LEASE AGREEMENT

Exhibit 10.6

 

LEASE AGREEMENT BY AND BETWEEN

 

RANDAL J. STEWART AND ANNE J. STEWART

DBA PALM COURT PROPERTIES

 

“Landlord”

 

AND

 

VERITEST, INC.

 

“Tenant”

 

AT

 

133 KEYBRIDGE DRIVE,

Suite B and Suite F (including additional office adjacent to suite F)

MORRISVILLE, NORTH CAROLINA

TABLE OF CONTENTS

 

 

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LEASE AGREEMENT

 

THIS LEASE AGREEMENT (the “ Lease ”), is made and entered into as of the          day of August, 2005, by and between Randal J. Stewart and Anne J. Stewart dba Palm Court Properties (the “Landlord”), and VeriTest, Inc. (the “Tenant”).

 

W I T N E S S E T H :

 

1. PREMISES AND TERM .

 

(a) PREMISES . In consideration of the obligation of Tenant to pay rent as herein provided, and in consideration of the other terms, provisions and covenants hereof, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, certain premises known as Suite B and Suite F (including additional office adjacent to suite F) comprised of 2,416 rentable square feet (the “Premises”) in a building known as 133 Keybridge Drive (the “Building”) situated on certain land (the “Land”) in the Town of Morrisville, County of Wake, State of North Carolina, more particularly described on Exhibit A, attached hereto and incorporated herein by reference, together with all rights, privileges, easements, appurtenances and immunities belonging to or in any way pertaining to the Premises.

 

The Landlord represents and warrants that the Premises and all improvements thereto are and shall be in good and occupiable condition as of the date of possession as set forth herein. Additionally, the Landlord will provide to the Tenant a certification by an independent licensed HVAC technician that the HVAC system for the Premises is in good working order. Except as provided above, the Premises are leased by Tenant “as is”. Except as provided above, the Tenant further acknowledges that no representations as to the repair of the Premises, nor promises to alter, remodel or improve the Premises have been made by Landlord, unless such representations or promises are expressly set forth in this Lease.

 

(b) TERM .

 

TO HAVE AND TO HOLD the same for a term of twelve (12) months commencing on October 1, 2005 (the “ Commencement Date ”), and ending on September 30, 2006, (the “ Termination Date ”) unless sooner terminated pursuant to the provisions hereof.

 

Landlord shall allow the Tenant to enter the Premises for electrical upgrades, wiring, telecommunications, and testing during the month of September. Any modifications to the electrical service to the Premises shall be performed through the use of a licensed electrician. The Landlord shall have the right to approve such modifications and such approval will not be unreasonable withheld.

 

2. BASE RENT, TICAM, OPTION TO RENEW, AND SECURITY DEPOSIT .

 

(a)  BASE RENT .

 

Tenant agrees to make monthly payments of base rent to Landlord for the Premises (“Base Rent”), in advance, without demand, deduction or offset, in lawful money of the United States, at the annual rate of $12.50 per rentable square foot of the Premises, or $2,516.67 per month, commencing on November 1, 2005, and continuing on the first day of each and every

month thereafter until the Termination Date. Rent payments for any fractional calendar month at the end, or the beginning of the term of the Lease, shall be prorated

 

(b) TAXES, INSURANCE AND COMMON AREA MAINTENANCE .

 

Beginning on the November 1, 2005, and continuing for the entire term hereof, Tenant shall pay to Landlord, as additional rental, Tenant’s pro rata share of all Taxes, Insurance and Common Area Maintenance (TICAM) expenses at a rate of $2.00 per square foot, or $402.67 per month for the initial term of this lease. Such rate is based upon the Landlord’s good faith estimate of TICAM expenses for the Term of the Lease.

 

Taxes includes taxes, assessments and governmental charges of any kind or nature whatsoever levied or assessed against the Land and the Building by any municipality, county, or other governmental agency. Insurance includes insurance premiums for commercial general liability, flood, and fire and extended coverage insurance on the Building and the Land. Common Area Maintenance includes the costs and expenses of the operation, repair and maintenance of the Premises, the Building, its interior and exterior common areas, and driveways and parking areas, including, but not limited to, the costs of lawn maintenance, driveway and parking area maintenance for the Premises and for the streets and roadways providing access to the Building and the Land, management and supervisory fees, exterior lighting maintenance, snow removal, repair and maintenance of paved areas, cleaning supplies, miscellaneous building supplies, sweeper brushes, supplies for materials used in common by all tenants of the complex in which the Premises are located, external paint for the Building, exterior and interior common area maintenance, external plumbing for the Building, utility costs for exterior lighting and lighting in common areas, insect and pest extermination, signs for the complex in which the Premises are located, fuel for vehicles and street sweepers used by Landlord in the complex in which the Premises are located and miscellaneous maintenance expenses, heat, air conditioning, labor, materials, supplies, equipment and tools, permits, licenses, inspection fees, window glass replacement and repair, compensation (including employment taxes and fringe benefits) of all persons who perform duties in connection with the operation and/or maintenance of the Building, and trash removal at the Building unless any such services are contracted for and paid directly by Tenant.

