and ending November 30, 2003
("EXPIRATION DATE"). (See also Paragraph 3)
1.4 EARLY POSSESSION: September 1, 1998 ("EARLY POSSESSION DATE").
(See also paragraphs 3.2 and 3.3)
1.5 BASE RENT: $ 15,000.00 per month ("BASE RENT"), payable on the
first day of each month commencing October 1, 1998 (See also Paragraph 4)
/x/ If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ 15,000.00 as Base Rent for
the period of the month of November 1998.
1.7 SECURITY DEPOSIT: $ 15,000.00 ("SECURITY DEPOSIT"). (See also
Paragraph 5)
1.8 AGREED USE: Corporate headquarters, research, development and
manufacture of radioisotope products for therapeutic, environmental research
and industrial applications. (See also Paragraph 6)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers
(collectively, the "BROKERS" and brokerage relationships exist in this
transaction (check applicable boxes):
/X/ Grubb & Ellis Company represents Lessor exclusively ("LESSOR'S
BROKER");
/X/ Delphi Business Properties represents Lessee exclusively ("LESSEE'S
BROKER"); or
/ / ________________ represents both Lessor and Lessee ("DUAL AGENCY").
(b) Payment to Brokers: Upon execution and delivery of this Lease
by both Parties, Lessor shall pay to the Broker the fee agreed to in their
separate written agreement.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("GUARANTOR"). (See also Paragraph 37)
<PAGE>
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 58 and Exhibits ___________________, all
of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all
of the terms, covenants and conditions set forth in this Lease. Unless
otherwise provided herein, any statement of size set forth in this Lease, or
that may have been used in calculating rental, is an approximation which the
Parties agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom
clean and free of debris on the Commencement Date or the Early Possession
Date, whichever first occurs ("START DATE"), and, so long as the required
service contracts described in Paragraph 7.1 (b) below are obtained by Lessee
within (120) days following the Start Date, warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning systems ("HVAC"), loading doors, if any, and all other such
elements in the Premises, other than those constructed by Lessee, shall be in
good operating condition on said date and that the structural elements of the
roof, bearing walls and foundation of any buildings on the Premises (the
"BUILDING") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, as Lessor's sole
obligation with respect to such matter, except as otherwise provided in this
Lease, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify same
at Lessors expense. If, after the Start Date, Lessee does not give Lessor
written notice of any non-compliance with this warranty within: (i) one year
as to the surface of the roof and the structural portions of the roof,
foundations and bearing walls, (ii) six (6) months as to the HVAC systems,
(iii) (120) days as to the remaining systems and other elements of the
Building, correction of such non-compliance shall be the obligation of Lessee
at Lessee's sole cost and expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the
Premises comply with all applicable laws, covenants or restrictions of
record, building codes, regulations and ordinances ("APPLICABLE
REQUIREMENTS") in effect on the Start Date. Said warranty does not apply to
the use to which Lessee will put the Premises or to any Alterations or
Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by
Lessee. NOTE: Lessee is responsible for determining whether or not the
zoning is appropriate for Lessee's intended use, and acknowledges that past
uses of the Premises may no longer be allowed. If the Premises do not comply
with said warranty, Lessor shall, except as otherwise provided, promptly
after receipt of written notice from Lessee setting forth with specificity
the nature and extent of such non-compliance, rectify the same at Lessor's
expense. If Lessee does not give Lessor written notice of a non-compliance
with this warranty within six (6) months following the Start Date, correction
of that non-compliance shall be the obligation of Lessee at Lessee's sole
cost and expense. If the Applicable Requirements are hereafter changed (as
opposed to being in existence at the Start Date, which is addressed in
Paragraph 6.2(e) below) so as to require during the term of this Lease the
construction of an addition to or an alteration of the Building, the
remediation of any Hazardous Substance, or the reinforcement or other
physical modification of the Building ("CAPITAL EXPENDITURE"), Lessor and
Lessee shall allocate the cost of such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of
the Premises by Lessee as compared with uses by tenants in general, Lessee
shall be fully responsible for the cost thereof, provided, however, that
if such Capital Expenditure is required during the last two (2) years of
this Lease and the cost thereof exceeds six (6) months' Base Rent, Lessee
may instead terminate this Lease unless Lessor notifies Lessee, in
writing, within ten (10) days after receipt of Lessee's termination notice
that Lessor has elected to pay the difference between the actual cost
thereof and the amount equal to six (6) months' Base Rent. If Lessee
elects termination, Lessee shall immediately cease the use of the Premises
which requires such Capital Expenditure and deliver to Lessor written
notice specifying a termination date at least ninety (90) days thereafter.
Such termination date shall, however, in no event be earlier than the last
day that Lessee could legally utilize the Premises without commencing such
Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and Lessee shall allocate the
obligation to pay for such costs pursuant to the provisions of Paragraph
7.1 (c); provided, however, that if such Capital Expenditure is required
during the last two years of this Lease or if Lessor reasonably determines
that it is not economically feasible to pay its share thereof, Lessor
shall have the option to terminate this Lease upon ninety (90) days prior
written notice to Lessee unless Lessee notifies Lessor, in writing, within
ten (10) days after receipt of Lessor's termination notice that Lessee
will pay for such Capital Expenditure. If Lessor does not elect to
terminate, and fails to tender its share of any such Capital Expenditure,
Lessee may advance such funds and deduct same, with Interest, from Rent
until Lessor's share of such costs have been fully paid. If Lessee is
unable to finance Lessor's share, or if the balance of the Rent due and
payable for the remainder of this Lease is not sufficient to fully
reimburse Lessee on an offset basis, Lessee shall have the right to
terminate this Lease upon thirty (30) days written notice to Lessor.
<PAGE>
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and
new Applicable Requirements. If the Capital Expenditures are instead
triggered by Lessee as a result of an actual or proposed change in use,
change in intensity of use, or modification to the Premises then, and in
that event, Lessee shall be fully responsible for the cost thereof, and
Lessee shall not have any right to terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that : (a) it has been
advised by Lessor and/or Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical, HVAC
and fire sprinkler systems, security, environmental aspects, and compliance
with Applicable Requirements), and their suitability for Lessee's intended
use, (b) Lessee has made such investigation as it deems necessary with
reference to such matters and assumes all responsibility therefor as the same
relate to its occupance of the Premises, and (c) neither Lessor, Lessor's
agents, nor any Broker has made any oral or written representations or
warranties with respect to said matters other than as set forth in this
Lease. In addition, Lessor acknowledges that: (a) Broker has made no
representations, promises or warranties concerning Lessee's ability to honor
the Lease or suitability to occupy the Premises, and (b) it is Lessor's sole
responsibility to investigate the financial capability and/or suitability of
all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease (including but not limited to the obligations to pay Real Property
Taxes and insurance premiums and to maintain the Premises) shall, however, be
in effect during such period. Any such early possession shall not affect the
Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease. Lessee shall not,
however, be obligated to pay Rent or perform its other obligations until it
receives possession of the Premises. If possession is not delivered within
five (5) days after the Commencement Date, Lessee may, at its option, by
notice in writing within ten (10) days after the end of such five (5) day
period, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder. Except as otherwise provided, if possession
is not tendered to Lessee when required and Lessee does not terminate this
Lease, as aforesaid, any period of rent abatement that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue
for a period equal to what Lessee would otherwise have enjoyed under the
terms hereof, but minus any days of delay caused solely by the acts or
omissions of Lessee. If possession of the Premises is not delivered within
four (4) months after the Commencement Date, this Lease shall terminate
unless other agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its
obligation to provide evidence of insurance (Paragraph 8.5). Pending
delivery of such evidence, Lessee shall be required to perform all of its
obligations under this Lease from and after the Start Date, including the
payment of Rent, notwithstanding Lessor's election to withhold possession
pending receipt of such evidence of insurance. Further, if Lessee is
required to perform any other conditions prior to or concurrent with the
Start Date, the Start Date shall occur but Lessor may elect to withhold
possession until such conditions are satisfied.
