-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P6YvUNLuazBzAb4kUuACYQPWgZtWfXEuJ7XTNm4jaxnn4rQ8RzQi89c5tMTxicT9 rXZm/byUSCYg8NclVpDHfg== 0000950153-96-000535.txt : 19960812 0000950153-96-000535.hdr.sgml : 19960812 ACCESSION NUMBER: 0000950153-96-000535 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960809 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WAVEPHORE INC CENTRAL INDEX KEY: 0000873287 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 860491428 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24858 FILM NUMBER: 96607267 BUSINESS ADDRESS: STREET 1: 2601 WEST BROADWAY RD CITY: TEMPE STATE: AZ ZIP: 85282 BUSINESS PHONE: 6024388700 10-Q 1 QUARTERLY REPORT FOR THE QUARTER ENDED 6/30/96 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File Number: 0-24858 WAVEPHORE, INC. (Exact name of registrant as specified in its charter) INDIANA 86-0491428 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3311 NORTH 44TH STREET, PHOENIX, AZ 85018 (602) 952-5500 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) 2601 WEST BROADWAY ROAD, TEMPE, AZ 85282 (former address changed since last report) 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 1964 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 the filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding of the issuer's common stock, as of July 31, 1996: COMMON SHARES, NO PAR VALUE: 13,522,666 SHARES 2 WAVEPHORE, INC. INDEX PART I FINANCIAL INFORMATION Page Item 1. Financial Statements Condensed Consolidated Balance Sheets - June 30, 1996 and December 31, 1995......................... 3 Condensed Consolidated Statements of Operations - Three and six months ended June 30, 1996 and 1995........... 4 Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 1996 and 1995..................... 5 Notes to Condensed Consolidated Financial Statements ........... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .............. 7 PART II OTHER INFORMATION Item 4. Submissson of Matters to a Vote of Security Holders .. 9 Item 6. Exhibits and Reports on Form 8-K ...................... 9 SIGNATURES............................................................... 10 2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements WavePhore, Inc. Condensed Consolidated Balance Sheets
June 30, December 31, 1996 1995 ------------ ------------- (Unaudited) Assets Current Assets: Cash and cash equivalents $10,831,758 $10,945,178 Accounts receivable 3,019,742 3,437,374 Inventories 2,754,903 2,194,673 Other receivables 103,052 159,028 Notes receivable from officers, including interest 476,017 40,757 Prepaid expenses and other 659,466 518,568 ----------- ----------- Total Current Assets 17,844,938 17,295,578 Notes and other receivables 123,253 212,138 Property and equipment, net 2,123,816 2,013,655 Intangible assets of businesses acquired, net 17,517,566 18,467,252 Deposits and other assets 386,440 269,530 ----------- ----------- $37,996,013 $38,258,153 =========== =========== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 1,448,454 $ 2,119,244 Accrued stock issuance expenses -- 1,977,000 Accrued expenses 543,305 813,285 Current portion of long-term debt 1,064,061 1,197,466 Other 131,125 190,000 ----------- ----------- Total Current Liabilities 3,186,945 6,296,995 Long-term debt, less current portion 616,083 637,843 Other long-term liabilities 336,106 217,487 Deferred compensation -- 300,000 Stockholders' equity 33,856,879 30,805,828 ----------- ----------- $37,996,013 $38,258,153 =========== ===========
See accompanying notes. 3 4 WavePhore, Inc. Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ---------------------------- 1996 1995 1996 1995 ------------ ------------ ----------- ----------- Revenues $ 4,604,353 $ 335,538 $ 8,647,767 $ 521,487 Cost of revenues 2,801,302 113,663 5,300,776 288,541 ------------ ------------ ------------ ----------- Gross margin 1,803,051 221,875 3,346,991 232,946 Operating expenses: Product development 986,387 1,150,786 1,921,375 2,151,416 Sales and marketing 1,642,087 565,423 2,916,373 954,128 General and administrative 1,443,434 497,841 2,782,533 1,030,637 Charge for purchased research and development -- -- -- 473,679 Amortization 483,693 -- 967,388 -- ------------ ------------ ------------ ----------- 4,555,601 2,214,050 8,587,669 4,609,860 ------------ ------------ ------------ ----------- Loss from operations (2,752,550) (1,992,175) (5,240,678) (4,376,914) Other (income) expense: Interest expense 51,702 4,086 99,691 7,680 Interest income (180,969) (141,262) (370,853) (262,278) Other (5,287) (77) (2,427) (4,416) ------------ ------------ ------------ ----------- (134,554) (137,253) (273,589) (259,014) Net loss $ (2,617,996) $ (1,854,922) $ (4,967,089) $(4,117,900) ============ ============ ============ =========== Net loss per share $ (0.22) $ (0.18) $ (0.42 $ (0.42) ============ ============ ============ =========== Number of shares used in per share calculation 12,082,552 10,085,134 11,865,786 9,908,455 ============ ============ ============ ===========
See accompanying notes. 4 5 WavePhore, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended ------------------------------ June 30, June 30, 1996 1995 ------------- ------------- OPERATING ACTIVITIES: Net loss $ (4,967,089) $ (4,117,900) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 1,466,361 85,840 Charge for purchased research and development -- 473,679 Amortization of unearned compensation -- 68,750 Provision for doubtful accounts 21,000 -- Changes in operating assets and liabilities (899,190) (202,066) ------------ ------------ Net cash used in operating activities (4,378,918) (3,691,697) INVESTING ACTIVITIES: Purchase of property and equipment (609,134) (389,690) Purchase of treasury stock (2,036,419) (569,364) Purchase of business, net of cash acquired -- (11,475) Loans to officers, including interest (435,260) (666,173) Repayments on loans to officers -- 1,600,796 ------------ ------------ Net cash used in investing activities (3,080,813) (35,906) FINANCING ACTIVITIES: Issuance of preferred shares, net 5,499,276 -- Payment of preferred stock dividend (552,164) -- Issuance of common stock, net 2,564,733 1,568,399 Issuance of stock purchase warrants -- 100,000 Payments on notes payable (1,514,351) (116,447) Borrowings under credit line; net 1,359,186 -- Other (10,369) (8,357) Issuance of loan receivable -- (140,924) Repayments on loan receivable -- 140,924 ------------ ------------ Net cash provided by financing activities 7,346,311 1,543,595 Net decrease in cash and cash equivalents (113,420) (2,184,008) ------------ ------------ Cash and cash equivalents at beginning of period 10,945,178 10,324,921 ------------ ------------ Cash and cash equivalents at end of period $ 10,831,758 $ 8,140,913 ============ ============ Supplemental cash flow information: - Issuance of common stock in connection with purchase of business $ 1,135,065 ============ - Issuance of common stock in connection with dividend payment on preferred stock $ 527,812 ============
See accompanying notes. 5 6 WAVEPHORE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) (1) BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. The results of operations for the three and six month periods ended June 30, 1996 are not necessarily indicative of the results to be expected for the full year. Effective January 1, 1996, the Company discontinued the development stage. (2) LOSS PER SHARE Loss per share is based on the weighted average number of common shares outstanding during each period. Common stock equivalents, which were anti-dilutive, were not included in the computation of net loss per share. (3) RECLASSIFICATIONS Certain amounts presented for the three and six months ended June 30, 1995 have been reclassified to conform to June 30, 1996 presentation. (4) INVENTORIES Inventories consist of the following:
June 30, December 31, 1996 1995 ---------- ----------- Finished goods $ 616,713 $ 588,260 Work-in-process 1,373,402 1,334,567 Raw materials 764,788 271,846 ---------- ---------- $2,754,903 $2,194,673 ========== ==========
6 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW WavePhore, Inc. including its recently acquired, wholly-owned subsidiaries, WavePhore, Canada, Inc. and WavePhore Networks, Inc., (formerly Mainstream Data, Inc.) collectively (the "Company"), is a developer and provider of proprietary products and services for the low-cost, high speed distribution of digital data via the existing worldwide television, radio and satellite broadcast infrastructures. The year of 1995 marked a major transition in the Company's evolution from a technology organization, principally a hardware and network systems developer, to a fully integrated information solutions provider. The Company had been in the development stage until the end of 1995. Effective January 1, 1996, the Company discontinued the development stage. On January 25, 1995, the Company purchased all of the outstanding common stock of BleuMont Telecom Inc. of Montreal, Canada. Subsequent to the acquisition, BleuMont Telecom Inc. was renamed WavePhore Canada, Inc. ("WavePhore Canada"). WavePhore Canada is involved in the research, development and marketing of products and services for the transmission of data by television signal. The acquisition was accounted for as a purchase and, accordingly, the operating results of WavePhore Canada have been included in the consolidated financial statements from the date of acquisition. The aggregate purchase price of WavePhore Canada common stock was approximately $1.3 million, consisting of $284,831 in cash (includes direct cost of acquisition) and the issuance of 244,626 shares of the Company's common stock. During the second quarter of 1995, the Company entered into an agreement with Intel Corporation ("Intel") whereby it agreed to develop data broadcasting technology for Intel. The agreement provides, among other things, for the Company to license to Intel certain of the Company's proprietary technologies and Intel granting the Company certain rights with respect to the sale and distribution of products incorporating such technologies. In addition, under a separate agreement, Intel acquired the right to purchase up to 250,000 common shares of the Company by May of 1997. In connection with the agreements, Intel made payments to the Company aggregating $500,000 in cash, and agreed to pay other license fees and royalties to the Company. On December 29, 1995, the Company purchased all of the outstanding common stock of WavePhore Networks, Inc. (formerly Mainstream Data, Inc.), hereafter referred to as "WavePhore Networks". WavePhore Networks is a provider of proprietary products and services for the distribution of digital data via direct satellite links and local FM broadcast frequencies. In addition, WavePhore Networks markets an information product known as Newscast. The acquisition was accounted for as a purchase and, accordingly, the operating results of WavePhore Networks have been included in the consolidated financial statements from the date of acquisition. The aggregate purchase price was approximately $29.4 million, consisting of $20.1 million in cash and the issuance of 747,029 shares of the Company's common stock. RESULTS OF OPERATION - THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 Revenues. Revenues are derived from datacasting services and equipment sales and Newscast(TM) services. Revenues for the three months and six months periods ended June 30, 1996 were $4,604,000 and $8,648,000, respectively compared to $336,000 and $521,000, respectively for the comparable periods in the prior year. The increase in revenues is the result of the increase in volume in the datacasting services and Newscast businesses. Cost of Revenues. Cost of revenues consists primarily of royalties paid to third party information providers for the cost of news services sold to customers, costs associated with transmitting news services to customer sites and cost of computer hardware and software sold to customers. The increase in cost of revenues is due to the increased business volume. 7 8 Product Development. Product development expenses were $986,000 and $1,921,000 for the three months and six months periods ended June 30, 1996, respectively compared to $1,151,000 and $2,151,000, respectively, for the comparable periods in the prior year. The product development expenses consists primarily of design, testing and support of the Company's existing and developing hardware, software and services. The Company anticipates continuing to make significant expenditures in product development as it develops new and enhanced services and provides services to a growing customer base. Sales and Marketing. Sales and marketing expenses for the three and six months periods ended June 30, 1996 were $1,642,000 and $2,916,000 respectively, compared to $565,000 and $954,000, respectively, for the comparable periods of the prior year. The increase relates primarily to additional sales personnel, increased travel, and advertising and promotional costs. General and administrative. General and administrative expenses for the three and six months ended June 30, 1996 were $1,443,000 and $2,783,000, respectively, compared to $498,000 and $1,031,000, respectively, for the comparable periods of the prior year. The increase relates primarily to the acquisition of WavePhore Canada in January 1995 and WavePhore Networks in December 1995. Charge for purchased research and development. The charge for purchased research and development relates to the portion of the total cost to purchase WavePhore Canada common stock which was allocated to research and development that was being conducted by WavePhore Canada at the time of the purchase. Interest Expense. Interest expense increased during the three and six months periods ended June 30, 1996, compared to the same period of the prior year, due to the average debt outstanding during the periods increasing in 1996 compared to 1995. Interest Income. Interest income increased during the three and six months periods ended June 30, 1996, compared to the same periods of the prior year, due to the increase in cash and cash equivalents resulting from the cash proceeds from the private offering of the Company's preferred stock in December 1995 and January 1996. LIQUIDITY AND CAPITAL RESOURCES During the six months periods ended June 30, 1996 and 1995, the Company used cash in its operations of $4,379,000 and $3,692,000, respectively. Cash used in operations is less than the net losses primarily because of non cash charges of depreciation and amortization and the charge for purchased research and development. Cash flows used in investing activities was $3,081,000 for the six months ended June 30, 1996, compared to cash used by investing activities of $36,000 for the same period in the prior year. The Company made $609,000 of purchases of property and equipment during the first six months of 1996. For the six months ended June 30, 1996, the Company generated cash of $7,346,000 from financing activities primarily from the issuance of preferred and common stock. These sources of cash were offset by the payment of a preferred stock dividend in the amount of $552,000. The Company estimates that its present financial resources will be sufficient to fund operating activities including the company's accelerated internal growth beyond 1996. The Company will continue to evaluate business acquisitions and the development of strategic partnerships to help accelerate its growth. The pace at which these acquisitions and strategic partnerships occur will have an impact on the capital resources of the Company to the extent they are funded with cash, or upon the dilution of existing shareholder interests to the extent they are entered into for equity. Certain of the above statements are forward looking statements that involve risks and uncertainties. Actual results could differ materially as a result of a variety of factors, including technology change, competitive developments and risk factors listed from time to time in the Company's SEC reports. 8 9 PART II. OTHER INFORMATION Item 4. Submission of matters to a vote of security holders. (a) On May 3, 1996, the Company held its Annual Meeting of Shareholders at which the following matter was voted upon: ELECTION OF DIRECTORS. All six management nominees for election as directors were unopposed and elected by the following votes: DIRECTOR SHARES FOR SHARES WITHHELD David E. Deeds 10,270,256 43,594 R. Glenn Williamson 10,270,256 43,594 Scott E. Calder 10,270,256 43,594 C. Roland Haden 10,269,056 44,794 Glenn Scolnik 10,270,256 43,594 J. Robert Collins 10,270,256 43,594 Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are included herein: 10.1 Office building lease between Flower Court General Partnership and the Company, dated June 30, 1996 10.2 Office building lease between Kax Co., a General Partnership and WavePhore, Networks, Inc., dated May 30, 1996 27 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the period. 9 10 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. WavePhore, Inc. Date: July 31, 1996 By /s/ David E. Deeds ------------- ------------------- David E. Deeds, President and Chief Executive Officer (Duly Authorized Officer) Date: July 31 , 1996 By /s/ Kenneth D. Swenson -------------- ---------------------- Kenneth D. Swenson, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 10 11 EXHIBIT INDEX Exhibit Exhibit Number Description - ------- ----------- 10.1 Office building lease between Flower Court General Partnership and the Company, dated June 30, 1996. 10.2 Office building lease between Kax Co., a General Partnership and WavePhore Networks, Inc., dated May 30, 1996. 27 Financial Data Schedule 11 EX-10.1 2 OFFICE BUILDING LEASE WITH FLOWER COURT 1 EXHIBIT 10.1 OFFICE BUILDING LEASE This lease ("LEASE") between FLOWER COURT GENERAL PARTNERSHIP, an Arizona general partnership ("LANDLORD"), and WAVE PHORE, INC. an Indiana corporation authorized to do and doing business in the State of Arizona ("TENANT") is dated June ___, 1996 . SECTION 1. LEASE OF PREMISES. In consideration of the Rent (as defined at Section 5) and the provisions of this lease, Landlord leases to Tenant and Tenant leases from Landlord the Premises shown by diagonal lines on the floor plan attached hereto as EXHIBIT "A," and further described at Paragraph 2 (k) . The Premises are located within the Building and Project described in Paragraph 2 (l). Tenant shall have the non-exclusive right (unless otherwise provided herein) in common with Landlord, other tenants, subtenants, and invitees to use of the Common Areas (as defined at Paragraph 2 (e)). SECTION 2. DEFINITIONS. As used in this Lease, the following terms shall have the following meanings: a. BASE RENT: The fixed annual rents set forth in EXHIBIT "B." b. BASE YEAR: The calendar year of 1996 . c. BROKERS: (i) LANDLORD'S BROKER: CB Commercial Real Estate Group, Inc. (ii) TENANT'S BROKER: Koll CBS d. COMMENCEMENT DATE: August 1, 1996 e. COMMON AREAS: The building lobbies, common corridors and hallway, restrooms, garage and parking areas, stairways, elevators, and other generally understood public or common areas. Landlord shall have the right to regulate or restrict the use of Common Areas. f. EXPENSE STOP: An amount equal to Project Operating Costs for the Base Year, calculated under the assumption that throughout the Base Year the Project is NINETY-FIVE PERCENT (95%) occupied, and including the actual amount of real property taxes assessed against the Building or Project for the Base Year. 2 g. EXPIRATION DATE: July 31, 2001, unless otherwise or sooner terminated in accordance with the provisions of this Lease. h. LANDLORD'S MAILING ADDRESS: c/o JM Management Company, Inc. 5141 North 40th Street Suite 100 Phoenix, Arizona 85018 Donald L. Meyers Law Offices Donald D. Meyers, P.C. 2398 East Camelback Road Suite 900 Phoenix, Arizona 85016 i. TENANT'S MAILING ADDRESS: WavePhore, Inc. 3311 North 44th Street Phoenix, Arizona 85018 j. PARKING: Landlord agrees to provide Tenant with approximately forty-eight (48) covered, reserved parking spaces directly underneath the Building at no cost to Tenant for the Term of the Lease. Tenant agrees to abide by any and all parking regulations and rules established from time to time by Landlord or Landlord's parking operator. k. PREMISES: That portion of the Building containing approximately 12,931 square feet of Rentable Area shown by diagonal lines on EXHIBIT A, located in the Building. l. PROJECT: The building of which the Premises are a part (the "BUILDING") and any other buildings or improvements on the real property (the "PROPERTY") located at 3311 North 44th Street, Phoenix, Arizona. The Project is known as "FLOWER COURT." m. RENTABLE AREA: As to both the Premises and the Project , the respective measurements of floor area as may from time to time be subject to lease by Tenant and all tenants of the Project, respectively, as determined by Landlord and applied on a consistent basis throughout the Project. n. SECURITY DEPOSIT: The amount of $17,778.10 which is equal to ONE-TWELFTH (1/12) of the first year's Base Rent. o. STATE: The State of Arizona. 