<PAGE>
EXHIBIT 10.22
REAL PROPERTY LEASE AND SUBLEASE
THIS
REAL PROPERTY LEASE AND SUBLEASE (this "Lease"), dated for
reference
purposes the 28th day of June, 1996, is by and between 810 DEXTER
L.L.C., a
Washington limited liability company (the "Landlord"), and KORRY
ELECTRONICS
CO., a Delaware corporation (the "Tenant").
Landlord and Tenant agree as follows:
1.
PREMISES. Landlord hereby leases to Tenant and Tenant leases
from
Landlord, upon the terms and subject to the conditions set forth in
this Lease,
that certain real property and improvements thereon, commonly known
as 810
Dexter Avenue North, Seattle, Washington, along with the Adjoining
Parking Lot
(defined hereafter), all as legally described on Exhibit A attached
hereto and
incorporated herein by this reference (the "Real Property"). The
leased premises
(the "Premises") shall contain the entire building (the
"Building"), which is
approximately 93,000 square feet, and the Adjoining Parking Lot.
Tenant may not
use, occupy or penetrate the roof of the Premises without
Landlord's consent.
2.
PARKING. The Premises leased by Tenant hereunder shall include
without
additional cost or charge the Adjoining Parking Lot (the "Adjoining
Parking
Lot") adjacent to the Building subject to Landlord's sublease of
all but thirty
two (32) unreserved parking spaces. At the commencement of the
Fourth Lease Year
(defined hereinafter) Landlord shall sublease only one-third of the
Adjoining
Parking Lot and at the commencement of the Sixth Lease Year
(defined
hereinafter) Landlord shall cease subleasing any of the Adjoining
Parking Lot.
Landlord hereby grants to Tenant a first right of refusal on all
parking spaces
Landlord is subleasing from Tenant which may become available and
which are not
needed by other tenants from time to time, at a price of $50 per
space per
month. Landlord recognizes that Tenant may need additional parking
and
accordingly Landlord agrees to discuss in good faith with Tenant,
at Tenant's
request, Landlord's construction of a parking garage for Tenant on
property in
the present parking lot. So long as Landlord fulfills its
obligation to discuss
construction of the parking garage in good faith, it shall not be
obligated to
build same. In addition, Landlord reserves the right to construct
at its sole
cost and expense and at no cost to Tenant a parking garage
structure on the
Adjoining Parking Lot. Landlord shall provide Tenant with at least
four (4)
months prior written notice of commencement of construction. In
either event,
upon completion Tenant shall have the same number of spaces in the
garage that
are provided above at no additional cost, and during construction
of the garage,
to the extent Tenant is not able to use the portion of the
Adjoining Parking Lot
which Landlord is not then subleasing, Landlord shall provide
Tenant at
Landlord's expense with substitute parking within two (2) blocks of
the
Adjoining Parking Lot. During construction Landlord shall not
unreasonably
disrupt Tenant's use of the remainder of the Premises.
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3.
TERM.
3.1
Initial Term. The initial term (the "Initial Term") of this Lease
shall
be for a period, commencing on the Commencement Date (defined
hereinafter) and
ending July 31, 2011, unless sooner terminated pursuant to any
provision hereof.
For purposes of this Lease, the term "Lease Year" shall be the one
year period
beginning on an anniversary of the Commencement Date and continuing
through the
day before the next anniversary of the Commencement Date (except
the final Lease
Year ending July 31, 2011 may be less than twelve (12) months).
3.2
Commencement Date. This Lease shall be effective when signed by
Landlord and Tenant. The Initial Term shall commence (the
"Commencement Date")
on the earlier of Tenant's occupancy of the Premises to conduct
business or the
issuance of a "Certificate of Occupancy" after completion of
Tenant's Work
(defined in Section 9.2 hereafter), whichever occurs first, but in
no event
later than December 1, 1996; provided, however, that if Tenant has
not been
issued a "Certificate of Occupancy" for the Premises by December 1,
1996, Tenant
shall have the right to terminate this Lease on notice to Landlord
so long as
Tenant completes Tenant's Work (for which Landlord must reimburse
Tenant up to
$150,000 within ten (10) days of completion), and all Tenant's Work
shall become
property of Landlord. Tenant shall use all reasonable efforts to
complete
Tenant's Work by December 1, 1996.