<PAGE>
4. RENT.
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be
rent ("Rent").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction
except as otherwise provided herein, on or before the day on which it is due.
Rent for any period during the term hereof which is for less than one (1)
full calendar month shall be prorated based upon the actual number of days of
said month. Payment of Rent shall be made to Lessor at its address stated
herein or to such other persons or place as Lessor may from time to time
designate in writing. Acceptance of a payment which is less than the amount
then due shall not be a waiver of Lessor's rights to the balance of such
Rent, regardless of Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit as security for Lessee's faithful performance of
its obligations under this Lease. If Lessee fails to pay Rent, or otherwise
Defaults under this Lease, Lessor may use, apply or retain all or any portion
of said Security Deposit for the payment of any amount due Lessor or to
reimburse or compensate Lessor for any liability, expense, loss or damage
which Lessor may suffer or incur by reason thereof. If Lessor uses or
applies all or any portion of said Security Deposit, Lessee shall within ten
(10) days after written request therefor deposit monies with Lessor
sufficient to restore said Security Deposit to the full amount required by
this Lease. If the Base Rent increases during the term of this Lease, Lessee
shall, upon written request from Lessor, deposit additional moneys with
Lessor so that the total amount of the Security Deposit shall at all times
bear the same proportion to the increased Base Rent as the initial Security
Deposit bore to the initial Base Rent. Should the Agreed Use be amended to
accommodate a material change in the business of Lessee or to accommodate a
sublessee or assignee, Lessor shall have the right to increase the Security
Deposit to the extent necessary, in Lessor's reasonable judgement, to account
for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and
following such change the financial condition of Lessee is, in Lessor's
reasonable judgement, significantly reduced, Lessee shall deposit such
additional monies with Lessor as shall be sufficient to cause the Security
Deposit to be at a commercially reasonable level based on said change in
financial condition. Lessor shall not be required to keep the Security
Deposit separate from its general accounts. Within fourteen (14) days after
the expiration or termination of this Lease, if Lessor elects to apply the
Security Deposit only to unpaid Rent, and otherwise within thirty (30) days
after the Premises have been vacated pursuant to Paragraph 7.4(c) below,
Lessor shall return that portion of the Security Deposit not used or applied
by Lessor. No part of the Security Deposit shall be considered to be held in
trust, to bear interest or to be prepayment for any monies to be paid by
Lessee under this Lease.
6. USE.
6.1 Use. Lessee shall use and occupy the Premises only for the
Agreed Use, or any other legal use which is reasonably comparable thereto,
and for no other purpose. Lessee shall not use or permit the use of the
Premises in a manner that is unlawful, creates damage, waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to neighboring
properties. Lessor shall not unreasonably withhold or delay its consent to
any written request for a modification of the Agreed Use, so long as the same
will not impair the structural integrity of the improvements on the Premises
or the mechanical or electrical systems therein, is not significantly more
burdensome to the Premises. If Lessor elects to withhold consent, Lessor
shall within five (5) business days after such request give written
notification of same, which notice shall include an explanation of Lessor's
objections to the change in use.
6.2 Hazardous Substances.
(a) REPORTABLE USES REQUITE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or
waste whose presence, use, manufacture, disposal, transportation, or
release, either by itself or in combination with other materials expected
to be on the Premises, is either: (i) potentially injurious to the public
health, safety or welfare, the environment or the Premises, (ii) regulated
or monitored by any governmental authority, or (iii) a basis for potential
liability of Lessor to any governmental agency or third party under any
applicable statute or common law theory. Hazardous Substances shall
include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or
crude oil or any products, by-products, or fractions thereof. Lessee
shall not engage in any activity in or on the Premises which constitutes a
Reportable Use of Hazardous Substances without the express prior written
consent of Lessor and timely compliance (at Lessor's expense) with all
Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation
or use of any above or below ground storage tank, (ii) the generation,
possession, storage, use, transportation, or disposal of a Hazardous
Substance that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be filed with, any
governmental authority, and/or (iii) the presence at the Premises of a
Hazardous Substance with respect to which any Applicable Requirements
requires that a notice be given to persons entering or occupying the
Premises or neighboring properties. Notwithstanding the foregoing,
Lessee may use any ordinary and customary materials reasonably required
to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, and does not expose
the Premises or
<PAGE>
neighboring property to any meaningful risk of contamination or damage.
In addition, Lessor may condition its consent to any Reportable Use
upon receiving such additional assurances as Lessor reasonably deems
necessary to protect itself, the public, the Premises and/or the
environment against damage, contamination, injury and/or liability,
including, but not limited to, the installation (and removal on or
before Lease expiration or termination) of protective modifications
(such as concrete encasements) and/or increasing the Security Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in,
on, under or about the Premises, other than as previously consented to by
Lessor, Lessee shall immediately give written notice of such fact to
Lessor, and provide Lessor with a copy of any report, notice, claim or
other documentation which it has concerning the presence of such Hazardous
Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and
shall promptly, at Lessee's expense, take all investigatory and/or
remedial action reasonably recommended, whether or not formally ordered or
required, for the cleanup of any contamination of, and for the
maintenance, security and/or monitoring of the Premises or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance brought onto the
Premises during the term of this Lease, by or for Lessee, or any third
party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any,
harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, claims, expenses, penalties, and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance
brought onto the Premises by or for Lessee, or any third party (provided,
however, that Lessee shall have no liability under this Lease with respect
to underground migration of any Hazardous Substance under the Premises
from adjacent properties). Lessee's obligations shall include, but not be
limited to, the effects of any contamination or injury to person, property
or the environment created or suffered by Lessee, and the cost of
investigation, removal, remediation, restoration and/or abatement, and
shall survive the expiration or termination of this Lease. NO
TERMINATION, CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY LESSOR AND
LESSEE SHALL RELEASE LESSEE FROM ITS OBLIGATIONS UNDER THIS LEASE WITH
RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY LESSOR
IN WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and
lenders, harmless from and against any and all environmental damages which
existed as a result of Hazardous Substances on the Premises prior to the
Start Date or which are caused by the gross negligence, or intentional
acts of Lessor, its agents or employees. Lessor's obligations, as and
when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration
and/or abatement, and shall survive the expiration or termination of this
Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures
required by governmental entities having jurisdiction with respect to the
existence of Hazardous Substances on the Premises prior to the Start Date.
