UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2009
Or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number: 000-51541
GENOMIC HEALTH, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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77-0552594
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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301 Penobscot Drive
Redwood City, California 94063
(Address of principal executive offices, including Zip Code)
(650) 556-9300
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
The number of outstanding shares of the registrants Common Stock, $0.0001 par value, was
28,610,700 as of October 31, 2009.
GENOMIC HEALTH, INC.
INDEX
2
PART 1: FINANCIAL INFORMATION
Item 1. Financial Statements
GENOMIC HEALTH, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
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September 30,
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December 31,
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2009
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2008
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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16,719
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$
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11,171
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Short-term investments
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42,183
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45,499
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Accounts receivable (net of allowance for doubtful accounts; September 30, 2009 -
$633,
December 31, 2008 - $881)
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9,655
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8,807
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Prepaid expenses and other current assets
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5,341
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4,781
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Total current assets
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73,898
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70,258
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Property and equipment, net
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13,235
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15,562
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Restricted cash
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500
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500
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Other assets
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477
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369
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Total assets
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$
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88,110
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$
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86,689
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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2,578
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$
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1,898
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Accrued compensation
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6,029
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4,157
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Accrued license fees
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2,833
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2,553
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Accrued expenses and other current liabilities
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6,313
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4,398
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Notes payable current portion
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489
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1,814
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Deferred revenues current portion
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2,286
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2,381
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Other current liabilities
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364
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364
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Total current liabilities
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20,892
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17,565
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Notes payable long-term portion
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43
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225
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Deferred revenues long-term portion
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476
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1,417
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Other liabilities
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1,002
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1,307
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Commitments (Note 5)
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Stockholders equity:
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Preferred stock, $0.0001 par value per share, 5,000,000 shares authorized, none issued and
outstanding at September 30, 2009 and December 31, 2008
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Common stock, $0.0001 par value per share, 100,000,000 shares authorized, 28,611,164 and
28,461,327 shares issued and outstanding at September 30, 2009 and December 31, 2008,
respectively
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2
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2
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Additional paid-in capital
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243,190
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234,412
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Accumulated other comprehensive income
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59
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245
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Accumulated deficit
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(177,554
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)
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(168,484
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)
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Total stockholders equity
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65,697
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66,175
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Total liabilities and stockholders equity
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$
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88,110
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$
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86,689
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See accompanying notes.
3
GENOMIC HEALTH, INC.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2009
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2008
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2009
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2008
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Revenues:
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Product revenues
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$
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38,910
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$
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28,070
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$
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107,529
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$
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77,752
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Contract revenues
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607
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51
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2,436
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1,592
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Total revenues
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39,517
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28,121
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109,965
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79,344
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Operating expenses:
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Cost of product revenues
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8,301
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7,140
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24,019
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19,875
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Research and development
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9,120
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6,939
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27,007
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20,667
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Selling and marketing
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15,313
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10,837
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45,719
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35,030
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General and administrative
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7,316
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6,505
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22,318
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18,635
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Total operating expenses
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40,050
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31,421
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119,063
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94,207
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Loss from operations
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(533
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(3,300
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(9,098
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(14,863
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Interest and other income, net
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116
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369
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591
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1,438
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Interest and other expense, net
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(22
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(91
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(109
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(330
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Loss before income taxes
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(439
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(3,022
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(8,616
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(13,755
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Provision for income taxes
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(63
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)
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(454
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)
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Net loss
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$
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(502
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$
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(3,022
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$
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(9,070
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$
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(13,755
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Basic and diluted net loss per share
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$
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(0.02
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$
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(0.11
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$
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(0.32
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$
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(0.49
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)
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Shares used in computing basic and diluted net loss per share
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28,579,045
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28,331,505
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28,538,915
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28,270,776
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See accompanying notes.
4
GENOMIC HEALTH, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Nine Months Ended
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September 30,
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2009
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2008
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Operating activities
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Net loss
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$
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(9,070
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$
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(13,755
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)
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Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
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Depreciation and amortization
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4,868
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3,590
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Employee stock-based compensation
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7,638
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6,828
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Changes in assets and liabilities:
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Accounts receivable
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(848
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)
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(4,334
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)
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Prepaid expenses and other assets
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(747
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)
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(3,092
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Accounts payable
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680
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(518
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)
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Accrued expenses and other liabilities
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1,890
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2,226
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Accrued compensation
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1,872
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55
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Deferred revenues
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(1,036
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)
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3,109
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Net cash provided by (used in) operating activities
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5,247
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(5,891
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)
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Investing activities
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Purchases of property and equipment
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(2,462
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)
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(7,682
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Purchases of short-term investments
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(41,670
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)
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(87,568
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)
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Maturities of short-term investments
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44,800
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71,749
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Net cash provided by (used in) investing activities
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668
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(23,501
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)
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Financing activities
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Principal payments of notes payable
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(1,507
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)
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(2,032
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Proceeds from issuance of common stock under stock plans
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1,140
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1,302
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Net cash used in financing activities
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(367
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)
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(730
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)
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Net increase (decrease) in cash and cash equivalents
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5,548
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(30,122
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)
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Cash and cash equivalents at the beginning of the period
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11,171
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39,164
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Cash and cash equivalents at the end of the period
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$
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16,719
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$
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9,042
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Cash paid for interest
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$
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109
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$
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317
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Cash paid for taxes
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$
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28
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$
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See accompanying notes.
5
GENOMIC HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
(Unaudited)
Note 1. Organization and Summary of Significant Accounting Policies
The Company
Genomic Health, Inc. (the Company) is a life science company focused on the development and
commercialization of genomic- based clinical diagnostic tests for cancer that allow physicians and
patients to make individualized treatment decisions. In 2004, the Company launched its first test,
the Onco
type
DX breast cancer test, which has been shown to predict the likelihood of breast cancer
recurrence and the likelihood of chemotherapy benefit in a large portion of breast cancer patients.
The Company was incorporated in Delaware in August 2000 and is located in Redwood City, California.
Principles of Consolidation
The condensed consolidated financial statements include all the accounts of the Company and
its wholly-owned subsidiaries. The Company has two wholly-owned subsidiaries, Genomic Health
International LLC (formerly Genomic Health Switzerland LLC), a European subsidiary that was
established in 2009 to support the Companys international sales and marketing efforts, and
Onco
type
Laboratories, Inc., which was established in 2003 and is inactive. All significant
intercompany balances and transactions have been eliminated.
Basis of Presentation and Use of Estimates
The accompanying interim period condensed consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States (GAAP). The
condensed consolidated balance sheet as of September 30, 2009, condensed consolidated statements of
operations for the three and nine months ended September 30, 2009 and 2008 and condensed
consolidated statements of cash flows for the nine months ended September 30, 2009 and 2008 are
unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the
Company considers necessary for a fair presentation of its financial position, operating results
and cash flows for the periods presented. The condensed consolidated balance sheet at December 31,
2008 has been derived from audited financial statements. However, it does not include certain
information and notes required by GAAP for complete consolidated financial statements.
The preparation of financial statements in conformity with GAAP requires management to make
judgments, assumptions and estimates that affect the amounts reported in the Companys condensed
consolidated financial statements and accompanying notes. Actual results could differ materially
from those estimates.
FASB Accounting Standards Codification
In June 2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting
Standards Codification (Codification). The Codification is the single source for all
authoritative Generally Accepted Accounting Principles (GAAP) recognized by the FASB to be
applied for financial statements issued for periods ending after September 15, 2009. The
Codification does not change GAAP and did not have a material impact on the Companys financial
statements.
Subsequent Events
The Company evaluated all events or transactions that occurred after September 30, 2009
through and including November 9, 2009, the date these condensed consolidated financial statements
were issued. During this period the Company did not have any material recognizable subsequent
events. However, the Company did have a nonrecognizable subsequent event due to the execution of a
new lease agreement in October 2009. See Note 5,
Commitments Lease Obligations
for additional
information.
6
Revenue Recognition
The Company derives its revenues from product sales and contract research arrangements. The
Company operates in one industry segment. Product revenues are derived solely from the sale of the
Onco
type
DX breast cancer test. The Company generally bills third-party payors for a test upon
generation and delivery of a Recurrence Score report to the physician. As such, the Company takes
assignment of benefits and the risk of collection with the third-party payor. The Company usually
bills the patient directly for amounts owed after multiple requests for payment have been denied or
only partially paid by the insurance carrier. The Company pursues case-by-case reimbursement where
third-party reimbursement policies are not in place or payment history has not been established.
The Companys product revenues for tests performed are recognized when the following revenue
recognition criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery has
occurred or services have been rendered; (3) the fee is fixed or determinable; and (4)
collectibility is reasonably assured. Criterion (1) is satisfied when the Company has an
arrangement to pay or a contract with the payor in place addressing reimbursement for the Onco
type
DX breast cancer test. In the absence of such arrangements, the Company considers that criterion
(1) is satisfied when a third-party payor pays the Company for the test performed. In addition, the
Company must receive a written request to perform the test from a physician. Criterion (2) is
satisfied when the Company performs the test and generates and delivers to the physician, or makes
available on its web portal, a Recurrence Score report. Determination of criteria (3) and (4) is
based on managements judgments regarding whether the fee charged for products or services
delivered is fixed or determinable, a contractual agreement has been entered into, and the
collectibility of those fees under any contract or agreement. When evaluating collectibility, the
Company considers whether it has sufficient history to reliably estimate a payors individual
payment patterns. Based upon at least several months of payment history, the Company reviews the
number of tests paid against the number of tests billed and the payors outstanding balance for
unpaid tests to determine whether payments are being made at a consistently high percentage of
tests billed and at appropriate amounts given the contracted payment amount. To the extent all
criteria set forth above are not met when test results are delivered, product revenues are
generally recognized when cash is received from the payor.
The Company currently has distributor agreements in 10 countries outside of the U.S.
The distributor provides certain marketing and administrative services for the Company
within their territory. As a condition of these agreements, the distributor pays the
Company an agreed upon fee per test and the Company processes the tests. The same
revenue recognition criteria described above generally applies to tests received through
international distributors. Product revenues for tests performed are recognized on an
accrual basis when the following revenue recognition criteria are met: (1) persuasive
evidence that an arrangement exists; (2) delivery has occurred or services have been
rendered; (3) the fee is fixed or determinable; and (4) collectibility is reasonably assured.
To the extent all criteria set forth above are not met when test results are delivered,
product revenues are generally recognized when cash is received from the distributor.
From time to time, the Company receives requests for refunds of payments and records an
estimated reserve for refunds based on historical experience. Upon becoming aware of a refund
request, the Company does not record revenue for additional tests covered
by the refund request until
such time as it determines if a
refund is due.
Contract revenues are generally derived from studies conducted with biopharmaceutical and
pharmaceutical companies. The specific methodology for revenue recognition is determined on a
case-by-case basis according to the facts and circumstances applicable to a given contract. Under
certain contracts, the Companys input, measured in terms of full-time equivalent level of effort
or running a set of assays through its clinical reference laboratory under a contractual protocol,
triggers payment obligations, and revenues are recognized as costs are incurred or assays are
processed. Certain contracts have payments that are triggered as milestones are completed, such as
completion of a successful set of experiments. Milestones are assessed on an individual basis and
revenue is recognized when these milestones are achieved, as evidenced by acknowledgment from
collaborators, provided that (1) the milestone event is substantive and its achievability was not
reasonably assured at the inception of the agreement and (2) the milestone payment is
non-refundable. Where separate milestones do not meet these criteria, the Company typically
defaults to a performance-based model, such as revenue recognition following delivery of effort as
compared to an estimate of total expected effort.
Advance payments received in excess of revenues recognized are classified as deferred revenue
until such time as the revenue recognition criteria have been met.
Allowance for Doubtful Accounts
The Company accrues an allowance for doubtful accounts against its accounts receivable
consistent with historical payment experience. Bad debt expense is included in general and
administrative expense on the Companys condensed consolidated statements of operations. Accounts
receivable are written off against the allowance when the appeals process is exhausted, when an
unfavorable coverage decision is received or when there is other substantive evidence that the
account will not be paid. As of September 30, 2009 and December 31, 2008, the Companys allowance
for doubtful accounts was $633,000 and $881,000, respectively. Write-offs for doubtful accounts of
$373,000 and $1.2 million were recorded against the allowance during the three and nine months
ended
7
September 30, 2009, respectively, and $225,000 and $336,000 during the three and nine months
ended September 30, 2008, respectively. Bad debt expense was $382,000 and $922,000 for the three
and nine months ended September 30, 2009, respectively and $474,000 and $831,000 for the three and
nine months ended September 30, 2008, respectively.
Research and Development Expenses
Research and development expenses are comprised of the following types of costs incurred in
performing research and development activities: salaries and benefits, allocated overhead and
facility occupancy costs, contract services, reagents and laboratory supplies, and costs to acquire
in-process research and development projects and technologies that have no alternative future use.
Research and development expenses also include costs related to activities performed under
contracts with biopharmaceutical and pharmaceutical companies. Research and development costs are
expensed as incurred.
The Company enters into collaboration and clinical study agreements with clinical
collaborators and records these costs as research and development expenses. The Company records
accruals for estimated study costs comprised of work performed by its collaborators under contract
terms. Advance payments for goods or services that will be used or rendered for future research and
development activities are deferred and capitalized and recognized as an expense as the goods are
delivered or the related services are performed.
The Company complies with the provisions of FASB Accounting Standards Codification Topic 808,
Collaborative Arrangements
, (ASC 808), previously referred to as Emerging Issues Task Force Issue
No. 07-1,
Accounting for Collaborative Arrangement
s. The standard was ratified by the FASB in
November 2007 and adopted by the Company as of January 1, 2009. ASC 808 defines collaborative
arrangements and establishes reporting requirements for transactions between participants in a
collaborative arrangement and between participants in the arrangement and third parties. ASC 808
also requires collaborators to present the results of activities for which they act as the
principal on a gross basis and report any payments received from, or made to, other collaborators
based on applicable GAAP or, in the absence of applicable GAAP, based on analogy to authoritative
accounting literature or a reasonable, rational, and consistently applied accounting policy
election. The Companys adoption of this standard did not have a material impact on its financial
condition or results of operations.
Recently Issued Accounting Pronouncements
In August 2009, the FASB issued an amendment to the accounting standards related
to the measurement of liabilities that are recognized or disclosed at fair value on a recurring
basis. This standard clarifies how a company should measure the fair value of liabilities and that
restrictions preventing the transfer of a liability should not be considered as a factor in the
measurement of liabilities within the scope of this standard. This standard is effective for the
Company on October 1, 2009. The Company does not expect the impact of its adoption to have a
material impact on its financial condition or statements of operations.
In October 2009, the FASB issued an amendment to the accounting standards related to the
accounting for revenue in arrangements with multiple deliverables including how the arrangement
consideration is allocated among delivered and undelivered items of the arrangement. Among the
amendments, this standard eliminates the use of the residual method for allocating arrangement
consideration and requires an entity to allocate the overall consideration to each deliverable
based on an estimated selling price of each individual deliverable in the arrangement in the
absence of having vendor-specific objective evidence or other third party evidence of fair value of
the undelivered items. This standard also provides further guidance on how to determine a separate
unit of accounting in a multiple-deliverable revenue arrangement and expands the disclosure
requirements about the judgments made in applying the estimated selling price method and how those
judgments affect the timing or amount of revenue recognition. This standard, for which the Company
is currently assessing the impact, will become effective for the Company on January 1, 2011.
In October 2009, the FASB issued an amendment to the accounting standards related to certain
revenue arrangements that include software elements. This standard clarifies the existing
accounting guidance such that tangible products that contain both software and non-software
components that function together to deliver the products essential functionality, shall be
excluded from the scope of the software revenue recognition accounting standards. Accordingly,
sales of these products may fall within the scope of other revenue recognition accounting standards
or may now be within the scope of this standard and may require an allocation of the arrangement
consideration for each element of the arrangement. This standard, for which the Company is
currently assessing the impact, will become effective for the Company on January 1, 2011.
8
Note 2. Net Loss Per Share
Basic net loss per share is calculated by dividing net loss for the period by the
weighted-average number of common shares outstanding for the period without consideration for
potential common shares. Diluted net loss per share is calculated by dividing net loss by the
weighted-average number of common shares outstanding for the period and dilutive potential common
shares for the period determined using the treasury-stock method. For purposes of this calculation,
options to purchase common stock are considered to be potential common shares but are not included
in the calculation of diluted net loss per share because their effect is anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share and per share amounts)
|
|
Net loss
|
|
$
|
(502
|
)
|
|
$
|
(3,022
|
)
|
|
$
|
(9,070
|
)
|
|
$
|
(13,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average net common shares outstanding for basic
and diluted loss per common share
|
|
|
28,579,045
|
|
|
|
28,331,505
|
|
|
|
28,538,915
|
|
|
|
28,270,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding dilutive securities not included in diluted net loss
per share calculation (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
4,720,372
|
|
|
|
3,892,572
|
|
|
|
4,720,372
|
|
|
|
3,892,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
The Company reports comprehensive loss and its components as part of total stockholders
equity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Net loss
|
|
$
|
(502
|
)
|
|
$
|
(3,022
|
)
|
|
$
|
(9,070
|
)
|
|
$
|
(13,755
|
)
|
Unrealized gain (loss) on available-for-sale securities
|
|
|
(31
|
)
|
|
|
10
|
|
|
|
(186
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(533
|
)
|
|
$
|
(3,012
|
)
|
|
$
|
(9,256
|
)
|
|
$
|
(13,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 3. Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to
transfer a liability, or an exit price, in the principal or most advantageous market for that asset
or liability in an orderly transaction between market participants on the measurement date. A
hierarchy of different fair value measurements requires an entity to maximize the use of observable
inputs, where available, and minimize the use of unobservable inputs when measuring fair value.
There are three levels of inputs that may be used to measure fair value:
Level 1
:
Quoted prices in active markets for identical assets or liabilities.
Level 2:
Observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of
the assets or liabilities.
Level 3:
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.
9
The Company did not have any non-financial assets or liabilities that were measured or
disclosed at fair value on a recurring basis at September 30, 2009 or December 31, 2008. Assets and
liabilities measured at fair value are classified in their entirety based on the level of input
that is significant to the fair value measurement. The Companys assessment of the significance of
a particular input to the fair value measurement in its entirety requires management to make
judgments and considers factors specific to the asset or liability. The following tables set forth
the Companys financial instruments that were measured at fair value on a recurring basis at
September 30, 2009 and December 31, 2008 by level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actively Quoted
|
|
|
|
|
|
Signficant
|
|
|
|
|
Markets for
|
|
Significant Other
|
|
Unobservable
|
|
|
|
|
Identical Assets
|
|
Observable Inputs
|
|
Inputs
|
|
Balance at
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
September 30, 2009
|
|
|
(In thousands)
|
As of September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market deposits
|
|
$
|
9,769
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,769
|
|
Debt securities of U.S. government-sponsored
agencies
|
|
|
|
|
|
|
42,687
|
|
|
|
|
|
|
|
42,687
|
|
Commercial paper
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actively Quoted
|
|
|
|
|
|
Signficant
|
|
|
|
|
Markets for
|
|
Significant Other
|
|
Unobservable
|
|
|
|
|
Identical Assets
|
|
Observable Inputs
|
|
Inputs
|
|
Balance at
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
December 31, 2008
|
|
|
(In thousands)
|
As of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market deposits
|
|
$
|
5,926
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,926
|
|
U.S. Treasury securities
|
|
|
1,004
|
|
|
|
|
|
|
|
|
|
|
|
1,004
|
|
Debt securities of U.S. government-sponsored
agencies
|
|
|
|
|
|
|
37,350
|
|
|
|
|
|
|
|
37,350
|
|
Commercial paper
|
|
|
|
|
|
|
8,146
|
|
|
|
|
|
|
|
8,146
|
|
Corporate bonds
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
Cash Equivalents and Short-term Investments
The Company considers all highly liquid investments with maturities of three months or less
when purchased to be cash equivalents.
The Company invests in marketable securities, primarily money market securities, U.S. Treasury
securities and debt securities of U.S. government-sponsored entities, corporate bonds and
commercial paper. The Company considers all investments with a maturity date less than one year as
of the balance sheet date to be short-term investments. These securities are carried at estimated
fair value with unrealized gains and losses included in stockholders equity. Those investments
with a maturity date greater than one year as of the balance sheet date are considered to be
long-term investments. As of September 30, 2009, all investments were classified as
available-for-sale.
Realized gains and losses and declines in value, if any, judged to be other than temporary on
available-for-sale securities are reported in other income or expense. When securities are sold,
any associated unrealized gain or loss recorded as a separate component of stockholders equity is
reclassified out of stockholders equity on a specific-identification basis and recorded in
earnings for the period.
10
The following tables illustrate the Companys available-for-sale securities as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Debt securities of U.S. government-sponsored agencies
|
|
$
|
41,125
|
|
|
$
|
58
|
|
|
$
|
|
|
|
$
|
41,183
|
|
Commercial paper
|
|
|
999
|
|
|
|
1
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,124
|
|
|
$
|
59
|
|
|
$
|
|
|
|
$
|
42,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Debt securities of U.S. government-sponsored agencies
|
|
$
|
37,144
|
|
|
$
|
209
|
|
|
$
|
(3
|
)
|
|
$
|
37,350
|
|
Corporate debt securities
|
|
|
8,110
|
|
|
|
42
|
|
|
|
(3
|
)
|
|
|
8,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,254
|
|
|
$
|
251
|
|
|
$
|
(6
|
)
|
|
$
|
45,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of the Companys available-for-sale securities for the nine months
ended September 30, 2009 and 2008, respectively. As of September 30, 2009, all of the Companys
available-for-sale securities had contractual maturities of one year or less.
Note 4. Commercial Technology and Licensing Agreements
The Company is a party to various agreements under which it licenses technology on a
nonexclusive basis in the field of human diagnostics. Access to these licenses enables the Company
to process its Onco
type
DX breast cancer tests. While certain agreements contain provisions for
fixed annual payments, license fees are generally calculated as a percentage of product revenues,
with rates that vary by agreement and may be tiered, and payments that may be capped at annual
minimum or maximum amounts. The Company recognized costs recorded under these agreements of $2.7
million and $7.4 million for the three and nine months ended September 30, 2009, respectively and
$2.0 million and $5.5 million for the three and nine months ended September 30, 2008, respectively,
which were included in cost of product revenues.
Note 5. Commitments
Notes Payable
In March 2005, the Company entered into an arrangement to finance the acquisition of
laboratory and office equipment, computer hardware and software and leasehold improvements. In
connection with this arrangement, the Company granted the lender a security interest in the assets
purchased with the borrowed amounts. The Company can prepay all, but not part of, the amounts
outstanding under the arrangement so long as the Company also pays a 4% premium on the outstanding
principal balance. As of September 30, 2009, the outstanding notes payable principal balance under
this arrangement was $532,000 at annual interest rates ranging from 11.18% to 11.30%, depending on
the applicable note. The last note payable matures in November 2010. According to the terms of the
arrangement, the Company is required to notify the lender if there is a material adverse change in
its financial condition, business or operations. The Company believes it has complied with all the
material covenants of the financing arrangement as of September 30, 2009.
11
As of September 30, 2009, the Companys aggregate commitments under its financing arrangement
were as follows:
|
|
|
|
|
|
|
Annual
|
|
|
|
Payments
|
|
|
|
(In thousands)
|
|
Years Ending December 31,
|
|
|
|
|
2009 (remainder of the year)
|
|
$
|
318
|
|
2010
|
|
|
238
|
|
|
|
|
|
Total minimum payments
|
|
|
556
|
|
Less: interest portion
|
|
|
(24
|
)
|
|
|
|
|
Present value of net minimum payments
|
|
|
532
|
|
Less: current portion of obligations
|
|
|
(489
|
)
|
|
|
|
|
Long-term obligations
|
|
$
|
43
|
|
|
|
|
|
Lease Obligations
In September 2005, the Company entered into a non-cancelable lease for 48,000 square feet of
laboratory and office space that the Company occupies in Redwood City, California. The lease
expires in February 2012 and includes lease incentive obligations of $834,000 that are being
amortized on a straight-line basis over the life of the lease. In connection with this lease, the
Company was required to secure a $500,000 letter of credit, which is classified as restricted cash
on the condensed consolidated balance sheets.
In January 2007, the Company entered into a non-cancelable lease for an additional 48,000
square feet of laboratory and office space in a nearby location. The lease expires in February 2012
and includes lease incentive obligations totaling $283,000 that are being amortized on a
straight-line basis over the life of the lease. In connection with this lease, the Company paid a
$151,000 cash security deposit, which is included in other assets on the condensed consolidated
balance sheets.
Future non-cancelable commitments under these operating leases at September 30, 2009 were as
follows:
|
|
|
|
|
|
|
Annual
|
|
|
|
Payments
|
|
|
|
(In thousands)
|
|
Years Ending December 31,
|
|
|
|
|
2009 (remainder of the year)
|
|
$
|
387
|
|
2010
|
|
|
1,634
|
|
2011
|
|
|
1,723
|
|
2012
|
|
|
290
|
|
|
|
|
|
Total minimum payments
|
|
$
|
4,034
|
|
|
|
|
|
In October 2009, the Company entered into a non-cancelable lease for an additional 30,500
square feet of office space near the locations the Company currently occupies. The lease, which
commences February 1, 2010, has a term of eight years and includes lease incentive obligations of
$307,000 which will be amortized on a straight-line basis over the life of the lease. Under the new
lease, the Company will be required to make aggregate rent payments of $445,000 in 2010, $607,000
in 2011, $626,000 in 2012, $644,000 in 2013 and an aggregate of $3.0 million in 2014 and
thereafter. In connection with this lease, the Company will be required to pay a security deposit
of $183,000.
Clinical Collaborator Costs
The Company has entered into a variety of collaboration and specimen transfer agreements
relating to its development efforts. The Company recorded expenses of $387,000 and $1.9 million for
the three and nine months ended September 30, 2009, respectively, and $92,000 and $584,000 for the
three and nine months ended September 30, 2008, respectively, relating to services provided in
connection with these agreements, which are included in research and development expenses. In
addition to these expenses, certain
12
agreements contain provisions for royalties from inventions
resulting from these agreements. The Company has certain options and rights relating to joint
inventions arising out of these agreements.
In addition to costs for research and development, under one of our collaboration agreements,
we make fixed annual payments resulting from the launch and commercialization of the Onco
type
DX
breast cancer test. At September 30, 2009, future payments remaining under this agreement totaled
$950,000, of which $475,000 is payable in each of January 2010 and 2011. These payments are
recorded in cost of product revenues as license fees. Expense is recorded ratably over the year
before the relevant payment is made. If at any time the Company discontinues the sale of the
Onco
type
DX breast cancer test, no future annual payments will be payable and the Company will have
no further obligation under the agreement. If the Companys cash balance is less than $5.0 million
on the due date of any of the annual payments, the Company may be able to defer any current annual
payment due for a period of up to 12 months.
Note 6. Stock-Based Compensation
Stock Incentive Plan
Pursuant to the Companys 2005 Stock Incentive Plan (2005 Plan), stock options, restricted
shares, stock units, and stock appreciation rights may be granted to employees, consultants, and
outside directors of the Company. Options granted may be either incentive stock options or
nonstatutory stock options. On June 8, 2009, the Companys stockholders approved an amendment to
the 2005 Plan to increase the shares reserved for issuance under the 2005 Plan by 3,980,000 shares.
The amended and restated plan also extends the term under which awards may be granted under the
2005 Plan until January 27, 2019. As of September 30, 2009, the 2005 Plan provided for the issuance
of a maximum of 8,980,000 shares, of which 4,830,407 shares of common stock were available for
future issuance.
Stock Options
The Company values its stock option grants using the Black-Scholes option valuation model. The
Company recorded stock-based compensation expense of $2.5 million and $7.6 million for the three
and nine months ended September 30, 2009, respectively, and $2.3 million and $6.8 million for the
three and nine months ended September 30, 2008, respectively. Stock-based compensation expense was
calculated based on awards ultimately expected to vest and has been reduced for estimated
forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates. The following table presents
the impact of stock-based compensation expense on selected statements of operations line items for
the three and nine months ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Cost of product revenues
|
|
$
|
96
|
|
|
$
|
126
|
|
|
$
|
277
|
|
|
$
|
365
|
|
Research and development
|
|
|
796
|
|
|
|
736
|
|
|
|
2,336
|
|
|
|
2,191
|
|
Selling and marketing
|
|
|
786
|
|
|
|
655
|
|
|
|
2,381
|
|
|
|
1,933
|
|
General and administrative
|
|
|
870
|
|
|
|
735
|
|
|
|
2,610
|
|
|
|
2,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
2,548
|
|
|
$
|
2,252
|
|
|
$
|
7,604
|
|
|
$
|
6,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense represents expense related to stock options granted on
or after January 1, 2006, as well as stock options granted prior to, but not yet vested as of,
January 1, 2006. As of September 30, 2009, total unrecognized compensation expense related to
unvested stock options, net of estimated forfeitures, was $18.6 million. The Company expects to
recognize this expense over a weighted-average period of 33 months.
Valuation Assumptions
Option valuation models require the input of highly subjective assumptions that can vary over
time. The Companys expected volatility is based on the historical volatility of the Companys
common stock. The expected life of options granted is estimated based on historical option exercise
data and assumptions related to unsettled options. The risk-free interest rate is estimated using
published rates for U.S. Treasury securities with a remaining term approximating the expected life
of the options granted. The Company uses a
13
dividend yield of zero as it has never paid cash
dividends and does not anticipate paying cash dividends in the foreseeable future. The Company
granted options to purchase 71,700 and 279,250 shares of common stock to employees and directors
during the three and nine months ended September 30, 2009, respectively. The Company granted
options to purchase 39,600 and 237,800 shares of common stock to employees and directors during the
three and nine months ended September 30, 2008, respectively. The weighted-average fair values and
the assumptions used in calculating such values for stock options granted during these periods were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Expected volatility
|
|
|
55
|
%
|
|
|
58
|
%
|
|
|
55
|
%
|
|
|
60
|
%
|
Risk-free interest rate
|
|
|
2.67
|
%
|
|
|
3.21
|
%
|
|
|
2.30
|
%
|
|
|
3.15
|
%
|
Expected life of options in years
|
|
|
5.86
|
|
|
|
5.86
|
|
|
|
5.86
|
|
|
|
5.79
|
|
Weighted-average fair value
|
|
$
|
10.53
|
|
|
$
|
12.40
|
|
|
$
|
12.40
|
|
|
$
|
11.39
|
|
Stock Options Exercised
For the three and nine months ended September 30, 2009, the Company issued 54,716 and 149,366
shares of common stock in connection with the exercise of stock options with a weighted-average
exercise price of $8.73 and $7.64 per share, respectively. For the three and nine months ended
September 30, 2008, the Company issued 73,893 and 178,713 shares of common stock in connection with
the exercise of stock options with a weighted-average exercise price of $9.80 and $7.28 per share,
respectively.
Note 7. Income Tax
For the three and nine months ended September 30, 2009, the Company recorded a provision for
income taxes of approximately $64,000 and $454,000, respectively, that is principally comprised of
federal alternative minimum tax, California income tax and foreign
income tax. The tax provision for the three and nine
months ended September 30, 2009 was based on the Companys estimated taxable income for the year.
The difference of income tax expense between the provision based on the statutory rate of the Companys
loss before tax and provision actually recorded is primarily due to the non-deductible stock based
compensation expenses. For federal tax purposes, the provision is offset by the net operating loss carry-forwards
that reduce the federal regular tax expense to the alternative minimum tax amount. The State of
California suspended the net operation loss utilization for 2008 and 2009 tax years but allow 50%
utilization of business credits carry-forwards. Accordingly, the California tax provision is offset by the
California business credits carry-forwards. For the nine months ended September 30, 2008, the Company did not record
a provision for income taxes because it estimated and incurred a taxable loss for the year ended
December 31, 2008.
The Company intends to continue maintaining a full valuation allowance on its deferred tax
assets until sufficient evidence exists to support the reversal of all or some portion of these
allowances. Should the actual timing tax differences differ from the Companys estimates, the amount of its
valuation allowance could be materially impacted.
The Company had $575,000 and $413,000 of unrecognized tax benefits as of September 30, 2009
and 2008, respectively. The Company does not anticipate a material change in its unrecognized tax
benefits over the next twelve months. Unrecognized tax benefits may change during the next twelve
months for items that arise in the ordinary course of business.
The Company will recognize accrued interest and penalties related to unrecognized tax benefits
in income tax expense when and if incurred. As of September 30, 2009, the Company had not
recognized any tax-related penalties or interest in its consolidated balance sheets or statements
of operations. All tax years from 2000 forward remain subject to future examination by tax
authorities.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. When used in this report, the words expects, anticipates,
intends, estimates, plans, believes, and similar expressions are intended to identify
forward-looking statements. These are statements that relate to future periods and include
statements about our expectation that, for the foreseeable future, substantially all of our
revenues will be derived from the Oncotype DX breast cancer test; the factors that may impact our
financial results; the extent and duration of our net losses or when we may achieve profitability;
our ability to recognize revenues other than on a cash basis; our business strategy and our ability
to achieve our strategic goals; our
14
expectations regarding product revenues; the amount of future
revenues that we may derive from Medicare patients or categories of patients; our plans to pursue
reimbursement on a case-by-case basis; our ability, and expectations as to the amount of time it
will take, to achieve successful reimbursement from third-party payors and government insurance
programs for new tests or markets, including for Oncotype DX for N+ breast cancer patients, our
Oncotype DX colon cancer test, or for patients outside of the U.S.; our expectations regarding our
international expansion and opportunities, and our expectations regarding revenues from
international sales; our intent to enter into additional foreign distribution arrangements; the
factors we believe to be driving demand for the Oncotype DX breast cancer test and our ability to
sustain or increase such demand; our success in increasing patient and physician demand as a result
of our direct sales approach; plans for enhancements of Oncotype DX to address different patient
populations of breast cancer; plans for, and the timeframe for the development or commercial launch
of, future tests addressing different patient populations or other cancers; the factors that we
believe will drive the establishment of coverage policies; the capacity of our clinical reference
laboratory to process tests and our expectations regarding capacity; our dependence on
collaborative relationships and the success of those relationships; whether any tests will result
from our collaborations; the applicability of clinical results to actual outcomes; our assumptions
regarding commercialization of a test for colon cancer and the timing of commercial availability of
any such test; our plans with respect to potential tests for ductal carcinoma in situ, or other
cancers or for patients treated with specific treatments; the occurrence, timing, outcome or
success of clinical trials or studies; our intention to plan additional development or clinical
studies; the benefits of our technology platform; the economic benefits of our test to the
healthcare system; the ability of our test to impact treatment decisions; our beliefs regarding our
competitive benefits; our beliefs regarding the benefits of individual gene reporting; the level of
investment in our sales force; our expectation that our general and administrative, sales and
marketing and
research and development expenses will increase and our anticipated uses of those funds; our
expectations regarding capital expenditures; our ability to comply with the requirements of being a
public company; our ability to attract and retain experienced personnel; the adequacy of our
product liability insurance; how we intend to spend our existing cash and cash equivalents and how
long we expect our existing cash to last; our anticipated cash needs and our estimates regarding
our capital requirements and our needs for additional financing; our expected future sources of
cash; our plans to borrow under existing or new financing arrangements; our belief that we are in
material compliance with financial covenants; our expectations regarding repayment of debt or
incurrence of additional debt; our compliance with federal, state and foreign regulatory
requirements; the potential impact resulting from the regulation of Oncotype DX by the U.S. Food
and Drug Administration, or FDA, and our belief that our Oncotype DX breast cancer test is properly
regulated under the Clinical Laboratory Improvement Amendments of 1988, or CLIA; the impact of new
or changing policies, regulation or legislation on our business; our belief that we have taken
reasonable steps to protect our intellectual property; our strategies regarding filing additional
patent applications to strengthen our intellectual property rights; the impact of changing interest
rates; our beliefs regarding our unrecognized tax benefits; the impact of accounting pronouncements
and our critical accounting policies, judgments, estimates, models and assumptions on our financial
results; the impact of the economy on our business, patients and payors; our expectations regarding
the impact of the economic environment on our liquidity and our investments; and anticipated trends
and challenges in our business and the markets in which we operate.
Forward-looking statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expected. These risks and uncertainties include, but are
not limited to, those risks discussed in Item 1A of this report, as well as our ability to develop
and commercialize new products; the risk of unanticipated delays in research and development
efforts; the risk that we may not obtain reimbursement for our existing test and any future tests
we may develop; the risks and uncertainties associated with the regulation of our test by FDA; our
ability to compete against third parties; our ability to obtain capital when needed; the economic
environment; and our history of operating losses. These forward-looking statements speak only as of
the date hereof. We expressly disclaim any obligation or undertaking to update any forward-looking
statements contained herein to reflect any change in our expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is based.
In this report, all references to Genomic Health, we, us, or our mean Genomic Health,
Inc.
Genomic Health, the Genomic Health logo, Oncotype, Oncotype DX and Recurrence Score are
trademarks or registered trademarks of Genomic Health, Inc. We also refer to trademarks of other
corporations and organizations in this report.
Business Overview
We are a life science company focused on the development and commercialization of
genomic-based clinical diagnostic tests for cancer that allow physicians and patients to make
individualized treatment decisions. Our first Onco
type
DX diagnostic test is used for breast cancer
patients to predict the likelihood of cancer recurrence and the likelihood of chemotherapy benefit
and is conducted at our clinical reference laboratory in Redwood City, California. Effective July
1, 2009 the list price of our test increased from $3,820 to $3,975. Substantially all of our
historical product revenues have been derived from the sale of Onco
type
DX breast cancer tests
ordered by physicians in the United States.
15
Oncotype DX Breast Cancer Test
For the three and nine months ended September 30, 2009, we delivered more than 12,600 and
35,700 Onco
type
DX breast cancer test reports for use in treatment planning, compared to more than
10,220 and 29,060 test reports for the three and nine months ended September 30, 2008. We believe
increased demand resulted from our ongoing commercial efforts, continued publication of
peer-reviewed articles on studies we sponsored, conducted or collaborated on that support the use
and reimbursement of our Onco
type
DX breast cancer test, clinical presentations at major symposia,
and the inclusion of our Onco
type
DX breast cancer test in clinical practice guidelines. However,
this increased demand is not necessarily indicative of future growth rates, and we cannot assure
you that this level of increased demand can be sustained or that publication of articles, future
appearances or presentations at medical conferences or increased commercial efforts will have a
similar impact on demand for our test in the future. We have in the past, and may in the future,
experience slower sequential growth in demand for our test in the second and third calendar
quarters, which we believe may be attributed to physicians, surgeons and patients scheduling
vacations during this time. As of September 30, 2009, our clinical reference laboratory had the
capacity to process up to 17,000 tests per calendar quarter.
We depend on third-party payors to provide reimbursement for our test. Accordingly, we have
focused substantial resources on obtaining reimbursement coverage from third-party payors. Several
large national third-party payors, a number of regional payors, and Palmetto Government Benefits
Administrators, or Palmetto GBA, the local Medicare carrier for California with jurisdiction for
claims
submitted by us for Medicare patients, have issued positive coverage determinations for our
Onco
type
DX breast cancer test for patients with node negative, or N-, estrogen receptor positive,
or ER+, disease through contracts, agreements or policy decisions.
Beginning in the second half of 2008 and continuing through the first nine months of 2009, we
experienced an increase in usage of our Onco
type
DX breast cancer test for node positive, or N+,
patients. While some payors provide policy coverage for the use of our test in patients with lymph
node micro-metastasis (greater than 0.2mm, but not greater than 2.0 mm in size), a substantial
portion of our existing reimbursement coverage has been limited to women with early-stage N-, ER+
breast cancer. Effective June 28, 2009, Palmetto GBA extended its coverage for the Onco
type
DX
breast cancer test to include ER+ patients with N+ disease (up to three positive lymph nodes).
However, we may not be able to obtain additional reimbursement coverage from other payors for our
test for breast cancer patients with N+, ER+ disease.
In September 2009, we began accepting all appropriate breast cancer tumor samples, regardless
of immunohistochemistry, or IHC, ER status, to facilitate assessment of ER status by either IHC or
reverse transcription polymerase chain reaction, or RT-PCR, testing. An Onco
type
DX Recurrence
Score is generated if the ER status is positive by IHC or positive by RT-PCR, even if the sample
was negative by IHC when submitted. In these cases, the tests will be billed to the third party
insurer or to the patient. If the sample is ER negative by both IHC and
RT-PCR, neither the third party payor nor
the patient will be billed. The processing of tests that we do not bill payors or patients for will
increase our expenses and decrease our revenues.
Our domestic sales, marketing and reimbursement efforts are focused on direct interaction with
medical and surgical oncologists, pathologists and payors. In January 2009, we hired an additional
20 U.S. sales representatives, increasing our domestic sales force to a total of 80 sales
representatives. We have also continued to expand internationally. As of September 30, 2009, we
had received test samples from more than 50 countries and established exclusive distribution
agreements for our Onco
type
DX breast cancer test with partners in ten countries outside of the
U.S. We established a European subsidiary in February 2009 and have lead executives with
assignments in Europe and in Asia to support our international efforts. We have completed or
initiated multiple international clinical studies intended to support the adoption of our test
outside of the U.S. In April 2009, we announced results of a multi-center study in Japan
demonstrating that our test had significant prognostic value in Japanese women with ER+ early-stage
breast cancer. This was the first study to examine the utility of our Onco
type
DX breast cancer
test in a specific ethnic population. During the second quarter of 2009, we initiated our first
Taiwanese Chinese population study in collaboration with the National Taiwan University. In
September 2009, we announced results of a study confirming that the distribution of Onco
type
DX
Recurrence Scores in European and Middle Eastern breast cancer patients is consistent with those
observed in patients in the U.S. In addition, we initiated a large adjuvant breast cancer trial
with clinical researchers in Germany using the Onco
type
DX test to select patients for study
randomization and treatment. We also initiated breast cancer clinical utility trials of Onco
type
DX
with clinical researchers in Japan and Spain. Although we have continued to expand our sales,
marketing and reimbursement efforts outside the U.S., we do not expect international product
revenues to comprise more than 10% of our total revenues for at least the next year or more.
16
Oncotype DX Colon Cancer Test Commercialization
At
the May 2009 American Society of Clinical Oncology, or ASCO, meeting, we presented positive results
from our independent clinical validation study in stage II colon cancer for our Onco
type
DX colon
cancer test. The study, which utilized more than 1,400 patient samples from the international,
multi-center QUASAR trial, demonstrated that the Onco
type
DX colon cancer test can independently
predict the individual recurrence risk in stage II colon cancer patients following surgery, and
indicated that the colon cancer Recurrence Score provided additional independent clinical value
beyond standard measures of risk.
We are proceeding with commercialization plans to make our Onco
type
DX colon cancer test
available to physicians and patients in early 2010. We expect to
incur additional expenses related to the commercial launch of our
colon cancer test, such as infrastructure costs, information
technology costs, and sales and marketing costs including an increase
in field sales personnel. Based upon our
experience in obtaining adoption and reimbursement for our Onco
type
DX breast cancer test, we do
not expect product revenues from our colon cancer test to comprise more than 10% of our total
revenues for at least the next year or more.
Product Pipeline
We continue to conduct research and development studies in breast cancer, colon cancer and
other cancers. At the May 2009 ASCO meeting, we presented results from a clinical study that
summarized the gene signatures of male patients for whom the Onco
type
DX breast cancer test was
used to guide chemotherapy treatment, indicating that breast cancer in men displays similar gene
signatures to female breast cancer. We also presented a separate study at the ASCO meeting
demonstrating that there were significant differences in gene expression between hormone receptor
negative, or triple negative, breast cancer compared with hormone receptor positive disease. We are
investigating the utility of our Onco
type
DX breast cancer test in patients with ductal carcinoma
in situ, or
DCIS, which generally refers to a pre-invasive tumor with reduced risk of recurrence. We plan
to evaluate the use of the Onco
type
DX breast cancer gene panel and also seek to identify other
genes that may be used for treatment planning in DCIS.
We are planning additional studies in colon cancer for both stage II and stage III patients in
order to provide additional information regarding treatment with agents such as oxaliplatin,
epidermal growth factor, or EGFR, inhibitors and anti-angiogenesis agents. We completed processing
samples related to gene discovery work under our contract research agreement for the development of
a genomic test to estimate the risk of recurrence following surgery for patients with Stage I-III
renal carcinoma, clear cell type. We have established agreements and identified sources of clinical
samples in connection with our prostate and lung cancer programs.
Economic Environment
Continuing concerns over inflation, deflation, energy costs, geopolitical issues, the
availability and cost of credit, the Federal stimulus plan, Federal budget proposals, the U.S.
mortgage market and a declining real estate market in the U.S. have contributed to increased
volatility and diminished expectations for the global economy and expectations of slower global
economic growth going forward. These factors, combined with volatile oil prices, declining business
and consumer confidence, a volatile stock market and increased unemployment, have precipitated an
economic slowdown and recession. We continue to evaluate the impact of this environment on our cash
management, cash collection activities and volume of tests delivered.
As of the date of this report, we have not experienced a loss of principal on any of our
investments, and we expect that we will continue to be able to access or liquidate these
investments as needed to support our business activities. From time to time, we monitor the
financial position of our significant third-party payors, which include Medicare and managed care
companies. As of the date of this report, we do not expect the current economic environment to have
a material negative impact on our ability to collect payments from our third-party payors through
the end of 2009. The economic slowdown could negatively impact the volume of tests we deliver in
the future if patients lose healthcare coverage, delay medical checkups or are unable to pay for
our test.
We intend to continue to assess the impact of the economic environment on our business
activities. If the economic climate in the U.S. does not improve or continues to deteriorate, our
cash position, cash collection activities and volume of tests delivered could be negatively
impacted and we could experience lower revenues.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on
our condensed consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and judgments that affect the reported amounts of
assets, liabilities and expenses and the disclosure of contingent assets and liabilities at the
date of the financial statements, as well as revenues and expenses during the reporting periods. We
evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical
experience and on various other factors we believe are reasonable under the circumstances, the
results of which
17
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results could therefore differ
materially from those estimates under different assumptions or conditions.
We believe the following critical accounting policies reflect our more significant estimates
and assumptions used in the preparation of our financial statements.