3 p. TENANT'S PROPORTIONATE SHARE: 49.79 %. Such share is a fraction, the numerator of which is the Rentable Area of the Premises, and the denominator of which is the Rentable Area of the Project, as determined by Landlord from time to time. The Project consists of two (2) buildings, containing a total Rentable Area of 25,907 square feet. q. TENANT'S USE CLAUSE: General Office r. TERM: The period commencing on the Commencement Date and expiring at midnight on the Expiration Date. s. LEASEHOLD IMPROVEMENT ALLOWANCE: An amount equal to the product of Three Dollars ($3.00 ) multiplied by the number of square feet of Rentable Area of the Premises, which will be paid upon execution of this Lease. Landlord agrees that it will clean the Premises and touch up with paint all areas of obvious need to the reasonable satisfaction of Tenant prior to the Commencement Date. The cost for such cleaning and painting shall not be included in the Leasehold Improvement Allowance. SECTION 3. EXHIBITS. The exhibits listed below are incorporated by reference in this Lease: a. EXHIBIT "A" - Floor Plan showing the Premises and Right of First Refusal Space. b. EXHIBIT "B" - Base Rent. c. EXHIBIT "C" - Leasehold Improvements. d. EXHIBIT "D" - Rules & Regulations. SECTION 4. DELIVERY OF POSSESSION. Tenant acknowledges that Bryant Universal is presently a Debtor in a pending bankruptcy proceeding in the United States Bankruptcy Court for the District of Arizona. In re Bryant Universal Roofing, No. 96-03726-PHX-CC. As a condition precedent to the effectiveness and enforceability of this Lease, the issue of appropriately and legally allowing Tenant to occupy the Premises by August 1, 1996 must be resolved satisfactorily in Landlord's sole discretion. In the event Landlord cannot satisfy itself with respect to this issue on or before July 5, 1996, this Lease and all rights, duties and obligations thereunder shall terminate and Landlord and Tenant shall owe no duties to the other. 4 If for any other reason Landlord does not deliver possession of the Premises to Tenant on the Commencement Date, Landlord shall not be subject to any liability for such failure, the Expiration Date shall not change, and the validity of this Lease shall not be impaired but Rent shall be abated until delivery of possession. If Landlord permits Tenant to enter into possession of the Premises before the Commencement Date, such possession shall be subject to the provisions of this Lease, including, without limitation, the payment of Rent. Landlord agrees to allow Tenant to enter onto the Premises prior to the Commencement Date at such times as are reasonably permissible for the express purpose of wiring the Premises for Tenant's reasonable business needs. No payment of rent shall be required for the same. SECTION 5. RENT. 5.1. Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises. The Base Rent shall be $16.50 per square foot per year for the Term of the Lease as set forth in EXHIBIT B, plus applicable taxes which shall include the following: excise, privilege, and sales taxes and any tax levied on the rental. The Base Rent shall be payable in TWELVE (12) monthly installments ("MONTHLY INSTALLMENTS OF BASE RENT") in advance on the first day of each calendar month of the Term. If the Term begins (or ends) on other than the first (or last) day of a calendar month, the Base Rent for the partial month shall be prorated on a per diem basis. Tenant shall pay Landlord the first Monthly Installment of Base Rent on July 1, 1996 or upon Delivery of Possession. 5.2. Project Operating Costs. a. In order that the Rent payable during the Term reflect any increase in Project Operating Costs, Tenant agrees to pay to Landlord as Rent, Tenant's Proportionate Share of all increases in costs, expenses and obligations attributable to the Project and its operation, all as provided below. Such increase shall be limited to five percent (5%) per year of controllable expenses. b. If during any calendar year during the Term, Project Operating Costs exceed the Project Operating Costs for the Base Year, Tenant shall pay to Landlord, in addition to the Base Rent and all other payments due under this Lease, an amount equal to Tenant's Proportionate Share of such excess Project Operating Costs in accordance with the provisions of this Section. 1. The term "PROJECT OPERATING COSTS" shall include all those items described in the following subparagraphs (a) and (b): a. All taxes, assessments, water and sewer charges and other similar governmental charges levied on or attributable to the Building or Project or their operation, including without limitation, (i) real property taxes or assessments levied or assessed against the Building or Project; (ii) assessments or charges levied or assessed against the Building or Project 5 by any redevelopment agency, (iii) any tax measured by gross rentals received from the leasing of the Premises, Building or Project, excluding any net income, franchise, capital stock, estate or inheritance taxes imposed by the State or federal government or their agencies, branches or departments; provided that if at any time during the Term any governmental entity levies, assesses, or imposes on Landlord any (1) general or special, ad valorem or specific, excise, capital levy or other tax, assessment, levy or charge directly on the Rent received under this Lease or on the rent received under any other leases of space in the Building or Project, or (2) any license fee, excise or franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon such rent, or (3) any transfer, transaction, or similar tax, assessment, levy or charge based directly or indirectly upon the transaction represented by this Lease or such other leases, or (4) any occupancy, use, per capita or other tax, assessment, levy or charge based directly or indirectly upon the use or occupancy of the Premises or other premises within the Building or Project, then any such taxes, assessments, levies and charges shall be deemed to be included in the term Project Operating Costs. If at any time during the Term the assessed valuation of or taxes on the Project are not based on a completed Project having at least NINETY-FIVE PERCENT (95%) of the Rentable Area occupied, then the "taxes" component of the Project Operating Costs shall be adjusted by Landlord to reasonably approximate the taxes which would have been payable if the Project were completed and at least NINETY-FIVE PERCENT (95%) occupied. b. Operating costs incurred by Landlord in maintaining and operating the Building and Project, including without limitation the following: costs of (1) utilities; (2) supplies; (3) insurance (including public liability, property damage, earthquake, and fire and extended coverage insurance for the full replacement cost of the Building and Project as required by Landlord or its lenders for the Project; (4) services of independent contractors; (5) compensation (including employment taxes and fringe benefits) of all persons who perform duties connected with the operation, maintenance, repair or overhaul of the Building or Project, and equipment, improvements and facilities located within the Project, including without limitation engineers, janitors, painters, floor waxers, window washers, security and parking persons and gardeners (but excluding persons performing services not uniformly available to or performed for substantially all Building or Project tenants); (6) operation and maintenance of a room for delivery and distribution of mail to tenants of the Building or Project as required by the U.S. Postal Service (including, without limitation, an amount equal to the fair market rental value of the mail room premises); (7) management of the Building or Project, whether managed by Landlord or an independent contractor (including, without limitation, an amount equal to the fair market value of any on-site 6 manager's office); (8) rental expenses for (or a reasonable depreciation allowance on) personal property used in the maintenance, operation or repair of the Building or Project; (9) costs, expenditures or charges (whether capitalized or not) required by any governmental or quasi-governmental authority; (10) amortization of capital expenses (including financing costs) (i) required by a governmental entity for energy conservation or life safety purposes, or (ii) made by Landlord to reduce Project Operating Costs; and (11) any other costs or expenses incurred by Landlord under this Lease and not otherwise reimbursed by tenants of the Project. If at any time during the Term, less than NINETY-FIVE PERCENT (95%) of the Rentable Area of the Project is occupied, the "operating costs" component of the Project Operating Costs shall be adjusted by Landlord to reasonably approximate the operating costs which would have been incurred if the Project had been at least NINETY-FIVE PERCENT (95%) occupied. 2. Tenant's Proportionate Share of Project Operating Costs shall be payable by Tenant to Landlord as follows: a. Beginning with the calendar year following the Base Year and for each calendar year thereafter ("COMPARISON YEAR"), Tenant shall pay Landlord an amount equal to Tenant's Proportionate Share of the Project Operating Costs incurred by Landlord in the Comparison Year which exceeds the amount of the Expense Stop. This excess is referred to as the "EXCESS EXPENSES." b. To provide for current payments of Excess Expenses, Tenant shall, at Landlord's request, pay as additional rent during each Comparison year, an amount equal to Tenant's Proportionate Share of the Excess Expenses payable during such Comparison Year as estimated by Landlord from time to time. Such payments shall be made in monthly installments commencing on the first day of the month following the month in which Landlord notifies Tenant of the amount it is to pay hereunder and continuing until the first day of the month following the month in which Landlord gives Tenant a new notice of estimated Excess Expenses. It is the intention hereunder to estimate from time to time the amount of the Excess Expenses for each Comparison year and Tenant's Proportionate Share thereof, and then to make an adjustment in the following year based on the actual Excess Expenses incurred for that Comparison Year. c. On or before APRIL 1 of each Comparison Year after the first Comparison Year (or as soon thereafter as is practical), Landlord shall deliver to Tenant a statement setting forth Tenant's Proportionate Share of the Excess Expenses for the preceding Comparison Year. If Tenant's 7 Proportionate Share of the actual Excess Expenses for the previous Comparison Year exceeds the total of the estimated monthly payments made by Tenant for such year, Tenant shall pay Landlord the amount of the deficiency within TEN (10) DAYS of the receipt of the statement, if such total exceeds Tenant's Proportionate Share of the actual Excess Expenses for such Comparison Year, then Landlord shall credit against Tenant's next ensuing monthly installment(s) of additional rent an amount equal to the difference until the credit is exhausted. If a credit is due from Landlord on the Expiration Date, Landlord shall pay Tenant the amount of the credit. The obligations of Tenant and Landlord to make payments required under this Paragraph 5.2 shall survive the Expiration Date. d. Tenant's Proportionate Share of Excess Expenses in any Comparison Year having less than 365 days shall be appropriately prorated. e. If any dispute arises as to the amount of any additional rent due hereunder, Tenant shall have the right after reasonable notice and at reasonable times to inspect Landlord's accounting records at Landlord's accounting office and, if after such inspection Tenant still disputes the amount of additional rent owed, a certification as to the proper amount shall be made by Landlord's certified public accountant, which certification shall be final and conclusive. Tenant agrees to pay the cost of such certification unless it is determined that Landlord's original statement overstated Project Operating costs by more than FIVE PERCENT (5%). 5.3. DEFINITION OF RENT. All costs and expenses which Tenant assumes or agrees to pay to Landlord under this Lease shall be deemed additional rent (which, together with the Base Rent is sometimes referred to as the "RENT"). The Rent shall be paid to the Building manager (or other person) and at such place, as Landlord may from time to time designate in writing, without any prior demand therefor and without deduction or offset, in lawful money of the United States of America. 5.4. RENT CONTROL. If the amount of Rent or any other payment due under this Lease violates the terms of any governmental restrictions on such Rent or payment, then the Rent or payment due during the period of such restrictions shall be the maximum amount allowable under those restrictions. Upon termination of the restrictions, Landlord shall, to the extent it is legally permitted, recover from Tenant the difference between the amounts received during the period of the restrictions and the amounts Landlord would have received had there been no restrictions. 5.5 TAXES PAYABLE BY TENANT. In addition to the Rent and any other charges to be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any and all taxes payable by Landlord (other than net income taxes) which are not otherwise reimbursable under this Lease, whether or not now customary or within the contemplation of the parties, where such taxes are upon, measured by or reasonably attributable to (a) the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises, or the cost or 8 value of any leasehold improvements made in or to the Premises by or for Tenant, other than BUILDING STANDARD WORK made by Landlord, regardless of whether title to such improvements is held by Tenant or Landlord; (b) the gross or net Rent payable under this Lease, including, without limitation, any rental or gross receipts tax levied by any taxing authority with respect to the receipt of the Rent hereunder; (c) the possession, leasing, operation, management, maintenance, alteration, repair, use of occupancy by Tenant of the Premises or any portion thereof; or (d) this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. If it becomes unlawful for Tenant to reimburse Landlord for any costs as required under this Lease, the Base Rent shall be revised to net Landlord the same net Rent after imposition of any tax or other charge upon Landlord as would have been payable to Landlord but for the reimbursement being unlawful. SECTION 6. INTEREST AND LATE CHARGES. If Tenant fails to pay when due any Rent or other amounts or charges which Tenant is obligated to pay under the terms of this Lease, the unpaid amounts shall bear interest at the maximum rate then allowed by law. Tenant acknowledges that the late payment of any Monthly Installment of Base Rent will cause Landlord to lose the use of that money and incur costs and expenses not contemplated under this Lease, including without limitation, administrative and collection costs and processing and accounting expenses, the exact amount of which is extremely difficult to ascertain. Therefore, in addition to interest, if any such installment is not received by Landlord within FIVE (5) DAYS from the date it is due, Tenant shall pay Landlord a late charge equal to TEN PERCENT (10%) of such installment. Landlord and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Landlord for the loss suffered from such nonpayment by Tenant. Acceptance of any interest or late charge shall not constitute a waiver of Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord from exercising any other rights or remedies available to Landlord under this Lease. SECTION 7. SECURITY DEPOSIT. Tenant agrees to deposit with Landlord the Security Deposit set forth at Paragraph 2(n) upon execution of this Lease, as security for Tenant's faithful performance of its obligations under this Lease. Landlord and Tenant agree that the Security Deposit may be commingled with funds of Landlord and Landlord shall have no obligation or liability for payment of interest on such deposit. Tenant shall not mortgage, assign, transfer or encumber the Security Deposit without the prior written consent of Landlord and any attempt by Tenant to do so shall be void, without force or effect and shall not be binding upon Landlord. If Tenant fails to pay any Rent or other amount when due and payable under this Lease, or fails to perform any of the terms hereof, Landlord may appropriate and apply or use all or any portion of the Security Deposit for Rent payments or any other amount then due and unpaid, for payment of any amount for which Landlord has become obligated as a result of Tenant's default or breach, and for any loss or damage sustained by Landlord as a result of Tenant's default or breach, and Landlord may so apply or use this deposit without prejudice to any other remedy Landlord may have by reason of Tenant's default or breach. If Landlord so uses any of the Security Deposit, 9 Tenant shall, within TEN (10) DAYS after written demand therefor, restore the Security Deposit to the full amount originally deposited; Tenant's failure to do so shall constitute an act of default hereunder and Landlord shall have the right to exercise any remedy provided for at Section 29 hereof. Within FIFTEEN (15) DAYS after the Term (or any extension thereof) has expired or Tenant has vacated the Premises, whichever shall last occur, and provided Tenant is not then in default on any of its obligations hereunder, Landlord shall return the Security Deposit to Tenant, or, if Tenant has assigned its interest under this Lease, to the last assignee of Tenant. If Landlord sells its interest in the Premises, Landlord may deliver this deposit to the purchaser of Landlord's interest and thereupon be relieved of any further liability or obligation with respect to the Security Deposit. SECTION 8. TENANT'S USE OF THE PREMISES. Tenant shall use the Premises solely for the purposes set forth in Tenant's Use Clause. Tenant shall not use or occupy the Premises in violation of law or any covenant, condition or restriction affecting the Building or Project or the certificate of occupancy issued for the Building or Project, and shall, upon notice from Landlord, immediately discontinue any use of the Premises which is declared by any governmental authority having jurisdiction to be a violation of law or the certificate of occupancy. Tenant, at Tenant's own cost and expense, shall comply with all laws, ordinances, regulations, rules and/or any directions of any governmental agencies or authorities having jurisdiction which shall, by reason of the nature of Tenant's use or occupancy of the Premises, impose any duty upon tenant or Landlord with respect to the Premises or its use or occupation. A judgment of any court of competent jurisdiction or the admission by Tenant in any action or proceeding against Tenant that Tenant has violated any such laws, ordinances, regulations, rules and/or directions in the use of the Premises shall be deemed to be conclusive determination of that fact as between Landlord and Tenant. Tenant shall not do or permit to be done anything which will invalidate or increase the cost of any fire, extended coverage or other insurance policy covering the Building or Project and/or property located therein, and shall comply with all rules, orders, regulations, requirements and recommendations of the Insurance Services Office or any other organization performing a similar function. Tenant shall promptly upon demand reimburse Landlord for any additional premium charged for such policy by reason of Tenant's failure to comply with the provisions of this Section. