Exhibit 10.4
AGREEMENT REGARDING SUBLEASE AND LEASE
This Agreement Regarding Sublease and Lease (the "AGREEMENT") is made as of
May 6, 2004 by and between THE BOARD OF TRUSTEES OF THE ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ JUNIOR
UNIVERSITY, a body having corporate powers under the laws of the State of
California ("LANDLORD"), and CONNETICS CORPORATION, a Delaware corporation
("SUBTENANT"). Landlord and Subtenant are each sometimes referred to in this
Agreement as a "Party", and collectively as "Parties".
The Parties enter into this Agreement on the basis of the following facts,
understandings and intentions:
A. Landlord and Incyte Corporation, formerly known as Incyte
Pharmaceuticals, Inc. ("TENANT"), are the parties to that certain Lease dated as
of June 19, 1997, as amended by (i) Notice of Commencement Date dated October
28, 1998, (ii) Notice of Base Rent and Rentable Area dated November 24, 1998,
and (iii) Notice of Rent Commencement Date and Expiration Date dated November
24, 1998 (as so amended, the "ORIGINAL LEASE"), under which Tenant leases from
Landlord a two-story building commonly known as ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ in Palo Alto,
California (the "PREMISES"), as more particularly described in the Lease. A copy
of the Lease is attached hereto as EXHIBIT A.
B. Pursuant to a sublease of even date herewith, Tenant and Subtenant
have entered into a sublease of the entire Premises (the "SUBLEASE"), a copy of
which is attached hereto as EXHIBIT B, and Landlord has consented thereto.
C. Subtenant acknowledges that Landlord and Tenant have agreed to certain
further amendments to the Original Lease pursuant to a First Amendment to Lease
(the "First Amendment") being entered into concurrently with the Sublease, a
copy of which is attached hereto as EXHIBIT C. The Original Lease, as amended by
the First Amendment, is referred to herein as the "LEASE".
D. Landlord and Subtenant desire to make certain additional amendments to
the Lease that will apply only as between Landlord and Subtenant pursuant to the
terms of this Agreement. In addition, Landlord and Subtenant desire to document
certain additional agreements between them with respect to the Lease and the
Sublease.
NOW THEREFORE, IN CONSIDERATION of the mutual covenants and premises of the
Parties, the Parties agree as follows:
1. NON-DISTURBANCE.
a) If the Lease is terminated for any reason prior to the expiration
of its term, Landlord shall recognize the Sublease and shall recognize
Subtenant's occupancy of the Premises, provided that no event of default (beyond
any applicable notice and cure or grace period) on the part of Subtenant is then
existing under the Sublease, and provided further that Subtenant's continuing
rights under the Sublease and the Lease shall be contingent on Subtenant having
complied with the terms of Section 1(c) below and Landlord actually receiving
the additional consideration provided in Section 1(c). The Sublease shall
immediately become effective as a direct lease between Landlord and Subtenant as
of the date of termination of the
Lease, and shall continue in effect until the expiration of the Sublease term,
whereupon the terms of Section 2 below shall govern Subtenant's continued
occupancy of the Premises. Subtenant's possession of the Premises and
Subtenant's rights and privileges under the Sublease shall not be disturbed,
diminished or interfered with by Landlord, so long as Subtenant is not in
default of its obligations under the Sublease. Subtenant shall attorn to
Landlord, such attornment to be effective and self-operative without the
execution of any further instrument, and Subtenant shall perform all of Tenant's
obligations under the Sublease directly to Landlord as if Landlord were the
sublessor under the Sublease.
(b) Subtenant agrees that if Landlord shall succeed to the interest
of Tenant as sublessor under the Sublease, and in any event upon the
commencement of the Extended Term (as defined in Section 2 below), Landlord
shall not be: (i) liable for any action or omission of Tenant under the
Sublease, (ii) subject to any offsets, claims or defenses that Subtenant might
have had against Tenant under the Sublease, (iii) bound by any rent or
additional rent that Subtenant might have paid for more than the current month
to Tenant under the Sublease, except for any such amounts transferred to
Landlord, or (iv) in any way responsible for any deposit or security deposit
delivered to Tenant, but not subsequently delivered to Landlord.