Revenue Recognition
We exercise judgment in determining whether revenue is recognized on an accrual basis when
test results are delivered or on a cash basis when cash is received from the payor. Our revenues
for tests performed are recognized when the following criteria are met: (1) persuasive evidence
that an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed or
determinable; and (4) collectibility is reasonably assured. We assess whether the fee is fixed or
determinable based on the nature of the fee charged for the products or services delivered and
existing contractual agreements. When evaluating collectibility, we consider whether we have
sufficient history to reliably estimate a payors individual payment patterns. Based upon at least
several months of payment history, we review the number of tests paid against the number of tests
billed and the payors outstanding balance for unpaid tests to determine whether payments are being
made at a consistently high percentage of tests billed and at appropriate amounts given the
contracted payment amount. To the extent all criteria set forth above are not met, including where
there is no evidence of payment history at the time test results are delivered, product revenues
are recognized on a cash basis when cash is received from the payor.
From time to time, the Company receives requests for refunds of payments and records an
estimated reserve for refunds based on historical experience. Upon becoming aware of a refund
request, the Company does not record revenue for additional tests
covered by the refund request until such time as it determines if a
refund is due. Accrued refunds at September 30, 2009 were $1.2 million.
Contract revenues are generally derived from studies conducted with biopharmaceutical and
pharmaceutical companies and are recognized on a contract-specific basis. Under certain contracts,
revenues are recognized as costs are incurred or assays are processed. We may exercise judgment
when estimating full-time equivalent level of effort, costs incurred and time to project
completion. For certain contracts, we utilize the performance-based method of revenue recognition,
which requires that we estimate the total amount of costs to be expended for a project and
recognize revenue equal to the portion of costs expended to date. The estimated total costs to be
expended are necessarily subject to revision from time to time as the underlying facts and
circumstances change.
Allowance for Doubtful Accounts
We accrue an allowance for doubtful accounts against our accounts receivable based on
estimates consistent with historical payment experience. Our allowance for doubtful accounts is
evaluated quarterly and adjusted when trends or significant events indicate that a change in
estimate is appropriate. As of September 30, 2009 and December 31, 2008, our allowance for doubtful
accounts was $633,000 and $881,000, respectively. The decrease in our allowance for doubtful
accounts reflected the impact of writedowns and improved collections on our outstanding accounts
receivable.
Research and Development Expenses
We enter into collaboration and clinical trial agreements with clinical collaborators and
record these costs as research and development expenses. We record accruals for estimated study
costs based on estimates of services received and effort expended by our collaborators pursuant to
these agreements. The financial terms of these agreements are subject to negotiations, may vary
from contract to contract, and may result in uneven payment flows. We determine our estimates
through discussion with internal clinical development personnel and outside service providers as to
the progress or stage of completion of services provided and the agreed upon fee to be paid for
such services. Advance payments for goods or services that will be used or rendered for research
and development activities are deferred and capitalized and recognized as an expense as the goods
are delivered or the related services are performed.
All potential future product programs outside of breast and colon cancer are in the research
or early development phase. The expected time frame in which a test for one of these other cancers
can be brought to market is uncertain given the technical challenges and clinical variables that
exist between different types of cancers. In 2008, we began maintaining information regarding costs
incurred for activities performed under certain contracts with biopharmaceutical and pharmaceutical
companies. However, we do not generally record or maintain information regarding costs incurred in
research and development on a program-specific basis. Our research and development staff and
associated infrastructure resources are deployed across several programs. Many of our costs are
thus not attributable to individual programs. As a result, we are unable to determine the duration
and completion costs of our research
18
and development programs or when, if ever, and to what extent
we will receive cash inflows from the commercialization and sale of a product.
Stock-based Compensation Expense
Our employee stock-based compensation is estimated at the date of grant based on the fair
value of the award using the Black-Scholes option valuation model and is recognized as expense
ratably over the requisite service period. The application of option valuation models requires
significant judgment and the use of estimates, particularly surrounding assumptions used in
determining fair value. The Black-Scholes valuation method requires the use of estimates such as
stock price volatility and expected option lives, as well as expected option forfeiture rates, to
value stock-based compensation. Our assumptions regarding expected volatility are based on the
historical volatility of our common stock. The expected life of options is estimated based on
historical option exercise data and assumptions related to unsettled options. Expected option
forfeiture rates are based on historical data, and compensation expense is adjusted for actual
results.
We review our valuation assumptions on an ongoing basis, and, as a result, our valuation
assumptions used to value employee stock-based awards granted in future periods may change. See
Note 6, Stock-Based Compensation, in the Notes to Condensed Consolidated Financial Statements in
Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
Results of Operations
Three and Nine Months Ended September 30, 2009 and 2008
We recorded a net loss of $502,000 and $9.1 million for the three and nine months ended
September 30, 2009, respectively, compared to a net loss of $3.0 million and $13.8 million for the
three and nine months ended September 30, 2008, respectively. On a basic and diluted per share
basis, net loss was $0.02 and $0.32 for the three and nine months ended September 30, 2009,
respectively, compared to $0.11 and $0.49 for the three and nine months ended September 30, 2008,
respectively. We expect to incur net losses in future periods due to future spending, including
expenses related to the launch of new products and costs incurred to expand our commercial efforts
in both domestic and international markets, and we do not expect to achieve sustained profitability
for at least the next year or more.
Revenues
We derive our revenues from product sales and, to a lesser extent, from contract research
arrangements. We operate in one industry segment. All of our product revenues have been derived
solely from the sale of our Onco
type
DX breast cancer test. Payors are billed upon generation and
delivery of a breast cancer Recurrence Score report to the physician. Product revenues are recorded
on a cash basis unless a contract or arrangement to pay is in place with the payor at the time of
billing and collectibility is reasonably assured. Contract revenues are derived from studies
conducted with biopharmaceutical and pharmaceutical companies and are recorded as contractual
obligations are completed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Product revenues
|
|
$
|
38,910
|
|
|
$
|
28,070
|
|
|
$
|
107,529
|
|
|
$
|
77,752
|
|
Contract revenues
|
|
|
607
|
|
|
|
51
|
|
|
|
2,436
|
|
|
|
1,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
39,517
|
|
|
$
|
28,121
|
|
|
$
|
109,965
|
|
|
$
|
79,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period over period dollar increase in product revenues
|
|
$
|
10,840
|
|
|
|
|
|
|
$
|
29,777
|
|
|
|
|
|
Period over period percentage increase in product revenues
|
|
|
39
|
%
|
|
|
|
|
|
|
38
|
%
|
|
|
|
|
The period over period increases in product revenues resulted from increased adoption, as
evidenced by a 23% increase in test volume for both the three and nine month comparative periods.
We also experienced expanded reimbursement coverage and an increase in the amount of revenue
recognized per test for both the three and nine month comparative periods. For all periods
presented, approximately 50% of product revenues were recorded on an accrual basis and recognized
at the time the test results were delivered. The balance of product revenues was recognized upon
cash collection as payments were received.
19
Product revenues from Medicare payments were $7.4 million, or 19%, and $20.4 million, or 19%,
of product revenues for the three and nine months ended September 30, 2009, respectively, compared
to $6.0 million, or 21%, and $17.5 million, or 22%, of product revenues for the three and nine
months ended September 30, 2008, respectively. Product revenues from United HealthCare Insurance
Company payments were $8.9 million, or 11%, of product revenues for the nine months ended September
30, 2008. There were no other third party payors with product revenues of 10% or more for the
three and nine months ended months ended September 30, 2009 and 2008, respectively.
Contract revenues were $607,000 and $2.4 million for the three and nine months ended September
30, 2009, respectively, compared to $51,000 and $1.6 million for the three and nine months ended
September 30, 2008, respectively. Contract revenues represented studies assessing our gene
expression technology or work in gene selection and protocol design with our pharmaceutical
partners. The period over period variances in contract revenues were due to project timing for
ongoing contract research and development activities. We expect that our contract revenues will
continue to fluctuate based on the number and timing of studies being conducted.
Cost of Product Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Tissue sample processing costs
|
|
$
|
5,517
|
|
|
$
|
5,029
|
|
|
$
|
16,324
|
|
|
$
|
13,980
|
|
Stock-based compensation
|
|
|
96
|
|
|
|
126
|
|
|
|
277
|
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tissue sample processing costs
|
|
|
5,613
|
|
|
|
5,155
|
|
|
|
16,601
|
|
|
|
14,345
|
|
License fees
|
|
|
2,688
|
|
|
|
1,985
|
|
|
|
7,418
|
|
|
|
5,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of product revenues
|
|
$
|
8,301
|
|
|
$
|
7,140
|
|
|
$
|
24,019
|
|
|
$
|
19,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period over period dollar increase
|
|
$
|
1,161
|
|
|
|
|
|
|
$
|
4,144
|
|
|
|
|
|
Period over period percentage increase
|
|
|
16
|
%
|
|
|
|
|
|
|
21
|
%
|
|
|
|
|
Cost of product revenues represents the cost of materials, direct labor, equipment and
infrastructure expenses associated with processing tissue samples (including histopathology,
anatomical pathology, paraffin extraction, RT-PCR, quality control analyses and shipping charges to
transport tissue samples), stock-based compensation and license fees. Infrastructure expenses
include allocated facility occupancy and information technology costs. Costs associated with
performing our test are recorded as tests are processed. Costs recorded for tissue sample
processing represent the cost of all the tests processed during the period regardless of whether
revenue was recognized with respect to a specific test. Royalties for licensed technology
calculated as a percentage of product revenues and fixed annual payments relating to the launch and
commercialization of our Onco
type
DX breast cancer test are recorded as license fees in cost of
product revenues at the time product revenues are recognized or in accordance with other
contractual obligations. License fees represent a significant component of our cost of product
revenues and are expected to remain so for the foreseeable future.
The $488,000, or 10%, increase in tissue sample processing costs for the three months ended
September 30, 2009 compared to the three months ended September 30, 2008 reflected a 23% increase
in test volume, partially offset by lower consulting expenses and other cost efficiencies. The $2.3
million, or 17%, increase in tissue sample processing costs for the nine months ended September 30,
2009 compared to the nine months ended September 30, 2008 reflected a 23% increase in test volume,
partially offset by lower consulting expenses and other cost efficiencies. The $703,000, or 35%,
and $1.9 million, or 34%, increases in license fees for the three and nine month comparative
periods included higher royalties due to increases of $10.8 million, or 39%, and $29.8 million, or
38%, respectively, in product revenues recognized over prior periods. We expect the cost of product
revenues to increase to the extent we process more tests.
20
Research and Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Personnel-related expenses
|
|
$
|
4,723
|
|
|
$
|
4,252
|
|
|
$
|
13,981
|
|
|
$
|
12,039
|
|
Stock-based compensation
|
|
|
796
|
|
|
|
736
|
|
|
|
2,336
|
|
|
|
2,191
|
|
Collaboration expenses
|
|
|
380
|
|
|
|
92
|
|
|
|
1,875
|
|
|
|
584
|
|
Infrastructure and all other costs
|
|
|
3,221
|
|
|
|
1,859
|
|
|
|
8,815
|
|
|
|
5,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and
development
expenses
|
|
$
|
9,120
|
|
|
$
|
6,939
|
|
|
$
|
27,007
|
|
|
$
|
20,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period over period dollar increase
|
|
$
|
2,181
|
|
|
|
|
|
|
$
|
6,340
|
|
|
|
|
|
Period over period percentage increase
|
|
|
31
|
%
|
|
|
|
|
|
|
31
|
%
|
|
|
|
|
Research and development expenses represent costs incurred to develop our technology and
carry out clinical studies and include personnel-related expenses, reagents and supplies used in
research and development laboratory work, infrastructure expenses, including allocated overhead and
facility occupancy costs, contract services and other outside costs. Research and development
expenses also include costs related to activities performed under contracts with biopharmaceutical
and pharmaceutical companies.
The increase in research and development expenses for the three months ended September 30,
2009 compared to the three months ended September 30, 2008 reflected a $1.4 million increase in
infrastructure and other costs, including laboratory equipment and other expenses, a $471,000
increase in personnel-related expenses primarily due to hiring in product development, and a
$288,000 increase in collaboration expenses related to clinical studies for a variety of cancers.
The increase in research and development expenses for the nine months ended September 30, 2009
compared to the nine months ended September 30, 2008 reflected a $3.0 million increase in
infrastructure and other expenses, a $1.9 million increase in personnel-related expenses, and a
$1.3 million increase in collaboration expenses. We expect our research and development expenses to
increase as we continue to invest in our product pipeline for breast, colon and other cancers.
Selling and Marketing Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Personnel-related expenses
|
|
$
|
7,598
|
|
|
$
|
5,129
|
|
|
$
|
22,286
|
|
|
$
|
16,321
|
|
Stock-based compensation
|
|
|
786
|
|
|
|
655
|
|
|
|
2,381
|
|
|
|
1,933
|
|
Promotional and marketing materials
|
|
|
3,204
|
|
|
|
2,223
|
|
|
|
9,153
|
|
|
|
8,063
|
|
Travel, meetings and seminars
|
|
|
1,559
|
|
|
|
1,335
|
|
|
|
5,544
|
|
|
|
4,632
|
|
Infrastructure and all other costs
|
|
|
2,166
|
|
|
|
1,495
|
|
|
|
6,355
|
|
|
|
4,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales and marketing expenses
|
|
$
|
15,313
|
|
|
$
|
10,837
|
|
|
$
|
45,719
|
|
|
$
|
35,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period over period dollar increase
|
|
$
|
4,476
|
|
|
|
|
|
|
$
|
10,689
|
|
|
|
|
|
Period over period percentage increase
|
|
|
41
|
%
|
|
|
|
|
|
|
31
|
%
|
|
|
|
|
Our selling and marketing expenses consist primarily of personnel-related expenses,
education and promotional expenses, and infrastructure expenses, including allocated facility
occupancy and information technology costs. These expenses include the costs of educating
physicians, laboratory personnel and other healthcare professionals regarding our genomic
technologies, how our Onco
type
DX breast cancer test was developed and validated and the value of
the quantitative information that the test provides. Selling and marketing expenses also include
the costs of sponsoring continuing medical education, medical meeting participation and
dissemination of our scientific and economic publications related to our Onco
type
DX platform.
21
The increase in selling and marketing expenses for the three months ended September 30, 2009
compared to the three months ended September 30, 2008 was due to a $2.5 million increase in
personnel-related expenses, due primarily to the addition of 20 domestic field sales
representatives in January 2009, a $981,000 increase in promotional field and marketing materials,
primarily related to our expected colon cancer product launch and international expansion, a
$671,000 increase in infrastructure and other costs, including allocations for information
technology, recruiting and other expenses, a $224,000 increase in domestic and international
travel-related expenses, and a $131,000 increase in stock-based compensation. The increase in
selling and marketing expenses for the nine months ended September 30, 2009 compared to the nine
months ended September 30, 2009 was due to a $6.0 million increase in personnel-related expenses,
due primarily to additional field sales personnel, a $2.3 million increase in infrastructure and
all other costs, a $1.1 million increase in promotional field and marketing materials, a $912,000
increase in travel-related expenses and a $448,000 increase in stock-based compensation. We expect
selling and marketing expenses to increase in future periods as we prepare for the
commercialization of our Onco
type
DX colon cancer test and expand our field sales force in early
2010 and continue to expand our commercial efforts in international markets.
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Personnel-related expenses
|
|
$
|
4,962
|
|
|
$
|
3,972
|
|
|
$
|
14,590
|
|
|
$
|
11,098
|
|
Stock-based compensation
|
|
|
870
|
|
|
|
735
|
|
|
|
2,610
|
|
|
|
2,304
|
|
Professional fees and all other expenses
|
|
|
1,484
|
|
|
|
1,798
|
|
|
|
5,118
|
|
|
|
5,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative expenses
|
|
$
|
7,316
|
|
|
$
|
6,505
|
|
|
$
|
22,318
|
|
|
$
|
18,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period over period dollar increase
|
|
$
|
811
|
|
|
|
|
|
|
$
|
3,683
|
|
|
|
|
|
Period over period percentage increase
|
|
|
12
|
%
|
|
|
|
|
|
|
20
|
%
|
|
|
|
|
Our general and administrative expenses consist primarily of personnel-related expenses
and professional fees and other costs, including intellectual property defense and prosecution
costs, advisory and auditing expenses, billing and collection costs, bad debt expense and other
professional and administrative costs and related infrastructure expenses, including allocated
facility occupancy and information technology costs.
The $811,000, or 12%, and $3.7 million, or 20%, increases in general and administrative
expenses for the three and nine month comparative periods, respectively, were primarily due to
personnel-related expenses for increases in headcount period over period. We expect general and
administrative expenses to increase as we hire additional staff and incur other expenses to support
the growth of our business and to the extent we spend more on fees for billing and collections as
we process more tests.
Interest and Other Income
Interest and other income was $116,000 and $591,000 for the three and nine months ended
September 30, 2009, respectively, compared to $369,000 and $1.4 million for the three and nine
months ended September 30, 2008, respectively. The decreases for the three and nine month
comparative periods were primarily due to lower market yields on our investment portfolio. We
expect our interest income may continue to decrease if the overall decline in interest rates
continues.
Interest and Other Expense
Interest and other expense was $22,000 and $109,000 for the three and nine months ended
September 30, 2009 compared to $91,000 and $330,000 for the three and nine months ended September
30, 2008. The decreases for the three and nine month comparative periods were primarily due to
lower average balances on our equipment financing notes as we paid them down. We expect our
interest expense to decline as we continue to make payments on our equipment financing, which is
scheduled to be paid in full by November 2010. We do not anticipate using additional equipment
financing as a funding source in the next twelve months.]
22
Income Tax Expense
For the three and nine months ended September 30, 2009, we recorded income tax expense of
approximately $64,000 and $454,000, respectively, which was principally comprised of federal
alternative minimum tax, California income tax and foreign income tax. The provision for income taxes for the three and
nine months ended September 30, 2009 was based on our estimated taxable income for the year. For
the three and nine months ended September 30, 2008, we did not record a provision for income taxes
because we estimated and incurred a taxable loss for the year ended December 31, 2008.
We intend to maintain a full valuation allowance on our deferred tax assets until sufficient
evidence exists to support the reversal of all or some portion of these allowances. Should the
actual timing tax differences differ from our estimates, the amount of our valuation allowance could be materially
impacted.
Liquidity and Capital Resources
As of September 30, 2009, we had an accumulated deficit of $177.6 million. We anticipate that
we will likely incur additional net losses in future periods. We cannot provide assurance as to
when, if ever, we will achieve profitability or sustained profitability. We expect that our
research and development, selling and marketing and general and administrative expenses will
continue to increase and, as a result, we will need to generate significant product revenues to
achieve profitability.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
$ Change
|
|
|
(In thousands)
|
As of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
58,902
|
|
|
$
|
54,424
|
|
|
$
|
4,478
|
|
Working capital
|
|
|
53,006
|
|
|
|
53,553
|
|
|
|
(547
|
)
|
For the nine months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
5,247
|
|
|
|
(5,474
|
)
|
|
|
10,721
|
|
Investing activities
|
|
|
713
|
|
|
|
(23,501
|
)
|
|
|
24,169
|
|
Financing activities
|
|
|
(367
|
)
|
|
|
(730
|
)
|
|
|
363
|
|
Capital expenditures (included in investing activities above)
|
|
|
(2,462
|
)
|
|
|
(7,682
|
)
|
|
|
5,220
|
|
Sources of Liquidity
At September 30, 2009, we had cash, cash equivalents and short-term investments of $58.9
million compared to $56.7 million at December 31, 2008. The $4.5 million increase was due primarily
to a reduction of our net loss and limited capital expenditures during the nine months ended
September 30, 2009. In accordance with our investment policy, available cash is invested in
short-term, low-risk, investment-grade debt instruments. Our cash and short-term investments are
held in a variety of interest-bearing instruments including money market accounts, U.S. Treasury
securities, debt obligations of U.S. government-sponsored entities, high-grade corporate bonds and
commercial paper. At September 30, 2009, our holdings of obligations of U.S. government-sponsored
entities consisted entirely of debt securities issued by the Federal Home Loan Bank, the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation.
Historically we have financed our operations primarily through sales of our equity securities
and cash received in payment for our tests. At September 30, 2009, we had approximately $46.5
million of securities available for issuance under a shelf registration statement. Purchases of
equipment and leasehold improvements have been partially financed through capital equipment
financing arrangements. At September 30, 2009 and 2008, we had notes payable under these equipment
financing arrangements of $532,000 and $2.7 million, respectively. Our existing notes payable under
these arrangements are scheduled to be fully paid by November 2010.
Cash Flows
Net cash provided by operating activities was $5.2 million for the nine months ended September
30, 2009 compared to net cash used in operating activities of $5.5 million for the nine months
ended September 30, 2008. Net cash provided by (used in) operating activities includes net loss
adjusted for certain non-cash items and changes in assets and liabilities. Net cash provided by
operating activities for the nine months ended September 30, 2009 reflected adjusted net income of
$3.4 million, excluding depreciation and stock-based compensation for the period, and a $1.4
million payment from one of our collaborators. Net cash used in operating
23
activities for the nine
months ended September 30, 2008 reflected a $3.3 million net loss excluding depreciation and
stock-based compensation for the period, a $4.3 million increase in accounts receivable and an
aggregate of $3.0 million increase in prepaid expenses and other assets, partially offset by the
receipt of $3.7 million in advance collaboration contract payments and a $2.2 million decrease in
accrued expenses and other liabilities.
Net cash provided by investing activities was $713,000 for the nine months ended September 30,
2009, compared to net cash used by investing activities of $23.5 million for the nine months ended
September 30, 2008. Our investing activities have consisted predominately of purchases and
maturities of marketable securities and capital expenditures. Net cash used in investing activities
for the nine months ended September 30, 2009 included $3.1 million in net maturities of short-term
investments, partially offset by $2.5 million in capital expenditures. Net cash used in investing
activities for the nine months ended September 30, 2008 included $15.8 million in net purchases of
short-term investments, reflecting the investment of a portion of the cash proceeds from our May
2007 public offering of common stock, and $7.7 million in capital expenditures, primarily for
facility expansion and improvements.
Net cash used in financing activities was $367,000 for the nine months ended September 30,
2009, compared to $730,000 for the nine months ended September 30, 2008. Our financing activities
include payments on our capital equipment financing arrangements and proceeds from the sale of our
common stock. Net cash used in financing activities for the nine months ended September 30, 2009
included $1.5 million in principal payments on our debt, partially offset by $1.1 million in
proceeds from the issuance of our common stock upon the exercise of stock options. Net cash used in
financing activities for the nine months ended September 30, 2008 included $2.0 million in
principal payments on our debt, partially offset by $1.3 million in proceeds from the issuance of
our common stock upon the exercise of stock options.
Contractual Obligations
The following summarizes our significant contractual obligations as of September 30, 2009 and
the effect those obligations are expected to have on our liquidity and cash flows in future
periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
|
|
than 5
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
Years
|
|
|
|
(In thousands)
|
|
Notes payable obligations
|
|
$
|
556
|
|
|
$
|
513
|
|
|
$
|
43
|
|
|
$
|
|
|
|
$
|
|
|
Non-cancelable operating lease
obligations
|
|
|
4,034
|
|
|
|
1,608
|
|
|
|
2,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,590
|
|
|
$
|
2,121
|
|
|
$
|
2,469
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our notes payable obligations are for principal and interest payments on capital
equipment financing. In March 2005, we entered into an arrangement to finance the acquisition of
laboratory equipment, computer hardware and software, leasehold improvements and office equipment.
In connection with this arrangement, we granted the lender a security interest in the assets
purchased with these borrowings. We can prepay all, but not part, of the amounts owing under the
arrangement so long as we also pay a 4% premium on the remaining payments. As of September 30,
2009, the outstanding notes payable principal balance under this arrangement totaled $532,000 at
annual interest rates ranging from 11.18% to 11.30%, depending upon the applicable note. The last
note payable matures in November 2010.
Our non-cancelable operating lease obligations are for laboratory and office space. In
September 2005, we entered into a non-cancelable lease for 48,000 square feet of laboratory and
office space in Redwood City, California. In January 2007, we entered into a non-cancelable lease
for an additional 48,000 square feet of office space in a nearby location. Both leases expire in
February 2012.
In
October 2009, we executed a non-cancelable agreement to lease approximately 30,500 square
feet of additional office space near the locations we currently occupy. The lease has a term of
eight years. Under the new lease, we are required to make aggregate rent payments of $445,000 in
2010, $607,000 in 2011, $626,000 in 2012, $644,000 in 2013 and $3.0 million in 2014 and thereafter,
which are not included in the table above.
We are required to make a series of annual payments under one of our collaboration agreements
beginning on the date that we commercially launched our Onco
type
DX breast cancer test. At
September 30, 2009, future annual payments due under this agreement totaled $950,000, of which
$475,000 is due each of the years 2010 and 2011. However, because either party may terminate the
24
agreement upon thirty days prior written notice, these payments are not included in the table
above. Upon the expected launch of our colon cancer test in early 2010, we will have similar future
annual payments due.
We have also committed to make potential future payments to third parties as part of our
collaboration agreements. Payments under these agreements generally become due and payable only
upon achievement of specific project milestones. Because the achievement of these milestones is
generally neither probable nor reasonably estimable, such commitments have not been included in the
table above.
Off-Balance Sheet Arrangements
As of September 30, 2009, we had no material off-balance sheet arrangements.
Operating Capital and Capital Expenditure Requirements
We expect to continue to incur net losses in the future and to make capital expenditures to
keep pace with the expansion of our research and development programs, to scale our commercial
operations, including the commercialization and launch of our Onco
type
DX colon cancer test and to
support our international expansion efforts. We expect to spend approximately $6.0 million over the
next twelve months for planned laboratory equipment and other capital expenditures to support the
growth of our business. It may take years to move any one of a number of product candidates in
research through development and validation to commercialization. We expect that our cash and cash
equivalents will be used to fund working capital and for capital expenditures and other general
corporate purposes, such as licensing technology rights, partnering arrangements for our tests
outside the United States or reduction of debt obligations. We may also use cash to acquire or
invest in complementary businesses, technologies, services or products.
The amount and timing of actual expenditures may vary significantly depending upon a number of
factors, such as the progress of our commercialization efforts, product development, regulatory
requirements, the amount of cash used by operations and progress in reimbursement.
We currently anticipate that our cash, cash equivalents and short-term investments, together
with collections from our Onco
type
DX breast cancer test, will be sufficient to fund our operations
and facilities expansion plans for at least the next 12 months. We cannot be certain that our
international expansion, the commercialization of our Onco
type
DX colon cancer test or the
development of future tests will be successful or that we will be able to raise sufficient
additional funds to see these activities through to a successful result.
Our future funding requirements will depend on many factors, including the following:
|
|
|
the rate of progress in establishing reimbursement arrangements with third-party payors;
|
|
|
|
|
the cost of expanding our commercial and laboratory operations, including our selling and
marketing efforts;
|
|
|
|
|
the rate of progress and cost of research and development activities associated with
expansion of Onco
type
DX for breast cancer;
|
|
|
|
|
the rate of progress and cost of selling and marketing activities associated with
commercialization of Onco
type
DX for colon cancer;
|
|
|
|
|
the rate of progress and cost of research and development activities associated with
products in the research and early development phase focused on cancers other than breast
and colon cancer;
|
|
|
|
|
the cost of acquiring or achieving access to tissue samples and technologies;
|
|
|
|
|
the cost of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights;
|
|
|
|
|
the effect of competing technological and market developments;
|
|
|
|
|
costs related to international expansion;
|
25
|
|
|
the cost and delays in product development as a result of any changes in regulatory
oversight applicable to our products or operations; and
|
|
|
|
|
the economic and other terms and timing of any contract research arrangements, clinical
study agreements, licensing or other arrangements into which we may enter.
|
Until we can generate and maintain sufficient product revenues to finance our cash
requirements, which we may never do, we expect to finance future cash needs primarily through
public or private equity offerings, debt financings, borrowings or strategic collaborations. The
issuance of equity securities may result in dilution to stockholders, or may provide for rights,
preferences or privileges senior to those of our holders of common stock. If we raise funds by
issuing debt securities, these debt securities would have rights, preferences and privileges senior
to those of holders of our common stock. The terms of debt securities or borrowings could impose
significant restrictions on our operations. We do not know whether additional funding will be
available on acceptable terms, if at all. If we are not able to secure additional funding when
needed, we may have to delay, reduce the scope of or eliminate one or more research and development
programs or selling and marketing initiatives. In addition, we may have to work with a partner on
one or more of our product or market development programs, which would lower the economic value of
those programs to our company.
Recent Accounting Pronouncements
In August 2009, the FASB issued an amendment to the accounting standards related to the
measurement of liabilities that are recognized or disclosed at fair value on a recurring basis.
This standard clarifies how a company should measure the fair value of liabilities and that
restrictions preventing the transfer of a liability should not be considered as a factor in the
measurement of liabilities within the scope of this standard. This standard is effective for us on
October 1, 2009. We do not expect the impact of the adoption to have a material impact on our
financial condition or results of operations.
In October 2009, the FASB issued an amendment to the accounting standards related to the
accounting for revenue in arrangements with multiple deliverables including how the arrangement
consideration is allocated among delivered and undelivered items of the arrangement. Among the
amendments, this standard eliminates the use of the residual method for allocating arrangement
consideration and requires an entity to allocate the overall consideration to each deliverable
based on an estimated selling price of each individual deliverable in the arrangement in the
absence of having vendor-specific objective evidence or other third party evidence of fair value of
the undelivered items. This standard also provides further guidance on how to determine a separate
unit of accounting in a multiple-deliverable revenue arrangement and expands the disclosure
requirements about the judgments made in applying the estimated selling price method and how those
judgments affect the timing or amount of revenue recognition. This standard, for which we are
currently assessing the impact, will become effective for us on January 1, 2011.
In October 2009, the FASB issued an amendment to the accounting standards related to certain
revenue arrangements that include software elements. This standard clarifies the existing
accounting guidance such that tangible products that contain both software and non-software
components that function together to deliver the products essential functionality, shall be
excluded from the scope of the software revenue recognition accounting standards. Accordingly,
sales of these products may fall within the scope of other revenue recognition accounting standards
or may now be within the scope of this standard and may require an allocation of the arrangement
consideration for each element of the arrangement. This standard, for which we are currently
assessing the impact, will become effective for us on January 1, 2011.
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|
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ITEM 3.
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|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to interest earned
on our cash equivalents and marketable securities. The primary objective of our investment
activities is to preserve our capital to fund operations. We also seek to maximize income from our
investments without assuming significant risk. Our investment policy provides for investments in
short-term, low-risk, investment-grade debt instruments. Our investments in marketable securities,
which are comprised primarily of money market funds, obligations of U.S. Government agencies and
government-sponsored entities, high-grade corporate bonds and commercial paper are subject to
default, changes in credit rating and changes in market value. Due to recent financial and economic
conditions, similar investments have experienced losses in value and liquidity constraints which
differ from historical patterns. These investments are also subject to interest rate risk and will
decrease in value if market rate interest rates increase.
26
Our cash, cash equivalents and marketable securities, totaling $58.9 million at September 30,
2009, did not include any auction preferred stock, auction rate securities or mortgage-backed
investments. We currently do not hedge interest rate exposure, and we do not have any foreign
currency or other derivative financial instruments. The securities in our investment portfolio are
classified as available for sale and are, due to their short-term nature, subject to minimal
interest rate risk. To date, we have not experienced a loss of principal on any of our investments.
Although we currently expect that our ability to access or liquidate these investments as needed to
support our business activities will continue, we cannot ensure that this will not change. We
believe that, if market interest rates were to change immediately and uniformly by 10% from levels
at September 30, 2009, the impact on the fair value of these securities or our cash flows or income
would not be material.
Foreign Currency Exchange Risk
Substantially all of our revenues are realized in U.S. dollars. Certain expenses related to
our international activities are payable in foreign currencies. As a result, our financial results
could be affected by factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. Our total payables denominated in foreign currencies as of September
30, 2009 were not material. The functional currency of our wholly-owned European subsidiary is the
U.S. dollar, so we are not currently subject to gains and losses from foreign currency translation
of the subsidiary financial statements. We currently do not hedge foreign currency exchange rate
exposure. Although the impact of currency fluctuations on our financial results has been immaterial
in the past, there can be no guarantee the impact of currency fluctuations related to our
international activities will not be material in the future.
ITEM 4. CONTROLS AND PROCEDURES.
(a)
Evaluation of disclosure controls and procedures
. We maintain disclosure controls and
procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934,
or Exchange Act, that are designed to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in Securities and Exchange Commission rules and forms,
and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating our disclosure controls and procedures, management
recognized that disclosure controls and procedures, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and
procedures are met. Our disclosure controls and procedures have been designed to meet reasonable
assurance standards. Additionally, in designing disclosure controls and procedures, our management
necessarily was required to apply its judgment in evaluating the cost-benefit relationship of
possible disclosure controls and procedures. The design of any disclosure controls and procedures
also is based in part upon certain assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form
10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date,
our disclosure controls and procedures were effective at the reasonable assurance level.
(b)
Changes in internal control over financial reporting
. There was no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that
occurred during our last fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS.
We are an early stage company with a history of net losses, and we expect to incur net losses for
the foreseeable future.
We have incurred substantial net losses since our inception. For the nine months ended
September 30, 2009 and 2008, we incurred net losses of $502,000 and $9.1 million, respectively.
From our inception in August 2000 through September 30, 2009, we had an accumulated deficit of
$177.6 million. To date, we have not, and we may never, achieve sustained revenues sufficient to
offset expenses. We expect to devote substantially all of our resources to continue to invest in
our product pipeline, including our Onco
type
DX breast and colon cancer tests and future products,
and our commercial and laboratory infrastructure. We expect to incur additional losses in the
future and we may never achieve profitability.
27
We expect to continue to incur significant research and development expenses, which may make it
difficult for us to achieve profitability.
In recent years, we have incurred significant costs in connection with the development of our
Onco
type
DX platform. Our research and development expenses were $27.0 million and $20.7 million,
respectively, for the nine months ended September 30, 2009 and 2008. We expect our research and
development expense levels to remain high and to continue to increase for the foreseeable future as
we seek to expand the clinical utility of our Onco
type
DX breast cancer test and develop new tests.
As a result, we will need to generate significant revenues in order to achieve profitability. Our
failure to achieve profitability in the future could cause the market price of our common stock to
decline.
Declining general economic or business conditions may have a negative impact on our business.
Continuing concerns over inflation, deflation, energy costs, geopolitical issues, the
availability and cost of credit, the Federal stimulus package, Federal budget proposals, the U.S.
mortgage market and a declining real estate market in the U.S. have contributed to increased
volatility and diminished expectations for the global economy and expectations of slower global
economic growth going forward. These factors, combined with volatile oil prices, declining business
and consumer confidence, a declining stock market and increased unemployment, have precipitated an
economic slowdown and recession. If the economic climate in the U.S. does not improve or continues
to deteriorate, our business, including our patient population, our suppliers and our third-party
payors, could be negatively affected, resulting in a negative impact on our product revenues.
If third-party payors, including managed care organizations and Medicare, do not provide
reimbursement or rescind their favorable reimbursement policies for our Oncotype DX tests, our
commercial success could be compromised.
Physicians and patients may decide not to order our Onco
type
DX tests unless third-party
payors, such as managed care organizations as well as government payors such as Medicare and
Medicaid, pay a substantial portion of the test price. Reimbursement by a third-party payor may
depend on a number of factors, including a payors determination that tests using our technologies
are:
|
|
|
not experimental or investigational,
|
|
|
|
|
medically necessary,
|
|
|
|
|
appropriate for the specific patient,
|
|
|
|
|
cost-effective,
|
|
|
|
|
supported by peer-reviewed publications, and
|
|
|
|
|
included in clinical practice guidelines.
|
There is uncertainty concerning third-party payor reimbursement of any test incorporating new
technology, including our Onco
type
DX platform. Several entities conduct technology assessments of
new medical tests and devices and provide the results of their assessments for informational
purposes to other parties. These assessments may be used by third-party payors and health care
providers as grounds to deny coverage for a test or procedure. Although there are a number of
favorable assessments of our Onco
type
DX breast cancer test, the test has received negative assessments in the past and may receive
additional negative assessments in the future.
Since each payor makes its own decision as to whether to establish a policy to reimburse our
test, seeking these approvals is a time-consuming and costly process. To date, we have secured
policy-level reimbursement approval for our Onco
type
DX breast cancer test for N- patients from a
number of third-party payors. We cannot be certain that coverage for this test will be provided in
the future by additional third-party payors or that existing reimbursement policies will remain in
place.
Under current Medicare billing rules, claims for Onco
type
DX breast cancer tests performed on
Medicare beneficiaries who were hospital inpatients at the time the tumor tissue samples were
obtained and whose tests were ordered less than 14 days from discharge must be incorporated in the
payment that the hospital receives for the inpatient services provided. Medicare billing rules also
require hospitals to bill for the test when ordered for hospital outpatients less than 14 days
following the date of the hospital procedure where the tumor tissue samples were obtained.
Accordingly, we are required to bill individual hospitals for tests performed on Medicare
28
beneficiaries during these time frames. Because we generally do not have a written agreement in
place with these hospitals to purchase these tests, we may not be paid for our tests or may have to
pursue payment from the hospital on a case-by-case basis. We believe patients coming under this
rule represent approximately 2% of our total testing population. We believe these billing rules may
lead to confusion regarding whether Medicare provides adequate reimbursement for our test, and
could discourage Medicare patients from using our test. Although we are working with Medicare and
Congress, as well as with other diagnostic laboratories to revise or reverse these billing rules,
we have no assurance that Medicare will do so or that Congress will require Medicare to do so, and
we also cannot ensure that hospitals will agree to arrangements to pay us for tests performed on
patients falling under these rules.
Insurers, including managed care organizations as well as government payors such as Medicare
and Medicaid, have increased their efforts to control the cost, utilization and delivery of health
care services. From time to time, Congress has considered and implemented changes in the Medicare
fee schedules in conjunction with budgetary legislation. Further reductions of reimbursement for
Medicare services may be implemented from time to time. Reductions in the reimbursement rates of
other third-party payors have occurred and may occur in the future. These measures have resulted in
reduced payment rates and decreased test utilization for the clinical laboratory industry.
Following the reporting of clinical studies to support the use of our Onco
type
DX breast
cancer test in patients with N+, ER+ disease, we experienced an increase in usage for N+ patients.
We may not be able to obtain reimbursement coverage for our test for breast cancer patients who are
N+, ER+ that is similar to the coverage we have obtained for early-stage N-, ER+ patients. In
addition, we may not be able to obtain reimbursement coverage for any other new test or test
enhancement we may develop in the future.
In September 2009, we began accepting all appropriate breast cancer tumor samples, regardless
of immunohistochemistry, or IHC, ER status, to facilitate assessment of ER status by either IHC or
reverse transcription polymerase chain reaction, or RT-PCR, testing. An Onco
type
DX Recurrence
Score is generated if the ER status is positive by IHC or positive by RT-PCR, even if the sample
was negative by IHC when submitted. In these cases, the tests will be billed to the third party
insurer or to the patient. If the sample is ER negative by both IHC
and RT-PCR, neither the third party payor nor
the patient will be billed. The processing of tests that we do not bill payors or patients for will
increase our cost of product revenues.
If we are unable to obtain reimbursement approval from private payors and Medicare and
Medicaid programs for our tests, or if the amount reimbursed is inadequate, our ability to generate
revenues from our tests could be limited. Even if we are being reimbursed, insurers may withdraw
their coverage policies or cancel their contracts with us at any time or stop paying for our test,
which would reduce our revenues.
We depend on a limited number of payors for a significant portion of our product revenues and if
these or other payors stop providing reimbursement or decrease the amount of reimbursement for
our test, our revenues could decline.
Payments from the administrator for Medicare accounted for 19% of our product revenues for
both the three and nine months ended September 30, 2009, compared to 21% and 22% for the three and
nine months ended September 30, 2008. Payments from United HealthCare Insurance Company accounted
for 11% of product revenues for the nine months ended September 30, 2008. There were no other third
party payors with product revenues of 10% or more for the three and nine months ended September 30,
2009 and 2008, respectively. In the future, it is possible that these or other third-party payors
that provide reimbursement for our test may suspend, revoke or discontinue coverage at any time, or
may reduce the reimbursement rates payable to us. Any such actions could have a negative impact on
our revenues.
If FDA were to begin regulating our test, we could incur substantial costs and time delays
associated with meeting requirements for pre-market clearance or approval or we could experience
decreased demand for or reimbursement of our tests.]
Clinical laboratory tests like ours are regulated under CLIA, as administered through CMS, as
well as by applicable state laws. Diagnostic kits that are sold and distributed through interstate
commerce are regulated as medical devices by FDA. Clinical laboratory tests that are developed and
validated by a laboratory for its own use are called laboratory developed tests, or LDTs. Most LDTs
are not currently subject to FDA regulation, although reagents or software provided by third
parties and used to perform LDTs may be subject to regulation. We believe that Onco
type
DX is not a
diagnostic kit and also believe that it is an LDT. As a result, we believe Onco
type
DX should not
be subject to regulation under established FDA policies. The container we provide for collection
and transport of tumor samples from a pathology laboratory to our laboratory may be a medical
device subject to FDA regulation but is currently exempt from pre-market review by FDA.
29
In January 2006, we received a letter from FDA regarding our Onco
type
DX breast cancer test
inviting us to meet with FDA to discuss the nature and appropriate regulatory status of and the
least burdensome ways that we may fulfill any FDA pre-market review requirements that may apply. In
September 2006, FDA issued draft guidance on a new class of tests called In Vitro Diagnostic
Multivariate Index Assays, or IVDMIAs. Under this draft guidance, our test could be classified as
either a Class II or a Class III medical device, which may require varying levels of FDA pre-market
review depending upon intended use and on the level of control necessary to assure the safety and
effectiveness of the test. In July 2007, FDA posted revised draft guidance that addressed some of
the comments submitted in response to the September 2006 draft guidance. The revised draft guidance
includes an 18 month transition period of FDA enforcement discretion following release of final
guidance for currently available tests if the laboratory submits a pre-market review submission
within 12 months of the publication of final guidance. The comment period for this revised guidance
expired in October 2007.
In May 2007, FDA issued a guidance document Class II Special Controls Guidance Document: Gene
Expression Profiling Test System for Breast Cancer Prognosis. This guidance document was developed
to support the classification of gene expression profiling test systems for breast cancer prognosis
into Class II. In addition, in June 2007, FDA issued a guidance document Pharmacogenetic Tests and
Genetic Tests for Heritable Markers which provides recommendations to sponsors and FDA reviewers
in preparing and reviewing pre-market approval applications, or PMAs, and pre-market notification,
or 510(k), submissions for pharmacogenetic and other human genetic tests, whether testing is for
single markers or for multiple markers simultaneously (multiplex tests).
In addition, the Secretary of the Department of Health and Human Services, or HHS, requested
that its Advisory Committee on Genetics, Health and Society make recommendations about the
oversight of genetic testing. A final report was published in April 2008. If the reports
recommendations for increased oversight of genetic testing were to result in further regulatory
burdens it could have a negative impact on our business and could delay the commercialization of
tests in development.
We cannot provide any assurance that FDA regulation, including pre-market review, will not be
required in the future for our tests, either through new enforcement policies adopted by FDA or new
legislation enacted by Congress. It is possible that legislation will be enacted into law and may
result in increased regulatory burdens for us to continue to offer our tests.
If pre-market review is required, our business could be negatively impacted until such review
is completed and clearance to market or approval is obtained, and FDA could require that we stop
selling our test pending pre-market clearance or approval. If our test is allowed to remain on the
market but there is uncertainty about our test, if it is labeled investigational by FDA, or if
labeling claims FDA allows us to make are very limited, orders or reimbursement may decline. The
regulatory approval process may involve, among other things, successfully completing additional
clinical trials and submitting a pre-market clearance notice or filing a PMA application with FDA.
If pre-market review is required by FDA, there can be no assurance that our test will be cleared or
approved on a timely basis, if at all. Ongoing compliance with FDA regulations would increase the
cost of conducting our business, and subject us to inspection by FDA and to the requirements of FDA
and penalties for failure to comply with these requirements. We may also decide voluntarily to
pursue FDA pre-market review of our tests if we determine that doing so would be appropriate.
Should any of the reagents obtained by us from vendors and used in conducting our test be
affected by future regulatory actions, our business could be adversely affected by those actions,
including increasing the cost of testing or delaying, limiting or prohibiting the purchase of
reagents necessary to perform testing.
If we were required to conduct additional clinical trials prior to continuing to sell our
Oncotype DX breast cancer test or marketing our colon cancer test or any other new test, those
trials could lead to delays or failure to obtain necessary regulatory approval, which could cause
significant delays in commercializing any future products and harm our ability to become
profitable.
If FDA decides to regulate our tests, it may require additional pre-market clinical testing
prior to submitting a regulatory notification or application for commercial sales. If we are
required to conduct pre-market clinical trials, whether using prospectively acquired samples or
archival samples, delays in the commencement or completion of clinical testing could significantly
increase our test development costs and delay commercialization. Many of the factors that may cause
or lead to a delay in the commencement or completion of clinical trials may also ultimately lead to
delay or denial of regulatory clearance or approval. The commencement of clinical trials may be
delayed due to insufficient patient enrollment, which is a function of many factors, including the
size of the patient population, the nature of the protocol, the proximity of patients to clinical
sites and the eligibility criteria for the clinical trial.
30
We may find it necessary to engage contract research organizations to perform data
collection and analysis and other aspects of our clinical trials, which might increase the cost and
complexity of our trials. We may also depend on clinical investigators, medical institutions and
contract research organizations to perform the trials properly. If these parties do not
successfully carry out their contractual duties or obligations or meet expected deadlines, or if
the quality, completeness or accuracy of the clinical data they obtain is compromised due to the
failure to adhere to our clinical protocols or for other reasons, our clinical trials may have to
be extended, delayed or terminated. Many of these factors would be beyond our control. We may not
be able to enter into replacement arrangements without undue delays or considerable expenditures.
If there are delays in testing or approvals as a result of the failure to perform by third parties,
our research and development costs would increase, and we may not be able to obtain regulatory
clearance or approval for our test. In addition, we may not be able to establish or maintain
relationships with these parties on favorable terms, if at all. Each of these outcomes would harm
our ability to market our test, or to become profitable.
