EXHIBIT 10.15
BUILD-TO-SUIT LEASE
LANDLORD: TPSC II LIMITED PARTNERSHIP
TENANT: ADVANCED TISSUE SCIENCES, INC.
DATE: October 15, 1997
BUILD-TO-SUIT LEASE
TABLE OF CONTENTS
1. PROPERTY 6
1.1 Lease of Property 6
1.2 Landlord's Reserved Rights 7
1.3 Title 7
2. TERM 7
2.1 Term 7
2.2 Commencement Date 7
2.3 Early Possession 8
2.4 Delay In Possession 9
2.5 Acknowledgment Of Lease Commencement 10
2.6 Holding Over 10
2.7 Option To Extend Term 11
3. RENTAL 11
3.1 Basic Annual Rent 11
3.2 Other Obligations 12
3.3 Payments 12
3.4 Rent Increases 12
3.5 Extension Terms 12
3.6 Late Charge 13
4. DETERMINATION OF TOTAL PROJECT COST; ARBITRATION AND AUDIT 14
4.1 Landlord's Statement of Total Project Cost; Tenant Review 14
4.2 Arbitration of Dispute 14
5. DESIGN AND CONSTRUCTION 15
5.1 Construction of Improvements 15
5.2 Condition of Property 15
5.3 Compliance with Law 16
5.4 Union Labor 16
5.5 City Business Cooperation Program 16
6. EXPANSION OPTION - LOT 27 16
6.1 Option Grant 16
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6.2 First Refusal Right 18
7. EXPANSION RIGHTS -- LOT 26 19
7.1 First Refusal Right 19
7.2 Exercise of Lot 27 Expansion Option During Pendency
of Lot 27 Offer; Option on Lot 26 20
7.3 Carrying Costs 21
7.4 Paydown 22
8. TAXES 22
8.1 Personal Property 22
8.2 Real Property 22
9. OPERATING EXPENSES 23
9.1 Liability For Operating Expenses 23
9.2 Definition Of Operating Expenses 23
9.3 Determination and Payment Of Operating Expenses 24
9.4 Proration 25
10. UTILITIES 25
10.1 Payment 25
10.2 Interruption 25
11. ALTERATIONS; SIGNS 26
11.1 Right To Make Alterations 26
11.2 Title To Alterations 26
11.3 Tenant Fixtures 27
11.4 No Liens 27
11.5 Signs 27
12. MAINTENANCE AND REPAIRS 27
12.1 Landlord's Work 27
12.2 Tenant's Obligation For Maintenance 27
13. USE OF PROPERTY 28
13.1 Permitted Use 28
13.2 No Nuisance 29
13.3 Compliance With Laws 29
13.4 Liquidation Sales 29
13.5 Environmental Matters 29
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14. INSURANCE AND INDEMNITY 33
14.1 Liability and Property Insurance 33
14.2 Waiver Of Subrogation 34
14.3 Increase In Premiums 34
14.4 Indemnification 34
14.5 Blanket Policy 35
15. SUBLEASE AND ASSIGNMENT 35
15.1 Assignment And Sublease Of Property 35
15.2 Rights Of Landlord 36
15.3 Notice of Proposed Assignment or Sublease 36
16. RIGHT OF ENTRY AND QUIET ENJOYMENT 36
16.1 Right Of Entry 36
16.2 Quiet Enjoyment 37
17. CASUALTY AND TAKING 37
17.1 Damage or Destruction 37
17.2 Condemnation 39
17.3 Reservation Of Compensation 40
17.4 Restoration Of Improvements 40
18. DEFAULT 41
18.1 Events Of Default 41
18.2 Remedies Upon Tenant's Default 42
18.3 Remedies Cumulative 43
18.4 Landlord Default 43
19. SUBORDINATION, ATTORNMENT AND SALE 43
19.1 Subordination To Mortgage 43
19.2 Sale Of Landlord's Interest 43
19.3 Estoppel Certificates 43
19.4 Subordination to CC&R's 44
19.5 Mortgagee Protection 44
20. Intentionally Deleted 44
21. MISCELLANEOUS 44
21.1 Notices 44
21.2 Successors And Assigns 45
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21.3 No Waiver 45
21.4 Severability 45
21.5 Litigation Between Parties 45
21.6 Surrender 45
21.7 Interpretation 45
21.8 Entire Agreement 46
21.9 Governing Law 46
21.10 No Partnership 46
21.11 Financial Information 46
21.12 Costs 46
21.13 Time 46
21.14 Brokers 46
21.15 Memorandum Of Lease 46
21.16 Corporate Authority 46
21.17 Execution and Delivery 46
21.18 Survival 46
21.19 Confidentiality 46
EXHIBITS
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EXHIBIT A Real Property Description (Site)
EXHIBIT B Site Plan
EXHIBIT C Work Letter
EXHIBIT D Estimated Construction Schedule
EXHIBIT E Acknowledgment of Lease Commencement
EXHIBIT F Forms of Subordination, Attornment and Nondisturbance
Agreement and Estoppel Certificate
EXHIBIT G Lot 27: Legal Description and Site Plan
EXHIBIT H Lot 26: Legal Description and Site Plan
EXHIBIT I Radioactive Materials
EXHIBIT J Synopsis of Relevant Provisions
EXHIBIT K Contractor/Subcontractor Requirements
BUILD-TO-SUIT LEASE
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THIS BUILD-TO-SUIT LEASE ("Lease") is made and entered into as of the
15th day of October, 1997, by and between TPSC II LIMITED PARTNERSHIP, a
Delaware limited partnership ("Landlord"), and ADVANCED TISSUE SCIENCES, INC.,
a Delaware corporation ("Tenant").
THE PARTIES AGREE AS FOLLOWS:
DEFINITIONS
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Actual Tender Date means the date Landlord actually tenders possession of
the Property to Tenant with the Interior Improvements Substantially Completed.
Annual Operating Expense Statement means a statement showing, in
reasonable detail, the actual Operating Expenses for the previous calendar
year.
Basic Annual Rent means base rent due from Tenant for its use of the
Property, on a triple net basis, in an amount equal to twelve and one-half
percent (12.5%) of the Total Project Cost, (all as described and determined in
accordance with the Work Letter) increased as provided in this Lease
(including, but not limited to, increases pursuant to Paragraph 3.4 hereof).
Carrying Costs means
(a) with respect to Lot 27, all costs incurred by Landlord with
respect to its acquisition, ownership and financing of Lot 27 which
shall be limited to the following: (i) interest expense on the aggregate
of $3,476,000, consisting of the purchase price (being $3,450,000) and
acquisition cost of Lot 27 (in the amount of $26,400), with interest
calculated at the Prime Rate plus one percent (1%); (ii) real property
taxes, assessments and insurance on or allocable to the Expansion
Building and/or Lot 27 (provided, however, that Carrying Costs shall not
include any increase in taxes or assessments attributable to a change in
ownership of Lot 27); (iii) assessments, dues and the like payable under
the Existing CC&Rs or to TOPSCA; and (iv) any maintenance of Lot 27
effected at the written request of Tenant, required under the Existing
CC&R's or required by any governmental body or entity having
jurisdiction over Lot 27;
(b) with respect to Lot 28, all costs incurred by Landlord with
respect to its acquisition, ownership and financing of Lot 28 which
shall be limited to the following: (i) interest expense on the aggregate
of $2,871,798, consisting of the purchase price (being $2,850,000) and
acquisition cost of Lot 28 (in the amount of $21,798), with interest
calculated at the Prime Rate plus one percent (1%); (ii) real property
taxes, assessments and insurance on or allocable to Lot 28 (provided,
however, that Carrying Costs shall not include any increase in taxes or
assessments attributable to a change in ownership of Lot 28); and (iii)
assessments, dues and the like payable under the Existing CC&Rs or to
TOPSCA; and
(c) with respect to Lot 26, all costs incurred by Lot 26 Owner with
respect to its acquisition, ownership and financing of Lot 26 which
shall be limited to the following: (i) interest expense on the aggregate
of $1,904,901, consisting of the purchase price (being $1,890,000) and
acquisition cost of Lot 26 (in the amount of $14,901), with interest
calculated at the Prime Rate plus one percent (1%); (ii) real property
taxes, assessments and insurance on or allocable to Lot 26 (provided,
however, that Carrying Costs shall not include any increase in taxes or
assessments attributable to a change in ownership of Lot 26); (iii)
assessments, dues and the like payable under the Existing CC&Rs or to
TOPSCA; and (iv) any maintenance of Lot 26 effected at the written
request of Tenant, required under the Existing CC&R's or required by any
governmental body or entity having jurisdiction over Lot 26.
CC&Rs means recorded covenants, conditions, easements, and restrictions
affecting the Site and the ▇▇▇▇▇▇ ▇▇▇▇▇ Science Center Signage Guidelines.
Commencement Date means that date Tenant takes possession of the
Property for purposes other than installing furniture, fixtures and equipment
and similar work preparatory to the commencement of Tenant's business, but
not later than thirty (30) days after the Actual Tender Date.
Completion Notice means a written notice of the date that Landlord
believes the Tenant Improvement Work will be Substantially Completed (a) with
respect to office space in the Initial Building, and (b) with respect to the
entire Initial Building. Landlord shall use its reasonable best efforts to
give written notice to Tenant at least thirty (30) days prior to such
Substantial Completion dates.
Existing CC&R's means CC&R's recorded as of the date of this Lease.
FF&E/Trade Fixtures shall mean furniture, fixtures and equipment,
including, but not limited to, trade fixtures, to be installed in the Initial
Building but which are not to be purchased or installed by Landlord. After
Substantial Completion, Tenant shall update Exhibit "E" to reflect the actual
FF&E/Trade Fixtures.
Force Majeure shall mean any prevention, delay or stoppage of work or any
other obligation to be performed by Landlord or Tenant hereunder arising after
the date this Lease is executed and delivered which is due to strikes by any
trade or trades affecting the Project in any way (including, but not limited
to, any materials or equipment ordered for the Project, and the
transportation, delivery or installation of any material or equipment for the
Project) other than as a result of Project specific conditions, labor disputes
by any trade or trades affecting the Project in any way (including, but not
limited to, any materials or equipment ordered for the Project, and the
transportation, delivery or installation of any material or equipment for the
Project) other than as a result of Project specific conditions, acts of God,
acts or failures to act of public agencies that cause delays despite the
applicable party's diligent efforts, freight embargoes due to generally
prevailing market conditions, rainy or stormy weather, inability to obtain
supplies, materials, fuels, machinery or equipment due to generally prevailing
market conditions, fire or other causes or contingencies beyond the reasonable
control of Landlord or Tenant, as applicable. Force Majeure shall also
include delays that occur despite Landlord's due diligence to apply for and
process applications and obtain permits or approvals due to the actions or
inaction of governmental authorities controlling the permitting of the Project
and of the reviewing bodies of the Coastal Development Permit or the actions
of private citizens or groups which alter the course of or results of the
Coastal Development Permit approval or any other governmental approvals.
Notwithstanding anything to the contrary contained herein, the party claiming
any delay due to Force Majeure shall make reasonable efforts to mitigate the
delay (for example obtaining substitute materials or suppliers) and shall
provide written notice to the other within five (5) business days after the
claiming party learns of such delay. The claiming party shall not be entitled
to any delay due to Force Majeure to the extent such claiming party fails to
use reasonable efforts to mitigate such delay. In addition, if the claiming
party fails to give such written notice to the other party, the claiming party
shall not be entitled to claim any delay due to Force Majeure for any period
prior to the date that claiming party actually gives such notice to the other
party.
Improvements means the Initial Building and the other improvements to be
constructed on the Site pursuant to Paragraph 5 hereof and the Work Letter.
Initial Building means the building to be constructed, pursuant to
Paragraph 5 hereof and the Work Letter, on the Site, to consist of a two-
story building containing approximately 104,000 square feet.
Interior Improvements shall mean all interior systems including partition
systems, interior floors and hardware, interior finishes, telecommunications
cabling, building alarm system wiring, life safety alarm system wiring, HVAC,
plumbing and electrical systems (including feeders from the meter section, and
main distribution panels), life safety systems, dock equipment and garage
equipment as set forth in the Construction Documents therefor; all as
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included in the Project Budget and paid for by Landlord (but subject to
maximum payments by Landlord pursuant to Section 12.1 of the Work Letter).
Emergency generators, boiler, cooling tower and trash and truck dock, are
also budgeted from Interior Improvements.
Landlord means TPSC II Limited Partnership, a Delaware limited partner-
ship.
Lease means this Build-To-Suit Lease, as amended from time to time,
and all exhibits (including, but not limited to, the Work Letter).
Lender means any entity which makes a loan to Landlord secured by the
Property.
Lot 26 means that certain real estate in ▇▇▇▇▇▇ ▇▇▇▇▇ Site and Center,
the legal description of which is set forth on Exhibit H annexed hereto, which
real property is subject to the Lot 26 Expansion Option and Lot 26 Refusal
Right as set forth in Paragraph 7 hereof. Fee simple title to Lot 26 is
currently is held by TPSC Holdings Limited Partnership, a Delaware limited
partnership.
Lot 26 Exercise Notice means the written notice to Landlord by which
Tenant exercises the Lot 26 Expansion Option, all as referred to in Paragraph
7.2(a).
Lot 26 Exercise Period has the meaning set forth in Paragraph 7.2 hereof.
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ means the improvements to be constructed on
Lot 26 which shall consist of a single building which shall not be less than
60,000 square feet nor more than 65,000 square feet unless Landlord consents,
all as referred to in Paragraph 7.2(a).
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Date means the date for delivery of the
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ as further referred to in Paragraph 7.2(a) hereof.
Lot 26 Expansion Option has the meaning set forth in Paragraph 7.2 hereof.
Lot 26 Lease has the meaning set forth in Paragraphs 7.1 and 7.2(b)(ii)
hereof.
Lot 26 Offer Notice has the meaning set forth in Paragraph 7.1(b).
Lot 26 Owner means TPSC Holdings Limited Partnership, a Delaware limited
partnership.
Lot 26 Refusal Right has the meaning set forth in Paragraph 7.1(a)
hereof.
▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ has the meaning set forth in Paragraph 7.1(a) hereof.
Lot 27 means the real estate described on Exhibit G annexed hereto.