(c) As consideration for Landlord entering into this Agreement
(concurrently with the execution of this Agreement and effective as of the date
of this Agreement), Subtenant shall deliver to Landlord an irrevocable stand-by
letter of credit in the original amount of two million dollars ($2,000,000) (the
"LETTER OF CREDIT"), which Landlord may fully draw and retain upon termination
of the Lease during the Sublease term for any reason. The Letter of Credit shall
be in a form and substance and issued by a bank that is reasonably satisfactory
to Landlord. The Letter of Credit shall: (i) name Landlord as beneficiary; (ii)
allow Landlord to make partial and multiple draws thereunder up to the face
amount, as determined by Landlord; (iii) require the issuing bank to pay to
Landlord the amount of a draw upon receipt by such bank of a sight draft signed
by Landlord and presented to the issuing bank reciting that termination of the
Lease has occurred, giving rise to the ability of the Landlord to draw; and (iv)
provide that Landlord can freely transfer it upon an assignment or other
transfer of its interest in the Lease to the assignee or transferee, without
charge to Landlord and without recourse, and without having to obtain the
consent of Subtenant or the issuing bank. Landlord shall be entitled to draw
upon the Letter of Credit in accordance with the terms of this Section 1(c), or
at any time within thirty (30) days prior to the expiration date of the Letter
of Credit, unless Subtenant shall have delivered to Landlord a replacement
Letter of Credit meeting the requirements of this paragraph and with an
expiration date not less than twelve (12) months after the date of delivery. The
Letter of Credit (or, if applicable, a replacement thereof satisfactory to
Landlord) shall remain in effect until the expiration or the sooner termination
of the Sublease, subject to the reduction in face amount of the Letter of Credit
provided below. The Letter of Credit shall be held by Landlord as consideration
for its recognition of Subtenant as tenant under the Lease, and not as security
for Subtenant's performance under the Lease or the Sublease. No trust
relationship is created herein between Landlord and Subtenant with respect to
the Letter of Credit, and in no event shall the Letter of Credit or any proceeds
drawn thereunder be considered prepaid rent. Commencing on the nineteenth (19th)
month of the Sublease term, the Letter of Credit shall be reduced by Thirty Five
Thousand Eighty Seven Dollars and Seventy Two Cents ($35,087.72) per month, such
that the Letter of Credit shall be reduced to a zero balance by March 31, 2011
and will automatically expire. In the event of Landlord's receipt of a
replacement Letter of Credit in a reduced amount calculated at the time of
issuance of such replacement, Landlord shall surrender to Subtenant the Letter
of Credit previously held.
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2. LEASE EXTENSION. Landlord agrees that upon the expiration of the
Sublease, the Lease shall be extended as a direct lease between Landlord and
Subtenant, and by Subtenant's execution of this Agreement, Subtenant hereby
assumes all obligations of Tenant under the Lease as of the expiration date of
the term of the Sublease. The term of the Lease shall be extended for an
additional term commencing on April 1, 2011, and expiring on December 31, 2014
(the "EXTENDED TERM"). In consideration for Landlord's agreement to the
extension of the Lease term and Landlord's agreement to allow Subtenant to
assume the Extended Term of the Lease at the agreed-upon rental rate set forth
in this Agreement, on the Commencement Date of the Sublease, Subtenant shall pay
to Landlord the sum of One Million Six Hundred Fifty Thousand Dollars
($1,650,000).
3. AS-IS. Subtenant agrees and acknowledges that its assumption of
Tenant's obligations under the Lease during the Extended Term shall be based on
Subtenant's own knowledge of the Premises, and Subtenant shall accept the
Premises in its as-is condition existing as of the commencement of the Extended
Term, without any representation or warranty on the part of Landlord or any of
its agents, employees or contractors. Landlord shall have no obligation to
prepare the Premises for continued occupancy by Subtenant, and shall not be
obligated to make any contribution towards tenant improvements, alterations, or
any other items.