Complying with numerous regulations pertaining to our business is an expensive and time-consuming
process, and any failure to comply could result in substantial penalties.
We are subject to CLIA, a federal law that regulates clinical laboratories that perform
testing on specimens derived from humans for the purpose of providing information for the
diagnosis, prevention or treatment of disease. CLIA is intended to ensure the quality and
reliability of clinical laboratories in the United States by mandating specific standards in the
areas of personnel qualifications, administration, and participation in proficiency testing,
patient test management, quality control, quality assurance and inspections. We have a current
certificate of accreditation under CLIA to perform testing. To renew this certificate, we are
subject to survey and inspection every two years. Moreover, CLIA inspectors may make random
inspections of our clinical reference laboratory.
We are also required to maintain a license to conduct testing in California. California laws
establish standards for day-to-day operation of our clinical reference laboratory, including the
training and skills required of personnel and quality control. Because we receive specimens from
New York State, our clinical reference laboratory is required to be licensed by New York. New York
law also mandates proficiency testing for laboratories licensed under New York state law,
regardless of whether or not such laboratories are located in New York. Moreover, several other
states require that we hold licenses to test specimens from patients in those states. Other states
may have similar requirements or may adopt similar requirements in the future. Finally, we may be
subject to regulation in foreign jurisdictions as we seek to expand international distribution of
our test.
If we were to lose our CLIA accreditation or California license, whether as a result of a
revocation, suspension or limitation, we would no longer be able to sell our test, which would
limit our revenues and harm our business. If we were to lose our license in New York or in other
states where we are required to hold licenses, we would not be able to test specimens from those
states.
We are subject to other regulation by both the federal government and the states in which we
conduct our business, including:
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Medicare billing and payment regulations applicable to clinical laboratories;
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the federal Medicare and Medicaid Anti-kickback Law and state anti-kickback prohibitions;
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the federal physician self-referral prohibition, commonly known as the Stark Law, and the
state equivalents;
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the federal Health Insurance Portability and Accountability Act of 1996;
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the Medicare civil money penalty and exclusion requirements; and
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the federal civil and criminal False Claims Act and state equivalents.
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We have adopted policies and procedures designed to comply with these laws, including policies
and procedures relating to financial arrangements between us and physicians who refer patients to
us. In the ordinary course of our business, we conduct internal reviews of our compliance with
these laws. Our compliance is also subject to governmental review. The growth of our business and
sales organization may increase the potential of violating these laws or our internal policies and
procedures. The risk of our being found in violation of these laws and regulations is further
increased by the fact that many of them have not been fully interpreted by the regulatory
authorities or the courts, and their provisions are open to a variety of interpretations. Any
action brought against us for violation of these laws or regulations, even if we successfully
defend against it, could cause us to incur significant legal expenses and divert our managements
attention from the operation of our business. If our operations are found to be in violation of any
of these laws and regulations, we may be subject to any applicable penalty associated with the
violation, including civil and criminal penalties,
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damages and fines, we could be required to refund payments received by us, and we could be
required to curtail or cease our operations. Any of the foregoing consequences could seriously harm
our business and our financial results.
Our financial results depend on sales of one test, our Oncotype DX breast cancer test, and we
will need to generate sufficient revenues from this and other tests to run our business.
For the foreseeable future, we expect to derive substantially all of our revenues from sales
of one test, our Onco
type
DX breast cancer test. We have been selling this test since January 2004.
While we currently expect to commercialize a test for colon cancer in early 2010, there can be no
assurance that we will be successful in doing so. We are in various stages of research and
development for other tests that we may offer as well as for enhancements to our existing test. We
are not currently able to estimate when we may be able to commercialize tests for other cancers or
whether we will be successful in doing so. If we are unable to increase sales of our test or to
successfully develop and commercialize other tests or enhancements, our revenues and our ability to
achieve profitability would be impaired, and the market price of our common stock could decline.
Commercialization of our Oncotype DX colon cancer test will require significant effort and
expense on our part, and our commercialization efforts may not be successful.
Commercialization of our Onco
type
DX colon cancer test will require significant effort and
expense on our part. For example, we will need to expand our clinical reference laboratory
capabilities, internal quality assurance and information technology systems and processes to
accommodate processing of more than one type of test. In addition, we will need to obtain CLIA
certification and some state permits before we may conduct a second type of test at our clinical
reference laboratory. We will also need to educate physicians, patients and payors about the
benefits and cost-effectiveness of our Onco
type
DX colon cancer test, which predicts recurrence but
not chemotherapy benefit of 5-fluorouracil/leucovorin (5FU/LV) following surgery, and to establish
reimbursement arrangements for this test with payors. We will be required to implement additional
customer service and billing processes and procedures to handle a second test, and we may need to
hire additional scientific, technical and other personnel to support the commercialization process.
We cannot assure you that our commercialization efforts will be successfully implemented, that our
educational efforts will result in sufficient physician or patient demand or that we will be able
to obtain adequate reimbursement for our colon cancer test. If we fail to successfully
commercialize our Onco
type
colon cancer test, our reputation could be harmed and our future
prospects and our business could suffer.
New test development involves a lengthy and complex process, and we may be unable to
commercialize any of the tests we are currently developing.
We have multiple tests in early development and devote considerable resources to research and
development. For example, we are conducting early development studies in colon cancer for stage III
patients, prostate, renal cell and lung cancers. There can be no assurance that our technologies
will be capable of reliably predicting the recurrence of cancers other than breast cancer with the
sensitivity and specificity necessary to be clinically and commercially useful, or that our colon
cancer test will result in a commercially successful product. In addition, before we can develop
diagnostic tests for new cancers and commercialize any new products, we will need to:
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conduct substantial research and development;
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conduct validation studies;
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expend significant funds; and
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develop and scale our laboratory processes to accommodate different tests.
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This product development process involves a high degree of risk and takes several years. Our
product development efforts may fail for many reasons, including:
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failure of the product at the research or development stage;
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difficulty in accessing archival tissue samples, especially tissue samples with known
clinical results; or
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lack of clinical validation data to support the effectiveness of the product.
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Few research and development projects result in commercial products, and success in early
clinical trials often is not replicated in later studies. At any point, we may abandon development
of a product candidate or we may be required to expend considerable resources repeating clinical
trials, which would adversely impact the timing for generating potential revenues from those
product candidates. In addition, as we develop products, we will have to make significant
investments in product development, marketing and selling resources. If a clinical validation study
fails to demonstrate the prospectively defined endpoints of the study, we might choose to abandon
the development of the product or product feature that was the subject of the clinical trial, which
could harm our business.
If we are unable to support demand for our tests, including successfully managing the
evolution of our technology and manufacturing platforms, our business may suffer.
We have added a second shift at our clinical laboratory facility and will need to ramp up our
testing capacity as our test volume grows. We will need to continue to implement increases in scale
and related processing, customer service, billing and systems process improvements, and to expand
our internal quality assurance program, technology and manufacturing platforms to support testing
on a larger scale. We will also need additional certified laboratory scientists and other
scientific and technical personnel to process higher volumes of our tests. We cannot assure you
that any increases in scale, related improvements and quality assurance will be successfully
implemented or that appropriate personnel will be available. As our colon cancer test and
additional products are commercialized, we will need to bring new equipment on-line, implement new
systems, technology, controls and procedures and hire personnel with different qualifications.
Failure to implement necessary procedures or to hire the necessary personnel could result in higher
cost of processing or an inability to meet market demand. There can be no assurance that we will be
able to perform tests on a timely basis at a level consistent with demand, that our efforts to
scale our commercial operations will not negatively affect the quality of our test results, or that
we will be successful in responding to the growing complexity of our testing operations. If we
encounter difficulty meeting market demand or quality standards for our tests, our reputation could
be harmed and our future prospects and our business could suffer.
We may experience limits on our revenues if physicians decide not to order our test.
If medical practitioners do not order our Onco
type
DX breast cancer test, our colon cancer
test once it is commercially available, or any future tests developed by us, we will likely not be
able to create demand for our products in sufficient volume for us to become profitable. To
generate demand, we will need to continue to make oncologists, surgeons and pathologists aware of
the benefits of each type of test through published papers, presentations at scientific conferences
and one-on-one education by our sales force. In addition, we will need to demonstrate our ability
to obtain adequate reimbursement coverage from third-party payors.
Prior to the inclusion of our Onco
type
DX breast cancer test in clinical guidelines,
guidelines and practices regarding the treatment of breast cancer often recommended that
chemotherapy be considered in most cases, including many cases in which our test might indicate
that, based on our clinical trial results, chemotherapy would be of little or no benefit.
Accordingly, physicians may be reluctant to order a test that may suggest recommending against
chemotherapy in treating breast cancer. Moreover, our test provides quantitative information not
currently provided by pathologists and it is performed at our facility rather than by the
pathologist in a local laboratory, so pathologists may be reluctant to support our test. These
facts may make it difficult for us to convince medical practitioners to order our test for their
patients, which could limit our ability to generate revenues and our ability to achieve
profitability.
We may experience limits on our revenues if patients decide not to use our test.
Some patients may decide not to use our Onco
type
DX breast cancer test due to its price, part
or all of which may be payable directly by the patient if the applicable payor denies reimbursement
in full or in part. Even if medical practitioners recommend that their patients use our test,
patients may still decide not to use our test, either because they do not want to be made aware of
the likelihood of recurrence or they wish to pursue a particular course of therapy regardless of
test results. Additionally, the current economic slowdown could negatively impact patients,
resulting in loss of healthcare coverage, delayed medical checkups or inability to pay for a
relatively expensive test. If only a small portion of the patient population decides to use our
test, we will experience limits on our revenues and our ability to achieve profitability.
33
If we are unable to develop products to keep pace with rapid technological, medical and
scientific change, our operating results and competitive position would be harmed.
In recent years, there have been numerous advances in technologies relating to the diagnosis
and treatment of cancer. For example, technologies in addition to ours now reportedly permit
measurement of gene expression in fixed paraffin embedded, or FPE, tissue specimens. New
chemotherapeutic or biologic strategies are being developed that may increase survival time and
reduce toxic side effects. These advances require us to continuously develop new products and
enhance existing products to keep pace with evolving standards of care. Our tests could become
obsolete unless we continually innovate and expand our product to demonstrate recurrence and
treatment benefit in patients treated with new therapies. New treatment therapies typically have
only a few years of clinical data associated with them, which limits our ability to perform
clinical studies and correlate sets of genes to a new treatments effectiveness. If we are unable
to demonstrate the applicability of our tests to new treatments, then sales of our test could
decline, which would harm our revenues.
Our rights to use technologies licensed from third parties are not within our control, and we may
not be able to sell our products if we lose our existing rights or cannot obtain new rights on
reasonable terms.
We license from third parties technology necessary to develop our products. For example, we
license technology from Roche that we use to analyze genes for possible inclusion in our tests and
that we use in our clinical reference laboratory to conduct our test. In return for the use of a
third partys technology, we may agree to pay the licensor royalties based on sales of our
products. Royalties are a component of cost of product revenues and impact the margin on our test.
We may need to license other technologies to commercialize future products. Our business may suffer
if these licenses terminate, if the licensors fail to abide by the terms of the license or fail to
prevent infringement by third parties, if the licensed patents or other rights are found to be
invalid or if we are unable to enter into necessary licenses on acceptable terms. Companies that
attempt to replicate our tests could be set up in countries that do not recognize our intellectual
property. Such companies could send test results into the United States and therefore reduce sales
of our tests.
If we are unable to maintain intellectual property protection, our competitive position could
be harmed.
Our ability to compete and to achieve and maintain profitability is impacted by our ability to
protect our proprietary discoveries and technologies. We currently rely on a combination of patent
applications, copyrights, trademarks, and confidentiality, material data transfer, license and
invention assignment agreements to protect our intellectual property rights. We also rely upon
trade secret laws to protect unpatented know-how and continuing technological innovation. Our
intellectual property strategy is intended to develop and maintain our competitive position.
Patents may be granted to us jointly with other organizations, and while we may have a right of
first refusal, we cannot guarantee that a joint owner will not license rights to another party, and
cannot guarantee that a joint owner will cooperate with us in the enforcement of patent rights.
As of September 30, 2009, we had five issued patents in the U.S. covering genes and methods
that are components of the Onco
type
DX breast cancer test, two of which were issued jointly to us
and to the National Surgical Adjuvant Breast and Bowel Project, or NSABP, and one European patent
for methods used to determine gene expression. Our pending patent applications may not result in
issued patents, and we cannot assure you that our issued patents or any patents that might
ultimately be issued by the U.S. Patent and Trademark Office will protect our technology. Any
patents that may be issued to us might be challenged by third parties as being invalid or
unenforceable, or third parties may independently develop similar or competing technology that
avoids our patents. We cannot be certain that the steps we have taken will prevent the
misappropriation and use of our intellectual property, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.
From time to time, the United States Supreme Court, other federal courts, the U.S. Congress or
the U.S. Patent and Trademark Office may change the standards of patentability and any such changes
could have a negative impact on our business. In addition, competitors may develop their own
versions of our test in countries where we did not apply for patents or where our patents have not
issued and compete with us in those countries, including encouraging the use of their test by
physicians or patients in other countries.
On October 30, 2008, the Court of Appeals for the Federal Circuit issued a decision that
methods or processes cannot be patented unless they are tied to a machine or involve a physical
transformation. Although that case, entitled
In re Bilski
, involved a business method patent, the
court indicated that the machine-or-transformation test for patentability should be applied to
all inventions. This ruling could open the door to patentability challenges to our existing
patents and pending applications if our pre-
Bilski
claims do not recite the requisite connection to
a machine or physical transformation. The U.S. Supreme Court has granted
certiorari
in the
Bilski
case. We cannot assure you that our patent portfolio will not be negatively impacted by this
decision.
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We may face intellectual property infringement claims that could be time-consuming and costly to
defend and could result in our loss of significant rights and the assessment of treble damages.
We have received notices of claims of infringement or misuse of other parties proprietary
rights in the past and may from time to time receive additional notices. Some of these claims may
lead to litigation. We cannot assure you that we will prevail in such actions, or that other
actions alleging misappropriation or misuse by us of third-party trade secrets, infringement by us
of third-party patents and trademarks or the validity of our patents, will not be asserted or
prosecuted against us. We may also initiate claims to defend our intellectual property.
Intellectual property litigation, regardless of outcome, is expensive and time-consuming, could
divert managements attention from our business and have a material negative effect on our
business, operating results or financial condition. If there is a successful claim of infringement
against us, we may be required to pay substantial damages (including treble damages if we were to
be found to have willfully infringed a third partys patent) to the party claiming infringement,
develop non-infringing technology, stop selling our test or using technology that contains the
allegedly infringing intellectual property or enter into royalty or license agreements that may not
be available on acceptable or commercially practical terms, if at all. Our failure to develop
non-infringing technologies or license the proprietary rights on a timely basis could harm our
business. In addition, revising our test to include the non-infringing technologies would require
us to re-validate our test, which would be costly and time-consuming. Also, we may be unaware of
pending patent applications that relate to our test. Parties making infringement claims on future
issued patents may be able to obtain an injunction that would prevent us from selling our test or
using technology that contains the allegedly infringing intellectual property, which could harm our
business.
It is possible that a third party or patent office might take the position that one or more
patents or patent applications constitute prior art in the field of genomic-based diagnostics. In
such a case, we might be required to pay royalties, damages and costs to firms who own the rights
to these patents, or we might be restricted from using any of the inventions claimed in those
patents.
If we are unable to compete successfully, we may be unable to increase or sustain our revenues or
achieve profitability.
Our principal competition comes from existing diagnostic methods used by pathologists and
oncologists. These methods have been used for many years and are therefore difficult to change or
supplement. In addition, companies offering capital equipment and kits or reagents to local
pathology laboratories represent another source of potential competition. These kits are used
directly by the pathologist, which facilitates adoption more readily than tests like ours that are
performed outside the pathology laboratory. In addition, few diagnostic methods are as expensive as
our Onco
type
DX breast cancer test.
We also face competition from many public and private companies that offer products or have
conducted research to profile genes, gene expression or protein expression in breast cancer, such
as Celera Corporation, Clarient Incorporated, Agendia B.V., Applied Genomics, bioTheranostics,
Exagen Diagnostics, Qiagen, Hologic and University Genomics. Commercial laboratories with strong
distribution networks for diagnostic tests, such as Genzyme Corporation, Quest Diagnostics
Incorporated and Laboratory Corporation of America Holdings and, may become competitors. Other
potential competitors include companies that develop diagnostic tests such as Siemens AG, Roche
Diagnostics, a division of F. Hoffmann-La Roche Ltd, and Veridex LLC, a Johnson & Johnson company,
as well as other companies and academic and research institutions. Our competitors may invent and
commercialize technology platforms that compete with ours. In addition, in December 2005, the
federal government allocated a significant amount of funding to The Cancer Genome Atlas, a project
aimed at developing a comprehensive catalog of the genetic mutations and other genomic changes that
occur in cancers and maintaining the information in a free public database. As more information
regarding cancer genomics becomes available to the public, we anticipate that more products aimed
at identifying targeted treatment options will be developed and these products may compete with
ours. In addition, competitors may develop their own versions of our test in countries where we did
not apply for patents or where our patents have not issued and compete with us in those countries,
including encouraging the use of their test by physicians or patients in other countries.
Our Onco
type
DX breast cancer test is considered relatively expensive for a diagnostic test.
Effective July 1, 2009, we increased the list price of our test from $3,820 to $3,975, and we may
raise prices in the future. This could impact reimbursement of and demand for our test. Many of our
present and potential competitors have widespread brand recognition and substantially greater
financial and technical resources and development, production and marketing capabilities than we
do. Others may develop lower-priced, less complex tests that could be viewed by physicians and
payors as functionally equivalent to our test, which could force us to lower the list price of our
test and impact our operating margins and our ability to achieve profitability. Some competitors
have developed tests cleared for marketing by FDA. There may be a marketing differentiation or
perception that an FDA-cleared test is more desirable than Onco
type
DX tests, and that may
discourage adoption and reimbursement of our test. If we are unable to compete successfully against
current or future competitors, we may be unable to increase market acceptance for and sales of our
test, which could prevent us from
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increasing or sustaining our revenues or achieving or sustaining profitability and could cause
the market price of our common stock to decline.
Our research and development efforts will be hindered if we are not able to contract with third
parties for access to archival tissue samples.
Under standard clinical practice in the United States, tumor biopsies removed from patients
are chemically preserved and embedded in paraffin wax and stored. Our clinical development relies
on our ability to secure access to these archived tumor biopsy samples, as well as information
pertaining to their associated clinical outcomes. Others have demonstrated their ability to study
archival samples and often compete with us for access. Additionally, the process of negotiating
access to archived samples is lengthy since it typically involves numerous parties and approval
levels to resolve complex issues such as usage rights, institutional review board approval, privacy
rights, publication rights, intellectual property ownership and research parameters. If we are not
able to negotiate access to archival tumor tissue samples with hospitals and clinical partners, or
if other laboratories or our competitors secure access to these samples before us, our ability to
research, develop and commercialize future products will be limited or delayed.
If we cannot maintain our current clinical collaborations and enter into new collaborations, our
product development could be delayed
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We rely on and expect to continue to rely on clinical collaborators to perform a substantial
portion of our clinical trial functions. If any of our collaborators were to breach or terminate
its agreement with us or otherwise fail to conduct the contracted activities successfully and in a
timely manner, the research, development or commercialization of the products contemplated by the
collaboration could be delayed or terminated. If any of our collaboration agreements are
terminated, or if we are unable to renew those agreements on acceptable terms, we would be required
to seek alternatives. We may not be able to negotiate additional collaborations on acceptable
terms, if at all, and these collaborations may not be successful.
In the past, we have entered into clinical trial collaborations with highly regarded
organizations in the cancer field including, for example, NSABP. Our success in the future depends
in part on our ability to enter into agreements with other leading cancer organizations. This can
be difficult due to internal and external constraints placed on these organizations. Some
organizations may limit the number of collaborations they have with any one company so as to not be
perceived as biased or conflicted. Organizations may also have insufficient administrative and
related infrastructure to enable collaborations with many companies at once, which can extend the
time it takes to develop, negotiate and implement a collaboration. Additionally, organizations
often insist on retaining the rights to publish the clinical data resulting from the collaboration.
The publication of clinical data in peer-reviewed journals is a crucial step in commercializing and
obtaining reimbursement for a test such as ours, and our inability to control when, if ever,
results are published may delay or limit our ability to derive sufficient revenues from any product
that may result from a collaboration.
From time to time we expect to engage in discussions with potential clinical collaborators
which may or may not lead to collaborations. However, we cannot guarantee that any discussions will
result in clinical collaborations or that any clinical studies which may result will be enrolled or
completed in a reasonable time frame or with successful outcomes. Once news of discussions
regarding possible collaborations are known in the medical community, regardless of whether the
news is accurate, failure to announce a collaboration agreement or the entitys announcement of a
collaboration with an entity other than us may result in adverse speculation about us, our product
or our technology, resulting in harm to our reputation and our business.
The loss of key members of our senior management team or our inability to retain highly skilled
scientists, clinicians and salespeople could adversely affect our business.
Our success depends largely on the skills, experience and performance of key members of our
executive management team and others in key management positions. The efforts of each of these
persons together will be critical to us as we continue to develop our technologies and testing
processes and as we attempt to transition to a company with more than one commercialized product.
If we were to lose one or more of these key employees, we may experience difficulties in competing
effectively, developing our technologies and implementing our business strategies.
Our research and development programs and commercial laboratory operations depend on our
ability to attract and retain highly skilled scientists and technicians, including geneticists,
licensed laboratory technicians, chemists, biostatisticians and engineers. We may not be able to
attract or retain qualified scientists and technicians in the future due to the competition for
qualified personnel among life science businesses, particularly in the San Francisco Bay Area. We
also face competition from universities and public and private research institutions in recruiting
and retaining highly qualified scientific personnel. In addition, our success depends on our
36
ability to attract and retain salespeople with extensive experience in oncology and close
relationships with medical oncologists, surgeons, pathologists and other hospital personnel. We may
have difficulties locating, recruiting or retaining qualified salespeople, which could cause a
delay or decline in the rate of adoption of our products. If we are not able to attract and retain
the necessary personnel to accomplish our business objectives, we may experience constraints that
will adversely affect our ability to support our discovery, development and sales programs. All of
our employees are at-will employees, which means that either we or the employee may terminate their
employment at any time.
If our sole laboratory facility becomes inoperable, we will be unable to perform our test and our
business will be harmed.
We do not have redundant clinical reference laboratory facilities outside of Redwood City,
California. Redwood City is situated near earthquake fault lines. Our facility and the equipment we
use to perform our tests would be costly to replace and could require substantial lead time to
repair or replace. The facility may be harmed or rendered inoperable by natural or man-made
disasters, including earthquakes, flooding and power outages, which may render it difficult or
impossible for us to perform our tests for some period of time. The inability to perform our tests
or the backlog of tests that could develop if our facility is inoperable for even a short period of
time may result in the loss of customers or harm our reputation, and we may be unable to regain
those customers in the future. Although we possess insurance for damage to our property and the
disruption of our business, this insurance may not be sufficient to cover all of our potential
losses and may not continue to be available to us on acceptable terms, if at all.
In order to rely on a third party to perform our tests, we could only use another facility
with established state licensure and CLIA accreditation under the scope of which Onco
type
DX tests
could be performed following validation and other required procedures. We cannot assure you that we
would be able to find another CLIA-certified facility willing to comply with the required
procedures, that this laboratory would be willing to perform the tests for us on commercially
reasonable terms, or that it would be able to meet our quality standards. In order to establish a
redundant clinical reference laboratory facility, we would have to spend considerable time and
money securing adequate space, constructing the facility, recruiting and training employees, and
establishing the additional operational and administrative infrastructure necessary to support a
second facility. We may not be able, or it may take considerable time, to replicate our testing
processes or results in a new facility. Additionally, any new clinical reference laboratory
facility opened by us would be subject to certification under CLIA and licensed by several states,
including California and New York, which could take a significant amount of time and result in
delays in our ability to begin operations.
We are dependent on our information technology and telecommunications systems, and any failure of
these systems could harm our business.
We depend on information technology, or IT, and telecommunications systems for significant
aspects of our operations. In addition, our third-party billing and collections provider is
dependent upon telecommunications and data systems provided by outside vendors and information it
receives from us on a regular basis. These IT and telecommunications systems support a variety of
functions, including test processing, sample tracking, quality control, customer service and
support, billing and reimbursement, research and development activities, and our general and
administrative activities. Failures or significant downtime of our IT or telecommunications systems
or those used by our third-party service providers could prevent us from processing tests,
providing test results to physicians, billing payors, processing reimbursement appeals, handling
patient or physician inquiries, conducting research and development activities, and managing the
administrative aspects of our business. Any disruption or loss of IT or telecommunications systems
on which critical aspects of our operations depend could have an adverse effect on our business and
our product revenues.
Changes in healthcare policy could increase our costs and impact sales of and reimbursement for
our tests.
Healthcare policy has been a subject of extensive discussion in the executive and legislative
branches of the federal and many state governments. We developed our commercialization strategy for
our tests based on existing healthcare policies. Changes in healthcare policy, such as changes in
the FDA regulatory policy for LDTs, the creation of broad test utilization limits for diagnostic
products in general or requirements that Medicare patients pay for portions of clinical laboratory
tests or services received, could substantially impact the sales of our tests, increase costs and
divert managements attention. For example, in 1989, the U.S. Congress passed federal self-referral
prohibitions commonly known as the Stark Law, significantly restricting, regulating and changing
laboratories relationships with physicians. In addition, sales of our tests outside of the U.S.
makes us subject to foreign regulatory requirements, which may also change over time. We cannot
predict what changes, if any, will be proposed or adopted or the effect that such proposals or
adoption may have on our business, financial condition and results of operations.
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Several proposals to reform the system of health care delivery in the U.S. are currently being
considered by the federal and state governments. Some of the reforms call for a government
sponsored health plan. A number of states are also contemplating significant reform of their
healthcare policies. A proposal for additional government-funded health care could subject
expenditures for health care to governmental budget constraints and limits on spending. We cannot
predict what healthcare policy reforms, if any, will be adopted or the effect that such adoption
may have on our taxes, fees and other costs, which could impact business, financial condition and
results of operations. Some of the health reform proposals under consideration by Congress include
reductions to payments for laboratory tests under the Medicare Clinical Laboratory Fee Schedule.
In addition, proposals to implement fees or taxes on medical product manufacturers and clinical
laboratories have been considered as well. At this point, it is not clear whether health reform
legislation will be enacted by Congress and whether it will include any new taxes or fees on
clinical laboratories or medical device manufacturers or reductions in laboratory payments under
Medicare. If such fees, taxes, or reductions in payments are adopted, these could have a negative
impact on our business.
We rely on a limited number of suppliers or, in some cases, a sole supplier, for some of our
laboratory instruments and materials and may not be able to find replacements in the event our
suppliers no longer supply that equipment or those materials.
We rely solely on Applied Biosystems, a division of Life Technologies Corporation, to supply
some of the laboratory equipment on which we perform our tests. We periodically forecast our needs
for laboratory equipment and enter into standard purchase orders with Applied Biosystems based on
these forecasts. We believe that there are relatively few equipment manufacturers other than
Applied Biosystems that are currently capable of supplying the equipment necessary for our Onco
type
DX platform. Even if we were to identify other suppliers, there can be no assurance that we will be
able to enter into agreements with such suppliers on a timely basis on acceptable terms, if at all.
If we should encounter delays or difficulties in securing from Applied Biosystems the quality and
quantity of equipment we require for our tests, we may need to reconfigure our test process, which
would result in delays in commercialization or an interruption in sales. If any of these events
occur, our business and operating results could be harmed. Additionally, if Applied Biosystems
deems us to have become uncreditworthy, it has the right to require alternative payment terms from
us, including payment in advance. We are also required to indemnify Applied Biosystems against any
damages caused by any legal action or proceeding brought by a third party against Applied
Biosystems for damages caused by our failure to obtain required approval with any regulatory
agency.
We also rely on several sole suppliers for certain laboratory materials which we use to
perform our tests. While we have developed alternate sourcing strategies for these materials, we
cannot be certain that these strategies will be effective. If we should encounter delays or
difficulties in securing these laboratory materials, delays in commercialization or an interruption
in sales could occur.
We may be unable to manage our future growth effectively, which would make it difficult to
execute our business strategy.
Future growth will impose significant added responsibilities on management, including the need
to identify, recruit, train and integrate additional employees. In addition, rapid and significant
growth will place strain on our administrative and operational infrastructure, including customer
service and our clinical laboratory. Our ability to manage our operations and growth will require
us to continue to improve our operational, financial and management controls, reporting systems and
procedures. If we are unable to manage our growth effectively, it may be difficult for us to
execute our business strategy.
If we were sued for product liability or professional liability, we could face substantial
liabilities that exceed our resources.
The marketing, sale and use of our tests could lead to the filing of product liability claims
if someone were to allege that our tests failed to perform as it was designed. We may also be
subject to liability for errors in the test results we provide to physicians or for a
misunderstanding of, or inappropriate reliance upon, the information we provide. For example,
physicians sometimes order our Onco
type
DX breast cancer test for patients who do not have the same
specific clinical attributes indicated on the report form as those for which the test provides
clinical experience information from validation studies. It is our practice to offer medical
consultation to physicians ordering our test for such patients, including ER- breast cancer
patients. A product liability or professional liability claim could result in substantial damages
and be costly and time consuming for us to defend. Although we believe that our existing product
and professional liability insurance is adequate, we cannot assure you that our insurance would
fully protect us from the financial impact of defending against product liability or professional
liability claims. Any product liability or professional liability claim brought against us, with or
without merit, could increase our insurance rates or prevent us from securing insurance coverage in
the future. Additionally, any product liability lawsuit could cause injury to our reputation,
result in the recall of our products, or cause current clinical partners to terminate existing
agreements and potential clinical partners to seek other partners, any of which could impact our
results of operations.
38
If we use biological and hazardous materials in a manner that causes injury, we could be liable
for damages.
Our activities currently require the controlled use of potentially harmful biological
materials, hazardous materials and chemicals and may in the future require the use of radioactive
compounds. We cannot eliminate the risk of accidental contamination or injury to employees or third
parties from the use, storage, handling or disposal of these materials. In the event of
contamination or injury, we could be held liable for any resulting damages, and any liability could
exceed our resources or any applicable insurance coverage we may have. Additionally, we are subject
on an ongoing basis to federal, state and local laws and regulations governing the use, storage,
handling and disposal of these materials and specified waste products. The cost of compliance with
these laws and regulations may become significant and could negatively affect our operating
results.
International expansion of our business may expose us to business, regulatory, political,
operational, financial and economic risks associated with doing business outside of the United
States.
Our business strategy contemplates international expansion, including establishing direct
sales and physician outreach and education capabilities outside of the United States and expanding
our relationship with distributors. In February 2009, we established a subsidiary in Geneva,
Switzerland and we may establish operations in other countries in the future. Doing business
internationally involves a number of risks, including:
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multiple, conflicting and changing laws and regulations such as tax laws, export and
import restrictions, employment laws, regulatory requirements and other governmental
approvals, permits and licenses;
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|
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|
|
failure by us or our distributors to obtain regulatory approvals for the use of our test
in various countries;
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|
|
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|
difficulties in staffing and managing foreign operations;
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|
complexities associated with managing multiple payor reimbursement regimes or self-pay
systems;
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|
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logistics and regulations associated with shipping tissue samples, including
infrastructure conditions and transportation delays;
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limits in our ability to penetrate international markets if we are not able to process
tests locally;
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financial risks, such as longer payment cycles, difficulty collecting accounts receivable
and exposure to foreign currency exchange rate fluctuations;
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|
|
political and economic instability, including wars, terrorism, and political unrest,
outbreak of disease, boycotts, curtailment of trade and other business restrictions; and
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regulatory and compliance risks that relate to maintaining accurate information and
control over sales and distributors activities that may fall within the purview of the
Foreign Corrupt Practice Act, its books and records provisions or its anti-bribery
provisions.
|
Any of these factors could significantly harm our future international expansion and
operations and, consequently, our revenues and results of operations.
Our dependence on distributors for foreign sales of our Oncotype DX breast cancer test could
limit or prevent us from selling our test in foreign markets and from realizing long-term
international revenue growth.
As of September 30, 2009, we had exclusive distribution agreements for our Onco
type
DX breast
cancer test in ten countries outside of the U.S., and we may enter into other similar arrangements
in other countries in the future. We intend to grow our business internationally, and to do so we
may need to attract additional distributors to expand the territories in which we sell our test.
Distributors may not commit the necessary resources to market and sell our test to the level of our
expectations. If current or future distributors do not perform adequately, or we are unable to
locate distributors in particular geographic areas, we may not realize long-term international
revenue growth. Regulatory requirements, costs of doing business outside of the United States and
the reimbursement process in foreign markets may also impact our revenues from international sales
or impact our ability to increase international sales in the future.
39
We may acquire other businesses or form joint ventures that could harm our operating results,
dilute our stockholders ownership, increase our debt or cause us to incur significant expense
.
As part of our business strategy, we may pursue acquisitions of complementary businesses and
assets, as well as technology licensing arrangements. We also may pursue strategic alliances that
leverage our core technology and industry experience to expand our product offerings or
distribution. We have no experience with respect to acquiring other companies and limited
experience with respect to the formation of strategic alliances and joint ventures. If we make any
acquisitions, we may not be able to integrate these acquisitions successfully into our existing
business, and we could assume unknown or contingent liabilities. Any future acquisitions by us also
could result in significant write-offs or the incurrence of debt and contingent liabilities, any of
which could harm our operating results. Integration of an acquired company also may require
management resources that otherwise would be available for ongoing development of our existing
business. We may not identify or complete these transactions in a timely manner, on a cost-
effective basis, or at all, and we may not realize the anticipated benefits of any acquisition,
technology license, strategic alliance or joint venture.
To finance any acquisitions, we may choose to issue shares of our common stock as
consideration, which would dilute the ownership of our stockholders. If the price of our common
stock is low or volatile, we may not be able to acquire other companies for stock. The market price
of our common stock has been particularly volatile during the recent period of upheaval in the
capital markets and world economy, and this excessive volatility may continue for an extended
period of time. Alternatively, it may be necessary for us to raise additional funds for
acquisitions through public or private financings. Additional funds may not be available on terms
that are favorable to us, or at all.
Our marketable securities are subject to risks that could adversely affect our overall financial
position.
We invest our cash in accordance with an established internal policy in instruments which
historically have been highly liquid and carried relatively low risk. However, with recent credit
market conditions, similar types of investments have experienced losses in value or liquidity
issues which differ from their historical pattern. Should a portion of our marketable securities
lose value or have their liquidity impaired, it could adversely affect our overall financial
position by imperiling our ability to fund our operations and forcing us to seek additional
financing sooner than we would otherwise. Such financing, if available, may not be available on
commercially attractive terms.
Our inability to raise additional capital on acceptable terms in the future may limit our ability
to develop and commercialize new tests and technologies and expand our operations
We expect capital outlays and operating expenditures to increase over the next several years
as we expand our infrastructure, commercial operations and research and development activities.
Specifically, we may need to raise capital to, among other things:
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sustain commercialization of our breast cancer test and enhancements to that test
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fund commercialization of our colon cancer test, enhancements to that test or any future
tests we may develop;
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increase our selling and marketing efforts to drive market adoption and address
competitive developments;
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further expand our clinical laboratory operations;
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expand our technologies into other areas of cancer;
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expand our research and development activities;
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acquire or license technologies; and
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finance capital expenditures and general and administrative expenses.
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Our present and future funding requirements will depend on many factors, including:
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the level of research and development investment required to maintain and improve our
technology position;
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40
|
|
|
costs of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights;
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|
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our need or decision to acquire or license complementary technologies or acquire
complementary businesses;
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changes in product development plans needed to address any difficulties in
commercialization;
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changes in the regulatory environment, including any decision by FDA to regulate our
activities;
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competing technological and market developments;
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the rate of progress in establishing reimbursement arrangements with third-party payors;
and
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changes in regulatory policies or laws that affect our operations.
|
If we raise funds by issuing equity securities, dilution to our stockholders could result. Any
equity securities issued also may provide for rights, preferences or privileges senior to those of
holders of our common stock. If we raise funds by issuing debt securities, these debt securities
would have rights, preferences and privileges senior to those of holders of our common stock, and
the terms of the debt securities issued could impose significant restrictions on our operations. If
we raise funds through collaborations and licensing arrangements, we might be required to
relinquish significant rights to our technologies or products, or grant licenses on terms that are
not favorable to us. The credit markets and the financial services industry have been experiencing
a period of unprecedented turmoil and upheaval characterized by the bankruptcy, failure, collapse
or sale of various financial institutions and an unprecedented level of intervention from the
United States federal government. These events have generally made equity and debt financing more
difficult to obtain. Accordingly, additional equity or debt financing might not be available on
reasonable terms, if at all. If adequate funds are not available, we may have to scale back our
operations or limit our research and development activities.
We must implement additional and expensive finance and accounting systems, procedures and
controls as we grow our business and organization and to satisfy public company reporting
requirements, which will increase our costs and require additional management resources.
As a public reporting company, we are required to comply with the Sarbanes-Oxley Act of 2002
and the related rules and regulations of the Securities and Exchange Commission. Compliance with
Section 404 of the Sarbanes-Oxley Act and other requirements has increased our costs and required
additional management resources. We will need to continue to implement additional finance and
accounting systems, procedures and controls as we grow our business and organization and to satisfy
existing reporting requirements. If we fail to maintain or implement adequate controls, if we are
unable to complete the required Section 404 assessment as to the adequacy of our internal control
over financial reporting in future Form 10-K filings, or if our independent registered public
accounting firm is unable to provide us with an unqualified report as to the effectiveness of our
internal control over financial reporting in future Form 10-K filings, our ability to obtain
additional financing could be impaired. In addition, investors could lose confidence in the
reliability of our internal control over financial reporting and in the accuracy of our periodic
reports filed under the Exchange Act. A lack of investor confidence in the reliability and accuracy
of our public reporting could cause our stock price to decline.
41
|
|
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Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
10.1
|
|
Lease dated October 1, 2009 between the Company and Metropolitan Life Insurance Company.
|
|
|
|
31.1
|
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Rule 13a-14(a) Certification of Chief Executive Officer.
|
|
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31.2
|
|
Rule 13a-14(a) Certification of Chief Financial Officer.
|
|
|
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32.1*
|
|
Statement of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).
|
|
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|
32.2*
|
|
Statement of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).
|
|
|
|
*
|
|
In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the
certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form
10-Q and will not be deemed filed for purposes of Section 18 of the Exchange Act.
|
42
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.
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|
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GENOMIC HEALTH, INC.
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|
Date: November 9, 2009
|
By:
|
/s/ Kimberly J. Popovits
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|
Kimberly J. Popovits
|
|
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President and Chief
Executive Officer
(Principal Executive Officer)
|
|
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|
|
|
|
Date: November 9, 2009
|
By:
|
/s/ G. Bradley Cole
|
|
|
|
G. Bradley Cole
|
|
|
|
Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
|
|
|
43
GENOMIC HEALTH, INC.
EXHIBIT INDEX
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
10.1
|
|
Lease dated October 1, 2009 between the Company and Metropolitan Life Insurance Company.
|
|
|
|
31.1
|
|
Rule 13a-14(a) Certification of Chief Executive Officer.
|
|
|
|
31.2
|
|
Rule 13a-14(a) Certification of Chief Financial Officer.
|
|
|
|
32.1*
|
|
Statement of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).
|
|
|
|
32.2*
|
|
Statement of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).
|
|
|
|
|
*
|
|
In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the
certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form
10-Q and will not be deemed filed for purposes of Section 18 of the Exchange Act.
|
44
Exhibit 10.1
LEASE
BETWEEN
METROPOLITAN LIFE INSURANCE COMPANY (LANDLORD)
AND
GENOMIC HEALTH, INC. (TENANT)
SEAPORT CENTRE
Redwood City, California
TABLE OF CONTENTS
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|
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PAGE
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ARTICLE ONE BASIC LEASE PROVISIONS
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|
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1
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1.01 BASIC LEASE PROVISIONS
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|
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1
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1.02 ENUMERATION OF EXHIBITS & RIDER(S)
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|
|
2
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|
1.03 DEFINITIONS
|
|
|
2
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ARTICLE TWO PREMISES, TERM, FAILURE TO GIVE POSSESSION, COMMON AREAS AND PARKING
|
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6
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2.01 LEASE OF PREMISES
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6
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2.02 TERM
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6
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2.03 FAILURE TO GIVE POSSESSION
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6
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2.04 AREA OF PREMISES
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6
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2.05 CONDITION OF PREMISES
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6
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2.06 COMMON AREAS & PARKING
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6
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ARTICLE THREE RENT
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7
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ARTICLE FOUR OPERATING EXPENSES RENT ADJUSTMENTS AND PAYMENTS
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7
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4.01 TENANTS SHARE OF OPERATING EXPENSES
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7
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4.02 RENT ADJUSTMENTS
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7
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4.03 STATEMENT OF LANDLORD
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8
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4.04 BOOKS AND RECORDS
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8
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4.05 TENANT OR LEASE SPECIFIC TAXES
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8
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ARTICLE FIVE SECURITY
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8
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ARTICLE SIX
UTILITIES & SERVICES
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|
10
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6.01 LANDLORDS GENERAL SERVICES
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10
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6.02 TENANT TO OBTAIN & PAY DIRECTLY
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10
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6.03 TELEPHONE SERVICES
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10
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6.04 FAILURE OR INTERRUPTION OF UTILITY OR SERVICE
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|
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10
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6.05 INTENTIONALLY OMITTED
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11
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6.06 SIGNAGE
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11
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ARTICLE SEVEN POSSESSION, USE AND CONDITION OF PREMISES
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11
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7.01 POSSESSION AND USE OF PREMISES
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11
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7.02 HAZARDOUS MATERIAL
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|
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11
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7.03 LANDLORD ACCESS TO PREMISES; APPROVALS
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13
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7.04 QUIET ENJOYMENT
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13
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ARTICLE
EIGHT MAINTENANCE & HVAC
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|
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13
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8.01 LANDLORDS MAINTENANCE
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13
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8.02 TENANTS MAINTENANCE
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14
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ARTICLE NINE ALTERATIONS AND IMPROVEMENTS
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|
|
14
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9.01 TENANT ALTERATIONS
|
|
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14
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9.02 LIENS
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15
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ARTICLE TEN ASSIGNMENT AND SUBLETTING
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|
|
15
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10.01 ASSIGNMENT AND SUBLETTING
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|
15
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10.02 RECAPTURE
|
|
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17
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10.03 EXCESS RENT
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|
|
17
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10.04 TENANT LIABILITY
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|
|
17
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|
10.05 ASSUMPTION AND ATTORNMENT
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|
|
17
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ARTICLE ELEVEN DEFAULT AND REMEDIES
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|
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18
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11.01 EVENTS OF DEFAULT
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|
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18
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11.02 LANDLORDS REMEDIES
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|
|
18
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11.03 ATTORNEYS FEES
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|
|
19
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|
11.04 BANKRUPTCY
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|
|
20
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11.05 LANDLORDS DEFAULT
|
|
|
20
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|
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|
|
|
|
ARTICLE TWELVE SURRENDER OF PREMISES
|
|
|
20
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|
12.01 IN GENERAL
|
|
|
20
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12.02 LANDLORDS RIGHTS
|
|
|
21
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ARTICLE THIRTEEN HOLDING OVER
|
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21
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ARTICLE FOURTEEN DAMAGE BY FIRE OR OTHER CASUALTY
|
|
|
21
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|
14.01 SUBSTANTIAL UNTENANTABILITY
|
|
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21
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i
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PAGE
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14.02 INSUBSTANTIAL UNTENANTABILITY
|
|
|
22
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|
14.03 RENT ABATEMENT
|
|
|
22
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|
14.04 WAIVER OF STATUTORY REMEDIES
|
|
|
22
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|
ARTICLE FIFTEEN EMINENT DOMAIN
|
|
|
22
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|
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART
|
|
|
22
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|
15.02 TAKING OF PART
|
|
|
22
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|
15.03 COMPENSATION
|
|
|
22
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|
|
|
|
|
|
ARTICLE SIXTEEN INSURANCE
|
|
|
23
|
|
16.01 TENANTS INSURANCE
|
|
|
23
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|
16.02 FORM OF POLICIES
|
|
|
23
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|
16.03 LANDLORDS INSURANCE
|
|
|
23
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|
16.04 WAIVER OF SUBROGATION
|
|
|
23
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|
16.05 NOTICE OF CASUALTY
|
|
|
24
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|
|
|
|
|
|
ARTICLE SEVENTEEN WAIVER OF CLAIMS AND INDEMNITY
|
|
|
24
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|
17.01 WAIVER OF CLAIMS
|
|
|
24
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|
17.02 INDEMNITY BY TENANT
|
|
|
24
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|
17.03 WAIVER OF CONSEQUENTIAL DAMAGES
|
|
|
24
|
|
|
|
|
|
|
ARTICLE EIGHTEEN RULES AND REGULATIONS
|
|
|
25
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|
18.01 RULES
|
|
|
25
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|
18.02 ENFORCEMENT
|
|
|
25
|
|
|
|
|
|
|
ARTICLE NINETEEN LANDLORDS RESERVED RIGHTS
|
|
|
25
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|
|
|
|
|
|
ARTICLE TWENTY ESTOPPEL CERTIFICATE
|
|
|
25
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|
20.01 IN GENERAL
|
|
|
25
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|
20.02 ENFORCEMENT
|
|
|
25
|
|
|
|
|
|
|
ARTICLE TWENTY-ONE INTENTIONALLY OMITTED
|
|
|
26
|
|
|
|
|
|
|
ARTICLE TWENTY-TWO REAL ESTATE BROKERS
|
|
|
26
|
|
|
|
|
|
|
ARTICLE TWENTY-THREE MORTGAGEE PROTECTION
|
|
|
26
|
|
23.01 SUBORDINATION AND ATTORNMENT
|
|
|
26
|
|
23.02 MORTGAGEE PROTECTION
|
|
|
26
|
|
|
|
|
|
|
ARTICLE TWENTY-FOUR NOTICES
|
|
|
26
|
|
|
|
|
|
|
ARTICLE TWENTY-FIVE EXERCISE FACILITY
|
|
|
27
|
|
|
|
|
|
|
ARTICLE
TWENTY-SIX MISCELLANEOUS
|
|
|
27
|
|
26.01 LATE CHARGES
|
|
|
27
|
|
26.02 NO JURY TRIAL; VENUE; JURISDICTION
|
|
|
27
|
|
26.03 DEFAULT UNDER OTHER LEASE
|
|
|
28
|
|
26.04 OPTION
|
|
|
28
|
|
26.05 TENANT AUTHORITY
|
|
|
28
|
|
26.06 ENTIRE AGREEMENT
|
|
|
28
|
|
26.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE
|
|
|
28
|
|
26.08 EXCULPATION
|
|
|
28
|
|
26.09 ACCORD AND SATISFACTION
|
|
|
28
|
|
26.10 LANDLORDS OBLIGATIONS ON SALE OF BUILDING
|
|
|
28
|
|
26.11 BINDING EFFECT
|
|
|
28
|
|
26.12 CAPTIONS
|
|
|
29
|
|
26.13 TIME;
APPLICABLE LAW; CONSTRUCTION
|
|
|
29
|
|
26.14 ABANDONMENT
|
|
|
29
|
|
26.15 LANDLORDS RIGHT TO PERFORM TENANTS DUTIES
|
|
|
29
|
|
26.16 SECURITY SYSTEM
|
|
|
29
|
|
26.17 NO
LIGHT, AIR OR VIEW EASEMENTS
|
|
|
29
|
|
26.18 RECORDATION
|
|
|
29
|
|
26.19 SURVIVAL
|
|
|
29
|
|
26.20 EXHIBITS OR RIDERS
|
|
|
30
|
|
ii
LEASE
ARTICLE ONE
BASIC LEASE PROVISIONS
1.01 BASIC LEASE PROVISIONS
In the event of any conflict between these Basic Lease Provisions and any other Lease
provision, such other Lease provision shall control.