 

(c) RENT AND TICAM CONCESSION FOR THE FIRST MONTH .

 

As an incentive for the Tenant to enter into this Lease, Landlord has agreed to provide Tenant with the first month of free Base Rent and TICAM in the preceding sections 2(a) and (b) of this Lease. In any Event of Default, as defined in this Lease, Tenant shall be required to immediately pay the Landlord for the first month of Base Rent and TICAM.

 

(d) OPTION TO RENEW .

 

The Tenant shall have the option to renew the lease for one twelve-month term beginning October 1, 2006 by giving written notice to Landlord at least ninety (90) days in advance of the Termination Date. If the lease is renewed, the Base Rent for the renewal period shall increase 3.0% to $2,592.17 per month and the TICAM expenses for the renewal period will be based upon Landlord’s good faith estimate of TICAM expenses for that period.

 

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(e) SECURITY DEPOSIT .

 

Tenant shall pay to Landlord on or before the execution date hereof the sum of $5,033.34 to be held by Landlord as security for the performance by Tenant of all obligations imposed on Tenant pursuant to this Lease (hereinafter the “Security Deposit”). Landlord shall not be required to apply all or any portion of the security deposit with respect to any particular violation or default by Tenant but Landlord may apply all or any portion of the security deposit to any violation, breach, or default by Tenant hereunder. Landlord shall deposit the security deposit in an interest bearing commercial bank account, with any interest accrued thereon to be for the benefit of the Landlord. Tenant shall reimburse Landlord for such portions of the security deposit as Landlord shall from time to time apply with respect to any violation, breach, or default by Tenant hereunder promptly upon written notice of such application by Landlord. Any portion of the security deposit which has not been appropriated by Landlord in accordance with the provisions hereof shall be returned to Tenant forthwith upon the termination of this Lease.

 

If Landlord conveys Landlord’s interest under this Lease, if permitted under this Lease, the security deposit, or any part thereof not previously applied, may be released by Landlord to Landlord’s grantee, and if so released, Tenant agrees to look solely to such grantee for the proper application and return thereof in accordance with the terms of this Section 2. Tenant agrees that Tenant will not assign, and that neither Landlord, nor its successors and assigns, shall be bound by any such assignment, encumbrance or pledge, attempted assignment, attempted pledge, or attempted encumbrance of the security deposit.

 

(f) PROVISIONS TO SURVIVE LEASE TERMINATION .

 

Any unperformed obligations of the Landlord and Tenant under this Section 2 shall survive the termination of the Lease, for whatever reason, or any extension or renewal hereof.

 

3. UTILITIES .

 

(a) Tenant shall pay all charges for all water, electrical, telephone, sewer, and other utilities or services used on or from the Premises, together with any taxes, penalties, surcharges or the like pertaining thereto. Tenant shall also furnish all electric light bulbs and tubes required for the Premises. If any such services are not separately metered to Tenant, Landlord shall bill Tenant and Tenant shall pay to Landlord the Tenant’s pro-rata proportion of utilities based on square footage of all charges jointly metered with other tenants of the Building.

 

(b) Landlord shall in no event be liable for any interruption or failure of utility services on the Premises, unless such condition is caused by the negligence or willful misconduct of the Landlord or any person or entity acting on behalf of the Landlord. Landlord agrees to provide at Landlord’ cost, all utility line connections into the Premises.