4. BASE RENT DURING EXTENDED TERM. The Base Rent under the Lease during
the Extended Term shall be as follows:
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Months Lease Rate/Month Monthly Base Rent
----------------------- -------------------------- ---------------------------
1-12 $1.40 NNN $134,435
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13-24 $1.45 NNN $139,236.25
----------------------- -------------------------- ---------------------------
25-36 $1.50 NNN $144,037.50
----------------------- -------------------------- ---------------------------
37-45 $1.55 NNN $148,838.75
----------------------- -------------------------- ---------------------------
5. OPTIONS TO RENEW. For no additional consideration, Landlord hereby
grants to Subtenant two (2) options to renew the Lease (the "RENEWAL
OPTION(S)"), each Renewal Option for a period of three (3) years (the "RENEWAL
Term(s)"). The Renewal Option(s) shall be void if an "Event of Default" (as
described in Article 19 of the Lease) by Subtenant exists under the Lease,
either at the time of exercise of either Renewal Option or the time of
commencement of either Renewal Term. The Renewal Options must be exercised, if
at all, by written notice from Subtenant to Landlord given not less than nine
(9) months prior to the expiration of the Extended Term (in the case of the
first Renewal Option), and nine (9) months prior to the expiration of the first
Renewal Term (in the case of the second Renewal Option). The Renewal Terms shall
be upon the same terms and conditions as the original Term, except that the Base
Rent applicable to each Renewal Term shall be equal to ninety-five percent (95%)
of the Prevailing Market Rent as of the commencement date of that Renewal Term,
as determined pursuant to the attached EXHIBIT D. The Renewal Options are
personal to
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Subtenant and shall be inapplicable and null and void if Subtenant assigns the
whole of its interest under the Lease.
6. AMENDMENTS TO LEASE. As between Landlord and Subtenant only, the
following Sections of the Lease shall be amended as follows:
(a) Landlord agrees and acknowledges that Subtenant's proposed use of
the Premises is permitted under the Lease. Notwithstanding the foregoing, the
use of the Premises by any assignee of Subtenant's interest in the Lease, and
any subtenant of all or any portion of the Premises or subtenant shall strictly
comply with the requirements of Article 7 of the Lease.
(b) Section 4.3 of the Lease shall be deleted in its entirety.
(c) Section 18.4 of the Lease shall be deleted in its entirety and
the following substituted therefor:
"If Tenant desires to assign Tenant's interest in the Premises or to
sublease twenty-five percent (25%) or more of the Premises for more
than three (3) years or for the balance of the Term (collectively, a
"TRANSFER"), Tenant's Notice of Proposed Transfer shall also include a
written offer that includes all of the substantial business terms that
Tenant has offered to a Transferee which Tenant would execute if
Landlord does not accept Tenant's offer (the "OFFER") and shall offer
to Transfer Tenant's interest in the Premises to Landlord on such
terms and conditions. Landlord shall have fifteen (15) days from
Landlord's receipt of the Offer to accept the Offer by written notice
to Tenant or to approve or disapprove the Transfer as provided in
Section 18.3. If Landlord accepts the Offer, Landlord and Tenant shall
consummate the Transfer within fifteen (15) days after Landlord's
written notice of acceptance. The Transfer shall be consummated by
Tenant's delivery to Landlord of a good and sufficient assignment of
lease or sublease. If Landlord does not accept the Offer, but approves
the Transfer, then in the event the terms of the Transfer are
materially changed during subsequent negotiations to be more favorable
to the Transferee, Tenant shall again deliver to Landlord an Offer in
accordance with this Section, offering the interest to Landlord on
such more favorable terms. Landlord shall then have another period of
fifteen (15) days after receipt of such Offer to accept such Offer."
In the event Subtenant seeks consent for a Transfer (as defined in the foregoing
Section 18.4) during the Sublease term, it shall first comply with the foregoing
requirements regarding the Offer to Landlord, and then seek Tenant's consent to
the Transfer (whether to Landlord or to a third party).
(d) Section 24.7 of the Lease shall be amended as follows:
(i) The existing provisions of Section 24.7 shall be identified
as subsection (a).