Lot 27 Exercise Notice means the written notice to Landlord by which
Tenant exercises the Lot 27 Expansion Option, all as referred to in Paragraph
6.1(a).
Lot 27 Exercise Period has the meaning set forth in Paragraph 6.1 hereof.
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇(▇) means the improvements to be constructed on
Lot 27 after Tenant's exercise of its Lot 27 Expansion Option, which building or
buildings shall not be less than 102,000 square feet nor more than 124,400
square feet unless Landlord consents, all as referred to in Paragraph 6.2(a);
if there is more than one building, no building shall be less than 45,000
square feet.
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Date means the date for delivery of the
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ as referred to in Paragraph 6.1(a)(i) hereof.
Lot 27 Expansion Option has the meaning set forth in Paragraph 6.1 hereof.
Lot 27 Lease means a lease of Lot 27 to be negotiated and executed as
provided in Paragraphs 6.1 or 6.2, as applicable, hereof.
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Lot 27 Offer Notice has the meaning set forth in Paragraph 6.2(b) hereof.
Lot 27 Refusal Right has the meaning set forth in Paragraph 6.2(a) hereof.
▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ has the meaning set forth in Paragraph 6.2(a) hereof.
Management Fee means an annual fee of one percent (1%) of the Basic Annual
Rent for the first full year of this Lease, beginning on the Commencement
Date, which fee shall escalate annually, on a cumulative basis, in an amount
equal to three percent (3%) of the prior year's fee, each increase being
effective on each anniversary of the Commencement Date; such fee shall be
included in Operating Expenses.
MSDS's means Material Safety Data Sheets.
Offer has the meaning set forth in Paragraphs 6.2(b) and 7.1(b).
Offeror means a person or entity, other than Tenant, from which Landlord
has received or to whom Landlord delivers a bona fide written offer, which
Landlord wishes to accept, to purchase/sell or otherwise develop or lease Lot
26 or Lot 27, all as referred to in Paragraph 7.2 or 6.2, respectively.
Office Space Annual Rent means an amount equal to 12.5% of the sum of
(a) the Project Budget, in effect at the time Tenant takes possession of the
office area (reduced by the portion thereof attributable to tenant improve-
ments) multiplied by the Office Space Percentage, plus (b) $35.00 multiplied
by the size (in square feet) of the office area.
Office Space Percentage means a fraction, the denominator of which shall be
the aggregate area of the Initial Building and the numerator of which shall be
the square footage of the office area.
Operating Expenses means the total costs and expenses incurred by or
allocable to Landlord for ownership, operation and maintenance of the Improve-
ments and the Property, all as more fully set forth in Paragraph 9.2 hereof.
Outside Areas means the parking areas, driveways, sidewalks, landscaped
areas and other portions of the Site that lie outside the exterior walls of
the Initial Building, as depicted on the site plan attached hereto as Exhibit
B.
Parcel shall mean any other land, developed or undeveloped, owned by
Landlord, or any affiliate of Landlord, within the ▇▇▇▇▇▇ ▇▇▇▇▇ Science Center.
Prime Rate means the highest rate of interest announced from time to
time by Chase Manhattan Bank, Citibank N.A., or Bank of America as its "prime
rate", changing as and when such rate changes, unless a lesser rate shall
then be the maximum rate permissible by law with respect thereto, in which
event such lesser rate shall be charged.
Project Schedule means the Project Schedule annexed to the Work Letter.
Projected Monthly Basic Annual Rent shall mean $264,855.
Property means the Improvements and the Site.
Qualified CPA means an independent Certified Public Accountant with at
least ten (10) years experience in construction matters from a "Big 6"
accounting firm affiliated with neither party.
Refusal Term means that period as described in Paragraph 6.2(a).
Rent means Basic Annual Rent (as modified from time to time pursuant
hereto) and such other sums as may be due and payable by Tenant to Landlord
hereunder, other than Operating Expenses and Taxes.
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Site means the real property described in Exhibit A attached hereto on
which the Initial Building will be constructed.
Site Improvements means improvements to the Site, other than the Building
Shell and Core or Interior Improvements, as specified in the plans and
specifications and including, but not limited to, site lighting, flag poles,
underground utilities, on-grade parking, landscaping and outdoor seating
areas.
Start of Construction means the date upon which mass excavation begins
on the Project. Landlord and Tenant agree construction of the Project shall
begin immediately following the completion of, and Tenant approval of, the
Construction Documents, approval by Landlord and Tenant of the GMP Change
Order for such mass excavation and Landlord's obtaining building permits and
government approvals required to commence construction.
Substantially Completed or Substantial Completion (or any other variant
of such terms) shall mean:
(a) with respect to the Project: (i) receipt by Landlord and delivery
to Tenant of written certification from the Architect that the Improvements
have been completed in accordance with the Final Construction Documents
(except for Punch List work and minor changes outlined in Section 10.3 of the
Work Letter); and (ii) approval to occupy, or its functional equivalent, is
obtained from the City of San Diego and all other applicable governmental
authorities; and
(b) with respect to the office area: (i) receipt by Landlord and
delivery to Tenant of written certification from the Architect that the
Building Shell and Core, Site Improvements to the extent necessary for
Tenant's use of the office area and, to the extent of the office area, the
Interior Improvements, all have been completed in accordance with the
Construction Documents (except for Punch List work and minor changes outlined
in Section 10.3 of the Work Letter); and (ii) approval to occupy, or its
functional equivalent, is obtained from the City of San Diego and from any
other applicable government authorities.
Target Commencement Date means November 27, 1998, subject to adjustment
as provided herein and in the Work Letter.
Target Start of Construction Date means November 21, 1997, subject to
adjustment as provided herein and in the Work Letter.
Target Substantial Completion Date for Office Area of Initial Building
means September 30, 1998, subject to adjustment as provided herein and in the
Work Letter.
Target Substantial Completion Date for Initial Building means October 25,
1998, subject to adjustment as provided herein and in the Work Letter.
Taxes means all taxes, assessments and the like as set forth in Paragraph
8 hereof.
Tenant means ADVANCED TISSUE SCIENCES, INC., a Delaware corporation, and
its permitted successors and assigns.
Tenant Delay means any action or failure to act of or by Tenant after the
date this Lease is executed and delivered which causes or results in a delay
in Substantial Completion of the Improvements, including, but not limited to,
the following (all further subject to Force Majeure delays): (i) material
errors or omissions in Tenant's information or communications to Landlord or
design team which affect the schedules for design or documentation; or (ii)
Tenant's failure to adhere to the dates or timing for delivery, response or
other actions as set forth in the Work Letter or the Project Schedule (to the
extent any delay is not caused by Landlord's failure to act in accordance with
the Project Schedule, Landlord's failure to adhere to applicable law in
existence at the time of entering into the Lease or Landlord's defective
work); or (iii) any Tenant requested change to the approved Construction
Documents after the scheduled decision periods in Section 7 of the Work Letter
("Project Decisions") (to the extent any delay is not caused by Landlord's
failure to act upon or process any such request in a reasonably diligent
manner,
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Landlord's failure to adhere to applicable law in existence at the time of
entering into the Lease or Landlord's defective work); (iv) a Tenant Delay as
described in Paragraphs 2.2(b) and 2.3 hereof; or (v) Tenant's presence on or
about the Property to the extent not permitted under this Lease or the Work
Letter. Notwithstanding anything to the contrary contained herein, Landlord
shall provide written notice to Tenant within five (5) business days after
Landlord learns of such delay. Landlord shall not be entitled to any delay
due to Tenant Delay for any period prior to the date Landlord delivers such
notice to Tenant if Landlord fails to do so within such five (5) business day
period.
Tenant Improvement Work means "Interior Improvements" as defined above.
Tenant's Operating Cost Share means the portion of Operating Expenses
which must be paid by Tenant, being one hundred percent (100%), except as
otherwise provided in Paragraph 9.1.
Tender Date means the date Landlord tenders possession of (a) the office
area of the Initial Building or (b) the Initial Building, as applicable, to
Tenant with the Improvements Substantially Completed. The Tender Date shall
be within two (2) days after Substantial Completion of the applicable building
area.
TOPSCA means ▇▇▇▇▇▇ ▇▇▇▇▇ Science Center Association for ▇▇▇▇ ▇, a
California not-for-profit mutual benefit corporation, organized and existing
under, and pursuant to, the Existing CC&Rs.
Total Project Cost means the total of all costs of the entire Project
which shall consist of only the following: cost of site acquisitions, and
Landlord's actual out-of-pocket costs to design, construct and finance the
Project, consisting of the Land purchase price in the amount of $2,850,000.00
and related costs of acquisition, insurance, costs related to acceleration of
the Project Schedule as contemplated by Section 2.6(c) of the Work Letter,
costs incurred by Landlord pursuant to Paragraph 2.2(b) (concerning early use
of office area) hereof for maintenance and repair, costs of carry, interest,
cost of permits, expense of the loans obtained by Landlord for the Project,
landscaping, all sums paid to contractors or subcontractors, all costs and
expenses required to be paid to obtain necessary governmental permits and
approvals, engineering and architectural fees, the Project Management Fee,
cost deriving from Force Majeure, real estate, sales and use taxes, testing
and inspection costs required by governmental authorities to obtain permits
and approvals, utility costs and any other cost included in the Project Budget
and utilized in conjunction with the Project. Any utility company rebates
received by Landlord during the Development Period, either in cash or by
credit against utility bills, and any payment by Tenant pursuant to Section
12.5 of the Work Letter shall be deducted from Total Project Costs. Total
Project Costs shall not include any of the following: (a) defects in design or
construction unless the design responds to and satisfies any performance
criteria provided by Tenant and otherwise is not defective; (b) costs
attributable to Landlord's default (except for delays which are subject to
Paragraph 2.4(a)) unless same are minor, typical for similar construction
projects and do not materially detrimentally affect the construction of the
Improvements; provided however, that this subsection (b) shall not affect the
application of Paragraph 2.4(a) hereof; (c) any management fee (except the
Project Management Fee described in Section 12.4 of the Work Letter); (d) any
administrative fee or other overhead expense of Landlord; (e) any items which
are not in the Project Budget; or (f) costs that are specifically designated
to be costs borne by Landlord. Landlord may utilize contingencies and line
item cost savings against any cost overrun which does not derive from
Landlord's default hereunder to the extent provided in Section 2.4 of the Work
Letter.
Work Letter means the work letter attached hereto as Exhibit C, as same
may be amended from time to time.
1. PROPERTY
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1.1 Lease of Property.
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Landlord leases to Tenant and Tenant hires and leases from Landlord, on
the terms, covenants and conditions hereinafter set forth, the real property
described in Exhibit A attached
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hereto (the "Site") and the building (the "Initial Building") to be
constructed, pursuant to Paragraph 5 hereof and the Work Letter attached
hereto as Exhibit C (the "Work Letter"), on the Site, to consist of a two-
story building containing approximately 104,000 rentable square feet. The
area of the Initial Building shall be measured in accordance with a standard
reasonably acceptable to Landlord and Tenant. Landlord represents that it
has adequate financial resources to perform its obligations under this Lease.
The location of the Initial Building on the Site is intended to be
substantially as shown on the site plan attached hereto as Exhibit B. The
Initial Building and the other improvements to be constructed pursuant to
Paragraph 5 hereof and the Work Letter on the Site are sometimes referred to
collectively herein as the "Improvements," and the Improvements and the Site
are sometimes referred to collectively herein as the "Property." The parking
areas, driveways, sidewalks, landscaped areas and other portions of the Site
that lie outside the exterior walls of the Initial Building, as depicted on
the site plan attached hereto as Exhibit B, are sometimes referred to herein
as the "Outside Areas." The Site is part of the ▇▇▇▇▇▇ ▇▇▇▇▇ Science Center
in La Jolla, California.
1.2 Landlord's Reserved Rights.
--------------------------
To the extent reasonably necessary to permit Landlord to exercise any
rights of Landlord and discharge any obligations of Landlord under this Lease,
Landlord shall have, in addition to the right of entry set forth in Paragraph
16.1 hereof, the following rights: (i) to close temporarily any of such areas
for maintenance or other reasonable purposes, provided that reasonable parking
and reasonable access to the Initial Building remain available; (ii) to use
such areas while engaged in making additional improvements, repairs or
alterations to the Property, or any portion thereof or any adjacent property;
(iii) to permit access to the Site, or any parts thereof, as are required or
permitted pursuant to any law, statute, ordinance, rule, regulation or the
like or, subject to Paragraph 1.3 below, by any recorded agreement, bearing on
the Property; (iv) to grant easements or licenses on, under or over the Site,
or portions thereof; and (v) to do and perform such other acts with respect to
such areas and the Property as may be necessary or appropriate; provided,
however, that notwithstanding anything to the contrary in this Paragraph 1.2,
Landlord's exercise of its rights hereunder, (w) shall not have any material
adverse permanent effect on the use of or access to the Improvements nor
visibility therefrom nor the amount of parking, (x) shall not cause any
material diminution of Tenant's rights, nor any material increase of Tenant's
obligations, under this Lease or with respect to the Improvements, (y) shall
not authorize Landlord to make any material, permanent alterations in the
Improvements without the prior written consent of Tenant, which consent shall
not be unreasonably withheld or delayed, and (z) shall be conducted in such a
manner as to minimize, to the extent reasonably possible, any disruption and
any adverse effect on Tenant's business operations on the Site, it being
agreed that Landlord and Tenant shall confer as to the scheduling of any work
or disruption and that Tenant's approval thereof shall not be unreasonably
withheld or delayed.
1.3 Title.
Landlord has delivered to Tenant, who acknowledges receipt and review,
a copy of a Policy of Title Insurance concerning the property dated May 7,
1997. Landlord shall not at any time after the date hereof permit or create
any additional exceptions to title or any modification to any existing
exceptions which will materially and adversely affect Tenant's rights and
obligations under this Lease; Landlord shall provide to Tenant a copy of any
instrument creating a new exception or modifying any existing exception prior
to such instrument becoming effective. Any mortgage, deed of trust or
similar encumbering instrument shall not be deemed to violate the provisions
of this Paragraph 1.3 if same is permitted pursuant to Paragraph 19 hereof.
