<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-26976
PIXAR
(Exact name of registrant as specified in its charter)
California 68-0086179
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 West Cutting Boulevard, Richmond, California 94804
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (510) 236-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
The number of shares outstanding of the registrant's Common Stock as of
November 7, 1996 was 39,097,619.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PIXAR
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,665 $ 97,286
Short-term investments 121,870 47,002
Trade and other accounts receivable, net 15,736 2,753
Prepaid expenses and other current assets 382 309
Capitalized film production costs, current portion 1,443 1,446
--------- ---------
Total current assets 165,096 148,796
Property and equipment, net 3,352 1,552
Capitalized film production costs, net of current portion 1,084 2,170
Other assets 1,059 497
--------- ---------
Total assets $ 170,591 $ 153,015
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 689 $ 742
Note payable to the majority shareholder and accrued interest -- 2,373
Income taxes payable 799 --
Film production costs payable -- 3,324
Accrued liabilities 4,043 3,400
Unearned revenue 400 269
--------- ---------
Total current liabilities 5,931 10,108
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized and no
shares issued and outstanding -- --
Common stock, no par value; 100,000,000 shares authorized and
38,968,971 shares issued and outstanding 186,005 185,845
Unrealized gain (loss) on investments (34) 49
Deferred compensation (1,254) (2,261)
Accumulated deficit (20,057) (40,726)
--------- ---------
Total shareholders' equity 164,660 142,907
--------- ---------
Total liabilities and shareholders' equity $ 170,591 $ 153,015
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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PIXAR
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Software $ 949 $ 706 $ 3,594 $ 2,599
Animation services 1,022 397 2,606 1,501
Film 11,146 -- 16,222 --
Patent licensing 719 -- 7,610 6,500
------- -------- ------- --------
Total revenues 13,836 1,103 30,032 10,600
------- -------- ------- --------
Cost of revenues:
Software 20 112 81 501
Animation services 856 428 2,357 1,090
Film 922 -- 1,344 --
------- -------- ------- --------
Total cost of revenues 1,798 540 3,782 1,591
------- -------- ------- --------
Gross margin 12,038 563 26,250 9,009
------- -------- ------- --------
Operating expenses:
Research and development 2,097 619 4,811 2,349
Sales and marketing 296 370 1,358 1,316
General and administrative 1,568 976 4,142 1,993
------- -------- ------- --------
Total operating expenses 3,961 1,965 10,311 5,658
------- -------- ------- --------
Income (loss) from operations 8,077 (1,402) 15,939 3,351
------- -------- ------- --------
Other income (expense), net 2,037 -- 5,826 (74)
------- -------- ------- --------
Income (loss) before income taxes 10,114 (1,402) 21,765 3,277
Income taxes expense (benefit) 514 (57) 1,096 172
------- -------- ------- --------
Net income (loss) $ 9,600 $ (1,345) $20,669 $ 3,105
======= ======== ======= ========
Net income (loss) per share (see Note 2) $ 0.21 $ (0.03) $ 0.44 $ 0.08
======= ======== ======= ========
Shares used in computing net income (loss) share
per share 46,714 39,731 46,973 39,698
======= ======== ======= ========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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PIXAR
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
---------- -------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 20,669 $ 3,105
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred compensation 972 749
Non-cash revenue attributable to film overbudget (2,324) --
Provision for returns and doubtful accounts 14 --
Depreciation and amortization 455 342
Amortization of capitalized film production costs 1,344 --
Accrued interest payable -- 138
Licenses exchanged for equipment (1,610) --
Loss on sale of property and equipment -- 11
Changes in operating assets and liabilities:
Trade and other accounts receivable (12,997) (231)
Prepaid expenses and other current assets (73) 115
Accounts payable (53) (255)
Income tax payable 799 172
Accrued liabilities 643 774
Unearned revenue 131 (109)
--------- -------
Net cash provided by operating activities 7,970 4,811
--------- -------
Cash flows from investing activities:
Purchase of property and equipment (645) (670)
Maturities of investments in short-term securities 70,039 --
Purchases of short-term securities, net of unrealized losses (144,990) --
Capitalized film production costs (1,220) --
Change in other assets (562) (448)
--------- -------
Net cash used in investing activities (77,378) (1,118)
--------- -------
Cash flows from financing activities:
Repayment of note payable to shareholder (2,373) --
Proceeds from note payable to shareholder -- 2,225
Proceeds from exercised stock options 160 277
--------- -------
Net cash provided by (used in) financing activities (2,213) 2,502
--------- -------
Net increase (decrease) in cash and cash equivalents (71,621) 6,195
Cash and cash equivalents at beginning of period 97,286 41
--------- -------
Cash and cash equivalents at end of period $ 25,665 $ 6,236
========= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 323 $ 1
========= =======
Supplemental disclosure of non-cash investing and financing activities:
Credits used to purchase equipment $ 1,610 $ --
========= =======
Film overbudget reductions $ 3,324 $ --
========= =======
Film production costs capitalized $ 36 $ 2,018
========= =======
Conversion of note payable to stockholder, and accrued interest, to equity $ -- $ 1,612
========= =======
Accrual of stock option deferred compensation $ -- $ 3,680
========= =======
Unrealized gain (loss) on investments $ (83) $ 30
========= =======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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PIXAR
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of Pixar's financial condition,
results of operations, and cash flows for the periods presented. These financial
statements should be read in conjunction with the audited financial statements
as of December 31, 1995 and 1994, and for each of the years in the three-year
period ended December 31, 1995, including notes thereto, included in Pixar's
Annual Report on Form 10-K for the year ended December 31, 1995.
The results of operations for the three months ended September 30, 1996,
and the nine months ended September 30, 1996 are not necessarily indicative of
the results expected for the current year or any other period.
(2) NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using net income (loss), and is
based on the weighted average number of shares of common stock outstanding and
common equivalent shares from stock options (under the treasury stock method, if
dilutive). In accordance with SEC Staff Accounting Bulletins, such computations
include all common and common equivalent shares issued within twelve months of
Pixar's initial public offering of common stock for all periods presented prior
to November 1995. Net income (loss) for the three months ended September 30,
1995 and the nine months ended September 30, 1995 is presented on a pro forma
basis, and assumes C corporation income tax expense.
(3) PATENT LICENSING ARRANGEMENTS
For the nine months ended September 30, 1996, fees of $7.6 million were
recognized with respect to the licensing of certain patents. The Company
delivered all rights to utilize the technology underlying the license to the
licensee, and received a non-refundable fixed-fee cash payment of $6.0 million
in cash and $5.0 million in the form of credits for products to be purchased
from the licensee by Pixar over the next four years. Following the release of
the rights to utilize the patents to the licensee, Pixar maintained no
significant vendor obligations to the licensee, so the Company recognized as
revenue the fixed and determinable amounts of the $6.0 million cash payment
received, plus $1,610,000 that represents the portion of the credits Pixar has
used in the first nine months of 1996.
(4) FEATURE FILM AND CD-ROM PRODUCTION
FEATURE FILM AGREEMENT
In 1991, Pixar entered into an agreement with a film entertainment company
to develop and produce a computer animated feature film. The film entertainment
company has two successive options to extend the term of the agreement for up to
two additional feature films. The first feature film was in production as of
December 31, 1994 and released in November 1995, and the film entertainment
company exercised the option in July 1995 for the development and production of
a second feature film.
Pixar is entitled to receive compensation based on revenue from the
distribution of animated feature films and related products. The Company
recognized revenues on the first feature film of $16.2 million for the nine
months ended September 30, 1996.
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Pixar incurs film production costs that are reimbursed by the film
entertainment company, inclusive of salaries and overhead. All payments to Pixar
from the film entertainment company for costs of feature film production have
been recorded as cost reimbursements; accordingly, no revenues have been
recorded for such reimbursements; rather, Pixar has netted the reimbursements
against the related costs. Total film production costs reimbursed to Pixar for
the nine months ended September 30, 1995 and September 30, 1996, were $2,692,000
and $52,000, respectively, for the first motion picture, and $916,000 and
$6,287,000, respectively, for the second motion picture. The reimbursements
receivable from the film entertainment company were $1,302,000 as of September
30, 1996.
CD-ROM AGREEMENT
Pixar has entered into an agreement with the above-mentioned film
entertainment company to develop and produce interactive CD-ROM titles based on
the first motion picture. The film entertainment company pays Pixar a
development fee for the development of the titles and Pixar is entitled to
receive a per-unit royalty on sales of the CD-ROM titles after a certain minimum
number of units has been sold. Pixar recognized $1,362,000 of royalties from
sales of the first CD-ROM title for the nine months ended September 30, 1996.
Amounts required to develop the titles in excess of the development fees are
funded by Pixar and are recorded as research and development fees, unless the
film entertainment company agrees to provide additional fees. Total development
fees recorded as an offset in research and development pursuant to this
agreement were $2,407,000 for the nine months ended September 30, 1996.
(5) SOFTWARE DEVELOPMENT COSTS
In accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed, development costs related to
software products are expensed as incurred until the technological feasibility
of the product has been established. After technological feasibility is
established, additional costs would be capitalized. To date, Pixar has not
capitalized any software development costs after technological feasibility has
been established on its software products since Pixar believes its process for
developing software is essentially completed concurrently with the establishment
of technological feasibility and costs incurred thereafter have not been
material.
(6) OPTION REPRICING
In October 1996, the Company canceled 334,500 outstanding options to
purchase Pixar's Common Stock with exercise prices in excess of $13.00 per
share, and reissued the equivalent number of new nonstatutory stock options on
the same terms as the surrendered options, with an exercise price of $12.50 per
share.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's operating performance each quarter is subject to various
risks and uncertainties as discussed in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 (the "Form 10-K"). The following discussion
should be read in conjunction with the sections entitled "Certain Factors
Affecting Business, Operating Results and Financial Condition" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Form 10-K. In particular, the factors set forth below in "Factors Affecting
Operating Results" could affect the Company's operating results.
RESULTS OF OPERATIONS
REVENUES
Total revenues increased to $13.8 million in the three months ended
September 30, 1996 from $1.1 million in the same period of the prior year, and
increased by 183% to $30.0 million in the nine months ended September 30, 1996
from $10.6 million in the same period of the prior year. The increase in total
revenues for the three months ended September 30, 1996 over the prior year
period was primarily attributable to film revenue of $11.1 million, patent
licensing fees of $719,000, an increase in animation services revenue of
$625,000, and CD-ROM royalty revenue of $350,000. The increase in total
revenues for the nine months ended September 30, 1996 over the same period in
the prior year was primarily attributable to film revenue of $16.2 million and
CD-ROM royalty revenue of $1.4 million.
Software revenues include software license revenue, principally from
RenderMan, software development contract revenues (in 1995 only) and royalties
received from the April 1996 release of Pixar's first CD-ROM, Disney's Animated
Storybook, Toy Story, which was developed by Pixar's interactive division and
marketed and distributed by Disney Interactive, Inc., a subsidiary of The Walt
Disney Company (along with its subsidiaries hereinafter referred to as
"Disney"). Software revenues increased 34% to $949,000 in the three months ended
September 30, 1996 from $706,000 in the same period of the prior year, and
increased by 38% to $3.6 million in the nine months ended September 30, 1996
from $2.6 million in the same period of the prior year. The increases in
software revenues over the same periods of the prior year resulted from CD-ROM
royalty revenues of $350,000 and $1.4 million in the three months ended
September 30, 1996 and the nine months ended September 30, 1996, respectively,
and an increase in software license revenue from RenderMan, somewhat offset by a
decline in revenue from software development contracts and prepackaged software
products other than RenderMan. Due to Pixar's focus on content creation for
animated feature films and related products, Pixar expects that revenue derived
from software licenses may decline. In addition, in 1995, Pixar completed work
under all of the software development contracts that generated revenues in 1995,
and Pixar does not expect to recognize any further revenues under these
agreements nor does Pixar intend to pursue future software development work for
third parties.
Animation services revenues include revenue generated from short
projects related to Pixar's films, animated television commercials and other
short animated productions. Animation services revenues increased 157% to $1.0
million in the three months ended September 30, 1996 from $397,000 in the same
period of the prior year, and increased 74% to $2.6 million in the nine months
ended September 30, 1996 from $1.5 million in the same period of the prior year.
The increase in the three months ended September 30, 1996 compared to the same
period in the prior year was due to $1.0 million in fees from Disney for an
animation short project related to Toy Story. Fees for animation services, which
are generally fixed in advance, depend on the relative complexity and length of
each production and may also depend on the market and other competitive
conditions. On July 8, 1996, Pixar announced plans to substantially discontinue
its production of television commercials for third parties after fulfilling its
current commitments and to redirect the talent in its television commercial
group to animated feature films and related products. Although most of the 18
employees in the television commercial division have been moved to other
projects, Pixar continues to expect some ongoing activity in the animation
services area primarily due to projects related to Pixar's films.
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Under the terms of the feature film agreement ("the Feature Film
Agreement") between Pixar and Walt Disney Pictures, a subsidiary of Disney,
film revenues of $11.1 million and $16.2 million were recognized in the three
and nine months ended September 30, 1996, respectively. These amounts represent
a portion of the total revenues Pixar expects to receive from the November 1995
release of its first computer animated feature film, Toy Story. Future film
revenues are likely to fluctuate significantly from quarter to quarter. In
particular, Pixar's compensation from Toy Story revenues in the nine months
ended September 30, 1996 represents Pixar's receipt of its share of both the
domestic and international theatrical releases of Toy Story and related
products. The next major release window is the Toy Story home video which began
its release in October 1996. Due to the one quarter delay between the time
Disney receives Toy Story revenues and the time Disney pays Pixar its portion
of these revenues, Pixar's share of Toy Story home video revenues will not
begin until the first quarter of 1997. Therefore, for the next three months
ended December 31, 1996, Pixar's film revenues will be significantly lower, and
are expected to be less than half, of film revenues reported in the three
months ended September 30, 1996. In addition, since the Toy Story home video is
the last major release window for Toy Story, and since Pixar's next feature
film is not targeted for release until the end of 1998 at the earliest, Pixar's
revenue and earnings will likely decrease in subsequent periods as compared to
1996.
Patent licensing revenues of $719,000 in the three months ended
September 30, 1996, and $7.6 million in the nine months ended September 30, 1996
were attributable to a patent license with Silicon Graphics, Inc., ("SGI"),
whereby Pixar granted to SGI and its subsidiaries a non-exclusive license to use
certain of Pixar's patents covering techniques for creating computer-generated
photorealistic images. Under the agreement, SGI will pay Pixar total
compensation of $11.0 million, of which $6.0 million was paid in cash in March
1996, and $5.0 million is to be paid in the form of purchase credits for SGI
hardware and software over the next four years. Recognition of the $5.0 million
in credits will depend upon purchases and usage of the hardware and software to
be obtained from SGI in lieu of payment. In the nine months ended September 30,
1996, Pixar recognized revenue of $7.6 million, which included the $6.0 million
received in cash plus $1.6 million representing the portion of the $5.0 million
in hardware and software credits actually used. The remaining $3.4 million will
be recognized as revenue in future periods as hardware and software credits are
used. Patent licensing revenues of $6.5 million for the nine months ended
September 30, 1995 were attributable to a one-time patent license with Microsoft
Corporation ("Microsoft").
In the three months ended September 30, 1996, and in the nine months
ended September 30, 1996, Disney accounted for 92% and 63%, respectively, of
Pixar's total revenues. The revenues from Disney consisted of film revenues,
CD-ROM royalties, software, and animation services. The Company expects to
continue to be dependent upon Disney for at least a majority of its revenue. SGI
accounted for 25% of total revenues for the nine months ended September 30,
1996. In the three months ended September 30, 1995, commercial revenues from
Dryer Taylor Productions and Coca-Cola Company, and software sales to
Macromedia accounted for 11%, 22%, and 13%, respectively, of total revenues. In
the nine months ended September 30, 1995, Microsoft accounted for 61% of total
revenues. The revenues from Microsoft and SGI were attributable to one-time
patent licenses, and Pixar expects that similar levels of patent licensing
revenue will not be generated on an ongoing and regular basis or at all.
COST OF REVENUES
Cost of software revenues consists of the direct costs and
manufacturing overhead required to reproduce and package software products and,
in 1995, the cost of salaries and overhead associated with the software
development contracts. Cost of software revenues as a percentage of the related
revenues decreased to 2% in the three months ended September 30, 1996 from 16%
in the same period of the prior year and decreased to 2% in the nine months
ended September 30, 1996 from 19% in the same period of the prior year. The
decreases over the same periods of the prior year were due to CD-ROM royalty
revenues which have no associated costs, elimination of revenue from software
development contracts which had higher associated costs relative to
commercialized software costs, and increased licensing of RenderMan, which
carries a higher gross margin than other software products. Cost of software
revenues includes no amortization of capitalized software development expenses.
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Cost of animation services revenues consists of production costs, which
include salaries and benefits and, to a lesser extent, facility expenses and
department overhead costs. Costs of animation services revenues as a percentage
of the related revenues increased to 90% in the nine months ended September 30,
1996 from 73% in the same period of the prior year, primarily attributable to
the higher costs associated with the increased complexity of the animated
productions undertaken by Pixar, and increased market competition, which
resulted in lower overall profitability. Cost of animation services revenues as
a percentage of the related revenues decreased to 84% in the three months ended
September 30, 1996 from 108% in the same period of the prior year, due primarily
to the Company's decision earlier this year to phase out the production of
television commercials which have lower overall profitability, and focus on
other short term animation projects.
Cost of film revenues consists primarily of the amortization of film
costs capitalized by Pixar. See "Capitalized Film Production Costs." Cost of
film revenues as a percentage of the related revenues was 8% for each of the
three and nine months ended September 30, 1996.
In the nine months ended September 30, 1996, and September 30, 1995,
patent licensing revenue accounted for approximately 25% and 61%, respectively,
of total revenues. There were no costs of revenue associated with patent
licensing revenues, which resulted in an abnormally high overall gross margin
for these periods.
OPERATING EXPENSES
Pixar intends to continue to increase operating expenses in a number of
areas. First, as a result of intense competition for animators, Pixar has had to
pay higher salaries to attract new creative personnel and technical directors.
Pixar continues to expect compensation for such new and existing personnel to
continue to increase substantially. In the nine months ended September 30, 1996,
Pixar has funded greater levels of research and development, expanded its
administrative staff and facilities, expanded other operations, and incurred
significant costs related to being a public company. Pixar expects continued
growth in operating expenses in these areas. To the extent that such expenses
precede or are not subsequently followed by an increase in revenues, Pixar's
business, operating results and financial condition will be materially adversely
affected.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of salaries and
support for personnel conducting research and development for the RenderMan
product, for Pixar's proprietary Marionette and Ringmaster software and for
Pixar's interactive products. Research and development expenses increased 239%
to $2.1 million in the three months ended September 30, 1996 from $619,000 in
the same period of the prior year, and increased 105% to $4.8 million in the
nine months ended September 30, 1996 from $2.3 million in the same period of the
prior year. The increases over the same periods of the prior year primarily
resulted from increased personnel, as well as the amortization costs of deferred
compensation charges of $108,000 and $394,000 recorded in the three and nine
months ended September 30, 1996, respectively, in connection with stock option
grants. To date, all software development costs have been expensed as incurred.
With respect to CD-ROM development, under the CD-ROM agreement with
Disney ("the CD-ROM Agreement"), development costs in excess of the budgeted
maximum amounts, unless reimbursed, are recorded as research and development
expenses. Pixar has incurred over-budget amounts in the development of the first
CD-ROM title, a portion of which Disney has reimbursed. Pixar believes that
research and development expenses will increase substantially in absolute
dollars in future periods, particularly in the areas of development of CD-ROM
titles and CD-ROM tools as well as the improvement and upgrading of Pixar's
Marionette, Ringmaster and RenderMan software systems.
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries and related
overhead, as well as advertising, technical support, public relations and trade
show costs required to support the software segment. Sales and marketing
expenses decreased 20% to $296,000 in the three months ended September 30, 1996
from $370,000 in the same period of the prior year due to the timing of trade
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<PAGE> 10
shows and other events. Sales and marketing expenses increased 3% to
$1.4 million in the nine months ended September 30, 1996 from $1.3 million in
the prior year period due primarily to costs associated with being a public
company, such as public relations and increased corporate marketing, largely
offset by a reduction in salaries and advertising costs as Pixar focused on
content creation, primarily for animated feature films, as opposed to software
licensing and television commercials. Pixar believes that sales and marketing
expenses may increase in absolute dollars in future periods, particularly in
the areas of corporate marketing and public relations.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries of
management and administrative personnel, insurance costs and professional fees.