 

4. COMPLIANCE WITH LAWS AND USE .

 

(a) The Premises shall be used only for the following purposes: for general office purposes. Tenant shall conduct no activity that will result in the discharge of harmful gases, effluents or other wastes or toxic substances. Outside storage, including, without limitation, trucks and other vehicles, is prohibited without Landlord’s prior written consent. Tenant shall at its sole cost and expense obtain any and all licenses and permits necessary for its use of the

 

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Premises. Tenant shall comply with all governmental laws, ordinances and regulations relating to the use of the Premises, and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of nuisances in or upon, or connected with, the Premises, all at Tenant’s sole expense. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to permeate in or emanate from the Premises, nor take any other action which would constitute a nuisance or would disturb or endanger any other tenants of the Building or unreasonably interfere with their respective premises. Without Landlord’s prior written consent, Tenant shall not receive, store or otherwise handle any product, material or merchandise which is explosive, inflammable, combustible, corrosive, caustic or poisonous. Tenant will not permit the Premises to be used for any purpose or in any manner (including, without limitation, any method of storage) which would render the insurance thereon void or the insurance risk more hazardous or cause the State Board of Insurance or other insurance authority to disallow any sprinkler credits. Tenant shall give notice to Landlord immediately upon the occurrence of any accident in the Premises or upon Tenant’s discovery of any defects thereon or in any fixtures or equipment located therein or upon the occurrence of any emergency in the Premises or the Building.

 

(b) Tenant, at its expense, in its use of the Premises and in making any alterations, renovations, upfit or modifications of the Premises, as provided herein, shall comply with all laws, ordinances, orders, rules and regulations of state, federal, municipal or other agencies or bodies having jurisdiction relating to the use, condition and occupancy of the Premises, including, but not limited to, the provisions of the Americans with Disabilities Act of 1990, as amended, and with recorded covenants, conditions and restrictions applicable for the Land and Building. Tenant shall have no responsibility for such compliance of the Land, Building, common areas and any other areas not comprising the Premises; such compliance shall be the sole and exclusive responsibility of the Landlord.

 

5. REPAIRS AND MAINTENANCE .

 

(a) Landlord shall maintain, repair and replace only the plumbing work (other than repairs due to the negligence of the Tenant), roof, downspouts, gutters, foundation, utility lines located outside the Premises and the structural soundness of the exterior walls of the Building, the common areas of the Building, the parking lot and other portions of the Land in good repair, reasonable wear and tear excepted. Tenant shall repair, replace and pay for, any damage to the foregoing caused by the negligence of Tenant or Tenant’s employees, agents or invitees, or caused by Tenant’s default hereunder. The term “walls” as used herein shall not include windows, glass or plate glass, doors, special store fronts or office entries. Tenant shall immediately give Landlord written notice of defect or need for repairs, after which Landlord shall have reasonable opportunity to repair same or cure such defect.

 

(b) Tenant shall at its own cost and expense maintain, repair and replace all parts of the Premises (except those for which Landlord is expressly responsible under the terms of this Lease) in good condition, promptly making all necessary repairs and replacements, including, but not limited to, windows, glass and plate glass, doors, any special office entry, interior walls, finish work, floors and floor covering, heating and air conditioning systems, fixtures and regular removal of trash and debris, and plumbing work repairs due to negligence of the Tenant.

 

(c) If either party hereto shall fail to fulfill its obligations under this paragraph, the other party hereto may enter upon the area of the Building or the Premises as required to conduct the obligations of the defaulting party, and shall be entitled to reimbursement from the defaulting

 

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party for its actual costs and expenses in conducting such obligations. The defaulting party shall reimburse the other party hereto for its actual costs and expense promptly upon demand made by the other party hereto. The provisions of this subparagraph shall not be interpreted to obligate either party hereto to conduct obligations of the other party hereto.

 

(d) Tenant shall maintain all heating and air conditioning systems and units in the Premises, including the removal and replacement of filters. Tenant shall provide for the reasonable cleaning of the Premises and the removal of all trash and debris. If such services are performed by third parties, contracts for such services shall be with parties and upon such terms and conditions as shall be reasonably approved by Landlord. Tenant shall provide Landlord a copy of such contracts within five days of the execution of this Lease.

 

(e) Tenant shall not damage any demising wall of the Building, or disturb the integrity and support provided by any demising wall and shall, at its sole cost and expense, promptly repair any damage or injury to any demising wall caused by Tenant or its employees, agents or invitees.

 

(f) In the event the Premises constitute a portion of a multiple occupancy building, Tenant and its employees, customers and licensees shall have the non-exclusive right to use the parking areas as may be designated by Landlord in writing, subject to reasonable rules and regulations as Landlord may from time to time prescribe and subject to rights of ingress and egress of other tenants. Parking shall be available at the Premises for the nonexclusive use of Tenant. Landlord shall provide reasonable assistance to the Tenant for enforcing Tenant’s parking rights against any third parties.