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(ii) Section 24.7 shall be amended to add the following:
"(b) Except for Hazardous Materials in the structural components of
the Building, and Hazardous Materials released to the environment (which are
dealt with in subsection (a) above), upon the expiration or earlier termination
of this Lease Tenant shall remove all Hazardous Materials from the Premises as
required by the City of Palo Alto closure ordinance. Tenant shall be responsible
for obtaining final certification of compliance with the Palo Alto facility
closure ordinance from the Palo Alto Fire Department and shall perform any work
requested by the Palo Alto Fire Department. Tenant shall coordinate all work to
be performed pursuant to this subsection through the Environmental Manager for
the Stanford Management Company, shall keep Landlord fully apprised of all work
performed, and shall provide Landlord with copies of reports documenting the
removal and proper disposal of Hazardous Materials under this Lease and in
compliance with the Palo Alto facility closure ordinance (referred to
hereinafter as "DOCUMENTATION OF COMPLETED FACILITY CLOSURE"). If, after
receiving Documentation of Completed Facility Closure, Landlord subsequently
finds additional Hazardous Materials at the Premises that are attributable to
activities at the Premises during the term of the Lease, Tenant shall reimburse
Landlord for the cost to remove and remediate any such Hazardous Materials.
Tenant shall be solely responsible for the proper handling, transport,
manifesting and disposal of any Hazardous Materials removed from the Premises
under this Section 24.7. Further, Tenant shall be identified as the generator of
any Hazardous Materials removed from the Premises, whether removed by Landlord
or Tenant, and Tenant's EPA generator ID number shall be used for manifesting
such material for offsite disposal.
(c) Tenant shall terminate, or amend to exclude the Premises from,
all environmental or health and safety permits it holds with the Bay Area Air
Quality Management District, the City of Palo Alto Fire Department, the City of
Palo Alto Sanitary Sewer District, the Department of Health Services and any
other agency for the Premises or activities at the Premises, and provide written
confirmation of such to Landlord. Tenant shall be responsible for any
notifications required to environmental, health or safety agencies and for
performing any obligations associated with termination of permits it holds or
held and closure of related equipment, structures and facilities."
(e) Article 30 of the Lease shall be deleted in its entirety.
(f) Article 31 of the Lease shall be deleted in its entirety and the
following substituted therefor:
"Tenant agrees to pay as Additional Rent under this Lease its
proportionate share of the reasonable cost of any transit services or
traffic mitigation programs which Landlord implements in the Stanford
Research Park, including without limitation charges for service and
surcharges imposed directly or indirectly on the Premises by any
governmental agencies on or with respect to transit (including transit
services which may be provided in the future to occupants of the
Stanford Research Park) or automobile usage or parking facilities
(collectively, "TRANSIT FEES"). Tenant's
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share of Transit Fees shall be assessed pro rata and on a
non-discriminatory basis, based on a reasonable standard applied in a
non-discriminatory manner by Landlord (for example, based on the
rentable area of the Improvements as compared to the total rentable
area of the Stanford Research Park (or the area being served by the
service, if less than the entire Stanford Research Park), or based on
the average employee headcount in the Premises as compared to the
overall employee density of the Stanford Research Park). Tenant shall
not be required to pay any Transit Fees for programs that do not serve
the Premises. In no event shall Tenant's share of Transit Fees exceed
twenty cents ($.20) per year per square foot of Rentable Area in the
Premises, subject to annual adjustment (as of April 1, 2005 and each
April 1 thereafter during the Term) to reflect percentage increases in
the Consumer Price Index published by the U.S. Department of Labor,
Bureau of Labor Statistics (San Francisco, Oakland, San ▇▇▇▇ Area, All
Urban Consumers, All Items, 1982-84 - 100), or if such index is no
longer published, a successor or substitute index designated by
Landlord in its reasonable discretion, which shall be published by a
governmental agency and reflecting changes in consumer prices in the
San Francisco Bay Area."
(g) The following paragraph shall be added to the Lease as a new
Section 42.16:
"Tenant shall use commercially reasonable efforts to do business with
vendors located in the City of Palo Alto for the purchase of personal
property, furniture, equipment and supplies used in connection with
Tenant's operations at the Premises. To the maximum extent permitted
under applicable laws and regulations, Tenant shall also book all
sales made from the Premises and orders taken at the Premises as
occurring in the City of Palo Alto, even though the account may be
transferred elsewhere for collection or the delivery of merchandise
sold or the performance of services ordered may be made elsewhere.
Tenant agrees and acknowledges that the foregoing requirements are
intended to maximize sales and use tax revenues to the City of Palo
Alto."