All or a portion of the salaries of certain of Pixar's executives and general
and administrative personnel are charged as film production costs and are
reimbursed by Disney and are not included in general and administrative
expenses. General and administrative expenses increased 61% to $1.6 million in
the three months ended September 30, 1996 from $1.0 million in the same period
of the prior year, and increased 108% to $4.1 million in the nine months ended
September 30, 1996 from $2.0 million in the same period of the prior year. The
increases over the same periods of the prior year were primarily due to the
amortization of deferred compensation expense recorded in connection with stock
option grants, increased staffing, increased professional fees associated with
the protection of intellectual property and increased costs associated with
being a public company (such as expenses related to directors' and officers'
insurance and increased professional fees). Pixar expects general and
administrative expenses to increase in absolute dollars in future periods as
Pixar incurs additional costs related to being a public company, continues
amortization of deferred compensation expense and expands its administrative
staff and facilities.
OTHER INCOME (EXPENSE), NET
Other income, net was $2.0 million and $5.8 million in the three and
nine months ended September 30, 1996, respectively, consisting primarily of
interest income on investments of the net proceeds from Pixar's initial public
offering of common stock in November 1995. Other expense, net was $74,000 in the
nine months ended September 30, 1995, and was primarily attributable to interest
expense accrued on a promissory note issued by Pixar to its majority
shareholder.
INCOME TAXES
Income tax expense for the three and nine months ended September 30,
1996 reflects the alternative minimum tax liability after utilization of
available net operating loss carryforwards. Pixar elected to be treated as an S
corporation for federal income tax purposes as of January 1, 1992, whereby
income was taxed to the individual shareholder. In April 1995, the S corporation
status was terminated as a result of a recapitalization of Pixar.
Accordingly, Pixar was taxed as a C corporation after the recapitalization.
FACTORS AFFECTING OPERATING RESULTS
Pixar intends to generate a substantial majority of its future revenue
from the development and production of animated feature films and related
products. Pixar's annual and quarterly revenue depend upon the timing and market
acceptance of the animated feature films and related products and upon the costs
to distribute and promote such films and products. The revenues derived from the
production and distribution of an animated feature film depend primarily on the
film's acceptance by the public, which cannot be predicted and does not
necessarily bear a direct correlation to the production or distribution costs
incurred. The commercial success of a motion picture also depends upon promotion
and marketing, production costs, the availability of alternative forms of
entertainment and leisure time activities, critical reviews, unpredictable
public taste, the success of films released by competitors, general economic
conditions, and other tangible and intangible factors, all of which change and
cannot be predicted with certainty. Further, the theatrical success of a feature
film can be a significant factor in determining the amount of revenues generated
from the sale of the related products. Accordingly, Pixar's annual and quarterly
revenues are and will continue to be extremely difficult to forecast. Moreover,
Pixar's expense levels are based in part on expectations regarding future
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revenues and are, to a large extent, fixed. Pixar may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenue from Pixar's
feature films and related products in relation to Pixar's expectations would
have an immediate material adverse effect on Pixar's business, operating results
and financial condition. Pixar plans to continue to increase its operating
expenses to fund greater levels of research and development, CD-ROM development
and to expand operations. In addition, as a result of intense competition for
animators, creative personnel and technical directors, Pixar expects
compensation for such personnel to increase substantially, along with
corresponding increases in Pixar's operating expenses and film production
budgets. Since compensation for a substantial number of Pixar's employees is
reimbursed by Disney (within approved budgets) under the Feature Film Agreement,
if Pixar was not reimbursed or if the budget for a project funded by Disney was
exceeded, Pixar would experience a further significant increase in operating
expenses. To the extent that such expenses precede or are not subsequently
followed by increased revenues, Pixar's business, operating results and
financial condition will be materially adversely affected.
Pixar expects to experience significant fluctuations in its future
annual and quarterly operating results that may be caused by many factors,
including the timing of the domestic and international releases of the animated
feature films, the success of the animated feature films (which can fluctuate
significantly from film to film), the timing of the release of related products
into their respective markets, the demand for the related products (which is
often a function of the success of the related animated feature film), Disney's
costs to distribute and promote the feature films and related products, Disney's
success at marketing the films and related products, the timing of receipt of
proceeds from the animated feature film and related products by Disney, the
timing of revenue recognition under the Feature Film Agreement, the timing of
revenue recognition under any distribution agreements for related products, the
introduction of new feature films or products by Pixar's competitors, the timing
of significant operating expenses and capital expenditures, the level of
unreimbursed film production and CD-ROM development costs in excess of budgeted
maximum amounts and general economic conditions. In particular, Pixar expects
revenue and net income will be significantly lower in the fourth quarter of 1996
than the third quarter of 1996, due to the timing of factors set forth under
"Results of Operations" and in the next paragraph. Further, since Pixar's
compensation rate under the Feature Film Agreement escalates as the revenues
from each animated feature film and the related products increase, Pixar's
operating results are likely to fluctuate depending on the level of success of
its animated feature films and related products. As a result, Pixar believes
that period-to-period comparisons of its results of operations are not
necessarily meaningful, and its annual and quarterly results of operations
should not be relied upon as any indication of future performance. Due to all of
the foregoing factors, it is likely that in some future period Pixar's operating
results will be below the expectations of public market analysts or investors.
In such event, the price of Pixar's Common Stock would likely be materially
adversely affected.
Under the Feature Film Agreement, Pixar is entitled to receive
compensation based on the revenues from the worldwide distribution of Toy Story,
including domestic and international theatrical exhibitions, domestic and
international television, soundtracks, merchandise and, to a lesser extent,
domestic and international home video. Pixar's compensation rate for Toy Story
and its related products escalates as the revenues from Toy Story and the
related products increase. Under this formula, Pixar's compensation is
insignificant until such time as the revenues earned by Disney from distribution
of Toy Story and the related products are sufficient to cover specified costs
and distribution fees to Disney associated with Toy Story and the related
products. Once such costs and distribution fees have been covered, Pixar's
compensation rate escalates substantially. In particular, the production costs,
the general level of marketing and distribution costs and the timing of the
international theatrical and home video releases affect Pixar's compensation,
and many of these factors are controlled by and determined solely by Disney.
Disney's marketing and distribution costs for Toy Story were higher than
originally anticipated by Pixar which will have the effect of delaying the time
at which Pixar's compensation rate escalates, if it further escalates at all. In
addition, notwithstanding the success of Toy Story in foreign markets, the
international box office for Toy Story was lower than originally anticipated.
Pixar further believes that these two factors, particularly the higher level of
Disney's marketing and distribution costs, will have a material adverse impact
on Pixar's overall share of Toy Story revenues and results of operations for
1997.
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Because Pixar expects that revenues from RenderMan may not grow and may
even decline, that television commercial production will be substantially
discontinued, and that patent licensing revenues will not be generated on an
on-going and regular basis, if Pixar does not receive significant compensation
under the Feature Film Agreement and the CD-ROM Agreement, Pixar's revenues and
net income will decline from historical levels, and Pixar's business, operating
results and financial condition will be materially adversely affected.
CAPITALIZED FILM PRODUCTION COSTS
Although Disney funded the entire production of Toy Story, Pixar
contractually guaranteed certain of the film budget overages and was liable to
Disney for these amounts under the Feature Film Agreement. Because these are
"production costs" under Statement of Financial Accounting Standards (SFAS) No.
53, "Financial Reporting by Producers and Distributors of Motion Picture Films,"
the costs were capitalized and amortized against film revenue. In the three and
nine months ended September 30, 1996, $922,000 and $1,344,000 of these costs,
respectively, were amortized against film revenues. As of September 30, 1996,
Pixar had approximately $2.5 million of capitalized film production costs,
consisting primarily of costs related to Toy Story. As of March 31, 1996, Pixar
had approximately $3.2 million recorded as a liability for Pixar-related
overages paid by Disney. In the three months ended June 30, 1996, this liability
was reduced by $1.0 million as a result of a reduction in the final Toy Story
budget and the balance of $2.2 million was satisfied through a deduction from
the amount due from Disney to Pixar for Pixar's compensation, which is based on
Toy Story revenues. Pixar is entitled to recover any overages that it has
funded, through its compensation under the Feature Film Agreement, if Toy Story
meets certain predefined criteria.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased $3.2 million to $147.5
million at September 30, 1996 from $144.3 million at December 31, 1995. Working
capital increased $20.5 million to $159.2 million at September 30, 1996 from
$138.7 million at December 31, 1995.
Net cash provided by operations in the nine months ended September 30,
1996 was primarily attributable to net cash received of $6.0 million from patent
licensing fees and cash received from film and other operations. Net cash used
in investing activities in the nine months ended September 30, 1996 was due
primarily to the net purchase of short-term investments of $75.0 million. Net
cash used in financing activities in the nine months ended September 30, 1996
was attributable to the repayment of the note payable to Pixar's majority
shareholder.
During the nine months ended September 30, 1996, Pixar entered into new
lease agreements to expand the total square footage of its corporate
headquarters by approximately 56,000 to 71,000 square feet. The first lease
agreement will result in additional cash commitments for lease payments of
approximately $540,000 per year beginning August 1996 and continuing through
July 1999. Tenant improvements and capital equipment purchases related to the
expansion are expected to total up to $800,000 for the year ended December 31,
1996. The second lease agreement will result in additional cash commitments for
lease payments of approximately $558,000 per year for 30,000 square feet
beginning February 1997, and continuing for four years, with an option to
terminate the lease after 30 months. The second lease includes an option to
expand an additional 15,000 square feet, which would increase the annual cash
commitments for the second lease to $846,000 per year.
In October 1996, Pixar entered into an agreement to purchase certain
computer equipment from a single vendor to be used on the second film and other
projects, resulting in cash commitments of approximately $1.1 million for the
three months ended December 31, 1996 and approximately $2.2 million for the
year ended December 31, 1997. A portion of these costs will be reimbursed by
Disney. Additional equipment will be purchased from other sources, including
equipment purchased in the form of credits in conjunction with the patent
licensing agreement with SGI.
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In September 1996, Pixar paid a $150,000 refundable deposit on the
purchase of land to build new headquarter facilities. In January 1997, an
additional deposit of $150,000 is due according to the agreement. At that time,
the entire deposit of $300,000 would become nonrefundable, and would be applied
to the purchase price of the property. Pixar's obligation to purchase the
property is conditioned upon Pixar's review and approval of certain matters by
January 3, 1997.
As of September 30, 1996, Pixar's principal source of liquidity was
approximately $147.5 million in cash and short-term investments. Pixar believes
that these funds together with cash flows expected to be generated from
operations will be sufficient to meet the Company's operating requirements
through the next twelve months. Thereafter, if cash generated by operations is
insufficient to satisfy Pixar's liquidity requirements, Pixar may sell
additional equity or debt securities or obtain credit facilities. The sale of
additional equity or convertible debt securities will result in additional
dilution to Pixar's shareholders. There can be no assurance that financing will
be available to Pixar in an amount and on terms acceptable to Pixar.
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.16 Net Office Lease between the Registrant and Point
Richmond R&D Associates dated April 1, 1996.
10.17 Net Office Lease between the Registrant and Point
Richmond R&D Associates dated September 12, 1996.
11.1 Statement of Computation of Net Income (Loss)Per Share.
27.1 FINANCIAL DATA SCHEDULE.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by Pixar during the quarter
ended September 30, 1996.
ITEMS 1, 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
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SIGNATURE
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.
PIXAR
Date: November 8, 1996 By: /s/ Lawrence B. Levy
--------------------------------------
Lawrence B. Levy,
Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
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<PAGE> 1
EXHIBIT 10.16
POINT RICHMOND R&D ASSOCIATES INDUSTRIAL GROSS LEASE
This Lease is made and entered into as of April 1, 1996, between Point Richmond
R&D Associates, a California General Partnership ("Landlord") and PIXAR, a
California Corporation ("Tenant").
1. DEFINITIONS. Words not defined in this paragraph or elsewhere in
this Lease have their customary meanings. 1) The "Initial Term" is three years;
2) "Commencement Date" is May 1, 1996, the first day of the Initial Term; 3)
"Base Monthly Rent" means, subject to adjustment, $40,081.45 per month ($1.55
per square foot, Industrial Gross), payable in advance, without deduction,
offset, prior notice or demand, on the first day of each Month of the Term; 4)
"Premises" means the part of the Building leased to Tenant for exclusive use,
consisting of approximately 25,859 square feet, commonly known as 1001 West
Cutting Boulevard, Richmond, California 94801, as delineated on Exhibit A); 5)
"Building" means the structure in which the Premises are located; 6) "Property"
includes the Building and land on which it stands; 7) "Agents" includes
employees, agents, guests, invitees and, when applied to Tenant, subtenants and
assignees; 8) "Day" and "Month" mean calendar day/month; 9) "Lease Year" means
consecutive 12-month periods starting on the Commencement Date; 10) "Common
Area" means parts of the Building not for exclusive use by tenants including
halls, lobby, elevators, rest rooms, roof, exterior walls and structural
components; 11) "Tax" means any form of assessment, license, fee, rent, tax,
levy, penalty or tax imposed by any authority having direct or indirect taxing
powers (including Improvement Districts) against Landlord's interest in the
Property or personal property used in the operation of the Property and/or
Landlord's business of renting the Property; 12) "Alteration" includes
additions, deletions, modifications and changes including utility installations
such as ducting, power panels, fluorescent fixtures, base heaters, conduit and
wiring; 13) "Operating Expenses" are all expenses for maintenance, servicing,
management and repair of the Property and the Premises inclusive of Taxes and
insurance premiums; 14) "Base Year" is the calendar year in which Tenant
executes this Lease; 15) Tenant's "Pro Rata Share" is the total cost of an item
multiplied by 35.61% [Landlord may, however, adjust Tenant's Pro Rata Share of
specific Operating Expenses if Landlord reasonably determines that Tenant's
usage warrants such adjustment]; 16) The "floor area of the Premises" is
measured from the exterior surface of exterior walls and from the center of
walls separating the Premises from adjacent premises or common areas; 17) The
"floor area of the Building" is measured from the exterior surface of exterior
walls including common and core areas; 18) "consent" and "approval" require
reasonable conduct by the consenting/approving party; 19) "Regulation" includes
all laws, statutes, regulations and requirements adopted by duly constituted
public authorities now in force or hereafter adopted; 20) "Condemnation"
includes taking by exercise of governmental power or the sale or transfer to any
condemnor under threat of or during the pendency of proceedings for
condemnation.
2. PREMISES. Landlord hereby leases to Tenant and Tenant shall have
exclusive use of the Premises for the Initial Term.
3. DELAY IN POSSESSION. If Landlord cannot deliver possession of the
Premises to Tenant on the Commencement Date, such failure shall not affect the
validity of this Lease, extend its Term, or render Landlord liable for any
resulting damage, but Tenant shall not be obligated to pay rent until Landlord
tenders possession. If Landlord cannot deliver possession within 150 Days of the
Commencement Date, Tenant may terminate this Lease on written notice to
Landlord. In such event, Tenant shall have no further recourse against Landlord
respecting the Lease.
3.1. OPTION TO EXTEND TERM. Tenant will have (1) option to
renew lease, with expiration of extension to be co-terminus with base lease.
Tenant shall notify Landlord 180 days prior to end of lease with intention to
pursue option.
4. RENT. Tenant shall pay all rent due Landlord in United States
dollars at the address set forth below or such other place as Landlord
designates in writing. If Alterations increase the floor area of the Premises,
Base Monthly Rent will increase proportionately. If the obligation to pay rent
commences other than on the first day of a Month, the first payment shall
also include rent from the date the obligation commences to the first day of
the following month calculated per diem.
4.1. BASE MONTHLY RENT ADJUSTMENT. The Base Monthly Rent shall
be fixed at $40,081.45 for the entire Initial Term.
<PAGE> 2
4.2. ADDITIONAL RENT. Tenant shall pay to Landlord with Base
Monthly Rent as additional rent Tenant's Pro Rata Share of Operating Expenses.
Such payments shall be made in the amounts set forth in this Lease as reasonably
adjusted by Landlord from time to time. Tenant shall also pay Landlord, as
additional rent, forthwith on demand, Tenant's Pro Rata Share of the amount by
which Taxes and insurance premiums paid by Landlord with respect to the Property
for any calendar year during the Term exceed the amounts paid for such items
during the Base Year.
4.3. SECURITY DEPOSIT/CLEANING CHARGE. Concurrent with its
execution of this Lease, Tenant shall give Landlord as a security deposit the
sum of $40,081.45 (the "Deposit") and a cleaning charge in the amount of $ N/A
("Cleaning Charge"). Landlord shall hold the Deposit as security for Tenant's
faithful performance of all its obligations under this Lease and may, at its
option, apply the Deposit to remedy defaults in the payment of any charge
hereunder, to repair damages to the Property caused by Tenant, or to clean the
Premises at the end of this Lease. If any portion of the Deposit is so applied,
Tenant shall, within 10 Days after written demand therefor, deliver to Landlord
funds sufficient to restore the Deposit to its original amount. Landlord shall
not be required to keep the Deposit separate from its general funds. Tenant
shall earn no interest on the Deposit. If Tenant fully performs under this
Lease, Landlord shall return any unused portion of the Deposit to the last
holder of Tenant's interest in this Lease upon Tenant's surrender of the
Premises. On any transfer of Landlord's interest in the Lease, the Deposit will
be transferred to Landlord's successor, and Landlord released from liability for
the Deposit. The Cleaning Charge is not refundable and Landlord has no
obligation to account for it.
4.4. LATE CHARGES. Late payment of any sums due hereunder will
cause Landlord to incur costs not contemplated by this Lease, including, without
limit, accounting charges and late charges which may be imposed on Landlord by
the terms of loans secured by the Property. If Tenant fails to deliver to
Landlord any monies due hereunder within 10 Days of the due date, Tenant shall
pay to Landlord a late charge of 10% of the overdue amount which is agreed to be
a reasonable estimate of the costs Landlord will incur by reason of the late
payment, the exact amount of which will be difficult to determine. Acceptance of
a late charge shall not constitute a waiver of the default or preclude
Landlord's exercise of other rights and remedies.
5. TAXES. Landlord shall pay all Taxes assessed against Landlord's
interest in the Property and personal property used in its operation. Tenant
shall pay all Taxes assessed on Tenant's fixtures, improvements, furnishings,
merchandise, equipment and personal property in and on the Premises. If Tenant
fails to timely pay Taxes, Landlord may (but is not obligated to) pay the same
at any time thereafter. On demand, Tenant shall repay Landlord amounts so paid
with interest at the highest rate allowable by law.
6. INSURANCE.
6.1. LANDLORD'S INSURANCE. Landlord shall insure the Property
for up to 100% of its replacement value against loss or damage by those risks
normally included by the insurance industry in the term "All Risk"; any recovery
from such insurance shall belong to Landlord. Landlord shall maintain
comprehensive general liability insurance insuring Landlord (and others named by
Landlord, but not Tenant) against liability for bodily injury, death and
property damage on or about the Property, with combined single limit coverage of
at least $2 million.
6.2. TENANT'S INSURANCE. Tenant, at its sole expense, shall
maintain: a) All Risk coverage insurance on all fixtures, improvements,
furnishings, merchandise, equipment and personal property in the Premises; and
b) for the benefit of Tenant, commercial general liability and property damage
insurance against claims for bodily injury, death or property damage occurring
in or about, and/or arising from Tenant's use of, the Premises, with combined
single limit coverage of at least $2,000,000 (such insurance shall include,
without limit, products liability, coverage for liability arising from
consumption of any food or beverages sold from the premises (including coverage
for liability from consumption or sale of alcoholic beverages). Such insurance
coverage shall not limit Tenant's liability. Tenant shall furnish to Landlord
prior to the Commencement Date, and at least 30 Days prior to the expiration
date of any policy, certificates indicating that the insurance required of
Tenant is in full force and effect, that Landlord has been named as an
additional insured on the liability policy, and that no such policy will be
canceled unless 30 Days' prior written notice has been given to Landlord. Each
liability policy shall include a broad form liability endorsement and provide
that Landlord as an additional insured may recover for any loss it suffers by
reason of acts/omissions of Tenant and its Agents. Except as Landlord may
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<PAGE> 3
approve in writing before issuance of such policy, all policies which Tenant
shall obtain hereunder shall be issued by companies with "AAA" rating by either
Moody's Rating Service or Standard & Poor's Rating Service and general policy
rating of at least A in Best Insurance Guide's then most current issue. Policies
obtained by Tenant pursuant to this Lease shall be subject to Landlord's
approval.
6.3. WAIVER OF SUBROGATION. Notwithstanding anything to the
contrary herein, the parties hereby release each other and their respective
officers, agents, employees and servants, from all claims for damages, loss,
expense or injury to the Premises, and/or to the furnishings and fixtures and
equipment or inventory or other property of either Landlord or Tenant in, about
or upon the Premises, which is caused by or results from perils, events or
happenings which are covered by insurance in force at the time of any such loss
or by insurance required to be carried hereunder; provided, however, that such
waiver shall be effective only to the extent permitted by the said insurance and
to the extent such insurance coverage is not prejudiced thereby. Each party
shall cause each insurance policy obtained by it to provide that the insurance
company waives all right of recovery by way of subrogation in connection with
any damage covered by such policy.
