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EXHIBIT 10.1
COMMERCIAL LEASE
ARTICLE 1
PARTIES
This Lease, dated for reference purposes only, July 19, 1996, is made
by and between AMERICAN DEVELOPMENT CO., II, a California general partnership,
CARL E. BERG and MARY ANN BERG, Trustees, and CLYDE J. BERG and NANCY BERG,
Trustees (collectively, "Landlord"), and FRACTAL DESIGN CORPORATION, a
California corporation ("Tenant").
ARTICLE 2
PREMISES
A. Demise of Premises. Landlord hereby leases to Tenant and
Tenant leases from Landlord for the term, at the rental, and upon all
of the conditions set forth herein, the premises (the "Premises")
consisting of a portion, as described herein, of the building (the
"Building") on the real property (the "Property") commonly known as
5550 Scotts Valley Drive, Scotts Valley, California, a legal
description of which Property is attached hereto as Exhibit A. The
Premises, depicted on Exhibit B, shall consist of approximately 29,571
rentable square feet of space, of which approximately 27,510 rentable
square feet of space is located on, and comprises the entirety of, the
second floor of the Building, and of which approximately 2,061 rentable
square feet of space is located on the first floor of the Building. The
Premises include the exclusive use of the at-grade truck door and
freight elevator identified on Exhibit B.
B. Expansion Space. On or before December 1, 1998 (the
"Expansion Date"), Landlord shall deliver to Tenant that portion of the
Building consisting of approximately 11,467 rentable square feet of
space (the "Expansion Space"), depicted on Exhibit B-1 hereto. As of
the Expansion Date (assuming the Premises consist just of the initial
Premises and the Expansion Space) the Premises shall consist of
approximately 41,038 rentable square feet of space.
Landlord and Tenant shall cooperate as reasonably required to allow
Landlord to construct leasehold improvements in the Expansion Space as
required for Tenant's use thereof (the "Expansion Space Improvements").
No later than one hundred eighty (180) days before the Expansion Date,
Tenant shall propose the name of an architect to be retained by Tenant
to design the Expansion Space Improvements, and the parties shall
cooperate in good faith to select an architect to design the Expansion
Space Improvements within no more than ten (10) days after Tenant's
proposal. Tenant shall cause the architect so selected to deliver
preliminary space plans and the layout of the Expansion Space
Improvements (the "Expansion Space Plan") no later than one hundred
fifty (150) days before the Expansion Date. Landlord shall review the
Expansion Space Plans within no more than ten (10) days after receipt
thereof, and the parties shall cooperate in good faith to mutually
approve the Expansion Space Plan within no more than fifteen (15) days
after receipt by Landlord. Tenant shall thereafter cause the architect
to deliver proposed working drawings for the Expansion Space
Improvements (the "Expansion Space Drawings") no later than ninety (90)
days before the Expansion Date. Landlord shall review the Expansion
Space Drawings within no more than ten (10) days after receipt thereof,
and the parties shall cooperate in good faith to mutually approve the
Expansion Space Drawings within no more than fifteen (15) days after
receipt by Landlord. Except as otherwise expressly provided in this
Section 2.B, Landlord and Tenant shall cause the Expansion Space
Improvements to be constructed pursuant to the terms of Exhibit C
hereto. Landlord shall contribute up to Ten Dollars ($10.00) per
rentable square foot of the Expansion Space to the cost of constructing
the Expansion Space Improvements. As of the Expansion Date, the
Expansion Space shall be part of the Premises for all purposes.
Notwithstanding the foregoing, if the construction of the Expansion
Space Improvements is not substantially complete on the Expansion Date,
for any reason other than a Tenant Delay, as defined in Exhibit C
hereto, the obligations of Tenant with respect to the Expansion Space
shall not accrue until such time as the Expansion Space Improvements
are substantially complete.
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C. Parking. Landlord shall provide Tenant, without additional
charge, during the entire Lease Term, with Tenant's Proportionate
Share, as defined in Section 9.C below, of parking spaces available at
the Building. As of the Commencement Date, approximately 213 unreserved
parking spaces are available for the entire Building. Landlord
represents and warrants that the number of parking spaces provided is
sufficient to comply with applicable Laws for the intended use of the
Premises. Landlord shall not provide exclusive parking spaces to any
tenant of the Building without the prior approval of Tenant, nor shall
Landlord over-subscribe parking for the Building.
ARTICLE 3
TERM
A. Term. The term of this lease (the "Lease Term") shall be
for seven (7) years, commencing on the commencement date as defined in
Exhibit C hereto (the "Commencement Date"). Subject to the terms of
Exhibit C, the Commencement Date will be no later than September 1,
1996.
B. Early Entry. Tenant, its agents and contractors shall be
permitted to enter the Premises prior to the Commencement Date for the
purpose of installing Tenant's trade fixtures and equipment, telephone
equipment, security systems and cabling for computers. Tenant shall
also have access to the Premises for the purpose of installing (but not
operating) equipment that has been delivered for Tenant's use in the
Premises, which equipment shall be moved into and stored in an area
within the Premises, designated by Landlord, in such a manner so as not
to interfere with Landlord's construction of the Tenant Improvements.
In addition, Tenant or its agents may enter the Premises at any
reasonable time prior to the Commencement Date for the purpose of
inspecting the course of construction of the Tenant Improvements. Any
entry or installation work by Tenant and its agents in the Premises
pursuant to this paragraph shall be undertaken at Tenant's sole risk,
not interfere with or delay Landlord's work in the Premises, and not be
deemed occupancy or possession of the Premises for purposes of the
Lease.
C. Option to Extend.
i. Tenant is given two (2) options to extend the
Lease Term for 3-year periods each (the "Option Terms"), which
options may be exercised only by written notice ("Option
Notice") from Tenant to Landlord given not less than one
hundred eighty (180) days prior to the end of the initial
Lease Term, or not less than one hundred eighty (180) days
prior to the end of the then-expiring Option Term; provided,
however, if Tenant is in material default on the date on which
the Option Notice is delivered, or on the date on which the
Option Term would otherwise commence, the Option Notice shall
be totally ineffective, and such Option Term shall not
commence and this Lease shall expire at the end of the initial
Lease Term or at the end of the then expiring Option Term,
unless such default is cured within the time periods required
by the Lease. Tenant shall lease the Premises during each
Option Term on all the terms and conditions of this Lease,
except that Base Rent shall be equal to ninety-five percent
(95%) of the then fair market value as determined below (the
"Fair Market Rent"). In no event will Base Rent during any
Option Term be less than the Base Rent for the last month of
the portion of the Lease Term immediately preceding the Option
Term in question. Fair Market Rent, as used herein, shall mean
the rental rate at which tenants in arm's length transactions
would lease comparable space in Scotts Valley, on as "as is"
basis, and shall take into account the size, location and
quality of the comparable space, the length of the term, the
creditworthiness of the tenant, and any concessions,
allowances or other inducements typically available in the
relevant market area. In determining Fair Market Rent, the
value of any Alterations made at the expense of Tenant shall
be disregarded.
ii. The parties shall agree on the Fair Market Rent
for each respective Option Term during the first thirty (30)
days after delivery of the Option Notice. If the parties are
able to agree on
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the Fair Market Rent for the Option Term, then such agreed
value shall be the Base Rent for the Option Term.
iii. If the parties are unable to agree on the Fair
Market Rent within that time, then at Tenant's request, within
ten (10) days of the expiration of that thirty (30) day
period, each party shall separately designate an independent,
qualified MAI appraiser to make this determination. Within
five (5) business days of their appointment, the two
designated appraisers shall jointly designate a third
similarly qualified appraiser. The failure of either party to
appoint an appraiser within the time allowed shall be deemed
equivalent to appointing the appraiser appointed by the other
party. If, within ten (10) business days after the appointment
of all appraisers, a majority of the appraisers concur on the
Fair Market Rent, that appraisal shall be the accepted Base
Rent. If a majority of the appraisers do not concur within
that period, the third appraiser shall select the
determination of one of other two appraisers whose appraisal
is closest to the Fair Market Rent. The parties shall share
the appraisal expenses equally.
ARTICLE 4
RENT
A. Base Rent. Beginning on the first day of the second full
calendar month following the Commencement Date (the "Rent Start Date"),
Tenant shall pay to Landlord base rent ("Base Rent") for the Premises
in advance, on the first day of each month of the Lease Term, in the
amount of Thirty Four Thousand and Seven Dollars ($34,007), subject to
the rent adjustment set forth below. As of the Expansion Date, Base
Rent shall be increased by an amount equal to the product obtained by
multiplying 11,467 (the number of rentable square feet in the Expansion
Space) by the Base Rent payable per rentable square foot of the initial
Premises immediately before the Expansion Date.[As an example, assuming
that the Base Rent is increased on the first Adjustment Date, as
defined in Section 4.B below (and prior to the Expansion Date), by the
maximum amount of eight percent (8%), the total Base Rent effective as
of the Expansion Date shall be Forty Eight Thousand Two Hundred Twenty
Six Dollars ($48,226), calculated as follows: Initial Base Rent of
$34,007 multiplied by 1.08 equals $36,728; divided by 29,571 rentable
square feet equals $1.24 per rentable square foot; $1.24 multiplied by
41,038 rentable square feet equals $50,887.] Rent shall be payable
without abatement (except as expressly provided herein), offset, prior
notice or demand.
Rent for any period during the Lease Term which is for less than one
month shall be a pro rata portion of the monthly installment, and Base
Rent for any partial calendar month at the beginning of the Lease Term
shall be paid on the Rent Start Date. Rent shall be payable in lawful
money of the United States to Landlord at the address stated herein or
to such other persons or at such other places as Landlord may designate
in writing. Upon execution of this Lease by all parties hereto, Tenant
shall provide to Landlord an amount equal to the Base Rent payable for
one full month of the Lease Term, which sums shall be applied to the
Base Rent otherwise payable for the first month of the Lease Term. As
used herein, the term "Rent" shall mean Base Rent and any and all other
sums payable by Tenant hereunder.
B. Periodic Base Rent Adjustment. The Base Rent shall be
adjusted upward at the beginning of the third (3rd), fifth (5th) and
seventh (7th) years of the Lease Term (the "Adjustment Dates") as
described herein. The base for computing the adjustment is the Consumer
Price Index for All Urban Consumers (base year 1982- 1984 = 100) for
San Francisco-Oakland-San Jose All Items published by the United States
Department of Labor, Bureau of Labor Statistics (the "Index"), which is
most recently published prior to the Commencement Date (the "Beginning
Index"). If the Index most recently published prior to the Adjustment
Date (the "Extension Index") has increased over the Beginning Index,
the Base Rent at that Adjustment Date (to continue until the next
Adjustment Date) shall be set by multiplying the Base Rent set forth in
Section 4.A above by a fraction, the numerator of which is the
Extension Index, and the denominator of which is the Beginning Index;
provided,
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however, that the increase in Base Rent at any Adjustment Date shall
not be less than four percent (4%) nor greater than eight percent (8%).
Each successive lease year shall commence on the anniversary of the
Commencement Date.