(1)
|
|
BUILDING AND ADDRESS:
|
|
|
|
Building Number 6, located in Phase I (Tenants Phase) of Seaport Centre. As of the
Date of Lease, the Building has a street address of 301 Chesapeake Drive, Redwood
City, California 94063
|
|
(2)
|
|
LANDLORD AND ADDRESS:
|
|
|
|
Metropolitan Life Insurance
Company,
a New York corporation
|
|
|
|
Notices to Landlord shall be addressed:
|
Metropolitan Life
Insurance Company
c/o
Seaport Centre Manager
701
Chesapeake Drive
Redwood
City, CA 94063
with copies to the following:
Metropolitan Life Insurance
Company
425 Market Street,
Suite 1050
San Francisco,
CA 94105
Attention:
Director, EIM
and
Metropolitan Life Insurance
Company
425 Market Street,
Suite 1050
San Francisco,
CA 94105
Attention:
Associate General Counsel
(3)
|
|
TENANT; CURRENT ADDRESS & TAX ID:
|
|
|
|
|
|
(a)
|
|
Name:
|
|
Genomic Health, Inc. (Genomic Health)
|
(b)
|
|
State of incorporation:
|
|
a Delaware corporation
|
(c)
|
|
Tax Identification Number:
|
|
77-0552594
|
|
Tenant shall notify Landlord of any change in the foregoing.
|
|
|
|
|
|
Notices to Tenant shall be addressed:
|
|
|
|
|
|
|
|
Genomic Health, Inc.
|
|
|
|
|
301 Penobscot Drive
|
|
|
|
|
Redwood City, CA 94063
|
|
|
|
|
Attention: Chief Financial Officer
|
|
|
(4)
|
|
DATE OF LEASE: as of OCT 1 - 2009
|
|
(5)
|
|
LEASE TERM: Eight (8) years.
|
|
(6)
|
|
COMMENCEMENT DATE: the earlier of occupancy for business or April 1, 2010, subject to
Rider 2.
|
|
(7)
|
|
EXPIRATION DATE: The day before the eighth (8
th
) anniversary of the
Commencement Date.
|
|
(8)
|
|
MONTHLY BASE RENT: The initial monthly installment is due upon Tenants execution.
|
|
|
|
|
|
|
|
|
|
Period from Commencement
|
|
|
|
|
Date through Expiration Date
|
|
Monthly
|
|
Monthly Rate/SF of Rentable Area
|
Months 01 12
|
|
$
|
49,455.36
|
|
|
$
|
1.62
|
|
Months 13 24
|
|
$
|
50,981.76
|
|
|
$
|
1.67
|
|
Months 25 36
|
|
$
|
52,508.16
|
|
|
$
|
1.72
|
|
Months 37 48
|
|
$
|
54,034.56
|
|
|
$
|
1.77
|
|
Months 49 60
|
|
$
|
55,560.96
|
|
|
$
|
1.82
|
|
Months 61 72
|
|
$
|
57,392.64
|
|
|
$
|
1.88
|
|
Months 73 84
|
|
$
|
59,224.32
|
|
|
$
|
1.94
|
|
Months 85 96
|
|
$
|
61,056.00
|
|
|
$
|
2.00
|
|
1
(9) RENT ADJUSTMENT DEPOSIT: The Rent Adjustment Deposit (at the initial monthly rate, until further
notice) shall be Thirteen Thousand Three Hundred Sixteen Dollars ($13,316.00) and is due upon
Tenants execution.
(10)
|
|
RENTABLE AREA OF THE PREMISES: 30,528 square feet
|
|
(11)
|
|
RENTABLE AREA OF THE BUILDING 30,528 square feet
|
|
(12)
|
|
RENTABLE AREA OF THE PHASE: 301,835 square feet
|
|
(13)
|
|
RENTABLE AREA OF THE PROJECT: 537,444 square feet
|
|
(14)
|
|
SECURITY: The cash and/or Letter of Credit in the amount of One Hundred Eighty-three Thousand
One Hundred Sixty-eight Dollars ($183,168.00) (and any proceeds of the Letter of Credit drawn
and held by Landlord) as provided in Article Five.
|
|
(15)
|
|
SUITE NUMBER &/OR ADDRESS OF PREMISES: 301 Chesapeake Drive, Redwood City, CA 94063
|
|
(16)
|
|
TENANTS SHARE:
|
|
|
|
|
|
Tenants Building Share:
|
|
|
100.00
|
%
|
Tenants Phase Share:
|
|
|
10.114
|
%
|
Tenants Project Share:
|
|
|
5.680
|
%
|
(17)
|
|
TENANTS USE OF PREMISES: General office use; biotechnology/pharmaceutical research and
development, assembly, biotechnical or pharmaceutical manufacturing, and warehousing.
|
|
(18)
|
|
PARKING SPACES: 101
|
|
(19)
|
|
BROKERS:
|
|
|
|
Landlords Broker:
|
|
Cornish & Carey Commercial
|
|
Tenants Broker:
|
|
GVA Kidder Mathews
|
1.02 ENUMERATION OF EXHIBITS & RIDER(S)
The Exhibits and Rider(s) set forth below and attached to this Lease are incorporated in this
Lease by this reference:
EXHIBIT A
Plan of Premises
EXHIBIT B
Workletter Agreement
EXHIBIT C
Site Plan of Project
EXHIBIT D
Permitted Hazardous Material
EXHIBIT E
Form of Letter of Credit Acceptable from Silicon Valley Bank
EXHIBIT F
Fair Market Rental Rate
EXHIBIT G
Tenants Personal Property
EXHIBIT H
Form of Letter of Credit
EXHIBIT I
Outline of Expansion Space 701 Galveston Drive
RIDER 1
Commencement Date Agreement
RIDER 2
Additional Provisions
1.03 DEFINITIONS
For purposes hereof, the following terms shall have the following meanings:
ADJUSTMENT YEAR: The applicable calendar year or any portion thereof after the Commencement Date
of this Lease for which a Rent Adjustment computation is being made.
AFFILIATE: Any Person (as defined below) which is controlled by, controls, or is under common
control with Tenant. The word Person means an individual, partnership, trust, corporation, limited
liability company, firm or other entity. For purposes of this definition, the word control,
means, with respect to a Person that is a corporation or a limited liability company, the right to
exercise, directly or indirectly, more than sixty percent (60%) of the voting rights attributable
to the shares or membership interests of the controlled Person and, with respect to a Person that
is not a corporation, the possession, directly or indirectly, of the power at all times to direct
or cause the direction of the management of the controlled Person.
BUILDING: Each building in which the Premises is located, as specified in Section
1.01(1).
BUILDING OPERATING EXPENSES: Those Operating Expenses described in
Section 4.01.
COMMENCEMENT DATE: The date specified in Section 1.01(6) as the Commencement Date, unless changed
by operation of Article Two or Rider 2.
2
COMMON AREAS: All areas of the Project made available by Landlord from time to time for the
general common use or benefit of the tenants of the Building or Project, and their employees and
invitees, or the public, as such areas currently exist and as they may be changed from time to
time.
DECORATION: Tenant Alterations which do not require a building permit and which do not affect the
facade or roof of the Building, or involve any of the structural elements of the Building, or
involve any of the Buildings systems, including its electrical, mechanical, plumbing, security,
heating, ventilating, air-conditioning, communication, and fire and life safety systems.
DEFAULT RATE: Two (2) percentage points above the rate then most recently announced by Bank of
America N.T. & S.A. at its San Francisco main office as its corporate base lending rate, from time
to time announced, but in no event higher than the maximum rate permitted by Law.
DELIVERY DATE: The date for Landlords delivery to Tenant of possession of the Premises, if
different from the Commencement Date, as provided in Rider 2.
ENVIRONMENTAL LAWS: All Laws governing the use, storage, disposal or generation of any Hazardous
Material or pertaining to environmental conditions on, under or about the Premises or any part of
the Project, including the Comprehensive Environmental Response Compensation and Liability Act of
1980, as amended (42 U.S.C. Section 9601
et
seq
.), and the Resource Conservation and Recovery Act
of 1976, as amended (42 U.S.C. Section 6901
et
seq
.).
EXPIRATION DATE: The date specified in Section 1.01(7) unless changed by operation of Article Two
or Rider 2.
FORCE MAJEURE: Any accident, casualty, act of God, war or civil commotion, strike or labor
troubles, or any cause whatsoever beyond the reasonable control of Landlord, including water
shortages, energy shortages or governmental preemption in connection with an act of God, a
national emergency, or by reason of Law, or by reason of the conditions of supply and demand which
have been or are affected by act of God, war or other emergency.
HAZARDOUS MATERIAL: Such substances, material and wastes which are or become regulated under any
Environmental Law; or which are classified as hazardous or toxic or medical waste or biohazardous
waste under any Environmental Law; and explosives, firearms and ammunition, flammable material,
radioactive material, asbestos, polychlorinated biphenyls and petroleum and its byproducts.
INDEMNITEES: Collectively, Landlord, any Mortgagee or ground lessor of the Property, the property
manager and the leasing manager for the Property and their respective directors, officers, agents
and employees.
LAND: The parcel(s) of real estate on which the Building and Project are located.
LANDLORD WORK: The construction or installation of improvements to be furnished by Landlord, if
any, specifically described in Rider 2 attached hereto.
LAWS OR LAW: All laws, ordinances, rules, regulations, other requirements, orders, rulings or
decisions adopted or made by any governmental body, agency, department or judicial authority
having jurisdiction over the Property, the Premises or Tenants activities at the Premises and any
covenants, conditions or restrictions of record which affect the Property.
LEASE: This instrument and all exhibits and riders attached hereto, as may be amended from time to
time.
LEASE YEAR: The twelve month period beginning on the first day of the first month following the
Commencement Date (unless the Commencement Date is the first day of a calendar month in which case
beginning on the Commencement Date), and each subsequent twelve month, or shorter, period until
the Expiration Date.
MONTHLY BASE RENT: The monthly rent specified in Section 1.01(8).
MORTGAGEE: Any holder of a mortgage, deed of trust or other security instrument encumbering the
Property.
NATIONAL HOLIDAYS: New Years Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and other holidays recognized by the Landlord and the janitorial and other unions
servicing the Building in accordance with their contracts.
OPERATING EXPENSES: All Taxes, costs, expenses and disbursements of every kind and nature which
Landlord shall pay or become obligated to pay in connection with the ownership, management,
operation, maintenance, replacement and repair of the Property (including the amortized portion of
any capital expenditure or improvement, together with interest thereon, expenses of changing
utility service providers, and any dues, assessments and other expenses pursuant to any covenants,
conditions and restrictions, or any reciprocal easements, or any owners association now or
hereafter affecting the Project; provided however that with respect to any expenses, dues,
assessments and other expenses pursuant to any covenants, conditions and restrictions, or any
reciprocal easements, or any owners association hereafter affecting the Project, then such costs
and expenses shall only be deemed to be Operating Expenses to the extent that such costs or
expenses could otherwise be deemed to be Operating Expenses pursuant to the provisions set forth
in this section). Operating Expenses shall be allocated among the categories of Project Operating
Expenses, Building Operating Expenses or Phase Operating Expenses as provided in Article Four. If
any Operating Expense relates to more than one calendar year, such expense shall be
proportionately allocated among such related calendar years. Operating Expenses shall include the
following, by way of illustration only and not limitation: (1) all Taxes; (2) all insurance
premiums and other costs (including deductibles), including the cost of rental insurance; (3) all
license, permit and
3
inspection fees; (4) all costs of utilities, fuels and related services, including water,
sewer, light, telephone, power and steam connection, service and related charges; (5) all
costs to repair, maintain and operate heating, ventilating and air conditioning systems,
including preventive maintenance incurred by Landlord, if any; (6) all janitorial, landscaping
and security services; (7) all wages, salaries, payroll taxes, fringe benefits and other labor
costs, including the cost of workers compensation and disability insurance; (8) all costs of
operation, maintenance and repair of all parking facilities and other common areas; (9) all
supplies, materials, equipment and tools; (10) dues, assessments and other expenses pursuant
to any covenants, conditions and restrictions, or any reciprocal easements, or any owners
association now or hereafter affecting the Project; (11) modifications to the Building or the
Project occasioned by Laws now or hereafter in effect, but only as amortized over the useful
life of the capital item as reasonably determined by Landlord; (12) the total charges of any
independent contractors employed in the care, operation, maintenance, repair, leasing and
cleaning of the Project, including landscaping, roof maintenance, and repair, maintenance and
monitoring of life-safety systems, plumbing systems, electrical wiring and Project signage;
(13) the cost of accounting services necessary to compute the rents and charges payable by
tenants at the Project;
(14) exterior window and exterior wall cleaning and painting; (15) managerial and administrative
expenses; (16) all costs in connection with the exercise facility at the Project; (17) all costs
and expenses related to Landlords retention of consultants in connection with the routine
review, inspection, testing, monitoring, analysis and control of Hazardous Material, and
retention of consultants in connection with the clean-up of Hazardous Material (to the extent not
recoverable from a particular tenant of the Project), and all costs and expenses related to the
implementation of recommendations made by such consultants concerning the use, generation,
storage, manufacture, production, storage, release, discharge, disposal or clean-up of Hazardous
Material on, under or about the Premises or the Project (to the extent not recoverable from a
particular tenant of the Project); (18) all capital improvements made for the purpose of reducing
or controlling other Operating Expenses, and all other capital expenditures, but only as
amortized over the useful life of such capital improvement as reasonably determined by Landlord,
together with interest on the unamortized portion; (19) all property management costs and fees,
including all costs in connection with the Project property management office; and (20) all fees
or other charges incurred in conjunction with voluntary or involuntary membership in any energy
conservation, air quality, environmental, traffic management or similar organizations. Operating
Expenses shall not include: (a) costs of alterations of space to be occupied by new or existing
tenants of the Project; (b) depreciation charges; (c) interest and principal payments on loans
(except for loans for capital expenditures or improvements which Landlord is allowed to include
in Operating Expenses as provided above); (d) ground rental payments; (e) real estate brokerage
and leasing commissions; (f) advertising and marketing expenses; (g) costs of Landlord reimbursed
by insurance proceeds; (h) costs for which the Landlord is reimbursed by any other tenant or
occupant of the Building (other than payments comparable to Rent Adjustments hereunder) or by any
tenants insurance carrier or by anyone else, and electric power costs for which any tenant
directly contracts with the local public service company; (i) expenses incurred in negotiating
leases of other tenants in the Project or enforcing lease obligations of other tenants in the
Project; (j) Landlords property managers corporate general overhead or corporate general
administrative expenses; (k) the wages and benefits of any employee who does not devote
substantially all of his or her employed time to the Building, Project or Phase, unless such
wages and benefits are prorated to reflect time spent on operation and managing the Building,
Project or Phase; (I) Landlords corporate general overhead or corporate general administrative
expenses associated with the operation of the business of the entity which constitutes the
Landlord, as the same are
distinguished from the costs of operation of the Building, Project or Phase; (m)
executives salaries; (n) any bad debt loss, rent loss, or reserves for bad debts or rent
loss; (o) costs of Landlords charitable or political contributions; (p) the costs of any
Tenant Work (as defined in the Workletter), and (q) costs incurred in connection with
Hazardous Materials to the extent such Hazardous Materials were present on the Project
prior to the Delivery Date.
PHASE: Phase means any individual Phase of the Project, as more particularly described in the
definition of Project.
PHASE OPERATING EXPENSES: Those Operating Expenses described in Section 4.01.
PREMISES: The Premises consists of the portion of the Building consisting of 30,528 square
feet of Rentable Area as depicted on
Exhibit A
attached hereto.
PROJECT or PROPERTY: As of the date hereof, the Project is known as Seaport Centre and consists
of those buildings (including the Building) whose general location is shown on the Site Plan of
the Project attached as
Exhibit C
, located in Redwood City, California, associated
vehicular and parking areas, landscaping and improvements, together with the Land, any associated
interests in real property, and the personal property, fixtures, machinery, equipment, systems
and apparatus located in or used in conjunction with any of the foregoing. The Project may also
be referred to as the Property. As of the date hereof, the Project is divided into Phase I and
Phase II, which are generally designated on
Exhibit C
, each of which may individually be
referred to as a Phase. Landlord reserves the right from time to time to add or remove buildings,
areas and improvements to or from a Phase or the Project, or to add or remove a Phase to or from
the Project. In the event of any such addition or removal which affects Rentable Area of the
Project or a Phase, Landlord shall make a corresponding recalculation and adjustment of any
affected Rentable Area and Tenants Share.
PROJECT OPERATING EXPENSES: Those Operating Expenses described in Section 4.01.
REAL PROPERTY: The Property excluding any personal property.
RENT: Collectively, Monthly Base Rent, Rent Adjustments and Rent Adjustment Deposits, and all
other charges, payments, late fees or other amounts required to be paid by Tenant under this
Lease.
RENT ADJUSTMENT: Any amounts owed by Tenant for payment of Operating Expenses. The Rent
Adjustments shall be determined and paid as provided in Article Four.
4
RENT ADJUSTMENT DEPOSIT: An amount equal to Landlords estimate of the Rent Adjustment
attributable to each month of the applicable Adjustment Year. On or before the Commencement Date
and the beginning of each subsequent Adjustment Year or with Landlords Statement (defined in
Article Four), Landlord may estimate and notify Tenant in writing of its estimate of Operating
Expenses, including Project Operating Expenses, Building Operating Expenses and Phase Operating
Expenses, and Tenants Share of each, for the applicable Adjustment Year. The Rent Adjustment
Deposit applicable for the calendar year in which the Commencement Date occurs shall be the
amount, if any, specified in Section 1.01(9). Nothing contained herein shall be construed to limit
the right of Landlord from time to time during any calendar year to revise its estimates of
Operating Expenses and to notify Tenant in writing thereof and of revision by prospective
adjustments in Tenants Rent Adjustment Deposit payable over the remainder of such year. The last
estimate by Landlord shall remain in effect as the applicable Rent Adjustment Deposit unless and
until Landlord notifies Tenant in writing of a change.
RENTABLE AREA OF THE BUILDING: The amount of square footage set forth in Section 1.01(11)
RENTABLE AREA OF THE PHASE: The amount of square footage set forth in Section 1.01(12)
RENTABLE AREA OF THE PREMISES: The amount of square footage set forth in Section 1.01(10).
RENTABLE AREA OF THE PROJECT: The amount of square footage set forth in Section 1.01(13), which
represents the sum of the rentable area of all space intended for occupancy in the Project.
SECURITY: The cash and/or Letter of Credit specified in Section 1.01, if any, paid or delivered to
Landlord as security for Tenants performance of its obligations under this Lease, and any
proceeds of the Letter of Credit drawn and held by Landlord, all as more particularly provided in
Article Five.
SUBSTANTIALLY COMPLETE: The completion of the Landlord Work or Tenant Work, as the case may be,
except for minor insubstantial details of construction, decoration or mechanical adjustments which
remain to be done.
TAXES: All federal, state and local governmental taxes, assessments (including assessment bonds)
and charges of every kind or nature, whether general, special, ordinary or extraordinary, which
Landlord shall pay or become obligated to pay because of or in connection with the ownership,
leasing, management, control or operation of the Property or any of its components (including any
personal property used in connection therewith), which may also include any rental or similar taxes
levied in lieu of or in addition to general real and/or personal property taxes. For purposes
hereof, Taxes for any year shall be Taxes which are assessed for any period of such year, whether
or not such Taxes are billed and payable in a subsequent calendar year. There shall be included in
Taxes for any year the amount of all fees, costs and expenses (including reasonable attorneys
fees) paid by Landlord during such year in seeking or obtaining any refund or reduction of Taxes.
Taxes for any year shall be reduced by the net amount of any tax refund received by Landlord
attributable to such year. If a special assessment payable in installments is levied against any
part of the Property, Taxes for any year shall include only the installment of such assessment and
any interest payable or paid during such year. Taxes shall not include any federal or state
inheritance, general income, gift or estate taxes, except that if a change occurs in the method of
taxation resulting in whole or in part in the substitution of any such taxes, or any other
assessment, for any Taxes as above defined, such substituted taxes or assessments shall be included
in the Taxes.
TENANT ADDITIONS: Collectively, Landlord Work, Tenant Work and Tenant Alterations. Tenants
Personal Property (as set forth in
Exhibit G
hereto) shall not be deemed to be included in
the definition of Tenant Additions.
TENANT ALTERATIONS: Any alterations, improvements, additions, installations or construction in or
to the Premises or any Real Property systems serving the Premises done or caused to be done by
Tenant after the date hereof, whether prior to or after the Commencement Date (including Tenant
Work, but excluding Landlord Work).
TENANT DELAY: Any event or occurrence which delays the Substantial Completion of the Landlord Work
which is caused by or is described as follows:
(i) special work, changes, alterations or additions requested or made by Tenant in the
design or finish in any part of the Premises after approval of the plans and specifications
(as described in the Rider 2);
(ii) Tenants delay in submitting plans, supplying information, approving plans,
specifications or estimates, giving authorizations or otherwise;
(iii) failure to approve and pay for such work as Landlord undertakes to complete at
Tenants expense;
(iv) the performance or completion by Tenant or any person engaged by Tenant of any work in
or about the Premises; or
(v) failure to perform or comply with any obligation or condition binding upon Tenant
pursuant to Rider 2, including the failure to approve and pay for such Landlord Work or
other items if and to the extent Rider 2 provides they are to be approved or paid by
Tenant.
TENANTS FF&E: The property of Tenant described in Section 5 of the
Workletter.
TENANTS PERSONAL PROPERTY: Tenants property described on
Exhibit G
hereto.
TENANT WORK: All work installed or furnished to the Premises by Tenant in connection with Tenants
initial occupancy pursuant to Rider 2 and the Workletter.
5
TENANTS BUILDING SHARE: The share as specified in Section 1.01(16) and Section 4.01.
TENANTS PHASE: The Phase in which the Premises is located, as indicated in Section
1.01(1).
TENANTS PHASE SHARE: The share as specified in Section 1.01(16) and Section
4.01.
TENANTS PROJECT SHARE: The share as specified in Section 1.01(16) and Section
4.01.
TENANTS SHARE: Shall mean collectively, Tenants respective shares of the respective categories
of Operating Expenses, as provided in Section 1.01(16) and Section 4.01.
TERM: The term of this Lease commencing on the Commencement Date and expiring on the Expiration
Date.
TERMINATION DATE: The Expiration Date or such earlier date as this Lease terminates or Tenants
right to possession of the Premises terminates.
WORKLETTER: The Agreement regarding the completion of Tenant Work and Landlord Work, if any, set
forth in Rider 2 and
Exhibit B
hereto.
ARTICLE TWO
PREMISES, TERM, FAILURE TO GIVE POSSESSION, COMMON AREAS AND PARKING
2.01 LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises for the Term
and upon the terms, covenants and conditions provided in this Lease.
2.02 TERM (See Rider 2)
2.03 FAILURE TO GIVE POSSESSION (See Rider 2)
2.04 AREA OF PREMISES
Landlord and Tenant agree that for all purposes of this Lease the Rentable Area of the Premises,
the Rentable Area of the Building, the Rentable Area of the Phase and the Rentable Area of the
Project as set forth in Article One are controlling, and are not subject to revision after the
date of this Lease, except as otherwise provided herein.
2.05 CONDITION OF PREMISES (See Rider 2)
2.06 COMMON AREAS & PARKING
(a)
Right to Use Common Areas.
Tenant shall have the non-exclusive right, in common
with others, to the use of any common entrances, ramps, drives and similar access and serviceways
and other Common Areas in the Project. The rights of Tenant hereunder in and to the Common Areas
shall at all times be subject to the rights of Landlord and other tenants and owners in the Project
who use the same in common with Tenant, and it shall be the duty of Tenant to keep all the Common
Areas free and clear of any obstructions created or permitted by Tenant or resulting from Tenants
operations. Tenant shall not use the Common Areas or common facilities of the Building or the
Project, including the Buildings electrical room, parking lot or trash enclosures, for storage
purposes. Nothing herein shall affect the right of Landlord at any time to remove any persons not
authorized to use the Common Areas or common facilities from such areas or facilities or to prevent
their use by unauthorized persons.
(b)
Changes in Common Areas.
Landlord reserves the right, at any time and from time to
time to (i) make alterations in or additions to the Common Areas or common facilities of the
Project, including constructing new buildings or changing the location, size, shape or number of
the driveways, entrances, parking spaces, parking areas, loading and unloading areas, landscape
areas and walkways, (ii) designate property to be included in or eliminate property from the Common
Areas or common facilities of the Project, (iii) close temporarily any of the Common Areas or
common facilities of the Project for maintenance purposes, and (iv) use the Common Areas and common
facilities of the Project while engaged in making alterations in or additions and repairs to the
Project; provided, however, that (x) such changes do not materially adversely affect Tenants use
of the Premises or increase Tenants costs hereunder, and (y) reasonable access to the Premises and
parking at or near the Project remains available.
(c)
Parking.
During the Term, Tenant shall have the right to use the number of Parking
Spaces specified in Section 1.01(18) for parking on an unassigned basis on that portion of the
Project designated by Landlord from time to time for parking. Tenant acknowledges and agrees that
the parking spaces in the Projects parking facility may include a mixture of spaces for compact
vehicles as well as full-size passenger automobiles, and that Tenant shall not use parking spaces
for vehicles larger than the striped size of the parking spaces. Tenant shall comply with any and
all parking rules and regulations if and as from time to time established by Landlord. Tenant shall
not allow any vehicles using Tenants parking privileges to be parked, loaded or unloaded except in
accordance with this Section, including in the areas and in the manner designated by Landlord for
such activities. If any vehicle owned or operated by Tenant or any Tenant Parties (as defined in
Article Seven) is using the parking or loading areas contrary to any provision of this Section,
Landlord shall have the right, in addition to all other rights and remedies of Landlord under this
Lease, to remove or tow away the vehicle without prior notice to Tenant, and the cost thereof shall
be paid to Landlord within ten (10) business days after notice from Landlord to Tenant.
6
ARTICLE THREE
RENT
Tenant agrees to pay to Landlord via wire transfer in accordance with instructions set forth below
(as modified by Landlord from time to time), or to such other persons, or at such other places or
in such manner designated by Landlord, without any prior demand therefor in immediately available
funds and without any deduction or offset whatsoever, Rent, including Monthly Base Rent and Rent
Adjustments in accordance with Article Four, during the Term. Monthly Base Rent shall be paid
monthly in advance on the first day of each month of the Term, except that the first installment
of Monthly Base Rent shall be paid by Tenant to Landlord concurrently with execution of this Lease
by means of Tenants check payable to the order of Metropolitan Life Insurance Company. Monthly
Base Rent shall be prorated for partial months within the Term. Unpaid Rent shall bear interest at
the Default Rate from the date due until paid. Tenants covenant to pay Rent shall be independent
of every other covenant in this Lease. Until further notice to Tenant, Rent paid by wire transfer
shall be wired to:
Bank: Wells Fargo Bank
Bank City, State: San Francisco, CA
Bank account name: CBRE ITF Metropolitan Life Insurance Seaport Centre l
Wire routing number: 121000248
Account number: 482-9605815
ARTICLE FOUR
OPERATING EXPENSES, RENT ADJUSTMENTS AND PAYMENTS
4.01 TENANTS SHARE OF OPERATING EXPENSES
Tenant shall pay Tenants Share of Operating Expenses in the respective shares of the respective
categories of Operating Expenses as set forth below.
(a) Tenants Project Share of Project Operating Expenses, which is the percentage
obtained by dividing the rentable square footage of the Premises by the rentable square
footage of the Project and as of the date hereof equals the percentage set forth in Section
1.01(16);
(b) Tenants Building Share of Building Operating Expenses, which is the percentage
obtained by dividing the rentable square footage of the Premises respectively for each
building in which the Premises is located by the total rentable square footage of such
building and as of the date hereof equals the percentage set forth in Section 1.01(16);
(c) Tenants Phase Share of Phase Operating Expenses, which is the percentage obtained
by dividing the aggregate rentable square footage of the Premises by the total rentable
square footage of Tenants Phase and as of the date hereof equals the percentage set forth
in Section 1.01(16);
(d) Project Operating Expenses shall mean all Operating Expenses that are not included
as Phase Operating Expenses (defined below) and that are not either Building Operating
Expenses or operating expenses directly and separately identifiable to the operation,
maintenance or repair of any other building located in the Project, but Project Operating
Expenses includes operating expenses allocable to any areas of the Building or any other
building during such time as such areas are made available by Landlord for the general
common use or benefit of all tenants of the Project, and their employees and invitees, or
the public, as such areas currently exist and as they may be changed from time to time;
(e) Building Operating Expenses shall mean Operating Expenses that are directly and
separately identifiable to each building in which the Premises or part thereof is located;
(f) Phase Operating Expenses shall mean Operating Expenses that Landlord may allocate
to a Phase as directly and separately identifiable to all buildings located in the Phase
(including but not limited to the Building) and may include Project Operating Expenses that
are separately identifiable to a Phase;
(g) Landlord shall have the right to allocate a particular item or portion of Operating
Expenses as any one of Project Operating Expenses, Building Operating Expenses or Phase
Operating Expenses; however, in no event shall any portion of Building Operating Expenses,
Project Operating Expenses or Phase Operating Expenses be assessed or counted against Tenant
more than once; and
(h) Notwithstanding anything to the contrary contained in this Section 4.01, as to each
specific category of Operating Expense which one or more tenants of the Building either pays
directly to third parties or specifically reimburses to Landlord (for example, separately
contracted janitorial services or property taxes directly reimbursed to Landlord), then, on
a category by category basis, the amount of Operating Expenses for the affected period shall
be adjusted as follows: (1) all such tenant payments with respect to such category of
expense and all of Landlords costs reimbursed thereby shall be excluded from Operating
Expenses and Tenants Building Share, Tenants Phase Share or Tenants Project Share, as the
case may be, for such category of Operating Expense shall be adjusted by excluding the
square footage of all such tenants, and (2) if Tenant pays or directly reimburses Landlord
for such category of Operating Expense, such category of Operating Expense shall be excluded
from the determination of Operating Expenses for the purposes of this Lease.
4.02 RENT ADJUSTMENTS
Tenant shall pay to Landlord Rent Adjustments with respect to each Adjustment Year as follows:
7
(a) The Rent Adjustment Deposit shall be paid monthly during the Term with the payment of
Monthly Base Rent, except the first installment which shall be paid by Tenant to Landlord
concurrently with execution of this Lease. The Rent Adjustment Deposit represents, on a
monthly basis, Tenants Share of Landlords estimate of Operating Expenses, as described in
Section 4.01, for the applicable Adjustment Year (or portion thereof); and
(b) Any Rent Adjustments due in excess of the Rent Adjustment Deposits in accordance
with Section 4.03.
4.03 STATEMENT OF LANDLORD
Within one hundred twenty (120) days after the end of each calendar year or as soon thereafter as
reasonably possible, Landlord will furnish Tenant a statement (Landlords Statement) showing the
following:
(a) Operating Expenses for the last Adjustment Year showing in reasonable detail the
actual Operating Expenses categorized among Project Operating Expenses, Building Operating
Expenses and Phase Operating Expenses for such period and Tenants Share of each as
described in Section 4.01 above;
(b) The amount of Rent Adjustments due Landlord for the last Adjustment Year, less
credit for Rent Adjustment Deposits paid, if any; and
(c) Any change in the Rent Adjustment Deposit due monthly in the current Adjustment
Year, including the amount or revised amount due for months preceding any such change
pursuant to Landlords Statement.
Tenant shall pay to Landlord within ten (10) days after receipt of such statement any amounts for
Rent Adjustments then due in accordance with Landlords Statement. Any amounts due from Landlord
to Tenant pursuant to this Section shall be credited to the Rent Adjustment Deposit next coming
due, or refunded to Tenant if the Term has already expired provided Tenant is not in default
hereunder. No interest or penalties shall accrue on any amounts which Landlord is obligated to
credit or refund to Tenant by reason of this Section 4.03. Landlords failure to deliver
Landlords Statement or to compute the amount of the Rent Adjustments shall not constitute a
waiver by Landlord of its right to deliver such items nor constitute a waiver or release of
Tenants obligations to pay such amounts. The Rent Adjustment Deposit shall be credited against
Rent Adjustments due for the applicable Adjustment Year. During the last complete calendar year or
during any partial calendar year in which the Lease terminates, Landlord may include in the Rent
Adjustment Deposit its estimate of Rent Adjustments which may not be finally determined until
after the termination of this Lease. Tenants obligation to pay Rent Adjustments survives the
expiration or termination of the Lease. Notwithstanding the foregoing, in no event shall the sum
of Monthly Base Rent and the Rent Adjustments be less than the Monthly Base Rent payable.
4.04 BOOKS AND RECORDS
Landlord shall maintain books and records showing Operating Expenses and Taxes in accordance with
sound accounting and management practices, consistently applied. The Tenant or its representative
(which representative shall be a certified public accountant licensed to do business in the state
in which the Property is located and whose primary business is certified public accounting) shall
have the right, for a period of thirty (30) days following the date upon which Landlords
Statement is delivered to Tenant, to examine the Landlords books and records with respect to the
items in the foregoing statement of Operating Expenses and Taxes during normal business hours,
upon written notice, delivered at least three (3) business days in advance. If Tenant does not
object in writing to Landlords Statement within sixty (60) days of Tenants receipt thereof,
specifying the nature of the item in dispute and the reasons therefor, then Landlords Statement
shall be considered final and accepted by Tenant. Any amount due to the Landlord as shown on
Landlords Statement, whether or not disputed by Tenant as provided herein shall be paid by Tenant
when due as provided above, without prejudice to any such written exception.
4.05 TENANT OR LEASE SPECIFIC TAXES
In addition to Monthly Base Rent, Rent Adjustments, Rent Adjustment Deposits and other charges to
be paid by Tenant, Tenant shall pay to Landlord, upon demand, any and all taxes payable by Landlord
(other than federal or state inheritance, general income, gift or estate taxes) whether or not now
customary or within the contemplation of the parties hereto: (a) upon, allocable to, or measured by
the Rent payable hereunder, including any gross receipts tax or excise tax levied by any
governmental or taxing body with respect to the receipt of such rent; or (b) upon or with respect
to the possession, leasing, operation, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises or any portion thereof; or (c) upon the measured value of
Tenants personal property or trade fixtures located in the Premises or in any storeroom or any
other place in the Premises or the Property, or the areas used in connection with the operation of
the Property, it being the intention of Landlord and Tenant that, to the extent possible, Tenant
shall cause such taxes on personal property or trade fixtures to be billed to and paid directly by
Tenant; (d) resulting from Landlord Work, Tenant Work or Tenant Alterations to the Premises,
whether title thereto is in Landlord or Tenant; or (e) upon this transaction. Taxes paid by Tenant
pursuant to this Section 4.05 shall not be included in any computation of Taxes as part of
Operating Expenses.
ARTICLE FIVE
SECURITY
(a) Tenant, at Tenants sole cost and expense, concurrently with execution of this Lease,
shall either (1) pay Landlord in cash or immediately available funds or (2) provide Landlord the
Letter of Credit (defined below) as more particularly described below, in each case in the amount
of the Security specified in Section 1.01 as
8
security (Security) for the full and faithful performance by Tenant of each and every term,
provision, covenant, and condition of this Lease. If Tenant fails timely to perform any of the
terms, provisions, covenants and conditions of this Lease or any other document executed by Tenant
in connection with this Lease, including, but not limited to, the payment of the Monthly Base
Rent, Rent Adjustment Deposits, Rent Adjustments or the repair of damage to the Premises caused by
Tenant (excluding normal wear and tear) then Landlord may use, apply, or retain the whole or any
part of the Security for the payment of any such Monthly Base Rent, Rent Adjustment Deposits or
Rent Adjustments not paid when due, for the cost of repairing such damage, for the cost of
cleaning the Premises, for the payment of any other sum which Landlord may expend or may be
required to expend by reason of Tenants failure to perform, and otherwise for compensation of
Landlord for any other loss or damage to Landlord occasioned by Tenants failure to perform,
including, but not limited to, any loss of future Rent and any damage or deficiency in the
reletting of the Premises (whether such loss, damages or deficiency accrue before or after summary
proceedings or other reentry by Landlord) and the amount of the unpaid past Rent, future Rent
loss, and all other losses, costs and damages, that Landlord would be entitled to recover if
Landlord were to pursue recovery under California Civil Code Section 1951.2 or 1951.4. If Landlord
so uses, applies or retains all or part of the Security, Tenant shall within five (5) business
days after demand pay or deliver to Landlord in immediately available funds the sum necessary to
replace the amount used, applied or retained, except as specified in (e) below. If Tenant has
fully and faithfully performed and observed all of Tenants obligations under the terms,
provisions, covenants and conditions of this Lease, the Security (except any amount retained for
application by Landlord as provided herein) shall be returned or paid over to Tenant no later than
ninety (90) days after the latest of: (i) the Termination Date; (ii) the removal of Tenant from
the Premises; or (iii) the surrender of the Premises by Tenant to Landlord in accordance with this
Lease. Provided, however, in no event shall any such return be construed as an admission by
Landlord that Tenant has performed all of its obligations hereunder.
(b) The Security, whether in the form of cash, Letter of Credit (defined below) and/or Letter
of Credit Proceeds (defined below), shall not be deemed an advance rent deposit or an advance
payment of any kind, or a measure of Landlords damages with respect to Tenants failure to
perform, nor shall any action or inaction of Landlord with respect to it or its use or application
be a waiver of, or bar or defense to, enforcement of any right or remedy of Landlord. Landlord
shall not be required to keep the Security separate from its general funds and shall not have any
fiduciary duties or other duties (except as set forth in this Section) concerning the Security.
Tenant shall not be entitled to any interest on the Security. In the event of any sale, lease or
transfer of Landlords interest in the Building, Landlord shall have the right to transfer the
Security, or balance thereof, to the vendee, transferee or lessee and any such transfer shall
release Landlord from all liability for the return of the Security. Tenant thereafter shall look
solely to such vendee, transferee or lessee for the return or payment of the Security. Tenant shall
not assign or encumber or attempt to assign or encumber the Security or any interest in it and
Landlord shall not be bound by any such assignment, encumbrance, attempted assignment or attempted
encumbrance, and regardless of one or more assignments of this Lease, Landlord may return the
Security to the original Tenant without liability to any assignee. Tenant hereby waives any and all
rights of Tenant under the provisions of Section 1950.7 of the California Civil Code, and any and
all rights of Tenant under all other provisions of law, now or hereafter enacted, regarding
security deposits.
(c) If Tenant fails timely to perform any obligation under this Article Five, such breach
shall constitute a Default by Tenant under this Lease without any right to or requirement of any
further notice or cure period under any other Article of this Lease, except such notice and cure
period expressly provided under this Article Five.
(d) During the first six months after the date on which this Lease has been executed by both
Tenant and Landlord, Tenant shall have the right, at Tenants sole cost and expense, to provide
Landlord with the Letter of Credit (defined below) as the Security required under this Lease in
substitution for the cash then held by Landlord as Security. In the event that Tenant first
delivered the Security in the form of cash or immediately available funds prior to delivering the
Letter of Credit, then, within thirty (30) days after Tenants delivery to Landlord of the Letter
of Credit, Landlord shall refund to Tenant the amount of cash held by Landlord as Security, less
any amounts thereof used, applied or retained by Landlord pursuant to the provisions of Subsection
(a) and not replenished by Tenant.
(e) As used herein, Letter of Credit shall mean an unconditional, irrevocable sight draft
letter of credit issued, presentable and payable at the San Francisco, California or San Jose,
California office of a major national bank satisfactory to Landlord in its sole discretion (the
Bank), naming Landlord as beneficiary, in the amount specified in Section 1.01(14) above. The
Letter of Credit shall provide: (i) that Landlord may make partial and multiple draws thereunder,
up to the face amount thereof, and that Landlord may draw upon the Letter of Credit up to the full
amount thereof, as determined by Landlord, and the Bank will pay to Landlord the amount of such
draw upon receipt by the Bank of a sight draft signed by Landlord without requirement for any
additional documents or statements by Landlord; and (ii) that, in the event of assignment or other
transfer of either Landlords interest in this Lease or of any interest in Landlord (including,
without limitation, consolidations, mergers, reorganizations or other entity changes), the Letter
of Credit shall be freely transferable by Landlord, without charge to Landlord and without
recourse, to the assignee or transferee of such interest and the Bank shall confirm the same to
Landlord and such assignee or transferee. The Letter of Credit shall be in the form attached as
Exhibit H
hereto. Provided however, if Tenant proposes to use Silicon Valley Bank as the
issuer of the Letter of Credit, the form of Letter of Credit set forth in
Exhibit E
hereto
will be acceptable to Landlord. Landlord may (but shall not be required to) draw upon the Letter of
Credit and use the proceeds therefrom (the Letter of Credit Proceeds) or any portion thereof in
any manner Landlord is permitted to use the Security under this Article Five. In the event
Landlord draws upon the Letter of Credit and elects not to terminate the Lease, but to use the
Letter of Credit Proceeds, then within five (5) business days after Landlord gives Tenant written
notice specifying the amount of the Letter of Credit Proceeds so utilized by Landlord, Tenant shall
deliver to Landlord an amendment to the Letter of Credit or a replacement Letter of Credit in an
amount equal to one hundred percent (100%) of the then-required amount of the Letter of Credit.
Tenants failure to deliver such amendment or replacement of the Letter of Credit to Landlord
within five (5) business days after Landlords notice shall constitute a Default by Tenant under
this Lease. The Letter of Credit shall have an initial term of no longer than one (1) year, shall
be evergreen, and shall be extended, reissued or replaced by Tenant, in each case at least thirty
(30) days prior to its expiration in a manner that fully complies with the requirements of this
Article Five, so that in all events the Letter of Credit required hereunder shall be in full force
9
and effect continuously until the date (the L/C Expiration Date) for return of the Security
described in Subsection (a) above. No more often than once per year, Landlord shall have the right
to require Tenant to deliver to Landlord, on 15 days prior notice, a replacement Letter of Credit
on the same terms and conditions set forth in this Article Five, in the event that Landlord
determines, in its good faith judgment, that the issuing Bank is no longer satisfactory to remain
as the issuer of the Letter of Credit. Any advice from the issuer that it intends to withdraw or
not extend the Letter of Credit prior to any scheduled annual expiration or the L/C Expiration Date
shall entitle the Landlord to immediately draw upon the Letter of Credit.
ARTICLE SIX
UTILITIES & SERVICES
6.01 LANDLORDS GENERAL SERVICES
Landlord shall provide maintenance and services as provided in Article Eight.
6.02 TENANT TO OBTAIN & PAY DIRECTLY
(a) Tenant shall be responsible for and shall pay promptly all charges for gas, electricity,
sewer, heat, light, power, telephone, refuse pickup (to be performed on a regularly scheduled basis
so that accumulated refuse does not exceed the capacity of Tenants refuse bins), janitorial
service and all other utilities, materials and services furnished directly to or used by Tenant in,
on or about the Premises, together with all taxes thereon. Tenant shall contract directly with the
providing companies for such utilities and services.
(b) Notwithstanding any provision of the Lease to the contrary, without, in each instance, the
prior written consent of Landlord, as more particularly provided in Article Nine, Tenant shall not:
(i) make any alterations or additions to the electric or gas equipment or systems or other Building
systems. Tenants use of electric current shall at no time exceed the capacity of the wiring,
feeders and risers providing electric current to the Premises or the Building. The consent of
Landlord to the installation of electric equipment shall not relieve Tenant from the obligation to
limit usage of electricity to no more than such capacity.