6.4. LANDLORD INDEMNIFICATION. Tenant will indemnify and save
Landlord harmless from and against any and all claims, actions, damages,
liability and expense relating to loss of life, personal injury and/or property
damage arising from or out of any occurrence in, upon or at the Premises, or the
occupancy or Tenant's use of the Property, occasioned wholly or in part by any
acts or omissions of Tenant and its Agents. If Landlord becomes a party to such
litigation commenced by or against Tenant, Tenant shall defend and hold Landlord
harmless from all claims, liabilities, costs and expenses, and shall pay all
costs, expenses and reasonable legal fees incurred by Landlord in connection
with such litigation. If Tenant is made a party to litigation commenced by or
against Landlord solely as a result of Landlord's acts or omissions, Landlord
shall defend Tenant and indemnify Tenant against the costs of such litigation.
As used herein, "litigation" includes arbitration. The provisions of this
paragraph shall be deemed to apply only to those circumstances where there is a
portion of a loss or claim not covered by existing insurance and then only to
the extent that such loss or claim is not covered by insurance. This paragraph
shall not preclude application of comparative negligence if the parties or their
agents are both at fault.
6.5. TENANT INDEMNIFICATION. Landlord will indemnify and save
Tenant harmless from and against any and all claims, actions, damages, liability
and expense relating to loss of life, personal injury and/or property damage
arising from or out of any occurrence in, upon or at the Premises, or the
occupancy or Landlord's use of the Property, occasioned wholly or in part by any
acts or omissions of Landlord and its Agents. If Tenant becomes a party to such
litigation commenced by or against Landlord, Landlord shall defend and hold
Tenant harmless from all claims, liabilities, costs and expenses, and shall pay
all costs, expenses and reasonable legal fees incurred by Tenant in connection
with such litigation. If Landlord is made a party to litigation commenced by or
against Tenant solely as a result of Tenant's acts or omissions, Tenant shall
defend Landlord and indemnify Landlord against the costs of such litigation. As
used herein, "litigation" includes arbitration. The provisions of this paragraph
shall be deemed to apply only to those circumstances where there is a portion of
a loss or claim not covered by existing insurance and then only to the extent
that such loss or claim is not covered by insurance. This paragraph shall not
preclude application of comparative negligence if the parties or their agents
are both at fault.
6.6. WORKER'S INSURANCE. Tenant shall keep in force for the
Term and pay for worker's compensation and other insurance to comply with all
applicable Regulations.
7. MAINTENANCE.
7.1. PREMISES. During the Term, Landlord shall maintain the
Premises (including all interior walls, doors, doorways, lighting fixtures,
plumbing fixtures, and all windows) in good order, condition and repair. Tenant
waives the provisions of any law permitting Tenant to make repairs at Landlord's
expense, including, without limitation, California Civil Code Sections 1941-
1946. Tenant will supply its own janitorial services to the Premises.
7.2. COMMON AREAS. Landlord shall maintain the Common Area in
reasonably good order and condition; however, damage caused by the
acts/omissions of Tenant and its Agents shall be repaired at Tenant's expense.
Landlord shall maintain all improvements and appurtenances upon the Property in
good order and repair. Tenant shall notify Landlord in writing of required
repairs to the Property; Landlord shall make necessary
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<PAGE> 4
repairs in a reasonable time. Maintenance and repairs shall be completed in a
good and workmanlike manner using such methods as Landlord deems appropriate in
its sole discretion. Landlord shall make commercially reasonable efforts to
perform maintenance and repairs with minimum interference with Tenant's business
operations.
7.3. ALTERATIONS. Tenant shall make no Alteration to the
Property without Landlord's prior written consent. Landlord may impose such
conditions upon approval of an Alteration as Landlord may deem appropriate.
Every Alteration shall be done under supervision of a licensed contractor and in
accordance with plans and specifications furnished to and approved by Landlord
prior to commencement of work. If an Alteration increases the floor area of the
Premises, the Base Monthly Rent and Tenant's Pro Rata Share shall be increased
in proportion to the resulting increase in the floor area of the Premises.
Tenant shall give Landlord 7 Days' advance written notice prior to starting
construction of each Alteration. Each Alteration shall remain in place and
become the property of Landlord, unless, at the time of consent, Landlord
required removal of the Alteration on Termination, in which case, Tenant shall
remove such Alteration(s) and restore the Premises to their pre-Alteration
condition at Termination.
7.4. SYSTEMS. The heating/air-conditioning ("HVAC"), plumbing
and electrical systems (collectively "Systems") shall not be used for any
purpose other than that for which they were constructed. Tenant shall pay for
repairs resulting from the willful misconduct of Tenant and its Agents.
7.5. LIENS. Tenant shall keep the Property free from liens
arising out of work performed, materials furnished or obligations incurred by
Tenant. Tenant shall indemnify Landlord from all costs, liens and encumbrances
from work performed or materials furnished by or at Tenant's direction. If
Tenant fails to obtain removal of such lien within 20 Days following its
imposition, Landlord shall have the right, but not the obligation, to obtain
such release by such means as it may deem proper, including payment of the claim
giving rise to such lien. On demand, Tenant shall reimburse Landlord for all
such sums paid and expenses incurred by Landlord in connection therewith
(including attorneys' fees and costs) together with interest at the highest rate
allowable by law from the date Landlord makes such payment until the date of
reimbursement.
8. MANAGEMENT. The Wareham Property Group, Inc., an affiliate of
Landlord, or another affiliated or unaffiliated third party, will manage the
Property for a fee.
9. UTILITIES AND SERVICES.
9.1. PREMISES. Landlord will make available to the Premises
HVAC and utilities for heating and lighting use at all times. Tenant will pay
all utility costs directly. If utility services cannot be put directly into
Tenant's name, then Tenant shall pay to Landlord as additional rent the
estimated cost of supplying these utilities to the Premises, as reasonably
determined by Landlord.
9.2. COMMON AREAS. Landlord shall arrange for Common Area
utilities, landscaping, janitorial and, if Landlord deems it appropriate,
security services. Tenant will pay its pro rata share above Base Year costs.
9.3. LIMITATION OF LIABILITY. Landlord shall not be in default
under the provisions of this Lease or be liable for any damages directly or
indirectly resulting from the following conditions: (1) the interruption of use
of any equipment in connection with the furnishing of any of the services
described in paragraphs 9.1 and 9.2 of this lease; (2) failure to furnish or
delay in furnishing any services referred to in paragraphs 9.1 and 9.2 of this
lease where failure or delay is caused by accident or any condition or event
beyond Landlord's reasonable control; (3) the limitation, curtailment or
rationing of, or restrictions on, use of water, electricity, gas or any other
form of energy serving the premises. Landlord shall not be liable under any
circumstances for a loss of or injury to property or business, however
occurring, through or in connection with or incidental to failure to furnish any
such services. Notwithstanding the foregoing provisions of this paragraph, in
the event that utility service to the premises is unavailable for a period
exceeding 15 consecutive days, then from and after the 16th consecutive day
without utility service and until utility service is restarted, Tenant shall be
entitled to an abatement of rent unless the disruption of the utility service
results in whole, or in part, from the acts and/or omissions of Tenant
(inclusive of Tenant's agents, servants, employees, guests, invitees, operatives
and/or contractors) in which case there shall be no abatement of rent.
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<PAGE> 5
10. USE OF PREMISES. This Lease is subject to all Regulations governing
use of the Property. Tenant has not entered into this Lease relying on any
representation by Landlord or its Agents as to suitability of the Premises for
the conduct of Tenant's business. Tenant has made its own analysis of
suitability of the Premises for its intended use. Tenant shall: 1) use the
Premises for only general office and animation studios purposes and legal,
related uses; 2) pay Landlord the full amount of any increased insurance premium
resulting from Tenant's use of the Premises; 3) at its sole expense, promptly
comply with all Regulations and the requirements of any board of fire
underwriters or other similar body now or hereafter constituted relating to or
affecting Tenant's particular use of the Premises. Tenant shall not: 1) sell or
permit to be kept, used or sold in or about the Premises any articles
prohibited by a standard form policy of fire insurance; 2) do or permit anything
to be done in or about the Property which will obstruct or interfere with rights
of other occupants of the Property or injure or annoy them; 3) maintain or
permit any nuisance in or about the Property; 4) commit or suffer to be
committed any waste in or upon the Property; 5) conduct or allow any auction or
similar sale upon the Property; 6) do or permit anything to be done in or about
the Property which will violate any Regulation [the judgment of any court of
competent jurisdiction or Tenant's admission in any action (whether or not
Landlord is a party) that Tenant has violated a Regulation shall be conclusive
of that fact between Landlord and Tenant]; 7) place a sign upon the Property; 8)
do or permit anything to be done which will increase existing insurance premiums
for the Property or cause cancellation of any policy covering any of the
Property.
11. DEFAULTS AND REMEDIES.
11.1. DEFAULT OF TENANT. The occurrence of any one or more of
the following events shall constitute a default and breach of this Lease by
Tenant: (a) Tenant's failure to pay any rent or charges required to be paid by
Tenant under this Lease within 5 days of Landlord's delivery of written notice
to Tenant that said amounts are past due; (b) Tenant's abandonment or vacation
of the demised premises; (c) Tenant's failure to promptly and fully perform any
other covenant, condition or agreement contained in this Lease where such
failure continues for 30 days after written notice from Landlord to Tenant of
such default; (d) the levy of a writ of attachment or execution on this Lease or
on any of the property of Tenant located in the premises; (e) the making by
Tenant of a general assignment for the benefit of its creditors or of an
arrangement, composition, extension or adjustment with its creditors; (f) the
filing by or against Tenant of a petition for relief or other proceeding under
federal bankruptcy laws or state or other insolvency laws, which petition in not
removed or which action is not dismissed within 90 days of its filing, or the
assumption by any court or administrative agency, or by a receiver, trustee or
custodian appointed by either, of jurisdiction, custody or control of the
premises or of Tenant or any substantial part of its assets or property; or (g)
if the interest of Tenant under this Lease is held by a partnership or by more
than one person or entity, the occurrence of any act or event described in parts
(e) or (f) above in respect of any partner of the partnership. Except as
otherwise specified by this paragraph, in the event a nonmonetary default occurs
which cannot reasonably be cured within the time period specified above and
Tenant commences corrective action within said time period, Tenant shall not be
subject to penalty under this Lease so long as Tenant prosecutes such corrective
action diligently and continuously to completion.
11.2. REMEDIES OF LANDLORD. In the event of Tenant's default
hereunder, then in addition to any other rights or remedies Landlord may have
under this Lease or under law, Landlord may elect either of the remedies set
forth in Paragraphs 11.2.1 and 11.2.2 Notwithstanding any other provision of
this Lease, the Lessor has the remedy described in California Civil Code Section
1951.4 (Lessor (Landlord) may continue lease in effect after Lessee's (Tenant's)
breach and abandonment and recover rent as it becomes due, if Lessee (Tenant)
has the right to sublet or assign, subject only to reasonable limitations).
11.2.1. To immediately terminate this Lease and Tenant's right to
possession of the premises by giving written notice to Tenant and to recover
from Tenant an award of damages equal to the sum of (i) the worth at the time of
award of the unpaid rental which had been earned at the time of termination,
(ii) the worth at the time of award of the amount by which the unpaid rental
which would have been earned after termination until the time of award exceeds
the amount of such rental loss that Tenant affirmatively proves could have been
reasonably avoided, (iii) the worth at the time of award of the amount by which
the unpaid rental for the balance of the term after the time of award exceeds
the amount of
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such rental loss that Tenant affirmatively proves could be reasonable avoided,
(iv) any other amount necessary to compensate Landlord for all the detriment
either proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, and (v) all such other amounts in addition to or in lieu of
the foregoing as may be permitted from time to time under applicable law; or
11.2.2. To have this Lease continue to effect for so long as Landlord
does not terminate this Lease and Tenant's right to possession of the premises,
in which event Landlord shall have the right to enforce all of the rights and
remedies provided by this Lease and by law, including the right to recover the
rental and other charges payable by Tenant under this Lease as they become due.
For purposes of this paragraph 11, the worth at the time of award of
the amounts referred to in parts 11.2.1(i) and 11.2.2(ii) shall be computed by
allowing interest at the highest rate allowable by law, and the worth at time of
award of the amount referred to in part 11.2.2(iii) shall be computed by
discounting such amount at the rate specified in California Civil Code Section
1951.2(b) or any successor statute. In such computations, the rent due hereunder
shall include monthly rent plus the aggregate amount of all other rentals,
charges and other amounts payable by Tenant hereunder.
11.3 DEFAULT BY LANDLORD. Landlord will be in default if Landlord
fails to perform any obligation required of Landlord (other than a delay in
delivery of possession as provided for in paragraph 3.2 above) with 30 days
after written notice by Tenant, specifying wherein Landlord has failed to
perform such obligation; provided that if the nature of Landlord's obligation is
such that more than 30 days are required for performance, then Landlord shall
not be in default if Landlord commences performance within 30 day period and
thereafter diligently prosecutes the same to completion. Except as expressly set
forth in this Lease, Tenant shall not have any right whatsoever to terminate
this Lease or to withhold, reduce or offset any amount against any payments of
rents or charges due and payable under this Lease.
12. TERMINATION. Upon expiration of the Term or early termination of
this Lease (collectively "Termination"), Tenant shall deliver up and surrender
to Landlord possession of the Premises in as good order and condition as when
Tenant took possession excepting only ordinary wear and tear. Upon Termination,
Landlord may reenter the Premises and remove all persons and property therefrom.
If Tenant fails to remove anything that is required or entitled to remove from
the Premises on Termination, Landlord may remove the same and store or dispose
of such item(s) in accordance with CC 31980. Tenant shall pay to Landlord on
demand all expenses incurred in such removal and storage and in cleaning the
Premises. If the Premises are not surrendered at the end of the Term, Tenant
shall indemnify Landlord against all losses resulting from Tenant's delay in
surrendering the Premises. If Tenant remains in possession of the Premises after
expiration of the Term and if Landlord and Tenant have not executed an express
written agreement as to such holding over, then such occupancy shall be a
tenancy from month to month at a Base Monthly Rent fixed at 125% of the Base
Monthly Rent in effect immediately prior to such expiration, such payments to be
made as herein provided. In the event of such holding over, all terms of this
Lease including the obligation for payment of all charges owing hereunder shall
remain in force and effect on said month to month basis. The voluntary or other
surrender of this Lease by Tenant, if accepted by Landlord, or a mutual
cancellation thereof, shall not work a merger, but shall, at the Landlord's
option, terminate or operate as an assignment to Landlord of any or all
subleases or subtenancies.
13. CONDEMNATION OF PREMISES.
13.1. TOTAL CONDEMNATION. If the entire Premises are taken by
Condemnation during the Term, this Lease shall terminate on the date of transfer
of possession and Tenant shall have no claim against Landlord for the value of
the unexpired Term.
13.2. PARTIAL CONDEMNATION. If any portion of the Premises is
taken by Condemnation during the Term, this Lease shall remain in full force and
effect; except that if a partial taking leaves the Premises unsuitable for
occupation, Tenant may terminate this Lease effective on the date transfer of
possession is required unless Landlord makes other comparable arrangements for
Tenant's space. Landlord and Tenant shall each have the right to terminate this
Lease effective on the date transfer of possession is required in the event of
Condemnation of more than 25% of the floor area of the Premises. The parties may
exercise their respective rights to terminate this Lease by serving written
notice to the
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other within 30 Days of their receipt of notice of condemnation, except that
Tenant's notice shall be ineffective if Landlord serves notice upon Tenant of
Landlord's election to provide alternate space equivalent to that condemned
within 10 Days of Tenant's delivery of notice to Landlord pursuant to this
paragraph. Tenant shall have the right of approval of replacement space. All
rent and other obligations of Tenant under this Lease shall be paid to the date
of Termination; Tenant shall have no claim against Landlord for any unexpired
portion of the Term. If this Lease is not canceled after a partial taking, Base
Monthly Rent and Tenant's Pro Rata Share shall be adjusted to reflect the net
change in the floor area of the Premises. TENANT WAIVES CALIFORNIA CODE OF CIVIL
PROCEDURE SECTION 1265.130.
13.3. AWARD TO TENANT. In the event of Condemnation, Tenant
may claim from the condemnor such compensation as Tenant may separately recover
for moving costs, loss of business, fixtures or equipment belonging to Tenant.
Tenant shall have no other right to recover from Landlord or the condemnor for
any additional claims arising out of such taking.
14. LANDLORD'S ENTRY. Landlord and its Agents may enter the Premises at
all reasonable times to: inspect the Premises; make repairs or Alterations; post
"To Lease" signs during the last 120 Days of the Term; show the Premises during
the last 120 days of the Term; and/or to post notices of nonresponsibility.
Landlord shall have such right of entry without any rebate of rent to Tenant for
any loss of occupancy or quiet enjoyment of the Premises. Landlord shall provide
24 hours' notice of intended entry except under circumstances Landlord deems an
emergency.
15. LIMITATION OF LIABILITY AND INDEMNITY: This paragraph 15, inclusive
of all subparagraphs, supersedes each and every other provision of this Lease.
15.1. LIMITATION OF LANDLORD'S LIABILITY. TENANT WILL NOT HOLD
LANDLORD LIABLE FOR AMOUNTS EXCEEDING INSURANCE COVERAGE MAINTAINED BY LANDLORD
UNDER THIS LEASE ("EXISTING COVERAGE") RESPECTING ANY INJURY OR DAMAGE,
PROXIMATE OR REMOTE, OCCURRING THROUGH OR CAUSED BY ANY REPAIRS OR ALTERATIONS
TO THE PROPERTY, UNLESS SUCH INJURY OR DAMAGE ARISES FROM LANDLORD'S NEGLIGENCE,
WILLFUL MISCONDUCT, OR BREACH OF THIS LEASE ("LANDLORD'S ACTS"). LANDLORD SHALL
NOT BE LIABLE IN EXCESS OF EXISTING COVERAGE FOR ANY INJURY OR DAMAGE OCCASIONED
BY DEFECTIVE ELECTRIC WIRING, OR THE BREAKING, BURSTING, STOPPAGE OR LEAKING OF
ANY PART OF THE PLUMBING, AIR-CONDITIONING, HEATING, FIRE CONTROL SPRINKLER
SYSTEMS OR GAS, SEWER OR STEAM PIPES, UNLESS SUCH LOSS ARISES FROM LANDLORD'S
ACTS.
15.2. LIMITATION ON ENFORCEMENT OF REMEDIES. NOTWITHSTANDING
ANY OTHER PROVISION OF THIS LEASE, TENANT AND ITS AGENTS SHALL, UNDER ALL
CIRCUMSTANCES, BE ABSOLUTELY LIMITED TO LANDLORD'S INTEREST IN THE PROPERTY FOR
SATISFACTION OF TENANT AND ITS AGENTS' REMEDIES, OR FOR THE COLLECTION OF A
JUDGMENT (OR OTHER JUDICIAL PROCESS OR ARBITRATION AWARD) REQUIRING LANDLORD TO
PAY MONEY, AS THE RESULT OF ANY AND ALL JUDGMENTS, AWARDS AND/OR ORDERS AGAINST
LANDLORD RELATING TO OR ARISING OUT OF TENANT AND ITS AGENTS' OCCUPANCY AND USE
OF THE PROPERTY AND/OR IN THE EVENT OF ANY DEFAULT BY LANDLORD HEREUNDER, AND NO
OTHER PROPERTY OF LANDLORD OR ITS PARTNERS OR PRINCIPALS, DISCLOSED OR
UNDISCLOSED, SHALL BE SUBJECT TO LEVY, EXECUTION OR OTHER ENFORCEMENT PROCEDURE
FOR THE SATISFACTION OF TENANT AND ITS AGENTS' REMEDIES WITH RESPECT TO THIS
LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER, OR THE USE AND
OCCUPANCY OF THE PROPERTY AND THE PREMISES BY TENANT AND ITS AGENTS. TENANT, ON
BEHALF OF TENANT AND ITS AGENTS, WAIVES ALL RIGHT TO COLLECT OR ENFORCE ANY AND
ALL ORDERS, AWARDS AND/OR JUDGMENTS AGAINST LANDLORD IN EXCESS OF LIMITATIONS
IMPOSED BY THIS PARAGRAPH. TENANT SHALL REQUIRE THAT EACH SUBTENANT AND EACH
ASSIGNEE OF TENANT AGREE TO BE BOUND BY THE WAIVER SET FORTH IN THIS PARAGRAPH.
LANDLORD'S MAXIMUM EXPOSURE AS SET FORTH IN THIS PARAGRAPH IS CUMULATIVE AND IN
THE AGGREGATE (AS TO ALL JUDGMENTS, AWARDS AND ORDERS AGAINST LANDLORD ARISING
IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, OR THE
USE AND OCCUPANCY OF THE PROPERTY BY TENANT AND ITS AGENTS). LIMITS IMPOSED BY
THIS PARAGRAPH INCLUDE LANDLORD'S DUTIES OF INDEMNITY (EXPRESS AND/OR IMPLIED).
"LANDLORD" INCLUDES ALL PERSONS AND ENTITIES WHO NOW OR HEREAFTER OWN AN
INTEREST IN LANDLORD.