ARTICLE 5
SECURITY DEPOSIT
Tenant shall deposit with Landlord, within no more than three
(3) business days following receipt of a fully executed Lease, the sum
of Thirty Four Thousand Seven and 00/100 ($34,007), as security for
Tenant's faithful performance of Tenant's obligations hereunder. If
Tenant commits any Event of Default under this Lease, Landlord may,
without waiving or releasing Tenant from any obligation under this
Lease, and without waiving Landlord's right to treat such failure as a
default hereof, use, apply, or retain all or any portion of the
Security Deposit for the payment of any Rent or other charge in default
or for the payment of any other sum to which Landlord may become
obligated by reason of Tenant's default, or to compensate Landlord for
any loss or damage which Landlord may suffer thereby. If Landlord so
uses or applies all or any portion of the Security Deposit, Tenant
shall within ten (10) days after written demand therefor deposit cash
with Landlord in an amount sufficient to restore the Security Deposit
to the full amount hereinabove stated and Tenant's failure to do so
shall be a material breach of this Lease. Except to the extent properly
applied hereunder, the Security Deposit shall be returned to Tenant
(or, at Tenant's option, to the last assignee, if any, of Tenant's
interest hereunder) at the expiration of the Lease Term and after
Tenant has vacated the Premises. No trust relationship is created
herein between Landlord and Tenant with respect to said security
deposit, and Landlord may commingle it, use it in ordinary business,
transfer or assign it, or use it in any combination of those ways. In
the event of termination of Landlord's interest in this Lease, Landlord
shall transfer the Security Deposit to Landlord's successor in
interest, whereupon Landlord shall be released from all liability for
the return of the Security Deposit or the accounting therefor.
ARTICLE 6
USE
A. Use. The Premises shall be used and occupied for general,
administrative and sales offices, product service, software engineering
and product storage. Tenant may make any other use of the Premises
provided that such use (i) is otherwise in compliance with applicable
Law, and (ii) is approved by Landlord, which approval will not be
unreasonably withheld or delayed. Tenant shall not use or permit the
use of the Premises in any manner that will tend to create waste or a
nuisance or tend to unreasonably disturb any other tenants. This Lease
does not grant to Tenant any exclusive-use rights that would prevent
other tenants from conducting businesses or operations within the
Building similar to the business or operations of Tenant.
B. Compliance with Law.
i. Landlord warrants to Tenant that the Premises, in
its state existing on the Commencement Date (and, with respect
to the Expansion Space, as of the Expansion Date), with regard
to the allowed uses set forth herein, does not violate any
laws, statutes, ordinances, rules, regulations, orders,
covenants, conditions or restrictions of record (collectively,
"Laws") in effect on the Commencement Date or Expansion Date,
respectively.
ii. Tenant shall, at Tenant's expense, comply
promptly with all applicable Laws in effect during the Lease
Term or any part of the Lease Term, regulating the use by
Tenant of the Premises. Tenant shall not be required to
construct any improvement to comply with, or pay the cost of
complying with any Laws (i) requiring construction of
improvements in the Premises which are
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properly capitalized under generally accepted accounting
principles, unless such compliance is necessitated solely
because of Tenant's particular use of the Premises, or (ii)
regarding the presence of Toxic Materials, except as provided
in Article 7 hereof.
iii. By executing this Lease, Tenant acknowledges
that it has reviewed and satisfied itself as to its
compliance, or intended compliance, with the applicable zoning
and permit laws, hazardous waste requirements, and all other
statutes, laws, or ordinances relevant to the uses stated in
Section 6.A, above.
C. Condition of Premises.
i. Landlord shall deliver the Premises to Tenant
clean and free of debris on the Commencement Date, with (i)
the Tenant Improvements substantially completed, (ii) the
common areas of the Property, including the sidewalks,
driveway, parking lot and landscaping, in good condition, and
(iii) the Building and all Building systems, including the
plumbing, mechanical, electrical, roof and roofing systems, in
good operating condition. If the Premises, or any portion
thereof, are not delivered in the condition required herein,
then it shall be the obligation of Landlord, at Landlord's
sole cost, after receipt of written notice from Tenant setting
forth with specificity the nature of the condition, to
promptly rectify such condition. Notwithstanding the
foregoing, the obligation of Landlord to correct any condition
which violates the terms of this Section 6.C shall terminate
with respect to any reasonably discoverable condition of which
Landlord has not received written notice on or before the date
which is sixty (60) days after the date that Landlord
initially delivers possession of the area of the Premises in
question to Tenant.
ii. Except as otherwise provided in this Lease,
Tenant hereby accepts the Premises in their condition existing
as of the Commencement Date, subject to all zoning, municipal,
county, state, and other applicable Laws governing and
regulating the use of the Premises, and accepts this Lease
subject thereto. Tenant acknowledges that neither Landlord nor
Landlord's agent has made any representation or warranty as to
the present or future suitability of the Premises for the
conduct of Tenant's business.
ARTICLE 7
HAZARDOUS OR TOXIC MATERIALS
A. Tenant, and Tenant's agents, employees, invitees, and
contractors ("Tenant's Representatives"), shall not bring, allow, use,
or permit upon the Premises, or generate or create at or emit or
dispose from the Premises any toxic or hazardous gaseous, liquid, or
solid materials, or waste ("Toxic Materials"), including, without
limitation, any material or substance having characteristics of
ignitability, corrosivity, reactivity, or extraction procedure toxicity
or substances or materials which are listed on any of the Environmental
Protection Agency's lists of hazardous wastes or which are identified
in Sections 66680 through 66685 of Title 22 of the California Code of
Regulations as the same may be amended from time to time. Tenant shall
indemnify, defend, and hold Landlord harmless from any claims,
liabilities, costs, or expenses incurred or suffered by Landlord
arising from such bringing, allowing, using, permitting, generating,
creating, or emitting or disposing of Toxic Materials by Tenant or
Tenant's Representatives. Tenant's indemnification, defense, and hold
harmless obligations include all of the following: (i) claims,
liabilities, costs or expenses resulting from or based upon
administrative, judicial (civil or criminal), or other legal or
equitable action, (ii) claims, liabilities, costs, or expenses
pertaining to the cleanup or containment of Toxic Materials, the
identification of the pollutants in the Toxic Materials, the
identification of the scope of any environmental contamination, the
removal of pollutants from soils, the provision of an alternative
public drinking water source, or the long term monitoring of ground
water and surface waters, and (iii) all costs of defending such claims.
Tenant shall comply, at its sole cost, with all laws pertaining to
Toxic Materials which have been brought, allowed, used, or permitted on
the Premises
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by Tenant, or by Tenant's Representatives. Tenant's hold harmless,
defense and indemnity obligations hereunder shall survive the
expiration or termination of this Lease.
B. Landlord represents and warrants that, to the best of its
knowledge, as of the date of this Lease, there are no Toxic Materials
in or on the Premises as of the Commencement Date which would require
notification or reporting to any governmental regulatory agency.
Landlord shall indemnify, defend and hold Tenant harmless from any
claims, liabilities, costs, or expenses incurred or suffered by Tenant
arising from (i) the existence of Toxic Materials on the Premises prior
to or on the Commencement Date, including any such Toxic Materials
identified in the Phase I report referred to below, or (ii)
attributable to the use, storage, or disposal of any Toxic Materials by
Landlord or Landlord's Representative. Landlord's indemnification,
defense and hold harmless obligations include all of the following: (i)
claims, liabilities, costs or expenses resulting from or based upon
administrative, judicial (civil or criminal), or other legal or
equitable action, (ii) claims, liabilities, costs, or expenses
pertaining to the cleanup or containment of Toxic Materials, the
identification of the pollutants in the Toxic Materials, the
identification of the scope of any environmental contamination, the
removal of pollutants from soils, the provision of an alternative
public drinking water source, or the long term monitoring of ground
water and surface waters, and (iii) all costs of defending such claims.
Landlord shall comply, at its sole cost, with all laws pertaining to
such Toxic Materials, except to the extent that such Toxic Materials
have been brought, allowed, used, or permitted on the Premises by
Tenant, or by Tenant's Representatives. Landlord's hold harmless,
defense and indemnity obligations hereunder shall survive the
expiration or termination of this Lease. Other than the"Phase I" report
(the "Phase I Report") prepared by an environmental consultant retained
by Landlord to investigate the environmental condition of the Property,
which Phase I report Landlord has delivered to Tenant, there are no
reports, studies or other written materials, in the possession or
control of Landlord, which have been produced by any third party in
connection with any investigation of the Premises or Property
pertaining to the presence, use or disposal of Toxic Materials in, on
or about the Premises or Property. The Phase I Report has been
delivered without representation or warranty from Landlord as to the
accuracy or completeness thereof, except to the extent that Landlord is
actually aware of any material inaccuracy or incompleteness. Except as
otherwise expressly provided in this Lease, the provisions of this
Article 7 shall exclusively govern the respective rights and
obligations of the parties hereto with respect to Toxic Materials.
ARTICLE 8
MAINTENANCE, REPAIRS AND ALTERATIONS
A. Maintenance - Premises. Throughout the Lease Term, Tenant
agrees to keep and maintain all improvements and appurtenances within
the Premises in good condition and repair, reasonable use and wear
excepted. Tenant hereby expressly waives the provisions of any law
permitting repairs by a tenant at the expense of a landlord, including,
without limitation, all rights of Tenant under Sections 1941 and 1942
of the California Civil Code. Tenant agrees to keep the Premises clean
and in sanitary condition as required by the health, sanitary and
police ordinances and regulations of any political subdivision having
jurisdiction. Tenant further agrees to keep the interior of the
Premises, such as the windows, floors, walls, doors, showcases and
fixtures clean and neat in appearance and to remove all trash and
debris which may be found in or around the Premises. If Tenant refuses
or neglects to commence such repairs and/or maintenance required under
this Lease agreement or does not diligently prosecute same to
completion within thirty (30) days of written notice thereof, then
Landlord may enter the Premises and cause such repairs and/or
maintenance to be made. Tenant agrees that upon demand, it shall pay to
Landlord the cost of any such repairs, together with accrued interest
from the date of payment at the prime commercial lending rate then in
effect at Bank of America. Landlord shall assign to Tenant any
warranties or guaranties applicable to those portions of the Premises
to be maintained by Tenant, and Landlord shall cooperate with Tenant to
the extent reasonably necessary to enforce such warranties or
guaranties. Tenant shall have no responsibility to perform or
construct, any repair, maintenance or improvement (i) necessitated by
the acts or omissions of Landlord or Landlord's agents, employees or
contractors,
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(ii) occasioned by fire, acts of God or other casualty or by the
exercise of the power of eminent domain, (iii) for which Landlord has a
right of reimbursement from others, (v) which would be treated as a
"capital expenditure" under generally accepted accounting principles,
except as provided below, (vi) to the heating, ventilating, air
conditioning, electrical, water, sewer, and plumbing systems serving
the Premises or the Building. Notwithstanding the foregoing, any
obligation on Tenant's part which would require construction of an item
which would be treated as a capital expenditure shall be performed by
Tenant, at its sole cost and expense, if the item in question is
required because of (i) a particular or unique aspect of the use of the
Premises by Tenant, or (ii) because of the construction of any
alterations or improvements in the Premises by Tenant. Tenant's
obligation, if any, to reimburse Landlord for the costs of such
repairs, maintenance and improvements shall be governed by the other
provisions of this Lease.
B. Maintenance - Common Areas.
i. Landlord shall be responsible for maintaining in a
good and clean condition, the common areas, consisting of the
entire Building and Property, exclusive of the Premises and
other leasable space in the Building, and including the
building systems (the "Common Areas"). Tenant shall notify
Landlord, in writing, as soon as is reasonably possible, of
any repairs or maintenance to the Common Areas which may be
required, and Landlord shall have a reasonable time to make
such repairs. Landlord shall perform, at its sole cost and
expense, the repair or replacement of any Building system (i)
which is performed or reasonably required to be performed on
or before July 1, 1997, (ii) which costs more than One
Thousand Dollars ($1,000), and (iii) which is not required by
the negligence or willful misconduct of Tenant, its agents,
employees or contractors. The cost of any item which is
required by the negligence or willful misconduct of Tenant,
its agents, employees or contractors shall be paid by Tenant,
except as provided in Section 11.E, entitled Waiver of
Subrogation.
ii. The following services shall be provided to the
Premises by Landlord: (i) ventilation and air conditioning or
heating ("HVAC") from 8 a.m. to 5 p.m. Monday through Friday
("Business Hours"), (ii) electric power as required for office
lighting and office business machines, and (iii) water in the
kitchen areas of the Premises and for drinking and lavatory
purposes. Landlord shall not be required to provide janitorial
services to the Premises. Upon request of Tenant, Landlord
shall provide HVAC outside of Business Hours, and Tenant shall
reimburse to Landlord the actual cost of providing such
additional service. Tenant shall have access to the Premises
twenty-four (24) hours a day.