Other than as shown on the Policy of Title Insurance, Landlord is not aware
of any other exception affecting title. Notwithstanding the immediately
preceding sentence, in the event Landlord breaches such representation, and
such exception has no adverse effect on Tenant's use of the Project as
permitted herein, such breach shall not be a default by Landlord under this
Lease and Tenant shall not be entitled to any remedies therefor.
2. TERM
----
2.1 Term. The term of this Lease shall commence on the Commencement
Date and shall end on the day immediately preceding the date fifteen (15)
years thereafter, unless sooner terminated or extended (if applicable) as
hereinafter provided.
2.2 Commencement Date.
-----------------
7
(a) Commencement Date; Tender Date; Target Commencement Date.
--------------------------------------------------------
The "Commencement Date" shall be the date Tenant takes possession of the
Property for purposes other than installing furniture, fixtures and equipment
and similar work preparatory to the commencement of Tenant's business, but not
later than thirty (30) days after the Actual Tender Date of the entire Initial
Building. On the Actual Tender Date, all construction personnel, equipment
and materials that materially interfere with Tenant's fixturization, move-in
or other use of the Property, shall be removed from the Property. Landlord
shall use its reasonable best efforts to achieve the Target Commencement Date
and to give Tenant at least thirty (30) days prior written notice ("Completion
Notice") of the dates the Tenant Improvement Work will be Substantially
Completed (a) with respect to the office space (as referred to in Paragraph
2.2(b) hereof), and (b) with respect to the entire Initial Building. Carrying
Costs with respect to Lot 28 shall no longer accrue or be included in Total
Project Cost effective as of the Commencement Date.
(b) Early Use of Office Area. Tenant may elect, in its sole and
------------------------
absolute discretion, to commence occupancy of the office space within the
Initial Building prior to the Commencement Date upon issuance of a temporary
certificate of occupancy and Substantial Completion of the office space.
Landlord shall provide Tenant with written notice of the date upon which
Landlord anticipates Substantial Completion of the office area portion of the
Project, and shall continue to keep Tenant advised of progress towards such
Substantial Completion; Landlord shall use its good faith best effort to
provide notice of anticipated Substantial Completion at least thirty (30) days
prior to such Substantial Completion. Tenant shall provide Landlord with at
least fifteen (15) days written notice before taking such occupancy of the
office space. If Tenant so elects to occupy such office space, then all terms
and conditions of this Lease which are applicable upon and during Tenant's
occupancy shall have immediate effect with the following exceptions which
shall have effect only until the Commencement Date: (i) Tenant shall pay a
monthly base rent (in lieu of Basic Annual Rent) equal to one-twelfth (1/12)
of the Office Space Annual Rent for each month (pro-rata for partial months)
of such occupancy until the Commencement Date; (ii) Tenant shall pay a portion
of Operating Expenses (excluding therefrom the Management Fee and the costs of
maintenance and repair) equal to the product of the aggregate Operating
Expenses multiplied by the Office Space Percentage; (iii) Tenant shall pay a
portion of Taxes equal to the aggregate of Taxes multiplied by the Office
Space Percentage; and (iv) Landlord shall effect all necessary maintenance and
repair, the cost of same being added to the Project Budget (either by
inclusion of a new line item, addition of the costs to an existing line item
or some combination) and shall be a component of Total Project Cost. Tenant's
use and occupancy of the office space shall be conducted in such a manner so
as minimize interference with or delay of Landlord's construction of any
remaining portion of the Project, and Tenant shall coordinate and cooperate
with Landlord and its contractors in this regard. Tenant shall permit
Landlord reasonable access to the office area for purposes of effecting
construction of the Project. Any delay in construction or Substantial
Completion of the Property shall be a Tenant Delay if resulting from Tenant's
failure to permit such reasonable access, Tenant's failure to comply with any
reasonable directive from Landlord relating to construction of the Project or
any default by Tenant under this Lease. Early use of the office area pursuant
to this Paragraph 2.2(b) shall not affect the Commencement Date. From and
after the date Tenant's obligation to pay rent on the office area begins, for
purposes of calculating Total Project Costs, the portion of Carrying Costs of
Lot 28 based on the ratio between the Office Space Annual Rent and the Basic
Annual Rent for the entire Premises shall no longer continue to accrue.
2.3 Early Possession. In addition to Tenant's rights and obligations
----------------
pursuant to Paragraph 2.2(b) hereof, Tenant shall have the nonexclusive right
to occupy and take possession of the Property from and after Substantial
Completion of Building Shell and Core, subject to the approval of Landlord
and its contractor (which approval shall not be unreasonably withheld or
delayed and shall be deemed to be given unless Landlord shall deliver written
notice of disapproval within ten (10) business days of receipt of Tenant's
notice or request) solely for the purpose of staging for installation and
installing fixtures and equipment, moving furniture into the Property and
performing other similar work preparatory to the commencement of Tenant's
business on the Property, and Tenant shall not be required to pay Rent or
Operating Expenses by reason of such early access until the Commencement Date
otherwise occurs. Landlord shall give Tenant written notice of the date upon
which Landlord anticipates Substantial Completion of
8
Building Shell and Core, and shall continue to keep Tenant advised of progress
towards such Substantial Completion; Landlord shall use its best efforts to
provide such notice at least thirty (30) days in advance of such Substantial
Completion. Tenant shall not unreasonably interfere with or delay Landlord's
contractors by any such early access, occupancy or possession and shall
coordinate and cooperate with Landlord and its contractors (who shall
similarly coordinate and cooperate with Tenant and its contractors) to
minimize any interference or delay by Tenant with respect to the Landlord's
work, and shall indemnify, defend and hold harmless Landlord and its agents
and employees from and against any and all claims, demands, liabilities,
actions, losses, costs and expenses, including (but not limited to) reasonable
attorneys' fees, to the extent not covered by insurance, resulting from
Tenant's negligence or willful misconduct in connection with such early entry
on the Property. Any delay in construction or Substantial Completion of the
Property resulting from Tenant's failure to comply with any reasonable
directive from Landlord related to construction of the Project or any default
by Tenant under this Lease shall be a Tenant Delay.
2.4 Delay In Possession.
-------------------
The dates and time periods set forth in this Paragraph 2.4 are not
subject to extension for delays due to Force Majeure except as otherwise
expressly provided herein.
(a) Landlord's Work; Target Commencement Date. Landlord agrees to
-----------------------------------------
use its best reasonable efforts to complete promptly its portion of the work
described in Paragraph 5.1 and the Work Letter; provided, however, except as
provided herein, Landlord shall not be liable for any damages caused by any
delay in the completion of such work, nor shall any such delay affect the
validity of this Lease or the obligations of Tenant hereunder. To the extent
Substantial Completion of the Project is delayed more than sixty (60) days
beyond the Target Commencement Date, for reasons other than Force Majeure and
Tenant Delay, *
(b) Relation to Matrix Lease. In addition, Landlord acknowledges
------------------------
that under Tenant's existing Industrial Multi-Tenant Lease dated July 15,
1996, with Matrix Pharmaceutical, Inc. (the "Matrix Lease"), *
* (i) Completion Notice.
-----------------
* (ii) Tender Date - Completion Notice Delivered.
-----------------------------------------
9
* (iii) Tender Date - Completion Notice Not Delivered.
---------------------------------------------
* (c) Start of Construction.
---------------------
* (i)
* (ii)
* (iii)
*CONFIDENTIAL INFORMATION IS OMITTED*
2.5 Acknowledgment Of Lease Commencement. Upon commencement of the
------------------------------------
term of this Lease, Landlord and Tenant shall execute a written acknowledgment
of the Commencement Date, date of the termination and related matters,
substantially in the form attached hereto as Exhibit E (with appropriate
insertions), which acknowledgment shall be deemed to be incorporated herein
by this reference. Notwithstanding the foregoing requirement, the failure of
either party to execute such a written acknowledgment shall not affect the
determination of the Commencement Date, date of termination and related
matters in accordance with the provisions of this Lease.
2.6 Holding Over. If Tenant holds possession of the Property or any
------------
portion thereof after the term of this Lease with Landlord's written consent,
then except as otherwise specified in such consent, Tenant shall become a
tenant from month to month at one hundred ten percent (110%) of the Basic
Annual Rent and otherwise upon the terms herein specified for the period
immediately prior to such holding over and shall continue in such status
until the tenancy is terminated by either party upon not less than thirty
(30) days prior written notice. If Tenant holds possession of the Property
or any portion thereof after the term of this Lease without Landlord's
written consent, then Landlord in its sole discretion may elect (by written
notice to
10
Tenant) to have Tenant become a tenant either from month to month or at will,
at two hundred percent (200%) of the Basic Annual Rent (prorated on a daily
basis for an at-will tenancy, if applicable) and otherwise upon the terms
herein specified for the period immediately prior to such holding over, or
may elect to pursue any and all legal remedies available to Landlord under
applicable law with respect to such unconsented holding over by Tenant and
may recover all damages resulting therefrom, including, but not limited to,
loss (including, but not limited to, loss of rent, contribution to taxes and
operating expenses), cost, liability, damages and attorneys' fees resulting
from Landlord's becoming in breach of, or failing to fulfill a prerequisite
to effectiveness or commencement of, a lease of the Property, or from the
termination of such a lease by the lessee because of Landlord's inability to
deliver possession of the premises at the required time and in the condition
required hereunder). Landlord shall advise Tenant in writing of the latest
date upon which the Property must be made available to Landlord in order to
place the Property in the condition required by any new tenant and of the
dates upon which any new tenant may terminate any new lease for failure to
achieve any target dates. Landlord shall use its reasonable best effort to
mitigate any damages including, but not limited to, attempting to secure a
tenant for the property as promptly as is reasonably possible. Tenant shall
indemnify and hold Landlord harmless from any loss, damage, claim, liability,
cost or expense (including reasonable attorneys' fees) resulting from any
delay by Tenant in surrendering the Property (except with Landlord's prior
written consent), including but not limited to any claims made by a
succeeding tenant by reason of such delay. Acceptance of rent by Landlord
following expiration or termination of this Lease shall not constitute a
renewal of this Lease.
2.7 Option To Extend Term. Tenant shall have the option to extend the
---------------------
term of this Lease, at the Basic Annual Rent set forth in Paragraph 3.5 and
otherwise upon all the terms and provisions set forth herein with respect to
the initial term of this Lease, for up to two (2) additional periods of five
(5) years each, the first extension commencing upon the expiration of the
initial term hereof and the second extension commencing upon the expiration
of the first extended term, if any. Exercise of such option with respect to
the first such extended term shall be by written notice to Landlord at least
nine (9) months prior to the expiration of the initial term hereof; exercise
of such option with respect to the second extended term, if the first
extension option has been duly exercised, shall be by like written notice to
Landlord at least nine (9) months prior to the expiration of the first
extended term hereof. If Tenant is in default beyond the expiration of any
applicable notice and cure period hereunder on the date of such notice
or on the date any extended term is to commence, or if this Lease has earlier
terminated for any reason, then the extension option, at Landlord's election,
shall be of no force or effect, the extended term shall not commence and this
Lease shall expire at the end of the then current term hereof (or at such
earlier time as Landlord may elect pursuant to the default provisions of this
Lease). Except as expressly set forth in this Paragraph 2.7, Tenant shall
have no right to extend the term of this Lease beyond its prescribed term.
3. RENTAL
------
3.1 Basic Annual Rent.
-----------------
(a) "Basic Annual Rent:" Calculation; Initial Estimate. Tenant
---------------------------------------------------
agrees to pay Landlord as "Basic Annual Rent" for the Property, on a triple
net basis, a sum equal to twelve and one-half percent (12.5%) of the Total
Project Cost, all as described and determined in accordance with the Work
Letter. The initial Project Budget (a copy of which is annexed to the Work
Letter), is subject to modification pursuant to the Work Letter; such
modifications of the Project Budget shall result in modification of the Basic
Annual Rent. Determination of the final Total Project Cost upon which
calculation of initial Basic Annual Rent will be based, and any disputes and
disagreements concerning same, shall be resolved by Arbitration (as described
in Paragraph 4 hereof); provided, however, amounts shall not be included in
the calculation of Rent until and unless actually expended. If there is not
agreement on the initial Basic Annual Rent by the Commencement Date, then
Tenant shall pay Basic Annual Rent in the amount of Projected Monthly Basic
Annual Rent per month; when agreement as to initial Basic Annual Rent has been
achieved or determined by Arbitration, then Tenant shall make payment of any
shortage within ten (10) days or Landlord shall pay within ten (10) days the
amount of any overpayment.
11
(b) Payment in Monthly Installments. The Basic Annual Rent shall
-------------------------------
be paid in equal monthly installments in advance on the first day of each and
every calendar month during the term of the Lease; in the event the Commence-
ment Date is not the first day of a calendar month, then Tenant shall make a
pro rata payment for the remainder of the month during which the Commencement
Date occurs. Basic Annual Rent is also subject to adjustment as set forth in
Paragraph 3.4 hereof.
3.2 Other Obligations. In addition to Basic Annual Rent, Tenant agrees
-----------------
to pay to the Operating Expenses as provided in Paragraph 9 hereof and taxes
("Taxes") as provided in Paragraph 8 hereof.
3.3 Payments. Basic Annual Rent, Operating Expenses and Taxes shall be
--------
paid to Landlord, without abatement, deduction, or offset of any kind except
as otherwise provided herein, in lawful money of the United States of America,
at such place as Landlord may from time to time designate in writing;
initially such payments shall be sent to the place designated herein for the
delivery of notices to Landlord. In the event the term of this Lease
commences or ends on a day other than the first day of a calendar month, then
the Basic Annual Rent, Operating Expenses and Taxes for such fraction of a
month shall be prorated for such period and shall be paid at the then current
rate for such fractional month. If an increase in Basic Annual Rent becomes
effective on a day other than the first day of a calendar month, the Basic
Annual Rent for that month shall be the sum of the two applicable rates, each
prorated for the portion of the month during which such rate is in effect.
3.4 Rent Increases.
---------------
(a) Annual Percentage Increase. The Basic Annual Rent shall be
--------------------------
subject to a compounded annual increase as follows: (i) four percent (4%) for
each of the second, third, fourth and fifth years of the initial term of the
Lease, (ii) three percent (3%) for each of the sixth, seventh, eighth, ninth
and tenth years of the initial term of the Lease, and (iii) two and one-half
percent (2.5%) for each of the eleventh, twelfth, thirteenth, fourteenth and
fifteenth years of the initial term of the Lease. The first such adjustment
shall become effective commencing with that monthly installment of Rent which
is due on or after the first anniversary of the Commencement Date and
subsequent adjustments shall become effective on the same day of each calendar
year thereafter for so long as this Lease continues in effect.