6.03 TELEPHONE SERVICES
All telegraph, telephone, and communication connections which Tenant may desire outside the
Premises shall be subject to Landlords prior written approval, in Landlords sole discretion, and
the location of all wires and the work in connection therewith shall be performed by contractors
approved by Landlord and shall be subject to the direction of Landlord, except that such approval
is not required as to Tenants cabling from the Premises in a route designated by Landlord to any
telephone cabinet or panel provided for Tenants connection to the telephone cable serving the
Building, so long as Tenants equipment does not require connections different than or additional
to those to the telephone cabinet or panel provided. As to any such connections or work outside
the Premises requiring Landlords approval, Landlord reserves the right reasonably to approve the
entity or entities providing telephone or other communication cable installation, removal, repair
and maintenance outside the Premises and reasonably to restrict and control access to telephone
cabinets or panels outside the Premises. Tenant shall be responsible for and shall pay all costs
incurred in connection with the installation of telephone cables and communication wiring in the
Premises, including any hook-up, access and maintenance fees related to the installation of such
wires and cables in the Premises and the commencement of service therein, and the maintenance
thereafter of such wire and cables; and there shall be included in Operating Expenses for the
Building all installation, removal, hook-up or maintenance costs incurred by Landlord in
connection with telephone cables and communication wiring serving the Building which are not
allocable to any individual users of such service but are allocable to the Building generally. If
Tenant fails to maintain all telephone cables and communication wiring in the Premises and such
failure affects or interferes with the operation or maintenance of any other telephone cables or
communication wiring serving the Building, Landlord or any vendor hired by Landlord may enter into
and upon the Premises forthwith and perform such repairs, restorations or alterations as Landlord
deems necessary in order to eliminate any such interference (and Landlord may recover from Tenant
all of Landlords costs in connection therewith). No later than the Termination Date, Tenant
agrees to remove all telephone cables and communication wiring installed by Tenant for and during
Tenants occupancy, which Landlord shall request Tenant to remove. Tenant agrees that neither
Landlord nor any of its agents or employees shall be liable to Tenant, or any of Tenants
employees, agents, customers or invitees or anyone claiming through, by or under Tenant, for any
damages, injuries, losses, expenses, claims or causes of action because of any interruption,
diminution, delay or discontinuance at any time for any reason in the furnishing of any telephone
or other communication service to the Premises and the Building.
6.04 FAILURE OR INTERRUPTION OF UTILITY OR SERVICE
To the extent that any equipment or machinery furnished or maintained by Landlord outside the
Premises is used in the delivery of utilities directly obtained by Tenant pursuant to Section 6.02
and breaks down or ceases to function properly, Landlord shall use reasonable diligence to repair
same promptly. In the event of any failure, stoppage or interruption of, or change in, any
utilities or services supplied by Landlord which are not directly obtained by Tenant, Landlord
shall use reasonable diligence to have service promptly resumed. In either event covered by the
preceding two sentences, if the cause of any such failure, stoppage or interruption of, or change
in, utilities or services is within the control of a public utility, other public or quasi-public
entity, or utility provider outside Landlords control, notification to such utility or entity of
such failure, stoppage or interruption and request to remedy the same shall constitute reasonable
diligence by Landlord to have service promptly resumed. Notwithstanding any other provision of
this Section to the contrary, in the event of any failure, stoppage or interruption of, or change
in, any utility or other service furnished to the Premises or the Project resulting from any cause
other than the gross negligence or willful and wrongful act of Landlord or its agents or
contractors, including changes in service provider or Landlords compliance with any voluntary or
similar governmental or business guidelines now or hereafter published or any requirements now or
hereafter established by any governmental agency, board or bureau having
10
jurisdiction over the operation of the Property: (a) Landlord shall not be liable for, and Tenant
shall not be entitled to, any abatement or reduction of Rent; (b) no such failure, stoppage, or
interruption of any such utility or service shall constitute an eviction of Tenant or relieve
Tenant of the obligation to perform any covenant or agreement of this Lease to be performed by
Tenant; (c) Landlord shall not be in breach of this Lease nor be liable to Tenant for damages or
otherwise.
6.05 INTENTIONALLY OMITTED
6.06 SIGNAGE
Except as set forth in
Rider 2
, Tenant shall not install any signage within the Project,
the Building or the Premises without obtaining the prior written approval of Landlord, and Tenant
shall be responsible for procurement, installation, maintenance and removal of any such signage
installed by Tenant, and all costs in connection therewith. Any such signage shall comply with
Landlords current Project signage criteria and all Laws.
ARTICLE SEVEN
POSSESSION, USE AND CONDITION OF PREMISES
7.01 POSSESSION AND USE OF PREMISES
(a) Tenant shall occupy and use the Premises only for the uses specified in Section 1.01(17)
to conduct Tenants business. Tenant shall not occupy or use the Premises (or permit the use or
occupancy of the Premises) for any purpose or in any manner which: (1) is unlawful or in violation
of any Law or Environmental Law; (2) may be dangerous to persons or property or which may increase
the cost of, or invalidate, any policy of insurance carried on the Building or covering its
operations; (3) is contrary to or prohibited by the terms and conditions of this Lease or the rules
and regulations as provided in Article Eighteen; (4) contrary to or prohibited by the articles,
bylaws or rules of any owners association affecting the Project; (5) would obstruct or interfere
with the rights of other tenants or occupants of the Building or the Project, or injure or annoy
them, or would tend to create or continue a nuisance; or (6) would constitute any waste in or upon
the Premises or Project.
(b) Landlord and Tenant acknowledge that the Americans With Disabilities Act of 1990 (42
U.S.C. §12101 et seq.) and regulations and guidelines promulgated thereunder, as all of the same
may be amended and supplemented from time to time (collectively
referred to herein as the ADA)
establish requirements for business operations, accessibility and barrier removal, and that such
requirements may or may not apply to the Premises, the Building and the Project depending on, among
other things: (1) whether Tenants business is deemed a public accommodation or commercial
facility, (2) whether such requirements are readily achievable, and (3) whether a given
alteration affects a primary function area or triggers path of travel requirements. The
parties hereby agree that: (a) Landlord shall be responsible for ADA Title III compliance in the
Common Areas, except as provided below, (b) Tenant shall be responsible for ADA Title III
compliance in the Premises, including any leasehold improvements or other work to be performed in
the Premises under or in connection with this Lease, (c) Landlord may perform, or require that
Tenant perform, and Tenant shall be responsible for the cost of, ADA
Title III path of travel
requirements triggered by Tenant Additions in the Premises, and (d) Landlord may perform, or
require Tenant to perform, and Tenant shall be responsible for the cost of, ADA Title III
compliance in the Common Areas necessitated by the Building being deemed to be a public
accommodation instead of a commercial facility as a result of Tenants use of the Premises.
Tenant shall be solely responsible for requirements under Title I of the ADA relating to Tenants
employees.
(c) Landlord and Tenant agree to cooperate and use commercially reasonable efforts to
participate in traffic management programs generally applicable to businesses located in or about
the area and Tenant shall encourage and support van and car pooling by, and staggered and flexible
working hours for, its office workers and service employees to the extent reasonably permitted by
the requirements of Tenants business. Neither this Section or any other provision of this Lease
is intended to or shall create any rights or benefits in any other person, firm, company,
governmental entity or the public.
(d) Tenant agrees to cooperate with Landlord and to comply with any and all guidelines or
controls concerning energy management imposed upon Landlord by federal or state governmental
organizations or by any energy conservation association to which Landlord is a party or which is
applicable to the Building.
7.02 HAZARDOUS MATERIAL
(a) Tenant shall not use, generate, manufacture, produce, store, handle, release, discharge,
or dispose of, on, under or about the Premises or any part of the Project, or transport to or from
the Premises or any part of the Project, any Hazardous Material, or allow its employees, agents,
contractors, licensees, invitees or any other person or entity under Tenants control (Tenant
Parties) to do so except to the extent expressly provided below. Provided that the Premises are
used only for the uses specified in Section 1.01(17) above, Tenant shall be permitted to use and
store in, and transport to and from, the Premises Hazardous Material
identified on
Exhibit D
hereto and by this reference incorporated herein (Permitted Hazardous Material) so long
as: (i) each item of the Permitted Hazardous Material is used or stored in, or transported to and
from, the Premises only to the extent necessary for Tenants operation of its business at the
Premises; (ii) at no time shall any Permitted Hazardous Material be in use or storage at the
Premises in excess of the quantity specified therefor in
Exhibit D
; (iii) Tenant shall not
install any underground tanks of any type; and (iv) the conditions and provisions set forth in
this Section 7.02 are complied with. If Tenant desires to add additional types or quantities of
Hazardous Materials to the list of Permitted Hazardous Materials
specified in
Exhibit D
.
Tenant shall give Landlord notice of the Hazardous Materials and quantities thereof that Tenant
desires to use at the Premises and Landlord shall thereafter have the right to approve or
disapprove such additional Hazardous Materials in Landlords sole discretion within ten (10) days
after receipt of such notice. Failure to notify Tenant in writing of its decision within said ten
(10) day period shall be deemed disapproval by Landlord. Tenant shall comply with
11
and shall cause all Tenant Parties to comply with all Environmental Laws and other Laws pertaining
to Tenants occupancy and use of the Premises and concerning the proper use, generation,
manufacture, production, storage, handling, release, discharge, removal and disposal of any
Hazardous Material introduced to the Premises, the Building or the Property by Tenant or any of
the Tenant Parties. Without limiting the generality of the foregoing:
(1) Tenant shall provide Landlord promptly with copies of: (x) all permits, licenses and
other governmental and regulatory approvals with respect to the use, generation,
manufacture, production, storage, handling, release, discharge, removal and disposal by
Tenant or any of the Tenant Parties of Hazardous Material at the Project; and (y) each
hazardous material management plan or similar document (Plan(s)) with respect to use,
generation, manufacture, production, storage, handling, release, discharge, removal or
disposal of Hazardous Material by Tenant or any of the Tenant Parties necessary to comply
with Environmental Laws or other Laws prepared by or on behalf of Tenant or any of the
Tenant Parties (whether or not required to be submitted to a governmental agency) and
updates thereof in the event of any change in the Permitted Hazardous Materials used by
Tenant or when otherwise required by Law.
(2) If Tenant is notified of any investigation or violation of any Environmental Laws or
other Laws arising from any activity of Tenant or any of the Tenant Parties at the Property,
or if Tenant knows, or has reasonable cause to believe, that a Hazardous Material has come
to be located in, on, under or about the Premises or the Project, other than as previously
consented to by Landlord, Tenant shall immediately give written notice of such fact to
Landlord, and provide Landlord with a copy of all reports, notices, claims or other
documentation which it has concerning the presence of such Hazardous Material. In such
event Landlord may conduct, at Tenants expense, such tests and studies as Landlord deems
desirable relating to compliance by Tenant or any of the Tenant Parties with this Lease,
Environmental Laws, other Laws, or relating to the alleged presence of Hazardous Material
introduced to the Premises, the Building or the Property by Tenant or any of the Tenant
Parties. Further, Landlord may conduct, at Landlords expense, such tests and studies as
Landlord deems desirable relating to compliance by Tenant or any of the Tenant Parties with
this Lease, Environmental Laws, other Laws, or relating to the alleged presence of Hazardous
Material introduced to the Premises, the Building or the Property by Tenant or any of the
Tenant Parties. In the event such tests and studies done at Landlords expense reasonably
indicate that Tenant or Tenant Parties have violated Environmental Laws or caused a release
of Hazardous Material, then Tenant shall reimburse Landlord the cost of such tests and
studies.
(3) Neither Tenant nor any of the Tenant Parties shall cause or permit any Hazardous
Material to be released, discharged or disposed of in, on, under, or about the Premises or
the Project (including through the plumbing or sanitary sewer system) and shall promptly, at
Tenants expense, take all investigatory and/or remedial action reasonably recommended,
whether or not formally ordered or required, for the cleanup of any contamination of, and
for the maintenance, security and/or monitoring of the Premises, the Project or neighboring
properties, that was caused or materially contributed to by Tenant, or pertaining to or
involving any Hazardous Material brought onto the Premises or the Project by Tenant or any
of the Tenant Parties.
(4) Tenant shall, no later than the Termination Date, surrender the Premises to Landlord
free of Hazardous Material and with all remedial and/or closure plans completed (and deliver
evidence thereof to Landlord).
(b) To the extent permitted by law, Tenant hereby indemnifies and agrees to protect, defend
and hold the Indemnitees harmless against all actions, claims, demands, liability, costs and
expenses, including reasonable attorneys fees and expenses for the defense thereof, arising from
the use, generation, manufacture, production, storage, handling, release, threatened release,
discharge, disposal, transportation to or from, or presence of any Hazardous Material on, under or
about the Premises or any part of the Project caused by Tenant or by any of the Tenant Parties,
whether before, during or after the Term. Tenants obligations under this Section 7.02 shall
survive the expiration or earlier termination of this Lease. In case of any action or proceeding
brought against the Indemnitees by reason of any such claim, upon notice from Landlord, Tenant
covenants to defend such action or proceeding by counsel chosen by Landlord, in Landlords sole
discretion. Landlord reserves the right to settle, compromise or dispose of any and all actions,
claims and demands related to the foregoing indemnity, subject to the prior written approval of
Tenant, which may not unreasonably be withheld. Landlord acknowledges that the sewer system for
the Premises joins a common sewer discharge line shared by other tenants of the Building and
confirms that notwithstanding that some elements of the Building sewer discharge line are shared,
Tenant shall be responsible only for materials actually discharged by Tenant or the Tenant Parties.
(c) The right to use and store in, and transport to and from, the Premises the Permitted
Hazardous Material is personal to Genomic Health and may not be assigned or otherwise transferred
by it without the prior written consent of Landlord, which consent may be withheld in Landlords
sole discretion, except (i) to a Permitted Transferee which is an assignee of the Lease and which
has satisfied the requirements of Sections 10.01 and 10.05 of this Lease; and (ii) Genomic Health
may permit a Permitted Transferee which is a sublessee to use and store in, and transport to and
from, the Premises the Permitted Hazardous Material to the same extent as Genomic Health has such
right under this Lease, subject to all the provisions of this Lease. Any consent by Landlord
pursuant to Article Ten to an assignment, transfer, subletting, mortgage, pledge, hypothecation or
encumbrance of this Lease, and any interest therein or right or privilege appurtenant thereto,
shall not constitute consent by Landlord to the use or storage at, or transportation to, the
Premises of any Hazardous Material (including a Permitted Hazardous Material) by any such assignee,
sublessee or transferee unless Landlord expressly agrees otherwise in writing. Provided however, at
the time Tenant requests approval of any proposed assignment or sublease of this Lease by Tenant,
Tenant shall submit to Landlord the proposed Permitted Hazardous Material list of the proposed
assignee or sublessee. Landlord shall have the right, in its sole discretion, to approve the
proposed assignees or sublessees proposed Permitted Hazardous Material list, or to require
modifications to said list. In the event that Landlord does not approve of the proposed assignees
or sublessees Permitted Hazardous Material list, or the proposed assignee or sublessee cannot or
will not modify said list, then it shall be reasonable for purposes of Article Ten hereof for
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Landlord to refuse its consent to the proposed assignee or sublessee. In the event that the
proposed Hazardous Material list of the assignee or sublessee includes any Hazardous Material
different from or in greater quantity than those on Tenants Permitted Hazardous Material list,
Tenant shall pay Landlord, whether or not Landlord consents to the proposed list of Permitted
Hazardous Materials and/or to the proposed assignment or sublease, (i) a processing fee of Three
Thousand Dollars ($3,000.00) at the time Tenant submits the request for approval, and (ii) the
reasonable fees and expenses of any consultants retained by Landlord in connection with review of
the proposed Permitted Hazardous Material list and use thereof by the proposed assignee or
sublessee. Any consent by Landlord to the use or storage at, or transportation to or from the
Premises, of any Hazardous Material (including a Permitted Hazardous Material) by an assignee,
sublessee or transferee of Tenant shall not constitute a waiver of Landlords right to refuse such
consent as to any subsequent assignee or transferee.
(d) Tenant acknowledges that the sewer piping at the Project is made of ABS plastic.
Accordingly, without Landlords prior written consent, which may be given or withheld in Landlords
sole discretion, only ordinary domestic sewage is permitted to be put into the drains at the
Premises. UNDER NO CIRCUMSTANCES SHALL Tenant EVER DEPOSIT ANY ESTERS OR KETONES (USUALLY FOUND IN
SOLVENTS TO CLEAN UP PETROLEUM PRODUCTS) IN THE DRAINS AT THE PREMISES. If Tenant desires to put
any substances other than ordinary domestic sewage into the drains, it shall first submit to
Landlord a complete description of each such substance, including its chemical composition, and a
sample of such substance suitable for laboratory testing. Landlord shall promptly determine whether
or not the substance can be deposited into the drains and its determination shall be absolutely
binding on Tenant. Upon demand, Tenant shall reimburse Landlord for expenses incurred by Landlord
in making such determination. If any substances not so approved hereunder are deposited in the
drains in Tenants Premises, Tenant shall be liable to Landlord for all damages resulting
therefrom, including but not limited to all costs and expenses incurred by Landlord in repairing or
replacing the piping so damaged.
7.03 LANDLORD ACCESS TO PREMISES; APPROVALS
(a) Tenant shall permit Landlord to erect, use and maintain pipes, ducts, wiring and conduits
in and through the Premises, so long as Tenants use, layout or design of the Premises is not
materially affected or altered. Landlord or Landlords agents shall have the right to enter upon
the Premises (i) in the event of an emergency, without prior notice, or (ii) with 24-hour prior
notice to inspect the Premises, to perform janitorial and other services (if any), to conduct
safety and other testing in the Premises and to make such repairs, alterations, improvements or
additions to the Premises or the Building or other parts of the Property as Landlord may deem
necessary or desirable (including all alterations, improvements and additions in connection with a
change in service provider or providers). Janitorial and cleaning services (if any) shall be
performed after normal business hours. Any entry or work by Landlord may be during normal business
hours and Landlord may use reasonable efforts to ensure that any entry or work shall not materially
interfere with Tenants occupancy of the Premises.
(b) If Tenant or its agents shall not be personally present to permit an entry into the
Premises when for any reason an entry therein shall be necessary or permissible, Landlord (or
Landlords agents), after having properly notified Tenant (unless Landlord believes an emergency
situation exists), may enter the Premises without rendering Landlord or its agents liable therefor,
and without relieving Tenant of any obligations under this Lease.
(c) Landlord may enter the Premises for the purpose of conducting such inspections, tests and
studies as Landlord may deem desirable or necessary to confirm Tenants compliance with all Laws
and Environmental Laws or for other purposes necessary in Landlords reasonable judgment to ensure
the sound condition of the Property and the systems serving the Property. Landlords rights under
this Section 7.03 (c) are for Landlords own protection only, and Landlord has not, and shall not
be deemed to have assumed, any responsibility to Tenant or any other party as a result of the
exercise or non-exercise of such rights, for compliance with Laws or Environmental Laws or for the
accuracy or sufficiency of any item or the quality or suitability of any item for its intended use.
(d) Landlord may do any of the foregoing, or undertake any of the inspection or work described
in the preceding paragraphs without such action constituting an actual or constructive eviction of
Tenant, in whole or in part, or giving rise to an abatement of Rent by reason of loss or
interruption of business of the Tenant, or otherwise.
(e) The review, approval or consent of Landlord with respect to any item required or permitted
under this Lease is for Landlords own protection only, and Landlord has not, and shall not be
deemed to have assumed, any responsibility to Tenant or any other party, as a result of the
exercise or non-exercise of such rights, for compliance with Laws or Environmental Laws or for the
accuracy or sufficiency of any item or the quality or suitability of any item for its intended use.
7.04 QUIET ENJOYMENT
Landlord covenants, in lieu of any implied covenant of quiet possession or quiet enjoyment, that
so long as Tenant is in compliance with the covenants and conditions set forth in this Lease,
Tenant shall have the right to quiet enjoyment of the Premises without hindrance or interference
from Landlord or those claiming through Landlord, and subject to the covenants and conditions set
forth in the Lease and to the rights of any Mortgagee or ground lessor.
ARTICLE EIGHT
MAINTENANCE & HVAC
8.01 LANDLORDS MAINTENANCE
Subject to Article Fourteen and Section 8.02, Landlord shall maintain the structural portions of
the Building, the roof, exterior walls and exterior doors, foundation, and underslab standard
sewer system of the Building in good, clean
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and safe condition. Notwithstanding the foregoing, Landlord shall have no responsibility to
perform preventive maintenance or service for, or to repair any heating, ventilation and air
conditioning equipment and systems serving the Premises (HVAC), and all such preventive
maintenance, service, and repairs shall be performed by Tenant pursuant to the terms of Section
8.02. Landlord shall also (a) maintain the landscaping, parking facilities and other Common
Areas of the Project, and (b) wash the outside of exterior windows at intervals determined by
Landlord. Except as provided in Article Fourteen and Article Fifteen, there shall be no
abatement of rent, no allowance to Tenant for diminution of rental value and no liability of
Landlord by reason of inconvenience, annoyance or any injury to or interference with Tenants
business arising from the making of or the failure to make any repairs, alterations or
improvements in or to any portion of the Project or in or to any fixtures, appurtenances or
equipment therein. Tenant waives the right to make repairs at Landlords expense under any law,
statute or ordinance now or hereafter in effect.
8.02 TENANTS MAINTENANCE
(a) Subject to the provisions of Article Fourteen, Tenant shall, at Tenants sole cost and
expense, maintain and make all repairs to the Premises and fixtures therein which Landlord is not
required to make pursuant to Section 8.01, including repairs to the interior walls, ceilings and
windows of the Premises, the interior doors, Tenants signage, and the electrical, life-safety,
plumbing located within the Premises and any HVAC serving only the Premises, and shall maintain
the Premises, the fixtures, HVAC systems serving only the Premises, utilities systems or portions
thereof serving only the Premises, and garbage enclosures, if any, for Tenants exclusive use
outside the Premises, in a good, clean and safe condition. Tenant shall deliver to Landlord a
copy of any maintenance contract entered into by Tenant with respect to the Premises. Tenant
shall also, at Tenants expense, keep any non-standard heating, ventilating and air conditioning
equipment and other non-standard equipment installed by or on behalf of Tenant in good condition
and repair, using contractors approved in advance, in writing, by Landlord, which approval shall
not be unreasonably withheld. Notwithstanding Section 8.01 above, to the extent that Landlord is
not reimbursed by insurance and no waiver set forth in Section 16.04 is applicable, Tenant will
pay for any repairs to the Building or the Project which are caused by any negligence or willful
and wrongful act, of Tenant or its assignees, subtenants or employees, or of the respective
agents of any of the foregoing persons, or of any other persons permitted in the Building or
elsewhere in the Project by Tenant or any of them. Tenant will maintain the Premises, and will
leave the Premises upon termination of this Lease, in a safe, clean, neat and sanitary condition.
(b) With respect to HVAC, Tenant, at Tenants sole cost and expense, shall enter into
contracts (HVAC Service Contracts) for regularly scheduled inspections and preventive
maintenance and service, as to which the contractors, scope of work, frequency of inspection,
maintenance or service, shall be subject to Landlords prior written approval, in its sole
discretion. Tenant shall cause the contractor for such HVAC Service
Contracts to deliver written reports to Landlord within ten (10) days after the date of such
inspection, maintenance and/or service. Tenant shall deliver to Landlord a copy of the initial
HVAC Service Contracts within sixty (60) days after the Commencement Date and of subsequent
HVAC Service Contracts entered into by Tenant within ten (10) days after execution thereof
(which subsequent HVAC Service Contracts shall be subject to the same approval standards and
requirements as set forth above with respect to the initial contract). In the event Tenant
fails, in the reasonable judgment of Landlord, to meet the requirements for such HVAC Service
Contracts and cause such inspections, maintenance and service to be performed, which failure
continues at the end of fifteen (15) days following written notice given by Landlord stating
the nature of the failure, Landlord shall have the right (but shall not be obligated) to
obtain such HVAC Service Contracts and to enter the Premises and perform such inspection,
maintenance and service, at Tenants sole cost and expense; provided, however, if the nature
of the maintenance or repair is such that it cannot, with the exercise of reasonable
diligence, be completed within fifteen (15) days of Tenants receipt of Landlords notice,
Landlord shall not undertake such inspection, maintenance and service at Tenants expense
provided Tenant commences such inspection, maintenance and service in the manner required
above within said 15-day period and thereafter diligently and continuously prosecutes the same
to completion and provided further, however, that in the event of an emergency condition,
Landlord shall have the right to make such inspection, maintenance, service and/or repairs on
behalf of Tenant at Tenants sole cost and expense after giving Tenant such notice, if any, as
is reasonable under the circumstances. Landlords right of entry pursuant to Section
7.03 shall include the right to enter and inspect the Premises for violations of Tenants
covenants herein. Tenant shall maintain written records of HVAC inspection, maintenance, service
repairs, and shall use certified technicians approved in writing by Landlord to perform such
maintenance and repairs.
ARTICLE NINE
ALTERATIONS AND IMPROVEMENTS
9.01 TENANT ALTERATIONS
(a) The following provisions shall apply to the completion of any Tenant
Alterations:
(1) Tenant shall not, except as provided herein, without the prior written consent of
Landlord, which consent shall not be unreasonably withheld, make or cause to be made any
Tenant Alterations in or to the Premises or any Property systems serving the Premises.
Prior to making any Tenant Alterations, Tenant shall give Landlord ten (10) days prior
written notice (or such earlier notice as would be necessary pursuant to applicable Law)
to permit Landlord sufficient time to post appropriate notices of non-responsibility. Subject to all other requirements of this Article Nine, Tenant may,
without Landlords prior written consent, undertake (i) Decoration work and/or (ii) any
Alterations that (x) do not adversely affect the roof, structural portions or the systems
or equipment of the Building, (y) are not visible from the exterior of the Building, and
(z) do not cost, in the aggregate, over the Term of the Lease, in excess of $50,000.
Tenant shall furnish Landlord with the names and addresses of all contractors and
subcontractors and copies of all contracts. All Tenant Alterations shall be completed at
such time and in such manner as Landlord may from time to time designate, and only by
contractors or mechanics approved by Landlord, which approval shall not be unreasonably
withheld. The contractors, mechanics and engineers who may be used are further limited to
those whose work will not cause or threaten to cause disharmony or interference with
Landlord or other tenants in the Building and their respective agents and contractors
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performing work in or about the Building. Landlord may further condition its consent upon
Tenant furnishing to Landlord and Landlord approving prior to the commencement of any work
or delivery of materials to the Premises related to the Tenant Alterations such of the
following as specified by Landlord: architectural plans and specifications, opinions from
Landlords engineers stating that the Tenant Alterations will not in any way adversely
affect the Buildings systems, necessary permits and licenses, certificates of insurance,
and such other documents in such form reasonably requested by Landlord. Landlord may, in the
exercise of reasonable judgment, request that Tenant provide Landlord with appropriate
evidence of Tenants ability to complete and pay for the completion of the Tenant
Alterations such as a performance bond or letter of credit. Upon completion of the Tenant
Alterations, Tenant shall deliver to Landlord an as-built mylar and digitized (if available)
set of plans and specifications for the Tenant Alterations.
(2) Tenant shall pay the cost of all Tenant Alterations and the cost of decorating the
Premises and any work to the Property occasioned thereby. In connection with completion
of any Tenant Alterations, Tenant shall, upon receipt of Landlords itemized invoice
therefor, pay Landlords actual and reasonable costs to review the plans and specifications
for such Tenant Alterations and to monitor the performance thereof, including a construction
administration fee and all elevator and hoisting charges at Landlords then standard rate.
Upon completion of Tenant Alterations, Tenant shall furnish Landlord with contractors
affidavits and full and final waivers of lien and receipted bills
covering all labor and
materials expended and used in connection therewith and such other documentation reasonably
requested by Landlord or Mortgagee.
(3) Tenant agrees to complete all Tenant Alterations (i) in accordance with all Laws,
Environmental Laws, all requirements of applicable insurance companies and in accordance
with Landlords standard construction rules and regulations, and (ii) in a good and
workmanlike manner with the use of good grades of materials. Tenant shall notify Landlord
immediately if Tenant receives any notice of violation of any Law in connection with
completion of any Tenant Alterations and shall immediately take such steps as are necessary
to remedy such violation. In no event shall such supervision or right to supervise by
Landlord nor shall any approvals given by Landlord under this Lease constitute any warranty
by Landlord to Tenant of the adequacy of the design, workmanship or quality of such work or
materials for Tenants intended use or of compliance with the requirements of Section
9.01(a)(3)(i) and (ii) above or impose any liability upon Landlord in connection with the
performance of such work.
(b) All Tenant Additions to the Premises whether installed by Landlord or Tenant, shall
without compensation or credit to Tenant, become part of the Premises and the property of Landlord
at the time of their installation and shall remain in the Premises, unless pursuant to Article
Twelve, Tenant may remove them or is required to remove them at Landlords request. Tenants
Personal Property, as set forth in
Exhibit G
, shall at all times remain the property of
Tenant and Tenant shall remove such property at the expiration or earlier termination of this
Lease.
9.02 LIENS
Tenant shall not permit any lien or claim for lien of any mechanic, laborer or supplier or any
other lien to be filed against the Building, the Land, the Premises, or any other part of the
Property arising out of work performed, or alleged to have been performed by, or at the direction
of, or on behalf of Tenant. If any such lien or claim for lien is filed, Tenant shall within ten
(10) days of receiving notice of such lien or claim (a) have such lien or claim for lien released
of record or (b) deliver to Landlord a bond in form, content, amount, and issued by surety,
satisfactory to Landlord, indemnifying, protecting, defending and holding harmless the Indemnitees
against all costs and liabilities resulting from such lien or claim for lien and the foreclosure
or attempted foreclosure thereof. If Tenant fails to take any of the above actions, Landlord, in
addition to its rights and remedies under Article Eleven, without investigating the validity of
such lien or claim for lien, may pay or discharge the same and Tenant shall, as payment of
additional Rent hereunder, reimburse Landlord upon demand for the amount so paid by Landlord,
including Landlords expenses and reasonable attorneys fees.
ARTICLE TEN
ASSIGNMENT AND SUBLETTING
10.01 ASSIGNMENT AND SUBLETTING
(a) Without the prior written consent of Landlord, which may be withheld in Landlords sole
discretion, Tenant may not sublease, assign, mortgage, pledge, hypothecate or otherwise transfer
or permit the transfer of this Lease or the encumbering of Tenants interest therein in whole or
in part, by operation of Law or otherwise or permit the use or occupancy of the Premises, or any
part thereof, by anyone other than Tenant, provided, however, if Landlord chooses not to recapture
the space proposed to be subleased or assigned as provided in Section 10.02, Landlord shall not
unreasonably withhold its consent to a subletting or assignment under this Section 10.01. Tenant
agrees that the provisions governing sublease and assignment set forth in this Article Ten shall
be deemed to be reasonable. If Tenant desires to enter into any sublease of the Premises or
assignment of
this Lease, Tenant shall deliver written notice thereof to Landlord (Tenants Notice),
together with the identity of the proposed subtenant or assignee and the proposed principal terms
thereof and financial and other information sufficient for Landlord to make an informed judgment
with respect to such proposed subtenant or assignee at least sixty (60) days prior to the
commencement date of the term of the proposed sublease or assignment. If Tenant proposes to
sublease less than all of the Rentable Area of the Premises, the space proposed to be sublet and
the space retained by Tenant must each be a marketable unit as reasonably determined by Landlord
and otherwise in compliance with all Laws; provided however, so long as the Tenant is Genomic
Health or a Permitted Transferee which is an assignee of the Lease which has satisfied the
requirements of Sections 10.01 and 10.05 below, the foregoing shall not apply to a sublease for a
sublease term of a year or less, for undemised space in the aggregate (for one or more such
subleases in effect at any one time) up to 3,000 square feet of Rentable Area. Landlord shall
15
notify Tenant in writing of its approval or disapproval of the proposed sublease or assignment or
its decision to exercise its rights under Section 10.02 within thirty (30) days after receipt of
Tenants Notice (and all required information). In no event may Tenant sublease any portion of the
Premises or assign the Lease to any other tenant of the Project. Tenant shall submit for
Landlords approval (which approval shall not be unreasonably withheld) any advertising which
Tenant or its agents intend to use with respect to the space proposed to be sublet.
(b) With respect to Landlords consent to an assignment or sublease, Landlord may take into
consideration any factors which Landlord may deem relevant, and the reasons for which Landlords
denial shall be deemed to be reasonable shall include, without limitation, the following:
(i) the business reputation or creditworthiness of any proposed subtenant or
assignee is not acceptable to Landlord; or
(ii) in Landlords reasonable judgment the proposed assignee or subtenant would
diminish the value or reputation of the Building or Landlord; or
(iii) any proposed assignees or subtenants use of the Premises would violate
Section 7.01 of the Lease or would violate the provisions of any other leases of tenants in
the Project;
(iv) the proposed assignee or subtenant is either a governmental agency, a school or
similar operation, or a medical related practice; or
(v) the proposed subtenant or assignee is a bona fide prospective tenant of Landlord
in the Project as demonstrated by a written proposal dated within ninety (90) days prior to
the date of Tenants request; or
(vi) the proposed subtenant or assignee would materially increase the estimated
pedestrian and vehicular traffic to and from the Premises and the Building.
In no event shall Landlord be obligated to consider a consent to any proposed assignment of the
Lease which would assign less than the entire Premises. In the event Landlord wrongfully withholds
its consent to any proposed sublease of the Premises or assignment of the Lease, Tenants sole and
exclusive remedy therefor shall be to seek specific performance of Landlords obligations to
consent to such sublease or assignment.
(c) Any sublease or assignment shall be expressly subject to the terms and conditions of this
Lease. Any subtenant or assignee shall execute such documents as Landlord may reasonably require to
evidence such subtenant or assignees assumption of the obligations and liabilities of Tenant under
this Lease. Tenant shall deliver to Landlord a copy of all agreements executed by Tenant and the
proposed subtenant and assignee with respect to the Premises. Landlords approval of a sublease,
assignment, hypothecation, transfer or third party use or occupancy shall not constitute a waiver
of Tenants obligation to obtain Landlords consent to further assignments or subleases,
hypothecations, transfers or third party use or occupancy.
(d) For purposes of this Article Ten, an assignment shall be deemed to include a change in the
majority control of Tenant, resulting from any transfer, sale or assignment of shares of stock or
membership interests of Tenant occurring by operation of Law or otherwise, and includes any merger,
acquisition, consolidation or reorganization, except as otherwise provided in this Subsection
below. Notwithstanding any provision of this Section to the contrary, an assignment for purposes
of this Article does not include any transfer of control of the stock or membership interests of
Tenant through (i) any public offering of shares of stock in Tenant in accordance with applicable
State and Federal law, rules, regulations and orders if thereafter the stock shall be listed and
publicly traded through the New York Stock Exchange or the NASDAQ national market; or (ii) public
sale of such stock effected through such Exchange or the NASDAQ national market. If Tenant is a
partnership, any change in the partners of Tenant shall be deemed to be an assignment.
(e) For purposes of this Lease, a Permitted Transferee shall mean any Person which: (i) is
an Affiliate of Tenant; or (ii) is the corporation or other entity (the Successor) resulting from
a merger, conversion, consolidation or non-bankruptcy reorganization with Tenant; or (iii) is not a
Successor but is otherwise a deemed assignee due to a change of control under section 10.01(d)
above; or (iv) purchases, leases or acquires by way of exchange all or substantially all the assets
of Tenant as a going concern (the Purchaser). Notwithstanding anything to the contrary in
Sections 10.01(a) and (b), 10.02 and 10.03, provided there is no uncured Default under this Lease,
Tenant shall have the right, without the prior written consent of Landlord, to assign this Lease to
a Permitted Transferee or to sublease the Premises or any part thereof to a Permitted Transferee
provided that: (1) Landlord receives thirty (30) days prior written notice of an assignment or
sublease (including a pending
transaction described in subparts (i), (ii), (iii) or (iv) of this Section 10.01(e));
provided that Tenant may give notice in less than thirty (30) days in connection with a pending
transaction described in subparts (ii) and (iv) of this Section 10.01(e) to the extent that Tenant
is precluded, by the terms of the transaction or, if Tenants stock is publicly traded, by
applicable securities laws, from making disclosure of the transaction itself; (2) with respect to
an assignment of the Lease or a sublease of more than half the Premises to an entity described in
subparts (ii) or (iv) of this Section 10.01(e), the Permitted Transferees net worth is not less
than Tenants net worth (measured as of the most recent date for which financial statements
prepared in accordance with GAAP are available); (3) with respect to an assignment of the Lease or
a sublease of more than half the Premises to an entity described in
subparts (i) or (iii) of this
Section 10.01(e), Tenant (as the assignor or sublandord) continues in existence with a net worth
not less than Tenants net worth immediately prior to such assignment or subletting; (4) the
Permitted Transferee expressly assumes (except a Permitted Transferee which is a deemed assignee
under subpart (iii) of this Section 10.01(e) or which is a sublessee in the event of a sublease
under this Section 10.01(e)) in writing reasonably satisfactory to Landlord all of the obligations
of Tenant under this Lease and delivers such assumption to Landlord no later than fifteen (15) days
(or such lesser time as is appropriate in connection with a pending transaction described in
subparts (ii) and (iv) of this Section 10.01(e) to the extent that Tenant is precluded, by the
terms of the transaction or, if Tenants stock is publicly traded, by applicable securities laws,
from making
16
disclosure of the transaction itself) prior to the effective date of the assignment; (5) Landlord
receives no later than five (5) days before the effective date a fully executed copy of the
applicable assignment or sublease agreement between Tenant and the Permitted Transferee; and (6)
promptly after Landlords written request, Tenant and the Permitted Transferee provide such
reasonable documents and information which Landlord reasonably requests for the purpose of
substantiating whether or not the assignment or sublease is to a Permitted Transferee. All
determinations of net worth for purposes of this Subsection shall
exclude any value attributable
to goodwill or going concern value. With respect to any proposed assignment under subparts (ii) or
(iv) of this Section 10.01 (e), Tenant shall pay Landlord, no later than fifteen (15) days prior
to the effective date of such proposed assignment or sublease, a processing fee of Three Thousand
Dollars ($3,000.00), which shall be Landlords earned fee whether or not the proposed assignment
or sublease is completed by Tenant.
(f) With respect to any sublease to a Permitted Transferee pursuant to Subsection (e) above,
Tenant hereby irrevocably assigns to Landlord, effective upon any such sublease, all rent and
other payments due from subtenant under the sublease, provided however, that Tenant shall have a
license to collect such rent and other payments until the occurrence of a default by Tenant under
any of the provisions of the Lease, and notice to Tenant of such default shall not be a
prerequisite to Landlords right to collect subrent. At any time at Landlords option, Landlord
shall have the right to give notice to the subtenant of such assignment. Landlord shall credit
Tenant with any rent received by Landlord under such assignment but the acceptance of any payment
on account of rent from the subtenant as the result of any such default shall in no manner
whatsoever serve to release Tenant from any liability under the terms, covenants, conditions,
provisions or agreement under the Lease. No such payment of rent or any other payment by the
subtenant directly to Landlord and/or acceptance of such payment(s) by Landlord, regardless of the
circumstances or reasons therefor, shall in any manner whatsoever be deemed an attornment by the
subtenant to Landlord in the absence of a specific written agreement signed by Landlord to such an
effect. For purposes of this Subsection, any use or occupancy by a Permitted Transferee (unless it
is an assignee) without a formal sublease shall for the purposes of this Subsection be deemed to
be a sublease at the same rental rate as provided in the Lease.
10.02 RECAPTURE
Landlord shall have the option to exclude from the Premises covered by this Lease (recapture),
the space proposed to be sublet or subject to the assignment, so long as (i) the proposed transfer
is not to a Permitted Transferee in accordance with the provisions of Section 10.01 (e), and (ii)
the proposed sublease is for the remainder of the term of this Lease and Landlord recaptures the
entire portion of the Premises subject to the proposed sublease. If Landlord elects to recapture,
such recapture shall be effective as of the commencement date of such sublease or assignment,
Tenant shall surrender possession of the space proposed to be subleased or subject to the
assignment to Landlord on the effective date of recapture of such space from the Premises, such
date being the Termination Date for such space. Effective as of the date of recapture of any
portion of the Premises pursuant to this section, the Monthly Base Rent, Rentable Area of the
Premises and Tenants Share shall be adjusted accordingly.
10.03 EXCESS RENT
Except with respect to an assignment or sublease to a Permitted Transferee in accordance with the
provisions of Section 10.01 (e), Tenant shall pay Landlord on the first day of each month during
the term of the sublease or assignment, fifty percent (50%) of the amount by which the sum of all
rent and other consideration (direct or indirect) due from the subtenant or assignee for such month
exceeds: (i) that portion of the Monthly Base Rent and Rent Adjustments due under this Lease for
said month which is allocable to the space sublet or assigned; and (ii) the following costs and
expenses for the subletting or assignment of such space: (1) brokerage commissions and reasonable
attorneys fees and expenses, (2) the actual costs paid in making any improvements or substitutions
in the Premises required by any sublease or assignment; and (3) free rent periods, costs of any
inducements or concessions given to subtenant or assignee, moving costs, and other amounts in
respect of such subtenants or assignees other leases or occupancy arrangements. All such costs
and expenses shall be amortized over the term of the sublease or assignment pursuant to sound
accounting principles.
10.04 TENANT LIABILITY
In the event of any sublease or assignment, whether or not with Landlords consent, Tenant shall
not be released or discharged from any liability, whether past, present or future, under this
Lease, including any liability arising from the exercise of any renewal or expansion option, to
the extent such exercise is expressly permitted by Landlord. Tenants liability shall remain
primary, and in the event of default by any subtenant, assignee or successor of Tenant in
performance or observance of any of the covenants or conditions of this Lease, Landlord may
proceed directly against Tenant without the necessity of exhausting remedies against said
subtenant, assignee or successor. After any assignment, Landlord may consent to subsequent
assignments or subletting of this Lease, or amendments or modifications of this Lease with
assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining
its or their consent thereto, and such action shall not relieve Tenant or any successor of Tenant
of liability under this Lease. If Landlord grants consent to such sublease or assignment, Tenant
shall pay all reasonable attorneys fees and expenses incurred by Landlord with respect to such
assignment or sublease. In addition, if Tenant has any options to extend the term of this Lease or
to add other space to the Premises, such options shall not be available to any subtenant or
assignee, directly or indirectly without Landlords express written
consent, which may be withheld in Landlords sole discretion.
10.05 ASSUMPTION AND ATTORNMENT
If Tenant
shall assign this Lease as permitted herein, the assignee shall expressly assume all of
the obligations of Tenant hereunder in a written instrument satisfactory to Landlord and furnished
to Landlord not later than fifteen (15) days prior to the
effective date of the assignment. If
Tenant shall sublease the Premises as permitted herein, Tenant shall, at Landlords option, within
fifteen (15) days following any request by Landlord, obtain and furnish to
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Landlord the written agreement of such subtenant to the effect that the subtenant will attorn to
Landlord and will pay all subrent directly to Landlord.
ARTICLE ELEVEN
DEFAULT AND REMEDIES
11.01 EVENTS OF DEFAULT
The occurrence or existence of any one or more of the following shall constitute a material
default and breach of the Lease (a Default) by Tenant under this Lease:
(i) Tenant fails to pay any installment or other payment of Rent, including Rent
Adjustment Deposits or Rent Adjustments, within three business (3) days after written
notice to Tenant of such failure to pay, provided that after Landlord has twice sent such
notice to Tenant for failure to pay, thereafter such failure shall be a Default if Tenant
fails to pay any such installment or other payment of Rent, including Rent Adjustment
Deposits or Rent Adjustments, within three (3) business days after the date when the same
are due;
(ii) Tenant fails to observe or perform any of the other covenants, conditions or
provisions of this Lease or the Workletter and, unless the default involves a hazardous
condition, which shall be cured forthwith or unless the failure to perform is a Default for
which this Lease specifies there is no cure or grace period, fails to cure such default
within thirty (30) days after written notice thereof to Tenant, provided that, if Tenant
has exercised reasonable diligence to cure such failure and such failure cannot reasonably
be cured within such thirty (30) day period despite reasonable diligence, Tenant shall not
be in default under this subsection so long as Tenant diligently and continuously
prosecutes the cure to completion;
(iii) the interest of Tenant in this Lease is levied upon under execution or other
legal process;
(iv) a petition is filed by or against Tenant to declare Tenant bankrupt or seeking a
plan of reorganization or arrangement under any Chapter of the Bankruptcy Act, or any
amendment, replacement or substitution therefor, or to delay payment of, reduce or modify
Tenants debts, which in the case of an involuntary action is not discharged within thirty
(30) days;
(v) Tenant is declared insolvent by Law or any assignment of Tenants property is made
for the benefit of creditors;
(vi) a receiver is appointed for Tenant or Tenants property, which appointment is not
discharged within thirty (30) days;
(vii)
any action taken by or against Tenant to reorganize or modify Tenants capital
structure in a materially adverse way which in the case of an involuntary action is not
discharged within thirty (30) days; or
(viii) upon the dissolution of Tenant.
11.02 LANDLORDS REMEDIES
(a) A Default shall constitute a breach of the Lease for which Landlord shall have the rights
and remedies set forth in this Section 11.02 and all other rights and remedies set forth in this
Lease or now or hereafter allowed by Law, whether legal or equitable, and all rights and remedies
of Landlord shall be cumulative and none shall exclude any other right or remedy.
(b) With respect to a Default, at any time Landlord may terminate Tenants right to possession
by written notice to Tenant stating such election. Upon the termination of Tenants right to
possession pursuant to this Section 11.02, Tenants right to possession shall terminate and this
Lease shall terminate, and Tenant shall remain
liable as hereinafter provided. Upon such termination, Landlord shall have the right, subject
to applicable Law, to re-enter the Premises and dispossess Tenant and the legal representatives of
Tenant and all other occupants of the Premises by unlawful detainer or other summary proceedings,
or otherwise as permitted by Law, regain possession of the Premises and remove their property
(including their trade fixtures, personal property and those Tenant Additions which Tenant is
required or permitted to remove under Article Twelve), but Landlord shall not be obligated to
effect such removal, and such property may, at Landlords option, be stored elsewhere, sold or
otherwise dealt with as permitted by Law, at the risk of, expense of and for the account of Tenant,
and the proceeds of any sale shall be applied pursuant to Law. Landlord shall in no event be
responsible for the value, preservation or safekeeping of any such property. Tenant hereby waives
all claims for damages that may be caused by Landlords removing or storing Tenants personal
property pursuant to this Section or Section 12.01, and Tenant hereby indemnifies, and agrees to
defend, protect and hold harmless, the Indemnitees from any and all loss, claims, demands, actions,
expenses, liability and cost (including reasonable attorneys fees and expenses) arising out of or
in any way related to such removal or storage. Upon such written termination of Tenants right to
possession and this Lease, Landlord shall have the right to recover damages for Tenants Default as
provided herein or by Law, including the following damages provided by California Civil Code
Section 1951.2:
(1) the worth at the time of award of the unpaid Rent which had been earned at the time
of termination;
(2) the worth at the time of award of the amount by which the unpaid Rent which would
have been earned after termination until the time of award exceeds the amount of such Rent
loss that Tenant proves could reasonably have been avoided;
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(3) the worth at the time of award of the amount by which the unpaid Rent for the
balance of the term of this Lease after the time of award exceeds the amount of such Rent
loss that Tenant proves could be reasonably avoided; and
(4) any other amount necessary to compensate Landlord for all the detriment proximately
caused by Tenants failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom. The word rent as used in
this Section 11.02 shall have the same meaning as the defined term Rent in this Lease. The
worth at the time of award of the amount referred to in clauses (1) and (2) above is
computed by allowing interest at the Default Rate. The worth at the time of award of the
amount referred to in clause (3) above is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). For the purpose of determining unpaid Rent under clause (3) above, the monthly
Rent reserved in this Lease shall be deemed to be the sum of the Monthly Base Rent, and
monthly Storage Space Rent, if any, and the amounts last payable by Tenant as Rent
Adjustments for the calendar year in which Landlord terminated this Lease as provided
hereinabove.