ARTICLE 9
OPERATING EXPENSES
A. Tenant shall pay to Landlord, as additional Rent, in the
manner and at the time provided below, Tenant's Proportionate Share, as
defined below, of all costs and expenses (the "Operating Expenses")
paid or incurred by Landlord for the operation, maintenance, or repair
of the Property, including, but not limited to, the following
(including payments to independent contractors providing services
related to the performance of the following):
i. (i) maintaining, cleaning, repairing and
resurfacing the roof (including repair of leaks) and the
exterior surfaces (including painting) of all buildings
located on the Property; (ii) maintenance of the liability,
fire and property damage insurance covering the Project
carried by Landlord pursuant to Section 11.B; (iii)
maintaining, repairing, operating and replacing when necessary
HVAC equipment, utility facilities and other building service
equipment; (iv) providing utilities to the Common Area
(including lighting, trash removal and water for landscaping
irrigation); (v) complying with all applicable Laws (subject
to Section 6.B above); (vi) operating, maintaining, repairing,
cleaning,
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painting, restriping and resurfacing the Common Area; (vii)
replacement or installation of lighting fixtures, directional
or other signs and signals, irrigation systems, trees, shrubs,
ground cover and other plant materials, and all landscaping in
the Common Area, and (viii) providing security;
ii. The following costs: (i) Real Property Taxes as
defined in Section 13.B; (ii) the cost to repair damage caused
by an Uninsured Peril up to a maximum amount in any 12 month
period equal to 2% of the replacement cost of the buildings or
other improvements damaged; and (iv) that portion of all
compensation (including benefits and premiums for workers'
compensation and other insurance) paid to or on behalf of
employees of Landlord but only to the extent they are involved
in the performance of the work described that is fairly
allocable to the Project;
iii. Fees for management services rendered by either
Landlord or a third party manager engaged by Landlord (which
may be a party affiliated with Landlord), except that the
total amount charged for management services and included in
Tenant's Share of Common Operating Expenses shall not exceed
(i) during any period when Tenant does not lease all the
rentable space in the Building, the monthly rate of two
percent (2%) of the monthly installment of Base Rent and (ii)
during any period when Tenant does lease all the rentable
space in the Building, the monthly rate of one percent (1%) of
the monthly installment of Base Rent; and
iv. All additional costs and expenses incurred by
Landlord with respect to the operation, protection,
maintenance, repair and replacement of the Project which would
be considered a current expense (and not a capital
expenditure) pursuant to generally accepted accounting
principles.
v. Landlord estimates that the Operating Expenses
will be approximately eighteen cents ($.18) per month per
rentable square foot in the Premises.
B. Operating Expense Exclusions. Notwithstanding anything to
the contrary in the Lease, Operating Expenses shall not include, and
Tenant shall have no obligation to pay the cost of, any of the
following:
i. Losses Caused By Others: Costs occasioned by the
negligence, willful misconduct, or violation of Law by
Landlord, any other occupant of the Building, or their
respective agents, employees or contractors.
ii. Casualties and Condemnations: Except as otherwise
provided in Section 9.A(ii), costs occasioned by fire, acts of
God, or other casualties or by the exercise of the power of
eminent domain.
iii. Capital Improvements: Costs relating to repairs,
alterations, improvements, equipment and tools which would
properly be capitalized under generally accepted accounting
principles, except to the extent that any such capital
improvement (i) is reasonably anticipated to reduce Operating
Expenses; (ii) is required to comply with applicable Law
(except as required to correct any condition which does not
comply, as of the Commencement Date, or the Expansion Date,
with regard to the Expansion Space, with applicable Laws), or
(iii) is required to replace existing equipment and
improvements, including HVAC components and the roof membrane.
In each case, the cost of any such capital improvement which
is properly included in Operating Expenses shall be amortized
over the useful life thereof, as determined in accordance with
generally accepted accounting principles, and an amount equal
to the cost so amortized, together with interest at the rate
actually paid by Landlord, or at Landlord's cost of funds,
shall be included in Operating Expenses, until the earlier of
the end of the Lease Term or the end of such useful life.
iv. Reimbursable Expenses: Costs for which Landlord
has a right of reimbursement from others.
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v. Construction Defects: Costs to correct any
construction defect in the Premises or the Building;
vi. Utilities or Services: Costs (i) arising from the
disproportionate use of any utility or service supplied by
Landlord to any other occupant of the Building, (ii)
associated with utilities and services of a type not provided
to Tenant; or (iii) any cost for any service or utility
provided to any occupant of the Building other than Tenant
which is of a type for which Tenant pays directly (as, for
example, any utility which is separately metered to the
Premises).
vii. Interior Improvements: The cost of any
renovation, improvement, painting or redecorating of any
portion of the Building not made available for Tenant's use.
viii. Leasing Expenses: Fees, commissions, attorneys'
fees, costs or other disbursements incurred in connection with
negotiations or disputes with any other occupant of the
Building and costs arising from the violation by Landlord or
any occupant of the Building (other than Tenant) of the terms
and conditions of any lease or other agreement.
ix. Reserves: Depreciation, amortization or other
expense reserves.
x. Mortgages: Interest, charges and fees incurred on
debt, payments on mortgages and rent under ground leases.
xi. Concessions: Costs incurred in connection with
the operation of any commercial concession within the
Building.
xii. Promotion: Advertising or promotional costs.
xiii. Capital Leases: Lease payments and costs for
capital machinery and equipment, such as air conditioners,
elevators, and the like. This Section 9.B(xiii) shall not
apply to short-term leases of machinery and equipment when
necessary for emergencies or repairs.
xiv. Art: Costs of sculptures, fountains, paintings
and other art objects.
xv. Insurance: Increases in insurance costs caused by
the activities of another occupant of the Building,
co-insurance payments, and any costs for insurance premiums in
excess of a commercially reasonable amount. Deductible amounts
with respect to the property insurance maintained by Landlord
pursuant to Section 11.B, up to a maximum amount equal to
Fifty Thousand Dollar ($50,000) per occurrence for the entire
Property, which are otherwise includible in Operating
Expenses, shall be included in Operating Expenses.
xvi. Hazardous Materials: Costs incurred (a) to
investigate the presence of any Toxic Material, (b) to respond
to any claim of Toxic Material contamination or damage, (c) to
remove any Toxic Material from the Building and (d) to satisfy
any judgments or other costs incurred in connection with any
Toxic Material exposure or releases, without limiting the
obligation of Tenant pursuant to Article 7 hereof.
xvii. Management: Wages, salaries, compensation, or
other expenses associated with management of the Property,
other than as expressly provided herein.
xviii. Duplication: Costs and expenses for which
Tenant reimburses Landlord directly or which Tenant pays
directly to a third person.
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xix. Plate Glass: Costs to replace any plate glass in
the Building.
C. Tenant's Proportionate Share. Tenant's proportionate share
("Tenant's Proportionate Share") shall be equal to a fraction, the
denominator of which shall be the rentable square footage of the
Building, calculated in a manner consistent with the calculation of the
Premises as described in Article 2 above (which the parties acknowledge
is approximately 55,320 square feet), and the numerator of which shall
be the rentable area of the Premises. As of the Commencement Date,
Tenant's Proportionate Share will be fifty three and 45/100 percent
(53.45%) and as of the Expansion Date (assuming that the Premises then
consist of the initial Premises and Expansion Space only) Tenant's
Proportionate Share will be seventy four and 18/100 percent (74.18%).
Tenant shall pay to Landlord as Additional Rent the following amounts
in the manner specified:
i. For each calendar year during the Lease Term,
Landlord shall furnish to Tenant a written statement showing
in reasonable detail the estimated Operating Expenses, which
statement shall be provided to Tenant at least thirty (30)
days in advance of the date on which payment thereof will be
required ("Estimated Operating Expenses"). Thereafter, on each
monthly Rent payment date for such calendar year, Tenant shall
pay to Landlord, as Additional Rent, one-twelfth (1/12th) of
Tenant's Proportionate Share of the Estimated Operating
Expenses for such current calendar year. If Landlord for any
reason fails to furnish said statement as described above,
Tenant shall pay at the monthly Rent payment date next
following Tenant's receipt of said statement, any Additional
Rent which shall have accrued. If Landlord reasonably
determines that the estimated Operating Expenses so calculated
by Landlord will not accurately reflect the Operating Expenses
actually incurred for that year ("Actual Operating Expenses"),
Landlord may, no more than once in any given year, by written
notice to Tenant, adjust the required payments of Estimated
Operating Expenses. Beginning with the next monthly Rent
payment date which is at least thirty (30) days following
Tenant's receipt of such statement, and on each monthly Rent
payment date thereafter, Tenant shall pay the adjusted amount
for the succeeding months in the current year, and Tenant
shall pay to Landlord (or credit against Rent otherwise due)
an amount sufficient to cause the total payments of Estimated
Operating Expenses already made in the then current year to
reflect accurately Actual Operating Expenses.
ii. As soon as possible after the beginning of each
calendar year during the Lease Term, Landlord shall furnish to
Tenant a written statement of Actual Operating Expenses for
the preceding calendar year or portion thereof. If the Actual
Operating Expenses for the preceding calendar year exceed the
Estimated Operating Expenses for that year, then, at the
monthly Rent payment date next following Tenant's receipt of
such statement, Tenant shall pay to Landlord the amount by
which Tenant's Proportionate Share of Actual Operating
Expenses for such preceding year exceeds Tenant's
Proportionate Share of Estimated Operating Expenses. However,
if Tenant's payments of Estimated Operating Expenses exceed
Tenant's Proportionate Share of the Actual Operating Expenses
for the preceding calendar year, Tenant shall receive a credit
toward the next monthly Rent falling due equal to the excess.
iii. When the final determination is made of Tenant's
Proportionate Share of Actual Operating Expenses for the
calendar year in which this Lease terminates, even if the
determination occurs after Tenant has vacated the Premises,
Tenant shall immediately pay any amount due over the estimated
expenses paid and, conversely, any overpayment made by Tenant
shall be reimbursed by Landlord. If this Lease shall terminate
on a day other than the last day of a calendar year, the
amount of the adjustment to be made hereunder for such year
shall be prorated on the basis which the number of days from
the commencement of such calendar year to and including the
termination date bears to three hundred sixty five (365).
D. Books and Records. Upon written request of Tenant, Landlord
shall provide to Tenant
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reasonable documentation evidencing the breakdown of the Operating
Expenses, by categories, including but not limited to copies of
invoices from third party vendors and others. Upon three days notice to
Landlord, Tenant shall have the right to examine Landlord's books and
records with respect to the Operating Expenses, for the purpose of
verifying the information provided to Tenant by Landlord. If Tenant
determines that the Operating Expenses billed to Tenant exceed the
Operating Expenses properly payable by Tenant by five percent (5%) or
more, Landlord shall promptly reimburse to Tenant the reasonable costs
incurred by Tenant in such audit. Tenant shall pay the Operating
Expenses billed to Tenant, which payment may be made under protest by
Tenant with respect to any disputed portion thereof, notwithstanding
any dispute regarding the obligation to pay such Operating Expenses.
Any such dispute will be settled with Landlord and Tenant acting
reasonably and in good faith. If Landlord and Tenant are unable to
settle any such dispute amicably within ninety (90) days of Tenant's
receipt of any disputed statement for such Operating Expenses, then
such dispute shall be resolved by arbitration. Within no more than
thirty (30) days following the resolution of any dispute referenced
hereunder, the parties shall make any payments or other adjustments
required to effectuate the terms of the resolution.