(b) Subsequent Expenditures of Project Budget. It is
-----------------------------------------
acknowledged that amounts properly includable in Total Project Cost may not
have been expended (e.g., costs relating to permanent financing) at the time
that Basic Annual Rent is determined, by agreement or by arbitration. In
such event, the Basic Annual Rent shall be adjusted effective as of the date
of any such expenditures on a prospective basis. Landlord shall provide
Tenant with a written statement of any such expenditures along with a
calculation of the adjustment of Basic Annual Rent, the amount due and
documentation of the expenditure. Tenant shall have the same examinations
and audit rights as afforded with respect to Total Project Cost, and any
disagreement shall be treated in the same manner as a disagreement concerning
Total Project Cost.
3.5 Extension Terms.
----------------
(a) First Extension. The Basic Annual Rent during the first
---------------
extended term shall be equal to the greater of (i) the Basic Annual Rent
payable for the last month of the initial term of this Lease or (ii) the fair
market rental value of the Property (as defined below), determined as of the
commencement of such extended term in accordance with this paragraph. Such
Basic Annual Rent as determined under this Paragraph 3.5(a) shall be subject
to a compounded annual increase of three percent (3%) for each year of the
extended term after the first year, effective in the same manner as increases
during the initial term of this Lease.
(b) Second Extension. The Basic Annual Rent during the second
----------------
extended term shall be equal to the greater of (i) the Basic Annual Rent
payable for the last month of the first extended term of this Lease, or (ii)
the fair market rental value of the Property (as defined below), determined as
of the commencement of such extended term in accordance with this paragraph.
Such Basic Annual Rent as determined under this Paragraph 3.5(b) shall be
subject to
12
a compounded annual increase of three percent (3%) for each year of the second
extended term after the first year thereof, effective in the same manner as
increases during the first extended term of this Lease.
(c) Fair Market Rental Value. With respect to the determination
------------------------
of the fair market rental value of the Property, the parties shall have sixty
(60) days in which to agree on the fair market rental for the Property at the
commencement of the first extended term for the uses permitted hereunder. If
the parties agree on such fair market rental they shall execute an amendment
to this Lease stating the amount of the applicable Basic Annual Rental. If
the parties are unable to agree on such rental within such sixty (60) day
period, then within fifteen (15) days after the expiration of such period each
party, at its cost and by giving notice to the other party, shall appoint a
real estate appraiser who is a member in good standing of the Appraisal
Institute holding an "M.A.I." designation with at least five (5) years
experience appraising similar commercial properties in northern San Diego
County to appraise and set the fair market rental for the Property at the
commencement of the applicable extended term. If either party fails to
appoint an appraiser within the allotted time, the single appraiser appointed
by the other party shall be the sole appraiser. If an appraiser is appointed
by each party and the two appraisers so appointed are unable to agree upon a
fair market rental within thirty (30) days after the appointment of the
second, they shall appoint a third qualified appraiser within ten (10) days
after expiration of such 30-day period; if they are unable to agree upon a
third appraiser, either party may, upon not less than five (5) days notice to
the other party, apply to the Presiding Judge of the San Diego County Superior
Court for the appointment of a third qualified appraiser. Each party shall
bear its own legal fees in connection with appointment of the third appraiser
and shall bear one-half of any other costs of appointment of the third
appraiser and of such third appraiser's fee. The third appraiser, however
selected, shall be a person who has not previously acted for either party in
any capacity. Within thirty (30) days after the appointment of the third
appraiser, a majority of the three appraisers shall set the fair market rental
for the applicable extended term and shall so notify the parties. If a
majority are unable to agree within the allotted time, the three appraised
fair market rentals shall be added together and divided by three and the
resulting quotient shall be the fair market rental for the first extended
term, which determination shall be binding on the parties and shall be
enforceable in any further proceedings relating to this Lease. For purposes
of this Paragraph 3.5, the "fair market rental" of the Property shall be
determined with reference to the then prevailing market rental rates for
properties in northern San Diego County, for a renewing tenant, with shell and
standard office, research and development improvements and site (common area)
improvements comparable in age and character to those then existing in the
Initial Building and on the Property, taking into account the fact that Tenant
is taking the Property in "as is" condition (but that Tenant has the
maintenance and repair obligations set forth herein), that this Lease is a
triple net lease and such other matters as the appraisers deem appropriate.
The appraisers shall have no right to award a Tenant improvement allowance or
other monetary concessions, but shall take into account any such concessions
granted in connection with similar leases used for comparison in the
determination of Rent.
3.6 Late Charge. If Tenant fails to pay when due Rent or other amounts
-----------
due Landlord hereunder, such unpaid amounts shall bear interest for the
benefit of Landlord from the due date until paid at a rate equal to the
lesser of fifteen percent (15%) per annum or the maximum rate permitted by
law, from the thirtieth (30th) day after the date due to the date of payment.
In addition to such interest, Tenant shall pay to Landlord a late charge in
an amount equal to five percent (5%) of any installment of Rent and any other
amounts due Landlord if not paid in full on or before the fifth (5th) day
after Landlord notifies Tenant in writing that such Rent or other amount is
due. Tenant acknowledges that late payment by Tenant to Landlord of
rental or other amounts due hereunder will cause Landlord to incur costs not
contemplated by this Lease, including, without limitation, processing and
accounting charges and late charges which may be imposed on Landlord by the
terms of any loan relating to the Property. Tenant further acknowledges that
it is extremely difficult and impractical to fix the exact amount of such
costs and that the late charge set forth in this Paragraph 3.6 represents a
fair and reasonable estimate thereof. Acceptance of any late charge by
Landlord shall not constitute a waiver of Tenant's default with respect to
overdue rental or other amounts, nor shall such acceptance prevent Landlord
from exercising any other rights and remedies available to it. Acceptance of
rent or other payments by Landlord shall not constitute a waiver of late
charges or interest accrued with respect to such rent or other payments or any
prior installments thereof, nor of any other defaults
13
by Tenant, whether monetary or non-monetary in nature, remaining uncured at
the time of such acceptance of rent or other payments.
4. DETERMINATION OF TOTAL PROJECT COST;
------------------------------------
ARBITRATION AND AUDIT
---------------------
4.1 Landlord's Statement of Total Project Cost; Tenant Review.
---------------------------------------------------------
As promptly as possible after Substantial Completion of the Project, Landlord
shall present to Tenant a written statement ("Total Project Cost Statement")
setting forth the Total Project Cost in a format which is consistent with the
Project Budget (as defined and referred to in the Work Letter). Landlord
shall also make available to Tenant supporting data and all documentation of
the Landlord's statement of Total Project Cost, and Tenant shall have a
period of sixty (60) days (or 90 days if Tenant performs an audit) to review
and audit the Total Project Cost Statement and all data and documentation
relating to Landlord's calculation of Total Project Cost. If Tenant, in its
reasonable discretion, disagrees with Landlord's determination of the amount
of any portion of the Total Project Cost which is part of the sum on which
the Rent will be calculated ("Disputed Items"), then Tenant shall give
written notice thereof to Landlord during such sixty (60) day (or 90 days if
Tenant performs an audit) period, stating the basis for such objection,
specifically identifying the line items, and the specific components,
elements and invoices thereof, and stating the amount which Tenant reasonably
believes to be the correct amount ("Tenant's Proposal"); Tenant shall permit
Landlord to review and copy all of its work papers, documentation and
calculations. If Landlord does not receive such written notice within such
sixty (60) day (or 90 days if Tenant performs an audit) period, then, for all
purposes, Tenant shall be deemed to have accepted Landlord's statement of
Total Project Cost and Landlord's calculation of initial Basic Rent; any line
item, or any component, element or invoice thereof, which is not objected to
in Tenant's Proposal shall be deemed to be accepted.
4.2 Arbitration of Dispute. If, after working in good faith to
----------------------
resolve the dispute, Landlord and Tenant have not agreed upon a resolution
within fifteen (15) days after Tenant's original notice, then with respect to
any unresolved matter identified in Tenant's Proposal either party may
commence arbitration proceedings with the American Arbitration Association
regional office in San Diego, California, or such other place as the parties
shall mutually agree in writing by filing a demand for arbitration in writing
with the American Arbitration Association office having jurisdiction thereof,
and by contemporaneously sending a copy of said demand to the other party, by
Certified Mail, Postage Prepaid, Return Receipt Requested. The arbitration
proceedings shall be governed by and decided in accordance with the
Construction Industry Arbitration Rules of the American Arbitration
Association, then in effect, unless the parties shall mutually agree
otherwise, in writing and as modified by this Paragraph 4.
(a) Panel Selection. Any claim shall be submitted to a balanced
---------------
panel, consisting of one attorney, who shall be the Chair of the Panel, one
contractor and one certified public accountant. The attorney panel member
shall be currently licensed to practice law and shall have actively engaged
in the practice of law for at least 10 years, and in the immediately preceding
five years, shall have devoted a substantial amount of his/her time to the
practice of construction law and shall have demonstrated an expertise in the
process of arbitration as an alternate dispute resolution method. The
contractor selected for the panel shall not have less than 10 years of
experience in the field, shall have experience in the type of construction
which is the subject of this Lease and shall be in a supervisory or management
role in their field. The accountant shall be a partner in a Big 6 accounting
firm with not less than ten (10) years' experience in the construction field,
in general, and shall have experience within the last three (3) years in the
review and calculation of project costs.
The panel shall commit to be available to allow the arbitration
sessions to proceed on a continuous basis and the parties recognize that such
a panel may require fees in excess of those suggested by the American
Arbitration Association.
(b) Scope of Award; No Authority to Award Punitive Damages. The
------------------------------------------------------
arbitrator(s) shall follow the substantive and evidentiary laws of the State
of California. Landlord and Tenant, during the arbitration, shall each
present a final proposal with respect to each line item, or component, element
or invoice thereof, reflected in Tenant's Proposal which remains unresolved;
the sole authority of the arbitrators shall be to select either the Landlord's
or
14
the Tenant's final proposal which most closely approximates the amount
properly includable as part of Total Project Costs under the terms of this
Lease. The arbitrators shall have no authority to make an independent
determination of such matters; the arbitrator(s) shall have no authority to
award punitive damages nor make any ruling, finding or award that does not
conform to the terms and conditions of this Lease.
(c) Non-Disclosure. Neither party nor the arbitrator(s) may
--------------
disclose the results of any arbitration hereunder, without the prior written
consent of the parties; provided, however, that either Landlord or Tenant may
effect disclosure of such information to its existing and prospective lenders,
financial partners, consultants, advisors, attorneys, accountants,
underwriters and similar parties, to an entity involved in discussions
involving a merger, consolidation, acquisition or similar transaction
involving Tenant or Landlord, or as is required by law (including applicable
securities laws) or order of court of competent jurisdiction.
(d) Pre-Hearing Conference. The arbitrator shall order a pre-
----------------------
hearing exchange of information by the parties, including production of
requested documents reasonably required by the parties, exchange of summaries
of testimony of proposed witnesses, and the deposition of any experts. All
issues regarding discovery and compliance therewith shall be decided by the
arbitrator(s).
The panel shall require a pre-hearing meeting between the parties
at which each party shall present a memorandum disclosing the factual basis
of its claim and defenses and disclosing legal issues raised; Tenant's
memorandum shall contain and disclose the results, and all detail, of its
investigation, and any audit, conducted with respect to the Total Project
Cost Statement; Landlord's memorandum shall state in detail its response to
Tenant's Proposal. Each party's memorandum shall also disclose the names of
any expert a party may present as a witness in the proceedings. Failure to
disclose such experts on a timely basis shall bar their testimony at the
hearings.
(e) Discovery Rules. No discovery except depositions of experts
----------------
and reasonable document production. This provision does not affect Tenant's
audit rights.
(f) Award of Fees and Costs to Prevailing Party. The arbitrator(s)
-------------------------------------------
shall award to the prevailing party as determined by the arbitrator(s), all its
costs and fees. "Costs and fees" shall include the arbitrators' fees,
administrative expenses, witness fees and reasonable attorneys fees. Such
recovery shall be made part of any arbitration award.
(g) Finality of Award. The Award rendered by the arbitrator(s)
-----------------
shall be final and binding upon the parties absent manifest legal error and
judgment may be entered by any competent court having jurisdiction thereof.
(h) Written Opinion. The Award of the panel shall be accompanied
---------------
by a written, reasoned opinion. If the arbitrators do not agree, the decision
of two of the three arbitrators shall be determinative.
5. DESIGN AND CONSTRUCTION
-----------------------
5.1 Construction of Improvements. Landlord shall, at Landlord's cost
----------------------------
and expense (except as otherwise provided herein and in the Work Letter),
construct Landlord's Work as defined in and in accordance with the terms and
conditions of the Work Letter. Landlord shall use its best efforts to
complete such design and construction in accordance with the estimated
project schedule attached hereto as Exhibit D as the same may be modified or
revised from time to time in accordance with the Work Letter.
5.2 Condition of Property. On the Actual Tender Date, Landlord shall
---------------------
deliver the Building Shell and Core (as defined in the Work Letter), Interior
Improvements and other Improvements constructed by Landlord to Tenant in
reasonable condition for Tenant to install FF&E/Trade Fixtures, promptly upon
completion of construction thereof, and Landlord warrants to Tenant that the
Building Shell and Core, Interior Improvements and other Improvements
constructed by Landlord (i) shall be free from defects in design and defects
in construction and (ii) shall be constructed in compliance in all material
respects with any and all applicable plans
15
and specifications mutually approved by Landlord and Tenant, subject to
any changes implemented in such specifications in accordance with the
procedures set forth in the Work Letter. Notwithstanding any provision hereof
to the contrary, Landlord shall not be liable for, or with respect to, any
defect in design to the extent the same responds to and satisfies any
performance criteria provided by Tenant and otherwise is not defective.