16. ASSIGNMENT AND SUBLETTING. Tenant shall not directly or indirectly
assign this Lease in whole or in part, or sublet any part or all of the
Premises, or license the use of all or any part of the Premises, or business
conducted thereon, or encumber or hypothecate this Lease, without first
obtaining Landlord's written consent. The transfer of shares of stock,
partnership interests or other ownership interests in Tenant resulting in a
change in the effective control of Tenant, or any merger, consolidation or other
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reorganization of Tenant is an indirect assignment of Tenant's interest in this
Lease. Tenant's request for consent to any assignment, sublease or other
transfer shall be in writing and shall include the following: (a) the name and
legal composition of the proposed transferee; (b) the nature of the proposed
transferee's business to be carried on in the Premises; (c) the terms and
provisions of the proposed assignment or sublease; and (d) such financial and
other reasonable information as Landlord may request concerning the proposed
transferee or concerning the proposed assignment or sublease. Any assignment,
subletting, licensing, encumbering or hypothecating of this Lease without
Landlord's prior written consent shall constitute a default. Landlord's consent
to any assignment or sublease shall not constitute a waiver of the need for subh
consent to any subsequent assignment or sublease.
Notwithstanding any assignment or subletting with Landlord's consent,
Tenant shall remain fully liable on this Lease. Without limiting other reasons
or circumstances, Landlord and Tenant agree that it is reasonable for Landlord
to withhold consent if, in Landlord's reasonable judgment: (i) the financial
strength of the proposed assignee is not commensurate with the obligations of
the Lease; (ii) the proposed use would be incompatible with the use of the rest
of the Property; or (iii) the proposed use would generate traffic and/or wear
and tear materially in excess of Tenant's use. If Landlord consents to a
sublease or assignment, Tenant shall pay Landlord's reasonable attorneys' fees
incurred in connection with such consent. Tenant shall pay to Landlord 75% of
all Excess Rent received by Tenant directly or indirectly in respect of an
assignment of this Lease or sublease of the Premises. "Excess Rent" means, in
the case of an assignment, all consideration and, in the case of a sublease, all
consideration in excess of the rents and charges reserved under this Lease.
17. DAMAGE OR DESTRUCTION. Each party may terminate this Lease if the
Premises or the Building are damaged to an extent exceeding 50% of the then
replacement cost of the Premises (in the event of damage limited to the
Premises) or 33% of the Building (in the event of damage not limited to the
Premises). Landlord may also terminate this Lease if the Premises or the
Building are damaged by an uninsured peril to an extent exceeding 33% of the
then replacement cost of the Premises (in the event of damage limited to the
Premises) or 25% of the Building (in the event of damages not limited to the
Premises). If a party elects Termination under this section, the terminating
party shall deliver written notice to the non-terminating party within 30 Days
of the occurrence of the damage. Tenant shall have 30 Days to vacate the
Premises unless they are unsafe for occupancy, in which case, Tenant shall
immediately vacate. TENANT WAIVES SECTION 1932(2), AND SECTION 1933(4) OF THE
CALIFORNIA CIVIL CODE. If this Lease is not terminated pursuant to this
paragraph, Landlord shall, within 90 Days of the occurrence of the damage,
proceed to repair the Building, on the same plan as existed immediately before
the occurrence. Tenant shall be liable for repair and replacement of all
fixtures, leasehold improvements, furnishings, merchandise, equipment and
Tenant's personal property not covered by insurance. If Tenant is able to
continue to conduct its business during the making of repairs, the Base Monthly
Rent will be reduced in the proportion that the unusable part of the Premises
bears to the whole during the repair period. Notwithstanding any other provision
of this Lease, if the discounted present value of the Base Monthly Rent due for
the remaining Term, using as the discount rate the prime commercial lending rate
in effect at the Bank of America, NT&SA, as of the date of the damage is less
than the cost of repairing the damage to the Premises, Landlord may terminate
this Lease on 10 Days' written notice to Tenant.
18. HAZARDOUS MATERIALS.
18.1. TENANT'S WARRANTIES. Tenant's obligations are:
18.1.1. RESTRICTIONS ON HAZARDOUS MATERIALS.
Hazardous Material (as defined below) shall not be brought upon, manufactured,
generated, disposed of, handled, used, kept or stored (collectively "Handled" or
"Handling") in, on, about or under the Property by Tenant and its Agents without
Landlord's prior written consent.
18.1.2. APPLICABLE REGULATIONS. If any Hazardous
Material is Handled, in, on, about or under the Property by Tenant and its
Agents, Tenant shall bear all responsibility for ensuring that such material
shall be handled in compliance with all Environmental, Health and Safety
Requirements regulating such Hazardous Material. Tenant shall procure, maintain
in effect and comply with all conditions and requirements of any and all
permits, licenses and other governmental and regulatory approvals or
authorizations required by Environmental, Health or Safety Requirements relating
to the
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Handling of Hazardous Material by Tenant. Tenant shall give Landlord copies of
all such permits, licenses, or other regulatory approvals within 5 Days of
receipt.
18.1.3. RESTORATION. If, as a result of handling of
Hazardous Materials by Tenant and its Agents, Hazardous Material in, on, about
or under the Property or any adjoining property results in contamination of the
Property or other property, Tenant, at its sole expense, shall promptly take all
actions as are necessary to return the Property and/or the other affected
property to the condition existing prior to such contamination ("Restoration").
Tenant shall not, however, undertake Restoration without first providing
Landlord with written notice thereof and obtaining Landlord's approval. Tenant
shall effect Restoration in compliance with all Environmental, Health and Safety
Requirements. Tenant shall not enter into any settlement agreement, consent
decree or compromise respecting any claims relating to Hazardous Material
connected with the Property without first notifying Landlord of its intention to
do so and affording Landlord ample opportunity to appear, intervene or
appropriately assert and protect Landlord's interests.
18.1.4. REMOVAL. On Termination, Tenant shall remove
from the Property all Hazardous Materials in, on, about or under the Property
Handled by Tenant and its Agents and all receptacles and containers therefor,
and shall cause such Hazardous Materials, receptacles and containers to be
Handled, transported and disposed of pursuant to all applicable Environmental,
Health and Safety Requirements. Hazardous Materials, receptacles and containers
shall be removed by duly licensed haulers, transported to and disposed of at
duly licensed facilities for the disposal of such Hazardous Materials,
receptacles or containers. Tenant shall deliver to Landlord copies of all
documentation relating to Handling of Hazardous Materials, receptacles or
containers therefor, reflecting legal and proper Handling. Tenant shall, at its
sole expense, repair all damage to the Property resulting from its removal of
Hazardous Materials, receptacles and containers. Tenant shall continue to pay
rent until completion of such removal and repairs.
18.1.5. TENANT'S WRITTEN CONFIRMATION. Tenant shall
execute such documents as Landlord may request as to Tenant's knowledge of the
presence of Hazardous Materials in, on, about or under the Property. On each
anniversary of the Commencement Date, Tenant shall, upon request, give Landlord
a letter stating the during the preceding year Tenant complied with this Section
18 or, if Tenant has not so complied, stating the details of noncompliance.
18.1.6. TENANT'S DUTY TO NOTIFY LANDLORD. Tenant
shall notify Landlord in writing immediately upon receiving written notice of:
(1) enforcement, cleanup, remediation or other action threatened, instituted or
completed by any governmental or regulatory agency or private person with
respect to the Property or any adjoining property relating to Hazardous
Materials; (2) any claim threatened or made by any person against Tenant,
Landlord, the Property or any adjoining landowner, tenant or property for
personal injury, compensation or any other matter relating to Hazardous
Materials; and (3) any reports made by or to any governmental or regulatory
agency with respect to the Property or any adjoining property relating to
Hazardous Materials, including without limitation, any complaints, notices or
asserted violations in connection therewith. Tenant shall supply to Landlord as
promptly as possible, and in any event within 5 Days after Tenant first receives
or sends the same, copies of all claims, reports, complaints, notices, warnings,
asserted violations or other documents relating in any way to the foregoing.
18.2. LANDLORD'S RIGHTS. Landlord and its Agents shall have
the right to communicate, verbally or in writing, with any regulatory agency or
any environmental consultant on any matter respecting the Property relating to
Hazardous Materials. Landlord shall be entitled to copies of all notices,
reports or other documents issued by or to any such regulatory agency or
consultant respecting the Property relating to Hazardous Materials.
18.3. TENANT'S DUTY TO INDEMNIFY. If the Handling by Tenant
and its Agents of Hazardous Materials results in contamination of the Property,
or if any lender or governmental agency requires an investigation to determine
whether there is contamination of the Property or any adjoining property as a
result of the Handling of Hazardous Materials by Tenant and its Agents, and it
is determined that such handling resulted in contamination of the property,
then Tenant shall indemnify, defend and hold Landlord and its Agents and all of
Landlord's partners or other affiliates, together with all their directors,
officers, shareholders, employees, agents, contractors and attorneys, harmless
from and defend them against any and all claims, damages, penalties, fines,
costs, liabilities and losses (including, without limitation, sums paid in
settlement of claims, attorneys' fees, consultants' fees and experts' fees)
which arise during or after the Term as a result of such
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contamination. This indemnification includes, without limitation, costs incurred
in connection with removal or restoration work required by any regulatory agency
and/or private persons because of the presence of Hazardous Materials in the
soil or groundwater in, on, about or under the Property or any adjoining
property as a result of the handling of Hazardous Materials, resulting in
contamination of the property, by Tenant and its Agents and legal fees and
expenses incurred by Landlord relating to such claims, demands, investigations
and responses.
18.4. RIGHT OF ENTRY. If contamination of the Property by Hazardous
Materials occurs or if any lender or regulatory agency requires an
investigation to determine if there is contamination of the Property or any
adjoining property, then Landlord and its Agents shall have the right, at any
reasonable time and from time to time, to enter the Premises to perform
monitoring, testing or other analyses, and to review applicable documents,
notices, or other materials. If such contamination resulted from the handling of
Hazardous Materials by Tenant and its Agents, Tenant shall pay, on delivery of
Landlord's invoice, all costs and expenses reasonably incurred by Landlord in
connection with such investigation, monitoring, and testing.
18.5. DEFINITIONS. The following terms shall have the following
meanings:
18.5.1. "HAZARDOUS MATERIAL": shall mean, without limitation,
(1) petroleum or petroleum products; (2) hydrocarbon substances of any kind; (3)
asbestos in any form; (4) formaldehyde; (5) radioactive substances; (6)
industrial solvents; (7) flammables; (8) explosives; (9) leakage from
underground storage tanks; (10) substances defined as "hazardous substances,"
"hazardous materials," or "toxic substances" in (A) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 or as otherwise
amended, 42 U.S.C. Sections 9601, et seq., (B) the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et seq. and any amendments
thereto, or (C) the Resource Conservation and Recovery Act, 42 U.S.C. Sections
6901, et seq. and any amendments thereto; (11) those substances defined as
"hazardous wastes," "extremely hazardous wastes" or "restricted hazardous
wastes" in Sections 25115, 25117, and 25122.7 or listed pursuant to Section
25140 of the California Health & Safety Code and any amendments thereto; (12)
those substances defined as "hazardous substances" in Section 25316 of the
California Health & Safety Code and any amendments thereto; (13) those
substances defined as "hazardous materials," "hazardous wastes" or "hazardous
substances" in Sections 25501 and 25501.1 of the California Health & Safety
Code and any amendments thereto; (14) those substances defined as "hazardous
substances" under Section 25281 of the California Health & Safety Code and any
amendments thereto; (15) those substances causing "pollution" or "contamination"
or constituting "hazardous substances" within the meaning of (A) the Clean Water
Act, 33 U.S.C. Section 1251 et seq. and any amendments thereto, (B) the
Porter-Cologne Water Quality Control Act, Section 13050 of the California Water
Code and any amendments thereto, and (C) the Safe Drinking Water Act, 42 U.S.C.
Section 300f et seq.; (16) such chemicals as are identified on the list
published from time to time as provided in Chapter 6.6 of the California Health
and Safety Code, as amended, as causing cancer or reproductive toxicity; (17)
polychlorinated biphenyls (PCBs) set forth in the Federal Toxic Substance
Control Act, as amended, 15 U.S.C. Section 2601 et seq.; (18) "toxic air
contaminant" as defined in California health and Safety Code Section 39655; and
(19) the wastes, substances, materials, contaminants and pollutants identified
pursuant to or set forth in the regulations adopted or judicial or
administrative, decisions or decrees promulgated pursuant to any of the
foregoing laws. The foregoing list of definitions and statutes is illustrative,
not exhaustive; such list shall be deemed to include all definitions, rules,
regulations and laws applicable to the subject matter of this paragraph as they
may be amended or changed from time to time.
18.5.2. "ENVIRONMENTAL HEALTH AND SAFETY REQUIREMENTS" means
any law, statute, ordinance, rule, regulation, order, judgment or decree
promulgated by any governmental agency, court, judicial or quasi-judicial body
or legislative or quasi-legislative body which relates to matters of the
environment, health, industrial hygiene or safety.
18.6. ALLOCATION OF RESPONSIBILITIES. ALL LIABILITY ARISING FROM THE
TRANSPORTATION OR HANDLING OF HAZARDOUS MATERIALS IN, ON, UNDER, AND/OR ABOUT
THE PROPERTY OR ADJOINING PROPERTY BY TENANT AND ITS AGENTS SHALL, AT ALL TIMES,
REMAIN TENANT'S SOLE RESPONSIBILITY, EVEN IF THE HAZARDOUS MATERIALS ORIGINATE
FROM THE PROPERTY. NO ACT BY LANDLORD OR ITS AGENTS SHALL CONSTITUTE LANDLORD'S
ASSUMPTION OF ANY OBLIGATIONS, DUTIES, LIABILITIES OR RESPONSIBILITIES
PERTAINING TO
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TENANT'S COMPLIANCE WITH ANY ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS.
NOTWITHSTANDING TERMINATION OF THIS LEASE, TENANT SHALL RETAIN ALL LIABILITY AND
RESPONSIBILITY FOR COMPLIANCE WITH REGULATIONS AND ENVIRONMENTAL, HEALTH OR
SAFETY REQUIREMENTS CONCERNING TENANT AND ITS AGENTS' HANDLING OF HAZARDOUS
MATERIALS. TENANT SHALL INDEMNIFY AND HOLD LANDLORD AND ITS AGENTS HARMLESS FROM
ALL COSTS AND EXPENSES ASSOCIATED WITH SUCH COMPLIANCE.
18.7. INSPECTIONS. Tenant will cooperate with the completion of
inspections of the Property as required by applicable law and regulation. Tenant
shall provide to Landlord a copy of the reports for each such inspection within
15 days of Tenant's receipt of such reports.
18.8. COOPERATION. Tenant will not interfere with Landlord's acts
pursuant to the above-referenced Regulations. Tenant will comply with reasonable
procedures promulgated by Landlord pursuant to such laws and regulations.
Landlord shall have no duty to establish any procedures or to supervise in any
way Tenant's activities on the Property.
18.9. SURVIVAL. The covenants, agreements and indemnities set forth in
this Section 18 shall survive Termination and shall not be affected by any
investigation, or information obtained as a result of any investigation, by or
on behalf of Landlord or any prospective Tenant.
18.10. STORAGE TANKS. Tenant shall not install any storage tanks on the
Property without Landlord's prior written consent.
18.11. LANDLORD'S OBLIGATIONS. Landlord's obligations are:
18.11.1. COMPLIANCE WITH REGULATIONS. If Landlord and
its Agents Handle Hazardous Material in, on, about or under the Property, such
material shall be Handled in compliance with all Environmental, Health and
Safety Requirements.
18.11.2. RESTORATION. If, as a result of Landlord's
bringing Hazardous Material upon the Property, or otherwise any contamination of
the Property or the surrounding environment occurs, Landlord shall promptly take
all necessary actions to return the Property and/or the surrounding environment
to the condition existing prior to such contamination.
18.11.3. DUTY TO NOTIFY TENANT. Landlord shall notify
Tenant in writing upon learning of: (1) enforcement, cleanup, remediation or
other action threatened, instituted or completed by any regulatory agency or
private person with respect to the Property relating to Hazardous Materials;
(2) any claim threatened or made against Landlord respecting the Tenant or the
Property for personal injury, compensation or any other matter relating to
Hazardous Materials; and (3) reports made by or to any regulatory agency
respecting the Property, complaints, notices or asserted violations in
connection therewith. Landlord shall supply to Tenant copies of claims,
notices, warnings, or other documents relating to the foregoing.
18.11.4. INDEMNITY OF TENANT. If Hazardous Materials
on the Property, resulting from Landlord's acts, contaminate the Property, or if
the Property is contaminated on the Commencement Date, Landlord shall indemnify
and hold Tenant and its Agents harmless from any and all claims, damages,
penalties, fines, costs, liabilities and losses, damages, attorneys' fees,
consultants' fees and experts' fees resulting from such contamination.
19. MISCELLANEOUS PROVISIONS.
19.1. WAIVER. No waiver of any breach of this Lease shall be
construed as a waiver of any other breach. Landlord's acceptance of rent after
Tenant's breach shall not be a waiver of any preceding breach of this Lease by
Tenant, even if known by Landlord at the time.
19.2. NOTICES. Notices, requests, demands and other
communications shall be in writing personally delivered or sent by certified
mail, return receipt requested, postage prepaid, properly addressed to the other
party at the address set forth by its signature below, or at such other address
as may be designated in writing by one party to the other. Notice shall be
effective on personal delivery or on the date indicated on the post office's
certified mail receipt of delivery.
19.3. CONSTRUCTION. This Lease shall be construed pursuant to
California law. The invalidity of any provision of this Lease shall not affect
the remainder. All terms of this Lease shall be construed to mean either the
singular or the plural, masculine, feminine or neuter, as the situation may
demand. Headings are descriptive only and not
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determinative of meaning. Time is of the essence in performance of all
obligations. This Lease constitutes the entire agreement between the parties
respecting the subject matters it addresses. This Lease supersedes all prior
oral and written agreements respecting the hiring of the Premises. Provisions of
this Lease may be waived, amended or repealed only by all parties' written
consent. This Lease binds and inures to the benefit of the parties' heirs,
personal representatives, successors and assigns.
19.4. MEMORANDUM. If Landlord requests a memorandum of Lease,
the parties shall execute, acknowledge and record a document identifying: the
parties, Premises, Term and Commencement Date. No other memorandum of this Lease
shall be recorded.
19.5. AUTHORITY. Each individual executing this Lease for a
corporation warrants that he is duly authorized to execute and deliver the Lease
for the corporation and that the Lease binds the corporation in accordance with
its terms. Each individual executing this Lease on behalf of a partnership
warrants that he is duly authorized to execute and deliver this Lease for the
partnership and that this Lease binds the partnership in accordance with its
terms.
19.6. LITIGATION. All actions and arbitrations arising out of
or in connection with this Lease shall be venued in Alameda County, California.
If an action or arbitration proceeding is commenced by reason of the breach of
this Lease or arising out of this Lease, the prevailing party shall recover
costs of suit and attorneys' fees, whether or not the matter proceeds to
judgment.
19.7. SUBORDINATION OF LEASEHOLD. Tenant agrees that this
Lease is and shall be, at all times, subject and subordinate to the lien of any
mortgage or other encumbrances which Landlord may create against the premises,
including all renewals, replacements and extensions thereof. Tenant agrees to
execute any and all instruments in writing which may be required by Landlord to
subordinate Tenant's rights to the lien of such mortgage. Tenant's obligation
to subordinate its leasehold to a lender shall, at all times, be conditioned
upon the lender giving to Tenant a nondisturbance agreement providing that the
lender will not terminate Tenant's occupancy in the event of a foreclosure as
long as Tenant is not in default under the provisions of this Lease.
19.8. ESTOPPEL. Within 15 Days of Landlord's request, Tenant
shall complete, execute and deliver to Landlord a certification: (a) that this
Lease is unmodified and in full force and effect (or if modified, stating the
nature of such modification and certifying that this Lease as so modified is in
full force and effect); (b) of the date to which the rent and other charges are
paid; (c) that Tenant knows of no uncured defaults on the part of Landlord
hereunder, or specifying such defaults, if any are claimed; and (d) of the date
of commencement and expiration of the Term. Tenant's failure to timely deliver
the document constitutes a certification that Landlord is not in default under
the Lease and the terms of the Lease are in force without modification.
Prospective purchasers, lenders or lender's assignees may rely upon such
certification.
19.9. ATTORNMENT. In the event of a sale of the Property or
the completion of foreclosure against the Property, Tenant shall attorn to the
Landlord's successor in interest.
19.10. LENDER'S REQUESTS. Tenant shall consent to Lease
amendments requested by any lender against the Property, provided that such
amendments do not materially affect Tenant's obligations. Tenant shall timely
supply financial information requested by such lender.
19.11. RESERVED.
19.12. RELOCATION. Landlord may relocate Tenant to another
part of the Building so long as Landlord pays reasonable relocation costs.
