Endologix
ENDOLOGIX INC /DE/ (Form: 10-Q, Received: 11/02/2009 06:05:35)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009.

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 000-28440

 

 

ENDOLOGIX, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   68-0328265

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

11 Studebaker, Irvine, California 92618

(Address of principal executive offices)

(949) 595-7200

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ¨     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

On October 12, 2009, there were 48,453,658 shares of the registrant’s only class of common stock outstanding.

 

 

 


Table of Contents

ENDOLOGIX, INC.

Form 10-Q

September 30, 2009

TABLE OF CONTENTS

 

          Page

Part I. Financial Information

  

Item 1. Condensed Consolidated Financial Statements (Unaudited)

  
  

Condensed consolidated balance sheets at September 30, 2009 and December 31, 2008

   3
  

Condensed consolidated statements of operations for the three and nine months ended September  30, 2009 and 2008

   4
  

Condensed consolidated statements of cash flows for the nine months ended September 30, 2009 and 2008

   5
  

Notes to condensed consolidated financial statements

   6

Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

   13

Item 3. Quantitative and Qualitative Disclosures about Market Risk

   17

Item 4. Controls and Procedures

   18

Part II. Other Information

   19

Item 5. Other Information

   19

Item 6. Exhibits

   19

Signatures

   20

Exhibit Index

   21

 

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ENDOLOGIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value amounts)

(Unaudited)

 

     September 30,
2009
    December 31,
2008
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 21,078      $ 7,611   

Restricted cash equivalents

     500        500   

Accounts receivable, net of allowance for doubtful accounts of $59 and $72, respectively

     8,340        6,371   

Other receivables

     2        3   

Inventories

     6,139        7,099   

Other current assets

     462        443   
                

Total current assets

     36,521        22,027   
                

Property and equipment, net

     2,281        2,993   

Goodwill

     4,631        4,631   

Intangibles, net

     6,455        7,508   

Other assets

     126        104   
                

Total assets

   $ 50,014      $ 37,263   
                

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable and accrued expenses

   $ 6,607      $ 5,401   

Short-term portion of debt

     78        750   
                

Total current liabilities

     6,685        6,151   
                

Long term debt

     103        4,250   

Other long term liabilities

     1,029        1,045   
                

Long term liabilities

     1,132        5,295   
                

Total liabilities

     7,817        11,446   
                

Commitments and contingencies (Note 11)

    

Stockholders’ equity:

    

Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized, no shares issued and outstanding

     —          —     

Common stock, $0.001 par value; 75,000,000 shares authorized, 48,947,000 and 44,365,000 shares issued, respectively, and 48,452,000 and 43,870,000 shares outstanding, respectively

     49        44   

Additional paid-in capital

     188,301        170,239   

Accumulated deficit

     (145,488     (143,730

Treasury stock, at cost, 495,000 shares

     (661     (661

Accumulated other comprehensive income

     (4     (75
                

Total stockholders’ equity

     42,197        25,817   
                

Total liabilities and stockholders’ equity

   $ 50,014      $ 37,263   
                

See accompanying notes

 

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ENDOLOGIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2009     2008     2009     2008  

Revenue:

        

Product

   $ 13,777      $ 9,374      $ 38,779      $ 26,952   

License

     —          9        —          33   
                                

Total revenue

     13,777        9,383        38,779        26,985   

Cost of product revenue

     3,659        2,460        9,820        7,545   
                                

Gross profit

     10,118        6,923        28,959        19,440   
                                

Operating expenses:

        

Research, development and clinical

     1,630        1,412        4,454        4,708   

Marketing and sales

     6,591        6,073        19,783        18,017   

General and administrative

     2,019        2,399        6,347        7,270   
                                

Total operating expenses

     10,240        9,884        30,584        29,995   
                                

Loss from operations

     (122     (2,961     (1,625     (10,555
                                

Other income:

        

Interest income

     16        23        34        99   

Interest expense

     (64     (4     (187     (40

Other income (expense)

     14        (20     20        80   
                                

Total other income (expense)

     (34     (1     (133     139   
                                

Net loss

   $ (156   $ (2,962   $ (1,758   $ (10,416
                                

Basic and diluted net loss per share

   $ (0.00   $ (0.07   $ (0.04   $ (0.24
                                

Shares used in computing basic and diluted net loss per share

     46,220        43,124        44,316        43,018   
                                

See accompanying notes

 

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ENDOLOGIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Nine Months Ended
September 30,
 
     2009     2008  

Cash flows from operating activities:

    

Net loss

   $ (1,758   $ (10,416

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     2,000        1,835   

Stock-based compensation

     2,375        2,193   

Change in:

    

Accounts receivable

     (1,969     (796

Inventories

     1,159        745   

Other receivables and other assets

     (40     338   

Accounts payable and accrued expenses

     1,190        1,022   
                

Net cash provided by (used in) operating activities

     2,957        (5,079
                

Cash flows used in investing activities:

    

Cash paid for property and equipment

     (453     (369
                

Net cash used in investing activities

     (453     (369
                

Cash flows provided by (used in) financing activities:

    

Proceeds from sale of common stock, net of expenses

     14,735        —     

Proceeds from sale of common stock under employee stock purchase plan

     347        277   

Proceeds from exercise of common stock options

     629        30   

Net financing for capital purchase

     181        —     

Credit facility and term loan payable

     (5,000     5,000   
                

Net cash provided by financing activities

     10,892        5,307   
                

Effect of exchange rate changes on cash and cash equivalents

     71        (74
                

Net increase (decrease) in cash and cash equivalents

     13,467        (215

Cash and cash equivalents, beginning of period

     7,611        8,728   
                

Cash and cash equivalents, end of period

   $ 21,078      $ 8,513   
                

Supplemental Disclosure of Cash Flow Activities:

    

Cash paid during the year for interest

   $ 187      $ 40   
                

See accompanying notes

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)

(Unaudited)

1. Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of the results of the periods presented have been included. Operating results for the unaudited nine month period ended September 30, 2009 are not necessarily indicative of results that may be expected for the year ending December 31, 2009 or any other period. For further information, including information on significant accounting policies and use of estimates, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

For the nine months ended September 30, 2009, the Company incurred a net loss of $1,758. As of September 30, 2009, the Company had an accumulated deficit of $145,488. Historically, the Company has relied on the sale and issuance of equity securities to provide a significant portion of funding for its operations. In August 2009, the Company sold shares of its common stock that resulted in gross proceeds to the Company of $15,990.

At September 30, 2009, the Company had cash and cash equivalents of $21,078. The Company believes that its current cash balance, in combination with cash generated from operations and borrowings available under its credit facility, will be sufficient to meet anticipated cash needs for operating and capital expenditures for at least the next twelve months.

2. Stock-Based Compensation

The Company uses the Black-Scholes option pricing model which requires extensive use of financial estimates and accounting judgment, including estimates of the expected period of time employees will retain their vested stock options before exercising them, the expected volatility of the Company’s common stock over the expected term, and the number of shares that are expected to be forfeited before they are vested. Application of alternative assumptions could produce significantly different estimates of the fair value of the stock-based compensation and as a result, significantly different results recognized in the consolidated statements of operations.

Stock-based compensation expense during the three and nine months ended September 30, 2009 and 2008 was as follows:

 

     Three Months
Ended
September 30,
2009
   Three Months
Ended
September 30,
2008
   Nine Months
Ended
September 30,
2009
   Nine Months
Ended
September 30,
2008

General and Administrative

   $ 364    $ 392    $ 1,238    $ 1,043

Marketing and Sales

     276      310      751      797

Research, Development, and Clinical

     78      62      213      173

Cost of Sales

     38      62      141      198
                           

Total

   $ 756    $ 826    $ 2,343    $ 2,211
                           

In addition, the Company had $59 of stock based compensation capitalized into inventory as of September 30, 2009, and $78 of stock-based compensation capitalized into inventory as of December 31, 2008.

During the three and nine months ended September 30, 2009, the Company granted 0 and 160 shares of restricted stock, respectively. In the three and nine month periods ended September 30, 2008, the Company granted 25 and 525 shares of restricted stock, respectively. The Company recognizes the expense associated with the issuance of restricted stock ratably over the requisite

 

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Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)—(Continued)

(Unaudited)

 

service period. Included in the table above is $209 and $563 of stock-based compensation expense related to restricted stock grants, which was recognized during the three and nine months ended September 30, 2009, respectively, and $167 and $264 for the three and nine months ended September 30, 2008, respectively.

The Company recognizes the expense associated with non-employee stock option grants by amortizing them over the vesting period, which is generally four years. Excluded from the table above is $19 and $32 of stock-based compensation expense related to non-employee stock option grants, which was recognized during the three and nine months ended September 30, 2009, respectively, and $0 and $(2) for the three and nine months ended September 30, 2008, respectively.

Under the 2004 Performance Compensation Plan, or the Performance Plan, Performance Units (as defined in the Performance Plan) are granted at a discount to the fair market value (as defined in the Performance Plan) of the Company’s common stock on the grant date, or the Base Value. The Performance Units vest over three-years; one-third vests at the end of the first year, and the remainder vests ratably on a quarterly basis. The difference between the immediately preceding twenty-day average closing market price of the Company’s common stock and the Base Value of the vested Performance Unit would be payable in cash at the first to occur of (a) a change of control (as defined in the Performance Plan), (b) the termination of employment for any reason other than Cause (as defined in the Performance Plan), or (c) upon exercise of the Performance Unit, which cannot occur until eighteen months from the grant date. There were no Performance Units granted during the three and nine month periods ended September 30, 2009 and 2008. The total accrued compensation expense as of September 30, 2009 and December 31, 2008 was $224 and $0, respectively, and there were an aggregate of 80 and 110 Performance Units outstanding at the end of the respective periods. The Company recorded an increase in expense totaling $169 and $224 for the three and nine months ended September 30, 2009, and a reduction in expense totaling $4 and an expense totaling $36 for the three and nine months ended September 30, 2008, respectively, due to graded vesting. During the three and nine months ended September 30, 2009, 30 Performance Units were exercised and no Performance Units expired. If incurred, the expense is included in marketing and sales expense in the consolidated statements of operations. The Company records changes in the estimated compensation expense over the vesting period of the Performance Units, and once fully vested, records the difference between the latest twenty-day average closing price of the Company’s common stock and the Base Value as compensation expense in each period until exercised unless the Base Value exceeds such twenty day average closing market price, in which case no compensation expense is accrued.

3. Net Loss Per Share

Net loss per common share is computed using the weighted average number of common shares outstanding during the periods presented. Certain options with an exercise price below the average market price for the three and nine months ended September 30, 2009 and the three and nine months ended September 30, 2008 have been excluded from the calculation of diluted earnings per share, as they are anti-dilutive.

If anti-dilutive stock options were included for the three months ended September 30, 2009 and 2008, the number of shares used to compute diluted net loss per share would have been increased by approximately 2,751 and 5,249 shares, respectively. Of these amounts, 833 shares and 5,202 shares had an exercise price above the average closing price for the three months ended September 30, 2009 and 2008, respectively. If anti-dilutive stock options were included for the nine months ended September 30, 2009 and 2008, the number of shares used to compute diluted net loss per share would have been increased by approximately 3,696 and 4,423 shares, respectively. Of these amounts, 3,061 shares and 4,351 shares had an exercise price above the average closing price for the nine months ended September 30, 2009 and 2008, respectively.

4. Restricted Cash Equivalents

The Company has a $475 line of credit with a bank in conjunction with a corporate credit card agreement. At September 30, 2009, the Company had pledged all of its cash held at the bank as collateral on the line of credit. Per the agreement, the Company must maintain a balance of at least $500 in restricted cash with the bank.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)—(Continued)

(Unaudited)

 

5. Inventories

Inventories are stated at the lower of cost, determined on a first in, first out basis, or market value. Inventories consist of the following:

 

     September 30,
2009
    December 31,
2008
 

Raw materials

   $ 2,445      $ 2,467   

Work-in-process

     1,735        2,058   

Finished goods

     2,462        3,342   
                
     6,642        7,867   

Less reserve for excess and obsolescence

     (503     (768
                
   $ 6,139      $ 7,099   
                

6. Long Term Liabilities

Long term liabilities consisted of the following:

 

     September 30,
2009
    December 31,
2008
 

Deferred tax

   $ 1,029      $ 1,029   

Term loan

     —          3,000   

Revolving credit facility

     —          2,000   

Other

     181        16   
                

Total long-term liabilities

     1,210        6,045   

Current portion of long-term debt

     (78     (750
                

Long-term portion

   $ 1,132      $ 5,295   
                

On February 21, 2007, the Company entered into a credit facility with Silicon Valley Bank, or SVB, whereby the Company may borrow up to $5,000 under a revolving line of credit. All outstanding amounts under the revolving line of credit bear interest at a variable rate equal to the lender’s prime rate plus 0.5%, which is payable on a monthly basis. The unused portion is subject to an unused revolving line facility fee, payable quarterly, in arrears, on a calendar year basis, in an amount equal to one quarter of one percent per annum of the average unused portion of the revolving line of credit, as determined by SVB. The credit facility is collateralized by all of the Company’s assets with the exception of its intellectual property. All amounts owing under the revolving line of credit become due and payable in July 2010. In September 2008, the Company drew down $2,000. As of September 30, 2009, the Company re-paid on $2,000 in principal and all accrued interest due, leaving $0 in outstanding borrowings under the revolving line of credit.