Further, Landlord has no responsibility for the propriety, suitability,
sufficiency or the like of the Improvements, or any element thereof, for
Tenant's use. If it is determined that this warranty has been violated in any
respect, then it shall be the obligation of Landlord, after receipt of written
notice from Tenant setting forth nature of the violation, to promptly, at
Landlord's sole cost, correct the condition(s) constituting such violation.
Tenant's failure to give such written notice to Landlord within one hundred
twenty (120) days after the Commencement Date shall be deemed a waiver by
Tenant of any right of Tenant to assert that Landlord has not complied with
all Landlord's obligations hereunder, except with respect to latent defects.
TENANT ACKNOWLEDGES THAT THE WARRANTY CONTAINED IN THIS PARAGRAPH IS IN LIEU
OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PHYSICAL
CONDITION OF THE IMPROVEMENTS TO BE CONSTRUCTED BY LANDLORD AND THAT LANDLORD
MAKES NO OTHER WARRANTIES EXCEPT AS EXPRESSLY SET FORTH IN THIS LEASE.
5.3 Compliance with Law. Landlord warrants to Tenant that the
-------------------
Building Shell, Core, Interior Improvements and other Improvements constructed
by Landlord (when constructed), as they exist on the Commencement Date, shall
not violate any covenants or restrictions of record or any applicable
building code, regulation or ordinance in effect on the Commencement Date,
and Landlord agrees to indemnify, defend and hold Tenant harmless from and
against any and all claims, losses, costs and damages arising as a result of
Landlord's breach of this warranty. Tenant warrants to Landlord that any
improvements constructed by Tenant from time to time shall not violate any
applicable building code, regulation or ordinance in effect on the
Commencement Date or at the time such improvements are placed in service, and
Tenant agrees to indemnify, defend and hold Landlord harmless from and
against any and all claims, losses, costs or damages arising as a result of
Tenant's breach of this warranty. If it is determined that this warranty has
been violated, then it shall be the obligation of the warranting party, after
written notice from the other party, to correct the condition(s) constituting
such violation promptly, at the warranting party's sole cost and expense.
Tenant acknowledges that neither Landlord nor any agent of Landlord has made
any representation or warranty as to the present or future suitability of the
Property for the conduct of Tenant's business or proposed business thereon.
5.4 Union Labor. See Paragraph 11.1 and Exhibit K.
-----------
5.5 City Business Cooperation Program. Landlord agrees to participate
---------------------------------
in, and to comply with any reasonable requirements imposed by the City of San
Diego, to the extent not inconsistent with Paragraph 5.4 above, in order to
qualify the Property under the City's Business Cooperation Program, including
requiring all contractors and subcontractors to prepare documentation
required by the City. Landlord shall, at the appropriate time after the
Commencement Date, apply for certain tax credits from the City of San Diego
with respect to construction of the Project. The benefit of any such credit
shall accrue to Tenant. Landlord shall take whatever reasonable efforts as
are necessary to obtain such tax credit.
6. EXPANSION OPTION - LOT 27
-------------------------
6.1 Option Grant. Landlord hereby grants to Tenant the option to cause
------------
Landlord to develop Lot 27 and to lease same ("Lot 27 Expansion Option") upon
the terms and conditions of this Paragraph 6. The Lot 27 Expansion Option
must be exercised on or before the end of the eighteenth (18th) month after
the Commencement Date of this Lease ("Lot 27 Exercise Period"); provided,
however, that Landlord may elect to have an affiliate effect the development
of Lot 27, in which case, such affiliate shall be bound and obligated by all
the terms and conditions hereof relating to the development and leasing of
Lot 27.
(a) Exercise.
--------
16
(i) Method of Exercise. Tenant shall exercise the Lot 27
------------------
Expansion Option by delivery of written notice to Landlord during the Lot 27
Exercise Period ("Lot 27 Exercise Notice"); provided, however, that if Tenant
is in default under this Lease beyond any applicable notice and cure period at
the time of exercise of the Lot 27 Expansion Option or at the commencement of
the Lot 27 Lease, then Landlord may, at its sole option, terminate the Lot 27
Expansion Option, Tenant's rights under Paragraph 7 hereof or both which shall
then, along with any exercise of either, be null and void. Such Exercise
Notice shall include a statement of the gross square footage which Tenant
seeks to have developed on ▇▇▇ ▇▇ (▇▇▇ "▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇"), the
proposed configuration of buildings and other improvements to be constructed
on ▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇'▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Delivery Date;
subject to Landlord's approval of the configuration of the buildings (which
will not unreasonably be withheld), the development of Lot 27 may include more
than a single building. No building on Lot 27 shall be less than 45,000
square feet, and the aggregate size of all buildings shall not be less than
102,000 square feet nor more than 124,400 square feet unless Landlord and
Tenant consent. The term of the Lot 27 Lease shall not be less than fifteen
(15) years.
(ii) Effect of Exercise. In the event Tenant effectively
------------------
exercises the Lot 27 Expansion Option, Landlord and Tenant shall enter into,
within sixty (60) days thereafter:
(A) a work letter regarding construction of the ▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇(▇), with such terms and conditions as are mutually
agreed to between Landlord and Tenant substantially in the form of the
Work Letter, provided, however, that: (1) Tenant shall pay for twenty-
five percent (25%) of any Interior Improvements in excess of Ten Dollars
($10.00) per square foot in lieu of the Tenant Contribution provided for
in the Work Letter, but Landlord's obligation to pay for Interior
Improvements shall not exceed One Hundred Dollars ($100) per square foot;
and (2) the Expansion Building Delivery Date shall be mutually agreed
upon but shall be no earlier than nine (9) months and no later than
twenty one (21) months after execution of a lease for Lot 27, all
subject to Force Majeure and Tenant Delay; and (3) Tenant shall have the
right at any time prior to the Commencement Date of the Lot 27 Lease to
reimburse Landlord in cash for a portion of the Total Project Cost of
Lot 27, up to a maximum of fifteen percent (15%) of the Total Project
Costs for Lot 27, and if Tenant elects to do so, for purposes of
determining rent for Lot 27, the Total Project Costs for Lot 27 shall
be reduced by the amount so paid by Tenant.
(B) a lease (the "Lot 27 Lease") substantially in the
same form as this Lease other than with respect to Rent, obligations
relating to the Matrix Lease or any other lease of Tenant and such other
modifications as are necessary; provided, however, that Tenant shall
have the right at any time prior to the Commencement Date of the Lot 27
Lease to reimburse Landlord in cash for a portion of the Total Project
Cost of Lot 27, up to a maximum of fifteen percent (15%) of the Total
Project Costs for Lot 27, and if Tenant elects to do so, for purposes of
determining rent for Lot 27, the Total Project Costs for Lot 27 shall be
reduced by the amount so paid by Tenant.
(C) an amendment to this Lease making the term of this
Lease coterminous with the Lot 27 Lease; provided, however, that in no
event shall the term of this Lease be shortened without Landlord's
consent which may be withheld for any reason; and
(D) any other documentation reasonably required by
Tenant, Landlord or Landlord's prospective lender.
Rent shall be calculated on the same basis as Rent is calculated pursuant to
this Lease; the Total Project Cost for such purpose shall also include the
actual cost of Lot 27, which is $3,450,000, plus an amount equal to the
following: (A) the Carrying Costs of Lot 27; plus (B) $230,000 (being $2.00
for each of the ▇▇▇,▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ allocated to Lot 27); and
(C) minus any portion of Carrying Costs paid by Tenant to Landlord pursuant to
Paragraph 6.1(b) hereof. Landlord and Tenant shall enter into a lease and
work letter within such sixty (60) day period. If either party fails or
refuses to enter into such agreements in bad faith, the other party
may terminate negotiations and, in the event Landlord terminates negotiations,
Tenant's right to utilize or lease ▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and all rights under
Paragraph 7 hereof shall also terminate.
17
(b) Carrying-Costs. As consideration for Landlord's grant of
--------------
the ▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ shall pay or reimburse to Landlord
one-half (1/2) of all Carrying Costs for Lot 27 incurred by Landlord during or
with respect to the period from the Commencement Date of this Lease until the
expiration of the Lot 27 Expansion Option; provided, however, that such
payments shall continue during the period of any extension of the Lot 27
Expansion Option and, if the Lot 27 Expansion Option is exercised, until a
lease for Lot 27 is executed, and, provided further, that Tenant may at any
time waive the Lot 27 Expansion Option by written notice to Landlord, in which
case Tenant's obligation to pay such share of Carrying Costs shall terminate
thirty (30) days after the date of the notice. Tenant shall pay one-half
(1/2) of Landlord's estimate of the Carrying Costs to Landlord on a monthly
basis, in advance, on the due date for the monthly installments of Rent; such
payment shall be based upon Landlord's estimate which shall show the separate
components on a line item basis and shall show the calculations of any
calculated amount. Any failure to pay its portion of Carrying Costs for a
period of ten (10) days after written notice of such failure from Landlord
shall be deemed to be a waiver by Tenant of its rights under Paragraphs 6 and
7 hereof. Within ten (10) days after the end of the period for which Tenant
is to pay a portion of Carrying Costs for Lot 27, Landlord shall notify Tenant
in writing of Landlord's actual Carrying Costs for Lot 27 for the period with
respect to which Tenant is to pay a portion of Carrying Costs and within ten
(10) days after such notice either (I) Tenant shall pay Landlord the amount by
which such actual Carrying Costs exceeded the estimated Carrying Costs paid by
Tenant for such period, or (II) Landlord shall pay Tenant the amount by which
the estimated Carrying Costs paid by Tenant exceeded the actual Carrying Costs
for such period. If taxes or other Carrying Costs allocable to Lot 27 for
such period are increased or decreased (for example, by a tax reduction or an
additional tax assessment) following completion of the reconciliation process
described in the preceding sentence, Landlord shall promptly notify Tenant in
writing of such further increase or decrease and the parties shall make any
further adjustment payments in cash in the same manner contemplated in the
preceding sentence. Not more frequently than every six (6) months, and if
Tenant is current in its payment of Carrying Costs with respect to Lot 27,
Tenant shall have the right to review and audit all data and documentation
underlying the calculation of Carrying Costs; in the event that such audit
discloses that Tenant has underpaid, Tenant shall pay any amount due within
ten (10) days, likewise, Landlord shall remit any overpayment within ten (10)
days; provided, however, that if Landlord disagrees with the results of
Tenant's audit, the matter shall be submitted to a Qualified CPA for binding
determination. If the parties cannot agree upon a Qualified CPA within ten
(10) days, then each party shall identify a Qualified CPA and the two
Qualified CPAs shall select a third Qualified CPA who shall make the
determination.
6.2 First Refusal Right.
-------------------
(a) Grant of Refusal Right; Sale/Development Restriction.
----------------------------------------------------
Commencing upon the expiration, termination or waiver of the ▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ shall have a First Refusal Right (the "Lot 27 Refusal Right") on
Lot 27 as set forth in this Paragraph 6.2, which Lot 27 Refusal Right expires
on the tenth (10th) anniversary of the Commencement Date of this Lease (the
term of the Lot 27 Refusal Right being the "Lot 27 Refusal Term"). Landlord
shall not sell or enter into any development or leasing agreement with respect
to Lot 27 for a period beginning on the date of this Lease and ending ten (10)
years after the Commencement Date, except in compliance with this Paragraph 6;
provided, however, that the foregoing restrictions shall not apply and Tenant
shall not have any rights with respect to Lots 27 or 26: (a) during any
period in which Tenant is in default under this Lease beyond any applicable
notice and cure period; (b) when this Lease is not in full force and effect;
or (c) after negotiations for a lease of Lot 27 shall have been terminated by
Landlord because of Tenant's bad faith in relation to such negotiations.
(b) First Refusal Right. If, during the ▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ (but
-------------------
while this Lease is in full force and effect), Landlord receives or delivers a
bona fide written offer which Landlord wishes to accept ("Offer") from or to
an unaffiliated person or entity other than Tenant (the "Offeror") to
purchase/sell or otherwise develop or lease Lot 27, and if Tenant is not then
in default under this Lease beyond any applicable notice and cure period,
Landlord shall give written notice of such Offer to Tenant, providing a copy
of such Offer specifying the material terms on which the Offeror proposes to
purchase or develop/lease Lot 27, and shall offer to Tenant the opportunity
to lease Lot 27 on the terms as described below (a "Lot 27 Offer
18
Notice"). For purposes of this Paragraph 6.2(b), an offer shall be sufficient
if it is contained in a letter or other writing signed by the Offeror and
Landlord and specifies the material terms of such proposed purchase,
development or lease.
Tenant shall have thirty (30) days after the giving of a Lot 27 Offer
Notice by Landlord in which to accept such Offer by written notice to
Landlord.
(i) If Tenant does not accept Landlord's Offer within the
allotted time, Landlord shall thereafter have the right to sell, develop
or lease Lot 27 to or for the Offeror, as evidenced by a signed lease,
signed development or construction agreement or signed sales contract,
at any time within three hundred (300) days after Landlord's delivery of
the Lot 27 Offer Notice, at a price and on other terms and conditions
not more favorable to the Offeror than the price and other terms of the
original Offer specified in Landlord's Lot 27 Offer Notice. If Landlord
effects such a transaction, then Tenant shall have no further refusal
rights or other rights with respect to Lot 27; if Landlord does not
effect such transaction within such time, then Tenant's refusal right
and Landlord's obligation with respect thereto shall continue.
(ii) If Tenant accepts the Offer, then ▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇
leased to Tenant as follows: (i) if the Offer is for a lease of Lot 27,
on the terms set forth in Landlord's notice, and the parties shall
promptly execute an agreement containing the terms of Landlord's said
notice and such other reasonable and customary terms as the parties
shall agree; or (ii) if the Offer is other than for a lease of Lot 27,
the Offer shall be appropriately adjusted to reflect a lease transaction
with the property valued as set forth in the Offer and with the lease
terms as otherwise specified in Paragraph 6.1(a)(ii) hereof.