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or Project, or injure or annoy them or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about he Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. SECTION 9. SERVICES AND UTILITIES. Provided that Tenant is not in default hereunder, Landlord agrees to furnish to the Premises during generally recognized business days, and during hours determined by Landlord in its sole discretion, and subject to the Rules and Regulations of the Building or Project, electricity for normal desk top office equipment and normal copying equipment, and heating, ventilation and air conditioning ("HVAC") as required in Landlord's judgment for the comfortable use and 10 occupancy of the Premises. "Generally recognized business days" shall include Monday through Friday 8:00 a.m. to 6:00 p.m., Saturday 7:00 a.m. to 12:00 p.m. If Tenant desires HVAC at any other time, Landlord shall use reasonable efforts to furnish such service upon reasonable notice from Tenant and Tenant shall pay Landlord's charges therefor on demand. Landlord shall also maintain and keep lighted the common stairs, common entries and restrooms in the Building. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the Rent be abated by reason of (I) the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing service, (II) failure to furnish or delay in furnishing any such services where such failure or delay is caused by accident or any condition or event beyond the reasonable control of Landlord, or by the making of necessary repairs or improvements to the Premises, Building or Project, or (III) the limitation, curtailment or rationing of, or restrictions on, use of water, electricity, gas or any other form of energy serving the Premises, Building or Project. Landlord shall not be liable under any circumstances for a loss or injury to property or business, however occurring, through or in connection with or incidental to failure to furnish any such services. If Tenant uses heat generating machines or equipment in the Premises which affect the temperature otherwise maintained by the HVAC system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the cost thereof including the cost of installation, operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Tenant shall not, without the written consent of Landlord, use any apparatus or device in the Premises, including without limitation, electronic data processing machines, punch card machines or machines using in excess of 120 volts, which consumes more electricity than is usually furnished or supplied for the use of premises as general office space, as determined by Landlord. Tenant shall not connect any apparatus with electric current except through existing electrical outlets in the Premises. Tenant shall not consume water or electric current in excess of that usually furnished or supplied for the use of premises as general office space (as determined by Landlord), without first procuring the written consent of Landlord, which Landlord may refuse, and in the event of consent, Landlord may have installed a water meter or electrical current meter in the Premises to measure the amount of water or electric current consumed. The cost of any such meter and of its installation, maintenance and repair shall be paid for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand for all such water and electric current consumed as shown by said meters, at the rates charged for such services by the local public utility plus any additional expense incurred in keeping account of the water and electric current so consumed. If a separate meter is not installed, the excess cost for such water and electric current shall be established by an estimate made by a utility company or electrical engineer hired by Landlord at Tenant's expense. Nothing contained in this Section shall restrict Landlord's right to require at any time separate metering of utilities furnished to the Premises. In the event utilities are separately metered, Tenant shall pay promptly upon demand for all utilities consumed at utility rates charged by the local public utility plus any additional expense incurred by Landlord in keeping account of the utilities so consumed. Tenant shall be responsible for the maintenance and repair of any such meters at its sole cost. 11 Landlord shall furnish elevator service, lighting replacement for building standard lights, restroom supplies, window washing and janitor services in a manner that such services are customarily furnished to comparable office buildings in the area. SECTION 10. CONDITION OF THE PREMISES. Tenant's taking possession of the Premises shall be deemed conclusive evidence that as of the date of taking possession the Premises are in good order and satisfactory condition, except for such matters as to which Tenant gave Landlord notice on or before the Commencement Date. No promise of Landlord to alter, remodel, repair or improve the Premises, the Building or the Project and no representation, express or implied, respecting any matter or thing relating to the Premises, Building, Project or this Lease (including without limitation, the condition of the Premises, the Building or the Project) have been made to Tenant by Landlord or its Broker or Sales Agent, other than as may be contained herein or in a separate exhibit or addendum signed by Landlord and Tenant. SECTION 11. CONSTRUCTION, REPAIRS AND MAINTENANCE. a. LANDLORD'S OBLIGATIONS. Landlord shall maintain in good order, condition and repair the Building and all other portions of the Premises not the obligation of Tenant or of any other tenant in the Building. b. TENANT'S OBLIGATIONS. (1) Tenant at Tenant's sole expense shall, except for services furnished by Landlord pursuant to Section 9 hereof, maintain the Premises in good order, condition and repair, including the interior surfaces of the ceilings, walls and floors, all doors, all interior windows, all plumbing, pipes and fixtures, electrical wiring, switches and fixtures, Building Standard furnishings and special items and equipment installed by or at the expense of Tenant. (2) Tenant shall be responsible for all repairs and alterations in and to the Premises, Building and Project and the facilities and systems thereof, the need for which arises out of (i) Tenant's use or occupancy of the Premises (ii) the installation, removal, use or operation of Tenant's Property (as defined in Section 13) in the Premises (iii) the moving of Tenant's Property into or out of the Building, or (iv) the act, omission, misuse or negligence of Tenant, its agents, contractors, employees or invitees. (3) If Tenant fails to maintain the Premises in good order, condition and repair, Landlord shall give Tenant notice to do such acts as are reasonably required to so maintain the Premises. If Tenant fails to promptly commence such work and diligently prosecute it to completion, then Landlord shall have the right to do such acts and expend such funds at the expense of Tenant as are reasonably 12 required to perform such work. Any amount so expended by Landlord shall be paid by Tenant promptly after demand with interest at the prime commercial rate then being charged by Bank of America NT & S plus TWO PERCENT (2%) per annum, from the date of such work, but not to exceed the maximum rate then allowed by law. Landlord shall have no liability to Tenant for any damage, inconvenience, or interference with the use of the Premises by Tenant as a result of performing any such work. c. COMPLIANCE WITH LAW. Landlord and Tenant shall each do all acts required to comply with all applicable laws ordinances, and rules of any public authority relating to their respective maintenance obligations as set forth herein. d. WAIVER BY TENANT. Tenant expressly waives the benefits of any statute not or hereafter in effect which would otherwise afford the Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Premises in good order, condition and repair. e. LOAD AND EQUIPMENT LIMITS. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry, as determined by Landlord or Landlord's structural engineer. The cost of any such determination made by Landlord's structural engineer shall be paid for by Tenant upon demand. Tenant shall not install business machines or mechanical equipment which cause noise or violation to such a degree as to be objectionable to Landlord or other building tenants. f. Except as otherwise expressly provided in this Lease, Landlord shall have no liability to Tenant nor shall Tenant's obligations under this Lease be reduced or abated in any manner whatsoever by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord's making any repairs or changes which Landlord is required or permitted by this Lease or by any other tenant's lease or required by law to make in or to any portion of the Project, Building or the Premises. Landlord shall nevertheless use reasonable efforts to minimize any interference with Tenant's business in the Premises. g. Tenant shall give Landlord prompt notice of any damage to or defective condition in any part or appurtenance of the Building's mechanical, electrical, plumbing, HVAC or other systems located in, or passing through the Premises. h. Upon the expiration or earlier termination of this Lease, Tenant shall return the Premises clean and in the same condition as on the date Tenant took possession, except for normal wear and tear. Any damage to the Premises, including any structural damage, resulting from Tenant's use or from the removal of Tenant's fixtures, furnishings and equipment pursuant to Paragraph 13(b) shall be repaired by Tenant at Tenant's expense. 13 SECTION 12. ALTERATIONS AND ADDITIONS. a. Tenant shall not make any additions, alterations or improvements to the Premises without obtaining the prior written consent of Landlord. Landlord's consent may be conditioned on Tenant's removing any such additions, alterations or improvements upon the expiration of the Term and restoring the Premises to the same condition as of the date Tenant took possession. All work with respect to any addition, alteration or improvement shall be done in a good and workmanlike manner by properly qualified and licensed personnel approved by Landlord, and such work shall be diligently prosecuted to completion. Landlord may, at Landlord's option, require that any such work be performed by a mutually agreed-upon contractor, in which case the cost of such work shall be paid for before commencement of the work. b. Tenant shall pay the costs of any work done on the Premises pursuant to Paragraph 12(a), and shall keep the Premises, Building and Project free and clear of liens of any kind. Tenant shall indemnify, defend against and keep Landlord free and harmless from all liability, loss, damage, costs, attorneys fees and any other expense incurred on account of claims by any person performing work or furnishing materials or supplies for Tenant or any person claiming under Tenant. Tenant shall keep Tenant's leasehold interest, and any additions or improvements which are or become the property of Landlord under this Lease, free and clear of all attachment or judgment liens. Before the actual commencement of any work for which a claim or lien may be filed, Tenant shall give Landlord notice of the intended commencement date a sufficient time before that date to enable Landlord to post notices of non-responsibility or any other notices which Landlord deems necessary for the proper protection of Landlord's interest in the Premises, Building or the Project and Landlord shall have the right to enter the Premises and post such notices at any reasonable time. c. Landlord may require, at Landlord's sole option, that Tenant provide to Landlord, at Tenant's expense, a lien and completion bond in an amount equal to at least ONE AND ONE-HALF (1 -1/2) TIMES the total estimated cost of any additions, alterations or improvements to be made in or to the Premises, to protect Landlord against any liability for mechanic's and materialmen's liens and to insure timely completion of the work. Nothing contained in this Paragraph 12(c) shall relieve Tenant of its obligation under Paragraph 12(b) to keep the Premises, Building and Project free of all liens. d. Unless their removal is required by Landlord as provided in Paragraph 12(a), all additions, alterations and improvements made to the Premises shall become the property of Landlord and be surrendered with the Premises upon the expiration of the Term; provided, however, Tenant's equipment, machinery and trade fixtures which can be removed without damage to the Premises shall remain the property of Tenant and may be removed, subject to the provisions of Paragraph 13(b). 14 e. Landlord shall permit Tenant to install and operate communications antennas, including satellite dishes, on the Premises including, but not limited to, the roof of the Premises, for the term of the Lease including any extension or renewal thereof. SECTION 13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY. a. Landlord shall provide Tenant $3.00 per square foot as the Leasehold Improvements Allowance. This money may be used at Tenant's discretion. Tenant must obtain Landlord's consent for all Leasehold Improvements. Landlord's consent shall not be unreasonably withheld so long as the Leasehold Improvements conform to Tenant's use. b. All fixtures, equipment, improvements and appurtenances attached to or built into the Premises at the commencement of or during the Term, whether or not by or at the expense of Tenant ("LEASEHOLD IMPROVEMENTS"), shall be and remain a part of the Premises, shall be the property of Landlord and shall not be removed by Tenant, except as expressly provided in Paragraph 13(b). c. All movable partitions, business and trade fixtures, machinery and equipment, communications equipment and office equipment located in the Premises and acquired by or for the account of Tenant, without expense to Landlord, which can be removed without structural damage to the Building, and all furniture, furnishings and other articles of movable personal property owned by Tenant and located in the Premises (collectively, "TENANT'S PROPERTY") shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term, provided that if any of Tenant's Property is removed, Tenant shall promptly repair any damage to the Premises or to the Building resulting from such removal. SECTION 14. RULES AND REGULATIONS. Tenant agrees to comply with (and cause its agents, contractors, employees and invitees to comply with) the rules and regulations attached hereto as EXHIBIT D and such reasonable modifications thereof and additions thereto as Landlord may from time to time make. Landlord shall not be responsible for any violation of said rules and regulations by other tenants or occupants of the Building or Project. SECTION 15. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord reserves the following rights, exercisable without liability to Tenant for (a) damage or injury to property, person or business (b) causing an actual or constructive eviction from the Premises, or (c) disturbing Tenant's use or possession of the Premises: a. To name the Building and Project and to change the name or street address of the Building or Project; 15 b. To install and maintain all signs on the exterior and interior of the Building and Project; c. To have pass keys to the Premises and all doors within the Premises, excluding Tenant's vaults and safes; d. At anytime during the Term, and on reasonable prior notice to Tenant, to inspect the Premises, and to show the Premises to any prospective purchaser or mortgagee of the Project, or to any assignee of any mortgage on the Project; or to other having an interest in the Project or Landlord, and during the last SIX (6) MONTHS of the Term, to show the Premises to prospective tenants thereof; and e. To enter the Premises for the purpose of making inspections, repairs, alterations, additions or improvements to the Premises or the Building (including, without limitation, checking, calibrating, adjusting or balancing controls and other parts of the HVAC system), and to take all steps as may be necessary or desirable for the safety, protection, maintenance or preservation of the Premises or the Building or Landlord's interest therein, or as may be necessary or desirable for the operation or improvement of the Building or in order to comply with laws, orders or requirements of governmental or other authority. Landlord agrees to use its best efforts (except in an emergency) to minimize interference with Tenant's business in the Premises in the course of any such entry. SECTION 16. ASSIGNMENT AND SUBLETTING. No assignment of this Lease or sublease of all or any part of the Premises shall be permitted, except as provided in this Section 16. a. Tenant shall not, without the prior written consent of Landlord, assign or hypothecate this Lease or any interest herein or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Any of the foregoing acts without such consent shall be void and shall, at the option of Landlord, terminate this Lease. This Lease shall not nor shall any interest of Tenant herein, be assignable by operation of law without the written consent of Landlord. b. If at any time or from time to time during the Term Tenant desires to assign this Lease or sublet all or any part of the Premises, Tenant shall give notice to Landlord setting forth the terms and provisions of the proposed assignment or sublease, and the identity of the proposed assignee or subtenant. Tenant shall promptly supply Landlord with such information concerning the business background and financial condition of such proposed assignee or subtenant as Landlord may reasonably request. Landlord shall have the option, exercisable by notice given to Tenant within TWENTY (20) DAYS after Tenant's notice is given, either to sublet such space from Tenant at the rental and on the other terms set forth in this Lease for the term set forth in Tenant's notice, or in the case of an assignment, to terminate this Lease. If Landlord does not exercise such option, 16 Tenant may assign the Lease or sublet such space to such proposed assignee or subtenant on the following further conditions: (1) Landlord shall have the right to approve such proposed assignee or subtenant, which approval shall not be unreasonably withheld; (2) The assignment or sublease shall be on the same terms set forth in the notice given to Landlord; (3) No assignment or sublease shall be valid and no assignee or sublessee shall take possession of the Premises until an executed counterpart of such assignment or sublease has been delivered to Landlord; (4) No assignee or sublessee shall have a further right to assign or sublet except on the terms herein contained; and (5) Any sums or other economic consideration received by Tenant as a result of such assignment or subletting, however determined under the assignment or sublease, which exceed, in the aggregate, (i) the total sums which Tenant is obligated to pay Landlord under this Lease (prorated to reflect obligations allocable to any portion of the Premises subleased), plus (ii) any real estate brokerage commissions or fees payable in connection with such assignment or subletting, shall be paid to Landlord as additional rent under this Lease without affecting or reducing any other obligations of Tenant hereunder. c. Notwithstanding the provisions of paragraphs "a" and "b" above, Tenant may assign this Lease or sublet the Premises or any portion thereof without Landlord's consent and without extending any recapture or termination option to Landlord, to any corporation which controls, is controlled by or is under common control with Tenant or to any corporation resulting from a merger or consolidation with Tenant, or to any person or entity which acquires all the assets of Tenant's business as a going concern, provided that (i) the assignee or sublessee assumes, in full, the obligations of Tenant under this Lease, (ii) Tenant remains fully liable under this Lease; and (iii) the use of the Premises under Section 8 remains unchanged. d. No subletting or assignment shall release Tenant of Tenant's obligations under this Lease or alter the primary liability of Tenant to pay the Rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of Rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting in the event of default by an assignee or subtenant to Tenant or any successor of Tenant in the performance of any of the terms hereof. Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee, subtenant or successor. Landlord may consent to subsequent assignments of the Lease or sublettings or amendments or modifications to the Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, 17 and without obtaining its or their consent thereto and any such actions shall not relieve Tenant of liability under this Lease. e. If Tenant assigns the Lease or sublets the Premises or requests the consent of Landlord to any assignment or subletting or if Tenant requests the consent of Landlord for any act that Tenant proposes to do, then Tenant shall upon demand, pay Landlord an administrative fee, if Landlord can show such fee is reasonably necessary, plus attorneys' fees reasonably incurred by Landlord in connection with such act or request. SECTION 17. HOLDING OVER If after expiration of the Term, Tenant remains in possession of the Premises with Landlord's permission (express or implied), Tenant shall become a tenant from month to month only, upon all the provisions of this Lease (except as to Term and Base Rent), but the "Monthly Installments of Base Rent" payable to Landlord shall be increased to the fair market value of comparable leased space. Such monthly rent shall be payable in advance on or before the first day of each month. If either party desires to terminate such month to month tenancy, it shall give the other party not less than THIRTY (30) DAYs advance written notice of the date of termination. SECTION 18. OPTION TO RENEW. 18.1 Option Right. Provided that Tenant is not in default under this Lease as of the date of exercise of an extension under this Section, Tenant shall have one (1) option to extend the Term of this Lease for one (1) additional period of FIVE (5) YEARS (the "OPTION TERM") upon Tenant giving to Landlord six (6) months prior written notice of its intention to exercise as set forth below. Upon the proper exercise of an option to extend, the Term of this Lease shall be extended for FIVE (5) YEARS, subject to all of the terms and conditions of this Lease, except that: (a) the applicable Option Rent shall be determined as set forth below; and, (b) the Premises shall consist of the original Rentable Area set forth in Paragraph 2(k) and any additional Rentable Area subsequently leased by Tenant in accordance with Section 19. 18.2 Option Rent. The rent payable for the Premises by Tenant during the Option Term (the "OPTION RENT") shall be equal to the "FAIR MARKET RENTAL RATE" for the Premises. The term "FAIR MARKET RENTAL RATE" for the Premises during an Option Term, shall mean and refer to the annual amount per square foot of Rentable Area then being charged to tenants for comparable, non- subleased, non-encumbered, non-equity space in the Building, and for similar type lease space in the "44TH STREET CORRIDOR" area of Phoenix, Arizona, giving appropriate consideration to appropriate concessions and to the annual rental rates per rentable square foot, escalation clauses (including type, such as net, base year, or expense stop), abatement provisions reflecting free rent, if any, and the length of the relevant term. 18.3 Exercise of Option. The options contained in this Section shall be exercised by Tenant in the following manner: (a) Tenant shall deliver notice to Landlord (the "OPTION NOTICE") not later than 180 DAYS prior to the Expiration Date stating that the Tenant may be exercising its option; (b) Landlord, within THIRTY (30) DAYS from receipt of the Option Notice, shall deliver 18 written notice (the "OPTION RENT NOTICE") to Tenant setting forth the Option Rent; and (c) if Tenant wishes to exercise such option, Tenant shall, on or before THIRTY (30) DAYS from Tenant's receipt of Option Rent Notice, exercise the option by delivering written notice (the "ELECTION OF OPTION NOTICE") to Landlord and, concurrent with such exercise, Tenant may, at its option, object to the Option Rent contained in the Option Rent Notice. In the event Tenant so objects to the Option Rent initially determined by Landlord, Landlord and Tenant shall use their best good faith efforts to agree upon the Option Rent. If on or before THIRTY (30) DAYS from Landlord's receipt of the Election of Option Notice, Landlord and Tenant fail to reach agreement regarding the Option Rent, then Tenant shall not have the option to extend the Term of this Lease pursuant to this Section, and the Term of this Lease shall expire on the Expiration Date. SECTION 19. RIGHT OF FIRST REFUSAL. 19.1 In the event the Landlord enters into bona fide lease negotiations to lease to a third party all or a portion of that certain space in the Building and more particularly described as "RIGHT OF FIRST REFUSAL SPACE" on EXHIBIT A consisting of potential space in the north building, consisting of approximately 13,000 square feet of rentable space, when and if available, Landlord shall advise Tenant of same in writing (the "OFFER NOTICE"). For purposes of this Section, "BONA FIDE LEASE NEGOTIATIONS" shall mean that Landlord has provided a third party with a written lease or written lease proposal with respect to all or a portion of the Right of First Refusal Space which may become available. The Offer Notice shall include the proposed rent and allowance and all other terms, conditions, covenants, and provisions applying to the Right of First Refusal Space. If Tenant desires to lease the entire Right of First Refusal Space covered by the Offer Notice, Tenant shall have the right (the "FIRST RIGHT") until 5:00 p.m. Mountain Standard Time on the THIRD (3RD) BUSINESS DAY after Tenant's receipt of the Offer Notice (the "DEADLINE") to notify Landlord in writing (the "ACCEPTANCE NOTICE") that Tenant will lease the Right of First Refusal Space on the terms set forth in the Offer Notice (except as adjusted as provided below). If Tenant fails to deliver the Acceptance Notice to Landlord prior to the Deadline, then Landlord may lease the Right of First Refusal Space to the third party at a rent and allowance no more favorable than those offered to Tenant in the Offer Notice. If the lease to the third party is not consummated within NINETY-FIVE (95) DAYS after Tenant's receipt of the Offer Notice or the lease entered into with the third party expires or terminated during the Term of this Lease, then First Right set forth herein shall be reinstated. 19.2 If Tenant exercises its First Right, (a) the lease term for the Right of First Refusal set forth in the Offer Notice shall be adjusted to be coterminous with the Term of this Lease, and (b) any allowance for the construction of leasehold improvements in the Right of First Refusal Space shall be the amount of the Leasehold Improvement Allowance set forth in Paragraph 2(s) multiplied by the number of square feet of Rentable Area in the Right of First Refusal Space leased by Tenant, prorated based on the number of months remaining in the Term of this Lease as compared to the total number of months in the Term of this Lease set forth in paragraph 2(r). 19.3 Tenant acknowledges that the Right of First Refusal Space is currently occupied by a tenant or tenants, and that Tenant's rights under this Section are subject to the rights of such tenant or tenants. 19 SECTION 20. SURRENDER OF PREMISES. a. Tenant shall peaceably surrender the Premises to Landlord on the Expiration Date, in broom-clean condition and in as good condition as when Tenant took possession, except for (i) reasonable wear and tear, (ii) loss by fire or other casualty, and (iii) loss by condemnation. Tenant shall, on Landlord's request, remove Tenant's Property on or before the Expiration Date and promptly repair all damage to the Premises or Building caused by such removal. b. If Tenant abandons or surrenders the Premises, or is dispossessed by process of law or otherwise, any of Tenant's Property left on the Premises shall be deemed to be abandoned, and, at Landlord's option, title shall pass to Landlord under this Lease as by a bill of sale. If Landlord elects to remove all or any part of such Tenant's Property, the cost of removal, including repairing any damage to the Premises or Building caused by such removal, shall be paid by Tenant. On the Expiration Date, Tenant shall surrender all keys to the Premises. SECTION 21. DESTRUCTION OR DAMAGE. a. If the Premises or the portion of the Building necessary for Tenant's occupancy is damaged by fire, earthquake, act of God, the elements or other casualty, Landlord shall, subject to the provisions of this Section, promptly repair the damage, if such repairs can, in Landlord's opinion, be completed within NINETY (90) DAYS. If Landlord determines that repairs can be completed within NINETY (90) DAYS, this Lease shall remain in full force and effect, except that if such damage is not the result of the negligence or willful misconduct of Tenant or Tenant's agents, employees, contractors, licensees or invitees, the Base Rent shall be abated to the extent Tenant's use of the Premises is impaired, commencing with the date of damage and continuing until completion of the repairs required of Landlord under Paragraph 21(d). b. If in Landlord's opinion, such repairs to the Premises or portion of the Building necessary for Tenant's occupancy cannot be completed within NINETY (90) DAYS, Landlord may elect, upon notice to Tenant given within THIRTY (30) DAYS after the date of such fire or other casualty, to repair such damage, in which event this Lease shall continue in full force and effect, but the Base Rent shall be partially abated as provided in Paragraph 21(a). If Landlord does not so elect to make such repairs, this Lease shall terminate as of the date of such fire or other casualty. c. If any other portion of the Building or Project is totally destroyed or damaged to the extent that in Landlord's opinion repair thereof cannot be completed within NINETY (90) DAYS, Landlord may elect upon notice to Tenant given within THIRTY (30) DAYS after the date of such fire or other casualty, to repair such damage, in which event this Lease shall continue in full force and effect but the Base Rent shall be partially abated as 20 provided in Paragraph 21(a). If Landlord does not elect to make such repairs, this Lease shall terminate as of the date of such fire or other casualty. d. If the Premises are to be repaired under this Section, Landlord shall repair at its cost any injury or damage to the Building and Building Standard Work in the Premises. Tenant shall be responsible at its sole cost and expenses for the repair, restoration and replacement of any other Leasehold Improvements and Tenant's Property. Landlord shall not be liable for any loss of business, inconvenience or annoyance arising from any repair or restoration or any portion of the Premises, Building or Project as result of any damage from fire or other casualty. e. This Lease shall be considered an express agreement governing any case of damage to or destruction of the Premises, Building or Project by fire or other casualty, and any present or future law which purports to govern the rights of Landlord and Tenant in such circumstances in the absence of express agreement shall have no application. SECTION 22. EMINENT DOMAIN. a. If the whole of the Building or Premises is lawfully taken by condemnation or in any other manner for any public or quasi-public purpose, this Lease shall terminate as of the date of such taking, and Rent shall be prorated to such date. If less than the whole of the Building or Premises is so taken, this Lease shall be unaffected by such taking, provided that (i) Tenant shall have the right to terminate this Lease by notice to Landlord given within NINETY (90) DAYS after the date of such taking IF TWENTY PERCENT (20%) or more of the Premises is taken and the remaining area of the Premises is not reasonably sufficient for Tenant to continue operation of its business, and (ii) Landlord shall have the right to terminate this Lease by notice to Tenant given within NINETY (90) DAYS after the date of such taking. If either Landlord or Tenant so elects to terminate this Lease, the Lease shall terminate on the THIRTIETH (30TH) DAY after either such notice. The Rent shall be prorated to the date of termination. This Lease continues in force upon such partial taking, the Base Rent and Tenant's Proportionate Share shall be equally adjusted according to the remaining Rentable Area of the Premises and Project. b. In the event of any taking, partial or whole, all of the proceeds of any award, judgment or settlement payable by the condemning authority shall be the exclusive property of Landlord, and Tenant hereby assigns to Landlord all of its right, title and interest in any award, judgment or settlement from the condemning authority. Tenant, however, shall have the right, to the extent that Landlord's award is not reduced or prejudiced, to claim from the condemning authority (but not from Landlord) such compensation as may be recoverable by Tenant in its own right for relocation expenses and damage to Tenant's personal property. c. In the event of a partial taking of the Premises which does not result in a termination of this Lease, Landlord shall restore the remaining portion of the Premises as nearly as 21 practicable to its condition prior to the condemnation or taking, but only to the extent of Building Standard Work. Tenant shall be responsible at its sole cost and expense for the repair, restoration and replacement of any other Leasehold Improvements and Tenant's Property. SECTION 23. INDEMNIFICATION. a. Tenant shall indemnify and hold Landlord harmless against and from liability and claims of any kind for loss or damage to property of Tenant or any other person or for any injury to or death of any person, arising out of: (1) Tenant's use and occupancy of the Premises, or any work, activity or other things allowed or suffered by Tenant to be done in, on or about the Premises; (2) any breach or default by Tenant of any of Tenant's obligations under this Lease; or (3) any negligent or otherwise tortious act or omission of Tenant, its agents, employees, invitee or contractors. Tenant shall, at Tenant's expense, and by counsel satisfactory to Landlord, defend Landlord in any action or proceeding arising from any such claim and shall indemnify Landlord against all costs, attorneys' fees, expert witness fees and any other expenses incurred in such action or proceeding. As a material part of the consideration for Landlord's execution of this Lease, Tenant hereby assumes all risk of damage or injury to any person or property in, on or about the Premises from any cause. b. Landlord shall not be liable for injury or damage which may be sustained by the person or property of Tenant, its employees, invitees or customers, or any other person in or about the Premises, caused by or resulting from fire, steam, electricity, gas, water or rain which may leak or flow from or into any part of the Premises, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, whether such damage or injury results from conditions arising upon the Premises or upon other portions of the Building or Project or from other sources. Landlord shall not be liable for any damages arising from any act or omission of any other tenant of the Building or Project. SECTION 24. TENANT'S INSURANCE. a. All insurance required to be carried by Tenant hereunder shall be issued by responsible insurance companies acceptable to Landlord and Landlord's lender, and qualified to do business in the State. Each policy shall name Landlord, and at Landlord's request any mortgagee of Landlord, as an additional insured, as their respective interests may appear. Each policy shall contain (i) a cross-liability endorsement, (ii) a provision that such policy and the coverage evidenced thereby shall be primary and non-contributing with respect to any policies carried by Landlord and that any coverage carried by Landlord shall be excess insurance, and (iii) a waiver by the insurer of any right of subrogation against Landlord, its agents, employees and representatives, which arises or might arise by reason of any payment under such policy or by reason of any act of omission of Landlord, its agents, employees or representatives. A copy of each paid up policy (authenticated by the insurer) or certificate of the insurer evidencing the existence and amount of each insurance policy required hereunder shall be delivered to Landlord before the date Tenant 22 is first given the right of possession of the Premises, and thereafter within THIRTY (30) DAYS after any demand by Landlord therefor. Landlord may, at any time and from time to time, inspect and/or copy any insurance policies required to be maintained by Tenant hereunder. No such policy shall be cancelable except after TWENTY (20) DAYS written notice to Landlord and Landlord's lender. Tenant shall furnish Landlord with renewals or "binders" of any such policy at least TEN (10) DAYS prior to the expiration thereof. Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to) procure said insurance on Tenant's behalf and charge the tenant the premiums together with a TWENTY-FIVE PERCENT (25%) handling charge, payable upon demand. Tenant shall have the right to provide such insurance coverage pursuant to blanket policies obtained by the Tenant, provided such blanket policies expressly afford coverage to the Premises, Landlord, Landlord's mortgagee and Tenant as required by this Lease. b. Beginning on the date Tenant is given access to the Premises for any purpose and continuing until expiration of the Term, Tenant shall procure, pay for and maintain in effect policies of casualty insurance covering (i) all Leasehold Improvements (including any alterations, additions or improvements as may be made by Tenant pursuant to the provisions of Section 12 hereof), and (ii) trade fixture, merchandise and other personal property from time to time in, on or about the Premises, in an amount not less than ONE HUNDRED PERCENT (100%) of their actual replacement cost from time to time providing protection against any peril included within the classification "Fire and Extended Coverage" together with insurance against sprinkler damage, vandalism and malicious mischief. The proceeds of such insurance shall be used for the repair or replacement of the property so insured. Upon termination of this Lease following a casualty as set forth herein, the proceeds under (i) shall be paid to Landlord, and the proceeds under (ii) above shall be paid to Tenant. c. Beginning on the date Tenant is given access to the Premises for any purpose and continuing until expiration of the Term, Tenant shall procure, pay for and maintain in effect workers' compensation insurance as required by law and comprehensive public liability and property damage insurance with respect to the construction of improvements on the Premises, the use, operation or condition of the Premises and the operations of Tenant in, on or about the Premises, providing personal injury and broad form property damage coverage for not less than ONE MILLION DOLLARS ($1,000,000.00) combined single limit for bodily injury, death and property damage liability. d. Not less than every THREE (3) YEARS during the Term, Landlord and Tenant shall mutually agree to increase in all of Tenant's insurance policy limits for all insurance to be carried by Tenant as set forth in this Section. SECTION 25. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive all rights of recovery against the other and against the officers, employees, agents and representatives of the other, on account of loss by or damage to 23 the waiving party of its property or the property of others under its control, to the extent that such loss or damage is insured against under any fire and extended coverage insurance policy which either may have in force at the time of the loss or damage. Tenant shall, upon obtaining the policies of insurance required under this Lease, give notice to its insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. SECTION 26. SUBORDINATION AND ATTORNMENT. Upon written request of Landlord, or any first mortgagee or first deed of trust beneficiary of Landlord or ground lessor of Landlord, Tenant shall in writing, subordinate its rights under this Lease to the lien of any first mortgage or first deed of trust, or to the interest of any lease in which Landlord is lessee, and to all advances made or hereafter to be made thereunder. However, before signing any subordination agreement, Tenant shall have the right to obtain from any lender or lessor or Landlord requesting such subordination, an agreement in writing providing that, as long as Tenant is not in default hereunder, this Lease shall remain in effect for the full Term. The holder of any security interest may, upon written notice to Tenant, elect to have this Lease prior to its security interest regardless of the time of the granting or recording of such security interest. In the event of any foreclosure sale, transfer in lieu of foreclosure or termination of the lease in which Landlord is lessee, Tenant shall attorn to the purchaser, transferee or lessor as the case may be, and recognize that party as Landlord under this Lease, provided such party acquires and accepts the Premises subject to this Lease. SECTION 27. TENANT ESTOPPEL CERTIFICATES. Within TEN (10) DAYS after written request from Landlord, Tenant shall execute and deliver to Landlord or Landlord's designee, a written statement certifying (a) that this Lease is unmodified and in full force and effect or is in full force and effect as modified and stating the modifications; (b) the amount of Base Rent and the date to which Base Rent and additional rent have been paid in advance; (c) the amount of any security deposited with Landlord; and (d) that Landlord is not in default hereunder or, if Landlord is claimed to be in default, stating the nature of any claimed default. Any such statement may be relied upon by a purchaser, assignee or lender. Tenant's failure to execute and deliver such statement within the time required shall at Landlord's election be a default under this Lease and shall also be conclusive upon Tenant that: (1) this Lease is in full force and effect and has not been modified except as represented by Landlord; (2) there are no uncured defaults in Landlord's performance and that Tenant has no right of offset, counter-claim or deduction against Rent; and (3) not more than one month's Rent has been paid in advance. SECTION 28. RIGHT OF FIRST REFUSAL. In the event an offer to sell or buy ("Offer") the Project is made, Landlord agrees to provide Tenant the right of first refusal on bona fide third-party Offers the Landlord is willing to accept. 24 Landlord is under no obligation to disclose the name of the prospective purchaser and is only required to provide Tenant with a basic outline of the material financial terms of the sale. Tenant agrees that it will respond in writing three (3) business days after Landlord duly serves the outline on Tenant in accordance with Section 32 of this Lease. Tenant's acceptance must be unequivocal and on precisely the same terms as set forth in the outline. Tenant's failure to respond in writing within three (3) business days shall be deemed a failure to exercise the right of first refusal, and Landlord may proceed as though no such right existed. Tenant agrees it will take no steps to delay or materially adversely affect a sale and will work in good faith with Landlord to promote a sale. Nothing contained herein shall be construed as a limitation on Landlord's right to sell the Project or any portion thereof. SECTION 29. TRANSFER OF LANDLORD'S INTEREST. In the event of any sale or transfer by Landlord of the Premises, Building or Project, and assignment of this Lease by Landlord, Landlord shall be and is hereby entirely freed and relieved of any and all liability and obligations contained in or derived from this Lease arising out of any act, occurrence or omission relating to the Premises, Building, Project or Lease occurring after the consummation of such sale or transfer, providing the purchaser shall expressly assume all of the covenants and obligations of Landlord under this Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord may transfer the security deposit or prepaid Rent to Landlord's successor and upon such transfer, Landlord shall be relieved of any and all further liability with respect thereto. SECTION 30. DEFAULT. 30.1 Tenant's Default. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Tenant ("Event of Default"): a. If Tenant abandons or vacates the Premises; or b. If Tenant fails to pay any Rent or any other charges required to be paid by Tenant under this Lease and such failure continues for FIVE (5) DAYS after such payment is due and payable; or c. If Tenant fails to promptly and fully perform any other covenant, condition or agreement contained in this Lease, other than Rent or other monetary obligations which are subject to subparagraph (b) above, and such failure continues for THIRTY (30) DAYS after written notice thereof from Landlord to Tenant; or d. If a writ of attachment or execution is levied on this Lease or on any of Tenant's Property; or e. If Tenant makes a general assignment for the benefit of creditors, or provides for an arrangement, composition, extension or adjustment with its creditors; or 25 f. If Tenant files a voluntary petition for relief or if a petition against Tenant in a proceeding under the federal bankruptcy laws or other insolvency laws is filed and not withdrawn or dismissed WITHIN FORTY-FIVE (45) DAYS thereafter, or if under the provisions of any law providing for reorganization or winding up of corporations, any court of competent jurisdiction assumes jurisdiction, custody or control of Tenant or any substantial part of its property and such jurisdiction, custody or control remains in force unrelinquished, unstayed or unterminated for a period of FORTY-FIVE (45) DAYS; or g. If in any proceeding or action in which Tenant is a party, a trustee, receiver, agent or custodian is appointed to take charge of the Premises or Tenant's Property (or had the authority to do so) for the purpose of enforcing a lien against the Premises or Tenants Property; or h. Any other act or omission which allows for the termination of this Lease as permitted or authorized by statute or common law. 30.2 Remedies. In the event of Tenant's default hereunder, then in addition to any other rights or remedies Landlord may have under any law or in equity, Landlord shall have the right, at Landlord's option without further notice or demand of any kind, to do the following: a. Terminate this Lease and Tenant's right to possession of the Premises and reenter the Premises and take possession thereof, and Tenant shall have no further claim to the Premises or under this Lease; or b. Terminate Tenant's right to possession, continue this Lease in effect, reenter and occupy the Premises for the account of Tenant, and collect any unpaid Rent or other charges which have or thereafter become due and payable; or c. Reenter the Premises under the provisions of subparagraph b, and thereafter elect to terminate this Lease and Tenant's right to possession of the Premises. If Landlord reenters the Premises under the provisions of subparagraph b or c above, Landlord shall not be deemed to have terminated this Lease or the obligation of Tenant to pay any Rent or other charges thereafter accruing, unless Landlord notifies Tenant in writing of Landlord's election to terminate this Lease. In this event of any reentry or retaking of possession by Landlord, Landlord shall have the right, but not the obligation, to remove all or any part of Tenant's Property in the Premises and to place such property in storage at a public warehouse at the expense and risk of Tenant. If Landlord elects to relet the Premises for the account of Tenant, the rent received by Landlord from such reletting shall be applied as follows: first, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such reletting; third, to the payment of the cost of any alterations or repairs to the Premises; fourth, to the payment of Rent due and unpaid hereunder; and the balance, if any, shall be held by Landlord and applied in payment of future Rent as it becomes due. If that portion of rent received from the reletting which is applied against the Rent due hereunder is less than the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall 26 also pay to Landlord, as soon as determined, any costs and expenses incurred by Landlord in connection with such reletting or in making alterations and repairs to the Premises, which are not covered by the rent received from the reletting. Should Landlord elect to terminate this Lease under the provisions of subparagraph a or c above, Landlord may recover as damages from Tenant the following: (1.) Past Rent. The worth at the time of the award of any unpaid Rent which had been earned at the time of termination; plus (2.) Rent Prior to Award. The worth at the time of the 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 Tenant proves could have been reasonably avoided; plus (3.) Rent After Award. The worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of the rental loss that Tenant proves could be reasonably avoided; plus (4.) Proximately Caused Damages. Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant'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, any costs or expenses (including attorneys' fees), incurred by Landlord in (a) retaking possession of the Premises, (b) maintaining the Premises after Tenant's default, (c) preparing the Premises for reletting to a new tenant, including any repairs or alterations, (d) reletting the Premises, including broker's commissions, and (e) storing and/or disposing of Tenant's personal property. "The worth at the time of the award" as used in subparagraphs 1 and 2 above, is to be computed by allowing interest at the rate of TEN PERCENT (10%) per annum. "The worth at the time of the award" as used in subparagraph 3 above, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank situated nearest to the Premises at the time of the award, plus ONE PERCENT (1%). The waiver by Landlord of any breach of any term, covenant or condition of this Lease shall not be deemed a waiver of such term, covenant or condition of any subsequent breach of the same or any other term, covenant or condition. Acceptance of Rent by Landlord subsequent to any breach hereof shall not be deemed a waiver of any preceding breach other than the failure to pay the particular Rent so accepted, regardless of Landlord's knowledge of any breach at the time of such acceptance of Rent. Landlord shall not be deemed to have waived any term, covenant or condition unless Landlord gives Tenant written notice of such waiver. 30.3 Landlord's Default. If Landlord fails to perform any covenant, condition or agreement contained in this Lease within THIRTY (30) DAYS after receipt of written notice from Tenant 27 specifying such default, or if such default cannot reasonably be cured within THIRTY (30) DAYS, if Landlord fails to commence to cure within that THIRTY (30) DAY period, then Landlord shall be liable to Tenant for any damages sustained by Tenant as a result of Landlord's breach; provided, however, it is expressly understood and agreed that if Tenant obtains a money judgment against Landlord resulting from any default or other claim arising under this Lease, that judgment shall be satisfied only out of the rents, issues, profits, and other income actually received on account of Landlord's right, title and interest in the Premises, Building or Project, and no other real, personal or mixed property of Landlord (or of any of the partners which comprise Landlord, if any) wherever situated shall be subject to levy to satisfy such judgment. If, after notice to Landlord of default, Landlord (or any first mortgagee or first deed of trust beneficiary of Landlord) fails to cure the default as provided herein, then Tenant shall have the right to cure that default at Landlord's expense. Tenant shall not have the right to terminate this Lease or to withhold, reduce or offset any amount against any payments of Rent or any other charges due and payable under this Lease except as otherwise specifically provided herein. SECTION 31. BROKERAGE FEES. 31.1 Tenant warrants and represents that it has not dealt with any real estate broker or agent in connection with this Lease or its negotiation except those noted in Paragraph 2(c). Tenant shall indemnify and hold Landlord harmless from any cost, expense or liability (including costs of suit and reasonable attorneys' fees) for any compensation, commission or fees claimed by any other real estate broker or agent in connection with this Lease or its negotiation by reason of any act of Tenant. Landlord shall be responsible for paying the brokerage fees to those brokers identified in Paragraph 2(c). SECTION 32. NOTICES. All notices, approvals and demands permitted or required to be given under this Lease shall be in writing and deemed duly served or given if personally delivered or sent by U.S. mail, postage prepaid, and addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to the Building manager, and (b) if to Tenant, to Tenant's Mailing Address; provided, however, notices to Tenant shall be deemed duly served or given if delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time to time by notice to the other designate another place for receipt of future notices. SECTION 33. GOVERNMENT ENERGY OR UTILITY CONTROLS. In the event of imposition of federal, state or local government controls, rules, regulations, or restrictions on the use or consumption of energy or other utilities during the Term, both Landlord and Tenant shall be bound thereby. In the event of a difference in interpretation by Landlord and Tenant of any such controls, the interpretation of Landlord shall prevail, and Landlord shall have the right to enforce compliance therewith, including the right of entry into the Premises to effect compliance. 28 SECTION 34. QUIET ENJOYMENT. Tenant, upon paying the Rent and performing all of its obligations under this Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of this Lease and to any mortgage, lease, or other agreement to which this Lease may be subordinate. SECTION 35. OBSERVANCE OF LAW. Tenant shall not use the Premises or permit anything to be done on or about the Premises which will in any way conflict with any law, statute, ordinance or government rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force, and with the requirements of any board of the insurance underwriters or other similar bodies now or hereafter constituted, relating to, or affecting the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by Tenant's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord is a party thereto or not, that Tenant has violated any law, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between Landlord and Tenant. SECTION 36. FORCE MAJEURE. Any prevention, delay or stoppage of work to be performed by Landlord or Tenant which is due to strikes, labor disputes, inability to obtain labor, materials, equipment or reasonable substitutes therefor, acts of God, governmental restrictions or regulations or controls, judicial orders, enemy or hostile government actions, civil commotion, fire or other casualty, or other causes beyond the reasonable control of the party obligated to perform hereunder, shall excuse performance of the work by that party for a period equal to the duration of that prevention, delay or stoppage. Nothing in this Section 36 shall excuse or delay Tenant's obligation to pay Rent or other charges under this Lease. SECTION 37. CURING TENANT'S DEFAULTS. If Tenant defaults in the performance of any of its obligations under this Lease, Landlord may (but shall not be obligated to) without waiving such default, perform the same for the account at the expense of Tenant. Tenant shall pay Landlord all costs of such performance promptly upon receipt of a bill therefor. SECTION 38. SIGNAGE. a. Tenant shall not affix, paint, erect or inscribe any sign, projection, awning, signal of advertisement of any kind to any part of the Premises, Building or Project, including without limitation, the inside or outside of windows or doors, without the written consent 29 of Landlord. Landlord shall have the right to remove any signs or other matter, installed without Landlord's permission, without being liable to Tenant by reason of such removal, and to charge the cost of removal to Tenant as additional rent hereunder, payable within TEN (10) DAYS of written demand by Landlord. b. Subject to Landlord's approval, signage criteria, and all applicable federal, state, county and municipal laws, regulations, rules and ordinances, Tenant is entitled to display a single two-sided plaque (the "PLAQUE") upon the monument sign located in front of the Building. The Plaque shall contain the words "WavePhore, Inc." or similar name selected by the Tenant. The actual location of the Plaque shall be determined by Tenant. c. Subject to Landlord's approval, signage criteria, and all applicable federal, state, county and municipal laws, regulations, rules and ordinances, Tenant is entitled to place additional signs on the Premises. All costs and expenses relating to the Plaque, or any other Tenant signage, shall be borne by Tenant. SECTION 39. MISCELLANEOUS. a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent provided for in this Lease shall be deemed to be other than on account of the earliest due Rent, nor shall any endorsement or statement on any check or letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of the Rent or pursue any other remedy provided for in this Lease. In connection with the foregoing, Landlord shall have the absolute right in its sole discretion to apply any payment received from Tenant to any account or other payment of Tenant then not current and due or delinquent. b. Addenda. If any provision contained in an addendum to this Lease is inconsistent with any other provision herein, the provision contained in the addendum shall control, unless otherwise provided in the addendum. c. Attorneys' Fees. If any action or proceeding is brought by either party against the other pertaining to or arising out of this Lease, the finally prevailing party shall be entitled to recover all costs and expenses, including reasonable attorneys' fees, incurred on account of such action or proceeding. d. Captions, Section and Paragraph Numbers. The captions appearing within the body of this Lease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Lease. All references to Section and Paragraph numbers refer to Sections and Paragraphs in this Lease. e. Changes Requested by Lender. Neither Landlord or Tenant shall unreasonably withhold its consent to changes or amendments to this Lease required by the lender on Landlord's interest, so long as these changes do not alter the basic business terms of the 30 Lease or otherwise materially diminish any rights or materially increase any obligations of the party from whom consent to such change or amendment is requested. f. Choice of Law. This Lease shall be construed and enforced in accordance with the laws of the State. g. Consent. Notwithstanding anything contained in this Lease to the contrary, Tenant shall have no claim, and hereby waives the right to any claim against Landlord for money damages by reason of any refusal, withholding or delaying by Landlord of any consent, accord or statement of satisfaction, and in such event, Tenant's only remedies therefor shall be an action for specific performance, injunction or declaratory judgment to enforce any right to such consent, etc. h. Corporate Authority. Each individual signing this Lease