Lessee shall cooperate fully in any such activities at the request of
Lessor, including allowing Lessor and Lessor's agents to have reasonable
access to the Premises at reasonable times in order to carry out Lessor's
investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and
remediation thereof required by the Applicable Requirements and this Lease
shall continue in full force and effect, but subject to Lessor's rights
under Paragraph 6.2(d) and Paragraph 13).
(h) LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense,
fully, diligently and in a timely manner, materially comply with an
Applicable Requirements, the requirements of any applicable fire insurance
underwriter or rating bureau, without regard to whether said requirements
are now in effect or become effective after the Start Date. Lessee shall,
within ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other
information evidencing Lessee's compliance with any Applicable
Requirements specified by Lessor, and shall immediately upon receipt,
notify Lessor in writing (with copies of any documents involved) of any
threatened or actual claim, notice, citation, warning, complaint or report
pertaining to or involving the failure of Lessee or the Premises to comply
with any Applicable Requirements.
(i) INSPECTION; COMPLIANCE. Lessor and Lessor's Lender and
consultants shall have the right to enter into Premises at any time, in
the case of any emergency, and otherwise at reasonable times with 24 hours
notice for the
<PAGE>
purpose of inspecting the condition of the Premises and for verifying
compliance by Lessee with this Lease. The cost of any such inspections
shall be paid by Lessor, unless a violation of Applicable Requirements,
or a contamination is found to exist or be imminent, or the inspection
is requested or ordered by a governmental authority. In such case,
Lessee shall upon request reimburse Lessor for the cost of such
inspections, so long as such inspection is reasonably related to the
violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and
14 (Condemnation), Lessee shall, at Lessee's sole expense, keep the
Premises, Utility Installations, and Alterations in good order, condition
and repair (whether or not the portion of the Premises requiring repairs,
or the means of repairing the same, are reasonably or readily accessible
to Lessee, and whether or not the need for such repairs occurs as a result
of Lessee's use, any prior use, the elements or the age of such portion of
the Premises), including, but not limited to, all equipment or facilities,
such as plumbing, HVAC, electrical, lighting facilities, boilers, pressure
vessels, fire protection system, fixtures, walls (interior and exterior),
foundations, ceilings, roofs, floors, windows, doors, plate glass,
skylights, landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, or adjacent to the Premises.
Lessee, in keeping the Premises in good order, condition and repair, shall
exercise and perform good maintenance practices, specifically including
the procurement and maintenance of the service contracts required by
Paragraph 7.1(b) below. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a partthereof in good order, condition and state
of repair. Lessee shall, during the term of this Lease, keep the exterior
appearance of the Building in a first-class condition consistent with the
exterior appearance of other similar facilities of comparable age and size
in the vicinity, including, when necessary, the exterior repainting of the
Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form
and substance for, and with contractors specializing and experienced in
the maintenance of the following equipment and improvements ("Basic
Elements"), if any, if and when installed on the Premises: (i) HVAC
equipment, (ii) boiler, and pressure vessels, (iii) fire protection
systems, (iv) landscaping and irrigation systems, (v) roof covering and
drains, (vi) asphalt and parking lots, (vii) clarifiers, and (viii) any
other equipment, if reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of
liability resulting from Lessee's failure to exercise and perform good
maintenance practices, if the Basic elements described in Paragraph 7.1(b)
cannot be repaired other than at a cost which is in excess of 50% of the
cost of replacing such Basic Elements, then such Basic Elements shall be
replaced by Lessor, and the cost thereof shall be prorated between the
Parties and Lessee shall only be obligated to pay, each month during the
remained of the term of this Lease, on the date on which Base Rent is
due, an amount equal to the product of multiplying the cost of such
replacement by a fraction, the numerator of which is one, and the
denominator of which is the number of months of the useful life of such
replacement as such useful life is specified pursuant to Federal income
tax regulations or guidelines for depreciation thereof, with Lessee
reserving the right to prepay its obligation at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14
(Condemnation), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, or
the equipment therein, all of which obligations are intended to be that of
the Lessee. It is the intention of the Parties that the terms of this Lease
govern the respective obligations of the Parties as to maintenance and repair
of the Premises, and they expressly waive the benefit of any statute now or
hereafter in effect to the extent it is inconsistent with the terms of this
Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems,
communication systems, lighting fixtures, HVAC equipment, plumbing, and
fencing in or on the Premises. The term "TRADE FIXTURES" shall mean
Lessee's machinery and equipment that can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the improvements, other than Utility Installations or
Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations
<PAGE>
and/or Utility Installations made by Lessee that are not yet owned by
Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any material
Alterations or Utility Installations to the Premises without Lessor's
prior written consent.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be
deemed conditioned upon Lessee's: (i) acquiring all applicable
governmental permits, (ii) furnishing Lessor with copies of both the
permits and the plans and specifications prior to commencement of the
work, and (iii) compliance with all conditions of said permits and other
Applicable Requirements in a prompt and expeditious manner. Any
Alterations or Utility Installations shall be performed in a workmanlike
manner with good and sufficient materials. Lessee shall promptly upon
completion furnish Lessor with as-built plans and specifications. For
work which costs an amount equal to the greater of one month's Base Rent,
or $10,000, Lessor may condition its condition its consent upon Lessee
providing a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such Alteration or Utility
Installation and/or upon Lessee's posting an additional Security Deposit
with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished to or for Lessee at or for use on the
Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee
shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall
have the right to post notices of non-responsibility. If Lessee shall
contest the validity of any such lien, claim or demand, then Lessee shall,
at its sole expense defend and protect itself, Lessor and the Premises
against the same and shall pay and satisfy any such adverse judgment that
may be rendered thereon before the enforcement thereof. If Lessor shall
require, Lessee shall furnish a surety bond in an amount equal to one and
one-half times the amount of such contested lien, claim or demand,
indemnifying Lessor against liability for the same. If Lessor elects to
participate in any such action, Lessor's reasonable attorneys' fees and
costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but
considered a part of the Premises. Lessor may, at any time, elect in
writing to be the owner of all or any specified part of the Lessee Owned
Alterations and Utility Installations. Unless otherwise instructed per
Paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility
Installations shall, at the expiration or termination of this Lease,
become the property of Lessor and be surrendered by Lessee with the
Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor
not earlier man ninety (90) and not later than thirty (30) days prior to
the end of the term of this Lease, Lessor may require that any or all
Lessee Owned Alterations or Utility Installations be removed by the
expiration or termination of this Lease. Lessor may require the removal at
any time of all or any part of any Lessee Owned Alterations or Utility
installations made without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris,
and in good operating order, condition and state of repair, ordinary wear
and tear excepted. "Ordinary wear and tear" shall not include any damage
or deterioration that would have been prevented by good maintenance
practice. Lessee shall repair any damage occasioned by the installation,
maintenance or removal of Trade Fixtures, Lessee Owned Alterations and/or
Utility Installations, furnishings, and equipment as well as the removal
of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or groundwater
contaminated by Lessee. Trade Fixtures shall remain the property of Lessee
and shall be removed by Lessee. The failure by Lessee to timely vacate the
Premises pursuant to this Paragraph 7.4(c) without the express written
consent of Lessor shall constitute a holdover under the provisions of
Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance
required under Paragraph 8 except to the extent of the cost attributable to
liability insurance carried by Lessor under Paragraph 8.2(b) in excess of
$2,000,000 per occurrence. Premiums for policy periods commencing prior to or
extending beyond the Lease term shall be prorated to correspond to the Lease
term. Payment shall be made by Lessee to Lessor within ten (10) days
following receipt of an invoice.