(c) Even if Tenant is in Default and/or has abandoned the Premises, this Lease shall continue
in effect for so long as Landlord does not terminate Tenants right to possession by written notice
as provided in Section 11.02(b) above, and Landlord may enforce all its rights and remedies under
this Lease, including the right to recover Rent as it becomes due under this Lease. In such
event, Landlord shall have all of the rights and remedies of a landlord under California Civil Code
Section 1951.4 (lessor may continue Lease in effect after Tenants Default and abandonment and
recover Rent as it becomes due, if Tenant has the right to sublet or assign, subject only to
reasonable limitations), or any successor statute. During such time as Tenant is in Default, if
Landlord has not terminated this Lease by written notice and if Tenant requests Landlords consent
to an assignment of this Lease or a sublease of the Premises, subject to Landlords option to
recapture pursuant to Section 10.02, Landlord shall not
unreasonably withhold its consent to such
assignment or sublease. Tenant acknowledges and agrees that the provisions of Article Ten shall
be deemed to constitute reasonable limitations of Tenants right to assign or sublet. Tenant
acknowledges and agrees that in the absence of written notice pursuant to Section 11.02(b) above
terminating Tenants right to possession, no other act of Landlord shall constitute a termination
of Tenants right to possession or an acceptance of Tenants surrender of the Premises, including
acts of maintenance or preservation or efforts to relet the Premises or the appointment of a
receiver upon initiative of Landlord to protect Landlords interest under this Lease or the
withholding of consent to a subletting or assignment, or terminating a subletting or assignment, if
in accordance with other provisions of this Lease.
(d) In the event that Landlord seeks an injunction with respect to a breach or threatened
breach by Tenant of any of the covenants, conditions or provisions of this Lease, Tenant agrees to
pay the premium for any bond required in connection with such injunction.
(e) Tenant hereby waives any and all rights to relief from forfeiture, redemption or
reinstatement granted by Law (including California Civil Code of Procedure Sections 1174 and 1179)
in the event of Tenant being evicted or dispossessed for any cause or in the event of Landlord
obtaining possession of the Premises by reason of Tenants Default or otherwise;
(f) When this Lease requires giving or service of a notice of Default or of a failure of
Tenant to observe or perform any covenant, condition or provision of this Lease which will
constitute a Default unless Tenant so observes or performs within any applicable cure period, and
so long as the notice given or served provides Tenant the longer of any applicable cure period
required by this Lease or by statute, then the giving of any equivalent or similar statutory
notice, including any equivalent or similar notices required by California Code of Civil Procedure
Section 1161 or any similar or successor statute, shall replace and suffice as any notice required
under this Lease. When a statute requires service of a notice in a particular manner, service of
that notice (or a similar notice required by this Lease) in the manner required by Article
Twenty-four shall replace and satisfy the statutory service-of-notice procedures, except that any
notice of unlawful detainer required by California Code of Civil Procedure Section 1161 or any
similar or successor statute shall be served as required by Code of Civil Procedure Section 1162 or
any similar or successor statute, and for purposes of Code of Civil Procedure Section 1162 or any
similar or successor statute, Tenants place of residence and usual place of business shall
mean the address specified by Tenant for notice pursuant to Section 1.01 of this Lease, as changed
by Tenant pursuant to Article Twenty-four of this Lease.
(g) The voluntary or other surrender or termination of this Lease, or a mutual termination or
cancellation thereof, shall not work a merger and shall terminate all or any existing assignments,
subleases, subtenancies or occupancies permitted by Tenant, except if and as otherwise specified in
writing by Landlord.
(h) No delay or omission in the exercise of any right or remedy of Landlord upon any default
by Tenant, and no exercise by Landlord of its rights pursuant to Section 26.15 to perform any duty
which Tenant fails timely to perform, shall impair any right or remedy or be construed as a
waiver. No provision of this Lease shall be deemed waived by Landlord unless such waiver is in a
writing signed by Landlord. The waiver by Landlord of any breach of any provision of this Lease
shall not be deemed a waiver of any subsequent breach of the same or any other provision of this
Lease.
11.03 ATTORNEYS FEES
In the event any party brings any suit or other proceeding with respect to the subject matter or
enforcement of this Lease, the prevailing party (as determined by the court, agency or other
authority before which such suit or proceeding is commenced) shall, in addition to such other
relief as may be awarded, be entitled to recover reasonable attorneys fees, expenses and costs of
investigation as actually incurred, including court costs, expert witness fees, costs and expenses
of investigation, and all reasonable attorneys fees, costs and expenses in any
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such suit or proceeding (including in any action or participation in or in connection with any case
or proceeding under the Bankruptcy Code, 11 United States Code
Sections 101
et seq.
, or any
successor statutes, in establishing or enforcing the right to indemnification, in appellate
proceedings, or in connection with the enforcement or collection of any judgment obtained in any
such suit or proceeding).
11.04 BANKRUPTCY
The following provisions shall apply in the event of the bankruptcy or insolvency of Tenant:
(a) In connection with any proceeding under Chapter 7 of the Bankruptcy Code where the trustee
of Tenant elects to assume this Lease for the purposes of assigning it, such election or
assignment, may only be made upon compliance with the provisions of (b) and (c) below, which
conditions Landlord and Tenant acknowledge to be commercially reasonable. In the event the
trustee elects to reject this Lease then Landlord shall immediately be entitled to possession of
the Premises without further obligation to Tenant or the trustee.
(b) Any election to assume this Lease under Chapter 11 or 13 of the Bankruptcy Code by Tenant
as debtor-in-possession or by Tenants trustee (the Electing Party) must provide for:
The Electing Party to cure or provide to Landlord adequate assurance that it will cure all
monetary defaults under this Lease within fifteen (15) days from the date of assumption and
it will cure all nonmonetary defaults under this Lease within thirty (30) days from the
date of assumption. Landlord and Tenant acknowledge such condition to be commercially
reasonable.
(c) If the Electing Party has assumed this Lease or elects to assign Tenants interest under
this Lease to any other person, such interest may be assigned only if the intended assignee has
provided adequate assurance of future performance (as herein defined), of all of the obligations
imposed on Tenant under this Lease.
For the purposes hereof, adequate assurance of future performance means that Landlord has
ascertained that each of the following conditions has been satisfied:
(i) The assignee has submitted a current financial statement, certified by its chief
financial officer, which shows a net worth and working capital in amounts sufficient to
assure the future performance by the assignee of Tenants obligations under this Lease; and
(ii) Landlord has obtained consents or waivers from any third parties which may be
required under a lease, mortgage, financing arrangement, or other agreement by which
Landlord is bound, to enable Landlord to permit such assignment.
(d) Landlords acceptance of rent or any other payment from any trustee, receiver, assignee,
person, or other entity will not be deemed to have waived, or waive, the requirement of Landlords
consent, Landlords right to terminate this Lease for any transfer of Tenants interest under this
Lease without such consent, or Landlords claim for any amount of Rent due from Tenant.
11.05 LANDLORDS DEFAULT
Landlord shall be in default hereunder in the event Landlord has not begun and pursued with
reasonable diligence the cure of any failure of Landlord to meet its obligations hereunder within
thirty (30) days after the receipt by Landlord of written notice from Tenant of the alleged
failure to perform. In no event shall Tenant have the right to terminate or rescind this Lease as
a result of Landlords default as to any covenant or agreement contained in this Lease. Tenant
hereby waives such remedies of termination and rescission and hereby agrees that Tenants remedies
for default hereunder and for breach of any promise or inducement shall be limited to a suit for
damages and/or injunction. In addition, Tenant hereby covenants that, prior to the exercise of any
such remedies, it will give Mortgagee notice and a reasonable time to cure any default by
Landlord.
ARTICLE TWELVE
SURRENDER OF PREMISES
12.01 IN GENERAL
Upon the Termination Date, Tenant shall surrender and vacate the Premises immediately and deliver
possession thereof to Landlord in a clean, good and tenantable condition, ordinary wear and tear,
and damage caused by Landlord excepted. Tenant shall deliver to Landlord all keys to the Premises.
Tenant shall remove from the Premises all movable personal property of Tenant and Tenants trade
fixtures, including, subject to Section 6.04, cabling for any of the foregoing. Tenant shall be
entitled to remove such Tenant Additions which at the time of their installation Landlord and
Tenant agreed may be removed by Tenant. Tenant shall also remove such other Tenant Additions as
required by Landlord, including any Tenant Additions containing Hazardous Material. Tenant
immediately shall repair all damage resulting from removal of any of Tenants property,
furnishings, Tenants Personal Property or Tenant Additions, shall close all floor, ceiling and
roof openings and shall restore the Premises to a tenantable condition as reasonably determined by
Landlord. If any of the Tenant Additions which were installed by Tenant involved the lowering of
ceilings, raising of floors or the installation of specialized wall or floor coverings or lights,
then Tenant shall also be obligated to return such surfaces to their condition prior to the
commencement of this Lease. Tenant shall also be required to close any staircases or other
openings between floors. Notwithstanding any of the foregoing to the contrary, if so requested by
Tenant in writing (and prominently in all capital and bold lettering which also states that such
request is pursuant to Section 12.01 of the Lease) at the time Tenant requests approval of any
Tenant Work or subsequent Tenant Alterations, Landlord shall advise Tenant at the time of
Landlords approval of such Tenant Work or Tenant Alterations as to whether Landlord will require
that such Tenant Work or Tenant Alterations be removed by Tenant from the Premises; provided,
however,
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regardless of the foregoing, in any event, Landlord may require removal of any Tenant Additions
containing Hazardous Material and all Tenants trade fixtures, and, subject to Section 6.03,
cabling and wiring installed for Tenants personal property or trade fixtures. In the event
possession of the Premises is not delivered to Landlord when required hereunder, or if Tenant shall
fail to remove those items described above, Landlord may (but shall not be obligated to), at
Tenants expense, remove any of such property and store, sell or otherwise deal with such property
as provided in Section 11.02(b), including the waiver and indemnity obligations provided in that
Section, and undertake, at Tenants expense, such restoration work as Landlord deems necessary or
advisable.
12.02 LANDLORDS RIGHTS
All property which may be removed from the Premises by Landlord shall be conclusively presumed to
have been abandoned by Tenant and Landlord may deal with such property as provided in Section
11.02(b), including the waiver and indemnity obligations provided in that Section. Tenant shall
also reimburse Landlord for all costs and expenses incurred by Landlord in removing any of Tenant
Additions required to be removed pursuant to Section 12.01 above and in restoring the Premises to
the condition required by this Lease at the Termination Date.
ARTICLE THIRTEEN
HOLDING OVER
Tenant shall pay Landlord the greater of (i) 150% of the monthly Rent payable for the month
immediately preceding the holding over (including increases for Rent Adjustments which Landlord
may reasonably estimate) or, (ii) 150% of the fair market rental value of the Premises as
reasonably determined by Landlord for each month or portion thereof that Tenant retains possession
of the Premises, or any portion thereof, after the Termination Date (without reduction for any
partial month that Tenant retains possession). Tenant shall also pay all damages sustained by
Landlord by reason of such retention of possession. The provisions of this Article shall not
constitute a waiver by Landlord of any re-entry rights of Landlord and Tenants continued
occupancy of the Premises shall be as a tenancy in sufferance.
ARTICLE FOURTEEN
DAMAGE BY FIRE OR OTHER CASUALTY
14.01 SUBSTANTIAL UNTENANTABILITY
(a) If any fire or other casualty (whether insured or uninsured) renders all or a substantial
portion of the Premises or the Building untenantable, Landlord shall, with reasonable promptness
after the occurrence of such damage, estimate the length of time that will be required to
substantially complete the repair and restoration and shall by notice advise Tenant of such
estimate (Landlords Notice). If Landlord estimates that the amount of time required to
substantially complete such repair and restoration will exceed one hundred eighty (180) days from
the date such damage occurred, then Landlord, or Tenant if all or a substantial portion of the
Premises is rendered untenantable, shall have the right to terminate this Lease as of the date of
such damage upon giving written notice to the other at any time within twenty (20) days after
delivery of Landlords Notice, provided that if Landlord so chooses, Landlords Notice may also
constitute such notice of termination.
(b) In the event that the Building is damaged or destroyed to the extent of more than
twenty-five percent (25%) of its replacement cost or to any extent if no insurance proceeds or
insufficient insurance proceeds are receivable by Landlord, or if the buildings at the Project
shall be damaged to the extent of fifty percent (50%) or more of the replacement value or to any
extent if no insurance proceeds or insufficient insurance proceeds are receivable by Landlord, and
regardless of whether or not the Premises be damaged, Landlord may elect by written notice to
Tenant given within thirty (30) days after the occurrence of the casualty to terminate this Lease
in lieu of so restoring the Premises, in which event this Lease shall terminate as of the date
specified in Landlords notice, which date shall be no later than sixty (60) days following the
date of Landlords notice.
(c) Unless this Lease is terminated as provided in the preceding Subsections 14.01 (a) and
(b), Landlord shall proceed with reasonable promptness to repair and restore the Premises to its
condition as existed prior to such casualty, subject to reasonable delays for insurance adjustments
and Force Majeure delays, and also subject to zoning Laws and building codes then in effect.
Landlord shall have no liability to Tenant, and Tenant shall not be entitled to terminate this
Lease if such repairs and restoration are not in fact completed within the time period estimated by
Landlord so long as Landlord shall proceed with reasonable diligence to complete such repairs and
restoration.
(d) Tenant acknowledges that Landlord shall be entitled to the full proceeds of any insurance
coverage, whether carried by Landlord or Tenant, for damages to the Premises, except for those
proceeds of
Tenants insurance of its own personal property and equipment which would be removable by
Tenant at the Termination Date. All such insurance proceeds shall be payable to Landlord whether or
not the Premises are to be repaired and restored, provided, however, if this Lease is not
terminated and the parties proceed to repair and restore Tenant Additions at Tenants cost, to the
extent Landlord received proceeds of Tenants insurance covering Tenant Additions, such proceeds
shall be applied to reimburse Tenant for its cost of repairing and restoring Tenant Additions.
(e) Notwithstanding anything in this Article Fourteen to the contrary: (i) Landlord shall
have no duty pursuant to this Section to repair or restore any portion of any Tenant Additions or
to expend for any repair or restoration of the Premises or Building amounts in excess of insurance
proceeds paid to Landlord and available for repair or restoration; and (ii) Tenant shall not have
the right to terminate this Lease pursuant to this Section if any damage or destruction was caused
by the gross negligence or willful and wrongful act of Tenant, its agent or employees. Whether or
not the Lease is terminated pursuant to this Article Fourteen, in no event shall Tenant be entitled
to any compensation or damages for loss of the use of the whole or any part of the Premises or for
any
21
inconvenience or annoyance occasioned by any such damage, destruction, rebuilding or restoration
of the Premises or the Building or access thereto.
(f) Any repair or restoration of the Premises performed by Tenant shall be in
accordance with the provisions of Article Nine hereof.
14.02 INSUBSTANTIAL UNTENANTABILITY
Unless this Lease is terminated as provided in the preceding Subsections 14.01 (a) and (b), then
Landlord shall proceed to repair and restore the Building or the Premises other than Tenant
Additions, with reasonable promptness, unless such damage is to the Premises and occurs during the
last six (6) months of the Term, in which event either Tenant or Landlord shall have the right to
terminate this Lease as of the date of such casualty by giving written notice thereof to the other
within twenty (20) days after the date of such casualty. Notwithstanding the foregoing, Landlords
obligation to repair shall be limited in accordance with the provisions of Section 14.01 above.
14.03 RENT ABATEMENT
Except for (i) the willful and wrongful act of Tenant or its agents, employees, contractors or
invitees, or (ii) the gross negligence of Tenant or its agents, employees, contractors or invitees
only if and to the extent Landlord receives rental abatement insurance proceeds covering abatement
of the Rent hereunder, then, if all or any part of the Premises are rendered untenantable by fire
or other casualty and this Lease is not terminated, Monthly Base Rent and Rent Adjustments shall
abate for that part of the Premises which is untenantable on a per diem basis from the date of the
casualty until Landlord has Substantially Completed the repair and restoration work in the
Premises which it is required to perform, provided, that as a result of such casualty, Tenant does
not occupy the portion of the Premises which is untenantable during such period.
14.04 WAIVER OF STATUTORY REMEDIES
The provisions of this Lease, including this Article Fourteen, constitute an express agreement
between Landlord and Tenant with respect to any and all damage to, or destruction of, the Premises
or the Property or any part of either, and any Law, including Sections 1932(2), 1933(4), 1941 and
1942 of the California Civil Code, with respect to any rights or obligations concerning damage or
destruction shall have no application to this Lease or to any damage to or destruction of all or
any part of the Premises or the Property or any part of either, and are hereby waived.
ARTICLE FIFTEEN
EMINENT DOMAIN
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART
In the event the whole or any substantial part of the Building or of the Premises is taken or
condemned by any competent authority for any public use or purpose (including a deed given in lieu
of condemnation) and is thereby rendered untenantable, this Lease shall terminate as of the date
title vests in such authority or any earlier date on which possession is required to be surrendered
to such authority, and Monthly Base Rent and Rent Adjustments shall be apportioned as of the
Termination Date. Further, if at least twenty-five percent (25%) of the rentable area of the
Project is taken or condemned by any competent authority for any public use or purpose (including a
deed given in lieu of condemnation), and regardless of whether or not the Premises be so taken or
condemned, Landlord may elect by written notice to Tenant to terminate this Lease as of the date
title vests in such authority or any earlier date on which possession is required to be surrendered
to such authority, and Monthly Base Rent and Rent Adjustments shall be apportioned as of the
Termination Date. Landlord may, without any obligation to Tenant, agree to sell or convey to the
taking authority the Premises, the Building, Tenants Phase, the Project or any portion thereof
sought by the taking authority, free from this Lease and the right of Tenant hereunder, without
first requiring that any action or proceeding be instituted or, if instituted, pursued to a
judgment. Notwithstanding anything to the contrary herein set forth, in the event the taking of the
Building or Premises is temporary (for less than the remaining term of the Lease), Landlord may
elect either (i) to terminate this Lease or (ii) permit Tenant to receive the entire award
attributable to the Premises in which case Tenant shall continue to pay Rent and this Lease shall
not terminate.
15.02 TAKING OF PART
In the event a part of the Building or the Premises is taken or condemned by any competent
authority (or a deed is delivered in lieu of condemnation) and this Lease is not terminated, the
Lease shall be amended to reduce or increase, as the case may be, the Monthly Base Rent and
Tenants Share to reflect the Rentable Area of the Premises or Building, as the case may be,
remaining after any such taking or condemnation. Landlord, upon receipt and to the extent of the
award in condemnation (or proceeds of sale) shall make necessary repairs and restorations to the
Premises (exclusive of Tenant Additions) and to the Building to the extent necessary to constitute
the portion of the Building not so taken or condemned as a complete architectural and economically
efficient unit. Notwithstanding the foregoing, if as a result of any taking, or a governmental
order that the grade of any street or alley adjacent to the Building is to be changed and such
taking or change of grade makes it necessary or desirable to substantially remodel or restore the
Building or prevents the economical operation of the Building, Landlord shall have the right to
terminate this Lease upon ninety (90) days prior written notice to Tenant.
15.03 COMPENSATION
Landlord shall be entitled to receive the entire award (or sale proceeds) from any such taking,
condemnation or sale without any payment to Tenant, and Tenant hereby assigns to Landlord
Tenants interest, if any, in such
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award; provided, however, Tenant shall have the right separately to pursue against the condemning
authority a separate award in respect of the loss, if any, to Tenant Additions paid for by Tenant
without any credit or allowance from Landlord, for fixtures or personal property of Tenant, or for
relocation or business interruption expenses, so long as there is no diminution of Landlords
award as a result.
ARTICLE SIXTEEN
INSURANCE
16.01 TENANTS INSURANCE
Tenant, at Tenants expense, agrees to maintain in force, with a company or companies acceptable
to Landlord, during the Term: (a) Commercial General Liability Insurance on a primary basis and
without any right of contribution from any insurance carried by Landlord covering the Premises on
an occurrence basis against all claims for personal injury, bodily injury, death and property
damage, including contractual liability covering the indemnification provisions in this Lease.
Such insurance shall be for such limits that are reasonably required by Landlord from time to time
but not less than a combined single limit of Five Million and No/100 Dollars ($5,000,000.00); (b)
Workers Compensation and Employers Liability Insurance to the extent required by and in
accordance with the Laws of the State of California; (c) All Risks property insurance in an
amount adequate to cover the full replacement cost of all Tenant Additions to the Premises,
equipment, installations, fixtures and contents of the Premises in the event of loss; (d) In the
event a motor vehicle is to be used by Tenant in connection with its business operation from the
Premises, Comprehensive Automobile Liability Insurance coverage with limits of not less than Three
Million and No/100 Dollars ($3,000,000.00) combined single limit coverage against bodily injury
liability and property damage liability arising out of the use by or on behalf of Tenant, its
agents and employees in connection with this Lease, of any owned, non-owned or hired motor
vehicles; and (e) such other insurance or coverages as Landlord reasonably requires.
16.02 FORM OF POLICIES
Each policy referred to in 16.01 shall satisfy the following requirements. Each policy shall (i)
name Landlord and the Indemnitees as additional insureds (except Workers Compensation and
Employers Liability Insurance), (ii) be issued by one or more responsible insurance companies
licensed to do business in the State of California reasonably satisfactory to Landlord, (iii)
where applicable, provide for deductible amounts satisfactory to Landlord and not permit
co-insurance, (iv) shall provide that such insurance may not be canceled or amended without thirty
(30) days prior written notice to the Landlord, and (v) each policy of All-Risks property
insurance shall provide that the policy shall not be invalidated should the insured waive in
writing prior to a loss, any or all rights of recovery against any other party for losses covered
by such policies. Tenant shall deliver to Landlord, certificates of insurance and at Landlords
request, copies of all policies and renewals thereof to be maintained by Tenant hereunder, not
less than ten (10) days prior to the Commencement Date and not less than ten (10) days prior to
the expiration date of each policy.
16.03 LANDLORDS INSURANCE
Landlord agrees to purchase and keep in full force and effect during the Term hereof, including
any extensions or renewals thereof, insurance under policies issued by insurers of recognized
responsibility, qualified to do business in the State of California on the Building in amounts not
less than the greater of eighty (80%) percent of the then full replacement cost (without
depreciation) of the Building (above foundations and excluding Tenant Additions to the Premises)
or an amount sufficient to prevent Landlord from becoming a co-insurer under the terms of the
applicable policies, against fire and such other risks as may be included in standard forms of all
risk coverage insurance reasonably available from time to time. Landlord agrees to maintain in
force during the Term, Commercial General Liability Insurance covering the Building on an
occurrence basis against all claims for personal injury, bodily injury, death and property damage.
Such insurance shall be for a combined single limit of Five Million and No/100 Dollars
($5,000,000.00). Neither Landlords obligation to carry such insurance nor the carrying of such
insurance shall be deemed to be an indemnity by Landlord with respect to any claim, liability,
loss, cost or expense due, in whole or in part, to Tenants negligent acts or omissions or willful
misconduct. Without obligation to do so, Landlord may, in its sole discretion from time to time,
carry insurance in amounts greater and/or for coverage additional to the coverage and amounts set
forth above.
16.04 WAIVER OF SUBROGATION
(a) Landlord agrees that, if obtainable at no, or minimal, additional cost, and so long as the
same is permitted under the laws of the State of California, it will include in its All Risks
policies appropriate clauses pursuant to which the insurance companies (i) waive all right of
subrogation against Tenant with respect to losses payable under such policies and/or (ii) agree
that such policies shall not be invalidated should the insured waive in writing prior to a loss any
or all right of recovery against any party for losses covered by such policies.
(b) Tenant agrees to include, if obtainable at no, or minimal, additional cost, and so long as
the same is permitted under the laws of the State of California, in its All Risks insurance
policy or policies on Tenant Additions to the Premises, whether or not removable, and on Tenants
furniture, furnishings, fixtures and other property removable by Tenant under the provisions of
this Lease appropriate clauses pursuant to which the insurance company or companies (i) waive the
right of subrogation against Landlord and/or any tenant of space in the Building with respect to
losses payable under such policy or policies and/or (ii) agree that such policy or policies shall
not be invalidated should the insured waive in writing prior to a loss any or all right of recovery
against any party for losses covered by such policy or policies. If Tenant is unable to obtain in
such policy or policies either of the clauses described in the preceding sentence, Tenant shall, if
legally possible and without necessitating a change in insurance carriers, have Landlord named in
such policy or policies as an additional insured. If Landlord shall be named as an additional
insured in accordance with the foregoing, Landlord agrees to endorse promptly to the order of
Tenant, without recourse, any check, draft, or order for the payment of money representing the
23
proceeds of any such policy or representing any other payment growing out of or connected with
said policies, and Landlord does hereby irrevocably waive any and all rights in and to such
proceeds and payments.
(c) Provided that Landlords right of full recovery under its policy or policies aforesaid
is not adversely affected or prejudiced thereby, Landlord hereby waives any and all right of
recovery which it might otherwise have against Tenant, its servants, agents and employees, for
loss or damage occurring to the Real Property and the fixtures, appurtenances and equipment
therein, except Tenant Additions, to the extent the same is covered by Landlords insurance,
notwithstanding that such loss or damage may result from the negligence or fault of Tenant, its
servants, agents or employees. Provided that Tenants right of full recovery under its aforesaid
policy or policies is not adversely affected or prejudiced thereby, Tenant hereby waives any and
all right of recovery which it might otherwise have against Landlord, its servants, and employees
and against every other tenant in the Real Property who shall have executed a similar waiver as
set forth in this Section 16.04 (c) for loss or damage to Tenant Additions, whether or not
removable, and to Tenants furniture, furnishings, fixtures and other property removable by
Tenant under the provisions hereof to the extent the same is covered or coverable by Tenants
insurance required under this Lease, notwithstanding that such loss or damage may result from the
negligence or fault of Landlord, its servants, agents or employees, or such other tenant and the
servants, agents or employees thereof.
(d) Landlord and Tenant hereby agree to advise the other promptly if the clauses to be
included in their respective insurance policies pursuant to subparagraphs (a) and (b) above
cannot be obtained on the terms
hereinbefore provided and thereafter to furnish the other with a certificate of insurance or
copy of such policies showing the naming of the other as an additional insured, as aforesaid.
Landlord and Tenant hereby also agree to notify the other promptly of any cancellation or
change of the terms of any such policy which would affect such clauses or naming. All such
policies which name both Landlord and Tenant as additional insureds shall, to the extent
obtainable, contain agreements by the insurers to the effect that no act or omission of any
additional insured will invalidate the policy as to the other additional insureds.
16.05 NOTICE OF CASUALTY
Tenant shall give Landlord notice in case of a fire or accident in the Premises promptly after
Tenant is aware of such event.
ARTICLE SEVENTEEN
WAIVER OF CLAIMS AND INDEMNITY
17.01 WAIVER OF CLAIMS
To the extent permitted by Law, Tenant releases the Indemnitees from, and waives all claims for,
damage to person or property sustained by the Tenant or any occupant of the Premises or the
Property resulting directly or indirectly from any existing or future condition, defect, matter
or thing in and about the Premises or the Property, or any part of either, or any equipment or
appurtenance therein, or resulting from any accident in or about the Premises or the Property, or
resulting directly or indirectly from any act or neglect of any tenant or occupant of the
Property or of any other person, including Landlords agents and servants, except to the extent
caused by the gross negligence or willful and wrongful act of any of the Indemnitees. If any such
damage, whether to the Premises or the Property or any part of either, or whether to Landlord or
to other tenants in the Property, results from any act or neglect of Tenant, its employees,
servants, agents, contractors, invitees or customers, Tenant shall be liable therefor and
Landlord may, at Landlords option, repair such damage and Tenant shall, upon demand by Landlord,
as payment of additional Rent hereunder, reimburse Landlord within ten (10) days of demand for
the total cost of such repairs, in excess of amounts, if any, paid to Landlord under insurance
covering such damages. Tenant shall not be liable for any such damage caused by its acts or
neglect to the extent that Landlord or a tenant has recovered any amount of the damage from
proceeds of insurance policies and the insurance company has waived its right of subrogation
against Tenant.
17.02 INDEMNITY BY TENANT
To the extent permitted by Law, Tenant hereby indemnifies, and agrees to protect, defend and
hold the Indemnitees harmless, against any and all actions, claims, demands, liability, costs
and expenses, including reasonable attorneys fees and expenses for the defense thereof, arising
from Tenants occupancy of the Premises, from the undertaking of any Tenant Additions or repairs
to the Premises, from the conduct of Tenants business on the Premises, or from any breach or
default on the part of Tenant in the performance of any covenant or agreement on the part of
Tenant to be performed pursuant to the terms of this Lease, or from any willful act or
negligence of Tenant, its agents, contractors, servants, employees, customers or invitees, in or
about the Premises
or the Property or any part of either. In case of any action or proceeding brought against the
Indemnitees by reason of any such claim, upon notice from Landlord, Tenant covenants to defend
such action or proceeding by counsel chosen by Landlord, in Landlords sole discretion. Landlord
reserves the right to settle, compromise or dispose of any and all actions, claims and demands
related to the foregoing indemnity. The foregoing indemnity shall not operate to relieve an
Indemnitee of liability to the extent such liability is caused by the gross negligence or
willful and wrongful act of such Indemnitee. Further, the foregoing indemnity is subject to and
shall not diminish any waivers in effect in accordance with Section 16.04 by Landlord or its
insurers to the extent of amounts, if any, paid to Landlord under its All-Risks property
insurance.
17.03 WAIVER OF CONSEQUENTIAL DAMAGES
To the extent permitted by law, Tenant hereby waives and releases the Indemnitees from any
consequential damages, compensation or claims for inconvenience or loss of business, rents or
profits as a result of any injury or damage, whether or not caused by the willful and wrongful
act of any of the Indemnitees.
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ARTICLE
EIGHTEEN
RULES AND REGULATIONS
18.01 RULES
Tenant agrees for itself and for its subtenants, employees, agents, and invitees to comply with all
reasonable rules and regulations for use of the Premises, the Building, the Phase and the Project
imposed by Landlord, as the same may be revised from time to time, including the following: (a)
Tenant shall comply with all of the requirements of Landlords emergency response plan, as the same
may be amended from time to time; and (b) Tenant shall not place any furniture, furnishings,
fixtures or equipment in the Premises in a manner so as to obstruct the windows of the Premises to
cause the Building, in Landlords good faith determination, to appear unsightly from the exterior.
Such rules and regulations are and shall be imposed for the cleanliness, good appearance, proper
maintenance, good order and reasonable use of the Premises, the Building, the Phase and the Project
and as may be necessary for the enjoyment of the Building and the Project by all tenants and their
clients, customers, and employees.
18.02 ENFORCEMENT
Nothing in this Lease shall be construed to impose upon the Landlord any duty or obligation to
enforce the rules and regulations as set forth above or as hereafter adopted, or the terms,
covenants or conditions of any other lease as against any other tenant, and the Landlord shall not
be liable to the Tenant for violation of the same by any other tenant, its servants, employees,
agents, visitors or licensees. Landlord shall use reasonable efforts to enforce the rules and
regulations of the Building in a uniform and non-discriminatory manner.
ARTICLE NINETEEN
LANDLORDS RESERVED RIGHTS
Landlord shall have the following rights exercisable without notice to Tenant and without
liability to Tenant for damage or injury to persons, property or business and without being deemed
an eviction or disturbance of Tenants use or possession of the Premises or giving rise to any
claim for offset or abatement of Rent: (1) to change the Buildings name or street address upon
thirty (30) days prior written notice to Tenant; (2) to install, affix and maintain all signs on
the exterior and/or interior of the Building; (3) to designate and/or approve prior to
installation, all types of signs, window shades, blinds, drapes, awnings or other similar items,
and all internal lighting that may be visible from the exterior of the Premises; (4) upon
reasonable notice to Tenant, to display the Premises to prospective purchasers at reasonable hours
at any time during the Term and to prospective tenants at reasonable hours during the last twelve
(12) months of the Term; (5) to grant to any party the exclusive right to conduct any business or
render any service in or to the Building, provided such exclusive right shall not operate to
prohibit Tenant from using the Premises for the purpose permitted hereunder; (6) to change the
arrangement and/or location of entrances or passageways, doors and doorways, corridors, elevators,
stairs, washrooms or public portions of the Building, and to close entrances, doors, corridors,
elevators or other facilities, provided that such action shall not materially and adversely
interfere with Tenants access to the Premises or the Building; (7) to have access for Landlord
and other tenants of the Building to any mail chutes and boxes located in or on the Premises as
required by any applicable rules of the United States Post Office; and (8) to close the Building
after Standard Operating Hours, except that Tenant and its employees and invitees shall be
entitled to admission at all times, under such regulations as Landlord prescribes for security
purposes.
ARTICLE TWENTY
ESTOPPEL CERTIFICATE
20.01 IN GENERAL
Within fifteen (15) days after request therefor by Landlord, Mortgagee or any prospective
mortgagee or owner, Tenant agrees as directed in such request to execute an Estoppel Certificate
in recordable form, binding upon Tenant, certifying (i) that this Lease is unmodified and in full
force and effect (or if there have been modifications, a description of such modifications and
that this Lease as modified is in full force and effect); (ii) the dates to which Rent has been
paid; (iii) that Tenant is in the possession of the Premises if that is the case; (iv) that
Landlord is not in default under this Lease, or, if Tenant believes Landlord is in default, the
nature thereof in detail; (v) that Tenant has no offsets or defenses to the performance of its
obligations under this Lease (or if Tenant believes there are any offsets or defenses, a full and
complete explanation thereof); (vi) that the Premises have been completed in accordance with the
terms and provisions hereof, that Tenant has accepted the Premises and the condition thereof and
of all improvements thereto and has no claims against Landlord or any other party with respect
thereto; (vii) that if an assignment of rents or leases has been served upon the Tenant by a
Mortgagee, Tenant will
acknowledge receipt thereof and agree to be bound by the provisions thereof; (viii) that Tenant
will give to the Mortgagee copies of all notices required or permitted to be given by Tenant to
Landlord; and (ix) to any other information reasonably requested.
20.02 ENFORCEMENT
In the event that Tenant fails to deliver an Estoppel Certificate within three (3) business days
after Tenant has received notice from Landlord of Tenants failure to deliver an Estoppel
Certificate within the time prescribed in Section 20.01 above, then such failure shall be a
Default for which there shall be no additional cure or grace period. In addition to any other
remedy available to Landlord, Landlord may impose a charge equal to $500.00 for each day that
Tenant fails to deliver an Estoppel Certificate and Tenant shall be deemed to have irrevocably
appointed Landlord as Tenants attorney-in-fact to execute and deliver the subject Estoppel
Certificate that Tenant has failed to deliver.
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ARTICLE TWENTY-ONE
INTENTIONALLY OMITTED
ARTICLE TWENTY-TWO
REAL ESTATE BROKERS
Landlord and Tenant represent to each other that in connection with this Lease they are
represented by Tenants Broker identified in Section 1.01(19) and Landlords Broker identified in
Section 1.01(19), and that except for Tenants Broker and Landlords Broker, neither has dealt
with any real estate broker, sales person, or finder in connection with this Lease, and no such
person initiated or participated in the negotiation of this Lease. Landlord and Tenant hereby
indemnify and agree to protect, defend and hold the other harmless from and against all claims,
losses, damages, liability, costs and expenses (including, without limitation, reasonable
attorneys fees and expenses) by virtue of any broker, agent or other person claiming a commission
or other form of compensation by virtue of alleged representation of, or dealings or discussions
with, Landlord or Tenant, as applicable, with respect to the subject matter of this Lease, except
for Landlords Broker and except for a commission payable to Tenants Broker to the extent
provided for in a separate written agreement between Tenants Broker and Landlords Broker. Tenant
is not obligated to pay or fund any amount to Landlords Broker, and Landlord hereby agrees to pay
such commission, if any, to which Landlords Broker is entitled in connection with the subject
matter of this Lease pursuant to Landlords separate written agreement with Landlords Broker.
Such commission shall include an amount to be shared by Landlords Broker with Tenants Broker to
the extent that Tenants Broker and Landlords Broker have entered into a separate agreement
between themselves to share the commission paid to Landlords Broker by Landlord. The provisions
of this Section shall survive the expiration or earlier termination of the Lease.
ARTICLE TWENTY-THREE
MORTGAGEE PROTECTION
23.01 SUBORDINATION AND ATTORNMENT
This Lease is and shall be expressly subject and subordinate at all times to (i) any ground or
underlying lease of the Real Property, now or hereafter existing, and all amendments, extensions,
renewals and modifications to any such lease, and (ii) the lien of any mortgage or trust deed now
or hereafter encumbering fee title to the Real Property and/or the leasehold estate under any such
lease, and all amendments, extensions, renewals, replacements and modifications of such mortgage
or trust deed and/or the obligation secured thereby, unless such ground lease or ground lessor, or
mortgage, trust deed or Mortgagee, expressly provides or elects that the Lease shall be superior
to such lease or mortgage or trust deed. If any such mortgage or trust deed is foreclosed
(including any sale of the Real Property pursuant to a power of sale), or if any such lease is
terminated, upon request of the Mortgagee or ground lessor, as the case may be, Tenant shall
attorn to the purchaser at the foreclosure sale or to the ground lessor under such lease, as the
case may be, provided, however, that such purchaser or ground lessor shall not be (i) bound by any
payment of Rent for more than one month in advance except payments in the nature of security for
the performance by Tenant of its obligations under this Lease; (ii) subject to any offset, defense
or damages arising out of a default of any obligations of any preceding Landlord; or (iii) bound
by any amendment or modification of this Lease made without the written consent of the Mortgagee
or ground lessor; or (iv) liable for any security deposits not actually received in cash by such
purchaser or ground lessor. This subordination shall be self-operative and no further certificate
or instrument of subordination need be required by any such Mortgagee or ground lessor. In
confirmation of such subordination, however, Tenant shall execute promptly any reasonable
certificate or instrument that Landlord, Mortgagee or ground lessor may request. Tenant hereby
constitutes Landlord as Tenants attorney-in-fact to execute such certificate or instrument for
and on behalf of Tenant upon Tenants failure to do so within fifteen (15) days of a request to do
so. Upon request by such successor in interest, Tenant shall execute and deliver reasonable
instruments confirming the attornment provided for herein.
23.02 MORTGAGEE PROTECTION
Tenant agrees to give any Mortgagee or ground lessor, by registered or certified mail, a copy of
any notice of default served upon the Landlord by Tenant, provided that prior to such notice Tenant
has received notice (by way of service on Tenant of a copy of an assignment of rents and leases, or
otherwise) of the address of such Mortgagee or ground lessor. Tenant further agrees that if
Landlord shall have failed to cure such default within the time provided for in this Lease, then
the Mortgagee or ground lessor shall have an additional thirty (30) days after receipt of notice
thereof within which to cure such default or if such default cannot be cured within that time, then
such additional notice time as may be necessary, if, within such thirty (30) days, any Mortgagee or
ground lessor has commenced and is diligently pursuing the remedies necessary to cure such default
(including commencement of foreclosure proceedings or other proceedings to acquire possession of
the Real Property, if necessary to effect such cure). Such period of time shall be extended by any
period within which such Mortgagee or ground lessor is prevented from commencing or pursuing such
foreclosure proceedings or other proceedings to acquire possession of the Real Property by reason
of Landlords bankruptcy. Until the time allowed as aforesaid for Mortgagee or ground lessor to
cure such defaults has expired without cure, Tenant shall have no right to, and shall not,
terminate this Lease on account of default. This Lease may not be modified or amended so as to
reduce the Rent or shorten the Term, or so as to adversely affect in any other respect to any
material extent the rights of the Landlord, nor
shall this Lease be canceled or surrendered, without the prior written consent, in each instance,
of the ground lessor or the Mortgagee.
ARTICLE TWENTY-FOUR
NOTICES
(a) All notices, demands or requests provided for or permitted to be given pursuant to
this Lease must be in writing and shall be personally delivered, sent by Federal Express or other
reputable overnight courier
26
service, or mailed by first class, registered or certified United States mail, return receipt
requested, postage prepaid.
(b) All notices, demands or requests to be sent pursuant to this Lease shall be deemed to have
been properly given or served by delivering or sending the same in accordance with this Section,
addressed to the parties hereto at their respective addresses listed in Sections 1.01(2) and (3).
(c) Notices, demands or requests sent by mail or overnight courier service as described above
shall be effective upon deposit in the mail or with such courier service. However, the time period
in which a response to any such notice, demand or request must be given shall commence to run from
(i) in the case of delivery by mail, the date of receipt on the return receipt of the notice,
demand or request by the addressee thereof, or (ii) in the case of delivery by Federal Express or
other overnight courier service, the date of acceptance of delivery by an employee, officer,
director or partner of Landlord or Tenant. Rejection or other refusal to accept or the inability
to deliver because of changed address of which no notice was given, as indicated by advice from
Federal Express or other overnight courier service or by mail return receipt, shall be deemed to be
receipt of notice, demand or request sent. Notices may also be served by personal service upon any
officer, director or partner of Landlord or Tenant, and shall be effective upon such service.
(d) By giving to the other party at least thirty (30) days written notice thereof, either
party shall have the right from time to time during the term of this Lease to change their
respective addresses for notices, statements, demands and requests, provided such new address shall
be within the United States of America.
ARTICLE TWENTY-FIVE
EXERCISE FACILITY
Tenant agrees to inform all employees of Tenant of the following: (i) the exercise facility is
available for the use of the employees of tenants of the Project only and for no other person; (ii)
use of the facility is at the risk of Tenant or Tenants employees, and all users must sign a
release; (iii) the facility is unsupervised; and (iv) users of the facility must report any needed
equipment maintenance or any unsafe conditions to the Landlord immediately. Landlord may
discontinue providing such facility at Landlords sole option at any time without incurring any
liability. As a condition to the use of the exercise facility, Tenant and each of Tenants
employees that uses the exercise facility shall first sign a written release in form and substance
acceptable to Landlord. Landlord may change the rules and/or hours of the exercise facility at any
time, and Landlord reserves the right to deny access to the exercise facility to anyone due to
misuse of the facility or noncompliance with rules and regulations of the facility. To the extent
permitted by Law, Tenant hereby indemnifies, and agrees to protect, defend and hold the Indemnitees
harmless, against any and all actions, claims, demands, liability, costs and expenses, including
reasonable attorneys fees and expenses for the defense thereof, arising from use of the exercise
facility in the Project by Tenant, Tenants employees or invitees, except to the extent due to the
gross negligence or willful and wrongful act of Landlord or Indemnitees. In case of any action or
proceeding brought against the Indemnitees by reason of any such claim, upon notice from Landlord,
Tenant covenants to defend such action or proceeding by counsel chosen by Landlord, in Landlords
sole discretion. Landlord reserves the right to settle, compromise or dispose of any and all
actions, claims and demands related to the foregoing indemnity.
ARTICLE TWENTY-SIX
MISCELLANEOUS
26.01 LATE CHARGES
(a) The Monthly Base Rent, Rent Adjustments and Rent Adjustment Deposits shall be due when and
as specifically provided above. Except for such payments and late charges described below, which
late charge shall be due when provided below (without notice or demand), all other payments
required hereunder to Landlord shall be paid within ten (10) days after Landlords demand therefor.
All Rent and charges, except late charges, not paid when due shall bear interest from the date due
until the date paid at the Default Rate in effect on the date such payment was due.
(b) In the event Tenant is more than five (5) days late in paying any installment of Rent due
under this Lease, Tenant shall pay Landlord a late charge equal to five percent (5%) of the
delinquent installment of Rent. The parties agree that (i) such delinquency will cause Landlord to
incur costs and expenses not contemplated herein, the exact amount of which will be difficult to
calculate, including the cost and expense that will be incurred by Landlord in processing each
delinquent payment of rent by Tenant, and (ii) the amount of such late charge represents a
reasonable estimate of such costs and expenses and that such late charge shall be paid to Landlord
for each delinquent payment in addition to all Rent otherwise due hereunder. The parties further
agree that the payment of late charges and the payment of interest provided for in subparagraph (a)
above are distinct and separate from one another in that the payment of interest is to compensate
Landlord for its inability to use the money improperly withheld by Tenant, while the payment of
late charges is to compensate Landlord for its
additional administrative expenses in handling and processing delinquent payments.
(c) Payment of interest at the Default Rate and/or of late charges shall not excuse or cure
any default by Tenant under this Lease, nor shall the foregoing provisions of this Article or any
such payments prevent Landlord from exercising any right or remedy available to Landlord upon
Tenants failure to pay Rent when due, including the right to terminate this Lease.