 

6. ALTERATIONS .

 

(a) Tenant shall not make any alterations, additions or improvements to the Premises (including, but not limited to, roof and wall penetrations) without the prior written consent of Landlord in Landlord’s sole discretion. Tenant may, with the consent of Landlord, but at its own cost and expense and in a good workmanlike manner, erect such shelves, bins and trade fixtures as it may deem advisable, without altering the basic character or structure of the Premises or improvements and without overloading or damaging the Premises or improvements, and in each case complying with all applicable governmental laws, ordinances, regulations and other requirements. Tenant shall not make any alterations, additions or improvements to the Premises which will contravene Landlord’s policies insuring against loss or damage by fire or other hazards, including but not limited to commercial general liability, or which will prevent Landlord from securing such policies in companies acceptable to Landlord. If any such alterations, additions or improvements cause the rate of fire or other insurance on the Premises by companies acceptable to Landlord to be increased beyond the minimum rate from time to time applicable to the Premises for permitted uses thereof, Tenant shall pay as additional rent the amount of any such increase promptly upon demand by Landlord.

 

(b) Any and all alterations, additions, improvements, partitions and fixtures erected by Tenant shall be the property of Landlord and shall remain at the Premises upon termination of the Lease or upon earlier vacating of the Premises, except that shelves, bins and trade fixtures installed by Tenant may be removed by Tenant prior to the termination of this Lease provided such removal may be accomplished without damage to the Premises or to the primary structure or structural qualities of the Building and other improvements situated on the Premises. Tenant shall repair any damage to the Premises, or to the Building as a result of any alteration, addition,

 

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improvement, or repair to the Premises, or the removal of personal property or trade fixtures by Tenant, its employees, agents, invitees, or contractors to the Premises, reasonable wear and tear excepted. Should Tenant fail to conduct any such repair within ten days of written notice from Landlord, Landlord may, at its option, perform same, and Tenant shall remit payment to Landlord for the actual cost and expense incurred by Landlord in effecting such repair immediately upon demand.

 

7. SIGNS . Tenant shall have the right to install signs upon the Premises at Tenant’s expense only when first approved in writing by Landlord, in Landlord’s sole discretion, and subject to any applicable governmental laws, ordinances, regulations and other requirements. Tenant shall remove all such signs upon the termination of this Lease. Such installations and removals shall be made in such manner as to avoid injury or defacement of the Premises, and Tenant shall repair any injury or defacement, including, without limitation, discoloration of the Building caused by such installation and/or removal.

 

8. INSPECTION . Landlord and Landlord’s agents and representatives shall have the right to enter and inspect the Premises at any reasonable time during business hours, upon 24 hours notice to the Tenant, for the purpose of ascertaining the condition of the Premises, in order to make such repairs as may be required or permitted to be made by Landlord to the Building or any adjacent space, under the terms of this Lease, or in order to show the Premises to any prospective purchaser or lender. In the event that the Tenant does not elect to renew the Lease as provided in Section 2(d), above, Landlord and Landlord’s agents and representatives shall have the right to enter the Premises at any reasonable time during business hours, upon 24 hours notice to the Tenant, for the purpose of showing the Premises to any prospective tenant, and shall have the right to erect on the Premises a suitable sign indicating the Premises are available. Tenant shall schedule with Landlord at least thirty (30) days prior to vacating the Premises a time mutually agreeable to the parties hereto for a joint inspection of the Premises prior to vacating. In the event of Tenant’s failure to give notice or arrange such joint inspection, Landlord’s inspection at or after Tenant’s vacating the Premises shall be conclusively deemed correct for purposes of determining Tenant’s responsibilities for repairs and restoration.

 

9. ASSIGNMENT AND SUBLETTING . Tenant shall not sublet the Premises or the interest of Tenant therein in whole or in part, or assign this Lease or the interest of Tenant therein in whole or in part, without the prior written consent of Landlord, which consent the Landlord shall not unreasonably withhold. Further, Tenant may not sell, lien, or encumber its interest in this Lease, or assign or delegate the management or permit the use or occupancy of the Premises in whole or in part by anyone other than Tenant without the prior written consent of Landlord, which consent Landlord may withhold in its sole discretion. Landlord and Tenant acknowledge and agree that the foregoing provisions have been freely negotiated by the parties hereto and that Landlord would not have entered into this Lease without Tenant’s consent to the terms of this Paragraph 9.