<PAGE>
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and
Lessor against claims for bodily injury, personal injury and property
damage based upon or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall be on an occurrence basis providing single limit coverage
in an amount not less than $2,000,000 per OCCURRENCE WITH AN "ADDITIONAL
INSURED-MANAGERS OR LESSORS OF PREMISES ENDORSEMENT" and contain the
"AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT" for damage caused by
heat, smoke or fumes from a hostile fire. The Policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an
"insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance shall not, however, limit
the liability of Lessee nor relieve Lessee of any obligation hereunder.
All insurance carried by Lessee shall be primary to and not contributory
with any similar insurance carried by Lessor, whose insurance shall be
considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance
as described in Paragraph 8.2(a), in addition to, and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force a policy or policies in the name of Lessor, with loss
payable to Lessor, any groundlessor, and to any Lender insuring loss or
damage to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time
to time, or the amount required by any Lenders, but in no event more than
the commercially reasonable and available insurable value thereof. If
Lessor is the Insuring Party, however, Lessee Owned Alterations and
Utility Installations, Trade Fixtures, and Lessee's personal property
shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If
the coverage is available and commercially appropriate, such policy or
policies shall insure against all risks of direct physical loss or damage
(except the perils of flood and/or earthquake), including coverage for
debris removal and the enforcement of any Applicable Requirements
requiring the upgrading, demolition, reconstruction or replacement of any
portion of the Premises as the result of a covered loss. Said policy or
policies shall also contain an agreed valuation provision in lieu of any
coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a
factor of not less than the adjusted U.S. Department of Labor Consumer
Price Index for All Urban Consumers for the city nearest to where the
Premises are located. If such insurance coverage has a deductible clause,
the deductible amount shall not exceed $1,000 per occurrence, and Lessee
shall be liable for such deductible amount in the event of an Insured
Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor with loss payable to
Lessor and any Lender, insuring the loss of the full Rent for one (1)
year. Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of Rent
from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected Rent
otherwise payable by Lessee, for the next twelve (12) month period. Lessee
shall be liable for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to
the Premises, the Lessee shall pay for any increase in the premiums for
the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee
Owned Alterations and Utility Installations. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee
for the replacement of personal property, Trade Fixtures and Lessee Owned
Alterations and Utility Installations. Lessee shall provide Lessor with
written evidence that such insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss
of income and extra expense insurance in amounts as will reimburse Lessee
for direct or indirect loss of earnings attributable to all perils
commonly
<PAGE>
insured against by prudent lessees in the business of Lessee or
attributable to prevention of access to the Premises as a result of such
perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where
the Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current
issue of Best's Insurance Guide", or such other rating as may be required by
a Lender. Lessee shall not do or permit to be done anything which invalidates
the required insurance policies. Lessee shall, prior to the Start Date,
deliver to Lessor certified copies of policies of such insurance or
certificates evidencing the existence and amounts of the required insurance.
No such policy shall be cancelable or subject to modification except after
thirty (30) days prior written notice to Lessor. Lessee shall, at least
thirty (30) days prior to the expiration of such policies, furnish Lessor
with evidence of renewals or "insurance binders" evidencing renewal thereof,
or Lessor may order such insurance and charge the cost thereof to Lessee,
which amount shall be payable by Lessee to Lessor upon demand. Such policies
shall be for a term of at least one year, or the length of the remaining term
of this Lease, whichever is less. If either Party shall fail to procure and
maintain the insurance required to be carried by it, the other Party may, but
shall not be required to, procure and maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages against the other, for loss of or
damage to its property arising out of or incident to the perils required to
be insured against herein. The effect of such releases and waivers is not
limited by the amount of insurance carried or required, or by any deductibles
applicable hereto. The Parties agree to have their respective property damage
insurance carriers waive any right to subrogation that such companies may
have against Lessor or Lessee, as the case may be, so long as the insurance
is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor partners
and Lenders, from and against any and all claims, loss of rents and/or
damages, liens, judgments, penalties, attorneys' and consultants fees,
expenses and/or liabilities arising out of, involving, or in connection with,
the use and/or occupancy of the Premises by Lessee. If any action or
proceeding is brought against Lessor by reason of any of the foregoing
makers, Lessee shall upon notice defend the same at Lessee's expense by
counsel reasonably satisfactory to Lessor and Lessor shall cooperate with
Lessee in such defense. Lessor need not have first paid any such claim in
order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or
any other person in or about the Premises, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or
from the breakage, leakage, obstruction or other defects of pipes, fire
sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from
any other cause, whether the said injury or damage results from conditions
arising upon the Premises or upon other portions of the Building of which the
Premises are a part, or from other sources or places unless caused by the
negligence of Lessor. Lessor shall not be liable for any damages arising from
any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's
negligence or breach of this Lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, which can reasonably be repaired in six (6) months
or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in
six (6) months or less from the date of the damage or destruction. Lessor
shall notify Lessee in writing within thirty (30) days from the date of
the damage or destruction as to whether or not the damage is Partial or
Total.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations and Trade Fixtures, which was caused by an event
required to be
<PAGE>
covered by the insurance described in Paragraph 8.3(a), irrespective of
any deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable
Requirements, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition *evolving the presence of, or a contamination by,
a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, at
Lessor's election, make the repair of any damage or destruction the total
cost to repair of which is $10,000 or less, and, in such event, Lessor shall
make any applicable insurance proceeds available to Lessee on a reasonable
basis for that purpose. Notwithstanding the foregoing, if the required
insurance was not in force or the insurance proceeds are not sufficient to
effect such repair, the Insuring Party shall promptly contribute the shortage
in proceeds (except as to the deductible which is Lessee's responsibility) as
and when required to complete said repays. In the event, however, such
shortage was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or
adequate assurance thereof, within ten (10) days following receipt of written
notice of such shortage and request therefor. If Lessor receives said funds
or adequate assurance thereof within said ten (10) day period, the party
responsible for making the repairs shall complete them as soon as reasonably
possible and this Lease shall remain in full force and effect. If such funds
or assurance are not received, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to: (i) make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect; or (ii) have this Lease terminate thirty (30) days thereafter. Lessee
shall not be entitled to reimbursement of any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood
or earthquake shall be subject to Paragraph 9.3, notwithstanding that there
may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful
act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), Lessor may either: (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in
full force and effect, or (ii) terminate this Lease by giving written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage. Such termination shall be effective sixty (60)
days following the date of such notice. In the event Lessor elects to
terminate this Lease, Lessee shall have the right within ten (10) days after
receipt of the termination notice to give written to Lessor of Lessee's
commitment to pay for the repair of such damage without reimbursement from
Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance
thereof within thirty (30) days after making such commitment. In such event
this Lease shall continue in full force and effect, and Lessor shall proceed
to make such repairs as soon as reasonably possible after the required funds
are available. If Lessee does not make the required commitment, this Lease
shall terminate as of the date specified in the termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs, this Lease shall terminate sixty (60)
days following such Destruction. If the damage or destruction was caused by
the gross negligence or willful misconduct of Lessee, Lessor shall have the
right to recover Lessor's damages from Lessee, except as provided in
Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor or Lessee may
terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving a written termination notice to Lessee
within thirty (30) days after the date of occurrence of such damage.