3.3
Extensions. If Tenant is not in default under this Lease beyond
the
applicable cure period either at the time of option exercise or at
any time
until commencement of an Extension Term, Tenant shall have the
right and option
("Option to Renew") of extending the term of this Lease for two (2)
additional
successive terms (each an "Extension Term") of five (5) years each,
upon the
terms and conditions provided herein. If Tenant elects to exercise
such option,
it shall do so by giving notice in writing to Landlord of such
election at least
one hundred eighty (180) days prior to the expiration of the
Initial Term or as
such Initial Term may be extended.
3.4
Tenant's Early Termination Rights. Tenant shall have the right
to
terminate this Lease by providing Landlord two (2) years
irrevocable advance
notice of its intent to terminate. If Tenant so terminates this
Lease, Landlord
shall reimburse Tenant for the unamortized portion of Tenant's
costs (as
specified by Tenant) to obtain all permits and approvals for its
work on the
Premises, costs of complying with energy codes and costs of
installed heating
and air-conditioning systems ("Reimbursable Costs"). The
Reimbursable Costs
shall be amortized on a straight line basis over fifteen (15)
years, and the
amount owed by Landlord shall not exceed $300,000 for the top
floor, $100,000
for the middle floor, and $100,000 for the bottom floor. For
example, if Tenant
terminates at the end of the Third Lease Year, Tenant will be
entitled to
receive 12/15th's of the first $300,000 of its top floor
Reimbursable Costs.
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Tenant shall also have the right to terminate this Lease at any
time in the
event soil or groundwater contamination is discovered on, under or
near the
Premises and a local, state or federal agency requires
investigations, testing
or cleanup that materially interfere with Tenant's use of the
Premises;
provided, if such contamination is confined to the Adjoining
Parking Lot
Landlord may defeat Tenant's termination by notifying Tenant in
writing within
fifteen (15) days of receipt of Tenant's notice that Landlord will
eliminate the
contaminated area from the Premises and supply Tenant with
replacement parking
within two (2) blocks of the Premises, for all spaces eliminated
from the
Premises. Landlord and Tenant shall enter into an amendment to this
Lease to
evidence such elimination. If the Lease is terminated pursuant to
this paragraph
Reimbursable Costs shall be capped at $150,000.
4.
MONTHLY AND ADDITIONAL RENT.
4.1
Minimum Monthly Rent - Initial Term. Subject to reduction pursuant
to
Section 10 and Section 43, but otherwise without offset or
deduction except as
expressly set forth herein, Tenant shall pay to Landlord, without
notice or
demand, on or before the first day of each calendar month, at the
address
specified below Landlord's signature hereon or at such other place
as Landlord
shall designate, minimum monthly rent during the Initial Term for
the Premises
as follows:
(a) For the first
lease year, the ("First Lease Year") which begins on the
Commencement Date and continues through the day before the first
anniversary of
the Commencement Date, minimum monthly rent shall be $36,000 per
month (prorated
for partial months);
(b)
For the second lease year the ("Second Lease Year"), which begins
on
the first anniversary of the Commencement Date and continues
through the day
before the second anniversary of the Commencement Date, minimum
monthly rent
shall be $38,000 per month;
(c)
For the third lease year (the "Third Lease Year"), which begins on
the
second anniversary of the Commencement Date and continues through
the day before
the third anniversary of the Commencement Date, minimum monthly
rent shall be
$40,000 per month;
(d)
For the fourth lease year (the "Fourth Lease Year"), which begins
on
the third anniversary of the Commencement Date and continues
through the day
before the fourth anniversary of the Commencement Date, and for
each successive
lease year thereafter continuing until the last month of the
Initial Term,
minimum monthly rent shall be $40,000 per month; provided that
beginning with
the first month of the Fourth Lease Year and continuing on the
first day of
every other succeeding Lease Year, the minimum monthly rent shall
be increased
by a percentage equal to the percentage increase in the Index
(defined below)
during the prior two-year period, up to a maximum percentage
increase of two and
one-half percent (2-1/2%) in any one year, for a maximum of five
percent (5%)
increase for each two-year period.