ARTICLE 10
ALTERATIONS AND ADDITIONS
A. Consent Required. No structural alterations, changes or
structural additions ("Alterations") shall be made to the Premises by
Tenant without the prior written consent of Landlord, which Landlord
will not unreasonably withhold or delay. All such work shall be done by
licensed contractors reasonably approved by Landlord. Landlord shall
have the right to require Tenant to remove any Alteration made without
the consent of Landlord. Tenant shall not permit any mechanic's,
materialmen's or other liens to be filed against the Property, the
Building or Tenant's leasehold interest in the Premises which may arise
from any Alterations performed by, or at the request of, Tenant. Tenant
shall cause any such lien to be released, by payment of the underlying
obligation or posting of a bond, within no more than ten (10) days
after receipt of written request from Landlord. If Tenant fails to
remove such lien when required hereunder, Landlord may, without waiving
its rights and remedies based on such breach of Tenant and without
releasing Tenant from any of its obligations, cause such liens to be
released by any means it shall deem proper, including payments in
satisfaction of the claim giving rise to such lien. Tenant shall pay to
Landlord at once, upon notice by Landlord, any sum paid by Landlord to
remove such liens.
B. Liens; Title. Tenant may perform non-structural Alterations
in and to the Premises, without the consent of Landlord, provided that
the reasonably anticipated cost of such Alteration does not exceed Five
Thousand Dollars ($5,000) and further provided that the Alteration in
question will not affect the function of the Building systems. At the
time that Landlord provides consent to any proposed Alteration for
which consent is required, and otherwise upon request, Landlord shall
advise Tenant in writing whether it will require Tenant to remove any
such Alterations from the Premises upon termination of the Lease. As a
further condition to giving such consent, for any job the cost of which
will exceed One Hundred Thousand Dollars ($100,000) Landlord may
require Tenant to provide Landlord, at Tenant's sole cost and expense,
with a lien and completion bond in an amount equal to one and one-half
(1 1/2) times the estimated cost of such improvements, to insure
Landlord against any liability for mechanic's and materialmen's liens
and to insure completion of the work. All Alterations to be made to the
Premises shall be under the supervision of a competent architect or
competent licensed structural engineer and made in accordance with
plans and specifications which have been furnished to and approved by
Landlord prior to commencement of work, which approval shall not be
unreasonably withheld or delayed. Tenant agrees to advise Landlord in
writing of the date upon which any Alterations will commence in order
to permit Landlord to post a notice of non-responsibility. All such
Alterations shall be constructed in a good and workmanlike manner in
accordance with all ordinances and laws relating thereto. Except as
provided herein, all Alterations shall remain for the benefit of and
become the property of Landlord upon the expiration of the Lease Term,
unless Landlord has properly notified Tenant that Tenant will be
required to remove such Alterations. Except as expressly provided
above, all Alterations, trade fixtures, and personal property installed
in the Premises at Tenant's expense ("Tenant's Property"), excluding
any such alterations or
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trade fixtures provided under this Lease as a Tenant Improvement, shall
at all times remain Tenant's property and Tenant shall be entitled to
all depreciation, amortization, and other tax benefits with respect
thereto.
ARTICLE 11
INSURANCE
A. Property/Rental Insurance-- Premises. During the term of
this Lease, Landlord shall keep the Premises and Building insured
against loss or damage by fire and those risks normally included in the
term "all risk" including (a) earthquake coverage, at the election of
Landlord, (b) coverage for loss of Rents, and (c) boiler and machinery
coverage if the Landlord deems such coverage necessary. The amount of
such insurance shall be not less than one hundred percent (100%) of the
replacement value of the Building. Any recovery received from said
insurance policy shall be paid to Landlord.
B. Property Insurance--Fixtures and Inventory. During the
Lease Term, Tenant shall, at its sole expense, maintain insurance with
"all risk" coverage on any fixtures, leasehold improvements,
furnishings, merchandise, equipment, or personal property in or on the
Premises, whether in place as of the date hereof or installed
hereafter, for the full replacement value thereof, and Landlord shall
not have any responsibility nor pay any costs for maintaining any types
of such insurance. Any deductibles shall be paid by Tenant, as provided
in Article 9 hereof.
C. Landlord's Liability Insurance. During the Lease Term,
Landlord may maintain a policy or policies of comprehensive general
liability insurance insuring Landlord (and such others as are
designated by Landlord) against liability for bodily injury, death and
property damage on or about the Premises or the Property, with combined
single limit coverage of not less than Two Million Dollars
($2,000,000).
D. Tenant's Liability Insurance. During the Lease Term, Tenant
shall, at its sole expense, maintain for the mutual benefit of Landlord
and Tenant, comprehensive general liability and property damage
insurance against claims for bodily injury, death or property damage
occurring in or about the Premises or arising out of the use or
occupancy of the Premises, with combined single limit coverage of not
less than Two Million Dollars ($2,000,000). The liability insurance so
maintained by Tenant shall be primary and non-contributing with any
other insurance coverage maintained by Landlord. The limits of such
insurance shall not limit the liability of Tenant. Tenant shall furnish
to Landlord prior to the Commencement Date, and at least thirty (30)
days prior to the expiration date of any policy, certificates
indicating that the liability insurance required to be carried by
Tenant above is in full force and effect; that Landlord, Landlord's
property manager, and any beneficiary of a deed of trust encumbering
the Property (provided that the name and address of each of the
foregoing has been provided to Tenant in writing) has been named as an
additional insured; and that all such policies will not be canceled
unless thirty (30) days' prior written notice of the proposed
cancellation has been given to Landlord. The insurance shall be with
insurers approved by Landlord and with policies in form satisfactory to
Landlord, provided however, that such approval shall not be
unreasonably withheld. Said policies shall provide that Landlord,
although an additional insured, may recover for any loss suffered by
Landlord by reason of Tenant's negligence and shall include a broad
form liability endorsement.
E. Waiver of Subrogation. Landlord hereby releases Tenant, and
Tenant hereby releases Landlord, and their respective officers, agents,
employees and servants, from any and all claims or demands of damages,
loss, expense, or injury to the Premises or the Building, or to the
furnishings and fixtures and equipment, or inventory or other property
of either Landlord or Tenant in, or about or upon the Premises or the
Building, or claims for bodily injury or death which is caused by or
results from perils, events or happenings which are the subject of the
insurance required to be maintained by the parties pursuant to Sections
11.A and 11.B, respectively, or any casualty insurance otherwise
carried by the respective parties and in force at the time of any such
loss; provided, however, that such waiver shall be effective only to
the extent permitted by the
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insurance covering such loss and to the extent such insurance is not
prejudiced thereby. Each party shall cause each insurance policy
obtained by it to provide that the insurance company waives all right
of recovery by way of subrogation against either party in connection
with any damage covered by any policy.
F. Indemnification. Except in the case of the acts or
omissions of Landlord or Landlord's Representatives, Tenant will
indemnify and defend Landlord and save it harmless from and against any
and all claims, actions, damages, liability and expense in connection
with loss of life, personal injury and/or damage to property arising
from the occupancy or use by Tenant of the Premises or any part thereof
or of the Building to the extent caused by the acts or omissions of
Tenant, its agents, contractors, employees, servants, licensees, or
concessionaires or by anyone permitted to be on the Premises by Tenant.
In case Landlord shall be made a party to any such litigation commenced
by or against Tenant, then Tenant shall protect and hold Landlord
harmless from all claims, liabilities, costs and expenses, and shall
pay all costs, expenses and reasonable legal fees incurred by Landlord
in connection with such litigation.
Except in the case of the acts or omissions of Tenant or
Tenant's Representatives, Landlord will indemnify and defend Tenant
and save it harmless from and against any and all claims, actions,
damages, liability and expense in connection with loss of life,
personal injury and/or damage to property to the extent caused by the
acts or omissions of Landlord, its agents, contractors, employees,
servants, licensees, or concessionaires. In case Tenant shall be made a
party to any such litigation commenced by or against Landlord, then
Landlord shall protect and hold Tenant harmless from all claims,
liabilities, costs and expenses, and shall pay all costs, expenses and
reasonable legal fees incurred by Tenant in connection with such
litigation.
G. Plate Glass Replacement. Tenant shall replace at its sole
expense, any and all plate glass and other glass in and about the
Premises which is damaged or broken by vandalism. If any plate glass or
other glass in and about the Premises is damaged or broken by causes
other than vandalism, then Landlord shall replace the same and Tenant
shall reimburse Landlord an amount equal to Landlord's reasonable cost
of replacement, provided that such amount shall not exceed the
deductible then in effect on Landlord's insurance policy, if any,
covering the damaged glass. Nothing herein shall be construed to
require Landlord to carry plate glass insurance.
H. Worker's Compensation Insurance. Tenant shall, at its sole
expense, maintain and keep in force during the Lease Term a policy or
policies of Worker's Compensation insurance or any other employee
benefit insurance sufficient to comply with all applicable Laws.
ARTICLE 12
DAMAGE OR DESTRUCTION
A. Right to Terminate on Destruction of Premises. Landlord
shall have the right to terminate this Lease if, during the Lease Term,
the Premises and/or the Building are damaged to an extent exceeding
thirty-three percent (33%) of the then reconstruction cost of the
Building as a whole. Landlord shall also have the right to terminate
this Lease if any portion of the Premises is damaged by an uninsured
peril to an extent exceeding five percent (5%) of the then current
reconstruction cost of the Premises. In either case, Landlord may elect
to terminate as provided above by written notice to Tenant delivered
within sixty (60) days of the happening of such damage. Tenant
specifically waives all rights it may have under Sections 1932 and 1933
of the California Civil Code and any similar or successor statute or
law.
B. Repairs by Landlord. If Landlord shall not elect to
terminate this Lease pursuant to Section 12.A, Landlord shall,
immediately upon receipt of insurance proceeds paid in connection with
such casualty, but in no event later than one hundred twenty (120) days
after such damage has occurred, proceed to repair or rebuild the
Premises, including the Tenant Improvements as defined in Exhibit C
hereto, but excluding Tenant's Property, on the same plan and design as
existed immediately before such damage or destruction occurred and
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will proceed expeditiously to complete such restoration, subject to
such delays as may be reasonably attributable to governmental
restrictions or failure to obtain materials or labor, or other causes
beyond the control of Landlord. Landlord will have no obligation to
replace or restore, and Tenant shall be liable for the repair and
replacement of, all fixtures, leasehold improvements, furnishings,
merchandise, equipment and personal property as required in the conduct
of Tenant's business.
C. Reduction of Rent During Repairs. In the event Tenant, in
the exercise of Tenant's reasonable discretion, is able to continue to
conduct its business during the making of repairs, the Rent then
prevailing will be equitably reduced in the proportion that the square
footage of the unusable part of the Premises bears to the square
footage of the whole thereof for the period that repairs are being
made. No Rent shall be payable while the Premises are wholly unusable
due to casualty damage.
D. ARBITRATION OF DISPUTES. ANY CONTROVERSY OR CLAIM ARISING
OUT OF OR RELATING TO THIS ARTICLE SHALL BE SETTLED BY ARBITRATION IN
ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION AS
THEN IN EFFECT, AND JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATION
MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE EXPENSES OF
ARBITRATION SHALL BE BORNE EQUALLY BY THE PARTIES. THE PARTY DESIRING
ARBITRATION SHALL SERVE NOTICE UPON THE OTHER PARTY, TOGETHER WITH
DESIGNATION OF THE FIRST PARTY'S ARBITRATOR.
"NOTICE: BY INITIALLING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF
DISPUTES' PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY
CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHT S YOU MIGHT POSSESS TO
HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALLING IN
THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHT TO DISCOVERY AND
APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
'ARBITRATION OF DISPUTES' PROVISION. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO
ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION IS VOLUNTARY."
"WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES'
PROVISION TO NEUTRAL ARBITRATION."