Notwithstanding the foregoing, if Lessee at that time has an exercisable
option to extend this Lease or to purchase the Premises, then Lessee may
preserve this Lease by, (a) exercising such option and (b) providing Lessor
with any shortage in insurance proceeds (or adequate assurance thereof)
needed to make the repairs on or before the earlier of (i) the date which is
ten days after Lessee's receipt of Lessor's written notice purporting to
terminate this Lease, or (ii) the day prior to the date upon which such
option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's commercially
reasonable expense, repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate on the date specified in the termination
notice and Lessee's option shall be extinguished.
<PAGE>
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which
Lessee is not responsible under this Lease, the Rent payable by Lessee for
the period required for the repair, remediation or restoration of such
damage shall be abated in proportion to the degree to which Lessee's use
of the Premises is impaired. All other obligations of Lessee hereunder
shall be performed by Lessee, and Lessor shall have no liability for any
such damage, destruction, remediation, repair or restoration except as
provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore
the Premises and does not commence, in a substantial and meaningful way,
such repair or restoration within ninety (90) days after such obligation
shall accrue, Lessee may, at any time prior to the commencement of such
repair or restoration, give written notice to Lessor and to any Lenders of
which Lessee has actual notice, of Lessee's election to terminate this
Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice and such repair or restoration is not
commenced within thirty (30) days thereafter, this Lease shall terminate
as of the date specified in said notice. If the repair or restoration is
commenced within said thirty (30) days, this Lease shall continue in full
force and effect. "COMMENCE" shall mean either the unconditional
authorization of the preparation of the required plans, or the beginning
of the actual work on the Premises, whichever first occurs.
9.7 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(9) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by
Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of
Lessee's Security Deposit as has not been, or is not then required to be,
used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions
of any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other
than inheritance, personal income or estate taxes); improvement bond; and/or
license fee imposed upon or levied against any legal or equitable interest of
Lessor in the Premises, Lessor's right to other income therefrom, and/or
Lessor's business of leasing, by any authority having the direct or indirect
power to tax and where the funds are generated with reference to the Building
address and where the proceeds so generated are to be applied by the city,
county or other local taxing authority of a jurisdiction within which the
Premises are located. The term "REAL PROPERTY TAXES" shall also include any
tax, fee, levy, assessment or charge, or any increase therein, imposed by
reason of events occurring during the term of this Lease, including but not
limited to, a change in the ownership of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to
Paragraph 10.2(b), all such payments shall be made at least ten (10) days
prior to any delinquency date. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes
shall cover any period of time prior to or after the expiration or
termination of this Lease, Lessee's share of such taxes shall be prorated
to cover only that portion of the tax bill applicable to the period that
this Lease is in effect, and Lessor shall reimburse Lessee for any
overpayment. If Lessee shall fail to pay any required Real Property Taxes,
Lessor shall have the right to pay the same, and Lessee shall reimburse
Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge
twice in any twelve (12) month period on any Rent payment, Lessor may, at
Lessor's option, estimate the current Real Property Taxes, and require
that such taxes be paid in advance to Lessor by Lessee, either: (i) in a
lump sum amount equal to the installment due, at least twenty (20) days
prior to the applicable delinquency date, or (ii) monthly in advance with
the payment of the Base Rent. If Lessor elects to require payment monthly
in advance, the monthly payment shall be an amount equal to the amount of
the estimated installment of taxes divided by the number of months
remaining before the month in which said installment becomes delinquent.
When the actual amount of the applicable tax bill is known, the amount of
such equal monthly advance payments shall be adjusted as required to
provide the funds needed to pay the applicable taxes. If the amount
collected by Lessor is insufficient to pay such Real Property Taxes when
due, Lessee shall pay Lessor, upon demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not
bear interest. In the event of a Breach by
<PAGE>
Lessee in the performance of its obligations under this Lease, then any
balance of funds paid to Lessor under the provisions of this Paragraph
may at the option of Lessor, be treated as an additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property
Taxes for all of the land and improvements included within the tax parcel
assessed, such proportion to be conclusively determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency,
all taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee. When possible, Lessee shall cause such property to be
assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee's property
within ten (10) days after receipt of a written statement.
11. UTILIZES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. It any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "assign or assignment") or
sublet all or any part of Lessee's interest in this Lease or in the
Premises without Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an
assignment requiring consent. The transfer, on a cumulative basis, of
fifty percent (50%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee by an
amount greater than twenty-five percent (25%) of such Net Worth as it was
represented at the time of the execution of this Lease or at the time of
the most recent assignment to which Lessor has consented, or as it exists
immediately prior to said transaction or transactions constituting such
reduction, whichever was or is greater, shall be considered an assignment
of this Lease to which Lessor may withhold its consent. "NET WORTH OF
LESSEE" shall mean the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles.
(d) An assignment or subletting without consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1 (c), or a
nondurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a
noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii)
upon thirty (30) days written notice, increase the monthly Base Rent to
one hundred ten percent (110%) of the Base Rent then in effect. Further,
in the event of such Breach and rental adjustment, (i) the purchase price
of any option to purchase the Premises held by Lessee shall be subject to
similar adjustment to one hundred ten percent (110%) of the price
previously in effect, and (ii) all fixed and non-fixed rental adjustments
scheduled during the remainder of the Lease term shall be increased to One
Hundred Ten Percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or subleases of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any
other obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such
assignment
<PAGE>
nor the acceptance of Rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for Lessee's
Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible
for the performance of Lessee's obligations under this Lease, including
any assignee or sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefore to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not
limited to the intended use and/or required modification of the Premises,
if any, together with a fee of $1,000 or ten percent (10%) of the current
monthly Base Rent applicable to the portion of the Premises which is the
subject of the proposed assignment or sublease, whichever is greater, as
consideration for Lessor's considering and processing said request. Lessee
agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be
deemed to have assumed and agreed to conform and comply with each and
every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other
than such obligations as are contrary to or inconsistent with provisions
of an assignment or sublease to which Lessor has specifically consented to
in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such
Rent and apply same toward Lessees obligations under this Lease; provided,
however, that until a Breach shall occur in the performance of Lessee's
obligations, Lessee may collect said Rent. Lessor shall not, by reason of
the foregoing or any assignment of such sublease, nor by reason of the
collection of Rent, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such
sublessee. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a
Breach exists in the performance of Lessee's obligations under this Lease,
to pay to Lessor all Rent due and to become due under the sublease.