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<PAGE>
(e)
As used herein, the term "Index" shall mean the Consumer Price
Index
for all Urban Consumers - All Items, West Cities A Average, as
published by the
U.S. Department of Labor's Bureau of Labor Statistics.
(f)
In addition to the rental adjustments described above, and not in
lieu
thereof, a rent adjustment shall be made on August 1, 2001, which
shall be an
amount equal to one-half of the sum of Monthly Excess Amounts
(defined below)
computed at the end of each of the following two-year periods:
8/1/97 through
7/31/99, and 8/1/99 through 7/31/01.
(g)
As used herein, the term "Monthly Excess Amount" means the
difference
between (a) the monthly increase that would have been made for the
upcoming
two-year period if the two and one-half percent annual limit were
not in effect,
and (b) the monthly rent increase actually payable (i.e., with the
two and
one-half percent annual limit in effect).
(h)
In addition to the rental adjustments described above, and not in
lieu
thereof, a rent adjustment shall be made on August 1, 2005, which
shall be an
amount equal to one-half of the sum of the Monthly Excess Amounts
computed at
the end of each of these two-year periods: 8/1/01 through 7/31/03
and 8/1/03
through 7/31/05.
(i)
If the Index is discontinued, the parties shall substitute a
comparable
index of consumer prices.
4.2
Minimum Monthly Rent - Extension Terms.
(a)
Subject to reduction pursuant to Section 10 and Section 43, but
otherwise without offset or deduction except as specifically set
forth herein,
Tenant shall pay to Landlord, without notice or demand, on or
before the first
day of each calendar month, at the address specified below
Landlord's signature
hereon or at such other place as Landlord shall designate, minimum
monthly rent
for: (i) the first Lease Year of each Extension Term shall be
determined
pursuant to Section (b) below, and (ii) the final four (4) Lease
Years of each
Extension Term shall be an amount equal to the minimum monthly rent
applicable
during the first year of such Extension Term, increased by a
percentage increase
equal to the percentage increase in the Index over the prior two
(2) Lease
Years; provided the increase shall not be less than two and
one-half percent
(2-1/2%) or more than five percent (5%) for any two (2) year
period. In no event
will minimum monthly rent decrease.
(b)
Following Tenant's exercise of an Option to Renew, and at least
one
hundred fifty (150) days prior to the commencement of each
Extension Term,
Landlord and Tenant shall attempt in good faith to agree on minimum
monthly rent
for the first Lease Year of the Extension Term. If Landlord and
Tenant fail to
agree, rent for said Lease Year shall be equal to the prevailing
market rent as
determined by appraisal (the "Prevailing Market Rent"). Landlord
and Tenant
shall each designate an appraiser to determine the Prevailing
Market Rent. If
the two (2) appraisers so selected are unable to agree upon the
Prevailing
Market Rent within twenty (20) days of their appointment, they
shall jointly
designate a third appraiser. If the three (3) appraisers do not
agree, the
closest two (2) shall be averaged, to determine rent. The
appraisers shall
complete their determination of the Prevailing Market
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<PAGE>
Rent on or before Ninety (90) days prior to the commencement of
such Extension
Term. All appraisers designated for the foregoing purpose shall be
duly licensed
and members of the American Institute of Real Estate Appraisers or
any
comparable successor certifying organization if such institute is
not then in
existence. The determination of rent hereunder shall be conclusive
and binding
on Landlord and Tenant.
(c)
The Prevailing Market Rent shall be determined by taking into
account
the size and location of the Premises, its usage and which party
paid for the
various improvements.
5.
USE. The Premises may be used by Tenant for any purpose in
accordance
with law. Tenant shall not do or permit to be done in or about
Premises anything
which is illegal or unlawful, or which would constitute a
nuisance.
6.