/s/ CJT /s/ JRP Landlord /s/ LW Tenant
------------------ -------------------
/s/ CEB
ARTICLE 13
REAL PROPERTY TAXES
A. Payment of Taxes. If any Real Property Taxes paid by Tenant
shall cover any period of time prior to or after the expiration of the
Lease Term, Tenant's share of such taxes shall be equitably prorated to
cover only the period of time within the tax fiscal year during which
this Lease shall be in effect, and Landlord shall pay the balance of
any such taxes. If Tenant shall fail to pay any such taxes, Landlord
shall have the right to pay the same, in which case Tenant shall repay
such amount to Landlord with Tenant's next Rent installment together
with interest at the prime commercial lending rate then in effect at
the Bank of America.
B. Definition of "Real Property Tax". As used herein, the term
"Real Property Tax" shall include any form of real estate tax or
assessment, general, special, supplemental, ordinary or extraordinary,
and any license fee, commercial rental tax, improvement bond or bonds,
levy or tax (other than inheritance, personal
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income, corporate, franchise or estate taxes) imposed on the Property
by any authority having the direct or indirect power to tax, including
any improvement district thereof, as against any legal or equitable
interest of Landlord in the Premises or in the real property of which
the Premises are a part, as against Landlord's right to rent or other
income therefrom, and as against Landlord's business of leasing the
Premises.
C. Joint Assessment. If the Premises are not separately
assessed, Tenant'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 determined by
Landlord in accordance with Tenant's Proportionate Share. Tenant shall
reimburse the cost of Real Property Taxes to Landlord as provided in
Section 9.1.
D. Personal Property Taxes.
i. Tenant shall pay prior to delinquency all taxes
assessed against and levied upon trade fixtures, furnishings,
equipment and all other personal property of Tenant contained
in the Premises or elsewhere. When possible, Tenant shall
cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately
from the real property of Landlord.
ii. If any of Tenant's said personal property shall
be assessed with Landlord's real property, Tenant shall pay
Landlord the taxes attributable to Tenant within 10 days
before delinquency.
iii. If Tenant shall fail to pay any such taxes,
Landlord shall have the right to pay the same, in which case
Tenant shall repay such amount to Landlord with Tenant's next
Rent installment together with interest at the prime
commercial lending rate then charged by the Bank of America.
ARTICLE 14
UTILITIES AND JANITORIAL
Tenant shall pay prior to delinquency throughout the Lease
Term the cost of all utilities and services provided directly to Tenant
or to the Premises and not provided by Landlord pursuant to this Lease,
including telephone, janitorial service in the Premises, and all other
materials and utilities supplied to the Premises. Landlord will provide
a separate utility meter(s) to monitor supply of electrical power to
the Premises, provided that the cost of installing such meter, upon
approval by Tenant, shall be paid by Tenant (and may be paid from the
Tenant Improvement Allowance, if so elected by Tenant.) If no such
meter is installed, the cost of electrical power to the Premises shall
be included in Operating Expenses.
ARTICLE 15
ASSIGNMENT AND SUBLETTING
A. Landlord's Consent Required. Except as provided in Section
15.B, Tenant shall not voluntarily or by operation of law assign,
transfer, mortgage, sublet, or otherwise transfer or encumber (each, a
"Transfer") all or any part of Tenant's interest in this Lease or in
the Premises, without Landlord's prior written consent, which Landlord
shall not unreasonably withhold or delay. Tenant must make such request
in accordance with Section 23.F hereof, entitled Notices. Landlord
shall respond to Tenant's request for consent hereunder within ten (10)
days after receipt of Tenant's written request, which shall be
accompanied by the information described in Section 15.F. Any attempted
Transfer without such consent shall be void, and shall constitute a
breach of this lease.
B. Tenant Affiliate. Upon written notice to Landlord, Tenant
may assign this Lease or sublet the Premises, or any portion thereof,
(i) to any corporation which controls, is controlled by, or is under
common control with Tenant, (ii) to any corporation resulting from the
merger or consolidation with Tenant, or (iii) to
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any person or entity which acquires all, or substantially all of the
assets of Tenant as a going concern of the business that is being
conducted on the Premises, provided, in the last case, that the person
or entity in question has a net worth, determined in accordance with
generally accepted accounting principles, at least equal to the net
worth of Tenant as of the date of this Lease. As a condition to a
proposed assignment, the assignee shall assume, in full, the
obligations of Tenant under this Lease. Any such assignment shall not,
in any way, affect or limit the liability of Tenant under the terms of
this Lease.
C. No Release of Tenant. Regardless of Landlord's consent, no
subletting or assignment shall release Tenant of Tenant's obligation or
alter the primary liability of Tenant to pay the Rent and to perform
all other obligations to be performed by Tenant hereunder. The
acceptance of Rent by Landlord from any other person shall not be
deemed consent to any subsequent assignment or subletting. In the event
of default by any assignee of Tenant or any successor of Tenant, in the
performance of any of the terms hereof, Landlord may proceed directly
against Tenant without the necessity of exhausting remedies against
said assignee.
D. Attorneys' Fees. In the event Tenant shall assign or sublet
the Premises or request the consent of Landlord to any assignment or
subletting, or if Tenant shall request the consent of Landlord for any
act Tenant proposes to do, then Tenant shall pay Landlord's reasonable
attorneys' fees incurred in connection therewith.
E. Excess Rent. In the event Landlord shall consent to a
sublease or an assignment under the Lease, Tenant shall pay to Landlord
with its regularly scheduled Rent payments fifty percent (50%) of all
sums collected by Tenant from a subtenant or assignee which are in
excess of the Rent then owing pursuant to Article 4 above, after
deducting therefrom all reasonable costs incurred by Tenant associated
with the Transfer in question, including brokerage commissions, legal
fees, and the costs of alterations made by Tenant to the Premises for
the specific benefit of the Transferee.
F. No Impairment of Security. Tenant's written request to
Landlord for consent to an assignment or subletting shall be
accompanied by (a) the name and legal composition of the proposed
subtenant; (b) the nature of the proposed Transferee's business to be
carried on in the Premises; (c) the terms and provisions of the
proposed sublease; and (d) such financial and other reasonable
information as Landlord may request concerning the proposed Transferee.
Landlord's consent shall not be deemed unreasonably withheld if consent
is denied because Landlord reasonably determines that the prospective
Transferee or assignee will impair Landlord's security.
ARTICLE 16
DEFAULTS; REMEDIES
A. Defaults. The occurrence of any one or more of the
following events shall constitute an Event of Default:
i. The abandonment of the Premises by Tenant;
ii. The failure by Tenant to make any payment of Rent
or any other payment required to be made by Tenant hereunder,
as and when due, where such failure shall continue for a
period of five (5) days after such payment is due;
iii. The failure by Tenant to observe or perform any
of the covenants, conditions or provisions of this Lease to be
observed or performed by Tenant, other than described in
paragraph (b) above, where such failure shall continue for a
period of 10 days after written notice hereof from Landlord to
Tenant; provided, however, that if the nature of Tenant's
default is such that more than 10 days are reasonably required
for its cure, then Tenant shall not be deemed to be in default
if Tenant commences such cure within said 10 day period and
thereafter diligently prosecutes such cure to
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completion;
iv.(i) The making by Tenant of any general
arrangement or assignment for the benefit of creditors; (ii)
Tenant becomes a "debtor" as defined in 11 U.S.C. Section 101
or any successor statute thereto; (iii) the taking or
suffering of any action by Tenant under any insolvency or
bankruptcy act; (iv) the appointment of a trustee or receiver
to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease,
or (v) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease. Provided, however, in
the event that any provisions of this Section 16.A(iv) is
contrary to any applicable law, such provision shall be of no
force or effect;
v. The discovery by Landlord that any financial
statement given to Landlord by Tenant, any assignee of Tenant,
any successor in interest of Tenant or any guarantor of
Tenant's obligation hereunder, and any of them, was known by
Tenant to be materially false.
B. Remedies. In the event of any such material default or
breach by Tenant, Landlord may at any time thereafter, with or without
notice or demand and without limiting Landlord in the exercise of any
right or remedy which Landlord may have by reason of such default or
breach:
i. Terminate Tenant's right to possession of the
Premises by any lawful means, in which case this Lease shall
terminate and Tenant shall immediately surrender possession of
the Premises to Landlord. In such event Landlord shall be
entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default including, but not
limited to, (i) the cost of recovering possession of the
Premises and reasonable attorneys' fees related thereto; (ii)
the worth, at the time of the award, of the unpaid Rent that
had been earned at the time of termination of the Lease; (iii)
the worth, at the time of the award, of the amount by which
the unpaid Rent that would have been earned after the date of
termination of this Lease until the time of award exceeds the
amount of the loss of Rent that Tenant proves could have been
reasonably avoided; (iv) the worth, at the time of the award,
of the amount by which the unpaid Rent for the balance of the
Lease Term after the time of award exceeds the amount of the
loss of Rent that Tenant proves could have been reasonably
avoided; and (v) any other amount and court costs necessary to
compensate Landlord for all detriment proximately caused by
Tenant's default, or which in the ordinary course of things
would be likely to result therefrom, including, without
limitation, the unamortized portion of brokers' fees or
commissions and attorneys' fees incurred by Landlord in
connection with the negotiation and execution of the Lease
with Tenant.
ii. Maintain Tenant's right to possession in which
case this Lease shall continue in effect whether or not Tenant
shall have abandoned the Premises. In such event Landlord
shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the
Rent as it becomes due hereunder.
iii. Pursue any other remedy now or hereafter
available to Landlord under the laws or judicial decisions of
the state of California. Unpaid installments of Rent and other
unpaid monetary obligations of Tenant under the terms of this
Lease shall bear interest from the date due at the prime rate
then charged by Bank of America.
C. Default by Landlord. Landlord shall not be in default
unless Landlord fails to perform obligations required of Landlord
within a reasonable time, but in no event later than thirty (30) days
after written notice by Tenant to Landlord and to the holder of any
first mortgage or deed of trust covering the Premises whose name and
address shall have theretofore been furnished to Tenant in writing,
specifying wherein Landlord has failed to perform such obligation;
provided, however, that if the nature of Landlord's obligation is such
that more than thirty (30) days are required for performance then
Landlord shall not be in default if Landlord, or any
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such lender, commences performance within such 30-day period and
thereafter diligently prosecutes the same to completion. In the event
Landlord, or Landlord's lender, does not commence performance within
the thirty (30) day period provided herein, or does not diligently
prosecute the same to completion, Tenant may perform such obligation
and will be reimbursed for its expenses by Landlord together with
interest thereon at the prime commercial lending rate then charged by
the Bank of America, provided, however, that if the parties are in
dispute as to what constitutes Landlord's obligations under this
agreement, any such dispute shall be resolved by arbitration in a
manner identical to that provided in Section 12.D above.
D. Late Charges. Tenant hereby acknowledges that late payment
by Tenant to Landlord of Rent and other sums due hereunder will cause
Landlord 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 on Landlord by the terms of any
mortgage or trust deed covering the Premises. Accordingly, if any
installment of Rent or any other sum due from Tenant shall not be
received by Landlord or Landlord's designated agent within five (5)
days after written notice from Landlord that such amount is due and
owing, Tenant shall pay to Landlord a late charge equal to five percent
(5%) of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Landlord
will incur by reason of late payment by Tenant. Acceptance of any such
late charge by Landlord shall in no event constitute a waiver of
Tenant's default with respect to such overdue amount, nor prevent
Landlord from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) consecutive installments of
Rent, then Rent shall automatically become due and payable quarterly in
advance, rather than monthly, notwithstanding section 4.A or any other
provision of this Lease to the contrary. If Landlord properly notifies
Tenant in two (2) or more months in any consecutive twelve (12) month
period that any installment of Rent or any other sum due from Tenant
has not been received by Landlord or Landlord's designated agent when
due, then no notice from Landlord shall be required before Tenant shall
be required to pay a late charge with respect to any delinquent amount
payable in that twelve (12) month period.