on behalf of Tenant represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of the corporation, and that this Lease is binding on Tenant in accordance with its terms. Tenant shall, at Landlord's request, deliver a certified copy of a resolution of its board of directors authorizing such execution. i. Counterparts. This Lease may be executed in multiple counterparts, all of which shall constitute one and the same Lease. j. Execution of Lease; No Option. The submission of this Lease to Tenant shall be for examination purposes only, and does not and shall not constitute a reservation of or option for Tenant to lease, or otherwise create any interest of Tenant in the Premises or any other premises within the Building or Project. Execution of this Lease by Tenant and its return to Landlord shall not be binding on Landlord notwithstanding any time interval, until Landlord has in fact signed and delivered this Lease to Tenant. k. Furnishing of Financial Statements; Tenant's Representations. In order to induce Landlord to enter into this Lease, Tenant agrees that it shall promptly furnish Landlord, from time to time, upon Landlord's written request, with financial statements reflecting Tenant's current financial condition. Tenant represents and warrants that all financial statements, records and information furnished by Tenant to Landlord in connection with this Lease are true, correct and complete in all respects. l. Further Assurances. The parties agree to promptly sign all documents reasonably requested to give effect to the provisions of this Lease. m. Mortgagee Protection. Tenant agrees to send by certified or registered mail to any first mortgagee or first deed of trust beneficiary of Landlord whose address has been furnished to Tenant, a copy of any notice of default served by Tenant on Landlord. If Landlord fails to cure such default within the time provided for in this Lease, such mortgagee or beneficiary shall have an additional THIRTY (30) DAYS to cure such default; provided that if such default cannot reasonably be cured within that THIRTY (30) DAY 31 period, then such mortgagee or beneficiary shall have such additional time to cure the default as is reasonably necessary under the circumstances. n. Prior Agreements; Amendments. This Lease contains all of the agreements of the parties with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provisions of this Lease may be amended or added to except by an agreement in writing signed by the parties or their respective successors in interest. o. Recording. Tenant shall not record this Lease without the prior written consent of Landlord. Tenant, upon the request of Landlord, shall execute and acknowledge a "short form" memorandum of this Lease for recording purposes. p. Severability. A final determination by a court of competent jurisdiction that any provision of this Lease is invalid shall not affect the validity of any other provision, and any provision so determined to be invalid shall, to the extent possible, be construed to accomplish its intended effect. q. Successors and Assigns. This Lease shall apply to and bind the heirs, personal representatives, and permitted successors and assigns of the parties. r. Time of the Essence. Time is of the essence of this Lease. s. Waiver. No delay or omission in the exercise of any right or remedy of Landlord upon any default by Tenant shall impair such right or remedy or be construed as a waiver of such default. The receipt and acceptance by Landlord of delinquent Rent shall not constitute a waiver of any other default; it shall constitute only a waiver of timely payment for the particular Rent payment involved. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this Lease. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this Lease. t. Compliance. The parties hereto agree to comply with all applicable federal, state and local laws, regulations, codes, ordinances and administrative orders having jurisdiction over the parties, property or the subject matter of this Lease, including, but not limited to, the 1964 Civil Rights Act and all amendments thereto, the Foreign Investment in Real Property Tax Act, the Comprehensive Environmental Response Compensation and Liability Act, and The Americans with Disabilities Act. u. Acceptance of Surrender. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the Term. Only a written 32 notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of the Lease. v. Landlord's Consent. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. The parties hereto have executed this Lease as of the date set forth below. "LANDLORD" FLOWER COURT GENERAL PARTNERSHIP BY: ASPEN GENERAL PARTNERSHIP, ITS GENERAL PARTNER BY: D.L. MEYERS, INC., ITS MANAGING GENERAL PARTNER BY: ________________________________ DONALD L. MEYERS, PRESIDENT DATE: _____________________________________________ "TENANT" WAVEPHORE, INC., BY: _______________________________________________ TITLE: ____________________________________________ DATE: _____________________________________________ 33 EXHIBIT "A" FLOOR PLAN SHOWING THE PREMISES AND RIGHT OF FIRST REFUSAL SPACE (TO BE PROVIDED) 34 EXHIBIT "B" BASE RENT Annual base rents for the Premises shall computed on the basis of: Calendar Months of Term Amount ----------------------- ------ 1-12 $213,361.50 13-24 $213,361.50 25-36 $213,361.50 37-48 $213,361.50 49-60 $213,361.50 $16.50 per square foot of Rentable Area of the Premises. Annual base rents shall be payable in installments of one-twelfth (1/12) of the annual base rent as computed above, plus any excise, privilege or sales taxes, or any tax levied on the rental or the receipt thereof, except Landlord's income tax, in accordance with Paragraph 5.1 of the Lease. 35 EXHBIT "C" LEASEHOLD IMPROVEMENT Landlord agrees to provide Tenant $3.00 per square foot of Rentable Area as the Leasehold Improvements Allowance. This money may be used at Tenant's discretion. Tenant must obtain Landlord's consent for all Leasehold Improvements. Landlord's consent shall not be unreasonably withheld so long as the Leasehold Improvements conform to Tenant's use. 36 EXHIBIT "D" RULES AND REGULATIONS 1. Signs. Tenant shall not inscribe an inscription or post, place, or in any manner display any sign, notice, picture, placard, or advertising matter whatsoever anywhere in or about the Premises at places visible either directly or indirectly as an outline or shadow on a glass panel from anywhere outside of the Premises or from public and common areas within the Premises without first obtaining from Landlord a written consent thereto and Landlord shall specify the color, size, style and material to be used. 2. Showcases. No showcase shall be placed in front of or in the lobbies or corridors of the Premises and Landlord reserves the right to remove all showcases so placed and all signs other than those above approved without notice and at the expense of Tenant. 3. Installation of Signs. All exterior and interior signs must be installed by Landlord or someone designated by Landlord and the actual costs thereof shall be paid by Tenant and all such signs are so placed at the risk of Tenant. 4. Telephone Connections. If Tenant desires telegraphic, cable television, or telephone connections, Landlord will direct electricians where the wires are to be introduced and without such direction no boring or cutting of wires shall be permitted. 5. Submission of Plans. Tenant shall submit to Landlord for Landlord's approval, a copy of its construction and equipment layout plans prior to commencement of construction. In the event that Tenant is unable to obtain Landlord's approval for said plans and layout, the Lease shall, at Tenant's sole option, be deemed null and void and any amounts paid by Tenant to Landlord pursuant to this Lease shall be reimbursed to Tenant without offset. 6. No Nuisances. Tenant shall not do or permit anything to be done in the Premises which would be dangerous to life, limb, or which would tend to create a nuisance or injure the reputation of the Project. Tenant shall not use burning fluid, alcohol, kerosene or anything else to light or heat the Premises except gas or electricity. Tenant shall not bring into the Premises or keep therein any heating or lighting apparatus other than that provided by Landlord or in any way injure, modify or tamper with any such apparatus in any manner or in any manner in violation of the regulations of the Fire Department or with any insurance policy upon said Project. Tenant shall not do or permit to be done in the Premises any activity in conflict with any of the laws, rules or regulations of any governmental agency or municipality. 7. Passageways. The sidewalks, passages, lobbies, corridors, elevators and stairways shall not be obstructed by tenant or used except for ingress and egress from and to the Premises. The doors, skylights, windows and transoms that reflect or admit light into passageways or into any place in said Premises shall not be covered or obstructed by Tenant. 8. Water Closets. The water closets and other apparatus shall not be used for any purpose other than those for which they were constructed and no sweepings, rubbish, or other substances 37 shall be thrown therein. Any damage resulting to them from misuse shall be borne by the tenant who caused it. 9. No Defacing or Offensive Business. Tenant and its employees and guests are not to injure or deface the Project nor the woodwork nor the walls of the Premises, nor to carry on upon the Premises any noisy or offensive business nor conduct or action therein, nor interfere in any way with other tenants or those having business with them. 10. No Lodging. No room or rooms on or about the Premises shall be occupied or used as sleeping or lodging apartments. 11. Lock all Doors. Tenants shall, when leaving the Premises at close of business or unoccupied at any time, lock all doors and windows and for any default or carelessness in this respect shall make good all injuries sustained by other tenants and by Landlord or by either of them for damages resulting from such default or carelessness. 12. No Animals. No animal or bird shall be allowed in any part of the Premises or project without the written consent of Landlord. 13. No Accumulation of Rubbish. Tenant shall not accumulate or store on or about the Premises any waste paper, discarded records, sweepings, rags, rubbish or the combustible matter other than the normal accumulation needed to conduct the use of the Premises. Nothing shall be thrown by Tenant or employees or guests out of the windows or doors or down the passages or skylights or over balcony rails of the Premises or in the parking area. 14. Exclusion of Peace Disturbers. Landlord reserves the right to exclude from the Premises or Project all drunken persons, peddlers, solicitors, persons of a general character or conduct so as to create a disturbance and persons entering in crowds or such unusual numbers as to cause inconvenience to tenants of the Project. 15. Changes to Rules. Landlord reserves the right to change these rules and to make such other and further reasonable rules and regulations either as it affects one or all tenants as in its judgment may from time to time be needed for the safety, care and cleanliness of the Project or the preservation of good order therein or for any other cause. When such changes are made, such modified or new rules shall be deemed a part hereof with the same effect as if written herein, when a copy shall have been delivered to tenant or left with some person in charge of the Premises. 16. No Live Christmas Trees. No live or fresh-cut Christmas Trees are permitted on or about the Premises. 17. No Picnics. No outside picnics or bar-b-ques are permitted without the prior written consent of Landlord. 18. No Outside Storage. No outside storage of any materials is permitted. 38 19. No Smoking Policy. Tenant agrees that now and throughout the term of this Lease, Tenant shall maintain and enforce a "no smoking" policy within the Premises and Project common areas. Smoking will be allowed in designated areas only. Failure of Tenant to abide by this rule shall be considered a material default of the Lease and subject to termination of the Lease. EX-10.2 3 OFFICE BUILDING LEASE WITH KAX CO. 1 EXHIBIT 10.2 LEASE by and between KAX CO., A GENERAL PARTNERSHIP, as Landlord and WAVEPHORE NETWORKS, INC. A DELAWARE CORPORATION as Tenant for 375 CHIPETA WAY UNIVERSITY OF UTAH RESEARCH PARK SALT LAKE CITY, UTAH 2 INDEX FOR: 375 Chipeta Way UNIVERSITY OF UTAH RESEARCH PARK SALT LAKE CITY, UTAH 1. Leased Premises. .................................................. 4 2. Alterations. ...................................................... 5 3. Possession.......................................................... 5 4. Preliminary Term. ................................................. 5 5. Term. ............................................................. 5 6. Rent. .............................................................. 5 7. Escalation.......................................................... 6 8. Late Charges. ..................................................... 6 9. Financing. ........................................................ 6 10. Use and Occupancy. ................................................ 7 11. Utilities. ........................................................ 7 12. Taxes. ............................................................ 7 13. Fire and Casualty Insurance. ...................................... 7 14. Liability Insurance and Indemnity. ................................ 8 15. Maintenance and Repair. ........................................... 9 16. Signs. ............................................................ 9 17. Keys and Locks. ................................................... 9 18. Security System. .................................................. 9 19. Carpeting Damage. ................................................. 9 20. Forced Entry. ..................................................... 9 21. Destruction. ...................................................... 10 22. Condemnation. ..................................................... 10 23. Assignments and Subletting. ....................................... 10 24. Surrender and Rights Upon Termination. ............................. 10 25. Holding Over. ..................................................... 11 26. Right to Cure. .................................................... 11 27. Remedies. ......................................................... 11 28. Enforcement. ...................................................... 12 29. Notices. .......................................................... 12 2 3 30. Quiet Enjoyment. .................................................. 12 31. Force Majeure. .................................................... 12 32. Waiver. ........................................................... 12 33. Accord and Satisfaction. .......................................... 13 34. Partial Invalidity. ............................................... 13 35. Representation Regarding Authority. ............................... 13 36. Entire Agreement. ................................................. 13 37. Miscellaneous Provisions. ......................................... 13 38. Security Deposit. ................................................. 13 39. Tenant Improvement Allowance........................................ 14 40. Option to Renew..................................................... 14 ACKNOWLEDGMENTS LANDLORD ACKNOWLEDGMENT...................................................... 14 TENANT ACKNOWLEDGMENT........................................................ 14 EXHIBITS EXHIBIT "A" SITE PLAN........................................................ 15 EXHIBIT "A-1" - FLOOR PLAN................................................... 16 EXHIBIT "B" - PROPERTY DESCRIPTION........................................... 17 3 4 SUB-LEASE (Research Park Portion of A Building Full Service) THIS LEASE, made and entered into this 30th day of May, 1996, by and between Kax Co., a Utah general partnership (hereinafter referred to as "Landlord"), and WAVEPHORE NETWORKS, INC. a Delaware Corporation, (hereinafter referred to as "Tenant"). RECITALS: A. Landlord has heretofore obtained a long-term ground lease covering that certain tract of real property situated in the University of Utah Research Park in Salt Lake County, State of Utah, more particularly described in Exhibit "B" attached hereto, together with certain easement for access rights. (Said tract is hereinafter referred to as the "Property"). B. Landlord owns a building on the above described real property (hereinafter the "Building") suitable for use a office/research and development space, together with related parking facilities and other improvements necessary to enable to the Building to be so used (the Building and related facilities and improvements are hereinafter collectively referred to as the "Improvements"). C. Tenant desires to lease from Landlord a portion of the Building, together with certain rights and privileges necessary for the full use and enjoyment thereof. NOW THEREFORE, in consideration of the premises and of the rents, covenants, and agreements hereinafter mentioned and reserved to be paid, kept, and performed by one or the other of the parties hereto, Landlord and Tenant hereby enter into this Lease and agree as follows: 1. LEASED PREMISES. Landlord does hereby demise, lease, and let unto Tenant the following-described areas, rights, and privileges (hereinafter collectively referred to as the "Leased Premises"): a. The south wing consisting of three floors of the building commonly known as 375 Chipeta Way together with common access with other building Tenants over the main building entry, central corridor, stairs and elevator, which space is outlined in yellow on Exhibits "A" and "A-1" attached. The gross rentable area of said space is approximately 30,120 square feet. 4 5 b. Such nonexclusive rights-of-way, easements, and similar rights with respect to the Property and the Improvements as may be reasonably necessary for access to that portion of the Building described under item (a) above; and c. The nonexclusive right to use for such purposes, along with all other subtenants, occupants, and users of the Improvements (or of improvements now or hereafter situated on any nearby tract now or hereafter leased by Landlord from the University of Utah), those areas designed and suitable for vehicular parking which are not reserved for the exclusive use of other tenants. Landlord hereby reserves, however: (i) Such access rights over and across the Property, such easements for utility lines, and such temporary rights of occupancy for construction, repair and maintenance activities as may be reasonably necessary to enable Landlord to fully develop, use, maintain and enjoy this tract and any other nearby tract or tracts within the Research Park which are being leased or which may hereafter be leased from the University of Utah by Landlord; (ii) Such access rights through that portion of the building described under item (a) above as may be reasonably necessary to enable access to the balance of the Building by Landlord; and to enable Landlord to perform its rights or duties under this lease; (iii) The right to install or maintain meters on the Leased Premises to monitor use of utilities for Landlord's records. In exercising such rights, Landlord will use its reasonable efforts so as to not commit waste upon the Leased Premises and as far as practicable to avoid annoyance or damage to Tenant when making modifications, additions or repairs. d. It is understood that there are 410 parking spaces for all buildings at the 375-391 Chipeta Way project which amount varies 18 spaces from zoning code, but which variance has been agreed to by Salt Lake City. Should additional parking be desired by Tenant, Landlord shall attempt to lease additional land area which may be available provided that Tenant shall pay any additional land rental and provided that Landlord and Tenant agree to an acceptable rate for amortization of improvement costs. e. It is further understood that any reserved parking allocated to the tenants of 375 Chipeta shall be done so on the basis of leasable space, and in the areas identified on "Exhibit A". Although some stalls near the main building entry shall be designated for visitor parking, all remaining parking shall be for the general and non-exclusive use of employees and visitors of the building. 