Landlord shall have no other liability respecting relocation. Tenant shall have
the right of approval of the new space.
19.13. SUBMISSION. Submission of this document to Tenant does
not create a reservation for a lease or any rights respecting the Premises prior
to Landlord's execution.
19.14. RESERVED.
19.15. ARBITRATION OF DISPUTES. ANY CONTROVERSY OR CLAIM
BETWEEN THE PARTIES ARISING OUT OF THIS LEASE SHALL BE SUBMITTED TO BINDING
ARBITRATION UNDER THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION.
CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1283.05 SHALL APPLY TO THE
ARBITRATION. ANY COURT OF COMPETENT JURISDICTION MAY ENTER JUDGMENT UPON THE
ARBITRATION AWARD.
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NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISIONS
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS
TO DISCOVERY AND APPEAL UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
"ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION TO
NEUTRAL ARBITRATION.
------- -------
Initial Initial
19.16. BROKERAGE. Tenant is solely responsible for any
brokerage costs associated with this transaction. Landlord represents and
warrants that it has had no broker representation.
19.17. COOPERATION. Tenant will not interfere with Landlord's
actions pursuant to any Regulation affecting the Property. Tenant will comply
with all reasonable procedures promulgated by Landlord relating to the matters
covered by such Regulations. Landlord has no duty to establish procedures or
regulations or to supervise Tenant's activities for any purpose including,
without limitation, the Handling of Hazardous Materials.
19.18. PARKING. Tenant shall have the use of 77 off-street
parking places.
19.19. TENANT IMPROVEMENTS. Tenant agrees to take the Premises
as-is. Landlord has no responsibility to provide any Tenant Improvements.
LANDLORD: TENANT:
By illegible By /s/ Lawrence B. Levy
------------------------------ ----------------------------
Authorized Signature Authorized Signature
/s/ Lawrence B. Levy
----------------------------
Please print name
Address for Notices: Address for Notices:
1120 Nye Street, Suite 400 1001 West Cutting Boulevard
San Rafael, CA 94901 Richmond, CA 94801
Date 4-26-96 Date 4-24-96
----------------------- ------------------------
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[MAP OF PT. RICHMOND TECH. CENTER, RICHMOND, CA.]
<PAGE> 15
FIRST ADDENDUM TO LEASE
THIS FIRST ADDENDUM TO LEASE (this "Addendum") is made by and between
Point Richmond R&D Associates, a California general partnership ("Landlord"),
and PIXAR, a California corporation ("Tenant"), to be part of that certain Point
Richmond R&D Associates Industrial Gross Lease of even date herewith between
Landlord and Tenant (the "Lease") concerning approximately 25,859 square feet of
space (the "Premises"), located at 1001 West Cutting Boulevard, Richmond,
California. Landlord and Tenant agree that, notwithstanding anything to the
contrary in the Lease, the Lease is hereby modified and supplemented as set
forth below.
1 . Definitions. The Lease shall commence on, and the Commencement Date
shall be, sixty (60) days after the later to occur of the following: (i) the
date that Landlord has delivered exclusive possession of the Premises to Tenant,
free of all other tenancies, with all approvals and permits from the appropriate
governmental authorities required for the legal occupancy of the Premises for
Tenant's intended use, and (ii) the date on which landlord has completed all
work, if any, to be performed by Landlord pursuant to Section 3 of this
Addendum.
2. Premises. Tenant shall also have the right to use the Common Area in
common with the other tenants on the Property. On the Commencement Date, the
Premises shall be broom clean and in good condition.
3. Alterations. Landlord hereby consents to the construction by the
Tenant of the improvements described in Exhibit A attached hereto. Tenant shall
have no responsibility for and Landlord shall pay all costs to bring the
Premises into compliance with applicable Regulations, including, without
limitation, the Americans with Disabilities Act and environmental laws.
4. Use of the Premises. Tenant shall not be required to comply with or
cause the Premises to comply with any Regulations requiring the construction of
improvements in the Premises unless the compliance with any of the foregoing is
necessitated solely due to Tenant's particular use of the Premises.
5. Termination. Tenant's obligations with respect to the surrender of
the Premises shall be fulfilled if Tenant surrenders possession of the
Premises in the condition existing at the Commencement Date (including the
improvements described on Exhibit A attached to this Addendum), ordinary wear
and tear, casualties, condemnation, Hazardous Materials (other than those
released or emitted by Tenant in or about the Premises), and alterations or
other interior improvements which Landlord states in writing may be surrendered
at the termination of the Lease, excepted.
6. Assignment and Subletting. Tenant may, without Landlord's prior
written consent and without being subject to the provisions of Section 16 of
the Lease, sublet the Premises or assign the Lease to (i) a subsidiary,
affiliate, division or corporation controlling, controlled by or under common
control with Tenant; (ii) a successor corporation related to Tenant by merger,
consolidation, nonbankruptcy reorganization, or government action; or (iii) a
purchaser of substantially all of Tenant's assets located in the Premises. A
sale or transfer of Tenant's capital stock shall not be deemed an assignment,
subletting or any other transfer of the Lease or the Premises. Tenant shall not
be required to pay Landlord any Excess Rent until Tenant has deducted therefrom
the costs to Tenant to effectuate the assignment or sublease, including
attorneys' fees, leasing commissions and remodeling costs. Item (i) of Section
16 of the Lease is hereby deleted; however, Landlord may withhold its consent
to a full assignment and transfer if the financial strength of the proposed
assignee is not, in Landlord's reasonable judgment, commensurate with the
obligations of the Lease.
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7. Hazardous Materials. To the best knowledge of Landlord, (i) no
Hazardous Material is present on the Property or the soil, surface water or
groundwater thereof, (ii) no underground storage tanks are present on the
Property, and (iii) no action, proceeding or claim is pending or threatened
regarding the Property concerning any hazardous Material or pursuant to any
environmental law. Under no circumstances shall Tenant be liable for, and
Landlord shall indemnify, defend and hold harmless Tenant and its Agents from
and against, all losses, costs, claims, liabilities and damages (including
attorneys' and consultants' fees) of every type and nature, directly or
indirectly arising out of or in connection with any Hazardous Materials present
at any time on or about the Property, or the soil, air, improvements,
groundwater or surface water thereof, or the violation of any laws, orders or
regulations, relating to any such Hazardous Material, except to the extent that
any of the foregoing actually results from the release or emission of Hazardous
Material on or about the Premises during the term of the Lease by Tenant or its
Agents in violation of applicable environmental laws.
8. Subordination of Leasehold. If required by Tenant, Landlord will
make best efforts to obtain from any lender or ground lessors of the Property a
written agreement in form reasonably satisfactory t Tenant providing for
recognition of Tenant's interest under the Lease in the event of a foreclosure
of the lender's security interest or termination of the ground lease.
9. Use of Premises. In addition to the provisions of Section 10 of the
Lease, Tenant may use the Premises for all legal uses.
10. Reasonable Expenditures. Any expenditure by a party permitted or
required under the Lease, for which such party is entitled to demand and does
demand reimbursement from the other party, shall be limited to the fair market
value of the goods and services involved, shall be reasonably incurred, and
shall be substantiated by documentary evidence available for inspection and
review by the other party or its representative during normal business hours.
11. Security Deposit. Section 4.3 of the Lease is deleted in its
entirety; there shall be no security deposit payable by Tenant under the Lease.
12. Tax Increase on Sale. Notwithstanding any other provision of the
Lease to the contrary, Tenant shall not be obligated to pay any Tax increase due
solely to the sale or other transfer of an interest in the Property, or a sale
or other transfer of all of the Property.
13. Contest. If Tenant desires to contest the validity or amount of
any Tax applicable to the Premises, Tenant shall be entitled to do so and to
defer payment of such Tax until final determination of such contest upon giving
Landlord written notice thereof prior to commencing such contest and protecting
Landlord on demand by obtaining a surety bond in the amount of 150% of the
total amount of Taxes in dispute. The surety bond shall hold Landlord harmless
from any damages or costs incurred in connection with the contest. Landlord
shall, at Tenant's request, cooperate in all reasonable ways requested by Tenant
in connection with the contest of Taxes, provided that Tenant pays all
reasonable costs incurred by Landlord resulting from such cooperation.
14. Additional Rent. The term "Operating Expenses" shall not include
Taxes and insurance premiums. Tenant's obligation to pay additional rent
pursuant to Section 4.2 of the Lease shall be capped as follows: Tenant shall
have no obligation to pay Operating Expenses, Taxes or insurance premium
increases in any calendar year to the extent that such amounts have increased by
more than five percent (5%) from the immediately preceding calendar year.
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15. Effect of Addendum. All terms with initial capital letters used
herein as defined terms shall have the meanings ascribed to them in the Lease
unless specifically defined herein. In the event of any inconsistency between
this Addendum and the Lease, the terms of this Addendum shall prevail.
LANDLORD: TENANT:
POINT RICHMOND R&D ASSOCIATES, PIXAR, a California corporation
a California general partnership
By: /s/ Richard K. Robbins By: /s/ Lawrence B. Levy
--------------------------- ----------------------------
Name: Richard K. Robbins Name: Lawrence B. Levy
--------------------------- ----------------------------
Its: Managing General Partner Its: EVP & CFO
--------------------------- ----------------------------
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<PAGE> 18
EXHIBIT A
TENANT IMPROVEMENTS
Landlord hereby consents to Tenant's installation and construction of the
following improvements. Such work shall be performed in accordance with
applicable local/State/Federal building codes and specifications prepared by
Tenant.
1. Install new carpet/base/vinyl tile throughout the Premises.
2. Construct several new hardwall office and conference room spaces in
locations designated by Tenant.
3. Modify/redesign the existing Electrical/Mechanical systems to support
the additional people and technology planned for the space.
4. Create several openings to connect the Premises with the Tenant's
existing space.
5. Remove existing Electrical/Mechanical Systems (including junction
boxes/electrical panels, etc.) in the "Warehouse" space that are not
required for the Tenant Improvements.
6. Tenant will not be responsible for any improvements required to the
base building electrical/mechanical system/restroom facilities/parking
facilities to bring the facility up to current code compliance. This
would include any "ADA" issues relating to existing conditions.
7. Tenant is not responsible to return the space to its original condition
to the Landlord at completion of lease.
LANDLORD IMPROVEMENTS
1. Landlord will provide painting of Premises including "Warehouse" space
and its ceiling (including joists and insulation).
<PAGE> 1
EXHIBIT 10.17
POINT RICHMOND R&D ASSOCIATES INDUSTRIAL GROSS LEASE
This Lease is made and entered into as of SEPTEMBER 12, 1996, between POINT
RICHMOND R&D ASSOCIATES, a California General Partnership ("Landlord") and
PIXAR, a California Corporation ("Tenant").
1. DEFINITIONS. Words not defined in this paragraph or elsewhere in
this Lease have their customary meanings. 1) The "Initial Term" is FOUR YEARS;
2) "Commencement Date" is FEBRUARY 7, 1997, the first day of the Initial Term;
3) "Base Monthly Rent" means, subject to adjustment, $53,469.15 per month ($1.55
PER SQUARE FOOT, INDUSTRIAL GROSS FOR THE BUILT OUT SPACE (AS DEFINED BELOW) OF
30,000 SQ.FT., AND $0.45/SQ.FT./MO. N,N,N FOR THE SHELL CARRY SPACE (AS DEFINED
BELOW) OF 15,487 SQ.FT., payable in advance, without deduction, offset, prior
notice or demand, on the first day of each Month of the Term; 4) "Premises"
means the part of the Building leased to Tenant for exclusive use, consisting of
approximately 45,487 square feet, commonly known as POINT RICHMOND TECH CENTER
II BUILDING B, Richmond, California 94801, as delineated on Exhibit A); 5)
"Building" means the structure in which the Premises are located; 6) "Property"
includes the Building and land on which it stands; 7) "Agents" includes
employees, agents, guests, invitees and, when applied to Tenant, subtenants, and
assignees; 8) "DAY" and "Month" mean calendar day/month; 9) "Lease Year" means
consecutive 12-month periods starting on the Commencement Date; 10) "Common
Area" means parts of the Building not for exclusive use by tenants including
halls, lobby, elevators, rest rooms, roof, exterior walls and structural
components; 11) "Tax" means any form of assessment, license, fee, rent, tax,
levy, penalty or tax imposed by any authority having direct or indirect taxing
powers (including Improvement Districts) against Landlord's interest in the
Property or personal property used in the operation of the Property and/or
Landlord's business of renting the Property; 12) "Alteration" includes
additions, deletions, modifications and changes including utility installations
such as ducting, power panels, fluorescent fixtures, base heaters, conduit and
wiring; 13) "Operating Expenses" are all customary and reasonable expenses for
maintenance, servicing, management and repair of the Property and the Premises
inclusive of taxes and insurance premiums, but excluding (a) any expense paid or
incurred by Landlord relating to the design or construction of the Premises
(including the Tenant improvements), the Building and the other improvements and
appurtenances on the Property (including the correction of any defects); (b)
depreciation; (c) any reserves; or (d) capital improvements; 14) "Base Year" is
the calendar year in which Landlord delivers possession of the Premises to
Tenant in accordance with the requirements set forth in Paragraph 19.12 of this
Lease; 15) Tenant's "Pro Rata Share" is the total cost of an item multiplied by
100% [Landlord may, however, adjust Tenant's Pro Rata Share of specific
Operating Expenses if Landlord reasonably determines that Tenant's usage
warrants such adjustment]; 16) the "floor area of the Premises" is measured from
the exterior surface of exterior walls and from the center of walls separating
the Premises from adjacent premises or common areas; 17) The "floor area of the
Building" is measured from the exterior surface of exterior walls including
common and core areas; 18) "consent" and "approval" require reasonable conduct
by the consenting/approving party; 19) "Regulation" includes all laws, statutes,
regulations and requirements adopted by duly constituted public authorities now
in force or hereafter adopted; 20) "Condemnation" includes taking by exercise of
governmental power or the sale or transfer to any condemnor under threat of or
during the pendency of proceedings for condemnation. 21) "BUILT OUT SPACE" IS
THE PORTION OF THE PREMISES WHICH WILL BE FULLY BUILT OUT WITH THE TENANT
IMPROVEMENTS (AS DEFINED IN PARAGRAPH 19.12 BELOW) PRIOR TO DELIVERY OF THE
PREMISES TO TENANT; 22) "SHELL CARRY SPACE" IS THE PORTION OF THE PREMISES WHICH
WILL BE COMPLETED TO WARM SHELL CONDITION (UNLESS TENANT EXERCISES ITS OPTION TO
CONVERT THE SHELL CARRY SPACE AS PROVIDED in PARAGRAPH 3.1 BELOW) ONLY AND
RENTED AT A REDUCED RATE FOR A SET PERIOD OF TIME.
2. PREMISES. Landlord hereby leases to Tenant and Tenant shall have
exclusive use of the Premises for the Initial Term.
3. DELAY IN POSSESSION. If Landlord cannot deliver possession of the
Premises to Tenant on the Commencement Date in accordance with the requirements
set forth in Paragraph 19.12 of this Lease, such failure shall not affect the
validity of this Lease, extend its Term, or render Landlord liable for any
resulting damage, but Tenant shall not be obligated to pay rent or any other
charge under this lease until Landlord tenders possession. If Landlord cannot
deliver possession within 120 DAYS of the Commencement Date, Tenant
<PAGE> 2
may terminate this Lease on written notice to Landlord. In such event, Tenant
shall no further recourse against Landlord respecting the Lease. However, in the
event that Landlord is unable to deliver possession of the Premises to Tenant
within ninety (90) days of the Commencement Date, Tenant shall be entitled to
offset the amount of $833.00 per day against the rent due to Landlord from
Tenant for those other Premises at Building A at 1001 West Cutting covered by
that certain Lease between Landlord and Tenant dated April 1996, for each day
past the ninetieth day after the Commencement Date that the Premises are not
delivered to Tenant in completed condition. Notwithstanding any other provision
of this Lease, Landlord shall have no obligation to pay any damages or
adjustment to Tenant as a result of delays caused by matters outside of
Landlord's control, including, without limitation, Tenant's conduct, acts of
God, acts of war, inclement weather and/or labor strikes (including strikes
affecting the supply of labor and/or materials).
3.1 OPTION TO CONVERT SHELL CARRY SPACE. TENANT SHALL HAVE THE
RIGHT TO CONVERT THE SHELL CARRY SPACE INTO BUILT OUT SPACE FOR A PERIOD OF ONE
YEAR FROM THE COMMENCEMENT DATE. TO CONVERT THE SHELL CARRY SPACE INTO BUILT OUT
SPACE, TENANT SHALL DELIVER NOTICE TO LANDLORD NINETY DAYS IN ADVANCE OF THE
START OF THE CONVERSION. TENANT AND LANDLORD WILL DEVELOP A SPACE PLAN AND
WORKING DRAWINGS FOR THE CONVERSION OF THE SPACE. THE SPACE PLAN SHALL BE FOR A
BUILT OUT SPACE OF SIMILAR STYLE AND COST TO THE INITIAL BUILD OUT. LANDLORD
WILL BUILD THIS SPACE AS PER PARAGRAPH 19.12. IF TENANT DOES NOT DELIVER NOTICE
TO LANDLORD FOR THE CONVERSION OF THE SHELL CARRY SPACE BY NOVEMBER 7, 1997,
THEN THE LEASE WITH RESPECT TO THIS SPACE ONLY WILL TERMINATE ON FEBRUARY 7,
1998.
3.2. OPTIONS TO EXTEND TERM. Tenant is hereby granted three
options to extend this Lease for an additional one year period, an additional
two year period, and an additional three year period (the "Option Terms")
pursuant to the provisions of this Lease and exercisable by written notice (the
"Option Notice") delivered to Landlord at least 180 days before expiration of
the Initial Term and each subsequent Option Term. References to "Term" in this
Lease include the Initial Term and exercised Option Terms. At Landlord's option,
Tenant's default at the time it delivers the Option Notice precludes the
effectiveness of the notice and commencement of the Option Term.
4. RENT. Tenant shall pay all rent due Landlord in United States dollars
at the address set forth below or such other place as Landlord designates in
writing. If Alterations increase the floor area of the Premises, Base Monthly
Rent will increase proportionately. If the obligation to pay rent commences
other than on the first day of a Month, the first payment shall also include
rent from the date the obligation commences to the first day of the following
month calculated per diem.
4.1. BASE MONTHLY RENT ADJUSTMENT. The Base Monthly Rent for
the first six months of the Lease shall be $47,969.15. From month seven until
the end of the Initial Term, or unless modified per paragraph 4.2, the Base
Monthly Rent shall be $53,469.15.
4.2 CONVERSION OF SPACE BASE RENT ADJUSTMENTS. Upon the
substantial completion of the additional tenant improvements to the Shell Carry
Space per paragraphs 3.1 and 19.12, the base rent shall increase by $17,035.70.
The Base Monthly Rent shall then be $70,504.85 Industrial Gross. If Tenant
declines to convert the Shell Carry Space per paragraphs 3.1 and 19.12, then as
of February 7, 1998, the rent shall adjust downward by $6,969.15 and the Base
Monthly Rent shall be $46,500 Industrial Gross.
4.3. OPTION TERM RENT ADJUSTMENT. The Base Monthly Rent for
the Option Terms will increase by the cumulative C.P.I. increase for the San
Francisco Bay Area from the Commencement Date to the end of the Initial Term for
the first Option Term, and from the commencement to the end of each subsequent
Option Term. The increase will be no less than 3% per year nor greater than 5%
per year. The term "C.P.I." shall mean the Consumer Price Index for All Urban
Consumers (All Items) (Base Year 1982-1984 = 100) for the San Francisco-
Oakland-San Jose CMSA published by the Bureau of Labor Statistics of the United
States Department of Labor. The parties shall use the C.P.I. published most
recently before beginning and ending measurement dates to determine each C.P.I.
increase.
4.4. ADDITIONAL RENT. For each year during the Term that
Operating Expenses for the Property exceed the Base Year Operating Expenses,
Tenant shall pay to Landlord, in addition to the Base Monthly Rent and all other
payments due under this Lease, an amount equal to Tenant's Pro Rata Share of the
amount by which the actual Operating Expenses for that year exceed the Base Year
Operating Expenses (the "Excess Operating
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<PAGE> 3
Expenses"). It is the intent of the parties that Tenant shall pay to Landlord
Tenant's Pro Rata Share of increases in Operating Expenses for the Property over
the amount of the Base Year Operating Expenses; provided, however, that in no
event shall Tenant's Pro Rata Share of increases in Operating Expenses for any
year exceed the amount paid by Tenant as Tenant's Pro Rata Share of increases in
Operating Expenses for the proceeding year by more than five percent (5%).
Tenant shall not be liable for any Increases over Base Year Operating Expenses
that are for expenditures for capital improvements as defined under generally
accepted accounting principles, or (b) any Tax increase due solely to the sale
or other transfer of an interest in the Property or sale or other transfer of
all the Property.