ARTICLE 17
CONDEMNATION OF PREMISES.
A. Total Condemnation. If the entire Premises, whether by
exercise of governmental power or the sale or transfer by Landlord to
any condemnor under threat of condemnation or while proceedings for
condemnation are pending, at any time during the Lease Term, shall be
taken by condemnation such that there does not remain a portion
suitable for occupation, this Lease shall then terminate as of the date
transfer of possession is required. Upon such condemnation, all Rent
shall be paid up to the date transfer of possession is required, and
Tenant shall have no claim against Landlord for the value of the
unexpired Lease Term of this Lease.
B. Partial Condemnation. If any portion of the Premises is
taken by condemnation during the Lease Term, whether by exercise of
governmental power or the sale or transfer by Landlord to a condemnor
under threat of condemnation or while proceedings for condemnation are
pending, this Lease shall remain in full force and effect except that
in the event a partial taking leaves the Premises unfit for normal and
proper conduct of the business of Tenant, then Tenant shall have the
right to terminate this Lease effective upon the date transfer of
possession is required. Moreover, Landlord and Tenant shall have the
right to terminate this Lease effective on the date transfer of
possession is required if more than thirty-three percent (33%) of the
total square footage of the Premises is taken by condemnation. Tenant
and Landlord may elect to exercise their respective rights to terminate
this Lease pursuant to this Section by serving written notice to the
other within one hundred twenty (120) days of their receipt of notice
of condemnation. All Rent shall be paid up to the date of termination,
and Tenant shall have no claim against Landlord for the Lease value of
any unexpired Lease Term of this Lease. If this Lease shall not be
canceled, the Rent after such partial taking shall be that percentage
of the adjusted Base Rent specified herein, equal to the percentage
which the square footage of the untaken part of the Premises,
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immediately after the taking, bears to the square footage of the entire
Premises immediately before the taking. Any sums owing hereunder which
are calculated on the basis of Tenant's Proportionate Share (as set
forth in Section 9.C shall also be adjusted to reflect the decreased
square footage of the Premises due to the condemnation. If Tenant's
continued use of the Premises requires alterations and repair by reason
of a partial taking, all such alterations and repair shall be made by
Tenant at Tenant's expense.
C. Award to Tenant. In the event of any condemnation, whether
total or partial, Tenant shall have the right to claim and recover from
the condemning authority such compensation as may be separately awarded
or recoverable by Tenant for loss of its business fixtures, or
equipment belonging to Tenant immediately prior to the condemnation.
The balance of any condemnation award shall belong to Landlord and
Tenant shall have no further right to recover from Landlord or the
condemning authority for any additional claims arising out of such
taking.
ARTICLE 18
ENTRY BY LANDLORD
Tenant shall permit Landlord and its agent to enter the
Premises at all reasonable times for any of the following purposes: to
inspect the Premises; to maintain the Building; to make such repairs,
alterations, and additions to the Premises as Landlord is obligated or
may elect to make; to show the Premises and post "To Lease" signs for
the purposes of reletting during the last six (6) months of the Lease
Term; to show the Premises as part of a prospective sale by Landlord or
to post notices of non-responsibility. Landlord shall have such right
of entry without any rebate of Rent to Tenant for any loss of occupancy
or quiet enjoyment of the Premises thereby occasioned. Except in the
case of emergency or of routine entry by Landlord or its agents,
employees, or contractors to perform the obligations of Landlord
hereunder, Landlord shall provide Tenant with twenty-four (24) hours'
notice prior to entry onto the Premises. Such entry of Landlord or of
Landlord's agents shall not impair Tenant's operations more than
reasonably necessary. During any such entry, Landlord and Landlord's
agents shall at all times comply with the reasonable security
procedures instituted by Tenant for the Premises.
ARTICLE 19
ESTOPPEL CERTIFICATE
A. Tenant's Estoppel Certificate. Tenant shall at any time
upon not less than ten (10) days' prior written notice from Landlord
execute, acknowledge and deliver to Landlord a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect
(or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and
effect) and the date to which the Rent and other charges are paid in
advance, if any, (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or
specifying such defaults if any are claimed, and (iii) stating such
other matters regarding the status of the Lease as may be reasonably
requested by Landlord or Landlord's lender. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer
of the Premises.
B. Failure to Deliver. Tenant's failure to deliver such
statement within such time shall be conclusive upon Tenant (i) that
this Lease is in full force and effect, without modification except as
may be represented by Landlord, (ii) that there are no uncured defaults
in Landlord's performance, and (iii) that not more than one month's
Rent has been paid in advance; or such failure may be considered by
Landlord as a default by Tenant under this Lease.
C. Landlord's Estoppel Certificate. Promptly following written
request of Tenant, Landlord shall certify to Tenant that this Lease is
in full force and effect without default by either party hereto (or, if
a default exists, stating the nature of such default), and to such
other matters regarding the status of this Lease as may
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be reasonably requested by Tenant.
ARTICLE 20
LANDLORD'S LIABILITY
The term "Landlord" as used herein shall mean only the owner
or owners at the time in question of the fee title or a Tenant's
interest in a ground lease of the Premises. In the event of any
transfer of such title or interest, Landlord herein named (and in case
of any subsequent transfers then the grantor) shall be relieved from
and after the date of such transfer of all liability as respects
Landlord's obligations thereafter to be performed, provided that any
funds in the hands of Landlord or the then grantor at the time of such
transfer, in which Tenant has an interest, shall be delivered to the
grantee. The obligations contained in this Lease to be performed by
Landlord shall, subject as aforesaid, be binding on Landlord's
successors and assigns, only during their respective periods of
ownership.
ARTICLE 21
EXPIRATION ON TERMINATION
A. Surrender of Possession. Tenant agrees to deliver up and
surrender to Landlord possession of the Premises and all improvements
thereon, in as good order and condition as when possession was taken by
Tenant, excepting only ordinary wear and tear, casualty or any other
condition which is not the obligation of Tenant to maintain or correct
hereunder. Upon termination of this Lease, Landlord may reenter the
Premises and remove all persons and property therefrom. If Tenant shall
fail to remove any effects which it is entitled to remove from the
Premises upon the termination of this Lease, for any cause whatsoever,
Landlord, at its option, may remove the same and store or dispose of
them, and Tenant agrees to pay to Landlord on demand any and all
expenses incurred in such removal and in making the Premises free from
all dirt, litter, and debris, including all storage and insurance
charges. If the Premises are not surrendered at the end of the Lease
Term, Tenant shall indemnify Landlord against loss or liability
resulting from delay by Tenant in so surrendering the Premises,
including, without limitation, actual damages for lost Rents.
B. Holding Over. If Tenant, with or without Landlord's
consent, remains in possession of the Premises after expiration of the
Lease Term and if Landlord and Tenant have not executed an express
written agreement as to such holding over, then such occupancy shall be
a tenancy from month to month, at a monthly rental equivalent to (i)
the Base Rent for the last month of the Lease Term for the first month
of any such holding over, and (ii) one hundred fifty percent (150%) the
Base Rent for the last month of the Lease Term, such payments to be
made as herein provided. In the event of such holding over all of the
terms of this Lease including the payment of all charges owing
hereunder other than Rent shall remain in force and effect on said
month to month basis.
ARTICLE 22
RIGHT OF FIRST NOTICE
Throughout the Lease Term, Tenant shall have the right of
first refusal ("Right of First Refusal") to lease all or any portion of
the space on the first floor of the Building which is not a part of the
initial Premises. If Landlord receives a bona fide third party offer to
lease such space (the "First Refusal Space") which offer Landlord is
prepared to accept, Landlord shall notify Tenant of such offer, and
provide a copy of any written documentation of such offer. Tenant shall
indicate in writing, within five (5) business days after receipt of
Landlord's notice, whether Tenant desires to lease the First Refusal
Space on the terms offered, in which case the parties shall promptly
amend this Lease to incorporate the First Refusal Space into the
Premises and otherwise to reflect the terms set forth in Landlord's
notice. If Tenant does not indicate its desire in writing to
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lease the First Refusal Space within five (5) business days of receipt
of the notice from Landlord, then Landlord shall have the right to
lease the First Refusal Space or any part thereof to any third party on
the same terms and conditions set forth in Landlord's original notice
or on any other terms that are not more favorable to the prospective
tenant than those set forth in Landlord's notice.
ARTICLE 23
MISCELLANEOUS PROVISIONS
A. 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.
B. Interest on Past-due Obligations. Except as expressly
herein provided, any amount due to Landlord not paid when due shall
bear interest at the prime commercial lending rate then in effect at
Bank of America. Payment of such interest shall not excuse or cure any
default by Tenant under this Lease.
C. Time of Essence. Time is of the essence in the performance
of all obligations under this Lease.
D. Additional Rent. Any monetary obligations of Tenant to
Landlord under the terms of this Lease shall be deemed to be Rent.
E. Incorporation of Prior Agreements; Amendments. This Lease
contains all agreements of the parties with respect to any matter
mentioned herein. No prior agreement or understanding pertaining to any
such matter shall be effective. This Lease may be modified in writing
only, signed by the parties in interest at the time of the
modification. Except as otherwise stated in this Lease, Tenant hereby
acknowledges that neither the Landlord nor any employees or agents of
the Landlord has made any oral or written warranties or representations
to Tenant relative to the condition or use by Tenant of said Premises
and Tenant acknowledges that Tenant assumes all responsibility
regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the Lease Term of this
Lease except as otherwise specifically stated in this Lease.
F. Notices. Any notice required or permitted to be given
hereunder shall be in writing and shall be given by personal delivery
or by facsimile, Federal Express or other nationally known overnight
courier, or certified mail, and if given personally or by mail, shall
be deemed sufficiently given if addressed to Tenant or to Landlord at
the address noted below the signature of the respective parties, as the
case may be. Either party may by notice to the other specify a
different address for notice purposes. A copy of all notices required
or permitted to be given to Landlord hereunder shall be concurrently
transmitted to such party or parties at such addresses as Landlord may
from time to time hereafter designate by notice to Tenant. Notice shall
be considered effective upon actual receipt or (i) 72 hours after
mailing, (ii) upon electronic confirmation of receipt by facsimile, or
(iii) the business day following delivery to the overnight courier,
whichever is earlier.
G. Waivers. No waiver by Landlord of any provision hereof
shall be deemed a waiver of any other provision hereof or of any
subsequent breach by Tenant of the same or any other provisions.
Landlord's consent to, or approval of, any act shall not be deemed to
render unnecessary the obtaining of Landlord's consent to or approval
of any subsequent act by Tenant. The acceptance of Rent hereunder by
Landlord shall not be a waiver of any preceding breach by Tenant of any
provision hereof, other than the failure of Tenant to pay the
particular Rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such Rent.
H. Recording. Either Landlord or Tenant shall, upon request of
the other, execute, acknowledge
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and deliver to the other a "short form" memorandum of this Lease for
recording purposes. Following written request of Landlord, upon the
expiration or sooner termination of the Lease, Tenant shall execute and
deliver to Landlord a quitclaim deed in recordable form, disclaiming
any further interest in the Premises.
I. 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.
J. Covenants and Conditions. Each provision of this Lease
performable by Tenant or Landlord shall be deemed both a covenant and a
condition.
K. Binding Effect; Choice of Law; Venue. Subject to any
provisions hereof restricting assignment or subletting by Tenant, this
Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the
State of California. Venue for any action or proceeding brought to
enforce or defend this agreement, and for any other purpose hereunder,
shall be Santa Cruz County.