In July 2008, the Company entered into an amendment to the credit facility which added a term loan whereby the Company may borrow up to $3,000. In September 2008, the Company drew the entire $3,000 available under the term loan. The term loan required interest only payments at a variable rate equal to the lender’s prime rate plus 1.0%, which were payable on a monthly basis through March 31, 2009. The term loan principal is due in 36 monthly installments which began in April 2009. The Company made principal payments of $2,750 and $3,000 during the three and nine months ended September 30, 2009. As of September 30, 2009, the Company re-paid all outstanding principal and interest, leaving $0 in outstanding borrowings under the term loan.

The Company’s existing credit facility with SVB contains negative covenants regarding the operation of its business and financial covenants, including a covenant requiring the Company to maintain a tangible net worth of $20,995. As of September 30, 2009, the Company’s tangible net worth was $31,111. If the Company is not able to maintain compliance with its financial covenants, certain terms of the revolving line of credit and term loan will change, including an increase in the applicable interest rate and a limitation on the amounts available for borrowing under the credit facility based on eligible accounts receivable. Further, if the Company does not maintain a tangible net worth of at least $20,495 from the first date on which the Company is not in complete compliance with its financial covenants, it will be in default under the credit facility which could allow SVB to accelerate the repayment of the indebtedness then existing under the credit facility.

As of September 30, 2009, the Company was in compliance with all covenants under the credit facility.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)—(Continued)

(Unaudited)

 

7. Product Revenue by Geographic Region

The Company had product sales, based on the locations of its customer, by region as follows:

 

     Three Months
Ended September 30,
   Nine Months
Ended September 30,
     2009    2008    2009    2008

United States

   $ 11,296    $ 8,077    $ 32,883    $ 22,807

Europe

     1,052      657      2,314      2,515

Asia

     574      340      1,806      789

South America

     753      261      1,656      716

Other

     102      39      120      125
                           
   $ 13,777    $ 9,374    $ 38,779    $ 26,952
                           

8. Concentrations of Credit Risk and Significant Customers

During the three and nine months ended September 30, 2009 and 2008, no single customer accounted for more than 10% of total revenue.

As of September 30, 2009 and December 31, 2008, no single customer accounted for more than 10% of the Company’s accounts receivable balance.

9. Comprehensive Loss

The Company’s comprehensive loss included the following:

 

     Three Months
Ended September 30,
    Nine Months
Ended September 30,
 
     2009     2008     2009     2008  

Net loss

   $ (156   $ (2,962   $ (1,758   $ (10,416

Foreign currency translation adjustment

     23        (163     71        74   
                                

Comprehensive loss

   $ (133   $ (3,125   $ (1,687   $ (10,342
                                

10. Intangible Assets and Goodwill

The following table details the intangible assets, estimated lives, related accumulated amortization and goodwill:

 

     September 30,
2009
    December 31,
2008
 

Developed technology (10 year life)

   $ 14,050      $ 14,050   

Accumulated amortization

     (10,303     (9,250
                

Net developed technology

     3,747        4,800   

Trademarks and trade names (Indefinite life)

     2,708        2,708   
                

Intangible assets, net

   $ 6,455      $ 7,508   
                

Goodwill (Indefinite life)

   $ 4,631      $ 4,631   
                

In accordance with FASB ASC topic 350, “Intangibles-Goodwill and Other” (ASC 350), goodwill and other intangible assets with indeterminate lives are no longer subject to amortization but are tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired. The Company most recently performed its annual impairment analysis as of June 30, 2009 and will continue to test for impairment annually as of June 30 each year. No impairment was indicated in the last analysis. Intangible assets with finite lives continue to be subject to amortization, and any impairment is determined in accordance with FASB ASC topic 360, “Property, Plant, and Equipment” (ASC 360), which includes guidance relating to impairment of long-lived assets.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)—(Continued)

(Unaudited)

 

During the three and nine months ended September 30, 2009, the Company recognized amortization expense on intangible assets of $351 and $1,053, respectively. During the three and nine months ended September 30, 2008, the Company recognized amortization expense of $351 and $1,053, respectively. Estimated amortization expense for the remainder of 2009 and the four succeeding fiscal years is as follows:

 

2009

   $ 352

2010

   $ 1,405

2011

   $ 1,405

2012

   $ 585

2013

   $ —  

11. Commitments and Contingencies

Legal Matters

The Company is involved in various claims and legal proceedings of a nature considered normal to its business, including product liability, intellectual property, employment and other matters. The Company is involved in litigation with Cook Medical Incorporated, or Cook, alleging that the Company infringes two of Cook’s patents, one of which was granted in 1991 and the other in 1998. The lawsuit was filed by Cook in the United States District Court, Southern District of Indiana, on October 8, 2009. The Company believes the lawsuit is without merit and intends to defend itself vigorously.

The Company accrues for contingent liabilities when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. At September 30, 2009, the Company has accrued an aggregate of $84, for the resolution of various product liability claims. While it is possible that the Company may incur costs in excess of this amount, it is unable to provide a reasonable estimate of the range of additional costs that may be incurred.

Management is of the opinion that the outcome of these matters will not have a material adverse effect on the Company’s financial position, results of operations, or cash flow. However, as these matters are ongoing, there is no assurance that these matters will be resolved favorably by the Company or will not result in a material liability.

12. Related Party Transactions

Until June 11, 2009, a director of a hospital facility from which the Company contracts for physician training and clinical research services also served as a member of the board of directors of the Company. Payments totaling $21 and $20 for the three month periods ended September 30, 2009 and 2008, respectively, were made to this hospital. In addition, this hospital purchased products from the Company totaling $166 and $154 for the three months ended September 30, 2009 and 2008, respectively. Payments totaling $44 and $78 for the nine month periods ended September 30, 2009 and 2008, respectively, were made to this hospital. In addition, this hospital purchased products from the Company totaling $674 and $556 for the nine months ended September 30, 2009 and 2008, respectively. All transactions were in accordance with normal commercial terms and conditions.

13. Subsequent Events

The Company has performed an evaluation of subsequent events through October 30, 2009, which is the date the financial statements were issued.

In October 2009, the Company terminated its revolving line of credit facility with SVB and entered into a revolving credit facility with Wells Fargo Bank, National Association, or Wells, whereby the Company may borrow up to $10.0 million. All outstanding amounts under the credit facility bear interest at a variable rate equal to the greater of 90 day LIBOR, the federal funds rate, or lender’s prime rate, plus 1.25%, which is payable on a monthly basis. The unused portion is subject to an unused revolving line facility fee, payable quarterly, in arrears, on a calendar year basis, in an amount equal to 0.2% per annum of the average unused portion of the revolving line, as determined by Wells. The credit facility also contains customary covenants regarding operations of the business and financial covenants relating to ratios of current assets to current liabilities and tangible net worth during any calendar

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)—(Continued)

(Unaudited)

 

quarter and is collateralized by all of its assets with the exception of its intellectual property. All amounts owing under the credit facility will become due and payable on April 30, 2012. As of October 30, 2009, the Company did not have any outstanding borrowings under this credit facility.

14. Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Codification, or ASC, FASB ASC topic 805, “Business Combinations” (ASC 805). ASC 805 is a revision to previously existing guidance on accounting for business combinations. The statement retains the fundamental concept of the purchase method of accounting, and introduces new requirements for the recognition and measurement of assets acquired, liabilities assumed and noncontrolling interests. The statement is effective for fiscal years beginning after December 15, 2008. As of September 30, 2009, the adoption of ASC 805 had no impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued FASB ASC topic 810, “Consolidation” (ASC 810). ASC 810 requires that noncontrolling interests be reported as stockholders equity. ASC 810 also establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary as long as that ownership change does not result in deconsolidation. ASC 810 is required to be applied prospectively in 2009, except for the presentation and disclosure requirements which are to be applied retrospectively. The statement is effective for fiscal years beginning after December 15, 2008. As of September 30, 2009, the adoption of ASC 810 had no impact on the Company’s consolidated financial statements.

Effective January 1, 2008, the Company adopted FASB ASC topic 820-10, “Fair Value Measurements and Disclosures - Overall” (ASC 820-10). In February 2008, the FASB issued FASB ASC 820-10-55, “Fair Value Measurements and Disclosures – Overall – Implementation Guidance and Illustrations” (ASC 820-10-55), which provides a one year deferral of the effective date of ASC 820-10 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. ASC 820-10 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820-10 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. ASC 820-10 describes a fair value hierarchy based on three levels of inputs, the first two of which are considered observable and the last unobservable, that may be used to measure fair value. As of September 30, 2009, the adoption of ASC 820-10 had no impact on the Company’s consolidated financial statements. As of September 30, 2009, the adoption of ASC 820-10-55 had no impact on the Company’s consolidated financial statements.

In March 2008, the FASB issued FASB ASC topic 815, “Derivatives and Hedging” (ASC 815). ASC 815 requires enhanced disclosures for derivative instruments, including those used in hedging activities. It is effective for fiscal years and interim periods beginning after November 15, 2008. As of September 30, 2009, the adoption of ASC 805 had no impact on the Company’s consolidated financial statements.

In April 2008, the FASB issued FASB ASC topic 350, “Intangibles-Goodwill and Other” (ASC 350), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets.” ASC 350 allows an entity to use its own historical experience in renewing or extending similar arrangements, adjusted for specified entity-specific factors, in developing assumptions about renewal or extension used to determine the useful life of a recognized intangible asset and will be effective for fiscal years and interim periods beginning after December 15, 2008. Additional disclosures are required to enable financial statement users to assess the extent to which the expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. The guidance for determining the useful life of a recognized intangible asset is to be applied prospectively to intangible assets acquired after the effective date. The disclosure requirements are to be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. As of September 30, 2009, the adoption of ASC 350 had no impact on the Company’s consolidated financial statements.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)—(Continued)

(Unaudited)

 

In June 2008, the FASB issued FASB ASC topic 260, “Earnings Per Share” (ASC 260). ASC 260 clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities. As participating securities, these instruments should be included in the calculation of basic earnings per share. ASC 260 is effective for financial statements issued for fiscal years beginning after December 15, 2008, as well as interim periods in those years. Once effective, all prior period earnings per share data presented must be adjusted retrospectively and early application is not permitted. As of September 30, 2009, the adoption of ASC 260 had no impact on the Company’s consolidated financial statements.

On May 28, 2009, the FASB issued FASB ASC topic 855, “Subsequent Events” (ASC 855). ASC 855 establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, ASC 855 provides:

1. The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements.

2. The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements.

3. The disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

In accordance with ASC 855, an entity should apply the requirements to interim or annual financial periods ending after June 15, 2009. As of September 30, 2009, the adoption of ASC 855 had no impact on the Company’s consolidated financial statements.

 

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition to the historical financial information included herein, this Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on management’s beliefs, as well as on assumptions made by and information currently available to management. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and statements located elsewhere herein regarding our financial position and business strategy, may constitute forward-looking statements. You generally can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “may,” “will,” “expects,” “intends,” “estimates,” “anticipates,” “plans,” “seeks,” or “continues,” or the negative thereof or variations thereon or similar terminology although not all forward-looking statements contain these words. Such forward-looking statements involve known and unknown risks, including, but not limited to, market acceptance of our Powerlink ® System and related products, economic and market conditions, estimates regarding patient populations, number of procedures performed and market statistics, the regulatory environment in which we operate, the impact of litigation, the availability of third party payor medical reimbursements, competitive activities or other business conditions. Our actual results, performance or achievements may differ materially from any future results, performance or achievements expressed or implied from such forward-looking statements. Important factors that could cause actual results to differ materially from our expectations are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008, including but not limited to those factors discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” “Consolidated Financial Statements” and “Notes to Consolidated Financial Statements.” All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. We expressly disclaim any intent or obligation to update information contained in any forward-looking statement after the date hereof to conform such information to actual results or to changes in our opinions or expectations.

Overview

Our Business

We develop, manufacture, market and sell innovative treatments for aortic disorders. Our principal product, the Powerlink ® System, is a minimally invasive device for the treatment of abdominal aortic aneurysm, or AAA. AAA is a weakening of the wall of the aorta, the largest artery of the body. Once AAA develops, it continues to enlarge and if left untreated becomes increasingly susceptible to rupture. The overall patient mortality rate for ruptured AAAs is between 50% and 80%, making it a leading cause of death in the United States today.

The Powerlink System is a catheter and endoluminal stent graft, or ELG, system. The device consists of a self-expanding cobalt chromium alloy stent cage covered by ePTFE, a common surgical graft material. The Powerlink ELG is implanted in the abdominal aorta, which is accessed through the femoral artery. Once the Powerlink ELG is deployed into its proper position, blood flow is shunted away from the weakened or “aneurismal” section of the aorta, reducing pressure and the potential for the aorta to rupture. Our clinical trials demonstrated that implantation of our products reduces the mortality and morbidity rates associated with conventional AAA surgery, as well as provides a clinical alternative for many patients who could not undergo conventional surgery. Sales of our Powerlink System in the United States, Europe, Asia, and South America are the primary source of our reported revenues.