4.4.1. CALCULATION OF BASE YEAR OPERATING EXPENSES. Base Year
Operating Expenses shall be determined as the actual Operating Expenses paid for
the Property during the Base Year from and after the date (the "Operating
Expenses Commencement Date") upon which the Premises (including the Tenant
Improvements), the Building and the other improvements and appurtenances on the
Property have been duly completed and exclusive possession of the Premises has
been delivered to Tenant in the condition required under this Lease. If the
period between the Operating Expenses Commencement Date and the last day of the
Base Year is less than a full calendar year, Base Year Operating Expenses (other
than Base Year Taxes) shall be determined by annualizing the actual Operating
Expenses paid by the Landlord during the Base Year as follows: the actual
Operating Expenses paid by Landlord during Base Year shall be multiplied by a
fraction, the numerator of which shall be 365 and the denominator of which shall
be the number of days between the first day of the Base year and the Operating
Expenses Commencement Date, inclusive. In any event Base Year Taxes shall be the
amount specified in the tax bill for the first full fiscal year after the
Building (including the Premises and the Tenant Improvements) has been assessed
as a fully completed and occupied building. Within three months following the
last day of the Base Year or as soon thereafter as may be practical, Landlord
shall prepare and deliver to Tenant a schedule of Base Year Operating Expenses.
The said schedule will fix the amount of the Base Year Operating Expenses (other
than Base Year Taxes) for all purposes under the provisions of this Lease.
Should Tenant question the said schedule, Landlord shall provide Tenant with
verification of the amounts set forth in the schedule. In the event Landlord,
for any reason, neglects or fails to timely provide the required schedule of
Base Year Operating Expenses to Tenant, such failure shall not be deemed a
default under or breach of this Lease by Landlord for any purpose, neither shall
it be deemed a waiver of any rights of Landlord to collect Tenants Pro Rata
Share of Excess Operating Expenses, neither shall such failure by Landlord
excuse Tenant from performance of any of Tenant's obligations under the
provisions of this Lease. Within three (3) months following the last day of each
year after the Base Year or as soon thereafter as may be practical, Landlord
shall prepare and deliver to Tenant a schedule for the actual Operating Expenses
paid by Landlord for such year. Should Tenant question said schedule, Landlord
shall provide Tenant with verification of the amounts set forth in the schedule.
In the event such schedule shows that the actual Operating Expenses paid by
Landlord for such year exceed the Base Year Operating Expenses, Tenant shall pay
to Landlord Tenant's Pro Rata Share of the amount of such increase (subject to
the limitations specified in Paragraph 4.4 above) within thirty (30) days after
receipt of the schedule of Operating Expenses for such year.
4.5. SECURITY DEPOSIT/CLEANING CHARGE. Concurrent with its execution
of this Lease, Tenant shall give Landlord as a security deposit the sum of
$53,469.13 (the "Deposit") and a cleaning charge in the amount of $ N/A
("Cleaning Charge"). Landlord shall hold the Deposit as security for Tenant's
faithful performance of all its obligations under this Lease and may, at its
option, apply the Deposit to remedy defaults in the payment of any charge
hereunder, to repair damages to the Property caused by Tenant, or to clean the
Premises at the end of this Lease. If any portion of the Deposit is so applied,
Tenant shall, within 10 Days after written demand therefor, deliver to Landlord
funds sufficient to restore the Deposit to its original amount. Landlord shall
not be required to keep the Deposit separate from its general funds. Tenant
shall earn no interest on the Deposit. If Tenant fully performs under this
Lease, Landlord shall return any unused portion of the Deposit to the last
holder of Tenant's interest in this Lease upon Tenant's surrender of the
Premises. On any transfer of Landlord's interest in the Lease, the Deposit will
be transferred to Landlord's successor, and Landlord released from liability for
the Deposit. The Cleaning Charge is not refundable and Landlord has no
obligation to account for it.
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4.6. LATE CHARGES. Late payment of any sums due hereunder will
cause Landlord to incur costs not contemplated by this Lease, including, without
limit, accounting charges and late charges which may be imposed on Landlord by
the terms of loans secured by the Property. If Tenant fails to deliver to
Landlord any monies due hereunder within 10 Days of the due date, Tenant shall
pay to Landlord a late charge of 10% of the overdue amount which is agreed to be
a reasonable estimate of the costs Landlord will incur by reason of the late
payment, the exact amount of which will be difficult to determine. Acceptance of
a late charge shall not constitute a waiver of the default or preclude
Landlord's exercise of other rights and remedies.
5. TAXES. Landlord shall pay all Taxes assessed against Landlord's
interest in the Property and personal property used in its operation. Tenant
shall pay all Taxes assessed on Tenant's fixtures, improvements, furnishings,
merchandise, equipment and personal property in and on the Premises. If Tenant
fails to timely pay Taxes, Landlord may (but is not obligated to) pay the same
at any time thereafter. On demand, Tenant shall repay Landlord amounts so paid
with interest at the highest rate allowable by law.
If Tenant desires to contest the validity or amount of any Tax
applicable to the Premises, Tenant shall be entitled to do so and to defer
payment of such Tax until final determination of such contest upon giving
Landlord written notice thereof prior to commencing such contest and protecting
Landlord on demand by obtaining a surety bond in the amount of 150% of the total
amount of Taxes in dispute. The surety bond shall hold Landlord harmless from
any damages or costs incurred in connection with the contest. Landlord shall, at
Tenant's request, cooperate in all reasonable ways requested by Tenant in
connection with the contest of Taxes, provided that Tenant pays all reasonable
costs incurred by Landlord resulting from such cooperation.
6. INSURANCE.
6.1. LANDLORD'S INSURANCE. Landlord shall insure the Property
(including the Premises and the Tenant Improvements) for 100% of its replacement
value against loss or damage by those risks normally included by the insurance
industry in the term "All Risk"; any recovery from such insurance shall belong
to Landlord. Landlord shall maintain comprehensive general liability insurance
insuring Landlord (and others named by Landlord, including Tenant) against
liability for bodily injury, death and property damage on or about the Property,
with combined single limit coverage of at least $2 million. Landlord shall
furnish to Tenant prior to the commencement date, and at least thirty (30) days
prior to the expiration date of any policy, certificates indicating that the
insurance required of Landlord is in full force and effect, that Tenant has been
named as an additional insured on the liability policy and that no such policy
will be canceled unless thirty (30) days prior written notice has been given to
Tenant. Each liability policy shall include a broad form liability endorsement
and provide that Tenant as an additional insured may recover for any loss it
suffers by reason of acts/omissions of Landlord and its agents. Except as Tenant
may approve in writing before issuance of such policy, all policies which
Landlord shall obtain hereunder shall be issued by companies with "AAA" rating
by either Moody's Rating Service or Standard & Poor's Rating Service and general
policy rating of at lease A in Best Insurance Guide's then most current issue.
6.2. TENANT'S INSURANCE. Tenant, at its sole expense, shall
maintain: a) All Risk coverage insurance on all fixtures, furnishings,
merchandise, equipment and personal property in the Premises; and b) for the
benefit of Tenant, commercial general liability and property damage insurance
against claims for bodily injury, death or property damage occurring in or
about, and/or arising from Tenant's use of, the Premises, with combined single
limit coverage of at least $2,000,000 (such insurance shall include, without
limit, products liability, coverage for liability arising from consumption of
any food or beverages sold from the premises (including coverage for liability
from consumption or sale of alcoholic beverages). Such insurance coverage shall
not limit Tenant's liability. Tenant shall furnish to Landlord prior to the
Commencement Date, and at least 30 Days prior to the expiration date of any
policy, certificates indicating that the insurance required of Tenant is in full
force and effect, that Landlord has been named as an additional insured on the
liability policy, and that no such policy will be canceled unless 30 Days' prior
written notice has been given to Landlord. Each liability policy shall include a
broad form liability endorsement and provide that Landlord as an additional
insured may recover for any loss it suffers by reason of acts/omissions of
Tenant and its Agents. Except as Landlord may approve in writing before issuance
of such policy, all policies which Tenant shall obtain hereunder shall be issued
by companies with "AAA" rating by either Moody's Rating Service
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or Standard & Poor's Rating Service and general policy rating of at least A in
Best Insurance Guide's then most current issue. Policies obtained by Tenant
pursuant to this Lease shall be subject to Landlord's approval.
6.3. WAIVER OF SUBROGATION. Notwithstanding anything to the
contrary herein, the parties hereby release each other and their respective
officers, agents, employees and servants, from all claims for damages, loss,
expense or injury to the Property (including the Premises), and/or to the
furnishings and fixtures and equipment or inventory or other Property including
the property of either Landlord or Tenant in, about or upon the Property, which
is caused by or results from perils, events or happenings which are covered by
insurance in force at the time of any such loss or by insurance required to be
carried hereunder; provided, however, that such waiver shall be effective only
to the extent permitted by the said insurance and to the extent such insurance
coverage is not prejudiced thereby. Each party shall cause each insurance policy
obtained by it to provide that the insurance company waives all right of
recovery by way of subrogation in connection with any damage covered by such
policy.
6.4. LANDLORD INDEMNIFICATION. Tenant will indemnity and save
Landlord harmless from and against any and all claims, actions, damages,
liability and expense relating to loss of life, personal injury and/or property
damage arising from or out of any occurrence in, upon or at the Premises, or the
occupancy or Tenant's use of the Property, occasioned wholly or in part by any
acts or omissions of Tenant and its Agents. If Landlord becomes a party to such
litigation commenced by or against Tenant, Tenant shall defend and hold Landlord
harmless from all claims, liabilities, costs and expenses, and shall pay all
costs, expenses and reasonable legal fees incurred by Landlord in connection
with such litigation. If Tenant is made a party to litigation commenced by or
against Landlord solely as a result of Landlord's acts or omissions, Landlord
shall defend Tenant and indemnify Tenant against the costs of such litigation.
As used herein, "litigation" includes arbitration. The provisions of this
paragraph shall be deemed to apply only to those circumstances where there is a
portion of a loss or claim not covered by existing insurance and then only to
the extent that such loss or claim is not covered by insurance. This paragraph
shall not preclude application of comparative negligence if the parties or their
agents are both at fault.
6.5. TENANT INDEMNIFICATION. Landlord will indemnify and save
Tenant harmless from and against any and all claims, actions, damages, liability
and expense relating to loss of life, personal injury and/or property damage
arising from or out of any occurrence in, upon or at the Premises, or the
occupancy or Landlord's use of the Property, occasioned wholly or in part by
any acts or omissions of Landlord and its Agents. If Tenant becomes a party to
such litigation commenced by or against Landlord, Landlord shall defend and hold
Tenant harmless from all claims, liabilities, costs and expenses, and shall pay
all costs, expenses and reasonable legal fees incurred by Tenant in connection
with such litigation. If Landlord is made a party to litigation commenced by or
against Tenant solely as a result of Tenant's acts or omissions, Tenant shall
defend Landlord and indemnify Landlord against the costs of such litigation. As
used herein, "litigation" includes arbitration. The provisions of this paragraph
shall be deemed to apply only to those circumstances where there is a portion of
a loss or claim not covered by existing insurance and then only to the extent
that such loss or claim is not covered by insurance. This paragraph shall not
preclude application of comparative negligence if the parties or their agents
are both at fault.
6.6. WORKER'S INSURANCE. Tenant shall keep in force for the
Term and pay for worker's compensation and other insurance to comply with all
applicable Regulations.
7. MAINTENANCE.
7.1. PREMISES. During the Term, Landlord shall maintain the
Premises (including all interior walls, doors, doorways, lighting fixtures,
plumbing fixtures, and all windows) and the Systems (as defined in Paragraph
7.4 below) in good order, condition and repair. Tenant waives the provisions
of any law permitting Tenant to make repairs at Landlord's expense, including,
without limitation, California Civil Code Sections 1941-1946. Tenant will supply
its own janitorial services to the Premises.
7.2. COMMON AREAS. Landlord shall maintain the Common Area in
reasonably good order and condition; however, damage caused by the acts/
omissions of Tenant and its Agents shall be repaired at Tenant's expense if
not covered by the insurance Landlord is required to carry under this Lease.
Landlord shall maintain all improvements and appurtenances (including the
driveways, automobile parking area and all landscaping) upon the Property in
good order and repair. Tenant shall notify Landlord in writing of
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required repairs to the Property; Landlord shall make necessary repairs in a
reasonable time. Maintenance and repairs shall be completed in a good and
workmanlike manner using such methods as Landlord deems appropriate in its sole
discretion. Landlord shall make commercially reasonable efforts to perform
maintenance and repairs with minimum interference with Tenant's business
operations.
7.3. ALTERATIONS. Tenant shall make no Alteration to the
Property without Landlord's prior written consent. Landlord may impose such
conditions upon approval of an Alteration as Landlord may reasonably deem
appropriate. Every Alteration shall be done under supervision of a licensed
contractor and in accordance with plans and specifications furnished to and
approved by Landlord prior to commencement of work. If an Alteration increases
the floor area of the Premises, the Base Monthly Rent and Tenant's Pro Rata
Share shall be increased in proportion to the resulting increase in the floor
area of the Premises. Tenant shall give Landlord 7 Days' advance written notice
prior to starting construction of each Alteration. Each Alteration shall remain
in place and become the property of Landlord, unless, at the time of consent,
Landlord required removal of the Alteration on Termination, in which case,
Tenant shall remove such Alteration(s) and restore the Premises to their
pre-Alteration condition at Termination.
7.4. SYSTEMS. The heating/air-conditioning ("HVAC"), plumbing
and electrical systems (collectively "Systems") shall not be used for any
purpose other than that for which they were constructed. Tenant shall pay for
repairs resulting from the willful misconduct of Tenant and its Agents.
7.5. LIENS. Tenant shall keep the Property free from liens
arising out of work performed, materials furnished or obligations incurred by
Tenant. Tenant shall indemnify Landlord from all costs, liens and encumbrances
from work performed or materials furnished by or at Tenant's direction. If
Tenant fails to obtain removal of such lien within 20 Days following its
imposition, Landlord shall have the right, but not the obligation, to obtain
such release by such means as it may deem proper, including payment of the claim
giving rise to such lien. On demand, Tenant shall reimburse Landlord for all
such sums paid and expenses incurred by Landlord in connection therewith
(including attorneys' fees and costs) together with interest at the highest rate
allowable by law from the date Landlord makes such payment until the date of
reimbursement.
8. MANAGEMENT. The Wareham Property Group, Inc., an affiliate of
Landlord, or another affiliated or unaffiliated third party, will manage the
Property for a fee (which fee shall be competitive with the fees charged for
property management services for properties comparable to the Property in
Richmond, California).
9. UTILITIES AND SERVICES.
9.1. PREMISES. Landlord will make available to the Premises
HVAC and utilities for heating and lighting use at all times. Tenant will pay
all utility costs directly. If utility services cannot be put directly into
Tenant's name, then Tenant shall pay to Landlord as additional rent the
estimated cost of supplying these utilities to the Premises, as reasonably
determined by Landlord.
9.2. COMMON AREAS. Landlord shall arrange for Common Area
utilities, landscaping, janitorial and, if Landlord deems it appropriate,
security services. The costs thereby incurred by Landlord shall be included in
Operating Expenses; and Tenant will pay its Pro Rata Share of any increases over
Base Year Operating Expenses.
9.3. LIMITATION OF LIABILITY. Landlord shall not be in default
under the provisions of this Lease or be liable for any damages directly or
indirectly resulting from the following conditions: (1) the interruption of use
of any equipment in connection with the furnishing of any of the services
described in paragraphs 9.1 and 9.2 of this lease where such interruption is
caused by accident or any condition or event beyond Landlord's reasonable
control; (2) failure to furnish or delay in furnishing any services referred to
in paragraphs 9.1 and 9.2 of this lease where failure or delay is caused by
accident or any condition or event beyond Landlord's reasonable control; (3) the
limitation, curtailment or rationing of, or restrictions on, use of water,
electricity, gas or any other form of energy serving the premises. Landlord
shall not be liable under any circumstances for a loss of or injury to property
or business, however occurring, through or in connection with or incidental to
failure to furnish any such services. Notwithstanding the foregoing provisions
of this paragraph, in the event that utility service to the premises is
unavailable for a period exceeding 15 consecutive days, then from and after the
16th consecutive day without utility service and until utility service is
restarted, Tenant shall be entitled to an abatement of rent unless the
disruption of the utility service results in whole, or in part, from the acts
and/or
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omissions of Tenant (inclusive of Tenant's agents, servants, employees, guests,
invitees, operatives and/or contractors) in which case there shall be no
abatement of rent.
10. USE OF PREMISES. This Lease is subject to all Regulations governing
use of the Property. Tenant has not entered into this Lease relying on any
representation by Landlord or its Agents as to suitability of the Premises for
the conduct of Tenant's business. Tenant has made its own analysis of
suitability of the Premises for its intended use. Tenant shall: 1) use the
Premises for only general office and animation studios purposes and any other
lawful use; 2) pay Landlord the full amount of any increased insurance premium
resulting from Tenant's use of the Premises other than for general office and
animation studios purposes; 3) at its sole expense, promptly comply with all
Regulations and the requirements of any board of fire underwriters or other
similar body now or hereafter constituted relating to or affecting Tenant's
particular use of the Premises. Tenant shall not: 1) sell or permit to be kept,
used or sold in or about the Premises any articles prohibited by a standard form
policy of fire insurance; 2) do or permit anything to be done in or about the
Property which will obstruct or interfere with rights of other occupants of the
Property or injure or annoy them; 3) maintain or permit any nuisance in or about
the Property; 4) commit or suffer to be committed any waste in or upon the
Property; 5) conduct or allow any auction or similar sale upon the Property; 6)
do or permit anything to be done in or about the Property which will violate any
Regulation [the judgment of any court of competent jurisdiction or Tenant's
admission in any action (whether or not Landlord is a party) that Tenant has
violated a Regulation shall be conclusive of that fact between Landlord and
Tenant]; 7) place a sign upon the Property; 8) do or permit anything to be done
which will increase existing insurance premiums for the Property or cause
cancellation of any policy covering any of the Property. However, Tenant shall
not be required to comply with or cause the Premises to comply with any
Regulations requiring the construction of improvements in the Premises unless
the compliance with any of the foregoing is necessitated solely due to Tenant's
particular use of the Premises.
11. DEFAULTS AND REMEDIES.
11.1. DEFAULT OF TENANT. The occurrence of any one or more of
the following events shall constitute a default and breach of this Lease by
Tenant: (a) Tenant's failure to pay any rent or charges required to be paid by
Tenant under this Lease within 5 days of Landlord's delivery of written notice
to Tenant that said amounts are past due; (b) Tenant's abandonment or vacation
of the demised premises; (c) Tenant's failure to promptly and fully perform any
other covenant, condition or agreement contained in this Lease where such
failure continues for 30 days after written notice from Landlord to Tenant of
such default; (d) the levy of a writ of attachment or execution on this Lease or
on any of the property of Tenant located in the premises; (e) the making by
Tenant of a general assignment for the benefit of its creditors or of an
arrangement, composition, extension or adjustment with its creditors; (f) the
filing by or against Tenant of a petition for relief or other proceeding under
federal bankruptcy laws or state or other insolvency laws, which petition is not
removed or which action is not dismissed within 90 days of its filing, or the
assumption by any court or administrative agency, or by a receiver, trustee or
custodian appointed by either, of jurisdiction, custody or control of the
premises or of Tenant or any substantial part of its assets or property; or (g)
if the interest of Tenant under this Lease is held by a partnership or by more
than one person or entity, the occurrence of any act or event described in parts
(e) or (f) above in respect of any partner of the partnership. Except as
otherwise specified by this paragraph, in the event a nonmonetary default occurs
which cannot reasonably be cured within the time period specified above and
Tenant commences corrective action within said time period, Tenant shall not be
in default or subject to penalty under this Lease so long as Tenant prosecutes
such corrective action diligently and continuously to completion.
11.2. REMEDIES OF LANDLORD. In the event of Tenant's default
hereunder, then in addition to any other rights or remedies Landlord may have
under this Lease or under law, Landlord may elect either of the remedies set
forth in Paragraphs 11.2.1 and 11.2.2 Notwithstanding any other provision of
this Lease, the Lessor has the remedy described in California Civil Code Section
1951.4 (Lessor (Landlord) may continue lease in effect after Lessee's (Tenant's)
breach and abandonment and recover rent as it becomes due, if Lessee (Tenant)
has the right to sublet or assign, subject only to reasonable limitations).
11.2.1. To immediately terminate this Lease and Tenant's right to
possession of the premises by giving written notice to Tenant and to recover
from Tenant an award of
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damages equal to the sum of (i) the worth at the time of award of the
unpaid rental which had been earned at the time of termination, (ii) the worth
at the time of award of the amount by which the unpaid rental which would have
been earned after termination until the time of award exceeds the amount of such
rental loss that Tenant affirmatively proves could have been reasonably
avoided, (iii) the worth at the time of award of the amount by which the unpaid
rental for the balance of the term after the time of award exceeds the amount
of such rental loss that Tenant affirmatively proves could be reasonable
avoided, (iv) any other amount necessary to compensate Landlord for all the
detriment either proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, and (v) all such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time under applicable
law; or
11.2.2. To have this Lease continue to effect for so long as Landlord
does not terminate this Lease and Tenant's right to possession of the premises,
in which event Landlord shall have the right to enforce all of the rights and
remedies provided by this Lease and by law, including the right to recover the
rental and other charges payable by Tenant under this Lease as they become due.