2. ALTERATIONS. During the term of this Lease, Tenant shall have the right, at its sole cost and expense and so long as the change involved is not of a permanent or structural nature, to make such alterations in or additions to the Leased Premises as may be necessary to facilitate the use Tenant then desires to make of the Leased Premises. Changes of a permanent or structural nature may be made only with Landlord's prior written approval (not to be unreasonably withheld). Unless the parties have otherwise agreed in writing, upon the expiration or termination of this Lease, Landlord shall have the right, with respect to each alteration or addition made by Tenant, to retain the item or change concerned or to require Tenant at its 5 6 expense to restore to its original condition that part of the Leased Premises involved. Landlord shall not have the right to retain easily removable furniture, cabinets, equipment, portable interior partitions, or other personal property furnished by Tenant, but Tenant shall at its expense repair any damage to the Leased Premises which may have been caused by the removal of such personal property. At any time during the term hereof, Landlord shall have the right to make any modifications in or additions to that portion of the Improvements which is not part of the Leased Premises, so long as Landlord's activities in that regard do not substantially interfere with Tenant's use and enjoyment of the Leased Premises. 3. POSSESSION. Landlord shall deliver possession of the premises to Tenant upon execution of lease. 4. PRELIMINARY TERM. The period between the date Tenant takes possession and the commencement of the "Term" will be designated as "Preliminary Term" during which no rent shall accrue, although other covenants and obligations of Tenant shall be in full force and effect. 5. TERM. The firm term of this Lease shall commence on August 1, 1996, and shall continue for a period of 5 years thereafter to and including July 31, 2001. 6. RENT. a. Tenant shall pay as monthly rental the sum of Thirty Two Thousand Six Hundred Forty and no/100ths Dollars ($ 32,640.00). Said sums to be payable in lawful money of the United States. b. Tenant shall make monthly payments as set forth in Section 6a in advance on or before the first day of each calendar month throughout the term of the Lease. Each rental payment or other sum required to be paid by Tenant under this Lease shall be delivered to Landlord, c/o Woodbury Corporation, 2677 East Parleys Way, Salt Lake City, Utah 84109 or to such other address as Landlord may hereafter designate in a written notice given to Tenant. All checks to Landlord shall be made payable to KAX CO. (Fed ID# 87-0341891) c. Rent for the first month (August 1996) shall be prepaid upon execution of this lease. 7. ESCALATION. The monthly rent described in Section 6a shall be adjusted based on the following schedule: August 1, 1997 $ 38,905.00 August 1, 1998 40,160.00 August 1, 1999 41,415.00 August 1, 2000 43,915.00 6 7 8. LATE CHARGES. In the event that Tenant shall fail to pay any rental (including additional rental due hereunder) on or before the due date or within five (5) days thereafter, Tenant shall pay interest from the due date on such past due amounts to the date of payment, both before and after judgment at a rate equal to the greater of eighteen (18%) percent per annum or two (2%) percent over the "prime rate" charged by Zions First National Bank of Utah at the due date of such payment; provided however, that in any case the rate of interest charged shall not exceed the maximum non-usurious rate in accordance with applicable law. 9. FINANCING. Tenant acknowledges that there presently exists a first mortgage on the subject building. Tenant also acknowledges that from time to time Landlord may desire to refinance the first mortgage loan which then affects Landlord's interest in the Property and the Improvements. Accordingly, Tenant agrees that its interests in the Leased Premises and all of its interest hereunder are now and shall at all times be subject and subordinate to each of the following encumbrances whether the same are now existing or are hereafter created and without the need for any act or agreement by Tenant: (i) A first position mortgage or trust deed and customary related instruments encumbering Landlord's interest in the Property and the Improvements (which mortgage or trust deed and related instruments are hereinafter collectively referred to merely as a "Mortgage") and securing a loan obtained by Landlord for the purpose of enabling construction of the Improvements, (ii) A first position Mortgage encumbering Landlord's interest in the Property and the Improvements and securing a loan which is obtained by Landlord to provide standing or permanent financing for the same; and (iii) A first position Mortgage encumbering Landlord's interest in the Property and the Improvements and securing a loan which is obtained by Landlord for the purpose of refinancing any such construction, standing or permanent loan; provided, however that so long as Tenant continues to perform all of its obligations under this Lease its tenancy shall remain in full force and effect notwithstanding Landlord's default in connection with a Mortgage or any resulting foreclosure or sale or transfer in lieu of such proceedings. Tenant shall not subordinate its interests hereunder or in the Leased Premises to any lien or encumbrance other than the Mortgages referred to in this Section 9 without the prior written consent of the lender interested under the Mortgage then affecting Landlord's interest in the Property and the Improvements. Any such unauthorized subordination by Tenant shall be void and or no force or effect whatsoever. Tenant agrees that, upon the written request of Landlord or of any lender which is considering making or which has made one of the loans referred to in this Section 9, and for the exclusive benefit of Landlord and such lender, it will promptly deliver to Landlord or to such lender a written instrument certifying as to any of the following facts or matters, to the extent the same are then the case or applicable: that there are no existing defaults under this Lease; that this Lease is then unmodified and in full force and effect; that the Improvements have been completed and as constructed comply with the requirements of this Lease, the date which constitutes the Completion Date hereunder; the use which is being made of or which is proposed to be made of the Leased Premises; and such other reasonable matters as to which Landlord or the lender makes inquiry. 7 8 10. USE AND OCCUPANCY. Tenant shall use the Leased Premises as office, research, development and laboratory space and for purposes ordinarily incidental to such use and only for such purposes and in such manner as are permitted both by the Protective Covenants relating to the University of Utah Research Park and by existing legislation concerning the Research Park. Tenant shall not make any use of the Leased Premises which will cause cancellation or an increase in the cost of any insurance policy covering the same. Tenant shall not keep or use on the Leased Premises any article, item, or thing which is prohibited by the standard form of fire insurance policy. Tenant shall not commit any waste upon the Leased Premises and shall not conduct or allow any business activity, or thing on the Leased Premises which is an annoyance or causes damage to Landlord, to other sub-tenants, occupants, or users of the Improvements, or to occupants of the vicinity. Tenant shall comply with and abide by all laws, ordinances, and regulations of all municipal, county, state, and federal authorities which are now in force or which may hereafter become effective with respect to use and occupancy of the Leased Premises. Landlord represents that to the best of its knowledge and understanding, the building in which the Leased Premises are situated complies with all currently applicable laws, ordinances and regulations of municipal, county, state and federal authorities. 11. UTILITIES. Tenant accepts the utility connections in the premises "as is". Throughout the term hereof Landlord shall pay all monthly or other periodic charges required for the Leased Premises to be furnished with such utility services as may be required by Tenant in connection with its use and occupancy of the Leased Premises, including electricity, water, gas, heat, sewer service, trash disposal, and snow removal, but not including telephone installation, use and station equipment charges, which charges Tenant agrees to pay. 12. TAXES. Landlord shall pay all real property taxes, contributions in lieu of taxes and assessments (all of which are hereinafter collectively referred to as "Taxes") which are levied against or which apply with respect to the Leased Premises. Tenant shall pay all taxes, assessments, charges, and fees which during the term hereof may be imposed, assessed, or levied by any governmental or public authority against or upon Tenant's use of the Leased Premises or any personal property or fixtures kept or installed therein by Tenant. 13. FIRE AND CASUALTY INSURANCE. a. Subject to the provisions of Section 14 below, Landlord shall secure, pay for, and at all times during the term hereof maintain, insurance providing coverage upon the Improvements in an amount equal to the full insurable value thereof (as determined by Landlord) and insuring against the perils of fire, extended coverage, vandalism, and malicious mischief. All insurance required hereunder shall be written by reputable, responsible companies licensed in the State of Utah. Landlord shall also maintain appropriate general liability insurance with respect to Landlord's building. Tenant shall have the right, at its request and any reasonable time, to be furnished with copies of the insurance policies then in force pursuant to this Section, together with evidence that the premiums therefor have been paid. Landlord shall indemnify Tenant against and hold it harmless from any claims arising out of loss or damage to building, except for damage resulting from the acts or omissions of Tenant, its officers, employees or agents. 8 9 b. Tenant agrees to maintain at its own expense such fire and casualty insurance coverage as Tenant may desire or require in respect to Tenant's personal property equipment, furniture, fixtures or inventory and Landlord shall have no obligation in respect to such insurance or losses. All property kept or stored on the Leased Premises by Tenant or with Tenant's permission shall be so done at Tenant's sole risk and Tenant shall indemnify Landlord against and hold it harmless from any claims arising out of loss or damage to same. c. Tenant will not permit said Leased Premises to be used for any purpose which would render the insurance thereon void or cause cancellation thereof or increase the insurance risk or increase the insurance premiums in effect just prior to the commencement of this lease term. Tenant agrees to pay as additional rent the total amount of any increase in the insurance premium of Landlord in effect prior to the resulting commencement of this Lease resulting from Tenant use of the premises. If Tenant installs any electrical or other equipment which overloads the lines in the Leased Premises, Tenant shall at its own expense make whatever changes are necessary to comply with the requirements of Landlord's insurance. d. Each party hereto does hereby release and discharge the other party hereto and any officer, agent, employee or representative of such party, of and from any liability whatsoever hereafter arising from loss, damage or injury caused by fire or other casualty for which insurance (permitting waiver of liability and containing a waiver or subrogation) is carried by the injured party at the time of such loss, damage, or injury to the extent of any recovery by the injured party under such insurance. e. Landlord shall be responsible for all exterior glass breakage from any cause whatsoever except forced entry or Tenant's negligence and agrees to immediately replace all glass broken or damaged during the term hereof with glass of the same quality as that broken or damaged. 14. LIABILITY INSURANCE AND INDEMNITY. Tenant shall, during the entire term hereof, keep in full force and effect a policy of public personal injury and property damage liability insurance with respect to the Leased Premises, in which the limits for such liability shall be not less than One Million Dollars ($1,000,000.00) per accident, and in which the limits for property damage liability shall be not less than One Hundred Thousand Dollars ($100,000.00). The policy shall name Landlord, any persons, firms or corporations designated by Landlord and Tenant as insureds, and shall contain a clause that the insurer will not cancel or change the insurance without first giving the Landlord ten (10) days prior written notice. Such insurance may be furnished by Tenant under any blanket policy carried by it or under a separate policy therefor. The insurance shall be with an insurance company approved by landlord and a copy of the paid-up policy evidencing such insurance or a certificate of insurer certifying to the issuance of such policy shall be delivered to Landlord. If Tenant fails to provide such insurance, Landlord may do so and charge same to Tenant. 9 10 Tenant will indemnify Landlord and save it harmless from and against any all claims, actions, damages, liability and expense in connection with loss of life, personal injury and/or damage to property arising from or out of any occurrence in, upon or at the Leased Premises or from the occupancy or use by Tenant of the Leased Premises or any part thereof, or occasioned wholly or in part by any act or omission of Tenant, its agents, contractors, employees, servants, sublessees, concessionaires or business invitees unless caused by the negligence of Landlord. Landlord shall likewise indemnify and hold harmless and defend Tenant from and against claims arising from occurrences in parking or other common areas around the premises known as 375 Chipeta Way occasioned wholly or in part by any act or omission of Landlord, its agents, contractors, employees, servants, sublessees other than Tenant, or business invitees. 15. MAINTENANCE AND REPAIR. Landlord shall maintain and repair: (1) the premises outside the Building, including general landscaping, if any, parking areas, driveways and walkways; (2) the Building structure including roof, walls, floor joists; (3) the foundations of the Building; and (4) all plumbing, electrical, heating, and air conditioning systems. However, if the need for such repairs or maintenance results from any careless, wrongful or negligent act or omission of Tenant, Tenant shall pay the entire cost of any such repair or maintenance including a reasonable charge to cover Landlord's supervisory overhead. Landlord shall not be obligated to repair any damage or defect until receipt of written notice from Tenant of the need of such repair and Landlord shall have a reasonable time after receipt of such notice in which to make such repairs. Landlord shall plow snow from parking areas after each snow fall in excess of three inches and shall keep the sidewalks and walkways reasonably clear from ice and snow. Tenant shall provide its own janitorial service including lamp replacement. Tenant shall otherwise maintain the interior of the Leased Premises and shall keep the same in a clean and sanitary condition. Tenant shall also be responsible for the maintenance and repair of the floor coverings, wall coverings, draperies and blinds unless the need for repair or replacement of same is the result of structural or other causes which are the responsibility of the Landlord. 16. SIGNS. Subject to the restrictions of the University Research Park, Tenant, at its own expense, may place a suitable tenant identification sign on the premises, including a monument sign near the south driveway from Chipeta Way, provided that such sign shall be in the same general building location and general design conforms to the same design and style of other tenant signs on the building and provided that written approval of the sign design and proposed location is obtained in advance from Landlord and from the University Research Park. If any sign is erected prior to obtaining University Research Park and Landlord approval or which does not conform to the condition herein specified, Tenant shall be required to remove said sign and repair any damage caused thereby at its sole cost and expense. At the termination of this Lease, Tenant shall remove said sign and Tenant agrees that whenever its signs are removed, Tenant shall repair any damage caused by the installation or removal thereof. All work shall be completed in a good and workmanlike manner. 10 11 17. KEYS AND LOCKS. Tenant may change locks or install other locks on doors other than the common entry door, but if Tenant does so, Tenant must provide Landlord with duplicate keys within twenty-four hours after said change or installation. Tenant upon termination of this Lease shall deliver to Landlord all the keys to the Leased Premises including any interior offices, toilet rooms, etc. which shall have been furnished to the Tenant or are in the possession of the Tenant. 18. SECURITY SYSTEM. Landlord herein consents to the installation by Tenant of its own security system together with separate keys or locks, if any, affecting all or a portion of the Leased Premises provided that such security system does not interfere with the structural aspects or utility systems of the building and provided that any damage occasioned by said installation is repaired immediately. Upon termination of this Lease, Tenant may remove or Landlord may require Tenant to remove said security system. In either case, Tenant covenants to repair any damages occasioned thereby and to restore the premises to the same condition as existed before said security system installation. 19. CARPETING DAMAGE. Tenant agrees to take precautions not to damage carpets in the leased premises and shall repair or replace such if damaged beyond normal wear and tear. 20. FORCED ENTRY. Tenant shall be responsible for any damage to premises as a result of forced entry into its space or burglary thereof to the extent such damage is not covered by Landlord's casualty insurance. 