In February 2008, Cosmotec Co., Ltd., or Cosmotec, our distributor in Japan, obtained Shonin approval to market the Powerlink System from the Japanese Ministry of Health. Shonin is equivalent to the U.S. Food & Drug Administration, or FDA, approval of a premarket approval, or PMA, application in the United States. We commenced commercial sales to Japan in February 2008 through Cosmotec.

 

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We continue to conduct clinical trials for other products related to the Powerlink System. All the required 63 patients have been enrolled in a clinical trial for a 34mm infrarenal bifurcated device designed to treat patients with large aortic necks.

Results of Operations

Comparison of the Three Months Ended September 30, 2009 and 2008

Revenue . Revenue increased 47% to $13.8 million in the three months ended September 30, 2009 from $9.4 million in the three months ended September 30, 2008. Domestic sales increased 40% to $11.3 million in the three months ended September 30, 2009 from $8.1 million in the three months ended September 30, 2008. The increase in domestic sales was primarily due to increased productivity of our sales representatives, as well as the introduction of two new Powerlink System products in the fourth quarter of 2008 and the marketing of IntuiTrak, our new system to deliver and deploy the Powerlink System, in the first quarter of 2009.

International sales increased 91% to $2.5 million in the three months ended September 30, 2009 from $1.3 million for the comparable period in the prior year. This increase was driven primarily by the introduction of IntuiTrak through limited release to some of our international distributors, higher sales to Cosmotec in Japan and various distributors in South America due to greater market acceptance, and an initial stocking order from our distributor in China.

We anticipate that revenue for the full year ending December 31, 2009, will be between $51.0 and $53.0 million.

Cost of Revenue . The cost of revenue increased 49% to $3.7 million in the three months ended September 30, 2009 from $2.5 million in the three months ended September 30, 2008, due to an increase in the volume of Powerlink System sales. As a percentage of product revenue, cost of product revenue increased to 27% in the third quarter of 2009 as compared to 26% in the same period of 2008. The percentage increase in the cost of product revenue was due to a higher international to domestic sales mix in the products sold during the period, offset by favorable product mix due to new product introductions, and certain product cost efficiencies due to higher volume.

We believe that gross profit will increase in the last quarter of 2009 due to the expected higher commercial sales of the Powerlink System both in and outside of the United States. We also expect gross profit as a percentage of product revenue to increase modestly relative to the first nine months of 2009 due to expected continued effect of the positive factors mentioned above.

Research, Development and Clinical. Research, development and clinical expense increased 15% to $1.6 million in the three months ended September 30, 2009 from $1.4 million for the three months ended September 30, 2008. This increase was due to additional headcount added during the period as we increased our efforts in the development of product improvements and new products.

We expect that research, development, and clinical expense will increase sequentially in the remaining quarter of 2009 as we pursue opportunities to develop additional new products for the treatment of aortic disorders.

Marketing and Sales . Marketing and sales expense increased 9% to $6.6 million in the three months ended September 30, 2009 from $6.1 million in the three months ended September 30, 2008. The increase in the third quarter of 2009 resulted primarily from higher commission expense on the 40% increase in domestic sales between those periods.

We anticipate that marketing and sales expense will increase sequentially at a moderate rate for the remaining quarter of 2009 due to the expected addition of four additional sales territories, the higher compensation associated with the anticipated sales growth, and the addition of management staff in the fourth quarter.

 

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General and Administrative . General and administrative expense decreased 16% to $2.0 million in the three months ended September 30, 2009 from $2.4 million in the three months ended September 30, 2008. The decrease is primarily due to the resolution in the second half of 2008 of certain legal matters which were ongoing during the third quarter of 2008.

We expect general and administrative expenses to be in the $2.1 million to $2.3 million range for the remaining quarter of 2009, exclusive of legal fees likely to be incurred due to the patent infringement suit initiated by Cook in October 2009.

Other Expense . Other expense increased to $34,000 in the three months ended September 30, 2009 from $1,000 in the same period of 2008 due to interest expense on the greater time weighted average bank debt outstanding in the 2009 period. We do not expect to incur any significant interest expense in the remaining quarter of 2009.

Comparison of the Nine Months Ended September 30, 2009 and 2008

Revenue. Revenue increased 44% to $38.8 million in the nine months ended September 30, 2009 from $27.0 million in the nine months ended September 30, 2008. Domestic sales increased 44% to $32.9 million in the nine months ended September 30, 2009 from $22.8 million in the nine months ended September 30, 2008. The increase in domestic sales was due to the increased productivity of our sales force, the introduction of new products including Powerlink XL, Powerlink XL Express, and the IntuiTrak delivery system, and increased physician acceptance of the Powerlink System.

International sales increased 42% to $5.9 million in the nine months ended September 30, 2009 from $4.1 million for the comparable period in the prior year. This increase was driven primarily by the introduction of IntuiTrak through limited release to some of our international distributors. Additionally, we had higher sales to our distributors in South America and Japan and an initial stocking order to our distributor in China.

License Revenue. License revenue was $33,000 for the nine months ended September 30, 2008. The minimum royalty provision of our licensing agreement with Abbott Laboratories expired at December 31, 2007 and the license was fully paid up at June 30, 2008.

Cost of Revenue. The cost of revenue increased 30% to $9.8 million in the nine months ended September 30, 2009 from $7.5 million in the nine months ended September 30, 2008, due to an increase in the volume of Powerlink System sales. As a percentage of product revenue, cost of product revenue decreased to 25% in the nine months ended September 30, 2009 from 28% in the same period of 2008. The percentage decline in the cost of product revenue was due to a favorable product mix due to new product introductions and certain product cost efficiencies due to higher volume.

Research, Development and Clinical. Research, development and clinical expense decreased 5% to $4.5 million in the nine months ended September 30, 2009 as compared to $4.7 million for the nine months ended September 30, 2008. This decline was due to a reduction of costs associated with our clinical trials.

Marketing and Sales. Marketing and sales expense increased 10% to $19.8 million in the nine months ended September 30, 2009 from $18.0 million in the nine months ended September 30, 2008. The increase in the first three quarters of 2009 resulted primarily from variable commission payments on the 44% increase in domestic sales between those periods.

General and Administrative. General and administrative expense decreased 13% to $6.3 million in the nine months ended September 30, 2009, from $7.3 million in the nine months ended September 30, 2008. The decrease was primarily due to $700,000 in costs associated with our chief executive officer succession, which occurred in May 2008, and significant legal fees, as previously discussed, in the nine months ended September 30, 2008, offset by higher stock based compensation charges and incentive compensation accruals based on performance metrics for the nine months ended September 30, 2009.

 

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Other Income/(Expense), Net. Other income/(expense) decreased 196% to ($133,000) in the nine months ended September 30, 2009, from $139,000 in the same period of 2008. The decrease in other income/(expense) is primarily due to interest expense on the term loan and revolving line of credit with SVB in the 2009 period, and the loss in value of our investment in Cianna Medical, partially offset by a gain in foreign currency exchange.

Liquidity and Capital Resources

For the nine months ended September 30, 2009, we incurred net losses of $1.8 million. As of September 30, 2009, we had an accumulated deficit of approximately $145.5 million. Historically, we have relied on the sale and issuance of equity securities to provide a significant portion of funding for our operations. In August 2009, we completed a sale of our common stock that resulted in net proceeds of approximately $14.7 million.

In February 2007, we entered into a credit facility with Silicon Valley Bank, or SVB, whereby we may borrow up to $5.0 million under a revolving line of credit. All outstanding amounts under the revolving line of credit bear interest at a variable rate equal to the lender’s prime rate plus 0.5%, which is payable on a monthly basis. The unused portion is subject to an unused revolving line facility fee, payable quarterly, in arrears, on a calendar year basis, in an amount equal to one quarter of one percent per annum of the average unused portion of the revolving line of credit, as determined by SVB. The credit facility is collateralized by all of our assets with the exception of our intellectual property. All amounts owing under the revolving line of credit become due and payable in July 2010. In September 2008, we drew down $2.0 million. As of September 30, 2009, we re-paid the principal balance of $2.0 million and all accrued interest, leaving $0 in outstanding borrowings under the revolving line of credit.

In July 2008, we entered into an amendment to the credit facility which added a term loan whereby we may borrow up to $3.0 million. In September 2008, we drew the entire $3.0 million available under the term loan. Interest on the term loan is calculated at a variable rate equal to the lender’s prime rate plus 1.0%, which is payable on a monthly basis. The term loan principal is due in 36 monthly installments which began in April 2009. We made principal payments of $2.8 million and $3.0 million during the three and nine months ended September 30, 2009, respectively. As of September 30, 2009, we re-paid all outstanding principal and interest, leaving $0 in outstanding borrowings under the term loan.

The credit facility contains negative covenants regarding the operation of our business and financial covenants, including a covenant requiring us to maintain a tangible net worth of $21.0 million. As of September 30, 2009, our tangible net worth was $31.1 million. If we are not able to maintain compliance with our financial covenants, certain terms of the revolving line of credit and term loan will change, including an increase in the applicable interest rate and a limitation on the amounts available for borrowing under the credit facility based on eligible accounts receivable. Further, if we do not maintain a tangible net worth of at least $20.5 million, we will be in default under the credit facility which could allow SVB to accelerate the repayment of the indebtedness under the credit facility. As of September 30, 2009, we were in complete compliance with all of our covenants under the credit facility.

In October 2009, we terminated our existing credit facility with SVB and entered into a revolving credit facility with Wells Fargo Bank, National Association, or Wells, whereby we may borrow up to $10.0 million. All outstanding amounts under the credit facility bear interest at a variable rate equal to the greater of 90 day LIBOR, the federal funds rate, or the lender’s prime rate, plus 1.25%, which is payable on a monthly basis. The unused portion is subject to an unused revolving line facility fee, payable quarterly, in arrears, on a calendar year basis, in an amount equal to 0.2% per annum of the average unused portion of the revolving line, as determined by Wells. The credit facility also contains customary covenants regarding operations of our business and financial covenants relating to ratios of current assets to current liabilities and tangible net worth during any calendar quarter and is collateralized by all of our assets with the exception of our intellectual property. All amounts owing under the credit facility will become due and payable on April 30, 2012. As of October 30, 2009, we did not have any outstanding borrowings under this credit facility.

 

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At September 30, 2009, we had cash and cash equivalents of $21.1 million. In the nine months ended September 30, 2009, we generated $3.0 million of positive cash flow from operations. We believe that our current cash balance, in combination with cash flows from operations and borrowings available under our credit facility, will be sufficient to meet anticipated cash needs for operating and capital expenditures for the foreseeable future. If we do not realize expected revenue and gross profit margin levels, or if we are unable to manage our operating expenses in line with our revenues, or if we cannot maintain our days sales outstanding accounts receivable level, we may not continue to achieve positive cash flow from operations, in which case we may need to obtain additional financing.

We believe that the future growth of our business will depend upon our ability to successfully develop new technologies for the treatment of aortic disorders and bring these technologies to market, and to increase the size and productivity of our direct sales force. In order to achieve these objectives, we may need to seek additional sources of financing. In the event that we require additional funding, we will attempt to raise the required capital through either debt or equity arrangements.

The timing and amount of our future capital requirements will depend on many factors, including:

 

   

the need for additional capital to fund future development programs or sales force expansion;

 

   

our requirements for additional facility space or manufacturing capacity;

 

   

our requirements for additional information technology infrastructure and systems; and

 

   

adverse outcome(s) from current or future litigation and the cost to defend such litigation.

If we are required to obtain additional financing, we may not be able to do so on acceptable terms, if at all. Even if we are able to obtain such financing it may cause substantial dilution for our stockholders, in the case of an equity financing, or may contain burdensome restrictions on the operations of our business, in the case of debt financing.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We do not believe that we currently have material exposure to interest rate, foreign currency exchange rate or other relevant market risks.

Interest Rate and Market Risk. Our exposure to market risk for changes in interest rates relates primarily to our revolving lines of credit with SVB and Wells. Under our revolving line of credit with SVB, all outstanding amounts bear interest at a variable rate equal to the lender’s prime rate plus 0.5%. As of September 30, 2009, we had no amounts outstanding and the interest rate under the revolving line of credit with SVB was 4.5%. Under the revolving line of credit with SVB, interest is payable on a monthly basis which may expose us to market risk due to changes in interest rates. Under our revolving line of credit with Wells, all outstanding amounts bear interest at a variable rate equal to the greater of 90 day LIBOR, the federal funds rate, or the lender’s prime rate, plus 1.25%. As of October 30, 2009, we had no amounts outstanding under the revolving line of credit with Wells. We may be exposed to market risk with respect to the revolving line of credit with Wells due to changes in interest rates.

We do not use derivative financial instruments in our investment portfolio. We place our investments with high credit quality issuers and, by policy, limit the amount of credit exposure to any one issuer other than the U.S. government. We are averse to principal loss and try to ensure the safety and preservation of our invested funds by limiting default risk, market risk, and reinvestment risk. We attempt to mitigate default risk by investing in only high credit quality securities and by constantly positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. At September 30, 2009, our investment portfolio included only money market instruments.