For purposes of this paragraph 11, the worth at the time of award of
the amounts referred to in parts 11.2.1(i) and 11.2.2(ii) shall be computed by
allowing interest at the highest rate allowable by law, and the worth at time of
award of the amount referred to in part 11.2.2(iii) shall be computed by
discounting such amount at the rate specified in California Civil Code Section
1951.2(b) or any successor statute. In such computations, the rent due hereunder
shall include monthly rent plus the aggregate amount of all other rentals,
charges and other amounts payable by Tenant hereunder.
11.3 DEFAULT BY LANDLORD. Landlord will be in default if Landlord fails
to perform any obligation required of Landlord (other than a delay in delivery
of possession as provided for in paragraph 3.2 above) as soon as reasonably
possible and in any event within 30 days after written notice by Tenant,
specifying wherein Landlord has failed to perform such obligation; provided that
if the nature of Landlord's obligation is such that more than 30 days are
required for performance, then Landlord shall not be in default if Landlord
commences performance within 30 day period and thereafter diligently prosecutes
the same to completion. Except as expressly set forth in this Lease, Tenant
shall not have any right whatsoever to terminate this Lease or to withhold,
reduce or offset any amount against any payments of rents or charges due and
payable under this Lease.
12. TERMINATION. Upon expiration of the Term or early termination of
this Lease (collectively "Termination"), Tenant shall deliver up and surrender
to Landlord possession of the Premises in as good order and condition as when
Tenant took possession excepting only ordinary wear and tear. Tenant's
obligation with respect to the surrender of the Premises shall be fulfilled if
Tenant surrenders possession of the Premises in the condition existing at the
Commencement Date, ordinary wear and tear, casualties, condemnation, Hazardous
Materials (other than those released or emitted by Tenant in or about the
Premises), and alterations or other interior improvements which Landlord states
in writing may be surrendered at the termination of the Lease, excepted. Upon
Termination, Landlord may reenter the Premises and remove all persons and
property therefrom. If Tenant fails to remove anything that is required or
entitled to remove from the Premises on Termination, Landlord may remove the
same and store or dispose of such item(s) in accordance with California Civil
Code Section 1980-1991. Tenant shall pay to Landlord on demand all expenses
incurred in such removal and storage. If the Premises are not surrendered at the
end of the Term, Tenant shall indemnify Landlord against all losses resulting
from Tenant's delay in surrendering the Premises. If Tenant remains in
possession of the Premises after expiration of the Term and if Landlord and
Tenant have not executed an express written agreement as to such holding over,
then such occupancy shall be a tenancy from month to month at a Base Monthly
Rent fixed at 125% of the Base Monthly Rent in effect immediately prior to such
expiration, such payments to be made as herein provided. In the event of such
holding over, all terms of this Lease including the obligation for payment of
all charges owing hereunder shall remain in force and effect on said month to
month basis. The voluntary or other surrender of this Lease by Tenant, if
accepted by Landlord, or a mutual cancellation thereof, shall not work a merger,
but shall, at the Landlord's option, terminate or operate as an assignment to
Landlord of any or all subleases or subtenancies.
13. CONDEMNATION OF PREMISES.
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13.1. TOTAL CONDEMNATION. If the entire Premises are taken by
Condemnation during the Term, this Lease shall terminate on the date of transfer
of possession and Tenant shall have no claim against Landlord for the value of
the unexpired Term.
13.2. PARTIAL CONDEMNATION. If any portion of the Premises is
taken by Condemnation during the Term, this Lease shall remain in full force and
effect; except that if a partial taking leaves the Premises unsuitable for
occupation, Tenant may terminate this Lease effective on the date transfer of
possession is required unless Landlord makes other comparable arrangements for
Tenant's space. Landlord and Tenant shall each have the right to terminate this
Lease effective on the date transfer of possession is required in the event of
Condemnation of more than 25% of the floor area of the Premises. The parties may
exercise their respective rights to terminate this Lease by serving written
notice to the other within 30 Days of their receipt of notice of condemnation,
except that Tenant's notice shall be ineffective if Landlord serves notice upon
Tenant of Landlord's election to provide alternate space equivalent to that
condemned within 10 Days of Tenant's delivery of notice to Landlord pursuant to
this paragraph. Tenant shall have the right of approval of replacement space.
All rent and other obligations of Tenant under this Lease shall be paid to the
date of Termination; Tenant shall have no claim against Landlord for any
unexpired portion of the Term. If this Lease is not canceled after a partial
taking, Base Monthly Rent and Tenant's Pro Rata Share shall be adjusted to
reflect the net change in the floor area of the Premises. Tenant waives
California Code of Civil Procedure Section 1265.130.
13.3. AWARD TO TENANT In the event of Condemnation, Tenant may
claim from the condemnor such compensation as Tenant may separately recover for
moving costs, loss of business, fixtures or equipment belonging to Tenant and
the value of Tenant's leasehold interest hereunder. Tenant shall have no other
right to recover from Landlord or the condemnor for any additional claims
arising out of such taking.
14. LANDLORD'S ENTRY. Landlord and its Agents may enter the Premises at
all reasonable times to: inspect the Premises; make repairs or Alterations; post
"To Lease" signs during the last 120 Days of the Term; show the Premises during
the last 120 days of the Term; and/or to post notices of nonresponsibility.
Landlord shall have such right of entry without any rebate of rent to Tenant for
any loss of occupancy or quiet enjoyment of the Premises. Landlord shall provide
24 hours' notice of intended entry except under circumstances Landlord
reasonably deems an emergency. In making repairs or Alterations, Landlord shall
use reasonable efforts to minimize any interference with or interruption of
Tenant's business operation in the Premises.
15. LIMITATION OF LIABILITY AND INDEMNITY: This paragraph 15, inclusive
of all subparagraphs, supersedes each and every other provision of this Lease.
15.1. Limitation of Landlord's Liability. Tenant will not
hold Landlord liable for amounts exceeding insurance coverage maintained by
Landlord under this Lease ("Existing Coverage") respecting any injury or damage,
proximate or remote, occurring through or caused by any repairs or alterations
to the Property, unless such injury or damage arises from Landlord's negligence,
willful misconduct, or breach of this Lease ("Landlord's Acts"). Landlord shall
not be liable in excess of Existing Coverage for any injury or damage occasioned
by defective electric wiring, or the breaking, bursting, stoppage or leaking of
any part of the plumbing, airconditioning, heating, fire control sprinkler
systems or gas, sewer or steam pipes, unless such loss arises from Landlord's
Acts.
15.2. Limitation on Enforcement of Remedies. Notwithstanding
any other provision of this Lease, Tenant and its Agents shall, under all
circumstances, be absolutely limited to Landlord's interest in the Property for
satisfaction of Tenant and its Agents' remedies, or for the collection of a
judgment (or other judicial process or arbitration award) requiring Landlord to
pay money, as the result of any and all judgments, awards and/or orders against
Landlord relating to or arising out of Tenant and its Agents' occupancy and use
of the property and/or in the event of any default by Landlord hereunder, and no
other property of Landlord or its partners or principals, disclosed or
undisclosed, shall be subject to levy, execution or other enforcement procedure
for the satisfaction of Tenant and its Agents' remedies with respect to this
Lease, the relationship of Landlord and Tenant hereunder, or the use and
occupancy of the Property and the Premises by Tenant and its Agents. Tenant, on
behalf of Tenant and its Agents, waives all right to collect or enforce any and
all orders, awards and/or judgments against Landlord in excess of limitations
imposed
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by this paragraph. Tenant shall require that each subtenant and each assignee of
Tenant agree to be bound by the waiver set forth in this paragraph. Landlord's
maximum exposure as set forth in this paragraph is cumulative and in the
aggregate (as to all judgments, awards and orders against Landlord arising in
connection with this Lease, the relationship of Landlord and Tenant, or the use
and occupancy of the Property by Tenant and its Agents). Limits imposed by this
paragraph include Landlord's duties of indemnity (express and/or implied).
"Landlord" includes all persons and entities who now or hereafter own an
interest in Landlord.
16. ASSIGNMENT AND SUBLETTING. Tenant shall not directly or indirectly
assign this Lease in whole or in part, or sublet any part or all of the
Premises, or license the use of all or any part of the Premises, or business
conducted thereon, or encumber or hypothecate this Lease, without first
obtaining Landlord's written consent. The transfer of shares of stock,
partnership interests or other ownership interests in Tenant resulting in a
change in the effective control of Tenant, or any merger, consolidation or other
reorganization of Tenant is an indirect assignment of Tenant's interest in this
Lease. Tenant's request for consent to any assignment, sublease or other
transfer shall be in writing and shall include the following: (a) the name and
legal composition of the proposed transferee; (b) the nature of the proposed
transferee's business to be carried on in the Premises; (c) the terms and
provisions of the proposed assignment or sublease; and (d) such financial and
other reasonable information as Landlord may request concerning the proposed
transferee or concerning the proposed assignment or sublease. Any assignment,
subletting, licensing, encumbering or hypothecating of this Lease without
Landlord's prior written consent shall constitute a default. Landlord's consent
to any assignment or sublease shall not constitute a waiver of the need for such
consent to any subsequent assignment or sublease. Tenant may, without Landlord's
prior written consent sublet the Premises or assign the Lease to (i) a
subsidiary, affiliate, division or corporation controlling, controlled by or
under common control with Tenant; (ii) A successor corporation related to Tenant
by merger, consolidation, nonbankruptcy reorganization, or government action; or
(iii) A purchaser of substantially all of Tenant's assets located in the
Premises. A sale or transfer of Tenant's capital stock shall not be deemed an
assignment, subletting or any other transfer of the Lease or the Premises.
Notwithstanding any assignment or subletting with Landlord's consent,
Tenant shall remain fully liable on this Lease. Without limiting other reasons
or circumstances, Landlord and Tenant agree that it is reasonable for Landlord
to withhold consent if, in Landlord's reasonable judgment: (i) for a full
assignment and transfer the financial strength of the proposed assignee is not
commensurate with the obligations of the Lease; (ii) the proposed use would be
incompatible with the use of the rest of the Property; or (iii) the proposed use
would generate traffic and/or wear and tear materially in excess of Tenant's
use. If Landlord consents to a sublease or assignment, Tenant shall pay
Landlord's reasonable attorneys' fees incurred in connection with such consent.
Tenant shall pay to Landlord 75% of all Excess Rent received by Tenant directly
or indirectly in respect of an assignment of this Lease or sublease of the
Premises. "Excess Rent" means, in the case of an assignment, all consideration
and, in the case of a sublease, all consideration in excess of the rents and
charges reserved under this Lease. However, Tenant shall not be required to pay
Landlord any Excess Rent until Tenant has deducted therefrom the costs to Tenant
to effectuate the assignment or sublease, including attorney's fees, leasing
commissions and remodeling costs.
17. DAMAGE OR DESTRUCTION. Each party may terminate this Lease if the
Premises are damaged to an extent exceeding 50% of the then replacement cost of
the Premises. Landlord may also terminate this Lease if the Premises or the
Building are damaged by an uninsured peril to an extent exceeding 33% of the
then replacement cost of the Premises. If a party elects Termination under this
section, the terminating party shall deliver written notice to the
non-terminating party within 30 Days of the occurrence of the damage. Tenant
shall have 30 Days to vacate the Premises unless they are unsafe for occupancy,
in which case, Tenant shall immediately vacate. Tenant waives Section 1932(2),
and Section 1933(4) of the California Civil Code. If this Lease is not
terminated pursuant to this paragraph, Landlord shall, as soon as reasonably
possible and in any event within 90 Days of the occurrence of the damage,
proceed to repair the Building, (including the Premises and the Tenant
Improvements constructed by Landlord pursuant to Paragraph 19.12 of this Lease)
in accordance with the Landlord's Plans and the Tenant Improvement Working
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Drawings (as such terms are defined in Paragraph 19.12 below). Tenant shall be
liable for repair and replacement of all fixtures, leasehold improvements,
furnishings, merchandise, equipment and Tenant's personal property not covered
by insurance. If Tenant is able to continue to conduct its business during the
making of repairs, the Base Monthly Rent will be reduced in the proportion that
the unusable part of the Premises bears to the whole during the repair period;
and if Tenant is unable to continue to conduct its business during the making of
repairs, the Base Monthly Rent will be abated in full during the repair period
(which, for purposes of this Lease, shall mean the period beginning on the date
of the damage or destruction and ending on the date that the repairs have been
completed by Landlord and Landlord has delivered possession of the Premises to
Tenant). Notwithstanding any other provision of this Lease, if the discounted
present value of the Base Monthly Rent due for the remaining Term, using as the
discount rate the prime commercial lending rate in effect at the Bank of
America, NT&SA, as of the date of the damage is less than the cost of repairing
the damage to the Premises, Landlord may terminate this Lease on 10 Days'
written notice to Tenant.
18. HAZARDOUS MATERIALS.
18.1. Tenant's Warranties. Tenant's obligations are:
18.1.1. RESTRICTIONS ON HAZARDOUS MATERIALS.
Hazardous Material (as defined below) shall not be brought upon, manufactured,
generated, disposed of, handled, used, kept or stored (collectively "Handled" or
"Handling") in, on, about or under the Property by Tenant and its Agents without
Landlord's prior written consent.
18.1.2. APPLICABLE REGULATIONS. If any Hazardous
Material is Handled, in, on, about or under the Property by Tenant and its
Agents, Tenant shall bear all responsibility for ensuring that such material
shall be handled in compliance with all Environmental, Health and Safety
Requirements regulating such Hazardous Material. Tenant shall procure, maintain
in effect and comply with all conditions and requirements of any and all
permits, licenses and other governmental and regulatory approvals or
authorizations required by Environmental, Health or Safety Requirements relating
to the Handling of Hazardous Material by Tenant. Tenant shall give Landlord
copies of all such permits, licenses, or other regulatory approvals within 5
Days of receipt.
18.1.3. RESTORATION. If, as a result of handling of
Hazardous Materials by Tenant and its Agents, Hazardous Material in, on, about
or under the Property or any adjoining property results in contamination of the
Property or other property, Tenant, at its sole expense, shall promptly take all
actions as are necessary to return the Property and/or the other affected
property to the condition existing prior to such contamination ("Restoration").
Tenant shall not, however, undertake Restoration without first providing
Landlord with written notice thereof and obtaining Landlord's approval. Tenant
shall effect Restoration in compliance with all Environmental, Health and Safety
Requirements. Tenant shall not enter into any settlement agreement, consent
decree or compromise respecting any claims relating to Hazardous Material
connected with the Property without first notifying Landlord of its intention to
do so and affording Landlord ample opportunity to appear, intervene or
appropriately assert and protect Landlord's interests.
18.1.4. REMOVAL. On Termination, Tenant shall remove
from the Property all Hazardous Materials in, on, about or under the Property
Handled by Tenant and its Agents and all receptacles and containers therefor,
and shall cause such Hazardous Materials, receptacles and containers to be
Handled, transported and disposed of pursuant to all applicable Environmental,
Health and Safety Requirements. Hazardous Materials, receptacles and containers
shall be removed by duly licensed haulers, transported to and disposed of at
duly licensed facilities for the disposal of such Hazardous Materials,
receptacles or containers. Tenant shall deliver to Landlord copies of all
documentation relating to Handling of Hazardous Materials, receptacles or
containers therefor, reflecting legal and proper Handling. Tenant shall, at its
sole expense, repair all damage to the Property resulting from its removal of
Hazardous Materials, receptacles and containers. Tenant shall continue to pay
rent until completion of such removal and repairs.
18.1.5. TENANT'S WRITTEN CONFIRMATION. Tenant shall
execute such documents as Landlord may request as Tenant's knowledge of the
presence of Hazardous Materials in, on, about or under the Property. On each
anniversary of the Commencement Date, Tenant shall, upon request, give Landlord
a letter stating the during the preceding year Tenant complied with this Section
18 or, if Tenant has not so complied, stating the details of noncompliance.
18.1.6. TENANT'S DUTY TO NOTIFY LANDLORD. Tenant
shall notify
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Landlord in writing immediately upon receiving written notice of: (1)
enforcement, cleanup, remediation or other action threatened, instituted or
completed by any governmental or regulatory agency or private person with
respect to the Property or any adjoining property relating to Hazardous
Materials; (2) any claim threatened or made by any person against Tenant,
Landlord, the Property or any adjoining landowner, tenant or property for
personal injury, compensation or any other matter relating to Hazardous
Materials; and (3) any reports made by or to any governmental or regulatory
agency with respect to the Property or any adjoining property relating to
Hazardous Materials, including without limitation, any complaints, notices or
asserted violations in connection therewith. Tenant shall supply to Landlord as
promptly as possible, and in any event within 5 Days after Tenant first receives
or sends the same, copies of all claims, reports, complaints, notices, warnings,
asserted violations or other documents relating in any way to the foregoing.
18.2. LANDLORD'S RIGHTS. Landlord and its Agents shall have
the right to communicate, verbally or in writing, with any regulatory agency or
any environmental consultant on any matter respecting the Property relating to
Hazardous Materials. Landlord shall be entitled to copies of all notices,
reports or other documents issued by or to any such regulatory agency or
consultant respecting the Property relating to Hazardous Materials.
18.3. TENANT'S DUTY TO INDEMNIFY. If the Handling by Tenant
and its Agents of Hazardous Materials results in contamination of the Property,
or if any lender or governmental agency requires an investigation to determine
whether there is contamination of the Property or any adjoining property as a
result of the Handling of Hazardous Materials by Tenant and its Agents, and it
is determined that such handling resulted in contamination of the property, then
Tenant shall indemnify, defend and hold Landlord and its Agents and all of
Landlord's partners or other affiliates, together with all their directors,
officers, shareholders, employees, agents, contractors and attorneys, harmless
from and defend them against any and all claims, damages, penalties, fines,
costs, liabilities and losses (including, without limitation, sums paid in
settlement of claims, attorneys' fees, consultants' fees and experts' fees)
which arise during or after the Term as a result of such contamination. This
indemnification includes, without limitation, costs incurred in connection with
removal or restoration work required by any regulatory agency and/or private
persons because of the presence of Hazardous Materials in the soil or
groundwater in, on, about or under the Property or any adjoining property as a
result of the handling of Hazardous Materials, resulting in contamination of the
property, by Tenant and its Agents and legal fees and expenses incurred by
Landlord relating to such claims, demands, investigations and responses.
18.4. RIGHT OF ENTRY. If contamination of the Property by
Hazardous Materials occurs or if any lender or regulatory agency requires an
investigation to determine if there is contamination of the Property or any
adjoining property, then Landlord and its Agents shall have the right, at any
reasonable time and from time to time, to enter the Premises to perform
monitoring, testing or other analyses, and to review applicable documents,
notices, or other materials. If such contamination resulted from the handling of
Hazardous Materials by Tenant and its Agents, Tenant shall pay, on delivery of
Landlord's invoice, all costs and expenses reasonably incurred by Landlord in
connection with such investigation, monitoring, and testing.
18.5. DEFINITIONS. The following terms shall have the
following meanings:
18.5.1. "HAZARDOUS MATERIAL": shall mean, without
limitation, (1) petroleum or petroleum products; (2) hydrocarbon substances of
any kind; (3) asbestos in any form; (4) formaldehyde; (5) radioactive
substances; (6) industrial solvents; (7) flammables; (8) explosives; (9) leakage
from underground storage tanks; (10) substances defined as "hazardous
substances," "hazardous materials," or "toxic substances" in (A) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986 or as
otherwise amended, 42 U.S.C. Sections 9601, et seq., (B) the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et seq. and any amendments thereto,
or (C) the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et
seq. and any amendments thereto; (11) those substances defined as "hazardous
wastes," "extremely hazardous wastes" or "restricted hazardous wastes" in
Sections 25115, 25117, and 25122.7 or listed pursuant to Section 25140 of the
California Health & Safety Code and any amendments thereto; (12) those
substances defined as "hazardous substances" in Section 25316 of the California
Health & Safety Code and any amendments thereto; (13) those substances defined
as "hazardous materials," "hazardous wastes" or "hazardous substances" in
Sections 25501 and 25501.1 of the California
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Health & Safety Code and any amendments thereto; (14) those substances defined
as "hazardous substances" under Section 25281 of the California Health & Safety
Code and any amendments thereto; (15) those substances causing "pollution" or
"contamination" or constituting "hazardous substances" within the meaning of (A)
the Clean Water Act, 33 U.S.C. Section 1251 et seq. and any amendments thereto,
(B) the Porter-Cologne Water Quality Control Act, Section 13050 of the
California Water Code and any amendments thereto, and (C) the Safe Drinking
Water Act, 42 U.S.C. Section 300f et seq.; (16) such chemicals as are identified
on the list published from time to time as provided in Chapter 6.6 of the
California Health and Safety Code, as amended, as causing cancer or reproductive
toxicity; (17) polychlorinated biphenyls (PCBs) set forth in the Federal Toxic
Substance Control Act, as amended, 15 U.S.C. Section 2601 et seq.; (18) "toxic
air contaminant" as defined in California health and Safety Code Section 39655;
and (19) the wastes, substances, materials, contaminants and pollutants
identified pursuant to or set forth in the regulations adopted or judicial or
administrative, decisions or decrees promulgated pursuant to any of the
foregoing laws. The foregoing list of definitions and statutes is illustrative,
not exhaustive; such list shall be deemed to include all definitions, rules,
regulations and laws applicable to the subject matter of this paragraph as they
may be amended or changed from time to time.