L. Subordination of Leasehold. Tenant agrees that this Lease
is and shall be, at all times, subject and subordinate to the lien of
any mortgage or other encumbrances which Landlord may create against
the Premises including all renewals, replacements and extensions
thereof; provided, however, that regardless of any default under any
such mortgage or encumbrance or any sale of the Premises under such
mortgage, so long as Tenant performs all covenants and conditions of
this Lease and continues to make all payments hereunder, this Lease and
Tenant's possession and rights hereunder shall not be disturbed by the
mortgagee or anyone claiming under or through such mortgagee.
As soon as possible after the Commencement Date, and in any
event within no more than forty-five (45) days thereafter, Landlord
shall provide a non-disturbance agreement to Tenant from the holder of
any deed of trust or other security interest in the Building, providing
that the leasehold interest of Tenant shall not be terminated or
otherwise affected by any foreclosure or other termination of the
security interest in question, except following an Event of Default by
Tenant hereunder.
M. Attorneys' Fees.
i. Landlord Made Party to Litigation. If Landlord
becomes a party to any litigation brought by someone other
than Tenant and concerning this Lease, the Premises, or the
Tenant's use or occupancy thereof, based upon any real or
alleged act or omission of Tenant or its authorized agents or
representative, Tenant shall be liable to Landlord for
reasonable attorneys' fees and court costs incurred by
Landlord in the litigation.
ii. Certain Litigation Between the Parties. If any
action or proceeding in law or in equity or any arbitration
proceeding is instituted by Landlord for damages or possession
of the Premises or both, for an alleged breach of any
obligation under this Lease, to recover Rent, to terminate the
tenancy of Tenant at the Premises, or to enforce, protect, or
establish any right or remedy of either party hereto, the
prevailing party in such action or proceeding shall be
entitled to recover as part of such action or proceeding its
attorneys' fees, expert witness fees, and court costs as
incurred, or as may be fixed by the court or jury, but this
provision shall not apply to any cross-complaint filed by
anyone other than Landlord in such action or proceeding.
N. Auctions. Tenant shall not conduct, nor permit to be
conducted, either voluntarily or involuntarily, any auction upon the
Premises without first having obtained Landlord's prior written
consent. Notwithstanding anything to the contrary in this Lease,
Landlord shall not be obligated to exercise any standard of
reasonableness in determining whether to grant such consent.
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O. Signs. Tenant shall have the right to place its name and
corporate logo on the exterior of the Building, provided that Tenant
obtains (i) approval by the City of Scotts Valley, and (ii) approval by
Landlord of the location, size and design of the sign, which shall not
be unreasonably withheld or delayed.
P. Voluntary Surrender or Merger. The voluntary or other
surrender of this Lease by Tenant, or a mutual cancellation thereof, or
a termination by Landlord, shall not work a merger, and shall, at the
option of Landlord, terminate all or any existing subtenancies or may,
at the option of Landlord, operate as an assignment to Landlord of any
or all of such subtenancies.
Q. Quiet Possession. Upon Tenant paying the Rent for the
Premises and observing and performing all of the covenants, conditions
and provisions on Tenant's part to be observed and performed hereunder,
Tenant shall have quiet possession of the Premises for the entire Lease
Term subject to all of the provisions of this Lease. The individuals
executing this Lease on behalf of Landlord represent and warrant to
Tenant that they are fully authorized and legally capable of executing
this Lease on behalf of Landlord and that such execution is binding
upon all parties holding an ownership interest in the Premises.
R. Rules and Regulations. Tenant agrees that it will abide by,
keep and observe all reasonable rules and regulations which Landlord
may make from time to time for the management, safety, care and
cleanliness of the building and grounds, the parking of vehicles and
the preservation of good order therein as well as for the convenience
of other occupants and tenants of the building. The violations of any
such rules and regulations shall be deemed a material breach of this
Lease.
S. Easements. Landlord reserves to itself the right, from time
to time, to grant such easements, rights and dedications that Landlord
deems necessary or desirable, 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 Tenant. Tenant shall sign any of the aforementioned
documents upon five (5) days written notice of Landlord and failure to
do so shall constitute a material breach of this Lease.
T. Corporate Authority. Each individual executing this Lease
on behalf of a corporation represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the entity
which he represents and that this Lease is binding upon said entity in
accordance with its terms.
U. Delays for Cause. In any case where either party hereto is
required to do any act, delays caused by or resulting from Acts of God,
war, civil commotion, fire, flood or other casualty, labor
difficulties, shortages of labor, materials or equipment, government
regulations, unusually severe weather, or other causes beyond such
party's reasonable control shall not be counted in determining the time
during which work shall be completed, whether such time be designated
by a fixed date, a fixed time or "a reasonable time", and such time
shall be deemed to be extended by the period of such delay.
V. Broker for Tenant. The Parties to this Lease acknowledge
and agree that the broker for the Tenant is Cooper/ Brady Corporate
Real Estate Services, 550 South Winchester Blvd., Suite 600, San Jose,
California, and that no other broker has been involved in securing this
Lease. Landlord will pay a commission to Tenant's broker pursuant to a
separate written agreement.
W. Financial Statements. So long as Tenant is a
publicly-traded entity, upon written request of Landlord, Tenant shall
promptly provide to Landlord a complete and correct copy of the latest,
publicly available financial statement prepared for Tenant. If Tenant
is not a publicly-traded entity, upon written request of Landlord,
Tenant shall deliver current financial statements to Landlord if
requested by Landlord's lender or a prospective lender or purchaser of
the Premises. In the latter case, such financial statements shall be
(i) prepared in accordance with generally accepted accounting
principles, or such other method as accurately reflects the financial
condition of Tenant, (ii) audited, if Tenant prepares audited financial
statements in the ordinary course of its business, and (iii) certified
by Tenant to be true and correct.
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IN WITNESS WHEREOF, the parties have executed this Lease at the place
and on the dates specified immediately adjacent to their respective signatures.
LANDLORD:
AMERICAN DEVELOPMENT CO., II,
a California general partnership
By: TBI-SV II, a California general partnership
General Partner
By: /s/ CHARLES TOENISKOETTER
-------------------------
General Partner
By: /s/ JAMES R. PARRISH
-------------------------
James R. Parrish
General Partner
THE BERG LIVING TRUST
By: /s/ CARL E. BERG
-----------------------------
Carl E. Berg, Trustee
By: /s/ MARY ANN BERG by CARL E. BERG her attorney in fact
-----------------------------
Mary Ann Berg, Trustee
THE CLYDE J. BERG LIVING TRUST
By: /s/ CLYDE J. BERG by CARL E. BERG his attorney in fact
-----------------------------
Clyde J. Berg, Trustee
By: /s/ NANCY BERG by CARL E. BERG her attorney in fact
-----------------------------
Nancy Berg, Trustee
Address: c/o Toeniskoetter & Breeding Inc., Development
1960 The Alameda
San Jose, Ca. 95126
TENANT:
FRACTAL DESIGN CORPORATION,
a California corporation
By: /s/ LESLIE E. WRIGHT
--------------------------
Its: Chief Operating Officer
Address:
335 Spreckels Drive
Aptos, CA 95003
Exhibit A Legal Description
Exhibit B Floor Plan of Premises
Exhibit B-1 Expansion Space
Exhibit C Tenant Improvement Agreement
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EXHIBIT A
Legal Description
EXHIBIT B
Floor Plan of Premises
EXHIBIT B-1
Expansion Space
EXHIBIT C
Tenant Improvement Agreement
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EXHIBIT C
WORK LETTER AGREEMENT
This Work Letter Agreement "(Work Letter"), dated for reference
purposes only, is made as of July 19, 1996 by and between AMERICAN DEVELOPMENT
CO., II, a California general partnership, CARL E. BERG and MARY ANN BERG,
Trustees, and CLYDE J. BERG and NANCY BERG, Trustees (collectively, "Landlord"),
and FRACTAL DESIGN CORPORATION, a California corporation ("Tenant"), in
connection with that certain Commercial Lease ( the "Lease") of even date
herewith.
In consideration of the mutual covenants contained herein, Landlord and
Tenant hereby agree as follows:
1. ARCHITECT.
(A) Tenant has selected, and Landlord has approved, the architect (the
"Architect") to be retained by Landlord in connection with the design and
construction of the Tenant Improvements, as defined below.
2. PREPARATION OF SPACE PLANS, CONSTRUCTION DRAWINGS.
(A) Preparation of Space Plans. The Architect has delivered to
Landlord, and Landlord has approved, preliminary space plans for the Premises
and layout of the Tenant Improvements therein ("Space Plans").
(B) Preparation of Construction Drawings. Based on the approved
Space Plans, the Architect shall prepare complete architectural plans, drawings
and specifications and complete engineering, mechanical, structural and
electrical working drawings for the Tenant Improvements (collectively, the
"Construction Drawings"). Within no more than five (5) business days after
receipt of the Construction Drawings (or any logically distinct portion thereof)
Landlord shall notify Tenant of its approval thereof, or of its disapproval.
(C) Approval Parameters. Landlord's approval of the Construction
Drawings shall be conditioned only upon conformity of the Construction Drawings
with the following standards. The Construction Drawings shall (i) be consistent
with Landlord's construction standards for the Building and the approved Space
Plans; (ii) conform to applicable Laws and to applicable insurance policies
covering the Building; (iii) not adversely affect the structural integrity of
the Building or the operation of the Building's electrical, mechanical, plumbing
or sprinkler systems; (iv) contain sufficient information so as to permit bids
to be obtained by Landlord for the construction of the Tenant Improvements; and
(v) be in keeping with the nature and integrity of Class "A" office buildings in
the vicinity of the Premises. If Landlord disapproves of any part of the
Construction Drawings because of noncompliance with such standards, then
Landlord shall provide Tenant with a detailed description of all changes to the
Construction Drawings requested by Landlord. The parties shall use all
reasonable efforts to obtain Landlord's approval of the Construction Drawings in
the most timely manner possible. The approved Construction Drawings are referred
to herein as the Final Construction Drawings. Any changes to the Final
Construction Drawings may only be made in writing and with the approval of both
parties.
3. SELECTION OF GENERAL CONTRACTOR.
(A) Bids and Selection of Subcontractors. The parties have selected
Toeniskoetter & Breeding Inc., a California corporation as the general
contractor (the "General Contractor") for construction of the Tenant
Improvements. The maximum fee payable to the General Contractor shall be an
amount equal to five percent (5%) of the Construction Cost, as defined in
Paragraph 6.A below. When Landlord and Tenant have approved the Final
Construction Drawings, Landlord shall solicit bids for the construction of the
Tenant Improvements from at least three (3) qualified, licensed subcontractors
for each subcontract as to which Tenant reasonably requests that bids be
obtained. Each final bid from the prospective subcontractors shall include a
guaranteed maximum contract price (including materials and labor supplied in
connection with the Tenant Improvements) based on completion dates for the
Tenant Improvements as set forth below, without premium time or overtime costs.
All bids shall be subject to the prior review and written approval of Tenant,
such approval or disapproval to be provided by Tenant to Landlord within five
(5) business days after receipt of preliminary and final bids by Tenant.
Landlord and Tenant shall
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attempt to revise the prospective bids so that a mutually acceptable bid has
been received within no more than ten business (10) days after the initial
notice of disapproval from Tenant. Landlord and Tenant shall select, as the
Subcontractor for each relevant portion of the Tenant Improvements, the party
submitting the lowest reasonable bid. If, at the end of the ten (10) day period,
Tenant disapproves all of such bids, then Tenant shall be responsible for a
Tenant delay equal to the lesser of (i) the actual number of days by which the
completion of the Tenant Improvements was delayed as a result of such
disapproval; or (ii) the number of days between such disapproval and the receipt
of a new bid which is acceptable to Tenant.