 

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Foreign Currency Transaction Risk. We do not currently have material foreign currency exposure as the majority of our assets are denominated in U.S. currency and our foreign-currency based transaction exchange risk is not material.

 

Item 4. CONTROLS AND PROCEDURES.

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures, as of the end of the period covered by this report, were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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Part II.

OTHER INFORMATION

 

Item 5. OTHER INFORMATION.

On June 9, 2009, we entered into Addendum No. 2 to Standard Industrial/Commercial Single-Tenant Lease – Net, or the Second Addendum, with Del Monico Investments, Inc., to extend our corporate headquarters building lease, in Irvine, California, for an additional seventeen months, or through August 31, 2011. We have the option to extend the term of the lease for two additional 12 month periods.

On August 28, 2009, we entered into a Standard Industrial/Commercial Multi -Tenant Lease – Net, or the Lease, with Four-In-One Associates. The Lease provides approximately 13,300 square feet of additional office space in a building adjacent to our corporate headquarters in Irvine, California, for a 24 month term, commencing September 1, 2009 and ending August 31, 2011. This additional space will accommodate the expansion of our research and development activities. The initial monthly rent under the Lease, including common area charges will be approximately $14,364. We have the option to extend the term of the Lease for two additional 12 month periods.

The foregoing descriptions of the Second Addendum and the Lease do not purport to be complete and are qualified in their entirety by reference to the Second Addendum and the Lease, copies of which are attached hereto as Exhibits 10.1 and 10.2, respectively, and are incorporated herein by this reference.

 

Item 6. EXHIBITS.

The following exhibits are filed herewith:

 

Exhibit
Number

  

Description

  1.1    Purchase Agreement dated July 29, 2009 by and between Endologix, Inc. and Piper Jaffray & Co. (Incorporated by reference to Exhibit 1.1 to Endologix Current Report on Form 8-K, filed with the SEC on July 30, 2009).
10.1    Addendum No. 2 to Standard Industrial/Commercial Single-Tenant Lease – Net, by and between Endologix, Inc. and Del Monico Investments, Inc., dated June 9, 2009.
10.2    Standard Industrial/Commercial Multi -Tenant Lease – Net, by and between Endologix, Inc. and Four-In-One Associates, dated August 28, 2009.
31.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
32.2    Certification of Chief Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  ENDOLOGIX, INC.
Date: October 30, 2009  

/ S /    J OHN M C D ERMOTT        

  President and Chief Executive Officer
  (Principal Executive Officer)
Date: October 30, 2009  

/ S /    R OBERT J. K RIST        

  Chief Financial Officer and Secretary
  (Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

The following exhibits are filed herewith:

 

Exhibit
Number

  

Description

  1.1    Purchase Agreement dated July 29, 2009 by and between Endologix, Inc. and Piper Jaffray & Co. (Incorporated by reference to Exhibit 1.1 to Endologix Current Report on Form 8-K, filed with the SEC on July 30, 2009).
10.1    Addendum No. 2 to Standard Industrial/Commercial Single-Tenant Lease – Net, by and between Endologix, Inc. and Del Monico Investments, Inc., dated June 9, 2009.
10.2    Standard Industrial/Commercial Multi -Tenant Lease – Net, by and between Endologix, Inc. and Four-In-One Associates, dated August 28, 2009.
31.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
32.2    Certification of Chief Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

 

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Exhibit 10.1

ADDENDUM NO. 2

TO

STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET

THIS ADDENDUM NO. 2 TO STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE – NET (“Addendum”) is made as of June 9, 2009, between DEL MONICO INVESTMENTS, INC., a California corporation (“Lessor”), and ENDOLOGIX, INC., a Delaware corporation (“Lessee”), with reference to the following facts:

A. Lessor and Lessee are parties to that certain Standard Industrial/Commercial Single-Tenant Lease - Net dated as of November 2, 2004 (the “Original Lease”), as amended by Addendum No. 1 attached thereto and dated concurrently therewith (the “First Addendum”), which provides for Lessee’s rental from Lessor of the premises located at 11 Studebaker, Irvine, California (the “Premises”). The Original Lease and First Addendum are collectively referred to herein as the “Lease Agreement”.

B. The Original Term of the Lease Agreement is scheduled to expire on March 31, 201 0, and the parties now wish to provide for the terms and conditions of Lessee’s extension of the Original Term. Lessee has elected not to exercise either the “First Option” or the “Second Option” provided for in Paragraph 59 of the First Addendum.

C. Defined terms used in this Addendum shall, unless otherwise stated, have the same meanings as are contained in the Lease Agreement.

NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged by the parties, the parties hereto agree as follows:

1. Extension . The Original Term, presently scheduled to expire on March 31, 2010, shall be extended for an additional seventeen (17) months, so that it will instead expire on August 31, 2011, unless earlier terminated pursuant to any provision of the Lease Agreement or this Addendum. The period from April 1, 2010 through August 31, 2011 shall be referred to herein as the “Extension Period”. Lessee shall have no right or option to extend the Extension Period beyond August 31, 2011, except as provided in Paragraph 5 below.

2. Base Rent . The Base Rent for Lessee’s rental of the Premises during the Extension Period shall be $29,015 per month. Base Rent for any partial calendar month shall be prorated based on the actual number of days in the calendar month.

3. Other Charges . In connection with Lessee’s rental of the Premises during the Extension Period, and in addition to Lessee’s payment of Base Rent, Lessee shall be responsible for payment of all categories of expenses pursuant to the Lease Agreement that Lessee was obligated to pay during the Original Term.

4. “As Is” Condition . Paragraph 54.2 of the First Addendum (pertaining to the “As Is” Condition of the Premises) and Exhibit B (the “Tenant Improvement Construction Addendum”) shall be inapplicable to Lessee’s rental of the Premises during the Extension Period. Lessee shall accept the Premises in their then “as is” physical condition as of the commencement date of the

 

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Extension Period, without any obligation on Lessor’s part to make any alterations, additions, repairs or provide any tenant improvements or allowance in lieu thereof, except as follows: (a) Lessor shall use commercially reasonable efforts to investigate the cause of water penetration through the warehouse slab and if, as a result of such investigation, it is determined that repairs are required, the responsibility for making the repair and bearing the cost of the repair, as between Lessor and Lessee, shall be determined in accordance with the terms of the Lease Agreement; and (b) Lessor shall use commercially reasonable efforts to investigate the status of the roof and if, as a result of such investigation, it is determined that roof repairs are necessary notwithstanding Lessee having fulfilled its obligations under Paragraphs 7.1(a) and (b) of the Original Lease, Lessor at Lessor’s expense shall make the repairs at its expense, but should it be determined that Lessee has not fulfilled its obligations under the Lease Agreement, then Lessee at Lessee’s expense shall bear the cost of the repairs, as required under the Lease Agreement.

5. New Options to Renew . Lessor hereby grants to Lessee two (2) consecutive options to extend the Extension Period beyond August 31, 2011, each option being for a period of twelve (12) months, on all of the terms and conditions set forth in Paragraph 59 of the First Addendum, except that: (A) references therein to the “Original Term” shall mean the Extension Period; (B) references therein, and elsewhere in the Lease Agreement, to the “First Option” and “First Option Period” shall mean the period from September 1, 2011 through August 31, 2012, and to the “Second Option” and the “Second Option Period” shall mean the period from September 1, 2012 through August 31, 2013, and to the “Option Period” or “Option Periods” shall mean the options granted in this Paragraph 5; (C) Paragraph 59.3 is hereby superseded by the agreement that the Base Rent during the First Option Period shall be $29,885 per month, and the Base Rent during the Second Option Period shall be $30,782 per month; and (D) Paragraph 59.2 is hereby superseded by the agreement that Lessee shall exercise the First Option and Second Option, if at all, by Lessee delivering written notice to Lessor no earlier than six (6) months and no later than three (3) months prior to the date that the First Option Period or Second Option Period, as the case may be, shall be scheduled to commence. Lessee shall have no right or option to extend or renew its rental of the Premises beyond August 31, 2013.

6. Brokers . Lessee represents and warrants to Lessor that no broker or finder has been engaged by Lessee in connection with the transaction contemplated by this Addendum other than Studley, Inc. Lessee agrees to pay any and all claims for brokers’ fees or commissions claimed by any broker who asserts that it was engaged by Lessee in connection with the negotiation, execution or consummation of this Addendum, other than Studley, Inc.

7. Ratification . Except as otherwise provided in this Addendum, all of the terms, definitions, covenants and conditions of the Lease Agreement are hereby ratified, confirmed and remain in full force and effect, and are incorporated into this Addendum, and shall be applicable to Lessee’s rental of the Premises during the Extension Period. This Addendum and the Lease Agreement supersede in their entirety any and all prior oral and written agreements, letters and understandings of the parties with respect to the Premises, including without limitation Lessee’s broker’s letter dated June 3, 2009 addressed to Lessor. This Addendum may be signed by the parties in counterpart copies, and any party may deliver its signature by facsimile or electronic (PDF) transmission.

 

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IN WITNESS WHEREOF, this Addendum is made as of the date first written above.

 

LESSOR:   DEL MONICO INVESTMENTS, INC.,
  a California corporation
  By:  

/s/ Richard Goldberg

    Richard Goldberg
    Chief Operating Officer
LESSEE:   ENDOLOGIX, INC.,
  a Delaware corporation
  By:  

 

  Name:  

 

  Title:   Chairman of the Board/
    President/Vice President
    [Circle One]
  By:  

/s/ Robert J. Krist

  Name:  

Robert J. Krist

  Title:   Secretary/Assistant
    Secretary/ Chief Financial /
    Officer/Assistant Treasurer
    [Circle One]

 

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Exhibit 10.2

LOGO

STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - NET

AIR COMMERCIAL REAL ESTATE ASSOCIATION

 

1. Basic Provisions (“Basic Provisions”) .

1.1          Parties:  This Lease ( “Lease” ), dated for reference purposes only

 

July 30, 2009

  ,
is made by and between  

Four-in-One Associates

 

  ( “Lessor” )
and  

Endologix, Inc.

 

 

  ( “Lessee” ), (collectively the  “Parties” , or individually a  “Party” ).

1.2(a)     Premises: That certain portion of the Project (as defined below), including all improvements therein or to be

provided by Lessor under the terms of this Lease, commonly known by the street address of  

1 Hughes, Suite B

  ,
located in the City of  

Irvine

  ,   County of  

Orange

  ,   State of

California

  ,   with zip code  

92618

  ,   as outlined on Exhibit            attached hereto ( “Premises” )
and generally described as (describe briefly the nature of the Premises):  

an approximately 13, 300 square foot portion

of a larger 26, 600 square foot building

 

In addition to Lessee’s rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the any utility raceways of the building containing the Premises ( “Building” ) and to the common Areas (as defined in Paragraph 2.7 below), but shall not have any rights to the roof or exterior walls of the Building or to any other buildings in the Project. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the “Project.” (See also Paragraph 2)

1.2(b)     Parking: 48                                         unreserved vehicle parking spaces. (See also Paragraph 2.6)

        1.3         Term:  

2

  years and  

0

  months ( “Original Term” )
commencing  

September 1, 2009

    ( “Commencement Date” ) and ending  

August 31, 2011

( “Expiration Date” ). (See also Paragraph 3)

        1.4         Early Possession:  

N/A

  ( “Early Possession Date” )

(See also Paragraphs 3.2 and 3.3)

        1.5         Base Rent:  $  

11, 305.00

  per month ( “Base Rent” ), payable on the  

first (1st)

day of each month commencing  

September 1, 2009

    .   (See also Paragraph 4)

þ If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

        1.6         Lessee’s Share of Common Area Operating Expenses:  

fifty

  percent ( 50      %) ( “Lessee’s Share” ).

Lessee’s Share has been calculated by dividing the approximate square footage of the Premises by the approximate square footage of the Project. In the event that the size of the Premises and/or the Project are modified during the term of this Lease, Lessor shall recalculate Lessee’s Share to reflect such modification.

  1.7        Base Rent and Other Monies Paid Upon Execution:
  (a) Base Rent: $ 11,305.00             for the period September 1, 2009 - September 30, 2009 .
  (b) Common Area Operating Expenses: $ 3, 059. 00             for the period 9/1/09-9/30/09                 .
  (c) Security Deposit:  $ 14,703.15                         ( “Security Deposit” ). (See also Paragraph 5)
  (d) Other: $                                          for                                                                                                       

                                                                                                                                                                                 .

  (e) Total Due Upon Execution of this Lease:  $ 29,067.15                                      .
        1.8           Agreed Use:  

As permitted by the city of Irvine

 

 

  .   (See also Paragraph 6)

1.9         Insuring Party. Lessor is the “Insuring Party” . (See also Paragraph 8)

1.10        Real Estate Brokers: (See also Paragraph 15)

(a)     Representation: The following real estate brokers (the “Brokers” ) and brokerage relationships exist in this transaction (check applicable boxes):

þ  

Zuvich Corporate Advisors, Inc.

  represents Lessor exclusively ( “Lessor’s Broker” );
þ  

Studley

  represents Lessee exclusively ( “Lessee’s Broker” ); or
¨  

 

  represents both Lessor and Lessee ( “Dual Agency” ).