18.5.2. "ENVIRONMENTAL HEALTH AND SAFETY
REQUIREMENTS" means any law, statute, ordinance, rule, regulation, order,
judgment or decree promulgated by any governmental agency, court, judicial or
quasi-judicial body or legislative or quasi-legislative body which relates to
matters of the environment, health, industrial hygiene or safety.
18.6. ALLOCATION OF RESPONSIBILITIES. ALL LIABILITY ARISING
FROM THE TRANSPORTATION OR HANDLING OF HAZARDOUS MATERIALS IN, ON, UNDER, AND/OR
ABOUT THE PROPERTY OR ADJOINING PROPERTY BY TENANT AND ITS AGENTS SHALL, AT ALL
TIMES, REMAIN TENANT'S SOLE RESPONSIBILITY, EVEN IF THE HAZARDOUS MATERIALS
ORIGINATE FROM THE PROPERTY. NO ACT BY LANDLORD OR ITS AGENTS SHALL CONSTITUTE
LANDLORD'S ASSUMPTION OF ANY OBLIGATIONS, DUTIES, LIABILITIES OR
RESPONSIBILITIES PERTAINING TO TENANT'S COMPLIANCE WITH ANY ENVIRONMENTAL,
HEALTH OR SAFETY REQUIREMENTS. NOTWITHSTANDING TERMINATION OF THIS LEASE,
TENANT SHALL RETAIN ALL LIABILITY AND RESPONSIBILITY FOR COMPLIANCE WITH
REGULATIONS AND ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS CONCERNING TENANT
AND ITS AGENTS' HANDLING OF HAZARDOUS MATERIALS. TENANT SHALL INDEMNIFY AND HOLD
LANDLORD AND ITS AGENTS HARMLESS FROM ALL COSTS AND EXPENSES ASSOCIATED WITH
SUCH COMPLIANCE.
18.7. INSPECTIONS. Tenant will cooperate with the completion
of inspections of the Property as required by applicable law and regulation.
Tenant shall provide to Landlord a copy of the reports for each such inspection
within 15 days of Tenant's receipt of such reports.
18.8. COOPERATION. Tenant will not interfere with Landlord's
acts pursuant to the above-referenced Regulations. Tenant will comply with
reasonable procedures promulgated by Landlord pursuant to such laws and
regulations. Landlord shall have no duty to establish any procedures or to
supervise in any way Tenant's activities on the Property.
18.9. SURVIVAL. The covenants, agreements and indemnities set
forth in this Section 18 shall survive Termination and shall not be affected by
any investigation, or information obtained as a result of any investigation, by
or on behalf of Landlord or any prospective Tenant.
18.10. STORAGE TANKS. Tenant shall not install any storage
tanks on the Property without Landlord's prior written consent.
18.11. LANDLORD'S OBLIGATIONS. Landlord's obligations are:
18.1 1.1. COMPLIANCE WITH REGULATIONS. If Landlord
and its Agents Handle Hazardous Material in, on, about or under the Property,
such material shall be Handled in compliance with all Environmental, Health and
Safety Requirements.
18.11.2. RESTORATION. If, as a result of Landlord's
bringing Hazardous Material upon the Property, or otherwise any contamination of
the Property or the surrounding environment occurs, Landlord shall promptly take
all necessary actions to return the Property and/or the surrounding environment
to the condition existing prior to such contamination.
18.11.3. DUTY TO NOTIFY TENANT. Landlord shall notify
Tenant in writing upon learning of: (1) enforcement, cleanup, remediation or
other action threatened,
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instituted or completed by any regulatory agency or private person with respect
to the Property relating to Hazardous Materials; (2) any claim threatened or
made against Landlord respecting the Tenant or the Property for personal injury,
compensation or any other matter relating to Hazardous Materials; and (3)
reports made by or to any regulatory agency respecting the Property, complaints,
notices or asserted violations in connection therewith. Landlord shall supply to
Tenant copies of claims, notices, warnings, or other documents relating to the
foregoing.
18.11.4. INDEMNITY OF TENANT. TO THE BEST KNOWLEDGE
OF LANDLORD, (i) NO HAZARDOUS MATERIAL IS PRESENT ON THE PROPERTY OR THE SOIL,
SURFACE WATER OR GROUNDWATER THEREOF, (ii) NO UNDERGROUND STORAGE TANKS ARE
PRESENT ON THE PROPERTY, AND (iii) NO ACTION, PROCEEDING OR CLAIM IS PENDING OR
THREATENED REGARDING THE PROPERTY CONCERNING ANY HAZARDOUS MATERIAL OR PURSUANT
TO ANY ENVIRONMENTAL LAW. Under no circumstances shall Tenant be liable for, and
Landlord shall indemnify, defend and hold harmless Tenant and its Agents from
and against, all losses, costs, claims, liabilities and damages (including
attorneys' and consultants' fees) of every type and nature, directly or
indirectly arising out of or in connection with any Hazardous Materials present
at any time on or about the Property, or the soil, air, improvements,
groundwater or surface water thereof, or the violation of any laws, orders or
regulations, relating to any such Hazardous Material, except to the extent that
any of the foregoing actually results from the release or emission of Hazardous
Material on or about the Premises during the term of the Lease by Tenant or its
Agents in violation of applicable environmental laws.
19. MISCELLANEOUS PROVISIONS.
19.1. WAIVER. No waiver of any breach of this Lease shall be
construed as a waiver of any other breach. Landlord's acceptance of rent after
Tenant's breach shall not be a waiver of any preceding breach of this Lease by
Tenant, even if known by Landlord at the time.
19.2. NOTICES. Notices, requests, demands and other
communications shall be in writing personally delivered or sent by certified
mail, return receipt requested, postage prepaid, properly addressed to the other
party at the address set forth by its signature below, or at such other address
as may be designated in writing by one party to the other. Notice shall be
effective on personal delivery or on the date indicated on the post office's
certified mail receipt of delivery.
19.3. CONSTRUCTION. This Lease shall be construed pursuant to
California law. The invalidity of any provision of this Lease shall not affect
the remainder. All terms of this Lease shall be construed to mean either the
singular or the plural, masculine, feminine or neuter, as the situation may
demand. Headings are descriptive only and not determinative of meaning. Time is
of the essence in performance of all obligations. This Lease constitutes the
entire agreement between the parties respecting the subject matters it
addresses. This Lease supersedes all prior oral and written agreements
respecting the hiring of the Premises. Provisions of this Lease may be waived,
amended or repealed only by all parties' written consent. This Lease binds and
inures to the benefit of the parties' heirs, personal representatives,
successors and assigns.
19.4. MEMORANDUM. If Landlord requests a memorandum of Lease,
the parties shall execute, acknowledge and record a document identifying: the
parties, Premises, Term and Commencement Date. No other memorandum of this Lease
shall be recorded.
19.5. AUTHORITY. Each individual executing this Lease for a
corporation warrants that he is duly authorized to execute and deliver the Lease
for the corporation and that the Lease binds the corporation in accordance with
its terms. Each individual executing this Lease on behalf of a partnership
warrants that he is duly authorized to execute and deliver this Lease for the
partnership and that this Lease binds the partnership in accordance with its
terms.
19.6. LITIGATION. All actions and arbitrations arising out of
or in connection with this Lease shall be venued in Alameda County, California.
If an action or arbitration proceeding is commenced by reason of the breach of
this Lease or arising out of this Lease, the prevailing party shall recover
costs of suit and attorneys' fees, whether or not the matter proceeds to
judgment.
19.7. SUBORDINATION OF LEASEHOLD. Tenant agrees that this
Lease is and shall be, at all times, subject and subordinate to the lien of any
mortgage or other encumbrances which Landlord may create against the premises,
including all renewals, replacements and extensions thereof. Tenant agrees to
execute any and all instruments
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in writing which may be required by Landlord to subordinate Tenant's rights to
the lien of such mortgage. Tenant's obligation to subordinate its leasehold to
a lender shall, at all times, be conditioned upon the lender giving to Tenant a
nondisturbance agreement providing that the lender will not terminate Tenant's
occupancy in the event of a foreclosure as long as Tenant is not in default
under the provisions of this Lease. If required by Tenant, Landlord will make
best efforts to obtain from any lender or ground lessors of the Property a
written agreement in form reasonably satisfactory to Tenant providing for
recognition of Tenant's interest under the Lease in the event of a foreclosure
of the lender's security interest or termination of the ground lease.
19.8. ESTOPPEL. Within 15 Days of Landlord's request, Tenant
shall complete, execute and deliver to Landlord a certification: (a) that this
Lease is unmodified and in full force and effect (or if modified, stating the
nature of such modification and certifying that this Lease as so modified is in
full force and effect); (b) of the date to which the rent and other charges are
paid; (c) that Tenant knows of no uncured defaults on the part of Landlord
hereunder, or specifying such defaults, if any are claimed; and (d) of the date
of commencement and expiration of the Term. Tenant's failure to timely deliver
the document constitutes a certification that Landlord is not in default under
the Lease and the terms of the Lease are in force without modification.
Prospective purchasers, lenders or lender's assignees may rely upon such
certification.
19.9. ATTORNMENT. In the event of a sale of the Property or
the completion of foreclosure against the Property, Tenant shall attorn to
the Landlord's successor in interest.
19.10. LENDER'S REQUESTS. Tenant shall consent to Lease
amendments requested by any lender against the Property, provided that such
amendments do not materially affect Tenant's obligations. Tenant shall timely
supply financial information requested by such lender.
19.11. REASONABLE EXPENDITURES. Any expenditure by a party
permitted or required under the Lease, for which such party is entitled to
demand and does demand reimbursement from the other party, shall be limited to
the fair market value of the goods and services involved, shall be reasonably
incurred, and shall be substantiated by documentary evidence available for
inspection and review by the other party or its representative during normal
business hours.
19.12. TENANT IMPROVEMENTS. Landlord shall be responsible, at
its sole cost, for delivering the Premises to Tenant in the "Warm Shell"
condition. Tenant Improvement work will commence in the Premises in a "Warm
Shell" condition. Warm Shell is defined as follows:
1. Toilet Room. The men's and women's toilets shall be complete with
ceramic tile or higher quality materials on floors and wet walls at least up to
the height of the wainscot, countertops, walls and floors, lavatory mirrors,
lighting, ceilings, toilet partitions, toilet accessories, high quality plumbing
fixtures and all mechanical, plumbing and lighting services completed.
2. Janitors Closet, Telephone Room, and Electrical Room. The janitor's
closet shall be complete with painted walls, floor coverings and resilient base.
The telephone and electrical rooms will include a telephone backboard and
electrical distribution panelboards, respectively.
3. Life safety. All required alarm and communication systems within the
janitor's closet, telephone and electrical rooms, the stairwells, the toilet
rooms, and the Premises shall be complete with horns, speakers, strobes, etc.
4. HVAC. Full mechanical system in place, including packaged
roof-mounted HVAC units for the heating, ventilation and air-conditioning
system.
5. SPRINKLER. The sprinkler system shall be complete, which shall
include main floor shut-off valves, alarms, primary loop piping, distribution
piping, and heads installed with deflectors.
6. Public Exit Stairways. Stairways, if any, shall be complete in
compliance with laws.
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7. Access to Systems. Access shall be available to domestic cold water,
drainage and vent systems at readily accessible locations.
8. Drinking Fountain. Drinking fountains as per Landlord's Plans with
"chilled" water installed in compliance with laws.
9. Walls and Windows. Curtain wall, exterior windows and insulation,
where applicable (from slab-to-slab), installed and sealed.
10. Flooring. Concrete floor with troweled finish, smooth and level
ready to receive carpeting, tile, marble or wood without additional Tenant
preparation.
11. Base and Shell Improvements. The structural walls of the Building
shall be complete, including fireproofing (if required by Code) and finished
slab, smooth and level concrete floors ready to receive carpeting.
TENANT AND LANDLORD WILL DESIGN SPACE PLANS AND WORKING DRAWINGS FOR THE TENANT
IMPROVEMENTS TOGETHER. THE COMPLETED AND APPROVED TENANT IMPROVEMENT DRAWINGS
WILL BECOME EXHIBIT B. TIME AND COST ARE OF THE ESSENCE IN THIS EFFORT. WORKING
DRAWINGS MUST BE COMPLETED BY DECEMBER 6, 1996, AND APPROVED BY DECEMBER 13,
1996.
IT IS THE INTENT OF TENANT AND LANDLORD TO DESIGN THIS SPACE TO BE IN STYLE AND
FINISH COMPARABLE TO THE BUILD OUT OF THE BERKELEY PROCESS CONTROL SPACE (THE
APRIL 1996 LEASE FOR BUILDING A AT 1001 WEST CUTTING) SPECIFICALLY IN THE BLEND
OF OPEN OFFICE TO PARTITIONED SPACE (AT APPROXIMATELY 50% OPEN OFFICE). THIS
GUIDELINE SHALL BE CALLED THE "DESIGN INTENT". IN MAINTAINING THE DESIGN INTENT,
IT IS THE INTENT OF TENANT AND LANDLORD TO KEEP THE COST OF THIS BUILD OUT TO
$20.00/SQ.FT. EXCLUDING THE COSTS OF DELIVERING THE PREMISES IN THE WARM SHELL
CONDITION AND EXCLUDING THE COST OF WORKING DRAWING PREPARATION. TENANT SHALL BE
ENTITLED TO AN ADDITIONAL ALLOWANCE OF UP TO $1.50/SQ.FT., PLUS REIMBURSEMENT OF
REASONABLE ASSOCIATED COSTS (E.G., REPRODUCTION, SHIPPING, ETC.) FOR WORKING
DRAWING. UPON COMPLETION OF THE WORKING DRAWINGS, LANDLORD SHALL SOLICIT BIDS
FOR CONSTRUCTION OF THE TENANT IMPROVEMENTS FROM AT LEAST THREE (3) DULY
LICENSED AND BONDABLE GENERAL CONTRACTORS REASONABLY APPROVED BY TENANT. WHEN
THE BIDS ARE RETURNED, THE CONTRACTOR SUBMITTING THE LOWEST BID ACCEPTABLE TO
BOTH LANDLORD AND TENANT SHALL BECOME THE "DESIGNATED CONTRACTOR". IF THE BID OF
THE DESIGNATED CONTRACTOR PLUS THE COST OF THE WORKING DRAWINGS IS GREATER THAN
$600,000 BUT LESS THAN $675,000 AND THE WORKING DRAWINGS REASONABLY MEET THE
DESIGN INTENT, THEN LANDLORD WILL BUILD OUT THE SPACE IN A FIRST CLASS
WORKMANLIKE MANNER AND DELIVER THE PREMISES TO THE TENANT BY THE COMMENCEMENT
DATE.
LANDLORD WILL RESERVE $309,740 FOR A MAXIMUM TIME PERIOD OF TWELVE MONTHS. THESE
FUNDS WILL BE USED TO BUILD OUT THE SHELL CARRY SPACE IF IT IS CONVERTED PER
PARAGRAPH 3.1.
ANY COSTS IN EXCESS OF THE $675,000 ALLOWANCE FOR THE BUILD OUT SPACE, OR
$309,740 FOR THE CONVERSION OF THE SHELL CARRY SPACE WILL BE THE COMPLETE
OBLIGATION OF THE TENANT. UPON LANDLORD'S DEMAND, TENANT WILL PAY THE LANDLORD
FOR THIS COST OVERAGE.
19.13. SUBMISSION. Submission of this document to Tenant does
not create a reservation for a lease or any rights respecting the Premises prior
to Landlord's execution.
19.14. EARLY TERMINATION. UPON 180 DAYS WRITTEN NOTICE TO THE
LANDLORD, TENANT MAY TERMINATE THIS LEASE AT THE END OF THE 30TH, 36TH, OR 42ND
MONTH AFTER THE COMMENCEMENT DATE. IT IS THE EXPRESSED INTENT OF THIS EARLY
CANCELLATION THAT THESE EARLY TERMINATION ARE ONE TIME EVENTS. IF THE TENANT
DOES NOT DELIVER NOTICE TO THE LANDLORD IN TIME FOR ANY EARLY TERMINATION, THEN
THAT TERMINATION OPTION WILL CEASE TO EXIST AND THE LEASE WILL CONTINUE IN FULL
FORCE AND EFFECT UNTIL IF AND WHEN THE TENANT NOTICES THE LANDLORD FOR THE NEXT
EARLY TERMINATION.
19.15. ARBITRATION OF DISPUTES. SAVE AND EXCEPT FOR
16
<PAGE> 17
UNLAWFUL DETAINER ACTIONS, ANY CONTROVERSY OR CLAIM BETWEEN THE PARTIES ARISING
OUT OF THIS LEASE SHALL BE SUBMITTED TO BINDING ARBITRATION UNDER THE RULES OF
THE AMERICAN ARBITRATION ASSOCIATION. CALIFORNIA CODE OF CIVIL PROCEDURE SECTION
1283.05 SHALL APPLY TO THE ARBITRATION. ANY COURT OF COMPETENT JURISDICTION MAY
ENTER JUDGMENT UPON THE ARBITRATION AWARD.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISIONS
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS
TO DISCOVERY AND APPEAL UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
"ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY. THIS PROVISION DOES NOT APPLY TO UNLAWFUL
DETAINER ACTIONS.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION TO
NEUTRAL ARBITRATION.
------- -------
Initial Initial
19.16. BROKERAGE. Landlord has retained the services of C.B.
Commercial as the broker for this project. Any and all costs associated with
this relationship are the sole responsibility of the Landlord. Tenant warrants
that it has involved no brokers with respect to this transaction.
19.17. COOPERATION. Tenant will not interfere with Landlord's
actions pursuant to any Regulation affecting the Property. Tenant will comply
with all reasonable procedures promulgated by Landlord relating to the matters
covered by such Regulations. Landlord has no duty to establish procedures or
regulations or to supervise Tenant's activities for any purpose including,
without limitation, the Handling of Hazardous Materials.
19.18. PARKING. TENANT SHALL HAVE THE USE OF 105 OFF-STREET
PARKING PLACES. IF TENANT ELECTS TO CONVERT THE SHELL CARRY SPACE, THEN TENANT
SHALL HAVE THE USE OF AN ADDITIONAL 54 SPACES FOR A TOTAL OF 159 OFF-STREET
PARKING PLACES.
LANDLORD: TENANT:
By Richard K. Robbins By /s/ Edwin Catmull
---------------------------------- -------------------------------
Authorized Signature Authorized Signature
Edwin Catmull
-------------------------------
Please print name
Address for Notices: Address for Notices:
1120 Nye Street, Suite 400 1001 West Cutting Boulevard
San Rafael, CA 94901 Richmond, CA 94801
Date 10/2/96 Date 10/1/96
-------------------- ---------------
17
<PAGE> 1
EXHIBIT 11.1
PIXAR
STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------- -------- ------- -------
<S> <C> <C> <C> <C>
Weighted average number of shares outstanding:
Preferred stock -- 20,000 -- 20,000
Common stock 38,698 10,000 38,445 10,000
Number of common and common equivalent shares
issued in accordance with
Staff Accounting Bulletin No. 83 -- 9,731 -- 9,698
Common stock equivalents 8,016 -- 8,528 --
------- -------- ------- -------
Total shares used in computing net income (loss) per share 46,714 39,731 46,973 39,698
======= ======== ======= =======
Net income (loss) $ 9,600 $ (1,345) $20,669 $ 3,105
======= ======== ======= =======
Net income (loss) per share $ 0.21 $ (0.03) $ 0.44 $ 0.08
======= ======== ======= =======
</TABLE>
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 25,665
<SECURITIES> 121,870
<RECEIVABLES> 16,006
<ALLOWANCES> 270
<INVENTORY> 0
<CURRENT-ASSETS> 165,096
<PP&E> 5,661
<DEPRECIATION> 2,309
<TOTAL-ASSETS> 170,591
<CURRENT-LIABILITIES> 5,931
<BONDS> 0
0
0
<COMMON> 186,005
<OTHER-SE> (21,345)
<TOTAL-LIABILITY-AND-EQUITY> 170,591
<SALES> 0
<TOTAL-REVENUES> 30,032
<CGS> 3,782
<TOTAL-COSTS> 3,782
<OTHER-EXPENSES> 10,311
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,765
<INCOME-TAX> 1,096
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,669
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