UTILITIES. Tenant hereby covenants and agrees to pay all
charges
(including, without limitation, all taxes by governmental units
billed with or
on utilities) for water, sewer, garbage removal, heat, light, and
for all other
utilities which shall be used in or charged against the Premises
during the
Initial Term of this Lease and as it may be extended. In the event
any such
utilities are not separately metered for the Premises, Tenant shall
pay its
share ("Tenant's Share") of such utilities, as reasonably
determined by Landlord
based on increases over usage in the Building immediately prior to
the
Commencement Date and reflecting the usage by all Building
occupants. Tenant's
Share shall be rebuttably presumed to be a reasonable
determination, unless
Tenant within thirty (30) days of such notice provides Landlord
with a
professional opinion of a qualified consultant which concludes that
a different
allocation is more accurate. Landlord shall not be liable in any
manner
whatsoever should the furnishing of any of these services be
delayed,
interrupted or prevented unless caused by the negligence or wilful
misconduct of
Landlord. If, at the commencement of the Initial Term, any
extension thereof, or
any time thereafter, Landlord or Tenant shall elect to separately
meter any
utilities to the Premises, Tenant shall timely and directly pay all
such
separately metered utilities relating to Tenant's use of the
Premises. Utilities
payments required by Tenant shall be additional rent. Landlord may
pay Tenant's
Share of said utilities if and to the extent Tenant does not pay
after receipt
of notice of default and expiration of the applicable cure
period.
7.
REPAIR AND CARE OF PREMISES. The Premises have been inspected and
are
accepted by Tenant in their present condition, AS IS, and Tenant
will at all
times keep the Premises neat, clean and in a sanitary condition.
Tenant will at
all times preserve the Premises in as good repair as they now are
or may
hereafter be put to, ordinary wear and tear excepted. Tenant will
commit no
waste, damage or injury to the Premises, Building or Real Property.
All repairs
and maintenance shall be at Tenant's sole cost and expense, except
that (i) at
all times Landlord shall be responsible for structural repairs to
the Building,
and for repair of damage caused by sink holes in the Adjoining
Parking Lot and
(ii) from the Commencement Date through the end of the Third Lease
Year,
Landlord shall be responsible for maintenance, repair and
replacement of the
asphaltic portions of the roof of the Building.
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<PAGE>
Should either party fail to make any repairs required of it
hereunder
within a reasonable time (which, except in the event of an
emergency, shall mean
within thirty (30) days after prior written notice from the
non-repairing party
or longer if necessary if the repair is commenced within such
thirty (30) day
period and diligently prosecuted to completion), or fail to make
any payments of
any kind required of it by any provisions of this Lease, the other
party may, at
its option, make the same, and the amount or cost thereof shall
immediately
become due and payable by the other. Regardless of the allocation
of
responsibility of care of the Premises, Landlord and Tenant shall
be responsible
for damage caused by themselves, their agents, tenants, employees
or
contractors.
8.
Intentionally deleted.
9.
IMPROVEMENTS.
9.1
Landlord's Work. Landlord shall provide for the benefit of the
Premises, at its sole cost and expense, each of the following
("Landlord's
Work"):
(a)
Proper removal from the Premises of all asbestos and other
hazardous
materials from the Premises as of the Commencement Date; provided
Tenant is
responsible for all lead based paint, for all asbestos removed by
Tenant without
prior notice to Landlord, and for any removal or other remediation
of hazardous
materials which are discovered as a result of Tenant's penetration
of the Real
Property.
(b)
Resurface the floor of the top floor at a cost not to exceed
$100,000,
as necessary to receive Tenant's floor covering per Tenant's
specifications.
(c)
Remove (and not permit replacements of) any sign on the exterior of
the
Premises except for those floor(s) subleased by Landlord. Where
signs may be
retained, Landlord may retain only existing signs or their
comparable
replacements.
9.2
Tenant's Work. Tenant shall construct those initial Tenant
improvements
specified on Exhibit B attached hereto ("Tenant's Work"). Tenant's
Work shall
include sealing or other repairs to the roof, including the vents
and skylights,
to prevent leakage. Such roof work shall be done prior to the end
of the Third
Lease Year in a manner reasonably approved by Landlord and Tenant.
Any and all
unused portion of the $100,000 floor allowance from Landlord
specified in
Section 9.1(b) above shall be applied to Tenant's roof repair work
set forth
above, to the extent of the cost of such work.