(b)     Payment to Brokers: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Brokers the brokerage fee agreed to in a separate written agreement (or if there is no such agreement, the sum of                              or 7         % of the total Base Rent for the brokerage services rendered by the Brokers). Four (4%) percent shall be payable to Studley and three (3%) percent shall be payable to Zuvich Corporate Advisors, Inc.

        1.11           Guarantor.  The obligations of the Lessee under this Lease are to be guaranteed by  

N/A

 

  ( “Guarantor” ). (See also Paragraph 37)

1.12         Attachments. Attached hereto are the following, all of which constitute a part of this Lease:

þ   an Addendum consisting of Paragraphs 50                                 through 55                                         ;
þ   a site plan depicting the Premises;
¨   a site plan depicting the Project;
¨   a current set of the Rules and Regulations for the Project;

 

 

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¨ a current set of the Rules and Regulations adopted by the owners’ association;

¨ a Work Letter;

¨  other (specify);  

 

 

2. Premises .

2.1         Letting . Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. NOTE: Lessee is advised to verify the actual size prior to executing this Lease.

2.2         Condition . Lessor shall deliver that portion of the Premises contained within the Building ( “Unit” ) to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ( “Start Date” ), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ( “HVAC” ), loading doors, sump pumps, if any, and all other such elements in the Unit, other than those constructed by Lessee, shall be in good operating condition on said date, that the structural elements of the roof, bearing walls and foundation of the Unit shall be free of material defects, and that the Unit does not contain hazardous levels of any mold or fungi defined as toxic under applicable state or federal law. If a non-compliance with such warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor’s sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor’s expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Unit. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee’s sole cost and expense (except for the repairs to the fire sprinkler systems, roof, foundations, and/or bearing walls - see Paragraph 7).

2.3         Compliance - Lessor warrants that to the best of its knowledge the improvements on the Premises and the Common Areas comply with the building codes that were in effect at the time that each such improvement, or portion thereof, was constructed, and also with all applicable laws, covenants or restrictions of record, regulations, and ordinances in effect on the Start Date ( “Applicable Requirements” ). Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 49), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the Applicable Requirements and especially the zoning are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed . If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’s expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee’s sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Unit, Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building ( “Capital Expenditure” ), Lessor and Lessee shall allocate the cost of such work as follows:

(a)        Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months’ Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to 6 months’ Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

(b)        If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for the portion of such costs reasonably attributable to the Premises pursuant to the formula set out in Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor’s termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor’s share of such costs have been fully paid. If Lessee is unable to finance Lessor’s share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

(c)        Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not have any right to terminate this Lease.

2.4         Acknowledgements . Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirement and the Americans with Disabilities Act), and their suitability for Lessee’s intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee’s ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

2.5         Lessee as Prior Owner/Occupant . The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.

2.6         Vehicle Parking . Lessee shall be entitled to use the number of parking spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called “Permitted Size Vehicles.” Lessor may regulate the loading and unloading of vehicles by adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles other than

 

 

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Permitted Size Vehicles may be parked in the Common Area without the prior written permission of Lessor, In addition:

(a)        Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee’s employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities.

(b)        Lessee shall not service or store any vehicles in the Common Areas.

(c)        If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

2.7         Common Areas - Definition . The term “Common Areas” is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project and interior utility raceways and installations within the Unit that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other tenants of the Project and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, walkways, driveways and landscaped areas.

2.8         Common Areas - Lessee’s Rights . Lessor grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Project. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor’s designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

2.9         Common Areas - Rules and Regulations . Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations ( “Rules and Regulations” ) for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Project and their invitees. Lessee agrees to abide by and conform to all such Rules and Regulations, and shall use its best efforts to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said Rules and Regulations by other tenants of the Project.

2.10       Common Areas - Changes . Lessor shall have the right, in Lessor’s sole discretion, from time to time:

(a)        To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways;

(b)        To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available;

(c)        To designate other land outside the boundaries of the Project to be a part of the Common Areas;

(d)        To add additional buildings and improvements to the Common Areas;

(e)        To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project, or any portion thereof; and

(f)         To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Project as Lessor may, in the exercise of sound business judgment, deem to be appropriate.

3. Term .

3.1         Term . The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

3.2         Early Possession . If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Lessee’s Share of Common Area Operating Expenses, Real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such early possession shall not affect the Expiration Date.

3.3.         Delay In Possession . Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or change the Expiration Date. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of the delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed, but minus any days of delay caused by the acts or omissions of Lessee. If possession is not delivered within 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period, Lessee’s right to cancel shall terminate. Except as otherwise provided, if possession is not tendered to Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession of the Premises is not delivered within 4 months after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

3.4         Lessee Compliance . Lessor shall not be required to lender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

4. Rent .

4.1         Rent Defined . All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ( “Rent” ).

4.2         Common Area Operating Expenses . Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee’s Share (as specified in Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions:

(a)         “Common Area Operating Expenses” are defined, for purposes of this Lease, as all costs incurred by Lessor relating to the ownership and operation of the Project, including, but not limited to, the following:

 

 

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  (i) The operation, repair and maintenance, in neat, clean, good order and condition, and if necessary the replacement, of the following:

(aa)        The Common Areas and Common Area improvements, including parking areas, loading and unloading areas, trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs, and roof drainage systems.

(bb)        Exterior signs and any tenant directories.

(cc)        Any fire sprinkler systems.

  (ii) The cost of water, gas, electricity and telephone to service the Common Areas and any utilities not separately metered.
  (iii) Trash disposal, pest control services, property management, security services, owners’ association dues and fees, the cost to repaint the exterior of any structures and the cost of any environmental inspections.
  (iv) Reserves set aside for maintenance, repair and/or replacement of Common Area improvements and equipment.
  (v) Real Properly Taxes (as defined in Paragraph 10).
  (vi) The cost of the premiums for the insurance maintained by Lessor pursuant to Paragraph 8.
  (vii) Any deductible portion of an insured loss concerning the Building or the Common Areas.
  (viii) Auditors’, accountants’ and attorneys’ fees and costs related to the operation, maintenance, repair and replacement of the Project.
  (ix) The cost of any capital improvement to the Building or the Project not covered under the provisions of Paragraph 2.3 provided; however, that Lessor shall allocate the cost of any such capital improvement over a 12 year period and Lessee shall not be required to pay more than Lessee’s Share of 1/144th of the cost of such capital improvement in any given month.
  (x) Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense.

(b)        Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Unit, the Building or to any other building in the Project or to the operation, repair and maintenance thereof, shall be allocated entirely to such Unit, Building, or other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Project.

(c)        The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Project already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them.

(d)        Lessee’s Share of Common Area Operating Expenses is payable monthly on the same day as the Base Rent is due hereunder. The amount of such payments shall be based on Lessor’s estimate of the annual Common Area Operating Expenses. Within 60 days after written request (but not more than once each year) Lessor shall deliver to Lessee a reasonably detailed statement showing Lessee’s Share of the actual Common Area Operating Expenses incurred during the preceding year. If Lessee’s payments during such year exceed Lessee’s Share, Lessor shall credit the amount of such over-payment against Lessee’s future payments. If Lessee’s payments during such year were less than Lessee’s Share, Lessee shall pay to Lessor the amount of the deficiency within 10 days after delivery by Lessor to Lessee of the statement.

(e)        Common Area Operating Expenses shall not include any expenses paid by any tenant directly to third parties, or as to which Lessor is otherwise reimbursed by any third party, other tenant, or insurance proceeds.

4.3         Payment . Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. All monetary amounts shall be rounded to the nearest whole dollar. In the event that any invoice prepared by Lessor is inaccurate such inaccuracy shall not constitute a waiver and Lessee shall be obligated to pay the amount set forth in this Lease. Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future Rent be paid by cashier’s check. Payments will be applied first to accrued late charges and attorney’s fees, second to accrued interest, then to Base Rent and Common Area Operating Expenses, and any remaining amount to any other outstanding charges or costs.

5.         Security Deposit . Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor’s reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

6. Use .

6.1         Use . Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Other than guide, signal and seeing eye dogs, Lessee shall not keep or allow in the Premises any pets, animals, birds, fish, or reptiles. Lessor shall not unreasonably withhold or delay its consent to any

 

 

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written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the Building or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Project. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change in the Agreed Use.

6.2         Hazardous Substances .

(a)         Reportable Uses Require Consent . The term “ Hazardous Substance ” as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements. “ Reportable Use ” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

(b)         Duty to Inform Lessor . If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

(c)         Lessee Remediation . Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.

(d)         Lessee Indemnification . Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease will respect to underground migration of any Hazardous Substance under the Premises from areas outside of the Project not caused or contributed to by Lessee). Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

(e)         Lessor Indemnification . Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which are suffered as a direct result of Hazardous Substances on the Premises prior to Lessee taking possession or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor’s obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

(f)         Investigations and Remediations . Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Lessee taking possession, unless such remediation measure is required as a result of Lessee’s use (including “Alterations”, as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities.

(g)         Lessor Termination Option . If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor’s rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee’s commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor’s notice of termination.

6.3         Lessee’s Compliance with Applicable Requirements . Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants which relate in any manner to such Requirements, without regard to whether said Requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor’s written request, provide Lessor will copies of all permits and other documents, and other information evidencing Lessee’s compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the

 

 

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Premises to comply with any Applicable Requirements. Likewise, Lessee shall immediately give written notice to Lessor of: (i) any water damage to the Premises and any suspected seepage, pooling, dampness or other condition conducive to the production of mold; or (ii) any mustiness or other odors that might indicate the presence of mold in the Premises.

6.4         Inspection; Compliance . Lessor and Lessor’s “ Lender ” (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance condition (see Paragraph 9.1) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination. In addition, Lessee shall provide copies of all relevant material safety data sheets ( MSDS ) to Lessor within 10 days of the receipt of written request therefor.

7. Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations .

7.1         Lessee’s Obligations .

(a)         In General . Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises, Utility Installations (intended for Lessee’s exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights but excluding any items which are the responsibility of Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair.

(b)         Service Contracts . Lessee shall, at Lessee’s sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure vessels, (iii) clarifiers, and (iv) any other equipment, if reasonably required by Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and Lessee shall reimburse Lessor, upon demand, for the cost thereof.

(c)         Failure to Perform . If Lessee fails to perform Lessee’s obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days’ prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee’s behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.

(d)         Replacement . Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month). Lessee shall pay Interest on the unamortized balance but may prepay its obligation at any time.

7.2         Lessor’s Obligations . Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee’s Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler system, Common Area fire alarm and/or smoke detection systems, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.

7.3         Utility Installations; Trade Fixtures; Alterations .

(a)         Definitions . The term “ Utility Installations ” refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term “ Trade Fixtures ” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises. The term “ Alterations ” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. “ Lessee Owned Alterations and/or Utility Installations ” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

(b)         Consent . Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month’s Base Rent in the aggregate or a sum equal to one month’s Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee’s: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one month’s Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee’s posting an additional Security Deposit with Lessor.

(c)         Liens; Bonds . Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialman’s lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee

 

 

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shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surely bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor’s attorneys’ fees and costs.

7.4         Ownership; Removal; Surrender; and Restoration .

(a)         Ownership . Subject to Lessor’s right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

(b)         Removal . By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

(c)         Surrender; Restoration . Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall also completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

8. Insurance; Indemnity .

8.1         Payment of Premiums . The cost of the premiums for the insurance policies required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a) and 8.3(b), shall be a Common Area Operating Expense. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Start Date or Expiration Date.

8.2         Liability Insurance .

(a)         Carried by Lessee . Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000. Lessee shall add Lessor as an additional insured by means of an endorsement at least as broad as the Insurance Service Organization’s “Additional Insured-Managers or Lessors of Premises” Endorsement and coverage shall also be extended to include damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “ insured contract ” for the performance of Lessee’s indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. Lessee shall provide an endorsement on its liability policy(ies) which provides that its insurance shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

(b)         Carried by Lessor . Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.

8.3         Property Insurance - Building, Improvements and Rental Value .

(a)         Building and Improvements . Lessor shall obtain and keep in force a policy or policies of insurance in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full insurable replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal property shall be insured by Lessee under Paragraph 8.4. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence.

(b)         Rental Value . Lessor shall also obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days (“ Rental Value insurance ”). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period.

(c)         Adjacent Premises . Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Project if said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

(d)         Lessee’s Improvements . Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease.

8.4         Lessee’s Property; Business Interruption Insurance .

(a)         Property Damage . Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property. Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property. Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.

(b)         Business Interruption . Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

 

 

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(c)         No Representation of Adequate Coverage . Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

8.5         Insurance Policies . Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least A-, VI, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 10 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6         Waiver of Subrogation . Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

8.7         Indemnity . Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.

8.8         Exemption of Lessor from Liability . Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, indoor air quality, the presence of mold or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor nor from the failure of Lessor to enforce the provisions of any other lease in the Project. Notwithstanding Lessor’s negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee’s business or for any loss of income or profit therefrom.