26.02 NO JURY TRIAL; VENUE; JURISDICTION
Each party hereto (which includes any assignee, successor, heir or personal representative of a
party) shall not seek a jury trial, hereby waives trial by jury, and hereby further waives any
objection to venue in the County in which the Project is located, and agrees and consents to
personal jurisdiction of the courts of the State of
27
California, in any action or proceeding or counterclaim brought by any party hereto against the
other on any matter whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenants use or occupancy of the Premises, or any claim of
injury or damage, or the enforcement of any remedy under any statute, emergency or otherwise,
whether any of the foregoing is based on this Lease or on tort law. No party will seek to
consolidate any such action in which a jury has been waived with any other action in which a jury
trial cannot or has not been waived. It is the intention of the parties that these provisions shall
be subject to no exceptions. By execution of this Lease the parties agree that this provision may
be filed by any party hereto with the clerk or judge before whom any action is instituted, which
filing shall constitute the written consent to a waiver of jury trial pursuant to and in accordance
with Section 631 of the California Code of Civil Procedure. No party has in any way agreed with or
represented to any other party that the provisions of this Section will not be fully enforced in
all instances. The provisions of this Section shall survive the expiration or earlier termination
of this Lease.
26.03 DEFAULT UNDER OTHER LEASE
It shall be a Default under this Lease if Tenant or any Affiliate holding any other lease with
Landlord for premises in the Project defaults under such lease and as a result thereof such lease
is terminated or terminable.
26.04 OPTION
This Lease shall not become effective as a lease or otherwise until executed and delivered by both
Landlord and Tenant. The submission of the Lease to Tenant does not constitute a reservation of or
option for the Premises, but when executed by Tenant and delivered to Landlord, the Lease shall
constitute an irrevocable offer by Tenant in effect for fifteen (15) days to lease the Premises on
the terms and conditions herein contained.
26.05 TENANT AUTHORITY
Tenant represents and warrants to Landlord that it has full authority and power to enter into and
perform its obligations under this Lease, that the person executing this Lease is fully empowered
to do so, and that no consent or authorization is necessary from any third party. Landlord may
request that Tenant provide Landlord evidence of Tenants authority.
26.06 ENTIRE AGREEMENT
This Lease, the Exhibits and Riders attached hereto contain the entire agreement between Landlord
and Tenant concerning the Premises and there are no other agreements, either oral or written, and
no other representations or statements, either oral or written, on which Tenant has relied. This
Lease shall not be modified except by a writing
executed by Landlord and Tenant.
26.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE
If Mortgagee of Landlord requires a modification of this Lease which shall not result in any
increased cost or expense to Tenant or in any other material and adverse change in the rights and
obligations of Tenant hereunder, then Tenant agrees that the Lease may be so modified.
26.08 EXCULPATION
Tenant agrees, on its behalf and on behalf of its successors and assigns, that any liability or
obligation of Landlord in connection with this Lease shall only be enforced against Landlords
equity interest in the Property up to a maximum of Five Million Dollars ($5,000,000.00) and in no
event against any other assets of the Landlord, or Landlords officers or directors or partners,
and that any liability of Landlord with respect to this Lease shall be so limited and Tenant shall
not be entitled to any judgment in excess of such amount.
26.09 ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount than any installment or payment of
Rent due shall be deemed to be other than on account of the amount due, and no endorsement or
statement on any check or any letter accompanying any check or payment of Rent shall be deemed an
accord and satisfaction, and Landlord may accept such check or payment without prejudice to
Landlords right to recover the balance of such installment or payment of Rent or pursue any other
remedies available to Landlord. No receipt of money by Landlord from Tenant after the termination
of this Lease or Tenants right of possession of the Premises shall reinstate, continue or extend
the Term. Receipt or acceptance of payment from anyone other than Tenant, including an assignee of
Tenant, is not a waiver of any breach of Article Ten, and Landlord may accept such payment on
account of the amount due without prejudice to Landlords right to pursue any remedies available to
Landlord.
26.10 LANDLORDS OBLIGATIONS ON SALE OF BUILDING
In the event of any sale or other transfer of the Building, Landlord shall be entirely freed and
relieved of all agreements and obligations of Landlord hereunder accruing or to be performed after
the date of such sale or transfer (provided, however, that Landlord shall not be freed and relieved
of its obligation for reimbursement of the Security to Tenant unless Landlord has transferred to
such transferee the unapplied balance of Tenants Security held by Landlord at such time), and any
remaining liability of Landlord with respect to this Lease shall be limited to Five Million Dollars
($5,000,000.00) and Tenant shall not be entitled to any judgment in excess of such amount.
26.11 BINDING EFFECT
Subject to the provisions of Article Ten, this Lease shall be binding upon and inure to the benefit
of Landlord and Tenant and their respective heirs, legal representatives, successors and permitted
assigns.
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26.12 CAPTIONS
The Article and Section captions in this Lease are inserted only as a matter of convenience and in
no way define, limit, construe, or describe the scope or intent of such Articles and Sections.
26.13 TIME; APPLICABLE LAW; CONSTRUCTION
Time is of the essence of this Lease and each and all of its provisions. This Lease shall be
construed in accordance with the Laws of the State of California. If more than one person signs
this Lease as Tenant, the obligations hereunder imposed shall be joint and several. 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 item, covenant or condition of
this Lease shall be valid and be enforced to the fullest extent permitted by Law. Wherever the term
including or includes is used in this Lease, it shall have the same meaning as if followed by
the phrase but not limited to. The language in all parts of this Lease shall be construed
according to its normal and usual meaning and not strictly for or against either Landlord or
Tenant.
26.14 ABANDONMENT
In the event Tenant vacates or abandons the Premises but is otherwise in compliance with all the
terms, covenants and conditions of this Lease, Landlord shall (i) have the right to enter into the
Premises in order to show the space to prospective tenants, (ii) have the right to reduce the
services provided to Tenant pursuant to the terms of this Lease to such levels as Landlord
reasonably determines to be adequate services for an unoccupied premises and (iii) during the last
six (6) months of the Term, have the right to prepare the Premises for occupancy by another tenant
upon the end of the Term. Tenant expressly acknowledges that in the absence of written notice
pursuant to Section 11.02(b) or pursuant to California Civil Code Section 1951.3 terminating
Tenants right to possession, none of the foregoing acts of Landlord or any other act of Landlord
shall constitute a termination of Tenants right to possession or an acceptance of Tenants
surrender of the Premises, and the Lease shall continue in effect.
26.15 LANDLORDS RIGHT TO PERFORM TENANTS DUTIES
If Tenant fails timely to perform any of its duties under this Lease, Landlord shall have the right
(but not the obligation), to perform such duty on behalf and at the expense of Tenant without prior
notice to Tenant, and all sums expended or expenses incurred by Landlord in performing such duty
shall be deemed to be additional Rent under this Lease and shall be due and payable upon demand by
Landlord.
26.16 SECURITY SYSTEM
Landlord shall not be obligated to provide or maintain any security patrol or security system.
Landlord shall not be responsible for the quality of any such patrol or system which may be
provided hereunder or for damage or injury to Tenant, its employees, invitees or others due to the
failure, action or inaction of such patrol or system.
26.17 NO LIGHT, AIR OR VIEW EASEMENTS
Any diminution or shutting off of light, air or view by any structure which may be erected on lands
of or adjacent to the Project shall in no way affect this Lease or impose any liability on
Landlord.
26.18 RECORDATION
Neither this Lease, nor any notice nor memorandum regarding the terms hereof, shall be recorded by
Tenant. Any such unauthorized recording shall be a Default for which there shall be no cure or grace
period. Tenant agrees to execute and acknowledge, at the request of Landlord, a memorandum of this
Lease, in recordable form.
26.19 SURVIVAL
The waivers of the right of jury trial, the other waivers of claims or rights, the releases and the
obligations of Tenant under this Lease to indemnify, protect, defend and hold harmless Landlord
and/or Indemnitees shall survive the expiration or termination of this Lease, and so shall all
other obligations or agreements which by their terms survive expiration or termination of the
Lease.
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26.20 EXHIBITS OR RIDERS
All exhibits, riders and/or addenda referred to in this Lease as an exhibit, addenda or rider
hereto or attached hereto, are hereby incorporated into and made a part of this Lease.
IN WITNESS WHEREOF, this Lease has been executed as of the date set forth in Section 1.01(4)
hereof.
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TENANT:
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LANDLORD:
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Genomic Health, Inc.,
a Delaware corporation
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Metropolitan Life Insurance Company,
a New York corporation
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By
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/s/ Randy Scott
Randy Scott
Print name
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BY
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/s/ Joel R. Redmon
Joel R. Redmon
Print name
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Its
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Executive Chairman
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Its
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Director
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(Chairman of Board, President or Vice President)
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By
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/s/ Brad Cole
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Brad Cole
Print name
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Its
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COO/CFO
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(Secretary, Assistant Secretary, CFO or Assistant Treasurer)
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Exhibit A
Plan of Premises
Exhibit A
- Page 1
EXHIBIT B
WORKLETTER AGREEMENT
This Workletter Agreement (Workletter) is attached to and a part of a certain Lease by and
between Metropolitan Life Insurance Company, a New York corporation, as Landlord, and Genomic
Health, Inc., a Delaware corporation, as Tenant, for the Premises (the Lease). Terms used herein
and not defined herein shall have the meaning of such terms as defined elsewhere in the Lease. For
purposes of this Workletter, references to State and City shall mean the State and City in
which the Building is located.
1.
AS
IS Condition; Delivery.
Landlord
shall deliver the Premises broom clean in its current as built configuration with
existing build-out of the tenant space, with the Premises and the Building (including the Base
Building, as defined below) in their AS IS condition, without any express or implied
representations or warranties of any kind by Landlord, its brokers, manager or agents, or the
employees of any of them; and Landlord shall not have any obligation to construct or install any
tenant improvements or alterations or to pay for any such construction or installation except to
the extent expressly provided in this Workletter. For purposes hereof, the Base Building
(sometimes also referred to as the Base Building Work) shall mean the improvements made and work
performed during the Buildings initial course of construction and modifications thereto, excluding
all original and modified build-outs of any tenant spaces. Notwithstanding any provision of this
Workletter or the Lease to the contrary, if and to the extent that upon delivery of the Premises,
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(i)
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the roof and roof membrane above the Premises;
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(ii)
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foundation (excluding slab) and structural components of the Base Building;
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(iii)
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Landlords fire sprinkler and life-safety systems, if any, of the Base Building;
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(iv)
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the electrical, water, sewer and plumbing systems of the Base Building serving the Premises
(but only from the local utilitys systems to the point of entry into the Premises or to the meter
or other point after which such system serves exclusively the Premises);
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(v)
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lighting of the Base Building within the Premises (which is acknowledged and agreed to exclude
any supplemental or special lighting installed by any prior tenant or occupant); and
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(vi)
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loading doors, if any, of the Base Building serving the Premises;
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are not in good working order and condition, and if and to the extent that there is any water
damage to the walls, hard lid ceilings or ceiling tiles, except to the extent any of the foregoing
are to be removed, demolished or altered by Tenant, and within twenty (20) days after the Delivery
Date (as defined in Section 2 of Rider 2) Tenant gives Landlord written notice specifying what is
not in good operating condition, Landlord shall make necessary repairs to put such item or items in
good operating condition. Further, Tenant acknowledges and agrees that, subject to the provisions
of Section 2 of this Workletter, the existing HVAC equipment serving the Premises is delivered in
its AS IS condition, without any express or implied representations or warranties of any kind by
Landlord, its brokers, manager or agents, or the employees of any of them as to its condition, and
Landlord shall not have any obligation for repair or replacement with respect to the HVAC equipment
except to perform the repair and replacement of such HVAC equipment specified below as the Landlord
Work.
2.
Landlord Work.
2.1. Notwithstanding any of the foregoing to the contrary, subject to delays caused by Force
Majeure or Tenant Delay, Landlord, at Landlords sole cost and expense, shall perform the work set
forth on
Exhibit B-1
hereto (Landlord Work), and within sixty (60) days after the
Delivery Date shall Substantially Complete the Landlord Work and leave the affected area in
broom-clean condition with respect to Landlord Work (but Landlord shall not be obligated to do any
clean-up or refuse removal related to construction of Tenant Work).
2.2. Tenant acknowledges and agrees that in order to deliver the Premises to Tenant on the schedule
contemplated by this Lease, preparation for and performance of the Landlord Work will require
access, work and construction within the Premises after delivery of possession to Tenant, and that
Landlord and Landlords representatives and contractors shall have the right to enter the Premises
at all times to perform such work until the Landlord Work is completed, and that such entry and
work shall not constitute an eviction of Tenant in whole or in part and shall in no way excuse
Tenant from performance of its obligations under the Lease. Tenant and Landlord acknowledge and
agree that the Landlord Work and necessary coordination and cooperation to accomplish it will cause
certain unavoidable level of disturbance, inconvenience, annoyance to Tenants use and enjoyment of
the Premises, and that in performing such Landlord Work Landlord shall use commercially reasonable
efforts not to unreasonably and materially disturb Tenants construction, installations and
business operations, if any. Tenant shall cooperate and coordinate with Landlord and Landlords
contractor(s) to allow the Landlord Work to proceed expeditiously. The costs of such cooperation
and coordination shall be at Tenants sole cost and expense.
2.3. The Landlord Work shall be constructed in accordance with all applicable laws, in a good and
workmanlike manner and using new materials and equipment of good quality. Contemporaneously with or
within ten (10) days after Substantial Completion of the Landlord Work, Tenant shall have the right
to submit a written punch list to Landlord, setting forth any defective item of the Landlord
Work. Landlord shall complete with reasonable diligence punch list items mutually agreed upon by
Landlord and Tenant with respect to the
Exhibit B
- Page 1
Landlord Work. In addition, Landlord shall repair all latent defects in workmanship and materials
of the Landlord Work, provided that Tenant gives Landlord written notice of any such latent defects
within three (3) months after the date of Substantial Completion. For purposes of this Section, the
term latent defects shall mean defects which were not reasonably discoverable at the time the
punchlist was formulated. All construction and installation of the Landlord Work shall
immediately become and remain the property of Landlord.
3.
Tenants Plans.
3.1.
Description.
At its expense, Tenant shall employ:
(i) one or more architects reasonably satisfactory to Landlord and licensed by the State (Tenants
Architect) to prepare architectural drawings and specifications for all layout and Premises
improvements not included in, or requiring any change or addition to, the AS IS condition and
Landlord Work, if any.
(ii) one or more engineers reasonably satisfactory to Landlord and licensed by the State (Tenants
Engineers) to prepare structural, mechanical and electrical working drawings and specifications
for all Premises improvements not included in, or requiring any change or addition to, the AS IS
condition and Landlord Work, if any.
All such drawings and specifications are referred to herein as Tenants Plans. Tenants Plans
shall be in form and detail sufficient to secure all applicable governmental approvals. Tenants
Architect shall be responsible for coordination of all engineering work for Tenants Plans and
shall coordinate with any consultants retained by Tenant in connection with the design and
installation of improvements to the Premises (the use of such consultants is subject to Landlords
consent), and Landlords architect or other representative to assure the consistency of Tenants
Plans with the Base Building Work and Landlord Work (if any).
Tenant shall pay Landlord, within ten (10) days of receipt of each invoice from Landlord, the cost
incurred by Landlord for Landlords architects and engineers to review Tenants Plans for
consistency of same with the Base Building Work and Landlord Work, if any. Tenants Plans shall
also include the following:
(a) Final Space Plan: The Final Space Plan for the Premises shall include a full and accurate
description of room titles, floor loads, alterations to the Base Building or Landlord Work (if any)
or requiring any change or addition to the AS IS condition, and the dimensions and location of all
partitions, doors, aisles, plumbing (and furniture and equipment to the extent same affect floor
loading). The Final Space Plan shall (i) be compatible with the design, construction, systems and
equipment of the Base Building and Landlord Work, if any; (ii) specify only materials, equipment
and installations which are new and of a grade and quality no less than existing components of the
Building when they were originally installed (collectively, (i) and (ii) may be referred to as
Building Standard or Building Standards); (iii) comply with Laws, (iv) be capable of logical
measurement and construction, and (v) contain all such information as may be required for the
preparation of the Mechanical and Electrical Working Drawings and Specifications (including,
without limitation, a capacity and usage report, from engineers designated by Landlord pursuant to
Section 3.1(b). below, for all mechanical and electrical systems in the Premises).
(b) Mechanical and Electrical Working Drawings and Specifications: Tenant shall employ engineers
approved by Landlord to prepare Mechanical and Electrical Working Drawings and Specifications
showing complete plans for electrical, life safety, automation, plumbing, water, and air cooling,
ventilating, heating and temperature control and shall employ engineers designated by Landlord to
prepare for Landlord a capacity and usage report (Capacity Report) for all mechanical and
electrical systems in the Premises.
(c) Issued for Construction Documents: The Issued for Construction Documents shall consist of all
drawings (1/8" scale) and specifications necessary to construct all Premises improvements
including, without limitation, architectural and structural working drawings and specifications and
Mechanical and Electrical Working Drawings and Specifications and all applicable governmental
authorities plan check corrections.
3.2.
Approval by Landlord.
Tenants Plans and any revisions thereof shall be subject to
Landlords approval, which approval or disapproval:
(i) shall not be unreasonably withheld, provided however, that Landlord may disapprove Tenants
Plans in its sole and absolute discretion if they (a) adversely affect the structural integrity of
the Building, including applicable floor loading capacity; (b) adversely affect any of the Building
Systems (as defined below), the Common Areas or any other tenant space (whether or not currently
occupied); (c) fail to fully comply with Laws, (d) affect the exterior appearance of the Building;
(e) provide for improvements which do not meet or exceed the Building Standards; or (f) involve any
installation on the roof, or otherwise affect the roof, roof membrane or any warranties regarding
either. Building Systems collectively shall mean the structural, electrical, mechanical (including,
without limitation, heating, ventilating and air conditioning), plumbing, fire and life-safety
(including, without limitation, fire protection system and any fire alarm), communication, utility,
gas (if any), and security (if any) systems in the Building.
(ii) shall not be delayed beyond ten (10) business days with respect to initial submissions and
major change orders (those which impact Building Systems or any other item listed in subpart (i) of
Section 3.2 above) and beyond five (5) business days with respect to required revisions and any
other change orders.
Exhibit B
- Page 2
If Landlord disapproves of any of Tenants Plans, Landlord shall advise Tenant of what Landlord
disapproves in reasonable detail. After being so advised by Landlord, Tenant shall submit a
redesign, incorporating the revisions required by Landlord, for Landlords approval. The approval
procedure shall be repeated as necessary until Tenants Plans are ultimately approved. Approval by
Landlord shall not be deemed to be a representation or warranty by Landlord with respect to the
safety, adequacy, correctness, efficiency or compliance with Laws of Tenants Plans. Tenant shall
be fully and solely responsible for the safety, adequacy, correctness and efficiency of Tenants
Plans and for the compliance of Tenants Plans with any and all Laws.
3.3.
Landlord Cooperation.
Landlord shall cooperate with Tenant and make good faith efforts
to coordinate Landlords construction review procedures to expedite the planning, commencement,
progress and completion of Tenant Work. Landlord shall complete its review of each stage of
Tenants Plans and any revisions thereof and communicate the results of such review within the time
periods set forth in Section 3.2 above.
3.4.
City Requirements.
Any changes in Tenants Plans which are made in response to
requirements of the applicable governmental authorities and/or changes which affect the Base
Building Work shall be immediately submitted to Landlord for
Landlords review and approval.
3.5.
As-Built Drawings and Specifications.
A CADD-DXF diskette file and a set of mylar
reproducibles of all as-built drawings and specifications of Tenants Work in the Premises
(reflecting all field changes and including, without limitation, architectural, structural,
mechanical and electrical drawings and specifications) prepared by Tenants Architect and Engineers
or by Contractors (defined below) shall be delivered by Tenant at Tenants expense to the Landlord
within thirty (30) days after completion of the Tenant Work. If Landlord has not received such
drawings and diskette(s) within thirty (30) days, Landlord may give Tenant written notice of such
failure. If Tenant does not produce the drawings and diskette(s) within ten (10) days after
Landlords written notice, Landlord may, at Tenants sole cost which may be deducted from the
Allowance, produce the drawings and diskette(s) using Landlords personnel, managers, and outside
consultants and contractors. Landlord shall receive an hourly rate reasonable for such production.
4.
Tenant Work.
4.1.
Tenant Work Defined.
All tenant improvement work required by the Issued for
Construction Documents (including, without limitation, any approved changes, additions or
alterations pursuant to Section 7 below) is referred to in this Workletter as Tenant Work.
4.2.
Tenant to Construct.
Tenant shall construct all Tenant Work pursuant to this
Workletter, and except to the extent modified by or inconsistent with express provisions of this
Workletter, pursuant with the provisions of the terms and conditions of Article Nine of the Lease,
governing Tenant Alterations (except to the extent modified by this Workletter) and all such Tenant
Work shall be considered Tenant Alterations for purposes of the Lease.
4.3.
Construction Contract
. All contracts and subcontracts for
Tenant Work shall include any terms and conditions reasonably required by Landlord.
4.4.
Contractor
. Tenant shall select one or more contractors to perform
the Tenant Work (Contractor) subject to Landlords prior written approval, which shall not unreasonably be withheld.
4.5.
Division of Landlord Work and Tenant Work
. Tenant Work is
defined in Section 4.1. above and Landlord Work, if any, is defined in Section 2.
5.
Tenants Expense.
Tenant agrees to pay for all Tenant Work, including, without limitation, the costs of design
thereof, whether or not all such costs are included in the Permanent Improvement Costs (defined
below). Subject to the terms and conditions of this Workletter, Tenant shall apply the Allowance
(defined below) to payment of the Permanent Improvement Costs. Landlord shall provide Tenant a
tenant improvement allowance (Allowance) in the amount equal to Three Hundred Seven Thousand Two
Hundred Eighty and no/100 Dollars ($307,280.00). The Allowance shall be used solely to reimburse
Tenant for the Permanent Improvement Costs. The term Permanent Improvement Costs shall mean the
actual and reasonable costs of construction of that Tenant Work which constitutes permanent
improvements to the Premises, actual and reasonable costs of design thereof and governmental
permits therefor, costs incurred by Landlord for Landlords architects and engineers pursuant to
Section 3.1, and Landlords construction administration fee (defined in Section 8.10 below).
Provided, however, Permanent Improvement Costs shall exclude costs of Tenants FF&E (defined
below). For purposes of this Workletter, Tenants FF&E shall mean Tenants furniture,
furnishings, telephone systems, computer systems, equipment, any other personal property or
fixtures, and installation thereof, including, without limitation, Tenants Personal Property
described on
Exhibit G
hereto. If Tenant does not utilize one hundred percent (100%) of the
Allowance for Permanent Improvement Costs no later than January 31, 2011, Tenant shall have no
right to the unused portion of the Allowance.
6.
Application and Disbursement of the Allowance.
6.1. Tenant shall prepare a budget for all Tenant Work, including the Permanent Improvement Costs
and all other costs of the Tenant Work (Budget), which Budget shall be subject to the reasonable
approval of Landlord. Such Budget shall be supported by a guaranteed maximum price construction
contract and such other documentation as Landlord may require to evidence the total costs. To the
extent the Budget exceeds the available Allowance (Excess Cost), Tenant shall be solely
responsible for payment of such Excess Cost. Further, prior to any disbursement of the Allowance by
Landlord, Tenant shall pay and disburse its own funds for all that portion of the Permanent
Improvement Costs equal to the sum of (a) the Permanent Improvement
Exhibit B
- Page 3
Costs in excess of the Allowance; plus (b) the amount of Landlords Retention (defined below).
Landlords Retention shall mean an amount equal to fifteen percent (15%) of the Allowance, which
Landlord shall retain out of the Allowance and shall not be obligated to disburse unless and until
after Tenant has completed the Tenant Work and complied with Section 6.4 below. Further, Landlord
shall not be obligated to make any disbursement of the Allowance unless and until Tenant has
provided Landlord with (i) bills and invoices covering all labor and material expended and used in
connection with the particular portion of the Tenant Work for which Tenant has requested
reimbursement, (ii) an affidavit from Tenant stating that all of such bills and invoices have
either been paid in full by Tenant or are due and owing, and all such costs qualify as Permanent
Improvement Costs, (iii) contractors affidavit covering all labor and materials expended and used,
(iv) Tenant, contractors and architectural completion affidavits (as applicable), and (v) valid
mechanics lien releases and waivers pertaining to any completed portion of the Tenant Work which
shall be conditional or unconditional, as applicable, all as provided pursuant to Section 6.2 and
6.4 below.
6.2. Upon Tenants full compliance with the provisions of Section 6, and if Landlord determines
that there are no applicable or claimed stop notices (or any other statutory or equitable liens of
anyone performing any of Tenant Work or providing materials for Tenant Work) or actions thereon,
Landlord shall disburse the applicable portion of the Allowance as follows:
(a) In the event of conditional releases, to the respective contractor, subcontractor, vendor, or
other person who has provided labor and/or services in connection with the Tenant Work, upon the
following terms and conditions: (i) such costs are included in the Budget, are Permanent
Improvement Costs, are covered by the Allowance, and Tenant has completed and delivered to Landlord
a written request for payment, in form reasonably approved by Landlord, setting forth the exact
name of the contractor, subcontractor or vendor to whom payment is to be made and the date and
amount of the bill or invoice, (ii) the request for payment is accompanied by the documentation set
forth in Section 6.1; and (iii) Landlord, or Landlords appointed representative, has inspected and
approved the work for which Tenant seeks payment; or
(b) In the event of unconditional releases, directly to Tenant upon the following terms and
conditions: (i) Tenant seeks reimbursement for costs of Tenant Work which have been paid by Tenant,
are included in the Budget, are Permanent Improvement Costs, and are covered by the Allowance; (ii)
Tenant has completed and delivered to Landlord a request for payment, in form reasonably approved
by Landlord, setting forth the name of the contractor, subcontractor or vendor paid and the date of
payment, (iii) the request for payment is accompanied by the documentation set forth in Section
6.1; and (iv) Landlord, or Landlords appointed representative, has inspected and approved the work
for which Tenant seeks reimbursement.
6.3. Tenant shall provide Landlord with the aforementioned documents by the 15th of the month and
payment shall be made by the 30th day of the month following the month in which such documentation
is provided.
6.4. Prior to Landlord disbursing the Landlords Retention to Tenant, Tenant shall submit to
Landlord the following items within thirty (30) days after completion of the Tenant Work: (i) As
Built drawings and specifications pursuant to Section 3.5 above, (ii) all unconditional lien
releases from all general contractor(s) and subcontractor(s) performing work, (iii) a Certificate
of Completion prepared by Tenants Architect, and (iv) a final budget with supporting
documentation detailing all costs associated with the Permanent Improvement Costs.
7.
Changes, Additions or Alterations.
If Tenant desires to make any non-de minimis change, addition or alteration or desires to make any
change, addition or alteration to any of the Building Systems after approval of the Issued for
Construction Documents, Tenant shall prepare and submit to Landlord plans and specifications with
respect to such change, addition or alteration. Any such change, addition or alteration shall be
subject to Landlords approval in accordance with the provisions of Section 3.2 of this Workletter.
Tenant shall be responsible for any submission to and plan check and permit requirements of the
applicable governmental authorities. Tenant shall be responsible for payment of the cost of any
such change, addition or alteration if it would increase the Budget and Excess Cost previously
submitted and approved pursuant to Section 6 above.
8.
Miscellaneous.
8.1.
Scope.
Except as otherwise set forth in the Lease, this Workletter shall not apply to
any space added to the Premises by Lease option or otherwise.
8.2. Tenant Work shall include (at Tenants expense subject to application of the Allowance towards
the costs of such items) for all of the Premises:
(a) Landlord approved lighting sensor controls as necessary to meet applicable Laws;
(b) Building Standard fluorescent fixtures in all Building office areas;
(c) Building Standard meters for each of electricity and chilled water used by Tenant shall be
connected to the Buildings system and shall be tested and certified prior to Tenants occupancy of
the Premises by a State certified testing company;
(d) Building Standard ceiling systems (including tile and grid) and;
(e) Building Standard air conditioning distribution and Building Standard air terminal units.
Exhibit B
- Page 4
8.3.
Sprinklers.
Subject to any terms, conditions and limitations set forth herein,
Landlord shall provide an operative sprinkler system consisting of mains, laterals, and heads AS
IS on the date of delivery of the Premises to Tenant. Tenant shall pay for piping distribution,
drops and relocation of, or additional, sprinkler system heads and Building firehose or firehose
valve cabinets, if Tenants Plans and/or any applicable Laws necessitate such.
8.4.
Floor Loading
. Floor loading capacity shall be within building design capacity. Tenant may exceed floor
loading capacity with Landlords consent, at Landlords sole discretion and must, at Tenants sole cost and expense,
reinforce the floor as required for such excess loading.
8.5.
Work Stoppages
. If any work on the Real Property other than Tenant Work is delayed, stopped or otherwise affected by
construction of Tenant Work, Tenant shall immediately take those actions necessary or desirable to eliminate such delay, stoppage
or effect on work on the Real Property other than Tenant Work.
8.6.
Life Safety
. Tenant (or Contractor) shall employ the services of a fire and life-safety subcontractor reasonably
satisfactory to Landlord for all fire and life-safety work at the Building.
8.7.
Locks.
Tenant may purchase locks, cylinders and keys for the Premises from its own
vendor, provided that (a) such vendor and the locks, cylinders and keys to be used are subject to
Landlords prior written approval; (b) of a make and model which are functional, operable and
compatible with Landlords master key system; (c) a master key or keys are provided to Landlord, of
which Landlord may place one such master key in the knox box for use by the fire department and
emergency personnel in the event of an emergency and may retain another key for Landlords use for
entry permitted under the Lease; and (d) the contact information for Tenants vendor for locks,
cylinders and keys used in the Premises shall be provided to Landlord with Tenants request for
approval.
8.8.
Authorized Representatives.
Tenant has designated David Quinn to act as Tenants
representative with respect to the matters set forth in this Workletter. Such representative(s)
shall have full authority and responsibility to act on behalf of Tenant as required in this
Workletter. Tenant may add or delete authorized representatives upon five (5) business days notice
to Landlord.
8.9.
Access to Premises.
After Landlord has recovered possession of the Premises from any
prior Tenant, prior to delivery of possession to Tenant, Tenant and its architects, engineers,
consultants, and contractors shall have access at reasonable times and upon advance notice and
coordination with the Building management, to the Premises for the purpose of planning Tenant Work.
Such access shall not in any manner interfere with Landlord Work, if any. Such access, and all acts
and omissions in connection with it, shall be subject to and governed by all other provisions of
the Lease, including, without limitation, Tenants indemnification obligations, insurance
obligations, etc, except for the payment of Base Rent and Additional Rent. To the extent that such
access by Tenant delays the Substantial Completion of the Landlord Work (if any), such delay shall
be a Tenant Delay and the Landlord Work shall be deemed Substantially Complete on the date such
Landlord Work would have been completed but for such access.
8.10.
Fee.
Landlord shall receive a fee equal to two percent (2.0%) of the Allowance for
Landlords review and supervision of construction of the Tenant Work, which fee shall be paid by
Landlord applying two percent (2.0%) of the Allowance in payment thereof. Such fee is in addition
to Tenants reimbursement of costs incurred by Landlord pursuant to other provisions hereof,
including, without limitation, for Landlords architects and engineers to review Tenants Plans.
9.
Force and Effect.
The terms and conditions of this Workletter shall be construed to be a part of the Lease and shall
be deemed incorporated in the Lease by this reference. Should any inconsistency arise between this
Workletter and the Lease as to the specific matters which are the subject of this Workletter, the
terms and conditions of this Workletter shall control.
Exhibit B
- Page 5
EXHIBIT B-1
DESCRIPTION OF LANDLORD WORK
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Unit
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#
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Make
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Model
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Serial#
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Condition
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Repairs
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Loc
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Type
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AC-7
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Carrier
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48TJD008-621GA
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2500G30077
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Determine when gas to unit is turned on
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Verify operational when gas to unit is turned
on. Remove & replace defective control board
with new.
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Roof
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Package
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AC-8
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Carrier
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48TJE004-611GA
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2400G24614
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Operational. Determine further when gas to unit is turned on
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Verify operational when gas to unit is turned on.
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Roof
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Package
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EF-1
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Cookson
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Mushroom Fan
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N.A.
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Defective HVAC belt
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Remove & replace defective HVAC belt with new.
Check for proper tension & alignment. Start &
verify operation.
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General Repairs:
1. Remove and replace filters of all rooftop HVAC units.
2. Clean condenser coils of all rooftop HVAC units.
3. For all rooftop HVAC units, check condensate drains and piping for proper drainage, and service
or repair as necessary, including replacement of any missing drain pipe for proper drainage of
condensate to roof drain(s).
4. Replace HVAC belts of all rooftop HVAC units.
5. Perform air balance.
Exhibit B-1
- Page 1
EXHIBIT C
SITE PLAN OF PROJECT
Phase III, its buildings and square footages are not a part of the Project as defined in this
Lease, and are shown in this Exhibit for illustration only.
Exhibit C
- Page 1
EXHIBIT D
PERMITTED HAZARDOUS MATERIAL
Permitted Hazardous Material includes insignificant amounts of substances listed below so long as
(i) such substances are maintained only in such quantities as are reasonably necessary for Tenants
operations in the Premises, or such other specific quantity limit as specified below, (ii) such
substances are used, stored and handled strictly in accordance with the manufacturers
instructions, industry standards and all applicable laws, (iii) such substances are not disposed of
in or about the Building or the Project in a manner which would constitute a release or discharge
thereof, and (iv) all such substances are removed from the Building and the Project by Tenant no
later than the Termination Date.
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Type:
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Quantity:
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Substances typically found or used in general office applications, to the extent the Premises is used for general offices
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as noted above
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HazMat Classification
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Common Chemical or Trade Name
|
|
Tot.
|
|
|
Unit
|
CL-II
|
|
Combustible Liquid
|
|
Acetic Acid
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4
|
|
|
L
|
CL-II
|
|
Combustible Liquid
|
|
Isoamyl Alcohol
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|
|
1
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|
|
L
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CL-II; CORR-L
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|
Combustible Liquid; Corrosive Liquid
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1,3-Diaminopropane
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|
|
2
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|
|
L
|
CL-II; CORR-L
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Combustible Liquid; Corrosive Liquid
|
|
Ethylenediamine
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|
|
1
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|
|
L
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CL-IIIA
|
|
Combustible Liquid
|
|
Diethylpyrocarbonate
|
|
|
0.5
|
|
|
L
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CL-IIIA
|
|
Combustible Liquid
|
|
Dimethylsulfoxide
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|
|
2
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|
|
L
|
CL-IIIA
|
|
Combustible Liquid
|
|
RNaseZap
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|
|
3.5
|
|
|
L
|
CL-IIIA
|
|
Combustible Liquid
|
|
Triethylamine/Acetate buffer
|
|
|
0.5
|
|
|
L
|
CORR-L
|
|
Corrosive Liquid
|
|
Ammonium Hydroxide solution
|
|
|
0.5
|
|
|
L
|
CORR-L
|
|
Corrosive Liquid
|
|
Bradford Reagent (protein dye reagent)
|
|
|
0.5
|
|
|
L
|
CORR-L
|
|
Corrosive Liquid
|
|
Formic Acid
|
|
|
1
|
|
|
L
|
CORR-L
|
|
Corrosive Liquid
|
|
Hydrochloric Acid
|
|
|
6
|
|
|
L
|
CORR-L
|
|
Corrosive Liquid
|
|
N,N-Dimethylethylenediamine
|
|
|
0.025
|
|
|
kg
|
CORR-L
|
|
Corrosive Liquid
|
|
Phosphoric Acid
|
|
|
4
|
|
|
L
|
CORR-L
|
|
Corrosive Liquid
|
|
RNaseZap wipes
|
|
|
1
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|
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kg
|
CORR-L
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|
Corrosive Liquid
|
|
Sodium Hydroxide solution
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|
|
2
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|
|
L
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CORR-L
|
|
Corrosive Liquid
|
|
Spermidine
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|
|
0.5
|
|
|
kg
|
CORR-L
|
|
Corrosive Liquid
|
|
Trifluoroacetic Acid
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|
|
1
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|
|
L
|
CORR-L; CL-IIIA
|
|
Corrosive Liquid; Combustible Liquid
|
|
Monoethanotamine
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|
|
4
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|
|
L
|
CORR-L; HI TOX-L
|
|
Corrosive Liquid; Highly Toxic Liquid
|
|
Phenol/chloroform solution (TRizol)
|
|
|
6
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|
|
L
|
CORR-L; HI TOX-L; CL-III
|
|
Corrosive Liquid; Highly Toxic Liquid; Combustible Liquid
|
|
Phenol
|
|
|
4
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|
|
L
|
CORR-S
|
|
Corrosive Solid
|
|
Sodium Hydroxide, Pellets
|
|
|
2
|
|
|
kg
|
CORR-S
|
|
Corrosive Solid
|
|
Tris(2-carboxyethyl)-phosphine hydrochloride
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|
|
0.01
|
|
|
kg
|
CRYO
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|
Cryogenic Solid
|
|
Carbon Dioxide, solid
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|
|
250
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|
Ibs
|
CRYO
|
|
Cryogenic Liquid
|
|
Nitrogen, Liquid
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|
|
400
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|
|
L
|
FL-1B
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|
Flammable Liquid
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|
Acetone
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|
|
4
|
|
|
L
|
FL-1B
|
|
Flammable Liquid
|
|
Acetonitrile
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|
|
16
|
|
|
L
|
FL-IB
|
|
Flammable Liquid
|
|
(±)-2-Butanol
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|
|
2
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|
|
L
|
FL-IB
|
|
Flammable Liquid
|
|
Ethyl Alcohol, 70-100%, blends
|
|
|
150
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|
|
L
|
FL-IB
|
|
Flammable Liquid
|
|
Buffer RW1, Wash Buffer (guanidinium thiocyanate (2.5-10%); ethanol (2.5-10%)),
Buffer Kit
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|
|
1
|
|
|
L
|
FL-IB
|
|
Flammable Liquid
|
|
Cytoseal XYL, Mounting Medium, Xylene-based
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|
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1
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|
|
L
|
FL-IB
|
|
Flammable Liquid
|
|
Eosin Y
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|
|
0.05
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|
kg
|
FL-IB
|
|
Flammable Liquid
|
|
Eosin Y, 1% Alcoholic Solution
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|
|
6
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|
|
L
|
FL-IB
|
|
Flammable Liquid
|
|
EZ-DeWax, Tissue Deparaffinization Solution, Ready-to-Use
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|
|
1
|
|
|
L
|
FL-IB
|
|
Flammable Liquid
|
|
Harris Hematoxylin
|
|
|
15
|
|
|
L
|
FL-IB
|
|
Flammable Liquid
|
|
Isopropyl Alcohol
|
|
|
20
|
|
|
L
|
FL-IB
|
|
Flammable Liquid
|
|
Methyl Alcohol
|
|
|
8
|
|
|
L
|
FL-IB
|
|
Flammable Liquid
|
|
Triethylamine
|
|
|
2.5
|
|
|
L
|
FL-IB
|
|
Flammable Liquid
|
|
Xylenes
|
|
|
50
|
|
|
L
|
FL-IC
|
|
Flammable Liquid
|
|
Isoamyl Acetate
|
|
|
1
|
|
|
L
|
FL-IC
|
|
Flammable Liquid
|
|
n-Butanol
|
|
|
2
|
|
|
L
|
Exhibit D
- Page 1
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|
|
|
|
HazMat Classification
|
|
Common Chemical or Trade Name
|
|
Tot.
|
|
|
Unit
|
HI TOX-L
|
|
Highly Toxic Liquid
|
|
Chloroform
|
|
|
6
|
|
|
L
|
HI TOX-L
|
|
Highly Toxic Liquid
|
|
Chloroform/lsoamyl Alcohol (24:1)
|
|
|
1
|
|
|
L
|
HI TOX-L
|
|
Highly Toxic Liquid
|
|
Ethidium Bromide solution
|
|
|
0.1
|
|
|
L
|
HI TOX-L
|
|
Highly Toxic Liquid
|
|
Tetramethylammonium Chloride solution
|
|
|
2.5
|
|
|
L
|
HI TOX-S
|
|
Highly Toxic Solid
|
|
Sodium Azide
|
|
|
0.1
|
|
|
kg
|
NFG
|
|
Non-Flammable Compressed Gas
|
|
Air, Compressed Gas
|
|
|
2000
|
|
|
cu ft
|
NFG
|
|
Non-Flammable Compressed Gas
|
|
Carbon Dioxide, Compressed Gas
|
|
|
300
|
|
|
Ibs
|
NFG
|
|
Non-Flammable Compressed Gas
|
|
Helium, Compressed Gas
|
|
|
450
|
|
|
cu ft
|
OXY-L
|
|
Oxidizing Liquid
|
|
Hydrogen Peroxide, <30%
|
|
|
0.1
|
|
|
L
|
OXY-L; CORR-L
|
|
Oxidizing Liquid; Corrosive Liquid
|
|
Bleach, Household (5-10% sodium hypochlorite)
|
|
|
20
|
|
|
L
|
OXY-L; CORR-L
|
|
Oxidizing Liquid; Corrosive Liquid
|
|
Nitric Acid
|
|
|
4
|
|
|
L
|
OXY-S
|
|
Oxidizing Solid
|
|
Sodium Perchlorate
|
|
|
1
|
|
|
kg
|
TOX-L
|
|
Toxic Liquid
|
|
1,4-Dithiothreitol
|
|
|
0.1
|
|
|
L
|
TOX-L
|
|
Toxic Liquid
|
|
Formalin, Neutral Buffered
|
|
|
10
|
|
|
L
|
TOX-L
|
|
Toxic Liquid
|
|
2-Mercaptoethanol
|
|
|
1
|
|
|
L
|
TOX-L
|
|
Toxic Liquid
|
|
Formamide
|
|
|
2
|
|
|
L
|
TOX-L
|
|
Toxic Liquid
|
|
N,N-Dimethylformamide
|
|
|
0.2
|
|
|
kg
|
TOX-S
|
|
Toxic Solid
|
|
Diethylenetriaminepentaacetic Acid
|
|
|
0.01
|
|
|
kg
|
TOX-S
|
|
Toxic Solid
|
|
Hexadecyltrimethylammonium Bromide
|
|
|
1
|
|
|
kg
|
TOX-S
|
|
Toxic Solid
|
|
Lithium Chloride
|
|
|
0.5
|
|
|
kg
|
TOX-S
|
|
Toxic Solid
|
|
o-Phenylenediamine
|
|
|
0.25
|
|
|
L
|
CL-II
|
|
Combustible Liquid
|
|
(+/-)-limoneme
|
|
|
10
|
|
|
gal
|
TOX-S
|
|
Toxic Solid
|
|
Potassium Dichromate
|
|
|
1
|
|
|
kg
|
CORR-L
|
|
Corrosive Liquid
|
|
1.0
M
Perchloric Acid Solution
|
|
|
1
|
|
|
L
|
CL-IIIA
|
|
Combustible Liquid
|
|
Soltrol 130 Isoparaffin
|
|
|
40
|
|
|
L
|
CL-II
|
|
Combustible Liquid
|
|
Soltrol 125 Isoparaffin
|
|
|
40
|
|
|
L
|
CL-II
|
|
Combustible Liquid
|
|
Soltrol 100 Isoparaffin
|
|
|
40
|
|
|
L
|
FL-IB
|
|
Flammable liquid
|
|
Soltrol 10 Isoparaffin
|
|
|
40
|
|
|
L
|
CL-II
|
|
Combustible Liquid
|
|
Shandon Xylene Substitute
|
|
|
40
|
|
|
L
|
FL-IC
|
|
Flammable liquid
|
|
Xylene Substitute, Neo-Clear
|
|
|
40
|
|
|
L
|
FL-IB
|
|
Flammable liquid
|
|
2,2,4-Trimethylpentane
|
|
|
4
|
|
|
L
|
CL-II
|
|
Combustible Liquid
|
|
Mineral Spirits, Odorless
|
|
|
40
|
|
|
L
|
CL-II
|
|
Combustible Liquid
|
|
Decane
|
|
|
10
|
|
|
L
|
CL-IIIB
|
|
Combustible Liquid
|
|
Tridecane
|
|
|
4
|
|
|
L
|
CL-IIIA
|
|
Combustible Liquid
|
|
Slidebrite
|
|
|
4
|
|
|
L
|
CL-II
|
|
Combustible Liquid
|
|
Paraclear Odorless Xylene Substitute
|
|
|
4
|
|
|
L
|
FL-IB
|
|
Flammable liquid
|
|
Clear Advantage
|
|
|
4
|
|
|
L
|
CL-II
|
|
Combustible Liquid
|
|
Envirene
|
|
|
4
|
|
|
L
|
Exhibit D
- Page 2
EXHIBIT E
FORM OF LETTER OF CREDIT ACCEPTABLE FROM SILICON VALLEY BANK
IRREVOCABLE STANDBY LETTER OF CREDIT NO.
SVBSF
DATED:
, 20
BENEFICIARY:
METROPOLITAN LIFE INSURANCE COMPANY
REAL ESTATE INVESTMENTS
425 MARKET STREET, SUITE 1050
SAN FRANCISCO, CA 94105
APPLICANT:
GENOMIC HEALTH, INC.
301 PENOBSCOT DRIVE
REDWOOD CITY, CA 94063
|
|
|
AMOUNT:
|
|
US$183,168.00 (ONE HUNDRED EIGHTY-THREE THOUSAND ONE HUNDRED SIXTY-EIGHT
AND NO/100 DOLLARS)
|
EXPIRATION DATE:
, 200
LOCATION: AT OUR COUNTERS IN SANTA CLARA, CALIFORNIA
DEAR SIR/MADAM:
WE HEREBY ESTABLISH THIS IRREVOCABLE STANDBY LETTER OF CREDIT IN FAVOR OF THE AFORESAID ADDRESSEE
(BENEFICIARY) FOR DRAWINGS UP TO US$183,168.00 (ONE HUNDRED EIGHTY-THREE THOUSAND ONE HUNDRED
SIXTY-EIGHT AND NO/100 DOLLARS) EFFECTIVE IMMEDIATELY. THIS LETTER OF CREDIT IS ISSUED, PRESENTABLE
AND PAYABLE AT OUR OFFICE AT: 3003 TASMAN DRIVE, MAIL SORT HF210, SANTA CLARA, CA 95054 ATTENTION:
GLOBAL FINANCIAL SERVICES STANDBY LETTER OF CREDIT DEPARTMENT (THE BANKS OFFICE), AND EXPIRES
WITH OUR CLOSE OF BUSINESS ON
, 200
.