Sublessee shall rely upon any such notice from Lessor and shall pay all
Rents to Lessor without any obligation or right to inquire as to whether
such Breach exists, notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall
undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such subleases to such sublessor or for any prior
Defaults or Breaches of such sublessor.
(c) Any maker requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
rules under this Lease. A "BREACH" is defined as the occurrence of one or
more of the following Defaults, and the failure of Lessee to cure such
Default within any applicable grace period:
<PAGE>
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or
where the coverage of the property insurance described in Paragraph 8.3 is
jeopardized as a result thereof, or without providing reasonable
assurances to minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any other
monetary payment required to be made by Lessee hereunder, whether to
Lessor or to a third party, when due, to provide reasonable evidence of
insurance or surety bond, or to fulfill any obligation under this Lease
which endangers or threatens life or property, where such failure
continues for a period of three (3) business days following written notice
to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service
contracts, (iii) the rescission of an unauthorized assignment or
subleasing, (iv) a Tenancy Statement, (v) a requested subordination, (vi)
evidence concerning any guaranty and/or Guarantor, (vii) any document
requested under Paragraph 42 (easements), or (viii) any other
documentation or information which Lessor may reasonably require of Lessee
under the terms of this Lease, where any such failure continues for a
period of ten (10) days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40
hereof, other than those described in subparagraphs 13.1 (a), (b) or (c),
above, where such Default continues for a period of thirty (30) days after
written notice; provided, however, that if the nature of Lessee's Default
is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach if Lessee commences such
cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
of any general arrangement or assignment for the benefit of creditors;
(ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to the possession of substantially
all of Lessee's assets located at the Premises or of Lessee's interest in
this Lease, where possession is not restored to Lessee within thirty (30)
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not discharged
within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of
the remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor
the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory basis, and Lessee's failure, within sixty (60) days following
written notice of any such event, to provide written alternative assurance
or security, which, when coupled with the then existing resources of
Lessee, equals or exceeds the combined financial resources of Lessee and
the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative dudes
or obligations, within ten (10) days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses,
permits or approvals. The costs and expenses of any such performance by
Lessor shall be due and payable by Lessee upon receipt within ten (10 days)
of invoice therefor. If any check given to Lessor by Lessee shall not be
honored by the bank upon which it is drawn, Lessor, at its option, may
require all future payments to be made by Lessee to be by cashier's check. In
the event of a Breach, Lessor may, with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee, shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned
at the time of termination; (ii) the worth at the time of award of the
amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
that the Lessee proves could have been reasonably avoided; (iii) the worth
at the time of award of the amount by which the unpaid rent for the
balance of the term after the time of award exceeds the amount of such
rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
directly caused by the Lessee's failure to perform its
<PAGE>
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the
cost of recovering possession of the Premises, expenses of reletting,
including necessary renovation and alteration of the Premises,
reasonable attorneys' fees, and that portion of any leasing commission
paid by Lessor in connection with this Lease applicable to the
unexpired term of this Lease. The worth at the time of award of the
amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of the District within which the
Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Breach of this
Lease shall not waive Lessor's right to recover damages under Paragraph
12. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in
such proceeding any unpaid Rent and damages as are recoverable therein,
or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph
13.1 was not previously given, a notice to pay rent or quit, or to
perform or quit given to Lessee under the unlawful detainer statute
shall also constitute the notice required by Paragraph 13.1. In such
case, the applicable grace period required by Paragraph 13.1 and the
unlawful detainer statute shall run concurrently, and the failure of
Lessee to cure the Default within the greater of the two such grace
periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and
recover the Rent as it becomes due, in which event Lessee may sublet or
assign, subject only to reasonable limitations. Acts of maintenance,
efforts to relet, and/or the appointment of a receiver to protect the
Lessor's interests, shall not constitute a termination of the Lessee's
right to possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located.
The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to makers occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or
other charges, or for the giving or paying by Lessor to or for Lessee of any
cash or other bonus, inducement or consideration for Lessee's entering into
this Lease, all of which concessions are hereinafter referred to as
"INDUCEMENT PROVISIONS," shall be deemed conditioned upon Lessee's full and
faithful performance of all of the terms, covenants and conditions of this
Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision
shall automatically be deemed deleted from this Lease and of no further force
or effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an Inducement
Provision shall be immediately due and payable by Lessee to Lessor,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance
by Lessor of rent or the cure of the Breach which initiated the operation of
this paragraph shall not be deemed a waiver by Lessor of the provisions of
this paragraph unless specifically so stated in writing by Lessor at the time
of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed upon Lessor by any Lender.
Accordingly, if any Rent shall not be received by Lessor within five (5)
business days after such amount shall be due, then, without any requirement
for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal
to five percent (5%) of each such overdue amount. The parties hereby agree
that such late charge represents a fair and reasonable estimate of the costs
Lessor will incur by reason of such late payment. Acceptance of such late
charge by Lessor shall in no event constitute a waiver of Lessees Default or
Breach with respect to such overdue amount, nor prevent the exercise of any
of the other rights and remedies granted hereunder. In the event that a late
charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of Base Rent, then notwithstanding any provision of
this Lease to the contrary, Base Rent shall, at Lessor's option, become due
and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor within thirty (30) days following the
date on which it was due shall bear interest from the thirty-first (31st) day
after it was due. The interest ("Interest") charged shall be equal to the
prime rate charged by the largest state chartered bank in which the Premises
are located plus four percent (4%), but shall not exceed the maximum rate
allowed by law. Interest is payable in addition to the potential late charge
provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of
this Lease unless Lessor fails within a reasonable time to perform an
obligation required to be performed by Lessor. For purposes of this
Paragraph, a reasonable time shall in no event be less than thirty (30)
days after receipt by Lessor, and any Lender whose name and
<PAGE>
address shall have been furnished Lessee in writing for such purpose,
of written notice specifying wherein such obligation of Lessor has not
been performed; provided, however, that if the nature of Lessor's
obligation is such that more than thirty (30) days are reasonably
required for its performance, then Lessor shall not be in breach if
performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or if having commenced said cure they do not
diligently pursue it to completion, then Lessee may elect to cure said
breach at Lessee's expense and offset from Rent an amount equal to the
greater of one month's Base Rent or the Security Deposit, and to pay an
excess of such expense under protest, reserving Lessee's right to
reimbursement from Lessor. Lessee shall document the cost of said cure and
supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (collectively "CONDEMNATION"), this Lease shall terminate as to the
part taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of any building
portion of the premises, or more than twenty-five percent (25%) of the land
area not occupied by any building, is taken by Condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of
such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and
effect as to the portion of the Premises remaining, except that the Base Rent
shall be reduced in proportion to the reduction in utility of the Premises
caused by such Condemnation. Condemnation awards and/or payments shall be the
property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold, the value of the part taken, or for
severance damages; provided, however, that Lessee shall be entitled to any
compensation for Lessee's relocation expenses, loss of business goodwill
and/or Trade Fixtures, without regard to whether or not this Lease is
terminated pursuant to the provisions of this Paragraph. All Alterations and
Utility Installations made to the Premises by Lessee, for purposes of
Condemnation only, shall be considered the property of the Lessee and Lessee
shall be entitled to any and all compensation which is payable therefor. In
the event that this Lease is not terminated by reason of the Condemnation,
Lessor shall repair any damage to the Premises caused by such Condemnation.