21. DESTRUCTION. Either party hereto shall have the right to terminate this Lease in the event of destruction of or damage to the Leased Premises which is so extensive as to make impractical Tenant's use and occupancy thereof for a period reasonably expected to be in excess of sixty (60) days or if more than 50% of the space is reasonably expected to be unavailable for use for in excess of sixty (60) days. Such right of termination must be accomplished through written notice to the other party given within thirty (30) days following the date of destruction or damage. In the event of such termination there shall be a proration of the rent called for herein and Landlord shall refund any excess previously paid by Tenant. Termination shall be effective, and rent shall be prorated as of the date on which written notice of termination is given. In the event of any other destruction of or damage to the Leased Premises, or in the event neither party exercises the above mentioned right of termination, Landlord shall forthwith repair and reconstruct the Leased Premises. During the period of damage and repair the rent required to be paid thereunder shall be reduced proportionate to the amount of area which Tenant is not able to occupy because of said destruction until such time as said area has been repaired or reconstructed and written notice given to Tenant that such space is available for occupancy. Whether or not this Lease is terminated as a result of destruction of or damage to the Leased Premises, all insurance proceeds realized under policies maintained by Landlord shall be the sole and exclusive property of Landlord and insurance proceeds from policies maintained by Tenant or Tenant's personal property shall be solely Tenant's. 11 12 22. CONDEMNATION. As used in this Section the term "Condemnation Proceeding" means any action or proceeding in which any interest in the Property or in the Improvements is taken for any public or quasi-public purpose by any lawful authority through exercise of the power of eminent domain or right of condemnation or by purchase or otherwise in lieu thereof. If the whole of the Leased Premises is taken through Condemnation Proceedings, this Lease shall automatically terminate as of the date of taking. If in excess of twenty (20%) percent of the Leased Premises is taken, either party hereto shall have the option to terminate this Lease by giving the other written notice of such election at any time within thirty (30) days after the date of taking. In all other cases, or if neither party exercised its option to terminate, this Lease shall remain in effect and the rent payable hereunder from and after the date of taking shall be proportionately reduced on the basis of: (i) the area contained in the Leased Premises which is capable of occupancy after the taking; and (ii) the total area contained in the Leased Premises which was capable of occupancy prior to the taking. In the event of any termination or rental reduction provided for in this Section, there shall be a proration of the rent payable under this Lease and Landlord shall refund any excess theretofore paid by Tenant. Whether or not this Lease is terminated as a consequence of Condemnation Proceedings, all damages or compensation awarded for a partial or total taking, including any sums compensating Tenant for diminution in the value of or deprivation of its leasehold estate, shall be the sole and exclusive property of Landlord. 23. ASSIGNMENTS AND SUBLETTING. Tenant shall not have the right to assign this Lease or any of its interest hereunder. Tenant shall have the right to sublet the Leased Premises, or any part thereof, only with the prior written consent of Landlord, which consent shall not be unreasonably withheld. 24. SURRENDER AND RIGHTS UPON TERMINATION. Upon termination of this Lease at any time and for any reason whatsoever, Tenant shall surrender and deliver up the Leased Premises to Landlord in the same condition as when the premises were delivered to Tenant or as altered as provided in Section 2, ordinary wear and tear excepted, and Tenant shall remove all personal property from the premises. Tenant agrees to thoroughly clean the premises after surrender. The voluntary or other surrender of this Lease by Tenant or a cancellation hereof with the consent of both parties shall not automatically work a merger. Rather, such occurrence shall, at the option of Landlord, either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of any or all of such subleases or subtenancies. Except as otherwise expressly provided for in this Lease, as of and after the date of termination hereof for any respect to each other, and of Tenant with respect to the Leased Premises, shall cease. However, Tenant shall fully perform and fulfill all of its obligations under this Lease relating to events occurring or circumstances existing prior to the date of termination. 25. HOLDING OVER. Any holding over after the expiration of the term hereof, with the consent of the Landlord, shall be construed to be a tenancy from month to month at the rents and on the terms and conditions herein specified, so far as applicable. During said month to month tenancy, Tenant agrees to give Landlord thirty (30) days prior written notice of its intent to 12 13 vacate the premises. Tenant agrees to completely vacate the premises upon thirty (30) days prior written notice from Landlord. 26. RIGHT TO CURE. In the event of any breach, default, or noncompliance hereunder by either party hereto, the other party shall, before exercising any right or remedy provided herein or by law, given the defaulting party written notice of the claimed breach, default, or noncompliance and allow thirty (30) days after such written notice for the other party to cure except as may be provide for elsewhere in this Lease, and except that Tenant shall be allowed only five (5) days to cure a default regarding failure to pay rent or any other sums hereunder. If the defaulting party is Landlord, and if prior to its giving such notice to Landlord, Tenant has been notified in writing (by way of Notice of Assignment of Rents and Leases, or otherwise) of the address of the holder of the Mortgage (referred to in Section 9 above) then affecting Landlord's interest in the aforesaid notice to Landlord, Tenant shall, by registered mail, transmit a copy thereof to such holder. For the thirty (30) days following the giving of the notice(s) required by the foregoing portion of this Section 26 (or such longer period of time as may be reasonably required to cure a matter which, due to its nature, cannot reasonably be rectified within thirty (30) days, the party in default shall have the right to cure the breach, default, or noncompliance involved. If Landlord has failed to cure a default on its part within said period, the holder of the Mortgage then affecting Landlord's interest in the Property and Improvements shall have an additional thirty (30) days within which to cure the same or, if such default cannot be cured within that period, such additional time as may be necessary if within such thirty (30) day period said holder has commenced and is diligently pursuing the actions or remedies necessary to cure the breach, default, or noncompliance involved (including, but not limited to, commencement and a prosecution or proceedings to foreclose this Lease shall not be terminated by Tenant while such actions or remedies are being diligently pursued by said holder. If at the expiration of the applicable period(s) provided for in this Section 26 cure has not occurred, the aggrieved party may exercise any available right of remedy including the right to terminate. 27. REMEDIES. In the event either party breaches or fails to perform any of its obligations hereunder and fails to timely cure any such default with respect to which a right to cure exists, so long as such default continues the other party shall have the right, at its option, to exercise any of the following applicable rights and remedies: a. The party not in default may itself pay or perform or cause to be paid or performed the obligation with respect to which the other is in default. The cost of such payment or performance, including reasonable attorneys' fees and all expense incurred, plus interest on all of said amounts at the rate of eighteen (18%) percent per annum from the date of expenditure, shall be immediately paid by the party in default. b. In the event the party in default is Tenant, Landlord may terminate this Lease, and enter the Leased Premises under due process of law. In the event Landlord terminates this Lease pursuant to this Paragraph b, it shall also have the right to recover from Tenant: (i) The present worth of an amount equal to the difference between (a) all rent which would have been received hereunder from the date of termination to the expiration of this Lease, and (b) the amount of 13 14 rental loss which Tenant establishes could have reasonably been avoided; and (ii) All other amounts necessary to compensate Landlord for all damages caused by Tenant's default or which would be likely to result from such default. The remedies specified in this Section 27 are cumulative and are not intended to exclude any other remedy or means of redress to which either party may be entitled in the event of any default or threatened default by the other with respect to any of its obligations under this Lease. The use by one of the parties hereto of one of the remedies specified above or available under applicable law shall not preclude such party from thereafter utilizing another of said remedies. 28. ENFORCEMENT. In case of default by either party in the performance of the covenants and obligations under this Lease, the defaulting party shall pay all costs incurred in enforcing this Lease, or any right arising out of the breach thereof, whether by suit or otherwise, including a reasonable attorneys' fee. 29. NOTICES. Any notice required or permitted hereunder to be given or transmitted between the parties shall be either personally delivered or mailed postage prepaid by certified mail, return receipt requested, addressed as follows: To Tenant: WAVEPHORE NETWORKS, INC. 375 Chipeta Way Salt Lake City, Utah 84108 (801) 584-2800 To Landlord: KAX CO. WOODBURY CORPORATION 2677 East Parleys Way Salt Lake City, Utah 84109 (801) 485 - 7770 Any notice which is mailed shall be effective on the second business day following its date of mailing. Either party may, by notice to the other given as prescribed in this Section 29, change the above address for any future notices which are mailed under this Lease. 30. QUIET ENJOYMENT. Upon payment by the Tenant of the rents herein provided, and upon the observance and performance of all the covenants, terms and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Leased Premises for the term hereby demised without hindrance or interruption by Landlord or any other person or persons lawfully or equitably claimed by, through or under the Landlord, subject, nevertheless, to the terms and conditions of this Lease, and actions resulting from future eminent domain proceedings and casualty losses. 14 15 31. FORCE MAJEURE. Any failure on the part of either party to this Lease to perform any obligation hereunder, other than Tenant's obligation to pay rent, and any delay in doing any act required hereby shall be excused if such failure or delay is caused by any strike, lockout, governmental restriction or any similar cause beyond the control of the party so failing to perform, to the extent and for the period that such continues. 32. WAIVER. One or more waivers of any covenant or condition by Landlord shall not be construed as a waiver of a subsequent breach of the same covenant or condition and the consent or approval to or of any subsequent similar act by Tenant. No breach of a covenant or condition of this Lease shall be deemed to have been waived by Landlord, unless such waiver be in writing signed by Landlord. 33. ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord of a lesser amount than the amount owing hereunder shall be deemed to be other than on account of the earliest stipulated amount receivable from Tenant, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or receivable or pursue any other remedy available under this Lease or the law of the state where the demised premises are located. 34. PARTIAL INVALIDITY. If any term, covenant or condition of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Lease shall be valid and be enforced to the fullest extent permitted by law. 35. REPRESENTATION REGARDING AUTHORITY. The persons who have executed this Agreement represent and warrant that they are duly authorized to execute this Agreement in their individual or representative capacity as indicated. 36. ENTIRE AGREEMENT. This Lease constitutes the entire Agreement and understanding between the parties hereto and supersedes all prior discussions, understandings and agreements. This Lease may not be altered or amended except by a subsequent written amendment executed by all parties. 37. MISCELLANEOUS PROVISIONS. This instrument shall not be recorded without the prior written consent of Landlord. The captions which precede the Sections of this Lease are for convenience only and shall in no way affect the manner in which any provisions hereof are construed. To the extent permitted by the provisions hereof, all reservations, terms, conditions and covenants herein contained shall be binding upon and shall insure to the benefit of the respective heirs, personal representatives, successors, and assigns of the parties hereto. In the event there is more than one Tenant hereunder, the liability of each shall be joint and several. This instrument shall be governed by and construed in accordance with the laws of the State of 15 16 Utah. Words of any gender, and words in the singular number shall be held to include the plural when the sense requires. Time is of the essence of this Lease and every term, covenant and condition herein contained. 38. SECURITY DEPOSIT. The Landlord acknowledges receipt of $32,640.00 which it is to retain as security for the faithful performance of all the covenants, conditions and agreements of this Lease, but in no event shall the Landlord be obligated to apply the same upon rents or other charges in arrears or upon damages for the Tenant's failure to perform the said covenants, conditions and the leased premises for non-payment of rent or for any other reason shall not in any event be affected by reason of the fact that the Landlord holds this security. The said such, if not applied toward the payment or rent in arrears or toward the payment of damages suffered by the Landlord by reason of the Tenant's breach of the covenants, conditions and agreements of this Lease, is to be returned to the Tenant without interest when this Lease is terminated, according to these terms. In the event that the Landlord repossesses the leased premises because of the Tenant's default or because of the Tenant's failure to carry out the covenants, conditions and agreements of this Lease, the Landlord may apply the said security toward damages as may be suffered or shall accrue thereafter by reason of the Tenant's default or breach. The Landlord shall not be obligated to keep the said security as a separate fund, but may mix the said security with its own funds. 39. TENANT IMPROVEMENT ALLOWANCE. Landlord shall prior approve plans and contractor for Tenant's proposed improvements, including the remodeling of the south dock area, as provided in Section 2 of this lease. Landlord agrees to provide Tenant an allowance of $60,240.00 towards the cost of any and all remodeling, and Tenant shall pay any costs in excess of $60,240.00. Said allowance shall be disbursed directly to contractors or material suppliers, or as reimbursement to Tenant upon receiving evidence of paid bills and Landlord's inspection of completed work. 40. OPTION TO RENEW. Tenant shall have the option to renew this lease for one additional 5 year period to and including July 31, 2006 by giving Landlord written notice of its intent to renew on or before January 31, 2001. This option is subject to Landlord and Tenant mutually agreeing on rents, etc. for the renewal term on or before April 30, 2001. 16 17 EXECUTED the day and year first above written. LANDLORD: TENANT: KAX COMPANY, WAVEPHORE NETWORKS, INC. A UTAH LIMITED LIABILITY COMPANY A DELAWARE CORPORATION By: By: ---------------------------------- --------------------------- Orin R. Woodbury, Attorney-in-Fact Scott E. Calder, President By: By: --------------------------------- --------------------------- Oliver M. Aston, Attorney-in-Fact Mitchell J. Rasmussen, Vice President, Finance & CFO 17 18 LANDLORD ACKNOWLEDGMENT STATE OF UTAH ) )ss. COUNTY OF SALT LAKE ) On this day of , 1996, before me personally appeared ORIN R. WOODBURY and OLIVER M. ASTON, to me personally known, who being by me duly sworn, did say that they are Attorney-in-Fact of that certain partnership known as KAX CO., and that the within instrument was executed by them, for and on behalf of said partnership. ______________________________ Notary Public Residing at: _________________ My commission expires: _________________ TENANT ACKNOWLEDGMENT STATE OF UTAH ) )ss. COUNTY OF ) On this day of , 1996 before me personally appeared Scott E. Calder, and Mitchell J. Rasmussen, to me personally known to be the President and Vice President, Finance & CFO of WAVEPHORE NETWORKS, INC, the corporation that executed the within instrument, known to be the persons who executed the within instrument on behalf of said corporation therein named, and acknowledged to me that such corporation executed the within instrument pursuant to its by-laws or a resolution of its board of directors. ______________________________ Notary Public Residing at: _________________ My commission expires: _________________ 18 19 EXHIBIT "A" SITE PLAN 19 20 EXHIBIT "A-1" - FLOOR PLAN 20 21 EXHIBIT "B" - PROPERTY DESCRIPTION PARCEL A (Gap at Chipeta Way) (University of Utah Lease to KAX) Beginning at a point on the east line of Chipeta Way due West 570.417 feet and due North 14.022 feet from a monument at the Northeast Corner of the Ft. Douglas Cemetery, said Northeast Corner being North 47 degrees 49 minutes 55 seconds West 3246.84 feet from the Southeast Corner of Section 3, Township 1 South, Range 1 East, Salt Lake Base and Meridian, (according to B.L.M. Survey) and running: Thence northwesterly 165.106 feet along the arc of 2273.247 foot radius curve to the left (center bears South 53 degrees 09 minutes 41 seconds West and long chord bears North 38 degrees 55 minutes 10 seconds West 165.070 feet) along said east line; Thence North 41 degrees 00 minutes 00 seconds West 34.045 feet along said east line; Thence North 2 degrees 22 minutes 30 seconds East 13.387 feet Thence South 36 degrees 50 minutes 19 seconds East 209.289 feet to the point of beginning. Contains 619 square feet, 0.0142 acres. PARCEL C (Remaining Portion of Parcel 2) Beginning at a point South 67 degrees 14 minutes 36 seconds West 188.786 feet from a monument at the Northeast Corner of the Ft. Douglas Cemetery, said Northeast Corner being North 47 degrees 49 minutes 55 seconds West 3246.84 feet from the Southeast Corner of Section 3, Township 1 South, Range 1 East, Salt Lake Base and Meridian, (according to B.L.M. Survey) and running: Thence South 67 degrees 14 minutes 36 seconds West 79.784 feet; Thence northwesterly 328.525 feet along the arc of 247.940 foot radius curve to the right (center bears North 22 degrees 45 minutes 24 seconds West and long chord bears North 74 degrees 47 minutes 51 seconds West 305.015 feet) to the east line of Chipeta Way; Thence North 36 degrees 50 minutes 19 seconds West 256.677 feet along said east line to the proposed south line of Wakara Way; 21 22 Thence North 2 degrees 22 minutes 30 seconds East 20.951 feet along said south line; Thence North 45 degrees 45 minutes 00 seconds East 253.875 feet along said south line; Thence South 36 degrees 50 minutes 19 seconds East 565.559 feet to the point of beginning; Contains 129,171 square feet, 2.9654 acres. PARCEL D (Gap at Wakara and Colorow) (University of Utah Lease to Kax) Beginning at a point South 67 degrees 14 minutes 36 seconds West 188.786 feet and North 36 degrees 50 minutes 19 seconds West 564.383 feet from a monument at the Northeast Corner of the Ft. Douglas Cemetery, said Northeast Corner being North 47 degrees 49 minutes 55 seconds West 3246.84 feet from the Southeast Corner of Section 3, Township 1 South, Range 1 East, Salt Lake Base and Meridian, (according to B.L.M. survey) and running; Thence North 36 degrees 50 minutes 19 seconds West 1.178 feet to the proposed south line of Wakara Way; Thence North 45 degrees 45 minutes 00 seconds East 323.972 feet along said south line; Thence South 84 degrees 48 minutes 19 seconds East 37.989 feet along said south line to west line of the proposed Colorow Way; Thence South 35 degrees 21 minutes 39 seconds East 637.162 feet along said west line; Thence northwesterly 521.207 feet along the arc of a 2887.180 foot radius curve to the right (center bears North 48 degrees 31 minutes 28 seconds East and long chord bears North 36 degrees 18 minutes 14 seconds West 520.499 feet); Thence South 53 degrees 09 minutes 41 seconds West 220.000 feet; Thence North 86 degrees 50 minutes 12 seconds West 153.920 feet to the point of beginning Contains 42,826 square feet, 0.9831 acres. 22 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 10,832 0 3,688 669 2,755 17,845 3,038 914 37,996 3,187 1,680 25,200 0 52,013 (43,356) 37,996 8,648 8,648 5,301 5,301 8,214 0 100 0 0 (4,967) 0 0 0 (4,967) (.42) (.42)
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