(B) Form of Construction Contract. The proposed form of construction
contract between Landlord and the General Contractor shall provide, among other
things, that Tenant is the third-party beneficiary thereof, that all change
orders are to be signed by Tenant, that all payments to contractor(s) shall be
subject to the customary retention (and the subcontracts shall so provide) and
that the General Contractor and all subcontractors shall carry insurance
pursuant to the requirements set forth below. Within five (5) days after
execution, Landlord shall deliver to Tenant a copy of the construction contract
between Landlord and the General Contractor.
(C) Insurance. Landlord shall require all contractors to obtain and
maintain the following insurance policies during the construction of the Tenant
Improvements, as applicable: (i) Comprehensive general liability (including
products/completed operations), with limits of not less than $500,000/$500,000
bodily injury and $500,000 property damage or $500,000 combined single limit;
(ii) Umbrella liability (including products/completed operations), with limits
of not less than $1,000,000; (iii) Automobile liability, with limits of not less
than $500,000/ $500,000 bodily injury and $250,000 property damage; and (iv)
Worker's compensation (including employer's liability) insurance in compliance
with law.
All such policies (except worker's compensation) shall provide that twenty (20)
days' prior notice of reduction in coverage or limits shall be delivered to
Tenant. A certificate evidencing such insurance shall be delivered, prior to
commencement of construction of the Tenant Improvements, to Tenant. Landlord
shall not permit the General Contractor or any subcontractor to be assigned a
purchase order or to commence construction of any part of the Tenant
Improvements until it has provided Tenant with certificates of insurance
evidencing such insurance coverage. The insurance requirements shall be
presented to the potential contractors prior to the submission of their bids.
(D) Permits. Landlord shall submit the Construction Drawings to all
governmental agencies and authorities whose review and/or approval thereof is
required and shall procure all permits, consents and approvals required under
applicable Laws.
4. CONSTRUCTION OF TENANT IMPROVEMENTS.
(A) Landlord shall cause the Tenant Improvements to be constructed in
accordance with the Construction Drawings and this Work Letter, in a first-class
manner, and under competent supervision. All materials and equipment utilized in
the Tenant Improvements shall be new, first-class and of the type and quality
customary in first-class office buildings in the vicinity of the Premises. The
Tenant Improvements, and the construction thereof, shall comply with all
applicable Laws.
5. CONSTRUCTION SCHEDULE.
(A) Landlord shall use all reasonable efforts to substantially complete
the Tenant Improvements or before September 1, 1996 (the "Anticipated
Commencement Date"). The Commencement Date shall occur on the earlier of the
Anticipated Commencement Date or the date that Landlord has "substantially
completed" the Tenant Improvements. For purposes of the Lease and this Work
Letter, "substantial completion" of the Tenant Improvements shall occur on the
date by which all of the following have occurred: (i) the Architect has
certified to Tenant that Landlord has substantially completed the Tenant
Improvements in accordance with the Construction Drawings; (ii) there remains no
incomplete or defective item of Tenant Improvements that would adversely affect
Tenant's intended use of the Premises; (iii) Landlord has delivered legal
possession of the Premises and the Tenant Improvements to Tenant; and (iv)
Landlord has obtained all approvals and permits from the appropriate
governmental authorities required for the legal occupancy of the Premises and
the Tenant Improvements for
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Tenant's intended use, including a certificate of occupancy (or temporary
certificate of occupancy, or other determination typically made by the City of
Scotts Valley) for the Tenant Improvements. Each day of delay in achieving
substantial completion of the Tenant Improvements beyond the Anticipated
Commencement Date which is attributable to delay actually caused by Landlord,
its agents, employees, or contractors, will entitle Tenant to delay the
Commencement Date by one day.
6. COST OF TENANT IMPROVEMENTS.
(A) Tenant Improvements Cost. Landlord shall contribute up to Ten
Dollars ($10.00) per rentable square foot in the Premises (the "Tenant
Improvement Allowance") to the actual cost of constructing the Tenant
Improvements ("Construction Cost"). Tenant shall pay the cost of constructing
the Tenant Improvements up to a maximum amount equal to the difference between
the approved Construction Cost and the Tenant Improvement Allowance ("Tenant's
Contribution"), as provided in Paragraph 8 below. Notwithstanding the foregoing,
Tenant shall not be responsible for payment of any increase in the Construction
Cost in excess of the amount approved pursuant to Paragraph 3.A. above, except
for increases resulting from (i) change orders approved by Tenant in accordance
with Paragraph 7 hereof; or (ii) changes required by governmental authorities
having jurisdiction over the construction of the Tenant Improvements.
(B) Exclusions from Tenant Improvements Cost. Notwithstanding anything
to the contrary contained in the Lease or this Work Letter, the cost of
constructing the Tenant Improvements shall not include (and Tenant shall have no
responsibility for) the following:
(1) Costs attributable to (A) shell building construction; (B)
improvements installed outside the demising walls of the Premises unless (1)
necessitated by Tenant Improvements made inside the demising walls of the
Premises; or (2) requested by Tenant or as shown in the Construction Drawings;
and (C) improvements installed "off-site" (such as streets, curbs, gutters,
traffic lights, lights for parking and street lighting);
(2) Costs for improvements which are not shown on or described
in the Construction Drawings unless otherwise approved by Tenant;
(3) Costs incurred to remove Hazardous Materials from the
Property or the surrounding area unless the presence of such materials was
caused by Tenant or its agents, contractors, employees or invitees in violation
of Hazardous Materials laws;
(4) Attorneys' fees incurred in connection with negotiation of
construction contracts, and attorneys' fees, experts' fees and other costs of
legal and arbitration proceedings to resolve construction disputes with third
parties;
(5) Loan fees, mortgage brokerage fees, interest and other
costs of financing construction costs;
(6) Costs incurred as a consequence of delay (unless the delay
is caused by Tenant) or construction defects;
(7) Costs recoverable by Landlord upon account of warranties
and insurance;
(8) Restoration costs as a consequence of casualties;
(9) Penalties and late charges attributable to the failure to
pay construction costs, except to the extent such penalties and late charges
arise due to delays caused by Tenant, its agents, contractors, employees or
invitees; and
(10) Any construction management or supervision fee otherwise
charged by Landlord.
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7. CHANGE ORDERS.
Tenant shall have the right to make changes in the Construction
Drawings, subject to the conditions set forth in this Paragraph 7. Before
approval of any change in the Construction Drawings, Landlord shall advise
Tenant in writing of (i) the estimated cost of any such change; and (ii) the
additional time, if any, that such change would add to the time required for
substantial completion (as defined above) of the Tenant Improvements. If Tenant
objects to such cost and/or delay, Tenant shall have the right to withdraw the
request for such change. If Tenant approves such cost and delay, then Tenant
shall give its approval in writing; thereafter, Tenant's responsibility (if any)
for any such cost or delay shall be limited to the amount which it so approved.
Change orders shall not be subject to a Landlord mark-up fee, except as approved
by Tenant in writing.
8. PAYMENT OF IMPROVEMENT COSTS.
If the approved Construction Cost exceeds the Tenant Improvement
Allowance, then Tenant shall pay the difference as provided herein. That portion
of the approved excess cost which is equal to, or more than, Two and 50/100
Dollars ($2.50) per rentable square foot of the Premises in excess of the Tenant
Improvement Allowance, shall be paid by Tenant in a lump sum, on or before the
date that Landlord commences construction of the Tenant Improvements (and
provided that Landlord shall provide Tenant with reasonable advance notice of
the amount and timing of the required payment). That portion of the approved
excess cost which is less than Two and 50/100 Dollars ($2.50) per rentable
square foot of the Premises in excess of the Tenant Improvement Allowance, shall
be paid by Tenant in installments, on a pro rata basis with Landlord, as
payments are made by Landlord to the General Contractor. Landlord shall provide
Tenant with reasonable advance notice of the impending due date of any such
payments. Tenant shall have no obligation to pay any amount in excess of
Tenant's Contribution toward the Construction Cost, except as provided in
Paragraph 6.A. of this Work Letter. If the Construction Cost exceeds the sum of
the Tenant Improvements Allowance and Tenant's Contribution, and Tenant has not
approved the excess amount, then Landlord shall pay the excess amount. No
payment by Tenant pursuant to this Paragraph shall constitute a waiver by Tenant
of any right of Tenant to contest the amount of the Construction Cost. If the
Tenant Improvement Allowance exceeds Tenant's Contribution, the excess amount
shall be applied to the rent otherwise first coming due hereunder.
9. PUNCHLIST AND CORRECTION OF DEFECTS.
Not later than five (5) days before the Anticipated Commencement Date,
Landlord and Tenant shall conduct a walk-through of the Premises and mutually
prepare a written punchlist setting forth any defective item of construction in
the Tenant Improvements. Landlord shall cause all defects, errors or omissions
listed in the punchlist to be corrected within twenty (20) days after receipt
thereof; provided, however, that if the nature of such defects is such that they
cannot reasonably be corrected within such twenty (20) day period, then Landlord
shall have a reasonable time to cure such defects, but in no event shall
Landlord have more than thirty (30) additional days after the expiration of such
twenty (20) day period. Notwithstanding anything to the contrary contained in
the Lease, Tenant's acceptance of the Premises or submission of a punchlist
shall not be deemed a waiver of Tenant's right to have defects in the Tenant
Improvements or the Premises repaired at no cost to Tenant. Landlord also hereby
assigns to Tenant all warranties with respect to the Premises, including
warranties which would reduce Tenant's maintenance obligations under the Lease,
and shall cooperate with Tenant to enforce all such warranties.
10. TENANT DELAY. Any delay in the completion of the Tenant Improvements
which results from any of the following causes shall be considered a "Tenant
Delay" hereunder:
(1) Tenant's failure to perform any obligation of Tenant to be
performed under this Work Letter on or before the date, or within the time
period set forth in this Work Letter;
(2) Tenant's changes in the approved Space Plans or Final Construction
Drawings;
(3) Failure of Tenant to meet any of its financial obligations set
forth in this Work Letter; or
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(4) Any other actual delay caused in the design, construction or
bidding process by Tenant.
11. MISCELLANEOUS.
(A) Time is of the Essence. Time is of the essence of each and every
provision of this Work Letter.
(B) Definitions. All terms capitalized herein and not otherwise defined
shall have the meanings set forth in the Lease.
(C) Incorporation in the Lease. The provisions of this Work Letter
shall be incorporated into and constitute a part of the Lease.
(D) Approvals. Except as expressly provided otherwise, whenever the
approval of a party is required hereunder, such approval shall not be
unreasonably withheld or delayed.
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IN WITNESS WHEREOF, the parties hereto have executed this Work Letter
as of the date first above written.
LANDLORD:
AMERICAN DEVELOPMENT CO., II,
a California general partnership
TBI-SV II, a California general partnership
General Partner
By: /s/ CHARLES TOENISKOETTER
-------------------------
General Partner
By: /s/ JAMES R. PARRISH
-------------------------
James R. Parrish
General Partner
THE BERG LIVING TRUST
By: /s/ CARL E. BERG
---------------------------
Carl E. Berg, Trustee
By: /s/ MARY ANN BERG by CARL E. BERG her attorney in fact
---------------------------
Mary Ann Berg, Trustee
THE CLYDE J. BERG LIVING TRUST
By: /s/ CLYDE J. BERG by CARL E. BERG his attorney in fact
---------------------------
Clyde J. Berg, Trustee
By: /s/ NANCY BERG by CARL E. BERG her attorney in fact
---------------------------
Nancy Berg, Trustee
Address: c/o Toeniskoetter & Breeding Inc., Development
1960 The Alameda
San Jose, Ca. 95126
TENANT:
FRACTAL DESIGN CORPORATION,
a California corporation
/s/ LESLIE E. WRIGHT
---------------------------
Its: Chief Operating Officer
Address:
335 Spreckels Drive
Aptos, CA 95003
Exhibit A Legal Description
Exhibit B Floor Plan of Premises
Exhibit B-1 Expansion Space
Exhibit C Tenant Improvement Agreement
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