15. BROKERS' FEE.
15.1 ADDITIONAL COMMISSION. In addition to the payments owed pursuant
to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if
Lessee acquires any rights to the Premises or other premises owned by Lessor
and located within the same Project, if any, within which the Premises is
located, (c) if Lessee remains in possession of the Premises, with the
consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is
increased, whether by agreement or operation of an escalation clause herein,
then, Lessor shall pay Brokers a fee in accordance with the schedule of said
Brokers in effect at the time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions
of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any
amounts due as and for commissions pertaining to this Lease when due, then
such amounts shall accrue Interest. In addition, if Lessor fails to pay any
amounts to Lessee's Broker when due, Lessee's Broker may send written notice
to Lessor and Lessee of such failure and if Lessor fails to pay such amounts
within ten (10) days after said notice, Lessee shall pay said monies to its
Broker and offset such amounts against Rent. In addition, Lessee's Broker
shall be deemed to be a third party beneficiary of any commission agreement
entered into by and/or between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee
and Lessor each represent and warrant to the other that it has had no
dealings with any person, firm, broker or finder (other than the Brokers, if
any) in connection with this Lease, and that no one other than said named
Brokers is entitled to any commission or finder's fee in connection herewith.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges
which may be claimed by any such unnamed broker, finder or other similar
party by reason of any dealings or actions of the indemnifying Party,
including any costs, expenses, attorneys' fees reasonably incurred with
respect thereto.
16. TENANCY STATEMENT/ESTOPPEL CERTIFICATES.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from THE OTHER Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party an Estoppel Certificate in
writing in form similar to the then most current "TENANCY STATEMENT" form
published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
<PAGE>
16.2 If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee and all Guarantors shall deliver to any potential
lender or purchaser designated by Lessor such financial statements as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. THE TERM "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or,
if this is a sublease, of the Lessee's interest in the prior lease. In the
event of a transfer of Lessor's title or interest in the Premises or this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor. Except as provided in
Paragraph 15, upon such transfer or assignment and delivery of the Security
Deposit, as aforesaid, the prior Lessor shall be relieved of all liability
with respect to the obligations and/or covenants under this Lease thereafter
to be performed by the Lessor. Subject to the foregoing, the obligations
and/or covenants in this Lease to be performed by the Lessor shall be binding
only upon the Lessor as hereinabove defined. Notwithstanding the above, the
original Lessor under this Lease, and all subsequent holders of the Lessor's
interest in this Lease shall remain liable and responsible with regard to the
potential duties and liabilities of Lessor pertaining to Hazardous Substances
as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Except with respect to Lessor's fraud, gross
negligence or willful misconduct, the obligations of Lessor under this Lease
shall not constitute personal obligations of Lessor, the individual partners
of Lessor or its or their individual partners, directors, officers or
shareholders, and Lessee shall look to the Premises, and to no other assets
of Lessor, for the satisfaction of any liability of Lessor with respect to
this Lease, and shall not seek recourse against the individual partners of
Lessor, or its or their individual partners, directors, of ricers or
shareholders, or any of their personal assets for such satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned
herein, and no other prior or contemporaneous agreement or understanding
shall be effective. Lessor and Lessee each represents and warrants to the
Brokers that it has made, and is relying solely upon, its own investigation
as to the nature, quality, character and financial responsibility of the
other Party to this Lease and as to the nature, quality and character of the
Premises. Brokers have no responsibility with respect thereto or with respect
to any default or breach hereof by either Party. The liability (including
court costs and Attorneys' fees), of any Broker with respect to negotiation,
execution, delivery or performance by either Lessor or Lessee under this
Lease or any amendment or modification hereto shall be limited to an amount
up to the fee received by such Broker pursuant to this Lease; provided,
however, that the foregoing limitation on each Broker's liability shall not
be applicable to any gross negligence or willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or pertained by this
Lease shall be in writing and may be delivered in person (by hand or by
courier) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this Paragraph 23. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or mailing
of notices. Either Party may by written notice to the other specify a
different address for notice, except that upon Lessee's taking possession of
the Premises, the Premises shall constitute Lessee's address for notice. A
copy of all notices to Lessor shall be concurrently transmitted to such party
or parties at such addresses as Lessor may from time to time hereafter
designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown
on the receipt card, or if no delivery date is shown, the postmark thereon.
If sent by regular mail the notice shall be deemed given forty-eight (48)
hours after the same is addressed as required herein and mailed with postage
prepaid. Notices delivered by United States Express Mail or overnight courier
that guarantee next day delivery shall be deemed given twenty-four (24) hours
after delivery of the same to the Postal Service or courier. Notices
transmitted by facsimile transmission or similar means shall be deemed
delivered upon telephone confirmation of receipt, provided a cow is also
delivered via delivery or mail. If notice is received on a Saturday, Sunday
or legal holiday, it shall be deemed received on the next business day.
<PAGE>
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. The acceptance of Rent by Lessor shall not be a waiver of any
Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor
on account of moneys or damages due Lessor, notwithstanding any qualifying
statements or conditions made by Lessee in connection therewith, which such
statements and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to *n writing by Lessor at or before the home of deposit
of such payment.
25.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this
Lease. In the event that Lessee holds over, then the Base Rent shall be
increased to one hundred fifty percent (150%) of the Base Rent applicable
during the month immediately preceding the expiration or termination.