8.9         Failure to Provide Insurance . Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater. The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/costs that Lessor will incur by reason of Lessee’s failure to maintain the required insurance. Such increase in Base Rent shall in no event constitute a waiver of Lessee’s Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

9. Damage or Destruction .

9.1         Definitions .

(a)        “ Premises Partial Damage ” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 3 months or less from the date of the damage or destruction, and the cost thereof does not exceed a sum equal to 6 month’s Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total. Notwithstanding the foregoing, Premises Partial Damage shall not include damage to windows, doors, and/or other similar items which Lessee has the responsibility to repair or replace pursuant to the provisions of Paragraph 7.1.

(b)        “ Premises Total Destruction ” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 3 months or less from the date of the damage or destruction and/or the cost thereof exceeds a sum equal to 6 month’s Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(c)        “ Insured Loss ” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

(d)        “ Replacement Cost ” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e)        “ Hazardous Substance Condition ” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises which requires repair, remediation, or restoration.

9.2         Partial Damage - Insured Loss . If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day

 

 

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period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

9.3         Partial Damage - Uninsured Loss . If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

9.4         Total Destruction . Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s damages from Lessee, except as provided in Paragraph 8.6.

9.5         Damage Near End of Term . If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.

9.6         Abatement of Rent; Lessee’s Remedies .

(a)         Abatement . In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

(b)         Remedies . If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

9.7         Termination; Advance Payments . Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

9.8         Waive Statutes . Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

10. Real Property Taxes .

10.1         Definition . As used herein, the term “ Real Property Taxes ” shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond, and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Project, Lessor’s right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Project address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Project is located. The term “Real Property Taxes” shall also include any tax, fee, levy, assessment or charge, or any increase therein: (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Project, (ii) a change in the improvements thereon, and/or (iii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common.

10.2         Payment of Taxes . Except as otherwise provided in Paragraph 10.3, Lessor shall pay the Real Property Taxes applicable to the Project, and said payments shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2.

10.3         Additional Improvements . Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor’s records and work sheets as being caused by additional improvements placed upon the Project by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirely of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee’s request or by reason of any alterations or improvements to the Premises made by Lessor subsequent to the execution of this Lease by the Parties.

10.4         Joint Assessment . If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available. Lessor’s reasonable determination thereof, in good faith, shall be conclusive.

 

 

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10.5         Personal Property Taxes . Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee’s said property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s property.

11.   Utilities and Services . Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. Notwithstanding the provisions of Paragraph 4.2, if at any time in Lessor’s sole judgment, Lessor determines that Lessee is using a disproportionate amount of water, electricity or other commonly metered utilities, or that Lessee is generating such a large volume of trash as to require an increase in the size of the trash receptacle and/or an increase in the number of times per month that it is emptied, then Lessor may increase Lessee’s Base Rent by an amount equal to such increased costs. There shall be no abatement of Rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

12. Assignment and Subletting .

12.1         Lessor’s Consent Required .

(a)        Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment” ) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent.

(b)        Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.

(c)        The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee’s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. “Net Worth of Lessee” shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

(d)        An assignment or subletting without consent shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

(e)        Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

(f)        Lessor may reasonably withhold consent to a proposed assignment or subletting if Lessee is in Default at the time consent is requested.

(g)        Notwithstanding the foregoing, allowing a diminimus portion of the Premises, ie. 20 square feet or less, to be used by a third party vendor in connection with the installation of a vending machine or payphone shall not constitute a subletting.

12.2         Terms and Conditions Applicable to Assignment and Subletting .

(a)        Regardless of Lessor’s consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b)        Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

(c)        Lessor’s consent to any assignment or subletting shall not constitute consent to any subsequent assignment or subletting.

(d)        In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.

(e)        Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor’s considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (See also Paragraph 36)

(f)        Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment, entering into such sublease, or entering into possession of the Premises or any portion thereof, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

(g)        Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)

12.3         Additional Terms and Conditions Applicable to Subletting . The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a)        Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor exceeds Lessee’s then outstanding obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the

 

 

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sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b)        In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

(c)        Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

(d)        No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent.

(e)        Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

13. Default; Breach; Remedies .

13.1         Default; Breach . A “Default” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A “Breach” is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

(a)        The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

(b)        The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.

(c)        The commission of waste, act or acts constituting public or private nuisance, and/or an illegal activity on the Premises by Lessee, where such actions continue for a period of 3 business days following written notice to Lessee.

(d)        The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 41, (viii) material data safety sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

(e)        A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof, other than those described in subparagraphs 13.1(a), (b), (c) or (d), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

(f)        The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. § 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(g)        The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

(h)        If the performance of Lessee’s obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

13.2         Remedies . If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee’s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

(a)        Terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

(b)        Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes due, in which event Lessee

 

 

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may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.

(c)        Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.

13.3         Inducement Recapture . Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee’s entering into this Lease, all of which concessions are hereinafter referred to as “inducement Provisions” , shall be deemed conditioned upon Lessee’s full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

13.4         Late Charges . Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s option, become due and payable quarterly in advance.

13.5         Interest . Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest ( “Interest” ) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

13.6         Breach by Lessor .

(a)         Notice of Breach . Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

(b)         Performance by Lessee on Behalf of Lessor . In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that such offset shall not exceed an amount equal to the greater of one month’s Base Rent or the Security Deposit, reserving Lessee’s right to reimbursement from Lessor for any such expense in excess of such offset. Lessee shall document the cost of said cure and supply said documentation to Lessor.

14.   Condemnation . If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “Condemnation” ), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the Unit, or more than 25% of Lessee’s Reserved Parking Spaces, is taken by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

15. Brokerage Fees .

15.1         Additional Commission . In addition to the payments owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee acquires from Lessor any rights to the Premises or other premises owned by Lessor and located within the Project, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease.

15.2         Assumption of Obligations . Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay any amounts to Lessee’s Broker when due, Lessee’s Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor’s Broker for the limited purpose of collecting any brokerage fee owed.

15.3         Representations and Indemnities of Broker Relationships . Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred

 

 

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with respect thereto.

16. Estoppel Certificates.

(a)        Each Party (as “Responding Party” ) shall within 10 days after written notice from the other Party (the “Requesting Party” ) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current “Estoppel Certificate” form published by the AIR Commercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

(b)        If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance, and (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

(c)        If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

17.   Definition of Lessor . The term “Lessor” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease. In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

18.   Severability . The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19.   Days . Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days.

20.   Limitation on Liability . The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

21.   Time of Essence . Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22.   No Prior or Other Agreements; Broker Disclaimer . This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys’ fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

23. Notices .

23.1         Notice Requirements . All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

23.2         Date of Notice . Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 72 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24.   Waivers . No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

25. Disclosures Regarding The Nature of a Real Estate Agency Relationship .

(a)        When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

(i)         Lessor’s Agent . A Lessor’s agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessor’s agent or subagent has the following affirmative obligations: To the Lessor : A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor : (a) Diligent exercise of reasonable skills and care in performance of the agent’s duties. (b) A duty of honest and fair dealing and good faith. (c) A duly to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated lo reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(ii)         Lessee’s Agent . An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the

 

 

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Lessor’s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee : A fiduciary duly of utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor : (a) Diligent exercise of reasonable skills and care in performance of the agent’s duties. (b) A duty of honest and fair dealing and good faith. (c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(iii)         Agent Representing Both Lessor and Lessee . A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: (a) A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. (b) Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional.

(b)        Brokers have no responsibility with respect to any Default or Breach hereof by either Party. The Parties agree that no lawsuit or other legal proceeding involving any breach of duty, error or omission relating to this Lease may be brought against Broker more than one year after the Start Date and that the liability (including court costs and attorneys’ fees), of any Broker with respect to any such lawsuit and/or legal proceeding shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

(c)        Buyer and Seller agree to identify to Brokers as “Confidential” any communication or information given Brokers that is considered by such Party to be confidential.

26.   No Right To Holdover . Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

27.   Cumulative Remedies . No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28.   Covenants and Conditions; Construction of Agreement . All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29.   Binding Effect; Choice of Law . This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

30. Subordination; Attornment; Non-Disturbance .

30.1         Subordination . This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “Security Device” ), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “Lender” ) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

30.2         Attornment . In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of the new owner, this Lease will automatically become a new lease between Lessee and such new owner, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor’s obligations, except that such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month’s rent, or (d) be liable for the return of any security deposit paid to any prior lessor.

30.3         Non-Disturbance . With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “Non-Disturbance Agreement” ) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

30.4         Self-Executing . The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31.   Attorneys’ Fees . If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, “ Prevailing Party ” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred. In addition, Lessor shall be entitled to attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

32.   Lessor’s Access; Showing Premises; Repairs . Lessor and Lessor’s agents shall have the right to enter the Premises at any time, in

 

 

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the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect on Lessee’s use of the Premises. All such activities shall be without abatement of rent or liability to Lessee.

33.   Auctions . Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34.   Signs . Lessor may place on the Premises ordinary “For Sale” signs at any time and ordinary “For Lease” signs during the last 6 months of the term hereof. Except for ordinary “For Sublease” signs which may be placed only on the Premises, Lessee shall not place any sign upon the Project without Lessor’s prior written consent. All signs must comply with all Applicable Requirements.

35.   Termination; Merger . Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor’s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest.

36.   Consents . Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor’s actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor’s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

37. Guarantor .

37.1         Execution . The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real Estate Association.

37.2         Default . It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor’s behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

38.   Quiet Possession . Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39. Options . If Lessee is granted an option, as defined below, then the following provisions shall apply.

39.1         Definition . “Option” shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

39.2         Options Personal To Original Lessee . Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

39.3         Multiple Options . In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

39.4         Effect of Default on Options .

(a)        Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.

(b)        The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

(c)        An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.

40.   Security Measures . Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

41.   Reservations . Lessor reserves the right: (i) to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, (ii) to cause the recordation of parcel maps and restrictions, and (iii) to create and/or install new utility raceways, so long as such easements, rights, dedications, maps, restrictions, and utility raceways do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate such rights.

42.   Performance Under Protest . If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. A Party who does not initiate suit for the recovery of sums paid “under protest” within 6 months shall be deemed to have waived its right to protest such payment.

43. Authority; Multiple Parties; Execution .

(a)        If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each Party shall, within 30 days after request, deliver to the other Party satisfactory evidence of such authority.

(b)        If this Lease is executed by more than one person or entity as “Lessee”, each such person or entity shall be

 

 

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jointly and severally liable hereunder. It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

(c)        This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

44.     Conflict . Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

45.     Offer . Preparation of this Lease by either party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

46.     Amendments . This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee’s obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

47.     Waiver of Jury Trial . THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

48.     Mediation and Arbitration of Disputes . An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties

and/or Brokers arising out of this Lease ¨ is þ is not attached to this Lease.

49.     Americans with Disabilities Act . Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee’s specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1.    SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2.    RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

Executed at:  

 

  Executed at:  

 

On:  

 

  On:  

 

By LESSOR:   By LESSEE:

Four-in-One Associates

 

Endologix, Inc.

 

 

 

By:  

/s/ RICHARD HUNSAKER

  By:  

/s/ ROBERT J. KRIST

Name Printed:  

RICHARD HUNSAKER

  Name Printed:  

ROBERT J. KRIST

Title:  

GP

  Title:  

CFO

By:  

 

  By:  

 

Name Printed:  

 

  Name Printed:  

 

Title:  

 

  Title:  

 

Address:  

 

  Address:  

 

 

 

 

 

 

 

Telephone:(      )  

 

  Telephone:(      )  

 

Facsimile:(      )  

 

  Facsimile:(      )  

 

Federal ID No.  

 

  Federal ID No.  

 

BROKER:   BROKER:

Zuvich Corporate Advisors, Inc.

 

Studley

 

 

 

Attn:  

Oliver Ternate / Michael McGee

  Attn:  

Tim Schramm

Title:  

Vice President / Associate

  Title:  

Managing Partner

License ID #:  

01395278 / 01838379

  License ID #:  

01269453

Corporate ID #:  

01451156

  Address:  

 

Address:  

 

 

 

 

  Telephone:(      )  

 

Telephone:(      )  

 

  Facsimile:(      )  

 

Facsimile:(      )  

 

  Email:  

 

Email:  

 

  Federal ID No.  

 

Federal ID No.  

 

   

These forms are often modified to meet changing requirements of law and needs of the industry. Always write or call to make sure you are utilizing the most current form: AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 South Flower Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777.

 

 

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©Copyright 1999 By AIR Commercial Real Estate Association.

All rights reserved.

No part of these works may be reproduced in any form without permission in writing.

 

 

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LOGO

RENT ADJUSTMENT(S)

STANDARD LEASE ADDENDUM

 

  Dated  

July 30, 2009

  By and Between (Lessor)   

Four-in-One Associates

    

 

 

                   (Lessee)

  

Endologix, Inc.