 

In no event shall this Lease be assignable by operation of any law, and Tenant’s rights hereunder may not become, and shall not be listed by Tenant as an asset under any bankruptcy, insolvency, or reorganization proceedings. No assignment, transfer, mortgage, sublease or other encumbrance, whether or not approved, and no indulgence granted by Landlord to any assignee or subtenant, shall in any way impair the continuing primary liability (which after an assignment shall be joint and several with the assignee) of Tenant hereunder, and no approval in a particular instance shall be deemed to be a waiver of the obligation to obtain Landlord’s approval in any other case. If for any approved assignment or sublease Tenant receives rent or other consideration, either initially or over the term of the assignment or sublease, in excess of the base rent hereunder, or in case of a sublease of part of the Premises, in excess of the portion of such rent fairly allocable to such part, after appropriate adjustments to assure that all

 

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other payments called for hereunder are appropriately taken into account, Tenant shall pay to Landlord as additional rent the full excess of each such payment of rent or other consideration received by Tenant promptly after its receipt.

 

If Tenant is a corporation and if the person or persons who own a majority of its voting shares at the time of the execution hereof cease to own a majority of such shares at any time hereafter, except as a result of transfers by gift, bequest or inheritance, Tenant shall so notify Landlord. In the event of such change of ownership, whether or not Tenant has notified Landlord thereof, Landlord may terminate this Lease by notice to Tenant effective ninety (90) days from the date of such notice from Tenant, or the date on which Landlord first has knowledge of such transfer, whichever shall first occur.

 

If Tenant is a partnership and if any partner or partners withdraw from the partnership, or if the partnership is otherwise dissolved, Tenant shall so notify Landlord. In the event of such withdrawal or dissolution, Landlord may terminate this Lease by notice to Tenant effective thirty (30) days from the date of such notice from Tenant or the date on which Landlord first has knowledge of such withdrawal or dissolution, whichever shall first occur.

 

Notwithstanding any provision of this Lease to the contrary, should Tenant receive consent from Landlord to sublease or assign its interest in the Premises and seek to sublease or assign its interest in the Premises in accordance with this paragraph, Tenant shall not use the name of Landlord, any insignia of Landlord, or any likeness of the Building in any of its advertising for such sublease or assignment.

 

10. FIRE AND CASUALTY DAMAGE .

 

(a) Landlord agrees to maintain standard fire and extended coverage insurance for the Building in an amount not less than 80% (or such greater percentage as may be necessary to comply with the provisions of any co-insurance clauses of the policy) of the “replacement cost” thereof as such term is defined in the Replacement Cost Endorsement to be attached thereto, insuring against special causes of loss, including, the perils of fire, and lightning, such coverages and endorsements to be as defined, provided and limited in the standard bureau forms prescribed by the insurance regulatory authority for the State of North Carolina. Subject to the provisions of subparagraphs 10(c), 10(d) and 10(e) below, such insurance shall be for the sole benefit of Landlord and under its sole control.

 

(b) If the Premises should be damaged or destroyed by any peril covered by the insurance to be provided by Landlord under subparagraph 10(a) above, Tenant shall give immediate written notice thereof to Landlord.

 

(c) If the Premises should be totally destroyed by any peril covered by the insurance to be provided by Landlord under subparagraph 10(a) above, or if they should be so damaged thereby that rebuilding or repairs cannot in Landlord’s estimation be completed within thirty (30) days after the date upon which Landlord is notified by Tenant of such damage, this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease, effective upon the date of the occurrence of such damage.

 

(d) If the Premises should be damaged by any peril covered by the insurance to be provided by Landlord under subparagraph 10(a) above, but only to such extent that rebuilding or repairs can, in Landlord’s estimation, be completed within thirty (30) days after the date upon which Landlord is notified by Tenant of such damage, this Lease shall not terminate, and Landlord shall, at its sole cost and expense, thereupon proceed with reasonable diligence to rebuild and repair the Premises to substantially the condition in which they existed prior to such

 

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damage, except that Landlord shall not be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements which may have been placed in, on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the rent payable hereunder during the period in which they are untenantable shall be reduced to such extent as may be fair and reasonable under all of the circumstances, as determined by Landlord.

 

(e) Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such holder, such termination to be effective either (i) ninety (90) days following such notice or (ii) such earlier date as may be elected by the Tenant in its sole discretion, whereupon all rights and obligations hereunder thereafter accruing shall cease and terminate.

 

(f) The obligation of Landlord in this paragraph 10 to repair and restore the Premises and the Building as provided herein, does not include an obligation of Landlord to repair the fixtures, equipment, or personal property of Tenant, which Tenant shall insure for its benefit, and Tenant shall have the obligation to repair and restore in the event of a casualty or other loss.

 

11. LIABILITY AND INSURANCE . Landlord hereby covenants and agrees that it will at all times indemnify, defend (with counsel approved by Tenant) and hold safe and harmless the Tenant (including, without limitation, its shareholders, directors and officers) and the Tenant’s agents, employees, repres