After completion of Tenant's Work and upon notice by Tenant to
Landlord,
Tenant shall have the right during the term of this Lease to make
such interior
alterations, changes and improvements to the Premises, as Tenant
desires. Any
alterations, changes or improvements which adversely affect the
structural
members of the Building or involve penetration of the surface of
the Real
Property or modify the exterior of the Building, or impair any
street access to
the Real Property, require Landlord's advance written approval,
which may be
granted or withheld in Landlord's sole discretion.
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<PAGE>
With
respect to Tenant's Work and any other alterations, changes or
improvements to the Premises by Tenant, Tenant shall comply with
the following:
(a)
Compliance with Laws. All work shall be performed in conformity
with
all permits, rules, orders, regulations, ordinances, laws and other
requirements
of all governmental authorities having jurisdiction over such
work.
(b)
Disputes. Tenant shall have sole responsibility to resolve any and
all
disputes relating to any construction it undertakes under this
Lease, and shall
pay all fees, costs, expenses, judgments, awards and liabilities
incurred in
connection therewith.
(c)
No Liens. At no time during or after the completion of any such
work
shall Tenant or any contractor of Tenant create or suffer there to
be any lien
or encumbrance upon the Premises including, without limit
construction liens or
other claims for lien made by parties claiming to have provided
labor or
material (collectively, "Construction Liens"). Notwithstanding the
foregoing
prohibition against Construction Liens, Tenant may in good faith
and with due
diligence contest the validity or amount of any Construction Lien
and defer
payment and discharge thereof during the pendency of such contest
provided that:
(i) such contest shall have the effect of preventing the sale or
forfeiture of
the Real Property, Building or any part thereof; (ii) within ten
(10) days after
Tenant has been notified of the filing of such Construction Lien,
Tenant shall
have notified Landlord in writing of Tenant's intention to contest
such
Construction Lien, and (iii) Tenant shall have deposited or caused
to be
deposited with Landlord a sum of money which shall be sufficient to
pay in full
such Construction Lien and all interest which might become due
thereon, and
shall keep on deposit an amount so sufficient at all times,
increasing such
amount to cover additions to the amount of such Construction Lien
or additional
interest. Such deposits are to be held without any allowance of
interest.
Landlord may apply such deposit as necessary to discharge the
Construction Lien
in dispute following the entry of a judgment and shall return any
unused funds
to Tenant.
(d)
Damage to Building or Property. Tenant agrees that at no time
will
Tenant (i) destroy, damage or impair the Building or any portion
thereof
including, without limitation, any systems or structural components
thereof,
(ii) impair the access to or from the Building or the Real Property
except as
reasonably necessary in connection with work consented to or
approved by
Landlord, or (iii) eliminate any access to a public street.
(e)
Disruption of Other Tenants. Tenant will take all reasonable
measures
to minimize all sounds, vibrations, debris, activities, impairment
of access to
or egress from, interruption or disruption of utility services or
mechanical or
other Building services, and other conditions that disrupt or
impair the use and
enjoyment of the Building or the Real Property by any other tenant.
Tenant shall
give such tenants reasonable notice of when disruptions or
interruptions to
access, utilities or building services shall occur and will take
reasonable
steps to minimize their duration and their impact on other tenants.
To the
extent practicable, Tenant shall schedule any disruptions or
interruptions to
access, utilities or Building services to occur on weekends or
during evening
hours.
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<PAGE>
(f)
Ownership of Improvements. All alterations, additions and
improvements
made or constructed by Tenant shall be and remain the property of
Tenant during
the Term of this Lease and shall become the property of Landlord as
of the date
of termination of this Lease or upon earlier vacating of the
Premises and shall
be delivered up to the Landlord with the Premises, normal wear and
tear and
damage by casualty and condemnation excepted. All trade fixtures
installed by
Tenant may be removed by Tenant upon the termination of this Lease
if Tenant so
elects, and shall be removed by the date of termination of this
Lease or upon
earlier vacating of the Premises if required by Landlord. Upon any
such removal
Tenant shall repair any damage to the Premises caused by such
removal.
In
all projects other than Tenant's Work for which Tenant's
construction
costs are budgeted to exceed $750,000, Tenant shall in addition
comply with the
following terms and conditions:
(a)
Compliance with Plans and Specifications. All work shall be
performed
in accordance with all plans and specifications reasonably approved
by Landlord
and Tenant.