      

 

  Address of Premises:   

1 Hughes, Suite B

      

Irvine, CA 92618

Paragraph     50  

 

A. RENT ADJUSTMENTS :

The monthly rent for each month of the adjustment period(s) specified below shall be increased using the method(s) indicated below:

(Check Method(s) to be Used and Fill in Appropriately)

¨     I.    Cost of Living Adjustment(s) (COLA)

 

              a.    On (Fill in COLA Dales):  

 

 

 

 

 

 

the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor Statistics of the U.S. Department of Labor for (select one): ¨ CPI W (Urban Wage Earners and Clerical Workers) or ¨ CPI U (All Urban Consumers), for (Fill in Urban Area):

 

 

 

 

   All Items

 

  

(1982-1984-100), herein referred to as “CPI”.

              b.    The monthly rent payable in accordance with paragraph A.I.a. of this Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month 2 months prior to the month(s) specified in paragraph A.I.a above during which the adjustment is to take effect, and the denominator of which shall be the CPI of the calendar month which is 2 months prior to (select one): the ¨ first month of the term of this Lease as set forth in paragraph 1.3 (“Base Month”) or ¨ (Fill in Other “Base Month”):                                                                                                                    . The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall any such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.

              c.    In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation. In the event that the Parties cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said Association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitration shall be paid equally by the Parties.

 

  

¨     II.  Market Rental Value Adjustment(s) (MRV)

 

              a.    On (Fill in MRV Adjustment Date(s):  

 

 

 

 

 

 

the Base Rent shall be adjusted to the “Market Rental Value” of the properly as follows:

                    1)    Four months prior to each Market Rental Value Adjustment Date described above, the Parties shall attempt to agree upon what the new MRV will be on the adjustment date. If agreement cannot be reached within thirty days, then:

                                         (a)  Lessor and Lessee shall immediately appoint a mutually acceptable appraiser or broker to establish the new MRV within the next 30 days. Any associated costs will be split equally between the Parties, or

                                         (b)  Both Lesser and Lessee shall each immediately make a reasonable determination of the MRV and submit such determination in writing, to arbitration in accordance with the following provisions:

                                                         (i)  Within 15 days thereafter, Lessor and Lessee shall each select an ¨ appraiser or ¨ broker (“Consultant” check one) of their choice to act as an arbitrator. The two arbitrators so appointed shall immediately select a third mutually acceptable Consultant to act as a third arbitrator.

                                                         (ii)  The 3 arbitrators shall within 30 days of the appointment of the third arbitrator reach a decision as to what the actual MRV for the Premises is, and whether Lessor’s or Lessee’s submitted MRV is the closest thereto. The decision of a majority of the arbitrators shall be binding on the Parties. The submitted MRV which is determined to be the closest to the actual MRV shall thereafter be used by the Parties.

 

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                                                          (iii)  If either of the Parties fails to appoint an arbitrator within the specified 15 days, the arbitrator timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the Parties.

                                                         (iv)  The entire cost of such arbitration shall be paid by the party whose submitted MRV is not selected, ie the one that is NOT the closest to the actual MRV.

                              2)    Notwithstanding the foregoing, the new MRV shall not be less than the rent payable for the month immediately preceding the rent adjustment.

              b.    Upon the establishment of each New Market Rental Value:

                              1) the new MRV will become the new “Base Rent” for the purpose of calculating any further Adjustments, and

                              2) the first month of each Market Rental Value term shall become the new “Base Month” for the purpose of calculating any further Adjustments.

þ     III.    Fixed Rental Adjustment(s) (FRA)

The Base Rent shall be increased to the following amounts on the dates set forth below:

 

On (Fill in FRA Adjustment Date(s)):      The New Base Rent shall be:

Oct. 1, 2009 – Aug. 31, 2010

    

$11,305.00

Sep. 1, 2010 – Aug. 31, 2011

    

$11, 644.15

RJK

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

B. NOTICE:

Unless specified otherwise herein, notice of any such adjustments, other than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the Lease.

 

C. BROKER’S FEE;

The Brokers shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the Lease.

NOTE: These forms are often modified to meet changing requirements of law and needs of the industry. Always write or call to make sure you are utilizing the most current form: AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 S. Flower Street, Suite 600, Los Angeles, Calif. 90017

 

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LOGO

OPTION(S) TO EXTEND

STANDARD LEASE ADDENDUM

 

  Dated  

July 30, 2009

  By and Between (Lessor)   

Four-in-One Associates

    

 

  By and Between (Lessee)   

Endologix, Inc.

      

 

  Address of Premises:   

1 Hughes, Suite B

      

Irvine, CA 92618

Paragraph 51        

 

A. OPTION(S) TO EXTEND:

Lessor hereby grants to Lessee the option to extend the term of this Lease for two (2)                      additional twelve (12)               month period(s) commencing when the prior term expires upon each and all of the following terms and conditions:

                (i)    In order to exercise an option to extend, Lessee must give written notice of such election to Lessor and Lessor must receive the same at least     6      but not more than     9     months prior to the date that the option period would commence, time being of the essence. If proper notification of the exercise of an option is not given and/or received, such option shall automatically expire. Options (if there are more than one) may only be exercised consecutively.

              (ii)    The provisions of paragraph 39, including those relating to Lessee’s Default set forth in paragraph 39.4 of this Lease, are conditions of this Option.

              (iii)    Except for the provisions of this Lease granting an option or options to extend the term, all of the terms and conditions of this Lease except where specifically modified by this option shall apply.

              (iv)    This Option is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and without the intention of thereafter assigning or subletting.

              (v)    The monthly rent for each month of the option period shall be calculated as follows, using the method(s) indicated below: (Check Method(s) to be Used and Fill in Appropriately)

¨     I.    Cost of Living Adjustment(s) (COLA)

 

        a.    On (Fill in COLA Dates):  

 

 

 

 

 

the Base Rent shall be adjusted by the change, if any, from the Base Month specified below in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for (select one): ¨ CPI W (Urban Wage Earners and Clerical Workers) or ¨ CPI U (All Urban Consumers), for (Fill in Urban Area):

 

 

 

All items (1982-1984 – 100), herein referred to as “CPI”.

        b.    The monthly rent payable in accordance with paragraph A.I.a. of this Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month 2 months prior to the month(s) specified in paragraph A.I.a. above during which the adjustment is to take effect, and the denominator of which shall be the CPI of the calendar month which is 2 months prior to (select one): ¨ the first month of the term of this Lease as set forth in paragraph 1.3 (“Base Month”) or ¨ (Fill in Other “Base Month”).

  

 

 

The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall any such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.

        c.    In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation. In the event that the Parties cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said Association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitration shall be paid equally by the Parties.

¨     II.    Market Rental Value Adjustment(s) (MRV)

 

        a.    On (Fill in MRV Adjustment Date(s):  

 

 

 

 

 

the Base Rent shall be adjusted to the “Market Rental Value” of the property as follows:

               1)  Four months prior to each Market Rental Value Adjustment Date described above, the Parties shall attempt to agree upon what the new MRV will be on the adjustment date. lf agreement cannot be reached, within thirty days, then:

                                (a) Lessor and Lessee shall immediately appoint a mutually acceptable appraiser or broker to establish the new MRV within the next 30 days. Any associated costs will be split equally between the Parties, or

                                (b) Both Lessor and Lessee shall each immediately make a reasonable determination of the MRV and submit such determination, in

 

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writing; to arbitration in accordance with the following provisions:

                                         (i)  Within 15 days thereafter, Lessor and Lessee shall each select an ¨ appraiser or ¨ broker (“Consultant” check one) of their choice to act as an arbitrator. The two arbitrators so appointed shall immediately select a third mutually acceptable Consultant to act as a third arbitrator.

                                         (ii)  The 3 arbitrators shall within 30 days of the appointment of the third arbitrator reach a decision as to what the actual MRV for the Premises is, and whether Lesser’s or Lessee’s submitted MRV is the closest thereto. The decision of a majority of the arbitrators shall be binding on the Parties. The submitted MRV which is determined to be the closest to the actual MRV shall thereafter be used by the Parties.

                                         (iii)  if either of the Parties fails to appoint an arbitrator within the specified 15 days, the arbitrator timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the Parties.

                                         (iv)  The entire cost of such arbitration shall be paid by the party whose submitted MRV is not selected, ie. the one that is NOT the closest to the actual MRV.

               2)  Notwithstanding the foregoing, the new MRV shall not be less than the rent payable for the month immediately proceeding the rent adjustment.

        b.    Upon the establishment of each New Market Rental Value:

               1) the new MRV will become the new “Base Rent” for the purpose of calculating any further Adjustments; and

               2) the first month of each Market Rental Value term shall become the new “Base Month” for the purpose of calculating any further Adjustments.

þ     III.    Fixed Rental Adjustments) (FRA)

The Base Rent shall be increased to the following amounts on the dates set forth below:

 

On (Fill in FRA Adjustment Date(s)):      The New Base Rent shall be:

Sep. 1, 2011 – Aug. 31, 2012

    

$11,993.46

Sep. 1, 2012 – Aug. 31, 2013

    

$12,353.28

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

B .    NOTICE:

Unless specified otherwise herein, notice of any rental adjustments, other than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the Lease.

C .    BROKER’S FEE:

        The Brokers shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the Lease.

NOTE: These forms are often modified to meet changing requirements of law and needs of the industry. Always write or call to make sure you are utilizing the most current form: AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 S. Flower Street, Suite 600, Los Angeles, Calif. 90017

 

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ADDENDUM TO

STANDARD LEASE

DATED JULY 30, 2009

BY AND BETWEEN

FOUR-IN-ONE ASSOCIATES (“LESSOR”) AND

ENDOLOGIX, INC. (“LESSEE”)

FOR THE PREMISES LOCATED AT 1 HUGHES, SUITE B, IRVINE, CA

 

52. Tenant Improvements:

(a)        Lessor shall provide Lessee with a tenant improvement allowance in an amount equal to Three Dollars ($3.00) per square foot, up to a maximum aggregate amount equal to Thirty Nine Thousand Nine Hundred Dollars ($39,900.00) (the “Allowance”) for improvements to be made by Lessee during the first twelve (12) months of the Term, which shall be approved by Lessor as set forth in Paragraph 52(b), below. The Allowance shall be payable to Lessee upon submission to Lessor of a request for reimbursement with copies of paid invoices and lien releases for the Alterations (a “Payment Request”), which may be submitted from time to time by Lessee during the first twelve (12) months of the Term. In the event any of the Alterations rise to the level of requiring the issuance of a certificate of completion or certificate of occupancy from the City of Irvine, Lessee shall provide a copy of same with the applicable Payment Request, provided, however, that Lessor and Lessee acknowledge and agree between themselves that no such certificate will be required for non-structural or cosmetic improvements. Lessor hereby agrees to pay the amounts requested in each Payment Request within thirty (30) days after receipt of each such Payment Request from Lessee.

(b)        Lessee shall be responsible for the completion of any Alterations. Plans and specifications for said Alterations shall be subject to Lessor review and approval, with such approval not be unreasonably withheld, conditioned or delayed. In the event Lessor fails to provide its approval to Lessee’s plans and specifications within ten (10) business days after submission of same, Lessor shall be deemed to have approved such plans and specifications.

 

53. Expansion First Right of Offer: Lessor hereby grants Lessee a continuing right (the “Right of First Offer” ) to expand the Premises under this Lease to include any space within the Building that becomes available during the Term, as the same may be extended herein ( “Expansion Space” ). Lessor shall notify Lessee in writing of any Expansion Space that becomes available, and Lessee will then have fifteen (15) business days from receipt of written notice from Lessor to exercise its right to lease such Expansion Space at the same rate then being paid by Lessee for the Premises pursuant to this Lease. Should Lessee exercise its Right of First Offer, Lessee shall deliver written notice of such exercise to Lessor, Lessee and Lessor shall enter into an amendment to this Lease to expand the Premises under this Lease to include the Expansion Space within fifteen (15) business days thereafter. Should Lessee fail to exercise its Right of First Offer as set forth above, then Lessor may offer the Expansion Space for lease to one or more third parties, provided, however, that in the event Lessor fails to lease all of such Expansion Space to one or more third parties within one hundred eighty (180) days after Lessee’s failure to exercise its Right of First Offer, Lessor shall once again be obligated to offer any remaining available portion of the Expansion Space to Lessee at the same rate then being paid by Lessee for the Premises pursuant to this Lease, and Lessee shall have a Right of First Offer for such remaining available portion of the Expansion Space in accordance with the terms set forth above. Lessee’s Right of First Offer shall continue to apply to any to space within the Building that becomes available during the Term, as the same may be extended herein. Tenant shall not be entitled to a Tenant Improvement Allowance with respect to any such expansion space.

 

54. Furniture and Fixtures: Lessor hereby represents and warrants that it owns lien-free title to the existing furniture and fixtures located within the Premises (the “Furniture” ). Lessor hereby grants to Lessee the right to use the Furniture within the Premises for the Term of the Lease, as the same may be extended herein. Lessee has no duty to maintain such Furniture and/or return it in good condition upon Lease Termination.

 

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55. Riders to Lease Provisions: Lessor and Lessee hereby acknowledge and agree that the following modifications are hereby made to the Lease:

Rider To Paragraph 2.2

Lessor represents and warrants to Lessee that as of the date hereof and as of the Commencement Date, (a) Lessor is the sole fee owner of the Building, the Premises and the Project; (b) there are no encumbrances, liens, agreements, covenants in effect that would materially or unreasonably limit Lessee’s rights hereunder; (c) Lessor is unaware of any impending condemnation plans, proposed assessments or other adverse conditions relating to the Premises or the Project, and (d) there are no Hazardous Substances in or about the Building or the Premises. Lessor warrants to Lessee that the roof of the Building shall be weather tight on the Start Date of the Lease. In the event that Lessee shall notify Lessor of a non-compliance with the foregoing warranty on or before one (1) year following the Commencement Date, then Lessor shall promptly repair same at Lessor’s sole cost and expense.