7. INTENTIONALLY OMITTED.
8. SUBTENANT'S WALKWAY RIGHTS. Subtenant agrees and acknowledges that by
assuming the rights and obligations of Tenant under the Lease, Subtenant shall
also assume all obligations of Tenant, as successor-in-interest to Incyte
Genomics, Inc., under that certain First Amendment to the Lease dated as of July
19, 2000 by and between Interval Research Corporation and Incyte Genomics, Inc.,
a copy of which is attached as EXHIBIT E.
9. RIGHT OF FIRST OFFER. Landlord hereby grants to Subtenant a right of
first offer (the "RIGHT OF FIRST OFFER") to lease any one of those certain
parcels of improved real property
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that are adjacent to the Premises and which are commonly known as ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ (hereinafter referred to
individually and collectively as the "ADJACENT PREMISES") in the event that
during the term of the Sublease or the Extended Term (but not during any Renewal
Term except as provided in subsection (d) below) any current tenant of an
Adjacent Premises (hereinafter individually and collectively referred to as an
"ADJACENT TENANT") elects not to renew or extend the term of its lease in
existence as of the date of this Agreement.
(a) The Right of First Offer shall not apply to any renewal or
extension of a lease for an Adjacent Premises between Landlord and an Adjacent
Tenant that is granted to such Adjacent Tenant in its lease. In the event an
Adjacent Tenant has no right to such renewal or extension but desires to enter
into negotiations with Landlord regarding a renewal or extension, Landlord shall
deliver written notice to Tenant that Landlord intends to enter into such
negotiations. In the event Tenant desires to make a competing offer to lease the
Adjacent Premises, Tenant shall deliver written notice to Landlord within ten
(10) business days after receipt of Landlord's notice. Upon receipt of such
notice from Tenant, Landlord agrees that it will engage in concurrent
negotiations with such Adjacent Tenant and Tenant for a period of at least
fifteen (15) business days; provided that Landlord shall have no obligation to
give priority or preference to Tenant over the Adjacent Tenant.
(b) In the event Landlord desires to enter into an agreement with a
third party (other than an Adjacent Tenant) for the lease of the Adjacent
Premises during the term of the Sublease or the Extended Term of the Lease (but
not any Renewal Term), Landlord shall deliver to Subtenant a notice setting
forth the terms and conditions upon which Landlord would be willing to lease the
Adjacent Premises (the "NOTICE"), which terms and conditions shall be based on
Landlord's reasonable determination of the fair market rental value of the
Adjacent Premises, whereupon Subtenant shall have ten (10) business days in
which to elect by delivery of written notice to Landlord whether to lease the
Adjacent Premises on all of the terms and conditions of the Notice.
(c) If Subtenant does not exercise its Right of First Offer with
regard to the Notice within the ten (10) business day period, Landlord may lease
the Adjacent Premises to any third party upon any terms and conditions Landlord
elects, and the Right of First Offer shall terminate and have no further force
or effect during the term of the Sublease or the Extended Term of the Lease with
respect to the particular Adjacent Premises that was the subject of the Notice.
(d) If Subtenant exercises its Right of First Offer with regard to
the Notice, the Parties shall enter into a new lease with respect to the
Adjacent Premises (separate and apart from the Lease) on the terms of the Notice
and using the Lease as the basis for the lease of the Adjacent Premises, and
making only such changes as are reasonably necessary to conform the new lease to
the terms and conditions of the Notice. The execution of a lease for any portion
of the Adjacent Premises shall not terminate the Right of First Offer as to the
remaining buildings comprising the Adjacent Premises. Additionally, the Right of
First Offer as to ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ (but no other Adjacent Premises) shall
remain in effect during any Renewal Term. The Right of First Offer is personal
to Subtenant and shall be inapplicable and null and void if Subtenant assigns
its interest under the Sublease or Lease.
10. SUPERSEDING EFFECT. The Parties agree that in the event of any
conflict between the terms of this Agreement and the terms of the Lease, or the
terms of this Agreement and the terms of the Sublease, the terms of this
Agreement shall prevail as between the Parties only.
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IN WITNESS WHEREOF, the Parties have executed this Agreement Regarding
Sublease and Lease as of the date first above written.
THE BOARD OF TRUSTEES OF THE ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ JUNIOR UNIVERSITY
By Stanford Management Company
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇▇, Managing Director
Stanford Research Park
CONNETICS CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Its: CFO
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