7. EXPANSION RIGHTS -- LOT 26
--------------------------
7.1 First Refusal Right.
-------------------
(a) Grant of Refusal Right; Sale/Development Restriction. Tenant
----------------------------------------------------
shall have a First Refusal Right on Lot 26 as set forth in this Paragraph 7.1
(the "Lot 26 Refusal Right"), which Lot 26 Refusal Right commences on the date
hereof and expires on the earlier to occur of: (i) the expiration,
termination or waiver of the Lot 27 Expansion Option; (ii) the exercise of the
Lot 27 Expansion Option during the thirty (30) day period after Landlord has
delivered an Offer for Lot 26 pursuant to Paragraph 7.1(b)(i) (in which event
the terms of Paragraph 7.2 shall apply); (iii) the sale, lease or other
disposition of Lot 26 as permitted by this Paragraph 7; or (iv) the tenth
(10th) anniversary of the Commencement Date of this Lease (the term of the Lot
26 Refusal Right being the "Lot 26 Refusal Term"). If the Lot 27 Expansion
Option is exercised during a period of time when there is not a Lot 26 Offer
Notice pending with respect to which Tenant may exercise its ▇▇▇ ▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇, then the Lot 26 Refusal Right shall continue in full force and effect,
subject to expiration or termination as provided for in this Lease. Landlord
shall not sell or enter into any development or leasing agreement with respect
to Lot 26 during the ▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, except in compliance with this
Paragraph 7; provided, however, that the foregoing restrictions shall not
apply and Tenant shall not have any rights with respect to Lots 27 or 26: (a)
during any period in which Tenant is in default under this Lease beyond any
applicable notice and cure period; (b) when this Lease is not in full force
and effect; or (c) after negotiations for a lease of Lot 27 shall have been
terminated by Landlord because of Tenant's bad faith in relation to such
negotiations.
(b) First Refusal Right. If, during the ▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇,
-------------------
Landlord receives or delivers a bona fide written offer which Landlord wishes
to accept ("Offer") from or to an unaffiliated person or entity other than
Tenant (the "Offeror") to purchase/sell or otherwise develop or lease Lot 26,
and if Tenant is not then in default under this Lease beyond any applicable
notice and cure period, Landlord shall give written notice of such Offer to
Tenant providing a copy of such Offer specifying the material terms on which
the Offeror proposes to purchase or develop/lease Lot 26, and shall offer to
Tenant the opportunity to lease Lot 26 (or exercise the Lot 27 Expansion
Option) on the terms as described below (a "Lot 26 Offer Notice"). For
purposes of this Paragraph 7.1(b), an offer shall be sufficient if it is
contained in a letter or other writing signed by the Offeror and Landlord
and specifies the material terms of such proposed purchase, development or
lease.
19
(i) During Pendency of Lot 27 Expansion Option. If the
------------------------------------------
Lot 26 Offer Notice is delivered while the Lot 27 Expansion Option is in
effect and unexercised, then Tenant shall have thirty (30) days after
delivery of the Lot 26 Offer Notice by Landlord during which to either:
(A) Exercise the Lot 27 Expansion Option by delivery
of a Lot 27 Exercise Notice to Landlord during such thirty (30) day
period, in which event Paragraphs 6.1 and 7.2 shall control and
have effect; or
(B) Decline, fail or refuse to exercise the Lot 27
Expansion Option, in which event, Landlord shall thereafter have
the right to sell, develop or lease Lot 26 to or for the Offeror,
as evidenced by a signed lease, signed development or construction
agreement or signed sales contract, at any time within three
hundred (300) days after Landlord's delivery of the Lot 26 Offer
Notice, at a price and on other terms and conditions not more
favorable to the Offeror than the price and other terms of the
original Lot 26 Offer Notice. If Landlord effects such a trans-
action, then Tenant shall have no further refusal rights or other
rights with respect to Lot 26; if Landlord does not effect such
transaction within such time, then Tenant's Lot 26 Refusal Right
and Landlord's obligation with respect thereto shall continue.
(ii) Other than During Pendency of Lot 27 Expansion Option.
-----------------------------------------------------
If the Lot 26 Offer Notice is delivered at any time after the Lot 27
Expansion Option has been effectively exercised and while the Lot 26
Refusal Right is in force, then Tenant shall have thirty (30) days after
the date of giving of such Lot 26 Offer Notice in which to accept such
Offer by written notice to Landlord.
(A) If Tenant does not accept Landlord's Offer within
the allotted time, Landlord shall thereafter have the right to sell,
develop or lease Lot 26 to or for the Offeror, as evidenced by a
signed lease, signed development or construction agreement or
signed sales contract, at any time within three hundred (300) days
after Landlord's delivery of the Lot 26 Offer Notice, at a price
and on other terms and conditions not more favorable to the Offeror
than the price and other terms of the original Offer specified in
Landlord's Lot 26 Offer Notice. If Landlord effects such a trans-
action, then Tenant shall have no further refusal rights or other
rights with respect to Lot 26; if Landlord does not effect such
transaction within such time, then Tenant's Lot 26 Refusal Right
and Landlord's obligation with respect thereto shall continue.
(B) If Tenant accepts the Offer, then ▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇
leased to Tenant as follows: (i) if the Offer is for a lease of Lot
26, on the terms set forth in Landlord's notice, and the parties
shall promptly execute an agreement containing the terms of
Landlord's said notice and such other reasonable and customary
terms as the parties shall agree; or (ii) if the Offer is other
than for a lease of Lot 26, the Offer shall be appropriately
adjusted to reflect a lease transaction with the property valued
as set forth in the Offer and with the lease terms as otherwise
specified in Paragraph 7.2(b) hereof.
7.2 Exercise of Lot 27 Expansion Option During Pendency of Lot 27
-------------------------------------------------------------
Offer; Option on Lot 26. If Tenant shall exercise the Lot 27 Expansion
-----------------------
Option during the thirty (30) days after Landlord's giving a Lot 26 Offer
Notice, then the Lot 26 Refusal Right shall terminate and be null and
void, and Tenant shall, instead, commencing at that date and continuing until
the first anniversary of the Commencement Date of the Lot 27 Lease (the "Lot
26 Exercise Period"), have the option to cause Landlord to develop Lot 26 and
to lease same ("Lot 26 Expansion Option") upon the terms and conditions of
this Paragraph 7.2. Landlord may elect to have an affiliate effect the
development of Lot 26, in which case, such affiliate shall be bound and
obligated by all the terms and conditions hereof relating to the development
and leasing of Lot 26.
(a) Exercise. Tenant shall exercise the Lot 26 Expansion Option by
--------
delivery of written notice to Landlord and the Lot 26 Owner during the Lot 26
Exercise Period ("Lot 26 Exercise Notice"); provided, however, that if Tenant
is in default under this Lease or the Lot 27
20
Lease, beyond any applicable notice and cure period at the time of exercise of
the Lot 26 Expansion Option, then Landlord may, at its sole option, terminate
the Lot 26 Expansion Option which shall then, along with any exercise
thereof, be null and void. Such Lot 26 Exercise Notice shall include a s
tatement of the gross square footage which Tenant seeks to have developed on
▇▇▇ ▇▇ (▇▇▇ "▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇") and Tenant's proposed ▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Date; the development of Lot 26 shall consist of
a single building which shall not be less than 60,000 square feet nor more
than 65,000 square feet unless Landlord and Tenant consent. The term of the
lease shall not be less than fifteen (15) years.
(b) Effect of Exercise. In the event Tenant effectively exercises
------------------
the ▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ and Tenant shall enter into, within
sixty (60) days thereafter:
(i) a work letter regarding construction of the Lot 26
Expansion Building on Lot 26, with such terms and conditions as are
mutually agreed to between Landlord and Tenant substantially in the
form of the Work Letter, provided, however, that: (A) Tenant shall pay
for twenty-five percent (25%) of any Interior Improvements in excess of
Ten Dollars ($10.00) per square foot in lieu of the Tenant Contribution
provided for in the Work Letter, but Landlord's obligation to pay for
Interior Improvements shall not exceed One Hundred Dollars ($100) per
square foot; and (B) the ▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Date shall
be mutually agreed upon but shall be no earlier than nine (9) months and
no later than twenty one (21) months after execution of the Lot 26 Lease,
all subject to Force Majeure and Tenant Delay;
(ii) a lease (the "Lot 26 Lease") substantially in the
same form as this Lease other than with respect to Rent, to obligations
relating to the Matrix Lease or any other lease of Tenant and to such
other modifications as are necessary; provided, however, that this Lease
shall not be modified so as to be co-terminus with such lease.
(iii) any other documentation reasonably required by Tenant,
Landlord or Landlord's prospective lender.
Rent shall be calculated on the same basis as Rent is calculated pursuant to
this Lease; the Total Project Cost for such purpose shall also include the
actual cost of Lot 26, which is $1,890,000, plus an amount equal to the
following: (A) the Carrying Costs of Lot 26; plus (B) $126,000 (being $2.00
for each of the 63,000 square feet of building area allocated to Lot 26); and
(C) minus any portion of Carrying Costs paid by Tenant to Landlord pursuant to
Paragraph 7.3 hereof. Landlord and Tenant shall enter into a lease and work
letter within such sixty (60) day period. If either party fails or refuses to
enter into such agreements in bad faith, the other party may terminate
negotiations and, if negotiations are terminated by Landlord, Tenant's right
to utilize or lease ▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇.
7.3 Carrying Costs. As consideration for Landlord's grant of the Lot
---------------
26 Expansion Option, Tenant shall pay or reimburse to Landlord one-half (1/2)
of all Carrying Costs for Lot 26 incurred by Landlord during or with respect
to the period from the Commencement Date of the Lot 27 Lease until the
expiration of the Lot 26 Expansion Option; provided, however, that such
payments shall continue during the period of any extension of the Lot 26
Expansion Option and, if the Lot 26 Expansion Option is exercised, until a
lease for Lot 26 is executed and provided further that Tenant may at any time
waive the Lot 26 Expansion Option by written notice to Landlord, in which
case Tenant's obligation to pay such share of Carrying Costs shall terminate
thirty (30) days after the date of the notice. Tenant shall pay one-half
(1/2) of Landlord's estimate of the Carrying Costs to Landlord on a monthly
basis, in advance, on the due date for the monthly installments of Rent; such
payment shall be based upon Landlord's estimate which shall show the separate
components on a line item basis and shall show the calculations of any
calculated amount. Any failure to pay its portion of Carrying Costs for a
period of ten (10) days after written notice of such failure from Landlord
shall be deemed to be a waiver by Tenant of its rights under this Paragraphs
6 and 7. Within ten (10) days after the end of the period for which Tenant
is to pay a portion of Carrying Costs for Lot 26, Landlord shall notify Tenant
in writing of Landlord's actual Carrying Costs for Lot 26 for the period with
respect to which Tenant is to pay a portion of Carrying Costs and within ten
(10) days after such notice either (I) Tenant shall pay Landlord the amount
by which such actual Carrying Costs exceeded the estimated Carrying Costs
paid by Tenant for such period, or (II) Landlord shall pay Tenant the amount
by which the
21
estimated Carrying Costs paid by Tenant exceeded the actual Carrying Costs for
such period. If taxes or other Carrying Costs allocable to Lot 26 for such
period are increased or decreased (for example, by a tax reduction or a
additional tax assessment) following completion of the reconciliation process
described in the preceding sentence, Landlord shall promptly notify Tenant
in writing of such further increase or decrease and the parties shall make any
further adjustment payments in cash in the same manner contemplated in the
preceding sentence. Not more frequently than every six (6) months, and if
Tenant is current in its payment of Carrying Costs with respect to Lot 26,
Tenant shall have the right to review and audit all data and documentation
underlying the calculation of Carrying Costs; in the event that such audit
discloses that Tenant has underpaid, Tenant shall pay any amount due within
ten (10) days, likewise, Landlord shall remit any overpayment within ten (10)
days; provided, however, that if Landlord disagrees with the results of
Tenant's audit, the matter shall be submitted to a Qualified CPA for binding
determination. If the parties cannot agree upon a Qualified CPA within ten
(10) days, then each party shall identify a Qualified CPA and the two
Qualified CPAs shall select a third Qualified CPA who shall make the
determination.
7.4 Paydown. Tenant shall have the right at any time prior to the
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Commencement Date of the Lot 26 Lease to reimburse Landlord in cash for a
portion of the Total Project Cost of Lot 26, up to a maximum of fifteen
percent (15%) of the Total Project Costs for Lot 26. If Tenant elects
to do so, for purposes of determining rent for Lot 26, the Total Project Costs
for Lot 26 shall be reduced by the amount so paid by Tenant.
8. TAXES
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8.1 Personal Property. Tenant shall be responsible for and shall pay
-----------------
prior to delinquency all taxes and assessments levied against or by reason
of (a) any and all alterations, additions and items installed or placed on
the Property and taxed as personal property rather than as real property,
and/or (b) all personal property, trade fixtures and other property placed by
Tenant on or about the Property. Upon request by Landlord, Tenant shall
furnish Landlord with satisfactory evidence of Tenant's payment thereof. If
at any time during the term of this Lease any of said alterations, additions
or personal property, whether or not belonging to Tenant, shall be taxed or
assessed as part of the Property, then such tax or assessment shall be paid
by Tenant to Landlord immediately upon presentation by Landlord of copies of
the tax bills in which such taxes and assessments are included and shall, for
the purposes of this Lease, be deemed to be personal property taxes or
assessments under this Paragraph 8.1.
8.2 Real Property. Taxes shall mean all taxes and assessments levied
-------------
against the Property, including, but not limited to, real and personal
property taxes and assessments or substitutes therefor levied or assessed
against the Property or any part thereof, including but not limited to any
possessory interest, use, business, license or other taxes or fees, any taxes
imposed directly on rents or services, any assessments or charges for police
or fire protection, housing, transit, open space, street or sidewalk
construction or maintenance or other similar services from time to time by
any governmental or quasi governmental entity, and any other new taxes
on Landlords in addition to taxes now in effect. Taxes shall not include,
however, any tax on income or the like of Landlord or any use, business,
license or other tax or fee not directly imposed on the ownership of the
Property or on rent. Tenant shall pay to Landlord on the first day of each
calendar month of the term of this Lease, one-twelfth (1/12) of Landlord's
good faith estimate of all taxes and assessments levied or to be levied on the
Property for such calendar year; unless Landlord is required to deposit real
estate tax estimates with any mortgage lender (and Landlord shall use its good
faith best efforts to persuade any such mortgage lender to waive any real
estate tax escrow requirement), Landlord shall hold Tenant's monthly payment
of Taxes in an interest bearing account with interest for the benefit of
Tenant. Landlord shall advise Tenant, from time to time, of Landlord's
estimate of taxes to be paid. During the first five years of the term of this
Lease, Tenant shall not be required to pay any portion of Taxes which are
attributable to a change in ownership of the Property. At no time shall
Tenant be responsible for any Taxes attributable to the third or subsequent
change of ownership of the Property during the initial term of this Lease nor
during the second or subsequent change of ownership during the extension terms
of this Lease.