Rider to Paragraph 2.6

As used in this Paragraph 2.6 and elsewhere in this Lease, the terms “permit” and “permitted” shall be deemed to mean “knowingly permit” and “knowingly permitted” in connection with anything that Lessee permits, or has permitted, the term “immediately” shall mean “promptly”, and the terms “allows” and “allowed” shall be deemed to mean “knowingly allows” and “knowingly allowed” in connection with anything that Lessee allows, or has allowed, to be done on or about the Premises or the Project.

Rider to Paragraph 2.10

Notwithstanding anything to the contrary in the Lease, Lessor shall not make any changes, additions or alterations to the Building or the Project that adversely (a) impair access to or use of the Premises; or (b) affect the conduct of Lessee’s customary business therein. Lessor may at any time relocate or remove any of the various buildings, parking areas, and other Common Areas, and may add buildings and areas to the Project from time to time; provided, that Lessee’s proportionate share of Common Area Operating Expenses does not increase as a result thereof. No change shall entitle Lessee to any abatement of rent or other claim against Lessor, provided that the change does not adversely (x) impair access to or use of the Premises; or (y) affect the conduct of Lessee’s customary business therein.

Rider to Paragraph 4.2(a)

In the definition of “Common Area Operating Expenses”, item (ix) is hereby deleted and replaced with the following:

“(ix)      The cost of any capital improvement to the Building or the Project not covered under the provisions of Paragraph 2.3 provided; however, that Lessor shall allocate the cost of any such capital improvement over the useful life of such capital improvement and Lessee shall not be required to pay more than Lessee’s Share (each month during the remainder of the Term, on the date on which Base Rent is due) of an amount equal to the product of multiplying the cost of such capital improvement by a fraction, the numerator of which is one, and the denominator of which is the number of months of the useful life of such capital improvement.”

Rider to Paragraph 4.2(e)

In addition, and notwithstanding any contrary provisions contained in the Lease, Common Area Operating Expenses shall not include the following:

 

  (1) costs incurred by Landlord for the repair of damage to the Project, to the extent that Landlord is or should be reimbursed by insurance proceeds, and costs for repairs resulting from an earthquake or flood;

 

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  (2) depreciation, amortization, and interest payments, except as provided herein and except on materials, tools, supplies, and vendor-type equipment purchased by Landlord to enable Landlord to supply services that Landlord might otherwise contract with a third-party when such depreciation, amortization, and interest payments would otherwise have been included in the charge for such third-party services, all as determined in the accordance with generally accepted accounting principles consistently applied, and when depreciation or amortization is permitted or required, the items shall be amortized for its reasonably anticipated useful life;

 

  (3) marketing costs, including, without limitation, leasing commissions, attorneys’ fees in connection with the negotiation and preparation of letters, deal memos, letters of intent, leases, subleases and/or assignments, space planning costs and other costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transactions with Tenant or present or prospective tenants or other occupants of the Project;

 

  (4) expenses for services or other benefits that are not offered to Tenant for which Tenant is charged directly but that are provided to another tenant or occupant of the Project;

 

  (5) cost incurred by Landlord due to the violation by Landlord or any tenant of the terms and conditions of any lease of space in the Project;

 

  (6) overhead and profit increment paid to Landlord or to subsidiary or affiliates of Landlord for goods and/or services in or to the Project to the extent that same exceeds the costs of such goods and/or services rendered by an affiliated third party on a competitive basis;

 

  (7) interest, principal, points and fees on debts or amortization on any mortgage or mortgages or any other debt instrument encumbering the Project;

 

  (8) Landlord’s general corporate overhead and general and administrative expenses;

 

  (9) tax penalties incurred as a result of Landlord’s failure to make payments and/or to file any tax or informational returns when due; and

 

  (10) in-house legal and/or accounting fees.

Rider for new Paragraph 4.2(f)

Lessor agrees that it will maintain complete and accurate records of all costs, expenses and disbursements paid or incurred by Lessor, its employees, agents and/or contractors, with respect to the Common Area Operating Expenses, and within sixty (60) days after the end of each calendar year, Lessor shall deliver to Lessee a statement showing in reasonable detail the actual or prorated Lessee’s Share of Common Area Operating Expenses incurred by Lessor in such calendar year. Lessee shall have the right to audit Lessor’s Common Area Operating Expenses. Lessee shall give notice to Lessor of Lessee’s intent to audit within twenty-four (24) months following delivery of Lessor’s expense statement for each calendar year. Following reasonable notice to Lessor, such audit shall be conducted at a mutually agreeable time during normal business hours at the office of Lessor or its management agent where the records are maintained. If Lessee’s audit determines that actual Common Area Operating Expenses have been overstated by more than three percent (3%), then subject to Lessor’s right to review and/or contest the audit results, Lessor shall reimburse Lessee for the reasonable out-of-pocket costs of such audit. Lessee’s rent shall be appropriately adjusted to reflect any overstatement in Common Area Operating Expenses or if the Term has expired, Lessor shall promptly refund the difference to Lessee.

Rider to Paragraph 6.2(a)

Notwithstanding anything to the contrary in the Lease, Lessor hereby consents to the use by Lessee of the kinds and quantities of Hazardous Substances described on Exhibit B attached hereto and incorporated herein, provided Lessee shall comply with all applicable laws and regulations pertaining to the generation, storage, use and disposal of such Hazardous

 

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Substances, and Lessee shall have no obligation to inform Lessor of such Hazardous Substances used in connection with the Agreed Use.

Rider to Paragraph 6.2(d)

Notwithstanding anything to the contrary in the Lease, Lessee shall have no liability or responsibility with respect to any Hazardous Substances which: (i) were not caused or permitted by Lessee, its agents, employees, contractors, licensees or invitees, or, following the Commencement Date, by any third parties other than Lessor; (ii) were the result of violations of any “ Hazardous Substances Laws ” (as hereinafter defined) relating to the Premises, the Building, or the Project (the Premises, the Building, and the Project shall be collectively referred to herein as the “ Property ”) which violations existed as of the Commencement Date, or (iii) were present in, on, under or about any part of the Property as of the Commencement Date, or that were brought into, onto, about, or under any part of the Property by anyone other than Lessee, its agents, employees, contractors, licensees or invitees, or, following the Commencement Date, by third parties other than Lessor. “ Hazardous Substances Laws ” shall mean and include all federal, state, and local laws relating to the environment or to Hazardous Substances, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), each as amended from time to time.

Rider to Paragraph 6.2(e)

(i)    Lessor represents and warrants to Lessee that Lessor has complied, and the Property is in compliance as of the date of the Lease, with all Hazardous Substances Laws, and no notice of violation of any Hazardous Substances Law with respect thereto, or any permit, license or other authorization relating thereto has been received, nor is any such notice pending or, to Lessor’s knowledge, threatened. No underground or above-ground storage tanks or surface impoundments are located on or under any part of the Property. Except in compliance with Hazardous Substances Laws, neither Lessor, nor any prior owner, operator, tenant or occupant of any part of the Property, has generated, used, treated, spilled, stored, transferred, disposed, released or caused a threatened release in, at, under, into, from, to or on any part of the Property of any Hazardous Substances. Except as disclosed to Lessee, Lessor has not received any notice or claim to the effect that either Lessor or any part of the Property is or may be liable to any governmental authority or private party as a result of the release or threatened release of any Hazardous Substances.

(ii)   To the fullest extent permitted by law, Lessor shall indemnify, hold harmless, protect and defend (with attorneys acceptable to Lessee) Lessee from and against any and all liabilities, losses, damages, diminution in value, judgments, fines, demands, claims, recoveries, deficiencies, costs and expenses (including without limitation attorneys’ fees, court costs and other professional expenses), whether foreseeable or unforeseeable, arising directly or indirectly out of the use, generation, storage, treatment, release, on- or off-site disposal or transportation of Hazardous Substances (A) on, into, from, under or about the Premises during the Term or any Option, regardless of the source of such Hazardous Substances, caused by Lessor or its agents, employees, contractors, licensees or invitees, or (B) which were present in, on under or about any part of the Property as of the Commencement Date. Lessor shall take responsibility, at its sole cost and expense, for any governmentally-ordered clean-up, remediation, removal, disposal, neutralization, monitoring or other treatment of the Hazardous Substances which were present in, on under or about any part of the Property as of the Commencement Date. The foregoing obligation on the part of Lessor shall include the reasonable costs (including, without limitation, reasonable attorney’s fees) of defending Lessee (with attorneys reasonably acceptable to Lessee) from and against any legal action or proceeding instituted by any governmental agency in connection with such clean-up, remediation, removal, disposal, neutralization or other treatment of such conditions, provided that Lessee promptly tenders such defense to Lessor. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under the Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

 

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Rider to Paragraph 7.1(d)

Paragraph 7.1(d) is hereby deleted and replaced with the following:

“(d) Replacement. Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is the number of months of the useful life of such replacement.”

Rider to Paragraph 11

Notwithstanding the foregoing, if as a result of the direct actions of Lessor, its agents, contractors or employees, for more than seventy-two (72) consecutive hours following written notice to Lessor, there is no HVAC or electricity services to the Premises, or such an interruption of other essential utilities and building services, such as fire protection or water, so that the Premises cannot be used by Lessee, in Lessee’s judgment reasonably exercised, then Lessee’s Base Rent shall thereafter be abated until the Premises are again usable by Lessee; provided, however, that if Lessor is diligently pursuing the repair of such utilities or services and Lessor provides substitute services reasonably suitable for Lessee’s purposes, as for example, bringing in portable air-conditioning equipment, then there shall not be an abatement of Base Rent.

Rider to Paragraph 12.1(b)

Notwithstanding the foregoing, Lessee may, upon written notice to Lessor, but without obtaining Lessor’s consent, assign this Lease or all or any portion of the Premises to (i) any parent or subsidiary entity of Lessee or such parent, (ii) any person or entity that acquires all or substantially all of Lessee’s assets or stock, or (iii) any entity with which Lessee merges, regardless of whether Lessee is the surviving entity (collectively, a “ Related Party Assignment ”). In addition, Lessor’s consent shall not be required for any sale or other transfer of Lessee’s stock (A) in any initial or subsequent public offering by Lessee, (B) if Lessee is a public company, the sale or transfer of Lessee’s stock to take Lessee private, each of which shall also be considered a Related Party Assignment.

Rider to Paragraph 28

Except for matters which will have an adverse effect on the (a) structural integrity of the Building, (b) the Building plumbing, heating, life safety, ventilating, air conditioning, mechanical or electrical systems, or (c) the exterior appearance of the Building, whereupon in each such case Lessor’s duty is to act in good faith and in compliance with the Lease, any time the consent, approval, designation or satisfaction of Lessor or Lessee is required, the same shall not be unreasonably withheld, conditioned or delayed. Whenever the Lease grants Lessor or Lessee the right to take action, exercise discretion, establish rules and regulations or make allocations or other determinations, Lessor and Lessee shall act reasonably and in good faith.

 

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AGREED & ACCEPTED:

 

LESSOR:     LESSEE:
Four-in-One Associates,     Endologix, Inc.,
a California general partnership     a Delaware corporation
By:  

/s/ Richard Hunsaker

    By:  

/s/ Robert J. Krist

Date:  

9/1/09

    Date:  

8/28/09

 

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EXHIBIT B

HAZARDOUS MATERIALS CURRENTLY USED BY ENDOLOGIX

 

Isopropyl Alcohol 70% (CAS No. 67-63-0)    No more than 55 gallons are stored at the site at any one time
Tetra-etch Etchant (CAS No. 110-71-4)    No more than 1 liter is stored at the site at any one time
Cidex Plus Solution (CAS 111-30-8)    No more than 5 gallons of Cidex are stored at the site at any one time

Several different kinds of adhesives used:

UV and cyanoacrylate

   Total quantities are measured in grams
Remaining items are cleaning solvents for janitorial activities   

 

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LOGO

 

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Exhibit 31.1

Certification

I, John McDermott, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Endologix, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principals;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: October 30, 2009     By:  

/s/ John McDermott

      John McDermott
      President and Chief Executive Officer

Exhibit 31.2

Certification

I, Robert J. Krist, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Endologix, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principals;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: October 30, 2009     By:  

/s/ Robert J. Krist

      Robert J. Krist
      Chief Financial Officer

Exhibit 32.1

Certification

I, John McDermott, hereby certify pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 that:

 

  (1) The Quarterly Report of Endologix, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2009 (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 780(d)); and

 

  (2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: October 30, 2009     By:  

/s/ John McDermott

      John McDermott
      President and Chief Executive Officer

This certification accompanies the Quarterly Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.

Exhibit 32.2

Certification

I, Robert J. Krist, hereby certify pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 that:

 

  (1) The Quarterly Report of Endologix, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2009 (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 780(d)); and

 

  (2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: October 30, 2009     By:  

/s/ Robert J. Krist

      Robert J. Krist
      Chief Financial Officer

This certification accompanies the Quarterly Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.