Nothing contained herein shall be construed as consent by Lessor to any
holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the
plural and vice versa. This Lease shall not be construed as if prepared by
one of the parties, but rather according to its fair meaning as a whole, as
if both parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "Security Device"), now
or hereafter placed upon the Premises, to any and all advances made on the
security thereof, and to all renewals, modifications, and extensions thereof
Lessee agrees that the holders of any such Security Devices shall have no
liability or obligation to perform any of the obligations of Lessor under
this Lease. Any Lender may elect to have this Lease and/or any Option granted
hereby superior to the lien of its Security Device by giving written notice
thereof to Lessee, whereupon this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not:
(i) be liable for any act or omission of any prior lessor or with respect to
events occurring prior to acquisition of ownership; (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor, or
(iii) be bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which
Non-Disturbance Agreement provides that Lessee's possession of the Premises,
and this Lease, including any options to extend the term hereof, will not be
disturbed so long as Lessee is not in Breach hereof and attorns to the record
owner of the Premises. Further, within sixty (60) days after the execution of
this Lease, Lessor shall use its commercially reasonable efforts to obtain a
Non-Disturbance Agreement from the holder of any pre-existing Security Device
which is secured by the Premises. In the event that Lessor is unable to
provide the Non-Disturbance Agreement within said sixty (60) days, then
Lessee may, at Lessee's option, directly contact Lessor's lender and attempt
to negotiate for the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection
with a sale,
<PAGE>
financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document
any subordination, attornment and/or Non-Disturbance Agreement provided for
herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) *n any such
proceeding, action, or appeal thereon, shall be entitled to reasonable
attorneys' fees. Such fees may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to
decision or judgment. The term, "PREVAILING PARTY" shall include, without
limitation, a Party or Broker who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or
the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fees award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred. In addition, Lessor shall be entitled to attorneys'
fees, costs and expenses incurred in the preparation and service of notices
of Default and consultations in connection therewith, whether or not a legal
action is subsequently commenced in connection with such Default or resulting
Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times with 24 hours notice for the
purpose of showing the same to prospective purchasers, lenders, or lessees,
and making such alterations, repairs, improvements or additions to the
Premises as Lessor may deem necessary. All such activities shall be without
abatement of rent or liability to Lessee. Lessor may at any time place on the
Premises any ordinary "FOR SALE" signs and Lessor may during the last six (6)
months of the term hereof place on the Premises any ordinary "FOR LEASE"
signs. Lessee may at any time place on or about the Premises any ORDINARY
"FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor
shall not be obligated to exercise any standard of reasonableness in
determining whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, that Lessor may elect to continue any one
or all existing subtenancies. Lessor's failure within ten (10) days following
any such event to elect to the contrary by written notice to the holder of
any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including but not limited to architects',
attorneys', engineers' end other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon
receipt of an invoice and supporting documentation therefor. Lessor's consent
to any act, assignment or subletting shall not constitute an acknowledgment
that no Default or Breach by Lessee of this Lease exists, nor shall such
consent be deemed a waiver of any then existing Default or Breach, except as
may be otherwise specifically stated in writing at the time of such consent.
The failure to specify herein any particular condition to Lessor's consent
shall not preclude the imposition by Lessor at the time of consent of such
further or other conditions as are then reasonable with reference to the
particular maker for which consent is being given. In the event that either
Party disagrees with any determination made by the other hereunder and
reasonably requests the reasons for such determination, the determining party
shall furnish its reasons in writing and in reasonable detail within ten (10)
business days following such request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty
in the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements,
(c) a Tenancy Statement, or (d) written confirmation that the guaranty is
still in effect.
<PAGE>
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term
of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to
lease either the Premises or other property of Lessor; (c) the right to
purchase or the right of first refusal to purchase the Premises or other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee, and cannot be
assigned or exercised by anyone other than said original Lessee and only
while the original Lessee is in full possession of the Premises and, if
requested by Lessor, with Lessee certifying that Lessee has no intention of
thereafter assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be exercised
unless the prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during
the period commencing with the giving of any notice of Default and
continuing until said Default is cured, (ii) during the period of time any
Rent is unpaid (without regard to whether notice thereof is given Lessee),
(iii) during the time Lessee is in Breach of this Lease, or (iv) in the
event that Lessee has been given three (3) or more notices of separate
Default, whether or not the Defaults are cured, during the twelve (12)
month period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or
effect, notwithstanding Lessee's due and tamely exercise of the Option,
if, after such exercise and prior to the commencement of the extended
term, (i) Lessee fails to pay Rent for a period of thirty (30) days after
such Rent becomes due (without any necessity of Lessor to give notice
thereof), (ii) Lessor gives to Lessee three (3) or more notices of
separate Default during any twelve (12) month period, whether or not the
Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of
the grounds and including the parking, loading and unloading of vehicles, and
that Lessee will pay its fair share of common expenses incurred in connection
therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time,
to grant, without the consent or joinder of Lessee, such easements, rights
and dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay.
<PAGE>
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf Each party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease
to the other Party. This Lease is not intended to be binding until executed
and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease / / IS / / IS NOT attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND
THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
<PAGE>
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE
LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Sherman Oaks
-----------------------------------
On: 8/25/98
-------------------------------------------
By LESSOR:
/s/Vernon and Helen Farquhar Family Trust et al
-----------------------------------------------
-----------------------------------------------
By:
-------------------------------------------
Name Printed: Donald Farquhar
---------------------------------
Title: Trustee
-----------------------------------------
By:
-------------------------------------------
Name Printed:
----------------------------------
Title:
-----------------------------------------
Address: 1618 N. Las Palmas Dr.
---------------------------------------
-----------------------------------------------
Telephone: (213) 463-2739
-------------------------------------
Facsimile: (213) 463-3946
-------------------------------------
Federal ID No.
---------------------------------
BROKER:
GRUBB & ELLIS COMPANY
-----------------------------------------------
EXECUTED AT: Sherman Oaks
-----------------------------------
ON: 8/25/98
--------------------------------------------
BY: /s/ Dennis J. Marciniak
-------------------------------------------
NAME PRINTED: Dennis J. Marciniak
----------------------------------
TITLE: Associate Vice President
-----------------------------------------
ADDRESS: 15260 Ventura Boulevard, Suite 1800
---------------------------------------
SHERMAN OAKS, CA 91403
-----------------------------------------------
TELEPHONE:(818) 990-3111 EXT. 513
-------------------------------------
FACSIMILE: (818) 788-6219
-------------------------------------
FEDERAL ID NO.
---------------------------------
Executed at: North Hollywood
------------------------------------
On: 8/21/98
---------------------------------------------
By LESSEE:
North American Scientific, Inc.
- ------------------------------------------------
- ------------------------------------------------
By: / s/ L. Michael Cutrer
---------------------------------------------
Name Printed: L. Michael Cutrer
-----------------------------------
Title: President
------------------------------------------
By: /s/ Alan Edrick
---------------------------------------------
Name Printed: Alan Edrick
-----------------------------------
Title: Chief Financial Officer
------------------------------------------
Address: 7435 Greenbush Avenue
----------------------------------------
North Hollywood, CA 91605
- ------------------------------------------------
Telephone: (818) 503-9201
--------------------------------------
Facsimile: (818) 503-0764
--------------------------------------
Federal ID No.
----------------------------------
BROKER:
DELPHI BUSINESS PROPERTIES
- ------------------------------------------------
EXECUTED AT:
------------------------------------
ON:
---------------------------------------------
BY:
---------------------------------------------
NAME PRINTED: DAVID HOFFBERG
-----------------------------------
TITLE:
------------------------------------------
ADDRESS: 7100 HAYVENHURST AVENUE, SUITE 211
----------------------------------------
VAN NUYS, CA 91406
- ------------------------------------------------
TELEPHONE:(818) 780-7878
--------------------------------------
FACSIMILE: (818) 780-8152
--------------------------------------
FEDERAL ID NO.
----------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 1,541
<SECURITIES> 8,500
<RECEIVABLES> 1,479
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<INVENTORY> 678
<CURRENT-ASSETS> 12,255
<PP&E> 2,907
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<TOTAL-ASSETS> 19,726
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<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> 18,429
<TOTAL-LIABILITY-AND-EQUITY> 19,726
<SALES> 2,427
<TOTAL-REVENUES> 2,549
<CGS> 909
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<INCOME-CONTINUING> 728
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<NET-INCOME> 510
<EPS-PRIMARY> .08
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