22
9. OPERATING EXPENSES
------------------
9.1 Liability For Operating Expenses.
--------------------------------
(a) Tenant shall pay to Landlord, at the time and in the manner
hereinafter set forth, an amount equal to one hundred percent (100%)
("Tenant's Operating Cost Share") of the Operating Expenses defined in
Paragraph 9.2.
(b) If Landlord incurs Operating Expenses for the Property and
Parcels other than the Site (consisting only of maintenance of landscaping,
maintenance of the jogging trail and paved areas, insurance expenses, any cost
resulting from the Existing CC&R's, or any other expense imposed by any
governmental body with authority over the Property and the ▇▇▇▇▇▇ ▇▇▇▇▇
Science Center) on a basis which does not separate those attributable to the
Property, Landlord shall make a reasonable determination regarding the
appropriate treatment of such expense items that are allocable both to the
Site and to any such additional buildings or properties. In determining such
percentage, a building shall be taken into account from and after the earlier
of (a) the date such expenses are first incurred with respect to such other
properties or (b) the date on which a tenant first enters into possession of
the building or a portion thereof, and the square footage of any such building
shall be measured or determined in accordance with the same standard
applicable to the measurement of the Initial Building. All such expenses
shall be allocated to the Initial Building based on the square footage thereof
relative to the square footage within and planned to be within the Parcels.
(c) Tenant shall pay the Management Fee to Landlord as part of
Operating Expenses. Landlord shall provide, or cause another entity to
provide, periodic reviews of the Property, payment of taxes and other Operating
Expenses, provision of Operating Expense Statements and effectuation of
repairs for which Landlord is responsible pursuant to this Lease.
9.2 Definition Of Operating Expenses.
--------------------------------
(a) Subject to the exclusions and provisions hereinafter contained,
the term "Operating Expenses" shall mean the total costs and expenses, capital
and ordinary, actually and reasonably incurred by or allocable to Landlord for
operation and maintenance of the Improvements and the Property, including
without limitation, costs and expenses of (i) operation, repair and
maintenance of the roof, exterior walls and other structural portions and
operating systems (including HVAC) of the Initial Building, provided that any
portion of such that is of a "capital" nature pursuant to the terms hereof,
shall be amortized as provided herein; (ii) liability, casualty, rent loss or
other insurance (including, but not limited to, earthquake insurance and
environmental insurance if Landlord elects to carry such insurance, which it
is Landlord's present intention to do) carried by Landlord with respect to the
Property, the Improvements or any portion thereof subject to Paragraph 14.1(b)
below; (iii) supplies, equipment, utilities and tools used in operation,
repair and maintenance of the roof (structural portions only), exterior walls
and other structural portions of the Initial Building; (iv) capital
improvements and repairs to the Property or the Improvements, amortized over
their respective useful lives (including, but not limited to those, (aa) which
reduce or will cause future reduction of other items of Operating Expenses for
which Tenant is otherwise required to contribute (but not in excess of the
cost savings realized) or (bb) which are required by law, ordinance,
regulation or order of any governmental authority enacted after the date of
this Lease); (v) the Management Fee; (vi) maintenance and repair of the
parking areas, driveways and paved areas outside the Initial Building; (vii)
any obligations of Landlord pursuant to Paragraph 12.1 hereof; and (viii) any
other costs (including, but not limited to, any parking or utilities fees or
surcharges) allocable to or paid by Landlord, as owner of the Property or
Improvements, pursuant to the Existing CC&Rs or to any applicable laws,
ordinances, regulations or orders of any governmental or quasi-governmental
authority, including without limitation any fees or assessments imposed by the
▇▇▇▇▇▇ ▇▇▇▇▇ Science Center Association. The distinction between items of
ordinary operating maintenance and repair and items of a capital nature shall
be made in accordance with generally accepted accounting principles applied on
a consistent basis by Landlord's accountants. Capital expenses authorized to
be included as part of Operating Expenses shall be amortized over the actual
useful life of such capital items. Landlord shall seek to have all
contracts in connection with Operating Expenses be at reasonable prices,
seeking competitive bids when Landlord deems same appropriate; all of the
foregoing is subject, however, to Landlord's use of contractors,
23
subcontractors and labor which meets the requirements of Paragraph 2 of
Exhibit K annexed hereto.
(b) Operating Expenses shall not include: (a) any capital cost,
expense or improvement other than those expressly authorized above; (b) the
cost of any services, utilities or materials not provided to Tenant or not
used with respect to the Property, including, without limitation, the cost of
electricity, heating, ventilation and air conditioning (including all
maintenance, repair and similar costs associated therewith) and janitorial
services provided to the premises of any other tenants; (c) the cost of
investigating, monitoring or remedying any environmental condition or
hazardous substances presently existing or introduced to the Property by
Landlord; (d) any debt service (including principal and interest) or payments
of any judgments against Landlord or mechanics liens unless attributable to
actions or failures to act of Tenant; (e) any costs arising from a breach or
default by Landlord under this Lease or any other lease or agreement; (f) the
cost of curing violations or contesting such laws or violations caused by
Landlord or the costs of any voluntary traffic mitigation actions; (g) costs,
damage or repairs caused by or necessitated by the negligence or willful
misconduct of Landlord or its agents, contractors or employees; (h) any costs
which would have been reimbursed or paid for by warranties or by insurance
proceeds had Landlord maintained the insurance required under this Lease or
for any amounts with respect to judgments or other charges assessed against
Landlord in excess of insurance policy limits (including, without limitation,
any liability policy); (i) any costs reimbursed to Landlord by any other
tenant other than through the payment of Operating Expenses; (j) any costs to
renovate, decorate or paint vacant space or the space of any tenant (except
Tenant or any assignee or sublessee of Tenant or any person or entity
utilizing the Property under Tenant's right); (k) costs incurred in connection
with leases or construction of the Project or any other improvements within
the Parcels (including initial landscaping and paved areas) for any tenant or
occupant of the Parcels including Tenant (including, without limitation,
brokerage commissions and legal fees); (l) costs incurred in connection with a
financing, sale, ground leasing or sale-leaseback of all or any part of the
Parcels; (m) costs incurred in connection with lawsuits or other legal actions
(including, without limitation, arbitrations and mediation) instituted or
defended by Landlord unless Tenant is obligated under Paragraph 14.4(a) to
indemnify Landlord for the same; (n) sums incurred as late payment fees,
penalties or interest; (o) ground rent; or other ground lease payments; (p)
depreciation of any equipment or all or any part of the Initial Building or
any other improvements; (q) Landlord's advertising, entertainment and
promotional costs, including any political or charitable contributions; (r)
costs of acquiring, leasing, restoring, insuring or displaying sculptures,
paintings and other objects of art located within or outside the Parcels,
unless such object is contemplated in the Project Budget or approved by Tenant
in writing; (s) costs and expenses payable to Landlord or to an affiliate of
Landlord to the extent that such costs and expenses exceed competitive costs
and expenses for materials and services by unrelated persons or entities of
similar skill and experience; (t) repairs or replacements resulting from
latent defects in the design or construction of any Improvements unless the
design responds to and satisfies any performance criteria provided by Tenant
and otherwise is not defective; (u) any defect in construction of the Initial
Building (which is the fault of Landlord or its contractors, agents or
employees); and (v) any cost or expense relating to administration and
management, including but not limited to overhead, wages, salaries, other
compensation and benefits, office rental, office supplies, dues and
subscriptions, office utility charges, telephone charges and automobile
expenses other than the Management Fee (collectively, the "Excluded
Expenses"). In calculating Operating Expenses, no item charged to Tenant as
an Operating Expense or Building Expense shall be charged to Tenant as any
other type of expense or cost which, under the terms of this Lease, can be
charged to Tenant.
9.3 Determination and Payment Of Operating Expenses. Tenant shall pay
-----------------------------------------------
to Landlord on the first day of each calendar month of the term of this Lease,
one twelfth (1/12th) of Landlord's good faith estimate of Tenant's Operating
Expenses with respect to the Property for such calendar year. Landlord shall
advise Tenant, from time to time of Landlord's estimate of Operating Expenses,
either increasing or decreasing same; Landlord shall not modify its estimate
of Operating Expenses unless, in its good faith judgment, due to unanticipated
events, the aggregate of Operating Expenses for the particular year shall
change by twenty percent (20%) or more from the previous estimate.
24
(a) Within ninety (90) days after the conclusion of each
calendar year, Landlord shall furnish to Tenant a statement (the "Annual
Operating Expense Statement") showing in reasonable detail including a
separate line item breakdown of each component of Operating Expenses, the
actual Operating Expenses for the previous calendar year, which were billed
to Tenant by Landlord. Any additional sum due from Tenant to Landlord shall be
due and payable within thirty (30) days of Tenant's receipt of such statement.
If the amounts paid by Tenant pursuant to this Paragraph 9.3 exceed Tenant's
Operating Expenses for the previous calendar year, Landlord shall accompany
said statement with payment for the amount of such difference.
(b) Any amount due under this Paragraph 9.3 for any period
which is less than a full month shall be prorated for such fractional month.
(c) Provided that Tenant shall have paid in full any amount
due from it reflected on the Annual Operating Expense Statement, Tenant shall
be entitled within one hundred twenty (120) days after receipt of the Annual
Operating Expense Statement, upon reasonable written notice to Landlord and
during normal business hours at Landlord's office in San Diego County, to copy,
inspect and examine those books and records of Landlord relating to the
determination and payment of Operating Expenses relating to this Lease, the
Property and/or any other properties described in Paragraph 9.1(b). If, after
inspection and examination of such books and records, Tenant disputes the
amount of any such Operating Expenses charged by Landlord and the parties are
not able to resolve such dispute by good faith negotiations within thirty (30)
days after Tenant notifies Landlord in writing of the disputed items, then
Tenant may, by written notice to Landlord, request an independent audit of
such books and records. The independent audit of the books and records shall
be conducted by a certified public accountant acceptable to both Landlord and
Tenant or, if the parties are unable to agree, by a "Big Six" accounting firm
designated by Landlord and not then employed by Landlord or Tenant. The audit
shall be limited to the determination of the amount of Operating Expenses
specified by Tenant in its notice of objection. If the audit discloses that
the amount of Operating Expenses billed to Tenant was in excess of the actual
amounts incurred by Landlord, Landlord shall promptly pay to Tenant the
overpayment. All costs and expenses of the audit shall be paid by Tenant
unless the audit shows that Landlord overstated Operating Expenses covered by
the audit by more than five percent (5%), in which case Landlord shall pay all
reasonable costs and expenses of the audit.
9.4 Proration. If the Commencement Date falls on a day other than the
---------
first day of an insurance coverage period, tax fiscal year or other period to
which an Operating Expense or Building Expense is allocable or attributable,
or if this Lease terminates on a day other than the last day of an insurance
coverage period, tax fiscal year or other period to which an Operating
Expense or Building Expense is allocable or attributable, then the amount of
Operating Expenses payable by Tenant with respect to such first or last
partial insurance coverage period, tax fiscal year or other period shall
be prorated on the basis which the number of days during such insurance
coverage period, tax fiscal year or other period in which this Lease is in
effect bears to the total number of days in such insurance coverage period,
tax fiscal year or other period. The obligation of Tenant to pay Operating
Expenses that occur during the Lease Term shall survive the termination of
this Lease by lapse of time or otherwise.
10. UTILITIES
---------
10.1 Payment. Commencing with the Commencement Date and thereafter
-------
throughout the term of this Lease, Tenant shall pay before delinquency, all
charges for water, gas, heat, light, electricity, power, sewer, telephone,
alarm system, janitorial and other services or utilities supplied to or
consumed in or upon the Property, including any taxes on such services and
utilities.
10.2 Interruption. In the event of interruption or failure of any
------------
service or utility furnished to or used in the Property for any reason
whatsoever, including, but not limited to, accident, making of repairs,
alterations or improvements, severe weather, difficulty or inability in
obtaining services or supplies, labor difficulties or any other cause (an
"Interruption") for more than five (5) consecutive days, the same shall cause
Rent and other charges required to be paid hereunder to ▇▇▇▇▇, effective the
date such Interruption begins, but Landlord shall not be liable in
25
damages or otherwise. Notwithstanding the foregoing, Tenant shall not be
entitled to any abatement (a) to the extent any such Interruption is caused by
the negligence or willful misconduct of Tenant or its agents, employees or
contractors or (b) to the extent such Interruption does not interfere with
Tenant's use of the Property. Tenant acknowledges and agrees that it shall
co-insure or self-insure against any risks it determines are necessary to be
insured against pursuant to this Paragraph 10.2. Notwithstanding anything to
the contrary contained in this Paragraph 10.2, in the event an Interruption
occurs and continues unabated for (a) ninety (90) consecutive days for an
Interruption that occurs during the last two (2) years of the term of this
Lease or (b) nine (9) consecutive months for an Interruption that occurs any
other time during the term of this Lease, then in either such event, Tenant
shall have the right to terminate this Lease.
11. ALTERATIONS; SIGNS
------------------
11.1 Right To Make Alterations. Tenant shall make no alternations,
-------------------------
additions or improvements, either with respect to initial occupancy or
subsequent thereto, to the Premises (other than interior, non-structural
alterations costing less than Twenty-Five Thousand Dollars ($25,000) in a
given instance) without the prior written consent of Landlord, which consent
shall not be unreasonably withheld or delayed and shall be deemed to be given
unless Landlord shall deliver to Tenant written notice of disapproval within
fifteen (15) days of receipt of Tenant's notice or request. All such
alterations, additions and improvements shall be completed with due diligence
in a first-class workmanlike manner, and if Landlord's consent is required as
above, in compliance with plans and specifications approved in writing by
Landlord, and in compliance with all applicable laws, ordinances, rules and
regulations and to the extent Landlord's consent is not otherwise required
hereunder for such alterations, additions or improvements, Tenant shall give
prompt written notice thereof to Landlord for purposes of Paragraph 11.2
hereof. In view of the requirement for first-class workmanship, any such
alterations, additions or improvements which involve the use of a contractor
or subcontractor shall be performed by a contractor or subcontractor that
employs skilled union labor, as further explained in Exhibit "K."