THE TERM BENEFICIARY INCLUDES ANY SUCCESSOR BY OPERATION OF LAW OF THE NAMED BENEFICIARY
INCLUDING, WITHOUT LIMITATION, ANY LIQUIDATOR, REHABILITATOR, RECEIVER OR CONSERVATOR.
WE HEREBY UNDERTAKE TO PROMPTLY HONOR YOUR SIGHT DRAFT(S) DRAWN ON US, INDICATING
OUR CREDIT NO. SVBSF
, FOR ALL OR ANY PART OF THIS CREDIT IF PRESENTED AT OUR
OFFICE SPECIFIED IN PARAGRAPH ONE ON OR BEFORE THE EXPIRY DATE OR ANY AUTOMATICALLY EXTENDED
EXPIRY DATE TOGETHER WITH THE ORIGINAL LETTER OF CREDIT AND ALL AMENDMENTS, IF ANY.
EXCEPT AS EXPRESSLY STATED HEREIN, THIS UNDERTAKING IS NOT SUBJECT TO ANY AGREEMENT, CONDITION
OR QUALIFICATION. THE OBLIGATION OF SILICON VALLEY BANK UNDER THIS LETTER OF CREDIT IS THE
INDIVIDUAL OBLIGATION OF SILICON VALLEY BANK, AND IS IN NO WAY CONTINGENT UPON REIMBURSEMENT WITH
RESPECT THERETO.
IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT IS DEEMED TO BE AUTOMATICALLY EXTENDED
WITHOUT AMENDMENT FOR ONE YEAR FROM THE EXPIRY DATE HEREOF, OR ANY FUTURE EXPIRATION DATE, UNLESS
AT LEAST THIRTY (30) DAYS PRIOR TO AN EXPIRATION DATE WE NOTIFY YOU BY REGISTERED MAIL/COURIER THAT
WE ELECT NOT TO CONSIDER THIS LETTER OF CREDIT EXTENDED FOR ANY SUCH ADDITIONAL PERIOD.
PARTIAL DRAWS ARE ALLOWED.
THIS ORIGINAL LETTER OF CREDIT MUST ACCOMPANY ANY DRAWINGS HEREUNDER FOR ENDORSEMENT OF THE
DRAWING AMOUNT AND WILL BE RETURNED TO THE BENEFICIARY UNLESS IT IS FULLY UTILIZED.
THIS LETTER OF CREDIT MAY BE TRANSFERRED ONE OR MORE TIMES BUT IN EACH INSTANCE TO A SINGLE
BENEFICIARY AND ONLY IN THE FULL AMOUNT AVAILABLE TO BE DRAWN UNDER THIS LETTER OF CREDIT. ANY SUCH
TRANSFER MAY BE EFFECTED ONLY UPON PRESENTATION TO US, THE ISSUING BANK, AT THE BANKS OFFICE
SPECIFIED IN THE FIRST PARAGRAPH ABOVE, OF THE
ATTACHED EXHIBIT A DULY COMPLETED AND EXECUTED BY THE BENEFICIARY AND ACCOMPANIED BY THE ORIGINAL
LETTER OF CREDIT AND ALL AMENDMENT(S), IF ANY. ANY TRANSFER OF THIS LETTER OF CREDIT MAY NOT CHANGE
THE PLACE OF EXPIRATION OF THE LETTER OF CREDIT FROM OUR SPECIFIED OFFICE. EACH TRANSFER SHALL BE
EVIDENCED BY OUR ENDORSEMENT ON THE REVERSE OF THE ORIGINAL LETTER OF CREDIT AND WE SHALL FORWARD
THE ORIGINAL LETTER OF CREDIT SO ENDORSED TO THE TRANSFEREE. EACH SUCH TRANSFER WILL BE EFFECTED AT
NO COST TO THE BENEFICIARY OR TRANSFEREE. OUR TRANSFER FEE
1
/
4
OF
Exhibit E
- Page 1
1% OF THE TRANSFER AMOUNT (MINIMUM US$250.00) WILL BE FOR THE ACCOUNT OF THE APPLICANT. HOWEVER,
ANY TRANSFER IS NOT CONTINGENT UPON APPLICANTS ABILITY TO PAY OUR TRANSFER FEE.
DRAFT(S) AND DOCUMENTS MUST INDICATE THE NUMBER AND DATE OF THIS LETTER OF CREDIT.
THIS LETTER OF CREDIT IS SUBJECT TO AND GOVERNED BY THE UNIFORM CUSTOMS AND PRACTICE FOR
DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 AND THE
LAWS OF THE STATE OF NEW YORK AND, IN THE EVENT OF ANY CONFLICT, THE LAWS OF THE STATE OF NEW YORK
WILL CONTROL. IF THIS CREDIT EXPIRES DURING AN INTERRUPTION OF BUSINESS AS DESCRIBED IN ARTICLE 17
OF SAID PUBLICATION 500, THE BANK HEREBY SPECIFICALLY AGREES TO EFFECT PAYMENT IF THIS CREDIT IS
DRAWN AGAINST WITHIN 30 DAYS AFTER THE RESUMPTION OF BUSINESS.
SILICON VALLEY BANK,
Exhibit E -
Page 2
EXHIBIT A
DATE:
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TO:
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SILICON VALLEY BANK
3003 TASMAN DRIVE
SANTA CLARA, CA 95054
ATTN:
GLOBAL FINANCIAL SERVICES
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RE:
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SILICON VALLEY BANK, SANTA CLARA, CALIFORNIA
IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVBSF
DATED
, 20
AMOUNT: US$
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GENTLEMEN:
FOR VALUE RECEIVED, THE UNDERSIGNED BENEFICIARY HEREBY IRREVOCABLY TRANSFERS TO:
(NAME OF TRANSFEREE)
(ADDRESS)
ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY TO DRAW UNDER THE ABOVE LETTER OF CREDIT UP TO ITS
AVAILABLE AMOUNT AS SHOWN ABOVE AS OF THE DATE OF THIS TRANSFER.
BY THIS TRANSFER, ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY IN SUCH LETTER OF CREDIT ARE
TRANSFERRED TO THE TRANSFEREE. TRANSFEREE SHALL HAVE THE SOLE RIGHTS AS BENEFICIARY THEREOF,
INCLUDING SOLE RIGHTS RELATING TO ANY AMENDMENTS, WHETHER INCREASES OR EXTENSIONS OR OTHER
AMENDMENTS, AND WHETHER NOW EXISTING OR HEREAFTER MADE. ALL AMENDMENTS ARE TO BE ADVISED DIRECT TO
THE TRANSFEREE WITHOUT NECESSITY OF ANY CONSENT OF OR NOTICE TO THE UNDERSIGNED BENEFICIARY.
THE ORIGINAL OF SUCH LETTER OF CREDIT IS RETURNED HEREWITH, AND WE ASK YOU TO ENDORSE THE TRANSFER
ON THE REVERSE THEREOF, AND FORWARD IT DIRECTLY TO THE TRANSFEREE WITH YOUR CUSTOMARY NOTICE OF
TRANSFER.
SINCERELY,
METROPOLITAN LIFE INSURANCE COMPANY
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(SIGNATURE OF BENEFICIARY)**
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** THIS TRANSFER FORM, EXHIBIT A, MUST BE NOTARIZED BY A NOTARY PUBLIC
Exhibit E - Page 3
EXHIBIT F
FAIR MARKET RENTAL RATE
1.
Definition of Fair Market Rental Rate.
Fair Market Rental Rate shall mean the
Monthly Base Rent equal to the monthly base rental per rentable square foot which a tenant would
pay and which a willing landlord would accept for first class office/R&D/laboratory space
comparable to the Premises in the Building and in other buildings of class A standards in Seaport
Centre, including for purposes of this Exhibit Phases I, II and III as described on
Exhibit
C
and excluding Seaport Plaza (Applicable Market) for the period for which such rental is to
be paid and for a lease on terms substantially similar to those of the Lease (including, without
limitation, those applicable to Taxes, Operating Expenses and exclusions, but also considering
so-called net and triple net leases, and leases utilizing operating expense stops or base years,
and making appropriate adjustment between such leases and this Lease, as described below), based on
prevailing market conditions in the Building and in other buildings of class A standards in the
Applicable Market at the time such determination is made (Comparable Transactions).
Without limiting the generality of the foregoing, Comparable Transactions shall be for a
term similar to the term of tenancy and for space comparable in use, floor levels, square footage
and location within the Building and in other buildings of class A standards in the Applicable
Market as the transaction for which Fair Market Rental Rate is being determined; however, leases of
unusual or odd shaped spaces shall not be considered. In any determination of Fair Market Rental
Rate, the stated or contract monthly net or base rental in Comparable Transactions shall be
appropriately adjusted to take into account the different terms and conditions prevailing in such
transactions and those present in the Lease, including, without limitation: (a) the extent to which
average annual expenses and taxes per rentable square foot payable by tenants in Comparable
Transactions vary from those payable by Tenant under the Lease, and so, for example, if the Lease
provides for payment of Rent Adjustments and/or certain Operating Expenses on the basis of
increases over a base year, then the rate of Monthly Base Rent under the Lease shall be based upon
a step-up to change the calendar year which serves as the base year for calculation of the base for
such Operating Expenses for the Option Term to be the full calendar year in which the Option Term
commences, and such step-up shall be considered in the determination of the Fair Market Rental
Rate; (b) tenant improvements, value of existing tenant improvements, the concessions, if any,
being given by landlords in Comparable Transactions, such as parking charge abatement, free rent or
rental abatement applicable after substantial completion of any tenant improvements (and no
adjustment shall be made for any free or abated rent during any construction periods), loans at
below-market interest rates, moving allowances, space planning allowances, lease takeover payments
and work allowances, as compared to any tenant improvement, refurbishment or repainting allowance
given to Tenant under the Lease for the space for which Fair Market Rental Rate is being
determined; (c) the brokerage commissions, fees and bonuses payable by landlords
in Comparable Transactions (whether to tenants agent, such landlord or any person or entity
affiliated with such landlord), as compared to any such amounts payable by Landlord to the
broker(s) identified with respect to the transaction for which Fair Market Rental Rate is being
determined; (d) the time value of money; (e) any material difference between the definition of
rentable area and the ratio of project rentable to useable square feet in Comparable Transactions,
as compared to such figures applicable to the space for which Fair Market Rental Rate is being
determined; and (f) the extent to which charges for parking by tenants in Comparable Transactions
vary from those payable by Tenant under the Lease.
2.
Sealed Estimates.
In the event the Lease requires Fair Market Rental Rate to be
determined in accordance with this Exhibit, Landlord and Tenant shall meet within ten (10) business
days thereafter and each simultaneously submit to the other in a sealed envelope its good faith
estimate of Fair Market Rental Rate (the Estimates). If the higher Estimate is not more than
one hundred five percent (105%) of the lower Estimate, then Fair Market Rental Rate shall be the
average of the two Estimates. If such simultaneous submission of Estimates does not occur within
such ten (10) business day period, then either party may by notice to the other designate any
reasonable time within five (5) business days thereafter and any reasonable place at or near the
Building for such meeting to take place. In the event only one party submits an Estimate at that
meeting, such Estimate shall be Fair Market Rental. In the event neither party submits an
Estimate at that meeting, the transaction for which Fair Market Rental Rate is being determined
shall be deemed cancelled and of no further force or effect.
3.
Selection of Arbitrators.
If the higher Estimate is more than one hundred five
percent (105%) of the lower Estimate, then either Landlord or Tenant may, by written notice to the
other within five (5) business days after delivery of Estimates at the meeting, require that the
disagreement be resolved by arbitration. In the event neither party gives such notice, the
transaction for which Fair Market Rental Rate is being determined shall be deemed cancelled and of
no further force or effect. Within five (5) business days after such notice, the parties shall
select as arbitrators three (3) mutually acceptable independent MAI appraisers with experience in
real estate activities, including at least five (5) years experience in appraising comparable space
in the Applicable Market (Qualified Appraisers). If the parties cannot timely agree on such
arbitrators, then within the following five (5) business days, each shall select and inform the
other party of one (1) Qualified Appraiser and within a third period of five (5) business days, the
two appraisers (or if only one (1) has been duly selected, such single appraiser) shall select as
arbitrators a panel of three additional Qualified Appraisers, which three arbitrators shall proceed
to determine Fair Market Rental Rate pursuant to Section 4 of this Exhibit. Both Landlord and
Tenant shall be entitled to present evidence supporting their respective positions to the panel of
three arbitrators.
4.
Arbitration Procedure.
Once a panel of arbitrators has been selected as provided
above, then as soon thereafter as practicable each arbitrator shall select one of the two Estimates
as the one which, in its opinion, is closer to Fair Market Rental Rate. Upon an Estimates
selection by two (2) of the arbitrators, it shall be the applicable Fair Market Rental Rate and
such selection shall be binding upon Landlord and Tenant. If the arbitrators collectively determine
that expert advice is reasonably necessary to assist them in determining Fair Market Rental Rate,
then they may retain one or more qualified persons, including but not limited to legal counsel,
brokers, architects or engineers, to provide such expert advice. The party whose Estimate is not
chosen by the arbitrators shall pay the costs of the arbitrators and any experts retained by the
arbitrators. Any
Exhibit F - Page 1
fees of any counsel or expert engaged directly by Landlord or Tenant, however, shall be borne by
the party retaining such counsel or expert.
5.
Rent Pending Determination of Fair Market Rental Rate.
In the event that the
determination of
Fair Market Rental Rate has not been concluded prior to commencement of the applicable rental
period for the applicable space for which the Fair Market Rental Rate is being determined, Tenant
shall pay Landlord Monthly Base Rent and Rent Adjustment Deposits as would apply under Landlords
Estimate pursuant to Section 2 of this Exhibit until the Fair Market Rental Rate is determined. In
the event that the Fair Market Rental Rate subsequently determined is different from the amount
paid for the applicable period, then within thirty (30) days after such determination, Tenant shall
pay Landlord any greater amounts due and Landlord shall credit Tenant (against the next Monthly
Base Rent installments due) for any reduction in the amounts due.
Exhibit F - Page 2
EXHIBIT G
TENANTS PERSONAL PROPERTY
Tenants Personal Property shall mean the following items belonging to Tenant, it being
acknowledged that if any of the following are affixed to the Premises in the normal manner for such
item, it shall still be deemed to be Tenants Personal Property:
1.
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Water deionization/purification systems;
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2.
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Facility vacuum system;
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3.
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Facility clean dry air system;
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4.
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Telecommunications systems;
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5.
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Computer network systems;
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6.
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Waste neutralization and monitoring systems;
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7.
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Trash compactor system;
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8.
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Satellite and/or radio frequency signal receivers/transmitters;
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9.
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Compressed gas distribution system;
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10.
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Audio-visual equipment;
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11.
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Electronic security and monitoring systems;
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12.
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Back-up and emergency electrical power equipment;
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13.
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Laboratory casework including fume hoods;
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14.
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Moveable benches and tables;
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15.
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Office furniture and equipment;
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16.
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Bicycle lockers;
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17.
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Shower room lockers;
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18.
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Laboratory equipment including autoclaves, glass washers, ice makers, cage washers,
dryers, environmental chambers;
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19.
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Servery equipment (
i.e.
, equipment used in food service, in the break area or kitchen area)
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20.
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Fermentation system equipment;
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21.
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Such other items installed in the Premises by Tenant at Tenants expense during the term of
the Lease as are agreed to in writing by Tenant and Landlord to be Tenants Personal Property.
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Exhibit G - Page 1
EXHIBIT H
FORM OF LETTER OF CREDIT
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FOR INTERNAL IDENTIFICATION PURPOSES ONLY
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Our No.
Other
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Applicant
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TO:
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Metropolitan Life Insurance
Company
[Address]
Attention: Director,
EIM
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IRREVOCABLE LETTER OF CREDIT NO.
We hereby establish this irrevocable Letter of Credit in favor of the aforesaid addressee
(Beneficiary) for drawings up to UNITED STATES $183,168.00 (ONE HUNDRED EIGHTY-THREE THOUSAND
ONE HUNDRED SIXTY-EIGHT AND NO/100 DOLLARS) effective immediately. This Letter of Credit is
issued, presentable and payable at our office at [
issuing banks address in either San
Francisco or San Jose]
and expires with our close of business on
, 20
.
The term Beneficiary includes any successor by operation of law of the named Beneficiary
including, without limitation, any liquidator, rehabilitator, receiver or conservator.
We hereby undertake to promptly honor your sight draft(s) drawn on us, indicating our Credit
No.
, for all or any part of this Credit if presented at our office specified in paragraph one on
or before the
expiry date or any automatically extended expiry date.
Except as expressly stated herein, this undertaking is not subject to any agreement, condition
or qualification. The obligation of
[issuing bank]
under this Letter of Credit is the
individual obligation of
[issuing bank]
, and is in
no way contingent upon reimbursement
with respect thereto.
It is a condition of this Letter of Credit that it is deemed to be automatically extended
without amendment for one year from the expiry date hereof, or any future expiration date, unless
at least thirty (30) days prior to an expiration date we notify you by registered mail that we
elect not to consider this Letter of Credit renewed for any such additional period.
This Letter of Credit is transferable by the Beneficiary and by any successive transferees at
no charge or cost to Beneficiary or any transferee. Transfers of this Letter of Credit are subject
to receipt of Beneficiarys (and subsequently, transferees) instructions in the form attached
hereto as Schedule 1 accompanied by the original Letter of Credit and amendments(s) if any.
This Letter of Credit is subject to and governed by the Laws of the State of New York and the
1993 revision of the Uniform Customs and Practice for Documentary Credits of the International
Chamber of Commerce (Publication 500) and, in the event of any conflict, the Laws of the State of
New York will control. If this Credit expires during an interruption of business as described in
article 17 of said Publication 500, the bank hereby specifically agrees to effect payment if this
Credit is drawn against within 30 days after the resumption of business.
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Very truly yours,
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[issuing bank]
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Exhibit H - Page 1
Schedule 1 to Letter of Credit
[Bank
then current issuer of Letter of Credit]
Re: Irrevocable Letter of Credit No.
Ladies & Gentlemen:
The undersigned acknowledges receipt of your advice No.
of a credit issued in
our favor, the terms of which are satisfactory. We now irrevocably transfer the said credit and all
amendments and extensions thereof, if any, to:
[Name of Transferee]
[Address]
You are to inform the transferee of this transfer and such transferee shall have sole rights
as beneficiary under the credit, including any amendments, extension or increases thereof, without
notice to or further assent from us.
This transfer is at no charge or cost to Beneficiary or the transferee.
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Yours very truly,
Beneficiary
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By:
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Exhibit H - Page 2
Exhibit I
701 GALVESTON EXPANSION SPACE
(as defined in Rider 2)
Exhibit I - Page 1
RIDER 1
COMMENCEMENT DATE AGREEMENT
Metropolitan Life Insurance Company, a New York corporation (Landlord), and Genomic Health, Inc.,
a Delaware corporation (Tenant), have entered into a certain Lease dated as of
(the Lease).
WHEREAS, Landlord and Tenant wish to confirm and memorialize the Commencement Date and Expiration
Date of the Lease as provided for in Section 2.02(b) of the Lease;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein and in
the Lease, Landlord and Tenant agree as follows:
1. Unless otherwise defined herein, all capitalized terms shall have the same meaning ascribed
to them in the Lease.
2. The Commencement Date of the Term of the Lease is
.
3. The Expiration Date of the Term of the Lease is
.
4. Tenant hereby confirms the following:
(a) That it has accepted possession of the premises pursuant to the terms of the
Lease;
(b) That the Landlord Work, if any, is Substantially Complete; and
(c) That the Lease is in full force and effect.
5. Except as expressly modified hereby, all terms and provisions of the Lease are hereby
ratified and confirmed and shall remain in full force and effect and binding on the parties hereto.
6. The Lease and this Commencement Date Agreement contain all of the terms, covenants,
conditions and agreements between the Landlord and the Tenant relating to the subject matter
herein. No prior other agreements or understandings pertaining to such matters are valid or of
any force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Commencement Date Agreement and
such execution and delivery have been duly authorized.
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TENANT
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LANDLORD
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Genomic Health, Inc.,
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Metropolitan Life Insurance Company,
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a Delaware corporation
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a New York corporation
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By
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By
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Print name
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Print name
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Its
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Its
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(Chairman of Board, President or Vice President)
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By
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Print name
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Its
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(Secretary, Assistant Secretary, CFO or Assistant Treasurer)
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Rider 1 - Page 1
RIDER 2
ADDITIONAL PROVISIONS
This Rider 2 (Rider) is attached to and a part of a certain Lease by and between
Metropolitan Life Insurance Company, a New York corporation, as Landlord, and Genomic Health,
Inc., a Delaware corporation (for purposes of this Rider, Genomic), as Tenant, for the Premises
as described therein (the Lease).
SECTION 1. DEFINED TERMS; FORCE AND EFFECT
Capitalized terms used in this Rider shall have the same meanings set forth in the Lease except as
otherwise specified herein and except for terms capitalized in the ordinary course of punctuation.
This Rider forms a part of the Lease. Should any inconsistency arise between this Rider and any
other provision of the Lease as to the specific matters which are the subject of this Rider, the
terms and conditions of this Rider shall control.
SECTION 2. PREMISES; CONDITION; DELIVERY; CONSTRUCTION PERIOD; COMMENCEMENT DATE
(a) Landlord shall tender to Tenant possession of the Premises in the condition specified in
the Workletter (free of all prior occupants and their personal property) on February 1, 2010 (the
Projected Delivery Date). On the date Landlord actually tenders to Tenant possession of the
Premises (the Delivery Date), all the conditions and covenants of the Lease shall apply, and
Tenant shall observe and perform all conditions and covenants of the Lease, including all that are
specified to apply during the Term (for example only, Tenants insurance and indemnification
obligations), except as otherwise expressly provided in this Rider. During the period (the
Construction Period) from the Delivery Date until the Commencement Date, in recognition of
Tenants construction and installations in, and preparation of, the Premises for the use and
occupancy permitted by this Lease, Tenant shall not be obligated to pay Monthly Base Rent, Rent
Adjustment Deposits or Rent Adjustments. The Term of this Lease shall be as shown in Section
1.01(5) of the Basic Lease Provisions and the Commencement Date of the Term shall be the date set
forth in Section 1.01(6). To the extent permitted by Law and that Tenant obtains any and all
necessary approvals and permits for such use, during the Construction Period Tenant may use part of
the Premises for the conduct of business by up to thirty (30) employees of Tenant without
obligation to pay Monthly Base Rent for the space so used (Temporary Space), but Tenant shall be
obligated to pay its pro rata share of Rent Adjustment Deposits and Rent Adjustment with respect to
the Temporary Space based upon the number of square feet of Rentable Area of the Temporary Space to
the Rentable Area of the Building, Phase and Project.
(b) Within thirty (30) days following the occurrence of the Commencement Date, upon request by
Landlord or Tenant, Tenant and Landlord shall enter into an agreement (which is attached to this
Lease as Rider 1) confirming the Commencement Date and the Expiration Date. If Tenant fails to
enter into such agreement, then the Commencement Date and the Expiration Date shall be the dates
designated by Landlord in such agreement.
(c) If Landlord shall be unable to give possession of the Premises on the Projected Delivery
Date by reason of the following: (i) the holding over or retention of possession of any tenant,
tenants or occupants, or (ii) for any other reason beyond Landlords reasonable control, then
Landlord shall not be subject to any liability for the failure to give possession on said date.
Under such circumstances, the Commencement Date shall be delayed by a number of days equal to the
days of delay in Landlords delivery of possession to Tenant. No such failure to deliver possession
on the originally scheduled Projected Delivery Date shall affect the validity of this Lease or the
obligations of the Tenant hereunder.
SECTION 3
.
MONUMENT SIGNAGE.
(a)
Grant of Right.
Notwithstanding any provision of Section 6.06 of the Lease to
the contrary, Tenant shall have the right to place Tenant identification on one line of the
existing, exterior monument sign (located on Chesapeake Drive) for the Building, subject to the
terms and conditions set forth in this Section (Exterior Sign Right).
(b)
General Conditions & Requirements.
The size, type, style, materials, color,
method of installation and exact location of the sign, and the contractor for and all work in
connection with the sign, contemplated by this Section shall (i) be subject to Tenants compliance
with all applicable laws, regulations and ordinances and with any covenants, conditions and
restrictions of record which affect the Property; (ii) be subject to Tenants compliance with all
requirements of Landlords current Project signage criteria at the time of installation; (iii) be
consistent with the design of the Building and the Project; (iv) be further subject to Landlords
prior written consent. Tenant shall, at its sole cost and expense, procure, install, maintain in
first class appearance and condition, and remove such sign.
(c)
Removal & Restoration.
Upon the expiration or termination of the Exterior Sign
Right, but in no event later than the expiration of the Term or earlier termination of the Lease,
Tenant shall, at its sole cost and expense, remove such sign and shall repair and restore the area
in which the sign was located to its condition prior to installation of such sign.
(d)
Right Personal.
The Exterior Sign Right under this Section is personal to
Genomic, and may not be used by, and shall not be transferable or assignable (voluntarily or
involuntarily) to any person or entity.
Rider 2 - Page 1
SECTION 4. EXPANSION OPTION FOR 701 GALVESTON.
(a)
Grant of Option.
Landlord hereby grants Tenant one option to lease the 701
Galveston Expansion Space (defined below) upon and subject to the terms and conditions of this
Section (the 701 Galveston Expansion Option), provided that at the time of exercise of such
option: (x) Tenant or a Permitted Transferee which has satisfied the requirements of Sections
10.01 and 10.05 of the Lease must be conducting regular, active, ongoing business in, and be in
occupancy (and occupancy by a subtenant, licensee or other party permitted or suffered by Tenant
shall not satisfy such condition) of the entire Premises; and (y) there has been no material
adverse change in Tenants financial position from such position as of the date of execution of the
Lease, as certified by Tenants independent certified public accountants, and as supported by
Tenants certified financial statements, copies of which shall be delivered to Landlord with
Tenants written notice exercising its right hereunder. Without limiting the generality of the
foregoing, Landlord may reasonably conclude there has been a material adverse change if Tenants
independent certified public accountants do not certify there has been no such change.
Notwithstanding anything to the contrary, the 701 Galveston Expansion Option shall be subject and
subordinate to the Prior Rights (defined below). Landlord and Tenant acknowledge that the 701
Galveston Expansion Space is, as of the date of this Lease, leased under that certain written lease
dated as of November 20, 2007, between Landlord, as landlord, and Vibrynt, Inc., as tenant, as
supplemented by that Commencement Date Agreement confirming, among other things, the scheduled
expiration date of February 20, 2011 of the initial term of such lease (collectively, the Existing
701 Lease). The term Prior Rights shall mean: (i) any extension of the term of the Existing
701 Lease pursuant to the option to extend set forth in the Existing 701 Lease (Existing 701
Extension Option); and (ii) Landlords right, which Landlord hereby reserves, from time to time
prior to May 12, 2010, to amend the Existing 701 Lease on such terms and conditions as are
acceptable to Landlord, in its sole discretion, including an extension amendment on terms and
conditions different from those set forth in the existing option to extend, provided however, in no
event shall any such amendment to the Existing 701 Lease extend the term beyond February 20, 2016,
extend the option term of the Existing 701 Extension Option to a term beyond February 20, 2016,
and/or grant any additional option to extend or renew.
(b)
Exercise:
Expansion Space; Expansion Demising Work.
This Option shall be
exercisable only by Tenant giving Landlord within the Expansion Exercise Period (defined below)
irrevocable written notice (the Expansion Exercise Notice) of Tenants election to lease the 701
Galveston Expansion Space (defined below), subject to the terms and conditions set forth below.
Further, in the event that no later than the earlier of (x) thirty days before the date on which
the Expansion Exercise Period expires or (y) the date on which Tenant gives its Expansion Exercise
Notice, Tenant gives Landlord a written request to negotiate the terms and conditions of the lease
of the 701 Galveston Expansion Space (Negotiation Notice), then both Landlord and Tenant shall
negotiate in good faith the terms and conditions of the lease of the 701 Galveston Expansion Space
until the earlier of (xx) the date which is thirty days after Tenant gives the Negotiation Notice
or (yy) the date on which Tenant gives its Expansion Exercise Notice. 701 Galveston Expansion
Space shall mean that space outlined on
Exhibit I
hereto, containing approximately 18,121
square feet of Rentable Area and located in the building at the address known as 701 Galveston
Drive, Redwood City, California 94063. The Expansion Exercise Period shall mean the period
starting May 21, 2010 and ending June 20, 2010, or if the Existing 701 Lease is extended in
accordance with Section 4(a)(i) or 4(a)(ii) above, then the Expansion Exercise Period shall mean
the period starting twelve (12) months before and ending nine (9) months before the scheduled
expiration date of the extended term of the Existing 701 Lease. Notwithstanding the foregoing:
(i) Landlord shall not permit or agree to an extension of the term of the Existing 701
Lease, except as set forth in Section 4(a)(i) or 4(a)(ii) above or for a holdover of more
than one (1) month after the applicable, scheduled expiration date;
(ii) in the event that Landlord recovers or will recover possession of the 701
Galveston Expansion Space early in connection with a bankruptcy, insolvency, abandonment or
other default on the part of the tenant under the Existing 701 Lease, or reasonable prospect
of any of the foregoing, then the Expansion Exercise Period shall instead be the period of
sixty (60) days after written notice from Landlord to Tenant stating the earlier projected
delivery date for the 701 Galveston Expansion Space, and if Landlord for any other reason
permits or agrees to a reduction of the term (or early termination) of the Existing 701
Lease, then the Expansion Exercise Period shall remain as set forth in the preceding
sentence of this Section 4(b); and
(iii) if Tenant does not timely deliver to Landlord a valid Expansion Exercise Notice,
this Option shall terminate and be null and void.
(c)
Rent & Certain Terms of the Lease of the Expansion Space.
If Tenant duly and
timely delivers its Expansion Exercise Notice to Landlord, such exercise shall thereby create and
constitute a binding lease of the 701 Galveston Expansion Space by and to Tenant, subject to
suspension or termination of such right pursuant to Subsection (e) below, upon and subject to the
same terms and conditions contained in the Lease with the following modifications:
(i) Landlord shall give Tenant written notice (Landlords Expansion Notice) no later
than thirty (30) days after receipt of Tenants Expansion Exercise Notice, which notice
specifies the rentable area of the 701 Galveston Expansion Space (using Landlords then
applicable space measurement method in the 701 Galveston building), Landlords estimate of
the projected date such space will be vacant and deliverable to Tenant, required increase
in Security pursuant to Subsection (ix) below, Landlords estimate of the applicable Fair
Market Rental Rate, as defined in
Exhibit F
hereto (Landlords Estimate).
Landlords Estimate set forth in Landlords Expansion Notice shall be conclusive and
binding as the Monthly Base Rent payable for the 701 Galveston Expansion Space unless
Tenant notifies Landlord within ten (10) business days after Landlord gives Landlords
Expansion Notice that Tenant disputes Landlords Estimate and specifies in detail the
reasons therefor and states Tenants good
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faith estimate of the Fair Market Rental Rate (the Expansion Rent Dispute Notice). If the
dispute is not resolved within ten (10) business days after Landlord receives the Expansion Rent
Dispute Notice, then the Fair Market Rental Rate shall be determined in accordance with the terms
of
Exhibit F
;
(ii) Tenant shall accept the 701 Galveston Expansion Space in its then AS IS condition, but
broom clean and free of all tenants or occupants, without any obligation of Landlord to repaint,
remodel, improve or alter such space for Tenants occupancy or to provide Tenant any allowance
therefor except to the extent tenants leasing space in Comparable Transactions (as defined in
Exhibit F
hereto) receive an allowance pursuant to the definition of Fair Market Rental
Rate, provided, however, Landlord, in Landlords Expansion Notice, may elect to provide, in lieu
of such allowance for alterations to the 701 Galveston Expansion Space, a rent credit equal to the
amount of the allowance that otherwise would have been given, credited toward the rents applicable
only to the 701 Galveston Expansion Space and due starting after such rent obligation commences;
(iii) subject to Subsection (b)(ii) above, Landlord shall deliver the 701 Galveston Expansion
Space to Tenant no later than thirty (30) days after Landlord recovers possession of such space,
and not sooner than thirty (30) days after Landlord gives written notice of the projected delivery
date, unless Tenant accepts early delivery. If Landlord receives any written correspondence or
notice from the existing tenant of the Expansion Space that indicates that such existing tenant may
be delayed in surrendering possession of the 701 Galveston Expansion Space, Landlord shall promptly
notify Tenant. If the existing tenant holds over in the 701 Galveston Expansion Space more than one
(1) month after the earlier of the scheduled expiration date of the Existing 701 Lease, as it may
be extended pursuant to Section 4(a)(i) or 4(a)(ii), or earlier termination date, Landlord shall
use commercially reasonable efforts to promptly recover possession of the Expansion Space. If
Landlord has not tendered possession of the 701 Galveston Expansion Space in the condition required
by this Lease on or before the Sunset Date (defined below), then, as Tenants sole and exclusive
remedy, Tenant shall have the option to terminate this Lease with respect to the 701 Galveston
Expansion Space upon written notice to Landlord within three (3) business days after the Sunset
Date. As used in this Lease, Sunset Date means the date that is six (6) months after the date of
the earlier of (x) the scheduled expiration date of the Existing 701 Lease, as it may be extended
pursuant to Section 4(a)(i) or 4(a)(ii), or (y) an earlier termination date;
(iv) upon such delivery, the 701 Galveston Expansion Space shall be leased for the 701
Galveston Term, which shall commence on such delivery date and expire on March 31, 2019 (the 701
Galveston Expiration Date), which Landlord and Tenant acknowledge is different than the
Expiration Date of the Term for the Premises. Landlord and Tenant acknowledge and agree that the
Option to Extend in Section 5 below shall not apply to extend the 701 Galveston Term but that
Tenant shall have a separate and distinct 701 Galveston Extension Option to extend the 701
Galveston Term for a single five (5) year period on the same conditions and terms as set forth in
the Option to Extend in Section 5 below, provided however, notwithstanding anything to the
contrary in Section 5 below: (i) such 701 Galveston Extension Option shall be a single option to
extend the 701 Galveston Term of the 701 Galveston Expansion Space for a period of five (5) years
as to the entire 701 Galveston Expansion Space, and the phrase 701 Galveston Term is inserted in
place of references to the Term of the Lease or initial Term, (ii) the phrase 701 Galveston
Expansion Space is inserted in place of the phrase Premises, and (iii) Tenants election
(Election Notice) to exercise the 701 Galveston Extension Option must be given to Landlord in
writing during the period starting April 1, 2018 and ending June 30, 2018 (which the parties
acknowledge to be the period starting twelve (12) months before and ending nine (9) months before
the 701 Galveston Expiration Date).
(v) the Expansion Rent Commencement Date shall be the earlier to occur of (x) one hundred
twenty (120) days after the 701 Galveston Expansion Space is delivered to Tenant, or (y) Tenants
occupancy of any part of the 701 Galveston Expansion Space for business purposes, and starting on
the Expansion Rent Commencement Date, Tenant shall pay Monthly Base Rent with respect to the 701
Galveston Expansion Space equal to the Fair Market Rental Rate (with Fair Market Rental Rate
defined and determined as set forth herein and in
Exhibit F);
provided, however, if the
Expansion Rent Commencement Date is the date in clause (x) above, then for the period, if any,
from and after the Expansion Rent Commencement Date and prior to and including the earlier of
February 20, 2011 or the date in clause (y) above, Tenant shall pay a reduced Monthly Base Rent
equal to fifty percent (50%) of the Fair Market Rental Rate;
(vi) the 701 Galveston Lease (as defined below) shall provide that starting on the Expansion
Rent Commencement Date, with respect to the 701 Galveston Expansion Space Tenant shall pay
Tenants Share of Operating Expenses, as applicable and more particularly provided therein, with
Tenants Share calculated to reflect the 701 Galveston Expansion Space;
(vii) the 701 Galveston Lease (as defined below) shall provide that starting on such delivery
date, Tenant shall pay other charges payable by Tenant for utilities and otherwise with respect to
the 701 Galveston Expansion Space;
(viii) starting on the Expansion Rent Commencement Date, with respect to the 701 Galveston
Expansion Space Tenant shall additionally be entitled to rent the number of non-exclusive parking
spaces determined at the rate of 3.3 parking spaces per 1000 square feet of Rentable Area of the
701 Galveston Expansion Space; and
(ix) the security under the 701 Galveston Lease (as defined below) shall be an amount equal
to the Fair Market Rental Rate for the final three (3) months of the term of the 701 Galveston
Lease.
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(d) Promptly after final determination of the Fair Market Rental Rate, Landlord shall prepare
a separate lease for the 701 Galveston Expansion Space in accordance with the terms and conditions
of this Option, in substitution of an amendment of this Lease for the 701 Galveston Expansion
Space, but otherwise on the same terms and conditions as this Lease to the extent applicable to the
701 Galveston Expansion Space. Tenant and Landlord agree to execute such separate lease promptly
after it is prepared by Landlord and submitted to Tenant.
(e) During any period that Tenant does not occupy the entire Premises or that there is an
uncured default by Tenant under the Lease, or any state of facts which with the passage of time or
the giving of notice, or both, would constitute such a default, this Option shall not apply and
shall be ineffective and suspended, and any notice by Tenant purportedly exercising this Option
shall be null and void, and Landlord shall not be obligated to proceed (or enter any amendment)
with respect to any 701 Galveston Expansion Space which was the subject of a notice of exercise by
Tenant for which an amendment has not been fully executed. This Option shall terminate, and be
null and void, if prior to execution of the 701 Galveston Lease by both Tenant and Landlord for the
lease of the 701 Galveston Expansion Space any of the following events occur: (1) the existence
of a default by Tenant under the Lease after any applicable notice and expiration of any applicable
time to cure; (2) the termination of the Lease upon the occurrence of a Tenant default or
otherwise; (3) Landlords recovery of possession of the Premises upon the occurrence of a Tenant
default or otherwise; (4) rejection of the Lease in any bankruptcy proceeding; or (5) the failure
of Tenant timely to give the Expansion Exercise Notice.
(f) This Option is personal to Genomic and may not be used by, and shall not be transferable
or assignable (voluntarily or involuntarily) to any person or entity other than a Permitted
Transferee which is an assignee of the Lease and which has satisfied the requirements of Sections
10.01 and 10.05 of this Lease, and such Permitted Transferee may exercise the right without Tenant
joining in or consenting to such exercise, and notwithstanding anything to the contrary, Tenant
shall remain liable for all obligations under the Lease, including those resulting from any such
exercise with the same force and effect as if Tenant had joined in such exercise.
SECTION 5. OPTION TO EXTEND.
(a) Landlord hereby grants Tenant a single option to extend the Term of the Lease for an
additional period of five (5) years (such period may be referred to as the Option Term), as to
the entire Premises, excluding the 701 Galveston Expansion Space (if leased pursuant to the 701
Galveston Expansion Option) for which a different lease term and extension option shall apply, upon
and subject to the terms and conditions of this Section (the Option To Extend), and provided that
at the time of exercise of such option (and each Option, if more than one Option is granted): (i)
Tenant or a Permitted Transferee which has satisfied the requirements of Sections 10.01 and 10.05
of the Lease must be conducting regular, active, ongoing business in, and be in occupancy (and
occupancy by a subtenant, licensee or other party permitted or suffered by Tenant shall not satisfy
such condition) of the entire Premises; and (ii) there has been no material adverse change in
Tenants financial position from such position as of the date of execution of the Lease, as
certified by Tenants independent certified public accountants, and as supported by Tenants
certified financial statements, copies of which shall be delivered to Landlord with Tenants
written notice exercising its right hereunder. Without limiting the generality of the foregoing,
Landlord may reasonably conclude there has been a material adverse change if Tenants independent
certified public accountants do not certify there has been no such change.
(b) Tenants election (the Election Notice) to exercise the Option To Extend must be given
to Landlord in writing during the period starting twelve (12) months before and ending nine (9)
months before the scheduled Expiration Date of the initial Term. If Tenant either fails or elects
not to exercise the Option to Extend by not timely giving its Election Notice, then the Option to
Extend shall be null and void, including, if more than one Option is granted, the then applicable
Option to Extend and all further Options to Extend.
(c) The Option Term (and each Option Term, if more than one Option is granted) shall commence
immediately after the expiration of the preceding Term of the Lease. Tenants leasing of the
initial Premises and Expansion Space during the Option Term shall be upon and subject to the same
terms and conditions contained in the Lease except that (i) Tenant shall pay the Option Term
Rent, defined and determined in the manner set forth in the immediately following Subsection; (ii)
the Security shall be increased to an amount that is the same percentage or proportion of Option
Term Rent as the prior amount of Security was in relation to Rent for the Term prior to the Option
Term, but in no event shall the Security be decreased; and (iii) Tenant shall accept the initial
Premises and Expansion Space in its as is condition without any obligation of Landlord to
repaint, remodel, repair, improve or alter the initial Premises and Expansion Space or to provide
Tenant any allowance therefor, except to the extent tenants leasing space in Comparable
Transactions receive an allowance pursuant to the definition of Fair Market Rental Rate defined in
Exhibit F
hereto, provided, however, Landlord by notice given to Tenant within thirty (30)
days after final determination of the Fair Market Rental Rate, may elect to provide, in lieu of
such allowance for alterations to the initial Premises and Expansion Space, a rent credit equal to
the amount of the allowance that would have otherwise been given, credited toward the rents
applicable only to the Initial Premises and Expansion Space and due starting after such rent
obligation commences. If Tenant timely and properly exercises the Option To Extend, references in
the Lease to the Term shall be deemed to mean the preceding Term as extended by the Option Term
unless the context clearly requires otherwise.
(d) The Option Term Rent shall mean the sum of the Monthly Base Rent at the Fair Market Rental
Rate (as defined in
Exhibit F)
plus Rent Adjustments and/or certain Operating Expenses (if
applicable, based upon a step-up to change the base year or base amount for calculation of
Operating Expenses in connection with determination of the Fair Market Rental Rate) plus other
charges pursuant to the Lease payable to Landlord. The determination of Fair Market Rental Rate
and Option Term Rent shall be made by Landlord, in the good faith exercise of Landlords business
judgment. Within forty-five (45) days after Tenants exercise of the Option To Extend, Landlord
shall notify Tenant of Landlords determination of the Fair Market Rental Rate
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and Option Term Rent for the initial Premises and Expansion Space. Tenant may, within fifteen (15)
days after receipt thereof, deliver to Landlord a written notice either: (i) accepting Landlords
determination, in which case the extension shall be effective and binding (subject to Subsection
(f) below) at the accepted rate; or (ii) setting forth Tenants good faith estimate, in which case
Landlord and Tenant will promptly confer and attempt to agree upon the Fair Market Rental Rate and
Option Term Rent. Tenants failure to timely deliver such notice within such fifteen (15) day
period shall be deemed its cancellation of the Option. In the event Tenant has delivered notice
setting forth Tenants different estimate, but no agreement in writing between Tenant and Landlord
on Fair Market Rental Rate and Option Term Rent is reached within thirty (30) days after Landlords
receipt of Tenants estimate, the Fair Market Rental Rate shall be determined in accordance with
the terms of
Exhibit F
. Notwithstanding any of the foregoing to the contrary, at no time during the
Option Term shall the Option Term Rent be less than the Preceding Rent (defined below). The
Preceding Rent shall mean the sum of the Monthly Base Rent payable by Tenant under this Lease
calculated at the rate applicable for the last full month of the Term preceding the Option Term
plus the Rent Adjustments payable by Tenant under the Lease (if applicable, using the base year for
calculation of Base Operating Expenses applicable for the last full month of the Term preceding the
Option Term), plus other charges pursuant to the Lease payable to Landlord. To the extent that
Tenant pays directly the utility or service provider for utilities or services which Tenant is to
obtain directly pursuant to the Lease, Tenant shall continue to pay such amounts, but such amounts
shall not be counted as part of the Preceding Rent or the Fair Market Rental Rate as used herein.
Further, in the event that Landlord notifies Tenant that the Option Term Rent shall equal the
Preceding Rent, such determination shall be conclusive and binding to set the Preceding Rent as the
Option Term Rent for the Option Term, Tenant shall not be entitled to dispute or contest such
determination, and the extension shall be effective and binding (subject to Subsection (f) below).
(e) Promptly after final determination of the Fair Market Rental Rate, Landlord shall prepare
a memorandum confirming the specific dates, amounts and terms of the extension for the Option Term
in accordance with the terms and conditions of this Option to Extend, in the form of an amendment
to the Lease, and Tenant shall execute such amendment within five (5) business days after Landlord
and Tenant agree to the form of the proposed amendment and Landlord shall execute it promptly after
Tenant. Notwithstanding any of the foregoing to the contrary, the failure of Landlord to prepare
such amendment or of either party to execute an amendment shall not affect the validity and
effectiveness of the extension for the Option Term in accordance with the terms and conditions of
this Option to Extend.
(f) Upon the occurrence of any of the following events, Landlord shall have the option,
exercisable at any time prior to commencement of the Option Term, to terminate all of the
provisions of this Section with respect to the Option to Extend, whereupon any prior or subsequent
exercise of this Option to Extend shall be of no force or effect:
(i) Tenants failure to timely exercise or timely to perform the Option to Extend in
strict accordance with the provisions of this Section.
(ii) The existence at the time Tenant exercises the Option to Extend or at the
commencement of the Option Term of a Default on the part of Tenant under the Lease or of
any state of facts which with the passage of time or the giving of notice, or both, would
constitute such a Default.
(iii) Tenants third Default under the Lease prior to the commencement of the Option
Term, notwithstanding that all such Defaults may subsequently be cured.
(g) Without limiting the generality of any provision of the Lease, time shall be of the
essence with respect to all of the provisions of this Section.
(h) This Option to Extend is personal to Genomic and may not be used by, and shall not be
transferable or assignable (voluntarily or involuntarily) to any person or entity other than a
Permitted Transferee which is an assignee of the Lease and which has satisfied the requirements of
Sections 10.01 and 10.05 of this Lease, and such Permitted Transferee may exercise the right
without Tenant joining in or consenting to such exercise, and notwithstanding anything to the
contrary, Tenant shall remain liable for all obligations under the Lease, including those
resulting from any such exercise with the same force and effect as if Tenant had joined in such
exercise.
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