(b)
Approval of Contractors. All general contractors or other
contractors
directly engaged by Tenant shall be subject to Landlord's advance
reasonable
approval. All contracts entered into directly by Tenant shall name
Landlord as a
third-party beneficiary. Copies of all such agreements shall be
delivered to
Landlord promptly upon execution thereof. All construction and
consultants'
reports delivered to Tenant relating to any construction matters
shall also be
delivered and addressed to Landlord.
(c)
Bonding. Landlord may condition its approval of any work exceeding
a
cost of $750,000 upon a requirement that the contractor provide
payment and
performance bonds in adequate amounts to assure the full completion
of the work
undertaken.
(d)
Security for Tenant's Performance. Tenant shall grant to Landlord
a
security interest in all of the construction plans, specifications,
purchase
orders, agreements, work orders, permits and other rights and
interests
necessary to enable Landlord to complete any such work in the event
Tenant
defaults in any of its construction obligations. Landlord's lien
shall be junior
to the liens of Tenant's construction lender(s), if any. Tenant
shall not
otherwise pledge, encumber or transfer any such assets or
rights.
(e)
Insurance. In addition to the other insurance to be purchased
hereunder, Tenant shall purchase, at its expense, appropriate
casualty and
liability insurance to fully protect to commercially reasonable
standards
Tenant's and Landlord's respective interests. Tenant agrees that
all general or
other contractors it hires will carry general liability and
builder's risk
insurance on commercially reasonable terms.
10.
SEISMIC UPGRADES.
10.1
If seismic upgrades are required by the City of Seattle or any
other
governmental entity as a result of a change in laws that affects
all
improvements and not as the sole result of Tenant's Work, Tenant
shall perform
such work and shall share in the cost
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<PAGE>
of seismic upgrades in an amount equal to 50% of the portion of the
Premises
leased by Tenant (but not subleased to Landlord), e.g. 1/3 space
occupied X 50%
= 17%.
10.2
Except as described in Section 10.1, if any work by Tenant on
the
Premises results in a requirement by the City of Seattle that
certain seismic
upgrades be made to the Building, then the parties agree that:
(a)
Tenant shall pay all amounts up to $400,000 of the required
seismic
upgrades;
(b)
Landlord shall be responsible for all amounts in excess of $400,000
up
to $600,000;
(c)
Tenant will finance Landlord's portion of the seismic upgrades
referred
to in Subsection 10.2(b), which shall be payable by Landlord to
Tenant through a
fifty percent (50%) rent reduction, plus interest at a rate of
eight percent
(8%) per year, commencing as funds are expended.
(d)
Tenant and Landlord will share the additional cost of seismic
upgrades
which exceed $600,000, on a 50/50 basis, with Tenant's portion
determined by
multiplying fifty percent (50) times the percentage of space leased
(but not
subleased by Landlord) (e.g. 50% x 2/3 Building = 34%).
11.
INSURANCE AND TAXES.
11.1
Liability Insurance. Tenant shall, at all times during the term
hereof
and at Tenant's cost and expense, maintain in effect primary
commercial general
public liability insurance, naming Landlord as an additional
insured in an
amount of not less than $2,000,000 per person per occurrence and
not less than
$l,000,000 for damage to property in connection with the use,
operation or
condition of the Premises. In no event shall the limits of said
policies be
considered as limiting the liability of Tenant under this Lease,
nor shall
Tenant's duty to carry insurance create any legal responsibility of
Tenant for
any insured casualty. The insurance shall be issued prior to
commencement of
Tenant's Work by an insurance company or companies currently used
by Tenant, in
a commercially reasonable form, and a copy of each policy or
certificate of
insurance shall be delivered to Landlord before the commencement of
Tenant's
Work and before the expiration of each policy. If Tenant does not
timely pay the
premium for the insurance required hereunder Tenant shall so notify
Landlord and
Landlord may immediately upon notice to Tenant, pay such premium or
provide a
replacement policy.
11.2
Casualty Insurance. Tenant shall obtain and keep in full force
and
effect such policy or policies of fire and all-risk extended
coverage insurance
(including earthquake coverage at Tenant's option), and includi