Tenant shall cause any contractors engaged by Tenant for work on the
Property to maintain public liability and property damage insurance, naming
Landlord and to the extent available its partners, shareholders, agents,
property manager and employees as additional insureds, and shall furnish
Landlord with certificates of insurance or other evidence that such coverage
is in effect. Notwithstanding any other provisions of this Paragraph 11.1,
under no circumstances shall Tenant make any structural alterations or
improvements, or any substantial changes to the roof or substantial equipment
installations on the roof, or any substantial changes or alterations to
building systems (other than the distribution portion thereof), without
Landlord's prior written consent.
For any individual project costing more than Twenty-Five Thousand Dollars
($25,000.00), Tenant shall maintain, and shall provide copies to Landlord of,
all plans, specifications, drawings (including, particularly, "as-builts") of
any and all improvements, alterations, additions, renovations, repairs,
installations of fixtures or other equipment and the like; Landlord shall be
permitted to observe any and all such work by Tenant on the Property in
accordance with the requirements of Paragraph 16.1. For purposes of this
Paragraph 11, the term "building systems" shall refer to the central plant
portions of the mechanical, electrical and heating, ventilation and air
conditioning systems of the Initial Building. Notwithstanding any provision
herein to the contrary, at the termination or expiration of this Lease, Tenant
shall provide Landlord with final, as-built, plans, specifications and
drawings of all alternations effected by Tenant.
11.2 Title To Alterations. All alterations, additions and
--------------------
improvements installed in, on or about the Property shall be part of the
Improvements and the property of Landlord, unless Landlord elects at the time
Tenant requests consent to require Tenant to remove the same upon the
termination of this Lease; provided, however, that the foregoing shall not
apply (i) to Tenant's equipment, furniture and trade fixtures, or (ii) to
any of the Interior Improvements (as defined in Exhibit C hereto), or any
subsequent improvements installed by Tenant at its own expense, which are
movable without material damage, are not an integral part of the
26
Initial Building's structure or interior architectural improvements, and are
not an integral part of the Initial Building's HVAC, plumbing or electrical
systems or other standard operating systems. All of such items described in
clause (i) or (ii) of the preceding sentence (in all events including, but
not limited to, lab benches, fume hoods and cold rooms) may (and, if duly
elected by Landlord hereunder, shall) be removed by Tenant prior to or upon
the termination of this Lease. Tenant shall promptly repair any damage
caused by its removal of any such improvements. Notwithstanding anything to
the contrary contained herein, in no event shall Landlord have the right to
require Tenant to remove any of the Interior Improvements.
11.3 Tenant Fixtures. Notwithstanding the provisions of Paragraph 11.1
---------------
and 11.2, Tenant may install, remove and reinstall equipment, furniture and
trade fixtures without Landlord's prior written consent, except that any
fixtures which are affixed to the Property or which affect the exterior or
structural portions of the Initial Building or the building systems shall
require Landlord's written approval. The foregoing shall apply to Tenant's
signs, logos and insignia, all of which Tenant shall have the right to place
and remove and replace (a) only with Landlord's prior written consent as to
location, size and composition, which consent shall not be unreasonably
withheld or delayed, and (b) only in compliance with all restrictions and
requirements of applicable law and of any Existing CC&Rs applicable to the
Property. Notwithstanding the foregoing, Tenant shall have the right, in it
sole discretion, to direct Landlord to remove Tenant's signage at the
expiration or earlier termination of this Lease. Tenant shall remove all
such trade fixtures, signs, logos and insignia prior to or at the expiration
or earlier termination of the term of this Lease. Tenant shall immediately
repair any damage caused by installation and removal of fixtures under this
Paragraph 11.3. Landlord waives any Landlord's lien on any equipment,
furnishings, trade fixtures, inventory or other personal property of Tenant;
provided, however, that Landlord retains its lien and all rights it has
hereunder, at law or in equity with respect to any item in which Landlord
expressly has ownership rights under this Lease.
11.4 No Liens. Tenant shall at all times keep the Property free from
--------
all liens and claims of any contractors, subcontractors, materialmen,
suppliers or any other parties employed either directly or indirectly by
Tenant in construction work on the Property. Tenant may contest any claim of
lien, but only if, prior to such contest, Tenant either (i) posts security in
the amount of the claim, plus estimated costs and interest, or (ii) records a
bond of a responsible corporate surety in such amount as may be required to
release the lien from the Property. Tenant shall indemnify, defend and hold
Landlord harmless against any and all liability, loss, damage, cost and other
expenses, including, without limitation, reasonable attorneys' fees, arising
out of claims of any lien for work performed or materials or supplies
furnished at the request of Tenant or persons claiming under Tenant.
11.5 Signs. Without limiting the generality of the provisions of
-----
Paragraph 11.3 hereof, Tenant shall have the exclusive right to display only
its sign on the Site and on the Initial Building, subject to Landlord's prior
approval as to location, size and composition (which approval shall not be
unreasonably withheld or delayed) and subject to all restrictions and
requirements of applicable law and of any Existing CC&Rs applicable to the
Property. Subject to the conditions concerning the foregoing, Tenant may
also erect a monument sign containing its name at the entry to the Site as
part of Landlord's Work. Landlord shall use its reasonable best efforts to
obtain the necessary governmental or administrative approvals in order to
allow Tenant to have its name on the Building, subject to Landlord's approval
of signage as provided herein.
12. MAINTENANCE AND REPAIRS
-----------------------
12.1 Landlord's Work. Landlord shall repair and maintain or cause to be
---------------
repaired and maintained the roof, exterior walls and other structural portions
of the Initial Building, the parking areas, driveways and paved areas outside
the Initial Building. The actual cost of all work performed by Landlord under
this Paragraph 12.1 shall be included in Operating Expenses hereunder, except
to the extent such work (i) is required due to the negligence of Landlord, or
(ii) that portion of any expense that is an Excluded Expense.
12.2 Tenant's Obligation For Maintenance.
-----------------------------------
(a) Good Order, Condition And Repair. Except as provided in
--------------------------------
Paragraph 12.1
27
hereof, Tenant at its sole cost and expense shall keep and maintain in good
and sanitary order, condition and repair the Property and every part thereof,
wherever located (normal wear and tear, damage and destruction by casualty
and condemnation excepted) the nonstructural portions of the Initial
Building, including but not limited to signs, interior, ceiling, electrical
system, plumbing system, life safety and telephone and communications systems
of the Initial Building, the HVAC equipment and related mechanical systems
serving the Initial Building (for which equipment and systems Tenant shall
enter into a service contract with a person or entity designated or approved
by Landlord), the items referred to in Paragraph 9.2(b) hereof, all doors,
door checks, windows, plate glass, door fronts, plumbing and sewage and
other utility facilities, fixtures, lighting, wall surfaces, floor surfaces
and ceiling surfaces of the Initial Building under or within the Initial
Building and all other interior repairs, foreseen and unforeseen, with
respect to the Initial Building, as required.
(b) Remedy. If either party, after notice from the other, fails
------
to promptly commence and thereafter proceed with reasonable diligence to
complete any material repairs, maintenance, or replacements which are the
obligation of such party hereunder, such failure shall be deemed a material
default by such party under this Lease and the other party shall have the
right, but shall not be required, to enter the Property and perform such work.
Immediately on demand from performing party, the cost of such repairs shall
be due and payable by the defaulting party. In the event of the reasonable
possibility of immediate injury to person or substantial harm to property,
either party may proceed to effect necessary repairs on an emergency basis,
providing notice to the other party as promptly as possible; in all other
circumstances, the party with the obligation to effect repair shall be
provided with written notice specifying a reasonable amount of time in which
to commence such repair, and such obligated party shall proceed with the
repairs with due diligence.
(c) Condition Upon Surrender. At the expiration or earlier
------------------------
termination of this Lease, in addition to any other obligations of Tenant
with respect to surrender and vacation of the Property in Paragraphs 2.6,
11.2, 13.5, 17.1 and 17.2. Tenant shall surrender the Property, including
any additions, alterations and improvements thereto, in good and sanitary
order, condition and repair, ordinary wear and tear, damage and destruction
by casualty and condemnation excepted, first, however, removing all goods and
effects of Tenant and all and fixtures and items required to be removed
pursuant to this Lease (including, but not limited to, any such removal
required as a result of an election by Landlord to require such removal as
contemplated in Paragraph 11.2), and repairing any damage caused by such
removal. At least thirty (30) days before the expiration or sooner
termination of this Lease, Landlord and Tenant shall conduct a walk-through
inspection of the Site and shall effect a preliminary identification of items
which Tenant is required to repair. Within seven (7) days after the date
that Tenant shall vacate the Premises, Landlord and Tenant shall conduct
another walk-through inspection of the Site and shall update, and
appropriately modify, the list of items requiring repair (including, repairs
on the initial list which were not completed and any repairs newly added).
Upon delivery to Tenant of such list, Tenant shall elect either (i) to effect
such repairs at Tenant's expense, or (ii) to request Landlord to effect such
repairs at Tenant's expense. Upon completion of all of such repairs to
Landlord's reasonable satisfaction, Tenant shall have no further obligations
to Landlord hereunder, except with respect to environmental matters specified
in Paragraph 13.5 hereof and with respect to conditions that are not
susceptible of discovery by a reasonably diligent and thorough, but non-
invasive, investigation. Tenant expressly waives any and all interest in any
fixtures and building systems (and their components), and in any personal
property and trade fixtures not removed from the Property by Tenant at the
expiration or termination of this Lease, agrees that any such personal
property and trade fixtures may, at Landlord's election, be deemed to
have been abandoned by Tenant, and authorizes Landlord (at its election and
without prejudice to any other remedies under this Lease or under applicable
law) to remove and either retain, store or dispose of such property at
Tenant's cost and expense, and Tenant waives all claims against Landlord for
any damages resulting from any such removal, storage, retention or disposal.
The provisions of Paragraph 13.5(c) shall also apply.
13. USE OF PROPERTY
---------------
13.1 Permitted Use. Subject to Paragraphs 13.3 and 13.4 hereof, Tenant
-------------
shall use the Property solely as a medical and biological research lab with
light production and manufacturing,
28
together with administrative, office and storage uses and for any other
purpose in accordance with the Scientific Research Zoning Ordinance of the
City of San Diego and the ▇▇▇▇▇▇ ▇▇▇▇▇ Science Center Planned Industrial
Development, and for no other purpose without Landlord's written consent
(not to be unreasonably withheld or delayed).
13.2 No Nuisance. Tenant shall not use the Property for or carry on or
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permit upon the Property or any part thereof any nuisance, nor commit or
allow to be committed any waste in, on or about the Property. Tenant shall
not do or permit anything to be done in or about the Property, nor bring nor
keep anything therein, which is not appropriate as a permitted use and will
in any way cause the Property to be uninsurable with respect to the insurance
required by this Lease.
13.3 Compliance With Laws. Tenant shall not use the Property or permit
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the Property to be used in whole or in part for any purpose or use that is in
violation of any applicable laws, ordinances, regulations or rules of any
governmental agency or public authority. Tenant shall keep the Property
equipped with all safety appliances required by law, ordinance or insurance
on the Property, or any order or regulation of any public authority, because
of Tenant's particular use of the Property. Tenant shall procure all
licenses and permits required for its particular use of the Property. Tenant
shall use the Property in accordance with all applicable ordinances, rules,
laws and regulations and shall comply with all requirements of all
governmental authorities now in force or which may hereafter be in force
pertaining to its particular use of the Property, including, without
limitation, regulations applicable to noise, water, soil and air pollution,
and making such nonstructural alterations and additions thereto as may be
required from time to time by such laws, ordinances, rules, regulations and
requirements of governmental authorities or insurers of the Property
(collectively, "Requirements") because of Tenant's construction of
improvements in or its particular use of the Property. Any structural
alterations or additions required from time to time by applicable Requirements
because of Tenant's construction of improvements in or other particular use of
the Property shall be made by Tenant, at Tenant's sole cost and expense, in
accordance with the procedures and standards set forth in Paragraph 11.1 for
alterations by Tenant and upon prior written notice to Landlord. The judgment
of any court, or the admission by Landlord or Tenant in any proceeding against
Landlord or Tenant, that Landlord or Tenant has violated any law, statute,
ordinance or governmental rule, regulation or requirement shall be conclusive
of such violation as between Landlord and Tenant.
13.4 Liquidation Sales. Tenant shall not conduct or permit to be
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conducted any auction, bankruptcy sale, liquidation sale, or going out of
business sale, in, upon or about the Property, whether said auction or sale
be voluntary, involuntary or pursuant to any assignment for the benefit of
creditors, or pursuant to any bankruptcy or other insolvency proceeding.
13.5 Environmental Matters.
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(a) For purposes of this Paragraph, "hazardous substance" shall
mean the substances included within the definitions of the term "hazardous
substance" under (i) the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., and the
regulations promulgated thereunder, as amended, (ii) the California
▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇-▇▇▇▇▇▇ Hazardous Substance Account Act, California Health &
Safety Code Section 25300 et seq., and regulations promulgated thereunder, as
amended, (iii) the Hazardous Materials Release Response Plans and Inventory
Act, California Heath & Safety Code Section 25500 et seq., and regulations
promulgated thereunder, as amended, and (iv) petroleum; "hazardous waste"
shall mean (i) any waste listed as or meeting the identified characteristics
of a "hazardous waste" under the Resource Conservation and Recovery Act of
1976, 42 U.S.C. Section 6901 et seq., and regulations promulgated pursuant
thereto, as amended (collectively, "RCRA"), (ii) any waste meeting the
identified characteristics of "hazardous waste;" "extremely hazardous waste"
or "restricted hazardous waste" under the California Hazardous Waste Control
Law, California Health & Safety Code Section 25100 et seq., and regulations
promulgated pursuant thereto, as amended (collectively, the "CHWCL"), and/or
(iii) any waste meeting the identified characteristics of "medical waste"
under California Health & Safety Code Sections 25015-25027.8, and regulations
promulgated thereunder, as amended; and "hazardous waste facility" shall
mean a hazardous waste facility as defined under the CHWCL.
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